<PAGE>
As filed with the Securities and Exchange Commission on August __, 1996
Registration No. 333-656
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Amendment No. 2
to
Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
AMERICAN RESOURCES OF DELAWARE, INC.
(Exact name of registrant as specified in charter)
Delaware 86-0713506
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
Mr. Rick G. Avare
160 Morgan Street President
Post Office Box 87 American Resources of
Versailles, Kentucky 40383 Delaware, Inc.
(606) 873-5455 160 Morgan Street
(Address, including zip Post Office Box 87
code, and telephone number, Versailles, Kentucky 40383
including area code, of (606) 873-5455
registrant's principal (Name, address, including zip
executive offices) code, and telephone number,
including area code, of agent
for service)
Copy to:
Harry S. Stahl, Esq.
McKenna & Stahl
2603 Main Street, Suite 1010
Irvine, California 92714-6232
(714) 752-2800
This Form S-3 consists of 175 pages (including exhibits). The index to
exhibits is set forth on sequential page 37.
[Page 1 of Facing Page]
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or investment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 ("Securities Act"), other than securities offered in connection with
dividend or investment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Offering Aggregate Amount of
Shares to be Amount to be Price Per Offering Registration
Registered Registered (1) Share (2) Price (2) Fee (2)
- ---------- -------------- --------- --------- ------------
Common Stock 2,448,144 $ 3.75 $ 9,180,540 $3,166
($.00001 Par
Value)
TOTAL DUE $3,166
------
------
(1) Of the 2,448,144 shares of Common Stock being registered hereby (a) 411,668
shares of Common Stock, $.00001 par value ("Common Stock"), of American
Resources of Delaware, Inc., a Delaware corporation ("Company") which were
issued to purchasers in the Company's November 1995 private placement ("November
Private Placement") of 41.16 Units; (b) 205,834 shares represents shares which
may be sold by certain selling
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stockholders that may be acquired upon exercise of the Company's Class A Common
Stock Purchase Warrants which were issued to purchasers in the Company's
November Private Placement; (c) 205,834 shares represents shares which may be
sold by certain selling stockholders that may be acquired upon exercise of the
Company's Class B Common Stock Purchase Warrants which were issued to purchasers
in the Company's November Private Placement; (d) 225,300 shares of Common Stock
were issued in connection with asset purchase transactions; (e) 187,500 shares
represents shares of Common Stock which may be sold by certain selling
stockholders that may be acquired upon conversion of the Company's 1993 8%
Convertible Preferred Stock ("Preferred Stock") issued in connection with an
asset purchase transaction; (f) 50,000 common shares were issued to Morgan Lang
Limited on exercise of warrants granted pursuant to a Services Agreement dated
June 16, 1995; (g) 50,000 common shares were issued to AMC Consumer Services on
exercise of warrants granted pursuant to a Services Agreement dated June 16,
1995, and 100,000 shares represents shares which may be sold by AMC Consumer
Services that may be acquired upon exercise of the Company's warrants; (h)
292,008 shares of Common Stock were issued on conversion of 73,276 shares of the
Company's 6% Series B Cumulative Convertible Preferred Stock; (i) 225,000 shares
of Common Stock were issued in connection with the acquisition of oil and gas
properties, equipment and pipelines from AKS Energy Corporation; (j) 330,000
shares were issued in the Company's June 1996 private placement ("June Private
Placement"); and (k) 165,000 shares represents shares which may be sold by
certain selling stockholders that may be acquired upon exercise of the
Company's Class A common stock purchase warrants which were issued to
purchasers in the Company's June Private Placement. No other shares of the
Company's Common Stock are being registered pursuant to this offering.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c) of the Securities Act of 1933, as amended, (the "Act"),
the registration fee has been calculated based upon a price of $3.75 per share,
the market price based on the last trade reported by NASDAQ Small Cap for the
Company's Common Stock on July 30, 1996.
(3) Pursuant to Rule 416 of the Act, there are also being registered
hereunder such additional shares as may be issued to the selling stockholders
because of future stock dividends, stock distributions, stock splits or similar
capital readjustments.
The Company hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Company shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SEE "RISK FACTORS" AT PAGE 15
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AMERICAN RESOURCES OF DELAWARE, INC.
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Information
Required by Items of Form S-3
Form S-3 Item Caption or Location
Number and Caption in Prospectus
-------------------- --------------------
1. Forepart of the Registration
Statement and Front Cover
Page of Prospectus...... Forepart of the Registration
Statement; Outside Front Cover
2. Inside Front and Outside
Back Cover Pages of
Prospectus ............. Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed
Charges................. The Company; Summary of the
Offering; Risk Factors (see page
15)
4. Use of Proceeds ........... Use of Proceeds
5. Determination of Offering
Price................... Not Applicable
6. Dilution .................. Dilution
7. Selling Security Holders... Selling Stockholders
8. Plan of Distribution ...... Plan of Distribution
9. Description of Securities to
be Registered........... Not Applicable
10. Interests of Named Experts
and Counsel............. Not Applicable
11. Material Changes .......... Recent Developments (see page 11)
and Risk Factors (see page 15);
Incorporation of Certain
Information by Reference
12. Incorporation of Certain
Information by Reference Incorporation of Certain
Information by Reference
13. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities ............ Not Applicable
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
DATED __________, 1996
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AMERICAN RESOURCES OF DELAWARE, INC.
COMMON STOCK
($.00001 PAR VALUE)
2,448,144 SHARES OF COMMON STOCK
This Prospectus relates to: (a) 411,668 shares of Common Stock, $.00001 par
value ("Common Stock"), of American Resources of Delaware, Inc., a Delaware
corporation ("Company") which were issued to purchasers in the Company's
November 1995 private placement ("November Private Placement") of 41.16 Units;
(b) 205,834 shares representing shares which may be sold by certain selling
stockholders that may be acquired upon exercise of the Company's Class A Common
Stock Purchase Warrants which were issued to purchasers in the Company's
November Private Placement; (c) 205,834 shares representing shares which may be
sold by certain selling stockholders that may be acquired upon exercise of the
Company's Class B Common Stock Purchase Warrants which were issued to purchasers
in the Company's November Private Placement; (d) 225,300 shares of Common Stock
which were issued in connection with asset purchase transactions; (e) 187,500
shares representing shares of Common Stock which may be sold by certain selling
stockholders that may be acquired upon conversion of the Company's 1993 8%
Convertible Preferred Stock ("Preferred Stock") issued in connection with an
asset purchase transaction; (f) 50,000 common shares were issued to Morgan Lang
Limited on exercise of warrants granted pursuant to a Services Agreement dated
June 16, 1995; (g) 50,000 common shares were issued to AMC Consumer Services on
exercise of warrants granted pursuant to a Services Agreement dated June 16,
1995, and 100,000 shares represents shares which may be sold by AMC Consumer
Services that may be acquired upon exercise of the Company's warrants; (h)
292,008 shares of Common Stock were issued on conversion of 73,276 shares of the
Company's 6% Series B Cumulative Convertible Preferred Stock; (i) 225,000 shares
of Common Stock were issued in connection with the acquisition of oil and gas
properties, equipment and pipelines from AKS Energy Corporation; (j) 330,000
shares were issued in the Company's June 1996 private placement ("June Private
Placement"); and (k) 165,000 shares represents shares which may be sold by
certain selling
5
<PAGE>
stockholders that may be acquired upon exercise of the Company's Class A common
stock purchase warrants which were issued to purchasers in the Company's June
Private Placement. No other shares of the Company's Common Stock are being
registered pursuant to this offering.
Unless the context otherwise requires, all of the persons referred to above
shall be referred to collectively as the "Selling Stockholders".
The Common Stock may be offered from time to time by the Selling
Stockholders through ordinary brokerage transactions in the over-the-counter
market, in negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at negotiated prices. The Company will not realize any
proceeds from the sale of the Common Stock by the Selling Stockholders. See
"Selling Stockholders" and "Plan of Distribution".
The Company's Common Stock is traded in the over-the-counter market and is
quoted on the small cap section of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") under the symbol "GASS". On July
30, 1996, the market price per share, based on the last trade reported by NASDAQ
Small Cap for the Company's Common Stock, was $3.75.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE
PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS" AT PAGE 15
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
6
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TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION 7
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 8
THE COMPANY 10
RECENT DEVELOPMENTS 11
SUMMARY OF THE OFFERING 13
RISK FACTORS 15
CAPITALIZATION 21
USE OF PROCEEDS 22
MARKET FOR COMMON EQUITY 23
SELLING STOCKHOLDERS 24
PLAN OF DISTRIBUTION 27
RIGHTS OF CERTAIN HOLDERS OF COMMON STOCK 27
EXPERTS 27
LEGAL MATTERS 28
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
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------------
THE DATE OF THIS PROSPECTUS IS _______________, 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 5th Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at 13th Floor, Seven World
Trade Center, New York, New York 10048; 10960 Wilshire Boulevard, Suite 1710,
Los Angeles,
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California 90024, and 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material may be obtained from the Commission at 450 5th
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
reports, proxy statements and other information concerning the Company may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"). This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is made to
the Registration Statement.
------------
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-21472) under the Exchange Act are incorporated in this Prospectus by
reference:
1. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995 (filed on April 1, 1996);
2. Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1996
(filed on May 15, 1996) and June 30, 1996 (filed on August 14, 1996);
3. Current Reports on Form 8-K dated September 30, 1994 (filed on October
6, 1994) and Form 8-K/A dated October 25, 1994, amending Form 8-K dated
September 30, 1994 (filed on October 27, 1994), November 29, 1995 (filed on
January 29 1996), February 26, 1996 (filed on March 12, 1996), Form 8-K/A dated
February 26, 1996 (filed May 13, 1996) amending Form 8-K dated February 26,
1996, and Form 8-K dated July 3, 1996 (filed on July 18, 1996);
4. The description of the Company's $.00001 par value Common Stock
contained in the Company's Registration Statement on Form 10-SB (filed with the
Commission on August 19, 1993), including any amendments or reports filed for
the purpose of updating such description;
5. The description of the Company's Series 1993 8% convertible preferred
stock and Series B 6% junior convertible preferred stock contained in the
Company's Registration Statement on Form 10-SB (filed with the Commission on
August 19, 1993), including any amendments or reports filed for the purpose of
updating such description.
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6. All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Common Stock.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
request of such person, a copy of any or all of the documents which are
incorporated by reference herein, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference therein). Written or
telephone requests should be directed to American Resources of Delaware, Inc.,
160 Morgan Street, Post Office Box 87, Versailles, Kentucky 40383, Attention:
Karen M. Underwood; telephone (606) 873-5455.
[LEFT BLANK INTENTIONALLY]
9
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THE COMPANY
The Company is a fully-integrated oil and gas company engaged in the
exploration, development and acquisition of oil and natural gas properties
located in Kentucky, Michigan and the Gulf of Mexico and the marketing and
transportation of natural gas. A substantial portion of the Company's
operations are conducted through its subsidiary, Southern Gas Company of
Delaware, Inc. ("Southern Gas"), which the Company formed in February 1994 to
acquire substantially all the assets and to assume certain liabilities of
Southern Gas Company, Inc., an independent Kentucky-based natural gas
production, pipeline and gas marketing company. Southern Gas operates primarily
in the Appalachian region of Kentucky and has natural gas reserves, gathering
systems, compressors, and dedicated pipeline capacity with transportation
companies and contracts to sell its product to end-users. The expansion of the
Company's operations into the Gulf of Mexico commenced in October 1994, when the
Company entered into an agreement with Settle Oil and Gas Company relating to
certain of Settle's operations in the Gulf of Mexico.
The Company's strategy is to continue to expand its reserve base and
increase its cash flow through exploration, acquisition of oil and natural gas
properties and development of its properties. The Company seeks a balance
between its exploration program and the acquisition of proved properties. The
Company emphasizes the following elements in implementing this strategy:
- Reserve growth through high potential exploratory drilling
- Balance between exploration and acquisitions of proved properties
- Control of operations and costs
- Use of 3-D seismic and other advanced technology made available by
third parties
- Equity ownership and other incentives to retain and attract employees
The Company believes that the expansion of its focus to the federal waters
of the Gulf of Mexico, offshore Louisiana, is the foundation of its continued
growth. The Gulf of Mexico is a prolific oil and gas province, accounting for
approximately 25% of domestic natural gas production. The Company holds a 50%
working interest in the 5,000 acre Ship Shoal 150 block, exclusive of 546 acres
in the southwest corner of the block. Two successful producing wells have been
drilled on the block, and, based on 3-D seismic interpretation, the Company has
identified at least two additional well locations. There is a significant
amount of seismic and other geologic data available at a reasonable cost. Also,
the shallow waters of the Gulf of Mexico have a substantial existing
infrastructure, including gathering systems, platforms,
10
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pipelines and drilling and service companies, which facilitate cost effective
operations and the timely development of discoveries.
The Company's principal executive offices are located at 160 Morgan Street,
Versailles, Kentucky 40383 and its telephone number is (606) 873-5455. The
Company also maintains an administrative office at 7150 East Camelback Road,
Suite 195, Scottsdale, Arizona 85251 and its telephone number is (602) 945-9195.
RECENT DEVELOPMENTS
Effective January 1, 1996, the Board of Directors announced the appointment
of Jonathan B. Rudney as President and Chief Executive Officer of the Company.
Mr. Rudney replaced Andrew J. Kacic, the founder of the Company, who will
continue to serve on the Company's Board of Directors. Mr. Rudney brings with
him more than 15 years of management experience in the oil and gas industry.
Immediately prior to his appointment with the Company, Mr. Rudney was President
and C.E.O. and a major shareholder of Century Oil Company and a major
shareholder of Century Offshore Management Corporation, both with principal
offices located in Lexington, Kentucky. On May 9, 1996, Mr. Rudney resigned as
President and Chief Executive Officer of the Company. Rick G. Avare, who was
currently serving as the Company's Chief Operating Officer, assumed the position
of Acting President and Chief Executive Officer at that time.
On February 26, 1996, the Company acquired oil and gas properties,
equipment and pipelines from AKS Energy corporation (AKS). As consideration for
the assets, the Company paid $2,909,010 in cash, assumed $125,000 of AKS's
severance tax obligations, issued 225,000 shares of the Company's Common Stock
at a value of $3.59 per share and issued warrants with an estimated value of
$348,525 to purchase an additional 225,000 shares of the Company's Common Stock
with an exercise price of $5.00 per share and an expiration date of December 31,
1998. The cash included in the purchase price was made available from
borrowings under the Company's credit facility with its primary lender.
The Company also entered into an agreement to participate with AKS in the
joint development of leases in Southeastern Kentucky gas fields wherein the
Company will have the right to earn 50% of the remaining undeveloped acreage.
On May 22, 1996, the Company, through its wholly owned subsidiary Southern
Gas Co. of Delaware, Inc. conveyed a volumetric production payment in
Appalachian Wells recently purchased from AKS through a facility sponsored by
Williams Energy Services Company, a subsidiary of the Williams Companies, Inc.
and structured by NationsBank. The Company received $4,300,000 for the
production
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payment, which has an anticipated six year term. Of the funds received,
$2,500,000 was used to reduce the Company's credit facility with its primary
lender. The Company plans to use the remainder of the funds for working capital
and further acquisition and development activities in the Gulf Coast region.
In 1996, the Company purchased an overriding royalty interest in the Ship
Shoal B-3 well from Rick G. Avare, an officer and director of the Company, for
$125,000.
In June 1996, the Company completed a private placement of $1,000,000. The
private placement consisted of 100 Units, each Unit consisting of 3,300 shares
of Common Stock and one Class A Common Stock Purchase Warrant ("Class A
Warrant"). Each Class A Warrant entitles the holder to purchase 1,650 shares of
the Company's Common Stock at an exercise price of $4.00 per share.
On July 3, 1996, the Company, through its wholly owned subsidiary, Southern
Gas Co. of Delaware, Inc. ("Southern") acquired proved developed and undeveloped
oil and gas properties, equipment and pipelines from Century located offshore
Louisiana. As consideration for the assets, the Company paid $4,000,000 in
cash, issued a subordinated debenture ("Debenture") in the amount of $4,000,000
with a due date of August 15, 1996 (the Debenture provides for payment at the
Company's option of cash or the issuance of restricted common stock of the
Company at $3.00 per share), the extinguishment of an existing note from Century
to the Company in the amount of $6,500,000 and the assumption of existing liens
against the assets in the approximate amount of $1,051,000 (which are required
to be paid by July 31, 1996). The foregoing transaction was effected pursuant
to an Asset Purchase Agreement entered into by and between the Company, Southern
and Century, dated July 3, 1996.
Additionally, the Company, through Southern, acquired certain rights and
interest in undeveloped properties from Century located onshore Louisiana. As
consideration for these interests, the Company paid $3,884,000 in cash and
issued 1,500,000 shares of restricted common stock in the Company at a deemed
price of $4.00 per share. The foregoing transaction was effected pursuant to an
Asset Purchase Agreement entered into by and between Company, Southern and
Century, dated July 3, 1996.
[LEFT BLANK INTENTIONALLY]
12
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SUMMARY OF THE OFFERING
The following summary information is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus or which is
incorporated herein by reference.
Securities Offered . . . . . . . . . . .2,448,144 shares of Common Stock
Shares of Common Stock
Outstanding (1) . . . . . . . . . . . . .7,846,572 shares
Use of Proceeds . . . . . . . . . . . . .The Company will not receive any of
the proceeds from the sale of stock by
the Selling Stockholders.
There can be no assurance that any or
a substantial portion of the Warrants
will be exercised.
Risk Factors. . . . . . . . . . . . . . .The securities offered hereby involve
a high degree of risk and should not
be purchased by investors who cannot
afford the loss of their entire
investment. See "Risk Factors".
NASDAQ symbol (2) . . . . . . . . . . . .GASS
- -------------
(1) Outstanding as of July 30, 1996. Does not include: (a) 2,000,000 shares of
Common Stock reserved for issuance upon exercise of stock options granted under
the Company's 1994 Compensatory Stock Option Plan; (b) 379,000 shares of Common
Stock reserved for issuance under the Company's 1994 Employee Stock Compensation
Plan; (c) 950,000 shares of Common Stock reserved for future grant under the
Company's Incentive Stock Option Plan; (d) 268,851 shares of Common Stock
reserved for issuance upon conversion of the Company's Series 1993 8%
convertible preferred stock, (e) 262,365 shares of Common Stock reserved for
issuance upon exercise of the Company's publicly traded warrants; (f) 1,451,320
shares of Common Stock reserved for issuance upon exercise of non-plan stock
options and warrants; (g) 411,668 shares of Common Stock reserved for issuance
upon exercise of Class A and Class B Common Stock Warrants which were issued to
purchasers in the Company's November Private Placement; and (h) 165,000 shares
of Common Stock reserved for issuance upon the exercise of Class A Common Stock
Purchase Warrants which were issued to purchasers in the Company's June Private
Placement.
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(2) Continued inclusion in NASDAQ is subject to certain maintenance criteria.
The failure to meet these maintenance criteria in the future may result in the
discontinuance of the inclusion of the Company's Common Stock in NASDAQ, which
may have an adverse effect on the market for the Common Stock. See "Risk
Factors - Maintenance Criteria for NASDAQ Securities".
[LEFT BLANK INTENTIONALLY]
14
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RISK FACTORS
The securities offered hereby involve a high degree of risk, including, but
not necessarily limited to, the risk factors described below. Each prospective
investor should carefully consider the following risk factors inherent in and
affecting the business of the Company and this offering before making an
investment decision.
1. LIMITED OPERATING HISTORY. The Company was formed in August 1992 to
acquire the assets and assume certain liabilities of Standard Oil and
Exploration of Delaware, Inc. ("Standard Oil"), a gas and oil company operating
under Chapter 11 bankruptcy protection at that time. Since the consummation of
the Standard Oil transaction in April 1993, the Company has taken a number of
steps to become a fully integrated gas and oil company and to enhance its
financial position on a prospective basis.
While the Company believes its activities to date have formed the
foundation for continued growth and profitability, the Company notes that its
revenue, profitability and future rate of growth are substantially dependent
upon prevailing prices for natural gas, oil and condensate which are dependent
upon numerous factors beyond the Company's control such as economic, political
and regulatory developments and competition from other sources of energy. The
energy markets have historically been very volatile, and there can be no
assurance that gas and oil prices will not be subject to wide fluctuations in
the future. A substantial or extended decline in gas and oil prices could have
a material adverse effect on the Company's financial position, results of
operations, quantities of gas and oil reserves that may be economically produced
and access to capital, all as further described below.
2. DEPENDENT ON GAS AND CRUDE OIL. The success of the Company will be
materially dependent upon the success of its acquisition and exploratory
drilling program. Exploratory drilling is subject to numerous risks, including
the risk that no commercially productive natural gas and crude oil 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 formations and
drilling conditions, pressure or mechanical irregularities, informations and
equipment failures or accidents, as well as weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of equipment.
3. VOLATILITY OF GAS AND OIL PRICES; MARKETABILITY OF PRODUCTION. The
Company's revenues, profitability and future rate of growth are substantially
dependent upon prevailing prices for gas and crude oil. Gas and crude oil
prices have been extremely
15
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volatile in recent years and are affected by many factors outside the control of
the Company. These external factors and the volatile nature of the energy
markets make it difficult to estimate future prices of gas and oil. Any
substantial decline in the price of gas and oil will likely lead to substantial
reductions in cash flow. The marketability of the Company's production depends
in part upon the availability, proximity and capacity of gathering systems,
pipelines and processing facilities. Federal and state regulation of gas and
oil production and transportation, general economic conditions, tax and energy
policies, changes in supply and changes in demand all could adversely affect the
Company's ability to produce and market its gas and oil. If market factors were
to change dramatically, the financial impact on the Company could be
substantial. The availability of markets and the volatility of product prices
are beyond the control of the Company and thus represent a significant risk.
4. REPLACEMENT OF PROPERTIES. The Company's future success depends upon
its ability to find, develop or acquire additional gas and oil properties or
interests in properties that are economically recoverable. The proved reserves
of the Company will generally decline as reserves are depleted, except to the
extent that the Company conducts successful exploration or development
activities or acquires properties containing proved reserves, or both. To
increase reserves and production, the Company must continue its exploratory
drilling program or undertake other replacement acquisition activities. There
can be no assurance, however, that the Company's planned exploratory projects or
other replacement acquisition activities will result in significant additional
reserves or that the Company will have continuing success drilling or acquiring
productive wells at low finding, acquisition and development costs.
Furthermore, although the Company's revenues may increase if prevailing gas and
oil prices increase significantly, the Company's finding and acquisition costs
for additional reserves could also increase.
5. UNCERTAINTY OF ESTIMATES OF GAS AND OIL RESERVES. There are numerous
uncertainties inherent in estimating quantities of proved reserves, including
many factors beyond the control of the Company. Petroleum engineering is not an
exact science. Information relating to the Company's proved gas and oil
reserves is based upon engineering estimates. Estimates of economically
recoverable gas and oil reserves and of future net cash flows necessarily depend
upon a number of variable factors and assumptions, such as historical production
from the area compared with production from other producing areas, the assumed
effects of regulations by governmental agencies and assumptions concerning
future gas and oil prices, future operating costs, severance and excise taxes,
capital expenditures and workover and remedial costs, all of which may in fact
vary considerably from actual results. For these reasons, estimates of the
economically recoverable quantities of gas and oil attributable to any
particular group of
16
<PAGE>
properties, classifications of such reserves based on risk of recovery and
estimates of the future net cash flows expected therefrom prepared by different
engineers or by the same engineers at different times may vary substantially.
Actual production, revenues and expenditures with respect to the Company's
reserves will likely vary from estimates, and such variances may be material.
6. OPERATING HAZARDS AND UNINSURED RISKS. The Company's operations are
subject to the hazards and operating risks inherent in drilling for and
production of gas and oil, including the risk of fire, explosions, blow-outs,
pipe failure, abnormally pressured formations and environmental hazards such as
oil spills, gas leaks, ruptures or discharges of toxic gases. The occurrence of
any of these events could result in substantial losses to the Company due to
injury or loss of life, severe damage to or destruction of property, natural
resources and equipment, pollution or other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and suspension of
operations. In accordance with customary industry practice, the Company
maintains insurance against some, but not all, of these risks. There can be no
assurance that any insurance will be adequate to cover any losses or
liabilities. The Company cannot predict the continued availability of
insurance, or its availability at premium levels that justify its purchase.
7. GOVERNMENTAL REGULATION. The Company's gas and oil operations are
subject to various federal, state and local governmental regulations which may
be changed from time to time in response to economic or political conditions.
Matters subject to regulation include discharge permits for drilling operations,
drilling bonds, reports concerning operations, the spacing of wells, unitization
and pooling of properties and taxation. From time to time, regulatory agencies
have imposed price controls and limitations on production by restricting the
rate of flow of gas and oil wells below actual production capacity to conserve
supplies of gas and oil. In addition, the production, handling, storage,
transportation and disposal of gas and oil, by-products thereof and other
substances and materials produced or used in connection with gas and oil
operations are subject to regulation under federal, state and local laws and
regulations primarily relating to protection of human health and the
environment. These laws and regulations have continually imposed increasingly
strict requirements for water and air pollution control and solid waste
management. To date, expenditures related to compliance with these laws and
remediation of existing environmental contamination have not been significant in
relation to the results of operations of the Company. The Company believes the
trend of more expansive and stricter environmental legislation and regulations
will continue.
8. COMPETITION. The Company operates in a highly competitive
environment. The Company competes with major
17
<PAGE>
independent gas and oil companies, many of whom have financial and other
resources substantially in excess of these available to the Company. These
competitors may be better positioned to take advantage of industry opportunities
and to withstand changes affecting the industry, such as fluctuations in gas and
oil prices and production, the availability of alternative energy sources and
the application of government regulation.
9. CONTROL BY EXISTING STOCKHOLDERS. Officers and directors of the
Company beneficially own or control approximately 35.5% of the outstanding
Common Stock. Such individuals, if acting together, would be able to
effectively elect a majority of the Board of Directors as well as approve most
matters submitted to the stockholders for approval.
10. DEPENDENCE ON KEY EXECUTIVE OFFICERS AND OTHER QUALIFIED PERSONNEL.
The Company is highly dependent on certain key executive officers. The loss of
one or more key executive officers could have a material adverse effect on the
Company's business, financial condition and result of operations. In 1993 the
Company entered into five-year employment agreements with Douglas L. Hawthorne,
Rick Avare, and Leonard Nave.
The recruitment, retention and motivation of skilled executives, sales and
technical personnel and other employees are important to the Company's
operations. Although the Company has not experienced significant problems in
recruiting and retaining qualified personnel, there can be no assurance that it
will not encounter such problems in the future.
11. NO DIVIDENDS AND RESTRICTIONS ON DIVIDENDS. To date, the Company has
not paid any dividends on its Common Stock and does not intend to declare any
dividends in the foreseeable future. The Company intends to retain earnings, if
any, for the future operation and development of its business. In addition, the
payment of such dividends is prohibited by the term of the Company's credit
facility.
12. SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION OF SUBSTANTIAL
PERCENTAGE OF OUTSTANDING SHARES; RESTRICTIONS ON TRANSFER. As of July 30,
1996 the Company had a total of 7,846,572 shares of Common Stock outstanding.
If all options, warrants, and conversion privileges outstanding as at July 30,
1996 were exercised, the Company would have 12,201,077 shares of Common stock
outstanding. Of these shares, 1,583,976 shares of Common Stock offered hereby
(2,448,144 shares if all warrants are exercised) will be freely tradable without
restriction by persons other than "affiliates" of the Company, as defined under
the Securities Act of 1933, as amended (the "Securities Act"). Of the remaining
6,262,596 shares of Common Stock outstanding as at July 30, 1996, 2,617,572
shares are "restricted shares" as that term is defined by Rule 144 as
promulgated under the Securities Act.
18
<PAGE>
Approximately 994,000 of these restricted shares are eligible for sale under
Rule 144.
Assuming that all options, warrants and conversion privileges outstanding
as of July 30, 1996, were exercised, the Company would be registering hereunder
approximately 20.1% of its Common Stock.
As of July 30, 1996, options to purchase a total of 2,604,897 shares of
Common Stock, all of which have been registered under the Securities Act, were
outstanding with a weighted average exercise price of $4.91 per share, of which
options to purchase 2,439,230 shares were exercisable as of July 30, 1996. An
additional 989,090 shares of Common Stock were available for future option
grants under the Company's stock option plans.
Pursuant to a number of consulting agreements, the Company has granted
non-plan options to purchase shares of Common Stock. As of July 30, 1996,
non-plan options to purchase a total of 182,333 shares of Common Stock were
outstanding and immediately exercisable, with a weighted average exercise
price of $3.91 per share.
The Company has also granted warrants to purchase shares of Common Stock.
As of July 30, 1996, warrants to purchase 1,464,091 shares of Common stock were
outstanding, with a weighted average exercise price of $4.40 per share. Of the
shares to be issued upon exercise of these outstanding warrants, 576,668 shares
of Common Stock offered hereby will be freely tradable without restriction by
persons other than "affiliates" of the Company. Of the remaining 887,424 shares
of Common Stock to be issued upon exercise of these warrants, 625,000 shares
will be "restricted shares" as that term is defined by Rule 144 as promulgated
under the Securities Act.
13. NO ASSURANCE OF PROCEEDS. A major source of potential capital to
the Company is the proceeds from the exercise of the Warrants. The Company,
however, has received no firm commitment for the exercise of the Warrants.
Thus, there can be no assurances that the Company will realize material
proceeds, if any, from the exercise of such Warrants.
14. POSSIBLE DILUTION. The Company is authorized to issue 20,000,000
shares of Common Stock, of which 7,846,572 shares were outstanding as of July
30, 1996. Assuming full exercise of all outstanding warrants and options and
conversions of preferred shares, 12,201,077 shares will be outstanding.
Furthermore, in connection with other business matters deemed appropriate by the
Company's management, there can be no assurances that the Company will not, in
fact, undertake the issuance of more shares of Common Stock without notice to
then existing stockholders. This may be done in order to, among other things,
facilitate a business combination, acquire assets or stock of another business,
generate debt or equity financing, reward employees or consultants, or for
19
<PAGE>
other valid business reasons in the discretion of the Company's Board of
Directors.
15. POSSIBLE STATE AND FEDERAL RESTRICTIONS ON EXERCISE OF WARRANTS.
Holders of Warrants will be able to sell the underlying Common Stock issuable
upon exercise of the Warrants only if a current registration statement relating
to such underlying Common Stock is then in effect and on file with the
Securities and Exchange Commission and only if such Common Stock is qualified
for sale or exempt from qualification under the applicable securities laws of
the states in which the various holders of Warrants reside. The warrant
agreements relating to the Warrants contain certain provisions requiring the
Company to file for and endeavor to secure, such current and effective
registration of the shares of Common Stock issuable upon exercise of the
Warrants. If such shares are not registered, it is unlikely that the holders of
Warrants will exercise the Warrants, in which case the Company would not receive
any funds.
16. EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. As of July 30, 1996,
the Company had outstanding options and warrants ("Outstanding Options") to
purchase 4,085,654 shares of Common Stock upon exercise of the Outstanding
Options. To the extent that the shares underlying the Outstanding Options enter
the market, the price of the Common Stock in the market may be substantially
reduced. Moreover, for the term of the Outstanding Options, the holders thereof
are given an opportunity to profit from a rise in the market price of the
Company's Common Stock, with a resulting dilution in the interest of the other
stockholders. Further, the terms on which the Company may obtain additional
financing during that period may be adversely affected by the existence of such
Outstanding Options. The holders of such Outstanding Options may exercise them
at a time when the Company might be able to obtain additional capital through a
new offering of securities on terms more favorable than those provided therein.
17. LIMITED MARKET AND POSSIBLE ILLIQUIDITY OF SHARES. The market price
for the Company's securities may be significantly affected by such factors as
the Company's financial results, the acquisition of new gas and oil properties
and interests in such properties, and various factors affecting the gas and oil
industry generally. Additionally, in recent years, the stock market has
experienced a high level of price and volume volatility and market prices for
many companies, particularly small and emerging growth companies the common
stock of which trade in the over-the-counter market, have experienced wide
fluctuations not necessarily related to the operating performance of such
companies. Also, the market price for the Company's Common Stock may be
affected by general stock market volatility.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1996.(1)
Long-Term debt,
excluding current maturities $13,255,096
-----------
Unearned Revenue $ 2,878,204
Stockholders' Equity:
Series 1993 8% convertible
preferred stock, par value
$12.00 per share 2,181,819
Series B 6% junior cumulative
convertible preferred stock,
par value $.00001 per share 0
Common stock, par value $.00001
per share; 20,000,000 shares
authorized; 6,335,818 shares
issued and outstanding 63
Additional paid-in capital $16,534,693
Retained earnings 1,788,751
-----------
Total stockholders' equity 20,505,326
-----------
Total capitalization $36,638,626
-----------
-----------
- ----------------------
(1) The above table does not include the pro forma effects of transactions
occurring after June 30, 1996.
21
<PAGE>
USE OF PROCEEDS
The Company will not realize any proceeds from the sale of shares of Common
Stock by the Selling Stockholders. See "Selling Stockholders."
The gross proceeds which may be realized by the Company upon the exercise
of one hundred percent (100%) of the Warrants will be $2,409,589. Inasmuch as
the Company has received no firm commitments for their exercise, there can be no
assurance that any or a substantial portion of the Warrants will be exercised.
Management cannot predict with any certainty the amount of proceeds, if
any, which may be generated from the exercise of Warrants. The net proceeds
which may be realized by the Company, if any, upon the exercise of the Warrants
will not be utilized for any specific purpose other than to contribute to the
Company's working capital and be used to continue the operations of the Company
in accordance with the business strategy identified by management. Based upon
this strategy, assuming that proceeds, net of costs of this offering, are
realized by the Company upon the exercise of Warrants within a period of
twenty-four (24) months, management would reasonably expect to utilize such
proceeds in the following relative proportions and orders of priority:
Application of Funds % of Funds
-------------------- ----------
Working Capital 25%
Oil and gas exploration 75%
The amounts actually expended for the purposes described above could vary
significantly depending on, among other things, the Company's ability to obtain
capital from other sources. In addition, if each class of Warrant is not
exercised at the same time, the proceeds from the Warrants which are exercised
piecemeal will likely be contributed to the Company's working capital.
22
<PAGE>
MARKET FOR COMMON EQUITY
MARKET INFORMATION
On September 30, 1993, the Company's Common Stock began trading under the
symbol "GASS" on the small cap section of NASDAQ. The following table sets
forth the average closing high and low bid prices of the Common Stock for the
periods indicated, as reported by NASDAQ. These prices are believed to be
representative inter-dealer quotations, without retail mark-up, mark-down or
commissions and may not represent prices at which actual transactions occurred.
1993(2) Bid 1994 Bid 1995 Bid
- --------------------------------------------------------------------------------
High Low High Low High Low
- --------------------------------------------------------------------------------
First Quarter $ N/A $ N/A $ 3.25 $ 2.00 $ 7.19 $ 4.37
Second Quarter N/A N/A $ 6.00 $ 1.44 $ 4.87 $ 1.75
Third Quarter N/A N/A $ 8.25 $ 3.75 $ 4.50 $ 3.19
Fourth Quarter $ 3.50 $ 1.56 $ 8.13 $ 5.75 $ 4.25 $ 2.87
- --------------------------------------------------------------------------------
1996 First Qtr. $ 4.25 $ 2.19
------ ------
1996 Second Qtr. $ 4.37 $ 3.25
- -----------------------------------------
HOLDERS
At July 30, 1996, there were approximately 304 record holders of Common
Stock, and 16 record holders of Series 1993 8% Preferred Stock.
[LEFT BLANK INTENTIONALLY]
- -------------------------
(2) Reflects information from September 30, 1993, the day the Company's
Common Stock began trading on the small cap section of the NASDAQ.
23
<PAGE>
SELLING STOCKHOLDERS
The shares of Common Stock of the Company offered by this Prospectus are
being sold for the account of the persons named herein ("Selling Stockholders").
The shares of Common Stock offered by the Selling Stockholders may be
offered for sale from time to time at market prices prevailing at the time of
sale or at negotiated prices, and without payment of any underwriting discounts
or commissions except for usual and customary selling commissions paid to
brokers or dealers.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of July 30, 1996, and as
adjusted to reflect the sale of the securities offered hereby, by the Selling
Stockholders.
Number of Number of Number of
Shares of Shares of Shares of
Common Common Common
Stock held Stock to be Stock owned
before sold in the after the
Name of Selling Stockholder Offering Offering Offering*
- --------------------------------------------------------------------------------
Arnold Bernstein 20,000 20,000 0
- --------------------------------------------------------------------------------
Clarence E. Miller Trust 60,000 60,000 0
Family Trust & Ada M.
Miller Trust
- --------------------------------------------------------------------------------
Southwest Marketing 20,000 20,000 0
- --------------------------------------------------------------------------------
Delaware Charter Cust FBO 10,000 10,000 0
Jesse Miller IRA
- --------------------------------------------------------------------------------
Roger Zufferey 10,000 10,000 0
- --------------------------------------------------------------------------------
Don G. Henry 20,000 20,000 0
- --------------------------------------------------------------------------------
Delaware Charter Cust FBO 20,000 20,000 0
R. J. Godfrey
- --------------------------------------------------------------------------------
Walter J. Schultz 10,000 10,000 0
- --------------------------------------------------------------------------------
Michael J. Skinner 10,000 10,000 0
- --------------------------------------------------------------------------------
Gerard J. McLain 10,000 10,000 0
- --------------------------------------------------------------------------------
Hattem Family Trust 20,000 20,000 0
- --------------------------------------------------------------------------------
Walter C. Shiller 20,000 20,000 0
- --------------------------------------------------------------------------------
Delaware Charter GTY & 80,000 80,000 0
Trust Co IRA FBO Henry
Myatake
- --------------------------------------------------------------------------------
Frank L. Leyba & Kay D.
Leyba 10,000 10,000 0
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
Barbara V. Schiller 40,000 40,000 0
- --------------------------------------------------------------------------------
Ronald Iannelli 20,000 20,000 0
- --------------------------------------------------------------------------------
Charles Smith 40,000 40,000 0
- --------------------------------------------------------------------------------
Star Construction Company 40,000 40,000 0
- --------------------------------------------------------------------------------
Ronald K. Setzkorn 20,000 20,000 0
- --------------------------------------------------------------------------------
AKS Energy 225,000 225,000 0
- --------------------------------------------------------------------------------
Howard C. Chiten & 20,000 20,000 0
Charlotte D. Chiten
- --------------------------------------------------------------------------------
Jimmy D. Moore (IRA) 20,000 20,000 0
- --------------------------------------------------------------------------------
Harris Partnership J. 20,000 20,000 0
Andrews Harris, G.P.
- --------------------------------------------------------------------------------
Pro-Systems Fab, Inc. 20,000 20,000 0
- --------------------------------------------------------------------------------
James S. Sanders 10,000 10,000 0
- --------------------------------------------------------------------------------
R. Marc Voit 10,000 10,000 0
- --------------------------------------------------------------------------------
Wesley D. Mitchell 20,000 20,000 0
- --------------------------------------------------------------------------------
Robert W. Tobin 10,000 10,000 0
- --------------------------------------------------------------------------------
The McKay Restated 20,000 20,000 0
Revocable Living Trust UTA
dated March 23, 1994 Horace
F. McKay, Jr. Elmyra K.
McKay or their successor(s)
in office Trustees
- --------------------------------------------------------------------------------
Roger O. Zufferey 10,000 10,000 0
- --------------------------------------------------------------------------------
Walter Hines & Mary Hines 20,000 20,000 0
- --------------------------------------------------------------------------------
David Baum & Hiam Baum 10,000 10,000 0
- --------------------------------------------------------------------------------
Hans Mulyapatera & Benita 10,000 10,000 0
Mulyapatera
- --------------------------------------------------------------------------------
Gregory G Ebbitt 20,000 20,000 0
- --------------------------------------------------------------------------------
Paul R. Eberle 56,668 56,668 0
- --------------------------------------------------------------------------------
Henry Bookspan 66,668 66,668 0
- --------------------------------------------------------------------------------
Howard Settle 210,000 210,000 0
- --------------------------------------------------------------------------------
AMC Consumer Services 150,000 150,000 0
- --------------------------------------------------------------------------------
Morgan Lang Limited 50,000 50,000 0
- --------------------------------------------------------------------------------
Sequa Financial Corporation 202,800 202,800 0
- --------------------------------------------------------------------------------
Prima Capital, LLC 146,004 146,004 0
- --------------------------------------------------------------------------------
Andrew J. Kacic (1) 29,201 29,201 0
- --------------------------------------------------------------------------------
Douglas L. Hawthorne (1) 29,201 29,201 0
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
Donald Schellpfeffer (1) 29,201 29,201 0
- --------------------------------------------------------------------------------
Leonard K. Nave (1) 29,200 29,200 0
- --------------------------------------------------------------------------------
Rick G. Avare (1)(2) 29,201 29,201 0
- --------------------------------------------------------------------------------
Mordechai Gurary 165,000 165,000 0
- --------------------------------------------------------------------------------
Keren Tain yad 99,000 99,000 0
- --------------------------------------------------------------------------------
Yoel Mann 33,000 33,000 0
- --------------------------------------------------------------------------------
Sam Malamud 33,000 33,000 0
- --------------------------------------------------------------------------------
* In each case represents less than 1% of the outstanding Common Stock,
except that Sequa Financial Corporation's holdings represent
approximately 4% of the outstanding Common Stock.
(1) Director of the Company
(2) Officer of the Company
26
<PAGE>
PLAN OF DISTRIBUTION
The Common Stock to be sold by the Selling Stockholders may be sold from
time to time as market conditions permit in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions. The shares of Common
Stock offered hereby may be sold by one or more of the following methods,
without limitation: (a) a block trade in which a broker or dealer so engaged
will attempt to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits Purchasers; and (d) face-to-face
transactions between sellers and Purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Stockholders may
arrange for other brokers or dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act") in connection with such sales.
In addition, any securities covered by this Prospectus that qualify for sale
pursuant to Rule 144 promulgated thereunder might be sold under Rule 144 rather
than pursuant to this Prospectus.
The Selling Stockholders will comply with Rule 10b-6 promulgated under the
Securities Exchange Act of 1934, as amended, in connection with all resales of
Common Stock offered hereby.
RIGHTS OF CERTAIN HOLDERS OF COMMON STOCK
The agreements under which certain shareholders privately purchased their
Common Stock provide that in certain instances these shareholders have the right
to: (i) require that the Company file a registration statement under the
Securities Act covering their shares; and (ii) include their shares in a
registration statement filed by the Company under such Act. The purchasers of
the November Units are participating in this offering pursuant to such
agreements.
EXPERTS
The financial statements of American Resources of Delaware, Inc. as of
December 31, 1995 and for the years ended December 31, 1995 and 1994 have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the December 31, 1994 financial statements refers to a change in the
method of accounting for income taxes.
27
<PAGE>
The statements of revenues and direct operating expenses of the Arakis
Properties purchased by American Resources of Delaware, Inc. for each of the
years in the two year period ended December 31, 1995, have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP covering the
statements of revenues and direct operating expenses contain an explanatory
paragraph that states that the statements were prepared for the purpose of
complying with certain rules and regulations of the Securities and Exchange
Commission ("SEC") for inclusion in certain SEC regulatory reports and filings
and are not intended to be a complete financial presentation.
The financial statements of American Resources of Delaware, Inc. as of
December 31, 1993 have been incorporated by reference herein and in the
registration statement in reliance upon the report of William D. Briggs, CPA,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The reserve report of Richard Russell & Associates of the proved reserves
and future net revenues attributable to the Company's properties in Kentucky
included in the Company's Form 10-KSB for the fiscal year ended December 31,
1995 has been so included in reliance upon the authority of such firm as an
expert in petroleum engineering.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon by
McKenna & Stahl, 2603 Main Street, Suite 1010, Irvine, California, Irvine,
92714.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-3
(herein, together with all amendments, if any, thereto, called the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered by this Prospectus. For further information with respect to the Company
and such shares of Common Stock, reference is made to the Registration Statement
and to the exhibits, if any, filed therewith which are available for inspection
at the office of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such documents may be obtained therefrom at
prescribed rates and a copy of the Registration Statement may be obtained from
the principal office of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
Securities and Exchange Commission filing
fee.................................... $ 3,166
Transfer Agent's and Registrar's Fees..... -0-
Legal fees and expenses................... 15,000
Accounting fees and expenses.............. 20,000
Miscellaneous ............................ 500
-------
Total................................. $38,666
All amounts estimated except for Securities and Exchange Commission filing
fee.
- -------------------
(1) As required by agreements between the Company and the Selling
Stockholders, all of these expenses of issuance and distribution will be paid by
the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation and Amended and Restated Bylaws
of the Company and Sections 145 of the General Corporation Law of the State of
Delaware provide for indemnification of directors and officers under certain
conditions and subject to certain limitations.
Section 145 of the General Corporation Law of the State of Delaware
empowers the Company to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was a director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or
enterprise, against expenses, judgments, fines and amounts paid in settlement
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful except that, in the case of an action or suit by or in the
right of the Company, no indemnification may be made in respect of any claim,
issue or matter as to which such person
II-1
<PAGE>
shall have been adjudged to be liable to the Company unless the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
of the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. Article Seventh of the Certificate of Incorporation and
Article VII of the Amended and Restated Bylaws of the Company provide for
indemnification of persons to the fullest extent authorized by the General
Corporation Law of the State of Delaware.
In accordance with the General Corporation Law of the State of Delaware,
the Company has adopted a provision in its Certificate of Incorporation to limit
the personal liability of its directors for violations of their fiduciary duty.
The provision eliminates each director's liability to the Company or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under the section of the Delaware law providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which a director derived an
improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
II-2
<PAGE>
ITEM 16. LIST OF EXHIBITS
3.1 Certificate of Incorporation of American Resources of Delaware, Inc.
dated August 14, 1992 (1)
3.2 Certificate of Amendment to Certificate of Incorporation of American
Resources of Delaware, Inc. dated March 3, 1993 (2)
3.3 Certificate of Amendment to Certificate of Incorporation of American
Resources of Delaware, Inc. dated March 26, 1993 (2)
3.4 Certificate of Amendment to Certificate of Incorporation of American
Resources of Delaware, Inc. dated April 5, 1993 (2)
3.5 Certificate of Correction to Certificate of Incorporation of American
Resources of Delaware, Inc. dated February 24, 1994 (2)
3.6 Certificate of Correction to Certificate of Incorporation of American
Resources of Delaware, Inc. dated February 24, 1994 (2)
3.7 Certificate of Correction to Certificate of Incorporation of American
Resources of Delaware, Inc. dated February 24, 1994 (2)
3.8 Certificate of Correction to Certificate of Incorporation of American
Resources of Delaware, Inc. dated September 9, 1994 (3)
3.9 Bylaws of the Company, as amended (2)
4.1 Specimen Common Stock Certificate (4)
4.2 Specimen Preferred Stock Certificate (4)
4.3 Specimen Warrant Certificate and Agreement (4)
4.4 Certificate of Designations of 6% Junior Cumulative Convertible
Preferred Stock, Series B of American Resources of Delaware, Inc. (5)
4.5 Warrant Agreement dated as of October 6, 1994 between American
Resources of Delaware, Inc. and GFL Ultra Fund, Ltd. (6)
II-3
<PAGE>
4.6 Warrant Agreement dated as of November 10, 1994 between American
Resources of Delaware, Inc. and GFL Ultra Fund, Ltd. (7)
4.7 Specimen of Company's October 1995 Private Placement Subscription
Agreement and Warrant *
4.8 Specimen of Company's June 1996 Private Placement Subscription
Agreement and Warrant
5 Opinion of McKenna & Stahl as to the legality of securities being
registered
10.1 1994 Compensatory Stock Option Plan, as amended *
10.2 1994 Employee Stock Compensation Plan *
10.3 Purchase and Sale Agreement dated July 3, 1996, between the
Company, Southern Gas of Delaware, Inc. and Century Offshore
Management Corporation.
10.4 Purchase and Sale Agreement dated July 3, 1996, between the
Company, Southern Gas of Delaware, Inc. and Century Offshore
Management Corporation.
24.1 Consents of KPMG Peat Marwick LLP
24.2 Consent of William D. Briggs, CPA
24.3 Consent of McKenna & Stahl (included in Exhibit 5)
24.4 Consent of Richard Russell & Associates
25 Power of Attorney *
- ----------------------
* Previously filed.
(1) Incorporated by reference to Exhibit 3.1 in the Company's Registration
Statement on Form 10-SB, File No. 0-21472, declared effective on August 19,
1993 (the "Form 10-SB").
(2) Incorporated by reference to Exhibit 3.2 to the Company's Form 10-SB.
(3) Incorporated by reference to Exhibit 3 to the Company's Form 10-QSB for the
quarterly period ended September 30, 1994 (the "September 1994 Form
10-QSB").
(4) Incorporated by reference to identical exhibit number to the Company's Form
10-SB.
II-4
<PAGE>
(5) Incorporated by reference to Exhibit 4.0 to the Company's September 1994
Form 10-QSB.
(6) Incorporated by reference to Exhibit 4.1 of the Company's September 1994
Form 10-QSB.
(7) Incorporated by reference to identical exhibit number in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
A. RULE 415 UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement or the most recent
post-effective amendment thereof which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8, and the information required to
be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Company pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities herein, and the offering
of such securities at that time shall be deemed to be the initial bona fide
offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
B. SUBSEQUENT EXCHANGE ACT FILINGS UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Company's annual report pursuant to Section 13(a) or 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
II-6
<PAGE>
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
C. INCORPORATED ANNUAL AND QUARTERLY REPORTS UNDERTAKINGS.
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 Regulation 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.
D. INDEMNIFICATION UNDERTAKINGS.
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 provisions described in Item 15 above, 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 is, 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 against the Registrant 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 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lexington, State of Kentucky, on the 13th day of
Aug., 1996.
AMERICAN RESOURCES OF DELAWARE, INC.
By: \S\ RICK G AVARE
--------------------------
Rick G. Avare
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
\S\ DOUGLAS L. HAWTHORNE * Chairman of the Board Aug. __, 1996
- -----------------------------
Douglas L. Hawthorne
\S\ RICK G. AVARE Director, President Aug. __, 1996
- ----------------------------- and Chief Executive
Rick G. Avare Officer
\S\ JEFFREY J. HAUSMAN * Chief Financial Aug. __, 1996
- ----------------------------- Officer (Principal
Jeffrey J. Hausman Accounting Officer)
\S\ ANDREW J. KACIC * Director Aug. __, 1996
- -----------------------------
Andrew J. Kacic
\S\ LEONARD K. NAVE * Director Aug. __, 1996
- -----------------------------
Leonard K. Nave
\S\ DONALD L. SCHELLPFEFFER * Director Aug. __, 1996
- -----------------------------
Donald L. Schellpfeffer
*By: \S\ RICK G. AVARE
---------------------
Rick G. Avare
Attorney-in-Fact
II-8
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
3.1 Certificate of Incorporation of American
Resources of Delaware, Inc. dated
August 14, 1992 (1)
3.2 Certificate of Amendment to Certificate
of Incorporation of American Resources
of Delaware, Inc. dated March 3, 1993 (2)
3.3 Certificate of Amendment to Certificate
of Incorporation of American Resources
of Delaware, Inc. dated March 26, 1993 (2)
3.4 Certificate of Amendment to Certificate
of incorporation of American Resources
of Delaware, Inc. dated April 5, 1993 (2)
3.5 Certificate of Correction to Certificate
of Incorporation of American Resources
of Delaware, Inc. dated February 24, 1994 (2)
3.6 Certificate of Correction to Certificate
of Incorporation of American Resources
of Delaware, Inc. dated February 24, 1994 (2)
3.7 Certificate of Correction to Certificate
of Incorporation of American Resources
of Delaware, Inc. dated February 24, 1994 (2)
3.8 Certificate of Correction to Certificate
of Incorporation of American Resources
of Delaware, Inc. dated September 9, 1994 (3)
3.9 Bylaws of the Company, as amended (2)
4.1 Specimen Common Stock Certificate (4)
4.2 Specimen Preferred Stock Certificate (4)
4.3 Specimen Warrant Certificate and Agreement (4)
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<PAGE>
4.4 Certificate of Designations of 6%
Junior Cumulative Convertible Preferred
Stock, Series B of American Resources
of Delaware, Inc. (5)
4.5 Warrant Agreement dated as of October 6,
1994 between American Resources of
Delaware, Inc. and GFL Ultra Fund, Ltd. (6)
4.6 Warrant Agreement dated as of November
10, 1994 between American Resources
of Delaware, Inc. and GFL Ultra Fund, Ltd. (7)
4.7 Specimen Company's October 1995 Private
Placement Subscription Agreement
and Warrant *
4.8 Specimen of Company's June 1996 Private Placement
Subscription Agreement and Warrant
5 Opinion of McKenna & Stahl as to the
legality of securities being registered
10.1 1994 Compensatory Stock Option Plan,
as amended *
10.2 1994 Employee Stock Compensation Plan *
10.3 Purchase and Sale Agreement dated July 3, 1996,
between the Company, Southern Gas of Delaware, Inc.
and Century Offshore Management Corporation.
10.4 Purchase and Sale Agreement dated July 3, 1996,
between the Company, Southern Gas of Delaware, Inc.
and Century Offshore Management Corporation.
24.1 Consents of KPMG Peat Marwick LLP
24.2 Consent of William D. Briggs, CPA
24.3 Consent of McKenna & Stahl
(included in Exhibit 5)
24.4 Consent of Richard Russell & Associates
25 Power of Attorney *
- -----------------------
* Previously filed.
II-10
<PAGE>
(1) Incorporated by reference to Exhibit 3.1 in the Company's Registration
Statement on Form 10-SB, File No. 0-21472, declared effective on August 19,
1993 (the "Form 10-SB").
(2) Incorporated by reference to Exhibit 3.2 to the Company's Form 10-SB.
(3) Incorporated by reference to Exhibit 3 to the Company's Form 10-QSB for the
quarterly period ended September 30, 1994 (the "September 1994 Form
10-QSB").
(4) Incorporated by reference to identical exhibit number to the Company's Form
10-SB.
(5) Incorporated by reference to Exhibit 4.0 to the Company's September 1994
Form 10-QSB.
(6) Incorporated by reference to Exhibit 4.1 of the Company's September 1994
Form 10-QSB.
(7) Incorporated by reference to identical exhibit number in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994.
II-11
<PAGE>
THE WARRANTS AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE
WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND NEITHER THE WARRANTS
NOR THE SHARES NOR ANY INTEREST IN THE WARRANTS OR THE SHARES MAY BE
SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
OR PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER AND UNDER
APPLICABLE STATE LAW, THE AVAILABILITY OF WHICH MUST BE ESTABLISHED TO
THE SATISFACTION OF THE COMPANY.
CLASS A COMMON STOCK
WARRANT AGREEMENT
THIS COMMON STOCK WARRANT AGREEMENT is made as of __________________,
1996 ("Effective Date") by AMERICAN RESOURCES OF DELAWARE, INC., a Delaware
corporation ("Company"), in favor of ________________________________ ("Warrant
Holder" or "Holder").
WHEREAS, the Company proposes to issue and sell in a non-public offering
("Offering") pursuant to Section 4(2) of the Securities Act of 1933, as amended
("Securities Act") 200 Units ("Units"), each Unit consisting of 3,333.335 shares
of the Company's common stock par value $.0001 per share ("Common Stock") and
3,333.335 Class A Common Stock Purchase Warrants;
WHEREAS, pursuant to the Subscription Agreement entered into between the
Company and the purchasers of the Units, the Company has agreed to file with the
Securities and Exchange Commission ("SEC") a Registration Statement on Form S-3
registering the resale of the Shares to be received upon exercise of the
Warrants; and
WHEREAS, the Company deems it to be in the best interests of the Warrant
Holder that the Company establish the terms and conditions upon which the
Warrants may be issued, exercised and redeemed, and other matters as provided
herein.
NOW THEREFORE, to establish the terms and conditions of the Warrants, and
the rights and obligations of the Company and the Warrant Holder with respect
thereto, the Company hereby provides as follows:
Section 1. CERTIFICATION. For value received, the Warrant Holder or
its registered assign ("Holder") is entitled to purchase from the Company,
subject to the provisions of this Warrant Agreement, fully paid, validly issued
and nonassessable shares of the Company's Common Stock at the Exercise Price (as
defined herein) commencing on the Effective Date one year after a
1
<PAGE>
registration statement covering the Warrant Shares (as defined herein) under the
Securities Act is declared effective by the Securities and Exchange Commission
("Effective Registration Date"), and terminating at 5:00 P.M. Los Angeles time
36 months after the later of (i) the date of original issue of the Warrant, or
(ii) the Effective Registration Date. The number of shares of Common Stock to be
received upon the exercise of the Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are sometimes referred to herein as "Warrant
Shares." The date on which the Registration Statement shall be declared
effective is sometimes referred to herein as the "Effective Registration Date."
Section 2. FORM OF WARRANT. The text of the Warrant and of the
Purchase Form shall be substantially as set forth in Exhibit A attached hereto
(collectively, the "Warrant Certificates"). The Exercise Price (as defined in
Section 8) and the number of shares issuable upon exercise of each Warrant are
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, President or one of its Vice Presidents, and attested
to by its Secretary or an Assistant Secretary. The signature of any of such
officers on the Warrant Certificates may be manual or facsimile. Warrant
Certificates bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrant Certificates or did not
hold such offices on the date of this Agreement.
Section 3. EXCHANGE OF WARRANT CERTIFICATES. Each Warrant Certificate
may be exchanged for another Certificate entitling the Holder thereof to
purchase a like aggregate number of shares as the Certificate surrendered then
entitled such Holder to purchase. Any Holder desiring to exchange a Warrant
Certificate shall make such request in writing delivered to the Company, and
shall surrender, properly endorsed, the Certificate to be so exchanged.
Thereupon, the Company shall countersign and deliver to the person entitled
thereto a new Warrant Certificate as requested.
Section 4. TERM OF WARRANTS; EXERCISE OF WARRANTS.
4.1 TERM OF WARRANTS. Subject to the terms of this
Agreement, each Holder shall have the right, which may be exercised commencing
on the date of original issuance of the Warrant and terminating at 5:00 PM. Los
Angeles time 36 months after the later of (i) the date of the original issuance
of the Warrant, or (ii) the Effective Registration Date, to purchase from the
Company the number of fully paid and nonassessable shares which the Holder may
at the time be entitled to purchase on exercise of such Warrants.
4.2 EXERCISE OF WARRANTS. A Warrant may be exercised
upon surrender to the Company ("Warrant Agent") at its office at Versailles,
Kentucky of the Certificate evidencing the Warrant to be exercised, together
with the Purchase Form attached hereto as
2
<PAGE>
Exhibit A, duly filled in and signed, and upon payment to the Warrant Agent of
the Aggregate Exercise Price (as defined in and determined in accordance with
the provisions of Sections 8 and 11 hereof) for the number of shares with
respect to which such Warrant is then exercised. Payment of the Aggregate
Exercise Price shall be made in cash or by check. Subject to Section 4 hereof,
upon the surrender of the Warrant and payment of the Aggregate Exercise Price,
the Warrant Agent shall promptly issue and cause to be delivered to or as
directed by the Holder, and in such name or names as the Holder may designate, a
Certificate for the number of full shares purchased upon the exercise of the
Warrant, together with cash as provided in Section 8 hereof; for any fractional
shares otherwise issuable upon such exercise. Such Certificate shall be deemed
to have been issued, and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares, as of the date of the
surrender of such Warrant and payment of the Aggregate Exercise Price; provided,
however, that if, at the date of surrender of such Warrant and payment of such
Aggregate Exercise Price, the transfer books for the shares or other class of
stock purchasable upon the exercise of such Warrant shall be closed, the
certificates for the shares with respect to which such Warrant is then exercised
shall be issuable as of the date on which such books shall next be opened and
until such date the Company shall be under no duty to deliver any certificate
for such shares; provided further, however, that the transfer books of record,
unless otherwise required by law, shall not be closed at any one time for a
period longer than twenty (20) days. The rights of purchase represented by the
Warrants shall be exercisable, at the election of the Holders thereof, either in
full or from time to time in part, and in the event that a Warrant Certificate
is exercised to purchase less than all of the shares purchasable on such
exercise at any time prior to the date of expiration of the Warrants, a new
Certificate evidencing the remaining shares available for purchase will be
issued, and the Company is hereby irrevocably authorized to sign and to deliver
the new Warrant Certificate.
Section 5. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes, if any, attributable to the initial issuance of shares upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax or taxes which may be payable with respect to any transfer
involved in the issue or delivery of any Warrants or certificates for shares in
a name other than that of the registered Holder of Warrants with respect to
which such shares are issued.
Section 6. MUTILATED OR MISSING WARRANTS. In case any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue, and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate mutilated, lost, stolen or destroyed, a
new Warrant Certificate of like tenor and representing an equivalent right or
interest; but only upon receipt of evidence to the reasonable satisfaction of
the Company of such mutilation, loss, theft or destruction of such Certificate
and indemnity, if requested, also to the reasonable satisfaction of the Company.
An applicant for such a substitute Warrant Certificate shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
3
<PAGE>
Section 7. RESERVATION OF SHARES: PURCHASE OF WARRANTS: CALL OF
WARRANTS.
7.1 RESERVATION OF SHARES. There have been reserved, and
the Company shall at all times keep reserved, out of its authorized Common
Stock, a number of shares of Common Stock sufficient to provide for the exercise
of the rights of purchase represented by the outstanding Warrants.
7.2 PURCHASE OF WARRANTS BY THE COMPANY. The Company
shall have the right, except as limited by law, other agreement or herein, to
purchase or otherwise acquire Warrants at such times, in such manner and for
such consideration as it may deem appropriate.
Section 8. EXERCISE PRICE. The price per share at which shares may be
purchased upon exercise of Warrants in effect at any time, and as adjusted from
time to time as provided in Section 11 of this Agreement, is referred to herein
as the "Exercise Price." Subject to adjustment, the Exercise Price shall be
$5.00 per share. The product of the Exercise Price times the number of shares
the Holder then elects to purchase is herein referred to as the "Aggregate
Exercise Price."
Section 9. FRACTIONAL SHARES. No fractional shares or script
representing fractional shares shall be issued upon the exercise of a Warrant.
Section 10. RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or in equity, and the rights of the Holder are limited to those expressed herein
and in the Warrant Certificate and are not enforceable against the Company
except to the extent set forth herein and therein.
Section 11. ADJUSTMENT OF WARRANT AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of each Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter described.
11.1 MECHANICAL ADJUSTMENTS. If the Company shall pay a
dividend in shares of its Common Stock (other than payments of Common Stock as
interest on preferred stock), subdivide (split) its outstanding shares of Common
Stock, combine (reverse split) its outstanding shares of Common Stock, issue by
reclassification of its shares of Common Stock any shares or other securities of
the Company, or distribute as a stock dividend to holders of its Common Stock
any securities of the Company or of another entity, the number of shares of
Common Stock or other securities the Holder hereof is entitled to purchase
pursuant to the Warrants immediately prior thereto shall be adjusted so that the
Holder shall be entitled to receive upon exercise the number of shares of Common
Stock or other securities which he, she or it would have owned or would have
been entitled to receive after the happening of any of the events described
above had the Warrant been exercised immediately prior to the happening of such
event, and the Exercise Price shall be correspondingly adjusted; provided,
however, that no adjustment in the number of shares and/or the Exercise Price
shall be required unless such adjustment would require an increase or decrease
of at least one percent (1%) in such number
4
<PAGE>
and/or price; and provided further, however, that any adjustments which by
reason of this Section 11 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. An adjustment made pursuant
to this Section 11 shall become effective immediately after the record date in
the case of a stock dividend or other distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification. The Holder shall be entitled to participate in any
subscription or other rights offering made to holders of Common Stock as if he,
she or it had purchased the full number of shares as to which the Warrant
remains unexercised immediately prior to the record date for such rights
offering.
11.2 VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may
at its option at any time during the term of the Warrants, reduce the then
current Exercise Price to any amount deemed appropriate by the Board of
Directors of the Company.
11.3 NOTICE OF ADJUSTMENT. Whenever the number of shares
purchasable upon the exercise of each Warrant or the Exercise Price of such
shares is adjusted, as herein provided, the Company shall mail by first class
mail, postage prepaid, to each Holder notice of such adjustment or adjustments.
11.4 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
subsection 11.1, no adjustment in respect of any dividends shall be made during
the term of a Warrant or upon the exercise of a Warrant.
11.5 PRESERVATION OF PURCHASE RIGHTS UPON
RECLASSIFICATION, CONSOLIDATION. ETC. In case of any consolidation of the
Company with or merger of the Company into another corporation or in case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute an agreement that each
Holder shall have the right thereafter upon payment of the Warrant Price in
effect immediately prior to such action to purchase upon exercise of each
Warrant the kind and amount of shares and other securities and property which
he, she or it would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale or conveyance had such Warrant
been exercised immediately prior to such action. The Company shall mail by first
class mail, postage prepaid, to each Holder, notice of the execution of any such
agreement. Such agreement shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
11. The provisions of this subsection 11.5 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
11.6 STATEMENT ON WARRANTS. Irrespective of any
adjustments in the Exercise Price or the number or kind of shares purchasable
upon the exercise of the Warrants, Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in the Warrants initially issuable pursuant to this Agreement.
5
<PAGE>
Section 12. SURVIVAL OF AGREEMENT. This Agreement and the rights and
obligations of the Company and the Warrant Holders hereunder shall not be
terminated by any of the following events:
Merger, reorganization or consolidation of the Company;
The transfer of all or substantially all of the assets of Company; or
The voluntary or involuntary dissolution of the Company.
In the event of any such merger, reorganization, consolidation or transfer of
assets, the surviving or resulting corporation or transferee of the assets of
the party affected shall be bound by and shall have the benefit of the
provisions of this Agreement, and the party affected shall take all actions
necessary to insure that such corporation or transferee is bound by the
provisions of this Agreement.
Section 13. RESTRICTIONS ON TRANSFER. The provisions of this Section 13
shall be binding upon any transferee of the Warrants and upon each holder of
Warrant Shares. As used in this Section 13, the term "Warrant Shares" includes
any shares of the Company's Common Stock or other securities, issued in respect
of the Warrant Shares pursuant to any stock split, stock dividend,
recapitalization or otherwise; and the term "Warrant" includes any Warrant
Certificate or Certificates issued in exchange for the original Warrant
Certificate.
13.1 RESTRICTED SECURITIES. The Warrants and Warrant
Shares have not been registered under the Securities Act of 1933, as amended,
("Securities Act") or the securities laws of any states and will be offered and
sold in reliance on exemptions from the registration requirement of such laws.
The Warrants and Warrant Shares are deemed to be "restricted securities" as that
term is defined under Rule 144 promulgated under the Securities Act, because the
Warrants will be issued and sold by the Company in private transactions not
involving a public offering. In general, under Rule 144 as currently in effect,
subject to the satisfaction of certain other conditions, a person, including an
affiliate of the Company (or persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the Common Stock is quoted on NASDAQ, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has held the securities for at least three years and who has not been an
affiliate of the Company for at least three months immediately prior to a
proposed sale is entitled to sell such shares under Rule 144 without regard to
any of the limitations described above.
13.2 LEGEND RESTRICTION. The Company shall cause the
following legend to be set forth on each Warrant Certificate and certificates
representing the Warrant Shares unless counsel for the Company is of the opinion
as to any such certificates that such legend is unnecessary:
6
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
THEREUNDER AND UNDER APPLICABLE STATE LAW, THE A VAILABILITY OF WHICH
MUST BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
13.3 NOTICE OF PROPOSED TRANSFER. Prior to any proposed
transfer of the Warrants or of the Warrant Shares, the Holder thereof shall give
written notice to the Company stating such Holder's intention to effect such
transfer and describing the circumstances of the proposed transfer in sufficient
detail, accompanied by either (i) an opinion of counsel reasonably satisfactory
to the Company to the effect that the proposed transfer may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
staff of the Securities and Exchange Commission ("Commission") to the effect
that the staff will not recommend that enforcement action be taken if the
proposed transfer is effected without registration. The procedures set forth in
this Section 13.3 shall not be required in connection with a sale of the Warrant
Shares pursuant to the Registration Statement. Subject to evidence of compliance
with any applicable state securities or "blue sky" law or laws, the Company
shall promptly notify the Holder in writing that such Holder may proceed with
its transfer as described, and, if the transfer is of Warrant Shares, shall
instruct its transfer agent to remove any stop-transfer restrictions against the
Warrant Shares when transferred as proposed.
Section 14. INDEMNIFICATION.
14.1 The Company will indemnify each Holder, each of its
officers, directors and partners, legal counsel, and accountants and each person
controlling such Holder within the meaning of Section 18 of the Securities Act,
with respect to which registration, qualification, or compliance has been
effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls within the meaning of Section 18 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification or compliance, or based on 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 any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred
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in connection with investigating and defending or settling any such claim, loss,
damage, liability, or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or omission in
reliance upon written information furnished to the Company by such Holder or
underwriter and stated to be specifically for use therein. It is agreed that the
indemnity agreement contained in this Section 16.1 shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent has not
been unreasonably withheld).
14.2 Each Holder will, if Warrant Shares held by him, her
or it are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, legal counsel, and accountants and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 18 of the Securities Act, each other such Holder and Other
Stockholder, and each of their officers, directors, and partners, and each
person controlling such Holder or Other Stockholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular, or
other document, 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, and will reimburse the Company and such Holders, Other
Stockholders, directors, officers, partners, legal counsel, and accountants,
persons, underwriters, or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); and provided that in
no event shall any indemnity under this Section 16 exceed the gross proceeds
from the offering received by such Holder.
14.3 Each party entitled to indemnification under this
Section 16 ("Indemnified Party") shall give notice to the party required to
provide indemnification ("Indemnifying Party") promptly after such 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 such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefor, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 16, to the extent
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such failure is not prejudicial. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
14.4 If the indemnification provided for in this Section
16 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage, or
expense 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 statement or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations; provided, however that in no event shall any contribution by a
Holder under this Section 16.4 exceed the gross proceeds from the offering
received from such Holder. 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 to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
14.5 Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
Section 15. RULE 144 REPORTING. With a view to making available the
benefits of certain provisions of the Securities Act or the rules and
regulations of the Commission that may permit the sale of the restricted
securities to the public without registration, the Company agrees to use its
best efforts to:
(a) Make and keep public information regarding the
Company available as those terms are understood and defined in Rule 144 under
the Securities Act; and
(b) File with the Commission in a timely manner all
reports andother documents required of the Company under the Securities Act and
the Securities Exchange Act of 1934 at any time after it has become subject to
such reporting requirements.
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Section 16. DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
Section 17. SUPPLEMENTS AND AMENDMENTS. The Company may from time to
time supplement or amend this Agreement, without the approval of any Holder, in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company may deem necessary or desirable and which shall not
be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interest of the Holders, or as provided herein. The Company
will notify Warrant Holder of any such supplement or amendment.
Section 18. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company and the Warrant Holder shall bind
and inure to the benefit of the Company and the Warrant Holders, and their
respective successors and assigns.
Section 19. NOTICES. Any notice pursuant to this Agreement by any
Holder to the Company, shall be in writing and shall be mailed or delivered to
the Company at its office at 160 Morgan Street, Post Office Box 87, Versailles,
Kentucky 40383. Any notice mailed pursuant to this Agreement by the Company to
the Holders shall be in writing and shall be mailed or delivered to such Holders
at their respective addresses on the books of the Warrant Agent. Each party
hereto may from time to time change the address to which notices to it are to be
delivered or mailed hereunder by notice in writing to the other party.
Section 20. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will
not merge or consolidate with or into any other corporation unless the
corporation resulting from such merger or consolidation (if not the Company)
shall expressly assume, by supplemental agreement satisfactory in form to the
Warrant Agent and executed and delivered to the Company, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
Section 21. APPLICABLE LAW. This Agreement and each Warrant issued
hereunder shall be governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to principles of conflict of laws.
Section 22. BENEFITS TO THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company and the
Warrant Holders any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, and the Holders of the Warrants.
Section 23. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
AMERCAN RESOURCES OF DELAWARE, INC.
a Delaware Corporation
By:
--------------------------------
Its:
----------------------------
Accepted as of the date written above:
WARRANT HOLDER
- -----------------------------------
- -----------------------------------
By:
---------------------------
Its:
---------------------------
By:
---------------------------
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CERTIFICATE NO.____
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
THEREUNDER AND UNDER APPLICABLE STATE LAW, THE AVAILABILITY OF WHICH MUST
BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
CLASS A COMMON STOCK WARRANT
TO PURCHASE ___________ SHARES OF COMMON STOCK OF
AMERICAN RESOURCES OF DELAWARE, INC.
A Delaware Corporation
THIS CERTIFIES that, for value received, _______________________________
or registered assigns ("Holder"), is entitled to purchase from AMERICAN
RESOURCES OF DELAWARE, INC. a Delaware corporation, ("Company"), up
to __________________ ( _____), fully paid and nonassessable shares of common
stock of the Company ("Common Stock"), at any time commencing on the date of
original issuance of this Warrant and terminating at 5:00 P.M. Los Angeles time
36 months after a registration statement covering the Warrant Shares (as defined
in the Warrant Agreement referred to herein) under the Securities Act of 1933,
as amended, has been declared effective by the Securities and Exchange
Commission at the purchase price of $5.00 per share ("Exercise Price") (pending
adjustment), as provided in Section 1 of a the Warrant Agreement. This Warrant
is issued pursuant to the Warrant Agreement made by the Company dated
____________, 1996 in favor of all Warrant Holders ("Warrant Agreement") and is
subject to all the terms thereof, including the limitations on transferability
set forth in Section 13 thereof. The Holder accepts the terms and provisions of
the Warrant Agreement by acceptance of this Warrant Certificate, and
acknowledges receipt thereof.
The number of shares purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as set forth in
the Warrant Agreement.
This Warrant may be exercised in whole or in part by presentation of this
Warrant with the Purchase Form on the last page hereof duly executed,
concurrently with payment of the Aggregate Exercise Price (as defined in Section
8 of the Warrant Agreement) at the office of the
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Company ("Warrant Agent"). Payment of the Aggregate Exercise Price shall be made
at the option of the Holder in cash or by check.
Upon any partial exercise of this Warrant, there shall be countersigned
and issued to the Holder a new Warrant in respect of the shares of Common Stock
as to which this Warrant shall not have been exercised. This Warrant may be
exchanged at the office of the Warrant Agent by surrender of this Warrant
Certificate, properly endorsed either separately or in combination with one or
more other Warrants, for one or more new Warrants entitling the Holder thereof
to purchase the same aggregate number of shares as were purchased on exercise of
the Warrant or Warrants exchanged. No fractional shares will be issued upon the
exercise of this Warrant, but the Company shall pay the cash value of any
fraction upon the exercise of one or more Warrants. This Warrant is transferable
at the office of the Warrant Agent, in the manner and subject to the limitations
set forth in the Warrant Agreement.
The Holder hereof may be treated by the Company, the Warrant Agent, and
all other persons dealing with this Warrant, as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to the
contrary notwithstanding, and until such transfer on such books, the Company may
treat the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of a
stockholder of the Company.
This Warrant shall not be valid or obligatory for any purpose until it
shall have been signed by the Company.
DATED: ________ 1996 AMERICAN RESOURCES OF DELAWARE, INC.
a Delaware corporation
By
---------------------------
Its:
----------------------
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Exhibit "A"
PURCHASE FORM
Dated ___________ 1996
The undersigned hereby irrevocably elects to exercise the Warrant represented by
this Warrant Certificate No. ______________ to the extent of purchasing
__________ shares of Common Stock of AMERICAN RESOURCES OF DELAWARE, INC. and
hereby makes the payment of $__________ in payment of the Aggregate Exercise
Price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
-------------------------------------------------------------------------
(please type or print in block letters)
Address
----------------------------------------------------------------------
Signature
--------------------------------------------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, ___________________________, hereby sells, assigns and
transfers unto
Name
-------------------------------------------------------------------------
Address
-----------------------------------------------------------------------
the right to purchase Common Stock of AMERICAN RESOURCES OF DELAWARE, INC.
represented by this Warrant Certificate No. _______ to the extent of ________
shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint __________________, Attorney, to transfer the same on the
books of the Company with full power of substitution.
Date
-------------------------
Signature
-------------------------
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AMERICAN RESOURCES OF DELAWARE, INC.
SUBSCRIPTION AGREEMENT
for
UNITS
AMERICAN RESOURCES OF DELAWARE, INC.
160 Morgan Street
Post Office Box 87
Versailles, Kentucky 40383
Dear Sirs:
The undersigned purchaser ("Purchaser") understands that: AMERICAN
RESOURCES OF DELAWARE, INC. ("Company") is offering ("Offering") 100 Units,
("Units"), each Unit consisting of 3,300 shares ("Shares") of the Company's
Common Stock, par value $.00001 per share ("Common Stock") and one Class A
Common Stock purchase warrant ("Warrant"); that each A Warrant entitles the
holder to purchase 1,650 shares of the Company's Common Stock; that the A
Warrants shall be exercisable at $4.00 per share ("A Warrant Shares") commencing
on the Closing Date (as defined herein) and terminating at 5:00 P.M. Los Angeles
time 36 months after the later of (i) the Closing Date, or (ii) the date the
Registration Statement (as defined herein) is declared effective by the
Securities and Exchange Commission; and that the minimum purchase is ten Units
($100,000). Purchaser also understands that this subscription is not binding on
the Company unless and until it is accepted by the Company, as evidenced by its
execution of this Subscription Agreement ("Agreement") where indicated below.
1. SUBSCRIPTION FOR UNITS. Purchaser hereby subscribes for _____ Unit(s).
2. PURCHASE PRICE. The purchase price for the number of Units subscribed
for herein is $ ________ ("Purchase Price").
3. PURCHASES.
3.1 The undersigned hereby agrees to deliver the Purchase Price
required to purchase the number of Units subscribed for hereunder, on the
Closing Date set by the Company pursuant to Section 3.2 hereof.
3.2 At such time as the Company shall determine, the Company, by
itself or through an agent, shall establish and inform the undersigned of the
date upon which the Purchase Price shall be delivered to the Company ("Closing
Date"). The Company presently
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contemplates that the Closing Date will be no later than June 1996.
3.3 Payment of the full Purchase Price for the Units shall be made by
5:00 p.m. on the Closing Date by certified or cashier's check, or wire transfer
to the following bank account:
ABA No. ____________________
American Resources of Delaware, Inc.
Account No. ______________________
or by such other means as the Company shall approve. Promptly upon receipt by
the Company of payment for the Units offered hereby, the Company shall cause to
be issued and delivered to the undersigned certificates registered in the name
of the undersigned for the number of Shares and Warrants purchased by the
undersigned.
3.4 In the event of rejection of this subscription, or in the event
the sale of the Units is not consummated for any reason by June 30, 1996, (in
which event this subscription shall be deemed to be rejected) this Agreement
shall have no force or effect.
4. CONDITIONS. The purchase of the Units by the undersigned and the sale
of such Units by the Company, is subject to the conditions that (i) each of the
representations and warranties of the Company contained herein shall be true and
accurate on and as of the Closing Date as though made on such date; (ii) the
Company shall have performed and complied with all agreements and conditions
contained herein required to be performed and satisfied by it prior to the
Closing Date; and (iii) the undersigned shall have received an opinion from the
Company's counsel in the form of Exhibit B hereto. The acceptance by the Company
of the Purchase Price shall be deemed the Company's confirmation of such
conditions.
5. REPRESENTATIONS OF THE COMPANY. The undersigned is subscribing for
the Units based upon the following representations and warranties of the
Company, which the Company hereby confirms by accepting this subscription:
5.1 ORGANIZATION. The Company and each of its significant
subsidiaries (as defined in Regulation S-X promulgated under the Securities Act
of 1933, as amended ("Act")) is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation and has
the corporate power to own and/or lease its properties and to conduct its
business in the places where such properties are now owned, leased or operated
or such business is presently conducted. The Company and each of its
subsidiaries is duly qualified and licensed as a foreign corporation in each
jurisdiction in which its operations or activities requires such qualification,
except where
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the failure to so qualify would not have a material adverse effect on the
business of the Company and its subsidiaries taken as a whole.
5.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement by the Company has been duly and validly authorized and approved by
its Board of Directors and this Agreement, when executed by a duly authorized
officer of the Company, vill be a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, reorganization or other similar laws and
legal and equitable principles limiting or affecting the rights of creditors
generally or (ii) general principles of equity, regardless of whether considered
in a proceeding in equity or at law. The Warrants to be issued pursuant to this
Agreement will be the legal, valid and binding obligation of the Company,
enforceable in accordance with their terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, reorganization or other similar laws and
legal and equitable principles limiting or affecting the rights of creditors
generally or (ii) general principles of equity, regardless of whether considered
in a proceeding in equity or at law.
5.3 CAPITALIZATION. As of the date hereof and as of the Closing
Date, all issued and outstanding shares of capital stock of the Company are and
will be duly authorized, validly issued, fully paid and nonassessable.
5.4 NO VIOLATIONS; DEFAULTS. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not (i) violate, result (with the lapse of time or giving of
notice, or both) in a violation of, conflict with, or constitute a default
under, or permit the termination or acceleration of the maturity of, any
material indebtedness or material obligation of the Company or any subsidiary;
(ii) violate, result (with the lapse of time or giving of notice, or both) in
violation of, conflict with or constitute a default under, any material term of,
or permit the termination of, any note, mortgage, indenture or other material
agreement, contract, arrangement, understanding or instrument to which the
Company or any subsidiary is a party, or by which it is bound or the Certificate
of Incorporation or Bylaws of the Company or any subsidiary; (iii) except as
required by state securities or "blue sky laws" and except as contemplated by
this Agreement or where the absence would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole, require consent, approval,
waiver or authorization from or registration or filing with any party, including
but not limited to any party to any material agreement to which the Company or
any subsidiary is a party or by which it is bound or by any regulatory or
governmental agency, body or entity; or (iv) violate any statute, law, rule,
regulation or
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ordinance, or any judgment, decrees, order, regulation or rule of any court,
tribunal, administrative or governmental agency, body or entity to which the
Company or its subsidiaries or their properties are subject.
5.5 VALIDITY OF SECURITIES. The Shares and the shares of Common
Stock issuable upon exercise of the Warrants when issued and paid for in
accordance with the terms and conditions hereof and thereof will be validly
authorized, legally issued, fully paid and nonassessable and the delivery to the
undersigned of the Shares and the Warrants delivered pursuant to this Agreemant
shall vest in it good and marketable title thereto, free of any and all liens,
options, encumbrances, charges, third-party rights or claims of any nature
whatsoever except for restrictions on transfers set forth herein, in the Warrant
certificates or imposed by law (and except for any of the foregoing arising by,
through or under the undersigned).
5.6 REPORTING COMPANY. The Company is a reporting company under
Section 12 of the Securities Exchange Act of 1934, as amended ("Exchange Act")
required to file periodic reports pursuant to Section 13 or 15 of the Exchange
Act and has timely filed all such periodic reports with the Securities and
Exchange Commission ("SEC") during the past 12 months (except for any late
filing which has been made and would not disqualify the Company from using a
Form S-3 Registration Statement ("Registration Statement").
5.7 GOVERNMENTAL CONSENTS. No consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale, and delivery of the Units, or the other transactions to be
consummated on the Closing Date, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing Date (except for filings required under United States state securities
or "blue sky" laws of the United States or the securities laws of a foreign
country or jurisdiction which according to such applicable law may be made
following the Closing Date and which are in fact made within the prescribed time
period). Based on the representations made by the undersigned in this Agreement,
the offer and sale of the Units to the undersigned will be in compliance with
applicable Federal and state securities laws.
5.8 COMPLIANCE. Except as otherwise disclosed in the Investment
Material (as defined herein), each of the Company and its subsidiaries is, in
all material respects, in compliance with all laws, regulations, and orders
applicable to its present business and has all permits and licenses required
thereby, except where the failure to so be in compliance or to have such permits
or licenses would not be reasonably likely to materially adversely
4
<PAGE>
affect the business, prospects, condition (financial or otherwise), affairs, or
operations of the Company and its subsidiaries taken as a whole.
5.9 ABSENCE OF CHANGES. Since March 31, 1996, and through the date
hereof, there has been no material adverse change in the condition, financial or
otherwise, net worth, results of operations or prospects of the Company and its
subsidiaries taken as a whole, other than changes occurring in the ordinary
course of business, which changes have not, individually or in the aggregate,
had a materially adverse effect on the business, prospects, properties, or
condition, financial or otherwise, of the Company and its subsidiaries taken as
a whole.
5.10 DISCLOSURES. Each of the documents included in the Investment
Material as of its respective date did not contain any untrue statement of a
material fact and did not omit to state a material fact necessary in order to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading (except for any misstatement or omission
contained in a document that was corrected in a subsequently dated document).
The Company represents that the foregoing representations and
warranties are true and correct as of the date hereof and shall be true and
correct as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
6. REGISTRATION UNDER THE ACT AND OTHER COVENANTS.
6.1 As soon as practicable, but in any event no later than September
16, 1996 ("Filing Date"), the Company will file a Registration Statement (or
other short-form registration statement) under the Act with respect to all of
the shares of Common Stock purchased hereunder and all shares underlying the
Warrants (collectively, the "Subject Stock") held by the undersigned and the
Company shall use its best efforts to cause such Registration Statement to
become effective within 90 days following the Filing Date, all at its sole cost
and expense. The undersigned undertakes in connection therewith to provide in a
timely manner all such information and materials pertaining to it as may be
required in order to permit the Company to comply with all applicable
requirements of the SEC and to obtain the acceleration of the effective date of
the Registration Statement. In connection with such registration, the Company
shall:
(i) use its best efforts to keep the Registration Statement
effective until the earlier of when the undersigned has sold its
Subject Stock or the Subject Stock may be sold by the undersigned
under Rule 144 of the Act without restriction or limitation;
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<PAGE>
(ii) as expeditiously as possible furnish to the undersigned
such reasonable numbers of copies of the prospectus as the undersigned
may reasonably request in order to facilitate the public sale or other
disposition of the Subject Stock;
(iii) as expeditiously as possible use its best efforts to
register or qualify the Subject Stock under the securities or Blue Sky
laws of such states as the undersigned shall reasonably request,
PROVIDED, HOWEVER, that the Company shall not be required in
connection with this paragraph (iii) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction; and
(iv) pay all costs and expenses incident to registration
hereunder.
6.2 The undersigned shall pay any and all underwriters' discounts,
brokerage fees and transfer taxes incident to the sale of the Subject Stock sold
by the undersigned pursuant to this Section.
6.3 In the event that the Registration Statement is not (i) filed by
the Filing Date, or (ii) the Company does not use its best efforts to cause the
Registration Statement to become effective within 90 days after the Filing Date,
the Company shall (i) issue, as soon as practicable thereafter, to the
undersigned an Additional A Warrant (the "Additional Warrant") exercisable for
the purchase of one-half share of Common Stock for each of the shares of Common
Stock and A Warrant Shares included in the Units and (ii) include the shares of
Common Stock underlying each Additional Warrant in the Registration Statement,
and the Company shall continue to use its best efforts to cause the Registration
Statement to become effective. The Additional Warrant shall in all other
respects have identical terms as the A Warrants.
7. Purchaser acknowledges that he or it has received, read, and
understands and is familiar with this Agreement, and the Company's 1995 Annual
Report, on Form 10-KSB for year ended December 31, 1995, and the Form 10-QSB for
the fiscal quarter ended March 31, 1996, as filed with the SEC, and the Risk
Factors (Exhibit A attached hereto) (collectively referred to herein as the
"Investment Material"). Purchaser further acknowledges that, except as set
forth herein or in the Investment Material, no representations or warranties
have been made to him or it by the Company, or by any person acting on behalf of
the Company, with respect to the Units, the business of the Company, the
financial condition of the Company, and/or the economic, tax or other aspects or
consequences of a purchase of the Units, and that the Purchaser has not relied
upon any information concerning the offering, written or oral, other than that
contained in the Investment
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Material and the documents attached or referred to in the Investment Material.
8. Purchaser represents and warrants to the Company that he or it is an
"accredited investor" as that term is defined pursuant to Regulation D under the
Securities Act of 1933, as amended ("Act"), and:
8.1 if Purchaser is:
8.1.1 an individual, that he has an individual net worth, or his
spouse and he have a combined net worth, in excess of $1,000,000 (for the
purposes of this Agreement, "net worth" means the excess of total assets at fair
market value, (including principal residence, home furnishings and automobiles)
over liabilities); or that he had an individual income, exclusive of any income
attributable to his spouse, of more than $200,000 in calendar years 1993 and
1994, and that he reasonably expects to have an individual income in excess of
$200,000 during calendar year 1995; or that he and his spouse had joint income
of more than $300,000 in 1993 and 1994, and that he reasonably expects to have
joint income in excess of $300,000 during calendar year 1995;
8.1.2 a corporation, business trust or partnership, that it was
not formed for the specific purpose of acquiring the Units and that it has total
assets in excess of $5,000,000; or that all of its equity owners are accredited
investors under Section 8.1.1 above (i.e., $1,000,000 net worth, or $200,000
individual or $300,000 joint income);
8.1.3 a trust, that the undersigned financial institution
certifies that it is a bank, savings and loan association or other regulated
financial institution, acting in its fiduciary capacity as trustee and
subscribing for the purchase of the Units on behalf of the subscribing trust; or
the undersigned certifies that the subscribing trust has total assets in excess
of $5,000,000, and that the person making the investment decision on behalf of
the trust has such knowledge and experience in financial matters that he is
capable of evaluating the merits and risks of an investment in the Units; or the
undersigned certifies that it is a revocable trust that may be amended or
revoked at any time by the grantors thereof, and all of the grantors are
accredited investors under Section 8.1.1 above (i.e., $1,000,000 net worth, or
$200,000 individual or $300,000 joint income);
8.1.4 an employee benefit plan (including Keogh Plans), that the
undersigned is an employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the decision
to invest in the Units was made by a plan fiduciary (as defined in Section 3(21)
of ERISA), which is either a bank, savings and loan association, insurance
company or registered investment advisor; or the undersigned is an employee
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benefit plan within the meaning of ERISA and has total assets in excess of
$5,000,000; or the undersigned is an employee benefit plan within the meaning of
ERISA, the plan is self-directed, and the investment decision is being made by a
plan participant who is an accredited investor under Section 8.1.1 above (i.e.,
$1,000,000 net worth, or $200,000 individual or $300,000 joint income);
8.1.5 an individual retirement account ("IRA"), that the
undersigned certifies that the beneficiary thereof is an accredited investor
under Section 8.1.1 (i.e., $1,000,000 net worth, or $200,000 individual or
$300,000 joint income);
8.1.6 a not-for-profit organization, that the undersigned
certifies that it is an organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, not formed for the specific purpose
of acquiring the Units, with total assets in excess of $5,000,000.
9. If Purchaser is a resident of California, Purchaser also represents
that:
9.1 he has a pre-existing personal or business relationship with one
or more of the officers, directors or controlling persons of the Company such
that he has the capacity to protect his own interests in connection with his
investment in the Units; or
9.2 by reason of his business or financial experience he has the
capacity to protect his own interests in connection with his investment in the
Units.
10. Purchaser recognizes that an investment in the Units involves
significant risks.
11. Purchaser has been represented by such legal and tax counsel and
advisors, each of whom has been independently selected by Purchaser, as he or it
has found necessary to consult concerning this transaction. Purchaser
individually or through its undersigned custodian, officer, partner, agent or
trustee has sufficient knowledge and experience in business and financial
matters to evaluate the information set forth in the Investment Material, and
the risks of the investment, and to make an informed investment decision with
respect thereto.
12. Purchaser acknowledges that the Company has given Purchaser and his or
its counsel and advisors, prior to the date hereof, the opportunity to ask
questions of, and to receive answers from, the Company and its employees and
agents concerning the terms and conditions of the offering, the Company, its
business, and its financial condition, and that the Company has afforded
Purchaser access to all requested information, documents, financial statements,
records and books (i) relative to the Units, the
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parties involved in the transaction, the offering and an investment herein, the
Company's business and financial condition, and (ii) necessary to verify the
accuracy of any information, documents, financial statements records and books
furnished. All materials and information requested by either Purchaser, his or
its counsel, advisers or others representing Purchaser, including any
information requested to verify any information furnished, have been made
available to the extent such materials and information were possessed by the
Company or could be acquired by it without unreasonable effort or expense.
13. Purchaser acknowledges that the offer to sell the Units was directly
communicated to Purchaser in such a manner that Purchaser was able to ask
questions and receive answers concerning the terms of this transaction and that
at no time was Purchaser presented with or solicited by any leaflet, newspaper
or magazine article, radio or television advertisement or any other form of
general advertising, or invited to any promotional meeting. No oral
representations have been made or oral information furnished to Purchaser in
connection with the sale of the Units which were in any way inconsistent with
the Investment Material or its exhibits or annexes.
14. Purchaser understands and agrees that:
14.1 Neither the Units nor the shares of Common Stock underlying the
Units (which includes the shares which may be purchased upon exercise of the
Warrants (collectively, the "Unit Shares")), have been registered under the Act,
in reliance on the exemption provided by Regulation D under the Act, nor under
state securities laws in reliance upon corresponding exemptions in such statues.
14.2 The Units subscribed to by Purchaser are being sold in reliance
upon such exemptions based upon Purchaser's representations, warranties and
agreements set forth herein.
14.3 The Units and Unit Shares cannot be sold unless they are
registered under the Act, as contemplated under Section 6.6 of this Agreement,
and under any applicable state securities laws or unless an exemption from such
registration requirements is available which must be established to the
satisfaction of the Company.
14.4 Purchaser must bear the economic risks of the investment in the
Units and Unit Shares for an indefinite period of time because they have not
been registered under the Act or any state securities laws.
14.5 The Company is the only person which may register the Units and
Unit Shares under the Act and under state securities laws and the Company has
not made any representations to Purchaser
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regarding the registration of the Units or compliance with Regulation D or some
other exemption under the Act except as specifically set forth herein and in the
Investment Material.
14.6 Purchaser will not sell or attempt to sell the Units or Unit
Shares without registration under the Act and any applicable state securities
laws, unless exemptions from such registration requirements are available and
Purchaser has satisfied the Company that an exemption is available for such
sale.
14.7 The Company shall have the right to issue stop transfer
instructions to its transfer agent to bar the transfer of any of the
certificates representing the Unit Shares other than in accordance with the Act.
14.8 Although a market currently exists for the Company's Common
Stock, such market is dependent on a number of factors beyond the control of the
Company and may not continue. The Units and Unit Shares are "restricted
securities" as defined in Rule 144 under the Act, and must be held for a minimum
of two years following purchase, and thereafter may be sold in only limited
amounts in a specified manner in accordance with the terms and conditions of
Rule 144 ("Rule") if the Rule is applicable (there being no representation by
the Company that it will be applicable). In case the Rule is not applicable, any
sales may be made only pursuant to an effective Registration Statement, as
contemplated under Section 6.1 of this Agreement, or an available exemption from
registration.
14.9 Purchaser agrees to disclose to any proposed buyer or transferee
of the Units or Unit Shares the restrictions relating to the sale or transfer of
the Units or Unit Shares being purchased thereby.
15. Purchaser understands and agrees that the Units being acquired hereby
are and will continue to be restricted securities within the meaning of Rule 144
of the General Rules and Regulations under the Act and applicable state
securities laws, and consents to the placement of an appropriate restrictive
legend or legends, as described in the Investment Material, on any certificates
evidencing the Units and any certificates issued in replacement or exchange
therefor, and acknowledges that the Company will cause its stock transfer
records to note such restrictions.
16. On the condition that the Registration Statement is then effective,
Purchaser understands that the Company can require the holders of the A Warrants
to exercise the Warrants if the Company's Common Stock closes at $5.50 or above,
on NASDAQ or a equivalent exchange, for 20 of 30 consecutive trading days. A
trading day means a day on which the New York Stock Exchange is open for
trading. The mandatory exercise notification can be made at any time after the
occurrence of such event and the Warrant holder will
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have 30 days after the date of such notification within which to exercise his
Warrant. If the Warrant is not exercised within said 30 day period, the Warrant
will automatically become null and void.
17. Purchaser represents that he or it is acquiring the Units subscribed
for hereunder as an investment for his or its own account and not for the
accounts of others, and not for the transfer, assignment, resale or distribution
thereof, in whole or in part, other than pursuant to the Registration Statement.
Purchaser has no present plans to enter into any such contract, undertaking,
agreement or arrangement.
18. Purchaser agrees to cooperate fully with the Company in the
preparation and filing of any Registration Statement which includes any Units or
Common Stock owned by Purchaser. Purchaser will provide at his or its own
expense and in writing to the Company all information and data with respect to
Purchaser and to his or its plan of distribution as shall be required by the
rules and regulations of the Securities and Exchange Commission to be included
in any such Registration Statement. Purchaser further agrees to indemnify,
defend, and hold harmless the Company, each of its directors, and each of its
officers who has signed such Registration Statement (or any amendment or
supplement thereof) and each person, if any, who controls the Company, within
the meaning of the Act, and its designated placement agents against any costs,
expenses (including attorneys' fees, losses, damages or liabilities) to which
the Company, or any such director, officer or controlling person of the Company
may become subject under the Act or otherwise, insofar as said costs, expenses,
losses, damages or liabilities (or actions in respect thereof) arise out of or
are based upon material facts contained in the Registration Statement (or any
amendment thereof) or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
such indemnity shall apply only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished by the undersigned for
use in the preparation thereof. The Company agrees to indemnify, defend, and
hold harmless the Purchaser and each person, if any, who controls Purchaser,
within the meaning of the Act against any costs, expenses (including attorney's
fees, losses, damages or liabilities) to which the Company, or any such
controlling person may become subject under the Act or otherwise, insofar as
said costs, expenses, losses, damages or liabilities (or actions in respect
thereof) arise out of or are based upon material facts contained in the
Registration Statement (or any amendment thereof) or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
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19. Purchaser hereby agrees to indemnify and hold harmless the Company,
its employees, agents, designated placement agents and affiliated persons, from
and against any and all damages, losses, costs and expenses (including
reasonable attorneys' fees) which they, or any of them, may incur by reason of
or may otherwise arise out of Purchaser's breach of any of the representations,
warranties and agreements of Purchaser contained herein. The Company hereby
agrees to indemnify and hold harmless the Purchaser and its affiliated persons,
from and against any and all damages, losses, costs and expenses (including
reasonable attorneys' fees) which they, or any of them, may incur by reason of
the Company's failure to fulfill any of the terms and conditions of this
Agreement, or by reason of, or which may otherwise arise out of, the Company's
breach of any of the representations, warranties and agreements of Company
contained herein.
20. This Agreement may be amended or modified only in writing signed by
the parties hereto. No evidence shall be admissible in any court concerning any
alleged oral amendment hereof. This Agreement fully integrates all prior
agreements and understandings between the parties concerning its subject matter.
21. This Agreement binds and inures to the benefit of the representatives,
successors and permitted assigns of the respective parties hereto.
22. Each party hereto agrees for itself, its successors and permitted
assigns to execute any and all instruments necessary for the fulfillment of the
terms of this Agreement.
23. This Agreement shall be construed in accordance with and governed by
the laws of the State of California.
24. This Agreement may be executed in counterparts.
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Each undersigned Purchaser, by executing this Subscription Agreement,
hereby adopts, confirms and agrees to all terms, conditions, representations and
warranties contained herein.
PURCHASER: PURCHASER:
- ----------------------------------- -----------------------------------
(Print name) (Print name)
- ----------------------------------- -----------------------------------
(Address) (Address)
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
(Taxpayer Identification No.) (Taxpayer Identification No.)
- ----------------------------------- -----------------------------------
(Authorized signature) (Authorized signature)
- ----------------------------------- -----------------------------------
(Title) (Title)
- ----------------------------------- -----------------------------------
(Date signed) (Date signed)
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER. Under penalty of perjury,
Purchaser certifies that (1) the number provided above is Purchaser's true,
correct and complete Taxpayer Identification or Social Security Number; and (2)
Purchaser is not subject to backup withholding either because Purchaser has not
been notified that Purchaser is subject to backup withholding as a result of a
failure to report all interest or dividends, or the Internal Revenue Service has
notified Purchaser that Purchaser is no longer subject to backup withholding
under Code Section 3406(a)(1)(C). If Purchaser has been notified that Purchaser
is currently subject to backup withholding, strike out the language under clause
(2) above before signing.
(Signature page of this Agreement is on page 14)
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AGREED, SUBSCRIPTION ACCEPTED AND RECEIPT OF CONSIDERATION ACKNOWLEDGED:
DATED: _______________ 1996 AMERICAN RESOURCES OF DELAWARE, INC.
By:
-------------------------------
Its:
---------------------------
[ REMAINDER OF PAGE LEFT BLANK INTENTIONALLY ]
(Signature page to American Resources of Delaware, Inc.
Subscription Agreement)
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[MCKENNA & STAHL LETTERHEAD]
August 12, 1996
American Resources of Delaware, Inc.
160 Morgan Street
Versailles, Kentucky 40383
Re: REGISTRATION STATEMENT NO. 333-656
Gentlemen:
This opinion is furnished to you in connection with the Registration
Statement on Form S-3 (File No. 333-656) which has been filed with the
Securities and Exchange Commission ("SEC") registering 2,448,144 shares of the
common stock, $.00001 par value per share ("Shares") of American Resources of
Delaware, Inc. ("Company"). This opinion supercedes our opinion dated June 18,
1996 with respect to this Registration Statement.
In our capacity as counsel to the Company, we have assisted in the
preparation of such Registration Statement. In addition, we have examined the
original, certified, conformed or photostatic copies of all Exhibits to such
Registration Statement, and all such agreements and certificates of public
officials, certificates of officers and representatives of the Company and
others, and such other documents as we have deemed necessary or relevant as a
basis for the opinions herein expressed. In all such examinations we have
assumed the genuineness of all signatures on original or certified documents and
the conformity to original or certified documents of all copies submitted to us
as conformed or photostatic copies. As to various questions of fact material to
such opinion, we have relied upon statements or certificates of officers and
representatives of the Company and others.
Based upon the foregoing, in our opinion the Shares have been duly
authorized and, when issued, will be validly issued, fully paid and
nonassessable.
<PAGE>
Page 2
We hereby consent to the filing of this opinion as an Exhibit to the
aforesaid Registration Statement on Form S-3 which has been filed by the Company
with the SEC under the Securities Act of 1933, as amended, and we further
consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus which constitutes a part thereof.
Very truly yours,
\S\ HARRY S. STAHL
-----------------
Harry S. Stahl
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement"), dated July
3rd, 1996, is by and between SOUTHERN GAS CO. OF DELAWARE, INC. ("Southern"), a
Delaware corporation, AMERICAN RESOURCES OF DELAWARE, INC., ("ARI") and CENTURY
OFFSHORE MANAGEMENT CORPORATION ("Century"), a Kentucky corporation.
WHEREAS, Century and Southern desires to mutually develop and
obtain certain Leasehold Interests (as hereinafter defined) in salt domes
located in the gulf coast region, including those salt domes more fully
described.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the benefits to be derived by each party hereunder, and
intending to be legally bound, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS AND PURCHASE AND SALE OF ASSETS
1.01 DEFINITIONS. All capitalized terms and the definition set forth
in this Agreement, not defined in the body of this Agreement, are set forth in
Exhibit "F", attached hereto and incorporated herein by reference.
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1.02 ASSETS TO BE SOLD. Subject to the terms and conditions of this
Agreement, Century shall sell, transfer and assign to Southern, and Southern
shall purchase from Century, effective July 1, 1996 (the "Effective Date"),
certain specified contract interests in and to the assets described below
pertaining to the three salt dome areas hereinbelow described (collectively the
"Assets"). The Assets shall consist of the following:
(a) An undivided 32.941% of Century's 85% interest, being an
undivided 28% interest, in and to the rights and obligations set forth in that
certain unrecorded Letter Agreement dated January 12, 1996, by and between Aegis
Energy, Inc. and Century, a copy of which is attached hereto as Exhibit "A" (the
"Bayou Bouillon Salt Dome Contract Rights");
(b) An undivided 33.333% of Century's 75% interest, being an
undivided 25% interest, in and to the rights and obligations set forth in that
certain unrecorded Letter Agreement dated February 5, 1996 by and between Aegis
Energy, Inc. and Century, a copy of which is attached hereto as Exhibit "B-1 and
that certain unrecorded Letter Agreement dated May 6, 1996 by and between
Century and St. Martin Land Company, a copy of which is attached hereto as
Exhibit "B-2" (collectively the "Plumb Bob Salt Dome Contract Rights"); and
(c) An undivided 32.8125% of Century's 32% interest, being
an undivided 10.5% interest, in and to the rights and obligations set forth in
that certain unrecorded Letter Agreement dated September 27, 1995, by and
between TexStar North America, Inc. and Century, as amended by the Supplemental
Agreement dated December 22, 1995, by and between TexStar North America, Inc.,
Century, ARI (as hereinafter defined), and Cheyenne Petroleum Company, copies of
which
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documents are attached hereto as Exhibits "C-1" and "C-2" (collectively the
"White Castle Salt Dome Contract Rights").
(d) To the extent the same are assignable or transferable by
Century and to the extent and only to the extent that the same relate to the
ownership or operation of the Assets, the interest in and to all orders,
contracts, agreements, instruments, licenses, authorizations, well record files,
reserve reports, maps, surveys, bonds, (including without limitation all
operating agreements, bidding agreements, transportation agreements, unit
agreements, participation title opinion, permits, 3-D seismic information (in
Century's possession now or in the future) agreements, gathering agreements and
processing agreements), instruments, licenses, authorizations, well record
files, reserve or other rights, privileges, benefits and powers conferred upon
Century, pertaining to the Assets. reports, maps, surveys, bonds, title opinion,
permits, audits, claims, liens, suits, settlements and demands, and other
rights, privileges, benefits and powers conferred upon Century.
1.03 PURCHASE PRICE. The purchase price for the Assets to be paid by
Southern to Century at Closing, as herein defined, shall be Nine Million Eight
Hundred Eighty-Four Thousand Dollars ($9,884,000.00) payable as follows:
(a) The sum of Three Million Eight Hundred and Eighty Four
Thousand Dollars ($3,884,000), the receipt of, which is hereby acknowledged by
Century.
(b) As a prepayment for the Leasehold Interest to be
acquired hereunder, Southern shall cause American Resources of Delaware Inc.
("ARI") to issue One Million Five Hundred Thousand (1,500,000) shares of ARI's
common stock, par value $.00001 per share ("ARI") to Century. ARI,
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at its own cost and expense, will prepare and file, at the earliest practicable
time pursuant to reasonable and prudent business practice on Form S3 a
registration statement (the "Registration Statement") under the Securities Act
of 1933 (the "Securities Act") complying with all the requirements of the
Securities Act applicable thereto for the purpose of registering the ARI Stock
described above. ARI shall use its best efforts to cause the Registration
Statement to become effective as soon as practicable, to qualify the ARI Stock
under the securities or blue sky laws in such jurisdictions as the parties
reasonable agree and to keep the Registration Statement and such qualifications
current and in effect. Century agrees that during the first six (6) months after
the issuance, it will not sell any of the ARI Stock and that after such time it
will not sell more than 8.33% of the ARI Stock in any one month. Notwithstanding
the above, ARI hereby agrees and acknowledges that Century may, at any time
after the Closing, pledge any part or all of the ARI Stock for the purpose of
raising capital ("Private Placement Funds"), so long as the proceeds received as
a result of said pledge of ARI Stock or any sale of ARI Stock are used solely
for the Leasehold Interests related to the White Castle Dome Contract Rights,
Bayou Bouillon Dome Contract Rights and the Plumb Bob Dome Contract Rights
(collectively hereinafter referred to as the "Domes"). At such time as the sum
of Five Million Seven Hundred Thousand Dollars ($5,700,000) of the Private
Placement Funds have been expended by Century for the Leasehold Interests
(including monies expended by Century prior to the pledging or sale of the ARI
Stock), the proceeds of the Private Placement Funds and any sale of the ARI
Stock by Century may be used by Century for any purpose. The parties acknowledge
that they have entered into a separate Purchase and Sale Agreement of even
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date herewith, which provides in part that Southern, as set forth in paragraph
1.03(e) of such agreement, shall advance to Century the sum of Three Million
Dollars ($3,000,000), payable in increments of One Million Dollars ($1,000,000)
each. To the extent Century has been unable to raise $5,700,000 of the Private
Placement Funds by the time such advances are made, then Century agrees to use
the proceeds of such advances for the Leasehold Interests until a total of
$5,700,000 has ben expended.
(The obligations specified in paragraphs (a) and (b) above shall
hereinafter be subject collectively referred to certain restrictions and rights
of ARI as hereinafter set forth the "Purchase Price."
1.04 ALLOCATION OF PURCHASE PRICE. For the purpose of setting forth
the performance requirements set out hereinbelow, the parties hereto acknowledge
and agree that the Purchase Price to be paid by Southern hereunder shall be
allocated as follows:
(a) It shall be deemed that Southern will have paid the sum
of Two Million Five Hundred Thousand Dollars ($2,500,000.00) for the acquisition
of a Leasehold Interest in the White Castle Salt Dome Contract Rights,
comprising $2,250,000 in cash contribution and 62,500 shares of ARI Stock.
(b) It shall be deemed that Southern will have paid the sum
of Four Million Five Hundred Fifty Thousand Dollars ($4,550,000.00) for the
acquisition of a Leasehold Interest in the Bayou Bouillon Salt Dome Contract
Rights, comprising $1,000,000 in cash contribution and 887,500 shares of ARI
Stock.
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(c) It shall be deemed that Southern will have paid the sum
of Two Million Eight Hundred Thirty Four Thousand Dollars ($2,834,000.00) for
the acquisition of a Leasehold Interest in the Plumb Bob Salt Dome Contract
Rights, comprising $634,000 in cash contribution and 550,000 shares of ARI
Stock.
1.05 CENTURY'S BACK-IN. At such time as Century has fulfilled its
representations pursuant to paragraph 2.16 (a),(b) and (c) herein and Southern
has recouped, from revenues attributable to the Assets or the rights to be
acquired pursuant thereto, the sum of (i) Fifteen Million Dollars
($15,000,000.00) plus (ii) the sum of all capital expenditures, operating costs
and any other direct costs which Southern has paid with respect to the Assets,
Southern shall convey to Century twenty-five (25%) percent of the Assets (and
the rights to be acquired pursuant thereto) acquired hereunder (the "Back-In
Interest"). (Southern's obligation to convey the Back-In Interest shall be
called the "Back-In Obligation"). The Back-In Interest shall be conveyed to
Century free and clear of all liens, encumbrances and burdens which may have
been created or arose during Southern's ownership of this interest. Southern
shall have the option until December 31, 1997 to purchase the Back-In Obligation
by paying Century Three Million Dollars ($3,000,000.00) on or before December
31, 1997.
1.06 MERGER VALUE. In the event of a merger between Century and ARI
(or a business entity formed by ARI for the purpose of the merger), Century
shall be allowed to include the Back-In Interest in its Assets and value the
Back-In Interest at the Netherland Sewell & Associates, Inc. established value
or Two Million Five Hundred Thousand Dollars ($2,500,000.00), whichever is
greater, in order to establish Century's value for merger purposes.
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<PAGE>
1.07 DELIVERIES BY CENTURY TO SOUTHERN.
(a) At the Closing, Century shall deliver to
Southern:
(i) A certificate from the Secretary of
State (or equivalent official) of the
State of Kentucky as to the good
standing of Century in the State of
Kentucky, certified as of a date within
ten (10) days of Closing;
(ii) A certificate of an Officer attesting to
those matters set forth in Article II;
(iii) A copy of the resolutions, certified by
the Secretary of the Century,
authorizing Century to enter into the
transactions contemplated by this
Agreement;
(iv) The Opinion of Century's counsel, in a
form acceptable to Southern's counsel,
referred to in Section 5.03;
(v) An Opinion of Century's counsel, in form
acceptable to Southern's Counsel,
opining that the transactions
contemplated herein, do not require
bankruptcy court, Century creditors,
Bank of Montreal or BMO Financial
approval;
(vi) All other previously undelivered items
required to be delivered by Century to
Southern at, or prior to, such date.
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(vii) Instruments of conveyance including but
not limited to assignments, bill of
sale, and/or other instruments of
transfer as more fully set forth in
Exhibit "D" which shall be reasonably
satisfactory to Southern's counsel.
1.08 DELIVERIES BY SOUTHERN TO CENTURY.
(a) At the Closing, Southern shall deliver to Century:
(i) The ARI Stock provided for in Section
1.03(b);
(ii) The opinion of ARI's and Southern's
Counsel referred to in Section 5.04
hereof; and
(iii) Certificates from the Secretary of State
of Delaware as to the good standing of
Southern and ARI in the State of
Delaware, certified as of a date within
thirty (30) days of Closing;
(iv) All other previously undelivered items
required to be delivered by Southern to
Century at, or prior to, such date.
1.09 LOCATION AND TIME OF THE CLOSING. The Closing shall be held on
the 3rd day of July, 1996 at 10:00 AM(Eastern Time) or as shall be mutually
agreed upon by Century and Southern. The Closing shall be held at the offices of
Century in Lexington, Kentucky or such other place as the parties hereto may
agree in writing.
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1.10 BURDENS. Southern specifically agrees that it will acquire the
Assets subject to each term and provision of the agreements described
hereinbelow and, except as set forth herein below, Southern agrees to bear its
share of Century's obligations, as set forth in each of these agreements:
(a) PLUMB BOB SALT DOME CONTRACT RIGHTS.
(1) That certain unrecorded Letter Agreement dated
February 5, 1996 by and between Century and Aegis Energy, Inc.
(2) That certain unrecorded agreement dated May 6,
1996 by and between Century and St. Martin Land Company.
With regard to the Plumb Bob Salt Dome Contract Rights
agreements, Southern further acknowledges that Century's rights in the agreement
described in subparagraph 2 are subject to and said agreement was acquired in
accordance with the terms of the agreement, described in subparagraph l.
(b) BAYOU BOUILLON SALT DOME CONTRACT RIGHTS.
(1) That certain unrecorded agreement dated
January 12, 1996 by and between Century and Aegis Energy, Inc.,
which agreement includes, among other provisions, an area of
mutual interest.
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(c) WHITE CASTLE SALT DOME CONTRACT RIGHTS.
(1) Letter Agreement dated September 27, 1995, by
and between TexStar North America, Inc. and Century.
(2) 3-D Seismic Exploration Agreement, White Castle
Area, Iberville Parish, Louisiana, dated effective as of December 1, 1994, by
and between TexStar North America, Inc. and Shell Western E&P Inc.
(3) Supplemental Agreement dated December 22, 1995
by and between TexStar North America, Inc., Century, ARI (as hereinafter
defined), and Cheyenne Petroleum Company.
1.11 POST-CLOSING MANAGEMENT OF ASSETS. To the extent Century is
currently providing management of the Assets, Century will continue to perform
those management functions necessary for the operations and oversight of the
Assets.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CENTURY
Century hereby represents and warrants to Southern and ARI as of the
date hereof that:
2.01 EXISTENCE OF CENTURY. Century is a corporation duly organized,
validly existing and in good standing under the laws of the State of Kentucky
and has the power and authority to own its property and to carry on its business
as now conducted and to enter into and carry out the terms of this Agreement.
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2.02 POWER OF CENTURY. Century has the corporate power to enter into
and perform this Agreement and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Century, and the
transactions contemplated hereby, will not violate (i) any provision of the
certificate of incorporation or bylaws of Century, (ii) any material agreement
or instrument to which Century is a party or by which Century is bound which
pertains to the Leasehold Interest, (iii) any judgment, order, ruling, or decree
applicable to Century as a party in interest, or (iv) any law, rule or
regulation applicable to Century;
2.03 AUTHORIZATION OF CENTURY. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all requisite corporate action on the part of
Century. This Agreement has been duly executed and delivered on behalf of
Century, and at the Closing all documents and instruments required to be
executed and delivered by Century pursuant to this Agreement shall have been
duly executed and delivered. This Agreement does, and such documents and
instruments shall, constitute legal, valid and binding obligations of Century
enforceable in accordance with their terms, subject, however, to the effect of
bankruptcy, insolvency, reorganization, moratorium and similar laws from time to
time in effect relating to the rights and remedies of creditors, as well as to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
2.04 LITIGATION-AGREEMENT. No litigation, claims, administrative
proceedings or other proceedings or governmental investigations are pending, or
to the best of Century's actual knowledge
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threatened, which would prevent or delay the execution, delivery or performance
of this Agreement by Century;
2.05 LITIGATION - ASSETS. To the best of Century's Knowledge, there
are no court, administrative, regulatory or similar proceeding (whether civil,
quasi-criminal or criminal); arbitration or other dispute settlement procedure;
investigation or inquiry by any government, administrative, regulatory or
similar body or any third person or entity; or any similar matter or proceeding
(collectively "Proceedings") (a) against the Assets, or (b) against Century and
relating in any way to the Assets, which would have a material adverse effect on
the Assets (whether in progress or threatened); as it pertain to the Assets, no
event has occurred which might give rise to any Proceedings, there is no
judgment, decree, injunction, rule, award or order of any court, government
department, board, commission, agency, arbitrator or similar body outstanding
against Century and no complaint, grievance, claim, work order or investigation
has been filed, made or commenced against Century.
2.06 CONSENTS AND PREFERENTIAL PURCHASE RIGHTS. There are no
consents (except as set forth in Exhibit "E"), agreements or waivers of
preferential rights necessary to the valid assignment of the Assets to Southern
at Closing and there are no preferential purchase rights or calls on production
with respect to the production from the Assets.
2.07 COMPLIANCE WITH LAWS. To the best of Century's Knowledge, the
Assets have been operated in compliance with all laws, ordinances, regulations
and orders applicable to the Assets and the operations undertaken in connection
therewith. Furthermore, no notice from any governmental
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body has been served upon Century for the Assets claiming any material violation
of any law or any other code, rule or regulation, which would have material
adverse effect on the Assets. To the best of Century's Knowledge, none of the
Assets, nor the ownership, leasing, occupancy, or the operation thereof, is in
material violation of any such law, ordinance, code, rule or regulation, which
would have a material adverse effect on the Assets.
2.08 PERMITS. To the best of Century's Knowledge, either Century or
a third party under the Assets, hold or will acquire all permits, licenses,
approvals and franchises (collectively, "permits") which it requires, or is
required to have, to operate, own or lease the Assets conveyed hereunder. All
such permits are full force and effect; Century is in material compliance with
all the terms and conditions relating to such permits; and there are no
proceedings in progress, pending or threatened which may result in revocation,
cancellation, suspension or any adverse modification of any of such permits.
Neither the terms and conditions relating to such permits nor the legislation or
regulations pursuant to which the same were issued require that any consent or
approval of, or filing with or notice to, any governmental agency or regulatory
body or other Person be made to assure the continued holding by Southern of such
permits after completion of the transaction contemplated by this Agreement.
2.09 MATERIAL FACTS DISCLOSED. Century has disclosed in writing to
Southern facts within their Knowledge relating to the Assets which could
reasonably be expected to be material to an intending purchaser of the Assets or
that would have a Material Adverse Effect on the Assets, or on Southern's
acquisition and ownership thereof.
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2.10 ASSETS. Century owns its portion of the Assets free and clear
of liens, claims and encumbrances placed against the Assets by Century or
incurred by Century, and Century has duly performed all of the obligations under
the Assets that are now or will prior to the Closing Date be required to be
performed by Century. Century has not received any notice of default under the
Assets nor is any such notice pending. The contracts which comprise Assets are
valid and enforceable in accordance with their terms; further, that:
(i) Century has not received any notice of,
and there exists no event of default
under the Assets or event which
constitutes or would constitute (with
notice or lapse of time or both) a
default in any material respect
thereunder; and
(ii) With respect to the Assets, and limited
to the time period during which Century
has owned the Assets, to the best of
Century's Knowledge, all payments
required to be paid to perpetuate the
Assets to the date of this Agreement
have been timely and properly paid to
the proper parties and in the proper
amounts. To the best of Century's
Knowledge, the Assets, and all material
agreements, orders and other instruments
creating the Assets or of which the
Assets arise are legal valid, binding,
subsisting, in good standing and in full
force and effect.
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2.11 DISCLOSURE. No representation or warranty by or on behalf of
Century contained in this Agreement, in any Schedule hereto, in any agreement
entered into pursuant hereto or in connection herewith, in any certificate
delivered at Closing, or in any other certificate which states that it is
delivered pursuant to or in connection with this Agreement (certificates
referred to in this sentence are sometimes referred to herein individually as an
"Agreement Certificate" and collectively as the "Agreement Certificates"),
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact required to make the statements herein or
therein contained not misleading. Except as set forth in this Agreement, in any
Schedule hereto, in any agreement entered into pursuant hereto or in connection
herewith, or in any Agreement Certificate delivered at or prior to the execution
hereof, Century is not aware of any event or condition which could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), of the Assets. The representations and warranties contained in this
Agreement, in the Schedules hereto, in the agreements entered into pursuant
hereto or in connection herewith, or in any Agreement Certificate shall not be
affected or deemed waived by reason of (i) any investigation made by Southern or
its representatives or (ii) the fact that Southern and/or its representatives
knew or should have known that any such representation or warranty is or might
be inaccurate in any respect.
Neither the furnishing of opinions or reports pursuant to this Agreement
nor any information disclosed by any investigation or examination by Southern,
nor any failure by Southern to make any investigation or examination under this
Agreement, nor the Closing of the transactions contemplated
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hereby, shall in any way reduce any rights Southern may have under any
representatives, warranties or covenants contained in this Agreement.
Except as may be specifically set forth to the contrary in this
Agreement, Southern acknowledges that Century has made no representations or
warranties whatever, express or implied (Century having hereby expressly
disclaimed all such warranties) as to the accuracy, completeness, or materiality
of any data, information, record or materials now, heretofore, or hereafter made
available in connection with the success of any 3-D seismic program, ability to
obtain all seismic permits and/or options necessary to fully image the
prospective geological formation of each salt dome, ability to discover and
produce hydrocarbons based upon the prospective 3-D seismic program, or the
ability to properly image the salt, the legal, tax or other consequences of
owning a portion of Century's interest in the Assets. Furthermore, Southern
acknowledges that, because the agreements comprising the Assets are unrecorded,
they are not enforceable against third parties.
2.12 TITLE WARRANTY. The Assets to be conveyed by Century to
Southern shall be conveyed by Century to Southern without warranty of title,
expressed, implied or statutory, and without recourse, even as to the return of
the Purchase Price, as hereinafter defined, except that Century shall warrant
title against the demands and claims of all persons asserting an adverse claim
to the Assets, by, through or under Century. Century also shall convey title to
the Assets to Southern with full substitution and subrogation in and to all
covenants and warranties of Century's predecessors-in-title.
2.13 MATERIAL ADVERSE EFFECTS. To the best of Century's Knowledge,
there is no new or recent development, occurrence, event or condition which has
materially and adversely affected or
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may materially and adversely affect the Assets, and Century has not done
anything with respect to the Assets which is not in the ordinary course of
Century's business, and which would have a material adverse effect on the
Assets.
2.14 PAYMENT OF FUNDS. To the best of Century's Knowledge, Century
has duly and timely paid all taxes, governmental charges, duties, penalties,
extensions of Assets, rental payments, interests and fines due and payable by it
and affecting the Assets and its operation on or before the date of this
Agreement where the failure to make such payment would have a material adverse
effect on the Assets.
2.15 CENTURY DUE DILIGENCE AND REVIEW OF ARI. Century represents and
warrants that it has received and that an executive officer of Century has read
ARI's 1995 Annual Report to Shareholders, ARI's 1995 Annual Report on Form
10-KSB, ARI's Quarterly Reports on Form 10- QSB for the period ended March 31,
1996, all 8-K Reports dated subsequent to December 31, 1995 filed by ARI, and
all news reassess issued by ARI subsequent to June 27, 1996.
2.16 ACQUISITION OF LEASEHOLD INTEREST.
(a) Century hereby represents and warrants that it will
complete the acquisition of that Leasehold Interest in the property that is the
subject of the White Castle Salt Dome Contract Rights no later than March 31,
1997(the "WC Completion Date"); however, in the event it does not complete the
duties as contemplated herein as it pertains to the White Castle Salt Dome
Contract Rights subject to force majeure conditions, then Century will be
obligated, at its option, to either (i) pay Southern cash in the amount of the
unused portion of the Purchase Price allocated for the
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White Castle Salt Dome Contract Rights as set out in paragraph 1.04(a)
hereinabove; or (ii) deliver to Southern shares of stock in ARI which are equal
in value to such deemed Purchase Price. For purposes of this paragraph such
shares are to be valued at the average closing price per share of ARI's stock
over the twenty (20) business days preceding March 31, 1997, or Four Dollars
($4.00) per share, whichever is greater. Upon receipt of said cash or shares,
Southern shall reconvey to Century all of its rights in the White Castle Salt
Dome Contract Rights and any interests acquired pursuant thereto and this
agreement shall terminate as to such Asset.
(b) Century hereby represents and warrants that it will
complete the acquisition of that Leasehold Interest in the property that is the
subject of the Bayou Bouillon Salt Dome Contract Rights no later than December
31, 1997 (the "BB Completion Date"); however, in the event the 3-D Seismic
Survey on the property that is the subject of the Bayou Bouillon Salt Dome
Contract Rights has not been acquired by the BB Completion Date, subject to
force majeure conditions, then Century will be obligated, at its option, to
either (i) pay Southern cash in the amount of the deemed purchase price for the
Bayou Bouillon Salt Dome Contract Rights as set out in paragraph 1.04(b) hereof;
or (ii) deliver to Southern shares of stock in ARI which are equal in value to
such deemed Purchase Price. For purposes of this paragraph such shares to be
valued at the average closing price per share of ARI's stock over the twenty
(20) business days preceding December 31, 1997, or Four Dollars ($4.00) per
share, whichever is greater. In such case, Century shall be provided a credit of
$400,000, unless the ARI Stock received by Century in accordance with paragraph
1.03(b) has an average price, as calculated above as of the B.B. Completion Date
of $4.45, or greater, per share, in
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which event, there shall be no credit. Upon receipt of said cash or shares,
Southern shall reconvey to Century all of its rights in the Bayou Bouillon Salt
Dome Contract Rights and any interests acquired pursuant thereto and this
agreement shall terminate as to such Asset.
(c) Century hereby represents and warrants that it will
complete the acquisition of that Leasehold Interest in the property that is the
subject of the Plumb Bob Salt Dome Contract Rights no later than March 31, 1998
(the "PB Completion Date"); however, in the event the 3-D Seismic Survey on the
property that is the subject of Plumb Bob Salt Dome Contract Rights has not been
acquired by the PB Completion Date, subject to force majeure conditions, then
Century will be obligated, at its option, to either (I) pay Southern cash in the
amount of the deemed Purchase Price for the Plumb Bob Salt Dome Contract Rights
as set out in paragraph 1.04(c) hereof; or (ii) deliver to Southern shares of
stock in ARI which are equal in value to the deemed purchase price. For purposes
of this paragraph such shares to be valued at the average closing price per
share of ARI's stock over the twenty (20) business days preceding March 31,
1998, or Four Dollars ($4.00) per share, whichever is greater. In such case,
Century shall be provided a credit of $234,000, unless the ARI Stock received by
Century in accordance with paragraph 1.03(b) has an average price, as calculated
above as of the P.B. Completion Date of $4.45, or greater, per share, in which
event, there shall be no credit. Upon receipt of said cash or shares, Southern
shall reconvey to Century all of its rights in the Plumb Bob Salt Dome Contract
Rights and any interests acquired pursuant thereto and this agreement shall
terminate as to such Asset.
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(d) For purposes of this Section 2.16, force majeure
conditions shall include acts of God, such as major storms, floods or other
similar natural disasters or major accidents beyond Century's control, including
a blowout, hurricane, fire or explosion, scarcity of crews of equipment, or any
other condition of like nature which prevents Century or its partners,
participants, employees, representatives or contractors from continuing its
operations. In the event a force majeure situation exists, Century shall so
notify Southern, and the Completion Dates as set forth hereinabove in
subparagraphs (a), (b) and (c) for each such Asset shall be extended for a
period of time corresponding to the duration of the force majeure provision,
plus thirty (30) days.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOUTHERN
Southern represents as of the date hereof that:
3.01 EXISTENCE OF SOUTHERN. Southern is a corporation duly organized
and validly existing and in good standing under the laws of the State of
Delaware and has the power and authority to own its property and to carry on its
business as now conducted and to enter into and to carry out the terms of this
Agreement.
3.02 POWER OF SOUTHERN. Southern has the corporate power to enter
into and perform this Agreement and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Southern, and the
transactions contemplated hereby, will not violate (i) any provision of the
certificate of incorporation or bylaws of Southern, (ii) any material agreement
or
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instrument to which Southern is a party or by which Southern is bound, (iii) any
judgment, order, ruling, or decree applicable to Southern as a party in
interest, or (iv) any law, rule or regulation applicable to Southern;
3.03 AUTHORIZATION OF SOUTHERN. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all requisite corporate action on the part of
Southern. This Agreement has been duly executed and delivered on behalf of
Southern, and at the Closing all documents and instruments required to be
executed and delivered by Southern shall have been duly executed and delivered.
This Agreement does, and such documents and instruments shall, constitute legal,
valid and binding obligations of Southern enforceable in accordance with their
terms, subject, however, to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in effect relating
to the rights and remedies of creditors, as well as to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law);
3.04 LITIGATION. No litigation, claims, administrative proceedings
or other proceedings or governmental investigations are pending, or to the best
of Southern's actual knowledge threatened, which would prevent or delay the
execution, delivery or performance of this Agreement by Southern.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AMERICAN RESOURCES OF DELAWARE, INC.
American Resources of Delaware, Inc. ("ARI") represents as of the date
hereof that:
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4.01 EXISTENCE OF ARI. ARI is a corporation duly organized and
validly existing and in good standing under the laws of the State of Delaware
and has the power and authority to own its property and to carry on its business
as now conducted and to enter into and to carry out the terms of this Agreement.
4.02 POWER OF ARI. ARI has the corporate power to enter into and
perform this Agreement and the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by ARI, and the transactions
contemplated hereby, will not violate (i) any provision of the certificate of
incorporation or bylaws of ARI, (ii) any material agreement or instrument to
which ARI is a party or by which ARI is bound, (iii) any judgment, order,
ruling, or decree applicable to ARI as a party in interest, or (iv) any law,
rule or regulation applicable to ARI;
4.03 AUTHORIZATION OF ARI. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action on the part of ARI. This
Agreement has been duly executed and delivered on behalf of ARI, and at the
Closing all documents and instruments required to be executed and delivered by
ARI shall have been duly executed and delivered. This Agreement does, and such
documents and instruments shall, constitute legal, valid and binding obligations
of ARI enforceable in accordance with their terms, subject, however, to the
effect of bankruptcy, insolvency, reorganization, moratorium and similar laws
from time to time in effect relating to the rights and remedies of creditors, as
well as to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
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4.04 LITIGATION. No litigation, claims, administrative proceedings
or other proceedings or governmental investigations are pending, or to the best
of ARI's actual knowledge threatened, which would prevent or delay the
execution, delivery or performance of this Agreement by ARI;
4.05 ARI STOCK TO BE ISSUED TO CENTURY. All of the shares of ARI
Stock which are issued to Century as payment of the Purchase Price have been
duly authorized and, when issued at Closing, will be validly and legally issued,
fully paid and non-assessable, and will be, at the time of their delivery at
Closing, if delivered to Century, free and clear of all liens, charges, security
interests, mortgages, pledges and other encumbrances, except any and all
restrictions as provided for by securities laws of the federal and state
governments. Shareholders of ARI do not have any preemptive rights.
4.06 MATERIAL ACTIONS. There are no material actions, suits,
proceedings, arbitrations or investigations pending or, to ARI's knowledge
threatened, against ARI or any of its affiliates which would be required to be
disclosed in a Form 10-K or Form 10-Q, pursuant to Item 103 of Regulation S-K
that are not so disclosed.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
The obligation of Century on the one hand and Southern on the other to
complete the transaction contemplated by this Agreement is subject to the
satisfaction of, or compliance with, at
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or prior to the Time of Closing, each of the following conditions, unless waived
in writing by the parties:
5.01 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH COVENANTS. The
representations and warranties of the parties made in or pursuant to this
Agreement shall be true and correct at the Closing with the same force and
effect as if made at and as of the Time of Closing; the covenants contained in
this Agreement to be performed by the parties at or prior to the Time of Closing
shall have been performed; the parties shall not be in breach of any agreement
on their part contained in this Agreement; and shall have received certificates
confirming the foregoing, signed by the parties by whom such representation is
made.
5.02 CLOSING DOCUMENTS AND PROCEEDINGS. All documents relating to
the authorization and completion of the transaction contemplated by this
Agreement and all actions and proceedings to be taken at or prior to Closing in
connection with the performance by Century and Southern of their respective
obligations under this Agreement shall be satisfactory to the respective
parties' Counsel and the parties shall have received copies of all such
documents and evidence that all such actions and proceedings have been taken as
they may reasonably request, in form and substance satisfactory to such parties
and their Counsel.
5.03 OPINION OF CENTURY'S COUNSEL. Southern shall have received
within five business days after Closing, an opinion of Century's Counsel in form
and substance satisfactory to Southern's Counsel. In rendering such opinion,
Century's Counsel shall be entitled to rely, as to matters of fact, on
certificates of Century and senior officers of Century and shall be entitled to
qualify, by reference
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to his knowledge after appropriate enquiry, those portions of the opinion which
it is reasonable and customary to so qualify.
5.04 OPINION OF ARI'S AND SOUTHERN'S COUNSEL. Century shall have
received an opinion of Southern's and ARI's Counsel in form and substance
satisfactory to Century's Counsel substantially to the same effect as the
representations and warranties of the Southern and ARI in Article III and IV,
and as to such other matters incidental to the matters herein contemplated as
Century and Century's Counsel may reasonably request. In rendering such opinion,
Southern's and ARI's Counsel shall be entitled to rely, as to matters of fact,
on certificates of Southern and ARI and senior officers of Southern and ARI and
shall be entitled to qualify, by reference to his knowledge after appropriate
enquiry, those portions of the opinion which it is reasonable and customary to
so qualify.
5.05 NO ACTION TO RESTRAIN. No action or proceeding shall be pending
or threatened by any person to restrain or prohibit Southern from acquiring the
Assets contemplated herein.
5.06 CONSENTS AND APPROVALS. In the event that any consents and
approvals are required to be obtained by Century, the same shall have been
delivered to Southern, in each case in form and substance satisfactory to
Southern and Southern's counsel.
5.07 BOARD APPROVAL. The parties to this Agreement shall have
received approval from their respective board of directors or where applicable
their shareholders, to this Agreement and the transactions contemplated herein.
5.08 DELIVERY OF DOCUMENTS. Century shall have delivered all
instruments of conveyance referenced herein, in form acceptable to Southern.
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5.09 DUE DILIGENCE Southern shall complete any due diligence
Southern deems appropriate and prudent. If Southern, in its sole discretion,
determines that it should not consummate the transactions contemplated in this
Agreement because of any information discovered in its due diligence, then
Southern may terminate and abandon this Agreement by giving written notice to
Century prior to the Closing. If any of the other conditions contained in this
Article V shall not be fulfilled or performed at or prior to the Time of Closing
to the satisfaction of Southern (acting reasonably), Southern may, by notice to
Century, terminate this Agreement and the obligations hereunder. Any condition
contained in this Article may be waived in whole or in part by Southern without
prejudice to any claims it may have for breach of covenants, representations or
warranties by Century.
ARTICLE VI
INDEMNIFICATION AND REMEDIES
6.01 CENTURY INDEMNIFICATION. Century agrees to indemnify, defend
and hold harmless Southern, its affiliates, successors and assigns, officers,
directors, employees and agents against any and all claims, losses, expenses,
costs, obligations and liabilities of any kind, including reasonable attorney's
fees ("Indemnity Amounts") which they may incur to the extent arising out of or
resulting from any inaccuracy in or breach of any of the representations,
warranties, covenants or any other provision of this Agreement by Century.
Century further agrees to indemnify, defend and hold harmless Southern,
its partners, officers, directors, shareholders, employees, agents and
representatives, and the officers, directors,
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shareholders, employees, agents and representatives, and the officers,
directors, shareholders, employees, agents and representatives of its partners
(the "Southern Group"), regardless of whether the Southern Group was wholly or
partially negligent or otherwise at fault, from and against any and all claims,
liabilities, losses, environmental liabilities, fines and penalties, costs and
expenses (including, without limitation, court costs and reasonable attorneys'
fees) arising from:
(1) events that have transpired or conditions that
have come into existence prior to the Effective
Date that are attributable to the ownership or
operation of the Assets, except that this shall
not extend to Southern's obligations under
6.02(2) and 6.02(3) below; and
(2) property damage or injury or death of persons
occurring prior to the Effective Date and
arising out of the ownership or operation of the
Assets regardless of whether claims related to
said damage, injury or death are asserted on,
before or after the Effective Date.
6.02 SOUTHERN INDEMNIFICATION. Limited to the extent of the Assets
to be acquired pursuant to this Agreement Southern hereby assumes all of the
following described obligations, and Southern agrees to indemnify, defend and
hold harmless Century, its officers, directors, shareholders, employees, agent
and representatives (the "Century Group"), regardless of whether the Century
Group was wholly or partially negligent or otherwise at fault, from and against
any and all claims, liabilities, losses, environmental liabilities, fines and
penalties, costs and expenses (including, without limitation, court costs and
reasonable attorneys' fees) arising from:
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(1) events that transpire or conditions that come
into existence on or after the Effective Date
that are attributable to the ownership or
operation of the Assets on or after the
Effective Date;
(2) all liability for property damage or injury to
or death of persons occurring on or after the
Effective Date and arising out of the ownership
or operation of the Assets, regardless of
whether said damages or injury is attributable
in whole or in part to conditions that existed
before the Effective Date;
(3) the compliance with and assumption of any and
all express or implied covenants in the
instruments, regulations and agreements to which
the Assets are subject, insofar as said
covenants may apply to the Assets, on or after
the Effective Date.
6.03 ARI INDEMNITY. ARI agrees to indemnify, defend and hold
harmless Century, its affiliates, successors and assigns, officers, directors,
employees and agents against any and all claims, losses, expenses, costs,
obligations and liabilities of any kind, including reasonable attorney's fees,
which they may incur to the extent arising out of or resulting from any
inaccuracy in or breach of any of the representations, warranties, covenants or
any other provision of this Agreement by ARI.
6.04 GENERAL PROVISIONS. In the case of any claim for
indemnification brought under this Agreement:
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(a) A party claiming indemnification under this Agreement
(an "Indemnified Party") shall promptly (i) notify the
party from whom identification is sought (the
"Indemnifying Party") of any third-party claim or claims
asserted against the Indemnified Party ("Third Party
Claim") which could give rise to a right of
indemnification under this Agreement and (ii) transmit
to the Indemnifying Party a written notice ("Claim
Notice") describing in reasonable detail the nature of
the Third Party Claim, a copy of all papers served with
respect to such claim (if any), an estimate of the
amount of damages attributable to the Third Party Claim
and the basis of the Indemnified Party's request for
indemnification under this Agreement. Within thirty (30)
days after receipt of any Claim Notice (the "Election
Period"), the Indemnifying Party shall notify the
Indemnified Party (i) whether the Indemnifying Party
disputes its potential liability to the Indemnified
Party under this Article VI with respect to such Third
Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Party
against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party
does not dispute its potential liability to the
Indemnified Party under this Article VI and that the
Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party
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shall have the right to defend, as its sole cost and
expense, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 6.03.
The Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or
settlement thereof. The Indemnified Party is hereby
authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is
actually entitled to indemnification hereunder or if the
Indemnifying Party assumes the defense with respect to
the Third Party Claim), to file, during the Election
Period, any motion, answer or other pleadings which the
Indemnified Party shall deem necessary or appropriate to
protect its interest or those of the Indemnifying Party
and not prejudicial to the Indemnifying Party (it being
understood and agreed that if an Indemnified Party takes
any such action which is prejudicial and conclusively
causes a final adjudication which is adverse to the
Indemnifying Party, the Indemnifying Party shall be
relieved of its obligations hereunder with respect to
such Third Party Claim). If requested by the
Indemnifying Party, the Indemnified Party agrees, at the
sole cost and expense of the Indemnifying Party, to
cooperate with the Indemnifying Party and its counsel in
contesting any Third Party Claim which the Indemnifying
Party
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elects to contest, including, without limitation, the
making of any related counterclaim against the person or
entity asserting the Third Party Claim or any cross-
complaint against any person. The Indemnified Party may
participate in, but not control, any defense or
settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this Section 6.03 and
shall bear its own costs and expenses with respect to
such participation.
(c) If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the
Indemnifying Party elects to defend the Indemnified
Party or if the Indemnifying Party elects to defend the
Indemnified Party but fails to diligently and promptly
prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the
sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which
proceedings shall be promptly and vigorously prosecuted
by the Indemnified Party to a final conclusion or
settled. The Indemnified Party shall have full control
of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be
unreasonably withheld, any compromise or settlement of
such Third Party Claim. Notwithstanding the foregoing,
if the Indemnifying Party has delivered a written notice
to the Indemnified Party to the effect that the
Indemnifying Party disputes its
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potential liability to the Indemnified Party under this
Article VI and if such dispute is resolved in favor of
the Indemnifying Party by final, nonappealable order of
a court of competent jurisdiction, the Indemnifying
Party shall not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to
this Section or of the Indemnifying Party's
participation therein at the Indemnifying Party in full
for all costs and expenses of such litigation. The
Indemnifying Party may participate in, but not control
any defense or settlement controlled by the Indemnified
Party pursuant to this Section, and the Indemnifying
Party shall bear its own costs and expenses with respect
to such participation.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder which does not
involve a Third Party Claim, the Indemnified Party shall
transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of
damages attributable to such claim and the basis of the
Indemnified Party's request for indemnification under
this Agreement. If the Indemnifying Party does not
notify the Indemnified Party within sixty (60) days from
its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim
specified by the Indemnified Party in the Indemnity
Notice shall be deemed a liability of the Indemnifying
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party hereunder. If the Indemnifying Party has timely
disputed such claim, as provided above, such dispute
shall be resolved by litigation in an appropriate court
of competent jurisdiction.
ARTICLE VII
TERMINATION
7.01 METHODS OF TERMINATION. The transactions contemplated by this
Agreement may be terminated at any time, but not later than Closing:
(a) By mutual consent of Century and Southern; or
(b) By Southern on the Closing Date, if any of the
conditions provided for in Article V to have been
performed by Century has not been met or waived in
writing by Southern; or
(c) By Century on the Closing Date, if any of the conditions
provided for in Article V to have been performed by
Southern has not been met or waived in writing by
Century.
(d) By Southern, after Closing, if Century fails to deliver
the opinions of Century's counsel or any other
documents required to be delivered pursuant to Article
1.04(a) at Closing, within five business days after the
Closing. In said event Century shall immediately return
all payments of consideration identified and paid to
Century in this Agreement, and Southern shall execute
the appropriate documents to reconvey the Assets to
Century. As security for the repayment
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of the above consideration, Southern shall be entitled
to retain ownership of the Assets until it receive the
consideration from Century or until it receives proceeds
from the Assets in an amount equal to the full
consideration paid Century plus all monies expended by
Southern on the Assets.
7.02 PROCEDURE UPON TERMINATION. In the event of termination by
Southern or Century, pursuant to this Article; written notice thereof shall
forthwith be given to the other party or parties and the transactions
contemplated by this Agreement shall be terminated, without further action by
Southern or Century. If the transactions contemplated by this Agreement are
terminated as provided herein then all obligations, except for all provisions
providing for the confidentiality, shall cease between the parties.
ARTICLE VIII
POST-CLOSING
8.01 RECOUPMENT DATE ISSUES. (a) Except as otherwise set forth in
Section 8.01(b), (c), (d), (e) and (f), all costs, expenses, disbursements,
obligations and liabilities, with respect to each of the respective Assets
attributable to periods of time prior to the Southern's Recoupment Date, as
hereinafter defined, for said Asset, regardless of when due or payable, shall be
the sole obligation of Century, and Century shall promptly pay, or if paid by
Southern, promptly reimburse Southern for and defend and hold Southern harmless
from and against same. Except as otherwise set forth in Section 8.01(b), (c),
(d), (e) and (f), all costs, expenses, disbursements, obligations, and
liabilities with respect to each of the respective Assets attributable to
periods of time subsequent to the
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Southern's Recoupment Date, regardless of when due or payable, shall be the sole
obligation of Southern, and Southern shall promptly pay, or if correctly paid by
Century, promptly reimburse Century for and defend and hold Century harmless
from and against same.
Southern's Recoupment Date shall mean for each of the Assets the date on
which Century completes its acquisition of the Leasehold Interest covering the
Assets acquired hereunder.
(b) With respect to the White Castle Salt Dome Contract
Rights only, if upon the occurrence of Southern's Recoupment Date for said Asset
the sum of $8,000,000.00 has not been expended or incurred as of that date for
all costs, fees, and expenses attributable to or directly related to the
acquisition of the Leasehold Interest contemplated herein on the property that
is the subject of the White Castle Salt Dome Contract Rights (the "W.C. Total
Project Cost"), then Southern's Recoupment Date for this Asset shall be
postponed and Century shall be obligated to pay Southern's share of future costs
attributable to this Asset until such time as the W.C. Total Project Cost has
been so expended.
(c) With respect to the Plumb Bob Salt Dome Contract Rights
only, if upon the occurrence of Southern's Recoupment Date for said Asset, the
sum of $7,360,000.00 has not been expended or incurred as of that date for all
costs, fees, and expenses attributable to or directly related to the acquisition
of the Leasehold Interest contemplated herein on the property that is the
subject of the Plumb Bob Salt Dome Contract Rights (the "P.B. Total Project
Cost"), then Southern's Recoupment Date for this Asset shall be postponed and
Century shall be obligated to pay Southern's
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<PAGE>
share of future costs attributable to this Asset until such time as the P.B.
Total Project Cost has been so expended.
(d) With respect to the Bayou Bouillon Salt Dome Contract
Rights only, if upon the occurrence of the Southern's Recoupment Date for said
Asset the sum of $10,350,000.00 has not expended or incurred as of that date for
all costs, fees, and expenses attributable to or directly related to the
acquisition of the Leasehold Interest contemplated hereon on the property that
is the subject of the Bayou Bouillon Salt Dome Contract Rights (the "B.B. Total
Project Cost"), then Southern's Recoupment Date for this Asset shall be
postponed and Century shall be obligated to pay Southern's share of future costs
attributable to this Asset until such time as the B.B. Total Project Cost has
been so expended.
(e) Century shall fulfill this obligation within one (1)
year from the respective Completion Dates set out herein.
(f) In the event Century has acquired the Leasehold Interest
as contemplated and has not expended amounts equal to the Total Project Costs as
set forth in Sections 8.01 (b) (c) and/or (d) within the required time frames
and Century and Southern have mutually agreed that it is not feasible to proceed
with the respective project(s), then for each such Asset Century shall refund to
Southern its pro rata share of the unexpended costs, expenses and fees in the
same manner as set out herein, less and except a credit in favor of Century as
set forth herein. Said credits shall be as set forth in said provisions, except
that the date used to determine the stock value shall be those dates as set
forth herein, as extended by paragraph 8.01(e).
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8.02 ACCESS. After the Closing and for a transitional period of six
months thereafter, upon the reasonable request of Southern, Century shall, and
shall cause its officers and employees to, cooperate with and assist Southern to
ensure an orderly transition of the ownership of the Assets to Southern and to
answer inquires and supply information, whether written or oral, relating to the
Assets (including legal, accounting, environmental, government affairs and other
information). All out-of-pocket expenses incurred in connection herewith shall
be borne by Southern. Century shall also join in any notifications to third
parties, where necessary, to document the transfer of ownership of the Assets.
Century acknowledges that it has been informed that as a result of transactions
contemplated herein, Southern will be required to file certain disclosure
documents with the Securities and Exchange Commission and other governmental
agencies. Century agrees to submit to an audit of its financial statements as of
and for the fiscal years ended December 31, 1994 and 1995 as they pertain to the
Assets. Century agrees to assist the independent accounting firm selected by
Southern to the extent necessary in order for the independent accounting firm to
perform an audit under the United States General Accepted Auditing Standards for
the purpose of rendering an opinion on ARI's and Southern's financial statements
for the above periods presented under United States Generally Accounting
Principles and for Southern and ARI to comply with regulatory reporting
requirements. Such assistance shall include issuing a letter to the independent
accounting firm which details the representations of Southern's management and
providing the independent accounting firm documents necessary for them to
complete their audit.
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ARTICLE IX
TAXES
9.01 APPORTIONMENT OF AD VALOREM AND PROPERTY TAXES. All ad valorem
taxes, real property taxes, personal property taxes, and similar obligations
attributable to the Assets ("Property Taxes") with respect to the tax period in
which the Effective Date occurs shall be apportioned as of the Effective Date
between Century and Southern. The owner of record on the assessment date shall
file or cause to be filed all required reports and returns incident to the
Property Taxes and shall pay or cause to be paid to the taxing authorities all
Property Taxes relating to the tax period on which the Effective Date occurs but
shall be entitled to reimbursement from the other party for its proportional
share.
9.02 SALES TAXES. Any sales, use or other tax on the transfer of the
Assets from Century to Southern shall be shared equally by the parties.
9.03 OTHER TAXES. All taxes (other than income taxes) which are
imposed on or with respect to the production of Oil, natural gas or other
hydrocarbons or minerals or the receipt of proceeds therefrom (including but not
limited to severance, production, and excise taxes) shall be apportioned between
the parties based upon the respective shares of production taken by the parties.
All such taxes which have accrued prior to the Effective Date have been or will
be properly paid or withheld by Century and all statements, returns, and
documents pertinent thereto have been or will be properly filed by Century.
Southern shall be responsible for paying or withholding or cause to be
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<PAGE>
paid or withheld all such taxes which have accrued after the Effective Date and
for filing all statements, returns, and documents incident thereto.
ARTICLE X.
MISCELLANEOUS
10.1 ENTIRE AGREEMENT AND AMENDMENTS. This Agreement constitutes the
entire agreement between Century and Southern with respect to the transactions
contemplated herein, and supersedes all prior oral or written agreements,
commitments, understandings, or information otherwise furnished by Century and
Southern with respect to such matters and may not be altered or amended, nor may
any rights hereunder be waived, except by an instrument in writing executed by
the party to be charged with such amendment or waiver.
10.2 ASSIGNMENT. Century shall not assign its rights or delegate its
duties or obligations under the terms of this Agreement or the Assets, without
the prior written consent of Southern, which consent shall not be unreasonably
withheld. Century acknowledges that before approval of an assignment of any
interest in this Agreement or the Assets can be made to any third party, that a
full financial review of such third party is reasonable and prudent, and that
such third party must demonstrate the financial ability to comply with the terms
and conditions of this Agreement and the agreements which comprise the Assets.
In addition to the above requirements, the third party shall agree to give
Southern complete access to all seismic information, including but not limited
to, review of all accounting charges and expenses incurred in the obtaining 3D
seismic information. In the event
39
<PAGE>
Southern consents to an assignment, Southern may require that Century remain
liable and obligated for the Performance Guaranty and the remedies set forth in
Section 1.07, until the Performance Guaranty has been satisfied. Notwithstanding
the provisions of this section or other provisions of this Agreement, Century
shall not assign its rights to require registration by ARI of the ARI Stock
referenced herein.
10.3 HEADINGS. The headings of the Articles and Sections of this
Agreement are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions hereof.
10.4 LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the laws of the State of Louisiana.
10.5 PARTIES IN INTEREST. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective successors and assigns, and nothing contained in
this Agreement, express or implied, is intended to confer upon any other person
or entity any benefits, rights or remedies.
10.6 FURTHER ASSURANCES. After execution, Century and Southern shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be reasonable
necessary or advisable to carry out their obligations under this Agreement and
under any document, certificate or other instrument delivered pursuant hereto.
40
<PAGE>
10.7 RELATIONSHIP. It is not the purpose or intention of Century or
Southern to create any partnership, joint venture, mining partnership, or any
association or any other relationship between them whether legal or quasi-legal
whereby one party is held liable for the acts or omissions of the other party,
and neither this Agreement nor the operations hereunder shall be construed or
considered as creating any such relationship.
10.8 LSA-R.S. 9:2780. The parties hereto specifically recognize that
this Agreement is not an agreement pertaining to a well for Oil, gas or water,
or drilling for minerals within the scope of and as defined in LSA-R.S. 9:2780
and specifically agree that this Agreement is not to be governed by said
statute.
10.9 PUBLICITY. Southern agrees to consult Century prior to the
issuance of any public announcements, however Century acknowledges that Southern
has certain regulatory and statutory responsibilities to disburse information to
the public.
10.10 NOTICES. All notices and consents to be given hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, sent by facsimile transmission, registered or certified mail,
postage prepaid and return receipt requested, addressed as follows:
41
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If to Century:
Century Offshore Management Corporation
400 East Vine Street, Suite 400
Lexington, Kentucky 70407
Telephone: (606) 253-1300
Facsimile: (606) 233-7471
Attention: Howard A. Settle
If to Southern:
Southern Gas Co. of Delaware, Inc.
160 Morgan Street
Versailles, Kentucky 40383
Telephone: (606) 873-5455
Facsimile: (606) 873-4689
Attention: David Stetson
The addresses so indicated may be changed by similar written notice.
Notices shall be deemed effective as of the date of their receipt.
10.11 CONFIDENTIALITY. Southern acknowledges that all information
furnished or disclosed pursuant hereto must remain confidential until Closing.
Prior to the Closing, Southern may disclose such information:
(a) to its employees or consultants or to any related
corporation or the employees or consultants thereof
taking the customary precautions to ensure that they
keep such records, data, studies, opinions and other
information confidential;
(b) as may in the opinion of an attorney or Counsel for
Southern or for any related corporation be required by
law or for the reasonable
42
<PAGE>
protection of Southern or related corporation or their
respective directors or other officers;
(c) to any government or governmental authority or any
financier or prospective financier of Southern;
10.12 SEVERABILITY. If any term or other provisions of this Agreement
is invalid, illegal or incapable of being enforced under any rule or law, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in a materially adverse manner
with respect to either party.
10.13 NO THIRD PARTY BENEFICIARY. This Agreement is not intended to
create, nor shall it be construed as to create, any rights in any third party
under doctrines concerning third party beneficiaries or stipulations POUR
AUTRUI.
10.14 PAYMENT OF EXPENSES AND FEES. Southern and Century shall bear
their respective costs and expenses, including but not limited to, attorneys'
fees incurred in connection with the transactions contemplated in this
Agreement; provided, however, Southern shall pay all recording fees or transfer
taxes in connection with the recording of any instrument of transfer of the
Leasehold Interest from Century to Southern hereunder.
10.15 ARBITRATION. Upon the demand of Southern or Century
(collectively, the "parties"), whether made before the institution of any
judicial proceeding or not more than 60 days after service of a complaint, third
party complaint, cross-claim or counterclaim or any answer thereto or any
43
<PAGE>
amendment to any of the above, any Dispute (as defined below) shall be resolved
by binding arbitration in accordance with the terms of this Section 10.15. A
"Dispute" shall include any action, dispute, claim, or controversy of any kind,
whether founded in contract, tort, statutory or common law, equity, or
otherwise, now existing or hereafter occurring between the parties arising out
of, pertaining to or in connection with this Agreement or any related
agreements, documents, or instruments (the "Documents"). The parties understand
that by this Section 10.15, they have decided that the Dispute may be submitted
to arbitration rather than being decided through litigation in court, however
the parties do not waive their respective rights to appeal any decision on due
process grounds or failure to adhere to the procedures set forth herein.
GOVERNING RULES. Arbitrations conducted pursuant to this
Section 10.15, including, selection of arbitrators, shall be administered by the
American Arbitration Association ("Administrator") pursuant to the Commercial
Arbitration rules of the Administrator. Arbitrations conducted pursuant to the
terms hereof shall be governed by the provisions of the Federal Arbitration Act
(Title 9 of the United States Code), and to the extent the foregoing are
inapplicable, unenforceable or invalid, the laws of the State of Louisiana.
Judgment upon any award rendered hereunder may be entered in any court having
jurisdiction. Any party who fails to submit to binding arbitration following a
lawful demand by the opposing party shall bear all costs and expenses, including
reasonable attorney's fees, incurred by the opposing party in compelling
arbitration of any Dispute.
44
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ARBITRATOR POWERS AND QUALIFICATIONS; AWARDS. Arbitrators shall
resolve all Disputes in accordance with the applicable substantive law including
the award of attorneys' fees and expenses if permitted by law or the agreement
of the parties. All statutes of limitation applicable to any Dispute shall apply
to any proceeding brought in accordance with this Section 10.15. Any arbitrator
selected to act as the only arbitrator in a Dispute shall be required to be a
practicing attorney with not less than 10 years practice in commercial law in
the State of Louisiana. With respect to a Dispute in which the claims or amounts
in controversy do not exceed $100,000, a single arbitrator shall be chosen and
shall resolve the Dispute. In such case the arbitrator shall have authority to
render an award up to but not to exceed $100,000 including all damages of any
kind whatsoever, costs, fees and expenses. Submission to a single arbitrator
shall be a waiver of all parties' claims to recover more than $100,000. Disputes
involving claims or amounts in controversy exceeding $100,000 shall be decided
by a majority vote of a panel of three arbitrators ("Arbitration Panel"). An
Arbitration Panel shall be composed of one arbitrator who would be qualified to
sit as a single arbitrator in a Dispute decided by one arbitrator, and two
arbitrators who have at least ten years experience in the oil and gas business.
Arbitrator(s) may, in the exercise of their discretion, at the written request
of a party, (i) consolidate in a single proceeding any multiple party claims
that are substantially identical, and (ii) administer multiple arbitration
claims as class actions in accordance with Rule 23 of the Federal Rules of Civil
Procedure. The arbitrator(s) shall be empowered to resolve any dispute regarding
the terms of this Agreement or the arbitrability of any Dispute or any claim
that all or any part (including this provision) is voidable but shall have no
power to change or
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alter the terms of this Section 10.15. The award of the arbitrator(s) shall be
in writing and shall specify the factual and legal basis for the award.
MISCELLANEOUS. To the maximum extent practicable, the
Administrator, the Arbitrator(s) and the parties shall take any action necessary
to require that an arbitration proceeding hereunder be concluded within 180 days
of the filing of the Dispute with the Administrator. The Arbitrator(s) shall be
empowered to impose sanctions for any party's failure to proceed with the times
established herein. Arbitration proceedings hereunder shall be conducted in
Louisiana at a location determined by the Administrator. In any such proceeding
the doctrines of RES JUDICATA and collateral estoppel shall apply and a party
shall state as a counterclaim any claim which arises out of the transaction or
occurrence or is in any way related to the Documents which does not require the
presence of a third party which could not be joined as a party in the
proceeding. The provisions of this Section 10.15 shall survive any termination,
amendment, or expiration of the Documents unless the parties otherwise expressly
agree in writing. Each party agrees to keep all Disputes and arbitration
proceedings strictly confidential, except for disclosures of information
required in the ordinary course of business of the parties or as required by
applicable law or regulation.
10.16 ACCESS TO EMPLOYEES. Century and Southern each shall use its
reasonable efforts to afford the other with access to its employees, as follows:
(i) in the case of Century, employees of Century, as Southern may reasonably
request for Southern's proper business purposes regarding the Assets, but not as
to matters proprietary to either Southern or Century, who remain employees of
Century following the date of Closing and who are familiar with the operations
of the Assets, and
46
<PAGE>
(ii) in the case of Southern, employees of Southern, as Century may reasonably
request for Century's proper business purposes, including without limitation,
the defense of legal proceedings. Such access may include interviews (provided
however, no such interview shall be conducted without attendance of such
employee's counsel) or attendance at depositions or legal proceedings (provided
however, no such attendance will be made without attendance of such employee's
counsel); provided, however, that in any event all out-of-pocket expenses
(including wages and salaries) reasonably incurred by any party in connection
with this Section 10.16 shall be paid or promptly reimbursed by the party
requesting such services.
10.17 ARI. American Resources of Delaware, Inc. joins in the
execution of this Agreement for the limited purpose of making the
representations set forth in Article IV and to undertake those specific
obligations of ARI as more fully set forth in 1.03(b) and 6.03.
10.18 SURVIVAL OF REPRESENTATIONS. The covenants, representations and
warranties contained in this Agreement and in all certifications and documents
delivered pursuant to or contemplated by this Agreement shall survive the
Closing and shall continue for a period of five (5) years. Century shall insure
that its respective covenants, representations and warranties contained in this
Agreement and in all certifications and documents delivered pursuant to or
contemplated by this Agreement are true and correct at all times.
10.20 NO FINDER'S FEES. Each of the parties represent and warrants to
the other parties that such party has not taken, and agrees that it will not
take, any action that would cause any other party
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to become liable to any claim or demand for a brokerage commission, finder's fee
or other similar payment.
IN WITNESS WHEREOF, the parties have executed this Agreement on
this 3rd day of July, 1996.
WITNESSES: CENTURY OFFSHORE MANAGEMENT
CORPORATION
/s/ Leonard K. Nave By: /s/ Howard A. Settle
- ------------------------------ -------------------------------------
Name: Leonard K. Nave Howard A. Settle
-------------------------
(Please Print) President
/s/ Douglas L. Hawthorne
- ------------------------------
Name: Douglas L. Hawthorne
-------------------------
(Please Print)
SOUTHERN GAS CO. OF DELAWARE, INC.
/s/ Leonard K. Nane By: /s/ Rick G. Avare
- ------------------------------ -------------------------------------
Name: Leonard K. Nave Rick G. Avare
-------------------------
(Please Print) Chief Operating Officer
/s/ Douglas L. Hawthorne
- ------------------------------
Name: Douglas L. Hawthorne
- ------------------------------
(Please Print)
48
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AMERICAN RESOURCES OF DELAWARE, INC.
/s/ Leonard K. Nave By: /s/ Rick G. Avare
- ------------------------------ -------------------------------------
Name: Leonard K. Nave Rick G. Avare
(Please Print) President
/s/ Douglas L. Hawthorne
- ------------------------------
Name: Douglas L. Hawthorne
-------------------------
(Please Print)
49
<PAGE>
ACKNOWLEDGMENTS
STATE OF KENTUCKY ) Section
COUNTY OF FAYETTE ) Section
On this the 1st day of July, 1996, before me appeared Howard A.
Settle to me personally known, who being by me duly sworn, did say that he is
the President of CENTURY OFFSHORE MANAGEMENT CORPORATION, and that the foregoing
instrument was signed on behalf of said corporation by authority of its Board of
Directors, a said Howard A. Settle acknowledged said instrument to be the free
act and deed of said corporation.
/s/ Howard A. Settle
-----------------------------------
Howard A. Settle
/s/ Judi C. Burchard
-----------------------------------
NOTARY PUBLIC FOR THE COUNTY OF
FAYETTE, STATE OF KENTUCKY
My Commission Expires: 3-4-2000
STATE OF KENTUCKY ) Section
COUNTY OF FAYETTE ) Section
On this the 1st day of July, 1996, before me appeared Rick G.
Avare to me personally known, who being by me duly sworn, did say that he is the
Chief Operating Officer of SOUTHERN GAS CO. OF DELAWARE, INC. and that the
foregoing instrument was signed on behalf of said corporation by authority of
its Board of Directors, and said Rick G. Avare acknowledged said instrument to
be the free act and deed of said corporation.
/s/ Rick G. Avare
----------------------------------------
Rick G. Avare
/s/ Judi C. Burchard
----------------------------------------
NOTARY PUBLIC FOR THE COUNTY OF
FAYETTE, STATE OF KENTUCKY
My Commission Expires: 3-4-2000
50
<PAGE>
STATE OF KENTUCKY )
COUNTY OF FAYETTE ) Section
On this the 1st day of July, 1996, before me appeared Rick G.
Avare to me personally known, who being by me duly sworn, did say that he is the
President of AMERICAN RESOURCES OF DELAWARE, INC., and that the foregoing
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and said Rick G. Avare acknowledged said instrument to be the free
act and deed of said corporation.
/s/ Rick G. Avare
----------------------------------------
Rick G. Avare
/s/ Judi C. Burchard
----------------------------------------
NOTARY PUBLIC FOR ---------------------,
STATE OF KENTUCKY
My Commission Expires: 3-4-2000
51
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement"), dated July
3rd, 1996, is by and between SOUTHERN GAS CO. OF DELAWARE, INC. ("Southern"), a
Delaware corporation, AMERICAN RESOURCES OF DELAWARE, INC., ("ARI") and CENTURY
OFFSHORE MANAGEMENT CORPORATION ("Century"), a Kentucky corporation.
WHEREAS, Century desires to sell to Southern and Southern desires
to purchase from Century on the terms set forth in this Agreement those certain
oil and gas properties set forth hereinafter.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the benefits to be derived by each party hereunder, and intending to be
legally bound, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS AND PURCHASE AND SALE OF ASSETS
1.01 DEFINITIONS. All capitalized terms and the definition set forth
in this Agreement, not defined in the body of this Agreement, are set forth in
Exhibit A, attached hereto and incorporated herein by reference.
<PAGE>
1.02 ASSETS TO BE SOLD. Subject to the terms and conditions of this
Agreement, Century shall sell, transfer and assign to Southern, and Southern
shall purchase from Century, effective July 1, 1996 (the "Effective Date"),
certain specified interests in and to the assets described below located in or
pertaining to the South Timbalier Area, Block 148, on the Outer Continental
Shelf off the coastline of the State of Louisiana (the "Assets"). The Assets
shall consist of all of:
(a) The right, title and interest specified on Exhibit "B"
hereto in and to the Oil, Gas and Lease of Submerged Lands
Under the Outer Continental Shelf Lands Act, dated
effective March 1, 1969, granted by the United States
Department of Interior, Bureau of Land Management, in favor
of Continental Oil Company and Cities Service Oil Company,
covering Block 148, West Half, East Timbalier Area, as
shown on OCS Official Leasing Map, Louisiana Map No. 6,
containing approximately 2,500 acres, designated as
OCS-1898 (the "Lease"). (The interests in the Lease, as
specified on Exhibit "B" hereto, shall be collectively
referred to as the "Leasehold Interest");
(b) Those interests attributable to the Leasehold Interest,
including but not limited to, wells (those wells are
identified in Exhibit "C"), wellbores, pipe, gathering
lines, compressors, materials, inventory, facilities,
supplies, equipment platforms, pipelines and any and all
other personal, real, movable and immovable property,
fixtures or equipment which are located on or presently
used in connection with, or relating to, the wells, the
production, treatment or transportation of oil and gas from
the Lease, and any replacements,
-2-
<PAGE>
attachments or accessories now or hereafter attached, added
or affixed (collectively the "Equipment");
(c) The gas, oil, casinghead gas, drip gasoline, natural
gasoline and all other liquid and gaseous hydrocarbons
(hereinafter referred to collectively as "Gas and Oil")
produced from or attributable to the Leasehold Interest on
or after the Effective Date; and
(d) To the extent the same are assignable or transferable by
Century and to the extent and only to the extent that the
same relate to the ownership or operation of the Leasehold
Interest, the interest in and to all orders, contracts,
agreements (including without limitation all operating
agreements, bidding agreements, transportation agreements,
unit agreements, participation agreements, gathering
agreements and processing agreements), instruments,
licenses, authorizations, well record files, reserve
reports, maps, surveys, bonds, title opinion, permits,
audits, claims, liens, suits, settlements and demands, and
other rights, privileges, benefits and powers conferred
upon Century, including but not limited to those described
on Exhibit "D" (the "Contracts").
1.03 PURCHASE PRICE. The purchase price for the Assets to be paid by
Southern to Century at Closing, as herein defined, shall be as follows:
(a) Southern shall pay Four Million Dollars ($4,000,000.00) to
Century at the time of the Closing, as herein defined, by
wire transfer;
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(b) Southern shall deliver to Century at Closing an ARI
Subordinated Debenture, in a form acceptable to Century,
which shall provide that on or before August 15, 1996, it
shall pay Four Million Dollars ($4,000,000.00) to Century
by wire transfer or by the issuance and delivery to Century
of shares of duly authorized and restricted common stock of
ARI, (the "ARI Stock") at a value of $3.00 per share or any
combination of wire transfer and stock equal to
$4,000,000.00. Southern and ARI shall use their best
efforts to raise equity monies to fund the full cash
payment set forth in the ARI Subordinated Debenture. To the
extent the ARI Stock is delivered to Century, ARI, at its
own cost and expense, will prepare and file at the earliest
practicable time pursuant to reasonable and prudent
business practice, Form S-3, a registration statement (the
"Registration Statement") under the Securities Act of 1933
(the "Securities Act") complying with all the requirements
of the Securities Act applicable thereto for the purpose of
registering the ARI Stock described above. ARI shall use
its best efforts to cause the Registration Statement to
become effective as soon as practicable, to qualify the ARI
Stock under the securities or blue sky laws of any and all
such jurisdictions as the parties may reasonable agree and
to keep the Registration Statement and such qualifications
current and in effect for a period of time not to exceed
two years.
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(c) Southern shall cause to be delivered at Closing the
original promissory note dated November 28, 1994, executed
by Settle Oil & Gas Company and the amendment thereto dated
effective August 22, 1995, payable in the principal amount
of Six Million Five Hundred Thousand Dollars
($6,500,000.00), secured by a Mortgage and Security
Agreement dated November 15, 1994 (the "Mortgage") with
appropriate cancellation language and shall further cause
the cancellation of said Mortgage and related financing
statement filed on November 30, 1994 in the UCC records of
Orleans Parish, Louisiana, as UCC File No. 36-89183 (the
"UCC"). The Mortgage and UCC were filed and recorded as set
forth on Exhibit "E" hereto, and cancellations of the
Mortgage and UCC shall be filed in all such jurisdictions;
(d) Southern shall pay and satisfy in full and obtain full and
complete releases, which releases shall be properly
recorded in the appropriate courthouses and governmental
offices, on or prior to July 31, 1996, of all of the
Permitted Liens, which are described on Exhibit "F";
(e) Subject to the approval and consent of Den norske Bank,
which Southern will use its best efforts to obtain,
Southern agrees to advance to Century as a loan the sum of
Three Million Dollars ($3,000,000.00) in equal amounts of
one million per advance commencing September 1, 1996, and
continuing monthly until the full advance is made, if
Southern has the ability to fund said advances from cash
flow or an equity raise-up, in compliance with the Credit
Facility
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Agreement between Southern and Den norske Bank. Said
advances shall be evidenced by a series of promissory notes
(the "Advanced Notes") executed and delivered to Southern
upon each advancement. The Advanced Notes shall be due and
payable on December 31, 1997, and shall bear interest at
the rate of ten percent (10%), with interest payable
monthly. The Advance Notes shall be secured as of the dates
they are issued by a first priority mortgage and/or
security interest covering Century's rights, as further
described in Exhibit "G" (the "Saltdome Assets") hereto;
provided, however, that Southern agrees that it will
subordinate its mortgage or security interest in favor of
Stratum Group, L.P. or any other lender (the "New Lender")
that takes the place of BMO Financial, Inc., provided the
Subordination Agreement between Southern and the New Lender
requires the New Lender to marshall the collateral securing
its loan in the event of a voluntary or involuntary sale,
so that the collateral other than the Saltdome Assets are
sold initially with all proceeds being applied to the
indebtedness owed by Century to the New Lender. If those
proceeds are inadequate to satisfy the debt to the New
Lender, the Saltdome Assets shall be sold and the proceeds
distributed according to the perfected security interests
in the Saltdome Assets. Further, Southern agrees to release
such security interest to the extent necessary for Century
to sell a portion of its interest in the Saltdome Assets to
a third party to fund Century and Southern's participation
in the lease acquisition activities.
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(The obligations specified in paragraphs (a) through (e) above shall hereinafter
be collectively referred to as the "Purchase Price."
1.04 DELIVERIES BY CENTURY TO SOUTHERN.
(a) At the Closing, Century shall deliver to Southern:
(i) A certificate from the Secretary of State (or
equivalent official) of the State of Kentucky
as to the good standing of Century in the
State of Kentucky, certified as of a date
within ten (10) days of Closing;
(ii) A certificate of an Officer attesting to
those matters set forth in Article II;
(iii) A copy of the resolutions, certified by the
Secretary of the Century, authorizing Century
to enter into the transactions contemplated
by this Agreement;
(iv) The Opinion of Century's counsel, in a form
acceptable to Southern's counsel, referred to
in Section 5.03;
(v) An Opinion of Century's counsel, in form
acceptable to Southern's Counsel, opining
that the transactions contemplated herein, do
not require bankruptcy court, Century
creditors, Bank of Montreal or BMO Financial
approval;
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(vi) All other previously undelivered items
required to be delivered by Century to
Southern at, or prior to, such date.
(vii) Instruments of conveyance including but not
limited to assignments, bill of sale, and/or
other instruments of transfer as more fully
set forth in Exhibit "H" hereto and further
identified as an Assignment of Record Title
and Bill of Sale(Exhibit "H-1"), Assignment
of Operating Rights (Exhibit "H-2") and
Assignment of Overriding Royalty Interest
(Exhibit "H-3"), all of which shall be
reasonably satisfactory to Southern's
counsel.
(viii) Copies of all insurance policies pertaining
to the Assets, setting forth the description
and level of coverage, as well as all
applicable deductions.
1.05 DELIVERIES BY SOUTHERN TO CENTURY.
(a) At the Closing, Southern shall deliver to Century:
(i) The wire transfer provided for in Section
1.03(a);
(ii) The Subordinated Debenture referenced in
Section 1.03(b);
(iii) The promissory note referenced in Section
1.03(c);
(iv) Release of the Mortgage, Security Agreements
and Financing Statements referenced in
Section 1.03(c);
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(v) The opinion of the Southern's Counsel
referred to in Section 5.04 hereof; and
(vi) Certificates from the Secretary of State of
Delaware as to the good standing of Southern
and ARI in the State of Delaware, certified
as of a date within thirty (30) days of
Closing;
(vii) All other previously undelivered items
required to be delivered by Southern to
Century at, or prior to, such date.
1.06 LOCATION AND TIME OF THE CLOSING. The Closing shall be held on the
1st day of July , 1996 at 10:00 AM(Eastern Time) or as shall be mutually agreed
upon by Century and Southern. The Closing shall be held at the offices of
Century in Lexington, Kentucky or such other place as the parties hereto may
agree in writing.
1.07 BURDENS. Southern acknowledges and agrees that the Leasehold
Interest to be assigned shall bear (1) its proportionate part of the lessor's
royalty, and (2) the overriding royalty interests specified on Exhibit "I"
hereto.
1.08 OPERATING AGREEMENT. Effective as of the Effective Date, Southern
shall become a party to that certain Joint Operating Agreement dated August 1,
1994 covering the W/2 of South Timbalier 148 by and between Newfield Exploration
Company ("Newfield"), Century and Settle Oil and Gas Company ("JOA"). Southern
hereby agrees that if it intends to elect not to participate in any operation
proposed pursuant to the JOA, it shall in a timely manner notify Century of same
and provide Century with the option to advance the necessary funds for such
operation. Further, if Century advances such funds, Southern shall cause Century
to receive those revenues generated by
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such operation in such amount that a Participating Party, as defined in the JOA,
would receive if such party had advanced those funds, on behalf of Southern.
1.09 POST-CLOSING MANAGEMENT OF ASSETS. Century shall, at the request
of Southern, continue to perform on behalf of Southern, those management
functions necessary for the operations and oversight of the Assets. Those
functions and oversight responsibilities shall be all activities currently
conducted by Century, including but not limited to, marketing of oil and gas for
Southern's account, monitoring AFE's from Newfield, balancing and
transportation, oversight of production, reservoir and engineering review and
revenue distribution. Century agrees to perform these activities until June 30,
1997 and will continue to perform them for as long as Century retains a common
ownership interest in any of the Assets. In the event Century elects to sell its
common ownership interest in the Assets, it shall provide ninety day notice
prior to terminating these services. Southern shall reimburse Century for all
out of pocket expenses incurred in connection with this function. Furthermore,
Southern will pay to Century a reasonable overhead fee for providing this
service in the event it is reasonable determined that this obligation becomes an
administrative burden beyond that which is currently experienced. Excepting
gross negligence and/or wilful malfeasance, Southern shall hold harmless and
release Century from any and all claims or liabilities which may be asserted by
Southern (or any third party claiming by or through Southern), against Century
for the activities and functions identified in this Article 1.09.
1.10 MERGER. ARI shall have the option to require a merger between
Century and ARI (provided that all necessary approvals for such merger are
obtained) in accordance with the terms and conditions to be agreed to by the
parties in a definitive merger agreement to be executed
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by the parties no later than June 30, 1997. Although specific terms and
conditions of the merger shall be set forth in the definitive agreement, the
following terms shall be required provisions of the definitive agreement: (i)
ARI's exclusive option to merge with Century shall be exercised no later than
June 30, 1997; (ii) at such time that ARI exercises its option to merge, Century
shall have the right to select the date for valuation of the oil and gas
properties of Century and ARI ("Valuation Date"), the Valuation Date to be no
later than December 31, 1997; (iii) the merger shall become effective within
ninety (90) days after the Valuation Date, which may be extended if approval of
ARI's or Century's shareholders or other consents are necessary to consummate
the merger; (iv) the merged company shall be able to adopt the full cost method
of accounting for its oil and gas properties, as defined by the Financial
Accounting Standards Board; (v) the respective values for ownership
determination of the merged company of both Century and ARI shall be based on
the audited book value of each company, such audit to be conducted by an
accounting firm acceptable to the other party, less the book value of the oil
and gas reserves plus the PV10 value of each company's oil and gas reserves as
determined by Netherland, Sewell & Associates, Inc. on the Valuation Date, using
consistent pricing; (vi) a favorable fairness opinion must be received by ARI
prior to merger; (vii) on the Valuation Date, all outstanding options and
warrants issued by ARI, which exercise price is equal to or less than the ARI
common stock bid price on the Valuation Date, shall be considered common shares
of ARI, and added to the value of ARI applying the respective exercise price of
each warrant and option, for the purpose of determining the number of common
shares to be issued to Century in the merged company based on the valuation as
determined in
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accordance with (v) above. Furthermore, no options or warrants shall be issued
by ARI from the Valuation Date to the date of merger without the prior written
approval of Century.
1.11 ALLOCATION OF PURCHASE PRICE. Attached hereto as Exhibit "M" is
the allocation of Purchase Price, agreed upon by the parties.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CENTURY
Century hereby represents and warrants to Southern and ARI as of the date
hereof that:
2.01 EXISTENCE OF CENTURY. Century is a corporation duly organized,
validly existing and in good standing under the laws of the State of Kentucky
and is duly qualified with the United States Minerals Management Service to
carry on its business on the Outer Continental Shelf, Gulf of Mexico federal
waters, and has the power and authority to own its property and to carry on its
business as now conducted and except as set forth in Section 2.06, to enter into
and carry out the terms of this Agreement;
2.02 POWER OF CENTURY. Century has the corporate power to enter into
and perform this Agreement and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Century, and the
transactions contemplated hereby, will not violate (i) any provision of the
certificate of incorporation or bylaws of Century, (ii) any material agreement
or instrument to which Century is a party or by which Century is bound which
pertains to the Leasehold
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Interest, (iii) any judgment, order, ruling, or decree applicable to Century as
a party in interest, or (iv) except as set forth in Section 2.06, any law, rule
or regulation applicable to Century;
2.03 AUTHORIZATION OF CENTURY. The execution, delivery and performance
of this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action on the part of Century.
This Agreement has been duly executed and delivered on behalf of Century, and at
the Closing all documents and instruments required to be executed and delivered
by Century pursuant to this Agreement shall have been duly executed and
delivered. This Agreement does, and such documents and instruments shall,
constitute legal, valid and binding obligations of Century enforceable in
accordance with their terms, subject, however, to the effect of bankruptcy,
insolvency, reorganization, moratorium and similar laws from time to time in
effect relating to the rights and remedies of creditors, as well as to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
2.04 LITIGATION-AGREEMENT. No litigation, claims, administrative
proceedings or other proceedings or governmental investigations are pending, or
to the best of Century's actual knowledge threatened, which would prevent or
delay the execution, delivery or performance of this Agreement by Century;
2.05 LITIGATION - ASSETS. Except for Permitted Liens, to the best of
Century's Knowledge, there are no court, administrative, regulatory or similar
proceeding (whether civil, quasi-criminal or criminal); arbitration or other
dispute settlement procedure; investigation or inquiry by any government,
administrative, regulatory or similar body or any third person or entity; or any
similar matter or proceeding (collectively "Proceedings") (a) against the
Assets, or (b) against Century and
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relating in any way to the Assets, which would have a material adverse effect on
the Assets(whether in progress or threatened); as it pertains to the Assets, no
event has occurred which might give rise to any Proceedings, there is no
judgment, decree, injunction, rule, award or order of any court, government
department, board, commission, agency, arbitrator or similar body outstanding
against Century and no complaint, grievance, claim, work order or investigation
has been filed, made or commenced against Century.
2.06 MMS APPROVAL. On April 24, 1996, documentation reflecting the
merger of Settle Oil and Gas Company into Century was filed with the MMS. The
MMS has not yet formally approved the merger and will not approve the
assignments contemplated by this Agreement until such time. Century has been
informed by the staff of the Adjudication Unit of the MMS that such approval is
imminent. To the best of Century's Knowledge, there is no other matter or
circumstance which would preclude and/or inhibit unconditional MMS approval of
the assignment of the leasehold interest, the working interest, overriding
interest or operating rights from Century to Southern.
2.07 CONSENTS AND PREFERENTIAL PURCHASE RIGHTS. There are no consents
(except as set forth in 2.06 and governmental consents which are customarily
obtained after the assignment of the Lease), agreements or waivers of
preferential rights necessary to the valid assignment of the Assets to Southern
at Closing and there are no preferential purchase rights or calls on production
with respect to the production from the Leasehold Interest.
2.08 ENVIRONMENTAL MATTERS. To the best of Century's knowledge,
information and belief after reasonable inquiry, there exists no Environmental
Defect with respect to the Assets. An Environmental Defect means a condition or
circumstance that exists in connection with the Leasehold
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Interest or the Assets that is not in material compliance with any law,
regulation, order or judgment of or agreement with any federal, state or local
agency or court relating to the environment or that under such law, regulation,
order, judgment or agreement requires the owner or operator of such leases or
assets to undertake any cleanup, remediation or other expense (an "Environmental
Defect"). To the best of Century's Knowledge, Century has not received notice of
any material violation of applicable environmental laws, rules, regulations,
ordinances and orders relating thereto, including laws relating to actual or
threatened emissions, discharges or releases of pollutants, contaminants or
hazardous or toxic materials or waste into air, water or land, or otherwise
relating to the generation, manufacture, processing, transportation or
distribution of pollutants, contaminants or hazardous toxic substances or
wastes, the noncompliance with which would have a material adverse effect on the
ownership or operation of the Assets.
2.09 COMPLIANCE WITH LAWS. To the best of Century's Knowledge, the
Assets have been operated in compliance with all laws, ordinances, regulations
and orders applicable to the Assets and the operations undertaken in connection
therewith. Furthermore, no notice from any governmental body has been served
upon Century for the Assets claiming any material violation of any law or any
other code, rule or regulation, which would have material adverse effect on the
Assets. To the best of Century's Knowledge, none of the Assets, nor the
ownership, leasing, occupancy, or the operation thereof, is in material
violation of any such law, ordinance, code, rule or regulation, which would have
a material adverse effect on the Assets.
2.10 ASSETS IN SATISFACTORY CONDITION. Except as set forth in this
Agreement, Southern acknowledges that Century has not made any warranty or
representation, whether express, implied,
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at common law, by statute or otherwise, relating to the fitness for an intended
purpose or condition of any movable property, constituting a portion of the
Assets and Southern shall acquire such personal property in "WHERE IS, AS IS"
condition. To the best of Century's Knowledge, all the physical Assets necessary
for the operation of the Lease as currently constructed are in satisfactory
operating condition for their intended use. WITHOUT LIMITING THE GENERALITY OF
THIS PARAGRAPH, CENTURY DISCLAIMS AND NEGATES AS TO ANY PERSONAL PROPERTY,
FIXTURES, IMPROVEMENTS AND APPURTENANCES SUBJECT TO THIS AGREEMENT (INCLUDING
ALL WELLS): (A) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (B) ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AND (C) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLE OR MATERIALS.
SOUTHERN EXPRESSLY AGREES THAT TITLE TO SUCH PERSONAL PROPERTY, FIXTURES,
IMPROVEMENTS AND APPURTENANCES WILL BE ACCEPTED "AS IS," "WHERE IS," "WITH ALL
FAULTS," AND IN ITS PRESENT CONDITION AND STATE OF REPAIR.
2.11 INSURANCE. All the Assets conveyed hereunder are covered by fire
and other insurance with responsible insurers against such risks and in such
amounts as are reasonable for prudent owners of comparable assets. Century will
provide, prior to Closing a copy of all the insurance policies pertaining to the
Assets, held by the Century, including the name of the insurer, the risks
insured against, the amount of coverage, the policy numbers and the expiration
dates. No other insurance is necessary to the conduct of the business or would
be considered to be desirable by a prudent Person operating a similar business.
Century is not in default with respect to any of the provisions
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contained in any such policies of insurance or has failed to give any notice or
pay any premium or present any claim under any such insurance policy.
2.12 PERMITS. To the best of Century's Knowledge, either Century or the
current operator of the Assets, hold all permits, licenses, approvals and
franchises (collectively, "permits") which it requires, or is required to have,
to operate, own or lease the Assets conveyed hereunder. All such permits are
full force and effect; Century is in material compliance with all the terms and
conditions relating to such permits; and there are no proceedings in progress,
pending or threatened which may result in revocation, cancellation, suspension
or any adverse modification of any of such permits. Neither the terms and
conditions relating to such permits nor the legislation or regulations pursuant
to which the same were issued require that any consent or approval of, or filing
with or notice to, any governmental agency or regulatory body or other Person be
made to assure the continued holding by Southern of such permits after
completion of the transaction contemplated by this Agreement.
2.13 MATERIAL FACTS DISCLOSED. Century has disclosed in writing to
Southern facts within their Knowledge relating to the Assets which could
reasonably be expected to be material to an intending purchaser of the Assets or
that would have a Material Adverse Effect on the Assets, or on Southern's
acquisition and ownership thereof.
2.14 LEASE. Except to Permitted Liens, Century owns its portion of the
Lease free and clear of liens, claims and encumbrances placed against the Assets
by Century or incurred by Century, and Century has duly performed all of the
obligations under the Lease that are now or will prior to the Closing Date be
required to be performed by Century. Century has not received any notice of
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default under the Lease nor is any such notice pending. The Lease is valid and
enforceable in accordance with their terms; further, that:
(i) Century has not received any notice of, and
there exists no event of default under the
Lease or event which constitutes or would
constitute (with notice or lapse of time or
both) a default in any material respect
thereunder; and
(ii) all working interest owners under such Lease
have consented (where such consent is
necessary pursuant to the Lease or other
agreements) to the consummation of the
transactions contemplated by this Agreement
without requiring modification in the rights
or obligations of Century under the Lease.
(iii) With respect to the Assets, and limited to
the time period during which Century has
owned the Assets, to the best of Century's
Knowledge, all rentals and royalties
(including minimum royalties, shut-in or
otherwise) required to be paid to perpetuate
the Lease to the date of this Agreement have
been timely and properly paid to the proper
parties and in the proper amounts. To the
best of Century's Knowledge, (i) the Lease,
and all material agreements, orders and other
instruments creating the Assets or out of
which the Assets
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arise are legal valid,
binding, subsisting, in good standing and in
full force and effect, and (ii) the Lease is
in full force and effect by operations as
approved by the Minerals Management Service,
in accordance with 30 C.F.R. Section 250.13.
2.15 RIGHTS OF WAY. There are no rights of way, easements, contracts
and other arrangements (as they pertain to rights of way and easements),
including amendments that are utilized in the operations of the Assets
(collectively, the "Rights of Way").
2.16 DISCLOSURE. No representation or warranty by or on behalf of
Century contained in this Agreement, in any Schedule hereto, in any agreement
entered into pursuant hereto or in connection herewith, in any certificate
delivered at Closing, or in any other certificate which states that it is
delivered pursuant to or in connection with this Agreement (certificates
referred to in this sentence are sometimes referred to herein individually as an
"Agreement Certificate" and collectively as the "Agreement Certificates"),
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact required to make the statements herein or
therein contained not misleading. Except as set forth in this Agreement, in any
Schedule hereto, in any agreement entered into pursuant hereto or in connection
herewith, or in any Agreement Certificate delivered at or prior to the execution
hereof, Century is not aware of any event or condition which could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), of the Assets. The representations and warranties contained in this
Agreement, in the Schedules hereto, in the agreements entered into pursuant
hereto or in connection herewith, or in any Agreement Certificate shall not be
affected or deemed waived by reason of (i) any investigation made
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by Southern or its representatives or (ii) the fact that Southern and/or its
representatives knew or should have known that any such representation or
warranty is or might be inaccurate in any respect.
Neither the furnishing of opinions or reports pursuant to this Agreement
nor any information disclosed by any investigation or examination by Southern,
nor any failure by Southern to make any investigation or examination under this
Agreement, nor the Closing of the transactions contemplated hereby, shall in any
way reduce any rights Southern may have under any representatives, warranties or
covenants contained in this Agreement.
Except as may be specifically set forth to the contrary in this
Agreement, Southern acknowledges that Century has made no representations or
warranties whatever, express or implied (Century having hereby expressly
disclaimed all such warranties) as to the accuracy, completeness, or materiality
of any data, information, record or materials now, heretofore, or hereafter made
available in connection the quality or quantity or hydrocarbon reserves
attributable to the Assets, if any; future production rates, exploratory or
development drilling opportunities, potential for production of hydrocarbons
from the Assets, decline rates, the legal, tax or other consequences of owning a
portion of Century's interest in the Assets.
2.17 TITLE WARRANTY. The Leasehold Interest to be conveyed by Century
to Southern shall be conveyed by Century to Southern without warranty of title,
expressed, implied or statutory, and without recourse, even as to the return of
the Purchase Price, except that Century shall warrant title against the demands
and claims of all persons asserting an adverse claim to the Leasehold Interest
that arises by, through, or under Century, with the exception of the liens
identified on Exhibit "F" hereto (the "Permitted Liens"), which liens Southern
recognizes and acknowledges and agrees to take the
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Leasehold Interest subject to said liens. Century also shall convey title to the
Leasehold Interest to Southern with full substitution and subrogation in and to
all covenants and warranties of Century's predecessors-in-title.
2.18 CONTRACTUAL AGREEMENTS. To the best of Century's Knowledge Exhibit
"D" sets forth all operating agreements, farm-out or farm-in agreements, pooling
or unitization orders and agreements, oil or gas sales contracts, processing
contracts, drilling or service contracts, partnership or joint venture
agreements and any other material contracts or agreements affecting any of the
Assets, (ii) no present or future production from any of the Assets is dedicated
under or subject to and contract, commitment, agreement or arrangement of any
kind, (iii) no person or entity has any call upon, option to purchase or similar
rights with respect to the Assets, (iv) Century is not obligated, by virtue of a
prepayment arrangement, a "take or pay arrangement, a production payment or any
other arrangement, to deliver hydrocarbons produced from the Assets at some
future time without then or thereafter receiving payment therefor, and (v)
Century is not in default of its material obligations under any agreements.
2.19 MATERIAL ADVERSE EFFECTS. To the best of Century's Knowledge,
there is no new or recent development, occurrence, event or condition which has
materially and adversely affected or may materially and adversely affect the
Assets, and Century has not done anything with respect to the Assets which is
not in the ordinary course of Century's business, and which would have a
material adverse effect on the Assets.
2.20 PAYMENT OF FUNDS. To the best of Century's Knowledge, Century has
duly and timely paid all taxes, governmental charges, duties, penalties,
interests and fines due and payable by it and
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affecting the Assets and its operation on or before the date of this Agreement
where the failure to make such payment would have a material adverse effect on
the Assets.
2.21 GAS IMBALANCE. Century represents and warrants that no gas
imbalances exist for the Assets.
2.22 WELLS PREVIOUSLY PLUGGED AND ABANDONED. Century represents and
warrants that it has not previously plugged and abandoned any wells on the Lease
prior to the Effective Date.
2.23 CENTURY DUE DILIGENCE AND REVIEW OF ARI. Century represents and
warrants that it has received and that an executive officer of Century has read
ARI's 1995 Annual Report to Shareholders, ARI's 1995 Annual Report on Form
10-KSB, ARI's Quarterly Reports on Form 10-QSB for the period ended March 31,
1996, all 8-K Reports dated subsequent to December 31, 1995 filed by ARI, and
all news releases issued by ARI subsequent to June 27, 1996.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOUTHERN
Southern represents as of the date hereof that:
3.01 EXISTENCE OF SOUTHERN. Southern is a corporation duly organized
and validly existing and in good standing under the laws of the State of
Delaware and has the power and authority to own its property and to carry on its
business as now conducted and to enter into and to carry out the terms of this
Agreement and is duly qualified with the United States Department of the
Interior, Minerals Management Service, to carry on business in the Outer
Continental Shelf, Gulf of Mexico federal waters;
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3.02 POWER OF SOUTHERN. Southern has the corporate power to enter into
and perform this Agreement and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Southern, and the
transactions contemplated hereby, will not violate (i) any provision of the
certificate of incorporation or by laws of Southern, (ii) any material agreement
or instrument to which Southern is a party or by which Southern is bound, (iii)
any judgment, order, ruling, or decree applicable to Southern as a party in
interest, or (iv) any law, rule or regulation applicable to Southern;
3.03 AUTHORIZATION OF SOUTHERN. The execution, delivery and performance
of this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action on the part of Southern.
This Agreement has been duly executed and delivered on behalf of Southern,
and at the Closing all documents and instruments required to be executed and
delivered by Southern shall have been duly executed and delivered. This
Agreement does, and such documents and instruments shall, constitute legal,
valid and binding obligations of Southern enforceable in accordance with
their terms, subject, however, to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in effect
relating to the rights and remedies of creditors, as well as to general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law);
3.04 LITIGATION. No litigation, claims, administrative proceedings or
other proceedings or governmental investigations are pending, or to the best
of Southern's actual knowledge threatened, which would prevent or delay the
execution, delivery or performance of this Agreement by Southern;
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3.05 ACQUIRING FOR OWN ACCOUNT. Southern is acquiring the Leasehold
Interest for its own account and not with a view to, or for offer of resale in
connection with, a distribution thereof within the meaning of the Securities Act
of 1933, as amended, and the rules and regulations pertaining to it or a
distribution thereof in violation of any applicable securities laws; and
3.06 MMS APPROVAL. Southern has no knowledge of any matter or
circumstance which would preclude and/or inhibit unconditional United States
Minerals Management Service approval of the Assignment of the Assets from
Century to Southern.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AMERICAN RESOURCES OF DELAWARE, INC.
American Resources of Delaware, Inc. ("ARI") represents as of the date
hereof that:
4.01 EXISTENCE OF ARI. ARI is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware and has
the power and authority to own its property and to carry on its business as now
conducted and to enter into and to carry out the terms of this Agreement.
4.02 POWER OF ARI. ARI has the corporate power to enter into and
perform this Agreement and the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by ARI, and the transactions
contemplated hereby, will not violate (i) any provision of the certificate of
incorporation or bylaws of ARI, (ii) any material agreement or instrument to
which ARI is a party or by which ARI is bound, (iii) any judgment, order,
ruling, or decree applicable to ARI as a party in interest, or (iv) any law,
rule or regulation applicable to ARI;
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4.03 AUTHORIZATION OF ARI. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action on the part of ARI. This
Agreement has been duly executed and delivered on behalf of ARI, and at the
Closing a11 documents and instruments required to be executed and delivered by
ARI shall have been duly executed and delivered. This Agreement does, and such
documents and instruments shall, constitute legal, valid and binding obligations
of ARI enforceable in accordance with their terms, subject, however, to the
effect of bankruptcy, insolvency, reorganization, moratorium and similar laws
from time to time in effect relating to the rights and remedies of creditors, as
well as to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.04 LITIGATION. No litigation, claims, administrative proceedings or
other proceedings or governmental investigations are pending, or to the best of
ARI's actual knowledge threatened, which would prevent or delay the execution,
delivery or performance of this Agreement by ARI;
4.05 ARI STOCK TO BE ISSUED TO CENTURY. All of the shares of ARI Stock
which may be issued to Century as payment of the Purchase Price have been duly
authorized and, when issued at Closing, will be validly and legally issued,
fully paid and non-assessable, and will be, at the time of their delivery on
August 16, 1996, if delivered to Century, free and clear of all liens, charges,
security interests, mortgages, pledges and other encumbrances, except any and
all restrictions as provided for by securities laws of the federal and state
governments.
4.06 MATERIAL ACTIONS. There are no material actions, suits,
proceedings, arbitrations or investigations pending or, to ARI's knowledge
threatened, against ARI or any of its affiliates which
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would be required to be disclosed in a Form 10-K or Form 10-Q, pursuant to Item
103 of Regulation S-K that are not so disclosed.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
The obligation of Century on the one hand and Southern on the
other to complete the transaction contemplated by this Agreement is subject to
the satisfaction of, or compliance with, at or prior to the Time of Closing,
each of the following conditions, unless waived in writing by the parties:
5.01 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH COVENANTS. The
representations and warranties of the parties made in or pursuant to this
Agreement shall be true and correct at the Closing with the same force and
effect as if made at and as of the Time of Closing; the covenants contained in
this Agreement to be performed by the parties at or prior to the Time of Closing
shall have been performed; the parties shall not be in breach of any agreement
on their part contained in this Agreement; and shall have received certificates
confirming the foregoing, signed by the parties by whom such representation is
made.
5.02 CLOSING DOCUMENTS AND PROCEEDINGS. All documents relating to the
authorization and completion of the transaction contemplated by this Agreement
and all actions and proceedings to be taken at or prior to the Time of Closing
in connection with the performance by Century and Southern of their respective
obligations under this Agreement shall be satisfactory to the respective
parties' Counsel and the parties shall have received copies of all such
documents and evidence that
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all such actions and proceedings have been taken as they may reasonably request,
in form and substance satisfactory to such parties and their Counsel.
5.03 OPINION OF CENTURY'S COUNSEL. Southern shall have received within
five business days after Closing, an opinion of Century's Counsel in form and
substance satisfactory to Southern's Counsel and in the form attached hereto as
Exhibit "J" and "K" respectively. In rendering such opinion, Century's Counsel
shall be entitled to rely, as to matters of fact, on certificates of Century and
senior officers of Century and shall be entitled to qualify, by reference to his
knowledge after appropriate enquiry, those portions of the opinion which it is
reasonable and customary to so qualify.
5.04 OPINION OF SOUTHERN'S COUNSEL. Century shall have received an
opinion of Southern's Counsel in form and substance satisfactory to Century's
Counsel substantially to the same effect as the representations and warranties
of the Southern in Article III, and as to such other matters incidental to the
matters herein contemplated as Century and Century's Counsel may reasonably
request. In rendering such opinion, Southern's Counsel shall be entitled to
rely, as to matters of fact, on certificates of Southern and senior officers of
Southern and shall be entitled to qualify, by reference to his knowledge after
appropriate enquiry, those portions of the opinion which it is reasonable and
customary to so qualify.
5.05 NO SUBSTANTIAL DAMAGE. No substantial damage by fire or other
hazard to the Assets, which in the opinion of Southern is material, shall have
occurred prior to the Time of Closing.
5.06 NO ACTION TO RESTRAIN. No action or proceeding shall be pending or
threatened by any person to restrain or prohibit Southern from acquiring the
Assets contemplated herein.
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5.07 CONSENTS AND APPROVALS. In the event that any consents and
approvals are required to be obtained by Century, with the exception of MMS
approval of the assignments, the same shall have been delivered to Southern, in
each case in form and substance satisfactory to Southern and Southern's counsel.
5.08 BOARD APPROVAL. The parties to this Agreement shall have received
approval from their respective board of directors or where applicable their
shareholders, to this Agreement and the transactions contemplated herein.
5.09 DELIVERY OF DOCUMENTS. Century shall have delivered all
instruments of conveyance referenced herein, in form acceptable to Southern.
5.10 DUE DILIGENCE. Southern shall complete any due diligence Southern
deems appropriate and prudent. If Southern, in its sole discretion, determines
that it should not consummate the transactions contemplated in this Agreement
because of any information discovered in its due diligence, then Southern may
terminate and abandon this Agreement by giving written notice to Century prior
to the Closing. If any of the other conditions contained in this Article V shall
not be fulfilled or performed at or prior to the Time of Closing to the
satisfaction of Southern (acting reasonably), Southern may, by notice to
Century, terminate this Agreement and the obligations hereunder. Any condition
contained in this Article may be waived in whole or in part by Southern without
prejudice to any claims it may have for breach of covenants, representations or
warranties by Century.
ARTICLE VI
INDEMNIFICATION AND REMEDIES
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6.01 CENTURY INDEMNIFICATION. Century agrees to indemnify, defend and
hold harmless Southern, its affiliates, successors and assigns, officers,
directors, employees and agents against any and all claims, losses, expenses,
costs, obligations and liabilities of any kind, including reasonable attorney's
fees ("Indemnity Amounts") which they may incur to the extent arising out of or
resulting from any inaccuracy in or breach of any of the representations,
warranties, covenants or any other provision of this Agreement by Century.
Century further agrees to indemnify, defend and hold harmless Southern,
its partners, officers, directors, shareholders, employees, agents and
representatives, and the officers, directors, shareholders, employees, agents
and representatives, and the officers, directors, shareholders, employees,
agents and representatives of its partners (the "Southern Group"), regardless of
whether the Southern Group was wholly or partially negligent or otherwise at
fault, from and against any and all claims, liabilities, losses, environmental
liabilities, fines and penalties, costs and expenses (including, without
limitation, court costs and reasonable attorneys' fees) arising from:
(1) events that have transpired or conditions
that have come into existence prior to the
Effective Date that are attributable to the
ownership or operation of the Assets, except
that this shall not extend to Southern's
obligations under 6.02(2) and 6.02(3) below;
and
(2) property damage or injury or death of persons
occurring prior to the Effective Date and
arising out of the ownership or operation of
the Assets regardless of whether claims
related to said damage, injury or death are
asserted on, before or after the Effective
Date.
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6.02 SOUTHERN INDEMNIFICATION. Southern agrees to indemnify, defend and
hold harmless Century, its affiliates, successors and assigns, officers,
directors, employees and agents against any and all claims, losses, expenses,
costs, obligations and liabilities of any kind, including reasonable attorney's
fees which they may incur to the extent arising out of or resulting from any
inaccuracy in or breach of any of the representations, warranties, covenants or
any other provision of this Agreement by Southern.
Limited to the extent of the Leasehold Interest to be acquired pursuant
to this Agreement Southern hereby assumes all of the following described
obligations, and Southern agrees to indemnify, defend and hold harmless Century,
its officers, directors, shareholders, employees, agent and representatives (the
"Century Group"), regardless of whether the Century Group was wholly or
partially negligent or otherwise at fault, from and against any and all claims,
liabilities, losses, environmental liabilities, fines and penalties, costs and
expenses (including, without limitation, court costs and reasonable attorneys'
fees) arising from:
(1) events that transpire or conditions that come into
existence on or after the Effective Date that are
attributable to the ownership or operation of the
Assets on or after the Effective Date;
(2) notwithstanding the terms and provisions of 6.03,
the proper plugging and abandonment of all wells now
or hereafter located on the Leasehold Interest;
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(3) notwithstanding the terms and provisions of 6.03,
abandonment, removal, salvage and clean-up expenses
of the Easements and Equipment;
(4) all liability for property damage or injury to or
death of persons occurring on or after the Effective
Date and arising out of the ownership or operation
of the Assets, regardless of whether said damages or
injury is attributable in whole or in part to
conditions that existed before the Effective Date;
(5) the compliance with and assumption of any and all
express or implied covenants in the instruments,
regulations and agreements to which the Leasehold
Interest is subject, including, but not limited to,
the covenants of reasonable development and
protection against drainage, insofar as said
covenants may apply to the Leasehold Interest, on or
after the Effective Date; and
(6) the compliance with and the assumption of all of
Century's rights, burdens, and obligations contained
in any operating agreement, farmout agreement,
acquisition agreement and/or any other agreement, on
or after the Effective Date, insofar and only
insofar as such agreements cover, pertain or apply
to the Leasehold Interest, on or after the Effective
Date, including, but not limited to the Contracts.
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6.03 GENERAL PROVISIONS. In the case of any claim for indemnification
brought under this Agreement:
(a) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (i) notify the party
from whom identification is sought (the "Indemnifying
Party") of any third-party claim or claims asserted against
the Indemnified Party ("Third Party Claim") which could
give rise to a right of indemnification under this
Agreement and (ii) transmit to the Indemnifying Party a
written notice ("Claim Notice") describing in reasonable
detail the nature of the Third Party Claim, a copy of all
papers served with respect to such claim (if any), an
estimate of the amount of damages attributable to the Third
Party Claim and the basis of the Indemnified Party's
request for indemnification under this Agreement. Within
thirty (30) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the
Indemnified Party (i) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party
under this Article VI with respect to such Third Party
Claim and (ii) whether the Indemnifying Party desires, at
the sole cost and expense of the Indemnifying Party, to
defend the Indemnified Party against such Third Party
Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party does
not dispute its potential liability to the Indemnified
Party under this Article VI and that the Indemnifying Party
elects
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to assume the defense of the Third Party Claim, then the
Indemnifying Party shall have the right to defend, as its
sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be
prosecuted diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying
Party in accordance with this Section 6.03. The
Indemnifying Party shall have full control of such defense
and proceedings, including any compromise or settlement
thereof. The Indemnified Party is hereby authorized, at the
sole cost and expense of the Indemnifying Party (but only
if the Indemnified Party is actually entitled to
indemnification hereunder or if the Indemnifying Party
assumes the defense with respect to the Third Party Claim),
to file, during the Election Period, any motion, answer or
other pleadings which the Indemnified Party shall deem
necessary or appropriate to protect its interest or those
of the Indemnifying Party and not prejudicial to the
Indemnifying Party (it being understood and agreed that if
an Indemnified Party takes any such action which is
prejudicial and conclusively causes a final adjudication
which is adverse to the Indemnifying Party, the
Indemnifying Party shall be relieved of its obligations
hereunder with respect to such Third Party Claim). If
requested by the Indemnifying Party, the Indemnified Party
agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its
counsel in contesting any Third Party Claim which the
Indemnifying Party
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elects to contest, including, without limitation, the
making of any related counterclaim against the person or
entity asserting the Third Party Claim or any cross-
complaint against any person. The Indemnified Party may
participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying
Party pursuant to this Section 6.03 and shall bear its own
costs and expenses with respect to such participation.
(c) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying
Party elects to defend the Indemnified Party or if the
Indemnifying Party elects to defend the Indemnified Party
but fails to diligently and promptly prosecute or settle
the Third Party Claim, then the Indemnified Party shall
have the right to defend, at the sole cost and expense of
the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings shall be
promptly and vigorously prosecuted by the Indemnified Party
to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter
into, without the Indemnifying Party's consent, which shall
not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing,
if the Indemnifying Party has delivered a written notice to
the Indemnified Party to the effect that the Indemnifying
Party disputes its potential liability to the Indemnified
Party under this Article VI and if such
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dispute is resolved in favor of the Indemnifying Party by
final, nonappealable order of a court of competent
jurisdiction, the Indemnifying Party shall not be required
to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section or of the Indemnifying
Party's participation therein at the Indemnifying Party in
full for all costs and expenses of such litigation. The
Indemnifying Party may participate in, but not control any
defense or settlement controlled by the Indemnified Party
pursuant to this Section, and the Indemnifying Party shall
bear its own costs and expenses with respect to such
participation.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder which does not
involve a Third Party Claim, the Indemnified Party shall
transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages
attributable to such claim and the basis of the Indemnified
Party's request for indemnification under this Agreement.
If the Indemnifying Party does not notify the Indemnified
Party within sixty (60) days from its receipt of the
Indemnity Notice that the Indemnifying Party disputes such
claim, the claim specified by the Indemnified Party in the
Indemnity Notice shall be deemed a liability of the
Indemnifying Party hereunder. If the Indemnifying Party has
timely disputed such claim, as
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provided above, such dispute shall be resolved by
litigation in an appropriate court of competent
jurisdiction.
ARTICLE VII
TERMINATION
7.01 METHODS OF TERMINATION. The transactions contemplated by this
Agreement may be terminated at any time, but not later than Closing:
(a) By mutual consent of Century and Southern; or
(b) By Southern on the Closing Date, if any of the conditions
provided for in Article V to have been performed by Century
has not been met or waived in writing by Southern; or
(c) By Century on the Closing Date, if any of the conditions
provided for in Article V to have been performed by
Southern has not been met or waived in writing by Century.
(d) By Southern, after Closing, if Century fails to deliver the
opinions of Century's counsel or any other documents
required to be delivered pursuant to Article 1.04(a) at
Closing, within five business days after the Closing. In
said event Century shall immediately return all payments of
consideration identified and paid to Century in this
Agreement, and Southern shall execute the appropriate
documents to reconvey the Assets to Century. As security
for the repayment
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of the above consideration, Southern shall be entitled to
retain ownership of the Assets until it receive the
consideration from Century or until it receives proceeds
from the Assets in an amount equal to the full
consideration paid Century plus all monies expended by
Southern on the Assets.
7.02 PROCEDURE UPON TERMINATION. In the event of termination by
Southern or Century, pursuant to this Article, written notice thereof shall
forthwith be given to the other party or parties and the transactions
contemplated by this Agreement shall be terminated, without further action by
Southern or Century. If the transactions contemplated by this Agreement are
terminated as provided herein then all obligations, except for all provisions
providing for the confidentiality, shall cease between the parties.
ARTICLE VIII
POST-CLOSING
8.01 RECEIPTS AND CREDITS. All monies, proceeds, receipts, credits and
income attributable to the Assets for all periods of time subsequent to the
Effective Date shall be the sole property and entitlement of Southern, and, to
the extent received by Century, Century shall fully disclose, account for and
transmit same to Southern promptly together with copies of all remittance
advises, purchase statements, meter charts and interpretations and support for
disbursements of royalty, overriding royalty interests, working interests and
taxes to the extent not previously provided.
All monies, proceeds, receipts and income attributable to the Assets for
all periods of time prior to the Effective Date shall be the sole property and
entitlement of Century and, to the extent
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received by Southern, Southern shall fully disclose, account for and promptly
transmit same to Century, together with copies of all remittance advises,
purchase statements, meter charts and interpretations and support for
disbursements of royalty, overriding royalty interests, working interests and
taxes not otherwise provided.
Except as otherwise set forth in Article VI, all costs, expenses,
disbursements, obligations and liabilities, with respect to the Assets
attributable to periods of time prior to the Effective Date, regardless of when
due or payable, shall be the sole obligation of Century, and Century shall
promptly pay, or if paid by Southern, promptly reimburse Southern for and defend
and hold Southern harmless from and against same. Except as otherwise set forth
in Article VI, all costs, expenses, disbursements, obligations, and liabilities
with respect to the Assets attributable to periods of time subsequent to the
Effective Date, regardless of when due or payable, shall be the sole obligation
of Southern, and Southern shall promptly pay, or if correctly paid by Century,
promptly reimburse Century for and defend and hold Century harmless from and
against same.
Century shall be entitled to a credit for and reimbursement in an amount
equal to any amount received by Southern after closing for any delivery or
performance by Century prior to the Effective Date. All accounts receivable
relating to the Assets and attributable to the period of time after the
Effective Date shall be assigned to Southern. All accounts receivable relating
to the Assets and attributable to the period of time before the Effective Date
shall be retained by Century.
In particular, notwithstanding anything to the contrary contained herein,
Southern agrees that in the event Closing as contemplated by this Agreement
occurs, it shall be responsible for and pay all
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cash calls as more fully set forth in Exhibit "L", which were or are received by
Century and/or Southern on or after June 14, 1996 from Newfield attributable to
the Leasehold Interest.
8.02 ACCESS. After the Closing and for a transitional period of six
months thereafter, upon the reasonable request of Southern, Century shall, and
shall cause its officers and employees to, cooperate with and assist Southern to
ensure an orderly transition of the ownership of the Assets to Southern and to
answer inquires and supply information, whether written or oral, relating to the
Assets (including legal, accounting, environmental, government affairs and other
information). All out-of-pocket expenses incurred in connection herewith shall
be borne by Southern. Century shall also join in any notifications to third
parties, where necessary, to document the transfer of ownership of the Assets.
Century acknowledges that it has been informed that as a result of transactions
contemplated herein, Southern will be required to file certain disclosure
documents with the Securities and Exchange Commission and other governmental
agencies. Century agrees to submit to an audit of its financial statements as
of and for the fiscal years ended December 31, 1994 and 1995 as they pertain to
the Assets. Century agrees to assist the independent accounting firm selected by
Southern to the extent necessary in order for the independent accounting firm to
perform an audit under the United States General Accepted Auditing Standards for
the purpose of rendering an opinion on ARI's and Southern's financial statements
for the above periods presented under United States Generally Accounting
Principles and for Southern and ARI to comply with regulatory reporting
requirements. Such assistance shall include issuing a letter to the independent
accounting firm which details the representations of Southern's management and
providing the independent accounting firm documents necessary for them to
complete their audit.
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ARTICLE IX
TAXES
9.01 APPORTIONMENT OF AD VALOREM AND PROPERTY TAXES. All ad valorem
taxes, real property taxes, personal property taxes, and similar obligations
attributable to the Assets ("Property Taxes") with respect to the tax period in
which the Effective Date occurs shall be apportioned as of the Effective Date
between Century and Southern. The owner of record on the assessment date shall
file or cause to be filed all required reports and returns incident to the
Property Taxes and shall pay or cause to be paid to the taxing authorities all
Property Taxes relating to the tax period on which the Effective Date occurs but
shall be entitled to reimbursement from the other party for its proportional
share.
9.02 SALES TAXES. Any sales, use or other tax on the transfer of the
Assets from Century to Southern shall be shared equally by the parties.
9.03 OTHER TAXES. All taxes (other than income taxes) which are imposed
on or with respect to the production of Oil, natural gas or other hydrocarbons
or minerals or the receipt of proceeds therefrom (including but not limited to
severance, production, and excise taxes) shall be apportioned between the
parties based upon the respective shares of production taken by the parties. All
such taxes which have accrued prior to the Effective Date have been or will be
properly paid or withheld by Century and all statements, returns, and documents
pertinent thereto have been or will be properly filed by Century. Southern shall
be responsible for paying or withholding or cause to be paid or withheld all
such taxes which have accrued after the Effective Date and for filing all
statements, returns, and documents incident thereto.
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ARTICLE X.
MISCELLANEOUS
10.1 ENTIRE AGREEMENT AND AMENDMENTS. This Agreement constitutes the
entire agreement between Century and Southern with respect to the transactions
contemplated herein, and supersedes all prior oral or written agreements,
commitments, understandings, or information otherwise furnished by Century and
Southern with respect to such matters and may not be altered or amended, nor may
any rights hereunder be waived, except by an instrument in writing executed by
the party to be charged with such amendment or waiver.
10.2 ASSIGNMENT. Neither Century nor Southern may assign its rights or
delegate its duties or obligations under the terms of this Agreement without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. Notwithstanding the provisions of this Section or other
provisions of this Agreement, Century shall not assign its rights to require
registration by ARI of the ARI Stock referenced herein.
10.3 HEADINGS. The headings of the Articles and Sections of this
Agreement are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions hereof.
10.4 LAW GOVERNING. This Agreement shall be governed by and construed
in accordance with the laws of the State of Louisiana.
10.5 PARTIES IN INTEREST. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective successors and
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assigns, and nothing contained in this Agreement, express or implied, is
intended to confer upon any other person or entity any benefits, rights or
remedies.
10.6 FURTHER ASSURANCES. After execution, Century and Southern shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be reasonable
necessary or advisable to carry out their obligations under this Agreement and
under any document, certificate or other instrument delivered pursuant hereto.
10.7 RELATIONSHIP. It is not the purpose or intention of Century or
Southern to create any partnership, joint venture, mining partnership, or any
association or any other relationship between them whether legal or quasi-legal
whereby one party is held liable for the acts or omissions of the other party,
and neither this Agreement nor the operations hereunder shall be construed or
considered as creating any such relationship.
10.8 LSA-R.S. 9:2780. The parties hereto specifically recognize that
this Agreement is not an agreement pertaining to a well for Oil, gas or water,
or drilling for minerals within the scope of and as defined in LSA-R.S. 9:2780
and specifically agree that this Agreement is not to be governed by said
statute.
10.9 PUBLICITY. Southern agrees to consult Century prior to the
issuance of any public announcements, however Century acknowledges that Southern
has certain regulatory and statutory responsibilities to disburse information to
the public.
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10.10 NOTICES. All notices and consents to be given hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
sent by facsimile transmission, registered or certified mail, postage prepaid
and return receipt requested, addressed as follows:
If to Century:
Century Offshore Management Corporation
400 East Vine Street, Suite 400
Lexington, Kentucky 70407
Telephone: (606) 253-1300
Facsimile: (606) 233-7471
Attention: Howard A. Settle
If to Southern:
Southern Gas Co. of Delaware, Inc.
160 Morgan Street
Versailles, Kentucky 40383
Telephone: (606) 873-5455
Facsimile: (606) 873-4689
Attention: David Stetson
The addresses so indicated may be changed by similar written notice.
Notices shall be deemed effective as of the date of their receipt.
10.11 CONFIDENTIALITY. Southern acknowledges that all information
furnished or disclosed pursuant hereto must remain confidential until Closing.
Prior to the Closing, Southern may disclose such information:
(a) to its employees or consultants or to any related
corporation or the employees or consultants thereof
taking the customary precautions to ensure that they
keep such records, data, studies, opinions and other
information confidential;
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(b) as may in the opinion of an attorney or Counsel for
Southern or for any related corporation be required
by law or for the reasonable protection of Southern
or related corporation or their respective directors
or other officers;
(c) to any government or governmental authority or any
financier or prospective financier of Southern;
10.12 SEVERABILITY. If any term or other provisions of this Agreement is
invalid, illegal or incapable of being enforced under any rule or law, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in a materially adverse manner with respect
to either party.
10.13 NO THIRD PARTY BENEFICIARY. This Agreement is not intended to
create, nor shall it be construed as to create, any rights in any third party
under doctrines concerning third party beneficiaries or stipulations POUR
AUTRUI.
10.14 PAYMENT OF EXPENSES AND FEES. Southern and Century shall bear
their respective costs and expenses, including but not limited to, attorneys'
fees incurred in connection with the transactions contemplated in this
Agreement; provided, however, Southern shall pay all recording fees or transfer
taxes in connection with the recording of any instrument of transfer of the
Leasehold Interest from Century to Southern hereunder.
10.15 ARBITRATION. Upon the demand of Southern or Century (collectively,
the "parties"), whether made before the institution of any judicial proceeding
or not more than 60 days after service
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of a complaint, third party complaint, cross-claim or counterclaim or any answer
thereto or any amendment to any of the above, any Dispute (as defined below)
shall be resolved by binding arbitration in accordance with the terms of this
Section 10.15. A "Dispute" shall include any action, dispute, claim, or
controversy of any kind, whether founded in contract, tort, statutory or common
law, equity, or otherwise, now existing or hereafter occurring between the
parties arising out of, pertaining to or in connection with this Agreement or
any related agreements, documents, or instruments (the "Documents"). The parties
understand that by this Section 10.15, they have decided that the Dispute may be
submitted to arbitration rather than being decided through litigation in court,
however the parties do not waive their respective rights to appeal any decision
on due process grounds or failure to adhere to the procedures set forth herein.
GOVERNING RULES. Arbitrations conducted pursuant to this Section
10.15, including selection of arbitrators, shall be administered by the American
Arbitration Association ("Administrator") pursuant to the Commercial Arbitration
rules of the Administrator. Arbitrations conducted pursuant to the terms hereof
shall be governed by the provisions of the Federal Arbitration Act (Title 9 of
the United States Code), and to the extent the foregoing are inapplicable,
unenforceable or invalid, the laws of the State of Louisiana. Judgment upon any
award rendered hereunder may be entered in any court having jurisdiction. Any
party who fails to submit to binding arbitration following a lawful demand by
the opposing party shall bear all costs and expenses, including reasonable
attorney's fees, incurred by the opposing party in compelling arbitration of any
Dispute.
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ARBITRATOR POWERS AND QUALIFICATIONS; AWARDS. Arbitrators shall
resolve all Disputes in accordance with the applicable substantive law including
the award of attorneys' fees and expenses if permitted by law or the agreement
of the parties. All statutes of limitation applicable to any Dispute shall apply
to any proceeding brought in accordance with this Section 10.15. Any arbitrator
selected to act as the only arbitrator in a Dispute shall be required to be a
practicing attorney with not less than 10 years practice in commercial law in
the State of Louisiana. With respect to a Dispute in which the claims or amounts
in controversy do not exceed $100,000, a single arbitrator shall be chosen and
shall resolve the Dispute. In such case the arbitrator shall have authority to
render an award up to but not to exceed $100,000 including all damages of any
kind whatsoever, costs, fees and expenses. Submission to a single arbitrator
shall be a waiver of all parties' claims to recover more than $100,000. Disputes
involving claims or amounts in controversy exceeding $100,000 shall be decided
by a majority vote of a panel of three arbitrators ("Arbitration Panel"). An
Arbitration Panel shall be composed of one arbitrator who would be qualified to
sit as a single arbitrator in a Dispute decided by one arbitrator, and two
arbitrators who have at least ten years experience in the oil and gas business.
Arbitrator(s) may, in the exercise of their discretion, at the written request
of a party, (i) consolidate in a single proceeding any multiple party claims
that are substantially identical, and (ii) administer multiple arbitration
claims as class actions in accordance with Rule 23 of the Federal Rules of Civil
Procedure. The arbitrator(s) shall be empowered to resolve any dispute regarding
the terms of this Agreement or the arbitrability of any Dispute or any claim
that all or any part (including this provision) is voidable but shall have no
power to change or
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alter the terms of this Section 10.15. The award of the arbitrator(s) shall be
in writing and shall specify the factual and legal basis for the award.
MISCELLANEOUS. To the maximum extent practicable, the
Administrator, the Arbitrator(s) and the parties shall take any action necessary
to require that an arbitration proceeding hereunder be concluded within 180 days
of the filing of the Dispute with the Administrator. The Arbitrator(s) shall be
empowered to impose sanctions for any party's failure to proceed with the times
established herein. Arbitration proceedings hereunder shall be conducted in
Louisiana at a location determined by the Administrator. In any such proceeding
the doctrines of res judicata and collateral estoppel shall apply and a party
shall state as a counterclaim any claim which arises out of the transaction or
occurrence or is in any way related to the Documents which does not require the
presence of a third party which could not be joined as a party in the
proceeding. The provisions of this Section 10.15 shall survive any termination,
amendment, or expiration of the Documents unless the parties otherwise expressly
agree in writing. Each party agrees to keep all Disputes and arbitration
proceedings strictly confidential, except for disclosures of information
required in the ordinary course of business of the parties or as required by
applicable law or regulation.
10.16 ACCESS TO EMPLOYEES. Century and Southern each shall use its
reasonable efforts to afford the other with access to its employees, as follows:
(i) in the case of Century, employees of Century, as Southern may reasonably
request for Southern's proper business purposes regarding the Assets, but not as
to matters proprietary to either Southern or Century, who remain employees of
Century following the date of Closing and who are familiar with the operations
of the Assets, and (ii) in the case of Southern, employees of Southern, as
Century may reasonably request for Century's
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proper business purposes, including without limitation, the defense of legal
proceedings. Such access may include interviews (provided however, no such
interview shall be conducted without attendance of such employee's counsel) or
attendance at depositions or legal proceedings (provided however, no such
attendance will be made without attendance of such employee's counsel);
provided, however, that in any event all out-of-pocket expenses (including wages
and salaries) reasonably incurred by any party in connection with this Section
10.16 shall be paid or promptly reimbursed by the party requesting such
services.
10.17 NORM. Southern acknowledges that it has been informed that Oil and
Gas producing formations can contain naturally occurring radioactive material
("NORM"). Formation of scale or deposits can concentrate NORM on equipment and
in sludges. The presence of NORM in certain concentrations requires that certain
appropriate health, safety, and environmental precautions be taken.
10.18 ARI. American Resources of Delaware, Inc. joins in the execution
of this Agreement for the limited purpose of making the representations set
forth in Article IV and to undertake those specific obligations of ARI as more
fully set forth in 1.03(b) and 1.03(c).
10.19 SURVIVAL OF REPRESENTATIONS. The covenants, representations and
warranties contained in this Agreement and in all certifications and documents
delivered pursuant to or contemplated by this Agreement shall survive the
Closing and shall continue for a period of five (5) years. Century shall insure
that its respective covenants, representations and warranties contained in this
Agreement and in all certifications and documents delivered pursuant to or
contemplated by this Agreement are true and correct at all times.
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10.20 NO FINDER'S FEES. Each of the parties represent and warrants to
the other parties that such party has not taken, and agrees that it will not
take, any action that would cause any other party to become liable to any claim
or demand for a brokerage commission, finder's fee or other similar payment.
IN WITNESS WHEREOF, the parties have executed this Agreement on
this 3rd day of July, 1996.
WITNESSES: CENTURY OFFSHORE MANAGEMENT
COPORATION
/s/ Leonard K. Nave By: /s/ Howard A. Settle
- ------------------------------ -------------------------------------
Name: Leonard K. Nave Howard A. Settle
------------------------- President
(Please Print)
/s/ Douglas L. Hawthorne
- ------------------------------
Name: Douglas L. Hawthorne
-------------------------
(Please Print)
SOUTHERN GAS CO. OF DELAWARE, INC.
/s/ Leonard K. Nave By: /s/ Rick G. Avare
- ------------------------------ -------------------------------------
Name: Leonard K Nave Rick G. Avare
------------------------- Chief Operating Officer
(Please Print)
/s/ Douglas L. Hawthorne
- ------------------------------
Name: Douglas L. Hawthorne
-------------------------
(Please Print)
AMERICAN RESOURCES OF DELAWARE,
INC.
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/s/ Leonard K. Nave By: /s/ Rick G. Avare
- ------------------------------ -------------------------------------
Name: Leonard K. Nave Rick G. Avare
-------------------------- President
(Please Print)
/s/ Douglas L. Hawthorne
- ------------------------------
Name: Douglas L. Hawthorne
-------------------------
(Please Print)
ACKNOWLEDGMENTS
STATE OF KENTUCKY )
COUNTY OF FAYETTE )
On this the 3rd day of July, 1996, before me appeared Howard A.
Settle to me personally known, who being by me duly sworn, did say that he is
the President of CENTURY OFFSHORE MANAGEMENT CORPORATION, and that the foregoing
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and said Howard A. Settle acknowledged said instrument to be the free
act and deed of said corporation.
/s/ Howard A. Settle
-----------------------------------
Howard A. Settle
/s/ Judi. C Burchard
-----------------------------------
NOTARY PUBLIC FOR THE COUNTY OF
FAYETTE, STATE OF KENTUCKY
My Commission Expires: 3-4-2000
---------
STATE OF KENTUCKY )
COUNTY OF FAYETTE )
On this the 3rd day of July, 1996, before me appeared Rick G.
Avare to me personally known, who being by me duly sworn, did say that he is the
Chief Operating Officer of SOUTHERN GAS CO. OF DELAWARE, INC. and that the
foregoing instrument was signed on behalf of said corporation by authority of
its Board of Directors, and Rick G. Avare acknowledged said instrument to be the
free act and deed of said corporation.
/s/ Rick G. Avare
----------------------------------------
Rick G. Avare
/s/ Judi C. Burchard
----------------------------------------
NOTARY PUBLIC FOR THE COUNTY OF
FAYETTE, STATE OF KENTUCKY
My Commission Expires 3-4-2000
--------
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STATE OF KENTUCKY )
COUNTY OF FAYETTE )
On this the 3rd day of July, 1996, before me appeared Rick G.
Avare to me personally known, who being by me duly sworn, did say that he is the
President of AMERICAN RESOURCES OF DELAWARE, INC., and that the foregoing
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and said Rick G. Avare acknowledged said instrument to be the free
act and deed of said corporation.
/s/ Rick G. Avare
----------------------------------------
Rick G. Avare
/s/ Judi C. Burchard
----------------------------------------
NOTARY PUBLIC FOR THE COUNTY OF
FAYETTE, STATE OF KENTUCKY
My Commission Expires: 3-4-2000
--------
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CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
American Resources of Delaware, Inc. and Subsidiary:
We consent to the use of our report dated March 22, 1996 on the consolidated
financial statements of American Resources of Delaware, Inc. and Subsidiary as
of December 31, 1995 and for the years ended December 31, 1995 and December 31,
1994 incorporated herein by reference and to the reference to our firm under
the heading "Experts" in the prospectus.
Our report refers to a change in the method of accounting for income taxes.
KPMG Peat Marwick LLP
Houston, Texas
August 12, 1996
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
American Resources of Delaware, Inc.:
We consent to the use of our report dated April 30, 1996 on the statements of
revenues and direct operating expenses of the Arakis Properties purchased by
American Resources of Delaware, Inc. for each of the years in the two-year
period ended December 31, 1995 incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
Our report contains an explanatory paragraph that states that the statements
were prepared for the purpose of complying with certain rules and regulations of
the Securities and Exchange Commission (SEC) for inclusion in certain SEC
regulatory reports and filings and are not intended to be a complete financial
presentation.
KPMG Peat Marwick LLP
Houston, Texas
August 12, 1996
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANT
We hereby consent to the use in the Registration Statement on Form S-3, and
any amendments thereto, and in any related Prospectus, covering the
registration of 3,948,144 additional shares of common stock, to be filed by
American resources of Delaware, Inc. of our auditor's report dated April 11,
1994 (except with respect to notes 1 and 10, which are as of March 28, 1995)
accompanying the financial statements of American Resources of Delaware, Inc.
as of December 31, 1993 and 1992.
/s/ William Briggs & Company
Lake Bluff, Illinois
August 13, 1996
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT RESERVE ESTIMATOR
We consent to the use of our report dated February 2, 1996 on the estimated
reserves and present values of oil and gas properties owned by American
Resources, Inc. and Southern Gas Company of Delaware, Inc. as of January 1,
1996 incorporated herein by reference and to the reference of our firm under
the heading "Experts" in the prospectus.
/s/ Richard M. Russell & Associates, Inc.
Brentwood, Tennessee
August 12, 1996
