<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1999
REGISTRATION NO. 333-85237
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
AMERICAN RIVERS OIL COMPANY
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 74-2932492
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
700 East Ninth Avenue, Suite 106
Denver, Colorado 80203
(303) 832-1117
(Address and Telephone Number of Registrant's Principal Executive Office)
_________________
Karlton Terry, President
American Rivers Oil Company
700 East 9th Avenue
Denver, Colorado 80203
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
FRANCIS M. MUNCHINSKI W. ALAN KAILER
Alliance Resources PLC Jenkens & Gilchrist
4200 E. Skelly Drive, Suite 1000 1445 Ross Avenue, Suite 3200
Tulsa, Oklahoma 74135 Dallas, Texas 75202
(918) 491-1100 (214) 855-4500
Approximate date of commencement of proposed sale to the public: as soon as
practicable after the effectiveness of this registration statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number or the earlier effective registration statement
for the same offering. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to offering price aggregate Amount of
securities to be registered be registered per unit (2) offering price registration fee
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 53,684,336 shares(1) N/A $4,648,256 (2) $1,300(3)
=============================================================================================================
</TABLE>
(1) Based upon the estimated number of shares that may be issued in the
transaction described herein.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended
(the "Securities Act"), based upon the market value of the securities to be
received by the registrant in the transaction as established by the price
of securities of the same class as of August 11, 1999.
(3) Previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any doubt as to the action you should take, you are recommended to seek
immediately your own personal financial advice from your stockbroker, bank
manager, solicitor, accountant or other independent financial adviser duly
authorized under the Financial Services Act 1986 of the United Kingdom.
This document should be read in conjunction with the accompanying Offer Document
dated 21 October, 1999 and Form of Acceptance.
If you have sold or otherwise transferred all your Alliance Shares, please send
this document and the accompanying Offer Document, Form of Acceptance and
reply-paid envelope to the purchaser or transferee, or to the stockbroker, bank
or other agent through whom the sale or transfer was effected, for transmission
to the purchaser or transferee. However, this document should not be forwarded
outside the United Kingdom.
It is anticipated that, following the Offer becoming unconditional, the New
Alliance Common Stock will be quoted on the OTC Bulletin Board in the USA. The
OTC Bulletin Board is a regulated quotation service that displays real-time
quotes, last-sale prices, and volume information in over-the-counter equity
securities, which are securities that are not listed or traded on a national
securities exchange or the NASDAQ Stock Market. OTC Bulletin Board securities
are traded by market makers that enter quotes and trade reports through a closed
computer network. No application will be made for the New Alliance Common Stock
to be admitted to the Official List of the London Stock Exchange and your
attention is drawn to the proposal to cancel the listing of Alliance Shares
referred to in paragraph 15 on page 10 of this document.
Nabarro Wells, which is regulated by The Securities and Futures Authority
Limited, is acting for American Rivers and New Alliance and no-one else in
connection with the Offer and will not be responsible to anyone other than
American Rivers and New Alliance for providing the protections afforded to
customers of Nabarro Wells or for providing advice in relation to the Offer.
Williams de Broe, which is regulated by The Securities and Futures Authority
Limited, is acting for Alliance and no-one else in connection with the Offer and
will not be responsible to anyone other than Alliance for providing the
protections afforded to customers of Williams de Broe or for providing advice in
relation to the Offer.
Your attention is drawn to the risk factors associated with accepting the Offer
set out in paragraph 3 on page 11 of this document.
================================================================================
Recommended offer by
American Rivers Oil Company
to acquire the whole of the issued share capital of
Alliance Resources PLC
================================================================================
TO ACCEPT THE OFFER, THE FORM OF ACCEPTANCE MUST BE COMPLETED AND RETURNED,
WHETHER OR NOT YOUR ALLIANCE SHARES ARE IN CREST, AS SOON AS POSSIBLE, AND IN
ANY EVENT SO AS TO BE RECEIVED NOT LATER THAN 3:00 P.M. LONDON TIME ON 19
NOVEMBER, 1999. THE PROCEDURE FOR ACCEPTANCE OF THE OFFER IS SET OUT IN
APPENDIX D OF THE OFFER DOCUMENT AND IN THE ACCOMPANYING FORM OF ACCEPTANCE.
1
<PAGE>
Definitions
The following definitions apply throughout this document unless the context
requires otherwise:
<TABLE>
<CAPTION>
<S> <C>
'Alliance' Alliance Resources PLC
'Alliance Group' Alliance and its subsidiary and associated undertakings
'Alliance Executive Share Option the Alliance Resources PLC Share Option Scheme (No. 1) and the Alliance
Schemes' Resources PLC Share Option Scheme (No. 2)
'Alliance Shares' ordinary shares of (Pounds)0.01 each in Alliance
'Alliance Shareholders' holders of Alliance Shares
'American Rivers' American Rivers Oil Company, a company incorporated in Wyoming which is
to be merged into a subsidiary of New Alliance
'CREST' the relevant system (as defined in the Regulations)in respect of which CREST
Co Limited is the Operator (as defined in the Regulations)
'Director' Karlton Terry, the sole director of New Alliance
'Form of Acceptance' the form of acceptance for use in connection with the Offer
'London Stock Exchange' London Stock Exchange Limited
'Nabarro Wells' Nabarro Wells & Co. Limited
'New Alliance' American Rivers Oil Company, a company incorporated in Delaware
'New Alliance Common Stock' outstanding common stock of New Alliance having a par value of $0.001 each
to be issued credited as fully paid pursuant to the Offer
'Offer' the recommended offer by New Alliance to acquire the Alliance Shares, as set
out in the Offer Document, and where the context admits, any subsequent
revision, variation, extension or renewal thereof
'Offer Document' the information statement/prospectus dated 21 October, 1999 delivered to
holders of Alliance Shares in connection with the Offer
'Regulations' the Uncertificated Securities Regulations 1995 (SI 1995 No. 95/3272)
'UK' the United Kingdom
'United States', 'US ' or 'USA' the United States of America, its possessions or territories or any area
subject to its jurisdiction or any political subdivision thereof
'Williams de Broe' Williams de Broe PLC
</TABLE>
2
<PAGE>
Alliance Resources PLC
(Registered in England and Wales No. 2532955)
Directors: Registered Office:
John Andrew Keenan (Chairman and Managing Director) 12 St James's Square
Paul Raymond Fenemore (Operations and Business London SW1Y 4RB
Development Director)
Michael Edward Humphries (Interim Finance Director)
Philip Douglas (Non-executive Director)
William John Albert Kennedy (Non-executive Director)
John Robert Martinson (Non-executive Director) 21 October, 1999
To Alliance Shareholders with registered addresses in the United Kingdom
Dear Shareholder,
Recommended offer for Alliance
Introduction
It was announced on 23 July, 1999 that agreement had been reached between your
board and the boards of New Alliance and American Rivers on the terms of a
recommended offer to be made by New Alliance for the whole of the issued share
capital of Alliance. On 10th August, 1999 a further announcement was made that,
following discussions with the Panel on Takeovers and Mergers, it was
established that, due to the move of Alliance's central management from the UK
to the USA over a period of time, the City Code on Takeovers and Mergers ("City
Code ")no longer applies to Alliance.
This letter, which accompanies the Offer Document issued by New Alliance, sets
out the background to the Offer and the reasons why your directors are
recommending acceptance of the Offer.
The formal offer, which, as indicated above, is not subject to the requirements
of the City Code, is set out on pages 14 to 16 of the Offer Document.
The New Alliance offer
The Offer is being made on the following basis:
1 Share of New Alliance Common Stock for every 1 Alliance Share
and so in proportion for any other number of Alliance Shares held.
The New Alliance Common Stock will be issued credited as fully paid. It should
be noted that no application will be made for the New Alliance Common Stock to
be admitted to the Official List of the London Stock Exchange or to listing on
any other stock exchange.
The Offer is subject to certain conditions, including the approval of the
shareholders of American Rivers.
The full terms and conditions of the Offer are set out on pages C-1 to C-3 and
Appendix C of the Offer Document.
3
<PAGE>
Background to and reasons for the Offer
Dual jurisdiction compliance requirements
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 US 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 have been far greater than the directors of Alliance anticipated and
the level of investor interest in the company in the UK has been less than the
directors of Alliance anticipated. Consequently, 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 UK to the US.
In 1998 Alliance acquired interests in the East Irish Sea, which resulted in the
issue of additional shares and warrants mainly to US investors because the
directors of Alliance and its advisers were unable to generate investor interest
in the UK. 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.
Working capital and refinancing
Alliance Shareholders will have seen from Alliance's 1999 annual report and
accounts posted on 16 September, 1999 that the Alliance Group continues to make
losses, has negative cash flows, has substantial capital commitments and
continues to experience working capital deficits. Its continuation as a going
concern is, therefore, dependent upon its ability to generate sufficient cash
flows to meet its obligations on a timely basis, to continue to comply with the
terms of its borrowing agreements, to ultimately attain profitability and, most
importantly, to obtain such additional financing or refinancing as will be
required within the foreseeable future. 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, inter alia, 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 USA
and this is more likely to be accessed if New Alliance becomes domiciled in the
USA. 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 US, the directors of Alliance believe that it would be in the best
interests of Alliance and its shareholders for the group's parent company to be
incorporated in the US rather than the UK and for Alliance's listing on the
London Stock Exchange to be canceled.
Migration to the USA
The directors of Alliance have determined that the most appropriate method for
achieving a change of jurisdiction to the US is for a US company to make an
offer to acquire all of the issued shares of Alliance in exchange for shares in
the US 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 suitable 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 US 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 US State of Wyoming. However, 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
4
<PAGE>
comprehensive, modern and flexible corporate laws that are periodically updated
and revised to meet changing business needs. As a result, many major US
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 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 USA and
internationally.
The boards of directors of American Rivers and Alliance agreed that, following
completion of the Offer (on the basis of full acceptance), the Alliance
shareholders should hold 98%and the American Rivers shareholders should hold
2%of New Alliance. 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 UK to the US, the
shareholders of American Rivers should receive 2%of the resulting entity.
Implications of change of jurisdiction
The rights of shareholders in New Alliance, a US company registered in the State
of Delaware, will differ in various respects from the existing rights of
Alliance Shareholders. The attention of Alliance Shareholders is drawn to the
sections entitled "comparative rights of shareholders "and "anti-takeover
provisions of Delaware Law and of the organizational documents of New Alliance
"set out on pages 26 to 36 and pages 36 to 38 respectively of the Offer
Document. In particular, Alliance Shareholders should note that there are no
rights of pre-emption on issues of shares enshrined in Delaware Law and that the
right of shareholders to remove a director from office is more restrictive under
Delaware Law than under English Law.
Management Structure
Immediately following the Offer becoming or being declared unconditional in all
respects the current directors and executive officers of Alliance will become
the directors and executive officers of New Alliance. The remuneration of such
directors and executive officers is not expected to be affected by the Offer.
The current directors and officers of American Rivers and New Alliance will
resign without compensation.
Delisting
The attention of Alliance Shareholders is drawn to the procedure for cancelling
the listing of Alliance Shares set out in paragraph 15 of the attached letter
from New Alliance.
Action to be taken
The procedure for acceptance of the Offer is set out on pages D-1 to D-3 and
Appendix D of the Offer Document. To accept the Offer please return your
completed Form of Acceptance, whether or not your Alliance Shares are in CREST,
in accordance with these instructions as soon as possible and in any event so as
to be received by no later than 3:00 p.m. London time on 19 November, 1999.
If you are in any doubt as to the action you should take, you are recommended to
seek immediately your own personal financial advice from your stockbroker, bank
manager, accountant or other independent financial adviser duly authorized to
give you advice.
Recommendation
The directors of Alliance consider that the migration of Alliance to the USA by
means of the Offer is crucial to the future of Alliance. Consequently, the
board of Alliance, which has been advised by Williams de Broe, considers that
the Offer is in the best interests of Alliance and its shareholders taken as a
whole. Accordingly the directors of Alliance unanimously recommend Alliance
Shareholders to accept the Offer, as they intend to do in respect of their
aggregate holdings of 389, 484 Alliance Shares, representing approximately
0.8%of the issued share capital of Alliance. In providing its advice, which is
given to the board of Alliance solely for the purpose of the recommendation of
the Offer by the directors of Alliance to Alliance Shareholders with registered
addresses in the United Kingdom, Williams de Broe has taken into account the
commercial assessments of the directors of Alliance.
Yours sincerely
Jak Keenan
Chairman
5
<PAGE>
American Rivers Oil Company
(Registered in the State of Delaware)
Director: Head Office
Karlton Terry (President) 700 East Ninth Avenue
Suite 106
Denver
Colorado 80203
21 October, 1999
To Alliance Shareholders with registered addresses in the United Kingdom
Dear Sir or Madam
Recommended offer for Alliance
1. Introduction
On 23 July, 1999 it was announced that the boards of New Alliance, American
Rivers and Alliance had reached agreement on the terms of a recommended offer to
be made by New Alliance for the whole of the issued share capital of Alliance.
The Offer Document makes the formal Offer by New Alliance and contains detailed
financial and other information on both Alliance and American Rivers.
Your attention is drawn to the letter from Jak Keenan, Chairman and Managing
Director of Alliance, set out on pages 3 to 6 of this document, which explains
the background to and reasons for the Offer and states that the directors of
Alliance consider that the migration of Alliance to the USA by means of the
Offer is crucial to the future of Alliance. It further states that the board of
Alliance, who have been advised by Williams de Broe, consider that the Offer is
in the best interests of Alliance and its shareholders taken as a whole and that
accordingly the directors of Alliance unanimously recommend Alliance
Shareholders to accept the Offer.
The Offer is subject to the conditions and further terms set out in the Offer
Document, including the approval of the shareholders of American Rivers. To
accept the Offer you should return the Form of Acceptance as soon as possible
and, in any event, so as to be received by no later than 3:00 p.m. London time
on 19 November, 1999. The details on the procedure for acceptance are set out
in pages D-1 to D-3 and Appendix D of the Offer Document and in the Form of
Acceptance.
2. The Offer
In the Offer Document, we offer to acquire, on the terms and subject to the
conditions set out or referred to in that document and in the Form of
Acceptance, all of the Alliance Shares on the following basis:
1 Share of New Alliance Common Stock for every 1 Alliance Share
and so in proportion for any other number of Alliance Shares held.
The boards of directors of New Alliance, American Rivers and Alliance determined
that it was appropriate that, following completion of the Offer (on the basis of
full acceptance) and the merger of American Rivers with a wholly owned
subsidiary of New Alliance, Alliance Shareholders should hold 98% and
shareholders of American Rivers should hold 2% of the issued common stock of New
Alliance. Although American Rivers has no substantial assets, the boards believe
that because the structure of American Rivers facilitates the change of
jurisdiction of Alliance from the UK to the USA, the shareholders of American
Rivers should own 2% of the resulting entity.
6
<PAGE>
Your attention is drawn to pages D-1 to D-3 and Appendix D of the Offer Document
which set out the procedure for acceptance of the Offer and to the conditions
and the terms of the Offer set out on pages to and Appendix C of the Offer
Document and in the Form of Acceptance. Acceptances of the Offer should be
despatched as soon as possible and, in any event, so as to be received no later
than 3:00 p.m. on 19 November, 1999.
3. Reasons for the Offer
The reasons for the Offer are set out in the letter from the Chairman of
Alliance on pages 4 and 5 of this document. The views expressed in that letter
are endorsed by the Board of New Alliance and Alliance Shareholders are strongly
advised to read that letter.
4. Risk Factors
The attention of shareholders is drawn to paragraph 3 of the Appendix to this
document and pages 7 to 13 of the Offer Document, which contain details of risk
factors relating to the proposals, including the Offer, set out therein and the
business to be carried on by New Alliance.
5. Information on New Alliance and American Rivers
New Alliance is a newly incorporated Delaware company which was formed for the
purpose of making the Offer. Further information on New Alliance is set out on
page 1 of the Offer Document.
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. 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. Further information on American Rivers is set out in the
Annual Report on Form 10-K of American Rivers for the year ended March 31, 1999.
6. Financial information on American Rivers
Financial information on American Rivers is set out on the Form 10-K of American
Rivers which is contained in the Offer Document.
7. Information on Alliance
Alliance is a United Kingdom public limited company whose principal activities
are the acquisition, exploration, development and production of gas and oil
properties.
Further information on Alliance is set out in the Annual Report on Form 10-K of
Alliance for the year ended April 30, 1999.
8. Financial Information on Alliance
Financial information on Alliance is set out on the Form 10-K of Alliance which
is contained in the Offer Document.
9. Management and employees
Immediately following the Offer becoming or being declared unconditional in all
respects the current directors and executive officers of Alliance will become
the directors and executive officers of New Alliance. The current directors and
officers of American Rivers and New Alliance will resign on the basis that they
will have no claim to compensation.
The existing employment rights, including pension rights, of the management and
employees of the Alliance Group will be fully safeguarded.
10. Alliance Share Option Schemes, convertible shares, loan notes and warrants
The Offer will extend to any further Alliance Shares allotted or issued prior to
the date on which the Offer closes (or such earlier date as New Alliance may
determine and as set out on page (of the Offer Document) as a result of the
exercise of options granted under the Alliance Share Option Schemes. It is
assumed that no options will be exercised as the current value of the Offer is
substantially less than the exercise prices of the options.
7
<PAGE>
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 Alliance Shares and a contingent right to acquire up to
10,000,000 additional Alliance Shares over the next five years. 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 (on a similar basis to the conversion rights of the
Alliance restricted voting shares). The convertible restricted voting shares of
new Alliance will confer on the holders equivalent economic and voting rights to
the rights they currently hold in Alliance. 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. 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 re-election in the same manner as other directors.
Alliance has in issue warrants to subscribe for 5,079,149 ordinary shares of 1p
each. The holders of all the warrants have agreed that upon the offer becoming
unconditional, they will exchange such warrants for equivalent warrants to
subscribe for the same number of shares of New Alliance Common Stock.
Alliance has outstanding loan notes convertible into 1,193,581 ordinary shares
of 1p each. The holder of all the loan notes has agreed that upon the Offer
becoming unconditional it will convert the loan notes into warrants to subscribe
for 1,193,581 shares of New Alliance Common Stock, exercisable at the same times
and at the same subscription price as the loan notes. The effect of this is
that the holder of the loan notes is waiving its right to receive the face value
of the loan notes.
11. New Alliance Common Stock
The New Alliance Common Stock will be issued free from all liens, equities,
charges, encumbrances and other interests. The New Alliance Common Stock will be
issued credited as fully paid. No application will be made for the New Alliance
Common Stock to be admitted to the Official List of the London Stock Exchange or
to listing on any other stock exchange.
It is anticipated that, following the Offer becoming unconditional, the New
Alliance Common Stock will be quoted on the OTC Bulletin Board in the USA. The
OTC Bulletin Board is a regulated quotation service that displays real-time
quotes, last-sale prices, and volume information in over-the-counter equity
securities, which are securities that are not listed or traded on a national
securities exchange or the NASDAQ Stock Market. OTC Bulletin Board securities
are traded by market makers that enter quotes and trade reports through a closed
computer network.
12. Procedure for acceptance of the Offer
The procedure for acceptance of the Offer is set out on pages D-1 to D-3 and
Appendix D of the Offer Document and in the Form of Acceptance.
13. Taxation
Your attention is drawn to pages 18 to 26 of the Offer Document.
United Kingdom taxation
The following paragraphs, which are intended as a general guide only, are based
on current UK legislation and Inland Revenue practice. They summarize certain
limited aspects of the UK 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 UK 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.
8
<PAGE>
Taxation of capital gains
(a) A holder of Alliance Shares who, either alone or together with persons
connected with him, does not hold more than 5% of Alliance Shares will not
be treated as making a disposal for the purposes of United Kingdom capital
gains as a consequence of receiving new shares in New Alliance Common Stock
in exchange for his Alliance Shares. Any gain or loss which would
otherwise have arisen on a disposal by such holder of his Alliance Shares
will be "rolled over "into his New Alliance Common Stock. The New Alliance
Common Stock will be treated as the same asset as his Alliance Shares
acquired at the same time and for the same consideration as he acquired his
Alliance Shares.
(b) A holder of Alliance Shares who, either by himself or with persons
connected with him, holds more than 5% thereof may or may not also be
treated in the same way as one holding 5% or less.
(c) A subsequent disposal of New Alliance Common Stock received in exchange for
Alliance Shares may, depending on individual circumstances, give rise to a
liability to United Kingdom taxation of capital gains.
(d) A UK resident who is domiciled within the UK and is a participator in a
non-UK resident company which would be "close" if it were UK resident and
which holds Alliance Shares 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 Alliance Shares, or, where any gain is "rolled
over" into New Alliance common stock, on disposal of that stock, unless his
share of such gain does not exceed 5% thereof.
(e) A UK resident settlor or UK resident and domiciled beneficiary of a trust
which is not resident in the UK for capital gains tax purposes and holds
Alliance Shares or is a participator in a non-resident company which would
be close if it were resident in the UK and which holds Alliance Shares 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 Alliance Shares or, except in the case of a settlor who is not
domiciled in the UK, 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 Alliance Shares by exercising options under any share schemes,
including provisions imposing a charge to income tax.
14. Settlement, listing and dealings
Your attention is drawn to pages D-1 to D-3 of Appendix D to the Offer Document.
15. Delisting
If New Alliance receives acceptances in respect of 90% or more of Alliance's
issued share capital, New Alliance intends to pursue a process of compulsory
acquisition of the remaining Alliance Shares under sections 429 -430F of the
Companies Act 1985. New Alliance also intends to cause Alliance to apply to the
London Stock Exchange for the delisting of the Alliance Shares when the Offer
has been declared or becomes wholly unconditional. In these circumstances the
date on which the cancellation of the listing 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.
16. Further information
Your attention is drawn to the further information contained in the Appendix to
this document and to the accompanying Offer Document.
9
<PAGE>
17. Action to be taken
To accept the Offer, the Form of Acceptance must be completed and returned,
whether or not your Alliance Shares are in CREST, as soon as possible and, in
any event, so as to be received by post or by hand by IRG plc, Balfour House,
390/398 High Road, Ilford, Essex IG1 1NQ or by hand by IRG plc, 23 Ironmonger
Lane, London EC2V 8EY no later than 3:00 p.m. London time on 19 November, 1999.
Yours faithfully
Karlton Terry
President
10
<PAGE>
Appendix
1. Responsibility statements
1.1 New Alliance
The Director, whose name is set out in paragraph 2.1, below accepts
responsibility for the information contained in this document and the
Offer Document other than that relating to the Alliance Group, the
directors of Alliance, their immediate families and persons connected
with the directors of Alliance. To the best of the knowledge and
belief of the Director (who has taken all reasonable care to ensure
that such is the case), the information contained in this document and
the Offer Document, other than that relating to the Alliance Group,
the directors of Alliance, their immediate families and persons
connected with the directors of Alliance, is in accordance with the
facts and does not omit anything likely to affect the import of such
information.
1.2 Alliance
The directors of Alliance, whose names are set out in paragraph 2.2
below, accept responsibility for the information contained in this
document and the Offer Document relating to the Alliance Group, the
directors of Alliance, their immediate families and persons connected
with the directors of Alliance. To the best of the knowledge and
belief of the directors of Alliance (who have taken all reasonable
care to ensure that such is the case), the information contained in
this document and the Offer Document relating to the Alliance Group,
the directors of Alliance, their immediate families and persons
connected with the directors of Alliance, is in accordance with the
facts and does not omit anything likely to affect the import of such
information.
2. Directors
2.1 New Alliance
The sole director of New Alliance is Karlton Terry.
The head office of New Alliance is at 700 East Ninth Avenue, Suite
106, Denver, Colorado, 80203 USA.
2.2 Alliance
The directors of Alliance, whose registered office is at 12 St James's
Square, London SW1Y 4RB, are as follows:
John Andrew Keenan (Chairman and Managing Director)
Paul Raymond Fenemore (Operations and Business
Development Director)
Michael Edward Humphries (Interim Finance Director)
Philip Douglas (Non-executive Director)
William John Albert Kennedy (Non-executive Director)
John Robert Martinson (Non-executive Director)
The head office of Alliance is at 1200 East Skelly Drive, Suite 1000,
Tulsa, Oklahoma 74135, USA.
3. Risk Factors
The attention of Alliance Shareholders is drawn to the risk factors
associated with accepting the Offer which are set out on pages 7 to 13 of
the Offer Document. They should be aware, also, of the following risks:
11
<PAGE>
. the value of shares in companies can fluctuate and a shareholder may
not get back the amount of his investment;
. the levels and bases of taxation can change;
. it may be difficult to sell New Alliance Common Stock or to obtain
reliable information as to its value and the extent of any risks to
which it may be exposed;
. value of shares and stocks may go down as well as up;
. New Alliance Common Stock being offered by New Alliance may not
be suitable for all recipients of this document. Alliance
Shareholders are advised to consult an investment adviser authorized
under the Financial Services Act 1986 who specializes in investments
of this kind before making the decision to accept the Offer.
4. Other Information
4.1 Nabarro Wells, which is regulated by The Securities and Futures
Authority Limited, has given and not withdrawn its written consent to
the issue of this document with the references to its name in the form
and context in which they appear.
4.2 Williams de Broe which is regulated by The Securities and Futures
Authority Limited has given and not withdrawn its written consent to
the issue of this document with the references to its name in the form
and context in which they appear.
4.3 The contents of this document and the Offer Document have been
approved for the purposes of Section 57 of the Financial Services Act
1986 of the United Kingdom by Nabarro Wells, which is regulated by the
Securities and Futures Authority Limited.
12
<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
8
<PAGE>
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
9
<PAGE>
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.
10
<PAGE>
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.
11
<PAGE>
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.
12
<PAGE>
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.
13
<PAGE>
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.
14
<PAGE>
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.
15
<PAGE>
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
16
<PAGE>
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.
17
<PAGE>
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.
18
<PAGE>
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.
19
<PAGE>
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.
20
<PAGE>
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
21
<PAGE>
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.
22
<PAGE>
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).
23
<PAGE>
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.
24
<PAGE>
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.
25
<PAGE>
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.
26
<PAGE>
<TABLE>
<CAPTION>
Alliance Shareholders American Rivers Shareholders New Alliance Shareholders
(U.K. Law) (Wyoming Law) (Delaware Law)
- ---------------------------------------------- ---------------------------------------- --------------------------------------
<S> <C> <C>
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.
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C>
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.
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
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.
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
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.
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
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.
</TABLE>
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).
A-2
<PAGE>
"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.
A-3
<PAGE>
"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.
A-4
<PAGE>
(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;
A-5
<PAGE>
(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;
A-6
<PAGE>
(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
A-7
<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.
A-8
<PAGE>
(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
A-9
<PAGE>
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.
A-10
<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).
A-11
<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.
A-12
<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.
A-17
<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.
A-18
<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.
A-19
<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.
A-20
<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
A-21
<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.
A-22
<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
A-23
<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
A-24
<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:
A-25
<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:
B-2
<PAGE>
(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.
B-3
<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:
B-4
<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.
B-5
<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.
C-2
<PAGE>
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.
C-3
<PAGE>
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;
<PAGE>
. 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
<PAGE>
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
<PAGE>
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.
1
<PAGE>
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
<PAGE>
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.
16
<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.
17
<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
18
<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.
19
<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
22
<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.
23
<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 $100,000 in salary and bonus
in fiscal 1999 (the "Named Executives"):
24
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
----------------------------- ----------------------
Securities
Underlying All Other
Name and Principal Position Fiscal Year Salary ($) 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.
25
<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
<PAGE>
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.
6
<PAGE>
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
<PAGE>
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
9
<PAGE>
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
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
(a) The Certificate of Incorporation of the Registrant provides that each
person who was or is made a party or is threatened to be made a party or is
involved in any threatened, pending or completed action, suit or proceeding,
whether formal or informal, whether of a civil, criminal, administrative or
investigative nature (hereinafter a "proceeding"), by reason of the fact that he
or she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Registrant, whether the basis of such proceeding is
an alleged action or inaction in an official capacity or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Registrant to the fullest extent permissible under Delaware law, as the
same exists or may hereafter exist in the future (but, in the case of any future
change, only to the extent that such change permits the Registrant to provide
broader indemnification rights than the law permitted prior to such change),
against all costs, charges, expenses, liabilities and losses (including, without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes, or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of his or her heirs, executors and administrators.
(b) The Registrant shall pay expenses actually incurred by a director or
officer in connection with any proceeding in advance of its final disposition;
provided, however, that if Delaware law then requires, the payment of such
- -------- -------
expenses incurred in advance of the final disposition of a proceeding shall be
made only upon delivery to the Registrant of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified.
(c) The Registrant has also adopted provisions in its Articles of
Incorporation that limit the liability of its directors and officers. Under the
Articles of Incorporation, and as permitted by the laws of the State of
Delaware, a director is not liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty, except for liability for (i) any
breach of the director's duty of loyalty to the Registrant or its stockholders;
(ii) acts or omissions which involve intentional misconduct or a knowing
violation of the law; (iii) the payment of any unlawful dividend, stock purchase
or redemption; or (iv) any transaction from which the director derived any
improper personal benefit.
ITEM 21. Exhibits and Financial Statements Schedules
(a) Exhibits
<TABLE>
<S> <C>
2.1* Exchange and Merger Agreement dated July 22, 1999 among American
Rivers Oil Company, a Wyoming corporation, American Rivers Oil
Company, a Delaware corporation and Alliance Resources PLC
(Included as Appendix A to the proxy statement/prospectus)
2.2** Amendment to Exchange and Merger Agreement, dated October 13,
1999.
3.1* Certificate of Incorporation of American Rivers Oil Company
(Delaware)
3.2* Bylaws of American Rivers Oil Company (Delaware)
3.3** Certificate of Amendment to Certificate of Incorporation of
American Rivers Oil Company (Delaware)
5.1** Opinion of Jenkens & Gilchrist, A Professional Corporation,
regarding the validity of the shares of American Rivers Oil
Company (Delaware)
8.1** Opinion of Jenkens & Gilchrist, A Professional Corporation,
regarding U.S. tax matters issued to American Rivers Oil
Company
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
8.2** Opinion of Jenkens & Gilchrist, A Professional Corporation,
regarding U.S. tax matters issued to Alliance Resources PLC
8.3** Opinion of Hobson Audley Hopkins & Wood regarding U.K. tax
matters
10.1** Exchange Agreement for Convertible Restricted Voting Shares,
dated October 13, 1999
10.2** Company, EnCap Equity 1996 Limited Partnership, Energy Capital
Investment Company Registration Rights Agreement dated October
13, 1999 among American Rivers Oil PLC, and EnCap Investments
L.C.
10.3** Registration Rights Agreement dated October 13, 1999 between
American Rivers Oil Company and LaSalle Street Natural Resources
10.4** Registration Rights Agreement dated October 13, 1999 among
American Rivers Oil Company and members of the Benton family
10.5** Warrant Agreement dated October 13, 1999 among American Rivers
Oil Company and the holders of Series D, E, F, G and H warrants
10.6** Warrant Agreement dated October 13, 1999 among American Rivers
Oil Company and the holder of Series I warrants
10.7** 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
10.8** 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
10.9** Executive Service Agreement between Alliance Resources Plc and
Francis M. Munchinski dated as of December 1, 1998
10.10** Executive Service Agreement between Alliance Resources Plc and
Robert E. Schulte dated as of December 1, 1998
10.11** Purchase Agreement dated October 27, 1998, by and between
Alliance Resources PLC and EnCap Equity 1996 Limited Partnership
and Energy Capital Investment Company Plc
10.12** First Amendment to the Purchase Agreement, dated effective as of
July 30, 1999
10.13** Second Amendment to the Purchase Agreement, dated effective as of
October 13, 1999
10.14** 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
10.15** First Amendment to the Third Amended and Restated Credit
Agreement, dated effective as of July 30, 1999
10.16** Second Amendment to Third Amended and Restated Credit Agreement,
dated as of October 13, 1999
23.1** Consent of Jenkens & Gilchrist, A Professional Corporation
(Included in Exhibits 5.1 and 8.1)
23.2** Consent of Hobson Audley Hopkins & Wood (Included in Exhibit 8.1)
23.3** Consent of Hein + Associates LLP
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
23.4** Consent of KPMG Audit Plc
23.5** Consent of John A. Keenan
23.6** Consent of Paul R. Fenemore
23.7** Consent of Michael E. Humphries
23.8** Consent of William J.A. Kennedy
23.9** Consent of Philip Douglas
23.10** Consent of John R. Martinson
24.1* Power of Attorney, included on signature page
</TABLE>
* Previously filed.
** Filed herewith.
(b) Financial Statement Schedules
None
(c) Report on Appraisal
None
ITEM 22. Undertakings
(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(2) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulations S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(3) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(4) The registrant undertakes that every prospectus (a) that is filed
pursuant to paragraph 3 immediately preceding, or (b) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new
II-3
<PAGE>
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(5) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(6) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Denver,
State of Colorado, on the 14th day of October, 1999.
AMERICAN RIVERS OIL COMPANY
By: /s/ KARLTON TERRY
-----------------
Karlton Terry, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ KARLTON TERRY President (Principal Executive October 14, 1999
- -----------------
Karlton Terry and Financial Officer)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C>
2.1* Exchange and Merger Agreement dated July 22, 1999 among
American Rivers Oil Company, a Wyoming corporation, American
Rivers Oil Company, a Delaware corporation and Alliance
Resources PLC (Included as Appendix A to the proxy
statement/prospectus)
2.2** Amendment to Exchange and Merger Agreement, dated October
13, 1999.
3.1* Certificate of Incorporation of American Rivers Oil Company
(Delaware)
3.2* Bylaws of American Rivers Oil Company (Delaware)
3.3** Certificate of Amendment to Certificate of Incorporation of
American Rivers Oil Company (Delaware)
5.1** Opinion of Jenkens & Gilchrist, A Professional Corporation,
regarding the validity of the shares of American Rivers Oil
Company (Delaware)
8.1** Opinion of Jenkens & Gilchrist, A Professional Corporation,
regarding U.S. tax matters issued to American Rivers Oil
Company
8.2** Opinion of Jenkens & Gilchrist, A Professional Corporation,
regarding U.S. tax matters issued to Alliance Resources PLC
8.3** Opinion of Hobson Audley Hopkins & Wood regarding U.K. tax
matters
10.1** Exchange Agreement for Convertible Restricted Voting Shares,
dated October 13, 1999
10.2** Registration Rights Agreement dated October 13, 1999 among
American Rivers Oil Company, EnCap Equity 1996 Limited
Partnership, Energy Capital Investment Company PLC, and
EnCap Investments L.C.
10.3** Registration Rights Agreement dated October 13, 1999 between
American Rivers Oil Company and LaSalle Street Natural
Resources
10.4** Registration Rights Agreement dated October 13, 1999 among
American Rivers Oil Company and members of the Benton family
10.5** Warrant Agreement dated October 13, 1999 among American
Rivers Oil Company and the holders of Series D, E, F, G and
H warrants
10.6** Warrant Agreement dated October 13, 1999 among American
Rivers Oil Company and the holder of Series I warrants
10.7** 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
10.8** 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
10.9** Executive Service Agreement between Alliance Resources Plc
and Francis M. Munchinski dated as of December 1, 1998
10.10** Executive Service Agreement between Alliance Resources Plc
and Robert E. Schulte dated as of December 1, 1998.
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
10.11** Purchase Agreement dated October 27, 1998, by and between
Alliance Resources PLC and EnCap Equity 1996 Limited
Partnership and Energy Capital Investment Company Plc
10.12** First Amendment to the Purchase Agreement, dated effective
as of July 30, 1999.
10.13** Second Amendment to the Purchase Agreement, dated effective
as of October 13, 1999
10.14** 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
10.15** First Amendment to the Third Amended and Restated Credit
Agreement, dated effective as of July 30, 1999
10.16** Second Amendment to Third Amended and Restated Credit
Agreement, dated as of October 13, 1999
23.1** Consent of Jenkens & Gilchrist, A Professional Corporation
(Included in Exhibits 5.1 and 8.1)
23.2** Consent of Hobson Audley Hopkins & Wood (Included in Exhibit
8.1)
23.3** Consent of Hein + Associates LLP
23.4** Consent of KPMG Audit Plc
23.5** Consent of John A. Keenan
23.6** Consent of Paul R. Fenemore
23.7** Consent of Michael E. Humphries
23.8** Consent of William J.A. Kennedy
23.9** Consent of Philip Douglas
23.10** Consent of John R. Martinson
24.1* Power of Attorney, included on signature page
</TABLE>
* Previously filed.
** Filed herewith.
II-7
<PAGE>
EXHIBIT 2.2
AMENDMENT TO
EXCHANGE AND MERGER
AGREEMENT
===================
THIS AMENDMENT (the "Amendment"), dated October 13, 1999, to that certain
Exchange and Merger Agreement (the "Merger Agreement"), dated 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"). AROC, AROC Delaware and Alliance are referred to
collectively as the "Constituent Entities."
WHEREAS, the Constituent Entities desire to amend (the "Amendment") the
Merger Agreement in accordance with Section 12.8 of the Merger Agreement.
------------
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the undersigned parties hereby agree
as follows:
1. Capitalized terms used in this Amendment and not otherwise defined
have the meanings given in the Merger Agreement.
2. Section 8(a) is amended to read in its entirety as follows:
(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 shall have been canceled.
3. Section 9(e) is amended to read in its entirety as follows:
(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.
4. Section 10.7 is amended to read in its entirety as follows:
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
<PAGE>
convertible restricted voting stock, par value $0.001 per share, none
of which shall be issued and outstanding.
5. New Sections 10.9, 10.10 are added to read in their entirety as
follows:
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 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.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as of
the date first written above.
AROC:
AMERICAN RIVERS OIL COMPANY
By: /s/ Karlton Terry
------------------------------
Name: Karlton Terry
Title: President
AROC Delaware:
AMERICAN RIVERS OIL COMPANY
By: /s/ Karlton Terry
------------------------------
Name: Karlton Terry
Title: President
Alliance:
ALLIANCE RESOURCES PLC
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF AMERICAN RIVERS OIL COMPANY
American Rivers Oil Company, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That the Board of Directors of the Corporation duly adopted
resolutions proposing and declaring advisable the following amendment to the
Certificate of Incorporation of the Corporation:
Article V shall be revised to read in its entirety as follows:
ARTICLE V
SECTION 1. The total number of shares of all classes of stock that
the Corporation shall have authority to issue is 200,000,000 shares,
consisting of 180,000,000 shares of common stock, par value $0.001 per
share ("Common Stock"), 10,000,000 shares of preferred stock, par value
$0.001 per share ("Preferred Stock"), and 10,000,000 shares of convertible
restricted voting stock, par value $0.001 per share ("CRV Stock").
SECTION 2. Each share of Common Stock of the Corporation shall have
identical privileges in every respect. Each holder of Common Stock shall
be entitled to one vote for each share of Common Stock held of record on
all matters on which stockholders generally are entitled to vote. Subject
to the provisions of law and the rights of the Preferred Stock or any class
or series of Preferred Stock, dividends may be paid on the Common Stock out
of assets legally available for dividends, but only at such times and in
such amounts as the Board of Directors shall determine and declare. Upon
the dissolution, liquidation or winding up of the Corporation, after any
preferential amounts to be distributed to the holders of the Preferred
Stock or any class or series of Preferred Stock have been paid or declared
and set apart for payment, the holders of the Common Stock shall be
entitled to receive all the remaining assets of the Corporation available
for distribution to its stockholders ratably in proportion to the number of
shares held by them, respectively.
SECTION 3. The Board of Directors is hereby expressly authorized, by
resolution or resolutions from time to time adopted, to provide, out of the
unissued shares of Preferred Stock, for the issuance of the Preferred Stock
in one or more classes or series. Before any shares of any such class or
series are issued, the Board of Directors shall fix and state, and hereby
is expressly empowered to fix, by resolution or resolutions, the
designations, preferences, and relative, participating, optional or other
special rights of the shares of each such series, and the qualifications,
limitations or restrictions thereon, including, but not limited to,
determination of any of the following:
(a) the stated value thereof if different from the par value thereof;
(b) whether the shares of such class or series shall have voting
rights, in addition to any voting rights provided by law, and, if so,
the terms of such voting rights, which may be full, special or
limited, and whether the shares of such class or series shall be
entitled to vote as
<PAGE>
a separate class either alone or together with the shares of one or
more other classes or series of stock;
(c) the dividends, if any, payable on such class or series, whether
any such dividends shall be cumulative, and, if so, from what dates,
the conditions and dates upon which such dividends shall be payable,
the preference or relation that such dividends shall bear to the
dividends payable on any shares of stock of any other class or any
other series of the same class;
(d) whether the shares of such class or series shall be subject to
redemption by the Corporation at its option or at the option of the
holders of such shares or upon the happening of a specified event,
and, if so, the times, prices and other terms, conditions and manner
of such redemption;
(e) the preferences, if any, and the amount or amounts payable upon
shares of such series upon, and the rights of the holders of such
class or series in, the voluntary or involuntary liquidation,
dissolution or winding up, or upon any distribution of the assets, of
the Corporation;
(f) whether the shares of such class or series shall be subject to
the operation of a retirement or sinking fund and, if so, the extent
to and manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of such class or
series for retirement or other corporate purposes and the terms and
provisions relative to the operation thereof;
(g) whether the shares of such class or series shall be convertible
into, or exchangeable for, at the option of either the holder or the
Corporation or upon the happening of a specified event, shares of
stock of any other class or any other series of the same class or any
other class or classes of securities or property and, if so, the price
or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and
conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such class or series are outstanding, upon the payment
of dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of, the
Common Stock or shares of stock of any other class or any other series
of the same class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional
stock, including additional shares of such series or of any other
series of the same class or of any other class; and
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations
and restrictions thereof.
The powers, preferences and relative, participating, optional and
other special rights of each class or series of Preferred Stock, and the
qualifications, limitations and restrictions thereof, if any, may differ
from those of any and all other classes or series at any time outstanding.
All shares of any one series of Preferred Stock shall be identical in all
respects with all other shares of such series,
2
<PAGE>
except that shares of any one series issued at different times may differ
as to the dates from which dividends thereof shall be cumulative. The Board
of Directors may increase the number of shares of the Preferred Stock
designated for any existing class or series by a resolution adding to such
class or series authorized and unissued shares of the Preferred Stock not
designated for any other class or series. The Board of Directors may
decrease the number of shares of Preferred Stock designated for any
existing class or series by a resolution subtracting from such class or
series unissued shares of the Preferred Stock designated for such class or
series, and the shares so subtracted shall become authorized, unissued, and
undesignated shares of the Preferred Stock.
SECTION 4. Each share of CRV Stock of the Corporation shall have
identical privileges in every respect, as follows:
(a) Voting Rights. Every holder of CRV Stock shall have one-half
vote for every share of CRV Stock of which he or she is the registered
holder. The holders of the CRV Stock shall be entitled to vote on all
matters on which the holders of Common Stock are entitled to vote and
the CRV Stock shall be considered the same class as Common Stock for
such purposes.
(b) Right to Designate Director. The holders of the CRV Stock shall
be entitled at any one time to designate one additional member of the
board of directors of the Corporation for one term as a director,
which member shall be subject to the approval (not to be unreasonably
withheld) of the then existing board of directors of the Corporation.
Such member shall thereafter be subject to reelection by the holders
of all of the shares of the Corporation entitled to vote in the
election of directors.
(c) Transfer. The CRV Stock shall only be transferable with the
consent of the Board of Directors of the Corporation, such consent not
to be unreasonably withheld.
(d) Conversion.
(1) Until all shares of CRV Stock shall have been
converted, on the occurrence of each Sustained Production
Level or Reserves Value (as applicable), the number of
shares of CRV Stock that is equal to one-half the Applicable
Number of Common Shares (as defined below) shall be
converted into the Applicable Number of Common Shares plus
such number of shares of Common Stock set out alongside each
lower Sustained Production Level or Reserves Value (as
applicable) which have not previously been issued. For
purposes hereof, the "Applicable Number of Common Shares"
means the number of shares of Common Stock set out alongside
the relevant Sustained Production Level or Reserves Value in
the table below.
Sustained Production Number of Shares of Reserves
Level Common Stock to be Issued Value
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
3
<PAGE>
24 mmcf/day 3,000,000 $37.5 million
(2) If by the end of the period ending October 30, 2003 (the
"Relevant Period"), none of the Sustained Production Levels shall
have been attained, then at the end of such period each share of
CRV Stock shall be converted into one-half of one share of Common
Stock, for a total of 5,000,000 shares of Common Stock.
(3) If by the end of the Relevant Period one or more of the
Sustained Production Levels shall have been attained, but not all
of the Common Stock shall have been issued as provided by
paragraph (d)(1) above, then at the end of such period the
balance of the shares of CRV Stock shall be canceled.
(4) Any conversion pursuant to the rights granted by this
paragraph (d) shall take effect:
(i) in the circumstances described in paragraphs (d)(1)
to (d)(3), immediately on the attainment of the relevant
Sustained Production Level or at the end of the Relevant
Period (as applicable);
(ii) at no cost to the relevant holders and the shares to
be issued upon such conversion shall be apportioned rateably
(or as near thereto as may be practicable to avoid the
apportionment of a fraction of a share) among the holders of
that class;
(iii) forthwith after the date of conversion the
Corporation shall issue to the persons entitled thereto
certificates for the Common Stock;
(iv) the Common Stock issued shall in all respects rank as
one uniform class of shares with all other shares of Common
Stock of the Corporation;
(v) if, prior to the end of the Relevant Period, the
Corporation should split or combine the outstanding Common
Stock, recapitalize, or pay a dividend or other distribution
on the outstanding Common Stock payable in common stock or
other share capital of the Corporation or any other entity
controlled by the Corporation, then the number of shares of
Common Stock issuable under paragraph (d) shall be
appropriately adjusted to reflect such split, combination,
recapitalization, dividend or distribution.
(5) For purposes of this paragraph, the following terms have the
indicated meanings:
(i) "East Irish Sea Interests" has the meaning given in
the Amended and Restated Sale and Purchase Agreement among
Alliance Resources Plc and the shareholders of Difco Limited
dated 23 September 1998.
(ii) "Reserves Value" means the net present value of the
following reserves, bearing interest or discounted at the
rate of ten percent (10%), as applicable, net of United
Kingdom Corporation Tax, and determined in accordance with
generally accepted reservoir engineering standards:
4
<PAGE>
(a) the proceeds previously received which are
attributable to the total volume of reserves produced
and sold from the East Irish Sea Interests from and
after January, 1998, less the aggregate amount of all
capital expenditures and operating costs incurred since
January 1, 1998, which are attributable to the East
Irish Sea Interests, and
(b) the proceeds estimated to be received from the
production and sale of the total volume of hydrocarbon
reserves that geological and engineering data
demonstrate, with a greater than fifty percent (50%)
certainty, as determined by statistical means, to be
recoverable from the East Irish Sea Interests in the
future from known reservoirs under existing operating
conditions based upon the most recent reserve report
prepared by the Corporation'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.
(iii) "Sustained Production Level" means sales of
production attributable to the East Irish Sea Interests for
a period of at least 90 consecutive days at rates equal to
or in excess of the levels set out in the table in paragraph
(d)(1) above.
(e) Dividends. Each share of the CRV Stock shall participate pari
passu with the Common Stock in all dividends paid with respect to the
Common Stock.
(f) Liquidation. The CRV Stock shall participate pari passu with the
Common Stock in all distributions or amounts paid upon the
dissolution, liquidation or winding up of the Corporation.
THIRD: That the Certificate of Amendment has been approved by the
Corporation pursuant to a resolution of its Board of Directors and a consent in
writing signed by all of the holders of the outstanding shares of the
Corporation.
FOURTH: That the Certificate of Amendment was duly adopted in accordance
with the provisions of Section 228 and Section 242 of the General Corporation
Laws of the State of Delaware.
FIFTH: That the Certificate of Amendment shall become effective at 5:00
p.m. (EST) on the date this Certificate of Amendment is duly filed with the
Secretary of State of the State of Delaware.
5
<PAGE>
IN WITNESS WHEREOF, this Certificate of Amendment has been duly executed as
of the 13th day of October, 1999.
AMERICAN RIVERS OIL COMPANY
By: /s/ Karlton Terry
------------------------------
Karlton Terry, President
6
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF JENKENS & GILCHRIST APPEARS HERE]
October 13, 1999
American Rivers Oil Company
700 East 9th Avenue
Denver, Colorado 80203
Re: American Rivers Oil Company Common Stock
Gentlemen:
We have acted as counsel to American Rivers Oil Company (the "Company"), a
Delaware corporation, in connection with the registration of 53,684,336 shares
of common stock, par value $0.01 per share, of the Company (the "Common Stock")
pursuant to a Registration Statement on Form S-4 (the "Registration Statement"),
filed with the Securities and Exchange Commission under the Securities Act of
1933 (Regis. No. 333-85237).
In connection therewith, we have examined and relied upon the original, or
copies, certified to our satisfaction, of (i) the Certificate of Incorporation
(the "Certificate") of the Company; (ii) minutes and records of the corporate
proceedings of the Company with respect to the issuance of the Common Stock and
related matters; (iii) the Registration Statement and exhibits thereto, and (iv)
such other documents and instruments as we have deemed necessary for the
expression of opinions herein contained. In making the foregoing examinations,
we have assumed the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, and the conformity to original documents
of all documents submitted to us as certified or photostatic copies. As to
various questions of fact material to this opinion and as to the content and
form of the Certificate, minutes, records, resolutions and other documents or
writings of the Company, we have relied, to the extent we deem reasonably
appropriate, upon representations or certificates of officers or directors of
the Company and upon documents, records and instruments furnished to us by the
Company, without independent check or verification of their accuracy.
Based upon the foregoing examination, we are of the opinion that the Common
Stock to be issued as described in the Registration Statement, has been duly
authorized for issuance and upon issuance, the Common Stock will be validly
issued, fully paid and non-assessable.
<PAGE>
American Rivers Oil Company
October 13, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name as it appears under the
caption "Legal Matters" in the Joint Proxy Statement/Prospectus forming a part
of the Registration Statement. In giving such consent, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, and the rules and regulations of the
Securities and Exchange Commission issued thereunder.
Sincerely,
JENKENS & GILCHRIST,
a Professional Corporation
By:/s/ W. Alan Kailer
------------------------------
W. Alan Kailer, for the Firm
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF JENKENS & GILCHRIST APPEARS HERE]
October 13, 1999
American Rivers Oil Company
700 East Ninth Avenue Suite 106
Denver, Colorado 80203
Ladies and Gentlemen:
We have acted as special tax counsel to American Rivers Oil Company, a
Wyoming corporation (the "Company") in connection with the merger of the Company
into a Delaware corporation ("Newco"), as described in the Form S-4 registration
statement filed with the Securities and Exchange Commission (the "Commission")
on October 13, 1999 (as thereafter amended from time to time and together with
all exhibits thereto, the "Registration Statement"). Except as otherwise
indicated, capitalized terms used herein shall have the meanings assigned to
them in the Registration Statement.
Set forth below are our opinions and the assumptions and documents upon
which we have relied in rendering our opinions.
A. Documents Reviewed
------------------
In connection with the opinions rendered below, we have reviewed and relied
upon the following documents:
1. the Registration Statement,
2. the Articles of Merger of Newco and the Company,
3. the Certificate of Incorporation of Newco and American Rivers Oil
Company (Delaware),
4. the Certificates of the Company, American Rivers Oil Company
(Delaware) and Newco (the "Certificates"), and
5. such other documents as we have deemed necessary or appropriate
for purposes of this opinion.
<PAGE>
[LETTERHEAD OF JENKENS & GILCHRIST APPEARS HERE]
October 13, 1999
Page 2
B. Assumptions
-----------
In connection with the opinions rendered below, we have assumed:
1. that all signatures on all documents submitted to us are genuine,
that all documents submitted to us as originals are authentic, that all
documents submitted to us as copies are accurate, that all information submitted
to us is accurate and complete, and that all persons executing and delivering
originals or copies of documents examined by us are competent to execute and/or
deliver such documents; and
2. that the Merger and the other transactions specified in the
Registration Statement to be effected on or prior to the closing date will be
consummated as contemplated in the Registration Statement and without waiver of
any material provision thereof.
C. Opinions
--------
Based solely upon the documents and assumptions set forth above, and
conditioned upon the initial and continuing accuracy of the factual
representations set forth in the Certificates as of the date hereof and as of
the date of the effective times of the Merger, it is our opinion that the
descriptions of the law and the legal conclusions contained in the Registration
Statement under the caption "Material United States Federal Tax Consequences of
the Merger" as they relate to the Merger are correct in all material respects
and that the discussion thereunder fairly states the United States federal tax
consequences of the Merger that are likely to be material to the Company and the
shareholders of the Company.
D. Limitations
-----------
1. Except as otherwise indicated, the opinions contained in this
letter are based upon the Code and its legislative history, the Treasury
regulations promulgated thereunder (the "Regulations"), judicial decisions, and
current administrative rulings and practices of the Internal Revenue Service,
all as in effect on the date of this letter. These authorities may be amended
or revoked at any time. Any such changes may or may not be retroactive with
respect to transactions entered into or contemplated prior to the effective date
thereof and could significantly alter the conclusions reached in this letter.
There is no assurance that legislative, judicial, or administrative changes will
not occur in the future. We assume no obligation to update or modify this
letter to reflect any developments that may occur after the date of this letter.
2. The opinions expressed herein represent counsel's best legal
judgment and are not binding upon the Internal Revenue Service or the courts and
are dependent upon the accuracy and completeness of the documents we have
reviewed under the circumstances, the assumptions made and the
<PAGE>
[LETTERHEAD OF JENKENS & GILCHRIST APPEARS HERE]
October 13, 1999
Page 3
factual representations contained in the Certificates. To the extent that any of
the factual representations provided to us in the Certificates are with respect
to matters set forth in the Code or the Regulations, we have reviewed with the
individuals making such factual representations the relevant portions of the
Code and the applicable Regulations and are reasonably satisfied that such
individuals understand such provisions and are capable of making such factual
representations. We have made no independent investigation of the facts
contained in the documents and assumptions set forth above, the factual
representations set forth in the Certificates or the Registration Statement. No
facts have come to our attention, however, that would cause us to question the
accuracy and completeness of such facts or documents in a material way. Any
material inaccuracy or incompleteness in these documents, assumptions or factual
representations (whether or not made by the Company, American Rivers Oil Company
(Delaware) or Newco could adversely affect the opinions stated herein.
3. We are expressing opinions only as to those matters expressly set
forth in Section C above. No opinion should be inferred as to any other
matters, including any other transactions described in the Registration
Statement. This opinion does not address the various state, local or foreign
tax consequences that may result from the Merger. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger, except as
specifically set forth herein, and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein.
4. This opinion letter is issued for the benefit of the Company and
its shareholders and no other person or entity may rely hereon without our
express written consent. This opinion letter may be filed as an exhibit to the
Registration Statement. Furthermore, we consent to the reference to Jenkens &
Gilchrist, a Professional Corporation, under the caption "Material United States
Federal Tax Consequences of the Merger and Exchange". In giving this consent,
we do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Commission promulgated thereunder.
Very truly yours,
JENKENS & GILCHRIST,
a Professional Corporation
By:/s/ Andrius R. Kontrimas
-------------------------------------------
Andrius R. Kontrimas, Authorized Signatory
ARK/lmr
cc: Mr. William P. Bowers
Ms. Lisa M. Rossmiller
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF JENKENS & GILCHRIST APPEARS HERE]
October 13, 1999
Alliance Resources Plc
4200 East Skelly Drive Suite 1000
Tulsa, Oklahoma 74135
Ladies and Gentlemen:
We have acted as special tax counsel to Alliance Resources Plc, a U.K.
public limited company (the "Company") in connection with the offer by American
Rivers Oil Company, a Delaware corporation, to shareholders of the Company to
exchange shares of its common stock solely for shares of ordinary stock in the
Company ("Offer" and "Exchange", respectively), as described in the Form S-4
registration statement filed with the Securities and Exchange Commission (the
"Commission") on October 13, 1999 (as thereafter amended from time to time and
together with all exhibits thereto, the "Registration Statement"). Except as
otherwise indicated, capitalized terms used herein shall have the meanings
assigned to them in the Registration Statement.
Set forth below are our opinions and the assumptions and documents upon
which we have relied in rendering our opinions.
A. Documents Reviewed
------------------
In connection with the opinions rendered below, we have reviewed and relied
upon the following documents:
1. the Registration Statement,
2. the Certificates of the Company and American Rivers Oil Company
(Delaware) (the "Certificates"), and
3. such other documents as we have deemed necessary or appropriate
for purposes of this opinion.
<PAGE>
October 13, 1999
Page 2
B. Assumptions
-----------
In connection with the opinions rendered below, we have assumed:
1. that all signatures on all documents submitted to us are genuine,
that all documents submitted to us as originals are authentic, that all
documents submitted to us as copies are accurate, that all information submitted
to us is accurate and complete, and that all persons executing and delivering
originals or copies of documents examined by us are competent to execute and/or
deliver such documents; and
2. that the Exchange and the other transactions specified in the
Registration Statement to be effected on or prior to the closing date will be
consummated as contemplated in the Registration Statement and without waiver of
any material provision thereof.
C. Opinions
--------
Based solely upon the documents and assumptions set forth above, and
conditioned upon the initial and continuing accuracy of the factual
representations set forth in the Certificates as of the date hereof and as of
the date of the effective times of the Exchange, it is our opinion that the
descriptions of the law and the legal conclusions contained in the Registration
Statement under the caption "Material United States Federal Tax Consequences of
the Merger and Exchange" as they relate to the Exchange are correct in all
material respects and that the discussion thereunder fairly states the United
States federal tax consequences of the Exchange that are likely to be material
to the U.S. Shareholders and non-U.S. Shareholders of the Company.
D. Limitations
-----------
1. Except as otherwise indicated, the opinions contained in this
letter are based upon the Code and its legislative history, the Treasury
regulations promulgated thereunder (the "Regulations"), judicial decisions, and
current administrative rulings and practices of the Internal Revenue Service,
all as in effect on the date of this letter. These authorities may be amended
or revoked at any time. Any such changes may or may not be retroactive with
respect to transactions entered into or contemplated prior to the effective date
thereof and could significantly alter the conclusions reached in this letter.
There is no assurance that legislative, judicial, or administrative changes will
not occur in the future. We assume no obligation to update or modify this
letter to reflect any developments that may occur after the date of this letter.
2. The opinions expressed herein represent counsel's best legal
judgment and are not binding upon the Internal Revenue Service or the courts and
are dependent upon the accuracy and
<PAGE>
October 13, 1999
Page 3
completeness of the documents we have reviewed under the circumstances, the
assumptions made and the factual representations contained in the Certificates.
To the extent that any of the factual representations provided to us in the
Certificates are with respect to matters set forth in the Code or the
Regulations, we have reviewed with the individuals making such factual
representations the relevant portions of the Code and the applicable Regulations
and are reasonably satisfied that such individuals understand such provisions
and are capable of making such factual representations. We have made no
independent investigation of the facts contained in the documents and
assumptions set forth above, the factual representations set forth in the
Certificates or the Registration Statement. No facts have come to our attention,
however, that would cause us to question the accuracy and completeness of such
facts or documents in a material way. Any material inaccuracy or incompleteness
in these documents, assumptions or factual representations (whether or not made
by the Company or American Rivers Oil Company (Delaware)) could adversely affect
the opinions stated herein.
3. We are expressing opinions only as to those matters expressly set
forth in Section C above. No opinion should be inferred as to any other
matters, including any other transactions described in the Registration
Statement. This opinion does not address the various state, local or foreign
tax consequences that may result from the Exchange. In addition, no opinion is
expressed as to any federal income tax consequence of the Exchange, except as
specifically set forth herein, and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein.
4. This opinion letter is issued for the benefit of the Company and
its shareholders and no other person or entity may rely hereon without our
express written consent. This opinion letter may be filed as an exhibit to the
Registration Statement. Furthermore, we consent to the reference to Jenkens &
Gilchrist, a Professional Corporation, under the caption "Material United States
Federal Tax Consequences of the Merger and Exchange". In giving this consent,
we do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Commission promulgated thereunder.
Very truly yours,
JENKENS & GILCHRIST,
a Professional Corporation
By:/s/ Andrius R. Kontrimas
-------------------------------------------
Andrius R. Kontrimas, Authorized Signatory
ARK/lmr
cc: Mr. William P. Bowers
Ms. Lisa M. Rossmiller
<PAGE>
EXHIBIT 8.3
[LETTERHEAD OF HOBSON AUDLEY HOPKINS & WOOD APPEARS HERE]
Alliance Resources PLC
12 St James's Square
London
SW1Y 4RB October 13, 1999
Dear Sirs
We have acted as legal advisers in the United Kingdom to Alliance Resources PLC
("the Company") in connection with the recommended offer by American Rivers Oil
Company to acquire the whole of the issued share capital of the Company ("the
Offer").
In connection with this opinion, we have examined the following documents:-
1. the registration statement on form S4 ("the Registration Statement"),
including the proxy statement/prospectus contained therein, filed with the
Securities Exchange Commission, relating to the Offer and the registration
of the common stock of American Rivers Oil Company issued pursuant thereto;
2. a circular ("the Circular") to be despatched to shareholders of the Company
who are resident in the United Kingdom.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified, of such documents and
records of the Company and such statutes and/or regulations as we have deemed
necessary or advisable for the purpose of this opinion. In rendering this
opinion we have relied upon the facts and disclosures set forth in the
Registration Statement and the Circular regarding the Offer and the issue of
common stock of American Rivers Oil Company pursuant to the Offer. We have not
independently verified the accuracy of such representations or the matters set
forth in such documents or records. As to certain facts material to this
opinion, we have assumed that all signatures on all documents presented to us
are genuine, that all documents submitted to us as originals are accurate and
complete, that all information supplied to us is accurate and complete and that
all persons executing and delivering originals of copies of documents examined
by us are competent to execute and deliver such documents.
<PAGE>
2
Alliance Resources PLC October 13, 1999
- --------------------------------------------------------------------------------
Based on the foregoing, this firm is of the opinion that the discussion in the
Registration Statement of the United Kingdom tax treatment of accepting the
Offer under the caption "United Kingdom taxation" within the section headed
"material tax consequences of the merger and exchange" is an accurate summary of
the material United Kingdom tax consequences which may result from shareholders
of the Company accepting the Offer. This firm's opinion is based on current law
and practice, both of which may be subject to changes. Any such changes may be
retroactive with respect to transactions entered into prior to the date of such
changes and could modify this firm's opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. Consent is also given to the reference to this firm in
the Registration Statement. In giving this consent, this firm does not thereby
admit that it comes into the category of persons whose consent is required under
section 7 of the Securities Act or the rules and regulations of the commission
promulgated thereunder.
Yours faithfully,
HOBSON AUDLEY HOPKINS & WOOD
- ----------------------------
<PAGE>
EXHIBIT 10.1
EXCHANGE AGREEMENT
FOR
CONVERTIBLE RESTRICTED VOTING SHARES
This Exchange Agreement for Convertible Restricted Voting Shares (the
"Agreement") is entered into as of October 13, 1999, among Alliance Resources
Plc, a public limited company formed under the laws of England and Wales
("Alliance"), American Rivers Oil Company, a Delaware corporation ("AROC"), and
F. Fox Benton, Jr., Lizinka M. Benton, F. Fox Benton III, Lizinka C. Benton and
Lucia T. Benton (collectively, the "Shareholders").
Recitals
The Shareholders hold an aggregate of 10,000,000 convertible restricted
voting shares ("Convertible Shares") of Alliance pursuant to an Amended and
Restated Sale and Purchase Agreement dated as of September 23, 1998, between the
Shareholders and Alliance.
Alliance and AROC have entered into an Exchange and Merger Agreement (the
"Exchange and Merger Agreement") dated July 22, 1999, providing among other
things for AROC to offer (the "Offer") to acquire all of the outstanding
ordinary shares of Alliance.
One of the conditions to the completion of the Exchange and Merger
Agreement is that AROC shall enter into agreements with the Shareholders, on
terms satisfactory to Alliance, providing that after the Offer becomes
unconditional each then outstanding Convertible Share shall be exchanged for the
right to receive shares of the Common Stock of AROC Shares on terms
substantially similar to the terms of the Convertible Shares.
The parties to this Agreement desire to provide for the exchange of the
Convertible Shares for similar shares of AROC.
Now, therefore, in consideration of the premises and the mutual agreements
of the parties, the parties to this Agreement hereby agree as follows:
Agreement
1. AROC and Alliance agree that they will not modify or amend the terms of the
Offer or the Exchange and Merger Agreement without the consent of the
Shareholders.
2. Each of the Shareholders agrees that immediately upon the Offer being
declared unconditional as provided in Section 2.3 of the Exchange and
Merger Agreement, each outstanding Convertible Share of Alliance shall be
exchanged solely for one Convertible Restricted Voting Share (the "CRV
Stock") of AROC having the terms provided in the form of Certificate of
Amendment to the Certificate of Incorporation of American Rivers Oil
Company attached as Exhibit A to this Agreement, and each holder of a
certificate representing any such Convertible Shares shall thereafter cease
to have any rights with respect to such Convertible Shares, except the
right to receive the CRV Stock of AROC upon the surrender of such
certificate in accordance with Section 3 of this Agreement. Effective
immediately upon the Offer being declared unconditional, any and all rights
of the Shareholders to obtain or receive Deferred Shares of Alliance shall
be canceled and shall thereafter be of no further force or effect.
<PAGE>
3. On or after the Offer being declared unconditional, each person who was
immediately before that time a holder of record of issued and outstanding
Convertible Shares may deliver to AROC a letter of transmittal duly
executed and completed in accordance with the instructions thereto,
together with such holders' certificates representing such Convertible
Shares, and AROC shall deliver to such holders certificates in respect of
the CRV Stock of AROC to which such holders are then entitled.
4. Each of the Shareholders represents and agrees as follows:
(a) He or she is the sole legal and beneficial owner of the
Convertible Shares registered in his or her name, free from any
encumbrance.
(b) He or she has the requisite power and authority to enter into and
perform this Agreement and this Agreement and any other documents
executed by him or her in connection with this Agreement will,
when executed, constitute binding obligations of the Shareholder
enforceable in accordance with their respective terms.
(c) He or she is an "accredited investor" as that term is defined in
the Securities Act of 1933, as amended, and is acquiring the CRV
Stock for his or her own account, and has received all
information he or she believes necessary to evaluate the
investment in the CRV Stock.
(d) The CRV Stock and the Common Stock, whether issued or arising as
a consequence of conversion, will be "restricted securities"
under the United States Securities Act of 1933 (as amended) and
that the ability to resell such CRV Stock and such Common Stock
will therefore be limited.
5. Each of Alliance and AROC represents and agrees as follows:
(a) The representations and warranties made by each of them in the
Exchange and Merger Agreement are true and correct.
(b) The execution and performance of this Agreement by each of them
have been duly and validly authorized by the board of directors
of each of them, and no other corporate action is necessary to
authorize the execution, delivery and performance of this
Agreement by each of them. Each of them 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 each
of them and this Agreement and any other documents executed by
them in connection with this Agreement is constitute valid and
binding obligations of each of them, enforceable in accordance
with their respective terms.
(c) They will not modify or amend the terms of the Offer or the
Exchange and Merger Agreement without the consent of the
Shareholders.
6. Each of the parties hereby acknowledges that for United States federal
income tax purposes the exchange made pursuant to the Offer, together with
the exchange by the Shareholders of Convertible Shares for CRV Stock (the
"Exchange") is intended to constitute a "reorganization" within the
2
<PAGE>
meaning of section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), to which Alliance and AROC are parties within the meaning of
section 368(b) of the Code, and none of the parties shall take any position
on any tax return or report relating to United States Federal income taxes
which is inconsistent with such characterization.
7. Each of the Shareholders agrees that, until October 30, 2001, he or she
will not sell or otherwise transfer any Common Stock of the Corporation in
the open market without first providing written notice of his or her intent
to sell or otherwise transfer such shares to the Secretary of the
Corporation and thereafter providing the Corporation with a reasonable
opportunity to identify third parties to purchase such Common Stock upon
terms and conditions that are reasonable acceptable to the Shareholders and
such third parties.
8. Concurrently with the execution of this Agreement, the Shareholders and
AROC shall execute the Registration Rights Agreement in the form attached
as Exhibit B, which agreement will be effective upon the Offer being
declared unconditional. Upon such execution, the Registration Rights
Agreement dated October 30, 1998, among the Shareholders and Alliance shall
be deemed to be terminated and shall be of no further force or effect.
9. The representations, warranties, covenants and agreements of the parties to
this Agreement shall survive after the Offer is declared unconditional.
10. Except as otherwise provided in this Agreement, the parties shall each pay
their own expenses and costs in connection with this Agreement and the
transactions contemplated hereby.
11. Subject to the requirements of law and regulatory bodies, 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. This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
personal representatives, 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 heirs, personal
representatives, successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
13. 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.
14. Any notice, request, instructions or other document to be given under this
Agreement to any party shall be in writing, sent by facsimile transmission
or delivered personally or by courier, as follows:
If to the Shareholders:
Mr. F. Fox Benton, Jr.
3395 Del Monte Drive
3
<PAGE>
Houston, Texas 77019
Fax: (713) 627-3817
If to Alliance or AROC:
Alliance Resources
4200 East Skelly Drive
Suite 1000
Tulsa, Oklahoma 74135
Attn: John A. Keenan
FAX: (918) 494-4918
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 received.
15. 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 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.
16. 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.
17. Descriptive headings contained herein are for convenience of reference only
and shall not affect the meaning or interpretation hereof.
18. 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.
19. The parties shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered such instruments and take such other action 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.
20. 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, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
4
<PAGE>
In Witness Whereof, the parties have executed this Agreement as of the date
written above.
ALLIANCE RESOURCES PLC
By:_________________________________________
Name: ______________________________________
Title: _____________________________________
AMERICAN RIVERS OIL COMPANY
By:_________________________________________
Name: ______________________________________
Title: _____________________________________
/s/ F. Fox Benton
--------------------------------------------
F. Fox Benton
/s/ Lizinka M. Benton
--------------------------------------------
Lizinka M. Benton
/s/ F. Fox Benton, Jr.
--------------------------------------------
F. Fox Benton III, either individually or by
F. Fox Benton, Jr. as Attorney-in-Fact
/s/ F. Fox Benton, Jr.
--------------------------------------------
Lizinka C. Benton, either individually or by
F. Fox Benton, Jr. as Attorney-in-Fact
/s/ F. Fox Benton, Jr.
--------------------------------------------
Lucia T. Benton, either individually or by
F. Fox Benton, Jr. as Attorney-in-Fact
5
<PAGE>
EXHIBIT 10.2
AMERICAN RIVERS OIL COMPANY
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement dated as of October 13, 1999 (this
"Agreement") by and between American Rivers Oil Company, a Delaware corporation
(the "Company"), EnCap Equity 1996 Limited Partnership, a Texas limited
partnership ("EnCap LP"), Energy Capital Investment Company PLC, an English
investment company ("ECIC"), and EnCap Investments L.C., a Texas limited
liability company ("EnCap LC") (with EnCap LP, ECIC and EnCap LC being herein
collectively called the "Shareholders");
Recitals:
A. The Shareholders own a total of 15,545,454 ordinary shares of 1p each
in the capital of Alliance Resources Plc ("Alliance").
B. Alliance and the Company have entered into an Exchange and Merger
Agreement (the "Exchange and Merger Agreement") dated July 22, 1999, providing
among other things for the Company to offer (the "Offer") to acquire each
outstanding ordinary shares of Alliance in exchange for one share of common
stock, par value $0.001 per share (the "Common Stock") of the Company.
C. Alliance and the Shareholders are parties to that certain Registration
Rights Agreement dated as of October 30, 1998, providing for the registration of
the ordinary shares of Alliance held by the Shareholders, which agreement is
binding upon successors to the parties to that agreement.
D. As the successor to Alliance pursuant to the Offer, the Company has
agreed to enter into this Agreement, to be effective upon the Shareholders'
acceptance of the Offer.
Agreement:
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
The Company and the Shareholders covenant and agree as follows:
Section 1. Definitions And References.
(a) When used in this Agreement, the following terms shall have the
respective meanings assigned to them in this Section 1 or in the sections,
subsections or other subdivisions referred to below:
"Agreement" shall mean this Agreement, as hereafter changed, modified or
amended in accordance with the terms hereof.
"Benton Agreement" shall mean that certain Registration Rights Agreement
dated as of October 13, 1999 among the Company and F. Fox Benton and certain
members of his family.
<PAGE>
"Benton Holders" shall mean those persons identified as Selling
Shareholders in the Benton Agreement.
"Commission" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"Company" shall have the meaning assigned to it in the introductory
paragraph hereof.
"Common Stock" shall have the meaning assigned to in Paragraph B of the
Recitals hereto.
"Demand Registration" shall have the meaning assigned to it in Section
2(a).
"ECIC" shall have the meaning assigned to it in the introductory paragraph
hereof.
"EnCap LP" shall have the meaning assigned to it in the introductory
paragraph hereof.
"EnCap LC" shall have the meaning assigned to it in the introductory
paragraph hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated under such Act.
"Holder" shall mean any Person that holds Registrable Securities.
"Holder Indemnified Parties" shall have the meaning assigned to it in
Section 9(a).
"LaSalle Agreement" shall mean that certain Registration Rights Agreement
dated as of October 13, 1999, among the Company and LaSalle.
"LaSalle" shall mean LaSalle Street Natural Resources Corporation, as a
party to the LaSalle Agreement.
"Person" shall mean any individual, corporation, partnership, joint
venture, limited partnership, limited liability company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Piggyback Registration" shall have the meaning assigned to it in Section
3.
"Purchase Agreement" shall mean the Purchase Agreement among Alliance and
the Shareholders dated as of October 30, 1998.
"Registrable Securities" shall mean (i) the Common Stock received by the
Shareholders in exchange for their ordinary shares of Alliance pursuant to the
Offer and (ii) any securities issued or issuable with respect to the shares
described in clause (i) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization.
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with the registration rights granted hereunder,
including (without limitation) all registration and
2
<PAGE>
filing fees, fees and expenses of compliance with securities and blue sky laws,
printing and engraving expenses, messenger, telephone and delivery expenses, and
fees and disbursements of counsel for the Company, all independent certified
public accountants and underwriters (excluding discounts and commissions) and
the reasonable fees and expenses of one counsel to such Shareholders as a group;
provided, that Registration Expenses shall not include any Selling Expenses.
"Securities Act" shall mean the Securities Act of 1933, as amended, and all
rules and regulations under such Act.
"Selling Expenses" shall mean underwriting discounts or commissions, any
selling commissions and stock transfer taxes attributable to sales of
Registrable Securities.
"Shareholders" shall have the meaning assigned to it in the introductory
paragraph hereof.
(b) All references in this Agreement to sections, subsections and other
subdivisions refer to corresponding sections, subsections and other subdivisions
of this Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any of such subdivisions are for convenience only and shall not
constitute part of such subdivisions and shall be disregarded in construing the
language contained herein. The words "this Agreement", "this instrument",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless expressly
so limited. Words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender.
Section 2. Demand Registration Rights.
(a) At any time after the Shareholders have accepted the Offer, a Holder
may request a registration by the Company under the Securities Act of all or a
part its Registrable Securities (a "Demand Registration").
(b) Notwithstanding subsection (a) above or anything else herein to the
contrary, the Company shall not be obligated to effect more than two
registrations pursuant to this Section 2; provided, however, that any
registration requested pursuant to this Section 2 will not be deemed to have
been effected (i) unless it has become effective and remained effective for the
lesser of either the period necessary to complete the sale or disposition of the
Registrable Securities covered by such registration statement or one year, (ii)
if, after it has become effective, such registration is terminated by a stop
order, injunction or other order of the Commission or other governmental agency
or court or (iii) is withdrawn at the request of the Holders after the
registration statement has been filed with the Commission.
(c) Notwithstanding subsection (a) above or anything else herein to the
contrary, it is hereby agreed that a Demand Registration must cover no less than
50% of the Registrable Securities held by the Holders then outstanding. In the
event a Demand Registration is requested pursuant to this Section 2, the Company
will (i) promptly give notice of the proposed registration to any other
Shareholder not making the request, if any, and (ii) use its reasonable best
efforts to effect the registration of the Registrable Securities specified in
the request, together with the Registrable Securities of any other Shareholder
joining in such request as are specified in a written request received by the
Company within 20 days after receipt of the notice referred to in clause (i)
above.
3
<PAGE>
(d) A registration statement filed under this Section 2 pursuant to the
request of Holders of Registrable Securities may include other securities of the
Company, with respect to which "piggyback" registration rights have been
granted, and may include securities of the Company being sold for the account of
the Company; provided, however, that if the Company shall request inclusion in
any registration pursuant to this Section 2 of the securities being sold for its
own account, or if other persons shall request inclusion in any registration
pursuant to this Section 2, the Shareholders shall offer to include such
securities in the offering and may condition such offer on their acceptance of
any other reasonable conditions (including, without limitation, if such offering
is underwritten, that such requesting holders agree in writing to enter into an
underwriting agreement with usual and customary terms). Notwithstanding any
other provisions of this Section 2, if the representative of the underwriters
advises the Holders of Registrable Securities in writing that marketing factors
require a limitation on the number of shares to be underwritten, the number of
shares to be included in the underwriting or registration shall be allocated
first to the Holders of Registrable Securities, the Benton Holders and LaSalle
(pro rata, based on the number of Registrable Securities requested by each such
holder to be included therein), second to the Company and thereafter to any
other holders requesting inclusion in the registration on the basis of the
number of shares each other requesting holder requests be included bears to the
total number of shares of all other requesting holders that have been requested
be included in such registration. If a person who has requested inclusion in
such registration as provided above does not agree to the terms of any such
underwriting, such person shall be excluded therefrom by written notice from the
Company, the underwriter, or the Holders of Registrable Securities. The
securities so excluded shall also be withdrawn from registration.
Section 3. Piggyback Registration Rights.
(a) If the Company proposes to register any of its securities under the
Securities Act other than (i) under employee compensation or benefit programs,
(ii) pursuant to an exchange offer or an offering of securities solely to the
existing stockholders or employees of the Company, or (iii) securities to be
issued in connection with an acquisition or a transaction described in Rule
145(a) promulgated under the Securities Act, and the registration form to be
used may be used for the registration of Registrable Securities, the Company
will give prompt written notice (which, in any event, shall be given no less
than 15 days prior to the filing of a registration statement with respect to
such offering) to Holders of Registrable Securities of its intention to effect
such a registration and, upon the written request of a Holder of Registrable
Securities sent within 15 days after the effective date of any such notice, the
Company will use its best efforts to cause all Registrable Securities as to
which any Holder shall have so requested registration to be registered under the
Securities Act, all to the extent necessary to permit the sale in such offering
of the Registrable Securities so registered on behalf of such Holder in the same
manner as the Company (or stockholder other than such Holder, as the case may
be) proposes to offer its securities (a "Piggyback Registration"). The Company
shall use its best efforts to cause the managing underwriter or underwriters of
a proposed underwritten offering to permit the Registrable Securities requested
by a Holder to be included in the registration for such offering on the same
terms and conditions as any similar securities of the Company included therein;
provided, however, that (A) if, at any time after giving written notice of its
intention to register any of its securities and before the effective date of the
registration statement filed in connection with the registration, the Company
determines for any reason not to register its securities, the Company may, at
its election, give written notice of its determination to the Holders of
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with that registration,
without prejudice, however, to the future rights of the Holders of Registrable
Securities under this Section, (B) if the Company determines in its discretion
to delay the registration of its securities, the Company shall be permitted to
delay the registration of any
4
<PAGE>
Registrable Securities for the same period as the delay in registering any other
securities, and (C) the Company is not required to effect any registration for a
requesting Holder of Registrable Securities pursuant to this Section 3 unless it
receives reasonable assurances that the requesting Holder of Registrable
Securities will pay any expenses required to be paid by it as provided in
Section 5.
(b) If a Piggyback Registration is an underwritten registration and the
managing underwriter(s) for the offering advises the Company in writing that in
its opinion the number of shares of Registrable Securities requested or proposed
to be included in the registration exceeds the number that can be sold in the
offering without materially affecting the offering price of the securities
proposed to be included in the offering, then the number of securities to be
offered for the account of any participating Holder(s) shall be reduced pro rata
based upon the number of securities proposed to be sold by the Company, such
Holder(s) and other Persons to the extent necessary to reduce the total number
of securities to be included in such offering to the number of shares
recommended by such managing underwriter; provided, however, that if securities
of the Company are being offered for the account of other Persons as well as the
Company, such reduction shall first be made from the securities intended to be
offered by such Persons other than the participating Holder(s), the Benton
Holders and LaSalle.
(c) If any Piggyback Registration is an underwritten offering, the Company
will have the sole right to select the managing underwriter(s) thereof.
(d) The rights of the Holders with respect to Piggyback Registrations
shall be pari passu with the piggyback registration rights of the Benton Holders
and LaSalle.
Section 4. Registration Procedures.
(a) Whenever the Holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to Section 2 or Section 3, the
Company will as expeditiously as possible:
(i) prepare and file with the Commission a registration statement
on the appropriate form with respect to such Registrable Securities, and use its
reasonable best efforts to cause such registration statement to become effective
as soon as reasonably practicable after the filing thereof; provided, however,
that the Company may discontinue any registration of securities that is being
effected pursuant to Section 3 at any time prior to the effective date of the
registration statement relating thereto, and provided further, that before
filing a registration statement or prospectus or any amendments or supplements
thereto, including documents incorporated by reference after the initial filing
of any registration statement, as soon as practicable, the Company will furnish
to any Holder covered by such Registration Statement copies of all such
documents proposed to be filed, which documents will be subject to the review of
such Holder;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than the period set forth in such section or such shorter
period which will terminate when Registrable Securities covered by such
registration statement have been sold (but not before the expiration of the
applicable prospectus delivery period) and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
5
<PAGE>
(iii) notify each seller of Registrable Securities requesting
registration, promptly after the Company shall receive notice thereof, of the
time when such registration statement has been filed;
(iv) furnish without charge to each seller of Registrable
Securities such number of copies of such registration statement, each amendment
and supplement thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits (including those
incorporated by reference); the prospectus included in such registration
statement (including, without limitation, each preliminary prospectus); and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(v) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions within the United States as any seller reasonably requests; keep
each such registration or qualification effective during the period such
registration statement is required to be kept effective; and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company will not
for any such purpose be required to (1) qualify generally to do business as a
foreign corporation in any jurisdiction where it would not otherwise be required
to qualify but for the requirements of this subsection; (2) subject itself to
taxation in any such jurisdiction; (3) consent to general service of process in
any such jurisdiction; or (4) register or qualify Registrable Securities or take
any other action under the state securities or "Blue Sky" laws of any
jurisdiction if, in the reasonable good faith judgment of the Board of
Directors of the Company, the consequences of the registration, qualification or
other action would be unduly burdensome to the Company);
(vi) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event which requires the making of any
change in the prospectus included in such registration statement so that such
document will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and, at the request of any such seller, the
Company will prepare a supplement or amendment to such prospectus so that such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(vii) use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange or exchanges, automated
quotation system or over-the-counter market upon which securities of the Company
of the same class are then listed;
(viii) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance and scope) and
take all such other action as the Holders of a majority of the Registrable
Securities being sold or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such Registrable Securities;
(ix) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission;
(x) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
6
<PAGE>
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(xi) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other foreign and domestic governmental agencies or authorities
as may be necessary to enable the sellers thereof to consummate the disposition
of such Registrable Securities;
(xii) use its reasonable best efforts to obtain a comfort letter
from the Company's public accountants in customary form and covering such
matters of the type customarily covered by comfort letters with respect to
offerings of the type being made pursuant to the registration statement as the
Holders of the Registrable Securities reasonably request; and
(xiii) cooperate with each seller of such Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends.
(b) Whenever the Holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to Section 2 or Section 3, each
Holder of Registrable Securities (including Registrable Securities in any
registration statement filed pursuant to this Agreement) will be deemed to have
agreed as follows:
(i) upon receipt of any notice from the Company of the happening
of any event of the kind described in Section 4(a)(vi), the Holders of
Registrable Securities covered by such registration statement will forthwith
discontinue disposition of any such Registrable Securities until the Holders of
Registrable Securities receive copies of the supplemented or amended prospectus
contemplated by Section 4(a)(vi), or until they are advised in writing by the
Company that the use of the applicable prospectus may be resumed, and they have
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such prospectus (it being the
agreement of the parties hereto, however, that the obligation of the Company
with respect to maintaining the subject registration statement current and
effective shall be extended by a period of days equal to the period the Holders
of Registrable Securities are required by this Section 4(b)(i) to discontinue
disposition of such Registrable Securities); and
(ii) furnish to the Company such information regarding each
Holder, the Registrable Securities held by such Holder, the intended method of
disposition thereof and such other information as the Company shall reasonably
request and as shall be reasonably required in connection with the preparation
of the applicable registration statement and other actions taken by the Company
under this Agreement.
(c) The Company may postpone the filing of any registration statement
required under Section 2 for a reasonable period of time, if (i) the Company has
been advised by legal counsel reasonably acceptable to the Holders of a majority
of the Registrable Securities that such filing would require the disclosure of a
material fact, and the Company determines reasonably and in good faith that such
disclosure would have a material adverse effect on the Company or (ii) (A) in
the good faith judgment of the Board of Directors of the Company, a required
registration under Section 2 would be seriously detrimental to the Company and
the Board of Directors of the Company concludes, as a result, that it is
essential to defer the filing of such registration statement at such time, and
(B) the Company shall furnish
7
<PAGE>
to the Holders of Registrable Securities a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company for such
registration statement to be filed in the near future and that it is, therefore,
essential to defer the filing of such registration statement; provided, however,
that under no circumstances shall one or more delays pursuant to this Section
4(c) extend beyond the earlier to occur of (x) the expiration of a period of
ninety (90) days after receipt of the request of a Holder of Registrable
Securities and (y) that point in time at which the conditions described above no
longer exist; and, provided further, that the Company shall not defer its
obligation pursuant to this Section 4(c) more than once in any twelve-month
period.
Section 5. Expenses of Registration. The Company shall pay all Registration
Expenses in connection with each registration effected pursuant to Sections 2
and 3 and, in any event, shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal and accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange or market on which similar securities
issued by the Company are then listed. All Selling Expenses incurred in
connection with a registration effected pursuant to the terms hereof shall be
borne by the seller or sellers of Registrable Securities.
Section 6. Indemnification.
(a) The Company shall indemnify and hold harmless, with respect to any
registration statement filed by it, to the fullest extent permitted by law, each
Holder of Registrable Securities covered by such registration statement, and
each other Person, if any, who controls such Holder within the meaning of
Section 15 of the Securities Act (collectively, "Holder Indemnified Parties")
against all losses, claims, damages, liabilities and expenses, joint or several
to which any such Holder Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement in which such Registrable Securities
were included as contemplated hereby, or any post-effective amendment thereof,
or 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,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary, final or summary prospectus, together with the
documents incorporated by reference therein (as amended or supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto), or any omission or alleged omission to state therein 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, or (iii) any violation by the Company of any federal, state or
common law rule or regulation applicable to the Company and relating to action
of or inaction by the Company in connection with any such registration; and in
each such case, the Company shall reimburse each such Holder Indemnified Party
for any reasonable legal or other expenses incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability,
expense, action or proceeding; provided, however, that the Company shall not be
liable to any such Holder Indemnified Party in any such case to the extent that
any such loss, claim, damage, liability or expense (or action or proceeding,
whether commenced or threatened, in respect thereof) arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or amendment thereof or supplement
thereto or in any such preliminary, final or summary prospectus in reliance upon
and in conformity with written information furnished to the
8
<PAGE>
Company by or on behalf of any such Holder Indemnified Party for use in the
preparation thereof; provided further that the Company shall not be liable to
any such Holder Indemnified Party in any such case to the extent that any such
loss, claim, damage, liability or expense (or action or proceeding, whether
commenced or threatened, in respect thereof) arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if (A) such holder failed to send or deliver
a copy of the prospectus with or prior to the delivery of written confirmation
of the sale of Registrable Securities and (B) the prospectus would have
completely corrected such untrue statement or omission; provided further that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission in
the prospectus, if such untrue statement or alleged untrue statement, omission
or alleged omission is completely corrected in an amendment or supplement to the
prospectus and if, having previously been furnished by or on behalf of the
Company with copies of the prospectus as so amended or supplemented, such holder
thereafter fails to deliver such prospectus as so amended or supplemented, prior
to or concurrently with the sale of a Registrable Security to the person
asserting such loss, claim, damage, liability or expense who purchased such
Registrable Security which is the subject thereof from such holder. Such
indemnity and reimbursement of expenses and other obligations shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Holder Indemnified Parties and shall survive the transfer of such securities
by such Holder Indemnified Parties.
(b) Each Holder of Registrable Securities participating in any
registration hereunder shall severally (and not jointly or jointly and
severally) indemnify and hold harmless, to the fullest extent permitted by law,
the Company, its directors, each of its officers who has signed the registration
statement and each Person who controls the Company (within the meaning of
Section 15 of the Securities Act) (collectively, "Company Indemnified Parties")
against all losses, claims, damages, liabilities and expenses to which any
Company Indemnified Party may become subject under the Securities Act, the
Exchange Act, at common law or otherwise, and will reimburse each such Company
Indemnified Party for any reasonable legal or other expenses incurred by any of
them in connection with investigating or defending any such loss, claim, damage,
liability, expense, action or proceeding, but only insofar as such losses,
claims, damages, liabilities or expenses (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
any registration statement in which such Holder's Registrable Securities were
included or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary, final or summary prospectus, together with
the documents incorporated by reference therein (as amended or supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto), or the omission or alleged omission to state therein 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, in each case to the extent (and only to the extent) that
such untrue statement or omission or alleged untrue statement or omission was
made in reliance upon and in conformity with information furnished in writing by
or on behalf of such Holder specifically for use in connection with such
registration, (iii) any violation by the Holder of any federal, state or common
law, rule or regulation applicable to the Holder and relating to action of or
inaction by the Holder in connection with any registration statement and (iv)
with respect to any preliminary prospectus, the fact that the Holder sold
Registrable Securities to a person to whom there was not sent or given, at or
prior to the written confirmation of the sale, a copy of the prospectus
(excluding documents incorporated by reference) or of the prospectus as then
amended or supplemented (excluding documents incorporated by reference) if (a)
the Company has previously furnished copies
9
<PAGE>
thereof to the Holder in compliance with Section 4 and (b) the loss, claim,
damage, liability or expense of the Company Indemnified Party results from an
untrue statement or omission of a material fact contained in the preliminary
prospectus which was corrected in the prospectus (or the prospectus as amended
or supplemented). Such indemnity obligation shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company
Indemnified Parties (except as provided above) and shall survive the transfer of
such securities by such Holder.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) of written notice of the commencement of any action, suit, proceeding,
investigation or threat thereof made in writing with respect to which a claim
for indemnification may be made pursuant to this Section 6, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party, give prompt written notice to the indemnifying party of the threat or
commencement thereof; provided, however, that the failure to so promptly notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party except to the extent that the indemnifying party is
actually prejudiced by such failure to give prompt notice. If any such claim or
action referred to under subsection (a) or (b) is brought against any
indemnified party and it then notifies the indemnifying party of the threat or
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense of any
such claim or action, the indemnifying party shall not be liable to such
indemnified party under this Section 6 for any legal expenses of counsel or any
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation unless the
indemnifying party has failed to assume the defense of such claim or action or
to employ counsel reasonably satisfactory to such indemnified party. Under no
circumstances will the indemnifying party be obligated to pay the fees and
expenses of more than one law firm for all indemnified parties. The
indemnifying party shall not be required to indemnify the indemnified party with
respect to any amounts paid in settlement of any action, proceeding or
investigation entered into without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld. No indemnifying party
shall consent to the entry of any judgment or enter into any settlement without
the consent of the indemnified party unless (i) such judgment or settlement does
not impose any obligation or liability upon the indemnified party other than the
execution, delivery or approval thereof, and (ii) such judgment or settlement
includes as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a full release and discharge from all
liability in respect of such claim.
(d) Indemnification similar to that specified in the preceding subsections
of this Section 6 (with appropriate modifications) shall be given by the Company
and each seller of Registrable Securities with respect to any required
registration or qualification of securities under any state securities or blue
sky laws.
(e) If the indemnification provided for in this Section 6 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b), then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) referred
to in subsection (a) or (b) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other in connection with the statements, omissions, actions or
inactions which resulted in such losses, claims, damages, liabilities or
expenses as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and the indemnified party shall be determined
10
<PAGE>
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party or the
indemnified party, any action or inaction by any such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, omission, action or inaction. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses (or actions or proceedings in respect thereof) pursuant to this
subsection (e) shall be deemed to include, without limitation, any reasonable
legal or other expenses incurred by such indemnified party in connection with
investigating or defending any such action or claim (which shall be limited as
provided in subsection (c) if the indemnifying party has assumed the defense of
any such action in accordance with the provisions thereof) which is the subject
of this subsection (e). No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Promptly after receipt by an indemnified party under this
subsection (e) of written notice of the commencement of any action, suit,
proceeding, investigation or threat thereof made in writing with respect to
which a claim for contribution may be made against an indemnifying party under
this subsection (e), such indemnified party shall, if a claim for contribution
in respect thereof is to be made against an indemnifying party, give prompt
written notice to the indemnifying party in writing of the commencement thereof
(if the notice specified in subsection (c) has not been given with respect to
such action); provided, however, that the failure to so promptly notify the
indemnifying party shall not relieve it from any obligation to provide
contribution which it may have to any indemnified party under this subsection
(e) except to the extent that the indemnifying party is actually prejudiced by
the failure to give prompt notice.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this paragraph were determined by pro rata allocation
or by any other method of allocation which does not take account the equitable
considerations referred to in the immediately preceding paragraph.
If indemnification is available under this Section 6, the indemnifying
parties shall indemnify each indemnified party to the fullest extent provided in
subsections (a) and (b), without regard to the relative fault of said
indemnifying party or any other equitable consideration provided for in this
subsection. The provisions of this subsection shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract, shall remain in full force and effect regardless of
any investigation made by or on behalf of any indemnified party, and shall
survive the transfer of securities by any such party.
(f) In connection with any underwritten offering contemplated by this
Agreement which includes Registrable Securities, the Company and all sellers of
Registrable Securities included in any registration statement shall agree to
customary provisions for indemnification and contribution (consistent with the
other provisions of this Section 6) in respect of losses, claims, damages,
liabilities and expenses of the underwriters of such offering.
Section 7. Selection of Underwriters. If a registration effected pursuant to
Section 2 is an underwritten offering or a best efforts underwritten offering,
the investment bankers or investment bankers and manager or managers that will
administer the offering shall be selected by the Holders of a majority of the
Registrable Securities to be registered in such registration; provided, however,
that such investment bankers and managers must be reasonably satisfactory to the
Company.
Section 8. Rule 144. The Company covenants to each Holder that, to the extent
that the Company shall be required to do so under the Exchange Act, the Company
shall (a) timely file the reports required to be
11
<PAGE>
filed by it under the Exchange Act or the Securities Act (including, but not
limited to, the reports under Section 13 and 15(d) of the Exchange Act referred
to in subparagraph (c) (1) of Rule 144 adopted by the Commission under the
Securities Act) and the rules and regulations adopted by the Commission
thereunder, and (b) take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitations of the exemption provided by Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission. Upon the reasonable request of any Holder,
the Company shall deliver to such Holder a written statement as to whether it
has complied with such requirements.
Section 9. Participation in Underwritten Registrations. In the case of a
registration hereunder, if the Company has determined to enter into an
underwriting agreement in connection therewith, all shares of Registrable
Securities to be included in such registration shall be subject to the
underwriting agreement, which shall be in customary form and contain such terms
as are customarily contained in such agreements, and the Holders may not
participate in any such registration unless the Holder (a) agrees to sell its
securities on the basis provided in any underwriting arrangements and (b)
completes and executes all questionnaires, power of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of the underwriting arrangements.
Section 10. Rights to Withdraw From Registration. If, as a result of the
proration provisions of Section 3(b) a Holder is not entitled to include all
Registrable Securities in a registration that the Holder has requested to be
included, the Holder may elect to withdraw its request to include Registrable
Securities in the registration (a "Withdrawal Election"); provided, however,
that a Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, the Holder shall no longer have any right to include Registrable
Securities in the registration as to which the Withdrawal Election was made.
Section 11. Existing Registration Rights. The Company represents and warrants
to, and covenant with, the Shareholders that, as of the date hereof, the Company
has not entered into any agreement, written or oral, granting or otherwise
affording to a third party registration rights with respect to any securities
held by such third party in the Company, except for the Benton Agreement and the
LaSalle Agreement.
Section 12. Miscellaneous.
(a) From and after the date of this Agreement, the Company will not
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the Holders of Registrable Securities in
this Agreement.
(b) Each Holder of Registrable Securities (including Registrable
Securities in any registration statement filed pursuant to this Agreement)
agrees as follows:
(i) if any Registrable Securities are being registered in any
registration pursuant to this Agreement, the Holder thereof will comply with all
anti-stabilization, manipulation and similar provisions of Section 10 of the
Exchange Act, as amended, and any rules promulgated thereunder by the Commission
and, at the request of the Company, will execute and deliver to the Company and
to any underwriter participating in such offering, an appropriate agreement to
such effect; and
12
<PAGE>
(ii) at the end of any period during which the Company is obligated
to keep a registration statement current and effective as described herein, the
Holders of Registrable Securities included in the registration statement shall
discontinue sales thereof pursuant to such registration statement.
(c) In order to facilitate the possibility of future public offerings of
Common Stock, the Holders (and any subsequent Holder) agree that the Registrable
Securities will not be resold during a period commencing on the filing by the
Company of a registration statement under the Securities Act for an underwritten
public offering for cash by the Company of its Common Stock or securities
convertible into or exercisable or exchangeable for its Common Stock and
continuing until the earlier of the abandonment of the proposed public offering
or 120 days following the date of the last closing in the public offering
without the consent of the underwriters of such offering, except to the extent
such shares are included in such registration. Holders of such Registrable
Securities also agree that they will cooperate with the Company in providing
reasonable written assurances respecting the foregoing to the underwriter of any
such public offering. Holders agree that during the above restricted period
they will not directly or indirectly sell, offer to sell, contract to sell
(including without limitation any short sale), grant an option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) shares of Registrable Securities at any time during such period except
securities included in such registration. In order to enforce the foregoing
covenant, the Company may impose stop-order instructions with respect to such
shares of Registrable Securities held by each Holder, which shall be binding
upon any assignee or successor of such Holder (and the shares or securities of
every other person subject to the foregoing restriction), until the end of the
restricted period.
(d) All questions concerning the construction, validity and interpretation
of this Agreement shall be governed by the internal law, and not the law of
conflicts, of the State of Delaware.
(e) All covenants and agreements in this Agreement by or on behalf of any
of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto. In addition, the rights and
obligations under this Agreement shall automatically be transferred to and
binding on any transferee or assignee of the Registrable Securities; provided,
that (i) the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the Registrable Securities with respect to which such registration rights are
being transferred or assigned, (ii) such transferee or assignee agrees in
writing to be bound by and subject to the terms and conditions of this
Agreement, (iii) the transfer and assignment of the subject Registrable
Securities is in compliance with (A) the Purchase Agreement and (B) the
Securities Act and applicable state securities laws or an exemption from the
registration requirements of the Securities Act and applicable state securities
laws, (iv) such assignment of rights and obligations under this Agreement shall
be effective only if immediately following such transfer the further disposition
of such Registrable Securities by the transferee or assignee is restricted under
the Securities Act and (v) the transferee acquires at least 10% of the
Registrable Securities originally acquired by the Shareholders from the Company.
(f) This Agreement is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter herein contained. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
the registration rights granted by the Company to the Holders of the Registrable
Securities. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter. In particular, this
Agreement supersedes the Registration Rights Agreement among Alliance and the
13
<PAGE>
Shareholders dated as of October 30, 1999, which shall be of no further force or
effect. It is further acknowledged and agreed that (i) the Benton Agreement
supersedes the Registration Rights Agreement dated as of October 30, 1998, among
Alliance and F. Fox Benton and certain members of his family (the "Old Benton
Agreement") and (ii) the LaSalle Agreement supersedes the Registration Rights
Agreement dated as of October 26, 1998, between LaSalle Street Natural Resources
Corporation and Alliance (the "Old LaSalle Agreement"), and that the Old Benton
Agreement and the Old LaSalle Agreement shall be of no further force and effect.
The Company represents and warrants that true and correct copies of the Benton
Agreement and the LaSalle Agreement have been furnished to the Holders of the
Registrable Securities. The Company agrees not to amend or modify either the
Benton Agreement or the LaSalle Agreement in any material respect without having
received the prior written consent of the Holders of Registrable Securities.
(g) All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given when delivered personally or sent by
reputable express courier service (charges prepaid), or mailed to the recipient
by certified or registered mail, return receipt requested and postage prepaid,
or sent by telefax, to the parties at the following address (or to such other
address or to the attention of such other person as the recipient party has
specified by prior like notice to the sending party):
If to the Company:
American Rivers Oil Company
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attention: John A. Keenan
Fax No.: 918-494-4918
If to either EnCap LP or ECIC:
Energy Capital Investment Company PLC
EnCap Equity 1996 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
If to EnCap LC:
EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
(h) If any provision of this Agreement is held to be unenforceable, this
Agreement shall be considered divisible and such provision shall be deemed
inoperative to the extent it is deemed unenforceable, and in all other respects
this Agreement shall remain in full force and effect; provided,
14
<PAGE>
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
(i) This Agreement may be executed by the parties hereto in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all, the
parties hereto.
(j) Each Holder of Registrable Securities, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Each party
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of breach by it of the provisions of this Agreement and
hereby agrees to waive (to the extent permitted by law) the defense in any
action for specific performance that a remedy of law would be adequate.
(k) In any action or proceeding brought to enforce any provision of this
Agreement, or where any provision hereof is validly asserted as a defense, the
successful party shall be entitled to recover reasonable attorneys' fees in
addition to any other available remedy.
(l) The Company agrees to remove any legends on certificates representing
Registrable Securities describing transfer restrictions applicable to such
securities upon the sale of such securities (i) pursuant to an effective
Registration Statement under the Securities Act or (ii) in accordance with the
provisions of Rule 144 under the Securities Act.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C., General Partner
By: /s/ Robert L. Zorich
-----------------------------------------
Name: Robert L. Zorich
Title: Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: /s/ Gary R. Petersen
-----------------------------------------
Name: Gary R. Petersen
Title: Director
ENCAP INVESTMENTS L.C.
By: /s/ Robert L. Zorich
-----------------------------------------
Name: Robert L. Zorich
Title: Managing Director
AMERICAN RIVERS OIL COMPANY
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
16
<PAGE>
EXHIBIT 10.3
AMERICAN RIVERS OIL COMPANY
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement dated as of October 13, 1999, between
American Rivers Oil Company, a Delaware corporation ("AROC"), and LaSalle Street
Natural Resources Corporation, a Delaware corporation (the "Investor").
AROC and the Investor are parties to two separate Warrant Agreement of even
date herewith (as modified and supplemented and in effect from time to time, the
"Warrant Agreements"), providing for the issuance by AROC of Warrants (as
hereinafter defined) which entitle the Investor to purchase from AROC an
aggregate of 5,679,519 shares of the common stock, par value $0.001 per share
(the "Common Stock") of AROC, as provided in the Warrant Agreement and the
Warrants. Investor also owns directly an additional 1,500,000 shares of the
Common Stock. In that connection, AROC wishes to afford the Investor certain
registration rights in respect of the Common Stock issued or issuable upon
exercise of the Warrants and the Common Stock currently owned by the Investor.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions.
Each capitalized term used herein without definition shall have the meaning
ascribed thereto in the Warrant Agreement. As used in this Agreement the
following terms have the following meanings:
"AROC" shall have the meaning set forth in the preamble of this Agreement.
"Benton Holders" means F. Fox Benton, Jr., Lizinka M. Benton, F. Fox Benton
III, Lizinka C. Benton and Lucia T. Benton, in their capacities as "Selling
Shareholders" as that term is defined in that certain Registration Rights
Agreement, dated as of the October 13, 1999, by and among the preceding parties
and AROC.
"Commission" means the U.S. Securities and Exchange Commission (or any
successor or similar governmental agency or authority) administering the
Securities Act and/or the Exchange Act.
"Common Stock" means the common stock, par value $0.001 per share, of AROC.
"Cutback Registration" means any registration in which the Managing
Underwriter advises AROC, and AROC in turn notifies the holders of Registrable
Securities requested to be included therein in accordance with Section 5.02,
that marketing factors require a limitation of the number of shares of Common
Stock to be underwritten in such registration.
"Effective Period" has the meaning set forth in Section 5.01(b).
"Electing Holders" means any Benton Holders or EnCap Holders who have
requested inclusion of shares of Common Stock held by such holder in a
registration.
"EnCap Holders" means EnCap Investments L.C., EnCap Equity 1996 Limited
Partnership and Energy Capital Investment Company PLC, in their capacities as
"Shareholders" as that term is defined in
<PAGE>
that certain Registration Rights Agreement, dated as of the October 13, 1999 by
and among the preceding parties and AROC.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Indemnified Party" has the meaning set forth in Section 6.03.
"Indemnifying Party" has the meaning set forth in Section 6.03.
"Investor" shall have the meaning set forth in the preamble of this
Agreement.
"Long-Form Requested Registration" shall mean any Requested Registration
that is a registration on a Form S-1 under the Securities Act or any successor
form or similar long-form registration.
"Managing Underwriter" means, with respect to any registration, the
underwriter or underwriters managing such registration.
"NASDAQ" has the meaning set forth in Section 12.
"Original Requesting Holder" has the meaning set forth in Section 3.01(a).
"Other Requesting Holder" has the meaning set forth in Section 3.01(a).
"Person" means any individual, corporation, association, joint venture,
limited liability company, partnership, trust, business or other entity or
organization, and shall include any government or political subdivision, or any
agency or instrumentality thereof.
"Piggyback Registration" means any registration which is not a Requested
Registration, other than (a) any registration on a Form S-8 under the Securities
Act (or any successor thereto); (b) any registration relating to an offering to
be made solely to employees (including management or employee incentive plans);
(c) any registration relating to a an offering of securities made by AROC solely
(except in respect of fractional shares in exchange for securities of AROC other
than Common Stock including, without limitation, notes or other debt instruments
of AROC); or (d) any registration on a Form S-4 (or any successor thereto or
other comparable form).
"Public Offering" means any offering of Common Stock to the public, either
on behalf of AROC or any of its Stockholders, pursuant to an effective
registration statement under the Securities Act.
"register," "registered" and "registration" refer to a registration of
Common Stock or other securities of AROC effected by preparing and filing a
registration statement in compliance with the Securities Act and the declaration
or ordering of the effectiveness of such registration statement.
"Registrable Securities" means (i) shares of Common Stock issued or
issuable upon exercise of any Warrants, including without limitation any Common
Stock into which such Common Stock may thereafter be changed or converted, (ii)
the 1,500,000 shares of Common Stock owned by the Investor at the date of this
Agreement, and (iii) any additional shares of Common Stock or other securities
issued or
2
<PAGE>
distributed by way of a dividend, stock split or other distribution in respect
of the Common Stock referred to in clauses (i) and (ii) above, or acquired by
way of any rights offering or similar offering made in respect of the Common
Stock referred to in clauses (i) and (ii) above; provided, however, that, as to
any such shares of Common Stock so issued or issuable, such shares will cease to
be Registrable Securities when such shares have been sold to the public pursuant
to a registration or pursuant to Rule 144.
"Registration Agreements" means the Agreements described in Exhibit A
hereto.
"Requested Registration" means a registration requested by holders of
Registrable Securities pursuant to Section 3.
"Requesting Holder" means any of the original Requesting Holder and the
other Requesting Holders.
"Rule 144" means Rule 144 promulgated by the Commission under the
Securities Act (or any successor or similar rule then in force).
"Rule 144A" means Rule 144A promulgated by the Commission under the
Securities Act (or any successor or similar rule then in force).
"Securities Act" means the U.S. Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Short-Form Registration" means a registration of the Common Stock of AROC
on Form S-2 or Form S-3 under the Securities Act or any successor form or
similar short-form registration.
"Warrant Agreement" has the meaning set forth in the preamble of this
Agreement.
"Warrants" has the meaning set forth in the Warrant Agreements.
"Withdrawing Holder" has the meaning set forth in Section 3.02.
Section 2. Piggyback Registration. If at any time or from time to time after
the date hereof AROC proposes to effect a Piggyback Registration for its account
or for the account of a security holder or holders (other than holders of
Registrable Securities), then AROC shall:
(a) promptly give to each holder of Registrable Securities notice thereof
(which notice shall include a list of the jurisdictions in which AROC intends to
attempt to qualify such securities under or otherwise comply with the applicable
blue sky or other state securities laws); and
(b) include in such Piggyback Registration (and any related qualification
under or other compliance with blue sky or other state securities laws), and in
any underwriting involved therein, all the Registrable Securities specified in a
request, made within 15 days after receipt of such notice from AROC, by any
holder of Registrable Securities; provided, however, that AROC shall not be
required to include any securities of holders of Registrable Securities in such
registration unless such holders accept the terms of the underwriting as agreed
upon between AROC and the underwriters selected by it; and provided, further,
that if such Piggyback Registration is a Cutback Registration, then the number
of shares
3
<PAGE>
of Common Stock to be included in the underwriting or registration shall be
allocated first to AROC, the holders of Registrable Securities and the Electing
Holders (pro rata, based on the total number of shares of securities of AROC,
including Registrable Securities, requested by AROC and each such holder to be
included therein); and thereafter to any other holders requesting inclusion in
the registration on the basis of the number of shares each other requesting
holder requests be included bears to the total number of shares of all other
holders of Common Stock that have been requested be included in such
registration. If a person who has requested inclusion in such registration as
provided above does not agree to the terms of any such underwriting, such person
shall be excluded therefrom by written notice from AROC, the underwriter, or the
holders of Registrable Securities. The securities so excluded shall also be
withdrawn from registration.
(c) (i) If, at any time after giving written notice of its intention to
register any of its Common Stock and before the effective date of the
registration statement filed in connection with the registration, AROC
determines for any reason not to register its Common Stock, AROC may, at its
election, give written notice of its determination to the holders of Registrable
Securities and the Electing Holders and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with that
registration, without prejudice, however, to the future rights of the holders of
Registrable Securities under this Section, (ii) if AROC determines in its
discretion to delay the registration of its Common Stock, AROC shall be
permitted to delay the registration of any Registrable Securities for the same
period as the delay in registering any other Common Stock, and (iii) AROC is not
required to effect any registration for a requesting holder of Registrable
Securities pursuant to this Section 2 unless it receives reasonable assurances
that the requesting holder of Registrable Securities will pay any expenses
required to be paid by it as a provided in Section 5.
(d) The rights of holders with respect to Piggyback Registrations shall be
pari passu with the piggyback registration rights of Benton Holders and the
EnCap Holders.
Section 3. Requested Registration.
3.01. Request for Registration.
(a) If after the date AROC shall receive a request from any holder of
Registrable Securities (including Warrants) that AROC effect any registration
under the Securities Act to which such holder is entitled under this Section 3
(including without limitation any related qualification under or compliance with
blue sky or other state securities laws) with respect to all or a part of the
Registrable Securities owned by such holder, then AROC shall promptly give
notice of such request to each other holder of Registrable Securities, and AROC
shall thereupon promptly use its best efforts diligently to effect such
Requested Registration and related qualifications and compliances within 120
days after receiving such request for registration (including without limitation
the execution of an undertaking to file post-effective amendments and
appropriate qualifications under or other compliance with the applicable blue
sky or other state securities laws) as may be reasonably requested by the holder
of Registrable Securities who made the original request (the "Original
Requesting Holder") and by the holders of Registrable Securities who make
requests to AROC within 15 days after the giving of the aforesaid notice by AROC
(each of the foregoing an "Other Requesting Holder") and as would permit or
facilitate the sale and distribution of all or such portion of the Registrable
Securities as are specified in any such request; provided, however, that AROC
shall not be obligated to take any action to effect a Requested Registration or
any related qualification or compliance pursuant to this Section 3:
4
<PAGE>
(i) if the Requesting Holders do not request to include in such
registration Registrable Securities (issued or issuable on exercise of the
Warrants) having an aggregate Current Adjustment Price (as defined in the
Warrants), determined as of the date of the notice from the Original Requesting
Holder under Section 3.01(a) of (A) at least $750,000 for the holders' first
Requested Registration or (B) at least $250,000 for the holders' second
Requested Registration;
(ii) if AROC shall have already effected two Requested Registrations
on behalf of the holders of Registrable Securities pursuant to this Section
3.01, each of which Requested Registrations (A) has been declared or ordered
effective (including without limitation qualification under or other compliance
with state blue sky or securities laws requested) and which effectiveness has
not been suspended or stopped by any governmental or judicial authority, and (B)
remains continuously effective for a period of time not less than the Effective
Period; or
(iii) if, within 30 days after receipt of the initial request of the
Original Requesting Holder pursuant to this Section 3.01, AROC shall elect to
include in such registration Common Stock for its own account, whereupon AROC
shall notify each Requesting Holder that AROC has elected to effect a Piggyback
Registration and shall thereafter diligently proceed to do so, including therein
the Registrable Securities as to which notice was given by the Requesting
Holders pursuant to this Section 3.01, but subject to the limitations set forth
in Section 2(b)(i) (it being understood, however, that such registration shall
not be deemed to be a Requested Registration for the purposes of Sections
3.01(a)(ii) or 3.01(c)).
(iv) Notwithstanding the foregoing, (A) AROC shall not be obligated
to effect a registration pursuant to this Section 3 during the period starting
with the date 60 days prior to AROC's good faith estimated date of filing of,
and ending on a date 120 days following the effective date of, a registration
statement pertaining to an underwritten public offering of securities for the
account of AROC, provided that AROC is at all times during such period
diligently pursuing such registration, (B) AROC shall not be obligated to effect
a registration of Registrable Securities pursuant to this Section 3 pursuant to
any request of Holders of Registrable Securities if such request is received
after the receipt by AROC of a request for registration pursuant to one of the
Registration Agreements, and any such registration pursuant to this Section 3
would likely result in a registration statement being declared effective prior
to the date that is 90 days after the effective date of any such registration
effected pursuant to the Registration Agreement, and (C) AROC shall not be
obligated to effect a registration pursuant to this Section 3 and shall have the
right to defer such filing for a period of not more than 120 days after receipt
of the request of holders of Registrable Securities, if AROC shall furnish to
such holders a certificate signed by the President of AROC stating that in the
good faith judgment of the Board of Directors of AROC, it would be seriously
detrimental to AROC and its shareholders for such registration statement to be
filed and it is therefore essential to defer the filing of such registration
statement; provided, however, that, subject to the limitation set forth in the
proviso in Section 3.01(a)(ii), if AROC shall no longer be eligible to effect a
Short-Form Requested Registration following the deferral of registration
pursuant to this paragraph, then the holders of Registrable Securities shall,
subject to Section 3.01(a)(ii), be entitled to a Long-Form Requested
Registration for each such deferral.
(v) If at any time after the holders' initial Requested
Registration, a request of the holders of Registrable Securities for a Requested
Registration shall be denied by AROC solely because the aggregate Current
Adjustment Price of such Registrable Securities sought to be included in such
registration is below the requisite dollar amount specified in Section
3.01(a)(i)(B), then at the election of the holders of a majority of the then
outstanding Registrable Securities, and in exchange for the right of the holders
to request a second Requested Registration under this Section 3, the holders
shall be entitled to
5
<PAGE>
convert their Registrable Securities represented by Warrants (having an
aggregate Current Adjustment Price for all holders of not more than $250,000)
pursuant to Section 12 of the Warrant.
(b) If a Requested Registration becomes a Cutback Registration and the
number of shares of Registrable Securities actually sold in such Requested
Registration is not at least a majority of the number of shares of Registrable
Securities requested to be included in such registration, then (A) such
Requested Registration shall not be deemed to be a Requested Registration for
the purposes of Section 3.01(a)(ii); and (B) notwithstanding that such Requested
Registration is a Cutback Registration, AROC shall continue to use its best
efforts diligently to comply with all its obligations (including without
limitation payment of expenses) under this Agreement with respect to such
Requested Registration. The registration statement filed pursuant to the
request of holders of Registrable Securities may, subject to the provisions of
Section 3.01(c), include other shares of Common Stock of AROC, which are held by
persons who, by virtue of agreements with AROC, are entitled to include their
securities in any such registration, and AROC shall have the right to include
shares of Common Stock in such registration for its own account as provided
therein.
(c) If a Requested Registration becomes a Cutback Registration, the number
of Common Stock to be included in the underwriting or registration shall be
allocated first to the holders of Registrable Securities and the Electing
Holders (pro rata, based on the number of Registrable Securities requested by
each such holder to be included therein), second to AROC and thereafter to any
other holders requesting inclusion in the registration on the basis of the
number of shares each other requesting holder requests be included bears to the
total number of shares of all other holders of Common Stock that have been
requested be included in such registration. If a person who has requested
inclusion in such registration as provided above does not agree to the terms of
any such underwriting, such person shall be excluded therefrom by written notice
from AROC, the underwriter, or the holders of Registrable Securities. The
securities so excluded shall also be withdrawn from registration.
3.02. Underwriting. If Requesting Holders intend to distribute the Registrable
Securities covered by such request by means of an underwriting, the Requesting
Holders shall so advise AROC as a part of the request made pursuant to this
Section 3, and in such event, the Requesting Holders shall negotiate in good
faith with an underwriter or underwriters proposed by AROC to act as the
Managing Underwriter in connection with the underwriting of the Requested
Registration; provided, however, that if those Requesting Holders who hold at
least a majority of the Registrable Securities to be included in such Requested
Registration have not agreed with such underwriter or underwriters as to the
terms and conditions of such underwriting within 20 days following commencement
of such negotiations, then the Requesting Holders may select an underwriter or
underwriters of their choice to be the Managing Underwriter, which choice shall
be subject to the approval of the Board of Directors of AROC (such approval not
to be unreasonably withheld or delayed, taking into account AROC's agreements
with underwriters then in effect).AROC and the Requesting Holders shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting (it being understood that (i) all
expenses customarily paid for by the issuer of securities pursuant to such an
underwriting agreement shall be paid for by AROC, and (ii) all indemnification
obligations which are customarily those of the issuer of securities under such
underwriting agreement shall be the obligations of AROC).If a Requesting Holder
disapproves of the terms of an underwriting (the "Withdrawing Holder"), the
Withdrawing Holder may elect to withdraw therefrom by notice to AROC and the
Managing underwriter; and each of the remaining Requesting Holders shall be
entitled to increase the number of shares of Registrable Securities being
registered to the extent of the shares withdrawn by the Withdrawing Holder in
the proportion which the number of shares of Registrable Securities being
registered by such remaining Requesting Holder bears to the total number of
shares being
6
<PAGE>
registered by all such remaining Requesting Holders; provided, however, that the
requirements contained in Section 3.01(a)(i) shall then be met and subject to
Section 3.01(c).
Section 4. Expenses of Registration.
Except as otherwise provided herein, (a) in the case of Requested
Registrations pursuant to Section 3, all expenses incurred by AROC or the
Holders in connection with any registration, qualification or compliance
effected pursuant to this Agreement, including without limitation all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for AROC and for the holders of Registrable Securities,
and the expenses of any audits required by such registration, shall be borne by
AROC and (b) in the case of Piggyback Registrations pursuant to Section 2 (other
than a primary registration by AROC), all of the incremental expenses incurred
by AROC (and not otherwise reimbursed) shall be borne by the holders of
Registrable Securities included in any registration pursuant to the terms
hereof; provided, however, that AROC shall not be required to pay: (i) the
underwriters' fees, discounts or commissions relating to Registrable Securities;
or (ii) the fees and disbursements of more than a single law firm for all
holders of Registrable Securities to be selected by the holders of a majority of
such Registrable Securities participating in a Requested Registration pursuant
to Section 3. Notwithstanding the foregoing, AROC shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 3 if
the request for registration is subsequently withdrawn at the request of the
holders of a majority of the Registrable Securities to be registered therein
(which holders shall bear such expenses), unless the holders of a majority of
the Registrable Securities agree that such registration shall be deemed to
constitute a Requested Registration for purposes of the limitation set forth in
the proviso of Section 3.01(a)(ii); provided, however, that if (a) between the
date such request for registration is made and the date of such withdrawal,
there has occurred a material adverse change in the condition, business or
prospects of AROC (or a material adverse change occurring prior to such request
is first publicly disclosed) and (b) such withdrawal shall have occurred prior
to the effective date of the applicable registration statement (it being
understood that the holders shall only have the right to withdraw a Requested
Registration prior to such effective date), then the holders shall not be
required to pay any of such expenses and no Requested Registration shall be
deemed to have occurred pursuant to Section 3.
Section 5. Registration Procedures.
5.01. In the case of each registration, qualification or compliance effected by
AROC pursuant to this Agreement, AROC shall, by notice to each holder of
Registrable Securities included in such registration, keep such holder advised
in writing as to the initiation, progress and effective date of each
registration, qualification and compliance, and, at the expense of AROC, AROC
will:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective as soon as reasonably practicable
thereafter; and before filing a registration statement or prospectus or any
amendments or supplements thereto, furnish to the Investor (provided Registrable
Securities held by the Investor are covered by such registration statement) and
the underwriter or underwriters, if any, copies of all such documents proposed
to be filed, including without limitation documents incorporated by reference in
the prospectus and, if requested by such holders of Registrable Securities, the
exhibits incorporated by reference, and such holders shall have the opportunity
to object to any information pertaining to such holders that is contained
therein and AROC will make the corrections reasonably requested by an
7
<PAGE>
underwriter or such holders with respect to such information prior to filing any
registration statement or amendment thereto or any prospectus or any supplement
thereto;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
(the "Effective Period") of not less than 180 days, or such shorter period as is
necessary to complete the distribution of the securities covered by such
registration statement and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the seller thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including without limitation
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and take such other steps which may be necessary
or advisable in the reasonable judgment of the managing underwriter (and at the
reasonable request of such managing underwriter) to enable such seller to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such seller (provided that AROC will not for any such purpose be
required to (1) qualify generally to do business as a foreign corporation in any
jurisdiction where it would not otherwise be required to qualify but for the
requirements of this subsection; (2) subject itself to taxation in any such
jurisdiction; (3) consent to general service of process in any such
jurisdiction; or (4) register or qualify Registrable Securities or take any
other action under the state securities or "Blue Sky" laws of any jurisdiction
if, in the judgment of the Board of Directors of AROC, the consequences of the
registration, qualification or other action would be unduly burdensome to AROC).
(e) notify the Investor and each seller of such Registrable Securities
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, or at the request of any
seller upon the happening of any event of the kind described in Section 5.01(k),
AROC shall prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading or cures
the event of the kind described in Section 5.01(k);
(f) in the case of an underwritten offering, cause to be delivered to the
sellers of Registrable Securities and the underwriters, if any, opinions of
counsel to AROC in customary form, covering such matters as are customarily
covered by opinions for an underwritten public offering as the underwriters may
reasonably request and addressed to the underwriters and such sellers;
(g) make available for inspection by any seller of Registrable Securities
that is a Significant Holder, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other
agent retained by any seller or underwriter, all financial and other records,
8
<PAGE>
pertinent corporate documents and properties of AROC, and cause AROC's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(h) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(i) cause to be delivered, immediately prior to the effectiveness of the
registration statement (and, in the case of an underwritten offering, at the
time of delivery of any Registrable Securities sold pursuant thereto), letters
from AROC's independent certified public accountants addressed to each seller
that is a Significant Holder and each underwriter, if any, stating that such
accountants are independent public accountants within the meaning of the
Securities Act and the applicable published rules and regulations thereunder,
and otherwise in customary form and covering such financial and accounting
matters as are customarily covered by letters of the independent certified
public accountants delivered in connection with primary or secondary
underwritten public offerings, as the case may be;
(j) make generally available to the holders of Registrable Securities a
consolidated earnings statement (which need not be audited) for the 12 months
beginning after the effective date of a registration statement as soon as
reasonably practicable after the end of such period, which earnings statement
shall satisfy Section 11(a) of the Securities Act and Rule 158 thereunder; and
(k) promptly notify the Investor and any Significant Holder selling
Registrable Securities in such registration and the underwriter or underwriters,
if any:
(i) when the registration statement, any preeffective
amendment, the prospectus or any prospectus supplement or post-effective
amendment to the registration statement has been filed and, with respect to the
registration statement or any post-effective amendment, when the same has become
effective;
(ii) of any written request by the Commission for post-effective
amendments or supplements to the registration statement or prospectus;
(iii) of the notification to AROC by the Commission of its
initiation of any proceeding with respect to the issuance by the Commission of,
or the issuance by the Commission of, any stop order suspending the
effectiveness of the registration statement; and
(iv) of the receipt by AROC of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale under
the applicable securities or blue sky laws of any jurisdiction.
5.02. As soon as possible following receipt of notice from the Managing
Underwriter that a particular registration is a Cutback Registration, AROC will
notify the Investor and each of the holders of Registrable Securities that is a
Significant Holder requested to be included therein that such registration is a
Cutback Registration and of the effect thereof on the ability of such holders to
include their shares in such registration.
5.03. AROC will use its best efforts to become (and thereafter to remain)
eligible to effect Short-Form Registrations.
9
<PAGE>
5.04. Whenever the holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to Section 2 or Section 3, each
holder of Registrable Securities will be deemed to have agreed that, upon
receipt of any notice from AROC of the happening of any event of the kind
described in Section 5.01(e) or Section 5.01(k)(ii) or (iii), the holders of
Registrable Securities covered by such registration statement will forthwith
discontinue disposition of any such Registrable Securities until the holders of
Registrable Securities receive copies of the supplemented or amended prospectus
contemplated by Section 5.01(e), or until they are advised in writing by AROC
that the use of the applicable prospectus may be resumed, and they have received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such prospectus (it being the agreement of
the parties hereto, however, that the obligation of AROC with respect to
maintaining the subject registration statement current and effective shall be
extended by a period of days equal to the period the holders of Registrable
Securities are required by this Section 5.04 to discontinue disposition of such
Registrable Securities.
Section 6. Indemnification; Contribution.
6.01. With respect to any registration, qualification or compliance effected or
to be effected pursuant to this Agreement, AROC shall indemnify each holder of
Registrable Securities whose securities are included or are to be included
therein, each such holder's directors, officers, employees, stockholders,
Affiliates and agents, each underwriter (as defined in the Securities Act) of
the securities sold by such holder and each Person who controls (within the
meaning of the Securities Act) any such holder or underwriter, from and against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on:
(i) any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document (including
without limitation any related registration statement, notification or the
like), or any amendment thereof or supplement thereto, incident to any such
registration, qualification or compliance;
(ii) 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; or
(iii) any violation by AROC of the Securities Act, the Exchange Act or
any rule or regulation promulgated thereunder applicable to AROC, or of any blue
sky or other state securities laws or any rule or regulation promulgated
thereunder applicable to AROC,
and will reimburse each such Person entitled to indemnity under this Section
6.01 for all legal and other expenses reasonably incurred, as the same are
incurred, in connection with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that the foregoing indemnity and
reimbursement obligation shall not be applicable to the extent that any such
claim, loss, damage or liability arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or alleged omission) or
violation made in reliance upon and in conformity with written information
furnished to AROC by such holder specifically for use in such prospectus,
offering circular, other document, amendment or supplement; and provided further
that the foregoing indemnity and reimbursement obligation shall not be
applicable with respect to any preliminary prospectus to the extent that any
loss, claim, damage, liability or expense of the indemnitee results from the
fact that a holder of Registrable Securities sold Registrable Securities to a
person to whom there was not sent or given, at or prior to the written
confirmation of the sale, a copy of the prospectus (excluding documents
incorporated by
10
<PAGE>
reference) or of the prospectus as then amended or supplemented (excluding
documents incorporated by reference) if AROC has previously furnished copies
thereof to the holder of Registrable Securities in compliance with Section 5 of
this Agreement and the loss, claim, damage, liability or expense of the
indemnitee results from an untrue statement or omission of a material fact
contained in such preliminary prospectus which was corrected in the prospectus
(or the prospectus as amended or supplemented).
6.02. With respect to any registration, qualification or compliance effected or
to be effected pursuant to this Agreement, each holder of Registrable Securities
which are included or are to be included in such registration, qualification or
compliance shall indemnify AROC, its directors, officers, employees,
stockholders, Affiliates and agents, each underwriter (as defined in the
Securities Act) of the securities of such holder, each Person who controls
(within the meaning of the Securities Act) AROC or any such underwriter from and
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on:
(i) any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document (including
without limitation any related registration statement, notification or the
like), or any amendment thereof or supplement thereto, incident to any such
registration, qualification or compliance;
(ii) 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;
(iii) any violation by such holder of the Securities Act, the Exchange
Act or any rule or regulation promulgated thereunder applicable to such holder,
or of any blue sky or other state securities law or any rule or regulation
promulgated thereunder applicable to such holder, and will reimburse each such
Person entitled to indemnity under this Section 6.02 for any legal and other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, expense, liability or action; or
(iv) with respect to any preliminary prospectus, the fact that any
holder of Registrable Securities sold Registrable Securities to a person to whom
there was not sent or given, at or prior to the written confirmation of the
sale, a copy of the prospectus (excluding documents incorporated by reference)
or of the prospectus as then amended or supplemented (excluding documents
incorporated by reference) if (a) AROC has previously furnished copies thereof
to the holder of Registrable Securities in compliance with Section 5 of this
Agreement and (b) the loss, claim, damage, liability or expense of the
indemnitee results from an untrue statement or omission of a material fact
contained in the preliminary prospectus which was corrected in the prospectus
(or the prospectus as amended or supplemented);
but in each case of the preceding subsections (i), (ii), (iii) and (iv), only to
the extent that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) or violation is made in such prospectus, offering
circular, other document, amendment or supplement in reliance upon and in
conformity with written information furnished to AROC by such holder
specifically for use in such prospectus, offering circular, other document,
amendment or supplement.
6.03. Each Person entitled to indemnification under this Section 6 (an
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after the Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, however, that:
11
<PAGE>
(i) counsel for the Indemnifying Party who shall conduct the defense of
any such claim or any litigation shall be approved by the Indemnified Party
(which approval shall not be unreasonably withheld or delayed);
(ii) the Indemnified Party may participate in such defense at the
Indemnified Party's expense; provided, however, that the Indemnified Party or
Indemnified Parties shall have the right to employ a single law firm and a
single local counsel law firm to represent it or them if, in the reasonable
judgment of the Indemnified Party or Indemnified Parties, it is advisable for it
or them to be represented by separate counsel by reason of having legal defenses
which are different from or in addition to those available to the Indemnifying
Party, and in that event the reasonable fees and expenses of one such law firm
and one such local law firm shall be paid by the Indemnifying Party; and
(iii) failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
6.
No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of the Indemnified Party to which such claim or
litigation relates, consent to entry of any judgment or enter into any
settlement unless such settlement relieves the Indemnified Party of any and all
liability. Each Indemnified Party shall furnish such information regarding
itself for the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim in litigation resulting therefrom.
6.04. If the indemnity and reimbursement obligation provided for in each of
Section 6.01 and Section 6.02 is unavailable or insufficient to hold harmless an
Indemnified Party in respect of any claims, losses, damages or liabilities (or
actions in respect thereof) referred to therein, then the Indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such claims, losses, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party, on the one hand, and the Indemnified Party, on the other
hand, in connection with statements or omissions which resulted in such claims,
losses, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Indemnifying Party or the Indemnified Party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission.the parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 6.04 were to be determined by pro rata allocation or by any other method
of allocation which does not take account of the equitable considerations
referred to in the first sentence of this Section 6.04. The amount paid by an
Indemnified Party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this Section 6.04 shall be deemed to
include any legal and other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any claim, loss, damage,
liability or action which is the subject of this Section 6.04.
No Indemnified Party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.
The provisions of this Section 6 shall be in addition to any other rights
to indemnification or contribution which an indemnified party may have pursuant
to law, equity, contract or otherwise and shall
12
<PAGE>
remain in full force and effect regardless of any investigation made by or on
behalf of an Indemnified Party and shall survive the transfer of the shares of
Common Stock or other stock or securities which may be issued upon exercise of
the Warrants.
Section 7. Information by Holders.
If Registrable Securities owned by a holder are included in any
registration, such holder shall furnish to AROC such information regarding
itself and the distribution proposed by such holder as AROC may reasonably
request and as shall otherwise be required in connection with any registration,
qualification or compliance referred to in this Agreement.
Section 8. Rule 144 Reporting; Rule 144A Sales.
With a view to making available to each holder of Registrable Securities
the benefits of certain rules and regulations of the Commission which may permit
the sale of the Registrable Securities to the public without registration, AROC
agrees that until the earlier of (a) the date on which no holder owns any
Registrable Securities or (b) the Expiration Date:
(a) AROC shall, at any time after any of AROC's securities are registered
under the Securities Act or the Exchange Act: (i) make and keep available public
information, as those terms are contemplated by Rule 144; (ii) timely file with
the Commission all reports and other documents required to be filed under the
Securities Act and the Exchange Act; (iii) furnish to each holder of Registrable
Securities forthwith upon request a written statement by AROC as to its
compliance with the reporting requirements of the Securities Act and the
Exchange Act, and a copy of the most recent annual or quarterly report of AROC;
and (iv) comply with all rules and regulations of the Commission applicable in
connection with the use of Rule 144 and take such other actions and furnish such
holder with such other public information as such holder may reasonably request
in order to assist such holder in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Registrable Securities without
registration; and
(b) each holder of Registrable Securities and each prospective holder of
Registrable Securities who may consider acquiring Registrable Securities in
reliance upon Rule 144A shall have the right to request from AROC, and AROC will
provide upon request, such public information regarding AROC and its business,
assets and properties, if any, as such holder may reasonably request so as to
assist such holder in the transfer of Registrable Securities to such prospective
holder in reliance upon Rule 144A.
Section 9. Other Registration Rights.
9.01. AROC represents and warrants to the Investor that there is not in effect
on the date hereof any agreement by AROC (other than this Agreement and the
other Registration Agreements) pursuant to which any holders of securities of
AROC have a right to cause AROC to register or qualify such securities under the
Securities Act or any applicable state securities laws.
9.02. So long as any Registrable Securities shall be outstanding, (a) AROC
shall not amend or permit the amendment of the Registration Agreements in any
manner that is inconsistent with this Registration Rights Agreement or which
adversely affect the rights of any holder of Registrable Securities without the
prior written consent of the holders of a majority of the then outstanding
Registrable Securities and (b) AROC shall send any notice in respect of a
registration to be delivered by AROC to any holder of any
13
<PAGE>
rights under any of the Registration Agreements to the Investor and any
Significant Holders of Registrable Securities.so long as any Registrable
Securities shall be outstanding, prior to the Expiration Date (as defined in the
Warrant) AROC shall not agree with the holders of any securities issued or to be
issued by AROC to register or qualify such securities under the Securities Act
or any applicable state securities laws unless such agreement (including any
Registration Agreement) specifically provides that: (a) such holder of such
securities may not participate in any Piggyback Registration except as provided
in Section 2; and (b) the holder of such securities may not participate in any
Requested Registration except as provided in Section 3.
Section 10. Holdback Agreements. In order to facilitate the possibility of
future public offerings of Common Stock, the holders of Registrable Securities
agree that the Registrable Securities will not be resold during a period
commencing on the filing by AROC of a registration statement under the
Securities Act for an underwritten public offering for cash by AROC of Common
Stock or securities convertible into or exercisable or exchangeable for its
Common Stock and continuing until the earlier of the abandonment of the proposed
public offering or 120 days following the date of the last closing in the public
offering without the consent of the underwriters of such offering, except to the
extent such shares are included in such registration. Holders of such
Registrable Securities also agree that they will cooperate with AROC in
providing reasonable written assurances respecting the foregoing to the
underwriter of any such public offering. Holders agree that during the above
restricted period they will not directly or indirectly sell, offer to sell,
contract to sell (including without limitation any short sale), grant an option
to purchase or otherwise transfer or dispose of (other than to donees who agree
to be similarly bound) shares of Registrable Securities at any time during such
period except securities included in such registration. In order to enforce the
foregoing covenant, AROC may impose stop-order instructions with respect to such
shares of Registrable Securities held by each holder, which shall be binding
upon any assignee or successor of such holder (and the shares or securities of
every other person subject to the foregoing restriction), until the end of the
restricted period.
Section 11. Miscellaneous.
11.01. Successors and Assigns. Subject to the provisions of Section 13, this
Agreement shall inure to the benefit of and shall be binding upon the parties
hereto, all the holders of Registrable Securities and their respective legal
representatives, successors and assigns.
11.02. Severability. If any term or provision of this Agreement, or the
application thereof to any Person or circumstance, shall, to any extent, be
invalid or unenforceable, the remaining terms and provisions of this Agreement
or application to Persons and circumstances shall not be invalidated thereby,
and each term and provision hereof shall be construed with all other remaining
terms and provisions hereof to effect the intent of the parties hereto to the
fullest extent permitted by law.
11.03. Notices. All notices, requests and other communications provided for
herein (including without limitation any waivers or consents under this
Agreement) shall be sent in accordance with Section 7.02 of the Warrant
Agreements.
11.04. Certain Terms. As used herein, the neuter gender shall also be deemed to
denote both the masculine and feminine genders. Unless the context otherwise
requires, the words "hereof", "herein", "hereto" and "hereunder", and words of
similar import, when used in this Agreement shall refer to this Agreement as a
whole and not to any particular term or provision of this Agreement. Whenever
the
14
<PAGE>
context requires, the singular form of any noun, pronoun or verb includes the
comparable plural form thereof, and vice versa.
11.05. Counterparts. This Agreement may be executed with counterpart signature
pages or in several counterparts which, when executed and delivered by all
parties hereto, shall be binding on all parties hereto and shall constitute one
Agreement, notwithstanding that all parties have not signed the same signature
page or the same counterpart.
11.06. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF ILLINOIS
APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE FULLY PERFORMED IN SUCH STATE.
11.07. Captions. The headings in this Agreement are for purposes of reference
only and will not be considered in construing this Agreement.
11.08. Amendments, Waivers, etc. This Agreement may be amended only by a
written instrument (which may be executed in any number of counterparts) signed
by AROC and the holders of a majority of the Registrable Securities voting as a
class; provided, however, that no such amendment, without the consent of all
holders of Registrable Securities at the time outstanding, shall amend this
Section 11.08. Subject to Section 11.09, no provision of this Agreement may be
waived except by a written instrument signed by the party hereto sought to be
bound. No failure or delay by any party hereto in exercising any right or
remedy hereunder or under applicable law will operate as a waiver thereof, and a
waiver of a particular right or remedy on one occasion will not be deemed a
waiver of any other right or remedy, or a waiver on any subsequent occasion.
11.09. Consents of Holders of Registrable Securities. Any consent of the
holders of Registrable Securities pursuant to this Agreement, and any waiver by
such holders of any provision of this Agreement, shall be in writing (which may
be executed in any number of counterparts) and may be given or taken by the
holders of a majority of the Registrable Securities voting as a class; provided,
however, that no such consent or waiver, without the consent of all holders of
Registrable Securities at the time outstanding, shall amend this Section 11.09;
and any such consent or waiver so given or taken will be binding on all the
holders of Registrable Securities.
11.10. Recapitalization, Exchanges, etc., Affecting AROC's Capital Stock. The
provisions of this Agreement shall apply, to the full extent set forth herein
with respect to any and all shares of capital stock of AROC or any successor or
assign of AROC (whether by merger, consolidation, sale of assets or otherwise)
which may be issued in respect of, in exchange for or in substitution of, the
Registrable Securities and shall be appropriately adjusted for any stock
dividends, splits, reverse splits, combinations, recapitalization and the like
occurring after the date hereof.
11.11. Delay of Registration. No holder of Registrable Securities shall have
any right to obtain or seek an injunction restraining or otherwise delaying any
such registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Agreement.
11.12. Prior Agreements. This Agreement supersedes the Registration Rights
Agreement between Alliance and the Investor dated as of October 26, 1998, which
shall be of no further force or effect.
15
<PAGE>
Section 12. Listing on Securities Exchanges, etc. AROC shall, promptly after
the registration and sale thereof, use its best efforts to cause any Registrable
Securities (a) to be listed on a national securities exchange and on each
additional national securities exchange on which similar securities of AROC are
listed, if the listing is then permitted under the rules of such exchange, or
(b) to be designated as National Association of Securities Dealers Automated
Quotation System ("NASDAQ") "national market system securities" within the
meaning of Rule llAa2-1 under the Exchange Act if similar securities of AROC are
so designated.
Section 13. Limitation on Registration Rights.
Notwithstanding anything to the contrary contained herein, (a) the rights
of a holder of Registrable Securities under Section 3 hereof shall be terminated
on the tenth anniversary of the date hereof, (b) the rights of a holder of
Registrable Securities under Section 2 hereof shall be terminated on the tenth
anniversary of the date hereof, (c) prior to such time registration rights under
Sections 2 and 3 may be transferred only to transferees that, together with
their respective Affiliates, are Significant Holders (after giving effect to all
such transfers) and (d) no transfer of registration rights under Sections 2 and
3 may be made except in accordance with the terms and conditions set forth
herein, in the Warrants, and in the Warrant Agreements.
In addition, the rights and obligations under this Agreement shall automatically
be transferred to and binding on any transferee or assignee of the Registrable
Securities, provided that, such transferee or assignee:
(i) notifies AROC in writing, within a reasonable time after such
transfer, of the name and address of such transferee or assignee and the
Registrable Securities with respect to which such registration rights are being
transferred or assigned;
(ii) agrees in writing to be bound by and subject to the terms and
conditions of this Agreement;
(iii) receives the Registrable Securities in a transaction that is in
compliance with the requirements for an exemption from the registration
requirements of the Securities Act and applicable state securities laws;
(iv) immediately following such transfer, is subject to restrictions under
the Securities Act on further disposition of such Registrable Securities; and
(v) acquires at least 33% of the total of the Registrable Securities the
Investor is entitled to acquire under the Warrant Agreements and the Registrable
Securities the Investor currently holds.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Registration
Rights Agreement as of the date first written above.
AMERICAN RIVERS OIL COMPANY
By:____________________________
Name:__________________________
Title:_________________________
LASALLE STREET NATURAL
RESOURCES CORPORATION
By:____________________________
Name:__________________________
Title:_________________________
17
<PAGE>
EXHIBIT A
to
Registration Rights Agreement
1. Registration Rights Agreement by and among American Rivers Oil Company, a
Delaware corporation, and F. Fox Benton, Jr., Lizinka M. Benton, F. Fox Benton
III, Lizinka C. Benton and Lucia T. Benton, dated as of October 13, 1999.
2. Registration Rights Agreement by and among American Rivers Oil Company, a
Delaware corporation, EnCap Equity 1996 Limited Partnership, a Texas limited
partnership, and Energy Capital Investment Company Plc, an English investment
company, dated as of October 13, 1999.
18
<PAGE>
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made by and among
---------
American Rivers Oil Company, a Delaware corporation (the "Corporation"), and F.
Fox Benton, Jr., Lizinka M. Benton, F. Fox Benton III, Lizinka C. Benton and
Lucia T. Benton (each a "Selling Shareholder"), who hereby agree as follows:
-------------------
1. Certain Definitions. As used in this Agreement:
-------------------
(i) "Commission" means the Securities and Exchange Commission and any
----------
successor agency.
(ii) "Common Equity Securities" means Common Stock and any option,
------------------------
warrant or right to subscribe for, acquire or purchase any Common Stock, whether
or not currently exercisable, and any security redeemable into Common Stock,
whether or not currently redeemable.
(iii) "Common Stock" means any stock of any class of the Corporation
------------
which has no reference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation and which is not subject to redemption by the Corporation
(whether or not shares of such class have voting rights).
(iv) "CRV Shares" means the unlisted convertible restricted voting
----------
shares of the Corporation issued to the Selling Shareholders pursuant to the
Exchange Agreement.
(v) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(vi) "Exchange Agreement" means that certain Exchange Agreement dated
------------------
as of October 13, 1999 among the Selling Shareholders, Alliance Resources PLC
and the Corporation.
(vii) "Qualified Registrable Securities" means the Common Stock issued
--------------------------------
or that is issuable to the Selling Shareholders pursuant to the Exchange
Agreement upon conversion of any CRV Shares. As to any particular Qualified
Registrable Securities, once issued, the securities shall cease to be Qualified
Registrable Securities when (a) a registration statement with respect to the
securities becomes effective under the Securities Act and the securities have
been disposed of in accordance with the registration statement, (b) the
securities have ceased to be outstanding, (c) the securities have been sold
pursuant to Rule 144 or Regulation S (or any successor provisions) under the
Securities Act or (d) at the time of determination of whether the securities are
Qualified Registrable Securities, the securities may be sold by Selling
Shareholder publicly without registration under the Securities Act and free of
contractual restrictions with the Corporation.
(viii) "Qualified Registration" means a registration statement of the
----------------------
Corporation under the Securities Act on a form that permits the sale of
Qualified Registrable Securities (other than a registration statement (a) on
Form S-4 or S-8, or (b) filed in connection with any financing by the
Corporation that is principally debt or preferred stock financing).
<PAGE>
(ix) "Securities Act" means the Securities Act of 1933, as amended.
--------------
2. Registrations.
--------------
2.1. Piggyback Registration. At any time during the term of this
----------------------
Agreement, whenever the Corporation proposes to register any of its Common
Equity Securities in a Qualified Registration whether or not for sale for its
own account, the Corporation will give prompt written notice ("Piggyback
---------
Notice") to each of the Selling Shareholders of its intention to effect a
registration. Upon the written request of any Selling Shareholder made within 20
days after delivery of any Piggyback Notice (which request shall specify the
Qualified Registrable Securities requested to be included in such Qualified
Registration by Selling Shareholder), the Corporation will, subject to
subsections 2.2 and 2.3 below, use its reasonable efforts to include in the
- --------------- ---
Qualified Registration all Qualified Registrable Securities of the requesting
Selling Shareholder to permit the disposition by that Selling Shareholder of
those securities; provided, however, that (i) if, at any time after giving
-------- ------- ----
written notice of its intention to register any Common Equity Securities in a
Qualified Registration and before the effective date of the registration
statement filed in connection with the Qualified Registration, the Corporation
determines for any reason not to register its Common Equity Securities, the
Corporation may, at its election, give written notice of its determination to
the Selling Shareholders and, thereupon, shall be relieved of its obligation to
register any Qualified Registrable Securities in connection with that
registration, without prejudice, however, to the future rights of the Selling
Shareholders under this Section, (ii) if the Corporation determines in its
discretion to delay the registration of the Common Equity Securities, the
Corporation shall be permitted to delay the registration of any Qualified
Registrable Securities for the same period as the delay in registering any other
Common Equity Securities, and (iii) the Corporation is not required to effect
any registration for a requesting Selling Shareholder pursuant to this
subsection 2.1 unless it receives reasonable assurances that the requesting
- --------------
Selling Shareholder will pay any expenses required to be paid by it as provided
in subsection 4.1. The registrations requested pursuant to this subsection 2.1
-------------- --------------
are referred to herein as the "Piggyback Registrations."
--------- -------------
2.2. Priority on Piggyback Registrations. If a Piggyback Registration is
-----------------------------------
an underwritten registration and the managing underwriter(s) for the offering
advises the Corporation in writing that in its opinion the number of shares of
Qualified Registrable Securities requested or proposed to be included in the
registration exceeds the number that can be sold in the offering without
materially affecting the offering price of the securities proposed to be
included in the offering, the Corporation will include in such registration,
first, any Common Equity Securities proposed to be sold by the Corporation
- -----
pursuant to the registration, and second, to the extent the Qualified Equity
------
Securities of the Selling Shareholders and the Common Equity Securities of any
other shareholders may be included in the Qualified Registration without
materially affecting the offering price thereof, in the opinion of such managing
underwriter(s), the Qualified Registrable Securities requested by any Selling
Shareholders to be included in such Piggyback Registration pursuant to
subsection 2.1 and any other securities of the Corporation held by persons other
- --------------
than Selling Shareholder having rights to participate in such Piggyback
Registration, pro rata among all such holders on the basis of the total number
of shares of securities of the Corporation, including Qualified Registrable
Securities, requested by each such holder to be included therein.
2
<PAGE>
2.3. Selection of Underwriters. If any Piggyback Registration is an
-------------------------
underwritten offering, the Corporation will have the sole right to select the
managing underwriter(s) thereof.
2.4. Relative Rights With Other Holders. The rights of Selling Shareholder
----------------------------------
with respect to Piggyback Registrations shall be pari passu with the piggyback
registration rights of other holders of Common Equity Securities.
3. Registration Procedures. If and whenever the Corporation is required by
-----------------------
the provisions of this Agreement to use its reasonable efforts to effect the
registration of any Qualified Registrable Securities:
3.1. Covenants by Corporation. The Corporation shall, as expeditiously as
------------------------
reasonably practicable:
(i) Prepare and file with the Commission under the Securities Act a
registration statement with respect to the Qualified Registrable Securities, and
use its reasonable efforts to cause such registration statement to become
effective and to remain effective as provided in this Agreement; provided,
--------
however, that the Corporation may discontinue any registration of securities
- ------- ----
that is being effected pursuant to subsection 2.1 at any time prior to the
--------------
effective date of the registration statement relating thereto.
(ii) Prepare and file with the Commission such amendments and
supplements, if any, to the registration statement and the prospectus included
in the registration statement as may be necessary to (a) keep the registration
statement effective until the earlier of 90 days after its effectiveness or the
completion of the distribution under the registration statement, and (b) comply
with the provisions of the Securities Act applicable to it with respect to the
disposition of all Qualified Registrable Securities covered by the registration
statement during that period in accordance with the intended methods of
disposition by the Selling Shareholders.
(iii) Furnish to any Selling Shareholder participating in the
registration and the underwriter, if any, the number of copies of the
registration statement (including exhibits), each amendment and supplement
thereto, the prospectus included in the registration statement (including each
preliminary prospectus) and of each amendment and supplement thereto as the
Selling Shareholder and its underwriter may reasonably request in order to
facilitate the public disposition of the Qualified Registrable Securities owned
by the Selling Shareholder and included in the registration statement.
(iv) Use its reasonable efforts to (a) register or qualify the
Qualified Registrable Securities under the securities or blue sky laws of any
jurisdictions as any Selling Shareholder participating in the registration or
the underwriter reasonably requests, (b) keep the registration and qualification
in effect for so long as the registration statement is in effect, and (c) do any
and all other acts and things that may be reasonably necessary or advisable to
enable the Selling Shareholder to complete the disposition in such jurisdictions
of the relevant Qualified Registrable Securities (provided that the Corporation
-------- ----
will not for any such purpose be required to (1) qualify generally to do
business as a foreign corporation in any jurisdiction where it would not
otherwise be required to qualify but for the requirements of this subsection;
(2) subject itself to taxation in any such
3
<PAGE>
jurisdiction; (3) consent to general service of process in any such
jurisdiction; or (4) register or qualify Qualified Registrable Securities or
take any other action under the state securities or "Blue Sky" laws of any
jurisdiction if, in the judgment of the Board of Directors of the Corporation,
the consequences of the registration, qualification or other action would be
unduly burdensome to the Corporation).
(v) At any time when a prospectus relating to the registration
statement is required to be delivered under the Securities Act, notify any
Selling Shareholder participating in the registration when it becomes aware of
the happening of any event as a result of which the prospectus (as then amended
or supplemented) contains any untrue statement of a material fact or omits any
fact necessary to make the statements therein in the light of the circumstances
under which they were made not misleading, and, at the request of the Selling
Shareholder, as promptly as practicable thereafter, prepare in sufficient
quantities and furnish to the Selling Shareholder and the underwriter a
reasonable number of copies of a prospectus supplemented or amended so that, as
thereafter delivered to the offerees or purchasers of the Qualified Registrable
Securities, the prospectus will not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements therein in light
of the circumstances then existing not misleading.
(vi) Comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at least
twelve consecutive months beginning with the first day of the Corporation's
first calendar quarter after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
(vii) Use its reasonable efforts to cause all Qualified
Registrable Securities covered by the registration statement to be listed on any
securities exchange, if any, on which similar securities issued by the
Corporation are then listed, if the listing of the Qualified Registrable
Securities is then permitted under the rules of the exchange.
(viii) Enter into customary agreements relating to the registration
(including an underwriting agreement in customary form if the registration is in
connection with an underwritten offering).
(ix) Subject to the execution of confidentiality agreements in a
form satisfactory to the Corporation, make reasonably available for inspection
by the Selling Shareholder, any underwriter participating in any disposition
pursuant to the registration statement and any legal counsel, accountant or
other agent retained by any underwriter, all financial and other records,
pertinent corporate documents and properties of the Corporation, and cause the
Corporation's directors, officers, employees, counsel and independent public
accountants to supply all information reasonably requested by, and to respond to
inquiries from, the Selling Shareholder, any such underwriter, legal counsel,
attorney, accountant or agent in connection with such registration statement, in
each case, to the extent that information is reasonably necessary to satisfy any
of its obligations under applicable law.
(x) Use reasonable efforts to obtain an appropriate opinion from
counsel for the Corporation and a "cold comfort" letter from the Corporation's
independent public accountants, each
4
<PAGE>
in customary form and covering matters of the type customarily covered by
opinions of counsel and cold comfort letters in similar registrations; provided,
--------
however, that failure to provide such opinion or letter, or the provision of any
- ------- ----
such opinion or letter in a form not satisfactory to the Selling Shareholders,
notwithstanding the Corporation's reasonable efforts, shall not give rise to any
action, at law or in equity, for damages or injunctive or other relief, but
rather shall only entitle the Selling Shareholders to withdraw its Qualified
Registrable Securities from the registration statement, pursuant to subsection
----------
3.3 below.
- ---
(xi) Provide (a) any Selling Shareholder participating in the
registration, (b) the underwriter or underwriters (which term, for purposes of
this Agreement, shall include any person deemed to be an underwriter within the
meaning of Section 2(11) of the Securities Act), if any, of the securities being
sold, and (c) counsel for the underwriters the opportunity to participate in the
preparation of the registration statement, each prospectus included therein or
filed with the Commission, and each amendment or supplement thereto.
(xii) Promptly notify any Selling Shareholder participating in the
registration and the underwriter, if any, and (if requested by any such person)
confirm the advice in writing, (a) when the registration statement, the
prospectus or any prospectus supplement or post-effective amendment has been
filed, and, when the registration statement or any post-effective amendment
thereto has become effective, (b) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose, or (c) of the receipt by the
Corporation of any notification with respect to the suspension of the
qualification of the Qualified Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for that
purpose.
(xiii) Use its reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement hereunder or any
post-effective amendment thereto at the earliest practicable date.
(xiv) Notify in writing the Selling Shareholders of any proposal
by the Corporation to amend or waive any provision of this Agreement pursuant to
subsections 8.2 and 8.3 and of any amendment or waiver effected pursuant to
- --------------- ---
those subsections, each of which notices shall contain the text of the amendment
or waiver proposed or effected, as the case may be.
3.2. Certain Agreements by the Selling Shareholders.
----------------------------------------------
(i) Each of the Selling Shareholders agrees that upon receipt of
any notice from the Corporation of the happening of any event of the kind
described in subsection 3.1(v), the Selling Shareholder will immediately
-----------------
discontinue its disposition of Qualified Registrable Securities pursuant to the
registration statement covering its Qualified Registrable Securities until its
receipt of the copies of the supplemented or amended prospectus contemplated by
subsection 3.1(v) and, if so directed by the Corporation, will deliver to the
- -----------------
Corporation (at the Corporation's expense) all copies, other than permanent file
copies, then in its possession of the prospectus covering the Qualified
Registrable Securities that was in effect at the time of receipt of the notice.
If the Corporation gives any such notice, the period mentioned in subsection
----------
3.1(ii)(a)(1) shall be extended by the number of days during the period from and
- -------------
including the date of the giving of the notice to and including the date
5
<PAGE>
when Selling Shareholder receives the copies of the supplemented or amended
prospectus contemplated by subsection 3.1(v).
-----------------
(ii) Each of the Selling Shareholders agrees that upon receipt of a
notice from the Corporation that it has filed and caused to become effective a
registration statement that includes an offering of Common Equity Securities for
sale by the Corporation to the public in an underwritten public offering, if the
Selling Shareholder was given the opportunity to include its Qualified
Registrable Securities for sale in the public offering, the Selling Shareholder
shall enter into agreements with the underwriters of the public offering,
substantially in the same form as agreements entered into by the officers and
directors of the Corporation, precluding the sale of Common Stock by the Selling
Shareholder for a period not to exceed 180 days following the notice.
3.3. Withdrawal. If any Selling Shareholder disapproves of the terms of
----------
any offering, the Selling Shareholder's sole remedy shall be, at its sole
discretion, to withdraw its Qualified Registrable Securities and other
securities of the Corporation from the offering by written notice to the
Corporation and the underwriter (if any); and the Selling Shareholder's
Qualified Registrable Securities and other securities of the Corporation
withdrawn from the offering will also be withdrawn from registration.
3.4. Information. The Corporation may require each Selling Shareholder to
------------
furnish the Corporation such information regarding the Selling Shareholder and
the distribution of its securities as the Corporation may from time to time
reasonably request in writing for purposes of preparation of the registration
statement, to the extent that the information is required to comply with
applicable legal requirements.
4. Registration Expenses.
---------------------
4.1. Responsibility for Payment. Whether or not any registration pursuant
--------------------------
to this Agreement becomes effective, all expenses incident to the Corporation's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, National Association of Securities Dealers'
fees, fees and expenses of compliance with state securities or blue sky laws,
printing and engraving expenses and fees and disbursements of counsel for the
Corporation and the independent certified public accountants for the
Corporation, underwriters (excluding discounts, commissions and transfer taxes
attributable to securities offered by the Selling Shareholders and amounts to be
borne by the underwriters) and other persons retained by the Corporation (all
such expenses being herein called "Corporation Registration Expenses"), will be
---------------------------------
borne by the Corporation, and all expenses incident to the Selling
Shareholders' performance of or compliance with this Agreement, including
without limitation all fees and disbursements of counsel for the Selling
Shareholders and the discounts, commissions and transfer taxes attributable to
securities offered by the Selling Shareholders, will be borne by the Selling
Shareholders; provided, however, that (i) if the Selling Shareholders are
-------- ------- ----
required to pay any Registration Expenses as provided in subsection 4.2, then
--------------
the Selling Shareholders shall pay the Registration Expenses in the proportion
to (a) the number of shares of Qualified Registrable Securities requested to be
registered by the Selling Shareholder in the registration statement if the
registration does not become effective, or (b) the number of shares of Qualified
Registrable Securities of the Selling Shareholder included in the registration
statement, if the registration statement becomes effective, unless in either
case
6
<PAGE>
another basis of sharing the Registration Expenses is required under applicable
laws, rules or regulations, in which case such other method shall apply; and
(ii) the Selling Shareholder shall pay any underwriting discounts and selling
commissions and transfer taxes applicable to Qualified Registrable Securities
sold by Selling Shareholder.
4.2. Legal Requirements. Notwithstanding anything herein to the contrary,
------------------
Selling Shareholder shall pay the Registration Expenses to the extent required
by applicable law.
5. Indemnification.
---------------
5.1. Indemnification by the Corporation. The Corporation agrees to
----------------------------------
indemnify and hold harmless, to the full extent permitted by law, each Selling
Shareholder, its directors, officers, employees and agents (and the directors,
officers, employees and agents thereof) and each other person or entity who
controls the Selling Shareholder within the meaning of the Securities Act
(collectively, the "Selling Shareholder Indemnitees" and individually a "Selling
------- ----------------------- -------
Shareholder Indemnitee") against all losses, claims, damages, liabilities and
- ----------------------
expenses, joint or several (including reasonable fees of counsel and any amounts
paid in settlement effected with the Corporation's consent, which consent shall
not be unreasonably withheld), to which any such Selling Shareholder Indemnitee
may become subject under the Securities Act, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or expenses (or actions or
proceedings, whether commenced or threatened, in respect thereof), are caused by
(i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement in which such Qualified Registrable
Securities were included or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Corporation shall have filed with the Commission any
amendment or supplement), or the omission or alleged omission to state therein 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, or (iii) any violation by the Corporation of any federal, state
or common law rule or regulation applicable to the Corporation and relating to
action of or inaction by the Corporation in connection with any registration
statement; and in each case the Corporation will reimburse each Selling
Shareholder Indemnitee for any reasonable legal or any other expenses incurred
by any of them in connection with investigating or defending any such loss,
claim, damage, liability, expense, action or proceeding; provided, that the
-------- ----
Corporation shall not be liable to any such Selling Shareholder Indemnitee in
any case to the extent that any loss, claim, damage, liability or expense (or
action or proceeding, whether commenced or threatened, in respect thereof)
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in the registration statement or amendment
or supplement or in any such preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Corporation by or on behalf of any Selling Shareholder relating to a Selling
Shareholder for use in the preparation thereof; and provided further that the
-------- ------- ----
Corporation shall not be liable to any Selling Shareholder Indemnitee with
respect to any preliminary prospectus to the extent that any loss, claim,
damage, liability or expense of the Selling Shareholder Indemnitee results from
the fact that a Selling Shareholder sold Qualified Registrable Securities to a
person to whom there was not sent or given, at or prior to the written
confirmation of the sale, a copy of the prospectus (excluding documents
7
<PAGE>
incorporated by reference) or of the prospectus as then amended or supplemented
(excluding documents incorporated by reference) if the Corporation has
previously furnished copies thereof to the Selling Shareholder in compliance
with Section 3 of this Agreement and the loss, claim, damage, liability or
---------
expense of the Selling Shareholder Indemnitee results from an untrue statement
or omission of a material fact contained in such preliminary prospectus which
was corrected in the prospectus (or the prospectus as amended or supplemented).
Such indemnity and reimbursement of expenses shall remain in full force and
effect regardless of any investigation made by or on behalf of any Selling
Shareholder and shall survive the transfer of such securities by any Selling
Shareholder.
5.2. Indemnification by the Selling Shareholders. Each Selling Shareholder
-------------------------------------------
agrees, jointly and severally, to indemnify and hold harmless, to the fullest
extent permitted by law, the Corporation, its directors, officers, employees and
agents and each Person who controls the Corporation (within the meaning of the
Securities Act) (collectively, the "Corporation Indemnitees" and individually a
-----------------------
"Corporation Indemnitee") against all losses, claims, damages, liabilities and
----------------------
expenses, joint or several (including reasonable fees of counsel and any amounts
paid in settlement effected with any Selling Shareholder's consent, which
consent shall not be unreasonably withheld) to which any Corporation Indemnitee
may become subject under the Securities Act, at common law or otherwise insofar
as such losses, claims, damages, liabilities or expenses (or actions or
proceedings, whether commenced or threatened, in respect thereof) are caused by
(i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement in which any of the Qualified
Registrable Securities were included or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary, final or
summary prospectus, together with the documents incorporated by reference
therein (as amended or supplemented if the Corporation shall have filed with the
Commission any amendment thereof or supplement thereto), or the omission or
alleged omission to state therein 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 to the extent, but only
to the extent, in the cases described in clauses (i) and (ii), that such untrue
statement or omission is contained in any information furnished in writing by
any Selling Shareholder relating to any Selling Shareholder for use in the
preparation thereof and if the Corporation does not know, at the time the
information is included in the registration statement, prospectus, preliminary
prospectus, amendment or supplement, that the information is false or
misleading, (iii) any violation by any Selling Shareholder of any federal, state
or common law, rule or regulation applicable to any Selling Shareholder and
relating to action of or inaction by any Selling Shareholder in connection with
any registration statement, and (iv) with respect to any preliminary prospectus,
the fact that any Selling Shareholder sold Qualified Registrable Securities to a
person to whom there was not sent or given, at or prior to the written
confirmation of the sale, a copy of the prospectus (excluding documents
incorporated by reference) or of the prospectus as then amended or supplemented
(excluding documents incorporated by reference) if (a) the Corporation has
previously furnished copies thereof to the Selling Shareholder in compliance
with Section 3 of this Agreement and (b) the loss, claim, damage, liability or
---------
expense of the Corporation Indemnitee results from an untrue statement or
omission of a material fact contained in the preliminary prospectus which was
corrected in the prospectus (or the prospectus as amended or supplemented).
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Corporation (except as provided above)
or any Selling Shareholder and shall survive the transfer of the securities by
any Selling Shareholder.
8
<PAGE>
5.3. Conduct of Indemnification Proceedings. Promptly after receipt by an
--------------------------------------
indemnified party under subsection 5.1 or 5.2 above of written notice of the
-------------- ---
commencement of any action, suit, proceeding, investigation or threat thereof
made in writing with respect to which a claim for indemnification may be made
pursuant to this Section 5, the indemnified party shall, if a claim in respect
---------
thereto is to be made against an indemnifying party, give written notice to the
indemnifying party of the threat or commencement thereof; but the failure to
notify the indemnifying party shall not relieve it from any liability that it
may have to any indemnified party except to the extent that the indemnifying
party is actually prejudiced by the failure to give notice. In case any such
claim or action referred to under subsections 5.1 or 5.2 shall be brought
--------------- ---
against any indemnified party and it shall notify the indemnifying party of the
threat or commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to the indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party). After notice from the indemnifying party to such indemnified party of
its election so to assume the defense of any such claim or action, the
indemnifying party shall not be liable to such indemnified party under this
Section 5 for any legal expenses of counsel or any other expenses subsequently
- ---------
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation unless the indemnifying party has failed
to assume the defense of such claim or action or to employ counsel reasonably
satisfactory to such indemnified party. The indemnifying party shall not be
required to indemnify the indemnified party with respect to any amounts paid in
settlement of any action, proceeding or investigation entered into without the
written consent of the indemnifying party which consent shall not be
unreasonably withheld. No indemnifying party will consent to the entry of any
judgment or enter into any settlement without the consent of the indemnified
party, unless (i) such judgment or settlement does not impose any obligation or
liability upon the indemnified party other than the execution, delivery or
approval thereof, and (ii) such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim for
all persons that may be entitled to or obligated to provide indemnification or
contribution under this Section 5.
---------
5.4. Additional Indemnification. Indemnification similar to that specified
--------------------------
in the preceding subsections of this Section 5 (with appropriate modifications)
---------
shall be given by the Corporation and the Selling Shareholders with respect to
any required registration or other qualification of securities under any state
securities or blue sky laws.
5.5. Contribution. If the indemnification provided for in this Section 5
------------ ---------
is unavailable to or insufficient to hold harmless an indemnified party under
subsections 5.1 or 5.2 above, then each indemnifying party shall contribute to
- --------------- ---
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages, liabilities or expenses (or actions in respect thereof)
referred to in subsections 5.1 or 5.2 in such proportion as is appropriate to
--------------- ---
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements, omissions,
actions or inactions which resulted in such losses, claims, damages, liabilities
or expenses. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party, any action or
inaction by any such
9
<PAGE>
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, omission, action or inaction.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or expenses (or actions in respect thereof)
referred to above in this subsection 5.5 shall be deemed to include any
--------------
reasonable legal or other expenses incurred by such indemnified party in
connection with investigating or defending any such action or claim (which shall
be limited as provided in subsection 5.3 if the indemnifying party has assumed
--------------
the defense of any such action in accordance with the provisions thereof) which
is the subject of this subsection 5.5. No person guilty of fraudulent
--------------
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Promptly after receipt by an indemnified party
under this subsection 5.5 of written notice of the commencement of any action,
--------------
suit, proceeding, investigation or threat thereof made in writing with respect
to which a claim for contribution may be made against an indemnifying party
under this subsection 5.5, such indemnified party shall, if a claim for
--------------
contribution in respect thereto is to be made against an indemnifying party,
give written notice to the indemnifying party in writing of the commencement
thereof (if the notice specified in subsection 5.3 has not been given with
--------------
respect to such action); but the failure to so to notify the indemnifying party
shall not relieve it from any obligation to provide contribution that it may
have to any indemnified party under this subsection 5.5 except to the extent
--------------
that the indemnifying party is actually prejudiced by the failure to give
notice. Notwithstanding anything in this subsection 5.5 to the contrary, no
--------------
indemnifying party (other than the Corporation) shall be required pursuant to
this subsection 5.5 to contribute any amount that exceeds the amount by which
--------------
the dollar amount of the proceeds received by such indemnifying party from the
sale of Qualified Registrable Securities and other securities of the Corporation
(after deducting any underwriting commissions, discounts and transfer taxes
applicable thereto) in the offering to which the losses, claims, damages,
liabilities or expenses of the indemnified parties relate exceeds the amount of
any losses, claims, damages, liabilities and expenses that the indemnifying
party has otherwise been required to pay as indemnity or contribution hereunder
by reason of such losses, claims, damages, liabilities or expenses.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this subsection 5.5 were determined by pro rata
--------------
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
If indemnification is available under this Section 5, the indemnifying
---------
parties shall indemnify each indemnified party to the full extent provided in
subsections 5.1 and 5.2 without regard to the relative fault of said
- --------------- ---
indemnifying party or indemnified party or any other equitable consideration
provided for in this subsection 5.5. The provisions of this subsection 5.5
-------------- --------------
shall be in addition to any other rights to indemnification or contribution that
any indemnified party may have pursuant to law or contract and shall remain in
full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the transfer of securities by any such
party.
5.6. Indemnification and Contribution of Underwriters. In connection with
------------------------------------------------
any underwritten offering contemplated by this Agreement which includes a
Selling Shareholder's Qualified Registrable Securities, the Corporation and the
Selling Shareholder will agree to customary provisions for indemnification and
contribution (consistent with the other provisions of this Section 5) in respect
---------
of losses, claims, damages, liabilities and expenses of the underwriters of such
offering.
10
<PAGE>
6. Participation in Underwritten Registrations. In the case of a registration
-------------------------------------------
hereunder, if the Corporation has determined to enter into an underwriting
agreement in connection therewith, all shares of Qualified Registrable
Securities to be included in such registration shall be subject to the
underwriting agreement, which shall be in customary form and contain such terms
as are customarily contained in such agreements, and the Selling Shareholders
may not participate in any such registration unless the Selling Shareholder (a)
agrees to sell its securities on the basis provided in any underwriting
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of the underwriting arrangements.
7. Rights to Withdraw From Registration. If, as a result of the proration
------------------------------------
provisions of subsection 2.2, a Selling Shareholder is not entitled to include
--------------
all Qualified Registrable Securities in a registration that the Selling
Shareholder has requested to be included, the Selling Shareholder may elect to
withdraw its request to include Qualified Registrable Securities in the
registration (a "Withdrawal Election"); provided, however, that a Withdrawal
------------------- -------- ------- ----
Election shall be irrevocable and, after making a Withdrawal Election, the
Selling Shareholder shall no longer have any right to include Qualified
Registrable Securities in the registration as to which the Withdrawal Election
was made.
8. Miscellaneous.
--------------
8.1. Termination. This Agreement and all rights and obligations hereunder
-----------
with respect to any Qualified Registrable Securities (except for the
indemnification and contribution rights provided in Section 5 which shall
---------
survive forever) will terminate on the tenth anniversary of the date of this
Agreement.
8.2. Waivers. None of the rights of either party hereto may be waived
-------
except in writing.
8.3. Amendments. Except as otherwise provided herein, this Agreement may
----------
be amended only with the written consent of the Corporation and the Selling
Shareholders.
8.4. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of and be enforceable by the respective permitted (as
provided in subsection 8.5(ii) below) successors and assigns of the parties
--------------
hereto, whether so expressed or not.
8.5. Subsequent Holders; After-Acquired Qualified Registrable Securities.
-------------------------------------------------------------------
(i) The terms "Qualified Registrable Securities" and "Common Equity
-------------------------------- -------------
Securities" do not include any Common Equity Securities acquired by Selling
- ----------
Shareholder otherwise than pursuant to the Exchange Agreement.
(ii) The Selling Shareholders' rights under this Agreement are not
assignable, except to other persons named as Selling Shareholders in this
Agreement.
8.6. Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be
11
<PAGE>
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
8.7. Counterparts. This Agreement may be executed in two or more
------------
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
Agreement.
8.8. Descriptive Headings. The descriptive headings of this Agreement are
--------------------
inserted for convenience only and shall not limit or otherwise affect the
meaning hereof.
8.9. Governing Law. All questions concerning the construction, validity
-------------
and interpretation of this Agreement and the exhibits and schedules hereto will
be governed by the internal law, and not the law of conflicts, of Texas.
8.10. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when actually delivered to
the recipient by special courier or personal delivery, or by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications will be sent to the Selling Shareholders and
the Corporation at their respective addresses indicated below:
If to the Corporation:
American Rivers Oil Company
4200 East Skelly Drive
Suite 1000
Tulsa, Oklahoma 74135
Attn: John A. Keenan
with copies to:
Mr. W. Alan Kailer
Jenkens & Gilchrist, P.C.
3200 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202
Telephone: (214) 855-4500
Facsimile: (214) 855-4300
If to the Selling Shareholders:
Mr. F. Fox Benton, Jr.
3395 Del Monte Drive
Houston, Texas 77019
Telephone: (713) 336-6521
Facsimile: (713) 336-6555
12
<PAGE>
Lizinka M. Benton, Jr.
3395 Del Monte Drive
Houston, Texas 77019
Telephone: (713) 336-6521
Facsimile: (713) 336-6555
F. Fox Benton III
2830 Robinhood
Houston, Texas 77005
Lizinka C. Benton
1726 Deloz
Los Angeles, California 90027
Lucia T. Benton
2731 Pittsburg
Houston, Texas 77005
in each case with copies to:
Michael P. Finch, Esq.
Vinson & Elkins LLP
1001 Fannin, Suite 2300
Houston, Texas 77002
Telephone: (713) 758-2128
Facsimile: (713) 615-5282
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
8.11. Benefit of Agreement. No person not a party to this Agreement
--------------------
shall have rights under this Agreement as a third party beneficiary or
otherwise.
8.12. Changes in Outstanding Securities. The provisions of this
---------------------------------
Agreement regarding Common Equity Securities and Qualified Registrable
Securities shall apply to securities of the Corporation or any successor or
assign of the Corporation (whether by merger, consolidation, sale of assets or
otherwise) that may be issued in respect of, or by reason of any stock dividend,
stock split, stock issuance, reverse stock split, combination, recapitalization,
reclassification, merger, consolidation or otherwise. Upon the occurrence of
any of such events, the definitions of Common Equity Securities and Qualified
Registrable Securities shall be appropriately modified by the Board of Directors
of the Corporation.
8.13. Exchange Act Reports. The Corporation covenants that it will
--------------------
timely file the reports required to be filed by it under the Securities Act or
the Exchange Act (including but not limited to the reports under Sections 13 and
15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 under
the Securities Act) to the extent required from time to time to enable Selling
13
<PAGE>
Shareholder to sell the Qualified Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 under the Securities Act. Upon the request of a Selling Shareholder,
the Corporation will deliver to the Selling Shareholder a written statement as
to whether it has complied with the requirements of this Section.
8.14. Entire Agreement. This Agreement sets forth the entire agreement
----------------
of the parties hereto as to the subject matter hereof and supersedes all
previous agreements among all or some of the parties hereto, whether written,
oral or otherwise. In particular, this Agreement supersedes the Registration
Rights Agreement among Alliance Resources Plc and the Selling Shareholders dated
as of October 30, 1998, which shall be of no further force or effect.
8.15. Specific Performance. The parties to this Agreement acknowledge
--------------------
that there may be no adequate remedy at law if any party fails to perform any of
its obligations under this Agreement, and accordingly agree that each party in
addition to any other remedy to which it may be entitled at law or in equity,
shall be entitled to compel specific performance of the obligations of any other
party under this Agreement in accordance with the terms and conditions of this
Agreement, in any court of the United States or any State thereof having
jurisdiction.
8.16. Inspection. For so long as this Agreement shall be in effect, a
----------
complete list of the names and addresses of all the holders who have
registration rights similar to those set forth in subsection 2.1 of this
Agreement shall be made available for inspection and copying on any business day
by the Selling Shareholder at the offices of the Corporation at the address
thereof set forth in subsection 8.10 above.
---------------
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of October 13, 1999.
AMERICAN RIVERS OIL COMPANY
a Delaware corporation
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
/s/ F. Fox Benton, Jr.
-------------------------------------------------
F. Fox Benton, Jr.
/s/ Lizinka M. Benton
-------------------------------------------------
Lizinka M. Benton
/s/ F. Fox Benton, Jr.
-------------------------------------------------
F. Fox Benton III, either individually or by
F. Fox Benton, Jr. as Attorney-in-Fact
/s/ F. Fox Benton, Jr.
-------------------------------------------------
Lizinka C. Benton, either individually or by
F. Fox Benton, Jr. as Attorney-in-Fact
/s/ F. Fox Benton, Jr.
-------------------------------------------------
Lucia T. Benton, either individually or by
F. Fox Benton, Jr. as Attorney-in-Fact
15
<PAGE>
EXHIBIT 10.5
DATED OCTOBER 13, 1999
----------------------
AMERICAN RIVERS OIL COMPANY
________________________________
WARRANT AGREEMENT
relating to the issuance of
Series D, E, F, G and H Warrants of
American Rivers Oil Company
_______________________________
<PAGE>
THIS WARRANT AGREEMENT (the "Agreement") is entered into as of October 13,
1999 among American Rivers Oil Company, a Delaware corporation ("the Company"),
Alliance Resources Plc, a public limited company formed under the laws of
England and Wales ("Alliance"), and those persons identified on the signature
page of this Agreement as Warrant Holders (the "Warrant Holders").
Recitals
The Warrant Holders hold warrants (the "Alliance Warrants") of Alliance
pursuant to Warrant Instruments of Alliance dated May 1, 1997 and October 30,
1998.
Alliance and the Company have entered into an Exchange and Merger Agreement
(the "Exchange and Merger Agreement") dated July 22, 1999, providing among other
things for the Company to offer (the "Offer") to acquire all of the outstanding
ordinary shares of Alliance.
One of the conditions to the completion of the Exchange and Merger
Agreement is that the Company shall enter into agreements with the holders of
the Alliance Warrants, on terms satisfactory to Alliance, providing that after
the Offer becomes unconditional each then outstanding Alliance Warrant shall be
exchanged for the right to receive warrants of the Company having terms
substantially similar to the terms of the Alliance Warrants.
The parties to this Agreement desire to provide for the exchange of the
Alliance Warrants for similar warrants of the Company.
Now, therefore, in consideration of the premises and the mutual agreements
of the parties, the parties to this Agreement hereby agree as follows:
Agreement
I. INTERPRETATION
In this Warrant Agreement, unless the context otherwise requires, the
expressions defined in the particulars of Warrants set out in the Schedule
hereto shall have the meanings thereby given.
II. WARRANTS
A. The Warrants shall be constituted as follows:
(i) 287,119 Series "D" Warrants entitling the holders to subscribe
for shares of common stock, par value $0.001 per share (the
"Common Stock") of the Company at a fixed price of $0.86 per
share (subject to the provisions of the Schedule hereto) at any
time prior to 5:00 p.m. (Tulsa, Oklahoma time) on March 31,
2001;
(ii) 30,953 Series "E" Warrants entitling the holders to subscribe
for shares of Common Stock at a fixed price of $0.86 per share
(subject to the provisions of the Schedule hereto) at any time
prior to 5:00 p.m. (Tulsa, Oklahoma time) on October 31, 2001;
and
(iii) 275,139 Series "F" Warrants entitling the holders to subscribe
for shares of Common Stock at a fixed price of $1.38 per share
(subject to the provisions of the Schedule
2
<PAGE>
hereto) at any time prior to 5:00 p.m. (Tulsa, Oklahoma time) on
December 16, 2002;
(iv) 1,210,938 Series "G" Warrants entitling the holders to subscribe
for shares of Common Stock at a fixed price of $1.60 per share
(subject to the provisions of the Schedule hereto) at any time
prior to 5:00 p.m. (Tulsa, Oklahoma time) on May 1, 2007;
(v) 3,275,000 Series "H" Warrants entitling the holders to subscribe
for shares of Common Stock at a fixed price of $0.01 per share
(subject to the provisions of the Schedule hereto) at any time
prior to 5:00 p.m. (Tulsa, Oklahoma time) on October 30, 2008;
each of the relative final dates for exercise of a Warrant being, in
respect of the Warrants to which it relates, the "Expiration Date" and each
of the relative prices payable upon exercise of a Warrant being, in respect
of the Warrants to which it relates, the "Subscription Price".
B. The Warrants shall be issued as follows:
(i) Each of the Warrant Holders agrees that immediately upon the
Offer being declared unconditional as provided in Section 2.3 of the
Exchange and Merger Agreement, each outstanding Alliance Warrant shall be
canceled and converted solely into the right to receive one Warrant of the
Company having the terms provided in this Agreement, the Alliance Warrants
shall cease to exist, and each holder of a certificate representing any
such Alliance Warrants shall thereafter cease to have any rights with
respect to such Alliance Warrants, except the right to receive the Warrants
of the Company upon the surrender of such certificate in accordance with
paragraph (iii) below.
(ii) On or after the Offer being declared unconditional, each person
who was immediately before that time a holder of record of Alliance
Warrants may deliver to the Company a letter of transmittal duly executed
and completed in accordance with the instructions thereto, together with
such holders' certificates representing such Alliance Warrants and the
Company shall deliver to such holders certificates in respect of the
Warrants of the Company to which such holders are then entitled.
C. Each of the Warrant Holders represents and agrees as follows:
(i) It is the sole legal and beneficial owner of the Alliance
Warrants registered in its name, free from any encumbrance arising by,
through or under such holder, but not otherwise.
(ii) It has the requisite power and authority to enter into and
perform this Agreement and this Agreement and any other documents executed
by it in connection with this Agreement will, when executed, constitute
binding obligations of the Warrant Holder enforceable in accordance with
their respective terms.
(iii) It is an "accredited investor" as that term is defined in the
Securities Act of 1933, as amended, and is acquiring the Warrants for its
own account, and has received all information it believes necessary to
evaluate its investment in the Warrants.
(iv) Each of the Warrant Holders hereby acknowledges and confirms
that the Warrants and the Common Stock, whether issued or arising as a
consequence of exercise of the Warrants will
3
<PAGE>
be "restricted securities" under the United States Securities Act of 1933
(as amended) and that the ability to resell such Warrants and such Common
Stock will therefore be limited.
D. Each of Alliance and the Company represents and agrees as follows:
(i) The representations and warranties made by each of them in the
Exchange and Merger Agreement are true and correct.
(ii) The execution and performance of this Agreement by each of them
have been duly and validly authorized by the board of directors of each of
them, and no other corporate action is necessary to authorize the
execution, delivery and performance of this Agreement by each of them. Each
of them 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
each of them and this Agreement and any other documents executed by them in
connection with this Agreement is constitute valid and binding obligations
of each of them, enforceable in accordance with their respective terms.
(iii) They will not modify or amend the terms of the Offer or the
Exchange and Merger Agreement without the consent of the Warrant Holders.
III. CERTIFICATES
Every Warrant Holder shall be entitled to receive one certificate for each
Series of the Warrant(s) held by him but joint holders shall be entitled to
only one certificate in respect of the Warrants held jointly by them which
certificates shall be delivered to the joint holder whose name stands first
in the Register. The Company shall comply with the terms and conditions of
the Schedule hereto and the Warrants shall be held subject to such terms
and conditions all of which terms shall be deemed to be incorporated in
this Warrant Agreement and shall be binding on the Company and the Warrant
Holders and all persons claiming through or under them respectively.
IV. APPOINTMENT OF WARRANT AGENT
The Company may in its absolute discretion by resolution of its Board of
Directors appoint as agent of the Company such person or persons as it
thinks fit to act in connection with the issue, registration, transfer and
exchange or otherwise of warrants (the "Warrant Agent"). The Company
agrees that the Warrant Agent shall perform the duties and obligations
required of it in accordance with the terms and conditions of the Schedule
hereto and any other terms that the Company sees fit and to undertake all
responsibilities hereby vested for the time being in the Company.
V. MISCELLANEOUS
A. The representations, warranties, covenants and agreements of the
parties to this Agreement shall survive after the Offer is declared
unconditional.
B. Except as otherwise provided in this Agreement, the parties shall each
pay their own expenses and costs in connection with this Agreement and
the transactions contemplated hereby.
4
<PAGE>
C. Subject to the requirements of law and regulatory bodies, 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.
D. This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns.
E. 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.
F. This Agreement (including the instruments between the parties referred
to herein and any waivers delivered pursuant hereto) constitutes the
entire agreement among the parties with respect to the subject matter
hereof 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 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.
G. 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.
H. Descriptive headings contained herein are for convenience of reference
only and shall not affect the meaning or interpretation hereof.
I. 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.
J. The parties shall execute, acknowledge and deliver or cause to be
executed, acknowledged and delivered such instruments and take such
other action 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.
5
<PAGE>
IN WITNESS whereof the undersigned have caused this Warrant Agreement to be duly
executed and issued the day and year first above written.
The Company:
AMERICAN RIVERS OIL COMPANY
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Warrant Holders:
WOOD, ROBERTS, INC.
(Holder of 287,119 Series D Warrants,
30,953 Series E Warrants and 275,139 Series F
Warrants)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
LASALLE STREET NATURAL RESOURCES CORPORATION
(Holder of 1,210,938 Series G Warrants and
3,275,000 Series H Warrants)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Alliance:
ALLIANCE RESOURCES PLC
By:
--------------------------
Name:
------------------------
Title:
-----------------------
6
<PAGE>
SCHEDULE
1. Subscription Rights
(a) A registered holder (a "holder") of a Warrant shall have the right,
exercisable in accordance with paragraph 1(c) below, to subscribe (the
"subscription rights") in cash on any date prior to the Expiration
Date in respect of such Warrant, on the following terms: for each
Warrant specified in the Warrant certificate one share of Common Stock
at the Subscription Price in respect of such Warrant payable in full
on subscription. The number of shares of Common Stock to be subscribed
and the subscription price are subject to adjustment pursuant to
paragraph 2 below. The subscription rights will not be exercisable in
respect of a fraction of a share of Common Stock. Failure to exercise
a Warrant prior to 5:00 p.m. (Tulsa, Oklahoma time) on the relative
Expiration Date will mean that the Warrant shall become void and all
rights attaching to such Warrant shall cease.
(b) The number of Warrants to which each registered holder of Warrants
shall be entitled shall be evidenced by a Warrant certificate issued
by the Company. Warrant certificates shall be dated as of the date of
issue, whether on initial issue, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant certificates. Warrants
shall be deemed to have been exercised immediately prior to the close
of business on the date of the surrender for exercise of the Warrant
certificate.
(c) In order to exercise the subscription rights in respect of any
Warrants, the registered Warrant Holder must, after completing the
notice of exercise on his Warrant certificate, deliver it to the
office of the Warrant Agent for the Company accompanied by a
remittance for the total subscription price of the shares of Common
Stock in respect of which the subscription rights are being exercised.
Once delivered, a notice of subscription shall be irrevocable except
with the consent of the Directors of the Company.
(d) Shares of Common Stock issued pursuant to the exercise of subscription
rights will be issued not later than 14 days after, and with effect
from, the date on which the related duly completed subscription notice
shall be delivered to the Warrant Agent for the Company (the
"subscription date") and Common Stock certificates in respect of such
shares of Common Stock will be issued free of charge and mailed (at
the risk of the persons entitled thereto) not later than 14 days after
the relevant subscription date to the first named person in whose name
the Warrants are registered at the relevant subscription date or
(subject as provided by law) to such other persons as may be named in
the form of nomination upon the reverse of the Warrant certificate. In
the event that not all of the Warrants evidenced by a Warrant
certificate are exercised, the Company shall at the same time issue
for no payment a fresh Warrant certificate in the name of the Warrant
Holder for any balance of the subscription rights remaining
exercisable.
(e) Shares of Common Stock issued pursuant to the exercise of subscription
rights will not be deemed outstanding for any dividends or other
distributions declared, made or paid in respect of any financial year
of the Company prior to the financial year in which the relevant
subscription date falls, nor shall they be deemed outstanding for any
dividends or other distributions declared, made or paid on a date (or
by reference to a record date) prior to the relevant subscription date
but, subject thereto, will be treated pari passu in all other respects
with the shares of Common Stock issued at the relevant subscription
date including being deemed issued for all dividends and other
distributions in respect of the financial year in which the relevant
subscription date occurs provided that on any issuance failing to be
made
1
<PAGE>
pursuant to paragraph 3(c) or 3(d) below the shares of Common Stock so
to be issued shall not be deemed outstanding for any dividends or
other distributions declared, made or paid by reference to a record
date prior to the date of issuance.
(f) To the extent not then exercised, all subscription rights in respect
of any Series of Warrants shall lapse at 5:00 p.m. (Tulsa, Oklahoma
time) on the Expiration Date in respect of such Warrants.
(g) No sale, offering or transfer of any Series of Warrants or the shares
underlying any Series of Warrants is permitted unless validly
registered under the Securities Act of 1933, as amended, or exempt
from the registration requirements of that Act.
2. Adjustment of Subscription Price
(a) If, on a date (or by reference to a record date) on or before the
relative Expiration Date in respect of a Warrant, the Company shall
issue any Common Stock by way of dividend to holders of Common Stock
of record on a date (or by reference to a record date) before the
relative Expiration Date or upon any consolidation or sub-division of
the Common Stock before such Expiration Date, the number of shares of
Common Stock to be issued on any subsequent exercise of the
subscription rights in respect of that Warrant will be increased or,
as the case may be, reduced in due proportion and the subscription
price per share of Common Stock will be adjusted accordingly. On any
such dividend, consolidation or sub-division the Company will cause
the auditors of the Company to verify the correctness of the
appropriate adjustments and, within 28 days of such adjustments,
notice will be sent to each Warrant Holder of the adjusted number of
shares of Common Stock to which the Warrant Holder is entitled to
subscribe in consequence thereof, fractional entitlements being
ignored, such notice being accompanied by a new Warrant certificate in
respect of such adjusted number of shares of Common Stock.
(b) If, on a date (or by reference to a record date) on or before the
relative Expiration Date, the Company makes any offer or invitation
(whether by rights issue, rights offer or otherwise but not being an
offer to which paragraph 3(c) below applies or an offer of shares in
lieu of a cash dividend payment) to the holders of Common Stock in
their capacity as such, or any offer or invitation (not being an offer
to which paragraph 3(d) below applies) is made to such holders
otherwise than by the Company, then the Company shall, as far as it is
able, cause at the same time the same offer or invitation to be made
to the then Warrant Holders as if their subscription rights had been
exercisable and had been exercised on the day immediately preceding
the date (or record date) of such offer or invitation on the terms
(subject to any adjustment pursuant to paragraph 2(a) above) on which
the same could have been exercised on the basis then applicable
provided that, if the Directors shall so resolve, in the case of any
offer or invitation made by the Company, the Company shall not be
required to cause the same offer or invitation to be made to the
Warrant Holders but the subscription price and/or the number of shares
of Common Stock to be subscribed on any subsequent exercise of the
subscription rights shall be adjusted accordingly. The Company will
cause the auditors of the Company to certify in writing the
appropriateness of the adjustments and, within 28 days, notice will be
sent to each Warrant Holder together with a new Warrant certificate in
respect of the adjusted number of share of Common Stock to which that
Warrant Holder is entitled to subscribe in consequence thereof,
fractional entitlements being ignored.
(c) No adjustment shall be made to the subscription price of a Series of
Warrants pursuant to paragraph 2(a) or (b) if such adjustment would
(taken together with the amount of any
2
<PAGE>
adjustment carried forward under the provisions of this paragraph
2(c)) be less than 1 percent of the relative subscription price then
in force and on any adjustment the adjusted subscription price will be
rounded down to the nearest $0.01. Any adjustment not so made and any
amount by which the subscription price is rounded down will be carried
forward and taken into account in any subsequent adjustment.
3. Other Provisions
So long as any subscription rights remain exercisable:
(a) the Company shall reserve for issuance sufficient authorized but
unissued shares to satisfy in full (without the need for the passing
of any resolution by shareholders) all subscription rights remaining
exercisable;
(b) the Company shall not (except with the consent of the holders of at
least three-fourths of the Warrants of each Series) issue any Common
Stock by way of a dividend nor make any such offer as is referred to
in paragraph 2(b) above if as a result the Company would on any
subsequent exercise of the subscription rights be obliged to issue
Common Stock for less than the par value thereof.
(c) if at any time an offer or invitation is made by the Company to the
holders of Common Stock for the purchase by the Company of any of its
Common Stock, the Company shall simultaneously give notice thereof to
the Warrant Holders and each such Warrant Holder shall be entitled at
any time while such offer or invitation is open for acceptance to
exercise his subscription rights as if they were then exercisable so
as to take effect as if he had exercised his rights immediately prior
to the date (or record date) of such offer or invitation;
(d) if at any time an offer is made to all holders of Common Stock (or all
holders of Common Stock other than the offeror and/or any company
controlled by the offeror and/or persons acting in concert with the
offeror) to acquire all or any part of the issued shares of the
Company and the Company becomes aware that as a result of such offer
the right to cast a majority of the votes which may ordinarily be cast
on a vote at a meeting of the shareholders of the Company has or will
become vested in the offeror and/or such persons or companies as
aforesaid, the Company shall give notice to the Warrant Holders of
such vesting within 14 days of its becoming so aware, and each such
Warrant Holder shall be entitled, at any time within the period of 60
days immediately following the date of such notice, to exercise his
subscription rights as if they were exercisable on the last day of the
said 60 day period on the basis (subject to any adjustment pursuant to
paragraph 2 above) then applicable. Upon the expiry of such period,
all Warrants shall lapse. Publication of a tender offer providing for
the acquisition by any person of all or any part of the issued shares
of the Company shall be deemed to be the making of an offer for the
purposes of this paragraph 3(d);
(e) if the Company commences liquidation, whether voluntary or compulsory
(except on terms sanctioned by the consent of the holders of at least
three-fourths of the Warrants), it shall forthwith give notice thereof
to all holders of Warrants; thereupon each Warrant shall be
exercisable and each holder of a Warrant will (if in such winding-up
there shall be a surplus available for distribution among the holders
of Common Stock (including for this purpose the Common Stock which
would be issued on the exercise of all the outstanding subscription
rights) which, taking into account the amounts payable on the exercise
of the subscription rights, exceeds in respect of each share of Common
Stock a sum equal to the subscription price) be deemed, as of
immediately before the date of such order or resolution, to have
3
<PAGE>
exercised his subscription rights in full and shall accordingly be
entitled to receive out of the assets available on liquidation pari
passu with the holders of the Common Stock such a sum as he is
entitled as a holder of Common Stock to which he becomes entitled by
virtue of such subscription after deducting a sum per share equal to
the subscription price; subject to the foregoing, all subscription
rights shall lapse on liquidation of the Company; and
(f) the Company shall not (except with the consent of the holders of at
least three-fourths of the Warrants of each Series) issue Common Stock
by way of a dividend unless at the date of such issuance the Directors
have authority to grant the additional rights to subscribe to which
the Warrant Holders will by virtue of paragraph 2(a) above to be
entitled in consequence of such capitalization.
4. Modification of Rights and Warrant Instrument
All or any of the rights attached to the Warrants may from time to time
(whether or not the Company is being wound up) be altered or abrogated with
the consent of the holders of at least three-fourths of the Warrants of
each Series affected by such alteration or abrogation. Such alteration or
abrogation approved as aforesaid shall be effected by a majority vote of
the Board of Directors executed by the Company and expressed to be
supplemental to this Warrant Instrument. Modifications to this Warrant
Instrument which are of a formal, minor or technical nature, or made to
correct a manifest error, or any modifications which the Directors consider
appropriate may be effected by a majority vote of the Board of Directors
executed by the Company and expressed to be supplemental to this Warrant
Instrument and notice of such alteration or abrogation or modification
shall be given by the Company to the Warrant Holders.
5. Purchase by the Company
The Company shall be entitled at any time to purchase Warrants on the open
market or otherwise. Any Warrants so purchased shall be canceled
immediately and shall not be available for re-issue.
6. Transfer
(a) The Warrants will be registered and transferable in whole or in part
by instrument of transfer in any usual or common form or in any other
form which may be approved by the Directors except that no transfer of
a right to subscribe for a fraction of a share of Common Stock shall
be effected. Except insofar as the same would be inconsistent with
this Warrant Instrument, the provisions of the Bylaws of the Company
relating to the registration, transfer and transmission of shares
shall apply mutatis mutandis to the Warrants.
(b) Notwithstanding any other provision contained herein, for so long as
any Regulated Entity (as defined herein) holds any Series "G" Warrants
or Series "H" Warrants which, upon exercise, would result in such
Regulated Entity holding more than 5% of the outstanding Common Stock,
such Regulated Entity may only transfer the Series "G" Warrants or
Series "H" Warrants under the following circumstances: (i) in a
widely distributed public offering; (ii) in a transfer pursuant to
Rule 144 under the United States of America ("U.S.") Securities Act of
1933, as amended, or any similar rule then in force; (iii) in a
transfer where the Common Stock underlying the Warrants being
transferred represent two percent or less of the outstanding Common
Stock (not including the transfer from the Regulated Entity); (v) in a
transfer to the Company; (vi) in a transfer to an affiliate or such
holder or any other Regulated Entity; or (vii) in any method of
transfer permitted by the Board of Governors of the Federal Reserve
System of the U.S.
4
<PAGE>
Once such Regulated Entity holds Warrants and share of Common Stock
which, after exercise of the Warrants, would constitute 5.0% or less
of the outstanding Common Stock, the foregoing restrictions on
transfer shall cease to apply.
"Regulated Entity" means (i) any entity that is a "bank holding
company" (as defined in Section 2(a) of the U.S. Bank Holding Company
Act of 1956, as amended (the "BHC Act")) or any non-bank subsidiary of
such an entity or (ii) any entity that, pursuant to Section 8(a) of
the U.S. International Banking Act of 1978, as amended, is subject to
the provisions of the BHC Act or any non-bank subsidiary of such an
entity.
7. Indemnification of Warrant Agent
(a) The Warrant Agent shall act as Agent of the Company. The Warrant Agent
shall not, by issuing and delivering Warrant certificates or by any
other act, be deemed to make any representations as to the validity or
value of the Warrant certificates or the Warrants represented thereby
or of the Common Stock or other property delivered on exercise of any
Warrant. The Warrant Agent shall not be under any duty or
responsibility to any holder of the Warrant certificates to make or
cause to be made any adjustment of the Subscription Price or to
determine whether any fact exists which may require any such
adjustments.
(b) The Warrant Agent shall not (i) be liable for any statement or fact
contained in this instrument or for any action taken or omitted by it
in reliance on any Warrant certificate or other document or instrument
believed by it in good faith to be valid and to have been signed or
presented by the proper party or parties, (ii) be responsible for any
failure on the part of the Company to comply with any of its covenants
and obligations contained in this instrument or in the Warrant
certificates, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful
misconduct.
(c) The Warrant Agent may at any time seek legal advice of counsel (who
may be counsel to the Company) and shall incur no liability or
responsibility for any action taken or omitted by it in good faith in
accordance with such notice, statement, instrument, request,
direction, order or demand.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument
signed by any officer of the Company. The Warrant Agent shall not be
liable for any action taken or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse the Warrant Agent for its
reasonable expenses. The Company further agrees to indemnify the
Warrant Agent against any and all losses, expenses and liabilities,
including judgments, costs and fees, for any action taken or omitted
by the Warrant Agent in the execution of its duties and powers,
excepting losses, expenses and liabilities arising as a result of the
Warrant Agent's negligence or willful misconduct.
8. General
(a) The Company will concurrently with the issue of the same to holders of
Common Stock send to each holder of a Warrant (or, in the case of
joint holders, to the first named) a copy of each published annual
report and accounts of the Company and unaudited interim report of the
5
<PAGE>
Company together with all documents required by law to be annexed
thereto, and copies of every statement, notice or report issued to
holders of Common Stock.
(b) For the purposes of this Warrant Instrument, "business day" means a
day (excluding Saturdays and public holidays) on which banks in the
States of Oklahoma and Texas are open for business. All the provisions
of the Bylaws of the Company as to meetings of the shareholders shall
apply mutatis mutandis as though each series of the Warrants formed a
separate class of Common Stock of the Company but so that (i) the
period of notice shall be 21 days at least, (ii) the necessary quorum
shall be Warrant Holders of the relevant series (present in person or
by proxy) entitled to subscribe for one-third of the Common Stock
attributable to the then outstanding Warrants of that series, (iii)
every Warrant Holder present in person at any such meeting shall be
entitled to one vote for every such share of Common Stock for which he
is entitled to subscribe, and (iv) if at any adjourned meeting a
quorum as defined above is not present, a Warrant Holder who is then
present in person or by proxy shall be a quorum.
(c) The invalidity of any undertaking, or any part of any undertaking, in
paragraph 3 shall not affect the validity of any other part of that
paragraph. If any event occurs which, but for any rule of law, would
be a breach of paragraph 3, the Company shall pay to the Warrant
Holders such sum as the auditors of the Company shall determine to be
equal to the loss in value of the Warrants resulting from such event.
(d) Any determination or adjustment made pursuant to these terms and
conditions by the auditors of the Company shall be made by them as
experts and not arbitrators and shall be final and binding on the
Company and all Warrant Holders.
9. 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, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
6
<PAGE>
WARRANT CERTIFICATE
- --------------------------------------------------------------------------
Date
_______________, ____
- --------------------------------------------------------------------------
Certificate No. Exercise Price per Share Number of Warrants
D_______ $____ _______
- --------------------------------------------------------------------------
AMERICAN RIVERS OIL COMPANY
_________________________________
SERIES "D" WARRANTS TO SUBSCRIBE FOR COMMON SHARES
THIS IS TO CERTIFY that _________________of _________________________________ is
the Registered holder of Warrants to subscribe for __________ shares of common
stock, par value $0.001 per share, ("Common Stock") of American Rivers Oil
Company subject to the conditions endorsed hereon and the provisions of the
Certificate of Incorporation of the Company.
AMERICAN RIVERS OIL COMPANY
By:_____________________________
Name:___________________________
Title:__________________________
Dated: ___________________, _____
<PAGE>
NOTICE OF EXERCISE
To: AMERICAN RIVERS OIL COMPANY (the "Company")
1. I/We, being the registered holder(s) of the Warrants represented by this
certificate, hereby give notice of my/our desire to exercise my/our
subscription rights in respect of _________/1/ shares of Common Stock of
the Company in accordance with the conditions applicable thereto and
request that such shares be issued for the total price of $__________ for
which we enclose my/our check.
2. I/We agree to accept all of the shares of Common Stock of the Company to be
issued to me/us pursuant hereto subject to the Certificate of Incorporation
of the Company. I/We desire all such Common Stock to be registered in
my/our name(s) and hereby authorize the entry of my/our name(s) in the
stock transfer records of the Company in respect thereof and the delivery
of a certificate therefor by United States mail at my/our risk to the
person whose name and address is set out below or, if none is set out, to
the registered address of the sole or first named holder.
3. I/We hereby authorize the delivery of a certificate for the balance (if
any) of the Warrants represented by this certificate which are not
exercised by United States mail at my/our risk to the person whose name and
address is set out below or, if none is set out, to the sole or first named
holders at his/her registered address.
Dated:__________________________
Signature(s) of Warrant Holder(s)/2/:
_____________________________________________________________
_____________________________________________________________
Name/3/: _____________________________________________________________
Address: _____________________________________________________________
___________________
/1/ Delete or complete as appropriate. If no amount is inserted, the
notice of exercise will be deemed to relate to all of the shares of
common stock subject to the Warrant.
/2/ In the case of joint holders ALL should sign. A corporation or other
entity should execute through an officer or attorney duly authorized
in that behalf in which event the Warrant must be accompanied by the
authority under which this notice is completed.
/3/ Please insert in BLOCK CAPITALS the name and/or the address of the
person to whom you wish the common stock share certificate and any
balance certificate for Warrants to be sent if it is different from
that of the sole or first named Warrantholder.
<PAGE>
WARRANT CERTIFICATE
- ----------------------------------------------------------------------------
Date
_______________, ____
- ----------------------------------------------------------------------------
Certificate No. Exercise Price per Share Number of Warrants
E_______ $____ _______
- ----------------------------------------------------------------------------
AMERICAN RIVERS OIL COMPANY
_________________________________
SERIES "E" WARRANTS TO SUBSCRIBE FOR COMMON SHARES
THIS IS TO CERTIFY that _________________of _________________________________ is
the Registered holder of Warrants to subscribe for __________ shares of common
stock, par value $0.001 per share, ("Common Stock") of American Rivers Oil
Company subject to the conditions endorsed hereon and the provisions of the
Certificate of Incorporation of the Company.
AMERICAN RIVERS OIL COMPANY
By:_____________________________
Name:___________________________
Title:__________________________
Dated: ___________________, _____
<PAGE>
NOTICE OF EXERCISE
To: AMERICAN RIVERS OIL COMPANY (the "Company")
1. I/We, being the registered holder(s) of the Warrants represented by this
certificate, hereby give notice of my/our desire to exercise my/our
subscription rights in respect of _________/4/ shares of Common Stock of
the Company in accordance with the conditions applicable thereto and
request that such shares be issued for the total price of $__________ for
which we enclose my/our check.
2. I/We agree to accept all of the shares of Common Stock of the Company to be
issued to me/us pursuant hereto subject to the Certificate of Incorporation
of the Company. I/We desire all such Common Stock to be registered in
my/our name(s) and hereby authorize the entry of my/our name(s) in the
stock transfer records of the Company in respect thereof and the delivery
of a certificate therefor by United States mail at my/our risk to the
person whose name and address is set out below or, if none is set out, to
the registered address of the sole or first named holder.
3. I/We hereby authorize the delivery of a certificate for the balance (if
any) of the Warrants represented by this certificate which are not
exercised by United States mail at my/our risk to the person whose name and
address is set out below or, if none is set out, to the sole or first named
holders at his/her registered address.
Dated: ______________________
Signature(s) of Warrant Holder(s)/5/:
_________________________________________________________
_________________________________________________________
Name/6/: _________________________________________________________
Address: _________________________________________________________
___________________________
/4/ Delete or complete as appropriate. If no amount is inserted, the
notice of exercise will be deemed to relate to all of the shares of
common stock subject to the Warrant.
/5/ In the case of joint holders ALL should sign. A corporation or other
entity should execute through an officer or attorney duly authorized
in that behalf in which event the Warrant must be accompanied by the
authority under which this notice is completed.
/6/ Please insert in BLOCK CAPITALS the name and/or the address of the
person to whom you wish the common stock share certificate and any
balance certificate for Warrants to be sent if it is different from
that of the sole or first named Warrantholder.
<PAGE>
WARRANT CERTIFICATE
- -----------------------------------------------------------------------------
Date
_______________, ____
- -----------------------------------------------------------------------------
Certificate No. Exercise Price per Share Number of Warrants
F_______ $____ _______
- -----------------------------------------------------------------------------
AMERICAN RIVERS OIL COMPANY
_________________________________
SERIES "F" WARRANTS TO SUBSCRIBE FOR COMMON SHARES
THIS IS TO CERTIFY that _________________of _________________________________ is
the Registered holder of Warrants to subscribe for __________ shares of common
stock, par value $0.001 per share, ("Common Stock") of American Rivers Oil
Company subject to the conditions endorsed hereon and the provisions of the
Certificate of Incorporation of the Company.
AMERICAN RIVERS OIL COMPANY
By:___________________________
Name:_________________________
Title:________________________
Dated: ___________________, _____
<PAGE>
NOTICE OF EXERCISE
To: AMERICAN RIVERS OIL COMPANY (the "Company")
1. I/We, being the registered holder(s) of the Warrants represented by this
certificate, hereby give notice of my/our desire to exercise my/our
subscription rights in respect of _________/7/ shares of Common Stock of
the Company in accordance with the conditions applicable thereto and
request that such shares be issued for the total price of $__________ for
which we enclose my/our check.
2. I/We agree to accept all of the shares of Common Stock of the Company to be
issued to me/us pursuant hereto subject to the Certificate of Incorporation
of the Company. I/We desire all such Common Stock to be registered in
my/our name(s) and hereby authorize the entry of my/our name(s) in the
stock transfer records of the Company in respect thereof and the delivery
of a certificate therefor by United States mail at my/our risk to the
person whose name and address is set out below or, if none is set out, to
the registered address of the sole or first named holder.
3. I/We hereby authorize the delivery of a certificate for the balance (if
any) of the Warrants represented by this certificate which are not
exercised by United States mail at my/our risk to the person whose name and
address is set out below or, if none is set out, to the sole or first named
holders at his/her registered address.
Dated: _______________________
Signature(s) of Warrant Holder(s)/8/:
______________________________________________________
______________________________________________________
Name/9/: ______________________________________________________
Address: ______________________________________________________
______________________
/7/ Delete or complete as appropriate. If no amount is inserted, the
notice of exercise will be deemed to relate to all of the shares of
common stock subject to the Warrant.
/8/ In the case of joint holders ALL should sign. A corporation or other
entity should execute through an officer or attorney duly authorized
in that behalf in which event the Warrant must be accompanied by the
authority under which this notice is completed.
/9/ Please insert in BLOCK CAPITALS the name and/or the address of the
person to whom you wish the common stock share certificate and any
balance certificate for Warrants to be sent if it is different from
that of the sole or first named Warrantholder.
<PAGE>
WARRANT CERTIFICATE
- ---------------------------------------------------------------------------
Date
_______________, ____
- ---------------------------------------------------------------------------
Certificate No. Exercise Price per Share Number of Warrants
G_______ $____ _______
- ---------------------------------------------------------------------------
AMERICAN RIVERS OIL COMPANY
_________________________________
SERIES "G" WARRANTS TO SUBSCRIBE FOR COMMON SHARES
THIS IS TO CERTIFY that _________________of _________________________________ is
the Registered holder of Warrants to subscribe for __________ shares of common
stock, par value $0.001 per share, ("Common Stock") of American Rivers Oil
Company subject to the conditions endorsed hereon and the provisions of the
Certificate of Incorporation of the Company.
AMERICAN RIVERS OIL COMPANY
By:_____________________________
Name:___________________________
Title:__________________________
Dated: ___________________, _____
<PAGE>
NOTICE OF EXERCISE
To: AMERICAN RIVERS OIL COMPANY (the "Company")
1. I/We, being the registered holder(s) of the Warrants represented by this
certificate, hereby give notice of my/our desire to exercise my/our
subscription rights in respect of _________/10/ shares of Common Stock of
the Company in accordance with the conditions applicable thereto and
request that such shares be issued for the total price of $__________ for
which we enclose my/our check.
2. I/We agree to accept all of the shares of Common Stock of the Company to be
issued to me/us pursuant hereto subject to the Certificate of Incorporation
of the Company. I/We desire all such Common Stock to be registered in
my/our name(s) and hereby authorize the entry of my/our name(s) in the
stock transfer records of the Company in respect thereof and the delivery
of a certificate therefor by United States mail at my/our risk to the
person whose name and address is set out below or, if none is set out, to
the registered address of the sole or first named holder.
3. I/We hereby authorize the delivery of a certificate for the balance (if
any) of the Warrants represented by this certificate which are not
exercised by United States mail at my/our risk to the person whose name and
address is set out below or, if none is set out, to the sole or first named
holders at his/her registered address.
Dated: ______________________
Signature(s) of Warrant Holder(s)/11/:
__________________________________________________________
__________________________________________________________
Name/12/: __________________________________________________________
Address: __________________________________________________________
_____________________
/10/ Delete or complete as appropriate. If no amount is inserted, the
notice of exercise will be deemed to relate to all of the shares of
common stock subject to the Warrant.
/11/ In the case of joint holders ALL should sign. A corporation or other
entity should execute through an officer or attorney duly authorized
in that behalf in which event the Warrant must be accompanied by the
authority under which this notice is completed.
/12/ Please insert in BLOCK CAPITALS the name and/or the address of the
person to whom you wish the common stock share certificate and any
balance certificate for Warrants to be sent if it is different from
that of the sole or first named Warrantholder.
<PAGE>
WARRANT CERTIFICATE
- -----------------------------------------------------------------------------
Date
_______________, ____
- -----------------------------------------------------------------------------
Certificate No. Exercise Price per Share Number of Warrants
H_______ $____ _______
- -----------------------------------------------------------------------------
AMERICAN RIVERS OIL COMPANY
_________________________________
SERIES "H" WARRANTS TO SUBSCRIBE FOR COMMON SHARES
THIS IS TO CERTIFY that _________________of _________________________________ is
the Registered holder of Warrants to subscribe for __________ shares of common
stock, par value $0.001 per share, ("Common Stock") of American Rivers Oil
Company subject to the conditions endorsed hereon and the provisions of the
Certificate of Incorporation of the Company.
AMERICAN RIVERS OIL COMPANY
By:_________________________
Name:_______________________
Title:______________________
Dated: ___________________, _____
<PAGE>
NOTICE OF EXERCISE
To: AMERICAN RIVERS OIL COMPANY (the "Company")
1. I/We, being the registered holder(s) of the Warrants represented by this
certificate, hereby give notice of my/our desire to exercise my/our
subscription rights in respect of _________/13/ shares of Common Stock of
the Company in accordance with the conditions applicable thereto and
request that such shares be issued for the total price of $__________ for
which we enclose my/our check.
2. I/We agree to accept all of the shares of Common Stock of the Company to be
issued to me/us pursuant hereto subject to the Certificate of Incorporation
of the Company. I/We desire all such Common Stock to be registered in
my/our name(s) and hereby authorize the entry of my/our name(s) in the
stock transfer records of the Company in respect thereof and the delivery
of a certificate therefor by United States mail at my/our risk to the
person whose name and address is set out below or, if none is set out, to
the registered address of the sole or first named holder.
3. I/We hereby authorize the delivery of a certificate for the balance (if
any) of the Warrants represented by this certificate which are not
exercised by United States mail at my/our risk to the person whose name and
address is set out below or, if none is set out, to the sole or first named
holders at his/her registered address.
Dated: _______________________
Signature(s) of Warrant Holder(s)/14/:
_______________________________________________________
_______________________________________________________
Name/15/: _______________________________________________________
Address: _______________________________________________________
____________________
/13/ Delete or complete as appropriate. If no amount is inserted, the
notice of exercise will be deemed to relate to all of the shares of
common stock subject to the Warrant.
/14/ In the case of joint holders ALL should sign. A corporation or other
entity should execute through an officer or attorney duly authorized
in that behalf in which event the Warrant must be accompanied by the
authority under which this notice is completed.
/15/ Please insert in BLOCK CAPITALS the name and/or the address of the
person to whom you wish the common stock share certificate and any
balance certificate for Warrants to be sent if it is different from
that of the sole or first named Warrantholder.
<PAGE>
EXHIBIT 10.6
DATED OCTOBER 13, 1999
----------------------
AMERICAN RIVERS OIL COMPANY
________________________________
WARRANT AGREEMENT
relating to the issuance of
Series I Warrants of
American Rivers Oil Company
_______________________________
<PAGE>
THIS WARRANT AGREEMENT (the "Agreement") is entered into as of October 13,
1999 among American Rivers Oil Company, a Delaware corporation ("the Company"),
Alliance Resources Plc, a public limited company formed under the laws of
England and Wales ("Alliance"), and those persons identified on the signature
page of this Agreement as Warrant Holders (the "Warrant Holders").
Recitals
The Warrant Holders hold convertible loan notes (the "Loan Notes ") of
Alliance pursuant to Loan Note Instruments of Alliance dated May 1, 1997 and
November 5, 1997.
Alliance and the Company have entered into an Exchange and Merger Agreement
(the "Exchange and Merger Agreement") dated July 22, 1999, providing among other
things for the Company to offer (the "Offer") to acquire all of the outstanding
ordinary shares of Alliance.
One of the conditions to the completion of the Exchange and Merger
Agreement is that the Company shall enter into agreements with the holders of
the Loan Notes, on terms satisfactory to Alliance, providing that after the
Offer becomes unconditional each then outstanding Loan Note shall be exchanged
for the right to receive warrants of the Company having terms substantially
similar to the terms of the Loan Notes.
The parties to this Agreement desire to provide for the exchange of the
Loan Notes for warrants of the Company.
Now, therefore, in consideration of the premises and the mutual agreements
of the parties, the parties to this Agreement hereby agree as follows:
Agreement
I. INTERPRETATION
In this Warrant Agreement, unless the context otherwise requires, the
expressions defined in the particulars of Warrants set out in the Schedule
hereto shall have the meanings thereby given.
II. WARRANTS
A. The Warrants shall be constituted as 1,193,581 Series "I" Warrants
entitling the holders to subscribe for shares of the common stock,
$0.001 par value per share (the "Common Stock") of the Company at a
fixed price of $0.01 per share (subject to the provisions of the
Schedule hereto) at any time prior to 5:00 p.m. (Tulsa, Oklahoma time)
on April 30, 2007, the final date for exercise of a Warrant being the
"Expiration Date" and the price payable upon exercise of a Warrant
being the "Subscription Price".
B. The Warrants shall be issued as follows:
(i) Each of the Warrant Holders agrees that immediately upon the Offer
being declared unconditional as provided in Section 2.3 of the Exchange and
Merger Agreement, each outstanding Loan Note shall be canceled and
converted solely into the right to receive one Warrant of the Company
having the terms provided in this Agreement, the Loan Notes shall cease to
exist, and each holder of a certificate representing any such Loan Notes
shall thereafter cease to have any rights with respect to such Loan Notes,
except the right to receive the Warrants of the Company upon the surrender
of such certificate in accordance with paragraph (iii) below.
2
<PAGE>
(ii) On or after the Offer being declared unconditional, each person
who was immediately before that time a holder of record of Loan Notes may
deliver to the Company a letter of transmittal duly executed and completed
in accordance with the instructions thereto, together with such holders'
certificates representing such Loan Notes and the Company shall deliver to
such holders certificates in respect of the Warrants of the Company to
which such holders are then entitled.
C. Each of the Warrant Holders represents and agrees as follows:
(i) It is the sole legal and beneficial owner of the Loan Notes
registered in its name, free from any encumbrance arising by, through or
under such holder, but not otherwise..
(ii) It has the requisite power and authority to enter into and
perform this Agreement and this Agreement and any other documents executed
by it in connection with this Agreement will, when executed, constitute
binding obligations of the Warrant Holder enforceable in accordance with
their respective terms.
(iii) It is an "accredited investor" as that term is defined in the
Securities Act of 1933, as amended, and is acquiring the Warrants for its
own account, and has received all information it believes necessary to
evaluate its investment in the Warrants.
(iv) Each of the Warrant Holders hereby acknowledges and confirms
that the Warrants and the Common Stock, whether issued or arising as a
consequence of exercise of the Warrants will be "restricted securities"
under the United States Securities Act of 1933 (as amended) and that the
ability to resell such Warrants and such Common Stock will therefore be
limited.
D. Each of Alliance and the Company represents and agrees as follows:
(i) The representations and warranties made by each of them in the
Exchange and Merger Agreement are true and correct.
(ii) The execution and performance of this Agreement by each of them
have been duly and validly authorized by the board of directors of each of
them, and no other corporate action is necessary to authorize the
execution, delivery and performance of this Agreement by each of them. Each
of them 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
each of them and this Agreement and any other documents executed by them in
connection with this Agreement is constitute valid and binding obligations
of each of them, enforceable in accordance with their respective terms.
(iii) They will not modify or amend the terms of the Offer or the
Exchange and Merger Agreement without the consent of the Warrant Holders.
III. CERTIFICATES
Every Warrant Holder shall be entitled to receive one certificate for each
Series of the Warrant(s) held by him but joint holders shall be entitled to
only one certificate in respect of the Warrants held jointly by them which
certificates shall be delivered to the joint holder whose name stands first
in the Register. The Company shall comply with the terms and conditions of
the Schedule hereto and the Warrants shall be held subject to such terms
and conditions all of which terms shall be deemed to be
3
<PAGE>
incorporated in this Warrant Agreement and shall be binding on the Company
and the Warrant Holders and all persons claiming through or under them
respectively.
IV. APPOINTMENT OF WARRANT AGENT
The Company may in its absolute discretion by resolution of its Board of
Directors appoint as agent of the Company such person or persons as it
thinks fit to act in connection with the issue, registration, transfer and
exchange or otherwise of warrants (the "Warrant Agent"). The Company
agrees that the Warrant Agent shall perform the duties and obligations
required of it in accordance with the terms and conditions of the Schedule
hereto and any other terms that the Company sees fit and to undertake all
responsibilities hereby vested for the time being in the Company.
V. MISCELLANEOUS
A. The representations, warranties, covenants and agreements of the
parties to this Agreement shall survive after the Offer is declared
unconditional.
B. Except as otherwise provided in this Agreement, the parties shall each
pay their own expenses and costs in connection with this Agreement and
the transactions contemplated hereby.
C. Subject to the requirements of law and regulatory bodies, 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.
D. This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns.
E. 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.
F. This Agreement (including the instruments between the parties referred
to herein and any waivers delivered pursuant hereto) constitutes the
entire agreement among the parties with respect to the subject matter
hereof 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 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.
G. 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.
4
<PAGE>
H. Descriptive headings contained herein are for convenience of reference
only and shall not affect the meaning or interpretation hereof.
I. 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.
J. The parties shall execute, acknowledge and deliver or cause to be
executed, acknowledged and delivered such instruments and take such
other action 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.
5
<PAGE>
IN WITNESS whereof the undersigned have caused this Warrant Agreement to be duly
executed and issued the day and year first above written.
The Company:
AMERICAN RIVERS OIL COMPANY
By:_______________________________________
Name:_____________________________________
Title:____________________________________
Warrant Holders:
LASALLE STREET NATURAL RESOURCES CORPORATION
(Holder of 1,193,581 Series I Warrants)
By:_______________________________________
Name:_____________________________________
Title:____________________________________
Alliance:
ALLIANCE RESOURCES PLC
By:_______________________________________
Name:_____________________________________
Title:____________________________________
6
<PAGE>
SCHEDULE
1. Subscription Rights
(a) A registered holder (a "holder") of a Warrant shall have the right,
exercisable in accordance with paragraph 1(c) below, to subscribe (the
"subscription rights") in cash on any date prior to the Expiration
Date in respect of such Warrant, on the following terms: for each
Warrant specified in the Warrant certificate one share of Common Stock
at the Subscription Price in respect of such Warrant payable in full
on subscription. The number of shares of Common Stock to be subscribed
and the subscription price are subject to adjustment pursuant to
paragraph 2 below. The subscription rights will not be exercisable in
respect of a fraction of a share of Common Stock. Failure to exercise
a Warrant prior to 5:00 p.m. (Tulsa, Oklahoma time) on the relative
Expiration Date will mean that the Warrant shall become void and all
rights attaching to such Warrant shall cease.
(b) The number of Warrants to which each registered holder of Warrants
shall be entitled shall be evidenced by a Warrant certificate issued
by the Company. Warrant certificates shall be dated as of the date of
issue, whether on initial issue, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant certificates. Warrants
shall be deemed to have been exercised immediately prior to the close
of business on the date of the surrender for exercise of the Warrant
certificate.
(c) In order to exercise the subscription rights in respect of any
Warrants, the registered Warrant Holder must, after completing the
notice of exercise on his Warrant certificate, deliver it to the
office of the Warrant Agent for the Company accompanied by a
remittance for the total subscription price of the shares of Common
Stock in respect of which the subscription rights are being exercised.
Once delivered, a notice of subscription shall be irrevocable except
with the consent of the Directors of the Company.
(d) Shares of Common Stock issued pursuant to the exercise of subscription
rights will be issued not later than 14 days after, and with effect
from, the date on which the related duly completed subscription notice
shall be delivered to the Warrant Agent for the Company (the
"subscription date") and Common Stock certificates in respect of such
shares of Common Stock will be issued free of charge and mailed (at
the risk of the persons entitled thereto) not later than 14 days after
the relevant subscription date to the first named person in whose name
the Warrants are registered at the relevant subscription date or
(subject as provided by law) to such other persons as may be named in
the form of nomination upon the reverse of the Warrant certificate. In
the event that not all of the Warrants evidenced by a Warrant
certificate are exercised, the Company shall at the same time issue
for no payment a fresh Warrant certificate in the name of the Warrant
Holder for any balance of the subscription rights remaining
exercisable.
(e) Shares of Common Stock issued pursuant to the exercise of subscription
rights will not be deemed outstanding for any dividends or other
distributions declared, made or paid in respect of any financial year
of the Company prior to the financial year in which the relevant
subscription date falls, nor shall they be deemed outstanding for any
dividends or other distributions declared, made or paid on a date (or
by reference to a record date) prior to the relevant subscription date
but, subject thereto, will be treated pari passu in all other respects
with the shares of Common Stock issued at the relevant subscription
date including being
1
<PAGE>
deemed issued for all dividends and other distributions in respect of
the financial year in which the relevant subscription date occurs
provided that on any issuance failing to be made pursuant to paragraph
3(c) or 3(d) below the shares of Common Stock so to be issued shall
not be deemed outstanding for any dividends or other distributions
declared, made or paid by reference to a record date prior to the date
of issuance.
(f) To the extent not then exercised, all subscription rights in respect
of the Warrants shall lapse at 5:00 p.m. (Tulsa, Oklahoma time) on the
Expiration Date in respect of such Warrants.
(g) No sale, offering or transfer of the Warrants or the shares underlying
the Warrants is permitted unless validly registered under the
Securities Act of 1933, as amended, or exempt from the registration
requirements of that Act.
2. Adjustment of Subscription Price
(a) If, on a date (or by reference to a record date) on or before the
relative Expiration Date in respect of a Warrant, the Company shall
issue any Common Stock by way of dividend to holders of Common Stock
of record on a date (or by reference to a record date) before the
relative Expiration Date or upon any consolidation or sub-division of
the Common Stock before such Expiration Date, the number of shares of
Common Stock to be issued on any subsequent exercise of the
subscription rights in respect of that Warrant will be increased or,
as the case may be, reduced in due proportion and the subscription
price per share of Common Stock will be adjusted accordingly. On any
such dividend, consolidation or sub-division the Company will cause
the auditors of the Company to verify the correctness of the
appropriate adjustments and, within 28 days of such adjustments,
notice will be sent to each Warrant Holder of the adjusted number of
shares of Common Stock to which the Warrant Holder is entitled to
subscribe in consequence thereof, fractional entitlements being
ignored, such notice being accompanied by a new Warrant certificate in
respect of such adjusted number of shares of Common Stock.
(b) If, on a date (or by reference to a record date) on or before the
relative Expiration Date, the Company makes any offer or invitation
(whether by rights issue, rights offer or otherwise but not being an
offer to which paragraph 3(c) below applies or an offer of shares in
lieu of a cash dividend payment) to the holders of Common Stock in
their capacity as such, or any offer or invitation (not being an offer
to which paragraph 3(d) below applies) is made to such holders
otherwise than by the Company, then the Company shall, as far as it is
able, cause at the same time the same offer or invitation to be made
to the then Warrant Holders as if their subscription rights had been
exercisable and had been exercised on the day immediately preceding
the date (or record date) of such offer or invitation on the terms
(subject to any adjustment pursuant to paragraph 2(a) above) on which
the same could have been exercised on the basis then applicable
provided that, if the Directors shall so resolve, in the case of any
offer or invitation made by the Company, the Company shall not be
required to cause the same offer or invitation to be made to the
Warrant Holders but the subscription price and/or the number of shares
of Common Stock to be subscribed on any subsequent exercise of the
subscription rights shall be adjusted accordingly. The Company will
cause the auditors of the Company to certify in writing the
appropriateness of the adjustments and, within 28 days, notice will be
sent to each Warrant Holder together with a new Warrant certificate in
respect of the adjusted number of share of Common Stock to which that
Warrant Holder is entitled to subscribe in consequence thereof,
fractional entitlements being ignored.
2
<PAGE>
(c) No adjustment shall be made to the subscription price of a Series of
Warrants pursuant to paragraph 2(a) or (b) if such adjustment would
(taken together with the amount of any adjustment carried forward
under the provisions of this paragraph 2(c)) be less than 1 percent of
the relative subscription price then in force and on any adjustment
the adjusted subscription price will be rounded down to the nearest
$0.01. Any adjustment not so made and any amount by which the
subscription price is rounded down will be carried forward and taken
into account in any subsequent adjustment.
3. Other Provisions
So long as any subscription rights remain exercisable:
(a) the Company shall reserve for issuance sufficient authorized but
unissued shares to satisfy in full (without the need for the passing
of any resolution by shareholders) all subscription rights remaining
exercisable;
(b) the Company shall not (except with the consent of the holders of at
least three-fourths of the Warrants of each Series) issue any Common
Stock by way of a dividend nor make any such offer as is referred to
in paragraph 2(b) above if as a result the Company would on any
subsequent exercise of the subscription rights be obliged to issue
Common Stock for less than the par value thereof.
(c) if at any time an offer or invitation is made by the Company to the
holders of Common Stock for the purchase by the Company of any of its
Common Stock, the Company shall simultaneously give notice thereof to
the Warrant Holders and each such Warrant Holder shall be entitled at
any time while such offer or invitation is open for acceptance to
exercise his subscription rights as if they were then exercisable so
as to take effect as if he had exercised his rights immediately prior
to the date (or record date) of such offer or invitation;
(d) if at any time an offer is made to all holders of Common Stock (or all
holders of Common Stock other than the offeror and/or any company
controlled by the offeror and/or persons acting in concert with the
offeror) to acquire all or any part of the issued shares of the
Company and the Company becomes aware that as a result of such offer
the right to cast a majority of the votes which may ordinarily be cast
on a vote at a meeting of the shareholders of the Company has or will
become vested in the offeror and/or such persons or companies as
aforesaid, the Company shall give notice to the Warrant Holders of
such vesting within 14 days of its becoming so aware, and each such
Warrant Holder shall be entitled, at any time within the period of 60
days immediately following the date of such notice, to exercise his
subscription rights as if they were exercisable on the last day of the
said 60 day period on the basis (subject to any adjustment pursuant to
paragraph 2 above) then applicable. Upon the expiry of such period,
all Warrants shall lapse. Publication of a tender offer providing for
the acquisition by any person of all or any part of the issued shares
of the Company shall be deemed to be the making of an offer for the
purposes of this paragraph 3(d);
(e) if the Company commences liquidation, whether voluntary or compulsory
(except on terms sanctioned by the consent of the holders of at least
three-fourths of the Warrants), it shall forthwith give notice thereof
to all holders of Warrants; thereupon each Warrant shall be
exercisable and each holder of a Warrant will (if in such winding-up
there shall be a surplus available for distribution among the holders
of Common Stock (including for this purpose the
3
<PAGE>
Common Stock which would be issued on the exercise of all the
outstanding subscription rights) which, taking into account the
amounts payable on the exercise of the subscription rights, exceeds in
respect of each share of Common Stock a sum equal to the subscription
price) be deemed, as of immediately before the date of such order or
resolution, to have exercised his subscription rights in full and
shall accordingly be entitled to receive out of the assets available
on liquidation pari passu with the holders of the Common Stock such a
sum as he is entitled as a holder of Common Stock to which he becomes
entitled by virtue of such subscription after deducting a sum per
share equal to the subscription price; subject to the foregoing, all
subscription rights shall lapse on liquidation of the Company; and
(f) the Company shall not (except with the consent of the holders of at
least three-fourths of the Warrants of each Series) issue Common Stock
by way of a dividend unless at the date of such issuance the Directors
have authority to grant the additional rights to subscribe to which
the Warrant Holders will by virtue of paragraph 2(a) above to be
entitled in consequence of such capitalization.
4. Modification of Rights and Warrant Instrument
All or any of the rights attached to the Warrants may from time to time
(whether or not the Company is being wound up) be altered or abrogated with
the consent of the holders of at least three-fourths of the Warrants of
each Series affected by such alteration or abrogation. Such alteration or
abrogation approved as aforesaid shall be effected by a majority vote of
the Board of Directors executed by the Company and expressed to be
supplemental to this Warrant Instrument. Modifications to this Warrant
Instrument which are of a formal, minor or technical nature, or made to
correct a manifest error, or any modifications which the Directors consider
appropriate may be effected by a majority vote of the Board of Directors
executed by the Company and expressed to be supplemental to this Warrant
Instrument and notice of such alteration or abrogation or modification
shall be given by the Company to the Warrant Holders.
5. Purchase by the Company
The Company shall be entitled at any time to purchase Warrants on the open
market or otherwise. Any Warrants so purchased shall be canceled
immediately and shall not be available for re-issue.
6. Transfer
(a) The Warrants will be registered and transferable in whole or in part
by instrument of transfer in any usual or common form or in any other
form which may be approved by the Board of Directors except that no
transfer of a right to subscribe for a fraction of a share of Common
Stock shall be effected. Except insofar as the same would be
inconsistent with this Warrant Instrument, the provisions of the
Bylaws of the Company relating to the registration, transfer and
transmission of shares shall apply mutatis mutandis to the Warrants.
(b) Notwithstanding any other provision contained herein, for so long as
any Regulated Entity (as defined herein) holds any Warrants which,
upon exercise, would result in such Regulated Entity holding more than
5% of the outstanding Common Stock, such Regulated Entity may only
transfer the Warrants under the following circumstances: (i) in a
widely distributed public offering; (ii) in a transfer pursuant to
Rule 144 under the United States of America ("U.S.") Securities Act of
1933, as amended, or any similar rule then in force; (iii) in a
4
<PAGE>
transfer where the Common Stock underlying the Warrants being
transferred represent two percent or less of the outstanding Common
Stock (not including the transfer from the Regulated Entity); (v) in a
transfer to the Company; (vi) in a transfer to an affiliate or such
holder or any other Regulated Entity; or (vii) in any method of
transfer permitted by the Board of Governors of the Federal Reserve
System of the U.S.
Once such Regulated Entity holds Warrants and share of Common Stock
which, after exercise of the Warrants, would constitute 5.0% or less
of the outstanding Common Stock, the foregoing restrictions on
transfer shall cease to apply.
"Regulated Entity" means (i) any entity that is a "bank holding
company" (as defined in Section 2(a) of the U.S. Bank Holding Company
Act of 1956, as amended (the "BHC Act")) or any non-bank subsidiary of
such an entity or (ii) any entity that, pursuant to Section 8(a) of
the U.S. International Banking Act of 1978, as amended, is subject to
the provisions of the BHC Act or any non-bank subsidiary of such an
entity.
7. Indemnification of Warrant Agent
(a) The Warrant Agent shall act as Agent of the Company. The Warrant Agent
shall not, by issuing and delivering Warrant certificates or by any
other act, be deemed to make any representations as to the validity or
value of the Warrant certificates or the Warrants represented thereby
or of the Common Stock or other property delivered on exercise of any
Warrant. The Warrant Agent shall not be under any duty or
responsibility to any holder of the Warrant certificates to make or
cause to be made any adjustment of the Subscription Price or to
determine whether any fact exists which may require any such
adjustments.
(b) The Warrant Agent shall not (i) be liable for any statement or fact
contained in this instrument or for any action taken or omitted by it
in reliance on any Warrant certificate or other document or instrument
believed by it in good faith to be valid and to have been signed or
presented by the proper party or parties, (ii) be responsible for any
failure on the part of the Company to comply with any of its covenants
and obligations contained in this instrument or in the Warrant
certificates, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful
misconduct.
(c) The Warrant Agent may at any time seek legal advice of counsel (who
may be counsel to the Company) and shall incur no liability or
responsibility for any action taken or omitted by it in good faith in
accordance with such notice, statement, instrument, request,
direction, order or demand.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument
signed by any officer of the Company. The Warrant Agent shall not be
liable for any action taken or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse the Warrant Agent for its
reasonable expenses. The Company further agrees to indemnify the
Warrant Agent against any and all losses, expenses and liabilities,
including judgments, costs and fees, for any action taken or omitted
by the Warrant
5
<PAGE>
Agent in the execution of its duties and powers, excepting losses,
expenses and liabilities arising as a result of the Warrant Agent's
negligence or willful misconduct.
8. General
(a) The Company will concurrently with the issue of the same to holders of
Common Stock send to each holder of a Warrant (or, in the case of
joint holders, to the first named) a copy of each published annual
report and accounts of the Company and unaudited interim report of the
Company together with all documents required by law to be annexed
thereto, and copies of every statement, notice or report issued to
holders of Common Stock.
(b) For the purposes of this Warrant Instrument, "business day" means a
day (excluding Saturdays and public holidays) on which banks in the
States of Oklahoma and Texas are open for business. All the provisions
of the Bylaws of the Company as to meetings of the shareholders shall
apply mutatis mutandis as though each series of the Warrants formed a
separate class of Common Stock of the Company but so that (i) the
period of notice shall be 21 days at least, (ii) the necessary quorum
shall be Warrant Holders of the relevant series (present in person or
by proxy) entitled to subscribe for one-third of the Common Stock
attributable to the then outstanding Warrants of that series, (iii)
every Warrant Holder present in person at any such meeting shall be
entitled to one vote for every such share of Common Stock for which he
is entitled to subscribe, and (iv) if at any adjourned meeting a
quorum as defined above is not present, a Warrant Holder who is then
present in person or by proxy shall be a quorum.
(c) The invalidity of any undertaking, or any part of any undertaking, in
paragraph 3 shall not affect the validity of any other part of that
paragraph. If any event occurs which, but for any rule of law, would
be a breach of paragraph 3, the Company shall pay to the Warrant
Holders such sum as the auditors of the Company shall determine to be
equal to the loss in value of the Warrants resulting from such event.
(d) Any determination or adjustment made pursuant to these terms and
conditions by the auditors of the Company shall be made by them as
experts and not arbitrators and shall be final and binding on the
Company and all Warrant Holders.
9. 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, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
6
<PAGE>
WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
Date
_______________, ____
- --------------------------------------------------------------------------------
Certificate No. Exercise Price per Share Number of Warrants
I_______ $____ _______
- --------------------------------------------------------------------------------
AMERICAN RIVERS OIL COMPANY
_________________________________
SERIES "I" WARRANTS TO SUBSCRIBE FOR COMMON SHARES
THIS IS TO CERTIFY that _________________of _________________________________ is
the Registered holder of Warrants to subscribe for __________ shares of common
stock, par value $0.001 per share, ("Common Stock") of American Rivers Oil
Company subject to the conditions endorsed hereon and the provisions of the
Certificate of Incorporation of the Company.
AMERICAN RIVERS OIL COMPANY
By:________________________
Name:______________________
Title:_____________________
Dated: ________________, _____
<PAGE>
NOTICE OF EXERCISE
To: AMERICAN RIVERS OIL COMPANY (the "Company")
1. I/We, being the registered holder(s) of the Warrants represented by this
certificate, hereby give notice of my/our desire to exercise my/our
subscription rights in respect of _________/1/ shares of Common Stock of
the Company in accordance with the conditions applicable thereto and
request that such shares be issued for the total price of $__________ for
which we enclose my/our check.
2. I/We agree to accept all of the shares of Common Stock of the Company to be
issued to me/us pursuant hereto subject to the Certificate of Incorporation
of the Company. I/We desire all such Common Stock to be registered in
my/our name(s) and hereby authorize the entry of my/our name(s) in the
stock transfer records of the Company in respect thereof and the delivery
of a certificate therefor by United States mail at my/our risk to the
person whose name and address is set out below or, if none is set out, to
the registered address of the sole or first named holder.
3. I/We hereby authorize the delivery of a certificate for the balance (if
any) of the Warrants represented by this certificate which are not
exercised by United States mail at my/our risk to the person whose name and
address is set out below or, if none is set out, to the sole or first named
holders at his/her registered address.
Dated:__________________________________
Signature(s) of Warrant Holder(s)/2/:
__________________________________________________________
__________________________________________________________
Name/3/: __________________________________________________________
Address: __________________________________________________________
_________________________
/1/ Delete or complete as appropriate. If no amount is inserted, the
notice of exercise will be deemed to relate to all of the shares of
common stock subject to the Warrant.
/2/ In the case of joint holders ALL should sign. A corporation or other
entity should execute through an officer or attorney duly authorized
in that behalf in which event the Warrant must be accompanied by the
authority under which this notice is completed.
/3/ Please insert in BLOCK CAPITALS the name and/or the address of the
person to whom you wish the common stock share certificate and any
balance certificate for Warrants to be sent if it is different from
that of the sole or first named Warrantholder.
<PAGE>
Exhibit 10.7
DATED AS OF DECEMBER 1, 1998
----------------------------
(1) ALLIANCE RESOURCES PLC
-and-
(2) JOHN A. KEENAN
SECOND SUPPLEMENTAL AGREEMENT
TO
EXECUTIVE SERVICE
AGREEMENT
Dated 15 October 1996
<PAGE>
SECOND SUPPLEMENTAL AGREEMENT TO EXECUTIVE SERVICE
--------------------------------------------------
AGREEMENT
---------
THIS SECOND SUPPLEMENTAL AGREEMENT TO EXECUTIVE SERVICE AGREEMENT dated as of
the 1st day of December 1998 and made between:
(1) ALLIANCE RESOURCES PLC, a company registered in England and Wales, whose
registered office is at Kingsbury House, 15-17 King Street, London SW1Y
6QU ("the Company"), and
(2) JOHN A. KEENAN of 3134 E. 86th Street, Tulsa, Oklahoma 74137-2534, USA
("the Executive")
is supplemental to an Agreement dated 15th October 1996 and made between the
same parties are parties hereto as modified by Supplemental Agreement to
Executive Service Agreement dated 7 April, 1998.
RECITALS
(A) The Company and the Executive have previously entered into executive
service agreement dated 15th October 1996 as modified by Supplemental
Agreement to Executive Service Agreement dated 7 April 1998 ("the
Agreement") which provides for the Executive to be employed by the Company
upon the terms and conditions therein appearing. All defined terms used in
the Supplemental Agreement and not otherwise defined have the meanings
given in the Agreement.
(B) The Company now wishes to make certain alterations to the Agreement as
hereinafter appearing.
NOW, THEREFORE, the Parties hereto have agreed and do hereby agree as follows:
1. Clause 2.4 of the Agreement shall be deleted and the following Clause 2.4
shall be inserted in its place:
On termination of the employment of the Executive at any time and for
whatever reason and howsoever arising including, but not limited to,
termination of the employment of the Executive following his receipt of the
notice provided in Clause 2.3, but subject to the provisions of clause 12,
the Company shall pay to the Executive in one lump sum on the day of such
termination, a cash payment equal to twice (a) the Executive's annual salary
as specified in this Agreement, and (b) aggregate bonuses and benefits for
the preceding calendar year.
2. Clause 7.3 of the Agreement shall be deleted and the following Clause 7.3
shall be inserted in its place:
<PAGE>
During the continuance of his employment hereunder the Executive shall be
paid a car allowance sufficient to enable the Executive to acquire, operate
and maintain an automobile commensurate with the Executive's capacity which
allowance shall accrue from day to day and be paid in arrears on the last
day of each month, or if that is not a business day, on the immediately
preceding business day.
3. Clause 12.8 (d) (i) of the Agreement shall be deleted and the following
clause shall be inserted in its place:
(i) In one lump sum a cash payment equal to 2.5 times (A) the Executive's
annual salary as specified in this Agreement, and (B) aggregate bonuses
and benefits for the preceding calendar year.
4. Save as varied by this supplemental agreement the Agreement shall remain in
full force and effect.
IN WITNESS whereof this Agreement has been executed on the date first above
written.
Signed by Philip Douglas (Director and Chairman }
of the Remuneration Committee of the Board of }
Directors) for and on behalf of ALLIANCE }-----------------------------
RESOURCES PLC in the presence of: }
Signed by JOHN A. KEENAN in the }
presence of: }-----------------------------
<PAGE>
Exhibit 10.8
DATED AS OF DECEMBER 1, 1998
----------------------------
(1) ALLIANCE RESOURCES PLC
-and-
(2) PAUL R. FENEMORE
SECOND SUPPLEMENTAL AGREEMENT
TO
EXECUTIVE SERVICE
AGREEMENT
Dated 20 September 1996
<PAGE>
SECOND SUPPLEMENTAL AGREEMENT TO
---------------------------------
EXECUTIVE SERVICE AGREEMENT
---------------------------
THIS SECOND SUPPLEMENTAL AGREEMENT TO EXECUTIVE SERVICE AGREEMENT dated as of
the 1st day of December 1998 and made between:
(1) ALLIANCE RESOURCES PLC, a company registered in England and Wales, whose
registered office is at Kingsbury House, 15-17 King Street, London SW1Y 6QU
("the Company"), and
(2) PAUL RAYMOND FENEMORE of Flat1, 16-18 Kivelis Street, Nicosia, Cyprus ("the
Executive")
is supplemental to an Agreement dated 20th September 1996 and made between the
same parties as are parties hereto as modified by Supplemental Agreement to
Executive Service Agreement dated 6th April 1998.
RECITALS
(A) The Company and the Executive have previously entered into an executive
service agreement dated 20th September 1996 as modified by Supplemental
Agreement to Executive Service Agreement dated 6th April 1998 ("the
Agreement") which provides for the Executive to be employed by the Company
upon the terms and conditions therein appearing. All defined terms used in
this Supplemental Agreement and not otherwise defined have the meanings
given in the Agreement.
(B) The Company now wishes to make certain alterations to the Agreement as
hereinafter appearing.
NOW, THEREFORE, the Parties hereto have agreed and do hereby agree as follows:
1. Clause 2.2 of the Agreement shall be deleted and the following Clause 2.2
shall be inserted in its place:
The employment of the Executive shall (subject to the provisions of Clause
12) be for an initial fixed period of two (2) years from 20th September 1996
and shall automatically be extended without further action of either party
for additional two (2) year periods, unless written notice of either party's
intention not to extend has been given to the other party hereto at least
three (3) months prior to the expiration of the then effective two (2) year
period of employment. In the event of the latter the provisions of Clause
2.3 shall still apply.
2. Clause 2.3 of the Agreement shall be deleted and the following Clause 2.3
shall be inserted in its place:
<PAGE>
On termination of the employment of the Executive at any time and for
whatever reason and howsoever arising, but subject to the provisions of
Clause 12, the Company shall pay to the Executive in one lump sum on the
day of such termination, a cash payment in an amount equal to twice (a) the
Executive's annual salary as specified in this Agreement, and (b) aggregate
bonuses and benefits for the preceding calendar year.
3. A new clause 7.3 shall be inserted to read:
During the continuance of his employment hereunder the Executive shall be
paid a car allowance sufficient to enable the Executive to acquire, operate
and maintain an automobile commensurate with the Executive's capacity which
allowance shall accrue from day to day and be paid in arrears on the last
day of each month, or if that is not a business day, on the immediately
preceding business day.
4. Clause 12.8(d) of the Agreement shall be deleted and the following Clause
12.8(d) shall be inserted in its place:
Upon (x) the termination of the Executive by the Company without cause
following a Change in Control of the Company or (y) the Executive's
voluntary termination of employment for good reason following a Change in
Control, then the Company shall provide the Executive within thirty (30)
days after the applicable event, in one lump sum a cash payment equal to
2.5 times (A) the Executive's annual salary as specified in this Agreement,
and (B) aggregate bonuses and benefits for the preceding calendar year.
5. Save as varied by this supplemental agreement the Agreement shall remain in
full force and effect.
IN WITNESS whereof this Agreement has been executed on the date first above
written
Signed by Philip Douglas (Director and Chairman }
of the Remuneration Committee of the Board of }
Directors) for and on behalf of ALLIANCE }----------------------------
RESOURCES PLC in the presence of: }
Signed by PAUL R. FENEMORE in the }
presence of: }----------------------------
<PAGE>
Exhibit 10.9
DATED AS OF DECEMBER 1, 1998
----------------------------
(1) ALLIANCE RESOURCES PLC
----------------------
- and -
(2) FRANCIS M. MUNCHINSKI
---------------------
EXECUTIVE
---------
SERVICE AGREEMENT
-----------------
<PAGE>
THIS AGREEMENT is made as of the 1st day of December, 1998
- ---------------
BETWEEN:
- --------
(1) ALLIANCE RESOURCES PLC, a company registered in England and Wales whose
----------------------
registered office is at Kingsbury House, 15-17 King Street, London SW1Y 6QU
("the Company"), and
(2) FRANCIS M. MUNCHINSKI of 5541 E. 107TH Street., Tulsa, Oklahoma 74137
("the Executive")
WHEREAS
(A) it has been agreed that the Executive is to be employed by the
Company; and
(B) it has been agreed that said employment of the Executive shall be on
the terms and subject to the conditions hereinafter written;
NOW, THEREFORE, THE PARTIES HERETO HAVE AGREED AND DO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 In this Agreement unless the context otherwise required words and phrases
defined in Part XXVI of the Companies Act 1985 have the same meanings
thereby attributed to them and the following expressions have the following
meanings:
"Associated Company" means any company which is a holding company or a
subsidiary of the Company or a subsidiary of the Company's holding company;
"the Board" means the Board of Directors present at a meeting of the
directors of the Company at which a quorum is present but excluding the
Executive;
"Group" means the Company and the Associated Companies;
"Intellectual Property" means patent trade marks, service marks, designs,
utility models, design rights applications for registration of any of the
foregoing and the right to apply for them in any part of the world,
inventions, drawings, computer programs, Confidential Information, know-how
and rights of like nature arising or subsisting anywhere in the world in
relation to all of the foregoing whether registered or unregistered.
2
<PAGE>
2. COMMENCEMENT AND TERM
---------------------
2.1 The Executive's employment began on June 16, 1998.
2.2 This Agreement is in substitution for and shall supersede all or any former
and existing agreements or arrangements for the employment of the Executive
by the Company or an Associated Company all of which shall be deemed to
have been canceled with effect from the date of commencement of this
Agreement.
2.3 The employment of the Executive shall (subject to the provisions of Clause
12) be for an initial fixed period of two (2) years from January 1, 1999
and shall automatically be extended without further action of either party
for additional two (2) year periods, unless written notice of either
party's intention not to extend has been given to the other party hereto at
least three (3) months prior to the expiration of the then effective two
(2) year period of employment.
2.4 On termination of the employment of the Executive at any time and for
whatever reason and howsoever arising, including, but not limited to,
termination of the employment of the Executive following his receipt of the
notice provided in Clause 2.3, but subject to the provisions of Clause 12,
the Company shall pay to the Executive in one lump sum on the day of such
termination, a cash payment equal to twice (a) the Executive's annual
salary as specified in this Agreement and (b) aggregate bonuses and
benefits for the preceding calendar year.
3. OBLIGATIONS DURING EMPLOYMENT
-----------------------------
3.1 The Executive shall during the continuance of his employment:
(a) serve the Company to the best of his ability in the capacity of
General Counsel and shall perform such duties as are customary for a
general counsel of comparable companies;
(b) faithfully and diligently perform such duties and exercise such powers
consistent with them as the Managing Director may from time to time
properly assign to or confer upon him;
(c) if and so long as the Managing Director so directs perform and
exercise the said duties and powers on behalf of any Associated
Company and act as a director or other officer of any Associated
Company;
(d) do all in his power to protect, promote, develop and extend the
business interests and reputation of the Group;
(e) at all times and in all respects conform to and comply with the
business interests and reputation of the Group;
3
<PAGE>
(f) promptly give to the Managing Director (in writing if so requested)
all such information, explanations and assistance as he may require in
connection with the business and affairs of the Company and any
Associated Company for which he is required to perform duties;
(g) unless prevented by sickness, injury or other incapacity or as
otherwise agreed by the Managing Director devote the whole of his
time, attention, and abilities during his hours or work (which shall
be normal business hours and such additional hours as may be necessary
for the proper performance of his duties) to the business and affairs
of the Company and any Associated Company for which he is required to
perform duties;
(h) work at such place of business of the Company or any Associated
Company within the United Kingdom and/or the United States as
necessary for the proper performance and exercise of his duties and
powers and in particular it is agreed that the Executive shall remain
domiciled and receive payment for services rendered hereunder in the
United States; and the Executive may be required to travel on the
business of the Company and any Associated company (whether inside or
outside the United Kingdom) for which he is required to perform
duties; and
(i) at such times as the Managing Director may reasonably request and at
the expense of the Company undergo a medical examination by a doctor
of the Company's choice.
3.2 Notwithstanding the foregoing or any other provision of the Agreement, the
Company may at any time after the Executive has given notice to terminate
this Agreement suspend the Executive and/or exclude him from all or any
premises of the Company or any Associated Company for any period not
exceeding (12) months provided that throughout such period the Executive's
salary and other contractual benefits shall continue to be paid or provided
by the Company.
4. FURTHER OBLIGATIONS OF THE EXECUTIVE
------------------------------------
4.1 During the continuance of his employment the Executive shall devote his
whole time and attention to his duties under this Agreement and shall not
without the prior written consent of the Managing Director (such consent
not to be unreasonably withheld or delayed) directly or indirectly carry on
or be engaged, concerned or interested in any other business trade or
occupation which is similar to or in competition with the business of the
Company or any Associated Company otherwise than as a holder directly or
through nominees of not more than five per cent in aggregated of any class
of shares debentures or other securities in issue from time to time of any
company which are for the time being quoted or dealt in on any recognized
investment exchange (as defined by Section 207(1) of the Financial Services
Act 1986).
4
<PAGE>
4.2 The Executive shall during the continuance of his employment (and shall
procure that his spouse or partner and his minor children shall comply)
with all applicable rules of law, and stock exchange regulations (including
the "Model Code" issued by the International Stock Exchange of the United
Kingdom and the Republic of Ireland Limited) and codes of conduct of the
Company for the time being in force in relation to dealings in shares,
debentures or other securities of the Company or any Associated Company or
any unpublished price sensitive information affecting the securities of any
other company.
4.3 The Executive shall in relation to any dealings in securities of overseas
companies comply with all laws of any foreign state affecting dealings in
the securities of such companies and all regulations of any relevant stock
exchanges on which such dealings take place.
4.4 During the continuance of his employment the Executive shall observe the
terms of any policy issued by the Company in relation to any payment,
rebate, discount, commission, vouchers, gift or other benefit obtained by
him from any third party in respect of any business transacted or proposed
to be transacted (whether or not by him) by or on behalf of the Company or
any Associated Company.
5. REMUNERATION
------------
5.1 The Company shall pay to the Executive during the continuance of his
employment a salary (which shall accrue from day to day) at the rate of One
Hundred Forty Thousand U.S. Dollars (U.S. $140,000) per year. The salary
shall be payable by equal bi-monthly installments in arrears on or about
the 15th and 30th day of each calendar month.
5.2 The salary payable to the Executive under Clause 5.1 shall be reviewed on
no less than an annual basis and may be increased by such amount as the
Managing Director in his absolute discretion from time to time decide and
notify to the Executive in writing.
5.3 The Executive may during the continuance of his employment be entitled to
be paid bonuses of such amounts (if any) at such times and subject to such
conditions as the Managing Director may in his discretion decide.
5.4 The Executive shall be entitled to be granted such share options in the
share capital of the Company as decided by the Managing Director and/or the
Board from time to time. The Company agrees initially to grant the
Executive share options under the Company Scheme as set forth on the First
-----
Schedule. It is the intention of the Company to grant the Executive
--------
additional share options at a minimum of two (2) times the Executive's
annual salary, at the earliest available opportunity under the Company
Scheme and within the overall constraints of the rules and regulations of
the London Stock Exchange regarding the granting of such share options. The
Company agrees that the Executive shall be entitled to
5
<PAGE>
retain all options granted until expiry date in the event of termination of
the employment of the Executive without good cause.
6. INSURANCE
---------
6.1 Subject to his complying with and satisfying any applicable requirements of
the relevant insurers the Company shall provide and pay for the provision
to the Executive of comprehensive medical, dental and disability insurance
in accordance with arrangements made between the Company and an insurance
company mutually acceptable to the Company and the Executive. In addition,
the Company shall provide and pay for the provision to the Executive of
comprehensive travel, associated death and emergency medical insurance,
including cover for emergency repatriation to the U.S.A. whilst the
Executive is outside the U.S.A. on business at the bequest of the Company.
7. EXPENSES
--------
7.1 The Company shall during the continuance of his employment reimburse the
Executive in respect of all reasonable traveling, accommodation,
entertainment and other similar out-of-pocket expenses wholly, exclusively
and necessarily incurred by him in or about the performance of his duties.
7.2 Except where specified to the contrary, all expenses shall be reimbursed in
accordance with the expenses policies of the Company from time to time
subject to the Executive providing appropriate evidence (including
receipts, invoices, tickets and/or vouchers as may be appropriate) of the
expenditure in respect of which he claims reimbursement.
7.3 During the continuance of his employment hereunder the Executive shall be
paid a car allowance sufficient to enable the Executive to acquire, operate
and maintain an automobile commensurate with the Executive's capacity which
allowance shall accrue from day to day and be paid in arrears on the last
day of each month, or if that is not a business day, on the immediately
preceding business day.
8. HOLIDAYS
--------
8.1 The Executive shall (in addition to the usual public and bank holidays) be
entitled during the continuance of his employment to twenty-five (25)
working days' paid holiday in each calendar year to be taken at such times
as shall have been approved by the Managing Director.
8.2 The Executive shall not be entitled to carry forward any annual holiday
entitlement foregone by him for any reason during the calendar year in
which it accrued without the prior written consent of the Managing
Director.
6
<PAGE>
8.3 Upon termination of his employment the Executive's entitlement to accrued
holiday pay (which accrues at the rate of 2 days per month) shall be
calculated on a pro rata basis in respect of each completed month of
service in the calendar year in which his employment terminates and the
appropriate amount shall be paid to the Executive provided that if the
Executive shall have taken more days' holiday than his accrued entitlement
the Company is hereby authorized to make an appropriate deduction from the
Executive's final salary payment.
9. SICKNESS
--------
9.1 Subject to his complying with the Company's procedures relating to the
notification and certification of periods of absence from work the
Executive shall continue to be paid his salary during any periods of
absence from work due to sickness, injury or other incapacity up to a
maximum of twenty six (26) weeks in aggregate in any period of fifty two
(52) consecutive weeks.
9.2 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for a continuous period in excess of twenty six (26)
weeks, the Managing Director shall decide at his absolute discretion
whether to terminate the Executive's employment, in which case the
provisions of Clause 2.4 shall apply or continue to pay the Executive at
fifty percent (50%) of his salary for an additional twenty six (26) weeks.
In the event that the Executive's employment is terminated at the end of
the additional twenty six (26) week period the provisions of Clause 2.4
shall still apply.
10. INTELLECTUAL PROPERTY
---------------------
10.1 Subject to the relevant provisions of the Patents Act 1977, the Registered
Designs Act 1949 and the Copyright Designs and Patents Act 1988 if at any
time in the course of his employment the Executive makes or discovers or
participates in the making or discovery of any Intellectual Property
relating to or capable of being used in the business of the Company or any
Associated Company he shall immediately disclose full details of such
Intellectual Property to the Company and at the request and expense of the
Company he shall do all things which may be necessary or desirable for
obtaining appropriate forms of protection for the Intellectual Property in
such parts of the world as may be specified by the Company and for vesting
all rights in the same in the Company or its nominees.
10.2 The Executive hereby irrevocably appoints the Company to be his attorney in
his name and on his behalf to sign execute or do any instrument or thing
and generally to use his name for the purpose of giving to the Company or
its nominee the full benefit of the provisions of this Clause and in favour
of any third party a certificate in writing signed by any director or the
secretary of the Company that any instrument or act falls within the
authority conferred by this Clause shall be conclusive evidence that such
is the case.
7
<PAGE>
10.3 The Executive hereby waives all of his moral rights (as defined in the
Copyright Designs and Patents Act 1988) in respect of any acts of the
Company or any acts of third parties done with the Company's authority in
relation to any Intellectual Property which is the property of the Company
by virtue of Clause 10.1.
10.4 All rights and obligations under this Clause in respect of Intellectual
Property made or discovered by the Executive during his employment shall
continue in full force and effect after the termination of his employment
and shall be binding upon the Executive's personal representatives.
11. CONFIDENTIALITY
---------------
11.1 The Executive shall not (other than in the proper performance of his duties
or without the prior written consent of the Managing Director or unless
ordered by a court of competent jurisdiction) at any time either during the
continuance of his employment of after its termination disclose or
communicate to any person or use for his own benefit or the benefit of any
person other than the Company or any Associated Company any benefits of any
confidential information which may come to his knowledge in the course of
his employment and the Executive shall during the continuance of his
employment use his best endeavours to prevent the unauthorized publication
or misuse of any confidential information provided that such restrictions
shall cease to apply to any confidential information which may enter the
public domain other than through the default of the Executive.
11.2 All notes and memoranda of any trade secret or confidential information
concerning the business of the Company and the Associated Companies or any
of its or their suppliers, agents, distributors, customers or others which
shall have been acquired, received or made by the Executive during the
course of his employment shall be the property of the Company and shall be
surrendered by the Executive to someone duly authorized in that behalf at
the termination of his employment or at the request of the Managing
Director at any time during the course of his employment.
11.3 For the avoidance of doubt and without prejudice to the generality of
Clauses 11.1 and 11.2 the following is a non-exhaustive list of matters
which in relation to the Company and the Associated Companies are
considered confidential and must be treated as such by the Executive:
(a) any trade secrets of the Company or any Associated Company;
(b) any information in respect of which the Company or any Associated
Company is bound by an obligation of confidence to any third party;
(c) customer lists and details of contacts with or requirements of
customers; and
8
<PAGE>
(d) any invention, technical data, know-how, instruction or operations
manual or other manufacturing or trade secrets of the Group and their
clients/customers.
12. TERMINATION OF EMPLOYMENT
-------------------------
12.1 The employment of the Executive may be terminated by the Company forthwith
by notice in writing to the Executive if the Executive:
(a) commits any material breach of any of the terms, conditions or
stipulations contained in this Agreement;
(b) is guilty of any serious negligence or gross misconduct in connection
with or affecting the business or affairs of the Company or any
Associated Company for which he is required to perform duties;
(c) is guilty of conduct which brings or is likely to bring himself or the
Company or any Associated Company into disrepute;
(d) is convicted of an arrestable offence (other than an offence under the
road traffic legislation in the United Kingdom or elsewhere for which
a non-custodial penalty is imposed);
(e) is adjudged bankrupt or makes any arrangement or composition with his
creditors; or
(f) becomes incapable by reason of mental disorder of discharging his
duties.
12.2 [RESERVED]
12.3 The employment of the Executive may be terminated by the Company forthwith
by twelve (12) months notice in writing to the Executive if the Executive
is found unfit to perform his duties on the basis of a medical report
supplied to the Company following his having undergone a medical
examination pursuant to paragraph (i) of Clause 3.1.
12.4 The Executive may terminate his employment with the Company forthwith by
notice in writing to the Company, if the Company commits any material
breach of the terms, conditions or stipulations contained in this
Agreement, in which case the provisions of Clause 2.4 shall still apply.
12.5 The employment of the Executive shall terminate automatically and without
prior notice upon his attaining the age of 65.
9
<PAGE>
12.6 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for periods in excess of 6 months in aggregate in any
period of twelve consecutive months the Company may terminate his
employment by giving to him not less than three months' notice in written
expiring at any time.
12.7 Upon the termination of his employment (for whatever reason and howsoever
arising) the Executive:
(a) shall not take away, conceal or destroy but shall immediately deliver
up to the Company all documents (which expression shall include but
without limitation notes, memoranda, correspondence, drawings,
sketches, plans, designs and any other material upon which data or
information is recorded or stored) relating to the business or affairs
of the Company or any Associated Company or any of their
clients/customers, shareholders, employees, officers, suppliers,
distributors and agents (and the Executive shall not be entitled to
retain any copies or reproductions of any such documents) together
with any other property belonging to the Company or any Associated
Company which may then be in his possession or under his control;
(b) shall at the request of the Managing Director immediately resign
without claim or compensation from office as a director of any
Associated Company and from any other office held by him in the
Company or any Associated Company (but without prejudice to any claim
he may have for damages for breach of this Agreement) and in the event
of his failure to do so the Company is hereby irrevocably authorized
to appoint some person in his name and on his behalf to sign and
deliver such resignations to the Managing Director;
(c) shall not at any time thereafter make any untrue or misleading oral or
written statement concerning the business and affairs of the Company
or any Associated Company nor represent himself or permit himself to
be held out as being in any way connected with or interested in the
business of the Company or any Associated Company (except as a former
employee for the purpose of communicating with prospective employers
or complying with any applicable statutory requirements);
(d) shall not at any time thereafter use the name Alliance Resources or
any name capable of confusion therewith (whether by using such names
as part of a corporate name or otherwise); and
(e) shall immediately repay all outstanding debts or loans due to the
Company or any Associated Company and the Company is hereby authorized
to deduct from any wages of the Executive a sum equal to any such
debts or loans.
10
<PAGE>
12.8 The following provisions will apply in the event of a Change in Control:
(a) The Board recognizes that the Executive is one of several key
employees whose high quality of job performance is essential to
promoting and protecting the best interests of the Company and its
shareholders. The Board further recognizes (i) that it is possible
that a Change in Control of the Company could occur at some time in
the future, (ii) that the uncertainty associated with such a
possibility could result in the distraction of the Executive from his
assigned duties and responsibilities, (iii) that it is in the best
interest of the Company and its shareholders to assure the continued
attention by the Executive to such duties and responsibilities without
such distraction, and (iv) that the Executive must be able to
participate in the assessment and evaluation of any proposal which
could effect a Change in Control of the Company without the Executive
being influenced in the exercise of his judgment by uncertainties
regarding the Executive's future financial security.
(b) A "Change in Control" of the Company shall occur if, after the date of
this Agreement
(i) any Unrelated Party (as hereinafter defined) becomes the
beneficial owner, directly or indirectly, of thirty percent
(30%) or more of the common stock of the Company issued and
outstanding immediately prior to such acquisition and/or
securities of the Company which may be converted into shares of
common stock of the Company, computing such percentage as if
such securities acquired had been converted and are issued and
outstanding for the purpose of determining such percentage or,
if any Unrelated Party is the beneficial owner of thirty percent
(30%) or more of such securities at the date of this Agreement,
such Unrelated Party acquires an additional ten percent (10%) of
the shares of common stock of the Company and/or securities of
the Company which may be converted into shares of common stock
of the Company;
(ii) the shareholders of the Company approve (x) any consolidation or
merger of the Company in which the Company is not the continuing
or surviving corporation or pursuant to which shares of the
common stock of the Company are converted into cash, securities
or other property, other than a merger of the Company in which
the holders of the common stock of the Company immediately prior
to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger,
or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company, or (z) any plan
or proposal for the liquidation or dissolution of the Company;
11
<PAGE>
(iii) a majority of the Board ceases to consist of Continuing
Directors. "Continuing Directors" shall mean members of the
Board who either (1) are members of the Board at the date of
this Agreement or (2) are nominated or appointed to serve as
directors by a majority of the then Continuing Directors; or
(iv) any tender or exchange offer is made to acquire thirty percent
(30%) or more of the common stock of the Company, other than an
offer made by the Company, and shares are acquired pursuant to
that offer.
(c) "Unrelated Party" shall mean any party or group of parties acting
together; excluding, however, the Company, a subsidiary of the Company
and any trustee under any employee benefit plan maintained by the
Company.
(d) Upon (x) the termination of the Executive by the Company without cause
following a Change in Control of the Company or (y) the Executive's
voluntary termination of employment for Good Reason following a Change
in Control of the Company prior to expiration of the then effective
two (2) year period of employment, then the Company shall provide to
the Executive, within thirty (30) days after the applicable event, the
following benefits:
(i) in one lump sum a cash payment equal to 2.5 times (A) the
Executive's annual salary as specified in this Agreement, and
(B) aggregate bonuses and benefits for the preceding calendar
year.
(ii) to the extent permitted by applicable law, inclusion in the
Company's life and medical plans as if the Executive were still
employed by the Company until the earlier of two (2) years from
the date of his termination or until the Executive obtains
eligibility under comparable employee plans, with the Company
paying that portion of the premium which it was paying for the
Executive at the time of his termination.
(e) Good Reason. "Good Reason" shall mean:
------------
(i) Without his express written consent, the assignment to the
Executive of any duties inconsistent with his positions, duties,
responsibilities and status with the Company as of the date of
this Agreement or a change in his titles or offices as of same
date, or any removal of the Executive from or any failure to re-
elect the Executive to any of such positions, except in
connection with the termination of his employment for cause or
as a result of his
12
<PAGE>
Disability or death, or termination by the Executive other than
for Good Reason;
(ii) Any reduction of the then-existing base salary or a reduction of
more than ten percent (10%) in the aggregate value of any
benefit plans without the prior written consent of the
Executive, which is not remedied within ten (10) calendar days
after receipt by the Company of written notice from the
Executive of such change or reduction, as the case may be;
(iii) A determination by the Executive made in good faith that as a
result of a Change in Control of the Company and a change in
circumstances thereafter significantly affecting his position,
he has been rendered substantially unable to carry out, or has
been substantially hindered in the performance of any of the
authorities, powers, functions, responsibilities or duties
attached to his position immediately prior to the Change in
Control of the Company, which situation is not remedied within
thirty (30) calendar days after receipt by the Company of
written notice from the Executive of such determination;
(iv) Failure by the Company to require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place; or
(v) The Company shall relocate its principal executive office or
require Executive to have his principal location of work or
principal residence any location which is in excess of thirty
miles from the location as of the date hereof; or
(vi) Any material breach of this Agreement by the Company.
12.9 The Executive shall not be required to mitigate the amount of any
payments or benefit provided by this Agreement nor shall the amounts of
any payment or benefit provided for by this Agreement be reduced by any
compensation earned by the Executive as a result of employment by the
Company or another employer either before or after a Change in Control of
the Company.
12.10 Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or
other plan or program provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such
13
<PAGE>
rights as the Executive may have under any other agreements with the
Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under
any plan or program of the Company or any of its affiliated companies at
or subsequent to the termination of employment hereunder shall be payable
in accordance with such plan or program.
13. NOTICES
-------
13.1 Any notice to be given under this Agreement shall be given in writing and
shall be deemed to be sufficiently served by one party on the other if it
is delivered personally or is sent by registered or recorded delivery
pre-paid post (air mail if overseas) addressed to either the Company's
registered office for the time being or the Executive's last known
address as the case may be.
13.2 Any notice sent by post shall be deemed (in the absence of evidence of
earlier receipt) to be received 2 days after posting (6 days if sent air
mail) and in proving the time such notice was sent it shall be sufficient
to show that the envelope containing it was properly addressed stamped
and posted.
13.3 Notwithstanding any other provision of this Agreement, no provision by
virtue of which this Agreement or any agreement or arrangement of which
it forms part is subject to registration under the Restrictive Trade
Practices Act 1976 and 1977 ("RTPA") shall take effect until after
particulars thereof have been furnished to the Director General of Fair
Trading in accordance with the requirements of the RTPA.
14. MISCELLANEOUS
-------------
14.1 The Executive hereby warrants that by virtue of entering into this
Agreement he will not be in breach of any express or implied terms of any
contract or of any other obligation legally binding upon him.
14.2 Any benefits provided by the Company to the Executive or his family which
are not expressly referred to in this Agreement shall be regarded as ex
gratia benefits provided at the entire discretion of the Company and
shall not form part of the Executive's contract of employment.
14.3 The Company shall be entitled at any time during the Executive's
employment to make deductions from the Executive's salary or from any
other sums due to the Executive from the Company or any Associated
Company in respect of any overpayment of any kind made to the Executive
or in respect of any debt or other sum due from him.
15. GENERAL PROVISIONS
------------------
14
<PAGE>
15.1 The headings in this Agreement are for convenience only and shall not
affect its construction or interpretation.
15.2 References in this Agreement to Clauses and paragraphs and the Schedules
are references to Clauses and paragraphs and the Schedules (which are
hereby specifically incorporated in this Agreement) to this Agreement.
15.3 Any reference in this Agreement to the employment of the Executive is a
reference to his employment by the Company whether or not during the
currency of this Agreement.
15.4 Any reference in this Agreement to a person shall where the context
permits include a reference to a body corporate and to any unincorporated
body of persons.
15.5 Any word in this Agreement which denotes the singular shall where the
context permits include the plural and vice versa and any word in this
Agreement which denotes the masculine gender shall where the context
permits include the feminine and/or the neuter genders and vice versa.
15.6 Any reference in this Agreement to a statutory provision shall be deemed
to include a reference to any statutory amendment modification or re-
enactment of it.
15.7 This Agreement contains the entire understanding between the parties and
supersedes all (if any) subsisting agreements, arrangements and
understandings relating to the employment of the Executive which such
agreements, arrangements and understandings shall be deemed to have been
terminated by mutual consent.
15.8 This Agreement is governed by and shall be construed in accordance with
the laws of England and the parties to this Agreement hereby submit to
the exclusive jurisdiction of the English courts.
15
<PAGE>
IN WITNESS whereof this Agreement has been executed as a deed by the parties
- ----------
hereto and is intended to be and is hereby delivered on the date first above
written.
Executed as a deed by John A. Keenan (Managing Director) }
for ALLIANCE RESOURCES PLC in the presence of: }
}
}
Signature
--------------------------------
Name
--------------------------------
Address
--------------------------------
--------------------------------
Occupation
--------------------------------
Signed as a deed by }
FRANCIS M. MUNCHINSKI (Executive) }
in the presence of: }
}
Signature
--------------------------------
Name
--------------------------------
Address
--------------------------------
--------------------------------
Occupation
--------------------------------
16
<PAGE>
THE FIRST SCHEDULE
------------------
One hundred seventy thousand (170,000) Ordinary Options to be issued
at the closing mid-market price of Ordinary Shares on the date of
grant of such options.
Three hundred fifty thousand (350,000) Long Term Options exercisable
upon the Company's share price increasing threefold during the 5-year
exercise period of such options.
All options are to be issued under the Company Share Option Scheme
(No. 2) as adopted by the Company in general meeting on 4 May 1995.
17
<PAGE>
Exhibit 10.10
DATED AS OF DECEMBER 1, 1998
----------------------------
(1) ALLIANCE RESOURCES PLC
----------------------
- and -
(2) ROBERT E. SCHULTE
-----------------
EXECUTIVE
---------
SERVICE AGREEMENT
-----------------
<PAGE>
THIS AGREEMENT is made as of the 1st day of December, 1998
- --------------
BETWEEN:
- --------
(1) ALLIANCE RESOURCES PLC, a company registered in England and Wales whose
----------------------
registered office is at Kingsbury House, 15-17 King Street, London SW1Y
6QU ("the Company"), and
(2) ROBERT E. SCHULTE of TULSA, OKLAHOMA ("the Executive")
WHEREAS
(A) it has been agreed that the Executive is to be employed by the
Company; and
(B) it has been agreed that said employment of the Executive shall be on
the terms and subject to the conditions hereinafter written;
NOW, THEREFORE, THE PARTIES HERETO HAVE AGREED AND DO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 In this Agreement unless the context otherwise required words and phrases
defined in Part XXVI of the Companies Act 1985 have the same meanings
thereby attributed to them and the following expressions have the
following meanings:
"Associated Company" means any company which is a holding company or a
subsidiary of the Company or a subsidiary of the Company's holding
company;
"the Board" means the Board of Directors present at a meeting of the
directors of the Company at which a quorum is present but excluding the
Executive;
"Group" means the Company and the Associated Companies;
"Intellectual Property" means patent trade marks, service marks, designs,
utility models, design rights applications for registration of any of the
foregoing and the right to apply for them in any part of the world,
inventions, drawings, computer programs, Confidential Information, know-
how and rights of like nature arising or subsisting anywhere in the world
in relation to all of the foregoing whether registered or unregistered.
2
<PAGE>
2. COMMENCEMENT AND TERM
---------------------
2.1 The Executive's employment began on or about September 20, 1997.
2.2 This Agreement is in substitution for and shall supersede all or any
former and existing agreements or arrangements for the employment of the
Executive by the Company or an Associated Company all of which shall be
deemed to have been canceled with effect from the date of commencement of
this Agreement.
2.3 The employment of the Executive shall (subject to the provisions of Clause
12) be for an initial fixed period of two (2) years from January 1, 1999
and shall automatically be extended without further action of either party
for additional two (2) year periods, unless written notice of either
party's intention not to extend has been given to the other party hereto
at least three (3) months prior to the expiration of the then effective
two (2) year period of employment.
2.4 On termination of the employment of the Executive at any time and for
whatever reason and howsoever arising, including, but not limited to,
termination of the employment of the Executive following his receipt of
the notice provided in Clause 2.3, but subject to the provisions of Clause
12, the Company shall pay to the Executive in one lump sum on the day of
such termination, a cash payment equal to twice (a) the Executive's annual
salary as specified in this Agreement, and (b) aggregate bonuses and
benefits for the preceding calendar year.
3. OBLIGATIONS DURING EMPLOYMENT
-----------------------------
3.1 The Executive shall during the continuance of his employment:
(a) serve the Company to the best of his ability in the capacity of
controller and shall perform such duties as are customary for a
controller of comparable companies;
(b) faithfully and diligently perform such duties and exercise such
powers consistent with them as the Managing Director may from time to
time properly assign to or confer upon him;
(c) if and so long as the Managing Director so directs perform and
exercise the said duties and powers on behalf of any Associated
Company and act as a director or other officer of any Associated
Company;
(d) do all in his power to protect, promote, develop and extend the
business interests and reputation of the Group;
(e) at all times and in all respects conform to and comply with the
business interests and reputation of the Group;
3
<PAGE>
(f) promptly give to the Managing Director (in writing if so requested)
all such information, explanations and assistance as he may require
in connection with the business and affairs of the Company and any
Associated Company for which he is required to perform duties;
(g) unless prevented by sickness, injury or other incapacity or as
otherwise agreed by the Managing Director devote the whole of his
time, attention, and abilities during his hours or work (which shall
be normal business hours and such additional hours as may be
necessary for the proper performance of his duties) to the business
and affairs of the Company and any Associated Company for which he is
required to perform duties;
(h) work at such place of business of the Company or any Associated
Company within the United Kingdom and/or the United States as
necessary for the proper performance and exercise of his duties and
powers and in particular it is agreed that the Executive shall remain
domiciled and receive payment for services rendered hereunder in the
United States; and the Executive may be required to travel on the
business of the Company and any Associated company (whether inside or
outside the United Kingdom) for which he is required to perform
duties; and
(i) at such times as the Managing Director may reasonably request and at
the expense of the Company undergo a medical examination by a doctor
of the Company's choice.
3.2 Notwithstanding the foregoing or any other provision of the Agreement, the
Company may at any time after the Executive has given notice to terminate
this Agreement suspend the Executive and/or exclude him from all or any
premises of the Company or any Associated Company for any period not
exceeding (12) months provided that throughout such period the Executive's
salary and other contractual benefits shall continue to be paid or
provided by the Company.
4. FURTHER OBLIGATIONS OF THE EXECUTIVE
------------------------------------
4.1 During the continuance of his employment the Executive shall devote his
whole time and attention to his duties under this Agreement and shall not
without the prior written consent of the Managing Director (such consent
not to be unreasonably withheld or delayed) directly or indirectly carry
on or be engaged, concerned or interested in any other business trade or
occupation which is similar to or in competition with the business of the
Company or any Associated Company otherwise than as a holder directly or
through nominees of not more than five per cent in aggregated of any class
of shares debentures or other securities in issue from time to time of any
company which are for the time being quoted or dealt in on any recognized
investment exchange (as defined by Section 207(1) of the Financial
Services Act 1986).
4
<PAGE>
4.2 The Executive shall during the continuance of his employment (and shall
procure that his spouse or partner and his minor children shall comply)
with all applicable rules of law, and stock exchange regulations
(including the "Model Code" issued by the International Stock Exchange of
the United Kingdom and the Republic of Ireland Limited) and codes of
conduct of the Company for the time being in force in relation to dealings
in shares, debentures or other securities of the Company or any Associated
Company or any unpublished price sensitive information affecting the
securities of any other company.
4.3 The Executive shall in relation to any dealings in securities of overseas
companies comply with all laws of any foreign state affecting dealings in
the securities of such companies and all regulations of any relevant stock
exchanges on which such dealings take place.
4.4 During the continuance of his employment the Executive shall observe the
terms of any policy issued by the Company in relation to any payment,
rebate, discount, commission, vouchers, gift or other benefit obtained by
him from any third party in respect of any business transacted or proposed
to be transacted (whether or not by him) by or on behalf of the Company or
any Associated Company.
5. REMUNERATION
------------
5.1 The Company shall pay to the Executive during the continuance of his
employment a salary (which shall accrue from day to day) at the rate of
One Hundred Thousand U.S. Dollars (U.S. $100,000) per year. The salary
shall be payable by equal bi-monthly installments in arrears on or about
the 15th and 30th day of each calendar month.
5.2 The salary payable to the Executive under Clause 5.1 shall be reviewed on
no less than an annual basis and may be increased by such amount as the
Managing Director in his absolute discretion from time to time decide and
notify to the Executive in writing.
5.3 The Executive may during the continuance of his employment be entitled to
be paid bonuses of such amounts (if any) at such times and subject to such
conditions as the Managing Director may in his discretion decide.
5.4 The Executive shall be entitled to be granted such share options in the
share capital of the Company as decided by the Managing Director and/or
the Board from time to time. The Company agrees initially to grant the
Executive share options under the Company Scheme as set forth on the First
-----
Schedule. It is the intention of the Company to grant the Executive
--------
additional share options at a minimum of two (2) times the Executive's
annual salary, at the earliest available opportunity under the Company
Scheme and within the overall constraints of the rules and regulations of
the London Stock Exchange regarding the granting of such share options.
The Company agrees that the Executive shall be entitled to
5
<PAGE>
retain all options granted until expiry date in the event of termination
of the employment of the Executive without good cause.
6. INSURANCE
---------
6.1 Subject to his complying with and satisfying any applicable requirements
of the relevant insurers the Company shall provide and pay for the
provision to the Executive of comprehensive medical, dental and disability
insurance in accordance with arrangements made between the Company and an
insurance company mutually acceptable to the Company and the Executive. In
addition, the Company shall provide and pay for the provision to the
Executive of comprehensive travel, associated death and emergency medical
insurance, including cover for emergency repatriation to the U.S.A. whilst
the Executive is outside the U.S.A. on business at the bequest of the
Company.
7. EXPENSES
--------
7.1 The Company shall during the continuance of his employment reimburse the
Executive in respect of all reasonable traveling, accommodation,
entertainment and other similar out-of-pocket expenses wholly, exclusively
and necessarily incurred by him in or about the performance of his duties.
7.2 Except where specified to the contrary, all expenses shall be reimbursed
in accordance with the expenses policies of the Company from time to time
subject to the Executive providing appropriate evidence (including
receipts, invoices, tickets and/or vouchers as may be appropriate) of the
expenditure in respect of which he claims reimbursement.
7.3 During the continuance of his employment hereunder the Executive shall be
paid a car allowance sufficient to enable the Executive to acquire,
operate and maintain an automobile commensurate with the Executive's
capacity which allowance shall accrue from day to day and be paid in
arrears on the last day of each month, or if that is not a business day,
on the immediately preceding business day.
8. HOLIDAYS
--------
8.1 The Executive shall (in addition to the usual public and bank holidays) be
entitled during the continuance of his employment to twenty-five (25)
working days' paid holiday in each calendar year to be taken at such times
as shall have been approved by the Managing Director.
8.2 The Executive shall not be entitled to carry forward any annual holiday
entitlement foregone by him for any reason during the calendar year in
which it accrued without the prior written consent of the Managing
Director.
6
<PAGE>
8.3 Upon termination of his employment the Executive's entitlement to accrued
holiday pay (which accrues at the rate of 2 days per month) shall be
calculated on a pro rata basis in respect of each completed month of
service in the calendar year in which his employment terminates and the
appropriate amount shall be paid to the Executive provided that if the
Executive shall have taken more days' holiday than his accrued entitlement
the Company is hereby authorized to make an appropriate deduction from the
Executive's final salary payment.
9. SICKNESS
--------
9.1 Subject to his complying with the Company's procedures relating to the
notification and certification of periods of absence from work the
Executive shall continue to be paid his salary during any periods of
absence from work due to sickness, injury or other incapacity up to a
maximum of twenty six (26) weeks in aggregate in any period of fifty two
(52) consecutive weeks.
9.2 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for a continuous period in excess of twenty six (26)
weeks, the Managing Director shall decide at his absolute discretion
whether to terminate the Executive's employment, in which case the
provisions of Clause 2.4 shall apply or continue to pay the Executive at
fifty percent (50%) of his salary for an additional twenty six (26) weeks.
In the event that the Executive's employment is terminated at the end of
the additional twenty six (26) week period the provisions of Clause 2.4
shall still apply.
10. INTELLECTUAL PROPERTY
---------------------
10.1 Subject to the relevant provisions of the Patents Act 1977, the Registered
Designs Act 1949 and the Copyright Designs and Patents Act 1988 if at any
time in the course of his employment the Executive makes or discovers or
participates in the making or discovery of any Intellectual Property
relating to or capable of being used in the business of the Company or any
Associated Company he shall immediately disclose full details of such
Intellectual Property to the Company and at the request and expense of the
Company he shall do all things which may be necessary or desirable for
obtaining appropriate forms of protection for the Intellectual Property in
such parts of the world as may be specified by the Company and for vesting
all rights in the same in the Company or its nominees.
10.2 The Executive hereby irrevocably appoints the Company to be his attorney
in his name and on his behalf to sign execute or do any instrument or
thing and generally to use his name for the purpose of giving to the
Company or its nominee the full benefit of the provisions of this Clause
and in favour of any third party a certificate in writing signed by any
director or the secretary of the Company that any instrument or act falls
within the authority conferred by this Clause shall be conclusive evidence
that such is the case.
7
<PAGE>
10.3 The Executive hereby waives all of his moral rights (as defined in the
Copyright Designs and Patents Act 1988) in respect of any acts of the
Company or any acts of third parties done with the Company's authority in
relation to any Intellectual Property which is the property of the Company
by virtue of Clause 10.1.
10.4 All rights and obligations under this Clause in respect of Intellectual
Property made or discovered by the Executive during his employment shall
continue in full force and effect after the termination of his employment
and shall be binding upon the Executive's personal representatives.
11. CONFIDENTIALITY
---------------
11.1 The Executive shall not (other than in the proper performance of his
duties or without the prior written consent of the Managing Director or
unless ordered by a court of competent jurisdiction) at any time either
during the continuance of his employment of after its termination disclose
or communicate to any person or use for his own benefit or the benefit of
any person other than the Company or any Associated Company any benefits
of any confidential information which may come to his knowledge in the
course of his employment and the Executive shall during the continuance of
his employment use his best endeavours to prevent the unauthorized
publication or misuse of any confidential information provided that such
restrictions shall cease to apply to any confidential information which
may enter the public domain other than through the default of the
Executive.
11.2 All notes and memoranda of any trade secret or confidential information
concerning the business of the Company and the Associated Companies or any
of its or their suppliers, agents, distributors, customers or others which
shall have been acquired, received or made by the Executive during the
course of his employment shall be the property of the Company and shall be
surrendered by the Executive to someone duly authorized in that behalf at
the termination of his employment or at the request of the Managing
Director at any time during the course of his employment.
11.3 For the avoidance of doubt and without prejudice to the generality of
Clauses 11.1 and 11.2 the following is a non-exhaustive list of matters
which in relation to the Company and the Associated Companies are
considered confidential and must be treated as such by the Executive:
(a) any trade secrets of the Company or any Associated Company;
(b) any information in respect of which the Company or any Associated
Company is bound by an obligation of confidence to any third party;
(c) customer lists and details of contacts with or requirements of
customers; and
8
<PAGE>
(d) any invention, technical data, know-how, instruction or operations
manual or other manufacturing or trade secrets of the Group and their
clients/customers.
12. TERMINATION OF EMPLOYMENT
-------------------------
12.1 The employment of the Executive may be terminated by the Company forthwith
by notice in writing to the Executive if the Executive:
(a) commits any material breach of any of the terms, conditions or
stipulations contained in this Agreement;
(b) is guilty of any serious negligence or gross misconduct in connection
with or affecting the business or affairs of the Company or any
Associated Company for which he is required to perform duties;
(c) is guilty of conduct which brings or is likely to bring himself or
the Company or any Associated Company into disrepute;
(d) is convicted of an arrestable offence (other than an offence under
the road traffic legislation in the United Kingdom or elsewhere for
which a non-custodial penalty is imposed);
(e) is adjudged bankrupt or makes any arrangement or composition with his
creditors; or
(f) becomes incapable by reason of mental disorder of discharging his
duties.
12.2 [RESERVED]
12.3 The employment of the Executive may be terminated by the Company forthwith
by twelve (12) months notice in writing to the Executive if the Executive
is found unfit to perform his duties on the basis of a medical report
supplied to the Company following his having undergone a medical
examination pursuant to paragraph (i) of Clause 3.1.
12.4 The Executive may terminate his employment with the Company forthwith by
notice in writing to the Company, if the Company commits any material
breach of the terms, conditions or stipulations contained in this
Agreement, in which case the provisions of Clause 2.4 shall still apply.
12.5 The employment of the Executive shall terminate automatically and without
prior notice upon his attaining the age of 65.
9
<PAGE>
12.6 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for periods in excess of 6 months in aggregate in any
period of twelve consecutive months the Company may terminate his
employment by giving to him not less than three months' notice in written
expiring at any time.
12.7 Upon the termination of his employment (for whatever reason and howsoever
arising) the Executive:
(a) shall not take away, conceal or destroy but shall immediately deliver
up to the Company all documents (which expression shall include but
without limitation notes, memoranda, correspondence, drawings,
sketches, plans, designs and any other material upon which data or
information is recorded or stored) relating to the business or
affairs of the Company or any Associated Company or any of their
clients/customers, shareholders, employees, officers, suppliers,
distributors and agents (and the Executive shall not be entitled to
retain any copies or reproductions of any such documents) together
with any other property belonging to the Company or any Associated
Company which may then be in his possession or under his control;
(b) shall at the request of the Managing Director immediately resign
without claim or compensation from office as a director of any
Associated Company and from any other office held by him the in
Company or any Associated Company (but without prejudice to any claim
he may have for damages for breach of this Agreement) and in the
event of his failure to do so the Company is hereby irrevocably
authorized to appoint some person in his name and on his behalf to
sign and deliver such resignations to the Managing Director;
(c) shall not at any time thereafter make any untrue or misleading oral
or written statement concerning the business and affairs of the
Company or any Associated Company nor represent himself or permit
himself to be held out as being in any way connected with or
interested in the business of the Company or any Associated Company
(except as a former employee for the purpose of communicating with
prospective employers or complying with any applicable statutory
requirements);
(d) shall not at any time thereafter use the name Alliance Resources or
any name capable of confusion therewith (whether by using such names
as part of a corporate name or otherwise); and
(e) shall immediately repay all outstanding debts or loans due to the
Company or any Associated Company and the Company is hereby
authorized to deduct from any wages of the Executive a sum equal to
any such debts or loans.
10
<PAGE>
12.8 The following provisions will apply in the event of a Change in Control:
(a) The Board recognizes that the Executive is one of several key
employees whose high quality of job performance is essential to
promoting and protecting the best interests of the Company and its
shareholders. The Board further recognizes (i) that it is possible
that a Change in Control of the Company could occur at some time in
the future, (ii) that the uncertainty associated with such a
possibility could result in the distraction of the Executive from his
assigned duties and responsibilities, (iii) that it is in the best
interest of the Company and its shareholders to assure the continued
attention by the Executive to such duties and responsibilities
without such distraction, and (iv) that the Executive must be able to
participate in the assessment and evaluation of any proposal which
could effect a Change in Control of the Company without the Executive
being influenced in the exercise of his judgment by uncertainties
regarding the Executive's future financial security.
(b) A "Change in Control" of the Company shall occur if, after the date
of this Agreement
(i) any Unrelated Party (as hereinafter defined) becomes the
beneficial owner, directly or indirectly, of thirty percent
(30%) or more of the common stock of the Company issued and
outstanding immediately prior to such acquisition and/or
securities of the Company which may be converted into shares of
common stock of the Company, computing such percentage as if
such securities acquired had been converted and are issued and
outstanding for the purpose of determining such percentage or,
if any Unrelated Party is the beneficial owner of thirty
percent (30%) or more of such securities at the date of this
Agreement, such Unrelated Party acquires an additional ten
percent (10%) of the shares of common stock of the Company
and/or securities of the Company which may be converted into
shares of common stock of the Company;
(ii) the shareholders of the Company approve (x) any consolidation
or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares
of the common stock of the Company are converted into cash,
securities or other property, other than a merger of the
Company in which the holders of the common stock of the Company
immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation
immediately after the merger, or (y) any sale, lease, exchange
or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of
the Company, or (z) any plan or proposal for the liquidation or
dissolution of the Company;
11
<PAGE>
(iii) a majority of the Board ceases to consist of Continuing
Directors. "Continuing Directors" shall mean members of the
Board who either (1) are members of the Board at the date of
this Agreement or (2) are nominated or appointed to serve as
directors by a majority of the then Continuing Directors; or
(iv) any tender or exchange offer is made to acquire thirty percent
(30%) or more of the common stock of the Company, other than an
offer made by the Company, and shares are acquired pursuant to
that offer.
(c) "Unrelated Party" shall mean any party or group of parties acting
together; excluding, however, the Company, a subsidiary of the
Company and any trustee under any employee benefit plan maintained by
the Company.
(d) Upon (x) the termination of the Executive by the Company without
cause following a Change in Control of the Company or (y) the
Executive's voluntary termination of employment for Good Reason
following a Change in Control of the Company prior to expiration of
the then effective two (2) year period of employment, then the
Company shall provide to the Executive, within thirty (30) days after
the applicable event, the following benefits:
(i) in one lump sum a cash payment equal to 2.5 times (A) the
Executive's annual salary as specified in this Agreement, and
(B) aggregate bonuses and benefits for the preceding calendar
year.
(ii) to the extent permitted by applicable law, inclusion in the
Company's life and medical plans as if the Executive were still
employed by the Company until the earlier of two (2) years from
the date of his termination or until the Executive obtains
eligibility under comparable employee plans, with the Company
paying that portion of the premium which it was paying for the
Executive at the time of his termination.
(e) Good Reason. "Good Reason" shall mean:
------------
(i) Without his express written consent, the assignment to the
Executive of any duties inconsistent with his positions,
duties, responsibilities and status with the Company as of the
date of this Agreement or a change in his titles or offices as
of same date, or any removal of the Executive from or any
failure to re-elect the Executive to any of such positions,
except in connection with the termination of his employment for
cause or as a result of his
12
<PAGE>
Disability or death, or termination by the Executive other than
for Good Reason;
(ii) Any reduction of the then-existing base salary or a reduction
of more than ten percent (10%) in the aggregate value of any
benefit plans without the prior written consent of the
Executive, which is not remedied within ten (10) calendar days
after receipt by the Company of written notice from the
Executive of such change or reduction, as the case may be;
(iii) A determination by the Executive made in good faith that as a
result of a Change in Control of the Company and a change in
circumstances thereafter significantly affecting his position,
he has been rendered substantially unable to carry out, or has
been substantially hindered in the performance of any of the
authorities, powers, functions, responsibilities or duties
attached to his position immediately prior to the Change in
Control of the Company, which situation is not remedied within
thirty (30) calendar days after receipt by the Company of
written notice from the Executive of such determination;
(iv) Failure by the Company to require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of
the Company, by agreement in form and substance satisfactory to
the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place; or
(v) The Company shall relocate its principal executive office or
require Executive to have his principal location of work or
principal residence any location which is in excess of thirty
miles from the location as of the date hereof; or
(vi) Any material breach of this Agreement by the Company.
12.9 The Executive shall not be required to mitigate the amount of any payments
or benefit provided by this Agreement nor shall the amounts of any payment
or benefit provided for by this Agreement be reduced by any compensation
earned by the Executive as a result of employment by the Company or
another employer either before or after a Change in Control of the
Company.
12.10 Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or
other plan or program provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such
13
<PAGE>
rights as the Executive may have under any other agreements with the
Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan or program of the Company or any of its affiliated companies at or
subsequent to the termination of employment hereunder shall be payable in
accordance with such plan or program.
13. NOTICES
-------
13.1 Any notice to be given under this Agreement shall be given in writing and
shall be deemed to be sufficiently served by one party on the other if it
is delivered personally or is sent by registered or recorded delivery pre-
paid post (air mail if overseas) addressed to either the Company's
registered office for the time being or the Executive's last known address
as the case may be.
13.2 Any notice sent by post shall be deemed (in the absence of evidence of
earlier receipt) to be received 2 days after posting (6 days if sent air
mail) and in proving the time such notice was sent it shall be sufficient
to show that the envelope containing it was properly addressed stamped and
posted.
13.3 Notwithstanding any other provision of this Agreement, no provision by
virtue of which this Agreement or any agreement or arrangement of which it
forms part is subject to registration under the Restrictive Trade
Practices Act 1976 and 1977 ("RTPA") shall take effect until after
particulars thereof have been furnished to the Director General of Fair
Trading in accordance with the requirements of the RTPA.
14. MISCELLANEOUS
-------------
14.1 The Executive hereby warrants that by virtue of entering into this
Agreement he will not be in breach of any express or implied terms of any
contract or of any other obligation legally binding upon him.
14.2 Any benefits provided by the Company to the Executive or his family which
are not expressly referred to in this Agreement shall be regarded as ex
gratia benefits provided at the entire discretion of the Company and shall
not form part of the Executive's contract of employment.
14.3 The Company shall be entitled at any time during the Executive's
employment to make deductions from the Executive's salary or from any
other sums due to the Executive from the Company or any Associated Company
in respect of any overpayment of any kind made to the Executive or in
respect of any debt or other sum due from him.
15. GENERAL PROVISIONS
------------------
14
<PAGE>
15.1 The headings in this Agreement are for convenience only and shall not
affect its construction or interpretation.
15.2 References in this Agreement to Clauses and paragraphs and the Schedules
are references to Clauses and paragraphs and the Schedules (which are
hereby specifically incorporated in this Agreement) to this Agreement.
15.3 Any reference in this Agreement to the employment of the Executive is a
reference to his employment by the Company whether or not during the
currency of this Agreement.
15.4 Any reference in this Agreement to a person shall where the context
permits include a reference to a body corporate and to any unincorporated
body of persons.
15.5 Any word in this Agreement which denotes the singular shall where the
context permits include the plural and vice versa and any word in this
Agreement which denotes the masculine gender shall where the context
permits include the feminine and/or the neuter genders and vice versa.
15.6 Any reference in this Agreement to a statutory provision shall be deemed
to include a reference to any statutory amendment modification or re-
enactment of it.
15.7 This Agreement contains the entire understanding between the parties and
supersedes all (if any) subsisting agreements, arrangements and
understandings relating to the employment of the Executive which such
agreements, arrangements and understandings shall be deemed to have been
terminated by mutual consent.
15.8 This Agreement is governed by and shall be construed in accordance with
the laws of England and the parties to this Agreement hereby submit to the
exclusive jurisdiction of the English courts.
15
<PAGE>
IN WITNESS whereof this Agreement has been executed as a deed by the parties
- ----------
hereto and is intended to be and is hereby delivered on the date first above
written.
Executed as a deed by John A. Keenan (Managing Director) }
for ALLIANCE RESOURCES PLC in the presence of: }
}
}
Signature
------------------------------
Name
------------------------------
Address
------------------------------
------------------------------
Occupation
------------------------------
Signed as a deed by }
ROBERT E. SCHULTE (Executive) }
in the presence of: }
}
Signature
------------------------------
Name
------------------------------
Address
------------------------------
------------------------------
Occupation
------------------------------
16
<PAGE>
THE FIRST SCHEDULE
- ------------------
Eighty-five thousand (85,000) Ordinary Options to be issued at the closing mid-
market price of Ordinary Shares on the date of grant of such options.
Two hundred thousand (200,000) Long Term Options exercisable upon the Company's
share price increasing threefold during the 5-year exercise period of such
options.
All options are to be issued under the Company Share Option Scheme (No. 2) as
adopted by the Company in general meeting on 4 May 1995.
17
<PAGE>
EXHIBIT 10.11
- --------------------------------------------------------------------------------
PURCHASE AGREEMENT
by and between
ALLIANCE RESOURCES PLC
and
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
AND
ENERGY CAPITAL INVESTMENT COMPANY PLC
October 27, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
PURCHASE AGREEMENT........................................................... 1
ARTICLE I - DEFINITIONS...................................................... 1
1.1 Certain Defined Terms........................................... 1
1.2 Certain Additional Defined Terms................................ 8
1.3 References and Construction..................................... 8
ARTICLE II - TERMS OF THE TRANSACTION........................................ 9
2.1 Agreement to Sell and to Purchase the Securities................ 9
2.2 Purchase Price and Payment...................................... 10
2.3 Placement Fee................................................... 10
ARTICLE III - CLOSING........................................................ 10
3.1 Closing......................................................... 10
3.2 Deliveries by the Company....................................... 10
3.3 Deliveries by Buyer............................................. 11
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF SELLER........................ 12
4.1 Corporate Organization.......................................... 12
4.2 Qualification................................................... 12
4.3 Charter and Bylaws.............................................. 12
4.4 Capitalization of the Company................................... 12
4.5 Authority Relative to This Agreement............................ 13
4.6 No Conflict..................................................... 13
4.7 Consents and Approvals, Licenses, Etc........................... 13
4.8 Subsidiaries.................................................... 13
4.9 Shares.......................................................... 14
4.10 Financial Statements............................................ 15
4.11 SEC Filings..................................................... 15
4.12 Absence of Undisclosed Liabilities.............................. 16
4.13 Absence of Certain Changes...................................... 16
4.14 Tax Matters..................................................... 16
4.15 Environmental and Other Laws.................................... 17
4.16 Legal Proceedings............................................... 18
4.17 Title to Properties; Permits; Licenses; Condition of Assets..... 18
4.18 ERISA........................................................... 19
4.19 Agreements...................................................... 21
4.20 Labor Disputes and Acts of God.................................. 22
4.21 Registration Rights............................................. 22
4.22 Offering of Securities.......................................... 23
4.23 Government Regulation........................................... 23
-i-
<PAGE>
4.24 Brokerage Fees.................................................. 23
4.25 Solvency........................................................ 23
4.26 Full Disclosure................................................. 23
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER.......................... 24
5.1 Corporate Organization.......................................... 24
5.2 Authority Relative to This Agreement............................ 24
5.3 Investment Intent; Investment Experience;
Restricted Securities........................................... 24
5.4 Brokerage Fees.................................................. 25
ARTICLE VI - CONDUCT OF COMPANY PENDING CLOSING.............................. 25
6.1 Conduct and Preservation of Business............................ 25
6.2 Restrictions on Certain Actions................................. 25
6.3 Certain Action.................................................. 27
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF THE COMPANY....................... 27
7.1 Representations and Warranties True............................. 28
7.2 Covenants and Agreements Performed.............................. 28
7.3 HSR Act......................................................... 28
7.4 Legal Proceedings............................................... 28
ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF BUYER............................ 28
8.1 Representations and Warranties True............................. 28
8.2 Covenants and Agreements Performed.............................. 29
8.3 HSR Act......................................................... 29
8.4 Legal Proceedings............................................... 29
8.5 Consents........................................................ 29
8.6 No Material Adverse Change...................................... 29
8.7 Senior Credit Facility.......................................... 29
8.8 Subordination Agreement......................................... 29
8.9 U.K. Opinion.................................................... 29
8.10 Closing of the Acquisitions and the Senior Credit Facility...... 30
ARTICLE IX - PRE-CLOSING TERMINATION......................................... 30
9.1 Termination..................................................... 30
9.2 Effect of Termination........................................... 30
ARTICLE X - AFFIRMATIVE COVENANTS OF THE COMPANY............................. 30
10.1 Payment and Performance......................................... 30
10.2 Books, Financial Statements and Reports......................... 31
10.3 Notice of Material Events and Change of Address................. 32
10.4 Maintenance of Properties....................................... 33
10.5 Maintenance of Existence and Qualifications..................... 33
10.6 Payment of Trade Liabilities, Taxes, etc........................ 33
10.7 Insurance....................................................... 33
-ii-
<PAGE>
10.8 Compliance with Agreements and Law.............................. 33
10.9 Guaranties of Company's Subsidiaries............................ 33
ARTICLE XI - NEGATIVE COVENANTS OF THE COMPANY............................... 34
11.1 Indebtedness.................................................... 34
11.2 Limitation on Liens............................................. 34
11.3 Limitation on Mergers........................................... 34
11.4 Limitation on Sales of Property................................. 35
11.5 Limitation on Investments and New Businesses.................... 35
11.6 Transactions with Affiliates.................................... 35
11.7 Restricted Payments............................................. 35
11.8 Material Amendments............................................. 35
ARTICLE XII - PREPAYMENT OF THE NOTE......................................... 36
12.1 Optional Prepayment............................................. 36
ARTICLE XIII - EVENTS OF DEFAULT AND REMEDIES................................ 36
13.1 Events of Default............................................... 36
13.2 Remedies........................................................ 38
ARTICLE XIV - ADDITIONAL AGREEMENTS.......................................... 38
14.1 Third Party Consents............................................ 38
14.2 Access to Information........................................... 39
14.3 Listing of Shares............................................... 39
14.4 Use of Proceeds................................................. 39
14.5 Board Representation............................................ 39
14.6 Public Announcements............................................ 39
14.7 Fees and Expenses............................................... 40
14.8 Costs of Enforcement............................................ 40
14.9 Transfer Taxes.................................................. 40
14.10 Indemnification................................................. 40
ARTICLE XV - MISCELLANEOUS................................................... 40
15.1 Notices......................................................... 40
15.2 Waiver and Amendment............................................ 42
15.3 Survival........................................................ 42
15.4 Entire Agreement................................................ 42
15.5 Binding Effect; Assignment; No Third Party Benefit.............. 42
15.6 Severability.................................................... 42
15.7 GOVERNING LAW................................................... 43
15.8 Remedies Not Exclusive.......................................... 43
15.9 Further Assurances.............................................. 43
15.10 Counterparts.................................................... 43
15.11 Injunctive Relief............................................... 43
15.12 Consent to Jurisdiction......................................... 43
-iii-
<PAGE>
15.13 Payments........................................................ 44
-iv-
<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated as of October 27, 1998,
between Alliance Resources PLC, a public limited company organized under the
laws of England and Wales (the "Company"), and EnCap Equity 1996 Limited
Partnership, a Texas limited partnership ("EnCap LP"), and Energy Capital
Investment Company PLC, an English investment company ("ECIC") (with EnCap LP
and ECIC sometimes being herein collectively called "Buyer").
WHEREAS, the Company desires to issue and sell to Buyer, and Buyer desires
to purchase from the Company, (i) $9,750,000 aggregate principal amount of its
10% Subordinated Notes due 2005 (the "Notes") and (ii) 15,000,000 ordinary
shares of 1p each of the Company (the "Shares") (the Notes and the Shares are
referred to herein collectively as the "Securities");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company and Buyer hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it below:
"Acquisitions" means the acquisition by the Company of all of the
issued and outstanding shares of the capital stock of Difco Limited and the
acquisition by Difco Limited of certain oil and gas interests in the East
Irish Sea from Burlington Resources Limited (Irish Sea), each as described
in the Listing Particulars.
"affiliate" means, with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries, controls,
is controlled by or is under common control with, such Person. For the
purposes of this definition, "control" when used with respect to any Person
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract, or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Alliance Group" means Alliance Resources Group, Inc., a Delaware
corporation.
"Alliance USA" means Alliance Resources (USA), Inc., a Delaware
corporation.
"Ancillary Documents" means each agreement, certificate,
document, commitment and writing (other than this Agreement) executed or to
be executed by the Company or Buyer
<PAGE>
in connection with the transactions contemplated herein or therein,
including without limitation the Notes, the Subsidiary Guarantees and the
Registration Rights Agreement.
"Applicable Law" means any statute, law, rule or regulation, or
any judgment, order, writ, injunction or decree of, any Governmental Entity
to which a specified Person or property is subject.
"ARCOL" means ARCOL Inc., a Delaware corporation.
"ARNO" means ARNO Inc., a Delaware corporation.
"Burlington Agreement" means that certain Sale and Purchase
Agreement East Irish Sea dated June 29, 1998 by and between Difco Limited
and Burlington Resources (Irish Sea) Limited, as amended by letter
agreement dated October 5, 1998.
"Change of Control" means the occurrence of any of the following
events: (a) any Person or two or more Persons, other than Buyer or any
affiliate of Buyer, acting as a group shall acquire beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Exchange Act, and including holding proxies to vote for the
election of directors other than proxies held by the Company's management
or their designees to be voted in favor of persons nominated by the
Company's Board of Directors) of 33% or more of the outstanding voting
securities of the Company, measured by voting power (including both
ordinary shares and any preferred stock or other equity securities
entitling the holders thereof to vote with the holders of common stock in
elections for directors of the Company), exclusive of the issuance of
ordinary shares contemplated under this Agreement, (b) the Company shall
fail beneficially to own 100% of the outstanding shares of voting capital
stock of Alliance Group, Manx, LRI or Difco on a fully-diluted basis, (c)
LRI shall fail beneficially to own 100% of the outstanding shares of the
voting capital stock of LPC, GOCA, New GOC or Enpro, on a fully-diluted
basis, (d) Alliance Group shall fail beneficially to own 100% of the
outstanding shares of the voting capital stock of Source, ARNO, ARCOL or
Alliance USA, (e) one-third or more of the directors of the Company shall
consist of persons not nominated by the Company's Board of Directors (not
including as Board nominees any directors which the Board is obligated to
nominate pursuant to shareholders agreements, voting trust arrangements or
similar arrangements) or (f) within three years of the Closing Date, the
employment by the Company of John Keenan or Paul Fenemore terminates for
any reason.
"Companies Act" means the Companies Act 1985 as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Default" shall mean an Event of Default and any default, event
or condition which would, with the giving of any requisite notices and the
passage of any requisite periods of time, constitute an Event of Default.
-2-
<PAGE>
"Difco" means Difco Limited, a private limited company
incorporated under the laws of England and Wales
"Difco Agreement" means that certain Amended and Restated Sale
and Purchase Agreement dated September 23, 1998, by and between the Company
and the shareholders of Difco Limited.
"Enpro" means ENPRO, INC., a Texas corporation.
"Environmental Laws" means any and all laws relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended.
"Fiscal Quarter" shall mean a three-month period ending on July
31, October 31, January 31 or April 30 of any year.
"Fiscal Year" shall mean the twelve-month period ending on April
30 of any year.
"GOCA" means LaTex/GOC Acquisition, Inc., a Delaware corporation.
"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any federal, state, municipal or
other governmental body, agency, authority, department, commission, board,
bureau or instrumentality (domestic or foreign).
"Hazardous Materials" means any substance regulated under
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Indebtedness" of any Person means Liabilities in any of the
following categories: (a) Liabilities for borrowed money; (b) Liabilities
constituting an obligation to pay the deferred purchase price of property
or services; (c) Liabilities evidenced by a bond, debenture, note or
similar instrument; (d) Liabilities which would under U.S. GAAP be shown on
such Person's balance sheet as a liability, and is payable more than one
year from the date of creation thereof (other than reserves for taxes and
reserves for contingent obligations); (e) Liabilities arising under futures
contracts, forward contracts, swap, cap or collar contracts,
-3-
<PAGE>
option contracts, hedging contracts, other derivative contracts, or similar
agreements; (f) Liabilities constituting principal under leases capitalized
in accordance with U.S. GAAP; (g) Liabilities arising under conditional
sales or other title retention agreements; (h) Liabilities owing under
direct or indirect guaranties of Liabilities of any other Person or
constituting obligations to purchase or acquire or to otherwise protect or
insure a creditor against loss in respect of Liabilities of any other
Person (such as obligations under working capital maintenance agreements,
agreements to keep-well, or agreements to purchase Liabilities, assets,
goods, securities or services), but excluding endorsements in the ordinary
course of business of negotiable instruments in the course of collection;
(i) Liabilities (for example, repurchase agreements) consisting of an
obligation to purchase securities or other property, if such Liabilities
arises out of or in connection with the sale of the same or similar
securities or property; (j) Liabilities with respect to letters of credit
or applications or reimbursement agreements therefor; (k) Liabilities with
respect to payments received in consideration of oil, gas, or other
minerals yet to be acquired or produced at the time of payment (including
obligations under "take-or-pay" contracts to deliver gas in return for
payments already received and the undischarged balance of any production
payment created by such Person or for the creation of which such Person
directly or indirectly received payment); or (l) Liabilities with respect
to other obligations to deliver goods or services in consideration of
advance payments therefor; provided, however, that the "Indebtedness" of
any Person shall not include Liabilities that were incurred by such Person
on ordinary trade terms to vendors, suppliers, or other Persons providing
goods and services for use by such Person in the ordinary course of its
business, unless and until such Liabilities are outstanding more than 90
days past the original invoice or billing date therefor.
"IRS" means the Internal Revenue Service.
"Key Employment Agreements" means (i) that certain Executive
Service Agreement dated October 5, 1996 between the Company and John A.
Keenan, as amended by Supplemental Agreement dated October 15, 1996, (ii)
that certain Service Agreement dated September 20, 1996 between the Company
and Paul Raymond Fenemore, as amended by Supplemental Agreement dated
September 20, 1996 and (iii) that certain Executive Service Agreement dated
December 16, 1996 between the Company and Harry Brian Kerr Williams.
"Liabilities" shall mean, as to any Person, all indebtedness,
liabilities and obligations of such Person, whether matured or unmatured,
liquidated or unliquidated, primary or secondary, direct or absolute, fixed
or contingent, and whether or not required to be considered pursuant to
U.S. GAAP.
"Lien" shall mean, with respect to any property or assets, any
right or interest therein of a creditor to secure Liabilities owed to such
creditor or any other arrangement with such creditor which provides for the
payment of such Liabilities out of such property or assets or which allows
him to have such Liabilities satisfied out of such property or assets prior
to the general creditors of any owner thereof, including any lien,
mortgage, security interest, pledge, deposit, production payment, rights of
a vendor under any title retention or conditional sale agreement or lease
substantially equivalent thereto, tax lien, mechanic's or materialman's
lien,
-4-
<PAGE>
or any other charge or encumbrance for security purposes, whether arising
by law or agreement or otherwise, but excluding any right of offset which
arises without agreement in the ordinary course of business. "Lien" shall
also mean any filed financing statement, any registration of a pledge (such
as with an issuer of uncertificated securities), or any other arrangement
or action which would serve to perfect a Lien described in the preceding
sentence, regardless of whether such financing statement is filed, such
registration is made, or such arrangement or action is undertaken before or
after such Lien exists.
"Listing Particulars" means the Company's circular to
shareholders dated June 30, 1998, as supplemented by the Company's
supplementary listing particulars dated October 7, 1998.
"Listing Rules" means the listing rules of the London Stock
Exchange.
"London Stock Exchange" means the London Stock Exchange Limited.
"LPC" means LaTex Petroleum Corporation, an Oklahoma corporation.
"LRI" means LaTex Resources, Inc., a Delaware corporation.
"LRI Merger" means the merger of Alliance Resources (Delaware)
Inc. with and into LRI whereby the Company became the sole shareholder of
LRI.
"Majority of the Noteholders" means those holder(s) of Notes who
hold a majority in aggregate principal amount of the Notes at the time
outstanding, exclusive of any Notes held by the Company or any Subsidiary.
"Manx" means Manx Petroleum Plc, a company incorporated under the
laws of England and Wales.
"Material Adverse Effect" means a material adverse change in, or
a material adverse effect upon (i) the business, assets, results of
operations, condition (financial or otherwise) or prospects of the Company
and its Subsidiaries on a consolidated basis, (ii) the Company's or any
Subsidiary Guarantor's ability to timely pay the Obligations or to perform
on a timely basis any material obligation of the Company under this
Agreement or any agreement, instrument, or document entered into or
delivered in connection herewith or (iii) the enforceability of the
material terms of this Agreement or any Ancillary Document.
"New GOC" means Germany Oil Company, a Delaware corporation
formerly know as LRI Acquisition, Inc.
"Obligations" means all Liabilities owing Buyer or, if different,
the holder of the Notes, pursuant to the this Agreement, the Notes or any
of the other Ancillary Documents.
-5-
<PAGE>
"Old LaTex Payables" means those current accounts payable of the
Company or its consolidated Subsidiaries that meet one or more of the
following tests and have been certified to Buyer by the Company and
applicable Subsidiary as being an Old LaTex Payable:
(a) accounts payable the collection of which is barred by
the applicable statute of limitations;
(b) accounts payable the collection of which has been
compromised or forgiven in part, in either case to the extent of
the amount that has been compromised or forgiven; or
(c) accounts payable in respect of which the indebtedness
was incurred prior to the LRI Merger and where each of the
following is true: (i) no payment has been made on an individual
amount of indebtedness payable since the LRI Merger, (ii) no
contact has been received by the Company or applicable Subsidiary
from the applicable creditor since the LRI Merger pertaining to
such account or if contact has been received, such account is
being diligently contested in good faith, (iii) no promise to pay
such account has been made by the Company or applicable
Subsidiary since the LRI Merger and (iv) no judgment has been
obtained by, or settlement agreement entered into with, such
creditor with respect to such indebtedness.
"Ordinary Shares" means ordinary shares of 1p each of the Company
and any securities issued or issuable with respect to such shares by way of
a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Permits" means licenses, permits, franchises, consents,
approvals, variances, exemptions and other authorizations of or from
Governmental Entities.
"Permitted Investment" means any investment, loan, advance,
guaranty or capital contribution by the Company or any Subsidiary in any of
the following: (a) properties or assets to be used in the ordinary course
of business of the Company and its Subsidiaries; (b) current assets arising
from the sale of goods and services in the ordinary course of business of
the Company and its Subsidiaries; (c) investments in one or more of the
Company's Subsidiaries or in any Person that concurrently with such
investment becomes a Subsidiary; (d) any marketable obligation maturing not
later than one year after the date of acquisition therefor, issued or
guaranteed by the United States of America or by any agency of the United
States of America which has the full faith and credit of the United States
of America; (e) commercial paper which is given the highest rating by a
credit rating agency of recognized national standing and maturing not more
than 270 days from the date of creation thereof; and (f) any demand deposit
or time deposit (including certificates of deposit and money market or
sweep accounts) with a commercial bank or trust company organized and doing
business under the laws of the United States of America or any state
thereof which has capital, surplus and undivided profits of at least
$250,000,000, provided that such deposit must be either
-6-
<PAGE>
payable on demand or mature not more than twelve months from the date of
investment therein.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, enterprise,
unincorporated organization or Governmental Entity.
"Proceedings" means all proceedings, actions, claims, suits,
investigations and inquiries by or before any arbitrator or Governmental
Entity.
"reasonable best efforts" means a party's reasonable best efforts
in accordance with reasonable commercial practice and without the
incurrence of unreasonable expense.
"Restricted Payment" shall mean any Distribution (as defined
below) in respect of the Company or any Subsidiary thereof (other than on
account of capital stock or other equity interests of a Subsidiary owned
legally or beneficially by the Company or another Subsidiary), including
any Distribution resulting in the acquisition by the Company of securities
that would constitute treasury stock. As used in this definition,
"Distribution" shall mean, in respect of any corporation, partnership or
other business entity (a) dividends or other distributions or payments on
capital stock or other equity interest of such corporation, partnership or
other business entity (except distributions in such stock or other equity
interest) and (b) the redemption or acquisition of such stock or other
equity interests or of warrants, rights or other options to purchase such
stock or other equity interests (except when solely in exchange for such
stock or other equity interests).
"Securities Act" means the U.S. Securities Act of 1933, as
amended.
"Securities and Exchange Commission" means the U.S. Securities
and Exchange Commission.
"Senior Credit Facility" means that certain Third Amended and
Restated Credit Agreement dated even date herewith by and among the
Company, Alliance USA, GOCA, LPC, New GOC and Source and Bank of America
National Trust and Savings Association.
"Shareholder Approval" means the receipt of the requisite number
of votes of the shareholders of the Company at a duly convened
extraordinary general meeting of the Company to approve each of the five
resolutions proposed in the Notice of Extraordinary General Meeting dated
October 7, 1998 and contained in the Listing Particulars.
"Source" means Source Petroleum, Inc., a Louisiana corporation.
"Subsidiary" means any corporation more than 50% of whose
outstanding voting securities, or any general partnership, joint venture or
similar entity more than 50% of whose total equity interests, is owned,
directly or indirectly, by the Company, or any limited partnership of which
the Company or any Subsidiary is a general partner.
-7-
<PAGE>
"Subsidiary Guarantors" means Difco, Alliance Group, Alliance
USA, Source, LRI, LPC, GOCA, New GOC and Enpro.
"Taxes" means any income taxes or similar assessments or any
sales, excise, occupation, use, ad valorem, property, production,
severance, transportation, employment, payroll, franchise, transfer, stamp,
withholding or other tax imposed by any United States federal, state or
local (or any foreign or provincial) taxing authority, including any
interest, penalties or additions attributable thereto.
"Tax Return" means any return or report (including but not
limited to any related or supporting information, any amended return or
report or any information return or report) with respect to Taxes.
"Treasury Regulations" means one or more treasury regulations
promulgated under the Code by the Treasury Department of the United States.
"U.S. GAAP" means generally accepted accounting principles in the
United States of America from time to time.
1.2 Certain Additional Defined Terms. In addition to such terms as
are defined in the opening paragraph of and the recitals to this Agreement and
in Section 1.1, the following terms are used in this Agreement as defined in the
Sections set forth opposite such terms:
Defined Term Section Reference
------------ -----------------
agreements....................................... 4.19
Audited Financial Statements..................... 4.10
Closing.......................................... 3.1
Closing Date..................................... 3.1
Event of Default................................. 13.1
Latest Balance Sheet............................. 4.10
Notes............................................ preamble
Organic Documents................................ 4.3
Permitted Liens.................................. 11.2
Placement Fee Shares............................. 2.3
Purchase Price................................... 2.2
Registration Rights Agreement.................... 3.2(c)
SEC Filings...................................... 4.11
Shares........................................... preamble
Securities....................................... preamble
Subsidiary Guarantees............................ 3.2(c)
Unaudited Financials............................. 4.10
1.3 References and Construction.
-8-
<PAGE>
(a) All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
(c) The words "this Agreement", "this instrument", "herein",
"hereof", "hereby", "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited.
(d) Words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires. Pronouns in
masculine, feminine and neuter genders shall be construed to include any other
gender.
(e) Unless the context otherwise requires or unless otherwise
provided herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "includes" and its derivatives means "includes, but is
not limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement.
(i) Unless otherwise indicated, all references herein to "$" or
"dollars" shall refer to U.S. Dollars.
ARTICLE II
TERMS OF THE TRANSACTION
2.1 Agreement to Sell and to Purchase the Securities. At the Closing,
and on the terms and subject to the conditions set forth in this Agreement, the
Company shall issue, allot, sell and deliver to EnCap LP and ECIC, and EnCap LP
and ECIC shall subscribe for, purchase and accept from the Company, the
Securities set forth opposite such Buyer's name below:
-9-
<PAGE>
EnCap LP (1) $7,312,500 principal amount
$7,500,000 of Notes; and
(2) 11,250,000 Ordinary Shares
ECIC (1) $2,437,500 principal amount
$2,500,000 of Notes; and
(2) 3,750,000 Ordinary Shares
2.2 Purchase Price and Payment. EnCap LP and ECIC, respectively,
shall pay to the Company at the Closing the aggregate amount set forth below
such Buyer's name in Section 2.1 (collectively, the "Purchase Price"). The
Purchase Price shall be allocated $250,000 to the Shares and $9,750,000 to the
Notes for all purposes, including the filing of any Tax Returns.
2.3 Placement Fee. At the Closing, the Company shall pay EnCap
Investments L.C. a placement fee, consisting of 545,454 ordinary shares of the
Company (the "Placement Fee Shares").
ARTICLE III
CLOSING
3.1 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place (i) at the offices of Thompson & Knight, P.C., 1700
Chase Tower, 600 Travis, Houston, Texas, at 10 a.m., local time, on October 30,
1998, or at such other time or place or on such other date as the parties hereto
shall agree. The date on which the Closing is required to take place is herein
referred to as the "Closing Date." All Closing transactions shall be deemed to
have occurred simultaneously.
3.2 Deliveries by the Company. At the Closing, the Company will
deliver the following documents to Buyer:
(a) A certificate executed on behalf of the Company by an authorized
signatory of the Company, dated the Closing Date, representing and certifying,
in such detail as Buyer may reasonably request, that the conditions set forth in
Sections 8.1 and 8.2 have been fulfilled.
(b) Opinions of counsel, in form, scope and content reasonably
acceptable to Buyer, of Jenkens & Gilchrist, U.S. counsel to the Company, and
Ashurst Morris & Crisp, U.K. counsel to the Company, dated the Closing Date,
covering the matters set forth on Exhibit 3.2(b) and such other matters as Buyer
may reasonably request.
-10-
<PAGE>
(c) The certificates, instruments and documents listed below:
(i) Share certificates in definitive form representing the
Shares and the Placement Fee Shares, registered in the name of the
applicable Person and duly executed by the Company.
(ii) The Notes, substantially in the form of Exhibit 3.2(c)(ii)
in all material respects, duly executed by the Company.
(iii) Subsidiary guarantees substantially in the form of Exhibit
3.2(c)(iii) in all material respects (the "Subsidiary Guarantees") of each
of the Subsidiary Guarantors, duly executed by the Subsidiary Guarantors.
(iv) A counterpart of a registration rights agreement
substantially in the form of Exhibit 3.2(c)(iv) in all material respects
(the "Registration Rights Agreement"), duly executed by the Company.
(v) Certified copy of a written consent or resolutions of the
Board of Directors of the Company and the Subsidiary Guarantors authorizing
the execution, delivery and performance by the Company and the Subsidiary
Guarantors of this Agreement and the Ancillary Documents, as necessary.
(vi) Certificates of existence and, for non-U.K. entities, good
standing with respect to the Company and the Subsidiary Guarantors, dated
within a number of days prior to the Closing Date reasonably acceptable to
Buyer.
(vii) Such other certificates, instruments, and documents as may
be reasonably requested by Buyer prior to the Closing Date to carry out the
intent and purposes of this Agreement.
3.3 Deliveries by Buyer. At the Closing, each Buyer will deliver the
following to the Company:
(a) A certificate executed by an authorized signatory of such Buyer,
dated the Closing Date, representing and certifying, in such detail as the
Company may reasonably request, that the conditions set forth in Sections 7.1
and 7.2 have been fulfilled.
(b) The portion of the Purchase Price indicated for such Buyer in
Section 2.1, in immediately available funds by a confirmed wire transfer to a
bank account designated in writing by the Company to Buyer no later than two
business days prior to the Closing Date.
(d) The certificates, instruments and documents listed below:
(i) A counterpart of the Registration Rights Agreement, duly
executed by such Buyer.
-11-
<PAGE>
(ii) Such other certificates, instruments, and documents as may
be reasonably requested by the Company prior to the Closing Date to carry
out the intent and purposes of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
The Company represents and warrants to Buyer that:
4.1 Corporate Organization. The Company is a public limited company
duly organized and validly existing under the laws of England and Wales.
4.2 Qualification. Each of the Company and the Subsidiaries is duly
qualified or licensed to do business and, with respect to non-U.K. entities, in
good standing in each of the jurisdictions in which it owns, leases or operates
property or in which such qualification or licensing is required for the conduct
of its business.
4.3 Charter and Bylaws. The Company has made available to Buyer
accurate and complete copies of the Company's certificate of incorporation,
bylaws, memorandum and articles of association or equivalent organizational
documents ("Organic Documents") as currently in effect, and stock records of the
Company. Neither the Company nor any Subsidiary is in violation of its Organic
Documents or its partnership agreement or similar governing document, as the
case may be.
4.4 Capitalization of the Company. The authorized capital stock of
the Company, the number of shares outstanding and the number of shares held in
the Company's treasury are set forth on Schedule 4.4 hereto. All outstanding
shares of capital stock of the Company have been validly issued and are fully
paid and nonassessable, and no shares of capital stock of the Company are
subject to, nor have any been issued in violation of, preemptive or similar
rights. Except as set forth on Schedule 4.4 hereto, there are (and as of the
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of the Company, (ii) no securities of the Company convertible
into or exchangeable for shares of capital stock or other voting securities of
the Company, (iii) no options or other rights to acquire from the Company, and
no obligation of the Company to issue or sell, any shares of capital stock or
other voting securities of the Company or any securities of the Company
convertible into or exchangeable for such capital stock or voting securities,
and (iv) no equity equivalents, interests in the ownership or earnings or other
similar rights of or with respect to the Company. There are (and as of the
Closing Date there will be) no outstanding obligations of the Company or any
Subsidiary to repurchase, redeem, or otherwise acquire any of the foregoing
shares, securities, options, equity equivalents, interests, or rights. Except as
set forth on Schedule 4.4, the Company is not a party to, and is not aware of,
any voting agreement, voting trust, or similar agreement or arrangement relating
to any class or series of its capital stock.
4.5 Authority Relative to This Agreement. The Company has full power
and authority to execute, deliver, and, upon Shareholder Approval, perform this
Agreement and the Ancillary
-12-
<PAGE>
Documents, including the Notes, to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery, and (upon
Shareholder Approval) performance by the Company of this Agreement and the
Ancillary Documents, including the Notes, to which it is a party, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary action of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes, and each
Ancillary Document, including the Notes, executed or to be executed by the
Company has been, or when executed will be, duly executed and delivered by the
Company and constitutes, or when executed and delivered will constitute, a valid
and legally binding obligation of the Company, enforceable against the Company
in accordance with their respective terms, except that such enforceability may
be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally and (ii) equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances.
4.6 No Conflict. Assuming all consents, approvals, authorizations and
other actions described in Section 4.7 have been obtained and all filings and
notifications listed on Schedule 4.7 have been made, and except as described on
Schedule 4.6 and for Shareholder Approval, the execution, delivery and
performance of this Agreement by the Company, the execution, delivery and
performance by each Subsidiary of the Ancillary Documents to which it is a
party, and the consummation by them of the transactions contemplated hereby and
thereby do not and will not (a) violate or conflict with the Organic Documents
of the Company or any Subsidiary, (b) conflict with or result in any violation
of any provision of, or constitute (with or without the giving of notice or the
passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, or require any consent, approval,
authorization or waiver of, or notice to, any party to, any bond, debenture,
note, mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of their respective properties may be bound or
any Permit held by the Company or any Subsidiary, (iii) result in the creation
or imposition of any Lien upon the properties of the Company or any Subsidiary
(other than as provided in the Senior Credit Facility) or (iv) violate any
Applicable Law binding upon the Company or any Subsidiary.
4.7 Consents and Approvals, Licenses, Etc. Except for Shareholder
Approval and as set forth on Schedule 4.7, no consent, approval, authorization,
license, order or permit of, or declaration, filing or registration with, or
notification to, any Governmental Entity, or any other Person or entity, is
required to be made or obtained by the Company or any Subsidiary in connection
with the execution, delivery and performance of this Agreement or any Ancillary
Document and the consummation of the transactions contemplated hereby and
thereby.
4.8 Subsidiaries
(a) The Company does not own, directly or indirectly, any capital
stock or equity securities of any corporation or have any direct or indirect
equity or ownership interest in any other Person, other than the Subsidiaries.
Schedule 4.8 lists each Subsidiary, the jurisdiction of incorporation or
formation of each Subsidiary and the authorized (in the case of capital stock)
and
-13-
<PAGE>
outstanding capital stock or other equity interests of each Subsidiary. Each
U.K. Subsidiary is a duly formed and validly existing under the laws of the
jurisdiction of its formation, and each other Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary has all requisite corporate
or other, as applicable, power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. No actions or
proceedings to dissolve any Subsidiary are pending.
(b) Except as otherwise indicated on Schedule 4.8, all the
outstanding capital stock or other equity interests of each Subsidiary are owned
directly or indirectly by the Company, free and clear of all Liens. All
outstanding shares of capital stock of each corporate Subsidiary have been
validly issued and are fully paid and nonassessable. All equity interests of
each other Subsidiary have been validly issued and are fully paid (to the extent
required at such time). No shares of capital stock or other equity interests of
any Subsidiary are subject to, nor have any been issued in violation of,
preemptive or similar rights.
(c) Except as set forth on Schedule 4.8, there are (and as of the
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of any Subsidiary, (ii) no securities of the Company or any
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities of any Subsidiary, (iii) no options or other rights to acquire
from the Company or any Subsidiary, and no obligation of the Company or any
Subsidiary to issue or sell, any shares of capital stock or other voting
securities of any Subsidiary or any securities convertible into or exchangeable
for such capital stock or voting securities and (iv) no equity equivalents,
interests in the ownership or earnings, or other similar rights of or with
respect to any Subsidiary. There are (and as of the Closing Date there will be)
no outstanding obligations of the Company or any Subsidiary to repurchase,
redeem or otherwise acquire any of the foregoing shares, securities, options,
equity equivalents, interests or rights.
(d) Each of the Subsidiary Guarantors has full power and authority to
execute, deliver, and, upon Shareholder Approval, perform the Subsidiary
Guarantee and other Ancillary Documents to which it is a party and to consummate
the transactions contemplated thereby. The execution, delivery, and (upon
Shareholder Approval) performance by each of the Subsidiary Guarantors of the
Subsidiary Guarantee and other Ancillary Documents to which it is a party, and
the consummation by it of the transactions contemplated thereby, have been duly
authorized by all necessary action of such Subsidiary Guarantor. The Subsidiary
Guarantees and each Ancillary Document executed or to be executed by the
Subsidiary Guarantors has been, or when executed will be, duly executed and
delivered by the Subsidiary Guarantors and constitutes, or when executed and
delivered will constitute, a valid and legally binding obligation of the
Subsidiary Guarantors, enforceable against the Subsidiary Guarantors in
accordance with their respective terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally and (ii) equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances.
4.9 Shares. Upon Shareholder Approval, the Shares and the Placement
Fee Shares to be issued by the Company at the Closing will have been duly
authorized for such issuance and, when issued and delivered by the Company in
accordance with the provisions of this Agreement, will be
-14-
<PAGE>
validly issued, fully paid, and nonassessable. The issuance of the Shares and
the Placement Fee Shares under this Agreement is not subject to any preemptive
or similar rights. Upon fulfillment of the Company's obligations under Section
14.3 hereto and assuming compliance by Buyer with all applicable requirements of
Regulation S under the Exchange Act, the Shares and Placement Fee Shares will be
tradable on the London Stock Exchange.
4.10 Financial Statements. The Company has delivered to Buyer
accurate and complete copies of (i) the Company's audited consolidated balance
sheet as of April 30, 1998, and the related audited consolidated statements of
income, stockholders' equity and cash flows for the year then ended, and the
notes and schedules thereto, together with the unqualified report thereon of
KPMG Audit Plc, independent public accountants (the "Audited Financial
Statements") and (ii) the Company's unaudited consolidated balance sheet as of
July 31, 1998 (the "Latest Balance Sheet"), and the related unaudited
consolidated statements of income, stockholders' equity, and cash flows for the
three-month period then ended (the "Unaudited Financial Statements"), certified
by the Company's chief financial officer (collectively, the "Financial
Statements"). The Financial Statements (i) represent actual bona fide
transactions, (ii) have been prepared from the books and records of the Company
and its consolidated Subsidiaries in conformity with U.S. GAAP accounting
principles applied on a basis consistent with preceding years throughout the
periods involved and (iii) fairly present the Company's consolidated financial
position as of the respective dates thereof and its consolidated results of
operations and cash flows for the periods then ended. The statements of income
included in the Financial Statements do not contain any items of special or
nonrecurring income except as identified in the notes thereto, and the balance
sheets included in the Financial Statements do not reflect any write-up or
revaluation increasing the book value of any assets, nor have there been any
transactions since the date of the Latest Balance Sheet giving rise to special
or nonrecurring income or any such write-up or revaluation.
4.11 SEC Filings. The Company has filed with the Securities and
Exchange Commission, the London Stock Exchange and the Registrar of Companies
all forms, reports, schedules, statements and other documents required to be
filed by it since May 1, 1996 under the Companies Act and the Listing Rules and
since April 30, 1997 under the Securities Act, the Exchange Act and all other
federal securities laws. All final forms, reports, schedules, statements and
other documents (including all amendments thereto) filed by the Company with the
Securities and Exchange Commission and the London Stock Exchange since such date
are herein collectively referred to as the "SEC Filings". The Company has
delivered to Buyer accurate and complete copies of all the SEC Filings in the
form filed by the Company with the Securities and Exchange Commission and the
London Stock Exchange. The SEC Filings, at the time filed, complied in all
material respects with all applicable requirements of federal securities laws.
None of the SEC Filings, including, without limitation, any financial statements
or schedules included therein, at the time filed, contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not misleading. All material
contracts of the Company and the Subsidiaries have been included in the SEC
Filings, except for those contracts not required to be filed pursuant to the
rules and regulations of the Securities and Exchange Commission and the London
Stock Exchange. The Company shall deliver to Buyer as soon as they become
available accurate and complete copies of all forms, reports, and other
documents furnished by it to its shareholders generally or filed by it with the
Securities and
-15-
<PAGE>
Exchange Commission and the London Stock Exchange subsequent to the date hereof
and prior to the Closing Date.
4.12 Absence of Undisclosed Liabilities. Neither the Company nor any
Subsidiary has any liability or obligation (whether accrued, absolute,
contingent, unliquidated, or otherwise, whether or not known to the Company or
any Subsidiary, and whether due or to become due), except (i) liabilities
reflected on the Latest Balance Sheet, (ii) liabilities which have arisen since
the date of the Latest Balance Sheet in the ordinary course of business (none of
which is a material liability for breach of contract, breach of warranty, tort,
or infringement), (iii) liabilities arising under executory contracts entered
into in the ordinary course of business (none of which is a material liability
for breach of contract) and (iv) liabilities specifically set forth on Schedule
4.12.
4.13 Absence of Certain Changes. Except as disclosed on Schedule
4.13, since the date of the Latest Balance Sheet, (i) there has not been any
material adverse change in, or any event or condition that might reasonably be
expected to result in a material adverse change in, the business assets, results
of operations, condition (financial or otherwise) or prospects of the Company
and the Subsidiaries considered as a whole; (ii) the businesses of the Company
and the Subsidiaries have been conducted only in the ordinary course consistent
with past practice; (iii) neither the Company nor any Subsidiary has incurred
any material liability, engaged in any material transaction or entered into any
material agreement outside the ordinary course of business consistent with past
practice; (iv) neither the Company nor any Subsidiary has suffered any material
loss, damage, destruction, or other casualty to any of its assets (whether or
not covered by insurance); and (v) neither the Company nor any Subsidiary has
taken any of the actions set forth in Section 6.2 except as permitted
thereunder.
4.14 Tax Matters. Except as disclosed on Schedule 4.14:
(a) The Company and each Subsidiary has filed, or has had filed on
its behalf, in a timely manner (within any applicable extension periods) with
the appropriate taxing authority all Tax Returns with respect to Taxes of the
Company and of each of the Subsidiaries, all of which Tax Returns are true,
correct and complete in all material respects;
(b) All Taxes due and payable (whether or not reflected in Tax
Returns as filed) with respect to all taxable periods of the Company and the
Subsidiaries have been paid in full or adequate reserves have been provided for
on the Financial Statements;
(c) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to the Company or any of the Subsidiaries;
(d) None of the Tax Returns of or with respect to the Company or any
of the Subsidiaries is currently being audited or examined by any taxing
authority;
(e) No material deficiency for any Taxes has been assessed with
respect the Company or to any of the Subsidiaries that has not either (i) been
abated or (ii) paid in full or for which adequate reserves have been provided;
-16-
<PAGE>
(f) No Tax litigation is currently pending;
(g) No waiver or extension of any statute of limitations to any
federal, state, local or foreign Tax matter has been given by or requested from
the Company or any Subsidiary; and
(h) Neither the Company nor any Subsidiary has filed a consent under
Section 341(f) of the Code.
(i) The Company and the Subsidiaries have complied with all
Applicable Laws relating to the withholding of Taxes and the payment thereof
(including, without limitation, withholding of Taxes under Sections 1441 and
1442 of the Code, or similar provisions under foreign laws), and has timely and
properly withheld from the appropriate party and paid over to the proper
Governmental Entity all amounts required to be withheld and be paid over under
Applicable Law.
(j) Neither the Company nor any Subsidiary is required to include in
income any adjustment under Section 481(a) of the Code by reason of a change in
accounting method, and neither the Company nor any Subsidiary, nor the Internal
Revenue Service, has proposed any such adjustment or change in accounting
method. The Company and the Subsidiaries do not have pending any private letter
ruling with the IRS.
(k) Other than as a result of this transaction, none of the Company's
or any Subsidiary's tax attributes is subject to the limitations of Section 382,
383 or 384 of the Code or Temporary Treasury Regulation Sections 1.1502-15T or
1.1502-21T(c).
(l) There are no liens for Taxes upon any assets of the Company or
any Subsidiary, except liens for Taxes not yet due and payable.
(m) The tax basis of each of the assets of the Company and the
Subsidiaries as set forth on the books, accounts and records of the Company and
the Subsidiaries is true, correct and complete in all material respects.
4.15 Environmental and Other Laws. Except as disclosed on Schedule
4.15 or in the SEC Filings filed prior to the date hereof, (a) the Company and
the Subsidiaries are conducting their businesses in compliance in all material
respects with all Applicable Laws, including all Environmental Laws, and are in
material compliance with all licenses and permits required under any such laws;
(b) to the best of the Company's knowledge, none of the operations or properties
of the Company or any Subsidiary is the subject of foreign, federal, state or
local investigation evaluating whether any material remedial action is needed to
respond to a release of any Hazardous Materials into the environment or to the
improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (c) neither the Company nor any
Subsidiary has filed any notice under any Applicable Law indicating that it is
responsible for the improper release into the environment, or the improper
storage or disposal, of any material amount of any Hazardous Materials or that
any Hazardous Materials have been improperly released, or are improperly stored
or disposed of, upon any property of the Company or any Subsidiary; (d) neither
the Company nor any Subsidiary has transported or arranged for the
transportation of any Hazardous Material to any location which is (i)
-17-
<PAGE>
listed on the National Priorities List under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, listed for
possible inclusion on such National Priorities List by the Environmental
Protection Agency in its Comprehensive Environmental Response, Compensation and
Liability Information System List, or listed on any similar state list or
foreign jurisdiction list or (ii) the subject of foreign, federal, state or
local enforcement actions or other investigations which may lead to material
claims against the Company or any Subsidiary for clean-up costs, remedial work,
damages to natural resources or for personal injury claims (whether under
Environmental Laws or otherwise); and (e) to the best of the Company's
knowledge, neither the Company or any Subsidiary has any material contingent
liability under any Environmental Laws or in connection with the release into
the environment, or the storage or disposal, of any Hazardous Materials.
4.16 Legal Proceedings. Except as disclosed on Schedule 4.16, there
are no Proceedings pending or, to the best knowledge of the Company, threatened
against or involving the Company or any Subsidiary (or any of their respective
directors or officers in connection with the business or affairs of the Company
or any Subsidiary) or any properties or rights of the Company or any Subsidiary
which, individually or in the aggregate, might reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any Subsidiary is subject to
any judgment, order, writ, injunction, or decree of any Governmental Entity
which has had or is reasonably likely to have a Material Adverse Effect. There
are no Proceedings pending or, to the best knowledge of the Company, threatened
seeking to restrain, prohibit, or obtain damages or other relief in connection
with, or questioning the legality or validity of, this Agreement or any
Ancillary Document or the transactions contemplated hereby or thereby.
4.17 Title to Properties; Permits; Licenses; Condition of Assets.
(a) Each of the Company and the Subsidiaries has good and defensible
title to all of its material properties and assets, free and clear of all Liens
other than Permitted Liens and of all material impediments to the use of such
properties and assets in the businesses of the Company and the Subsidiaries.
(b) Each of the Company and the Subsidiaries holds all material
Permits necessary or required for the conduct of its business. Each of such
Permits is in full force and effect, the Company and the Subsidiaries are in
compliance with all of its material obligations with respect thereto, and, to
the best knowledge of the Company, no event has occurred which allows, or with
or without the giving of notice or the passage of time or both would allow, the
revocation or termination of any thereof. No notice has been issued by any
Governmental Entity and no proceeding is pending or, to the best knowledge of
the Company, threatened with respect to any alleged failure by the Company or
any Subsidiary to have any material Permit.
(c) The Company and the Subsidiaries possess all licenses, permits,
franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such intellectual
property without violation of the rights of any other Person) which are
necessary to carry out their businesses as presently conducted and as presently
proposed to be conducted hereafter, and neither the Company nor any Subsidiaries
is in violation in any
-18-
<PAGE>
material respect of the terms under which it possesses such intellectual
property or the right to use such intellectual property.
(d) The equipment and other tangible assets of the Company and the
Subsidiaries are in good operating condition (except for reasonable wear and
tear), and have been reasonably maintained.
(e) The Company has conducted a reasonable and prudent due diligence
investigation of the assets to be acquired pursuant to the Burlington Agreement,
and, to the best knowledge of the Company, the representations and warranties of
Burlington Resources (Irish Sea) Limited in the Burlington Agreement are true
and correct in all material respects.
4.18 ERISA.
(a) Set forth on Schedule 4.18 is a list identifying each "employee
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered, or contributed to by
the Company or any affiliate of the Company, and (iii) which covers any employee
or former employee of the Company or any affiliate of the Company or under which
the Company or any affiliate of the Company has any liability. The Company has
delivered or made available to Buyer accurate and complete copies of such plans
(and, if applicable, the related trust agreements) and all amendments thereto
and written interpretations thereof, together with (i) the three most recent
annual reports (Form 5500 including, if applicable, Schedule B thereto) prepared
in connection with any such plan and (ii) the most recent actuarial valuation
report prepared in connection with any such plan. Such plans are referred to in
this Section as the "Employee Plans". For purposes of this Section only, an
"affiliate" of any person means any other person which, together with such
person, would be treated as a single employer under Section 414 of the Code. The
only Employee Plans which individually or collectively would constitute an
"employee pension benefit plan" as defined in Section 3(2) of ERISA are
identified as such on Schedule 4.18.
(b) Except as otherwise identified on Schedule 4.18, (i) no Employee
Plan constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA
(for purposes of this Section, a "Multiemployer Plan"), (ii) no Employee Plan is
maintained in connection with any trust described in Section 501(c)(9) of the
Code, (iii) no Employee Plan is subject to Title IV of ERISA or to the minimum
funding standards of ERISA and the Code, and (iv) during the past five years,
neither the Company nor any of its affiliates have made or been required to make
contributions to any Multiemployer Plan. There are no accumulated funding
deficiencies as defined in Section 412 of the Code (whether or not waived) with
respect to any Employee Plan. The fair market value of the assets held with
respect to each Employee Plan which is an employee pension benefit plan, as
defined in Section 3(2) of ERISA, exceeds the actuarially determined present
value of all benefit liabilities accrued under such Employee Plan (whether or
not vested) determined using reasonable actuarial assumptions. Neither the
Company nor any affiliate of the Company has incurred any material liability
under Title IV of ERISA arising in connection with the termination of, or
complete or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA. The Company and all of the affiliates of the Company have
paid and discharged promptly when due all liabilities and obligations arising
under ERISA or the Code of a character which if unpaid or unperformed might
-19-
<PAGE>
result in the imposition of a lien against any of the assets of the Company or
any Subsidiary. Nothing done or omitted to be done and no transaction or holding
of any asset under or in connection with any Employee Plan has or will make the
Company or any Subsidiary or any director or officer of the Company or any
Subsidiary subject to any liability under Title I of ERISA or liable for any Tax
pursuant to Section 4975 of the Code that could have a Material Adverse Effect.
There are no threatened or pending claims by or on behalf of the Employee Plans,
or by any participant therein, alleging a breach or breaches of fiduciary duties
or violations of Applicable Laws which could result in liability on the part of
the Company, its officers or directors, or such Employee Plans, under ERISA or
any other Applicable Law and there is no basis for any such claim.
(c) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified since the
date of its adoption, and each trust forming a part thereof is exempt from Tax
pursuant to Section 501(a) of the Code. Set forth on Schedule 4.18 is a list of
the most recent IRS determination letters with respect to any such Plans,
accurate and complete copies of which letters have been delivered or made
available to Buyer. Each Employee Plan has been maintained in compliance with
its terms and with the requirements prescribed by all Applicable Laws, including
but not limited to ERISA and the Code, which are applicable to such Employee
Plans.
(d) Set forth on Schedule 4.18 is a list of each employment,
severance, or other similar contract, arrangement, or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, or other forms of incentive compensation or post-retirement
insurance, compensation, or benefits which (i) is not an Employee Plan, (ii) is
entered into, maintained, or contributed to, as the case may be, by the Company
or any affiliate of the Company, and (iii) covers any employee or former
employee of the Company or any affiliate of the Company or under which the
Company or any affiliate of the Company has any liability. Such contracts,
plans, and arrangements as are described in the preceding sentence are referred
to for purposes of this Section as the "Benefit Arrangements". Each Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by Applicable Laws.
(e) Neither the Company nor any affiliate of the Company has
performed any act or failed to perform any act, and there is no contract,
agreement, plan, or arrangement covering any employee or former employee of the
Company or any affiliate of the Company, that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 162(a)(1) or 280G of the Code, or could give
rise to any penalty or excise Tax pursuant to Section 4980B or 4999 of the Code.
4.19 Agreements.
(a) Set forth on Schedule 4.19 is a list of all the following
agreements, arrangements, and understandings (written or oral, formal or
informal) (collectively, for purposes of this Section, "agreements") to which
the Company or any Subsidiary is a party or by which the Company or any
-20-
<PAGE>
Subsidiary or any of their respective properties is otherwise bound:
(i) collective bargaining agreements and similar agreements
with employees as a group;
(ii) agreements with any current or former shareholder,
director, officer, employee, consultant or advisor or any affiliate of any
such Person;
(iii) agreements between or among the Company and any of the
Subsidiaries;
(iv) exclusive of those relating to the Senior Credit Facility,
indentures, mortgages, security agreements, notes, loan or credit
agreements, or other agreements relating to the borrowing of money by the
Company or any Subsidiary or to the direct or indirect guarantee or
assumption by the Company or any Subsidiary of any obligation of others,
including any agreement that has the economic effect although not the legal
form of any of the foregoing;
(v) agreements relating to the acquisition or disposition of
assets, other than those entered into in the ordinary course of business
consistent with past practice;
(vi) agreements relating to the acquisition or disposition of
any interest in any business enterprise;
(vii) exclusive of oil, gas and mineral leases, agreements with
respect to the lease of real or personal property;
(viii) exclusive of oil and gas operating or similar agreements,
agreements concerning the management or operation of any real property;
(ix) partnership, joint venture, and profit sharing agreements;
(x) agreements with any Governmental Entity;
(xi) agreements relating to the release or disposal of
Hazardous Material;
(xii) agreements containing any covenant limiting the freedom of
the Company or any Subsidiary to engage in any line of business or compete
with any other Person in any geographic area or during any period of time,
other than those that would not have a Material Adverse Effect;
(xiii) agreements not made in the ordinary course of business;
and
(xiv) other agreements, whether or not made in the ordinary
course of business, that are material to the business, assets, results of
operations, condition (financial or otherwise), or prospects of the Company
and the Subsidiaries considered as a whole.
-21-
<PAGE>
(b) The Company has delivered or made available to Buyer accurate and
complete copies of the agreements listed in Schedule 4.19. Each of such
agreements is a valid and binding agreement of the Company and the Subsidiaries
(to the extent each is a party thereto) and (to the best knowledge of the
Company) the other party or parties thereto, enforceable against the Company and
the Subsidiaries (to the extent each is a party thereto) and (to the best
knowledge of the Company) such other party or parties in accordance with its
terms. Neither the Company nor any Subsidiary is in breach of or in default
under, nor has any event occurred which (with or without the giving of notice or
the passage of time or both) would constitute a default by the Company or any
Subsidiary under, any of such agreements, and neither the Company nor any
Subsidiary has received any notice from, or given any notice to, any other party
indicating that the Company or any Subsidiary is in breach of or in default
under any of such agreements. To the best knowledge of the Company, no other
party to any of such agreements is in breach of or in default under such
agreements, nor has any assertion been made by the Company or any Subsidiary of
any such breach or default.
(c) Neither the Company nor any Subsidiary has received notice of any
plan or intention of any other party to any agreement to exercise any right of
offset with respect to, or any right to cancel or terminate, any agreement, and
neither the Company nor any Subsidiary knows of any fact or circumstance that
would justify the exercise by any such other party of such a right other than
the automatic termination of such agreement in accordance with its terms.
Neither the Company nor any Subsidiary currently contemplates, or has reason to
believe any other Person currently contemplates, any amendment or change to any
agreement, which amendment or change could have a Material Adverse Effect.
(d) Without limiting the generality of the other provisions in this
Section 4.19, the Key Employment Agreements are in full force and effect, and
each of John Keenan, Paul Fenemore and Harry Brian Kerr Williams is currently
employed by the Company pursuant to a renewal term under such agreements.
4.20 Labor Disputes and Acts of God. Neither the business nor the
properties of the Company nor any Subsidiary has been affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which, individually or in the aggregate,
could cause a Material Adverse Effect.
4.21 Registration Rights. As of the date hereof, the Company has no
obligation to register any of its securities (including debt securities) under
the Securities Act, the Listing Rules or applicable similar foreign laws or
regulations. As of the Closing Date, except pursuant to the Registration
Rights Agreement and as set forth on Schedule 4.21, the Company will have no
obligation to register any of its securities (including debt securities) under
the Securities Act, the Listing Rules or applicable similar foreign laws or
regulations.
4.22 Offering of Securities. All securities which have been offered
or sold by the Company have been registered pursuant to the Securities Act and
applicable foreign and state securities laws or were offered and sold pursuant
to valid exemptions therefrom.
-22-
<PAGE>
4.23 Government Regulation. The Company is not subject to regulation
under the Public Utility Holding Company Act of 1935. The Company is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or an "investment
advisor" within the meaning of the Investment Advisers Act of 1940, as amended.
4.24 Brokerage Fees. Neither the Company nor any of its affiliates
has retained any financial advisor, broker, agent or finder or paid or agreed to
pay any financial advisor, broker, agent or finder on account of this Agreement
or any transaction contemplated hereby, which action would subject Buyer or any
of its affiliates to any liability. The Company shall indemnify and hold
harmless Buyer from and against any and all losses, claims, damages and
liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with respect
to any finder's fee, brokerage commission or similar payment in connection with
any transaction contemplated hereby asserted by any Person on the basis of any
act or statement made or alleged to have been made by the Company or any of its
affiliates.
4.25 Solvency.
(a) No order has been made or resolution passed for the winding up of
the Company and/or any of its Subsidiaries and there is not outstanding (i) any
petition or order for the winding up of the Company or any of its Subsidiaries;
(ii) any receivership of the whole or any part of the Company or any of its
Subsidiaries; (iii) any petition or order for the administration of the Company
or any of its Subsidiaries; or (iv) any voluntary arrangement between the
Company or any of its Subsidiaries.
(b) There are no circumstances which are known, or would on
reasonable inquiry be known, to the Company or any of its Subsidiaries which
would entitle any person to present a petition for the winding up or
administration of the Company or any of its Subsidiaries or to appoint a
receiver of the whole or any part of its undertaking or assets.
(c) Neither the Company nor any of its Subsidiaries is deemed unable
to pay its debts within the meaning of Section 1.23 of the Insolvency Act 1986.
(d) No event analogous to any of the matters set out in this Section
4.25 has occurred outside England and Wales.
4.26 Full Disclosure. No representation or warranty made by the
Company in this Agreement, and no statement of the Company contained in any
document, certificate or other writing furnished or to be furnished by the
Company or its representatives to Buyer pursuant hereto or in connection
herewith, contains or will contain, at the time of delivery, any untrue
statement of a material fact or omits or will omit, at the time of delivery, to
state any material fact (other than industry-wide risks normally associated with
the type of business conducted by the Company) necessary to make the statements
contained therein, in light of the circumstances in which they are made, not
misleading. There is no fact known to the Company (other than industry-wide
risks normally associated with the type of business conducted by the Company)
that
-23-
<PAGE>
has not been disclosed to Buyer in writing which the Company reasonably
anticipates would result in a Material Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Each of EnCap LP and ECIC hereby severally and as to itself represents and
warrants to the Company that (as used in this Article V the term "Buyer" shall
be deemed to mean only the Person making such representation or warranty):
5.1 Corporate Organization. Buyer is duly organized and validly
existing under the laws of the jurisdiction of its formation.
5.2 Authority Relative to This Agreement. Buyer has full power and
authority to execute, deliver, and perform this Agreement and the Ancillary
Documents to which it is a party and to consummate the transactions contemplated
hereby and thereby. The execution, delivery, and performance by Buyer of this
Agreement and the Ancillary Documents to which it is a party, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary action of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes, and each Ancillary
Document executed or to be executed by Buyer has been, or when executed will be,
duly executed and delivered by Buyer and constitutes, or when executed and
delivered will constitute, a valid and legally binding obligation of Buyer,
enforceable against Buyer in accordance with their respective terms, except that
such enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws affecting creditors' rights
generally and (ii) equitable principles which may limit the availability of
certain equitable remedies (such as specific performance) in certain instances.
5.3 Investment Intent; Investment Experience; Restricted Securities.
Buyer is acquiring the Securities for its own account for investment and not
with a view to, or for sale or other disposition in connection with, any
distribution of all or any part thereof. In acquiring the Securities, Buyer is
not offering or selling, and will not offer or sell, for the Company in
connection with any distribution of the Securities, and Buyer does not have a
participation and will not participate in any such undertaking or in any
underwriting of such an undertaking except in compliance with applicable federal
and state securities laws. Buyer acknowledges that it is able to fend for
itself, can bear the economic risk of its investment in the Securities, and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of an investment in the Securities.
Buyer understands that the Securities will not have been registered pursuant to
the Securities Act or any applicable state securities laws, that the Securities
will be characterized as "restricted securities" under federal securities laws
and that under such laws and applicable regulations the Securities cannot be
sold or otherwise disposed of without registration under the Securities Act or
an exemption therefrom.
-24-
<PAGE>
5.4 Brokerage Fees. Neither Buyer nor any of its affiliates has
retained any financial advisor, broker, agent or finder or paid or agreed to pay
any financial advisor, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby, which action would subject the Company or
any of its affiliates to any liability. Buyer shall indemnify and hold harmless
the Company from and against any and all losses, claims, damages and liabilities
(including legal and other expenses reasonably incurred in connection with
investigating or defending any claims or actions) with respect to any finder's
fee, brokerage commission or similar payment in connection with any transaction
contemplated hereby asserted by any Person on the basis of any act or statement
made or alleged to have been made by Buyer or any of its affiliates.
ARTICLE VI
CONDUCT OF COMPANY PENDING CLOSING
The Company hereby covenants and agrees with Buyer as follows:
6.1 Conduct and Preservation of Business. Except as expressly provided
in this Agreement, during the period from the date hereof to the Closing, the
Company and the Subsidiaries (i) shall each conduct its operations according to
its ordinary course of business consistent with past practice and in compliance
with all Applicable Laws; (ii) shall each use its reasonable best efforts to
preserve, maintain and protect its properties; and (iii) shall each use its
reasonable best efforts to preserve intact its business organization, to keep
available the services of its officers and employees, and to maintain existing
relationships with licensors, licensees, suppliers, contractors, distributors,
customers and others having business relationships with it.
6.2 Restrictions on Certain Actions. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Closing, neither the Company nor any Subsidiary shall, without the
prior written consent of Buyer:
(a) except as provided in the Notice of Extraordinary Meeting
dated October 7, 1998 contained in the Listing Particulars, amend its
Organic Documents or other governing instruments;
(b) (i) except as provided (A) in the Notice of Extraordinary
Meeting dated October 7, 1998 contained in the Listing Particulars or (B)
in Section 6.3 hereof, issue, sell, or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase, or otherwise) any shares of its capital stock of any
class or any other securities or equity equivalents; or (ii) amend in any
respect any of the terms of any such securities outstanding as of the date
hereof;
(c) (i) except as provided in the Notice of Extraordinary Meeting
dated October 7, 1998 contained in the Listing Particulars, split, combine,
or reclassify any shares of its capital stock; (ii) declare, set aside, or
pay any dividend or other distribution (whether in cash,
-25-
<PAGE>
stock, or property or any combination thereof) in respect of its capital
stock; (iii) repurchase, redeem, or otherwise acquire any of its securities
or any securities of any Subsidiary; or (iv) adopt a plan of complete or
partial liquidation or resolutions providing for or authorizing a
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization, or other reorganization of the Company or any Subsidiary;
(d) (i) except in the ordinary course of business consistent with
past practice, create, incur, guarantee, or assume any indebtedness for
borrowed money or otherwise become liable or responsible for the
obligations of any other Person; (ii) make any loans, advances, or capital
contributions to, or investments in, any other Person (other than customary
loans or advances to employees in amounts not material to the maker of such
loan or advance); (iii) pledge or otherwise encumber shares of capital
stock of the Company or any Subsidiary; or (iv) except in the ordinary
course of business consistent with past practice, mortgage or pledge any of
its assets, tangible or intangible, or create or suffer to exist any lien
thereupon;
(e) (i) enter into, adopt, or (except as may be required by law)
amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase, pension, retirement,
deferred compensation, employment, severance or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee; (ii) except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company, increase in any manner the
compensation or fringe benefits of any director, officer or employee; or
(iii) pay to any director, officer or employee any benefit not required by
any employee benefit agreement, trust, plan, fund or other arrangement as
in effect on the date hereof;
(f) acquire, sell, lease, transfer, or otherwise dispose of,
directly or indirectly, any assets outside the ordinary course of business
consistent with past practice or any assets that in the aggregate are
material to the Company and the Subsidiaries considered as a whole;
(g) acquire (by merger, consolidation, or acquisition of stock or
assets or otherwise) any corporation, partnership or other business
organization or division thereof;
(h) make any capital expenditure or expenditures which,
individually, is in excess of $100,000 or, in the aggregate, are in excess
of $250,000;
(i) amend any Tax Return or make any Tax election or settle or
compromise any federal, state, local, or foreign Tax liability material to
the Company and the Subsidiaries considered as a whole;
(j) pay, discharge, or satisfy any claims, liabilities, or
obligations (whether accrued, absolute, contingent, unliquidated, or
otherwise, and whether asserted or unasserted), other than the payment,
discharge, or satisfaction in the ordinary course of
-26-
<PAGE>
business consistent with past practice, or in accordance with their terms,
of liabilities reflected or reserved against in the Financial Statements or
incurred since the date of the Latest Balance Sheet in the ordinary course
of business consistent with past practice; provided, however, that in no
event shall the Company or any Subsidiary repay any long-term indebtedness
except to the extent required by the terms thereof;
(k) enter into any lease, contract, agreement, commitment,
arrangement or transaction outside the ordinary course of business
consistent with past practice;
(l) amend the Difco Agreement, the Burlington Agreement or the
Senior Credit Facility;
(m) amend, modify, or change any existing lease, contract or
agreement (exclusive of the contracts described in subsection (l)), other
than in the ordinary course of business consistent with past practice;
(n) waive, release, grant or transfer any rights of value, other
than in the ordinary course of business consistent with past practice;
(o) change any of the accounting principles or practices used by
it;
(p) take any action which would or might make any of the
representations or warranties of the Company contained in this Agreement
untrue or inaccurate as of any time from the date of this Agreement to the
Closing or would or might result in any of the conditions set forth in this
Agreement not being satisfied; or
(q) authorize or propose, or agree in writing or otherwise to
take, any of the actions described in this Section.
6.3 Certain Action. Notwithstanding the foregoing provisions of this
Article VI, the Acquisitions and the transactions contemplated by the Senior
Credit Facility may be consummated as provided in this Agreement.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
7.1 Representations and Warranties True. All the representations and
warranties of Buyer contained in this Agreement, and in any agreement,
instrument or document delivered pursuant hereto or in connection herewith on or
prior to the Closing Date, shall be true and correct in all material
-27-
<PAGE>
respects on and as of the Closing Date as if made on and as of such date, except
as affected by transactions permitted by this Agreement, including the
Acquisitions, the Senior Credit Facility and the receipt of Shareholder
Approval, and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date.
For the sole purpose of determining whether or not any of such representations
and warranties are true and correct as aforesaid on and as of the Closing Date,
no effect shall be given to any materiality qualification contained in such
representation or warranty.
7.2 Covenants and Agreements Performed. Buyer shall have performed and
complied with in all material respects all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date, and all deliveries contemplated by Section 3.3 shall have been made.
7.3 HSR Act. All waiting periods (and any extensions thereof)
applicable to this Agreement and the transactions contemplated hereby under the
HSR Act shall have expired or been terminated.
7.4 Legal Proceedings. No preliminary or permanent injunction or other
order, decree or ruling issued by a Governmental Entity or any securities
exchange, and no statute, rule, regulation or executive order promulgated,
enacted or issued by a Governmental Entity or any securities exchange, shall be
in effect which restrains, enjoins, prohibits or otherwise makes illegal or
improper the consummation of the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
8.1 Representations and Warranties True. All the representations and
warranties of the Company contained in this Agreement, and in any agreement,
instrument or document delivered pursuant hereto or in connection herewith on or
prior to the Closing Date, shall be true and correct in all material respects on
and as of the Closing Date as if made on and as of such date, except as affected
by transactions permitted by this Agreement, including the Acquisitions, the
Senior Credit Facility and the receipt of Shareholder Approval, and except to
the extent that any such representation or warranty is made as of a specified
date, in which case such representation or warranty shall have been true and
correct in all material respects as of such specified date. For the sole
purpose of determining whether or not any of such representations and warranties
are true and correct as aforesaid on and as of the Closing Date, no effect shall
be given to any materiality qualification contained in such representation or
warranty.
-28-
<PAGE>
8.2 Covenants and Agreements Performed. The Company shall have
performed and complied with in all material respects all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Closing Date, and all deliveries contemplated by Section 3.2
shall have been made.
8.3 HSR Act. All waiting periods (and any extensions thereof)
applicable to this Agreement and the transactions contemplated hereby under the
HSR Act shall have expired or been terminated.
8.4 Legal Proceedings. No preliminary or permanent injunction or other
order, decree or ruling issued by a Governmental Entity or any securities
exchange, and no statute, rule, regulation or executive order promulgated,
enacted or issued by a Governmental Entity or any securities exchange, shall be
in effect which restrains, enjoins, prohibits or otherwise makes illegal the
consummation of the transactions contemplated hereby.
8.5 Consents. There shall have been obtained the Shareholder Approval
and any and all consents, approvals, authorizations, licenses, orders or permits
set forth on Schedule 4.7; and no other consent, approval, authorization,
license, order or permit of, or declaration, filing or registration with, or
notification to, any Governmental Entity, or any other Person or entity, the
failure to comply with which would have a Material Adverse Effect, shall be
required to be made or obtained by the Company or any Subsidiary in connection
with the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.
8.6 No Material Adverse Change. Since the date of this Agreement, there
shall not have been any material adverse change in the business, assets, results
of operations, condition (financial or otherwise) or prospects of the Company
and the Subsidiaries considered as a whole.
8.7 Senior Credit Facility. The Company, Alliance USA, GOCA, LPC, New
GOC and Source shall have executed and delivered the Senior Credit Facility,
substantially in the form of the final draft furnished to Buyer in all material
respects.
8.8 Subordination Agreement. Buyer and the lender under the Senior
Credit Facility shall have executed and delivered a materially acceptable
subordination agreement.
8.9 U.K. Opinion. Buyer shall have received an opinion of Richards
Butler dated the Closing Date and in form and substance satisfactory to Buyer
concerning choice of law and such other matters as Buyer may request.
8.10 Closing of the Acquisitions and the Senior Credit Facility. All
conditions precedent to the closings of the Acquisitions and the Senior Credit
Facility (other than conditions with respect to the consummation, simultaneously
with such closings, of the transactions contemplated hereby) shall have been
satisfied at or prior to the Closing, and such closings shall have occurred
prior to or be occurring simultaneously with the Closing.
-29-
<PAGE>
ARTICLE IX
PRE-CLOSING TERMINATION
9.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing in the following
manner:
(a) by mutual written consent of the Company and Buyer; or
(b) by either the Company or Buyer, if any Governmental Entity
with jurisdiction over such matters shall have issued an order or
injunction restraining, enjoining or otherwise prohibiting the sale of the
Securities or the Placement Fee Shares hereunder and such order, decree,
ruling or other action shall have become final and unappealable;
(c) by either Company or Buyer, if the Closing shall not have
occurred on or before October 30, 1998; provided, however, that the right
to terminate this Agreement under this Section 9.1(c) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the
failure of the Closing to occur prior to such date.
9.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.1 by the Company, on the one hand, or Buyer, on
the other, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section, in Sections 14.6 and 14.7 and in Article XV shall
survive the termination hereof. Nothing contained in this Section shall relieve
any party from liability for damages actually incurred as a result of any breach
of this Agreement.
ARTICLE X
AFFIRMATIVE COVENANTS OF THE COMPANY
To induce Buyer to enter into this Agreement, the Company warrants,
covenants and agrees that until the full and final payment of the Obligations:
10.1 Payment and Performance. The Company will pay all amounts due under
the Notes in accordance with the terms thereof and will observe, perform and
comply with every covenant, term and condition expressed or implied in this
Agreement. The Company will cause each of its Subsidiaries to observe, perform
and comply with every such term, covenant and condition to the extent applicable
to such Subsidiary.
10.2 Books, Financial Statements and Reports. The Company and each of
its Subsidiaries will at all times maintain full and accurate books of account
and records. The Company will maintain
-30-
<PAGE>
and will cause its Subsidiaries to maintain a standard system of accounting,
will maintain its Fiscal Year, and will furnish the following statements and
reports to Buyer at the Company's expense:
(a) As soon as available, and in any event within one hundred five
(105) days after the end of each Fiscal Year, complete consolidated financial
statements of the Company together with all notes thereto, prepared in
reasonable detail in accordance with U.S. GAAP, together with an unqualified
opinion, based on an audit using generally accepted auditing standards, by
independent certified public accountants selected by the Company and reasonably
acceptable to Buyer, stating that such consolidated financial statements have
been so prepared. These financial statements shall contain a consolidated
balance sheet as of the end of such Fiscal Year and consolidated statements of
earnings, of cash flows, and of changes in owners' equity for such Fiscal Year,
each setting forth in comparative form the corresponding figures for the
preceding Fiscal Year.
(b) As soon as available, and in any event within fifty (50) days after
the end of each Fiscal Quarter, the Company's consolidated balance sheet as of
the end of such Fiscal Quarter and consolidated statements of the Company's
earnings and cash flows for the period from the beginning of the then current
Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail and
prepared in accordance with U.S. GAAP, subject to changes resulting from normal
year-end adjustments. In addition the Company will, together with each such set
of financial statements and each set of financial statements furnished under
subsection (a) of this section, furnish a certificate in a form reasonably
acceptable to Buyer signed by the chief financial officer of the Company stating
that such financial statements are accurate and complete (subject to normal
year-end adjustments) and stating that no Default exists at the end of such
Fiscal Quarter or at the time of such certificate or specifying the nature and
period of existence of any such Default.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by the Company to its
stockholders and all registration statements, periodic reports and other
statements and schedules filed by the Company with any securities exchange, the
Securities and Exchange Commission or any similar Governmental Entity.
(d) Annually within 60 days after the end of each Fiscal Year beginning
with the Fiscal Year ending April 30, 1999, a report containing (i) an
estimation of the oil and gas reserves, classified by appropriate categories, as
of the end of the preceding fiscal year attributable to the interest of the
Company therein, (ii) a projection of the rate of production of and net income
from such reserves with respect to each such interest, (iii) a calculation of
the present worth of such net income discounted at a rate of 10% and at any
other rates designated from time to time by a Majority of the Noteholders and
(iv) a schedule or complete description of all assumptions, estimates and
projections made or used in the preparation of such report. Each such report
shall be prepared in accordance with customary and generally accepted standards
and practices for petroleum engineers, and shall be based on (1) prices
determined by a Majority of the Noteholders, (2) lease operating expenses and
production taxes derived from and consistent with those actually incurred by the
Company, escalated at the same rate, if any, being applied to prices and (3)
such other assumptions as shall be designated by a Majority of the Noteholders.
In addition to the foregoing, a Majority of the Noteholders shall have the right
from time to time to cause the independent petroleum engineer referenced below
to prepare an additional report of the type described above, not to exceed one
additional report in any
-31-
<PAGE>
one calendar year, in which event all fees and expenses incurred in connection
with obtaining such additional report shall be paid by the Company. Each report
under this subsection shall be prepared by an independent petroleum engineer
designated by the Company and approved by a Majority of the Noteholders. Each
annual report referenced above shall also include an estimate of the Company's
proved oil and gas reserves (as defined in Regulation S-X promulgated by the
Securities and Exchange Commission) and a calculation of the "present value of
estimated future net revenues" from such proved oil and gas reserves, with such
present worth calculation to be made in accordance with Regulation S-X, as
promulgated by the Securities and Exchange Commission.
(e) Promptly, such other information with respect to the business and
operations of the Company and its Subsidiaries, as Buyer may reasonably request.
10.3 Notice of Material Events and Change of Address. The Company
will promptly notify Buyer in writing, stating that such notice is being given
pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Effect,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any indebtedness owed by
the Company or any Subsidiary thereof or of any default by any the Company
or any such Subsidiary under any indenture, mortgage, agreement, contract
or other instrument to which any of them is a party or by which any of them
or any of their properties is bound, if such acceleration or default could
reasonably be expected to have a Material Adverse Effect,
(d) any claim of $100,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such amount, or
any other material adverse claim asserted against the Company or any
Subsidiary thereof or with respect to the Company or any of such
Subsidiary's properties, an d
(e) the filing of any suit or proceeding against the Company or
any Subsidiary thereof in which an adverse decision could cause a Material
Adverse Effect .
Upon the occurrence of any of the foregoing the Company and any Subsidiary
thereof will take all necessary or appropriate steps to remedy promptly any such
Material Adverse Effect, Default, acceleration or default, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing.
10.4 Maintenance of Properties. The Company and each of its
Subsidiaries will maintain, preserve, protect, and keep all property used or
useful in the conduct of its business in good condition and in compliance with
all Applicable Laws, and will from time to time make all repairs, renewals and
replacements needed to enable the business and operations carried on in
connection therewith to be promptly and advantageously conducted at all times.
-32-
<PAGE>
10.5 Maintenance of Existence and Qualifications. The Company and each
of its Subsidiaries will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by Applicable Law, except where the
failure so to qualify will not cause a Material Adverse Effect.
10.6 Payment of Trade Liabilities, Taxes, etc. The Company and each of
its Subsidiaries will (a) timely file all required Tax Returns; (b) timely pay
all Taxes, assessments, and other governmental charges or levies imposed upon it
or upon its income, profits or property; (c) timely withhold and pay over to the
proper Governmental Entity all amounts required to be withheld and paid over
under Applicable Laws; (d) pay when due all Liabilities owed by it on ordinary
trade terms to vendors, suppliers and other Persons providing goods and services
used by it in the ordinary course of its business; (e) pay and discharge when
due all other Liabilities now or hereafter owed by it; and (f) maintain
appropriate accruals and reserves for all of the foregoing in accordance with
U.S. GAAP. The Company and each of its Subsidiaries may, however, delay paying
or discharging any of the foregoing so long as it is in good faith contesting
the validity thereof by appropriate proceedings and has set aside on its books
adequate reserves therefor.
10.7 Insurance. The Company and each of its Subsidiaries will keep or
cause to be kept insured by financially sound and reputable insurers its
properties in such forms and amounts and against such risks as are customary for
Persons engaged in the same or similar business of owning and operating similar
properties.
10.8 Compliance with Agreements and Law. The Company and each of its
Subsidiaries will perform all material obligations it is required to perform
under the terms of each indenture, mortgage, deed of trust, security agreement,
lease, franchise, agreement, contract or other instrument or obligation to which
it is a party or by which it or any of its properties is bound. The Company and
each of its Subsidiaries will conduct its business and affairs in compliance
with all Applicable Law.
10.9 Guaranties of Company's Subsidiaries. Each Subsidiary (other than
the Subsidiary Guarantors) of the Company now existing or created, acquired or
coming into existence after the date hereof shall, promptly upon request by
Buyer, execute and deliver to Buyer an absolute and unconditional guaranty of
the timely repayment of the Notes and the due and punctual performance of the
obligations of the Company hereunder, which guaranty shall be satisfactory to
Buyer in form and substance. The Company will cause each of its Subsidiaries to
deliver to Buyer, simultaneously with its delivery of such a guaranty, written
evidence satisfactory to Buyer and its counsel that such Subsidiary has taken
all corporate or partnership action necessary to duly approve and authorize its
execution, delivery and performance of such guaranty and any other documents
which it is required to execute.
ARTICLE XI
NEGATIVE COVENANTS OF THE COMPANY
-33-
<PAGE>
To induce Buyer to enter into this Agreement, the Company warrants,
covenants and agrees that until the full and final payment of the Obligations:
11.1 Indebtedness. Neither the Company nor any Subsidiary thereof will
in any manner owe or be liable for Indebtedness except:
(a) the Obligations;
(b) the Senior Credit Facility;
(c) Indebtedness owed by the Company or any Subsidiary thereof which is
subordinated to the Obligations upon terms and conditions satisfactory to EnCap
LP and ECIC in their sole and absolute discretion;
(d) purchase money Indebtedness and Indebtedness under leases of the
Company or such Subsidiary as lessee which are capitalized in accordance with
U.S. GAAP, in an aggregate principal amount not to exceed $100,000 at any time,
provided that such purchase money Indebtedness and Indebtedness under capital
leases do not in the aggregate exceed $250,000; and
(e) Old Latex Payables.
11.2 Limitation on Liens. Neither the Company nor any Subsidiary thereof
will create, assume or permit to exist any Lien upon any of the properties or
assets which it now owns or hereafter acquires, except the following ("Permitted
Liens"):
(a) Liens which secure Obligations only;
(b) Liens which secure the Senior Credit Facility; and
(c) Statutory Liens for taxes, statutory mechanics' and materialmen's
Liens incurred in the ordinary course of business, and other similar Liens
incurred in the ordinary course of business, provided such Liens do not secure
Indebtedness and secure only Indebtedness which is not delinquent or for which
adequate reserves have been set aside.
11.3 Limitation on Mergers. Except as expressly provided in this
Section, neither the Company nor any Subsidiary thereof will merge or
consolidate with or into any other business entity. Any Subsidiary of the
Company may, however, be merged into or consolidated with either the Company or
another Subsidiary which is wholly-owned by the Company, so long as the Company
or the Subsidiary wholly-owned by the Company is the surviving business entity.
The Company will not issue any securities other than (i) Ordinary Shares, (ii)
deferred shares having nominal value and no voting rights, (iii) the
"Convertible Shares," as defined in the Difco Agreement, or (iv) any options or
warrants giving the holders thereof only the right to acquire such shares. No
Subsidiary of the Company will issue any additional shares of its capital stock
or other securities or any options, warrants or other rights to acquire such
additional shares or other securities except to the Company or to another
Subsidiary. No Subsidiary of the Company
-34-
<PAGE>
which is a partnership will allow any diminution of the Company's interest
(direct or indirect) therein.
11.4 Limitation on Sales of Property. Neither the Company nor any
Subsidiary thereof will sell, transfer, lease, exchange, alienate or dispose of
any of its assets or properties except:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value;
(b) inventory (including oil and gas sold as produced and seismic data)
which is sold in the ordinary course of business on ordinary trade terms; or
(c) other property which is sold for fair consideration not in the
aggregate in excess of $500,000 in any Fiscal Year (commencing with Fiscal Year
1999).
11.5 Limitation on Investments and New Businesses. Neither the Company
nor any Subsidiary thereof will make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business (which ordinary course of business includes the acquisition,
directly or indirectly, of oil and gas properties), engage directly or
indirectly in any business or conduct any operations except in connection with
or incidental to its present businesses and operations, make any acquisitions of
or capital contributions to or other investments in any Person, other than
Permitted Investments, or make any significant acquisitions or investments in
any properties other than oil and gas properties.
11.6 Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries will engage in any material transaction with any of its affiliates
on terms which are less favorable to it than those which would have been
obtainable at the time in arm's-length dealing with Persons other than such
affiliates.
11.7 Restricted Payments. The Company will not, and will not permit any
of its Subsidiaries to, declare or make, or incur any liability to declare or
make, any Restricted Payment.
11.8 Material Amendments. The Company will not, and will not permit any
of its Subsidiaries to, consent to any material amendment, supplement or other
modification to any of the terms and provisions of the Burlington Agreement or
the Difco Agreement.
ARTICLE XII
PREPAYMENT OF THE NOTE
12.1 Optional Prepayment. The Company may, upon not less than thirty
days' notice to the holders of the Notes, from time to time and without premium
or penalty prepay the Notes in cash, in whole or in part, so long as the
aggregate amount of each partial prepayment of principal on the Notes equals at
least $1,000,000 or any higher integral multiple of $1,000,000. Each
-35-
<PAGE>
prepayment of principal under this Section 12.1 shall be accompanied by all
interest then accrued and unpaid on the principal so prepaid. All principal and
interest prepaid pursuant to this Section 12.1 shall be in addition to, but not
in lieu of, all payments otherwise required to be paid under the Agreement or
the Ancillary Documents at the time of such prepayment.
ARTICLE XIII
EVENTS OF DEFAULT AND REMEDIES
13.1 Events of Default. Each of the following constitutes an "Event of
Default" for purposes of the Notes and this Agreement:
(a) a default in the payment of principal of any Note when and as the
same shall become due and payable;
(b) a default in the payment of any interest upon any Note when such
interest becomes due and payable;
(c) a default in the performance or observation of any covenant,
agreement or condition contained in either Article X or Article XI, which
default is not remedied within 30 days after the earlier of (i) the day on which
the Company first obtains knowledge of such default or (ii) the day on which
written notice thereof is given to the Company by the holder of any Note;
(d) any "default" or "event of default" occurs under any this Agreement
or any Ancillary Document which defines either such term, and the same is not
remedied within the applicable period of grace (if any) provided in this
Agreement or such Ancillary Document;
(e) any representation or warranty previously, presently or hereafter
made in writing by or on behalf of the Company or any Subsidiary thereof in
connection with this Agreement or any Ancillary Document shall prove to have
been false or incorrect in any material respect on any date on or as of which
made, which default is not remedied within 30 days after the earlier of (i) the
day on which the Company first obtains knowledge of such default or (ii) the day
on which written notice thereof is given to the Company by the holder of any
Note;
(f) the Company or any Subsidiary fails to duly observe, perform or
comply with any agreement with any Person or any term or condition of any loan
document relating to the Senior Credit Facility or any other agreement or
instrument, if such agreement or instrument is materially significant to the
Company or such Subsidiary, and such failure is not remedied within the
applicable period of grace (if any) provided in such agreement or instrument;
(g) the Company or any Subsidiary thereof fails to pay any portion,
when such portion is due, of any of its Indebtedness in excess of $100,000
(exclusive of the Old Latex Payables), or breaches or defaults in the
performance of any Agreement or instrument by which any such
-36-
<PAGE>
Indebtedness is issued, evidenced, governed, or secured, and any such failure,
breach or default continues beyond any applicable period of grace provided
therefor;
(h) the Company or any Subsidiary thereof:
(i) suffers the entry against it of a judgment, decree or order
for relief by a tribunal of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or other
similar Applicable Law of any jurisdiction now or hereafter in effect,
including the United States federal Bankruptcy Code or similar foreign law,
as from time to time amended, or has any such proceeding commenced against
it which remains undismissed for a period of thirty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Applicable Law now or hereafter in effect, including
the United States federal Bankruptcy Code or similar foreign law, as from
time to time amended; or applies for or consents to the entry of an order
for relief in an involuntary case under any such Applicable Law; or makes a
general assignment for the benefit of creditors; or fails generally to pay
(or admits in writing its inability to pay) its debts as such debts become
due; or takes corporate or other action to authorize any of the foregoing;
or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of all or a substantial part of its assets in a proceeding brought
against or initiated by it, and such appointment or taking possession is
neither made ineffective nor discharged within thirty days after the making
thereof, or such appointment or taking possession is at any time consented
to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $250,000 (not covered by insurance
satisfactory to the holders of the Notes in their discretion), unless the
same is discharged within thirty days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within such
period and a stay of execution pending such appeal is obtained; or
(v) suffers a writ or warrant of attachment or any similar
process to be issued by any tribunal against all or any substantial part of
its assets, and such writ or warrant of attachment or any similar process
is not stayed or released within thirty days after the entry or levy
thereof or after any stay is vacated or set aside;
(i) Any Change in Control occurs; and
(j) Any Material Adverse Effect occurs.
Upon the occurrence of an Event of Default described in subsection (h)(i),
(h)(ii) or (h)(iii) of this section with respect to the Company or a Subsidiary
thereof, all of the Obligations shall thereupon be immediately due and payable,
without demand, presentment, notice of demand or of dishonor
-37-
<PAGE>
and nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of any
kind, all of which are hereby expressly waived by the Company and each such
Subsidiary. Upon the occurrence of an Event of Default described in subsection
(a) or subsection (b) of this section, any holder of a Note may during its
continuance, by written notice to the Company declare the Note held by it to be
due and payable, whereupon such Note shall forthwith mature and become due and
payable. Upon the occurrence of any other Event of Default, the Majority of
Noteholders may at any time during its continuance, declare all of the Notes to
be due and payable, whereupon all of the Notes shall forthwith mature and become
due and payable.
13.2 Remedies. If any Default shall occur and be continuing, the holder
of any Note may protect and enforce its rights under the this Agreement and the
Ancillary Documents by any appropriate proceedings, including proceedings for
specific performance of any covenant or agreement contained in this Agreement or
any Ancillary Document, and the holder of any Note may enforce the payment of
any Obligations due it or enforce any other legal or equitable right which it
may have. All rights, remedies and powers conferred upon the holders of the
Notes under this Agreement and the Ancillary Documents shall be deemed
cumulative and not exclusive of any other rights, remedies or powers available
under this Agreement or the Ancillary Documents or at law or in equity.
ARTICLE XIV
ADDITIONAL AGREEMENTS
14.1 Third Party Consents. The Company shall use its reasonable best
efforts to obtain all consents, approvals, orders, authorizations, and waivers
of, and to effect all declarations, filings, and registrations with, all third
parties (including Governmental Entities) that are necessary, required, or
deemed by Buyer to be desirable to enable the Company to issue the Securities to
Buyer and the Placement Fee Shares to an affiliate of Buyer as contemplated by
this Agreement and to otherwise consummate the transactions contemplated hereby.
All costs and expenses of obtaining or effecting any and all of the consents,
approvals, orders, authorizations, waivers, declarations, filings, and
registrations referred to in this Section shall be borne by the Company.
14.2 Access to Information. Between the date hereof and the Closing,
the Company (i) shall give Buyer and its authorized representatives reasonable
access, during regular business hours, to all employees, all plants, offices,
warehouses, and other facilities, and all books and records, including work
papers and other materials prepared by the Company's independent public
accountants, of the Company and the Subsidiaries, (ii) shall permit Buyer and
its authorized representatives to make such inspections as they may reasonably
require and (iii) shall cause the Company's officers and those of the
Subsidiaries to furnish Buyer and its authorized representatives with such
financial and operating data and other information with respect to the Company
and the Subsidiaries as Buyer may from time to time reasonably request;
provided, however, that the Company shall have the right to have a
representative present at all times of any such inspections, interviews and
examinations conducted at or on the offices or other facilities or properties of
the
-38-
<PAGE>
Company or its affiliates or representatives.
14.3 Listing of Shares. The Company shall use its reasonable best
efforts to cause the Shares and the Placement Fee Shares to be approved for
listing on each securities exchange, automated quotation system or over-the-
counter market upon which securities of the Company of the same class are listed
on the first business day following the Closing Date.
14.4 Use of Proceeds. The Company will use the Purchase Price to fund
the Acquisitions and for no other purpose, except as provided herein.
14.5 Board Representation. For up to as long as Buyer holds Ordinary
Shares of the Company that, together with any Ordinary Shares issuable upon
exercise or conversion of any other securities of the Company held by Buyer,
aggregate at least 1% of the issued and outstanding Ordinary Shares, (a) upon
request, the Company will use its reasonable best efforts to cause a designee of
Buyer to be elected as a member of the Board of Directors of the Company, (b) in
the event that any designee of Buyer elected to the Company's Board of Directors
shall cease to serve as a director for any reason, the Company will use its
reasonable best efforts to cause the vacancy resulting therefrom to be filled
with a designee of Buyer and (c) if, despite the Company's reasonable best
efforts, a designee of Buyer is not elected to the Company's Board of Directors,
the Company will use its reasonable best efforts to cause a designee of Buyer
(i) to be permitted to attend meetings of the Company's Board of Directors as a
non-voting observer, (ii) to receive information generally provided to the
Company's Board of Directors, including information with respect to various
corporate developments or transactions, and to have access to the books,
records, and properties of the Company and (iii) to meet with the executive
officers of the Company in order to provide advice and counsel with respect to
the management of the Company.
14.6 Public Announcements. Except as may be required by Applicable Law,
neither Buyer, on the one hand, nor the Company, on the other, shall issue any
press release or otherwise make any public statement with respect to this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which consent shall not be unreasonably withheld).
Any such press release or public statement required by Applicable Law shall only
be made after reasonable notice to the other party, and in such case the party
proposing to make such a press release or public statement shall consult with
the other party.
14.7 Fees and Expenses. The Company shall bear its costs and expenses in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the Ancillary Documents and the other documents and instruments
contemplated hereby and thereby, as well as the consummation of the transactions
contemplated hereby and thereby. The Company shall promptly (and in any event
within 30 days after any invoice or other statement or notice) pay the
reasonable costs and expenses incurred by or on behalf of Buyer, including
attorneys' fees, consultants' fees and engineering fees, travel costs and
miscellaneous expenses in connection with the negotiation, preparation,
execution and delivery of this Agreement and the Ancillary Documents and the
other documents and instruments contemplated hereby and thereby, as well as the
related due diligence and consummation of the transactions contemplated hereby
and thereby.
-39-
<PAGE>
14.8 Costs of Enforcement. If any party hereto is required to take
action to enforce its rights under this Agreement, the prevailing party shall be
entitled to its reasonable expenses, including attorneys' fees and expenses, in
connection with any such action.
14.9 Transfer Taxes. All sales, transfer, filing, recordation,
registration, stamp and similar Taxes and fees arising from or associated with
the issue and sale of the Securities and the Placement Fee Shares as
contemplated hereunder, whether levied on Buyer or the Company, shall be borne
by the Company, and the Company shall file all necessary documentation with
respect to, and make all payments of, such Taxes and fees on a timely basis.
14.10 Indemnification. The Company shall indemnify, defend and hold
harmless Buyer from and against any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs and expenses (including reasonable attorneys' fees and
expenses), of any nature whatsoever, asserted against, resulting to, imposed
upon, or incurred by Buyer, directly or indirectly, by reason of or resulting
from any breach by the Company of any of its representations, warranties,
covenants or agreements contained in this Agreement or in any certificate,
instrument or document delivered pursuant hereto.
ARTICLE XV
MISCELLANEOUS
15.1 Notices.
(a) All notices, requests, demands, and other communications required
or permitted to be given or made hereunder by any party hereto shall be in
writing and shall be deemed to have been duly given or made if (i) delivered
personally, (ii) transmitted by first class registered or certified mail,
postage prepaid, return receipt requested, (iii) sent by prepaid overnight
courier service, or (iv) sent by telecopy or facsimile transmission, answer back
requested, to the parties at the following addresses (or at such other addresses
as shall be specified by the parties by like notice):
If to EnCap LP or ECIC:
Energy Capital Investment Company PLC
EnCap Equity 1996 Limited Partnership
c/o EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
-40-
<PAGE>
with a copy to:
Thompson & Knight, P.C.
1700 Chase Tower
600 Travis
Houston, TX 77002
Attention: Michael Pierce
Telefax: 713/217-2828
If to the Company or any Subsidiary:
Alliance Resources PLC
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attention: John A. Keenan
Telefax: 918-494-4918
with a copy to:
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: W. Alan Kailer
Telefax: 214-855-4300
Such notices, requests, demands, and other communications shall be effective (i)
if delivered personally or sent by courier service, upon actual receipt by the
intended recipient, (ii) if mailed, upon the earlier of five days after deposit
in the mail or the date of delivery as shown by the return receipt therefor or
(iii) if sent by telecopy or facsimile transmission, when the answer back is
received.
(b) The Company covenants and agrees that it will give all notices
required or permitted to be given by the Company to EnCap LP or ECIC as a member
or shareholder of the Company in accordance with this Section 15.1 and that to
the extent that this Section 15.1 conflicts with the Organic Documents of the
Company, this Section 15.1 shall control.
15.2 Waiver and Amendment. No failure or delay (whether by course of
conduct or otherwise) by any party hereto in exercising any right, power or
remedy which such holder may have under the Agreement or any of the Ancillary
Documents shall operate as a waiver thereof or of any other right, power or
remedy, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or of any other right, power or remedy. No waiver of
any provision of this Agreement or any Ancillary Document and no consent to any
departure therefrom shall ever be effective unless it is in writing and signed
as provided below in this section, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which given
and to the extent specified in such writing. No waiver, consent, release,
modification or amendment of or supplement to this Agreement or any of the
Ancillary Documents shall be valid or effective against
-41-
<PAGE>
any party hereto unless the same is in writing and signed by such party.
15.3 Survival. The representations and warranties of the parties
hereto contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto shall survive the Closing, regardless of any
investigation made by or on behalf of any party without contractual limitation.
Except as otherwise provided herein or therein, all agreements and/or covenants
of the Company contained in this Agreement or in any of the Ancillary Documents
shall survive the execution and delivery of this Agreement and the Ancillary
Documents and the performance hereof and thereof, and shall further survive
until all of the Obligations are paid in full and all of Buyer's obligations to
the Company are terminated.
15.4 Entire Agreement. This Agreement, together with the Schedules
and other writings referred to herein or delivered pursuant hereto, constitute
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
15.5 Binding Effect; Assignment; No Third Party Benefit. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, however, that prior to
Closing, neither party may assign its rights or delegate any of its duties and
obligations under this Agreement or the Ancillary Documents without the prior
written consent of the other; provided, further, that after the Closing, the
Company may not assign its rights or delegate any of its duties and obligations
under this Agreement and the Ancillary Documents without the prior written
consent of the holders of the Notes. Except as expressly provided herein,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any Person other than the parties hereto, and their respective successors
and permitted assigns, any rights, benefits, or remedies of any nature
whatsoever under or by reason of this Agreement.
15.6 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by Applicable Law.
15.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF ENGLAND AND WALES, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
15.8 Remedies Not Exclusive. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
The rights and remedies of any party based upon, arising out of, or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant, or agreement contained in this Agreement shall in no way be limited by
the fact that the act, omission, occurrence, or other state of facts upon which
any claim of any such inaccuracy or breach is based may also be the subject
matter of any other representation,
-42-
<PAGE>
warranty, covenant, or agreement contained in this Agreement (or in any other
agreement between the parties) as to which
there is no inaccuracy or breach.
15.9 Further Assurances. From time to time following the Closing, at
the request of any party hereto and without further consideration, the other
party or parties hereto shall execute and deliver to such requesting party such
instruments and documents and take such other action (but without incurring any
material financial obligation) as such requesting party may reasonably request
in order to consummate more fully and effectively the transactions contemplated
hereby.
15.10 Counterparts. This Agreement may be executed by the parties
hereto in any number of counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same agreement. Each counterpart
may consist of a number of copies hereof each signed by less than all, but
together signed by all, the parties hereto.
15.11 Injunctive Relief. The parties hereto acknowledge and agree that
irreparable damage would occur in the event 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 the provisions of this
Agreement, and shall be entitled to enforce specifically the provisions of this
Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
15.12 Consent to Jurisdiction. The parties hereto hereby irrevocably
submit to the jurisdiction of the courts of the State of Texas and the federal
courts of the United States of America located in Harris County, Texas, and
appropriate appellate courts therefrom, over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby, and
each party hereby irrevocably agrees that all claims in respect of such dispute
or proceeding shall be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by Applicable Law, any
objection which they may now or hereafter have to the laying of venue of any
dispute arising out of or relating to this Agreement or any of the transactions
contemplated hereby brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. This consent to
jurisdiction is being given solely for purposes of this Agreement and is not
intended to, and shall not, confer consent to jurisdiction with respect to any
other dispute in which a party to this Agreement may become involved.
15.13 Payments. All payments to be made hereunder shall be in lawful
money of the United States of America.
-43-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their duly authorized representatives, all as
of the day and year first above written.
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C., General Partner
By:
---------------------------------------
Name:
-------------------------------
Title: Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: /s/ Gary R. Petersen
---------------------------------------
Name: Gary R. Petersen
Title: Director
ALLIANCE RESOURCES PLC
By:
---------------------------------------
Name:
-------------------------------
Title:
-------------------------------
-44-
<PAGE>
Exhibit 10.12
FIRST AMENDMENT TO PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AGREEMENT (this "Amendment") is made as of
the 30/th/ day of July, 1999 among Alliance Resources PLC, a public limited
company organized under the laws of England and Wales (the "Company"), and EnCap
Equity 1996 Limited Partnership, a Texas limited partnership ("EnCap LP"), and
Energy Capital Investment Company PLC, an English investment company ("ECIC")
(with EnCap LP and ECIC sometimes being herein collectively called "Buyer").
W I T N E S S E T H:
WHEREAS, the Company, EnCap LP and ECIC entered into that certain Purchase
Agreement dated as of October 27, 1998 (the "Original Agreement") for the
purposes and consideration therein expressed, pursuant to which Buyer purchased
the Securities; and
WHEREAS, the Company, EnCap LP and ECIC desire to amend the Original
Agreement to reflect certain changes in the ownership of the capital stock of
certain Subsidiaries of the Company, with the result being that Difco is the
owner of all of the outstanding capital stock of Alliance Resources (Delaware),
Inc., a newly formed Delaware corporation, which in turn is the owner of all of
the outstanding capital stock of Alliance Group and LRI;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I. -- Definitions and References
--------------------------
(S) 1.1. Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
(S) 1.2. Other Defined Terms. Unless the context otherwise requires, the
-------------------
following terms when used in this Amendment shall have the meanings assigned to
them in this (S) 1.2.
"Amendment" means this First Amendment to Purchase Agreement.
---------
"Amendment Documents" means this Amendment, the Consent and Agreement
-------------------
of Subsidiary Guarantors attached hereto, the Subsidiary Guaranty of even
date herewith by Alliance Resources (Delaware), Inc. in favor of EnCap LP
and ECIC and the other documents to be delivered pursuant to Section
3.1(c).
"Purchase Agreement" means the Original Agreement as amended hereby.
------------------
1
<PAGE>
ARTICLE II. -- Amendments to Original Agreement
--------------------------------
(S) 2.1. Defined Terms. The definitions of "Change of Control", "Key
-------------
Employment Agreements", "Senior Credit Facility" and "Subsidiary Guarantors" set
forth in Section 1.1 of the Original Agreement are hereby amended in their
entirety to read as follows:
"Change of Control" means the occurrence of any of the following
events: (a) any Person or two or more Persons, other than Buyer or any
affiliate of Buyer, acting as a group shall acquire beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Exchange Act, and including holding proxies to vote for the
election of directors other than proxies held by the Company's management
or their designees to be voted in favor of persons nominated by the
Company's Board of Directors) of 33% or more of the outstanding voting
securities of the Company, measured by voting power (including both
ordinary shares and any preferred stock or other equity securities
entitling the holders thereof to vote with the holders of common stock in
elections for directors of the Company), exclusive of the issuance of
ordinary shares contemplated under this Agreement, (b) the Company shall
fail beneficially to own 100% of the outstanding shares of voting capital
stock of Manx or Difco on a fully-diluted basis, (c) Difco shall fail
beneficially to own 100% of the outstanding shares of voting capital stock
of Alliance Delaware on a fully-diluted basis, (d) Alliance Delaware shall
fail beneficially to own 100 % of the outstanding shares of voting capital
stock of Alliance Group and LRI on a fully-diluted basis, (e) LRI shall
fail beneficially to own 100% of the outstanding shares of the voting
capital stock of LPC, GOCA, New GOC or Enpro, on a fully-diluted basis, (f)
Alliance Group shall fail beneficially to own 100% of the outstanding
shares of the voting capital stock of Source, ARNO, ARCOL or Alliance USA,
(g) one-third or more of the directors of the Company shall consist of
persons not nominated by the Company's Board of Directors (not including as
Board nominees any directors which the Board is obligated to nominate
pursuant to shareholders agreements, voting trust arrangements or similar
arrangements) or (h) within three years of the Closing Date, the employment
by the Company of John Keenan or Paul Fenemore terminates for any reason.
"Key Employment Agreements" means (i) that certain Executive Service
Agreement dated October 5, 1996 between the Company and John A. Keenan, as
amended by Supplemental Agreement dated October 15, 1996 and Second
Supplemental Agreement dated December 1, 1998, and (ii) that certain
Service Agreement dated September 20, 1996 between the Company and Paul
Raymond Fenemore, as amended by Supplemental Agreement dated September 20,
1996 and Second Supplemental Agreement dated December 1, 1998.
"Senior Credit Facility" means that certain Third Amended and Restated
Credit Agreement dated October 27, 1998 by and among the Company, Alliance
USA, GOCA, LPC, New GOC and Source and Bank of America National Trust and
Savings Association, as amended by that certain First Amendment to Third
Amended and Restated Credit Agreement dated July 30, 1999.
2
<PAGE>
"Subsidiary Guarantors" means Difco, Alliance Delaware, Alliance
Group, Alliance USA, Source, LRI, LPC, GOCA, New GOC and Enpro.
Section 1.1 of the Original Agreement is hereby amended by adding a new
definition of "Alliance Delaware" immediately following the definition of
"affiliate", to read as follows:
"Alliance Delaware" means Alliance Resources (Delaware), Inc., a
Delaware corporation.
(S) 2.2 Consent to Changes in Stock Ownership. Buyer hereby consents to
-------------------------------------
the changes in stock ownership among the Company and certain of its
Subsidiaries, whereby Difco became the owner of all of the outstanding capital
stock of Alliance Resources (Delaware), Inc., a newly formed Delaware
corporation, which in turn became the owner of all of the outstanding capital
stock of Alliance Group and LRI, and waives any Default or Event of Default
under Sections 10.9, 11.3, 11.5 or 11.6 of the Purchase Agreement caused
thereby.
(S) 2.3 Consent to Amendment of Senior Credit Facility. Buyer hereby
----------------------------------------------
consents to an amendment to the Senior Credit Facility of even date herewith,
substantially in the form of the final draft furnished to Buyer.
(S) 2.4 Waiver re: Untimely Delivery of Financial Information. The
-----------------------------------------------------
Company previously failed to timely deliver certain financial information in
respect of the Fiscal Quarters ended October 31, 1998 and January 31, 1999, as
required in Section 10.2 (b) of the Purchase Agreement. Buyer hereby confirms
that such information, for such periods, was subsequently delivered to Buyer,
and Buyer hereby waives such failure to timely deliver such information and any
Default related thereto.
(S) 2.5 Buyer Acknowledgment and Agreement re: East Irish Sea Asset Write
-----------------------------------------------------------------
Down. As a result of an SEC ceiling test calculation, the Company is required
- ----
to write down the cost of the East Irish Sea Assets to approximately $2.5
million for U.S. financial reporting purposes, with such write down being
recognized in the Fiscal Year ended April 30, 1999 (the "Required Write Down").
Buyer hereby acknowledges and agrees that the Required Write Down does not, in
and of itself, constitute a Material Adverse Effect.
ARTICLE III. -- Conditions of Effectiveness
---------------------------
(S) 3.1. Effective Date. This Amendment shall become effective as of the
--------------
date first above written when and only when the Company will deliver the
following documents to Buyer:
(a) This Amendment, duly executed by the Company and each Subsidiary
Guarantor.
(b) The Subsidiary Guarantee of Alliance Delaware, duly executed by
Alliance Delaware.
(c) Certified copy of a written consent or resolutions of the Board of
Directors of the Company and the Subsidiary Guarantors authorizing the
execution, delivery and
3
<PAGE>
performance by the Company and the Subsidiary Guarantors of this Amendment
and the Amendment Documents, as necessary.
(d) An Omnibus Certificate, substantially in the form of the omnibus
certificates delivered by the Company and Subsidiary Guarantors at Closing,
with respect to Alliance Delaware, with attached accurate and complete
copies of Alliance Delaware's Organic Documents, the consent or resolutions
described in clause (c) above, and indicating the incumbency and specimen
signatures of officers executing the Amendment and Ancillary Documents on
behalf of Alliance Delaware.
(e) Certificate of existence and good standing with respect to
Alliance Delaware, dated within a number of days prior to the date hereof
reasonably acceptable to Buyer.
(f) Such other certificates, instruments, and documents as may be
reasonably requested by Buyer prior to the date hereof to carry out the
intent and purposes of this Amendment.
ARTICLE IV. -- Representations and Warranties
------------------------------
(S) 4.1. Representations and Warranties of the Company. To confirm
---------------------------------------------
Buyer's understanding concerning the Company's and its Subsidiaries' businesses,
properties and obligations, and to induce Buyer to enter into this Amendment,
the Company represents and warrants to Buyer that:
(a) (i) All the representations and warranties of the Company and its
Subsidiaries contained in the Purchase Agreement and Ancillary Documents
are true and correct in all material respects on and as of the date hereof
as if made on and as of such date, except as affected by transactions
permitted thereby, and except to the extent that any such representation or
warranty is made as of a specified date, in which case such representation
or warranty shall have been true and correct in all material respects as of
such specified date (for the sole purpose of determining whether or not any
of such representations and warranties are true and correct as aforesaid on
and as of the date hereof, no effect shall be given to any materiality
qualification contained in such representation or warranty), (ii) the
Company and its Subsidiaries have performed and complied with in all
material respects all covenants and agreements contained in the Purchase
Agreement and Ancillary Documents, and (iii) no Default or Event of Default
has occurred.
(b) The Company and each Subsidiary Guarantor has full power and
authority to execute and deliver the Amendment Documents and to perform
their obligations thereunder, to the extent a party thereto, and to
consummate the transactions contemplated hereby and thereby. The
execution, delivery, and performance by the Company and each Subsidiary
Guarantor of the Amendment Documents, to the extent a party thereto, and
the consummation by it of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary actions of the Company and each
Subsidiary Guarantor. The Amendment Documents have been duly executed and
4
<PAGE>
delivered by the Company and each Subsidiary Guarantor, to the extent a
party thereto, and constitute, a valid and legally binding obligation of
the Company and each Subsidiary Guarantor, enforceable against the Company
and each Subsidiary Guarantor in accordance with their respective terms,
except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally and (ii) equitable principles which
may limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
(c) The execution, delivery and performance of the Amendment Documents
by the Company and each Subsidiary Guarantor, to the extent a party
thereto, and the consummation by them of the transactions contemplated
hereby and thereby do not and will not (a) violate or conflict with the
Organic Documents of the Company or any Subsidiary, (b) conflict with or
result in any violation of any provision of, or constitute (with or without
the giving of notice or the passage of time or both) a default under, or
give rise (with or without the giving of notice or the passage of time or
both) to any right of termination, cancellation, or acceleration under, or
require any consent, approval, authorization or waiver of, or notice to,
any party to, any bond, debenture, note, mortgage, indenture, lease,
contract, agreement, or other instrument or obligation to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or
any of their respective properties may be bound or any Permit held by the
Company or any Subsidiary, (iii) result in the creation or imposition of
any Lien upon the properties of the Company or any Subsidiary (other than
as provided in the Senior Credit Facility) or (iv) violate any Applicable
Law binding upon the Company or any Subsidiary.
(d) No consent, approval, authorization, license, order or permit of,
or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, is required to be made
or obtained by the Company or any Subsidiary in connection with the
execution, delivery and performance of the Amendment Documents and the
consummation of the transactions contemplated hereby and thereby.
ARTICLE V. -- Miscellaneous
-------------
(S) 5.1. Ratification of Agreements. The Original Agreement as hereby
--------------------------
amended is hereby ratified and confirmed in all respects. The Purchase
Agreement and Ancillary Documents, as they may be amended or affected by the
various Amendment Documents, are hereby ratified and confirmed in all respects.
Any reference to the Purchase Agreement in any Ancillary Document shall be
deemed to refer to this Amendment also, and any reference in the Purchase
Agreement or any Ancillary Document to any other document or instrument amended,
renewed, extended or otherwise affected by any Amendment Document shall also
refer to such Amendment Document. The execution, delivery and effectiveness of
this Amendment and the other Amendment Documents shall not, except as expressly
provided herein or therein, operate as a waiver of any right, power or remedy of
Buyer under the Purchase Agreement or any Ancillary Document nor constitute a
waiver of any provision of the Purchase Agreement or any Ancillary Document.
5
<PAGE>
(S) 5.2. Survival of Agreements. All representations, warranties,
----------------------
covenants and agreements of the Company herein shall survive the execution and
delivery of this Amendment and the performance hereof, and shall further survive
until all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by the Company or any
Subsidiary Guarantor hereunder or under the Purchase Agreement to Buyer shall be
deemed to constitute representations and warranties by, or agreements and
covenants of, the Company under this Amendment and under the Purchase Agreement.
(S) 5.3. Ancillary Documents. This Amendment and the other Amendment
-------------------
Documents are each an Ancillary Document, and all provisions in the Purchase
Agreement pertaining to Ancillary Documents apply hereto and thereto.
(S) 5.4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF ENGLAND AND WALES, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
(S) 5.5. Entire Agreement. This Agreement, together with the Schedules and
----------------
other writings referred to herein or delivered pursuant hereto, constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
(S) 5.6. Counterparts. This Amendment may be separately executed in
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C., General Partner
By: /s/ Gary R. Peterson
----------------------------------------
Gary R. Peterson, Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: /s/ Gary R. Peterson
----------------------------------------
Gary R. Peterson, Director
ALLIANCE RESOURCES PLC
By: /s/ Francis M. Munchinski
----------------------------------------
Francis M. Munchinski, Authorized Signatory
6
<PAGE>
CONSENT AND AGREEMENT
The undersigned hereby (i) consents to the execution and delivery of (a)
that certain First Amendment to Purchase Agreement (the "Amendment") by and
among Alliance Resources PLC, a public limited company organized under the laws
of England and Wales (the "Company"), and EnCap Equity 1996 Limited Partnership,
a Texas limited partnership ("EnCap LP"), and Energy Capital Investment Company
PLC, an English investment company ("ECIC") (with EnCap LP and ECIC sometimes
being herein collectively called "Buyer"), amending the Purchase Agreement (as
defined in the Amendment), and (b) the other documents and instruments executed
in connection therewith, including without limitation the execution and delivery
of the other Amendment Documents, and to the provisions and transactions
contemplated therein, and (ii) ratifies and confirms that its Subsidiary
Guarantee and any other security or other documents, agreements or instruments
(collectively, the "Security Documents") delivered by it to Buyer in connection
with the Purchase Agreement or any transaction contemplated therein and agree
that all of its respective obligations and covenants thereunder (to the extent
it is a party thereto) shall remain unimpaired by the execution and delivery of
the Amendment and the other documents and instruments executed in connection
therewith and that the Security Documents to which it is a party shall remain in
full force and effect.
IN WITNESS WHEREOF, this Consent and Agreement is executed by the
undersigned as of July 30, 1999.
DIFCO LIMITED
By:---------------------------------------------
Francis M. Munchinski
Authorized Signatory
ALLIANCE RESOURCES GROUP, INC.
ALLIANCE RESOURCES (USA), INC.
SOURCE PETROLEUM, INC.
LATEX RESOURCES, INC.
LATEX PETROLEUM CORPORATION
LATEX/GOC ACQUISITION, INC.
GERMANY OIL COMPANY
ENPRO, INC.
ALLIANCE RESOURCES (DELAWARE), INC.
By:---------------------------------------------
Francis M. Munchinski, Vice President
7
<PAGE>
EXHIBIT 10.13
SECOND AMENDMENT TO PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AGREEMENT (this "Amendment") is made as
of the 13th day of October, 1999 among Alliance Resources PLC, a public limited
company organized under the laws of England and Wales (the "Company"), and EnCap
Equity 1996 Limited Partnership, a Texas limited partnership ("EnCap LP"), and
Energy Capital Investment Company PLC, an English investment company ("ECIC")
(with EnCap LP and ECIC sometimes being herein collectively called "Buyer").
W I T N E S S E T H:
WHEREAS, the Company, EnCap LP and ECIC have heretofore entered into that
certain (i) Purchase Agreement dated as of October 27, 1998, and (ii) First
Amendment to Purchase Agreement dated as of July 30, 1999 (the documents
referred to in clauses (i) and (ii) of this paragraph being called the
"Agreement");
WHEREAS, the Company, American Rivers Oil Company, a Wyoming corporation,
and American Rivers Oil Company, a Delaware corporation ("AROC Delaware"), have
entered into that certain (i) Exchange and Merger Agreement dated as of July 22,
1999, and (ii) Amendment To Exchange and Merger Agreement dated October 13, 1999
(the documents referred to in clauses (i) and (ii) in this paragraph being
called the "Exchange and Merger Agreement"), pursuant to which, among other
things, AROC Delaware will offer (the "Offer") to exchange (a) one share of
common stock, par value $0.01 per share of AROC Delaware (the "AROC Delaware
Shares") for each ordinary share of 1p each in the capital of the Company and
(b) one convertible restricted voting share of AROC Delaware for each
convertible restricted voting share of 1p each in the capital of the Company
(the "Proposed Exchange");
WHEREAS, the Company has requested that (i) Buyer (a) consent to the
consummation of the Proposed Exchange pursuant to the terms of the Exchange and
Merger Agreement, (b) waive the Event of Default under 13.1(i) of the Agreement
to the extent the consummation of the Proposed Exchange results in an Event of
Default under the Purchase Agreement and (c) consent to the amendment to the
Senior Credit Facility and (ii) the Purchase Agreement be amended to change the
definition of "Change of Control" contained therein in connection with the
consummation of the Proposed Exchange; and
WHEREAS, subject to and upon the terms and conditions set forth herein,
Buyer is willing to enter into this Amendment and grant the consents and waivers
the Company has requested;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
1
<PAGE>
ARTICLE I. -- Definitions and References
--------------------------
(S) 1.1. Terms Defined in the Agreement. Unless the context otherwise
------------------------------
requires or unless otherwise expressly defined herein, the terms defined in the
Agreement shall have the same meanings whenever used in this Amendment.
(S) 1.2. Other Defined Terms. Unless the context otherwise requires, the
-------------------
following terms when used in this Amendment shall have the meanings assigned to
them in this (S) 1.2.
"Agreement" has the meaning assigned to it in the first recital to
this Amendment.
"Amendment" means this Second Amendment to Purchase Agreement.
"Amendment Documents" means this Amendment, the Consent and Agreement
of Subsidiary Guarantors attached hereto, and the other documents to be
delivered pursuant to Section 3.1(c).
"Exchange and Merger Agreement" has the meaning assigned to it in the
second recital to this Amendment.
"Proposed Exchange" has the meaning assigned to it in the second
recital to this Amendment.
"Purchase Agreement" means the Agreement as amended hereby.
ARTICLE II. -- Amendments to Agreement; Consents and Waivers
---------------------------------------------
(S) 2.1. Defined Terms.
-------------
The definitions of "Change of Control" and "Senior Credit Facility" set
forth in Section 1.1 of the Agreement are hereby amended in their entirety to
read as follows:
"Change of Control" means the occurrence of any of the following
events: (a) any Person or two or more Persons, other than Buyer or any
affiliate of Buyer, acting as a group shall acquire beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Exchange Act, and including holding proxies to vote for the
election of directors other than proxies held by the AROC Inc.'s management
or their designees to be voted in favor of persons nominated by the AROC
Inc.'s Board of Directors) of 33% or more of the outstanding voting
securities of AROC Inc., measured by voting power (including both ordinary
shares and any preferred stock or other equity securities entitling the
holders thereof to vote with the holders of common stock in elections for
directors of AROC Inc.), exclusive of the issuance of AROC Inc. common
stock contemplated under the Proposed
2
<PAGE>
Exchange, (b) the Company shall cease to be a Subsidiary of AROC Inc., (c)
AROC Inc. shall sell, assign, transfer, convey or otherwise dispose of any
of the issued and outstanding voting share capital of the Company, (d) the
Company shall fail beneficially to own 100% of the outstanding shares of
voting capital stock of Manx or Difco on a fully-diluted basis, (e) Difco
shall fail beneficially to own 100% of the outstanding shares of voting
capital stock of Alliance Delaware on a fully-diluted basis, (f) Alliance
Delaware shall fail beneficially to own 100 % of the outstanding shares of
voting capital stock of Alliance Group and LRI on a fully-diluted basis,
(g) LRI shall fail beneficially to own 100% of the outstanding shares of
the voting capital stock of LPC, GOCA, New GOC or Enpro, on a fully-diluted
basis, (h) Alliance Group shall fail beneficially to own 100% of the
outstanding shares of the voting capital stock of Source, ARNO, ARCOL or
Alliance USA, (i) one-third or more of the directors of the Company shall
consist of persons not nominated by the Company's Board of Directors (not
including as Board nominees any directors which the Board is obligated to
nominate pursuant to shareholders agreements, voting trust arrangements or
similar arrangements) or (j) within three years of the Closing Date, the
employment by the Company of John Keenan or Paul Fenemore terminates for
any reason.
"Senior Credit Facility" means that certain Third Amended and Restated
Credit Agreement dated October 27, 1998 by and among the Company, Alliance
USA, GOCA, LPC, New GOC and Source and Bank of America National Trust and
Savings Association, as amended by that certain First Amendment to Third
Amended and Restated Credit Agreement dated July 30, 1999, and as amended
by that certain Second Amendment to Third Amended and Restated Credit
Agreement dated October 13, 1999.
Section 1.1 of the Agreement is hereby amended by adding a new definition
of "AROC Inc." immediately following the definition of "ARCOL", to read as
follows:
"AROC Inc" means AROC Inc., a Delaware corporation, and the successor
by name change to American Rivers Oil Company, a Delaware corporation.
(S) 2.2 Consent and Waiver. Subject to and upon the terms and conditions
------------------
set forth herein, and in reliance on the representations and warranties set
forth herein, Buyer hereby (i) consents to the consummation of the Proposed
Exchange pursuant to the terms of the Exchange and Merger Agreement as in effect
on the date hereof and waives any Default or Event of Default under Section
13.1(i) of the Agreement to the extent, but only to the extent, that the
consummation of the Proposed Exchange results in an Event of Default under the
Agreement.
(S) 2.3 Consent to Amendment of Senior Credit Facility. Buyer hereby
----------------------------------------------
consents to an amendment to the Senior Credit Facility of even date herewith,
substantially in the form of the final draft furnished to Buyer.
ARTICLE III. -- Conditions of Effectiveness
---------------------------
3
<PAGE>
(S) 3.1. Effective Date. This Amendment shall become effective as of the
--------------
date first above written when and only when:
(a) the Company will deliver the following documents to Buyer:
(i) this Amendment, duly executed by the Company and each
Subsidiary Guarantor;
(ii) certified copy of a written consent or resolutions of the Board
of Directors of the Company authorizing the execution, delivery and
performance by the Company of this Amendment and the Amendment Documents,
as necessary;
(iii) Registration Rights Agreement, dated as of the date hereof, in
the form of Exhibit 3.1(c) attached hereto, and executed by American Rivers
--------------
Oil Company; and
(iv) such other certificates, instruments, and documents as may be
reasonably requested by Buyer prior to the date hereof to carry out the
intent and purposes of this Amendment; and
(b) the Company pays all reasonable fees and expenses of Buyer (including
attorneys' fees and expenses) incurred by Buyer in connection with the Agreement
and in connection with the preparation, negotiation, execution and closing of
this Amendment.
ARTICLE IV. -- Representations and Warranties
------------------------------
(S) 4.1. Representations and Warranties of the Company. To confirm
---------------------------------------------
Buyer's understanding concerning the Company's and its Subsidiaries' businesses,
properties and obligations, and to induce Buyer to enter into this Amendment,
the Company represents and warrants to Buyer that:
(a) (i) All the representations and warranties of the Company and its
Subsidiaries contained in the Purchase Agreement and Ancillary Documents
are true and correct in all material respects on and as of the date hereof
as if made on and as of such date, except as affected by transactions
permitted thereby, and except to the extent that any such representation or
warranty is made as of a specified date, in which case such representation
or warranty shall have been true and correct in all material respects as of
such specified date (for the sole purpose of determining whether or not any
of such representations and warranties are true and correct as aforesaid on
and as of the date hereof, no effect shall be given to any materiality
qualification contained in such representation or warranty), (ii) the
Company and its Subsidiaries have performed and complied with in all
material respects all covenants and agreements contained in the Purchase
Agreement and Ancillary Documents, and (iii) no Default or Event of Default
has occurred (except to the extent heretofore waived by Buyer in writing).
4
<PAGE>
(b) The Company and each Subsidiary Guarantor has full power and
authority to execute and deliver the Amendment Documents and to perform
their obligations thereunder, to the extent a party thereto, and to
consummate the transactions contemplated hereby and thereby. The
execution, delivery, and performance by the Company and each Subsidiary
Guarantor of the Amendment Documents, to the extent a party thereto, and
the consummation by it of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary actions of the Company and each
Subsidiary Guarantor. The Amendment Documents have been duly executed and
delivered by the Company and each Subsidiary Guarantor, to the extent a
party thereto, and constitute, a valid and legally binding obligation of
the Company and each Subsidiary Guarantor, enforceable against the Company
and each Subsidiary Guarantor in accordance with their respective terms,
except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally and (ii) equitable principles which
may limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
(c) The execution, delivery and performance of the Amendment Documents
by the Company and each Subsidiary Guarantor, to the extent a party
thereto, and the consummation by them of the transactions contemplated
hereby and thereby do not and will not (a) violate or conflict with the
Organic Documents of the Company or any Subsidiary, (b) conflict with or
result in any violation of any provision of, or constitute (with or without
the giving of notice or the passage of time or both) a default under, or
give rise (with or without the giving of notice or the passage of time or
both) to any right of termination, cancellation, or acceleration under, or
require any consent, approval, authorization or waiver of, or notice to,
any party to, any bond, debenture, note, mortgage, indenture, lease,
contract, agreement, or other instrument or obligation to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or
any of their respective properties may be bound or any Permit held by the
Company or any Subsidiary, (iii) result in the creation or imposition of
any Lien upon the properties of the Company or any Subsidiary (other than
as provided in the Senior Credit Facility) or (iv) violate any Applicable
Law binding upon the Company or any Subsidiary.
(d) No consent, approval, authorization, license, order or permit of,
or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, is required to be made
or obtained by the Company or any Subsidiary in connection with the
execution, delivery and performance of the Amendment Documents and the
consummation of the transactions contemplated hereby and thereby, exclusive
of those contemplated by the Exchange and Merger Agreement.
ARTICLE V. -- Miscellaneous
-------------
(S) 5.1. Ratification of Agreements. The Agreement as hereby amended is
--------------------------
hereby ratified and confirmed in all respects. The Purchase Agreement and
Ancillary Documents, as they may be amended or affected by the various Amendment
Documents, are hereby ratified and confirmed in all respects.
5
<PAGE>
Any reference to the Purchase Agreement in any Ancillary Document shall be
deemed to refer to this Amendment also, and any reference in the Purchase
Agreement or any Ancillary Document to any other document or instrument amended,
renewed, extended or otherwise affected by any Amendment Document shall also
refer to such Amendment Document. The execution, delivery and effectiveness of
this Amendment and the other Amendment Documents shall not, except as expressly
provided herein or therein, operate as a waiver of any right, power or remedy of
Buyer under the Purchase Agreement or any Ancillary Document nor constitute a
waiver of any provision of the Purchase Agreement or any Ancillary Document.
(S) 5.2. Survival of Agreements. All representations, warranties,
----------------------
covenants and agreements of the Company herein shall survive the execution and
delivery of this Amendment and the performance hereof, and shall further survive
until all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by the Company or any
Subsidiary Guarantor hereunder or under the Purchase Agreement to Buyer shall be
deemed to constitute representations and warranties by, or agreements and
covenants of, the Company under this Amendment and under the Purchase Agreement.
(S) 5.3. Ancillary Documents. This Amendment and the other Amendment
-------------------
Documents are each an Ancillary Document, and all provisions in the Purchase
Agreement pertaining to Ancillary Documents apply hereto and thereto.
(S) 5.4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF ENGLAND AND WALES, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
(S) 5.5. Entire Agreement. This Agreement, together with the Schedules
----------------
and other writings referred to herein or delivered pursuant hereto, constitute
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(S) 5.6. Counterparts. This Amendment may be separately executed in
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.L.C., General Partner
By:
-------------------------------------------
Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By:
-------------------------------------------
Gary R. Peterson, Director
ALLIANCE RESOURCES PLC
By:
-------------------------------------------
Francis M. Munchinski, Authorized Signatory
7
<PAGE>
CONSENT AND AGREEMENT
The undersigned hereby (i) consents to the execution and delivery of (a)
that certain Second Amendment to Purchase Agreement (the "Amendment") by and
among Alliance Resources PLC, a public limited company organized under the laws
of England and Wales (the "Company"), and EnCap Equity 1996 Limited Partnership,
a Texas limited partnership ("EnCap LP"), and Energy Capital Investment Company
PLC, an English investment company ("ECIC") (with EnCap LP and ECIC sometimes
being herein collectively called "Buyer"), amending the Agreement (as defined
in the Amendment), and (b) the other documents and instruments executed in
connection therewith, including without limitation the execution and delivery of
the other Amendment Documents, and to the provisions and transactions
contemplated therein, and (ii) ratifies and confirms that its Subsidiary
Guarantee and any other security or other documents, agreements or instruments
(collectively, the "Security Documents") delivered by it to Buyer in connection
with the Purchase Agreement or any transaction contemplated therein and agree
that all of its respective obligations and covenants thereunder (to the extent
it is a party thereto) shall remain unimpaired by the execution and delivery of
the Amendment and the other documents and instruments executed in connection
therewith and that the Security Documents to which it is a party shall remain in
full force and effect.
IN WITNESS WHEREOF, this Consent and Agreement is executed by the
undersigned as of October 13, 1999.
DIFCO LIMITED
By: /s/ Francis M. Munchinski
-------------------------------------
Francis M. Munchinski
Authorized Signatory
ALLIANCE RESOURCES GROUP, INC.
ALLIANCE RESOURCES (USA), INC.
SOURCE PETROLEUM, INC.
LATEX RESOURCES, INC.
LATEX PETROLEUM CORPORATION
LATEX/GOC ACQUISITION, INC.
GERMANY OIL COMPANY
ENPRO, INC.
ALLIANCE RESOURCES (DELAWARE), INC.
By: /s/ Francis M. Munchinski
-------------------------------------
Francis M. Munchinski, Vice President
8
<PAGE>
EXHIBIT 10.14
U.S. $55,000,000
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
dated as of October 26, 1998,
among
LATEX PETROLEUM CORPORATION,
LATEX/GOC ACQUISITION, INC.,
GERMANY OIL COMPANY,
(formerly known as LRI ACQUISITION, INC.),
ALLIANCE RESOURCES (USA), INC.,
SOURCE PETROLEUM, INC. and
ALLIANCE RESOURCES PLC
as the Borrowers,
CERTAIN FINANCIAL INSTITUTIONS,
as the Lenders
and
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Agent for the Lenders.
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
----
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS......................................... -3-
1.1. Defined Terms...................................................... -3-
1.2. Use of Defined Terms............................................... -31-
1.3. Cross-References................................................... -32-
1.4. Accounting and Financial Determinations............................ -32-
1.5. Interpretational Provisions........................................ -32-
ARTICLE II.
COMMITMENTS, BORROWING PROCEDURES AND NOTE............................... -33-
2.1. Commitments........................................................ -33-
2.1.1. Tranche A Commitment................................... -33-
2.1.2. Tranche B Commitment................................... -33-
2.1.3. Tranche C Commitment................................... -34-
2.1.4. Commitment to Issue Letters of Credit.................. -34-
2.1.5. Lenders Not Required To Make Loans Under Certain
Circumstances.......................................... -34-
2.1.6. Issuer Not Required To Issue Letters of Credit Under
Certain Circumstances.................................. -35-
2.2. Reduction of Commitment Amounts.................................... -35-
2.2.1. Optional............................................... -35-
2.2.2. Mandatory.............................................. -35-
2.3. Borrowing Procedure................................................ -36-
2.4. Continuation and Conversion Elections.............................. -36-
2.5. Loan Accounts and Notes............................................ -37-
2.6. Borrowing Base Redetermination and Collateral Value
Redetermination.................................................... -37-
2.7. Purposes........................................................... -38-
ARTICLE III.
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES............................... -39-
3.1. Repayments and Prepayments and Certain Borrowing Base Matters...... -39-
3.1.1. Repayments and Prepayments............................. -39-
3.1.2. Borrowing Base Deficiencies, Collateral Value
Deficiencies and Asset Sales........................... -41-
-i-
<PAGE>
TABLE OF CONTENTS
continued
PAGE
----
3.2. Interest Provisions................................................ -42-
3.2.1. Rate................................................... -43-
3.2.2. Post-Maturity Rates.................................... -43-
3.2.3. Payment Dates.......................................... -43-
3.2.4. Maximum Interest....................................... -44-
3.3. Fees............................................................... -45-
3.3.1. Unused Fee............................................. -45-
3.3.2. Letter of Credit Stated Amount Fee..................... -45-
3.3.3. Letter of Credit Issuance Fee.......................... -46-
3.3.4. Letter of Credit Administrative Fees................... -46-
3.4. Proceeds Account................................................... -46-
3.5. ORRI and Warrants Are Not Collateral Security...................... -46-
ARTICLE IV.
LETTERS OF CREDIT........................................................ -47-
4.1. Issuance Requests.................................................. -47-
4.2. Issuances and Extensions........................................... -48-
4.3. Disbursements...................................................... -49-
4.4. Reimbursement...................................................... -49-
4.5. Deemed Disbursements............................................... -50-
4.6. Nature of Reimbursement Obligations................................ -50-
4.7. Increased Costs; Indemnity......................................... -52-
ARTICLE V.
CERTAIN INTEREST RATE AND OTHER PROVISIONS............................... -53-
5.1. LIBO Rate Lending Unlawful......................................... -53-
5.2. Deposits Unavailable............................................... -53-
5.3. Increased Loan Costs, etc.......................................... -54-
5.4. Funding Losses..................................................... -55-
5.5. Increased Capital Costs............................................ -55-
5.6. Taxes.............................................................. -56-
5.7. Payments, Computations, etc........................................ -56-
5.8. Sharing of Payments................................................ -57-
5.9. Setoff............................................................. -58-
5.10. Use of Proceeds.................................................... -58-
-ii-
<PAGE>
TABLE OF CONTENTS
continued
PAGE
----
ARTICLE VI.
CONDITIONS PRECEDENT..................................................... -58-
6.1. Effectiveness of Agreement and Initial Borrowing.................... -58-
6.1.1. Resolutions, etc........................................ -58-
6.1.2. Delivery of Notes....................................... -59-
6.1.3. Environmental Report.................................... -59-
6.1.4. Guaranties.............................................. -59-
6.1.5. Pledge Agreements....................................... -59-
6.1.6. Mortgages............................................... -60-
6.1.7. Security Agreements..................................... -61-
6.1.8. Opinions of Counsel..................................... -61-
6.1.9. UCC-11s................................................. -61-
6.1.10. Evidence of Insurance................................... -62-
6.1.11. Assignment of Overriding Royalty Interest, etc.......... -62-
6.1.12. Warrant Documents....................................... -62-
6.1.13. Engineering Reports..................................... -62-
6.1.14. [Not Used.]............................................. -62-
6.1.15. [Not Used.]............................................. -62-
6.1.16. Closing of Difco Acquisition............................ -62-
6.1.17. Closing under Burlington Agreement...................... -62-
6.1.18. Closing of Subordinated Note Sale, etc.................. -62-
6.1.19. Subordination Agreement................................. -63-
6.1.20. Amended and Restated Security Documents................. -63-
6.1.21. Material Contracts, Difco Consents and Related
Consents................................................ -63-
6.1.22. Title Reports........................................... -63-
6.1.23. Closing Fees, Expenses, etc............................. -63-
6.2. Inclusion of Hydrocarbon Interests in the Borrowing Base and the
Collateral Value................................................. -63-
6.2.1. Environmental Report.................................... -63-
6.2.2. Mortgage................................................ -63-
6.2.3. UCC-11s................................................. -64-
6.2.4. Evidence of Insurance................................... -64-
6.2.5. Engineering Reports..................................... -64-
6.2.6. Material Contracts and Related Consents................. -64-
6.2.7. Guaranties.............................................. -65-
-iii-
<PAGE>
TABLE OF CONTENTS
continued
PAGE
----
6.2.8. Additional Stock Pledge................................. -65-
6.2.9. Other Documents......................................... -65-
6.3. All Credit Extensions............................................... -65-
6.3.1. Compliance with Warranties, No Default, etc............. -65-
6.3.2. Borrowing Request, etc.................................. -66-
6.3.3. Satisfactory Legal Form................................. -66-
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES........................................... -66-
7.1. Organization, etc................................................ -66-
7.2. Due Authorization, Non-Contravention, etc........................ -67-
7.3. Government Approval, Regulation, etc............................. -67-
7.4. Investment Company Act........................................... -67-
7.5. Public Utility Holding Company Act............................... -68-
7.6. Validity, etc.................................................... -68-
7.7. Financial Information............................................ -68-
7.8. No Material Adverse Change....................................... -68-
7.9. Litigation, Labor Controversies, etc............................. -68-
7.10. Ownership of Properties.......................................... -69-
7.11. Taxes............................................................ -69-
7.12. Pension and Welfare Plans........................................ -69-
7.13. Compliance with Law.............................................. -69-
7.14. Claims and Liabilities........................................... -69-
7.15. No Prohibition on Perfection of Security Documents............... -70-
7.16. Solvency......................................................... -70-
7.17. Environmental Warranties......................................... -70-
7.18. Year 2000 Compliance............................................. -72-
7.19. Regulations G, U and X........................................... -72-
7.20. Accuracy of Information.......................................... -73-
ARTICLE VIII.
COVENANTS................................................................ -73-
8.1. Affirmative Covenants............................................... -73-
8.1.1. Financial Information, Reports, Notices, etc............. -73-
8.1.2. Compliance with Laws, etc................................ -76-
-iv-
<PAGE>
TABLE OF CONTENTS
continued
PAGE
----
8.1.3. Maintenance and Development of Properties................ -76-
8.1.4. Insurance................................................ -78-
8.1.5. Books and Records........................................ -78-
8.1.6. Environmental Covenant................................... -79-
8.1.7. Further Assurances....................................... -79-
8.1.8. Natural Gas and Crude Oil Hedging........................ -81-
8.1.9. Interest Rate Protection................................. -82-
8.1.10. Exchange Rate Protection................................ -82-
8.2. Negative Covenants.................................................. -82-
8.2.1. Business Activities...................................... -82-
8.2.2. Indebtedness............................................. -82-
8.2.3. Liens -84-
8.2.4. Financial Condition...................................... -85-
8.2.5. Investments.............................................. -85-
8.2.6. Restricted Payments, etc................................. -86-
8.2.7. Rental Obligations....................................... -86-
8.2.8. Consolidation, Merger, etc............................... -87-
8.2.9. Asset Dispositions, etc.................................. -87-
8.2.10. Modification of Certain Agreements...................... -87-
8.2.11. Transactions with Affiliates............................ -87-
8.2.12. Negative Pledges, Restrictive Agreements, etc........... -88-
8.2.13. Take or Pay Contracts................................... -88-
ARTICLE IX.
EVENTS OF DEFAULT........................................................ -88-
9.1. Listing of Events of Default........................................ -88-
9.1.1. Non-Payment of Obligations............................... -88-
9.1.2. Breach of Warranty....................................... -88-
9.1.3. Non-Performance of Certain Covenants and Obligations..... -89-
9.1.4. Non-Performance of Other Covenants and Obligations....... -89-
9.1.5. Default on Other Indebtedness............................ -89-
9.1.6. Judgments................................................ -89-
9.1.7. Pension Plans............................................ -90-
9.1.8. Control of the Borrowers................................. -90-
9.1.9. Bankruptcy, Insolvency, etc.............................. -90-
9.1.10. Impairment of Security, etc............................. -91-
9.1.11. Material Adverse Effect................................. -91-
-v-
<PAGE>
TABLE OF CONTENTS
continued
PAGE
----
9.2. Action if Bankruptcy............................................. -91-
9.3. Action if Other Event of Default................................. -91-
9.4. Rights Not Exclusive............................................. -91-
ARTICLE X.
THE AGENT................................................................ -92-
10.1. Actions.......................................................... -92-
10.2. Funding Reliance, etc............................................ -92-
10.3. Exculpation...................................................... -93-
10.4. Successor........................................................ -93-
10.5. Loans or Letters of Credit Issued by BankAmerica................. -94-
10.6. Credit Decisions................................................. -94-
10.7. Copies, etc...................................................... -94-
ARTICLE XI.
MISCELLANEOUS PROVISIONS................................................. -94-
11.1. Waivers, Amendments, etc......................................... -94-
11.2. Notices.......................................................... -96-
11.3. Payment of Costs and Expenses.................................... -96-
11.4. Indemnification.................................................. -97-
11.5. Survival......................................................... -98-
11.6. Severability..................................................... -98-
11.7. Headings......................................................... -98-
11.8. Execution in Counterparts, Effectiveness, etc.................... -99-
11.9. Governing Law; Entire Agreement.................................. -99-
11.10. Successors and Assigns........................................... -99-
11.11. Sale and Transfer of Loans and Note; Participations in Loans and
Note............................................................. -99-
11.11.1. Assignments............................................ -99-
11.11.2. Participations......................................... -100-
11.12. Forum Selection and Consent to Jurisdiction...................... -101-
11.13. Waiver of Jury Trial............................................. -102-
11.14. Joint and Several Liability...................................... -102-
11.15. Certain Consents and Waivers..................................... -102-
11.16. Other Transactions............................................... -104-
11.17. Controlling Document............................................. -104-
-vi-
<PAGE>
TABLE OF CONTENTS
continued
PAGE
----
11.18. Notice........................................................... -104-
-vii-
<PAGE>
SCHEDULE I Disclosure Schedule
SCHEDULE II Subsidiaries
SCHEDULE III Title Properties (East Irish Sea Assets)
SCHEDULE IV Existing Mortgages
SCHEDULE V Form of Approved Development Plan
EXHIBIT A - Form of Note
EXHIBIT B-1 - Borrowing Request
EXHIBIT B-2 - Continuation/Conversion Notice
EXHIBIT C-1 - Form of Security Agreement
EXHIBIT C-2 - Form of Ratification of Security Agreement
EXHIBIT D-1 - Form of Guaranty
EXHIBIT D-2 - Form of Ratification of Guaranty
EXHIBIT E-1 - Forms of U.S. Mortgage and Amendments Thereto
EXHIBIT E-2 - Form of U.K. Mortgage
EXHIBIT F-1 - Form of Pledge Agreement (Stock)
EXHIBIT F-2 - Form of Amended and Restated Pledge Agreement
EXHIBIT F-3 - Form of Ratification of Pledge Agreement
EXHIBIT G - Form of Lender Assignment Notice
EXHIBIT H-1 - Form of Opinions of U.S. Counsel to the Borrowers and
the other Obligors
EXHIBIT H-2 - Form of Opinions of U.K. Counsel to the Borrowers and
the other Obligors
EXHIBIT I - Form of Opinions of Special Title Counsel to the
Borrowers
EXHIBIT J - Form of Issuance Request
EXHIBIT K - Irrevocable Standby Letter of Credit
EXHIBIT L - Form of Consent
EXHIBIT M - Form of Deed of Assignment of Overriding Royalty
Interest
EXHIBIT M-2 - Certificate as to Overriding Royalty Interests
EXHIBIT M-3 - Agreement as to Certain Tax Matters
EXHIBIT N - Form of Subordination Agreement
EXHIBIT O-1 - Form of Registration Rights Agreement
EXHIBIT O-2 - Form of Warrant Agreement
EXHIBIT O-3 - Form of Warrant Instrument
-viii-
<PAGE>
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 26,
1998, among LATEX PETROLEUM CORPORATION, an Oklahoma corporation ("LPC"),
LATEX/GOC ACQUISITION, INC., a Delaware corporation ("GOCA"), GERMANY OIL
COMPANY, a Delaware corporation, formerly known as LRI Acquisition, Inc. ("New
GOC"), ALLIANCE RESOURCES (USA), INC., a Delaware corporation ("Alliance USA"),
SOURCE PETROLEUM, INC., a Louisiana corporation ("Source"; together with LPC,
GOCA, New GOC and Alliance USA, the "Original Borrowers"); and ALLIANCE
RESOURCES PLC, a public limited company incorporated under the laws of England
and Wales ("Alliance Plc") (the Original Borrowers and Alliance Plc,
collectively, the "Borrowers" and individually, a "Borrower"), the various
financial institutions as are now or may hereafter become parties hereto
(collectively, the "Lenders") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association ("BankAmerica"), for itself and as
agent for the Lenders (in such capacity, the "Agent"),
W I T N E S S E T H:
WHEREAS, the Borrowers are engaged in the business of oil and gas
exploration and production, and activities related or ancillary thereto; and
WHEREAS, the Original Borrowers and BankAmerica are parties to that certain
Second Amended and Restated Credit Agreement dated as of March 14, 1997 (the
"Prior Agreement") pursuant to which BankAmerica made commitments to make loans
to the Original Borrowers from time to time prior to the applicable commitment
termination date and to issue letters of credit in maximum aggregate principal
amount of Loans at any one time not to exceed in the aggregate the lesser of (x)
the Borrowing Base, or (y) $21,000,000; and
WHEREAS, the Original Borrowers and BankAmerica are also parties to that
certain Amendment No. 1 to Second Amended and Restated Credit Agreement dated as
of September 29, 1997, that certain Amendment No. 2 to Second Amended and
Restated Credit Agreement dated as of October 31, 1997, that certain Amendment
No. 3 to Second Amended and Restated Credit Agreement dated as of March 9, 1998,
that certain Amendment No. 4 to Second Amended and Restated Credit Agreement
dated as of June 4, 1998, that certain Amendment No. 5 to Second Amended and
Restated Credit Agreement dated as of June 10, 1998, that certain Amendment No.
6 to Second Amended and Restated Credit Agreement dated as of July 31, 1998 and
that certain Amendment No. 7 to Second Amended and Restated Credit Agreement
dated as of August 17, 1998, pursuant to which the Prior
-2-
<PAGE>
Agreement was amended (the Prior Agreement, as so amended, herein called the
"Existing Agreement"), and
WHEREAS, pursuant to the Commitments in the Existing Agreement, BankAmerica
made loans to the Original Borrowers and issued letters of credit at the request
of the Original Borrowers; and
WHEREAS, the Borrowers have requested that BankAmerica amend the Existing
Agreement and make Commitments to the Borrowers pursuant to which:
(a) Loans will be made to the Borrowers from time to time prior to the
applicable Commitment Termination Date; and
(b) Letters of Credit will be issued by the Issuer for the account of the
Borrowers from time to time prior to the Availability Termination Date;
in maximum aggregate principal amount of Loans and Letter of Credit Outstandings
at any one time not to exceed in the aggregate $55,000,000; and
WHEREAS, BankAmerica and the Lenders and the Issuer are willing, on the
terms and subject to the conditions hereinafter set forth (including Article
VI), to amend the Existing Agreement, to extend such Commitments, to make such
Loans to the Borrowers and to issue such Letters of Credit at the request of the
Borrowers; and
WHEREAS, the proceeds of such Loans have been and will be used
(a) to repay or refinance certain existing indebtedness;
(b) for working capital and general business purposes; and
(c) to finance the acquisition of the East Irish Sea Assets and
Approved Development Activities on the Oil and Gas Properties owned by the
Borrowers and their Subsidiaries; and
WHEREAS, the parties have agreed that it is in their respective best
interests to enter into this Agreement, amending, restating and superseding the
Existing Agreement,
NOW, THEREFORE, the parties hereto agree as follows:
-3-
<PAGE>
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 DEFINED TERMS. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power
(a) to vote 10% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners; or
(b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Agent" is defined in the preamble and includes each other Person as shall
have subsequently been appointed as the successor Agent pursuant to Section
10.4.
"Agreement" means, on any date, this Third Amended and Restated Credit
Agreement as originally in effect on the Effective Date and as thereafter from
time to time amended, supplemented, amended and restated, or otherwise modified
and in effect on such date.
"Alliance Group" means Alliance Resources Group, Inc., a Delaware
corporation, a wholly-owned Subsidiary of Alliance Plc and the sole shareholder
of each of the Alliance US Subsidiaries.
"Alliance Plc" is defined in the Preamble and is the sole shareholder of
Alliance Group, Manx LRI and, after the Closing of the Difco Acquisition, will
be the sole shareholder of Difco.
"Alliance USA" is defined in the preamble.
"Alliance US Subsidiaries" means Alliance USA, Source, ARCOL and ARNO, each
a Subsidiary of Alliance Group.
-4-
<PAGE>
"Alternate Base Rate" means, on any date and with respect to all Base Rate
Loans, a fluctuating rate of interest per annum equal to the higher of
(a) the rate of interest as announced from time to time by the Agent
as its "reference rate" at its Domestic Office; or
(b) the Federal Funds Rate most recently determined by the Agent plus
1/2%.
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest in connection with extensions of credit. Changes in the rate of
interest on that portion of any Loans maintained as Base Rate Loans will take
effect simultaneously with each change in the Alternate Base Rate. The Agent
will give notice to the Borrowers of changes in the Alternate Base Rate.
"Applicable Law" means with respect to any Person or matter, any federal,
state, regional, tribal or local statute, law, code, rule, treaty, convention,
application, order, decree, consent decree, injunction, directive, determination
or other requirement (whether or not having the force of law) relating to such
Person or matter and, where applicable, any interpretation thereof by an
Governmental Agency having jurisdiction with respect thereto or charged with the
administration or interpretation thereof.
"Applicable Margin" means, with respect to any Credit Extension of any type
and at any time of determination, a margin above the interest rate or fee
applicable to such type of Credit Extension determined as follows:
- ----------------------------------------------
Base Rate Loans LIBO Rate Loans
- ----------------------------------------------
Tranche A 0.00% 2.00%
- ----------------------------------------------
Tranche B 2.00% 4.00%
- ----------------------------------------------
Tranche C 5.00% 7.00%
- ----------------------------------------------
Notwithstanding the foregoing,
(a) after any Borrowing Base Deficiency or Collateral Value
Deficiency has existed for sixty (60) consecutive days, the Applicable
Margins set forth above shall increase by 3.00% until such Borrowing Base
Deficiency and/or Collateral Value Deficiency, as the case may be, have
been eliminated;
(b) while any Tranche B Loan is outstanding, the Applicable Margins
set forth above for all Tranche A Loans shall be increased by an additional
0.50%; and
-5-
<PAGE>
(c) while any Tranche B Loan is outstanding, the Applicable Margins
set forth above for all Tranche B Loans shall increase by 0.50% semi-
annually on April 26th and on October 26th of each year.
"Approvals" means each and every approval, authorization, license, permit,
consent, variance, land use entitlement, franchise, agreement, filing or
registration by or with any Government Agency or other Person necessary for all
stages of developing, operating, maintaining and abandoning Oil and Gas
Properties.
"Approved Development Activities" means the Borrowers' program of
additional development drilling, workover or recompletion work or any other
Capital Expenditures on the Mortgaged Properties, in each case as the Agent may
approve in the Approved Development Plan.
"Approved Development Plan" means the Borrower's plan, as approved by the
Agent, for conducting Approved Development Activities on the Mortgaged
Properties.
"ARCOL" means ARCOL Inc., a Delaware corporation, and one of the Alliance
US Subsidiaries.
"ARNO" means ARNO Inc., a Delaware corporation, and one of the Alliance US
Subsidiaries.
"Assignee Lender" is defined in Section 11.11.1.
"Assignment" means the Deed of Assignment of Overriding Royalty Interest
from Difco to the Designee, assigning to the Designee, as additional
consideration for the making of the Tranche B Commitments by the Lenders and not
as collateral security for the Loans, overriding royalty interests in certain of
its Hydrocarbon Interests.
"Authorized Officer" means, relative to any Obligor, those of its officers
or other authorized signatories whose signatures and incumbency shall have been
certified to the Agent and the Lenders pursuant to Section 6.1.1.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"Borrower" or "Borrowers" is defined in the preamble.
"Borrowing" means the Loans of the same type and, in the case of LIBO Rate
Loans, having the same Interest Period made by all Lenders on the same Business
Day and pursuant to the same Borrowing Request in accordance with Section 2.1.
-6-
<PAGE>
"Borrowing Base" means, as at any date, (a) prior to the initial Borrowing
Base Redetermination described in Section 2.6(c), $18,500,000 and (b)
thereafter, that amount of Indebtedness for borrowed money under the Tranche A
Facility that the Agent determines can be supported by the Proven Reserves
attributable to Hydrocarbon Interests owned directly by the Borrowers or their
Subsidiaries which are a part of the Mortgaged Properties, after an engineering
and economic review of such reserves conducted by the Agent using its normal
procedures for oil and gas facilities of this type, taking into account, among
other things, (x) the value of all those proved developed producing oil and gas
reserves and certain portions of certain other categories of Proven Reserves
attributable to the Mortgaged Properties, and (y) historical averages of lease
operating expenses and workover expenses over the preceding 12 months with
respect to such Properties.
"Borrowing Base Deficiency" means the amount by which (a) the sum of the
aggregate outstanding principal amount of all Tranche A Loans plus Letter of
Credit Outstandings exceeds (b) the then current Borrowing Base.
"Borrowing Base Deficiency Notification Date" means the date on which any
notice of a Borrowing Base Deficiency is received by the Borrower.
"Borrowing Base Redetermination" is defined in Section 2.6.
"Borrowing Request" means a loan request and certificate duly executed by
an Authorized Officer of any Borrower, substantially in the form of Exhibit B-1
hereto.
"Burlington" means Burlington Resources (Irish Sea) Limited.
"Burlington Agreement" means that certain Sale and Purchase Agreement dated
as of June 29, 1998, as amended October 5, 1998, between Difco and Burlington,
pursuant to which Difco will acquire the East Irish Sea Assets.
"Business Day" means
(a) any day which is neither a Saturday or Sunday nor a legal holiday
nor any other day on which banks are authorized or required to be closed in
Chicago, Illinois; and
(b) relative to the making, continuing, prepaying or repaying of any
LIBO Rate Loans, any day on which dealings in Dollars are carried on in the
London interbank market.
"Capital Expenditures" means, for any period, (without duplication) the
aggregate amount of all expenditures of Alliance Plc and its consolidated
Subsidiaries for fixed or capital assets made during such period which, in
accordance with GAAP,
-7-
<PAGE>
would be classified as capital expenditures including, with respect to any
period, payments made by Alliance Plc and its consolidated Subsidiaries with
respect to Capitalized Lease Liabilities incurred during such period.
"Capitalization" means, at any time, the sum of (a) the total Debt of
Alliance Plc and its consolidated Subsidiaries plus (b) the total equity of
Alliance Plc and its consolidated Subsidiaries.
"Capitalized Lease Liabilities" means all monetary obligations of Alliance
Plc or any of its consolidated Subsidiaries under any leasing or similar
arrangement which, in accordance with GAAP, would be classified as capitalized
leases, and, for purposes of this Agreement and each other Loan Document, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP.
"Cash Equivalent Investment" means, at any time:
(a) any evidence of Indebtedness, maturing not more than one year
after the date such investment is made, issued or guaranteed by the United
States Government;
(b) commercial paper, maturing not more than twelve months from the
date of issue, which is issued by
(i) a corporation (other than an Affiliate of any Borrower)
organized under the laws of any state of the United States or of the
District of Columbia and rated at least A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc., or
(ii) a Lender;
(c) any certificate of deposit, eurodollar time deposit or bankers
acceptance, maturing not more than one year after such time, which is
issued by
(i) a commercial banking institution that is a member of the
Federal Reserve System, an authorized institution under the Banking
Act 1987 or is authorized under the Banking Act (United Kingdom) and
has a combined capital and surplus and undivided profits of not less
than $500,000,000, or
(ii) a Lender; or
(d) any repurchase agreement entered into with a Lender (or other
commercial banking institution of the stature referred to in clause (c))
which
-8-
<PAGE>
(i) is secured by a fully perfected security interest in any
obligation of the type described in any of clauses (a) through (c);
and
(ii) has a market value at the time such repurchase agreement
is entered into of not less than 100% of the repurchase obligation of
a Lender (or other commercial banking institution) thereunder.
"Cash Interest Expense" means, at any time of determination, Interest
Expense less the amount of interest on the Subordinated Notes which is accrued
and is not then paid, but is added to principal; provided, that Cash Interest
Expense shall exclude amortization charges and fees and any other non-cash
interest charges which would otherwise be included in Interest Expense according
to GAAP.
"Celtic" means Celtic Basin Oil Exploration Ltd., a company incorporated
under the laws of England and Wales, and a wholly-owned Subsidiary of Manx.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
"Change in Control" means if (a) any Person or "group" (as defined in the
Securities Exchange Act of 1934) other than (i) John A. Keenan, (ii) Difco
Holders, (iii) any trust existing solely for the benefit of the above
individuals or the estate or any executor, administrator, conservator, or other
legal representative of any of the above individuals or (iv) EnCap shall own
directly or indirectly greater than 33 1/3% of the issued and outstanding voting
share capital of Alliance Plc, (b) Alliance Plc shall fail beneficially to own
100% of the outstanding shares of the voting capital stock of Alliance Group,
Manx, LRI, or, after the Difco Acquisition, Difco, on a fully-diluted basis, (c)
LRI shall fail beneficially to own 100% of the outstanding shares of the voting
capital stock of LPC, GOCA, New GOC or Enpro, on a fully diluted basis, (d)
Alliance Group shall fail beneficially to own 100% of the outstanding shares of
the voting capital stock of Source, ARNO, ARCOL or Alliance USA, on a fully
diluted basis, or (e) during the period from the date of one annual general
meeting of Alliance Plc to the next annual meeting, beginning with the 1998
annual general meeting (now scheduled for November 1998) individuals who at the
beginning of such period were members of the Board of Directors of Alliance Plc
shall cease for any reason to constitute a majority of the members of the Board
of Directors of Alliance Plc.
"Code" means the U.S. Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time, and the regulations promulgated
thereunder.
-9-
<PAGE>
"Collateral Value" shall mean, as at any date, (a) prior to the initial
Collateral Value Redetermination, $50,000,000 and (b) thereafter, the quotient
of (i) the projected net future cash flow, discounted at ten percent (10%) per
annum, from the anticipated production of Hydrocarbons from Proven Reserves
attributable to Hydrocarbon Interests owned directly by the Borrowers or one of
the Borrowers' Subsidiaries which are a part of the Mortgaged Properties, after
an engineering and economic review of such reserves conducted by the Lender
taking into account the value of all those proved developed producing oil and
gas reserves and all other categories of Proven Reserves attributable to the
Mortgaged Properties, divided by (ii) 1.5, for the period commencing with the
Effective Date and ending on December 31, 2001, and 1.65 at all times
thereafter; provided that if additional Oil and Gas Properties are acquired
totally or partly in consideration of the issuance by any Borrower to the
transferror of such Properties of equity interests in such Borrower, then such
amount shall be increased by the Agent to reflect the addition of such
Properties, in no event to exceed 1.65.
"Collateral Value Deficiency" means the amount by which (a) the sum of the
aggregate outstanding principal amount of all Tranche A Loans plus all Tranche B
Loans plus all Letter of Credit Outstandings exceeds (b) the then current
Collateral Value.
"Collateral Value Deficiency Notification Date" shall mean the date on
which any notice of a Collateral Value Deficiency is received by the Borrower.
"Collateral Value Redetermination" is defined in Section 2.6.
"Commitment" means, relative to any Lender, such Lender's obligation
pursuant to Section 2.1 to make Tranche A Loans, Tranche B Loans and/or Tranche
C Loans, as applicable, to the Borrower and to issue (in the case of an Issuer)
or participate in (in the case of BankAmerica) Letters of Credit pursuant to
Section 2.1.3.
"Commitment Amount" means, on any date, the Tranche A Commitment Amount
and/or the Tranche B Commitment Amount and/or the Tranche C Commitment Amount,
as the case may be, as such amounts may be reduced from time to time pursuant to
Section 2.2.
"Commitment Availability" means, on any date, the excess of
(a) the then applicable Commitment Amount,
over
(b) the sum of
-10-
<PAGE>
(i) the aggregate outstanding principal amount of all
applicable Loans on such date, plus
(ii) all Letter of Credit Outstandings on such date.
"Commitment Termination Date" means the earliest of
(a) the Stated Maturity Date;
(b) the date on which the Tranche A Commitment Amount and/or the
Tranche B Commitment Amount and/or the Tranche C Commitment Amount, as
applicable, is terminated in full or reduced to zero pursuant to Section
2.2; and
(c) the date on which any Commitment Termination Event occurs.
"Commitment Termination Event" means
(a) the occurrence of any Default described in clauses (a) through
(d) of Section 9.1.9 with respect to any Borrower or any Subsidiary; or
(b) the occurrence and continuance of any other Event of Default and
either
(i) the declaration of the Loans and other Obligations to be
due and payable pursuant to Section 9.3, or
(ii) in the absence of such declaration, the giving of notice
by the Agent to any Borrower that the Commitments have been
terminated.
"Consents" means a Consent to Assignment executed and delivered pursuant to
Section 6.1.6 and Section 6.2.6, substantially in the form of Exhibit L, or such
other form as may be appropriate in a jurisdiction other than the U.S. or a
state thereof, and in each case, as amended, supplemented, restated or otherwise
modified from time to time pursuant to which the Borrowers' (or the applicable
Subsidiaries') counterparty to each Material Contract (i) consents to the
assignment of each such Material Contract to the Agent as security for the
Obligations and (ii) provides the Agent an independent right to cure defaults
under such Material Contract.
"Consolidated Net Income" means, with respect to Alliance Plc and its
consolidated Subsidiaries for any period, the consolidated net income (or loss)
of Alliance Plc and its consolidated Subsidiaries for such period determined in
accordance with GAAP.
-11-
<PAGE>
"Contingent Liability" means as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in respect
thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety
Instrument issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; or (c) to purchase
any materials, supplies or other property from, or to obtain the services of,
another Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property, or for
such services, shall be made regardless of whether delivery of such materials,
supplies or other property is ever made or tendered, or such services are ever
performed or tendered.
"Continuation/Conversion Notice" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of any
Borrower, substantially in the form of Exhibit B-2 hereto.
"Controlled Group" means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with any Borrower, are
treated as a single employer under Section 414(b) or 414(c) of the Code or
Section 4001 of ERISA.
"Convertible Loan Notes (1997)" means the (Pounds)873,281.25 nominal amount
of convertible non-interest bearing, subordinated, unsecured loan notes
1997/2007 of Alliance Plc consisting of 1,078,125 notes of 81p each issued to
the Designee pursuant to the Prior Agreement.
"Core Difco Assets" means the portion of the East Irish Sea Assets, as
shown on Schedule III under the heading "Core Difco Assets" consisting of six
(6) blocks.
"Credit Extension" means and includes:
(a) the advancing of any Loans by the Lenders in connection with a
Borrowing, and
-12-
<PAGE>
(b) any issuance by an Issuer or extension of the Stated Expiry Date
by an Issuer of a Letter of Credit.
"Current Ratio" means, as of the end of each Fiscal Quarter, the ratio of
(a) the current assets (including the unused portion of the
Commitment Amount) of Alliance Plc and its consolidated Subsidiaries
to
(b) the current liabilities (minus (i) the current portion of their
long term Debt and (ii) the Old LaTex Payables) of Alliance Plc and its
consolidated Subsidiaries.
"Debt" means the outstanding principal amount of all Indebtedness of
Alliance Plc and its consolidated Subsidiaries, of the nature referred to in
clauses (a) and (b) of the definition of "Indebtedness," but excluding the
Convertible Loan Notes (1997).
"Debt to EBITDA Ratio" means, for any four (4) consecutive Fiscal Quarters,
the ratio of (a) Debt of Alliance Plc and its consolidated Subsidiaries for such
four (4) Fiscal Quarters to (b) EBITDA of Alliance Plc and its consolidated
Subsidiaries for such four (4) Fiscal Quarters.
"Default" means any Event of Default or any condition, occurrence or event
which, after notice or lapse of time or both, would constitute an Event of
Default.
"Designee" is defined in Section 3.5.
"Difco" means, Difco Limited, a private limited company incorporated under
the laws of England and Wales. Pursuant to the Burlington Agreement, Difco will
acquire the East Irish Sea Assets. Pursuant to the Difco Agreement, Alliance
Plc will acquire all of the capital stock of Difco.
"Difco Acquisition" means the acquisition of all of the capital stock of
Difco by Alliance Plc pursuant to the Difco Agreement.
"Difco Agreement" means that certain Amended and Restated Sale and Purchase
Agreement dated as of September 23, 1998, between the Difco Holders and Alliance
Plc, pursuant to which Alliance Plc will purchase all of the capital stock of
Difco.
"Difco Consents" means all consents, waivers and approvals required in
order to permit (a) the transfer of the East Irish Sea Assets from Burlington to
Difco; (b) the granting of Liens encumbering the East Irish Sea Assets from
Difco to the Agent; and
-13-
<PAGE>
(c) the transfer of the Overriding Royalty Interests to the Designee by the
Assignment.
"Difco Holders" means F. Fox Benton, Jr., Lizinka M. Benton, F. Fox Benton
III, Lizinka C. Benton and Lucia T. Benton, being those parties owning all of
the capital stock of Difco, and who have agreed to sell such stock to Alliance
Plc pursuant to the Difco Agreement.
"Disbursement" means the amount disbursed by the Issuer on a Disbursement
Date.
"Disbursement Date" is defined in Section 4.3.
"Disclosure Schedule" means the Disclosure Schedule attached hereto as
Schedule I, as it may be amended, supplemented or otherwise modified from time
to time by the Borrowers with the written consent of the Agent.
"Distribution Payments" is defined in Section 8.2.6.
"Dollar" and the sign "$" mean lawful money of the United States.
"Domestic Office" means the office of any Lender designated as such on its
signature page hereto or designated in a Lender Assignment Notice or such other
office of such Lender (or any successor or assign of such Lender) within the
United States as may be designated from time to time by notice from such Lender,
as the case may be, to each other Person party hereto.
"East Irish Sea Assets" means those Oil and Gas Properties and related
assets to be acquired by Difco from Burlington pursuant to the Burlington
Agreement, including an undivided 10% of Burlington's interest in those
Hydrocarbon Interests described in Schedule III.
"EBITDA" means, for any period, the sum, without duplication, of the
following:
(a) Consolidated Net Income for such period, plus
(b) Interest Expense for such period, plus
(c) all depletion, depreciation and amortization of assets (including
goodwill and other intangible assets) of Alliance Plc and its consolidated
Subsidiaries deducted in determining Consolidated Net Income for such period,
plus (minus)
-14-
<PAGE>
(d) all federal, state, local and foreign income taxes of Alliance Plc and
its consolidated Subsidiaries deducted (or credits added) in determining
Consolidated Net Income for such period, plus (minus)
(e) other non-cash items deducted or added in determining Consolidated Net
Income for such period.
"Effective Date" means the date this Agreement becomes effective pursuant
to Section 11.8.
"EnCap" means EnCap 1996 and EnCap PLC.
"EnCap 1996" means EnCap Equity 1996 Limited Partnership.
"EnCap Investment" means Energy Capital Investment Company PLC.
"Engineering Report" means one or more reports, in form and substance
satisfactory to the Agent, prepared at the sole cost and expense of the
Borrowers by a petroleum engineer acceptable to the Agent in its reasonable
business judgment, which shall evaluate the Proven Reserves and probable
reserves attributable to the Hydrocarbon Interests owned directly by the
Borrowers and/or their Subsidiaries and constituting part of the Mortgaged
Properties, as of the immediately preceding May 1st or November 1st. Each
Engineering Report shall set forth volumes, a projection of the future rate of
production, Hydrocarbons prices, escalation rates, estimated costs of Remedial
Action, operating expenses, capital expenditures, discount rate assumptions and
the present value of the net proceeds of production, in each case based upon
updated economic assumptions reasonably acceptable to the Agent.
"Enpro" means ENPRO, INC., a Texas corporation and a wholly-owned
subsidiary of LRI.
"Environmental Laws" means all Applicable Laws relating to public health
and safety through protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"Event of Default" is defined in Section 9.1.
"Existing Agreement" is defined in the Third Recital.
-15-
<PAGE>
"Facility" means the Tranche A Facility and/or the Tranche B Facility
and/or the Tranche C Facility, as the case may be.
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor,
"H.15(519)") on the preceding Business Day opposite the caption "Federal Funds
(Effective)"; or, if for any relevant day such rate is not so published on any
such preceding Business Day, the rate for such day will be the arithmetic mean
as determined by the Agent of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by
each of three leading brokers of Federal funds transactions in New York City
selected by the Agent.
"Fee Letter" means that certain letter dated October 26, 1998, between
Alliance Plc and the Agent.
"Fiscal Quarter" means any quarter ending on the last day of April, July,
October and January of a Fiscal Year.
"Fiscal Year" means any period of twelve consecutive calendar months ending
on April 30; references to a Fiscal Year with a number corresponding to any
calendar year (e.g., "Fiscal Year 1998") refer to the Fiscal Year ending on the
April 30 occurring during such calendar year.
"F.R.S. Board" means the Board of Governors of the Federal Reserve System
or any successor thereto.
"GAAP" is defined in Section 1.4.
"GOC" means Germany Oil Company, a Texas corporation, which has merged with
and into New GOC, which in turn has changed its name to "Germany Oil Company".
"GOCA" is defined in the preamble.
"Government Agency" means any federal, state, regional, tribal or local
government or governmental department or other entity charged with the
administration, interpretation or enforcement of any Applicable Law.
"Guaranties" means the guaranties of the Obligations, executed and
delivered pursuant to Sections 6.1.4 and 6.2.7, substantially in the form of
Exhibit D-2, given by each of LRI, Enpro and Alliance Group, and substantially
in the form of Exhibit D-1, given by Difco.
-16-
<PAGE>
"Guarantors" means Alliance Group, LRI, Enpro and Difco.
"Hazardous Material" means:
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource Conservation
and Recovery Act, as amended;
(c) any petroleum, crude oil or fraction thereof;
(d) any hazardous, dangerous or toxic chemical, material, waste or
substance within the meaning of any Environmental Law;
(e) any radioactive material, including any naturally occurring
radioactive material, and any source, special or by-product material as
defined in 42 U.S.C. (S) 2011 et seq., and any amendments or
reauthorizations thereof;
(f) friable asbestos-containing materials; or
(g) polychlorinated biphenyls in concentrations above regulatory
limits.
"Hedging Agreements" means:
(a) interest rate swap agreements, basis swap agreements, interest
rate cap agreements, forward rate agreements, interest rate floor
agreements and interest rate collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in
interest rates or currency exchange rates, and
(b) forward contracts, options, futures contracts, futures options,
commodity swaps, commodity options, commodity collars, commodity caps,
commodity floors and all other agreements or arrangements designed to
protect such Person against fluctuations in the price of commodities.
"Hedging Obligations" means, with respect to any Person, all liabilities
(including but not limited to obligations and liabilities arising in connection
with or as a result of early or premature termination of a Hedging Agreement,
whether or not occurring as a result of a default thereunder) of such Person
under a Hedging Agreement.
"herein", "hereof", "hereto", "hereunder" and similar terms contained in
this Agreement or any other Loan
-17-
<PAGE>
Document refer to this Agreement or such other Loan Document, as the case may
be, as a whole and not to any particular Section, paragraph or provision of this
Agreement or such other Loan Document.
"Highest Lawful Rate" is defined in Section 3.2.4.
"Hydrocarbon Interests" means all rights, titles and interests in and to
oil and gas leases; oil, gas and mineral leases; other Hydrocarbon leases;
Hydrocarbon production licenses; mineral interests; mineral servitudes;
overriding royalty interests; royalty interests; net profits interests;
production payment interests; and other similar interests.
"Hydrocarbons" means, collectively, oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate and all other liquid or
gaseous hydrocarbons and related minerals and all products therefrom, in each
case whether in a natural or a processed state.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of any Borrower, any qualification or exception to such opinion or certification
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement;
(c) which relates to the treatment or classification of any item in
such financial statement and which, as a condition to its removal, would
require an adjustment to such item the effect of which would be to cause
any Borrower to be in default of any of its obligations under Section
8.2.4; or
(d) which relates to possible errors generated by financial reporting
and related systems due the Year 2000 Problem.
"including" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
-18-
<PAGE>
"Indebtedness" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes (including
the Subordinated Notes) or other similar instruments;
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(c) all other items which, in accordance with GAAP, would be included
as liabilities on the liability side of the balance sheet of such Person as
of the date at which Indebtedness is to be determined;
(d) net liabilities of such Person under all Hedging Obligations;
(e) all net monetary obligations of such Persons with respect to
Production Payments;
(f) all Capitalized Lease Liabilities;
(g) whether or not so included as liabilities in accordance with
GAAP, all obligations of such Person to pay the deferred purchase price of
property or services, and indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; and
(h) all Contingent Liabilities of such Person.
For all purposes of this Agreement, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer , unless such Indebtedness contains non-
recourse provisions acceptable to the Agent set forth in the agreements
regarding such Indebtedness.
"Indemnified Liabilities" is defined in Section 11.4.
"Indemnified Parties" is defined in Section 11.4.
"Interest Coverage Ratio" means, for any four (4) consecutive Fiscal
Quarters (or other period as set forth in Section 8.2.4), the ratio of (a)
EBITDA for such Fiscal Quarters to (b) Cash Interest Expense for such Fiscal
Quarters.
-19-
<PAGE>
"Interest Expense" means, for any period, the consolidated interest expense
of Alliance Plc and its consolidated Subsidiaries for such period (including all
imputed interest under Hedging Agreements, but excluding all fees paid under
Section 3.3) including the interest expense associated with any Capitalized
Lease Liabilities of Alliance Plc and its consolidated Subsidiaries.
"Interest Period" means, relative to any LIBO Rate Loan, the period
beginning on (and including) the date on which such LIBO Rate Loan is made or
continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 2.4
and ending on (but excluding) the day which numerically corresponds to such date
one, three or six months thereafter (or, if for a period of less than one month
or if such month has no numerically corresponding day, on the last Business Day
of such month), in each case as the Borrowers may select in its relevant notice
pursuant to Section 2.3 or 2.4; provided, however, that:
(a) no more than five different Interest Periods may be in effect at
any time;
(b) Interest Periods commencing on the same date for Loans comprising
part of the same Borrowing shall be of the same duration;
(c) if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the next following
Business Day (unless, if such Interest Period applies to LIBO Rate Loans,
such next following Business Day is the first Business Day of another
calendar month, in which case such Interest Period shall end on the
Business Day next preceding such numerically corresponding day);
(d) no Interest Period may end later than the Stated Maturity Date;
and
(e) the Borrowers shall select each Interest Period for a particular
LIBO Rate Loan so as not to require (as reasonably foreseeable as possible)
a prepayment of such LIBO Rate Loan during such Interest Period.
"Investment" means, relative to any Person,
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business and excluding prepaid
expenses incurred in the ordinary course of business);
(b) any Contingent Liability of such Person; and
-20-
<PAGE>
(c) any ownership or similar interest held by such Person in any
other Person; provided, however, that (i) Hedging Obligations and (ii)
Production Payments where a Borrower or its Subsidiary is the grantor or
transferror thereof shall not be considered Investments.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other Person) and shall, if made by
the transfer or exchange of property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such property.
"Issuance Request" means a request for the issuance of a Letter of Credit
and certificate duly executed by the chief executive, accounting or financial
Authorized Officer of the Borrowers, in substantially the form of Exhibit J
attached hereto (with such changes thereto as may be agreed upon from time to
time by the Agent and the Borrowers).
"Issuer" means BankAmerica (or affiliate, unit or agency of BankAmerica),
in its capacity as the issuer of Letters of Credit at the request of Agent.
"Lender Assignment Notice" means a Lender Assignment Notice substantially
in the form of Exhibit G hereto.
"Lenders" is defined in the preamble.
"Letter of Credit" is defined in Section 4.1.
"Letter of Credit Availability" means, at any time, the lesser of:
(a) the excess of
(i) $1,000,000
over
(ii) the then Letter of Credit Outstandings,
or
(b) the Tranche A Commitment Amount at such time less the sum of (i)
any Tranche A Loans then outstanding at such time and (ii) any Letter of
Credit Outstandings at such time.
"Letter of Credit Outstandings" means, at any time, an amount equal to the
sum of:
-21-
<PAGE>
(a) the aggregate Stated Amount at such time of all Letters of Credit
then outstanding and undrawn (as such aggregate Stated Amount shall be
adjusted, from time to time, as a result of drawings, the issuance of
Letters of Credit, or otherwise),
plus
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
"LIBO Rate" means, with respect to each Interest Period for a LIBO Rate
Loan, the rate of interest equal to the average (rounded upward, if necessary,
to the nearest 1/16th of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered to the Agent's LIBOR Office in the
London interbank market as at or about 11:00 a.m. London time two (2) Business
Days prior to the beginning of such Interest Period for Dollar deposits of
amounts comparable to the outstanding principal amount of the LIBO Rate Loan for
which an interest rate is then being determined with maturities comparable to
the Interest Period to be applicable to such LIBO Rate Loan.
"LIBO Rate Loan" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBO Rate.
"LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made,
continued or maintained as, or converted into, a LIBO Rate Loan for any Interest
Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of
1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
-------------------------------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate
Loans will be determined by the Agent on the basis of the LIBOR Reserve
Percentage in effect on, and the applicable rates furnished to and received by
the Agent, two Business Days before the first day of such Interest Period.
"LIBOR Office" means, relative to any Lender, the office of such Lender
designated as such on the signature page hereto or designated in a Lender
Assignment Notice or such other office of a Lender (or any successor or assign
of such Lender) as designated from time to time by notice from such Lender to
the Borrowers, whether or not outside the United States, which shall be making
or maintaining LIBO Rate Loans of the Lender hereunder.
-22-
<PAGE>
"LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO
Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum
aggregate reserve requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements) specified under regulations
issued from time to time by the F.R.S. Board and then applicable to assets or
liabilities consisting of and including "Eurocurrency Liabilities", as currently
defined in Regulation D of the F.R.S. Board, having a term approximately equal
or comparable to such Interest Period.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or otherwise), charge against or interest in Property to secure (i)
the payment of a debt or (ii) the performance of an obligation or other priority
or preferential arrangement of any kind or nature whatsoever in respect of any
Property (including those created by, arising under or evidenced by any
conditional sale or other title retention agreement, the interest of a lessor
under a capital lease, any financing lease having substantially the same
economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as debtor,
under the Uniform Commercial Code or any comparable law) and any contingent or
other agreement to provide any of the foregoing.
"Loan" means each loan made by a Lender to the Borrowers from time to time
pursuant to its Commitment in accordance with Sections 2.1. and 2.3.
"Loan Documents" means this Agreement, the Notes, the Security Documents,
the Warrant Documents, the Assignment, all Letters of Credit, all Hedging
Agreements and all other agreements relating to this Agreement entered into from
time to time between any Borrower (or any Subsidiary or other Affiliate of any
Borrower) and the Agent or any Lender (or any Subsidiary or other Affiliate of
any Lender).
"LPC" is defined in the preamble.
"LRI" means LaTex Resources, Inc., a Delaware corporation and the sole
shareholder of LPC, GOCA, New GOC and Enpro.
"LRI Merger" means the merger of Alliance Resources (Delaware) Inc. with
and into LRI whereby Alliance Plc became the sole shareholder of LRI.
"MMBtu" means one million British Thermal Units.
-23-
<PAGE>
"Manx" means Manx Petroleum Plc, a company incorporated under the laws of
England and Wales, and a wholly-owned subsidiary of Alliance Plc.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise), prospects, or results of operations of Alliance Plc
and its Subsidiaries on a consolidated basis, or the value or condition of the
Properties of Alliance Plc and its Subsidiaries on a consolidated basis; or (b)
a material adverse effect upon (i) the legality, validity, binding effect or
enforceability against the Borrowers, their Subsidiaries or any other Obligor of
any Loan Document, or (ii) the perfection or priority of any Lien granted under
any of the Loan Documents to the extent such Lien pertains to any Property
having more than immaterial value.
"Material Contract" means each agreement for the acquisition of Oil and Gas
Properties entered into by an Obligor, Hydrocarbon purchase and sale agreement,
or similar material contract relating to any Hydrocarbon Interests included in
the Mortgaged Properties, including, without limitation, the Burlington
Agreement, in each case pertaining to Hydrocarbon Interests then included in the
calculation of the Borrowing Base or the Collateral Value (or proposed by the
Borrowers for inclusion) and as designated by the Agent to the Borrowers in
writing.
"Material Subsidiary" means at any particular time, any Subsidiary (i) that
has assets included in the Borrowing Base or the Collateral Value; or (ii) that,
together with its Subsidiaries,
(a) accounted for more than 5% of the consolidated revenues of
Alliance Plc and its Subsidiaries for the most recently completed Fiscal
Quarter (computed on a retroactive proforma basis with respect to acquired
Subsidiaries), or
(b) was the owner of more than 5% of the consolidated assets of
Alliance Plc and its Subsidiaries at the end of such Fiscal Quarter or,
with respect to acquired or newly formed Subsidiaries, on the date of
acquisition or formation of such acquired Subsidiary, all as shown in the
case of (a) and (b) on the consolidated financial statements of Alliance
Plc and its Subsidiaries for such Fiscal Quarter or on such acquisition or
formation date; or
(c) that is designated by the Borrowers in writing as a Material
Subsidiary, or
(d) is determined by the Agent in writing to be a Material
Subsidiary.
"Mortgage Consents" means all consents required under existing oil and gas
leases or other agreements and Approvals by Government Agencies to the granting
-24-
<PAGE>
of any Mortgage to the Agent, and as reasonably determined by the Agent with
respect to Properties that become Mortgaged Properties on or after the Effective
Date.
"Mortgaged Properties" is defined in Section 6.1.6.
"Mortgages" means the Mortgage, Deed of Trust, Assignment, Security
Agreement and Financing Statement, the Amended and Restated Mortgage, Deed of
Trust, Assignment, Security Agreement and Financing Statement, the First
Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement, Financing
Statement and Fixture Filing, and any similar instruments, executed and
delivered pursuant to Sections 6.1.6 or 6.2.2, substantially in the form(s) of
Exhibit E hereto, together with any similar instruments which are governed by
the laws of a jurisdiction other than the United States or a state thereof, in
each case as amended, supplemented, restated or otherwise modified from time to
time.
"Net Proceeds of Production" means the difference between (a) the sum of
(w) all revenue received by or credited to the account of the Borrowers from the
sale of Hydrocarbons and other minerals in, under or produced after October 1,
1998, from their Oil and Gas Properties, (x) all net proceeds from Hedging
Agreements entered into pursuant to Section 8.1.8, and (y) all amounts received
by the Borrowers or any of them, in their respective capacities as operators of
certain Oil and Gas Properties, from other working interest owners pursuant to
"Article III - Overhead" of the COPAS form of Accounting Procedure (and similar
agreements or provisions) attached to operating agreements pertaining to such
Properties and (b) the sum of (i) royalties, overriding royalties, net profits
interests and other existing burdens payable out of production, (ii) actual
leasehold operating expenses, (iii) severance, ad valorem, excise and windfall
profit taxes or other government taxes or similar levies or impositions
hereinafter enacted or imposed, (iv) actual workover expenses (but not Capital
Expenditures) for the Mortgaged Properties which are necessary to maintain
production from existing completion intervals or zones in existing wells, and
from wells and intervals or zones which become producing wells, intervals or
zones, as the case may be, as a result of Approved Development Activities and
(v) all net payments made in respect of the Hedging Agreements entered into
pursuant to Section 8.1.8, in each case to the extent such deductions are
properly allocable to the Borrowers' Oil and Gas Properties.
"New GOC" is defined in the preamble.
"Non-Redeemable Stock" means stock issued by Alliance Plc, any other
Borrower or any of their Subsidiaries, provided that such stock is not
considered debt for GAAP, tax law or any other purpose and provided further that
none of Alliance Plc, the other Borrowers nor any of their Subsidiaries has any
obligation to redeem or purchase or pay dividends on such stock or to exchange
such stock for, or convert
-25-
<PAGE>
such stock to, any other security, whether such obligation arises pursuant to
the terms of such stock or any other agreement relating thereto or otherwise and
whether or not such obligation exists in all circumstances or only upon the
occurrence of a particular event or condition or upon the passage of time or
otherwise.
"Notes" means the secured promissory note or notes of the Borrowers payable
to the order of a Lender, in the form of Exhibit A hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrowers to such Lender resulting
from outstanding Loans, and also means all other promissory notes accepted from
time to time in substitution therefor or renewal thereof.
"Obligations" means all obligations (monetary or otherwise) of the
Borrowers and/or any other Obligor arising under or in connection with this
Agreement, the Notes and each other Loan Document, including without limitation,
all Hedging Obligations arising under Hedging Agreements between any Borrower
(or any Affiliate of any Borrower) and a Lender (or any Affiliate of a Lender).
"Obligor" means the Borrowers, LRI, Alliance Group, Enpro, Difco or any
other Person (other than the Agent, a Lender or any Affiliate of a Lender)
obligated under, or otherwise a party to, any Loan Document.
"Oil and Gas Properties" means Hydrocarbon Interests; the Properties now or
hereafter pooled or unitized with Hydrocarbon Interests; all presently existing
or future unitization, pooling agreements and declarations of pooled units and
the units created thereby (including without limitation all units created under
orders, regulations and rules of any Governmental Agency having jurisdiction)
which may affect all or any portion of the Hydrocarbon Interests; all operating
agreements, joint venture agreements, contracts and other agreements which
relate to any of the Hydrocarbon Interests or the production, sale, purchase,
exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, the lands covered thereby and all oil
in tanks and all rents, issues, profits, proceeds, products, revenues and other
incomes from or attributable to the Hydrocarbon Interests; all tenements,
profits a prendre, hereditaments, appurtenances and Properties in any way
appertaining, belonging, affixed or incidental to the Hydrocarbon Interests,
Properties, rights, titles, interests and estates described or referred to
above, including any and all Property, real or personal, now owned or
hereinafter acquired and situated upon, used, held for use or useful in
connection with the operating, working or development of any of such Hydrocarbon
Interests or Property (excluding drilling rigs, automotive equipment or other
personal property which may be on such premises for the purpose of drilling a
well or for other similar temporary uses) and including any and all oil wells,
gas wells, water wells, injection wells or other wells, buildings, structures,
fuel separators, liquid extraction plants,
-26-
<PAGE>
plant compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
"Old LaTex Payables" means those current accounts payable of the Borrowers
or their consolidated Subsidiaries that meet one or more of the following tests
and have been certified to the Agent by the Borrowers as being an Old LaTex
Payable:
(a) accounts payable the collection of which is barred by the
applicable statute of limitations;
(b) accounts payable the collection of which has been compromised or
forgiven in part, in either case to the extent of the amount that has been
compromised or forgiven; or
(c) accounts payable in respect of which the indebtedness was
incurred prior to the LRI Merger and where each of the following is true:
(i) no payment has been made on an individual amount of indebtedness
payable since the LRI Merger, (ii) no contact has been received by the
applicable Borrower or Subsidiary from the applicable creditor since the
LRI Merger pertaining to such payable due prior to the LRI Merger, or if
such contact has been received such account is being diligently contested
in good faith, (iii) no promise to pay such account has been made by the
applicable Borrower or Subsidiary since the LRI Merger and (iv) no judgment
has been obtained by, or settlement agreement entered into with, such
creditor with respect to such indebtedness.
"Organic Document" means, relative to any corporate Obligor, its
certificate of incorporation, its by-laws, its memorandum or articles of
association or other organizational documents and all shareholder agreements,
voting trusts and similar arrangements applicable to any of its authorized
shares of capital stock, and, relative to any partnership Obligor, its
partnership agreement.
"Original Borrowers" is defined in the preamble.
"Other Difco Assets" means the portion of the East Irish Sea Assets, as
shown on Schedule III under the heading "Other Difco Assets" consisting of seven
(7) blocks.
"Overriding Royalty Interest" means the interests conveyed and assigned by
the Assignment.
-27-
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Participant" is defined in Section 11.11.2.
"Pension Plan" means a "pension plan", as such term is defined in section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(3) of ERISA), and to which any Borrower or
any corporation, trade or business that is, along with any Borrower, a member of
a Controlled Group, may have liability, including any liability by reason of
having been a substantial employer within the meaning of section 4063 of ERISA
at any time during the preceding five years, or by reason of being deemed to be
a contributing sponsor under section 4069 of ERISA.
"Percentage" means, relative to any Lender, the percentage set forth on the
signature pages hereof, as such percentage may be adjusted from time to time
pursuant to Lender Assignment Notice(s) executed by the Lender and its Assignee
Lender(s) and delivered pursuant to Section 11.11.
"Person" means any natural person, corporation, partnership, joint venture,
limited liability company, firm, association, trust, Governmental Agency or any
other entity, whether acting in an individual, fiduciary or other capacity.
"Plan" means any Pension Plan or Welfare Plan.
"Pledge Agreements" means a Pledge Agreement executed and delivered
pursuant to Sections 6.1.5 and 6.2.8, substantially in the form of Exhibit F-3
given by each of LRI and Alliance Group, and substantially in the form of
Exhibit F-2 given by Alliance Plc, or such other form as may be appropriate in a
jurisdiction other than the U.S. or a state thereof, and in each case, as
amended, supplemented, restated or otherwise modified from time to time.
"Prior Agreement" is defined in the Second Recital.
"Proceeds Account" is defined in Section 3.4.
"Production Payments" means a production payment (whether volumetric or
dollar denominated) or similar royalty, overriding royalty, net profits interest
or other similar interest in Oil and Gas Properties, or the right to receive all
or a portion of the production or the proceeds from the sale of production
attributable to such Oil and Gas Properties where the holder of such interest
has recourse solely to such interest and the grantor or transferor thereof has
an express contractual obligation to produce and sell Hydrocarbons from such Oil
and Gas Properties, or to cause such Oil and Gas
-28-
<PAGE>
Properties to be so operated and maintained, in each case in a reasonably
prudent manner.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Proven Reserves" means collectively, "proved oil and gas reserves,"
"proved developed producing oil and gas reserves," "proved developed non-
producing oil and gas reserves" (consisting of proved developed behind pipe oil
and gas reserves and proved developed shut-in oil and gas reserves), and "proved
undeveloped oil and gas reserves," as such terms are defined by the U.S.
Securities and Exchange Commission in its standards and guidelines.
"Quarterly Payment Date" means, commencing January, 1999, the last Business
Day of each Fiscal Quarter.
"Registration Rights Agreement" means the Registration Rights Agreement,
substantially in the form of Exhibit O-1, between Alliance Plc and BankAmerica
or the Designee.
"Reimbursement Obligation" is defined in Section 4.4.
"Release" means a "release," as such term is defined in CERCLA.
"Remedial Action" means any action under Environmental Laws required to (a)
clean up, remove, treat, dispose of, abate, or in any other way remediate an
environmental condition involving Hazardous Materials, (b) prevent the Release
or threat of a Release or minimize the further Release of Hazardous Materials,
or (c) investigate and determine if a remedial response is needed to an
environmental condition involving Hazardous Materials and to design such a
response and any post-remedial investigation, monitoring, operation, and
maintenance and care.
"Required Lenders" means, at any time, Lenders having Percentages
aggregating at least 66-2/3%.
"Resource Conservation and Recovery Act" means the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect from time to
time.
"Restricted Payment Tests" means compliance with each of the following
restrictions (both before and immediately after giving effect to the applicable
Distribution Payment):
(a) Tangible Net Worth shall not be less than the sum of (i)
$2,000,000 plus (ii) fifty percent (50%) of Consolidated net Income of
Alliance Plc and its consolidated Subsidiaries (excluding the effects of
-29-
<PAGE>
consolidated net losses), for all Fiscal Quarters beginning after the
Effective Date and treated as a single accounting period, plus (iii) one-
hundred percent (100%) of the net proceeds received by Alliance Plc or its
Subsidiaries from the sale of any Non-Redeemable Stock by Alliance Plc or
any of its Subsidiaries at any time after the Effective Date;
(b) the Current Ratio shall be not less than 1.0:1.0;
(c) the Debt to EBITDA Ratio shall not be greater than 4:1;
(d) the Interest Coverage Ratio shall not be less than 3.0:1.0;
(e) there shall exist no Borrowing Base Deficiency; and
(f) there shall exist no Collateral Value Deficiency; and
(g) no Default shall have occurred and be continuing.
"Security Agreement" means a security agreement and any similar instrument
or agreement, executed and delivered pursuant to Sections 6.1.7 and 6.2.6,
substantially in the form of Exhibit C-1 hereto, or such other form as may be
appropriate in a jurisdiction other than the U.S. or a state thereof, and in
each case, as amended, supplemented, restated or otherwise modified from time to
time.
"Security Documents" means, collectively, (a) the Guaranties, (b) the
Pledge Agreements, (c) the Mortgages, (d) the Security Agreements, (e) the
Consents and (f) the Mortgage Consents, together with any exhibits, schedules
and other attachments to such documents and any financing statements related
thereto, as such documents, exhibits, schedules, attachments or financing
statements may be, from time to time, amended, supplemented, restated or
otherwise modified.
"Source" is defined in the preamble.
"Stated Amount" of each Letter of Credit means the face amount or the
"Stated Amount" of such Letter of Credit (as defined therein).
"Stated Expiry Date" is defined in Section 4.1.
"Stated Maturity Date" means (i) with respect to the Tranche A Loans, that
date that is three (3) years after the Tranche A Availability Termination Date;
(ii) with respect to Tranche B Loans, January 31, 2001; and (iii) with respect
to Tranche C Loans, October 30, 2004.
-30-
<PAGE>
"Subordinated Notes" means the promissory notes issued pursuant to that
certain Purchase Agreement dated as of October 27, 1998 among Alliance Plc and
EnCap evidencing Subordinated Indebtedness of Alliance Plc to EnCap which has
been subordinated to the Obligations pursuant to the Subordination Agreement.
"Subordinated Indebtedness" means unsecured Indebtedness of Alliance Plc
and/or its consolidated Subsidiaries (including the Subordinated Notes) that is
postponed and subordinated, on terms and conditions satisfactory to the Agent,
to the Obligations, and has covenants and terms of default, repayment,
standstill and acceleration consented to, in each case, by the Agent.
"Subordination Agreement" means that certain Master Subordination Agreement
dated as of a date prior to the initial Credit Extension under this Agreement,
between the Agent and EnCap, substantially in the form of Exhibit N.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which more than 50% of the outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, (b) any
partnership, limited liability company, joint venture, association, firm or
other business entity in which more than 50% of the equity interest or voting
power is at the time directly or indirectly owned by such Person, by such Person
and one or more other Subsidiaries of such Person, or by one or more other
Subsidiaries of such Person or (c) any partnership in which such Person is a
general partner.
"Surety Instrument" means all letters of credit (including commercial and
standby), banker's acceptances, bank guaranties, shipside bonds, surety bonds
and similar instruments.
"Tangible Net Worth" means the consolidated net worth of Alliance Plc and
its consolidated Subsidiaries after subtracting therefrom the aggregate amount
of any intangible assets of Alliance Plc and its consolidated Subsidiaries,
including goodwill, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks and brand names.
"Taxes" is defined in Section 5.6.
"Tranche A Availability Termination Date" means October 30, 2000.
"Tranche A Commitment" means the Lenders' commitments pursuant to Section
2.1.1 to make Tranche A Loans to the Borrowers, and to issue Letters of Credit,
in accordance with the terms and provisions of this Agreement.
-31-
<PAGE>
"Tranche A Commitment Amount" means the lesser of (i) $30,000,000, as
reduced from time to time pursuant to the provisions of Section 2.2, and (ii)
the Borrowing Base.
"Tranche A Facility" means the Facility providing for the Tranche A
Commitment, the Tranche A Loans and the Letters of Credit.
"Tranche A Loan" means each loan made by a Lender to the Borrowers from
time to time pursuant to its Tranche A Commitment in accordance with Sections
2.1.1 and 2.3.
"Tranche B Availability Termination Date" means January 31, 2001.
"Tranche B Commitment" means the Lenders' commitments pursuant to Section
2.1.2 to make Tranche B Loans to the Borrowers in accordance with the terms and
provisions of this Agreement.
"Tranche B Commitment Amount" means $20,000,000, as reduced from time to
time pursuant to the provisions of Section 2.2.
"Tranche B Facility" means the Facility providing for the Tranche B
Commitment and the Tranche B Loans.
"Tranche B Loan" means each loan made by a Lender to the Borrowers from
time to time pursuant to its Tranche B Commitment in accordance with Sections
2.1.2 and 2.3.
"Tranche C Availability Termination Date" means the Business Day
immediately following the Unified Closing Date.
"Tranche C Commitment" means the Lenders' commitments pursuant to Section
2.1.3 to make Tranche C Loans to the Borrowers, in accordance with the terms and
provisions of this Agreement.
"Tranche C Commitment Amount" means $5,000,000, as reduced from time to
time pursuant to the provisions of Section 2.2.
"Tranche C Facility" means the Facility providing for the Tranche C
Commitment and the Tranche C Loans.
"Tranche C Loan" means each loan made by a Lender to the Borrowers from
time to time pursuant to its Tranche C Commitment in accordance with Sections
2.1.3 and 2.3.
-32-
<PAGE>
"type" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a LIBO Rate Loan.
"Unified Closing Date"means the latest of the following dates: (a) the
Effective Date under this Agreement; (b) the Completion Date under (and as
defined in) the Difco Agreement; (c) the Completion Date under (and as defined
in) the Burlington Agreement, and (d) the sale and funding of the Subordinated
Notes.
"United States" or "U.S." means the United States of America, its fifty
States and the District of Columbia.
"Warrant Documents" means the Warrant Instrument, the Warrants and the
Registration Rights Agreement.
"Warrant Instrument" means the Warrant Instrument, substantially in the
form of Exhibit O-2, between Alliance Plc and BankAmerica or the Designee.
"Warrants" means the warrants, substantially in the form of Exhibit O-3,
from Alliance Plc to BankAmerica or the Designee.
"Welfare Plan" means a "welfare plan", as such term is defined in section
3(1) of ERISA.
"Year 2000 Compliant" is defined in Section 7.18.
"Year 2000 Problem" is defined in Section 7.18.
SECTION 1.2. USE OF DEFINED TERMS. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and in
each Note, Borrowing Request, Continuation/Conversion Notice, notice and other
communication or other Loan Document delivered from time to time in connection
with this Agreement or any other Loan Document.
SECTION 1.3. CROSS-REFERENCES. Unless otherwise specified, references in
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
SECTION 1.4. ACCOUNTING AND FINANCIAL DETERMINATIONS. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder
-33-
<PAGE>
(including under Section 8.2.4) shall be made, and all financial statements
required to be delivered hereunder or thereunder shall be prepared in accordance
with, those United States generally accepted accounting principles ("GAAP")
applied in the preparation of the financial statements referred to in Section
7.7.
SECTION 1.5. INTERPRETATIONAL PROVISIONS.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including";
the words "to" and "until" each mean "to but excluding", and the word
"through" means "to and including."
(iv) The term "property" includes any kind of property or
asset, real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments
shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and
(ii) references to any statute or regulation are to be construed as
including all statutory and regulatory provisions consolidating, amending,
replacing, supplementing or interpreting the statute or regulation.
(e) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters.
All such limitations, tests and measurements are cumulative and shall each
be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Lenders or the Agent by way of
-34-
<PAGE>
consent, approval or waiver shall be deemed modified by the phrase "in
their sole discretion" or "in its sole discretion," as applicable.
(f) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Lender, the
Borrowers and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Lenders or the Agent
merely because of the Lenders' or the Agent's involvement in their
preparation.
ARTICLE II.
COMMITMENTS, BORROWING PROCEDURES AND NOTE
SECTION 2.1. COMMITMENTS. On the terms and subject to the conditions of
this Agreement (including Article V), each Lender agrees to make loans ("Loans")
to the Borrowers equal to the aggregate amount of the Borrowing of Loans
requested by the Borrowers to be made pursuant to the Commitments on such day
described in this Section 2.1. On the terms and subject to the conditions
hereof, the Borrowers may from time to time borrow and prepay Tranche A Loans
and Tranche B Loans but may not reborrow any amounts paid or pre-paid in respect
of Tranche C Loans.
SECTION 2.1.1. TRANCHE A COMMITMENT. From time to time on any Business
Day during the period from and after the Effective Date to the earlier to occur
of (x) Tranche A Availability Termination Date and (y) any Commitment
Termination Date relating to all Commitments or to the Tranche A Commitment,
each Lender will make Tranche A Loans to the Borrowers equal to the amount of
the Tranche A Loan requested by the Borrowers, subject to the limitations in
this Section 2.1, to be made on such day in the applicable Borrowing Request
therefor. The Borrowers acknowledge that, as of October 26, 1998, the aggregate
outstanding principal amount of all Loans (as defined under the Existing
Agreement) is $22,566,762.16.
SECTION 2.1.2. TRANCHE B COMMITMENT. From time to time on any Business
Day during the period from and after the Effective Date to the earlier to occur
of (x) Tranche B Availability Termination Date, and (y) any Commitment
Termination Date relating to all Commitments or to the Tranche B Commitment,
each Lender will make Tranche B Loans to the Borrowers equal to the aggregate
amount of the Tranche B Loan requested by the Borrowers, subject to the
limitations in this Section 2.1, to be made on such day in the applicable
Borrowing Request therefor.
SECTION 2.1.3. TRANCHE C COMMITMENT. From time to time on any Business
Day during the period from and after the Effective Date to the earlier to occur
of (x) Tranche C Availability Termination Date, and (y) any Commitment
Termination Date relating to all Commitments or to the Tranche C Commitment,
each Lender will
-35-
<PAGE>
make Tranche C Loans to the Borrowers equal to the aggregate amount of the
Tranche C Loan requested by the Borrowers to be made on such day in the
applicable Borrowing Request therefor. The Borrowers acknowledge that, on the
Unified Closing Date, and subject to the satisfaction of each of the conditions
precedent set forth in Section 6.1, the outstanding principal amount of all
Loans (as defined in the Existing Agreement) set forth in Section 2.1.1 plus
accrued and unpaid interest as well as certain fees and expenses, will be
divided into a single Tranche C Loan in the original principal amount of
$5,000,000.00 and a single Tranche A Loan in the original principal amount not
to exceed $18,500,000, and any excess balance of such existing Loans shall
become a Tranche B Loan.
SECTION 2.1.4. COMMITMENT TO ISSUE LETTERS OF CREDIT. From time to time
on any Business Day, the Issuer will issue Letters of Credit, in accordance with
Article IV. The Borrowers acknowledge that, as of October 26, 1998, the Stated
Amount of all Letters of Credit issued and outstanding under the Existing
Agreement is $100,000.
SECTION 2.1.5. LENDERS NOT REQUIRED TO MAKE LOANS UNDER CERTAIN
CIRCUMSTANCES. No Lender shall be required to make any Loan if, after giving
effect thereto
(a) the aggregate outstanding principal amount of all Tranche A Loans
would exceed the Tranche A Commitment Amount less the Letter of Credit
Outstandings, or
(b) the aggregate outstanding principal amount of all Tranche B Loans
would exceed the Tranche B Commitment Amount, or
(c) the aggregate outstanding principal amount of all Tranche C Loans
would exceed the Tranche C Commitment Amount, or
(d) the aggregate outstanding principal amount of all Loans of such
Lender, together with its Percentage of all Letter of Credit Outstandings,
would exceed such Lender's Percentage of the Commitment Amount, or
(e) a Borrowing Base Deficiency would exist, or
(f) a Collateral Value Deficiency would exist, or
(g) an Event of Default has occurred and is continuing.
SECTION 2.1.6. ISSUER NOT REQUIRED TO ISSUE LETTERS OF CREDIT UNDER
CERTAIN CIRCUMSTANCES. The Issuer shall not be required to issue any Letter of
Credit if, after giving effect thereto
-36-
<PAGE>
(a) the aggregate outstanding principal amount of all Tranche A Loans
would exceed the Tranche A Commitment Amount,
(b) a Borrowing Base Deficiency would exist,
(c) a Collateral Value Deficiency would exist,
(d) all Letter of Credit Outstandings would exceed $1,000,000, or
(e) an Event of Default has occurred and is continuing.
SECTION 2.2 REDUCTION OF COMMITMENT AMOUNTS. Any Commitment Amount is
subject to reduction from time to time pursuant to this Section 2.2.
SECTION 2.2.1. OPTIONAL. The Borrowers may, from time to time on any
Business Day, voluntarily reduce the Commitments in the following order: first,
the Tranche B Commitment Amount and, when the Tranche B Commitment has been
reduced to zero, then the Tranche C Commitment Amount and, when the Tranche C
Commitment has been reduced to zero, then the Tranche A Commitment Amount;
provided, however, that all such reductions shall require at least three (3)
Business Days' prior notice to the Agent and be permanent, and any partial
reduction of the Commitment Amount shall be in a minimum amount of $250,000 and
in an integral multiple of $50,000.
SECTION 2.2.2. MANDATORY.
(a) On the Tranche A Availability Termination Date, the unused portion
of the Tranche A Commitment Amount shall, without any further action,
automatically and permanently be canceled.
(b) On the Tranche B Availability Termination Date, the unused portion
of the Tranche B Commitment Amount shall, without any further action,
automatically and permanently be canceled.
(c) On the Tranche C Availability Termination Date, the unused portion
of the Tranche C Commitment Amount shall, without any further action,
automatically and permanently be canceled.
(d) On any Commitment Termination Date, the Commitment Amount of each
Facility shall be reduced to zero.
SECTION 2.3. BORROWING PROCEDURE.
-37-
<PAGE>
(a) By delivering a Borrowing Request to the Agent on or before 10:00
a.m. (Chicago time) on a Business Day, the Borrowers may from time to time
irrevocably request, on not less than three (3) nor more than five (5)
Business Days' notice, or, in the case of a Base Rate Borrowing, one (1)
Business Day's notice, that a Borrowing be made in a minimum amount of
$250,000 and an integral multiple of $50,000, or in the unused amount of
the applicable Commitment. On the terms and subject to the conditions of
this Agreement, each Borrowing shall be made on the Business Day specified
in such Borrowing Request. The Lenders shall make such funds available to
the Borrowers by wire transfer to the accounts the Borrowers shall have
specified in their Borrowing Request. On or before 11:00 a.m. (Chicago
time) on such Business Day each Lender shall deposit with the Agent same
day funds in an amount equal to such Lender's Percentage of the requested
Borrowing. Such deposit will be made to an account which the Agent shall
specify from time to time by notice to the Lenders. To the extent funds
are received from the Lenders, the Agent shall make such funds available to
the Borrowers by wire transfer to the accounts the Borrowers shall have
specified in their Borrowing Request. No Lender's obligation to make any
Loan shall be affected by any other Lender's failure to make any Loan.
(b) Each Lender may, if it so elects, fulfill its obligation to make,
continue or convert LIBO Rate Loans hereunder by causing one of its foreign
branches or Affiliates (or an international banking facility created by
such Lender) to make or maintain such LIBO Rate Loan; provided, however,
that such LIBO Rate Loan shall nonetheless be deemed to have been made and
to be held by such Lender, and the obligation of the Borrowers to repay
such LIBO Rate Loan shall nevertheless be to such Lender for the account of
such foreign branch, Affiliate or international banking facility. In
addition, the Borrowers hereby consent and agree that, for purposes of any
determination to be made for purposes of Section 5.1, 5.2, 5.3 or 5.4, it
shall be conclusively assumed that each Lender elected to fund all LIBO
Rate Loans by purchasing Dollar deposits in its LIBO Office's interbank
eurodollar market.
SECTION 2.4. CONTINUATION AND CONVERSION ELECTIONS. By delivering a
Continuation/Conversion Notice to the Agent on or before 10:00 a.m. (Chicago
time) on a Business Day, the Borrowers may from time to time irrevocably elect,
on not less than three (3) nor more than five (5) Business Days' notice that
all, or any portion in an aggregate minimum amount of $250,000 and an integral
multiple of $50,000, of any Loans, in the case of Base Rate Loans, be converted
into LIBO Rate Loans or, in the case of LIBO Rate Loans, be converted into a
Base Rate Loan or continued as a LIBO Rate Loan (in the absence of delivery of a
Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three
(3) Business Days before the last day of the then current Interest Period with
respect thereto, such LIBO Rate Loan shall, on such last day, automatically
convert to a Base Rate Loan); provided, however, that
-38-
<PAGE>
no portion of the outstanding principal amount of any LIBO Rate Loan may be
continued as, and no portion of any Base Rate Loan may be converted into, LIBO
Rate Loans when any Default has occurred and is continuing.
SECTION 2.5. LOAN ACCOUNTS AND NOTES.
(a) The Loans made by each Lender shall be evidenced by one or more
loan accounts or records maintained by such Lender in the ordinary course
of business. The loan accounts or records maintained by such Lender shall
be conclusive absent manifest error of the amount of the Loans made by such
Lender to the Borrowers and the interest and payments thereon. Any failure
so to record or any error in doing so shall not, however, limit or
otherwise affect the obligations of the Borrowers hereunder to pay any
amount owing with respect to the Loans.
(b) Each Lender's Loans shall also be evidenced by a Note payable to
the order of such Lender in a maximum principal amount equal to the
Lender's Percentage of the original, aggregate Commitment Amount. The
Borrowers hereby irrevocably authorize each Lender to make (or cause to be
made) appropriate notations on the grid attached to the Note (or on any
continuation of such grid) or in other books and records maintained by such
Lender, which notations, if made, shall evidence, inter alia, the date of,
the outstanding principal of, and the interest rate applicable to the Loans
evidenced thereby (the Borrowers may from time to time reasonably request a
copy of such grid). Such notations shall be conclusive and binding on the
Borrowers absent manifest error; provided, however, that the failure of any
Lender to make any such notations shall not limit or otherwise affect any
Obligations of the Borrowers or any other Obligor.
(c) The Borrowers acknowledge that the Notes delivered to the Lenders
as of the Effective Date amend, restate and renew the promissory notes
given by the Original Borrowers under the Existing Agreement, which
amended, restated, consolidated and renewed certain promissory notes and
other evidence of indebtedness then outstanding.
SECTION 2.6. BORROWING BASE REDETERMINATION AND COLLATERAL VALUE
REDETERMINATION.
(a) Within thirty (30) days after receipt of the Engineering Report
required to be delivered semi-annually, commencing with the interim
Engineering Report described in Section 2.6(c), (and thereafter in
connection with the regular, semi-annual Engineering Report), the Agent
shall notify the Borrowers in writing of the Borrowing Base determined by
the Agent on the basis of such Engineering Report. After July 1, 1999, the
Borrowers or the
-39-
<PAGE>
Agent may request, and Agent will consider, one (1) additional
determination of the Borrowing Base at any time during each calendar year,
including 1999. Each such determination is herein called a "Borrowing Base
Redetermination". Contemporaneously with each Borrowing Base
Redetermination that shall occur at any time that any Tranche B Loan is
outstanding, the Agent shall notify the Borrowers in writing of the
Collateral Value determined by the Agent on the basis of such Engineering
Report. Each such determination is herein called a "Collateral Value
Redetermination". Each Borrowing Base Redetermination (and, as applicable,
Collateral Value Redetermination) shall be effective as of July 31st (with
respect to Engineering Reports effective May 1st), January 31st (with
respect to Engineering Reports effective November 1st) or upon notice from
the Agent (with respect to any requested Borrowing Base redetermination)
when the Borrowers are notified of the amount of the redetermined Borrowing
Base (and, as applicable, the amount of the redetermined Collateral Value)
by the Agent.
(b) The Borrowing Base and Collateral Value are also subject to
adjustment as provided for in Section 3.1.2.
(c) In addition to the semi-annual Engineering Reports referred to
above (and in lieu of a November 1 Report for 1998), an interim Reserve and
Economic Report shall be delivered to Agent by March 31, 1999, and shall
consist of independent engineering evaluations on all of Borrower's U.S.
Mortgaged Properties, and the East Irish Sea Assets, if significant changes
have occurred with respect to the East Irish Sea Assets since the Effective
Date. Such evaluation shall be prepared by independent consultants which
are acceptable to the Agent and shall form the basis for the initial
Borrowing Base Redetermination. The Agent shall give notice to the
Borrowers not later than June 1, 1999, of the Borrowing Base and Collateral
Value determined by the Agent, and such Borrowing Base Redetermination and
Collateral Value Redetermination shall be effective as of July 1, 1999.
SECTION 2.7. PURPOSES. The Borrowers shall apply the proceeds of each Loan
only in the following manner:
(a) in the case of Tranche A Loans, to refinance existing
indebtedness, for working capital purposes of the Borrowers and to finance
Approved Development Activities; and
(b) in the case of Tranche B Loans, as follows:
1. A portion of the purchase price of the East Irish Sea Assets,
in an amount not to exceed $8.0 million;
-40-
<PAGE>
2. Approved Development Activities in respect of the Mortgaged
Properties (other than the East Irish Sea Assets), in an
amount not to exceed $2.0 million;
3. Fees and expenses incurred in connection with the acquisition
and financing of the East Irish Sea Assets, in an amount not
to exceed in the aggregate $4 million (provided the Borrowers
have furnished to the Agent, along with the Borrowing Request
applicable thereto, a detailed schedule, satisfactory to the
Agent, of such fees and expenses);
4. Approved Development Activities in respect of the East Irish
Sea Assets; and
(c) in the case of Tranche C Loans, for general corporate and working
capital purposes.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. REPAYMENTS AND PREPAYMENTS AND CERTAIN BORROWING BASE MATTERS.
The Borrowers shall repay the unpaid principal amount of the Loans as set forth
in this Section 3.1.
SECTION 3.1.1. REPAYMENTS AND PREPAYMENTS. The Borrower shall repay in full
the unpaid principal amount of each Tranche A Loan, and each Tranche A Loan
shall mature and be due and payable, on the Tranche A Availability Termination
Date; provided, however, that if no Event of Default has occurred and is
continuing, the unpaid principal amount of the Tranche A Loans shall, on the
Tranche A Availability Termination Date and in response to a Borrowing Request
delivered to the Lender, not be due and payable but shall convert to term Loans.
The Borrowers shall repay in full the unpaid principal amount of each Loan upon
the applicable Stated Maturity Date. Prior thereto, the Borrowers
(a) may, from time to time on any Business Day, make a voluntary
prepayment, in whole or in part, of the outstanding principal amount of any
Loans; provided, however, that
(i) any such prepayment shall be made pro rata among Loans of the
same type and tranche;
-41-
<PAGE>
(ii) no such prepayment of any LIBO Rate Loan may be made on any
day other than the last day of the Interest Period for such Loan;
(iii) all such voluntary prepayments shall require at least three
(3) but no more than five (5) Business Days' prior written notice to
the Agent (which notice is irrevocable) stating the date and amount of
such prepayment and the type of Loan to be prepaid; and
(iv) all such voluntary partial prepayments shall be in an
aggregate minimum amount of $100,000 and an integral multiple of
$50,000;
(b) shall, on each date when any reduction in any Commitment Amount
shall become effective, including pursuant to Section 2.2, make a mandatory
prepayment (which shall be applied (or held for application, as the case
may be) by each Lender to the payment of the aggregate unpaid principal
amount of those Loans then outstanding and then to the payment of the then
Letter of Credit Outstandings) equal to the excess, if any, of the
aggregate outstanding principal amount of all Loans and Letter of Credit
Outstandings over such Commitment Amount as so reduced;
(c) shall make prepayments as specified in Section 3.1.2;
(d) shall, on each Quarterly Payment Date, make a payment in an amount
not less than the interest payment required pursuant to Section 3.2.3;
(e) shall, on each Quarterly Payment Date beginning January 31, 2001,
make a payment in an amount equal to that necessary to amortize the
principal of all Tranche C Loans equally over the remaining Quarterly
Payment Dates and the applicable Stated Maturity Date;
(f) shall, if Tranche A Loans have been converted to a term Loan
pursuant to the terms and conditions hereof, on each Quarterly Payment Date
after the Tranche A Availability Termination Date, make a payment in an
amount equal to that necessary to amortize the principal of all Tranche A
Loans equally over the remaining Quarterly Payment Dates and the applicable
Stated Maturity Date;
(g) shall, on the Tranche B Availability Termination Date, pay the
entire outstanding principal amount of all Tranche B Loans;
(h) shall, immediately upon any acceleration of the Loans pursuant to
Section 9.2 or Section 9.3, repay all Loans, unless, pursuant to Section
9.3, only a portion of all Loans is so accelerated.
-42-
<PAGE>
Each payment or prepayment of any Loans made pursuant to this Section shall be
without premium or penalty, except as may be required by Section 5.4, and shall
be applicable, to the extent of such prepayment, in the inverse order of
maturity. No voluntary prepayment of principal of any Loans or any prepayment
pursuant to the preceding clause (c) shall cause a reduction in any Commitment
Amount.
SECTION 3.1.2. BORROWING BASE DEFICIENCIES, COLLATERAL VALUE DEFICIENCIES
AND ASSET SALES.
(a) Upon the occurrence of a Borrowing Base Deficiency and/or a
Collateral Value Deficiency, the Agent may notify the Borrowers of such
Borrowing Base Deficiency and/or such Collateral Value Deficiency, as
applicable. Within ten (10) Business Days from and after the Borrowing
Base Deficiency Notification Date and/or such Collateral Value Deficiency
Notification Date, as applicable, the Borrowers shall notify the Agent and
the Lenders that they shall take one of the following actions:
(i) execute and deliver to the Agent supplemental or additional
Security Documents, in form and substance reasonably satisfactory to
the Agent and its counsel, securing payment of the Notes and the other
Obligations and covering additional Oil and Gas Properties directly
owned by the Borrowers or one or more of the Borrowers' Subsidiaries
which are not then covered by any Loan Document and which are of a
type and nature satisfactory to the Agent, and having a value, in
addition to other Oil and Gas Properties already subject to a Mortgage
(determined by the Lender using customary standards for oil and gas
lending), sufficient to eliminate the Borrowing Base Deficiency and/or
the Collateral Value Deficiency, as applicable, all as more
particularly described in Section 8.1.7(a) and (b); or
(ii) make a payment with respect to the Obligations (which shall
be applied (or held for application, as the case may be) by the
Lenders to the payment of the aggregate unpaid principal amount of
those Loans then outstanding and then to the payment of the then
Letter of Credit Outstandings) in an aggregate principal amount
sufficient to eliminate such Borrowing Base Deficiency and/or
Collateral Value Deficiency, as applicable, within sixty (60) days
after the Borrowing Base Deficiency Notification Date or Collateral
Value Deficiency Notification Date, as applicable.
If the Borrowers shall elect to execute and deliver (or cause one or more
of the Borrowers' Subsidiaries to execute and deliver) supplemental or
additional Security Documents to the Agent pursuant to clause (i), they
shall provide the Agent with descriptions of the additional assets to be
collaterally assigned
-43-
<PAGE>
(together with current valuations, Engineering Reports, Security Documents
described in clause (i) and title evidence applicable thereto, each of
which shall be in form and substance reasonably satisfactory to the Agent)
within sixty (60) days after the Borrowing Base Deficiency Notification
Date or Collateral Value Deficiency Notification Date, as applicable. Such
supplemental or additional Security Documents shall be subject to the terms
of Section 8.1.7. If the Borrowers fail to take any of the actions
described in clauses (i) or (ii) above within such ten (10) Business Day
period, then without any necessity for notice to the Borrowers or any other
person, the Borrowers shall become obligated immediately to pay Obligations
in an aggregate principal amount equal to the applicable Borrowing Base
Deficiency and/or Collateral Value Deficiency.
(b) If the Borrowers or any of their Subsidiaries sells, transfers or
otherwise disposes of Oil and Gas Properties included in the most recent
determination of the Borrowing Base and the Collateral Value and that have
a fair market value in the aggregate for the Borrowers and such
Subsidiaries in excess of $250,000 during the period from the effective
date of the most recent Borrowing Base Redetermination until the effective
date of the next Borrowing Base Redetermination, the Borrowing Base and the
Collateral Value shall be immediately reduced, until the effective date of
the next Borrowing Base Redetermination and Collateral Value
Redetermination, by an amount as reasonably determined by the Agent, or if
the value of the applicable Oil and Gas Properties cannot be readily
determined by the Agent, by the net sales proceeds realized from the sale,
transfer or other disposition of such assets.
If such reduction shall result in a Borrowing Base Deficiency and/or
Collateral Value Deficiency, then in lieu of the provisions of clause (a)
of Section 3.1.2, the Borrowers shall immediately make a payment with
respect to the Obligations in an amount equal to the greater of such
Borrowing Base Deficiency or such Collateral Value Deficiency. In addition
to and cumulative of the foregoing, if a Borrowing Base Deficiency and/or
Collateral Value Deficiency exists prior to such sale, transfer or other
disposition of assets, then in lieu of the provisions of clause (a) of
Section 3.1.2, the Borrower shall, with the written consent of the Agent,
immediately make a payment with respect to the Obligations (which shall be
applied (or held for application, as the case may be) by the Lenders first
to the payment of the aggregate unpaid principal amount of those Loans then
outstanding, and then to the payment of the then Letter of Credit
Outstandings) in an aggregate principal amount equal to the lesser of (i)
the greater of the amount of the Collateral Value Deficiency or the amount
of the Borrowing Base Deficiency (after giving effect to the applicable
sale, transfer or other disposition) or (ii) 100% of the net sales proceeds
realized from the applicable sale, transfer or other disposition.
-44-
<PAGE>
(c) In addition, if the Borrowers or any of their Subsidiaries raises
capital through the issuance of any type of equity or issues any
subordinated debt or senior unsecured debt, the proceeds of such issuance
will first be applied to cure any Borrowing Base Deficiency and/or
Collateral Value Deficiency, then as a prepayment of Tranche B Loans and a
permanent reduction of the Tranche B Commitment, and finally as a
prepayment of Tranche C Loans and a permanent reduction of the Tranche C
Commitment.
SECTION 3.2. INTEREST PROVISIONS. Interest on the outstanding principal
amount of Loans shall accrue and be payable in accordance with this Section 3.2.
SECTION 3.2.1. RATE. Pursuant to an appropriately delivered Borrowing
Request or Continuation/Conversion Notice, the Borrowers may elect that Loans
accrue interest at a rate per annum:
(a) on that portion maintained from time to time as a Base Rate Loan,
equal to the Alternate Base Rate plus the Applicable Margin from time to
time in effect; and
(b) on that portion maintained as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate
(Reserve Adjusted) for such Interest Period plus the Applicable Margin.
All LIBO Rate Loans shall bear interest from and including the first day of the
applicable Interest Period to (but not including) the last day of such Interest
Period at the interest rate determined as applicable to such LIBO Rate Loan.
SECTION 3.2.2. POST-MATURITY RATES. After (w) the date any principal amount
of any Loan shall have become due and payable (whether on the Stated Maturity
Date, upon acceleration or otherwise), (x) the date any other monetary
Obligation of the Borrowers shall have become due and payable, (y) the date any
other Event of Default shall have occurred (and so long as such Event of Default
shall be continuing), and (z) the date that is sixty (60) days after a Borrowing
Base Deficiency Notification Date or a Collateral Value Deficiency Notification
Date, if the applicable Borrowing Base Deficiency or Collateral Value Deficiency
has not been cured, the Borrowers shall pay, but only to the extent permitted by
Applicable Law, interest (after as well as before judgment) on all Obligations
at a rate per annum equal to
(a) with respect to LIBO Rate Loans for the period from the date such
Loan becomes due and payable to the end of the then current Interest
Period, the higher of (i) the sum of the LIBO Rate (Reserve Adjusted) for
such Interest Period plus the Applicable Margin plus a margin of 3%, or (ii
the sum of the Alternate Base Rate plus the Applicable Margin plus a margin
of 3%; or
-45-
<PAGE>
(b) in all other cases, the sum of the Alternate Base Rate plus the
Applicable Margin plus a margin of 3%.
SECTION 3.2.3. PAYMENT DATES. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date;
(b) on the date of any optional or required payment or prepayment, in
whole or in part, of principal outstanding on such Loan and on that portion
of such Loan so paid or prepaid;
(c) with respect to Base Rate Loans, on each Quarterly Payment Date
occurring after the Effective Date;
(d) with respect to LIBO Rate Loans, on the last day of each
applicable Interest Period (and, if such Interest Period shall exceed three
months, on the 90th day of such Interest Period); and
(e) on that portion of any Loans which is accelerated pursuant to
Section 9.2 or Section 9.3, immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount shall have
become due and payable (whether on the Stated Maturity Date, upon acceleration
or otherwise) shall be payable upon demand.
SECTION 3.2.4. MAXIMUM INTEREST. It is the intention of the parties hereto
to conform strictly to applicable usury laws and, anything herein to the
contrary notwithstanding, the Obligations of the Borrowers to the Lenders under
this Agreement shall be subject to the limitation that payments of interest
shall not be required to the extent that receipt thereof would be contrary to
provisions of Applicable Law applicable to the Lenders limiting rates of
interest which may be charged or collected by the Lenders. Accordingly, if the
transactions contemplated hereby would be usurious under Applicable Law with
respect to the Lenders then, in that event, notwithstanding anything to the
contrary in this Agreement, it is agreed as follows:
(a) the provisions of this Section 3.2.4 shall govern and control;
(b) the aggregate of all consideration which constitutes interest
under Applicable Law that is contracted for, charged or received under this
Agreement, or under any of the other aforesaid agreements or otherwise in
connection with this Agreement by the Lenders shall under no circumstances
-46-
<PAGE>
exceed the maximum amount of interest allowed by Applicable Law (such
maximum lawful interest rate, if any, with respect to the Lenders herein
called the "Highest Lawful Rate"), and any excess shall be credited to the
Borrowers by the Lenders (or, if such consideration shall have been paid in
full, such excess refunded to the Borrowers);
(c) all sums paid, or agreed to be paid, to the Lenders for the use,
forbearance and detention of the indebtedness of the Borrowers to the
Lenders hereunder shall, to the extent permitted by Applicable Law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the actual rate of interest is
uniform throughout the full term thereof; and
(d) if at any time the interest provided pursuant to Sections 3.2.1
and 3.2.2 together with any other fees payable pursuant to this Agreement
and deemed interest under Applicable Law, exceeds that amount which would
have accrued at the Highest Lawful Rate, the amount of interest and any
such fees to accrue to the Lenders pursuant to this Agreement shall be
limited, notwithstanding anything to the contrary in this Agreement, to
that amount which would have accrued at the Highest Lawful Rate, but any
subsequent reductions, as applicable, shall not reduce the interest to
accrue to such Lender pursuant to this Agreement below the Highest Lawful
Rate until the total amount of interest accrued pursuant to this Agreement
and such fees deemed to be interest equals the amount of interest which
would have accrued to such Lender if a varying rate per annum equal to the
interest provided pursuant to Sections 3.2.1 and 3.2.2 had at all times
been in effect, plus the amount of fees which would have been received but
for the effect of this Section 3.2.4.
SECTION 3.3. FEES. The Borrowers agree to pay the fees set forth in this
Section 3.3 and in the Fee Letter. All such fees shall be non-refundable.
SECTION 3.3.1. UNUSED FEE. The Borrowers shall pay to the Agent for the
account of the Lenders an unused fee, for the period from and including the
Effective Date to, but not including the earlier to occur of (x) the Tranche A
Availability Termination Date, and (y) the Commitment Termination Date, equal to
0.50 of 1% per annum of the average of the actual daily amount during the prior
Fiscal Quarter of (a) $55,000,000 minus (b) the sum of the aggregate outstanding
principal amount of all Loans and all Letter of Credit Outstandings, based on a
year comprised of three hundred sixty (360) days. Accrued unused fees shall be
payable in arrears on each Quarterly Payment Date and on the earlier of the
Commitment Termination Date or the Tranche A Availability Termination Date.
SECTION 3.3.2. LETTER OF CREDIT STATED AMOUNT FEE. The Borrowers agree to
pay to the Agent, for the account of the Issuer, a fee for each Letter of Credit
for the
-47-
<PAGE>
period from and including the date of the issuance of such Letter of
Credit to (but not including) the date upon which such Letter of Credit expires,
at a rate per annum equal to the Applicable Margin for Tranche A Loans
maintained as LIBO Rate Loans on the Stated Amount of such Letter of Credit,
based on a year comprised of three hundred and sixty (360) days. A prorated
portion of such fee shall be payable by the Borrowers in arrears on each
Quarterly Payment Date, and on the earlier of the Tranche A Availability
Termination Date and the Tranche A Commitment Termination Date for any period
then ending for which such fee shall not theretofore have been paid, commencing
on the first such date after the issuance of such Letter of Credit. After any
Borrowing Base Deficiency and/or Collateral Value Deficiency has or have existed
for sixty (60) consecutive days, the Stated Amount Fee on all Letters of Credit
shall increase by 3.00% until such Borrowing Base Deficiency and/or Collateral
Value Deficiency has or have been eliminated.
SECTION 3.3.3. LETTER OF CREDIT ISSUANCE FEE. The Borrowers agree to pay to
the Agent, for the account of the Issuer, an issuance fee for each Letter of
Credit issued by the Issuer for the period from and including the date of
issuance of such Letter of Credit to (but not including) the date upon which
such Letter of Credit expires, of the greater of 0.25 of 1% of the Stated Amount
of such Letter of Credit or $300.00. Such fee shall be payable on the date of
issuance of such Letter of Credit.
SECTION 3.3.4. LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrowers agree to
pay to the Agent, for the account of the Issuer, all reasonable administrative
expenses of the Issuer in connection with the maintenance, modification (if any)
and administration of each Letter of Credit issued by the Issuer upon demand
from time to time pursuant to the Issuer's schedule of charges then in effect.
SECTION 3.4. PROCEEDS ACCOUNT. The Security Documents contain an assignment
to the Agent by the Borrowers and/or their Subsidiaries, as applicable, of all
production of Hydrocarbons and all proceeds attributable thereto properly
allocable to the Mortgaged Properties. Notwithstanding such assignment of
production, the Borrowers may, until the Agent shall give notice to the
contrary, which notice shall not be unreasonably given, receive such proceeds.
Thereafter, all such proceeds from the sale of such production shall be paid
directly into an account of the Borrowers maintained with the Agent (the
"Proceeds Account"). The Borrowers hereby grant to the Agent, subject to the
prior assignment in favor of the Agent of such production and its proceeds, a
security interest in the Proceeds Account and all proceeds thereof.
SECTION 3.5. ORRI AND WARRANTS ARE NOT COLLATERAL SECURITY.
(a) In addition to interest paid on the Loans, Alliance Plc shall
issue the Warrants and Difco shall grant the Overriding Royalty Interest to
the
-48-
<PAGE>
Agent's designee ("Designee"), as additional consideration payable to
the Agent to be retained in perpetuity and not as additional collateral
security for the Obligations.
(b) If all Tranche B Loans are paid in full and the Tranche B
Commitment is terminated on or before March 26, 2000, then the Borrowers
may purchase the Overriding Royalty Interest in consideration of the
payment of a mutually satisfactory purchase price. Such conveyance shall
be without recourse, representation or warranty of any kind, except that
the Designee shall warrant against liens created by, through or under the
Designee.
(c) The Overriding Royalty Interest described in the foregoing
subsections (a) and (b) shall not affect in any way the overriding royalty
interests previously acquired by the Designee pursuant to the Prior
Agreement (which was subsequently exchanged for warrants and other
obligations in respect of Alliance Plc). Similarly, the Warrants to be
issued pursuant to this Agreement shall not affect in any way the warrants
issued to the Designee pursuant to the Prior Agreement.
ARTICLE IV.
LETTERS OF CREDIT
SECTION 4.1. ISSUANCE REQUESTS. By delivering to the Agent an Issuance
Request on or before 12:00 noon (Chicago time), the Borrowers may request, from
time to time prior to the earlier to occur of (x) the Tranche A Availability
Termination Date and (y) any Commitment Termination Date relating to all
Commitments or to the Tranche A Commitment, and on not less than three (3) nor
more than ten (10) Business Days' notice, that the Issuer issue an irrevocable
standby letter of credit in substantially the form of Exhibit K hereto, or in
such other form as may be mutually agreed by the Borrowers and the Issuer (each
a "Letter of Credit"), in support of financial obligations of the Borrowers
incurred in the Borrowers' ordinary course of business and which are described
in such Issuance Request. Upon receipt of an Issuance Request, the Agent shall
promptly notify the Lenders and the Issuer thereof. Each Letter of Credit shall
by its terms:
(a) be issued in a Stated Amount which
(i) is at least $10,000;
(ii) does not exceed (or would not exceed) the then Letter of
Credit Availability;
-49-
<PAGE>
(b) be stated to expire on a date (its "Stated Expiry Date") no later
than the earlier of (i) one (1) year after its date of issuance and (ii the
Commitment Termination Date; and
(c) on or prior to its Stated Expiry Date
(i) terminate immediately upon notice to the Issuer from the
beneficiary thereunder that all obligations covered thereby have been
terminated, paid, or otherwise satisfied in full,
(ii) reduce in part immediately and to the extent the
beneficiary thereunder has notified the Issuer that the obligations
covered thereby have been paid or otherwise satisfied in part, or
(iii) terminate thirty (30) Business Days after notice to the
beneficiary thereunder from the Agent that an Event of Default has
occurred and is continuing.
So long as no Default has occurred and is continuing, by delivery to the Agent
and the Issuer of an Issuance Request at least three (3) but not more than ten
(10) Business Days prior to the Stated Expiry Date of any Letter of Credit, the
Borrowers may request the Issuer to extend the Stated Expiry Date of such Letter
of Credit for an additional period not to exceed the earlier of one (1) year
from its date of extension, the Availability Termination Date or the Commitment
Termination Date.
SECTION 4.2. ISSUANCES AND EXTENSIONS. On the terms and subject to the
conditions of this Agreement (including Article VI), the Issuer shall issue
Letters of Credit, and extend the Stated Expiry Dates of outstanding Letters of
Credit, in accordance with the Issuance Requests made therefor. The Issuer will
make available the original of each Letter of Credit which it issues in
accordance with the Issuance Request therefor to the beneficiary thereof (and
will promptly provide the Agent and each of the Lenders with a copy of such
Letter of Credit) and will notify the beneficiary under any Letter of Credit of
any extension of the Stated Expiry Date thereof.
The Issuer is under no obligation to issue any Letter of Credit if:
(i) any order, judgment or decree of any Governmental Agency or
arbitrator shall by its terms purport to enjoin or restrain the Issuer from
issuing such Letter of Credit, or any requirement of Applicable Law or any
request or directive (whether or not having the force of law) from any
Governmental Agency with jurisdiction over the Issuer shall prohibit, or
request that the Issuer refrain from, the issuance of letters of credit
generally or such Letter of Credit in particular or shall impose upon the
Issuer or the Lenders with respect
-50-
<PAGE>
to such Letter of Credit any restriction, reserve or capital requirement
(for which the Issuer is not otherwise compensated hereunder) not in effect
on the Effective Date, or shall impose upon the Issuer any unreimbursed
loss, cost or expense which was not applicable on the Effective Date and
which the Issuer in good faith deems material to it;
(ii) one or more of the applicable conditions contained in Article VI
is not then satisfied;
(iii) the expiry date of any requested Letter of Credit is prior to
the maturity date of any financial obligation to be supported by the
requested Letter of Credit;
(iv) any requested Letter of Credit does not provide for drafts, or
is not otherwise in form and substance acceptable to the Issuer, or the
issuance of a Letter of Credit shall violate any applicable policies of the
Issuer;
(v) any standby Letter of Credit is for the purpose of supporting
the issuance of any letter of credit by any other Person; or
(vi) such Letter of Credit is in a face amount denominated in a
currency other than Dollars.
The Uniform Customs and Practice for Documentary Credits as published by the
International Chamber of Commerce most recently at the time of issuance of any
Letter of Credit shall (unless otherwise expressly provided in the Letters of
Credit) apply to the Letters of Credit.
SECTION 4.3. DISBURSEMENTS. The Issuer will notify the Borrowers promptly
of the presentment for payment of any Letter of Credit, together with notice of
the date (the "Disbursement Date") such payment shall be made. Subject to the
terms and provisions of such Letter of Credit, the Issuer shall make such
payment to the beneficiary (or its designee) of such Letter of Credit. In paying
any drawing under a Letter of Credit, the Issuer shall not have any
responsibility to obtain any document (other than any sight draft and
certificates expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document. Prior to 12:00 noon
(Chicago time) on the Disbursement Date, the Borrowers will reimburse the Issuer
for all amounts which it has disbursed under the Letter of Credit. To the extent
the Issuer is not reimbursed in full in accordance with the preceding sentence,
the Borrowers' Reimbursement Obligation shall accrue interest at a fluctuating
rate equal to the lesser of (i) the Highest Lawful Rate or (ii) the Alternate
Base Rate, plus the Applicable Margin plus a margin of 2% per annum, payable on
demand. In the event the Issuer is not reimbursed by the Borrowers on the
Disbursement Date, or if Issuer
-51-
<PAGE>
must for any reason return or disgorge such reimbursement, BankAmerica shall, on
the terms and subject to the conditions of this Agreement, fund the
Reimbursement Obligation therefor by making, on the next Business Day, Tranche A
Loans which are Base Rate Loans as provided in Section 2.1.2 (the Borrowers
being deemed to have given a timely Borrowing Request therefor for such amount);
provided, however, for the purpose of determining the availability of the
Commitments to make Loans immediately prior to giving effect to the application
of the proceeds of such Loans, such Reimbursement Obligation shall be deemed not
to be outstanding at such time.
SECTION 4.4. REIMBURSEMENT. The Borrowers' obligation (a "Reimbursement
Obligation") under Section 4.3 to reimburse the Issuer with respect to each
Disbursement (including interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim, or
defense to payment which the Borrowers may have or have had against the Lenders,
the Issuer or any beneficiary of a Letter of Credit, including any defense based
upon the occurrence of any Default, any draft, demand or certificate or other
document presented under a Letter of Credit proving to be forged, fraudulent,
invalid or insufficient, the failure of any Disbursement to conform to the terms
of the applicable Letter of Credit (if, in the Issuer's good faith opinion, such
Disbursement is determined to be appropriate) or any non-application or
misapplication by the beneficiary of the proceeds of such Disbursement, or the
legality, validity, form, regularity, or enforceability of such Letter of
Credit; provided, however, that nothing herein shall adversely affect the right
of the Borrowers to commence any proceeding against the Issuer for any wrongful
Disbursement made by the Issuer under a Letter of Credit as a result of acts or
omissions constituting gross negligence or wilful misconduct on the part of the
Issuer.
SECTION 4.5. DEEMED DISBURSEMENTS. Upon the occurrence and during the
continuation of any Event of Default or the occurrence of the Commitment
Termination Date, an amount equal to that portion of Letter of Credit
Outstandings attributable to outstanding and undrawn Letters of Credit shall, at
the election of the Issuer, acting on instructions from the Required Lenders,
and without demand upon or notice to the Borrowers, be deemed to have been paid
or disbursed by the Issuer under such Letters of Credit (notwithstanding that
such amount may not in fact have been so paid or disbursed), and, upon
notification by the Issuer to the Agent and to the Borrowers of its obligations
under this Section, the Borrowers shall be immediately obligated to reimburse
the Issuer the amount deemed to have been so paid or disbursed by the Issuer.
Any amounts so received by the Issuer from the Borrowers pursuant to this
Section shall be held as collateral security for the repayment of the Borrowers'
obligations in connection with the Letters of Credit issued by the Issuer. At
any time when such Letters of Credit shall terminate and all Obligations to the
Issuer are either terminated or paid or reimbursed to the Issuer in full, the
Obligations of the Borrowers under this Section shall be reduced accordingly
(subject, however, to reinstatement in the event any payment in respect of such
-52-
<PAGE>
Letters of Credit is recovered in any manner from the Issuer), and the Issuer
will return to the Borrowers the excess, if any, of
(a) the aggregate amount deposited by the Borrowers with the Issuer
and not theretofore applied by the Issuer to any Reimbursement Obligation
over
(b) the aggregate amount of all Reimbursement Obligations to the
Issuer pursuant to this Section, as so adjusted.
At such time when all Events of Default shall have been cured or waived, the
Issuer shall return to the Borrowers all amounts then on deposit with the Issuer
pursuant to this Section. All amounts on deposit pursuant to this Section
shall, until their application to any Reimbursement Obligation or their return
to the Borrowers, as the case may be, bear interest at the daily average Federal
Funds Rate from time to time in effect (net of the costs of any reserve
requirements, in respect of amounts on deposit pursuant to this Section,
pursuant to F.R.S. Board Regulation D), which interest shall be held by the
Issuer as additional collateral security for the repayment of the Borrowers'
Obligations in connection with the Letters of Credit issued by the Issuer.
SECTION 4.6. NATURE OF REIMBURSEMENT OBLIGATIONS. The Borrowers shall
assume all risks of the acts, omissions, or misuse of any Letter of Credit by
the beneficiary thereof. Neither the Lenders nor the Issuer (except to the
extent of its own gross negligence or wilful misconduct) shall be responsible
for:
(a) the form, validity, sufficiency, accuracy, genuineness, or legal
effect of any Letter of Credit or any document submitted by any party in
connection with the application for and issuance of a Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent, or forged;
(b) the form, validity, sufficiency, accuracy, genuineness, or legal
effect of any instrument transferring or assigning or purporting to
transfer or assign a Letter of Credit or the rights or benefits thereunder
or proceeds thereof in whole or in part, which may prove to be invalid or
ineffective for any reason;
(c) failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
-53-
<PAGE>
(d) errors, omissions, interruptions, or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex, facsimile or
otherwise; or
(e) any loss or delay in the transmission or otherwise of any document
or draft required in order to make a Disbursement under a Letter of Credit
or of the proceeds thereof;
(f) any change in the time, manner or place of payment of, or in any
other term of, all or any of the obligations of the Borrowers in respect of
any Letter of Credit;
(g) the existence of any claim, set-off, defense or other right that
the Borrowers may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Issuer, the Lenders
or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the Letters of Credit or any
unrelated transaction;
(h) any payment by the Issuer, or the Lenders under any Letter of
Credit against presentation of a draft or certificate that does not
strictly comply with the terms of any Letter of Credit; or any payment made
by the Issuer, or the Lenders under any Letter of Credit to any Person
purporting to be a trustee in bankruptcy, debtor-in-possession, assignee
for the benefit of creditors, liquidator, receiver or other representative
of or successor to any beneficiary or any transferee of any Letter of
Credit, including any arising in connection with any insolvency proceeding;
and
(i) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including any other circumstance that
might otherwise constitute a defense available to, or a discharge of, the
Borrowers or a guarantor.
None of the foregoing shall affect, impair, or prevent the vesting of any of the
rights or powers granted the Lenders or the Issuer hereunder. In furtherance
and extension, and not in limitation or derogation, of any of the foregoing, any
action taken or omitted to be taken by the Lenders or the Issuer in good faith
shall be binding upon the Borrowers and shall not put the Lenders or the Issuer
under any resulting liability to the Borrowers.
SECTION 4.7. INCREASED COSTS; INDEMNITY. If by reason of
(a) any change in Applicable Law or any change in the interpretation
or application by any judicial or regulatory authority of any Applicable
Law, or
-54-
<PAGE>
(b) compliance by the Agent, the Issuer or any Lender with any
direction, request or requirement (whether or not having the force of law)
of any Governmental Agency, including Regulation D of the F.R.S. Board:
(i) the Agent, the Issuer or Lender shall be subject to any tax
(other than taxes on net income and franchises), levy, charge or
withholding of any nature or to any variation thereof or to any
penalty with respect to the maintenance or fulfillment of its
obligations under this Article IV, whether directly or by such being
imposed on or suffered by the Agent, the Issuer or any Lender;
(ii) any reserve, deposit or similar requirement is or shall be
applicable, increased, imposed or modified in respect of any Letters
of Credit issued by any Issuer; or
(iii) there shall be imposed on a Lender any other condition
regarding this Article IV or any Letter of Credit,
and the result of the foregoing is directly or indirectly to increase the cost
to the Agent, the Issuer or any Lender of issuing or maintaining any Letter of
Credit or to reduce any amount receivable in respect thereof by the Agent, the
Issuer or any Lender, then and in any such case may, at any time after the
additional cost is incurred or the amount received is reduced, notify the
Borrowers thereof, and the Borrowers shall pay on demand such amounts as the
Agent, the Issuer or any Lender may specify to be necessary to compensate the
Agent, the Issuer or any Lender for such additional cost or reduced receipt,
together with interest on such amount from the date demanded until payment in
full thereof at a rate equal at all times to the Alternate Base Rate plus the
Applicable Margin plus 2% per annum. The determination by the Agent, the Issuer
or any Lender, as the case may be, of any amount due pursuant to this Section,
as set forth in a statement setting forth the calculation thereof in reasonable
detail, shall, in the absence of manifest error, be final and conclusive and
binding on all of the parties hereto.
In addition to amounts payable as elsewhere provided in this Article IV,
the Borrowers hereby indemnify, exonerate and hold the Agent, the Issuer or any
Lender harmless from and against any and all actions, causes of action, suits,
losses, costs, liabilities and damages, and expenses incurred in connection
therewith (irrespective of whether the Agent, the Issuer or any Lender is a
party to the action for which indemnification is sought), including reasonable
attorneys' fees and disbursements, which the Agent, the Issuer or any Lender may
incur or be subject to as a consequence, direct or indirect, of
-55-
<PAGE>
(c) the issuance of the Letters of Credit, other than as a result of
the gross negligence or wilful misconduct of the Issuer as determined by a
court of competent jurisdiction, or
(d) the failure of the Issuer to honor a drawing under any Letter of
Credit as a result of any act or omission, whether rightful or wrongful, of
any present or future de jure or de facto government or governmental
authority.
ARTICLE V.
CERTAIN INTEREST RATE AND OTHER PROVISIONS
SECTION 5.1. LIBO RATE LENDING UNLAWFUL. If any Lender shall determine
(which determination shall, upon notice thereof to the Borrowers, be conclusive
and binding on the Borrowers) that the introduction of or any change in or in
the interpretation of any Applicable Law makes it unlawful, or any central bank
or other Governmental Agency asserts that it is unlawful, for such Lender to
make, continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate
Loan, the obligation of the Lender to make, continue, maintain or convert into
any such LIBO Rate Loans shall, upon such determination, forthwith be suspended
until such Lender shall notify the Agent and the Borrowers that the
circumstances causing such suspension no longer exist, and all LIBO Rate Loans
shall automatically convert into Base Rate Loans at the end of the then current
Interest Periods with respect thereto or sooner, if required by such law or
assertion.
SECTION 5.2. DEPOSITS UNAVAILABLE. If the Agent shall have determined that:
(a) Dollar deposits in the relevant amount are not available to the
Agent in its relevant market; or
(b) by reason of circumstances affecting the Agent's relevant market,
adequate means do not exist for ascertaining the interest rate applicable
hereunder to LIBO Rate Loans,
then, upon notice from the Agent to the Borrowers and the Lenders, the
obligations of all Lenders under Section 2.3 to make any Loans shall forthwith
be suspended until the Agent shall notify the Borrowers and the Lenders that the
circumstances causing such suspension no longer exist.
SECTION 5.3. INCREASED LOAN COSTS, ETC. If by reason of
(a) any change in Applicable Law or any change in the interpretation
or application by any judicial or regulatory authority of any Applicable
Law, or
-56-
<PAGE>
(b) compliance by any Lender with any direction, request or
requirement (whether or not having the force of law) of any Governmental
Agency, including Regulation D of the F.R.S. Board:
(i) any Lender shall be subject to any tax (other than taxes on
net income and franchises), levy, charge or withholding of any nature
or to any variation thereof or to any penalty with respect to any
payment due under any LIBO Rate Loan or other amounts due under this
Agreement, whether directly or by such being imposed on or suffered by
such Lender;
(ii) any reserve, deposit or similar requirement is or shall be
applicable, increased, imposed or modified in respect of any
extensions of credit or other assets of, or any deposits with or other
liabilities of, any Lender or Loans made by such Lender, or against
any other funds, obligations or other property owned or held by such
Lender and such Lender actually incurs such additional costs; or
(iii) there shall be imposed on any Lender any other condition
affecting this Agreement (or any of such extensions of credit or
liabilities),
and the result of the foregoing is directly or indirectly to increase the cost
to such Lender of making, continuing or maintaining (or of its obligation to
make, continue or maintain) any Loans as, or of converting (or of its obligation
to convert) any Loans into, LIBO Rate Loans, or to reduce any amount receivable
in respect thereof by such Lender, then and in any such case such Lender may, at
any time after the additional cost is incurred or the amount received is
reduced, notify the Borrowers thereof, and the Borrowers shall pay on demand
such amounts as such Lender may specify to be necessary to compensate such
Lender for such additional cost or reduced receipt, together with interest on
such amount from the date demanded until payment in full thereof at a rate equal
at all times to the Alternate Base Rate plus the Applicable Margin, plus 3% per
annum. The determination by such Lender of any amount due pursuant to this
Section, as set forth in a statement setting forth the calculation thereof in
reasonable detail, shall, in the absence of manifest error, be final and
conclusive and binding on all of the parties hereto.
SECTION 5.4. FUNDING LOSSES. In the event any Lender shall incur any loss
or expense (including any loss or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such Lender to make,
continue or maintain any portion of the principal amount of any Loan as, or to
convert any portion of the principal amount of any Loan into, a LIBO Rate Loan)
as a result of
-57-
<PAGE>
(a) any conversion or repayment or prepayment of the principal amount
of any LIBO Rate Loans on a date other than the scheduled last day of the
Interest Period applicable thereto, whether pursuant to Section 3.1 or
otherwise;
(b) any Loans not being made as LIBO Rate Loans in accordance with the
Borrowing Request therefor by reason of any act or omission by the
Borrowers or failure of a condition precedent to be satisfied;
(c) any Loans not being continued as, or converted into, LIBO Rate
Loans in accordance with the Continuation/ Conversion Notice therefor by
reason of any act or omission by the Borrowers; or
(d) any repayment or prepayment of the principal amount of any Loans
on a date other than the scheduled Monthly Payment Dates;
then, upon the written notice of such Lender to the Borrowers (with a copy to
the Agent), the Borrowers shall, within five (5) days of its receipt thereof,
pay to such Lender such amount as will (in the reasonable determination of such
Lender) reimburse such Lender for such loss or expense. Such written notice
(which shall include calculations in reasonable detail) shall, in the absence of
manifest error, be conclusive and binding on the Borrowers.
SECTION 5.5. INCREASED CAPITAL COSTS. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any Applicable Law of any Governmental Agency affects or would
affect the amount of capital required or expected to be maintained by any Lender
or any Person controlling such Lender, and such Lender determines (in its sole
and absolute discretion) that the rate of return on its or such controlling
Person's capital as a consequence of its Commitments, issuance of Letters of
Credit or the Loans made by such Lender is reduced to a level below that which
such Lender or such controlling Person could have achieved but for the
occurrence of any such circumstance, then, in any such case upon notice from
time to time by such Lender to the Borrowers, the Borrowers shall immediately
pay directly to such Lender additional amounts sufficient to compensate such
Lender or such controlling Person for such reduction in rate of return. A
statement of such Lender as to any such additional amount or amounts (including
calculations thereof in reasonable detail) shall, in the absence of manifest
error, be conclusive and binding on the Borrowers. In determining such amount,
such Lender may use any method of averaging and attribution that it (in its
reasonable discretion) shall deem applicable.
SECTION 5.6. TAXES. All payments by the Borrowers of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp
-58-
<PAGE>
or franchise taxes and other taxes, levies, assessments, imposts, deductions,
fees, duties, withholdings or other charges of any nature whatsoever imposed by
any taxing authority, but excluding franchise taxes and taxes imposed on or
measured by any Lender's net income or receipts (such non-excluded items being
called "Taxes"). In the event that any withholding or deduction from any payment
to be made by the Borrowers hereunder is required in respect of any Taxes
pursuant to any Applicable Law, then the Borrowers will
(a) pay directly to the relevant authority the full amount required to
be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of the Lenders such additional
amount or amounts as is necessary to ensure that the net amount actually
received by the Lenders will equal the full amount the Lenders would have
received and retained had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against any Lender with respect to
any payment received by such Lender hereunder, such Lender may pay such Taxes
and the Borrowers will promptly pay such additional amounts (including any
penalties, interest or expenses) as is necessary in order that the net amount
received by such person after the payment of such Taxes (including any Taxes on
such additional amount) shall equal the amount such person would have received
had not such Taxes been asserted.
If the Borrowers fail to pay any Taxes when due to the appropriate taxing
authority or fail to remit to any Lender the required receipts or other required
documentary evidence, the Borrowers shall indemnify such Lender for any
incremental Taxes, interest or penalties that may become payable by such Lender
as a result of any such failure.
SECTION 5.7. PAYMENTS, COMPUTATIONS, ETC. Unless otherwise expressly
provided, all payments by the Borrowers pursuant to this Agreement, the Notes or
any other Loan Document shall be made by the Borrowers to the Agent for the pro
rata account of the Lenders entitled to receive such payment. All such payments
shall be made without setoff, deduction or counterclaim, not later than 11:00
a.m. (Chicago time) on the date due, in same day or immediately available funds,
to such account with the Agent in Chicago, Illinois as the Agent shall specify
from time to time by notice to the Borrowers. Funds received after that time
shall be deemed to have been received by the Agent on the next succeeding
Business Day and any applicable interest or fee shall continue to accrue. The
Agent shall promptly remit in
-59-
<PAGE>
same day funds to each Lender its share, if any, of such payments received by
the Agent for the account of such Lender. All interest shall be computed on the
basis of the actual number of days (including the first day but excluding the
last day) occurring during the period for which such interest is payable over a
year comprised of 360 days (or, in the case of interest on a Base Rate Loan
(other than when calculated with respect to the Federal Funds Rate), 365 days
or, if appropriate, 366 days). Whenever any payment to be made shall otherwise
be due on a day which is not a Business Day, such payment shall (except as
otherwise required by clause (c) of the definition of the term "Interest Period"
with respect to LIBO Rate Loans) be made on the next succeeding Business Day and
such extension of time shall be included in computing interest and fees, if any,
in connection with such payment. Notwithstanding any prepayment of a Base Rate
Loan or any conversion of a Base Rate Loan to a LIBO Rate Loan, the Agent will
calculate and invoice the Borrowers for accrued interest thereon through the
date of such prepayment only at the next Quarterly Payment Date.
SECTION 5.8. SHARING OF PAYMENTS. If any Lender shall obtain any payment or
other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Loan (other than pursuant to the terms of Sections
5.3, 5.4 and 5.5) in excess of its pro rata share of payments then or therewith
obtained by all Lenders, such Lender shall purchase from the other Lenders such
participations in Loans made by them and/or Letters of Credit as shall be
necessary to cause such purchasing Lender to share the excess payment or other
recovery ratably with each of them; provided, however, that if all or any
portion of the excess payment or other recovery is thereafter recovered from
such purchasing Lender, the purchase shall be rescinded and each Lender which
has sold a participation to the purchasing Lender shall repay to the purchasing
Lender the purchase price to the ratable extent of such recovery together with
an amount equal to such selling Lender's ratable share (according to the
proportion of
(a) the amount of such selling Lender's required repayment to the
purchasing Lender
to
(b) the total amount so recovered from the purchasing Lender)
of any interest or other amount paid by the purchasing Lender in respect of the
total amount so recovered. The Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this Section may, to the fullest
extent permitted by law, exercise all its rights of payment (including pursuant
to Section 5.9) with respect to such participation as fully as if such Lender
were the direct creditor of the Borrower in the amount of such participation.
If under any applicable bankruptcy, insolvency or other similar law, any Lender
receives a secured claim in
-60-
<PAGE>
lieu of a setoff to which this Section applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this Section to share
in the benefits of any recovery on such secured claim.
SECTION 5.9. SETOFF. Each Lender shall, upon the occurrence of any Default
described in clauses (a) through (d) of Section 9.1.9 or upon the occurrence of
any other Event of Default, have the right to appropriate and apply to the
payment of the Obligations owing to it (whether or not then due), and (as
security for such Obligations) the Borrowers hereby grant to the Agent and the
Lenders a continuing security interest in, any and all balances, credits,
deposits, accounts or moneys of the Borrowers then or thereafter maintained with
or otherwise held by the Lender, including without limitation, the Proceeds
Account. The Agent and the Lenders agree promptly to notify the Borrowers after
any such setoff and application made by the Lender; provided, however, that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Agent and each Lender under this Section 5.9 are
in addition to other rights and remedies (including other rights of setoff under
Applicable Law or otherwise) which the Agent and the Lenders may have.
SECTION 5.10. USE OF PROCEEDS. The Borrowers shall apply the proceeds of
each Borrowing in accordance with Section 2.7; without limiting the foregoing,
no proceeds of any Loan will be used to acquire any equity security of a class
which is registered pursuant to Section 12 of the Securities Exchange Act of
1934 or any "margin stock", as defined in F.R.S. Board Regulation U, X or G.
ARTICLE VI.
CONDITIONS PRECEDENT
SECTION 6.1. EFFECTIVENESS OF AGREEMENT AND INITIAL BORROWING. All loans
outstanding under the Existing Agreement will, on the Unified Closing Date and
upon the satisfaction of all of the conditions set forth in this Section 6.1,
be consolidated into a new Tranche A Loan and a new Tranche C Loan, and as
applicable, Tranche B Loan. The obligation of the Lenders to (i) consolidate
all outstanding loans into a new Tranche A Loan and a new Tranche C Loan, and,
as applicable, Tranche B Loan; (ii) make any new Credit Extension and (iii) to
amend and restate the Existing Agreement shall be subject to the prior or
concurrent satisfaction of each of the conditions precedent set forth in this
Section 6.1.
SECTION 6.1.1. RESOLUTIONS, ETC. The Agent shall have received from each
Borrower, LRI, Alliance Group, Alliance Plc, ENPRO, Difco and any other Obligor
a
-61-
<PAGE>
certificate, dated as of a date not later than the initial Credit Extension,
of the Secretary or Assistant Secretary of such Obligor as to
(a) resolutions of the Board of Directors of such Obligor then in full
force and effect authorizing the execution, delivery and performance of
this Agreement, the Notes and each other Loan Document, as applicable, to
be executed by it;
(b) the incumbency and signatures of those of its officers or Persons
authorized to act with respect to this Agreement, the Notes and each other
Loan Document, as applicable, executed by it;
(c) the Organic Documents of such Obligor; and
(d) evidence that such Obligor is in good standing under the
Applicable Laws of the jurisdiction of its organization (as to Obligors
organized under the laws of the U.S.) and, as to each Obligor under a
Mortgage, each of the jurisdictions where its Mortgaged Properties are
located,
upon which certificate the Agent may conclusively rely until it shall have
received a further certificate of the Secretary of such Obligor canceling or
amending such prior certificate.
SECTION 6.1.2. DELIVERY OF NOTES. The Agent shall have received, for the
account of each Lender, a Note duly executed and delivered by the Borrowers.
SECTION 6.1.3. ENVIRONMENTAL REPORT. The Agent shall have received the
environmental assessments, acceptable in all respects to the Agent, prepared by
Southern Environmental Company with respect to the Mortgaged Properties owned by
Alliance USA and Source, a completed environmental questionnaire and such other
information with respect to the ownership and past use of all of the Mortgaged
Properties (including the East Irish Sea Assets) as the Agent may reasonably
request, all of which shall be satisfactory in form, substance and scope to the
Agent.
SECTION 6.1.4. GUARANTIES. The Agent shall have received executed
counterparts of the Guaranties, or ratifications of Guaranties previously
delivered under the Existing Agreement, dated as of a date not later than the
Unified Closing Date, duly executed by each of Alliance Group, LRI, Enpro and
Difco.
SECTION 6.1.5. PLEDGE AGREEMENTS. The Agent shall have received executed
counterparts of Pledge Agreements or ratifications of Pledge Agreements
previously delivered under the Existing Agreement, dated as of a date not later
than the Unified Closing Date, duly executed by (i) LRI pledging its interests
in the capital stock in each of LPC, GOCA, New GOC and Enpro, (ii) Alliance Plc
pledging its interest in the
-62-
<PAGE>
capital stock of Alliance Group, Manx, LRI and Difco, and (iii) Alliance Group
pledging its interest in the capital stock of Alliance USA, ARNO, ARCOL and
Source, together with the certificates, evidencing all of the issued and
outstanding shares of capital stock pledged pursuant to the Pledge Agreements
(other than certificates evidencing the capital stock of Difco, which shall be
delivered pursuant to Section 8.1.7(d)), which certificates shall in each case
be accompanied by undated stock powers duly executed in blank, and or, if any
securities pledged pursuant to the Pledge Agreements are uncertificated
securities, confirmation and evidence satisfactory to the Agent that the
security interest in such uncertificated securities has been transferred to and
perfected by the Agent in accordance with Section 8-313 and Section 8-321 of the
Uniform Commercial Code, as in effect in the State of Illinois, and, as
applicable, with the evidence of completion (or satisfactory arrangement for the
completion) of all filings and recordings of the Pledge Agreements as may be
necessary, or in the reasonable opinion of the Agent, desirable, effectively to
create a valid, perfected first priority lien against and security interest in
the collateral covered thereby.
SECTION 6.1.6. MORTGAGES. The Agent shall have received counterparts of the
Mortgages, or amendments to Mortgages previously delivered under the Existing
Agreement, dated as of a date not later than the Unified Closing Date, duly
executed by Alliance USA, Source, LPC, New GOC and Difco, together with
(a) evidence of the completion (or satisfactory arrangements for the
completion) of all recordings and filings of the Mortgages as may be
necessary or, in the reasonable opinion of the Agent, desirable effectively
to create a valid, perfected first priority Lien against the Properties
purported to be covered thereby, which Properties shall include Proven
Reserves comprising not less than 90% of the Oil and Gas Properties
included in the initial determination of the Borrowing Base;
(b) favorable mortgagee's title opinions in favor of the Agent (in
form and substance and issued by title counsel satisfactory to the Agent),
with respect to the Property purporting to be covered by the Mortgages (or
such portion of such Properties as shall be acceptable to the Agent),
setting forth the working interest and net revenue interest of the
applicable mortgagor in such Properties and opining that the applicable
mortgagor's title to such property is good and defensible and valid and
that the interests created by the Mortgages constitute valid first Liens
thereon free and clear of all defects and encumbrances other than as
approved by the Agent;
(c) such Consents, Mortgage Consents, and such other approvals,
opinions, or documents as the Agent may reasonably request; and
-63-
<PAGE>
(d) evidence of the delivery of notices of assignment to Difco's
counterparty to each Material Contract, including the Hydrocarbon Interests
comprising the Core Difco Assets.
The Hydrocarbon Interests, Properties and interests described in and
secured by the Mortgages and in any other mortgages or supplemental mortgages
given pursuant to this Agreement, as such Properties and interests are from time
to time constituted, are herein collectively called the "Mortgaged Properties."
SECTION 6.1.7. SECURITY AGREEMENTS. The Agent shall have received from the
Borrowers, Alliance Group, LRI, Enpro and Difco duly executed, original
counterpart of Security Agreements, or ratifications of Security Agreements
previously delivered under the Existing Agreement, dated as of a date not later
than the Unified Closing Date, together with
(a) executed copies of Uniform Commercial Code financing statements
(Form UCC-1), in proper form for filing, naming the Borrowers (or their
Subsidiaries, as applicable) as the debtor and the Agent as the secured
party, or other similar instruments or documents, filed (or satisfactory
arrangements for the completion of all filings and recordings) under the
Uniform Commercial Code in all jurisdictions as may be necessary or, in the
opinion of the Agent, desirable, effectively to create valid, perfected
first priority liens against and security interests in the collateral
covered thereby; and
(b) executed copies of proper Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens and other
rights of any Person in any collateral described in such Security Agreement
previously granted by any Person together with such other Uniform
Commercial Code Form UCC-3 termination statements as the Lender may
reasonably request from the Borrower.
SECTION 6.1.8. OPINIONS OF COUNSEL. The Agent shall have received opinions
addressed to the Agent and the Lenders, from U.S. and U.K. counsel to the
Borrowers and Guarantors acceptable to the Agent, substantially in the form of
Exhibits H-1 and H-2 hereto, respectively, and dated as of a date not later than
the Unified Closing Date.
SECTION 6.1.9. UCC-11S. The Agent shall have received certified copies of
Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a
similar search report certified by a party acceptable to the Agent, dated a date
reasonably near to the Effective Date, listing all effective financing
statements which name the Borrowers, LRI, Alliance Plc, Alliance Group and
Enpro, (under their present names and any previous names) as the debtor and
which are filed in the jurisdictions in the following states: (1) Oklahoma and
Texas with respect to LRI, Enpro, New
-64-
<PAGE>
GOC and GOCA, (2) Alabama, Arkansas, Kansas, Louisiana, Michigan, Mississippi,
North Dakota, Oklahoma, Texas and Wyoming with respect to LPC, and (3)
Louisiana, Oklahoma and Delaware, with respect to Alliance Plc, Alliance Group,
Source and Alliance USA, in which jurisdictions filings are to be made pursuant
to clause (a) of Section 6.1.6, together with copies of such financing
statements (none of which shall cover any collateral described in the
Mortgages).
SECTION 6.1.10. EVIDENCE OF INSURANCE. The Agent shall have received
certificates of insurance satisfactory to it evidencing the existence of all
insurance required to be maintained by the Borrowers by this Agreement and the
other Loan Documents.
SECTION 6.1.11. ASSIGNMENT OF OVERRIDING ROYALTY INTEREST, ETC. BankAmerica
shall have received executed and acknowledged original counterparts of the
Assignment in favor of the Designee, as well as the Certificate as to Overriding
Royalty Interests, substantially in the forms of Exhibit M-1 (or such other form
of such instrument as is acceptable to the Agent) and Exhibit M-2, and Agreement
as to Certain Tax Matters, substantially in the form of Exhibit M-3.
SECTION 6.1.12. WARRANT DOCUMENTS. The Agent shall have received the
Warrant Documents, in each case executed and delivered by Alliance Plc.
SECTION 6.1.13. ENGINEERING REPORTS. The Agent shall have received (i)
Engineering Report, from Lee Keeling & Associates, Inc. effective as of April
30, 1998, as to the Mortgaged Properties owned by LPC, New GOC, Source and
Alliance USA and (ii) an Engineering Report from Gaffney, Cline & Associates,
Inc., effective as of January 1, 1998, as to the East Irish Sea Assets.
SECTION 6.1.14. [NOT USED.]
SECTION 6.1.15. [NOT USED.]
SECTION 6.1.16. CLOSING OF DIFCO ACQUISITION. The Agent shall have received
and approved a true, correct and complete copy of the fully executed Difco
Agreement, including all amendments and supplements thereto, and the closing
under the Difco Agreement shall have occurred such that Alliance Plc shall have
acquired all of the capital stock of Difco as contemplated by the Difco
Agreement.
SECTION 6.1.17. CLOSING UNDER BURLINGTON AGREEMENT. The Agent shall have
received and approved a true, correct and complete copy of the fully executed
Burlington Agreement, including all exhibits, schedules, amendments and
supplements thereto and all joint operating agreements pertaining to the East
Irish Sea Assets, the assignments and related conveyance and closing instruments
(as described in Section 6 of the Burlington Agreement) from Burlington to Difco
shall have been executed and
-65-
<PAGE>
delivered by Burlington to Difco, filed with the Department of Trade and
Industry to the extent required by Applicable Law, and the closing under the
Burlington Agreement shall have occurred such that Difco shall have acquired all
of the East Irish Sea Assets as contemplated by the Burlington Agreement.
SECTION 6.1.18. CLOSING OF SUBORDINATED NOTE SALE, ETC. The Agent shall
have received evidence of the closing and funding of the sale of the
Subordinated Notes, such that EnCap has transferred not less than $10,000,000 to
the Borrowers, in form, scope and detail reasonably satisfactory to the Agent.
SECTION 6.1.19. SUBORDINATION AGREEMENT . The Agent shall have received
from EnCap executed, original counterparts of the Subordination Agreement.
SECTION 6.1.20. AMENDED AND RESTATED SECURITY DOCUMENTS. The documents,
instruments and agreements comprising or evidencing the collateral security for
the Existing Agreement shall each have been ratified or amended and restated to
provide that such documents, instruments and agreements secure the Obligations,
in each case pursuant to instruments in form and substance satisfactory to the
Agent and its counsel.
SECTION 6.1.21. MATERIAL CONTRACTS, DIFCO CONSENTS AND RELATED CONSENTS.
The Lender shall have received true and correct copies, certified by the
Borrowers, and approved the form and substance of, each Material Contract, a
Consent and, as applicable, a Mortgage Consent, for each such Material Contract,
dated as of a recent date, and the Difco Consents pertaining to the Core Difco
Assets.
SECTION 6.1.22. TITLE REPORTS. The Agent shall have received title reports
with respect to the East Irish Sea Assets in form, scope and detail reasonably
satisfactory to the Agent, including, without limitation, a report supplementing
the "Project Antelope" Due Diligence Report dated June 29, 1998, confirming that
Burlington owns the East Irish Sea Assets.
SECTION 6.1.23. CLOSING FEES, EXPENSES, ETC. The Agent shall have received
all reasonable costs and expenses due and payable pursuant to Sections 3.3 and
10.3, if then invoiced.
SECTION 6.2. INCLUSION OF HYDROCARBON INTERESTS IN THE BORROWING BASE AND
THE COLLATERAL VALUE. The inclusion of any additional Hydrocarbon Interests in
the Borrowing Base and the Collateral Value is subject to the following
conditions having been satisfied and receipt by the Agent of the following
documents, in each case with respect to each Hydrocarbon Interest and related
Oil and Gas Properties which the Borrowers request be included in the Borrowing
Base and the Collateral Value and each of which conditions and documents shall
be satisfactory to the Agent in form and substance:
-66-
<PAGE>
SECTION 6.2.1. ENVIRONMENTAL REPORT. The Agent shall have received Phase I
environmental assessments as of a recent date prepared by an environmental
consulting firm as shall be acceptable to the Agent, a completed environmental
disclosure questionnaire and such other information with respect to the
ownership and past use of the Mortgaged Properties relating to such Hydrocarbon
Interests as the Agent may reasonably request, and such reports and
questionnaire shall be satisfactory in form, substance and scope to the Agent.
SECTION 6.2.2. MORTGAGE. The Agent shall have received counterparts of a
Mortgage relating to such Hydrocarbon Interests and related Oil and Gas
Properties, dated as of a recent date, duly executed by the Borrowers and/or
their Subsidiaries, as applicable, together with
(a) evidence of the completion (or satisfactory arrangements for the
completion) of all recordings and filings of the Mortgage as may be
necessary or, in the reasonable opinion of the Agent, desirable effectively
to create a valid, perfected first priority Lien against the Properties
purported to be covered thereby;
(b) favorable mortgagee's title opinions in favor of the Agent (in
form and substance and issued by title counsel reasonably satisfactory to
the Agent, substantially in the form of Exhibit I hereto), with respect to
the Property purporting to be covered by the Mortgage setting forth the
working interest and net revenue interest of a Borrower or its Subsidiaries
in such Properties and opining that the Borrower's or such Subsidiary's
title to such property is good and marketable and valid and that the
interests created by the Mortgage constitute valid first Liens thereon free
and clear of all defects and encumbrances other than as approved by the
Agent; and
(c) such other approvals, opinions, or documents as the Agent may
reasonably request.
SECTION 6.2.3. UCC-11S. The Agent shall have received certified copies of
Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a
similar search report certified by a party acceptable to the Agent, dated as of
a recent date, listing all effective financing statements which name the
Borrowers or their Subsidiaries (under their present names and any previous
names) as the debtor and which are filed in the jurisdictions in the State of
Oklahoma or the state in which such Oil and Gas Properties are located and in
which the Mortgage referenced in Section 6.2.2. is to be filed, together with
copies of such financing statements (none of which shall cover any collateral
described in any such Mortgage).
SECTION 6.2.4. EVIDENCE OF INSURANCE. The Agent shall have received
certificates of insurance satisfactory to it evidencing the existence of all
insurance
-67-
<PAGE>
required to be maintained by the Borrowers by this Agreement and the other Loan
Documents with respect to the Hydrocarbon Interests and related Oil and Gas
Properties being added to the Borrowing Base and the Collateral Value.
SECTION 6.2.5. ENGINEERING REPORTS. The Agent shall have received an
Engineering Report, dated as of a recent date from a petroleum engineer
reasonably acceptable to the Agent, as to the Hydrocarbon Interests being added
to the Borrowing Base and the Collateral Value.
SECTION 6.2.6. MATERIAL CONTRACTS AND RELATED CONSENTS. The Agent shall
have received true and correct copies, certified by the Borrowers, and approved
the form and substance of, each Material Contract related to the Hydrocarbon
Interests being added to the Borrowing Base and the Collateral Value. In
addition, the Agent shall have received duly executed counterparts of a Security
Agreement or, if applicable, amendments to an existing Security Agreement which
add any such Material Contract to the Collateral (as defined in the Security
Agreement), a Consent and, as applicable, a Mortgage Consent, for each such
Material Contract, dated as of a recent date.
SECTION 6.2.7. GUARANTIES. The Agent shall have received duly executed
counterparts of a Guaranty from any Subsidiary of a Borrower which is adding
Hydrocarbon Interests to the Borrowing Base and the Collateral Value, unless
such a Guaranty has already been delivered to the Agent in connection with a
previous addition to the Borrowing Base or on the Effective Date.
SECTION 6.2.8. ADDITIONAL STOCK PLEDGE. The Agent shall have received
executed counterparts of the Pledge Agreement (Stock), dated not later than the
date of such Loan, duly executed by the applicable Guarantor or Borrower
pledging its interest in the capital stock of any Subsidiary which is adding
Hydrocarbon Interests to the Borrowing Base and the Collateral Value, unless
such Pledge Agreement has already been delivered to the Agent, accompanied by
the original share certificate evidencing such capital stock and executed stock
powers (in blank) and the evidence of satisfactory arrangement for the
completion of all filings and recordings of the Pledge Agreement (Stock) as may
be necessary or, in the reasonable opinion of the Agent, desirable, effectively
to create a valid, perfected first priority lien against and security interest
in the collateral covered thereby.
SECTION 6.2.9. OTHER DOCUMENTS. The Agent shall have received such other
documents as it may reasonably request.
SECTION 6.3. ALL CREDIT EXTENSIONS. The obligation of the Agent to make any
Credit Extension shall be subject to the satisfaction of each of the conditions
precedent set forth in this Section 6.3.
-68-
<PAGE>
SECTION 6.3.1. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before and
after giving effect to any Credit Extension (but, if any Default of the nature
referred to in Section 9.1.5 shall have occurred with respect to any other
Indebtedness, without giving effect to the application, directly or indirectly,
of the proceeds of any Borrowing) the following statements shall be true and
correct
(a) the representations and warranties set forth in Article VII
(excluding, however, those contained in Section 7.9) shall be true and
correct with the same effect as if then made (unless stated to relate
solely to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date);
(b) except as disclosed by the Borrowers to the Agent pursuant to
Section 7.9
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding shall be pending or, to the
knowledge of the Borrowers, threatened against the Borrowers or any of
their Subsidiaries which has or might reasonably be expected to have a
Material Adverse Effect; and
(ii) no development shall have occurred in any labor controversy,
litigation, arbitration or governmental investigation or proceeding
disclosed pursuant to Section 7.9 which has or might reasonably be
expected to have a Material Adverse Effect; and
(c) no Default shall have then occurred and be continuing, and neither
the Borrowers nor any other Obligor are in material violation of any
Applicable Law or governmental regulation or court order or decree if such
violation has or might reasonably be expected to have a Material Adverse
Effect.
SECTION 6.3.2. BORROWING REQUEST, ETC. The Agent shall have received a
Borrowing Request or Issuance Request, as the case may be, for such Credit
Extension. Each of the delivery of a Borrowing Request or an Issuance Request
and the acceptance by the Borrowers of the proceeds of the Borrowing or the
issuance of the Letter of Credit as applicable, shall constitute a
representation and warranty by the Borrowers that on the date of such Borrowing
(both immediately before and after giving effect to such Borrowing and the
application of the proceeds thereof) or the issuance of the Letter of Credit, as
applicable, the statements made in Section 6.3.1 are true and correct.
SECTION 6.3.3. SATISFACTORY LEGAL FORM. All documents executed or submitted
pursuant hereto by or on behalf of the Borrowers or any of their Subsidiaries
shall be reasonably satisfactory in form and substance to the Agent and
-69-
<PAGE>
its counsel; the Agent and its counsel shall have received all information,
approvals, opinions, documents or instruments as the Agent or its counsel may
reasonably request.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and each Lender to enter into this Agreement
and to make Loans and to issue Letters of Credit hereunder, the Borrowers
represent and warrant, as of the Unified Closing Date, unto the Agent and each
Lender as set forth in this Article VII.
SECTION 7.1. ORGANIZATION, ETC. LPC is an Oklahoma corporation, GOCA is a
Delaware corporation, New GOC is a Delaware corporation, GOC was a Texas
corporation, Alliance USA is a Delaware corporation, Source is a Louisiana
corporation, Alliance Group is a Delaware corporation, LRI is a Delaware
corporation and Alliance Plc is a public limited company incorporated under the
laws of England and Wales, and Difco is a private limited company incorporated
under the laws of England and Wales and each is validly incorporated and
existing and (as to the Obligors organized in the U.S.) in good standing under
the Applicable Laws of the jurisdiction of its organization, is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction where the nature of its business requires such qualification, and
has full power and authority and holds all requisite governmental licenses,
permits and other approvals to enter into and perform its Obligations under this
Agreement, the Note and each other Loan Document to which it is a party and to
own and hold under lease its property and to conduct its business substantially
as currently conducted by it. Except as set forth on Schedule II, the Borrowers
have no Subsidiaries.
SECTION 7.2. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution,
delivery and performance by the Borrowers and each other Obligor of this
Agreement, the Note and each other Loan Document executed or to be executed by
it or them are within each Borrower's and each such Obligor's respective
corporate powers, have been duly authorized by all necessary corporate action,
and do not
(a) contravene such Borrower's or such other Obligor's Organic
Documents;
(b) contravene or result in any violation of or default under any
Applicable Law or any material contractual restriction, court decree or
order, in each case binding on or affecting any Borrower or any other
Obligor or any Properties, businesses, assets or revenues of any Borrower;
-70-
<PAGE>
(c) result in, or require the creation or imposition of, any Lien on
(except for the Liens of the Loan Documents) any of the Borrowers' or any
other Obligor's Properties, businesses, assets or revenues.
SECTION 7.3. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or
approval or other action by, and no notice to or filing with, any Governmental
Agency or other Person is required for the due execution, delivery or
performance by the Borrowers or any other Obligor of this Agreement, the Note or
any other Loan Document to which they are a party, except for Approvals, if any,
by the lessor under any government-issued oil and gas lease of the granting the
Mortgage, which Difco, Alliance USA, Source, LPC and New GOC expect to obtain in
the ordinary course of business and the Consents, each of which shall have been
obtained on or before the Unified Closing Date.
SECTION 7.4. INVESTMENT COMPANY ACT. None of the Borrowers or any of their
Affiliates is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 7.5. PUBLIC UTILITY HOLDING COMPANY ACT. None of the Borrowers or
any of their Subsidiaries is a "holding company" or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
SECTION 7.6. VALIDITY, ETC. This Agreement constitutes, and the Note and
each other Loan Document executed by the Borrowers or any of their Subsidiaries
will, on the due execution and delivery thereof, constitute, the legal, valid
and binding obligations of the Borrowers or such Subsidiaries, as applicable or
enforceable in accordance with their respective terms, and each Loan Document
executed pursuant hereto by each other Obligor will, on the due execution and
delivery thereof by such, Obligor, be the legal valid and binding obligation of
such Obligor enforceable in accordance with its terms, in each case subject to
the effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally.
SECTION 7.7. FINANCIAL INFORMATION.
(a) The audited consolidated balance sheet of Alliance Plc as at April
30, 1998 and the related audited statements of operations and cash flow of
Alliance Plc, copies of which have been furnished to the Agent, have been
prepared in accordance with GAAP consistently applied, and present fairly
the consolidated financial condition of the corporations covered thereby as
at the date thereof and the results of their audited operations for the
period then ended.
-71-
<PAGE>
(b) The audited consolidated balance sheets of Alliance Plc as at
April 30, 1998, and the related audited statements of operations and cash
flow of Alliance Plc, copies of which have been furnished to the Agent,
have been prepared in accordance with United Kingdom GAAP consistently
applied, and present fairly the consolidated financial condition of the
corporations covered thereby as at the date thereof and the results of
their audited operations for the period then ended.
SECTION 7.8. NO MATERIAL ADVERSE CHANGE. Since the date of the audited
financial statements described in Section 7.7, there has been no change in the
financial condition, operations, assets, business, Properties or prospects of
Alliance Plc or any of its consolidated Subsidiaries that has or might
reasonably be expected to have a Material Adverse Effect, except as disclosed in
Item 7.8 of the Disclosure Schedule.
SECTION 7.9. LITIGATION, LABOR CONTROVERSIES, ETC. There is no pending
or, to the knowledge of the Borrowers, threatened litigation, action,
proceeding, or labor controversy affecting the Borrowers, or any of their
Subsidiaries, or any of their respective Properties, businesses, assets or
revenues, which has or might reasonably be expected to have a Material Adverse
Effect, except as disclosed in Item 7.9 ("Litigation") of the Disclosure
Schedule.
SECTION 7.10. OWNERSHIP OF PROPERTIES. Each of the Borrowers and its
Subsidiaries has good and defensible title to their Properties (including,
without limitation, all Hydrocarbon Interests), free and clear of all Liens
except (a) those referred to in the financial statements referred to in Section
7.7, (b) as disclosed to the Agent in the Disclosure Schedule or (c) as
permitted by Section 8.2.3. After giving full effect to all Liens permitted
under Section 8.2.3, each of the Borrowers or their Subsidiaries owns the net
interests in Hydrocarbons produced from the Oil and Gas Properties as reflected
in the most recent Engineering Report, and none of the Borrowers or their
Subsidiaries are obligated to bear costs or expenses in respect of the Oil and
Gas Properties in excess of their respective working interest percentage as
reflected in the most recent Engineering Report.
SECTION 7.11. TAXES. Each of the Borrowers and its Subsidiaries has filed
all Federal and other tax returns and reports required by Applicable Law to have
been filed by it and has paid all taxes, assessments, fees and other
governmental charges thereby shown to be owing, except as disclosed in Item 7.11
of the Disclosure Schedule and except any such taxes or charges which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books.
SECTION 7.12. PENSION AND WELFARE PLANS. During the twelve-consecutive-
month period prior to the Effective Date and prior to the date of any Borrowing
-72-
<PAGE>
hereunder, no steps have been taken to terminate any Pension Plan in a distress
termination under Section 4041(c) of ERISA, and no contribution failure has
occurred with respect to any Pension Plan sufficient to give rise to a Lien
under section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which might result in the incurrence
by the Borrowers or any member of the Controlled Group of any material
liability, fine or penalty. Except as disclosed in Item 7.12 ("Employee Benefit
Plans") of the Disclosure Schedule, neither the Borrowers nor any member of the
Controlled Group has any contingent liability with respect to any post-
retirement benefit under a Welfare Plan, other than liability for continuation
coverage described in Part 6 of Title I of ERISA.
SECTION 7.13. COMPLIANCE WITH LAW. None of the Borrowers nor any of their
Subsidiaries (a) is in violation of any Applicable Law of, or the terms of any
Approval, license or permit issued by, any Governmental Agency; or (b) has
failed to obtain any Approval necessary to ownership of any of its properties or
the conduct of its business (including without limitation any such authorization
from the Federal Energy Regulatory Commission or any state conservation
commission or similar body); which violation or failure could reasonably be
expected to have a Material Adverse Effect.
SECTION 7.14. CLAIMS AND LIABILITIES. Except as disclosed to the Lenders in
Item 7.14 ("Claims and Liabilities") in the Disclosure Schedule, none of the
Borrowers nor any of their Subsidiaries has accrued any liabilities under gas
purchase contracts for gas not taken, but for which it is liable to pay if not
made up and which, if not paid, would have a Material Adverse Effect. Except as
disclosed to the Lenders in Item 7.14 of the Disclosure Schedule, no claims
exist against the Borrowers or any of their Subsidiaries for gas imbalances
which claims if adversely determined would have a Material Adverse Effect. No
purchaser of product supplied by the Borrowers or any of their Subsidiaries has
any claim against the Borrowers or any of their Subsidiaries for product paid
for, but for which delivery was not taken as and when paid for, which claim if
adversely determined would have a Material Adverse Effect.
SECTION 7.15. NO PROHIBITION ON PERFECTION OF SECURITY DOCUMENTS. None of
the terms or provisions of any indenture, mortgage, deed of trust, agreement or
other instrument to which any Borrower or any of its Subsidiaries is a party or
by which any Borrower or any of its Subsidiaries or the property of any Borrower
or any of its Subsidiaries is bound prohibit the filing or recordation of any of
the Loan Documents or any other action which is necessary or appropriate in
connection with the perfection of the Liens evidenced and created by any of the
Loan Documents.
SECTION 7.16. SOLVENCY. None of the Borrowers nor any of their Subsidiaries
is "insolvent", as such term is used and defined in the United States Bankruptcy
Code, 11 U.S.C. (S) 101, et seq.
-73-
<PAGE>
SECTION 7.17. ENVIRONMENTAL WARRANTIES. As a reasonable and prudent
operator of oil and gas producing properties, in the ordinary course of their
business, the Borrowers have conducted, with respect to their existing Oil and
Gas Properties, and, on an ongoing basis, conducts a review of the effect of
Environmental Laws on the business, operations and Properties of each Borrower
and its Subsidiaries, in the course of which they identify and evaluate
associated liabilities and costs (including any capital or operating
expenditures required for Remedial Action or other clean-up or closure of
Properties presently owned or operated, any capital or operating expenditures
required for Remedial Action or otherwise to achieve or maintain compliance with
environmental protection standards imposed by any Environmental Law or as a
condition of any Approval, license, permit or contract, any related constraints
on operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat and any actual or potential liabilities to third parties,
including employees, and any related costs and expenses). On the basis of this
review, the Borrowers have reasonably concluded that, except as disclosed in
Item 7.17 ("Environmental Matters") of the Disclosure Schedule:
(a) all facilities and Property (including underlying groundwater)
owned, leased or operated by the Borrowers or any of their Subsidiaries
have been, and continue to be, owned, leased or operated by the Borrowers
or any of their Subsidiaries in material compliance with all Environmental
Laws;
(b) there have been no past, and there are no pending or threatened
(i) claims, complaints, notices or inquiries to, or requests for
information received by, the Borrowers or any of their Subsidiaries
with respect to any alleged violation of any Environmental Law, that,
singly or in the aggregate, have or may reasonably be expected to have
a Material Adverse Effect, or
(ii) claims, complaints, notices or inquiries to, or requests for
information received by, the Borrowers or any of their Subsidiaries
regarding potential liability under any Environmental Law or under any
common law theories relating to operations or the condition of any
facilities or Property (including underlying groundwater) owned,
leased or operated by the Borrowers or any of their Subsidiaries that,
singly or in the aggregate, have, or may reasonably be expected to
have a Material Adverse Effect;
(c) there have been no Releases of Hazardous Materials at, on or under
any Property now or, to the Borrowers' or a Subsidiary of the Borrowers'
knowledge, previously owned or leased by the Borrowers or their
Subsidiaries
-74-
<PAGE>
that, singly or in the aggregate, have, or may reasonably be expected to
have, a Material Adverse Effect;
(d) the Borrowers and their Subsidiaries have been issued and are in
material compliance with all permits, certificates, approvals, licenses and
other authorizations required under Environmental Laws and necessary for
its business;
(e) no Property now or, to the Borrowers' or a Subsidiary of the
Borrowers' knowledge, previously owned, leased or operated by the Borrowers
or their Subsidiaries is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, or, to the extent that such listing
may, singly or in the aggregate, have, or may reasonably be expected to
have a Material Adverse Effect, on the CERCLIS or on any other published
federal or state list of sites requiring investigation or clean-up pursuant
to Environmental Laws;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any Property now or, to the
Borrowers' or a Subsidiary of the Borrowers' knowledge, previously owned,
leased or operated by the Borrowers or their Subsidiaries that, singly or
in the aggregate, have, or may reasonably be expected to have, a Material
Adverse Effect;
(g) none of the Borrowers or any of their Subsidiaries has directly
transported or directly arranged for the transportation of any Hazardous
Material to any location which is listed or proposed for listing on the
National Priorities List pursuant to CERCLA, or, to the extent that such
listing may, singly or in the aggregate, have, or may reasonably be
expected to have a Material Adverse Effect, on the CERCLIS or on any
published federal or state list of sites requiring investigation or clean-
up pursuant to Environmental Laws or which is the subject of federal, state
or local enforcement actions or other investigations which would reasonably
be expected to lead to claims against the Borrowers or any of their
Subsidiaries which would have a Material Adverse Effect for any remedial
work, damage to natural resources or personal injury, including claims
under CERCLA;
(h) there are no polychlorinated biphenyls, radioactive materials or
friable asbestos present at any Property now or, to the Borrowers' or a
Subsidiary of the Borrowers' knowledge, previously owned or leased by the
Borrowers or any of their Subsidiaries that, singly or in the aggregate,
have, or may reasonably be expected to have, a Material Adverse Effect; and
(i) no condition exists at, on or under any property now or, to the
Borrowers' or a Subsidiary of the Borrowers' knowledge, previously owned or
-75-
<PAGE>
leased by the Borrowers or any of their Subsidiaries which, with the
passage of time, or the giving of notice or both, would give rise to
material liability under any Environmental Law that, singly or in the
aggregate have, or may reasonably be expected to have a Material Adverse
Effect.
SECTION 7.18. YEAR 2000 COMPLIANCE.
(a) The Borrowers are: (i) developing a review and assessment program of
all areas with their and each of their Subsidiaries' businesses and operations
(including those affected by suppliers and vendors) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications (as well as imbedded microchips) used by the Borrowers or any of
their Subsidiaries (or any of their suppliers and vendors) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999); (ii) developing a plan and a
timetable for addressing the Year 2000 Problem on a timely basis; and (iii) to
date, implementing that plan in accordance with that timetable.
(b) The Borrowers reasonably believe that all computer applications
(including those of their suppliers and vendors) that are material to their or
their Subsidiaries' businesses and operations will, on a timely basis, be able
to perform properly date-sensitive functions for all dates before and after
January 1, 2000, (that is, be "Year 2000 Compliant"), except to the extent that
a failure to do so could not reasonably be expected to have a Material Adverse
Effect.
SECTION 7.19. REGULATIONS G, U AND X. None of the Borrowers or any of their
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock, and no proceeds of any Loans will be used
for a purpose which violates, or would be inconsistent with, F.R.S. Board
Regulation G, U or X. Terms for which meanings are provided in F.R.S. Board
Regulation G, U or X or any regulations substituted therefor, as from time to
time in effect, are used in this Section with such meanings.
SECTION 7.20. ACCURACY OF INFORMATION. All factual information heretofore
or contemporaneously furnished by or on behalf of the Borrowers or any of their
Subsidiaries in writing to the Agent or the Lenders for purposes of or in
connection with this Agreement or any transaction contemplated hereby (including
without limitation each Engineering Report) is, and all other such factual
information hereafter furnished by or on behalf of the Borrowers or any of their
Subsidiaries to the Agent or Lenders will be, true and accurate in every
material respect on the date as of which such information is dated or certified
and as of the date of execution and delivery of this Agreement by the Lenders,
and such information is not, or shall not be, as the case may be, incomplete by
omitting to state any material fact necessary to make such information not
misleading.
-76-
<PAGE>
ARTICLE VII
COVENANTS
SECTION 8.1. AFFIRMATIVE COVENANTS. The Borrowers agree with the Agent and
each Lender that, until all Commitments have terminated and all Obligations have
been paid and performed in full, the Borrowers and each of their Subsidiaries
will perform the obligations set forth in this Section 8.1.
SECTION 8.1.1. FINANCIAL INFORMATION, REPORTS, NOTICES, ETC. The Borrowers
will furnish, or will cause to be furnished, to the Agent and each Lender copies
of the following financial statements, reports, notices and information:
(a) as soon as available and in any event within sixty (60) days after
the end of each of the first three Fiscal Quarters of each Fiscal Year of
Alliance Plc, balance sheets of Alliance Plc and its consolidated
Subsidiaries as of the end of such Fiscal Quarter and statements of
operations and cash flow of Alliance Plc and its consolidated Subsidiaries
for such Fiscal Quarter and for the period commencing at the end of the
previous Fiscal Year and ending with the end of such Fiscal Quarter,
certified by the chief financial Authorized Officer of Alliance Plc;
(b) as soon as available and in any event within one-hundred and
twenty (120) days after the end of each Fiscal Year of Alliance Plc, a copy
of the annual audit report for such Fiscal Year for Alliance Plc and its
consolidated Subsidiaries, including therein the balance sheet of Alliance
Plc and its consolidated Subsidiaries as of the end of such Fiscal Year and
statements of operations and cash flow of Alliance Plc and its consolidated
Subsidiaries for such Fiscal Year, in each case certified (without any
Impermissible Qualification) in a manner reasonably acceptable to the Agent
by an independent public accountant acceptable to the Agent, together with
a report from such accountants containing a computation of, and showing
compliance with, each of the financial ratios and restrictions contained in
Section 8.2.4 and to the effect that, in making the examination necessary
for the signing of such annual report by such accountants, they have not
become aware of any Default that has occurred and is continuing, or, if
they have become aware of such Default, describing such Default and the
steps, if any, being taken to cure it;
(c) concurrently with the delivery of the financial statements
referred to is clauses (a) and (b), a certificate, executed by the chief
financial Authorized Officer of Alliance Plc, showing (in reasonable detail
and with appropriate calculations and computations in all respects
reasonably
-77-
<PAGE>
satisfactory to the Agent) compliance with the financial covenants set
forth in Section 8.2.4, showing, among other things, a comparison between
the actual results and the minimum requirements of this Agreement and also
certifying to such Authorized Officer's best knowledge, that no Default or
Event of Default has occurred and is then outstanding;
(d) on or prior to thirty (30) days before the beginning of each
Fiscal Year, a budget for Alliance Plc and its consolidated Subsidiaries
for the following Fiscal Year, in form, scope and detail reasonably
satisfactory to the Agent, showing, among other things, Approved
Development Activities for such period, which budget shall, each Fiscal
Quarter be updated and revised to cover the 12 month period following such
Fiscal Quarter;
(e) as soon as possible and in any event within three (3) days after
the occurrence of each Default and any event which has or is reasonably
likely to have a Material Adverse Effect, a statement of the chief
financial Authorized Officer of the Borrowers setting forth details of such
Default or event and the action which Alliance Plc and the Borrowers have
taken and propose to take with respect thereto;
(f) as soon as possible and in any event within three (3) days after
(x) the occurrence of any adverse development with respect to any
litigation, action, proceeding or labor controversy described in Section
7.9 or (y) the commencement of any litigation, action, proceeding or labor
controversy of the type described in Section 7.9, notice thereof and copies
of all documentation relating thereto;
(g) as soon as possible and in any event within ten (10) days after
any responsible officer of Alliance Plc or any Borrower has actual
knowledge thereof, notice of
(i) any claim by any Person against any Borrower or any of its
Subsidiaries of nonpayment of, or
(ii) any attempt by any Person to collect upon or enforce
any accounts payable of Alliance Plc or any of its consolidated
Subsidiaries, in the case of any single account payable in excess of
$100,000, or in the case of all accounts payable at any time outstanding in
excess of $250,000;
(h) as soon as available and in any event within sixty (60) days after
each of May 1st of each calendar year, an Engineering Report, from an
independent petroleum engineering firm acceptable to the Agent in its
reasonable judgment, and as soon as available and in any event within sixty
-78-
<PAGE>
(60) days after November 1st of each calendar year, an Engineering Report
from the Borrowers' internal reserve engineers, unless the Agent, at least
sixty (60) days before the required delivery date of such Engineering
Report, has requested that it be prepared by an independent petroleum
engineering firm reasonably acceptable to the Agent;
(i) promptly after (i) the sending or filing thereof, copies of all
reports which Alliance Plc, Alliance Group or the Borrowers send to any of
their security holders, (ii the sending or filing thereof, all reports and
registration statements which Alliance Plc, Alliance Group or the Borrowers
file with the Securities and Exchange Commission or any national securities
exchange, (ii the filing thereof, copies of all tariff and rate cases and
other material reports filed with any regulatory authority (other than
routine operating reports), and (iv receipt thereof, copies of all notices
received from any regulatory authority concerning noncompliance by any
Borrower with any Applicable Law;
(j) immediately upon becoming aware of the institution of any steps by
any Borrower or any other Person to terminate any Pension Plan, or the
failure to make a required contribution to any Pension Plan if such failure
is sufficient to give rise to a Lien under section 302(f) of ERISA, or the
taking of any action with respect to a Pension Plan which could result in
the requirement that such Borrower furnish a bond or other security to the
PBGC or such Pension Plan, or the occurrence of any event with respect to
any Pension Plan which could result in the incurrence by such Borrower of
any material liability, fine or penalty, or any material increase in the
contingent liability of such Borrower with respect to any post-retirement
Welfare Plan benefit, notice thereof and copies of all documentation
relating thereto;
(k) upon, but in no event later than ten (10) days after, becoming
aware of (i) any and all enforcement, cleanup, removal or other
governmental or regulatory actions instituted, completed or threatened
against the Borrowers or any of their Properties pursuant to any applicable
Environmental Laws, (ii) all other environmental claims, and (iii) any
environmental or similar condition on any real property adjoining or in the
vicinity of the property of the Borrowers that could reasonably be
anticipated to cause such Property or any part thereof to be subject to any
restrictions on the ownership, occupancy, transferability or use of such
property under any Environmental Laws;
(l) a monthly summary of production volumes, revenues, operating
costs, Net Proceeds of Production, general and administrative expenses,
Capital Expenditures, drilling and completion reports and well-test data;
-79-
<PAGE>
(m) such other information respecting the condition or operations,
financial or otherwise of Alliance Plc or any of its consolidated
Subsidiaries as the Agent may from time to time reasonably request; and
(n) promptly after any Borrower discovers or determines that any
computer application (including those of their suppliers or vendors) that
is material to the businesses or operations of the Borrowers and their
Subsidiaries taken as a whole will not be Year 2000 Compliant on a timely
basis, notice thereof and a copy of the Borrowers' plan for dealing with
such problem except to the extent such failure could not reasonably be
expected to have a Material Adverse Effect.
SECTION 8.1.2. COMPLIANCE WITH LAWS, ETC. The Borrowers will, and will
cause each of their Subsidiaries to, comply in all material respects with all
Applicable Laws, such compliance to include (without limitation):
(a) the maintenance and preservation of their corporate existence and
qualification as a foreign corporation; and
(b) the payment, before the same become delinquent, of all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with
GAAP shall have been set aside on its books.
SECTION 8.1.3. MAINTENANCE AND DEVELOPMENT OF PROPERTIES.
(a) The Borrowers will, and will cause each of their Subsidiaries to,
maintain, preserve, protect and keep their Properties in good repair,
working order and condition (ordinary wear and tear excepted), and make
necessary and proper repairs, renewals and replacements so that their
business carried on in connection therewith may be properly conducted at
all times in accordance with standard industry practices. In particular,
the Borrowers will, and will cause each of their Subsidiaries to, operate
or cause to be operated their Oil and Gas Properties as reasonable and
prudent operators.
(b) The Borrowers will, and will cause each of their Subsidiaries to,
use their reasonable best efforts promptly to develop and bring into
production all developed non-producing Proven Reserves identified in the
Approved Development Plan and, after the period covered in the initial
Approved Development Plan, those reserves used in the calculation of
Borrowing Base and Collateral Value.
-80-
<PAGE>
(c) The Borrowers shall ensure that at all times they have available
to them, either through its employees or through independent contractors,
petroleum engineers with appropriate experience and expertise in the proper
operation and development of properties similar to the Mortgaged
Properties.
(d) From time-to-time, but not less than once each Fiscal Quarter
during the time any Tranche B Loan is outstanding, the Borrowers shall
propose to the Agent revisions to the Approved Development Plan then in
effect, showing, among other things, revised projections of Capital
Expenditures for the eighteen (18) month period following such revision,
which revisions shall in all respects satisfactory to the Agent. Once
approved in writing by the Agent, the then existing Approved Development
Plan shall be amended and shall thereafter replace and supersede the prior
Approved Development Plan.
(e) Promptly after the drilling and completion of each well drilled on
the Oil and Gas Properties that have been considered by the Agent in the
determination or redetermination of the Borrowing Base or the Collateral
Value, the applicable Borrower shall promptly request assignments of any
interests earned by virtue of such drilling and, within fifteen (15) days
after the earlier to occur of the receipt of such assignments or sixty (60)
days after first production from such well, shall deliver to the Agent:
(i) true and correct copies of any such assignments of record title
of the applicable Oil and Gas Properties into such Borrower or its
Subsidiary, as applicable,
(ii) true and correct copies of all required Consents, Mortgage
Consents and Approvals applicable to such assignments,
(iii) original, executed and acknowledged counterparts of a
supplemental Mortgage and related amendments to financing statements
and
(iv) a favorable mortgagee's title opinion showing that such Borrower
or its Subsidiary, as applicable, is vested with good and marketable
title to interests in the applicable Mortgaged Property consistent
with the working interests and net revenue interest for such property
shown in the most recent Engineering Report and showing that the
interests created by such supplemental Mortgage constitute valid first
Liens thereon, free and clear of all defects and encumbrances other
than as approved by the Lender,
in each case in form and substance reasonably satisfactory to the Agent.
-81-
<PAGE>
SECTION 8.1.4. INSURANCE. The Borrowers will, and will cause each of
their Subsidiaries to, maintain or cause to be maintained with responsible
insurance companies insurance with respect to their properties and business
against such casualties and contingencies and of such types and in such amounts
as is customary in the case of similar businesses (including, where appropriate,
well control, operator's extra expense and remediation insurance) and will
furnish to the Agent on or before March 1st each year a certificate of
Authorized Officers of the Borrowers and their Subsidiaries setting forth the
nature and extent of all insurance maintained by the Borrowers and their
Subsidiaries in accordance with this Section. The following shall apply to the
insurance required by this Section 8.1.4:
(a) Each policy for property insurance covering the Mortgaged Property
shall show the Agent as loss payee;
(b) Each policy for liability insurance covering the Mortgaged
Property shall show the Agent and the Lenders as additional insureds;
(c) Each insurance policy covering the Mortgaged Property shall
provide that at least thirty (30) days prior written notice of
cancellation, reduction in amount or other change in coverage, or of lapse
shall be given to the Agent by the insurer; and
(d) The Borrowers shall, if so requested by the Agent, deliver to the
Agent the original or a certified copy of each insurance policy covering
the Mortgaged Property.
SECTION 8.1.5. BOOKS AND RECORDS. The Borrowers will, and will cause
each of their Subsidiaries to, keep books and records which accurately reflect
all of their material business affairs and transactions and permit the Agent or
any of its respective representatives, at reasonable times (but in any event,
within three (3) Business Days after notice from the Agent and during all normal
business hours) and at reasonable intervals, to visit all of their offices, to
discuss their financial matters with their officers, directors and independent
public accountant (and each Borrower hereby authorizes such independent public
accountant to discuss such Borrower's financial matters with the Agent or its
representatives whether or not any representative of such Borrower is present)
and to examine (and, at the expense of such Borrower, photocopy extracts from)
any of its books or other corporate records. The Borrowers shall pay any
reasonable fees of such independent public accountant incurred in connection
with the Agent's exercise of its rights pursuant to this Section. Furthermore,
the Borrowers will permit the Agent, or its agents, at the cost and expense of
the Borrowers, to enter upon the Mortgaged Properties and all parts thereof, for
the purpose of investigating and inspecting the condition and operation thereof,
and shall permit reasonable access to the field offices and other offices,
-82-
<PAGE>
including the principal place of business, of the Borrower to inspect and
examine the Mortgaged Properties.
SECTION 8.1.6. ENVIRONMENTAL COVENANT. The Borrowers will, and will
cause each of their Subsidiaries to,
(a) use, operate and maintain all of their facilities and Properties
in material compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect and remain in material
compliance therewith, and handle all Hazardous Materials in material
compliance with all applicable Environmental Laws;
(b) (i) immediately notify the Agent and provide copies upon receipt
of all written claims, complaints, notices or inquiries relating to the
condition of their facilities and Properties or compliance with
Environmental Laws to the extent that the same have, or could reasonably be
expected to have, a Material Adverse Effect, (ii) use all reasonable
efforts within a reasonable time to have dismissed with prejudice any
actions or proceedings relating to compliance with Environmental Laws which
would or could in the reasonable opinion of the Agent have a Material
Adverse Effect, and (iii) diligently pursue cure of any material underlying
environmental condition which forms the basis of any such claim, complaint,
notice or inquiry; and
(c) provide such information and certifications which the Agent may
reasonably request from time to time to evidence compliance with this
Section 8.1.6.
SECTION 8.1.7. FURTHER ASSURANCES.
(a) The Borrowers will, and will cause each of their subsidiaries to,
upon the request of the Agent, take such actions and execute and deliver
such documents and instruments as the Agent shall require to ensure that
the Agent shall, at all times, have received currently effective duly
executed Loan Documents encumbering Oil and Gas Properties of the Borrowers
and their Subsidiaries not included within the Mortgaged Properties
constituting at least 90% of the Proven Reserves of the Borrowers and their
Subsidiaries to which value is given in the determination of the then
current Borrowing Base and Collateral Value (with accompanying letters in
lieu of transfer orders) and satisfactory title evidence in form and
substance reasonably acceptable to the Agent in its reasonable business
judgment as to ownership of such Oil and Gas Properties; provided, that
upon thirty (30) days notice to the Borrowers, the Agent may require, and
the Borrowers and/or their Subsidiaries, as applicable, shall execute,
acknowledge and deliver to the Agent, Mortgages effectively
-83-
<PAGE>
encumbering 100% of the Oil and Gas Properties of the Borrowers and their
Subsidiaries to which value is given in the determination of the then
current Borrowing Base and Collateral Value.
(b) If the Agent shall determine that, as of the date of any Borrowing
Base Redetermination or Collateral Value Redetermination, the Borrowers or
any of their Subsidiaries shall have failed to comply with the preceding
sentence, the Agent may notify the Borrowers in writing of such failure
and, within thirty (30) days from and after receipt of such written notice
by the Borrowers, the Borrowers or any of their Subsidiaries shall execute
and deliver to the Agent supplemental or additional Loan Documents, in form
and substance satisfactory to the Agent and its counsel, securing payment
of the Note and the other Obligations and covering additional assets not
then encumbered by any Loan Documents (together with current valuations,
Engineering Reports, and title evidence applicable to the additional assets
collaterally assigned, each of which shall be in form and substance
satisfactory to the Agent) such that the Agent shall have received
currently effective duly executed Loan Documents encumbering Oil and Gas
Properties constituting at least 90% (or, as provided in Section 8.1.7(a),
100%) of the Proven Reserves of the Borrowers and their Subsidiaries to
which value is given in the determination of the then current Borrowing
Base and Collateral Value (with accompanying letters in lieu of transfer
orders) and satisfactory title evidence in form and substance acceptable to
the Agent in its reasonable business judgment as to ownership of such Oil
and Gas Properties.
(c) Promptly upon the determination that any Subsidiary has become a
Material Subsidiary, the Borrowers will cause such Material Subsidiary to
execute and deliver to the Agent a Guaranty and a Security Agreement and
(if such Material Subsidiary has Oil and Gas Properties included in the
Borrowing Base and Collateral Value) a Mortgage, and the Borrowers will
enter into such amendments to the applicable Pledge Agreement as are
necessary to cause the stock of such Material Subsidiary to become subject
to such Pledge Agreement.
(d) Within forty-five (45) days after the Unified Closing Date, the
Borrowers shall deliver to the Agent (i) to the extent not previously
delivered, Mortgages and the Difco Consents in respect of the Other Difco
Assets; (ii) a title report from counsel to the Borrowers confirming that
Difco has received good and marketable title to the East Irish Sea Assets
and confirming that the Agent has a first in priority, perfected Lien
thereon, subject only to such encumbrances as are permitted under Section
8.2.3; (iii) the share certificate representing the all of the capital
stock of Difco, together with evidence of the registration of Alliance Plc
as the sole shareholder of Difco; (iv) the initial Approved Development
Plan, in form, scope and detail reasonably satisfactory
-84-
<PAGE>
to the Agent; (v) the initial budget for the Borrowers and their
Subsidiaries for the twelve (12) months immediately following the Unified
Closing Date in form, scope and detail reasonably satisfactory to the
Agent.
(e) The Borrowers shall ensure that all written information, exhibits
and reports furnished by or on behalf of the Borrowers or any of their
Subsidiaries to the Agent do not and will not contain any untrue statement
of a material fact and do not and will not omit to state any material fact
or any fact necessary to make the statements contained therein not
misleading in light of the circumstances in which made, and will promptly
disclose to the Agent and correct any defect or error that may be
discovered therein or in any Loan Document or in the execution,
acknowledgment or recordation thereof.
SECTION 8.1.8. NATURAL GAS AND CRUDE OIL HEDGING.
(a) On or before February 28, 1999, LPC (or another Borrower as
approved by the Agent) will enter into Hydrocarbon Hedging Agreements
reasonably acceptable to the Agent that will enable Alliance USA, Source,
LPC, New GOC and Difco to obtain net realized prices with respect to
Mortgaged Properties located in the United States, during the time any
Tranche B Loan is outstanding of not less than (i) an agreed upon amount
per MMBtu of natural gas produced from its Hydrocarbon Interests on not
less than 50% nor more than 70% of the aggregate volumes projected to be
produced from proved developed producing reserves included in the Mortgaged
Properties as of the Effective Date, and (ii) an agreed upon amount per
barrel of crude oil produced from its Hydrocarbon Interests on not less
than 50% nor more than 70% of the aggregate volumes projected to be
produced from proved developed producing reserves included in the Mortgaged
Properties as of the Effective Date;
(b) On or before the date which is 120 days after the date on which
the Department of Trade and Industry approves the development plan for each
field in the East Irish Sea Assets, LPC (or another Borrower as approved by
the Agent) will enter into Hydrocarbon Hedging Agreements reasonably
acceptable to the Agent that will enable Alliance USA, Source, LPC, New GOC
and Difco to obtain net realized prices with respect to such portion of the
East Irish Sea Assets, during the time any Tranche B Loan is outstanding,
of not less than an agreed upon amount per MMBtu of natural gas produced
from such Hydrocarbon Interests on not less than 50% nor more than 70% of
the aggregate volumes projected to be produced from Proven Reserves
included in such portion of the East Irish Sea Assets. As an alternative
to such Hydrocarbon Hedging Agreements in respect of production from the
East Irish Sea Assets, Difco may enter into gas sales contracts for the
sale of production from the East Irish Sea Assets with price terms
acceptable to the Agent.
-85-
<PAGE>
Alliance USA, Source, GOCA, New GOC and Difco hereby acknowledge that LPC (or
such other Borrower) is entering into such Hydrocarbon Hedging Agreements not
only for its own benefit, but also for the benefit of Alliance USA, Source,
GOCA, New GOC and Difco. Alliance USA, Source, GOCA, New GOC and Difco further
acknowledge that LPC's (or such other Borrower's) Obligations under the Hedging
Agreements are Obligations of all the Borrowers as if they were parties
signatory thereto.
SECTION 8.1.9. INTEREST RATE PROTECTION. On or before February 28, 1999,
LPC (or another Borrower as approved by the Agent) shall enter into Hedging
Agreements, in form and substance satisfactory to the Agent, designed to ensure
a maximum interest rate of 8.5% on the notional amount projected by the Agent to
be outstanding as Tranche A Loans, 10.0% on the notional amount projected to be
outstanding as Tranche B Loans for a period not earlier than the Stated Maturity
Date for Tranche B Loans, and 12% on the notional amount projected to be
outstanding as Tranche C Loans for a period not less than the Stated Maturity
Date. Alliance USA, Source, GOCA, New GOC and Difco hereby acknowledge that LPC
(or such other Borrower) is entering into such Hedging Agreements not only for
its own benefit, but also for the benefit of Alliance USA, Source, GOCA, New GOC
and Difco. Alliance USA, Source, GOCA, New GOC and Difco further acknowledge
that LPC's (or such other Borrower's) Obligations under the Hedging Agreements
are Obligations of all the Borrowers as if they were parties signatory thereto.
SECTION 8.1.10. EXCHANGE RATE PROTECTION. On or before February 28, 1999,
LPC (or another Borrower as approved by the Agent) will enter exchange rate risk
management contracts or similar Hedging Agreements in respect of committed UK
Capital Expenditures included in the Approved Development Plan which will ensure
that at least 75% of the Sterling Capital Expenditures are covered by
Sterling/Dollar foreign exchange contracts to ensure that the Dollar Borrowings
are converted to Sterling within a band of $1.60/(Pounds)1.00 to
$1.80/(Pounds)1.00. In addition, the Borrowers will, within 30 days prior to the
start of each calendar quarter, ensure that, for all periods when any Tranche B
Loan is outstanding and unpaid, there are exchange rate risk management
contracts in place to ensure that the projected Dollar Loan repayments for that
forthcoming four calendar quarters are covered by the requisite proportion of
projected Sterling net revenues. Alliance USA, Source, GOCA, New GOC and Difco
hereby acknowledge that LPC (or such other Borrower) is entering into such
Hedging Agreements not only for its own benefit, but also for the benefit of
Alliance USA, Source, GOCA, New GOC and Difco. Alliance USA, Source, GOCA, New
GOC and Difco further acknowledge that LPC's (or such other Borrower's)
Obligations under the Hedging Agreements are Obligations of all the Borrowers as
if they were parties signatory thereto.
SECTION 8.2. NEGATIVE COVENANTS. The Borrowers agree with the Agent and
each Lender that, until all Commitments have terminated and all Obligations
have
-86-
<PAGE>
been paid and performed in full, the Borrowers will perform the obligations set
forth in this Section 8.2.
SECTION 8.2.1. BUSINESS ACTIVITIES. The Borrowers will not, and will not
permit any of their Subsidiaries to, engage in any business activity, except
those described in the first recital and such activities as may be incidental or
related thereto.
SECTION 8.2.2. INDEBTEDNESS. The Borrowers will not, and will not permit
any of their Subsidiaries to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(a) Indebtedness in respect of the Loans and other Obligations;
(b) Indebtedness in an aggregate principal amount not to exceed
$500,000 at any time outstanding which is incurred by the Borrowers or any
of their Subsidiaries to a vendor of any assets to finance its or their
acquisition of such assets;
(c) unsecured Indebtedness incurred in the ordinary course of business
(including (i) open accounts extended by suppliers on normal trade terms in
connection with purchases of goods and services, and (ii) gas balancing,
but excluding Indebtedness incurred through the borrowing of money or
Contingent Liabilities);
(d) Hedging Obligations incurred pursuant to the Hedging Agreements
approved by the Agent pursuant to Sections 8.1.8, 8.1.9 and 8.1.10; and
(e) Contingent Obligations incurred to satisfy bonding requirements
imposed by any Governmental Agency not to exceed, in the aggregate,
$500,000;
(f) Subordinated Indebtedness under the Subordinated Notes;
(g) the indebtedness of their Subsidiaries existing as of the
Effective Date which is identified in Item 8.2.2(h) of the Disclosure
Schedule;
(h) Indebtedness in respect of Capitalized Lease Obligations in an
amount not to exceed $500,000 at any time outstanding;
(i) any indebtedness owed by any Borrower to any of the Subsidiaries
or by any Subsidiary of any Borrower to any Borrower or any Subsidiary;
-87-
<PAGE>
(j) endorsements of negotiable instruments for collection in the
ordinary course of business;
(k) Indebtedness of the Borrower and its Subsidiaries which are
Investments to the extent permitted by Section 8.2.5(b); and
(l) Old LaTex Payables;
provided, however, that no Indebtedness otherwise permitted by clause (b) shall
be permitted if, after giving effect to the incurrence thereof, any Default
shall have occurred and be continuing.
SECTION 8.2.3. LIENS. The Borrowers will not, and will not permit any of
their Subsidiaries to, create, incur, assume or suffer to exist any Lien upon
any of their Property, revenues or assets, whether now owned or hereafter
acquired, except:
(a) Liens securing payment of the Obligations, granted pursuant to any
Loan Document;
(b) Liens granted to secure payment of Indebtedness of the type
permitted and described in clause (b) of Section 8.2.2 and covering only
those assets acquired with the proceeds of such Indebtedness;
(c) Hydrocarbon production sales contracts;
(d) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside
on its books; provided, that at no time shall such sums exceed in the
aggregate $250,000;
(e) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being diligently contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set
aside on its books; provided, that at no time shall such sums exceed in the
aggregate $100,000;
(f) Liens incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
-88-
<PAGE>
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds;
(g) covenants, restrictions, easements, servitudes, permits,
conditions, exceptions, reservations, minor rights, minor encumbrances,
minor irregularities in title or conventional rights of reassignment prior
to abandonment which do not materially interfere with the occupation, use
and enjoyment by the Borrowers of their assets in the ordinary course of
business as presently conducted, or materially impair the value thereof for
the purpose of such business;
(h) judgment Liens in existence less than thirty (30) days after the
entry thereof or with respect to which execution has been stayed or the
payment of which is covered in full (subject to a customary deductible) by
insurance maintained with responsible insurance companies; and
(i) Liens in favor of operators and non-operators under joint
operating agreements or similar contractual arrangements arising in the
ordinary course of the business of the Borrowers to secure amounts owing,
which amounts are not yet due or are being contested in good faith by
appropriate proceedings, if such reserve as may be required by GAAP shall
have been made therefor.
SECTION 8.2.4. FINANCIAL CONDITION. The Borrowers will not permit:
(a) the Current Ratio at any time to be less than 1.0:1.0; or
(b) the Debt to EBITDA Ratio at any time to be greater than 4:1 on, or
at any time after, April 30, 2001; or
(c) the Interest Coverage Ratio to be less than (i) 0.25:1.0 at April
30, 1999 (as to the Fiscal Quarter then ending); (ii) 0.25:1.0 at any time
after April 30, 1999, through and including July 31, 1999 (as to the two
Fiscal Quarters immediately preceding such date); (iii) 0.40:1.0 at any
time after July 31, 1999, through and including October 31, 1999 (as to the
three Fiscal Quarters immediately preceding such date); (iv) 0.80:1.0 at
any time after October 31, 1999, through and including January 31, 2000;
(v) 1.25:1.0 at any time after January 31, 2000, through and including
April 30, 2000; (vi) 1.50:1.0 at any time after April 30, 2000, through and
including July 31, 2000; (vii) 1.75:1.0 at any time after July 31, 2000,
through and including January 31, 2001; (viii) 2.0:1.0 at any time after
January 31, 2001, through and including April 30, 2001; (ix) 2.5:1.0 at any
time after April 30, 2001, through and including October 31, 2001; and (x)
3.0:1.0 at any time after October 31, 2001.
-89-
<PAGE>
The Borrowers will not, and will not permit any of their Subsidiaries to, make
any significant change in accounting treatment or reporting practices, except as
required by GAAP, or change the Fiscal Year of any Borrower or any of their
Subsidiaries.
SECTION 8.2.5. INVESTMENTS. The Borrowers will not, and will not permit
any of their Subsidiaries to, make, incur, assume or suffer to exist any
Investment in any other Person, except:
(a) Cash Equivalent Investments;
(b) without duplication, Investments permitted as Indebtedness
pursuant to Section 8.2.2; and
(c) without duplication, Investments in the nature of Capital
Expenditures;
provided, however, that
(d) any Investment which when made complies with the requirements of
the definition of the term "Cash Equivalent Investment" may continue to be
held notwithstanding that such Investment if made thereafter would not
comply with such requirements; and
(e) no Investment otherwise permitted by clause (b) or (c) shall be
permitted to be made if, immediately before or after giving effect thereto,
any Default shall have occurred and be continuing.
SECTION 8.2.6. RESTRICTED PAYMENTS, ETC. On and at all times after the
Effective Date:
(a) the Borrowers will not, and will not permit any of their
Subsidiaries (other than a wholly-owned Subsidiary) to, declare, pay or
make any dividend or distribution (in cash, property or obligations) on any
class of equity (now or hereafter outstanding) of the Borrowers or on any
options or other rights with respect to any interest of any class of equity
(now or hereafter outstanding) of the Borrowers or apply any of its funds,
property or assets to the purchase, redemption, sinking fund or other
retirement of, any class of equity (now or hereafter outstanding) of the
Borrowers, or options or other rights with respect to any interest of or in
any class of equity (now or hereafter outstanding) of the Borrowers (such
dividends, distributions or applications being called "Distribution
Payments") other than Distribution Payments which do not cause the
Borrowers to be in violation of the Restricted Payment Tests; and
-90-
<PAGE>
(b) the Borrowers will not, and will not permit any of their
Subsidiaries to, make any Distribution Payments other than to a Borrower;
and
(c) the Borrowers will not, and will not permit any of their
Subsidiaries (other than a wholly-owned Subsidiary) to, make any deposit
for any of the foregoing purposes.
SECTION 8.2.7. RENTAL OBLIGATIONS. The Borrowers will not, and will not
permit any of their Subsidiaries to, enter into at any time any arrangement
(excluding oil and gas leases entered into in the ordinary course of business)
which involves the leasing by the Borrowers or any of their Subsidiaries from
any lessor of any real or personal property (or any interest therein), except
arrangements which, together with all other such arrangements which shall then
be in effect, will not require the payment of an aggregate amount of rentals by
the Borrowers or any of their Subsidiaries in excess of (excluding escalations
resulting from a rise in the consumer price or similar index) $750,000 for any
Fiscal Year or $1,500,000 during the full remaining term of such arrangements;
provided, however, that any calculation made for purposes of this Section shall
exclude (i) any amounts required to be expended for maintenance and repairs,
insurance, taxes, assessments, and other similar charges (ii) any amounts
relating to Capitalized Lease Obligations.
SECTION 8.2.8. CONSOLIDATION, MERGER, ETC. The Borrowers will not, and
will not permit any of their Subsidiaries to, liquidate or dissolve, consolidate
with, or merge into or with, any other partnership or corporation, or purchase
or otherwise acquire all or substantially all of the assets of any Person (or of
any division thereof). The Borrowers will not, and will not permit any of their
Subsidiaries to, create any Subsidiary except with the prior written consent of
the Agent.
SECTION 8.2.9. ASSET DISPOSITIONS, ETC. The Borrowers will not, and will
not permit any of their Subsidiaries to, sell, transfer, lease, contribute or
otherwise convey, or grant options, warrants or other rights with respect to,
all or substantially all of the assets of the Borrowers or any of their
Subsidiaries in any one transaction or in any series of transactions, whether or
not related; and the Borrowers will not, and will not permit any of their
Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant
options, warrants or other rights with respect to, less than all or any
substantial part of its assets (including accounts receivable) to any Person
other than
(a) farmouts under standard industry terms of Properties not holding
Proven Reserves,
(b) abandonment of Properties not capable of producing Hydrocarbons in
paying quantities after the expiration of their primary terms
-91-
<PAGE>
(c) as permitted by Section 2.7 of the Mortgages and
(d) if such assets are in the Borrowing Base and the Collateral Value,
the Borrowers comply with the terms of Section 3.1.2 and such sale,
transfer, lease, contribution or conveyance is for cash in an amount at
least equal to the fair market value of such assets.
SECTION 8.2.10. MODIFICATION OF CERTAIN AGREEMENTS. The Borrowers will
not, and will not permit any of their Subsidiaries to, consent to any amendment,
supplement or other modification of any of the terms or provisions contained in,
or applicable to, any Material Contracts, including the Burlington Agreement,
nor will Alliance Plc or Difco consent to any amendment, supplement or other
modification of any of the terms or provisions contained in, or applicable to,
the Difco Agreement.
SECTION 8.2.11. TRANSACTIONS WITH AFFILIATES. The Borrowers will not,
and will not permit any of their Subsidiaries to, enter into, or cause, suffer
or permit to exist any arrangement or contract with any of its or their other
Affiliates (other than an arrangement or contract with a Borrower) unless such
arrangement or contract is fair and equitable to such Borrower or such
Subsidiary and is an arrangement or contract of the kind which would be entered
into by a prudent Person in the position of such Borrower or such Subsidiary
with a Person which is not one of its Affiliates.
SECTION 8.2.12. NEGATIVE PLEDGES, RESTRICTIVE AGREEMENTS, ETC. The
Borrowers will not, and will not permit any of their Subsidiaries to, enter into
any agreement (excluding this Agreement, any other Loan Document and any
agreement governing any Indebtedness permitted by clause (b) of Section 8.2.2 as
in effect on the Effective Date as to the assets financed with the proceeds of
such Indebtedness) prohibiting
(a) the creation or assumption of any Lien upon its properties,
revenues or assets, whether now owned or hereafter acquired, or the ability
of such Borrower or any other Obligor to amend or otherwise modify this
Agreement or any other Loan Document; or
(b) the ability of any Subsidiary to make any payments, directly or
indirectly, to the Borrowers by way of dividends, advances, repayments of
loans or advances, reimbursements of management and other intercompany
charges, expenses and accruals or other returns on investments, or any
other agreement or arrangement which restricts the ability of any such
Subsidiary to make any payment, directly or indirectly, to the Borrowers.
SECTION 8.2.13. TAKE OR PAY CONTRACTS. No Borrower will enter into or be
a party to any arrangement for the purchase of materials, supplies, other
property (including without limitation Hydrocarbons), or services if such
arrangement requires
-92-
<PAGE>
that payment be made by such Borrower regardless of whether such materials,
supplies, other property, or services are delivered or furnished to it.
ARTICLE IX.
EVENTS OF DEFAULT
SECTION 9.1 LISTING OF EVENTS OF DEFAULT. Each of the following events
or occurrences described in this Section 9.1 shall constitute an "Event of
Default".
SECTION 9.1.1. NON-PAYMENT OF OBLIGATIONS. Any Borrower shall default in
the payment or prepayment when due of any principal of any Loan; any Borrower
shall default in the payment when due of any Reimbursement Obligation or Hedging
Obligation under a Hedging Agreement in effect between a Borrower and a Lender
or an Affiliate of a Lender; or any Borrower shall default (and such default
shall continue unremedied for a period of five (5) days) in the payment when due
of any interest on any Loan or any fee or of any other Obligation.
SECTION 9.1.2. BREACH OF WARRANTY. Any representation or warranty of the
Borrowers or any other Obligor made or deemed to be made hereunder or in any
other Loan Document executed by it or any other writing or certificate furnished
by or on behalf of the Borrowers or any other Obligor to the Agent, the Issuer
or any Lender for the purposes of or in connection with this Agreement or any
such other Loan Document (including any certificates delivered pursuant to
Article VI) is or shall be incorrect when made in any material respect.
SECTION 9.1.3. NON-PERFORMANCE OF CERTAIN COVENANTS AND OBLIGATIONS. Any
Borrower shall default in the due performance and observance of any of its
obligations under Section 8.1 or 8.2.
SECTION 9.1.4. NON-PERFORMANCE OF OTHER COVENANTS AND OBLIGATIONS. Any
Borrower or any other Obligor shall default in the due performance and
observance of any other agreement contained herein or in any other Loan Document
executed by it, and such default shall continue unremedied for a period of
fifteen (15) days after notice thereof shall have been given to the Borrowers by
the Agent.
SECTION 9.1.5. DEFAULT ON OTHER INDEBTEDNESS.
(a) A default shall occur in the payment when due (subject to any
applicable grace period), whether by acceleration or otherwise, of any
Indebtedness (including any Hedging Agreements in effect between the
Borrowers and the Agent, but excluding (x) Old LaTex Payables, and (y)
Indebtedness described in Section 9.1.1) of the Borrowers or any other
Obligor
-93-
<PAGE>
having a principal amount, individually or in the aggregate, in excess of
$250,000, or a default shall occur in the performance or observance of any
obligation or condition with respect to such Indebtedness if the effect of
such default is to accelerate the maturity of any such Indebtedness or such
default shall continue unremedied for any applicable period of time
sufficient to permit any holder of such Indebtedness, or any trustee or
agent for such holders, to cause such Indebtedness to become due and
payable prior to its expressed maturity; or
(b) A default shall occur in the payment when due of any royalty,
overriding royalty or similar interest burdening the Oil and Gas Properties
(other than the Old LaTex Payables) of any Borrower or any of its
Subsidiaries (including the Assignment) individually or in the aggregate,
in excess of $100,000.
SECTION 9.1.6. JUDGMENTS. Any judgment decree, arbitration award or
order for the payment of money in excess of $250,000 shall be rendered against
any Borrower or any other Obligor and either
(a) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order; or
(b) there shall be any period of ten (10) consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
SECTION 9.1.7. PENSION PLANS. Any of the following events shall occur
with respect to any Pension Plan
(a) the institution of any steps by any Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a
result of such termination, such Borrower or any such member could be
required to make a contribution to such Pension Plan, or could reasonably
expect to incur a liability or obligation to such Pension Plan; or
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA.
SECTION 9.1.8. CONTROL OF THE BORROWERS. Any Change in Control shall
occur.
-94-
<PAGE>
SECTION 9.1.9. BANKRUPTCY, INSOLVENCY, ETC. Any Borrower or any other
Obligor shall
(a) become insolvent or generally fail to pay, or admit in writing its
inability or unwillingness to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for such Borrower or any
other Obligor or any property of any thereof, or make a general assignment
for the benefit of creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for such Borrower or any other Obligor or
for a substantial part of the property of any thereof, and such trustee,
receiver, sequestrator or other custodian shall not be discharged within
sixty (60) days, provided that the Borrowers and each other Obligor hereby
expressly authorizes the Agent and the Lenders to appear in any court
conducting any relevant proceeding during such 60-day period to preserve,
protect and defend its rights under the Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect of any Borrower or any other Obligor, and, if any
such case or proceeding is not commenced by such Borrower or such other
Obligor, such case or proceeding shall be consented to or acquiesced in by
such Borrower or such other Obligor or shall result in the entry of an
order for relief or shall remain for sixty (60) days undismissed, provided
that such Borrower and each other Obligor hereby expressly authorizes the
Agent and the Lenders to appear in any court conducting any such case or
proceeding during such 60-day period to preserve, protect and defend its
rights under the Loan Documents; or
(e) take any action authorizing, or in furtherance of, any of the
foregoing.
SECTION 9.1.10. IMPAIRMENT OF SECURITY, ETC. Any Loan Document, or any
Lien granted thereunder, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of any Obligor party thereto; any Borrower,
any other Obligor or any other party shall, directly or indirectly, contest in
any manner such effectiveness, validity, binding nature or enforceability; or
any Lien (pertaining to any Property having more than immaterial value) securing
any Obligation shall, in whole
-95-
<PAGE>
or in part, cease to be a perfected first priority Lien, subject only to those
exceptions expressly permitted by such Loan Document.
SECTION 9.1.11. MATERIAL ADVERSE EFFECT. Any Material Adverse Effect
shall occur.
SECTION 9.2. ACTION IF BANKRUPTCY. If any Event of Default described in
clauses (a) through (d) of Section 9.1.9 shall occur with respect to any
Borrower or any other Obligor, the Commitments (if not theretofore terminated)
shall automatically terminate and the outstanding principal amount of all
outstanding Loans and all other Obligations shall automatically be and become
immediately due and payable, without notice or demand.
SECTION 9.3. ACTION IF OTHER EVENT OF DEFAULT. If any Event of Default
(other than any Event of Default described in clauses (a) through (d) of
Section 9.1.9 with respect to any Borrower or any other Obligor) shall occur for
any reason, whether voluntary or involuntary, and be continuing, the Agent, may
by notice to the Borrowers declare all or any portion of the outstanding
principal amount of the Loans and other Obligations to be due and payable and/or
the Commitments (if not theretofore terminated) to be terminated, whereupon the
full unpaid amount of such Loans and other Obligations which shall be so
declared due and payable shall be and become immediately due and payable,
without further notice, demand or presentment, and/or, as the case may be, the
Commitments shall terminate.
SECTION 9.4. RIGHTS NOT EXCLUSIVE. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other rights, powers, privileges or remedies provided by Applicable Law or
in equity, or under any other instrument, document or agreement now existing or
hereafter arising.
ARTICLE X
THE AGENT
SECTION 10.1. ACTIONS. Each Lender hereby appoints BankAmerica as its
Agent under and for purposes of this Agreement, the Notes and each other Loan
Document, and BankAmerica hereby accepts such appointment. Each Lender
authorizes the Agent to act on behalf of such Lender under this Agreement, the
Notes and each other Loan Document and, in the absence of other written
instructions from the Required Lenders received from time to time by the Agent
(with respect to which the Agent agrees that it will comply, except as otherwise
provided in this Section and to the extent such instructions may reasonably be
expected to comply with applicable law), to exercise such powers and to perform
such duties hereunder and thereunder as are specifically delegated to or
required of the Agent by the terms hereof and
-96-
<PAGE>
thereof, together with such powers as may be reasonably incidental thereto;
provided, however, that the Agent shall not take any action that requires the
consent of any Lender unless it receives such consent. Each Lender hereby
indemnifies (which indemnity shall survive any termination of this Agreement)
the Agent, pro rata according to such Lender's Percentage, from and against any
and all liabilities, obligations, losses, damages, claims, costs or expenses of
any kind or nature whatsoever which may at any time be imposed on, incurred by,
or asserted against, the Agent in any way relating to or arising out of this
Agreement, the Notes and any other Loan Document, including reasonable
attorneys' fees, and as to which the Agent is not reimbursed by the Borrowers;
provided, however, that no Lender shall be liable for the payment of any portion
of such liabilities, obligations, losses, damages, claims, costs or expenses
which are determined by a court of competent jurisdiction in a final proceeding
to have resulted solely from the Agent's gross negligence or wilful misconduct.
The Agent shall not be required to take any action hereunder, under the Notes or
under any other Loan Document, or to prosecute or defend any suit in respect of
this Agreement, the Notes or any other Loan Document, unless it is indemnified
hereunder to its satisfaction. If any indemnity in favor of the Agent shall be
or become, in the Agent's determination, inadequate, the Agent may call for
additional indemnification from the Lenders and cease to do the acts indemnified
against hereunder until such additional indemnity is given.
SECTION 10.2. FUNDING RELIANCE, ETC. Unless the Agent shall have been
notified by telephone, confirmed in writing, by any Lender by 5:00 p.m. (Chicago
time) on the day prior to a Borrowing that such Lender will not make available
the amount which would constitute its Percentage of such Borrowing on the date
specified therefor, the Agent may assume that such Lender has made such amount
available to the Agent and, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If and to the extent that such Lender
shall not have made such amount available to the Agent, such Lender and the
Borrower severally agree to repay the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
the Agent made such amount available to the Borrowers to the date such amount is
repaid to the Agent, at the interest rate applicable at the time to Loans
comprising such Borrowing.
SECTION 10.3. EXCULPATION. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable to any Lender for any action taken
or omitted to be taken by it under this Agreement or any other Loan Document, or
in connection herewith or therewith, except for its own wilful misconduct or
gross negligence, nor responsible for any recitals or warranties herein or
therein, nor for the effectiveness, enforceability, validity or due execution of
this Agreement or any other Loan Document, nor for the creation, perfection or
priority of any Liens purported to be created by any of the Loan Documents, or
the validity, genuineness, enforceability, existence, value or sufficiency of
any collateral security, nor to make any inquiry respecting the performance by
the Borrowers of their obligations hereunder or under
-97-
<PAGE>
any other Loan Document. Any such inquiry which may be made by the Agent shall
not obligate it to make any further inquiry or to take any action. The Agent
shall be entitled to rely upon advice of counsel concerning legal matters and
upon any notice, consent, certificate, statement or writing which the Agent
believes to be genuine and to have been presented by a proper Person.
SECTION 10.4. SUCCESSOR. The Agent may resign as such at any time upon
at least thirty (30) days' prior notice to the Borrowers and all Lenders, and
the Agent may be removed with or without cause as such by the Required Lenders
upon at least thirty (30) days' prior notice to the Agent and the Borrowers. If
the Agent at any time shall resign or be removed, the Required Lenders may
appoint another Lender as a successor Agent with the consent of the Borrowers
(which consent shall not be unreasonably withheld) which shall Lender thereupon
become the Agent hereunder. If no successor Agent shall have been so appointed
by the Required Lenders, and shall have accepted such appointment, within thirty
(30) days after the giving of notice of resignation or removal, then the
retiring or removed Agent may with the consent of the Borrowers (which consent
shall not be unreasonably withheld), on behalf of the Lenders, appoint a
successor Agent, which shall be one of the Lenders and, if no Lender accepts
such appointment, a commercial banking institution organized under the laws of
the United States (or any State thereof) or a United States branch or agency of
a commercial banking institution, and having a combined capital and surplus of
at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall be entitled to receive from the
retiring or removed Agent such documents of transfer and assignment as such
successor Agent may reasonably request, and shall thereupon succeed to and
become vested with all rights, powers, privileges and duties of the retiring or
removed Agent, and the retiring or removed Agent shall be discharged from its
duties and obligations under this Agreement. After any retiring or removed
Agent's resignation or removal hereunder as the Agent, the provisions of
(a) this Article X shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was the Agent under this Agreement;
and
(b) Section 11.3 and Section 11.4 shall continue to inure to its
benefit.
SECTION 10.5. LOANS OR LETTERS OF CREDIT ISSUED BY BANKAMERICA.
BankAmerica shall have the same rights and powers with respect to (x) the Loans
made by it or any of its Affiliates, (y) the Notes held by it or any of its
Affiliates, and (z) its participating interests in the Letters of Credit as any
other Lender and may exercise the same as if it were not the Agent. BankAmerica
and its Affiliates and each of the Lenders and their respective Affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrowers or any Subsidiary or Affiliate of the Borrowers as
if BankAmerica were not the Agent
-98-
<PAGE>
hereunder and in the case of each Lender, as if such Lender were not a Lender
hereunder.
SECTION 10.6. CREDIT DECISIONS. Each Lender acknowledges that it has,
independently of the Agent and each other Lender, and based on such Lender's
review of the financial information of the Borrowers, this Agreement, the other
Loan Documents (the terms and provisions of which being satisfactory to such
Lender) and such other documents, information and investigations as such Lender
has deemed appropriate, made its own credit decision to extend its Commitments.
Each Lender also acknowledges that it will, independently of the Agent and each
other Lender, and based on such other documents, information and investigations
as it shall deem appropriate at any time, continue to make its own credit
decisions as to exercising or not exercising from time to time any rights and
privileges available to it under this Agreement or any other Loan Document.
SECTION 10.7. COPIES, ETC. The Agent shall give prompt notice to each
Lender of each notice or request required or permitted to be given to the Agent
by the Borrowers pursuant to the terms of this Agreement (unless concurrently
delivered to the Lenders by the Borrowers). The Agent will distribute promptly
to each Lender each document or instrument received for its account and copies
of all other communications received by the Agent from the Borrowers for
distribution to the Lenders by the Agent in accordance with the terms of this
Agreement.
ARTICLE XI.
MISCELLANEOUS PROVISIONS
SECTION 11.1. WAIVERS, AMENDMENTS, ETC.
(a) The provisions of this Agreement and of each other Loan Document
may from time to time be amended, modified or waived, if such amendment,
modification or waiver is in writing and consented to by the Borrowers and
the Agent; provided, however, that no such amendment, modification or
waiver which would:
(i) modify any requirement hereunder that any particular action
be taken by all the Lenders or by the Required Lenders shall be
effective unless consented to by each Lender;
(ii) modify this Section 11.1, change the definitions of
"Required Lenders" or "Commitment Amount", increase the Percentage of
any Lender, reduce any fees described in Article III, change the
amortization schedule provided for in Section 3.1.1(e), (f) or (g),
release
-99-
<PAGE>
all or substantially all collateral security, except as otherwise
specifically provided in any Loan Document, or extend the Tranche A
Availability Termination Date, the Tranche B Availability Termination
Date, any Stated Maturity Date or the Commitment Termination Date,
shall be made without the consent of each Lender;
(iii) extend the due date for, or reduce the amount of, any
scheduled or mandatory repayment or prepayment of principal of or
interest on any Loan (or reduce the principal amount of or rate of
interest on any Loan) shall be made without the consent of each
Lender;
(iv) affect adversely the interests, rights or obligations of an
Issuer in its capacity as Issuer shall be made without the consent of
such Issuer; or
(v) affect adversely the interests, rights or obligations of
the Agent in its capacity as the Agent shall be made without consent
of the Agent.
No failure or delay on the part of the Agent or the Lenders in exercising
any power or right under this Agreement or any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of
any such power or right preclude any other or further exercise thereof or
the exercise of any other power or right. No notice to or demand on the
Borrowers in any case shall entitle it to any notice or demand in similar
or other circumstances. No waiver or approval by the Agent under this
Agreement or any other Loan Document shall, except as may be otherwise
stated in such waiver or approval, be applicable to subsequent
transactions. No waiver or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be granted hereunder.
(b) This Agreement is an amendment and restatement of, and replaces
and supersedes the Existing Agreement; provided, however, that no right,
interest, claim or cause of action of any kind of the Agent or any Lender
which may have existed under the Existing Agreement shall in any way be
released, modified, compromised or waived by virtue of this Existing
Agreement superseding and replacing the Existing Agreement.
SECTION 11.2. NOTICES.
(a) All notices, requests, consents, approvals, waivers and other
communications shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted by the Borrowers by facsimile (i) shall be immediately
confirmed by
-100-
<PAGE>
a telephone call to the recipient at the number specified on the signature
pages, and (ii) shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered, to the address or
facsimile number specified for notices on the signature pages hereof; or,
as directed to the Borrowers or the Lenders, to such other address as shall
be designated by such party in a written notice to the other parties, and
as directed to any other party, at such other address as shall be
designated by such party in a written notice to the Borrowers and the
Lenders.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when
delivered for overnight (next-day) delivery, or transmitted in legible form
by facsimile machine, respectively, or if mailed, upon the third Business
Day after the date deposited into the U.S. mail, or if delivered, upon
delivery.
(c) Any agreement of the Lenders herein to receive certain notices by
telephone or facsimile is solely for the convenience and at the request of
the Borrowers. The Agent and the Lenders shall be entitled to rely on the
authority of any Person purporting to be a Person authorized by the
Borrowers to give such notice and the Agent and the Lenders shall not have
any liability to the Borrowers or other Person on account of any action
taken or not taken by the Agent and the Lenders in reliance upon such
telephonic or facsimile notice. The obligation of the Borrowers to repay
the Loans shall not be affected in any way or to any extent by any failure
by a Lender to receive written confirmation of any telephonic or facsimile
notice or the receipt by the Agent and the Lenders of a confirmation which
is at variance with the terms understood by the Agent and the Lenders to be
contained in the telephonic or facsimile notice.
SECTION 11.3. PAYMENT OF COSTS AND EXPENSES. The Borrowers agree to pay
on demand all reasonable expenses of the Agent and each Lender (including the
fees and out-of-pocket expenses of internal and external counsel to the Agent
and each Lender and of local counsel, if any, who may be retained by counsel to
the Agent) in connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and
exhibits, and any amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan Document as may from time
to time hereafter be required, whether or not the transactions contemplated
hereby are consummated,
(b) the filing, recording, refiling or rerecording of the Mortgages,
the Security Agreements, the Pledge Agreements and/or any Uniform
Commercial Code financing statements relating thereto and all amendments,
supplements,
-101-
<PAGE>
and modifications to, and all releases and terminations of, any thereof and
any and all other documents or instruments of further assurance required to
be filed or recorded or refiled or rerecorded by the terms hereof or of the
Mortgages, the Security Agreements and the Pledge Agreements, and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrowers further agree to pay, and to save the Agent and each Lender
harmless from all liability for, any stamp or other taxes which may be payable
in connection with the execution or delivery of this Agreement, the borrowings
hereunder, the issuance of the Notes, the issuance of the Letters of Credit, or
any other Loan Documents. The Borrowers also agree to reimburse the Agent and
each Lender upon demand for all reasonable out-of-pocket expenses (including
attorneys' fees and legal expenses of internal and external attorneys) incurred
by the Agent and each Lender in connection with (x) the negotiation of any
restructuring or "work-out", whether or not consummated, of any Obligations and
(y) the enforcement of any Obligations.
SECTION 11.4. INDEMNIFICATION. In consideration of the execution and
delivery of this Agreement by the Agent and each Lender and the extension of the
Commitments, the Borrowers hereby indemnify, exonerate and hold the Agent and
each Lender and each of its officers, directors, employees and agents
(collectively, the "Indemnified Parties") free and harmless from and against any
and all actions, causes of action, suits, losses, costs, liabilities and
damages, and expenses incurred in connection therewith (irrespective of whether
any such Indemnified Party is a party to the action for which indemnification
hereunder is sought), including reasonable attorneys' fees and disbursements
(collectively, the "Indemnified Liabilities"), incurred by the Indemnified
Parties or any of them as a result of, or arising out of, or relating to
(a) This Agreement, any Loan Document or any document contemplated
hereby or referred to herein;
(b) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Loan, including the
transactions contemplated by the Difco Agreement and the Burlington
Agreement, any Approved Development Activities, or the use of any Letter of
Credit;
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by any Borrower or any of their
Subsidiaries of all or any portion of the stock or assets of any Person,
whether or not the Agent and each Lender is party thereto;
-102-
<PAGE>
(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to any
Environmental Law or the condition of any facility or Property owned,
leased or operated by any Borrower or any of their Subsidiaries;
(e) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any facility
or Property owned, leased or operated by any Borrower or any of their
Subsidiaries thereof of any Hazardous Material (including any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or
arising under any Environmental Law), regardless of whether caused by, or
within the control of, such Borrower or any of their Subsidiaries; or
(f) any misrepresentation, inaccuracy or breach in or of Section 7.17
or Section 8.1.6,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or wilful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrowers hereby agree to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under Applicable Law. The
obligations in this Section 11.4 shall survive payment of all other Obligations.
At the election of any Indemnified Party, the Borrowers shall defend such
Indemnified Party using legal counsel satisfactory to such Indemnified Party in
such Person's sole discretion, at the sole cost and expense of the Borrowers.
All amounts owing under this Section 11.4 shall be paid within thirty (30) days
after demand.
SECTION 11.5. SURVIVAL. The obligations of the Borrowers under Sections
5.3, 5.4, 5.5, 5.6, 11.3 and 11.4 shall in each case survive any termination of
this Agreement, the payment in full of all Obligations and the termination of
all Commitments. The representations and warranties made by each Obligor in
this Agreement and in each other Loan Document shall survive the execution and
delivery of this Agreement and each such other Loan Document.
SECTION 11.6. SEVERABILITY. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 11.7. HEADINGS. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
-103-
<PAGE>
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 11.8. EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. This
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be executed by the Agent, the Borrowers and the Lenders and be
deemed to be an original and all of which shall constitute together but one and
the same agreement. This Agreement shall become effective when counterparts
hereof are executed on behalf of the Agent, the Borrowers and the Lenders. This
Agreement is made and entered into for the sole protection and legal benefit of
the Agent, the Borrowers and the Lenders and Persons indemnified hereunder, and
their permitted successors and assigns, and no other Person shall be a direct or
indirect legal beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any of the other Loan Documents.
SECTION 11.9. GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTE
AND EACH OTHER LOAN DOCUMENT (OTHER THAN THE MORTGAGES OR AS EXPRESSLY PROVIDED
IN ANY SUCH DOCUMENT) SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS. This Agreement, the
Note and the other Loan Documents constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto.
SECTION 11.10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:
(a) the Borrowers may not assign or transfer their rights or
obligations hereunder without the prior written consent of the Agent and
all Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders are
subject to Section 11.11.
SECTION 11.11. SALE AND TRANSFER OF LOANS AND NOTE; PARTICIPATIONS IN
LOANS AND NOTE. Each Lender may assign, or sell participations in, its Loans
and Commitments to one or more other Persons in accordance with this Section
11.11.
SECTION 11.11.1. ASSIGNMENTS. A Lender may at any time assign and
delegate to one or more Persons, including without limitation, banks or other
financial institutions (each Person to whom such assignment and delegation is to
be made, being hereinafter referred to as an "Assignee Lender"), all or any
fraction of such Lender's total Loans and Commitments (which assignment and
delegation shall be of a constant, and not a varying, percentage of all such
Lender's Loans and Commitments) in a minimum aggregate amount of $1,000,000 (or
the entire remaining amount of such Lender's Loans and
-104-
<PAGE>
Commitments); provided, however, that such Lender is required at all times to
maintain Loans, Letter of Credit Outstandings and Commitments hereunder in an
aggregate amount of $1,000,000 (unless such Lender shall have reduced its Loans,
Letter of Credit Outstandings and Commitments to zero); provided, further,
however, that the Borrowers and each other Obligor shall be entitled to continue
to deal solely and directly with such Lender in connection with the interests so
assigned and delegated to an Assignee Lender until
(a) written notice of such assignment and delegation, together with
payment instructions, addresses and related information with respect to
such Assignee Lender, shall have been given to the Borrowers by such Lender
and such Assignee Lender,
(b) such Assignee Lender shall have executed and delivered to the
Borrowers the Agent and such Lender a Lender Assignment Notice, accepted by
such Lender and the Agent, and
(c) the processing fees described below shall have been paid.
From and after the date that the Assignee Lender delivers such Lender Assignment
Notice, (x) the Assignee Lender thereunder shall be deemed automatically to have
become a party hereto and to the extent that rights and obligations hereunder
have been assigned and delegated to such Assignee Lender in connection with such
Lender Assignment Notice, shall have the rights and obligations of a Lender
hereunder and under the other Loan Documents, and (y) the assignor Lender, to
the extent that rights and obligations hereunder have been assigned and
delegated by it in connection with such Lender Assignment Notice, shall be
released from its obligations hereunder and under the other Loan Documents.
Within five (5) Business Days after its receipt of notice that the Lender has
received an executed Lender Assignment Notice, the Borrowers shall execute and
deliver to the relevant Assignee Lender a new Note evidencing such Assignee
Lender's assigned Loans and Commitments and, if the assignor Lender has retained
Loans and Commitments hereunder, a replacement Note in the principal amount of
the Loans and Commitments retained by the assignor Lender hereunder (each such
Note to be in exchange for, but not in payment of, the corresponding Note then
held by such assignor Lender). The assignor Lender shall mark the predecessor
Note "exchanged" and deliver it to the Borrowers. Accrued interest on that part
of the predecessor Note evidenced by the new Notes, and accrued fees, shall be
paid as provided in the Lender Assignment Notice. Accrued interest on that part
of the predecessor Note evidenced by the replacement Notes shall be paid to the
assignor Lender. Accrued interest and accrued fees shall be paid at the same
time or times provided in the predecessor Notes and in this Agreement. Such
assignor Lender or such Assignee Lender must also pay a processing fee to the
Lender upon delivery of any Lender Assignment Notice in the amount of $2,500.
Any
-105-
<PAGE>
attempted assignment and delegation not made in accordance with this Section
11.11.1 shall be null and void. Nothing contained in this Agreement shall
prohibit any Lender from pledging or assigning any Note to any Federal Reserve
Bank in accordance with Applicable Law.
SECTION 11.11.2. PARTICIPATIONS. A Lender may at any time sell to one or
more Persons, including without limitation, commercial banks or other Persons
(each of such commercial banks and other Persons being herein called a
"Participant") participating interests in any of the Loans, Commitments, or
other interests of such Lender hereunder; provided, however, that
(a) no participation contemplated in this Section 11.11 shall relieve
such Lender from its Commitments or its other obligations hereunder or
under any other Loan Document,
(b) such Lender shall remain solely responsible for the performance of
its Commitments and such other obligations,
(c) the Borrowers and each other Obligor shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and each of the other Loan Documents, and
(d) the Borrowers shall not be required to pay any amount under
Section 4.6 that is greater than the amount which it would have been
required to pay had no participating interest been sold.
The Borrowers acknowledge and agree that each Participant, for purposes of
Sections 5.3, 5.4, 5.5 and 5.6 (except as provided in Section 11.11.2(d)), 5.8,
11.3 and 11.4, shall be considered a Lender.
SECTION 11.12. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDERS, THE
AGENT OR THE BORROWERS SHALL BE BROUGHT AND MAINTAINED IN THE COURTS OF THE
STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION,
IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE
FOUND. THE BORROWERS HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION
OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET
-106-
<PAGE>
FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH SUCH LITIGATION. THE BORROWERS FURTHER IRREVOCABLY CONSENT
TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE BORROWERS HEREBY EXPRESSLY
AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH THEY MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY
SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT
THE BORROWERS HAVE OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF
ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE,
ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH
RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWERS HEREBY IRREVOCABLY WAIVE SUCH
IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
SECTION 11.13. WAIVER OF JURY TRIAL. THE AGENT, THE LENDERS AND THE
BORROWERS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF THE LENDERS, THE AGENT OR THE BORROWERS. THE
BORROWERS ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN
DOCUMENT TO WHICH THEY ARE A PARTY) AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN
DOCUMENT.
SECTION 11.14. JOINT AND SEVERAL LIABILITY. Each Borrower has determined
that it is in its best interest and in pursuit of its legitimate business
purposes to induce the Lenders to extend credit to the Borrowers pursuant to
this Agreement. Each Borrower acknowledges and represents that its business is
integrally related to the business of the other Borrowers, that the availability
of the Commitments to all of the Borrowers benefits each Borrower individually
and that the Loans made will be for and inure to the benefit of all of the
Borrowers individually and as a group. Accordingly, each Borrower shall be
jointly and severally liable (as a principal and not as a surety, guarantor or
other accommodation party) for each and every representation, warranty, covenant
and obligation to be performed by the Borrowers under this Agreement, the Notes
and the other Loan Documents, and each Borrower acknowledges that in extending
the credit provided herein the Lenders are relying upon the fact that the
obligations of each Borrower hereunder are the joint and several obligations of
a principal. The invalidity, unenforceability or illegality of this
-107-
<PAGE>
Agreement, the Note or any other Loan Document as to one Borrower or the release
by the Agent or any Lender of a Borrower hereunder or thereunder shall not
affect the obligations of the other Borrowers under this Agreement, the Note or
other Loan Documents, all of which shall otherwise remain valid and legally
binding obligations of the other Borrowers.
SECTION 11.15. CERTAIN CONSENTS AND WAIVERS.
(a) The Agent or any Lender may, at any time and from time to time,
without the consent of or notice to the Borrowers, except such notice as
may be required by applicable statute which cannot be waived, without
incurring responsibility to the Borrowers, and without impairing or
releasing the obligations of the Borrowers in whole or in part, (i)
exercise or refrain from exercising any rights against any Borrower, (ii)
sell, exchange, release, surrender, realize upon or otherwise deal with in
any manner or in any order any property pledged or mortgaged to secure or
in any manner securing the Obligations, (iii) take and hold any additional
security for any or all of the Obligations, (iv) apply any sums by
whomsoever paid or howsoever realized to any Obligations of the Borrowers
to the Lenders regardless of what Obligations remain unpaid.
(b) No invalidity, irregularity or unenforceability of the Obligations
of a Borrower under this Agreement or any other Loan Document shall affect,
impair or be a defense to the other Borrowers' Obligations. Each Borrower
hereby waives, to the extent permitted under Applicable Law, any and all
benefits and defenses under any statute, regulation, judicial decision or
other law which purports to exonerate or reduce the liability of a co-
borrower as a result of any disability or absence of liability of the other
co-borrower or any defense to liability or enforcement which the other co-
borrower may have and agrees that, by so doing, such Borrower's obligations
hereunder shall continue even if the other Borrowers had no liability at
the time of execution of this Agreement or thereafter ceased or cease to be
liable. Each Borrower also waives, to the extent permitted under
Applicable Law, any and all benefits and defenses under any statute,
regulation, judicial decision or other law which purports to limit the
liability of a co-borrower to that of the other co-borrower or to reduce
the liability of a co-borrower in proportion to any reduction in the
liability of the other co-borrower and agrees that, by so doing, such
Borrower's obligations hereunder may be more burdensome than that of the
other Borrowers.
(c) Each Borrower, to the extent permitted under Applicable Law,
hereby waives any right, whether arising under any statute, regulation,
judicial decision or otherwise, to require the Agent or any Lender to (i)
proceed against the other Borrowers, (ii) proceed against or exhaust any
security received from
-108-
<PAGE>
the other Borrowers, or (iii) pursue any other right or remedy in the
Agent's or any Lender's power whatsoever.
(d) Each Borrower further waives, to the extent permitted under
Applicable Law: (i) any defense resulting from the absence, impairment or
loss of any right of reimbursement, subrogation, contribution or other
right or remedy of such Borrower against the other Borrowers or any
security, whether resulting from an election by the Agent or any Lender to
foreclose upon security by judicial or nonjudicial sale or otherwise; (ii)
any setoff or counterclaim of such Borrower or any defense of any kind
(including defenses resulting from any disability) or the cessation or stay
of enforcement from any cause whatsoever of the liability of such Borrower
(including without limitation the lack of validity or enforceability of
this Agreement or any other Loan Document); (iii) any right to exoneration,
in whole or in part, of co-borrowers which would otherwise be applicable;
(iv) any benefits and defenses under Applicable Law, including without
limitation any right of subrogation or reimbursement, any right of
contribution, any right to enforce any remedy which any Lender now has or
may hereafter have against the other Borrowers, and any benefit of, and any
right to participate in, any security now or hereafter held or received by
any Lender; and (v) all valuation, appraisal, extension or redemption laws
now or hereafter in effect. Without limiting the generality of the
preceding clause (iv), each Borrower hereby waives any right to be
reimbursed by the other Borrowers for any payment of such obligations made
directly or indirectly by such Borrower or from any property of such
Borrower, whether arising by way of any statutory, contractual or other
right of subrogation, contribution, indemnification or otherwise.
(e) Each Borrower acknowledges that it has the ability, and hereby
assumes the obligation and responsibility, to keep informed of the
financial condition of the other Borrowers and of other matters or
circumstances affecting the ability of the other Borrowers to pay or
perform their obligations hereunder or the risk of nonpayment and
nonperformance. Each Borrower hereby waives, to extent permitted under
Applicable Law, any obligation on the part of the Lenders to inform such
Borrower of the financial condition, or any changes in financial condition,
of the other Borrowers or of any other matter or circumstance which might
affect the ability of the other Borrowers to pay and perform under this
Agreement or any other Loan Document, or the risk of nonpayment or
nonperformance.
SECTION 11.16. OTHER TRANSACTIONS. Nothing contained herein shall
preclude the Agent or any other Lender or any of their respective Affiliates
from engaging in any transaction, in addition to those contemplated by this
Agreement or any other Loan Document, with the Borrower or any of its Affiliates
in which the Borrower or such Affiliate is not restricted hereby from engaging
with any other Person.
-109-
<PAGE>
SECTION 11.17. CONTROLLING DOCUMENT. In the event of actual conflict
in the terms and provisions of this Agreement, the Notes and the other Loan
Documents, the terms and provisions of this Agreement will control.
SECTION 11.18. NOTICE. THIS WRITTEN AGREEMENT TOGETHER WITH THE OTHER
LOAN DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
-110-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
Borrowers:
LATEX PETROLEUM CORPORATION,
an Oklahoma corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address: 4200 E. Skelly Drive
Suite 1000
Tulsa, OK 74135
Attn: President
Fax: (918) 494-4918
LATEX/GOC ACQUISITION, INC.,
a Delaware corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address: 4200 E. Skelly Drive
Suite 1000
Tulsa, OK 74135
Attn: President
Fax: (918) 494-4918
-111-
<PAGE>
GERMANY OIL COMPANY, a Delaware
corporation, formerly known as LRI
ACQUISITION, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address: 4200 E. Skelly Drive
Suite 1000
Tulsa, OK 74135
Attn: President
Fax: (918) 494-4918
ALLIANCE RESOURCES (USA), INC.,
a Delaware corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address: 4200 E. Skelly Drive
Suite 1000
Tulsa, OK 74135
Attn: President
Fax: (918) 494-4918
SOURCE PETROLEUM, INC., a Louisiana
corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address: 4200 E. Skelly Drive
Suite 1000
Tulsa, OK 74135
Attn: President
Fax: (918) 494-4918
-112-
<PAGE>
ALLIANCE RESOURCES PLC, a
public limited company incorporated under
the laws of England and Wales
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address: 4200 E. Skelly Drive
Suite 1000
Tulsa, OK 74135
Attn: Managing Director
Fax: (918) 494-4918
Agent:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent for the
Lenders
By: /s/ David E. Sisler
--------------------------------------
Name: David E. Sisler
Title: Vice President
Address: 333 Clay Street
Suite 4450
Houston, TX 77002
Attn: Energy and
Minerals Dept.
Oil & Gas Group
Fax: (713) 651-4888
-113-
<PAGE>
Percentage: Lenders:
Tranche A - 100% BANK OF AMERICA NATIONAL TRUST
Tranche B - 100% AND SAVINGS ASSOCIATION
Tranche C - 100%
By: /s/ David E. Sisler
---------------------------------------
Name: David E. Sisler
Title: Vice President
Address: 333 Clay Street
Suite 4450
Houston, TX 77002
Attn: Energy and
Minerals Dept.
Oil & Gas Group
Fax: (713) 651-4888
LIBOR OFFICE:
231 South LaSalle Street
Chicago, IL 60697
Attn: Energy and
Minerals Dept.
Oil & Gas Group
Fax: (312) 974-9626
DOMESTIC OFFICE:
231 South LaSalle Street
Chicago, IL 60697
Attn: Energy and
Minerals Dept.
Oil & Gas Group
Fax: (312) 974-9626
-114-
<PAGE>
Exhibit 10.15
FIRST AMENDMENT
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------------
This First Amendment to Third Amended and Restated Credit Agreement (this
"Amendment") is entered into and effective as of the 30th day of July, 1999, by
- ----------
and among BANK OF AMERICA, N.A. (formerly known as Bank of America National
Trust and Savings Association) in its individual capacity as the sole Lender
("Lender") and as Agent for the Lenders ("Agent"), and LATEX PETROLEUM
- -------- -----
CORPORATION, LATEX/GOC ACQUISITION, INC., GERMANY OIL COMPANY, ALLIANCE
RESOURCES (USA), INC., SOURCE PETROLEUM, INC. and ALLIANCE RESOURCES PLC
(individually, a "Borrower," and collectively, "Borrowers").
-------- ---------
W I T N E S S E T H:
-------------------
WHEREAS, Lender, Agent and Borrowers are parties to that certain Third
Amended and Restated Credit Agreement dated as of October 26, 1998 pursuant to
which Lender has made certain loans and provided certain other credit
accommodations to Borrowers (the "Credit Agreement") (unless otherwise defined
----------------
herein, all defined terms used herein which are defined in the Credit Agreement
shall have the meanings assigned to such terms in the Credit Agreement); and
WHEREAS, Borrowers have requested that the Credit Agreement be amended to
(a) increase the Tranche B Commitment Amount to $25,000,000, (b) decrease the
Tranche A Commitment Amount to $25,000,000 and (c) reflect certain changes in
the ownership of the capital stock of certain Subsidiaries of Alliance Plc; and
WHEREAS, subject to and upon the terms and conditions set forth herein,
Lender and Agent are willing to enter into the amendments and grant the waivers
Borrowers have requested.
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereto hereby agree as follows:
SECTION 1. Amendments. Subject to and upon the terms and conditions
----------
set forth herein, the Credit Agreement is hereby amended as follows:
1.1 Additional Definitions. Section 1.1 of the Agreement is hereby
----------------------
amended to add thereto definitions of "Alliance Delaware,""El Paso," "First
----------------- ------- -----
Amendment," and "Participation Agreement" which shall read in full as follows:
- --------- -----------------------
"Alliance Delaware" means Alliance Resources (Delaware), Inc., a Delaware
-----------------
corporation and the sole shareholder of Alliance Group and LRI.
1
<PAGE>
"El Paso" means El Paso Capital Investments, L.L.C., a Delaware
-------
corporation.
"First Amendment" means that certain First Amendment to Credit Agreement
---------------
dated as of July 30, 1999 by and among Borrowers, Lenders and Agent.
"Participation Agreement" means a Participation Agreement dated as of July
-----------------------
30, 1999 by and between Bank of America and El Paso.
1.2 Amendment to Existing Defined Terms. The definitions of "Agreement,"
----------------------------------- ---------
"Alliance Group," "Alliance Plc," "Change of Control," "Guaranties,"
-------------- ------------ ----------------- ----------
"Guarantors," "Pledge Agreements," "Security Agreements," "Stated Maturity
---------- ----------------- ------------------- ---------------
Date," "Tranche A Commitment Amount," "Tranche B Availability Termination Date"
--------------------------- ---------------------------------------
and "Tranche B Commitment Amount" contained in Section 1.1 of the Credit
---------------------------
Agreement are hereby amended to read in full as follows:
"Agreement" means on any date, this Third Amended and Restated Credit
---------
Agreement as amended by the First Amendment and as subsequently amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Alliance Group" means Alliance Resources Group, Inc., a Delaware
--------------
corporation and the sole shareholder of each of the Alliance U.S. Subsidiaries.
"Alliance Plc" is defined in the Preamble and is the sole shareholder of
------------ --------
Manx and Difco.
"Change in Control" means if (a) any Person or "group" (as defined in the
-----------------
Securities Exchange Act of 1934) other than (i) John A. Keenan, (ii) Difco
Holders, (iii) any trust existing solely for the benefit of the above
individuals or the estate or any executor, administrator, conservator, or other
legal representative of any of the above individuals, or (iv) EnCap shall own
directly or directly greater than 33 1/3% of the issued and outstanding voting
share capital of Alliance Plc, (b) Alliance Plc shall fail beneficially to own
100% of the outstanding shares of the voting capital stock of Manx or Difco, on
a fully-diluted basis, (c) Difco shall fail beneficially to own 100% of the
outstanding shares of the voting capital stock of Alliance Delaware, on a fully-
diluted basis, (d) Alliance Delaware shall fail beneficially to own 100% of the
outstanding shares of the voting capital stock of LRI or Alliance Group, on a
fully-diluted basis, (e) LRI shall fail beneficially to own 100% of the
outstanding shares of the voting capital stock of LPC, GOCA, New GOC or ENPRO,
on a fully-diluted basis, (f) Alliance Group shall fail beneficially to own 100%
of the outstanding shares of the voting capital stock of Source, ARNO, ARCOL or
Alliance USA, on a fully-diluted basis, or (g) during the period from the date
of one annual general meeting, of Alliance Plc to the next annual meeting,
beginning with the 1998 annual general meeting individuals who at the beginning
of such period were members of the Board of Directors of Alliance Plc shall
cease for any reason to constitute a majority of the members of the Board of
Directors of Alliance Plc.
"Guaranties" means the guaranties of the Obligations executed and delivered
----------
pursuant to Sections 6.1.4 and 6.2.7 of this Agreement or Section 7.3 of the
-------------- ----- ------------
First Amendment, substantially in the form of Exhibit D-2, given by each of LRI,
-----------
ENPRO, Alliance Group, and Alliance Delaware and substantially in the form of
Exhibit D-1, given by Difco.
- -----------
2
<PAGE>
"Guarantors" means Alliance Group, LRI, ENPRO, Difco and Alliance Delaware.
----------
"Pledge Agreements" means a Pledge Agreement executed and delivered
-----------------
pursuant to Section 6.1.5 and 6.2.8 of this Agreement or Section 7.4 of the
------------- ----- -----------
First Amendment, substantially in the form of Exhibit F-3 given by each of LRI,
-----------
Alliance Group and Alliance Delaware, and substantially in the form of Exhibit
-------
F-2 given by Alliance Plc and Difco or such other form as may be appropriate in
- ---
a jurisdiction other than the US, or a state thereof, and in each case, as
amended, supplemented, restated or otherwise modified from time to time.
"Security Agreement" means a security agreement and any similar instrument
------------------
or agreement, executed or delivered pursuant to Sections 6.1.7 and 6.2.6 of this
-------------- -----
Agreement or Section 7.5 of the First Amendment substantially in the form of
-----------
Exhibit C-1 hereto, or such other form as may be appropriate in a jurisdiction
- -----------
other than the U.S. or a state thereof, and in each case as amended,
supplemented, restated or otherwise modified from time to time.
"Stated Maturity Date" means (i) with respect to the Tranche A Loans, the
--------------------
date that is three (3) years after the Tranche A Availability Termination Date,
(ii) with respect to Tranche B Loans July 31, 2001; and (iii) with respect to
Tranche C Loans, October 30, 2004.
"Tranche A Commitment Amount" means the lesser of (i) $25,000,000 as
---------------------------
reduced from time to time pursuant to the provisions of Section 2.2, and (ii)
-----------
the Borrowing Base.
"Tranche B Availability Termination Date" means July 31, 2001.
---------------------------------------
"Tranche B Commitment Amount" means $25,000,000 as reduced from time to
---------------------------
time pursuant to the provisions of Section 2.2.
1.3 Amendment to General Commitment. The second sentence of Section 2.1
------------------------------- -----------
shall be amended to read in full as follows:
On the terms and subject to the conditions hereof, the Borrowers may, from
time to time, borrow and prepay Tranche A Loans and Tranche B Loans, but
may not borrow or reborrow Tranche B Loans after July 30, 1999 and may not
reborrow any amounts paid or repaid in respect of Tranche C Loans.
1.4 Amendment to Tranche B Commitment. Section 2.1.2 of the Credit
--------------------------------- -------------
Agreement is hereby amended (a) to restate clause (x) thereof to read in full
"July 30, 1999", and (b) to insert the following sentences at the end of such
Section:
Without limiting the foregoing, on the effective date of the First
Amendment, but subject to the satisfaction of all conditions precedent to
the effectiveness of such amendment set forth therein, Lenders will make
Tranche B Loans to Borrowers in an aggregate amount of $5,000,000;
provided, that, notwithstanding Section 11.11.2 hereof Lenders shall only
---------------
be obligated to make such Loans on such date if prior thereto El Paso has
purchased for $5,000,000 a participation interest in Tranche B Loans
pursuant to the Participation Agreement; and provided, further, that
-------- -------
notwithstanding the provisions of Section 2.7(b), such Tranche B Loans may
--------------
3
<PAGE>
be used by Borrower for general corporate and working capital purposes in
addition to Approved Development Activities in respect of the East Irish
Sea Assets. Unless and until El Paso purchases such participation
interest, Lenders shall have no obligation hereunder or under any other
Loan Document to make Tranche B Loans which would result in the aggregate
outstanding principal balance of all Tranche B Loans exceeding $20,000,000.
1.5 Amendment to Optional Commitment Termination Provisions. Section
------------------------------------------------------- -------
2.2.1 of the Credit Agreement is hereby amended to read in full as follows:
- -----
Section 2.2.1. Optional. The Borrowers may, from time to time on any
--------
Business Day, voluntarily reduce the Commitments in the following
order: first, the Tranche A Commitment Amount and when the Tranche A
Commitment has been reduced to zero, then the Tranche B Commitment
Amount and, when the Tranche B Commitment has been reduced to zero,
then the Tranche C Commitment Amount; provided, however, that all such
-------- -------
reductions shall require at least three (3) Business Days' prior
notice to the Agent and be permanent, and any partial reduction of the
Commitment Amount shall be in a minimum amount of $250,000 and in an
integral multiple of $50,000.
1.6 Amendment to Optional Prepayment Provisions. Clause (i) of Section
------------------------------------------- -------
3.1.1(a) of the Credit Agreement is hereby amended to read in full as follows:
- --------
(i) any such prepayment shall be made (A) first to Tranche A Loans
until all Tranche A Loans have been paid in full, (B) second to
Tranche B Loans until all Tranche B Loans have been paid in full, and
(C) then to Tranche C Loans.
1.7 Amendment to ORRI Provision. Section 3.5(b) of the Credit Agreement
---------------------------
is hereby deleted.
SECTION 2. Deferral of July 31, 1999 Scheduled Redetermination of the
----------------------------------------------------------
Borrowing Base and Collateral Value. The redetermination of the Borrowing Base
- -----------------------------------
and Collateral Value scheduled to occur on July 31, 1999 pursuant to Section
-------
2.6(a) of the Credit Agreement shall be deferred until December 31, 1999.
- ------
SECTION 3. Certain Acknowledgments of Borrowers. Each Borrower
------------------------------------
acknowledges and agrees that as of the date hereof (a) the Borrowing Base is
$18,500,000, (b) the aggregate amount of all Tranche A Loans outstanding and all
Letter of Credit Outstandings is $18,500,000 (i) the amount available to be
drawn under the Tranche A Commitment is zero (0), (c) the Tranche B Commitment
is $25,000,000, (d) the aggregate principal amount of all Tranche B Loans
outstanding is $20,000,000, (e) the aggregate amount available to be drawn under
the Tranche B Commitment is $5,000,000 (provided, that the availability of such
Tranche B Commitment is subject to El Paso's purchase of a participation
interest in the Loans in a corresponding amount and Borrowers' satisfaction of
all other conditions precedent to the
4
<PAGE>
availability of Tranche B Loans under the Credit Agreement and the other Loan
Documents), (f) the Tranche C Commitment is $5,000,000, (g) the aggregate
outstanding principal amount of all Tranche C Loans is $5,000,000, and (h) the
aggregate amount available to be drawn under the Tranche C Commitment is zero
(0).
SECTION 4. Certain Acknowledgment of Guarantors. By executing the
------------------------------------
acknowledgment to this Amendment, each Guarantor hereby confirms and agrees that
the Guaranty and each Security Document to which it is a party is, and shall
continue to be, in full force and effect and is hereby ratified and confirmed in
all respects, except that, on and after the date hereof, each reference therein
to the "Credit Agreement," "thereunder," "thereof" or words of like import
referring to the Credit Agreement, shall mean and refer to the Credit Agreement
after giving effect to this Amendment.
SECTION 5. Releases. Each Borrower hereby releases, and each other
--------
Obligor by executing its acknowledgment hereto hereby releases Agent, Lender and
their respective officers, directors, shareholders, agents, employees,
attorneys, Affiliates and representatives (collectively, the "Released Parties")
from all claims, liabilities, looses, damages or demands whether liquidated or
unliquidated, actual or contingent, now known, unknown or unforeseen
(hereinafter, collectively, the "Claims") which any Borrower or any Obligor may
hold which in anyway arise out of, or relate to, the Commitments, the Loans, the
Credit Agreement, the Loan Documents, or any transaction contemplated thereby or
which in anyway arise out of or relate to any prior credit facility provided by
Lender, any of its predecessors or any of their Affiliates to any Borrower or
any other Obligor, any of their predecessors or any of their Affiliates (any
"Prior Credit Facility"). Without limiting the foregoing, the claims released
herein expressly include any claims arising out of, or alleged to arise out of
(a) the application for or the negotiation of the terms of the Loans, the Loan
Documents or any Prior Credit Facility, (b) the administration by Lender of the
Commitments, the Loans, the Loan Documents and any Prior Credit Facility, or (c)
the contracting for charging, taking, reserving, collecting or receiving
interest in excess of the highest lawful rate applicable thereto.
SECTION 6. Representations and Warranties. In order to induce Agent
------------------------------
and Lender to enter into the amendments to the Credit Agreement contained in
Section 1, Borrowers hereby represent and warrant to Lender and Agent as
- ---------
follows:
6.1 Reaffirmation of Representations and Warranties. After giving effect
-----------------------------------------------
to the amendments contained in Section 1 hereof and certain waivers contained in
---------
a letter agreement of even date herewith by and among Agent, Lender and
Borrowers (the "Waiver Letter"), each representation and warranty of Borrowers
-------------
contained in the Credit Agreement and the other Loan Documents is true and
correct.
6.2 Due Authorization, No Conflicts. The execution, delivery and
-------------------------------
performance by each Borrower of this Amendment and the Waiver Letter are within
each Borrower's corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing with, any
governmental body, agency or official and do not violate or constitute a default
under any provision of application law or any material agreement binding upon
any Borrower or any of its Subsidiaries or result in the creation or imposition
of any Lien upon any of its respective assets.
5
<PAGE>
6.3 Validity and Binding Effect. This Amendment and the Waiver Letter
---------------------------
constitute the valid and binding obligations of each Borrower enforceable in
accordance with its terms, except as (a) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditor's rights
generally, and (b) the availability of equitable remedies may be limited by
equitable principles of general application.
6.4 No Defenses. Neither any Borrower nor any other Obligor has any
-----------
defense to payment, counterclaim or right of set-off with respect to the
Obligations existing on the date hereof.
SECTION 7. Conditions to Effectiveness.
---------------------------
7.1 Effective Date. This amendments contained in Section 1 hereof shall
-------------- ---------
be effective on July 30, 1999, when each of the conditions set forth in this
Section 7 have been satisfied.
- ---------
7.2 Resolutions, etc. The Agent and Lender shall have received from each
-----------------
Borrower, LRI, Alliance Group, Alliance Delaware, ENPRO, Difco and any other
Obligor a certificate of the Secretary of Assistant Secretary of such Obligor as
to:
(a) resolutions of the Board of Directors of such Obligor then in full
force and effect authorizing the execution, delivery and performance of
this Amendment and the Waiver Letter and each other Loan Document, as
applicable, to be executed by it pursuant hereto;
(b) the incumbency and signatures of those of its officers or Persons
authorized to act with respect to this Amendment, and the Waiver Letter and
each other Loan Document, as applicable, executed by it pursuant hereto;
(c) with respect to Alliance Delaware only, the Organic Documents of
such Obligor; and
(d) with respect to Alliance Delaware only, evidence that such Obligor
is in good standing under Applicable Laws of the jurisdiction of its
organization,
upon which certificate the Agent may conclusively rely until it shall have
received a further certificate of the Secretary of such Obligor canceling or
amending such prior certificate.
7.3 Guaranty. The Agent shall have received executed counterparts of a
--------
Guaranty, dated as of the date hereof, in form, substance and scope satisfactory
to the Agent, duly executed by Alliance Delaware.
7.4 Pledge Agreements. The Agent shall have received executed
-----------------
counterparts of Pledge Agreements or amendments of Pledge Agreements previously
delivered under the Credit Agreement, dated as of the date hereof, in form,
substance and scope satisfactory to the Agent, duly executed by (i) Alliance Plc
pledging its interest in the capital stock of Manx and Difco, (ii Difco pledging
its interest in the capital stock of Alliance Delaware, and (iii) Alliance
Delaware pledging its interest in the capital stock of Alliance Group and LRI,
together with the
6
<PAGE>
certificates, evidencing all of the issued and outstanding shares of capital
stock pledged pursuant to such pledge agreement or amendment, which certificates
shall in each case be accompanied by undated stock powers duly executed in
blank, or, if any securities pledged pursuant to such pledge agreement are
uncertificated securities, confirmation and evidence satisfactory to the Agent
that the security interest in such uncertificated securities has been
transferred to and perfected by the Agent in accordance with Section 8-313 and
Section 8-321 of the Uniform Commercial Code, as in effect in the State of
Illinois, and as applicable, with the evidence of completion (or satisfactory
arrangement for the completion) of all filings and recording of such pledge
agreements as may be necessary, or in the reasonable opinion of the Agent,
desirable, effectively to create a valid, perfected first priority lien against
and security interest in the collateral covered thereby.
7.5 Security Agreements. The Agent shall have received from Alliance Plc,
-------------------
Alliance Delaware and Difco duly executed, original counterparts of Security
Agreements, or amendments of Security Agreements previously delivered under the
Credit Agreement, in form, substance and scope satisfactory to the Agent,
together with:
(a) executed copies of Uniform Commercial Code financing statements
(Form UCC-1), in proper form for filing, naming the Borrowers (or their
Subsidiaries, as applicable) as the debtor and the Agent as the secured
party, or other similar instruments or documents, filed (or satisfactory
arrangements for the completion of all filings and recordings) under the
Uniform Commercial Code in all jurisdictions as may be necessary or, in the
opinion of the Agent, desirable, effectively to create valid, perfected
first priority liens against and security interests in the collateral
covered thereby; and
(b) executed copies of proper Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens and other
rights of any Person in any collateral described in such Security Agreement
together with such other Uniform Commercial Code Form UCC-3 termination
statements as the Lender may reasonable request from the Borrowers.
7.6 Stock Transfer Agreement. The Agent shall have received and approved
------------------------
a true, correct and complete copy of the documents evidencing the transfer of
all of the outstanding shares of voting capital stock of Alliance Group and LRI
from Alliance Plc to Alliance Delaware.
7.7 Amendment to EnCap Purchase Agreement. The Agent shall have received
-------------------------------------
and approved a true, correct and complete copy of the documents under which the
Purchase Agreement dated as of October 27, 1998 among Alliance Plc, EnCap Equity
1996 Limited Partnership and Energy Capital Investment Company PLC is being
amended to reflect the same changes in the ownership of the capital stock of
certain Subsidiaries of Alliance Plc as are more particularly described in the
Waiver Letter.
7.8 Execution of Counterparts. The Agent shall have received counterparts
-------------------------
of this Amendment duly executed and delivered on behalf of each Obligor, the
Agent and the Lenders.
7
<PAGE>
7.9 Closing Fees, Expenses, etc. The Agent shall have received all fees
----------------------------
and all reasonable costs and expenses due and payable pursuant to Sections 3.3
------------
and 11.3 of the Credit Agreement, if then invoiced, including, without
----
limitation, all fees and expenses of counsel to Agent incurred by Agent in
connection with the preparation, negotiation, execution and closing of this
Amendment and the Waiver Letter.
7.1 Legal Details, etc. All documents executed or submitted pursuant
------------------
hereto, and all legal matters incident thereto, shall be satisfactory in form
and substance to the Agent and its counsel.
7.1 July 31 Interest Payment. All interest on the Loans which has accrued
------------------------
or shall accrue through July 31, 1999 shall be paid in full.
7.1 Termination Date. If all of the conditions set forth in Section 7
---------------- ---------
hereof shall not have been satisfied on or prior to 5:00 p.m. Dallas, Texas
time, July 30, 1999, the agreements of the parties contained in this Amendment
and the Waiver Letter shall, unless otherwise agreed by the Agent, terminate
effective immediately at such time and without further action.
SECTION 8. Miscellaneous.
-------------
8.1 Reaffirmation of Loan Documents; Extension of Liens. Any and all of
---------------------------------------------------
the terms and provisions of the Credit Agreement and the Loan Documents shall,
except as amended and modified hereby, remain in full force and effect. Each
Borrower hereby ratifies, confirms and extends the Liens securing the
Obligations until the Obligations have been paid in full or are specifically
released by Agent prior thereto, and agrees that the amendments and
modifications herein contained shall in no manner adversely affect or impair the
Obligations or the Liens securing payment and performance thereof.
8.2 Parties in Interest. All of the terms and provisions of this
-------------------
Amendment shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
8.3 Legal Expenses. Borrowers hereby agree to pay on the date hereof all
--------------
reasonable fees and expenses of counsel to Agent incurred by Agent, in
connection with the preparation, negotiation and execution of this Amendment and
all related documents.
8.4 Counterparts. This Amendment may be executed in counterparts, and all
------------
parties need not execute the same counterpart. Facsimiles shall be effective as
originals.
8.5 Complete Agreement. THIS AMENDMENT, THE CREDIT AGREEMENT (AS AMENDED
------------------
PURSUANT TO THIS AMENDMENT) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
8
<PAGE>
8.6 Headings. The headings, captions and arrangements used in this
--------
Amendment are, unless specified otherwise, for convenience only and shall not be
deemed to limit, amplify or modify the terms of this Amendment, nor affect the
meaning thereof.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Amendment to be
executed by their respective officers hereunto duly authorized as of the day and
first year above written.
BORROWERS:
----------
LATEX PETROLEUM CORPORATION
By:
-----------------------------------------------
Title:
--------------------------------------------
LATEX/GOC ACQUISITION, INC.
By:
-----------------------------------------------
Title:
--------------------------------------------
GERMANY OIL COMPANY
By:
-----------------------------------------------
Title:
--------------------------------------------
ALLIANCE RESOURCES (USA), INC.
By:
-----------------------------------------------
Title:
--------------------------------------------
SOURCE PETROLEUM, INC.
By:
-----------------------------------------------
Title:
--------------------------------------------
ALLIANCE RESOURCES PLC
By:
-----------------------------------------------
Title:
--------------------------------------------
10
<PAGE>
AGENT:
-----
BANK OF AMERICA, N.A., FORMERLY
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent for
the Lenders
By:
-----------------------------------------------
Title:
---------------------------------------
LENDERS:
-------
BANK OF AMERICA, N.A., FORMERLY
KNOWN AS BANK OF AMERICA
NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:
-----------------------------------------------
Title:
---------------------------------------
Acknowledged and Accepted:
LATEX RESOURCES, INC.
By:
---------------------------
Name:
Title:
ENPRO, INC.
By:
---------------------------
Name:
Title:
11
<PAGE>
ALLIANCE RESOURCES (DELAWARE), INC.
By:
--------------------
Name:
Title:
ALLIANCE RESOURCES GROUP, INC.
By:
--------------------
Name:
Title:
DIFCO LIMITED
By:
--------------------
Name:
Title:
12
<PAGE>
EXHIBIT 10.16
SECOND AMENDMENT
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------------
This Second Amendment to Third Amended and Restated Credit Agreement (this
"Amendment") is entered into and effective as of the 13th day of October, 1999,
---------
by and among BANK OF AMERICA, N.A. (formerly known as Bank of America National
Trust and Savings Association) in its individual capacity as the sole Lender
("Lender") and as Agent for the Lenders ("Agent"), and LATEX PETROLEUM
------ -----
CORPORATION, LATEX/GOC ACQUISITION, INC., GERMANY OIL COMPANY, ALLIANCE
RESOURCES (USA), INC., SOURCE PETROLEUM, INC. and ALLIANCE RESOURCES PLC
(individually, a "Borrower," and collectively, "Borrowers").
-------- ---------
W I T N E S S E T H:
-------------------
WHEREAS, Lender, Agent and Borrowers are parties to that certain Third
Amended and Restated Credit Agreement dated as of October 26, 1998 pursuant to
which Lender has made certain loans and provided certain other credit
accommodations to Borrowers (as amended, the "Credit Agreement") (unless
----------------
otherwise defined herein, all defined terms used herein which are defined in the
Credit Agreement shall have the meanings assigned to such terms in the Credit
Agreement); and
WHEREAS, Alliance Plc, American Rivers Oil Company, a Wyoming Corporation
and American Rivers Oil Company, a Delaware corporation ("AROC Delaware") have
-------------
entered into that certain Exchange and Merger Agreement (herein so called) dated
as of July 22, 1999, pursuant to which, among other things, AROC Delaware will
offer (herein referred to as the "Offer") to exchange (a) one share of common
-----
stock, par value $0.01 per share of AROC Delaware for each ordinary share of
(Pounds)0.01 each in the capital of Alliance Plc, and (b) one convertible
restricted voting share of AROC Delaware for each convertible restricted voting
share of (Pounds).0.01 each in the capital of Alliance Plc (the "Proposed
--------
Exchange"); and
- --------
WHEREAS, Borrowers have requested that (a) Lender (i) consent to the
consummation of the Proposed Exchange pursuant to the terms of the Exchange and
Merger Agreement as in effect on the date hereof, and (ii) waive the Event of
Default under Section 9.1.8. of the Credit Agreement to the extent the
consummation of the Proposed Exchange results in an Event of Default under the
Credit Agreement, and (b) the Credit Agreement be amended to change the
definition of "Change in Control" contained therein in connection with the
-----------------
consummation of the Proposed Exchange; and
WHEREAS, subject to and upon the terms and conditions set forth herein,
Lender and Agent are willing to enter into the amendment and grant the waiver
Borrowers have requested.
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereto hereby agree as follows:
1
<PAGE>
SECTION 1. Consent and Waiver. Subject to and upon the terms and
------------------
conditions set forth herein, and in reliance on the representations and
warranties set forth herein, Lender (a) consents to the consummation of the
Proposed Exchange pursuant to the terms of the Exchange and Merger Agreement as
in effect on the date hereof, and (b) waives the Event of Default under Section
9.1.8. of the Credit Agreement to the extent, but only to the extent, that the
consummation of the Proposed Exchange results in an Event of Default under the
Credit Agreement. The consent and waiver herein contained are limited solely to
the Proposed Exchange, and nothing contained herein shall be deemed a consent to
any other action or inaction of any Borrower which constitutes a violation of
any provision of the Credit Agreement or any other Loan Document or which
results in a Default or Event of Default under the Credit Agreement or any other
Loan Document. No Lender shall be obligated to grant any future waivers or
amendments of the Credit Agreement or any other Loan Document.
SECTION 2. Amendments. Subject to and upon the terms and conditions
----------
set forth herein, the Credit Agreement is hereby amended as follows:
2.1 Additional Definitions. Section 1.1 of the Agreement is hereby
----------------------
amended to add thereto definitions of "AROC Inc." and "Second Amendment," which
--------- ----------------
shall read in full as follows:
"AROC Inc." means AROC Inc., a Delaware corporation, and the successor by
---------
name change to American Rivers Oil Company, a Delaware corporation.
"Second Amendment" means that certain Second Amendment to Third Amended and
----------------
Restated Credit Agreement dated as of October 13, 1999 by and among Borrowers,
Lenders and Agent.
2.2 Amendment to Existing Defined Term. The definition of "Agreement"
---------------------------------- ---------
contained in Section 1.1 of the Credit Agreement is hereby amended to read in
full as follows:
"Agreement" means, on any date, this Third Amended and Restated Credit
---------
Agreement as amended by the First Amendment and the Second Amendment, and as
subsequently amended, supplemented, amended and restated, or otherwise modified
and in effect on such date.
2.3 Amendment to Change in Control Definition. Immediately upon the
-----------------------------------------
declaration by AROC Delaware that the Offer is wholly "unconditional" in all
respects, the definition of "Change in Control" contained in Section 1.1 of the
-----------------
Credit Agreement shall be automatically amended (without the necessity of any
further action by any party hereto) to read in full as follows:
"Change in Control" means if (a) any Person or "group" (as defined in the
-----------------
Securities Exchange Act of 1934) other than (i) John A. Keenan, (ii) Difco
Holders, (iii) any trust existing solely for the benefit of the above
individuals or the estate or any executor, administrator, conservator, or other
legal representative of any of the above individuals, or (iv) EnCap shall own,
directly or indirectly, greater than 33 1/3% of the issued and outstanding
voting share capital of AROC Inc., (b) Alliance Plc shall cease to be a
Subsidiary of AROC Inc., (c) AROC Inc. shall sell, assign, transfer, convey or
otherwise dispose of
2
<PAGE>
any of the issued and outstanding voting share capital of Alliance Plc, (d)
Alliance Plc shall fail beneficially to own 100% of the outstanding shares of
the voting capital stock of Manx or Difco, on a fully-diluted basis, (e) Difco
shall fail beneficially to own 100% of the outstanding shares of the voting
capital stock of Alliance Delaware, on a fully-diluted basis, (f) Alliance
Delaware shall fail beneficially to own 100% of the outstanding shares of the
voting capital stock of LRI or Alliance Group, on a fully-diluted basis, (g) LRI
shall fail beneficially to own 100% of the outstanding shares of the voting
capital stock of LPC, GOCA, New GOC or ENPRO, on a fully-diluted basis, (h)
Alliance Group shall fail beneficially to own 100% of the outstanding shares of
the voting capital stock of Source, ARNO, ARCOL or Alliance USA, on a fully-
diluted basis, or (i) during the period from the date of one annual general
meeting of Alliance Plc to the next annual meeting, beginning with the 1998
annual general meeting, individuals who at the beginning of such period were
members of the Board of Directors of Alliance Plc shall cease for any reason to
constitute a majority of the members of the Board of Directors of Alliance Plc.
SECTION 3. Certain Acknowledgment of Guarantors. By executing the
------------------------------------
acknowledgment to this Amendment, each Guarantor hereby confirms and agrees that
the Guaranty and each Security Document to which it is a party is, and shall
continue to be, in full force and effect and is hereby ratified and confirmed in
all respects, except that, on and after the date hereof, each reference therein
to the "Credit Agreement," "thereunder," "thereof" or words of like import
referring to the Credit Agreement, shall mean and refer to the Credit Agreement
after giving effect to the First Amendment and this Amendment.
SECTION 4. Representations and Warranties. In order to induce Lender
------------------------------
to grant the consent and waiver contained in Section 1, and to induce Agent and
---------
Lender to enter into the amendments to the Credit Agreement contained in Section
-------
2, Borrowers hereby represent and warrant to Lender and Agent as follows:
- -
4.1 Reaffirmation of Representations and Warranties. After giving effect
-----------------------------------------------
to the consent and waiver contained in Section 1 hereof and the amendments
---------
contained in Section 2 hereof, each representation and warranty of Borrowers
---------
contained in the Credit Agreement and the other Loan Documents is true and
correct.
4.2 Due Authorization, No Conflicts. The execution, delivery and
-------------------------------
performance by each Borrower of this Amendment are within each Borrower's
corporate powers, have been duly authorized by all necessary corporate action,
require no action by or in respect of, or filing with, any governmental body,
agency or official and do not violate or constitute a default under any
provision or application of law or any material agreement binding upon any
Borrower or any of its Subsidiaries or result in the creation or imposition of
any Lien upon any of its respective assets.
4.3 Validity and Binding Effect. This Amendment constitutes the valid and
---------------------------
binding obligations of each Borrower enforceable in accordance with its terms,
except as (a) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditor's rights generally, and (b) the
availability of equitable remedies may be limited by equitable principles of
general application.
3
<PAGE>
4.4 No Defenses. Neither any Borrower nor any other Obligor has any
-----------
defense to payment, counterclaim or right of set-off with respect to the
Obligations existing on the date hereof.
SECTION 5. Conditions to Effectiveness.
---------------------------
5.1 Effective Date. This consent and waiver contained in Section 1 hereof
-------------- ---------
and the amendments contained in Section 2 hereof shall be effective on October
---------
13, 1999, when each of the conditions set forth in this Section 5 have been
---------
satisfied.
5.2 Execution of Counterparts. The Agent shall have received counterparts
-------------------------
of this Amendment duly executed and delivered on behalf of each Obligor, the
Agent and the Lenders.
5.3 Closing Fees, Expenses, etc. The Agent shall have received all
----------------------------
reasonable fees and expenses of counsel to Agent incurred by Agent in connection
with the preparation, negotiation, execution and closing of this Amendment.
5.4 Legal Details, etc. All documents executed or submitted pursuant
------------------
hereto, and all legal matters incident thereto, shall be satisfactory in form
and substance to the Agent and its counsel.
5.5 Warrant Agreements; Registration Rights Agreement. The Agent shall
-------------------------------------------------
have received executed counterparts of (a) Warrant Agreements, dated as of the
date hereof, in the form of Exhibits A-1 and A-2 attached hereto, and executed
------------ ---
by AROC Delaware, and (b) a Registration Rights Agreement, dated as of the date
hereof, in the form of Exhibit B attached hereto, and executed by AROC Delaware
---------
and LaSalle Street Natural Resources Corporation.
SECTION 6. Miscellaneous.
-------------
6.1 Reaffirmation of Loan Documents; Extension of Liens. Any and all of
---------------------------------------------------
the terms and provisions of the Credit Agreement and the Loan Documents shall,
except as amended and modified hereby, remain in full force and effect. Each
Borrower hereby ratifies, confirms and extends the Liens securing the
Obligations until the Obligations have been paid in full or are specifically
released by Agent prior thereto, and agrees that the amendments and
modifications herein contained shall in no manner adversely affect or impair the
Obligations or the Liens securing payment and performance thereof.
6.2 Parties in Interest. All of the terms and provisions of this
-------------------
Amendment shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
6.3 Legal Expenses. Borrowers hereby agree to pay on the date hereof all
--------------
reasonable fees and expenses of counsel to Agent incurred by Agent in connection
with the preparation, negotiation and execution of this Amendment and all
related documents.
6.4 Counterparts. This Amendment may be executed in counterparts, and all
------------
parties need not execute the same counterpart. Facsimiles shall be effective as
originals.
4
<PAGE>
6.5 Complete Agreement. THIS AMENDMENT, THE CREDIT AGREEMENT (AS AMENDED
------------------
PURSUANT TO THE FIRST AMENDMENT AND THIS AMENDMENT) AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
6.6 Headings. The headings, captions and arrangements used in this
--------
Amendment are, unless specified otherwise, for convenience only and shall not be
deemed to limit, amplify or modify the terms of this Amendment, nor affect the
meaning thereof.
[SIGNATURE PAGES FOLLOW]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Amendment to be
executed by their respective officers hereunto duly authorized as of the day and
first year above written.
BORROWERS:
----------
LATEX PETROLEUM CORPORATION
By:____________________________________________
Title:_________________________________________
LATEX/GOC ACQUISITION, INC.
By:____________________________________________
Title:_________________________________________
GERMANY OIL COMPANY
By:____________________________________________
Title:_________________________________________
ALLIANCE RESOURCES (USA), INC.
By:____________________________________________
Title:_________________________________________
SOURCE PETROLEUM, INC.
By:____________________________________________
Title:_________________________________________
6
<PAGE>
ALLIANCE RESOURCES PLC
By:_____________________________________________
Title:__________________________________________
AGENT:
-----
BANK OF AMERICA, N.A., FORMERLY BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent
for the Lenders
By:_____________________________________________
Title:____________________________________
LENDER:
------
BANK OF AMERICA, N.A., FORMERLY KNOWN AS BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By:_____________________________________________
Title:____________________________________
Acknowledged and Accepted:
LATEX RESOURCES, INC.
By:_____________________________
Name:_____________________
Title:____________________
7
<PAGE>
ENPRO, INC.
By:_____________________________
Name:_____________________
Title:____________________
ALLIANCE RESOURCES (DELAWARE), INC.
By:_____________________________
Name:_____________________
Title:____________________
ALLIANCE RESOURCES GROUP, INC.
By:_____________________________
Name:_____________________
Title:____________________
DIFCO LIMITED
By:_____________________________
Name:_____________________
Title:____________________
8
<PAGE>
EXHIBIT A-1
-----------
Warrant Agreement
relating to the issuance of Series D, E, F, G and H Warrants
of American Rivers Oil Company
(to be attached)
<PAGE>
EXHIBIT A-2
-----------
Warrant Agreement
relating to the issuance of Series I Warrants
of American Rivers Oil Company
(to be attached).
<PAGE>
EXHIBIT B
---------
Registration Rights Agreement
(to be attached).
<PAGE>
Exhibit 23.3
The Board of Directors
American Rivers Oil Company:
We consent to the use of our report included herein and to the reference
to our firm under the heading "Experts" in the prospectus. Our report dated June
13, 1999, 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.
Hein & Associates LLP
Denver, Colorado
October 14, 1999
<PAGE>
Exhibit 23.4
The Board of Directors
Alliance Resources PLC:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus. Our report dated August 12,
1999, 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.
KPMG Audit Plc
London, United Kingdom
October 14, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of AROC Inc. (formerly American Rivers Oil Company, a
Delaware corporation) in the Prospectus constituting part of the Registration
Statement of American Rivers Oil Company., a Delaware corporation, filed under
the Securities Act of 1933, as amended.
/s/ John A. Keenan
------------------------------
Name: John A. Keenan
Date: October 13, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of AROC Inc. (formerly American Rivers Oil Company, a
Delaware corporation) in the Prospectus constituting part of the Registration
Statement of American Rivers Oil Company, a Delaware corporation, filed under
the Securities Act of 1933, as amended.
/s/ Paul R. Fenemore
------------------------------
Name: Paul R. Fenemore
Date: October 13, 1999
<PAGE>
EXHIBIT 23.7
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of AROC Inc. (formerly American Rivers Oil Company, a
Delaware corporation) in the Prospectus constituting part of the Registration
Statement of American Rivers Oil Company, a Delaware corporation, filed under
the Securities Act of 1933, as amended.
/s/ Michael E. Humphries
------------------------------
Name: Michael E. Humphries
Date: October 13, 1999
<PAGE>
EXHIBIT 23.8
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of AROC Inc. (formerly American Rivers Oil Company, a
Delaware corporation) in the Prospectus constituting part of the Registration
Statement of American Rivers Oil Company, a Delaware corporation, filed under
the Securities Act of 1933, as amended.
/s/ William J.A. Kennedy
------------------------------
Name: William J. A. Kennedy
Date: October 13, 1999
<PAGE>
EXHIBIT 23.9
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of AROC Inc. (formerly American Rivers Oil Company, a
Delaware corporation) in the Prospectus constituting part of the Registration
Statement of American Rivers Oil Company, a Delaware corporation, filed under
the Securities Act of 1933, as amended.
/s/ Philip Douglas
------------------------------
Name: Philip Douglas
Date: October 13, 1999
<PAGE>
EXHIBIT 23.10
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member of the
Board of Directors of AROC Inc. (formerly American Rivers Oil Company, a
Delaware corporation) in the Prospectus constituting part of the Registration
Statement of American Rivers Oil Company, a Delaware corporation, filed under
the Securities Act of 1933, as amended.
/s/ John R. Martinson
------------------------------
Name: John R. Martinson
Date: October 13, 1999
