As filed with the Securities and Exchange Commission on January
13, 1997 REGISTRATION NO. 333-18821
- ------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO.1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
AMERICAN RESOURCES OF DELAWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0713506
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
160 Morgan Street, P.O. Box 78, Versailles, Kentucky 40383
(606) 873-5455
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)
--------------------------
Rick G. Avare, President
American Resources of Delaware, Inc.
160 Morgan Street, P.O. Box 78
Versailles, Kentucky 40383
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)
Copy to:
Phillip E. Allen
Attorney at Law
The Market Place, Suite 130
12910 Shelbyville Road
Louisville, Kentucky 40243
--------------------------
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes
effective.
Page one of 58 pages.
The Index to Exhibits appears on page 57 of the sequentially
numbered pages of this Registration Statement.
If the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment
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, other than securities
offered only in connection with dividend or interest 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 of
1933, 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 of 1933, 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./ /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Amount Proposed Proposed Amount
Each Class to be Maximum Maximum of
Securities Registered Offering Aggregate Regis-
to be Price Per Offering tration
Registered(1) Share Price Fee
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common 2,483,690 $3.00(2) $ 7,451,070(2) $1,097(2)
Stock NA(3) NA(3) $ 6,240,000(3) $1,891(3)
---------- -----
($.00001 $13,691,070 $2,988
Par Value)
- -------------------------------------------------------------------
</TABLE>
(1) All securities subject to this registration statement are on
behalf of selling shareholders. See "Selling Stockholders".
(2) Estimated solely for the purpose of calculating the
registration fee. Pursuant to Rule 457(c) of the Securities Act
of 1933, the registration fee has been calculated based on
1,206,724 shares at a price of $3.00 per share, the market price
based on the last trade reported by NASDAQ Small Cap for the
registrant's common stock on December 20, 1996.
I-2
<PAGE>
(3) The amount to be registered consists of up to $6,240,000 of
an indeterminate number of shares of Common Stock issuable upon
the conversion of the Registrant's 4% Convertible Debentures at
conversion prices equal to the lesser of (i) the closing bid
price of the Common Stock on NASDAQ on the date of the issuance
of the debenture or (ii) 75% of the average closing bid prices of
the Common Stock as reported on NASDAQ for the five trading days
prior to the date of conversion. The proposed maximum offering
price per share has been omitted pursuant to Securities Act
Release No. 6964. The registration fee has been calculated in
accordance with Rule 457(o) under the Securities Act of 1933
based on the aggregate offering price.
Pursuant to Rule 429 of the Securities Act of 1933, the
Prospectus included herein is a combined prospectus that also
relates to the Registrant's Registration Statement on Form S-3,
File No. 333-656 (the "Prior Registration Statement"). 1,276,966
shares of the Registrant's common stock remaining unsold under
the Prior Registration Statement (the "Unsold Shares") are
carried forward to this Registration Statement. The $3,166 filing
fee paid in connection with the Prior Registration Statement was
based on an offering price of $3.75 per share, with $1,651 of
such filing fee being related to the Unsold Shares carried
forward to this Registration Statement. The filing fee paid with
this Registration Statement is based upon the aggregate shares
being registered herein net of the Unsold Shares carried forward
from the Prior Registration Statement.
Pursuant to Rule 416 of the Securities Act of 1933, there
are also being registered hereunder such additional shares as may
be issued to the selling stockholders because of future
dividends, stock distributions, stock splits or similar capital
adjustments.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, 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 7.
I-3
<PAGE>
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 S-3
Form S-3 Item Caption 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 Page 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 7)
4. Use of Proceeds.............. Use of Proceeds
5. Determination of Offering
Price...................... Not Applicable
6. Dilution..................... Risk Factors-Dilution (see
page 16)
7. Selling Security Holders..... Selling Stockholders;
Description of Capital
Stock; Description of
Derivative Securities
Held by Selling
Stockholders
8. Plan of Distribution......... Plan of Distribution
9. Description of Securities
to be Registered........... Not Applicable
I-4
<PAGE>
10. Interest of Named Experts
and Counsel................ Not Applicable
11. Material Changes............. Recent Developments and
Risk Factors (see page 7);
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 Indemnifica-
tion for Securities Act
Liabilities................. Not Applicable
I-5
<PAGE>
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 DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE A SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
Dated January , 1997
---
------------------------------------------------
AMERICAN RESOURCES OF DELAWARE, INC.
Common Stock
($.00001 par value)
2,483,690 Shares of Common Stock Plus an
Indeterminate Number of Shares of Common Stock Issuable
Upon the Conversion of the Company's 4% Convertible Debentures
This Prospectus relates to 2,483,690 shares of the $.0001 par
value common stock (the "Common Stock") of American Resources of
Delaware, Inc., a Delaware corporation (the "Company") and to an
additional indeterminate number of shares of Common Stock
issuable upon the conversion of the Company's 4% Convertible
Debentures. All of such shares are being offered on a continuous
basis in the future by certain of the Company's stockholders,
warrant holders, option holders, convertible debenture holders
and convertible preferred stockholders. See "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 Selling Stockholders are not restricted in
the price or prices at which they may sell their shares and the
sale of such shares may depress the market price of the Common
Stock. 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 will
receive proceeds from the sale of shares of Common Stock to the
Selling Stockholders to the extent that the Selling Stockholders
exercise their warrants and options. See "Use of Proceeds."
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
1
<PAGE>
("NASDAQ") under the symbol "GASS". On December 20, 1996, the
market price per share, based on the last trade reported on
NASDAQ Small Cap for the Company's Common Stock was $3.00.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS". THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOT 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.
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,
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 Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding
issuers, such as the Company, that file electronically with the
Commission. The address of the Commission's Web site is
http://www.sec.gov.
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.
2
<PAGE>
TABLE OF CONTENTS
Page
----
Available Information.................................. 2
Incorporation of Certain Information by Reference...... 4
Summary of Offering.................................... 5
Risk Factors........................................... 7
The Company............................................19
Recent Developments....................................20
Capitalization.........................................27
Use of Proceeds........................................28
Price Range of Common Stock............................29
Selling Stockholders...................................30
Description of Capital Stock...........................37
Description of Derivative Securities
Owned by Selling Stockholders........................39
Plan of Distribution...................................42
Indemnification of Directors and Officers..............43
Experts................................................44
Legal Matters..........................................45
No person is authorized to give any information or 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 any 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.
The date of this Prospectus is
------------
3
<PAGE>
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); June 30, 1996 (filed on
August 14, 1996) and Form 10-QSB/AI (filed on September 5, 1996)
amending Form 10-QSB for the quarter ended June 30, 1996; and
September 30, 1996 (filed on November 14, 1996).
3. Current Reports on Form 8-K dated 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, Form 8-K dated
July 3, 1996 (filed July 18, 1996), Form 8-K/A dated July 3, 1996
(filed on September 16, 1996) amending Form 8-K dated July 3,
1996, and Form 8-K dated December 9, 1996 (filed on December 12,
1996).
4. Proxy Statement dated July 2, 1996.
5. 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 (also see "Description of Capital
Stock");
6. 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 (also see "Description of Capital
Stock");
7. 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 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
4
<PAGE>
Delaware, Inc. 160 Morgan Street, Post Office Box 87, Versailles,
Kentucky 40383, Attention: Karen M. Underwood, telephone (606)
873-5455.
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.......... 2,483,690 shares of Common
Stock Plus an Indeterminate
Number of Shares of Common
Stock Issuable Upon the
Conversion of the Company's
4% Convertible Debentures
Shares of Common Stock
Outstanding (1)........... 6,520,296*
Use of Proceeds............. The Company will not receive
any of the proceeds from the
sale of the stock by the
Selling Stockholders. The
Company will receive proceeds
from the sale of shares of
Common Stock to the Selling
Stockholders to the extent
that the Selling Stockholders
exercise their warrants. See
"Use of Proceeds".
Risk Factors................ The securities offered hereby
involve a high degree of risk.
See "Risk Factors".
NASDAQ Symbol(2)............ GASS
- ----------------
* Includes 173,724 shares of Common Stock obligated to be
issued to persons designated by World Capital Funding, Inc. in
connection with the placement of the Company's 4% Convertible
Debentures.
(1) As of November 30, 1996. Does not include (i) 1,943,910
shares of Common Stock reserved for issuance upon exercise of
options granted under the Company's 1994 Compensatory Stock
Option Plan and 56,090 shares of Common Stock reserved for
issuance upon the exercise of options which may be granted in the
future under the Company's Compensatory Stock Option Plan; (ii)
an aggregate of 1,329,000 shares of Common Stock reserved for
issuance upon the exercise of options which may be granted under
the Company's Incentive Stock Option Plan and the Company's 1994
Employee Stock
5
<PAGE>
Compensation Plan; (iii) 643,987 shares reserved for issuance
upon the exercise of non-plan options granted to Andrew Kacic;
(iv) 63,971 shares of Common Stock reserved for issuance upon the
exercise of options granted to Pacific Consulting; (v) 118,362
shares of Common Stock reserved for issuance upon the exercise of
options granted to Corporate Communications; (vi) 268,851 shares
of Common Stock reserved for issuance upon conversion of the
Series 1993 8% Convertible Preferred Stock; (vii) 500,000 shares
of Common Stock reserved for issuance upon the exercise of
options granted to Corporate Relations Group, Inc.; (viii)
100,000 shares of Common Stock reserved for issuance upon the
exercise of options granted to persons designated by World
Capital Funding, Inc.; (ix) 262,430 shares of Common Stock
reserved for issuance upon the exercise of the Company's
outstanding publicly- held warrants; (x) 205,834 shares of Common
Stock reserved for issuance upon the exercise of the Company's
1995 Class A Warrants; (xi) 205,834 shares of Common Stock
reserved for issuance upon the exercise of the Company's 1995
Class B Warrants; (xii) 165,000 shares of Common Stock reserved
for issuance upon the exercise of the Company's 1996 Class A
Warrants; (xiii) 100,000 shares of Common Stock reserved for
issuance upon the exercise of warrants issued to Morgan Lang
Limited; (xiv) 100,000 shares of Common Stock reserved for
issuance upon the exercise of warrants issued to AMC Consumer
Services; (xv) 200,000 shares of Common Stock reserved for
issuance upon the exercise of warrants issued to Bridgewater
Financial; (xvi) 225,000 shares of Common Stock reserved for
issuance upon the exercise of warrants issued to AKS; and (xvii)
up to 217,778 shares of Common Stock reserved for issuance as
payment for the termination of management participations in the
Century Note. See "Description of Derivative Securities Held by
Selling Stockholders", "Recent Developments - Shareholder
Relations Contract"; "Recent Developments - Recent Financings"
and "Recent Developments - Termination of Management
Participations".
(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
a adverse effect on the market for the Common Stock. See "Risk
Factors-Maintenance Criteria for NASDAQ Securities".
[INTENTIONALLY LEFT BLANK]
6
<PAGE>
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. POSSIBLE LIQUIDATED DAMAGES; POSSIBLE INSUFFICIENT
SHARES AVAILABLE TO CONVERT DEBENTURES. The Company has issued 4%
Convertible Debentures in the aggregate principal amount of
$6,000,000. The debentures are convertible at the option of the
holders into shares of Common Stock valued at the lesser of (i)
the closing bid price of the Common Stock as reported on NASDAQ
on the date of issuance of the debenture, or (ii) 75% of the
average closing bid prices of the Common Stock as reported on
NASDAQ for the five trading days prior to the date of conversion
(the "Conversion Price"). Debentures that are not converted prior
to their maturity dates automatically convert on their maturity
dates. Accrued interest on the debentures will be paid on their
conversion dates by the issuance of shares of Common Stock valued
at the Conversion Price. If a debenture is not converted within
five business days after the Company receives notice of the
conversion, the Company is obligated to pay liquidated damages to
the debenture holder, for each $100,000 principal amount of
debentures sought to be converted, in the amount of $100 for each
of the first two days, $200 for each of the next two days, $300
for each of the next two days, $400 for each of the next two days
and $500 per day thereafter until the conversion shares are
delivered. Prior to the receipt of a conversion notice, the
Company has the right to redeem any debenture for a cash amount
equal to 125% of the principal amount of the debenture, plus
unpaid accrued interest, if the Conversion Price is the below the
closing bid price of the Common Stock as reported on NASDAQ on
the date the debenture was issued. The closing bid prices when
the debentures were issued ranged from $3.00 to $3.50. Upon
giving notice of its intention to redeem a debenture, the
debenture holder's right to convert the debenture is suspended,
but the Company must pay an additional one percent per month in
cash on a pro rata basis until the full redemption price is paid.
If the full redemption price is not paid within ten business days
after the redemption notice is given, the debenture holder has
the right to convert the debenture into shares of Common Stock. A
debenture holder may fax a notice to the Company requiring the
Company to declare, by faxed notice within twenty-four hours
after receipt of the notice from the debenture holder, whether
the Company intends to effect a redemption within the following
five business days. If the Company does not respond during said
twenty-four hour period, the Company is precluded from redeeming
that debenture holder's debentures during said five day period.
The Company agreed to register the shares of Common Stock into
which the debentures are convertible within 120 days after demand
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<PAGE>
is made by a debenture holder. The first demand for registration
was received by the Company on November 13, 1996. If, because of
the Company's acts or failure to act, the registration statement
is not effective within 120 days after demand is made, the
Company is obligated to pay the debenture holder liquidated
damages equal to 2% of the principal amount of the debentures for
the first month and 3% of the principal amount of the debentures
thereafter until the registration statement becomes effective.
Because the Conversion Price is dependent upon the market price
of the Common Stock, the Company cannot ascertain with certainty
the number of shares of Common Stock required to effect the
conversion of all of the debentures. Therefore, the Company has
registered an indeterminate number of shares for issuance upon
the conversion of $6,000,000 principal amount of debentures plus
interest at the rate of 4% per annum for up to one year from the
date of issuance of the debentures. If the average Conversion
Price of the Common Stock falls below $.75 per share, the
Company may not have sufficient shares available to effect the
conversion of all of the debentures, in which case the Company
would have to pay liquidated damages unless its Certificate of
Incorporation is amended to authorize additional shares or the
Company redeems the debenture for which conversion is sought.
(See "Risk Factors - Dilution") The Company may request it
shareholders to approve an amendment to the Company's Certificate
of Incorporation authorizing additional shares. Also, the Company
may attempt to redeem part of the debentures. There can be no
assurance that the Company's shareholders would approve an
amendment to the Company's Certificate of Incorporation
authorizing additional shares of Common Stock. There can be no
assurance that the Company could borrow monies to fund the
redemption of any of the debentures on a commercially reasonable
basis, or at all, or that the Company would otherwise be
financially able to effect a redemption.
2. LIMITED OPERATING HISTORY; UNCERTAINTY OF FUTURE
OPERATING RESULTS. 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 the protection of Chapter 11 of the U.S.
Bankruptcy Code at that time. The Company acquired a substantial
portion of its wells and pipeline system subsequent to the
consummation of the Standard Oil transaction and only commenced
operations in the Gulf Coast in October 1994. Accordingly, the
Company has a limited operating history upon which an evaluation
of its performance and prospects can be made. The Company's
prospects must be considered in light of the numerous risks,
expenses, delays, problems and difficulties frequently
encountered in the establishment and continual expansion of a new
business in an industry characterized by intense competition. The
Company's operating expenses have increased and can be expected
to increase significantly in connection with the proposed
expansion of its operations. As a result, the Company's future
operating results will be dependent upon corresponding increases
8
<PAGE>
in revenue from operations. The Company's prospects could be
adversely affected by unfavorable general economic conditions,
including downturns in the economy, substantial or extended
declines in gas and oil prices, political and regulatory
developments and increased competition from other sources of
energy. There can be no assurance that the Company's rate of
revenue growth will continue in the future or that the Company's
future operations will be profitable.
3. NEED FOR ADDITIONAL FINANCING. At October 31, 1996,
the Company had a working capital deficit of approximately
$9,800,000. The Company anticipates, based on currently proposed
plans and assumptions relating to its operations (including the
costs associated with its proposed expansion), that its projected
cash flow from operations may not be sufficient to satisfy its
anticipated cash requirements during 1997. Consequently, the
Company may be required to obtain additional financing. There can
be no assurance that additional financing will be available to
the Company on commercially reasonable terms, or at all. To the
extent that the Company issues equity securities in connection
with such financing, any such issuance of equity securities would
result in dilution to the interest of the Company's stockholders.
Additionally, to the extent that the Company incurs indebtedness
or issues debt securities in connection with any financing, the
Company will be subject to risks associated with incurring
substantial indebtedness, including the risks that interest rates
may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness.
4. SIGNIFICANT OUTSTANDING INDEBTEDNESS: SECURITY
INTERESTS. The Company has available a $30,000,000 line of
credit (the "Line of Credit"), with a $26,100,000 borrowing base,
from Den norske Bank AS. As of November 30, 1996, the amount
outstanding under the Line of Credit was approximately
$25,583,000. The Company borrowed $3,690,000 under the Line of
Credit on September 30, 1996, for which it paid Den norske Bank 2
points. The Company used $2,000,000 of the funds to pay
development costs on its South Timbalier properties and
$1,000,000 to partially pay the Century Obligation. The remaining
$690,000 was used for working capital. The funds borrowed under
the Line of Credit bear interest at an annual rate equal to the
floating prime rate plus 1%. Such indebtedness is in addition to
the approximately $3,684,762 of accounts payable and accrued
taxes and expenses of the Company as of October 31, 1996, and
approximately $490,000 owed to present and/ or former officers
and/or directors of the Company for termination of their
participation interests in the Century Note (see "Recent
Developments-Termination of Management Participations"). The
Line of Credit is secured by a lien on substantially all of the
assets of the Company and prohibits the Company from taking
certain actions without the written consent of the bank, such as
consolidating or merging with another entity, selling significant
assets, changing senior management, and declaring or paying
dividends or other distributions on the Company's securities as
9
<PAGE>
long as the Line of Credit is outstanding. At September 30, 1996,
the Company was in violation of a loan covenant pertaining to its
quarterly interest ratio, and has, from time to time, been in
violation of certain other covenants. Although the bank has
waived all of such defaults in the past, there can be no
assurance that any of such defaults will be waived in the future.
In the event of future violations or other defaults by the
Company of its obligations under the Line of Credit, the bank
could declare the amounts outstanding under the Line of Credit
to be due and payable and, in certain cases, foreclose on the
Company's assets. The inability of the Company to maintain the
Line of Credit would have a material adverse effect on the
Company, including requiring it to cease its expansion
activities. Moreover, to the extent that the Company's assets
continue to secure the Line of Credit such assets will not be
available to secure additional indebtedness, which may adversely
affect the Company's ability to borrow in the future.
5. DEPENDENCE UPON SUCCESSFUL OPERATIONS; DEPENDENCE UPON
THIRD PARTIES. The success of the Company will be materially
dependent upon the success of its acquisitions and exploratory
drilling program. Such activities include the necessity of
incurring significant expenditures to locate and acquire
producing properties and to drill wells. There can be no
assurance that 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 cancelled as a result of a variety
of factors, including unexpected formations and drilling
conditions, pressure or mechanical irregularities, information
and equipment failures or accidents, as well as weather
conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment. Also, the
success of Company's operations is dependent, to a large extent,
on joint ventures with non-affiliated third parties. The time and
resources devoted by such third parties will be controlled by
such third parties and not by the Company. There can no assurance
that the third parties will fulfill their obligations, financial
or otherwise, to the joint venture or that the Company will be
able to enter into new joint ventures or that such arrangements
will result in commercially successful operations.
6. VOLATILITY OF GAS AND OIL PRICES; MARKETABILITY OF
PRODUCTION; FLUCTUATIONS IN OPERATING RESULTS. 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 volatile in
recent years and are affected by many factors outside the control
of the Company, including federal and state regulation of gas and
oil production and transportation, weather conditions, general
economic conditions, tax and energy policies, changes in supply
and demand, the condition of the United States economy, the
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actions of the Organization of Petroleum Exporting Companies
("OPEC"), the foreign supply of oil and gas, prices and
availability of alternative energy sources and political
conditions in the Middle East. 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 and profitability. The marketability of
the Company's production also depends upon the availability,
proximity and capacity of gathering systems, pipelines and
processing facilities. As a result of the foregoing factors, as
well as the success of exploration and drilling activities, the
time of bringing new wells on line and the acquisition of new
wells and other properties, the Company has experienced and
expects to continue to experience fluctuations in its operating
results, which at times could be significant. As a result, the
Company's operating results for any given period are not
necessarily indicative of the results that may be achieved for a
full year.
7. REPLACEMENT OF PROPERTIES. The Company's future
success will depend upon its ability to locate, develop and
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 be able to successfully drill
or acquire 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 location and acquisition costs for
additional reserves could also increase.
8. UNCERTAINTY OF ESTIMATES OF GAS AND OIL RESERVES.
There are numerous uncertainties inherent in estimating
quantities of proved reserves and their estimated values,
including many factors beyond the control of the Company. The
reserve data set forth in this Prospectus and the reports
incorporated herein represent only estimates. 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
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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
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, which could materially affect the
estimated quantity and value of the Company's reserves.
9. OPERATING HAZARDS AND UNINSURED RISKS. The Company's
operations are subject to the hazards and operating risks
inherent in drilling for, and production and transportation 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. Moreover, offshore operations are subject to a
variety of operating risks peculiar to the marine environment,
such as hurricanes or other adverse weather conditions, to more
extensive governmental regulation, including regulations that
may, in certain circumstances, impose strict liability for
pollution damages, and to interruption or termination of
operations by governmental authorities based on environmental or
other considerations. 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
damages, resulting in 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 or that adequate levels of
coverage will be available in the future, at reasonable cost, or
at all. A partially uninsured or completely uninsured successful
claim against the Company could have a material adverse effect on
the Company. In connection with the acquisition of the properties
from AKS, AKS represented and warranted to the Company, among
other things, that there were no undisclosed liabilities relating
to the assets and agreed to indemnify the Company for any breach
or breaches of its representation and warranties to the extent
that a single breach exceeds $25,000 or aggregate breaches exceed
$100,000; provided, however, that the maximum amount of such
indemnity shall not exceed an aggregate of $250,000. There can be
no assurance that $250,000 would be sufficient to cover any
breach or breaches of AKS's representations and warranties or
that AKS would be financially able to indemnify the Company to
the extent of its losses or at all. In connection with the
acquisition of the South Timbalier properties from Century,
Century represented and warranted to the Company, among other
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things, that to the best of its knowledge, information and
belief, and after reasonable inquiry, that the assets were not
subject to environmental defects. Century agreed to indemnify the
Company for any claims, losses, expenses, costs, obligations or
liabilities of any kind ("Losses") which the Company incurs
because of any inaccuracy in or breach of any of its
representations and warranties to the Company. Should Century
breach its representation and warranty, there can be no assurance
that Century would be financially able to indemnify the Company
to the full extent of its Losses or at all.
10. GEOGRAPHIC CONCENTRATION. Substantially all of the
Company's operations are located in the Gulf of Mexico region and
in Southeast Kentucky. Because of the Company's geographic
concentration, any regional events that increase costs, reduce
availability of equipment or supplies, reduce demand or limit
production, including weather and natural disasters, may impact
the Company more than if its operations were more geographically
diversified. The Company's operations located in the Gulf of
Mexico region utilize local pipeline systems not owned by the
Company for processing at local processing plants. The Company's
operations located in Southeast Kentucky utilize pipelines owned
both by the Company and by nonaffiliated companies. While the
Company expects to have flexibility to mitigate the effects of
pipeline curtailments or plant shut-downs, curtailment of a
significant portion of a pipeline or a prolonged plant shut-down
could adversely affect the Company's operations, perhaps
materially.
11. PRODUCTION AND CUSTOMER CONCENTRATION. As of September
30, 1996, approximately 40% of the Company's total oil and gas
production was attributable to 2 wells located in the Ship Shoal
Block 150 in the Gulf of Mexico off the Louisiana coast (the "Key
Wells") and approximately 12.5% of the Company's total production
was sold to one customer ("Key Customer"). If any of the Key
Wells become nonproducing for any reason or if the Key Customer
ceases to purchase the Company's production, the Company could be
materially and adversely affected because there can be no
assurance that the Company will not continue to be dependent upon
production from a limited number of wells or sales to a limited
number of customers.
12. GOVERNMENT REGULATION. The Company's gas and oil
operations are subject to extensive federal, state and local
regulations and licensing requirements which constantly change 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, taxation and the
posting of reclamation bonds. 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,
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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. Amendments to existing statutes
and regulations and adoption of new statutes and regulations
which affect the drilling for and production, transportation and
marketing of, gas and oil could impose restrictions upon certain
aspects of the Company's operations with which the Company man
not be able to comply with at a reasonable cost, or at all. There
can be no assurance that the Company will be able, for financial
reasons or otherwise, to adapt its operations to comply with
applicable laws or regulations or obtain and maintain applicable
licenses, permits or approvals in the future. The Oil Pollution
Act of 1990 imposes a variety of regulations on the "responsible
parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing,
environmental laws or regulations, including regulations
promulgated pursuant to the Oil Pollution Act of 1990, could have
a material adverse impact on the Company.
13. COMPETITION. The Company operates in a highly
competitive environment. The Company competes with major
independent gas and oil companies for the acquisition of
additional properties and the transportation and marketing of its
production. Many of those companies 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. There can
be no assurance that the Company will be able to compete
successfully.
14. RELATED TRANSACTIONS. The Company has, from time to
time, entered into transactions with certain of its officers and
directors and with affiliated entities of such persons involving,
among other things, loans to the Company, participations in notes
receivable owned by the Company, participations in working
interests in oil and gas wells owned by the Company and the
lease of office space to the Company. Each of these transactions
has the potential of creating conflicts between the directors and
officers involved and the Company. There can be no assurance that
any prior transactions between the Company and its affiliates
have been on terms no less favorable to the Company as could have
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been obtained from unaffiliated third parties, that future
transactions or arrangements between the Company and it
affiliates will not result in conflicts of interest, or that if
conflicts of interest arise, they will be resolved in a manner
favorable to the Company.
15. CONTROL BY MANAGEMENT. Officers and directors of the
Company beneficially own or control approximately 38.9% of the
outstanding Common Stock. Such individuals, acting together,
are in a position to effectively control the Company, including
having the ability to elect all of the Company's directors,
increase the authorized capital, merge or sell the assets of the
Company and approve most matters submitted to the stockholders
for approval.
16. DEPENDENCE ON KEY PERSONNEL. The Company's success is
highly dependent on the personal efforts of Douglas L. Hawthorne,
Rick G. Avare, Leonard K. Nave and certain other key personnel.
Although the Company entered into five-year employment agreements
with Messrs. Hawthorne and Nave in 1993 and Mr. Avare in 1996,
the loss of one or more of such persons or the loss of other key
personnel could have a material adverse effect on the Company's
business, financial condition and result of operations. 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.
17. 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 Line of Credit.
18. POSSIBLE VOLATILITY OF MARKET PRICE. The Common Stock
is currently traded on the NASDAQ Small Cap Market. From time to
time the market price of certain oil and gas companies have been
affected by various factors, including adverse publicity. There
can be no assurance given that the market price of the Common
Stock will not be volatile as a result of factors such as the
Company's financial results, possible adverse publicity resulting
from any infractions of governmental regulations and various
other factors affecting the oil and gas industry or the market
generally. Additionally, in recent years the stock market has
experienced wide price fluctuations not necessarily related to
the operating performance of such companies. (See "Plan of
Distribution")
19. SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION OF
SUBSTANTIAL PERCENTAGE OF OUTSTANDING SHARES. As of November 30,
1996 the Company had a total of 6,520,296 shares of Common Stock
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outstanding (including 173,724 shares obligated to be issued to
persons designated by World Capital Funding, Inc.), of which
1,119,522 outstanding shares, or 17.2%, are included in this
registration statement. Of the total outstanding shares of Common
Stock, 5,179,415 shares will be available for sale without
restriction by persons other than affiliates of the Company. The
remaining 1,347,157 shares of Common Stock outstanding at
November 30, 1996 are "control" or "restricted shares" as
defined in Rule 144 promulgated under the Act and will become
eligible for sale under Rule 144 in limited amounts at various
times in the future.
20. EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE
SECURITIES. As of November 30, 1996, the Company had outstanding
options and warrants to purchase 4,734,328 shares of Common
Stock with an average exercise price of $4.63 per share for an
aggregate of $21,932,262. As of December 4, 1996, the Company had
outstanding convertible debentures in the aggregate principal
amount of $6,000,000 and 268,851 outstanding shares of Series
1993 Preferred Stock. See "Summary of the Offering" ,
"Description of Capital Stock" and "Description of Derivative
Securities Held by Selling Stockholders". Of the total number of
shares of Common Stock underlying the outstanding options and
warrants, 4,026,995 shares have been registered for sale by the
holders thereof. The Company has registered an indeterminate
number of shares of Common Stock for issuance upon the conversion
of the convertible debentures. The Company has reserved 268,851
shares of Common Stock for issuance upon the conversion of the
Series 1993 Preferred Stock, of which 187,500 shares are included
in this offering. All of the convertible debentures and 78,017
shares of Series 1993 Preferred Stock are held by nonaffiliates
of the Company. Approximately 29.4% of the outstanding options
and warrants is owned by executive officers and directors of the
Company. To the extent that the outstanding options, warrants,
convertible preferred stock and convertible debentures are
exercised or converted, as the case may be, the price of the
Common Stock in the market may be substantially reduced.
Moreover, 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
since the holders of such options, warrants, convertible
preferred stock and convertible debentures may exercise or
convert them at a time when the Company would likely be able to
obtain additional capital through a new offering of securities on
terms more favorable than those provided thereby.
21. DILUTION. The Company is authorized to issue 20,000,000
shares of Common Stock, of which 6,520,296 shares were
outstanding as of November 30, 1996 (including 173,724 shares
obligated to be issued to persons designated by World Capital
Funding, Inc.) and 5,320,957 shares were reserved for issuance
upon the exercise of outstanding options, warrants, convertible
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preferred stock, and payment for the termination of management
participations in the Century Note. If all of the shares of
Common Stock reserved for issuance upon the exercise or
conversion of the outstanding options, warrants, convertible
preferred stock and the payment for termination of management
participations in the Century Note are issued, a total of
11,841,253 shares of Common Stock would be outstanding. Because
the value of the Common Stock issuable upon conversion of the
convertible debentures is based on the lesser of the closing bid
price of the Common Stock as reported on NASDAQ on the date of
issuance of the debenture or 75% of the average closing bid price
of the Common Stock as reported on NASDAQ for the five trading
days preceding the date of each conversion (the "Conversion
Price"), the Company cannot ascertain with certainty the number
of shares of Common Stock required to effect the conversion of
all of the convertible debentures. See "Risk Factors - Possible
Liquidated Damages; Possible Insufficient Shares Available to
Convert Debentures". Therefore, the Company has registered an
indeterminate number of shares of Common Stock for issuance upon
the conversion of $6,000,000 principal amount of debentures plus
interest at the rate of 4% per annum for up to one year from the
date of issuance of the debentures. Furthermore, there can be no
assurance that the Company will not undertake the issuance of
additional shares of Common Stock or of other securities
convertible into shares of Common Stock for various purposes.
Holders of the Company's Common Stock do not have a preemptive
right to purchase any additional shares of Common Stock that may
be issued by the Company.
22. POSSIBLE STATE AND FEDERAL RESTRICTIONS ON EXERCISE OF
NON-PLAN OPTIONS AND WARRANTS. When exercised, the holders of
Non-Plan Options and Warrants will be able to sell the underlying
shares of Common Stock only if a current registration relating to
such shares of Common Stock has been declared effective by the
Commission and only if the shares of Common Stock are qualified
for sale or are exempt from qualification under the applicable
securities laws of the states in which the holders reside. If
such shares are not qualified for sale, it is unlikely that the
holders will exercise the Non-Plan Options and Warrants, in which
event the Company would not receive any funds.
23. RISKS RELATED TO POSSIBLE ACQUISITIONS. The Company
intends to expand its operations though the possible acquisition
of additional oil and gas properties and related assets which the
Company believes are compatible to its business. While the
Company has from time to time evaluated possible acquisition
opportunities, as of the date of this Prospectus, the Company is
not engaged in identifying candidates for acquisition, and has no
plans, agreements, commitments, arranging or understandings,
other than those disclosed in this Prospectus, with respect to
any new acquisition. The Company has not established any minimum
criteria for any new acquisition and management will have
complete discretion in determining the terms of any such
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acquisitions. Consequently, there is no basis for any of the
investors to evaluate the specific merits or risks of any
potential new acquisitions that the Company may undertake. There
can be no assurance that the Company will be able to ultimately
effect additional acquisitions. Although the Company will
endeavor to evaluate the risks inherent in a particular
acquisition, there can be no assurance that the Company will
properly ascertain or assess all significant risk factors prior
to consummating any additional acquisition.
24. POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM;
RISK ASSOCIATED WITH LOW PRICED STOCKS. The Company's Common
Stock is currently listed on NASDAQ. However, in order to
continue to be listed on NASDAQ, a company must maintain
$2,000,000 in total assets, a $200,000 market value of the public
float and $1,000,000 in total capital and surplus. In addition,
continued inclusion requires two market makers and a minimum bid
price of $1.00 per share; provided, however, that if a company
falls below such minimum bid price, it will remain eligible for
continued inclusion on NASDAQ if the market value of the public
float is at least $1,000,000 and the company has $2,000,000 in
capital and surplus. The failure to meet these maintenance
criteria in the future may result in the delisting of the
Company's Common Stock from NASDAQ and trading, if any, in the
Company's Common Stock would thereafter be conducted in the non-
NASDAQ over-the-counter market. As a result of such delisting, an
investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's
Common Stock. In addition, if the Common Stock was to become
delisted from trading on NASDAQ, and the trading price of the
Common Stock is below $5.00 per share, trading in the Common
Stock would also be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"), which require additional disclosure by broker-
dealers in connection with any trades involving a stock defined
as a penny stock (generally, any non-NASDAQ or non-exchange
traded equity security that has a market price of less than $5.00
per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock market transaction, of a
disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors
(generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser's written consent
to the transaction prior to the sale. The additional burdens
imposed upon broker-dealers by such requirements may discourage
them from effecting transactions in the Common Stock, which
could severely limit the liquidity of the Common Stock and the
ability of the purchasers in this Offering to sell the Common
Stock in the secondary market.
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25. AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED
STOCK. The Company's Certificate of Incorporation authorizes the
issuance of "blank check" preferred stock with such designations,
rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to designate and issue
additional series of preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect
the voting power or other rights of the holders of the Company's
Common Stock. In the event of issuance, the preferred stock
could be utilized, under certain circumstances, as a method
discouraging, delaying or preventing a change in control of the
Company. Although the Company has no present intention to
designate any additional series of preferred stock or to issue
any additional shares of its preferred stock, there can be no
assurance that the Company will not do so in the future.
THE COMPANY
American Resources of Delaware, Inc. (the "Company") is a
fully integrated oil and gas company engaged in the exploration,
development and acquisition of oil and gas properties located in
Kentucky, the Gulf of Mexico and Michigan and the marketing and
transportation of natural gas. A substantial portion of the
Company's operations are conducted through its subsidiary,
Southern Gas of Delaware, Inc., ("Southern Gas") a Kentucky-based
natural gas production, pipeline and gas marketing company. In
the Appalachian region of Kentucky, Southern Gas 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
("Settle") pursuant to which the Company acquired, among other
things, a 26.25% working interest, which was subsequently
increased to a 50% working interest, in a federal lease block
known as Ship Shoal Block 150, offshore Louisiana, exclusive of
546 acres in the southwest corner of the block, and a 44%
interest in Crescent Turnkey Engineering, L.L.C., a Delaware
limited liability company formed for the purpose of providing
engineering and drilling services to third parties and for
operations in which the Company is involved.
The Company seeks a balance between its exploration program
and the acquisition of proved properties. Through December 31,
1995, the Company had proven reserves of twenty-nine (29) billion
cubic feet ("bcf") of natural gas and natural gas equivalents
which increased primarily as a result of exploration discoveries
in the Gulf Coast region. With the subsequent acquisition of the
Appalachian properties from AKS Energy Corporation ("AKS") in
February 1996, and the South Timbalier and Salt Dome properties
from Century Offshore Management Company ("Century") in August,
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1996, the Company's proved reserves increased to approximately 48
bcf. The effect of these exploration and acquisition activities
represents a 110% increase in the Company's proved reserves since
December 1994.
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 the domestic natural gas production. Two successful producing
wells have been drilled on Ship Shoal block 150. Based on 3-D
seismic interpretations, the Company has identified two
additional well locations which the Company has farmed-out to
Pennzoil Exploration and Development Corporation in exchange for
an 8.3% net overriding royalty interest. After Pennzoil recovers
its cost of developing the wells, the Company has the option to
increase its net overriding royalty interest to 10% or take a
one-third working interest in the wells. 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, pipelines and drilling and service companies,
which facilitate cost effective operations and the timely
development of discoveries.
At November 30, 1996 the Company owned working interests in
(i) 340 producing and 117 nonproducing oil and gas wells
situated in Kentucky, 16 producing oil and gas wells situated in
Michigan, and 12 producing and 1 nonproducing oil and gas wells
situated in the Gulf of Mexico region. The Company's proved
reserves totaled approximately 48 bcf, of which approximately 39
bcf were developed. The Company also owned approximately 300
miles of pipeline situated in Kentucky.
The Company, a Delaware corporation, was organized on August
14, 1992 to acquire the assets and assume certain liabilities of
Standard Oil and Exploration of Delaware, Inc., a Delaware
corporation, in a reorganization proceeding pursuant to Chapter
11 of the United States Bankruptcy Code. The Company's principal
and executive offices are located at 160 Morgan Street, Box 87,
Versailles, Kentucky 40383 and its telephone number is (606) 873-
5455.
RECENT DEVELOPMENTS
ACQUISITIONS. In February 1996, the Company extended its
operations in Kentucky by acquiring from AKS more than 100 miles
of gathering and transmission pipeline and related equipment,
50,000 acres of developed and undeveloped leases and net revenue
interest ownership in approximately 155 producing wells
containing natural gas reserves of approximately 7.7 bcf. As
consideration for such assets, the Company paid AKS $2,909,000
cash, assumed $125,000 of AKS's severance obligations, issued
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225,000 shares of Common Stock to AKS and issued warrants to AKS
with an expiration date of December 31, 1998 to purchase an
additional 225,000 shares of Common Stock for $5.00 per share.
The Company has registered the 225,000 shares of Common Stock for
sale under the Securities Act of 1933. The Company agreed to
register the shares of Common Stock underlying the warrants
issued to AKS within 180 days after AKS has purchased an
aggregate of 100,000 shares of Common Stock under the warrants.
AKS has the right to put 50,000 shares of Common Stock to the
Company for $5.00 per share anytime between June 30, 1997 and
June 30, 1999. In addition, the Company entered into an
agreement to participate with AKS, on a 50-50 basis, in the joint
development of leases owned by AKS on 40,000 acres of undeveloped
Southeastern Kentucky gas fields. AKS had the right to pay its
share of the development and drilling costs by putting shares of
Common Stock to the Company at a price of $5.00 per share and AKS
put 10,480 shares to the Company for that purpose. The joint
venture with AKS was terminated on November 27, 1996. In May
1996, the Company presold approximately 2.2 bcf of gas to be
produced in the future by the wells purchased from AKS for a
current payment of $4.3 million. In August 1996, the Company sold
oil and gas leases and pipelines located in Clay County, Kentucky
to an unaffiliated party for approximately $590,000.
On July 3, 1996, the Company extended its operations in the
Gulf of Mexico region by acquiring from Century working interests
in proved developed and undeveloped oil and gas properties (with
proved reserves of approximately 12.0 bcf of gas and 465,000
barrels of oil), equipment and pipelines on property known as the
South Timbalier Area, Block 148, on the Outer Continental Shelf
off the Louisiana coastline (the "Century Transaction"). As
consideration for the purchase, the Company paid $8,000,000 in
cash, cancelled a $6,500,000 promissory note from Century to the
Company and assumed existing liens against the assets purchased
in the amount of $1,051,000. Nine of the ten wells in which the
Company purchased a working interest are producing and the
Company has drilled another well on the property since its
acquisition. The Company also agreed to use its best efforts to
obtain approval under its Line of Credit to loan $3,000,000 to
Century in three equal installments on September 1, October 1 and
November 1, 1996 on an unsecured basis. The Company has not
obtained approval under its Line of Credit to make the loans to
Century.
On August 31, 1996 the Company purchased from Century a 6.2%
working interest in Bayou Bullion Salt Dome, a 5.6% working
interest in Plumb Bob Salt Dome and a 9.5% working interest in
White Castle Salt Dome, all of which are unproved properties
located onshore Louisiana for $4,509,000. The purchase price was
paid by applying advances the Company had previously made to
Century for the acquisition of working interests in various
undeveloped properties.
21
<PAGE>
MANAGEMENT CHANGES. Andrew J. Kacic served as President,
Secretary and Treasurer of the Company from the Company's
inception in August 1992 until he resigned effective December 31,
1995. He also served as a director of the Company from August
1992 until August 1996. Jonathan B. Rudney, an investor in
Century, was elected president and Chief Executive Officer of the
Company on January 1, 1996; however, he resigned in May 1996 to
avoid a conflict of interest in connection with the Company's
negotiations for the purchase of oil and gas properties from
Century. Rick G. Avare, who has served as a director of the
Company since September 1994 and who had served as Executive Vice
President and Chief Operating Officer of the Company since August
1995, succeeded Mr. Rudney as President and Chief Executive
Officer. Mr. Kacic did not stand for reelection as a director and
his position on the Board was filled by the election of David
Fox, Jr. at the Company's Annual Meeting of Shareholders held on
August 14, 1996.
TERMINATION OF MANAGEMENT PARTICIPATIONS. In July 1995,
Douglas L. Hawthorne, Andrew J. Kacic and Donald A.
Schellpfeffer, all of whom were executive officers and/or
directors of the Company, each paid the Company $80,000 to enable
the Company to fund a loan commitment to Century in the original
principal amount of $5,000,000, bearing interest at the rate of
22% per annum (the "Century Note"). In addition, Southern Gas
Holding Company, Inc., a Kentucky corporation owned 52.5% by Rick
G. Avare, 7.5% by Leonard K. Nave, individually, and 32.5% by
Leonard K. Nave, trustee, paid the Company $160,000 to help fund
the loan commitment. Messrs. Nave and Avare were also executive
officers and/or directors of the Company (Messrs. Hawthorne,
Kacic, Schellpfeffer and Southern Gas Holding Company, Inc. are
referred to as the "Participants"). The monies were paid to the
Company in exchange for participations in the Century Note for
the same dollar amount. In April 1996, Mr. Hawthorne paid the
Company $250,000 in exchange for an additional $250,000
participation in the Century Note. The Company used the $250,000
to help fund the development of its activities in the Gulf of
Mexico region. In July 1996, the Century Note was cancelled as
part of the consideration paid by the Company in the Century
Transaction and the Company became obligated to the Participants
in the aggregate amount of $650,000 plus interest at the rate of
22% per annum. On September 30, 1996, the Company entered into
agreements with the Participants pursuant to which the Company
paid the Participants an aggregate of $160,000 cash plus accrued
and unpaid interest. The remaining $490,000, plus unpaid accrued
interest, is due the Participants in April, 1997. The
Participants and the Company agreed that each Participant may
elect to be paid in cash or in shares of the Company's Common
Stock valued at 75% of the average closing bid price of the
Common Stock as reported by NASDAQ five trading days immediately
preceding the payment date.
22
<PAGE>
INCENTIVE BONUS PLAN. On November 12, 1996, the Company's
Board of Directors adopted an Incentive Bonus Plan (the "Bonus
Plan"). The Bonus Plan provides that in each Contribution Period
or Interim Contribution Period, as hereinafter defined, (the
"Bonus Period") the Company will make a Bonus Contribution to the
Bonus Plan. One-half of the Bonus Contribution will be an amount
equal to two and one-half cents ($.025) per million cubic feet
equivalent of the net increase in the Company's proved producing
reserves during the Bonus Period and the other one-half of the
Bonus Contribution will be an amount equal to two percent (2%) of
the Company's net income before taxes during the Bonus Period as
determined in accordance with generally accepted accounting
principles, excluding extraordinary items such as net gain or
loss resulting from the sale, exchange or other disposition of
capital assets (other than in the ordinary course of business),
and, to the extent deducted in arriving at net income, interest,
depreciation, depletion and amortization expenses. Provided,
however, that the Bonus Contribution made during any Bonus Period
cannot exceed the sum of $500,000.
The Interim Contribution Period runs from November 12, 1996
through December 31, 1996. Calendar year 1997 and each successive
calendar year thereafter constitutes a Contribution Period until
such time as the Bonus Plan is modified or terminated by the
Board of Directors.
Within 60 days after the end of each Bonus Period, the
President of the Company is required to recommend the manner in
which the Bonus Contribution is to be distributed among the
Company's Chief Executive Officer, Chief Financial Officer,
Senior Vice Presidents, General Counsel, Corporate Secretary and
other key personnel. All distributions are subject to approval by
the Compensation Committee of the Board of Directors and by the
Board of Directors.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS. On November 12,
1996, the Company entered into an Employment Agreement with Rick
G. Avare, the Company's President and Chief Executive Officer, to
serve in such capacity for a period of five years. If written
notice of intent to terminate the agreement is not given by
either party at least six months prior to the third anniversary
of the agreement, after the fifth anniversary of the agreement it
is automatically extended from year to year unless either party
gives written notice of intent to terminate at least six months
prior to the next anniversary date, at which time the agreement
will terminate. As consideration for Mr. Avare's agreement to
serve as President and Chief Executive Officer, the Company
agreed to pay him a salary of $160,000 per year plus benefits
customarily paid to executives holding similar positions. Mr.
Avare's salary is subject to annual review by the Board of
Directors. It can be increased by the Board of Directors but it
cannot be decreased.
23
<PAGE>
On the same date, the Company entered into a Change of
Control Agreement with Mr. Avare. The agreement is for a term of
five years. If written notice of intent to terminate the
agreement is not given by either party at least six months prior
to the third anniversary of the agreement, after the fifth
anniversary of the agreement it is automatically extended from
year to year unless either party gives written notice of intent
to terminate at least six months prior to the next anniversary
date, at which time the agreement will terminate. Provided,
however, the Company is prohibited from giving notice of intent
to terminate if within one year prior to the termination date the
Company has received notice of or has reason to believe that a
change of control may occur.
The agreement provides that if a change of control occurs
and Mr. Avare's employment subsequently terminates for any
reason, the Company will pay to Mr. Avare an amount of monies
equal to the sum of (i) any monies due him under the remaining
term of his employment contract, (ii) any monies received by him
from the sale of the Company's common stock acquired as the
result of the exercise of stock options, (iii) 2.99 times the
bonus awarded to him for the prior year under the Company's
Incentive Bonus Plan or $300,000, whichever is greater, and (iv)
all legal fees and expenses incurred by him as a result of such
termination and in seeking to obtain or enforce any right under
the agreement. In addition, the Company is obligated to permit
Mr. Avare to participate, for a period of three years after
termination, in the Company's insurance programs at no cost to
Mr. Avare.
Under the agreement, a change of control is deemed to occur
if (i) any person or group of persons, other than a group of
persons consisting of the Company's officers and directors as of
the date of the agreement, acting in concert, acquires beneficial
ownership of the Company's then outstanding capital stock
representing 20% or more of the voting power of all of such
shares, (ii) the Company or any of its subsidiaries sell, assign
or transfer assets for consideration greater than 50% of the book
value of the Company's then consolidated assets as determined
under generally accepted accounting principles, (iii) the Company
or any of its subsidiaries merge, consolidate or otherwise
reorganize and the Company's officers and directors as of the
date of the agreement receive less than 35% of the voting power
of the capital stock of the surviving or resulting entity, (iv)
the Company adopts a plan of liquidation or dissolution, (v) the
commencement of a tender offer for the Company's common stock,
which, if successful, would result in a deemed change of control
as defined in the agreement, (vi) a determination by the Board of
Directors of the Company, in view of then current circumstances
or impending events, that a deemed change of control as defined
in the agreement has occurred or is imminent, (vii) the persons
who were directors of the Company immediately prior to any
merger, consolidation, sale of assets or contested election, or
any combination of the foregoing, cease to constitute a majority
24
<PAGE>
of the Company's Board of Directors, and (viii) the persons who
were directors immediately prior to a tender offer or exchange
offer for the Company's voting stock (other than by the Company
or any of its subsidiaries) cease to constitute a majority of the
Company's Board of Directors within two years after such tender
or exchange offer.
RECENT FINANCINGS. In November 1995, the Company completed a
private placement of 41.167 units for $30,000 per unit for which
the Company received net proceeds of approximately $1,128,000
(the "November 1995 Private Placement"). Each unit consisted of
10,000 shares of Common Stock, 1995 Class A Warrants to purchase
5,000 shares of Common Stock and 1995 Class B Warrants to
purchase 5,000 shares of Common Stock. The exercise price of the
1995 Class A Warrants is $3.50 per share and the exercise price
of the 1995 Class B Warrants is $5.00 per share. Both the Class A
and Class B Warrants are exercisable for a period of 36 months
commencing October 8, 1997.
In June 1996, the Company completed a private placement of
100 units for $10,000 per unit for which the Company received net
proceeds of approximately $900,000 (the "June 1996 Private
Placement"). Each unit consisted of 3,300 shares of Common Stock
and 1996 Class A Warrants to purchase 1,650 shares of Common
Stock (the "June Private Placement Securities"). The exercise
price of the 1996 Class A Warrants is $4.00 per share. The 1996
Class A Warrants were immediately exercisable and expire October
8, 1999.
In the fourth quarter of 1996, the Company privately placed
4% Convertible Debentures in the aggregate principal amount of
$6,000,000 with a maturity date one year from date of issuance
(the "November 1996 Private Placement"). The debentures are
convertible at the option of the holders into shares of Common
Stock valued at the lesser of (i) the closing bid price of the
Common Stock as reported on NASDAQ on the date of issuance of the
debenture, or (ii) 75% of the average closing bid prices of the
Common Stock as reported on NASDAQ for the five trading days
prior to the date of conversion (the "Conversion Price").
Debentures that are not converted prior to their maturity dates
automatically convert on their maturity dates. Accrued interest
on the debentures will be paid on their conversion dates by the
issuance of shares of Common Stock valued at the Conversion
Price. If a debenture is not converted within five business days
after the Company receives notice of the conversion, the Company
is obligated to pay liquidated damages to the debenture holder,
for each $100,000 principal amount of debentures sought to be
converted, in the amount of $100 for each of the first two days,
$200 for each of the next two days, $300 for each of the next two
days, $400 for each of the next two days and $500 per day
thereafter until the conversion shares are delivered. Prior to
the receipt of a conversion notice, the Company has the right to
redeem any debenture for a cash amount equal to 125% of the
principal amount of the debenture, plus unpaid accrued interest,
25
<PAGE>
if the Conversion Price is below the closing bid price of the
Common Stock as reported on NASDAQ on the date the debenture was
issued. The closing bid prices when the debentures were issued
ranged from $3.00 to $3.50. Upon giving notice of its intention
to redeem a debenture, the debenture holder's right to convert
the debenture is suspended, but the Company must pay an
additional one percent per month in cash on a pro rata basis
until the full redemption price is paid. If the full redemption
price is not paid within ten business days after the redemption
notice is given, the debenture holder has the right to convert
the debenture into shares of Common Stock. A debenture holder may
fax a notice to the Company requiring the Company to declare, by
faxed notice within twenty-four hours after receipt of the notice
from the debenture holder, whether the Company intends to effect
a redemption within the following five business days. If the
Company does not respond during said twenty-four hour period, the
Company is precluded from redeeming that debenture holder's
debentures during said five day period. The Company agreed to
register the shares of Common Stock into which the debentures are
convertible within 120 days after demand is made by a debenture
holder. If, because of the Company's acts or failure to act, the
registration statement is not effective within 120 days, the
Company is obligated to pay the debenture holders liquidated
damages equal to 2% of the principal amount of the debentures for
the first month and 3% of the principal amount of the debentures
thereafter until the registration statement becomes effective.
See "Risk Factors - Possible Liquidated Damages; Possible
Insufficient Shares Registered to Convert Debentures".
In conjunction with the November 1996 Private Placement, the
Company agreed to issue 173,724 restricted shares of Common Stock
to World Capital Funding, Inc., Denver, Colorado, or to persons
designated by it, with piggy-back registration rights, in partial
payment of the placement agent's fee, and issued five-year
options to World Capital Funding, Inc., or to persons designated
by it, to purchase 100,000 shares of Common Stock at $4.50 per
share.
SHAREHOLDER RELATIONS CONTRACT. On November 27, 1996, the
Company entered into a five year corporate relations agreement
with Corporate Relations Group, Inc. Winter Park, Florida, to
assist the Company with its shareholder relations. As
consideration for the agreement, the Company paid Corporate
Relations Group, Inc. $550,000 cash and granted Corporate
Relations Group, Inc. a one-year option to purchase 100,000
shares of Common Stock for $3.00 per share, a two-year option to
purchase 100,000 shares of Common Stock for $3.60 per share, a
three-year option to purchase 100,000 shares of Common Stock for
$4.20 per share, a four-year option to purchase 100,000 shares of
Common Stock for $4.80 per share and a five-year option to
purchase 100,000 shares of Common Stock for $6.00 per share. The
Company agreed to register the shares of Common Stock underlying
the options and such shares are included herein.
26
<PAGE>
CAPITALIZATION
October 31, 1996
----------------
<TABLE>
<S> <C>
Long-term debt, excluding current maturities $19,696,376
Convertible Debentures(1)(2) $ 1,050,000
Stockholders' equity:
Series 1993 8% Convertible Preferred Stock
par value $12.00, 268,851 shares outstanding $ 2,181,819
Common stock, par value $.00001 per share;
20,000,000 shares authorized $ 63
Additional paid in capital $16,650,691
Treasury Stock ($52,400)
Retained Earnings $ 1,731,797
Total stockholders' equity $20,511,970
----------
Total Capitalization $41,258,346
==========
Shares issued and outstanding 6,346,572
</TABLE>
(1) In October 1996, the Company issued $1,250,000 principal
amount of 4% Convertible Debentures. The net proceeds to the
Company after expenses, including commissions, totaled
$1,050,000.
(2) In November 1996, the Company issued $4,750,000 principal
amount of 4% convertible debentures. The net proceeds to the
Company after expenses, including commissions, totaled
$3,990,000.
27
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholders.
Of the total 2,483,690 shares of Common Stock covered by
this Prospectus, 1,119,522 shares are outstanding, 1,176,668
shares are reserved for issuance to the Selling Stockholders upon
the exercise of their warrants and options ("Seller's Warrants")
and 187,500 shares are reserved for issuance upon the conversion
of a like number of shares of the Company's Series 1993 Preferred
Stock.
The mandatory conversion of the Company's 4% Convertible
Debentures in the fourth quarter of 1997 will result in the
cancellation of any remaining principal and interest owed on the
debentures.
The aggregate cash exercise price of all of the Seller's
Warrants is $5,019,589. The Company has not received any
commitments for the exercise of the options and warrants and
there is no assurance that any of the Warrants will be exercised.
Therefore, there is no assurance that the Company will receive
any cash funds from the exercise of the options and warrants. To
the extent that any cash funds are received, they will be used
for working capital and general corporate purposes.
[INTENTIONALLY LEFT BLANK]
28
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the NASDAQ Small Cap Market
under the trading symbol "GASS". The following table sets forth
the 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.
<TABLE>
<CAPTION>
PERIOD COMMON STOCK
HIGH LOW
<S> <C> <C>
1st Quarter 1994 $3.25 $2.00
2nd Quarter 1994 $6.00 $1.44
3rd Quarter 1994 $8.25 $3.75
4th Quarter 1994 $8.13 $5.75
1st Quarter 1995 $7.28 $3.88
2nd Quarter 1995 $4.94 $1.75
3rd Quarter 1995 $4.56 $3.19
4th Quarter 1995 $4.25 $2.88
1st Quarter 1996 $4.25 $2.19
2nd Quarter 1996 $4.37 $3.25
3rd Quarter 1996 $4.24 $3.16
4th Quarter 1996 $3.56 $2.44
</TABLE>
On January 2, 1997, the last sale price of the Common Stock
was $2.92, as reported by NASDAQ.
29
<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
below ("Selling Stockholders").
<TABLE>
<CAPTION>
Number of Number of Number of
Shares of Shares of Shares of
Common Common Common
Stock Held Stock Held Stock Held
Before the to be Sold After the
Name Offering(1) in Offering Offering(2)
- ---- ----------- ----------- -----------
<S> <C> <C> <C>
Arnold
Bernstein(3) 20,000 20,000 0
Clarence E. Miller
Trust Family Trust
& Ada M. Miller
Trust(3) 60,000 60,000 0
Southwest
Marketing(3) 20,000 20,000 0
Delaware Charter
Cust FBO Jesse
Miller IRA(3) 10,000 10,000 0
Roger Zufferey(3) 10,000 10,000 0
Don G. Henry(3) 20,000 20,000 0
Delaware Charter
Cust FBO R. J.
Godfrey(3) 20,000 20,000 0
Walter J.
Schultz(3) 10,000 10,000 0
Michael J.
Skinner (3) 10,000 10,000 0
Gerard J.
Mc Lain(3) 10,000 10,000 0
Hattem Family
Trust(3) 20,000 20,000 0
30
<PAGE>
Number of Number of Number of
Shares of Shares of Shares of
Common Common Common
Stock Held Stock Held Stock Held
Before the to be Sold After the
Name Offering(1) in Offering Offering(2)
- ---- ----------- ----------- -----------
Walter C.
Shiller(3) 20,000 20,000 0
Delaware Charter
GTY & Trust Co
IRA FBO Henry
Myatake(3) 80,000 80,000 0
Frank L. Leyba
& Kay D. Leyba
JTWOS(11) 5,000 5,000 0
Barbara V.
Schiller(3) 40,000 40,000 0
Ronald
Iannelli(3) 20,000 20,000 0
Charles Smith(3) 40,000 40,000 0
Ronald K.
Setzkorn(3) 20,000 20,000 0
Arakis Energy
Corporation(4) 450,000 225,000 225,000*
Howard C. Chiten
& Charlotte D.
Chiten(3) 20,000 20,000 0
Charles Schwab &
Co. Inc. FBO
Jimmy D.
Moore(3) 20,000 20,000 0
Harris Partnership
J. Andrews Harris
G.P.(3) 20,000 20,000 0
Pro-Systems Fab,
Inc. (3) 20,000 20,000 0
James S.
Sanders(3) 10,000 10,000 0
31
<PAGE>
Number of Number of Number of
Shares of Shares of Shares of
Common Common Common
Stock Held Stock Held Stock Held
Before the to be Sold After the
Name Offering(1) in Offering Offering(2)
- ---- ----------- ----------- -----------
R. Marc Voit(3) 10,000 10,000 0
Wesley D.
Mitchell(3) 20,000 20,000 0
Robert W. Tobin(3) 10,000 10,000 0
The McKay Restated
Revocable Living
Trust UTA dated
3-23-94, Horace
F. McKay, Jr.,
Elmyra K. McKay
Trustees(9) 10,000 10,000 0
Roger O.
Zufferey(3) 10,000 10,000 0
Walter Hines &
Mary Hines
JTWROS(3) 20,000 20,000 0
David Baum &
Hiram Baum(3) 10,000 10,000 0
Hans Mulyapatera
& Benita
Mulyapatera(3) 10,000 10,000 0
Gregory G.
Ebbitt(3) 20,000 20,000 0
Paul R.
Eberle(3) 56,668 56,668 0
Henry Bookspan(9) 33,334 33,334 0
AMC Consumer(5) 122,000 22,000 100,000**
Prima Capital,
LLC (6) 147,482 147,482 0
32
<PAGE>
Number of Number of Number of
Shares of Shares of Shares of
Common Common Common
Stock Held Stock Held Stock Held
Before the to be Sold After the
Name Offering(1) in Offering Offering(2)
- ---- ----------- ----------- -----------
Andrew J.
Kacic,
Douglas L.
Hawthorne,
Donald
Schellpfeffer,
Leonard K. Nave
and Rick G.
Avare JTWROS
(6)(10) *** 147,482 ***
Rick G. Avare
(10)(12) 2,040,753 195,000 ***
Mordechai
Guary(7) 82,500 82,500 0
Keren Tain Yad(7) 49,500 49,500 0
Yoel Mann(7) 16,500 16,500 0
Sam Malamud(8) 49,500 49,500 0
W.H. Rosenbaum(3) 40,000 40,000 0
Mifal Klita(11) N/A N/A 0
Albert Yanni(11) N/A N/A 0
The Shaar Fund,
Ltd.(11) N/A N/A 0
Rutgers Casualty
Insurance
Company(11) N/A N/A 0
F&N Associates
(11) N/A N/A 0
United
International
Insurance
Company(11) N/A N/A 0
33
<PAGE>
Number of Number of Number of
Shares of Shares of Shares of
Common Common Common
Stock Held Stock Held Stock Held
Before the to be Sold After the
Name Offering(1) in Offering Offering(2)
- ---- ----------- ----------- -----------
Soverign
Partners
L.P.(11) N/A N/A 0
Kentucky
National
Insurance
Company(11) N/A N/A 0
Windward
Islands,
Ltd.(11) N/A N/A 0
Stan Dixon(11) N/A N/A 0
High Risk
Opportunities
Hub Fund,
Ltd. (11) N/A N/A 0
Star High
Yield
Investment
Management
Corporation
(11) N/A N/A 0
Wayne Invest
& Trade, Inc.
(11) N/A N/A 0
Sheldon E.
Goldstein(13) 9,826 9,826 0
Scott Goldstein
(13) 9,826 9,826 0
Settondown
Capital
International
Ltd. (14) 65,624 65,624 0
34
<PAGE>
Number of Number of Number of
Shares of Shares of Shares of
Common Common Common
Stock Held Stock Held Stock Held
Before the to be Sold After the
Name Offering(1) in Offering Offering(2)
- ---- ----------- ----------- -----------
Manchester
Asset
Management,
Ltd.(14) 65,624 65,624 0
Pegasus
Investment
Holdings,
Ltd. (15) 95,103 95,103 0
Colel Chabad
(16) 15,000 15,000 0
Econor
Investments,
Inc. (16) 5,000 5,000 0
Peter H.
Holz(17) 3,860 3,860 0
William
J. Holz(17) 3,861 3,861 0
Corporate
Relations
Group, Inc.
(12) 500,000 500,000 0
</TABLE>
- --------------------------
* 3.4%
** 1.6%
*** See Note 10.
(1) Shares beneficially owned as of November 30, 1996.
(2) Represents less than 1% except as otherwise indicated.
(3) Fifty percent (50%) of the shares are issued and outstanding,
twenty-five percent (25%) of the shares are issuable upon
exercise of the Company's 1995 Class A Warrants, and twenty-five
percent (25%) of the shares are issuable upon exercise of the
Company's 1995 Class B Warrants.
35
<PAGE>
(4) 225,000 shares are issued and outstanding and 225,000 are
issuable upon the exercise of the AKS Warrant.
(5) 22,000 shares are issued and outstanding and 100,000 shares
are issuable upon the exercise of the AMC Warrant.
(6) All shares are issued and outstanding.
(7) All shares are issuable upon the exercise of the Company's
1996 Class A Warrants.
(8) 33,000 shares are issued and outstanding and 16,500 shares
are issuable upon the exercise of the Company's 1996 Class A
Warrants.
(9) 50% of the shares are issuable upon the exercise of the
Company's 1995 Class A Warrants and 50% of the shares are
issuable upon the exercise of the Company's 1995 Class B
Warrants.
(10) Andrew J. Kacic, a former director and executive officer of
the Company, beneficially owns 846,364 shares of Common Stock of
the Company. Following the sale of the shares offered herein, Mr.
Kacic will beneficially own 817,163 shares (12%).
Douglas L. Hawthorne, a director and Chairman of the Board
of the Company, beneficially owns 519,700 shares of Common Stock
of the Company. Following the sale of shares offered herein, Mr.
Hawthorne will beneficially own 490,299 shares (7.8%).
Donald A. Schellpfeffer, a director of the Company,
beneficially owns 509,502 shares of Common Stock of the Company.
Following the sale of shares offered herein, Dr. Schellpferrer
will beneficially own 480,301 shares (7.7%).
Leonard K. Nave, a director of the Company and Chairman,
President and Chief Executive Officer of Southern Gas,
beneficially owns 1,416,744 shares of Common Stock of the
Company. Following the sale of the shares offered herein, Mr.
Nave will beneficially own 1,387,544 shares (21.4%).
Rick G. Avare, a director, President and Chief Executive
Officer of the Company, beneficially owns 2,040,753 shares of
Common Stock of the Company. Following the sale of the shares
offered herein, Mr. Avare will beneficially own 1,698,271 shares
(24.8%).
(11) All shares are issuable upon the conversion of the Company's
4% Convertible Debentures. The Company cannot ascertain with
certainty the exact number of shares of Common Stock required to
convert all of the debentures. Therefore, the Company has
registered for sale by the Selling Stockholders to which this
Footnote (11) relates an indeterminate number of shares of Common
Stock to be issued by the Company to such Selling Stockholders
36
<PAGE>
upon the conversion of their debentures. See "Risk Factors -
Possible Liquidated Damages; Possible Insufficient Shares
Available to Convert Debentures".
(12) 187,500 shares issuable upon the conversion of a like
number of shares of Series 1993 Preferred Stock and 7,500 shares
of Common Stock issued and outstanding. All of such shares are
pledged as collateral and are included herein pursuant to Mr.
Avare's agreement with the pledgee to register such shares under
the Securities Act of 1933.
(13) 4,826 shares obligated to be issued to Seller and 5,000
shares issuable upon exercise options obligated to be issued to
the Seller as designated by World Capital Funding, Inc.
(14) 52,117 shares obligated to be issued to Seller and 23,333
shares issuable upon exercise of options obligated to be issued
to the Seller as designated by World Capital Funding, Inc.
(15) 61,769 shares obligated to be issued to Seller and 33,334
shares issuable upon exercise of options obligated to be issued
to Seller as designated by World Capital Funding, Inc.
(16) All shares issuable upon the exercise of options obligated
to be issued to Seller as designated by World Capital Funding,
Inc.
(17) All shares obligated to be issued to Seller as designated by
World Capital Funding, Inc.
DESCRIPTION OF CAPITAL STOCK
GENERAL. The Company is authorized to issue 23,000,000
shares of capital stock, consisting of 20,000,000 shares of
Common Stock, par value $.00001 per share, 1,000,000 shares of
preferred stock designated as Series 1993, 8% Convertible
Preferred Stock, of which 268,851 shares are issued and
outstanding, 1,000,000 shares of preferred stock designated as
Series B 6% Junior Cumulative Convertible Preferred Stock, of
which no shares are issued and outstanding, and 1,000,000 shares
of series preferred stock. As of November 30, 1996, 6,346,572,
shares of Common Stock were issued and outstanding, held by
approximately 300 owners of record.
COMMON STOCK. The holders of Common Stock are entitled to
one vote for each share held of record on all matters submitted
to a vote of stockholders and vote together as a single class
with the holders of the 1993 Preferred Stock. There is no
cumulative voting with respect to the election of directors.
Therefore, the holders of more than 50% of the shares of Common
Stock and 1993 Preferred Stock voting for the election of
directors can elect all of the directors if they choose to do so.
The holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation,
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<PAGE>
dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets available for
distribution to them after the payment of liabilities and after
provision has been made for each class of stock having preference
over the Common Stock. Holders of shares of Common Stock have no
conversion, preemptive, subscription or redemption rights. All of
the issued and outstanding shares of Common Stock are, and the
Common Stock offered hereby, upon issuance and sale, will be
fully paid and nonassessable.
The Company has never paid a dividend on the Common Stock
and the Company's Line of Credit with Den norske Bank, AS.
prohibits the payment of dividends. Also, no dividends can be
paid on the Common Stock unless all accrued and unpaid cumulative
dividends have been paid on the outstanding shares of 1993
Preferred Stock. See "Preferred Stock".
PREFERRED STOCK. The Board of Directors has authority,
without further action by stockholders, to issue from time to
time up to 2,000,000 shares of Preferred Stock with a par value
of $.0001 per share, in one or more series, and to fix the
designations, preferences, powers and relative, participating,
optional or special rights and the qualifications, limitations or
restrictions thereof, including dividend rights, conversion
rights, voting rights, rights and terms of redemption and
liquidation preferences, any or all of which may be greater than
the rights of Common Stock; provided, however, except as
otherwise required by law, each share of Preferred Stock shall
not be entitled to more than one vote on any matter voted on by
the common stockholders. The Board of Directors, without
stockholder approval, can, from time to time, issue Preferred
Stock with voting, conversion and other rights which could
adversely affect the voting power and other rights of the holders
of Common Stock. Preferred Stock could be issued quickly with
terms calculated to delay or prevent a change in control of the
Company without any further action by the stockholders.
SERIES B PREFERRED STOCK. In October 1994, the Board of
Directors designated the preferences for and authorized the
issuance of 1,000,000 shares of 6% Junior Cumulative Convertible
Preferred Stock, Series B ("Series B Preferred Stock"). Each
share of Series B Preferred Stock is (i) entitled to one vote
per share and votes together as a single class with the holders
of 1993 Preferred Stock and Common Stock and (ii) is
convertible into Common Stock at the option of the holders
thereof based on a conversion factor of $10.00 divided by 73% of
the Common Stock's closing bid price on the conversion date
(subject to adjustment for subsequent issuance of Common Stock
dividends and other changes in the number of outstanding shares
of Common Stock for which the Company receives no monetary
consideration). Each share of Series B Preferred Stock has a
liquidation preference of $10.00 per share
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<PAGE>
and is entitled to receive cumulative annual dividends in the
amount of $.60 payable in cash, or at the Company's option, in
shares of Common Stock valued at their closing bid price on the
date the dividend is declared. Dividends are payable quarterly
and unpaid dividends accrue without interest. No dividends can be
paid on the Series B Preferred Stock unless all accrued dividends
have been paid on the 1993 Preferred Stock. The Series B
Preferred Stock is redeemable if certain conditions are met.
1993 PREFERRED STOCK. The Company is also authorized to
issue 1,000,000 shares of Series 1993, 8% Convertible Preferred
Stock ("Series 1993 Preferred Stock"), with a par value and
liquidation preference of $12.00 per share. Each share of 1993
Preferred Stock is (i) entitled to four votes per share and
votes together as a single class with the holders of Series B
Preferred Stock and Common Stock, (ii) is convertible into 1
share of Common Stock at the option of the holders thereof
(subject to adjustment for subsequent issuance of Common Stock
dividends and other changes in the number of shares of
outstanding shares of Common Stock for which the Company receives
no monetary consideration) and is entitled to receive, as and
when declared by the Board of Directors out of funds legally
available therefor, cumulative annual dividends in the amount of
$.96 per share payable in Common Stock on the basis of one share
of Common Stock (rounded to the nearest whole share) for each
$1.00 of declared dividends. Dividends are payable semi-annually
and interest accrues on unpaid dividends at the rate of 10% per
annum until paid. There are no accrued and unpaid dividends on
the 1993 Preferred Stock as of the date of this Prospectus. The
1993 Preferred Stock is not redeemable.
DESCRIPTION OF DERIVATIVE SECURITIES
HELD BY SELLING STOCKHOLDERS
1995 CLASS A WARRANTS. 1995 Class A Warrants to purchase an
aggregate of 205,834 shares of Common Stock were issued by the
Company in the November 1995 Private Placement. Each 1995 Class A
Warrant entitles the holder to purchase one share of Common Stock
at an exercise price of $3.50 per share. The 1995 Class A
Warrants are exercisable for 36 months commencing October 8,
1997. The 1995 Class A Warrants are callable by the Company at
any time on 30 days notice to the holders, but only if the
closing price of the Common Stock as quoted on NASDAQ is not less
than $5.50 per share for 20 of 30 consecutive trading days. If
the Company calls the 1995 Class A Warrants, the holders thereof
have the right to exercise their 1995 Class A Warrants within
such 30 day period. The number and exercise price of the 1995
Class A Warrants are subject to adjustment if the Company pays a
dividend in shares of Common Stock (other than Common Stock
dividends paid on preferred stock), subdivides or combines the
Common Stock or pays a dividend on Common Stock with other
securities issued by the Company or by another issuer. The
Company may reduce the exercise price of the 1995 Class A
Warrants to any amount the Company deems appropriate.
39
<PAGE>
The 205,834 shares of Common Stock issuable upon exercise of the
1995 Class A Warrants were registered in the Company's
Registration Statement on Form S-3 which became effective on
October 8, 1996 and are also included herein.
1995 CLASS B WARRANTS. 1995 Class B Warrants to purchase an
aggregate of 205,834 shares of Common Stock were issued by the
Company in the November 1995 Private Placement. Each 1995 Class B
Warrant entitles the holder to purchase one share of Common Stock
at an exercise price of $5.00 per share. The 1995 Class B
Warrants are exercisable for 36 months commencing October 8,
1997. The 1995 Class B Warrants are callable by the Company at
any time on 30 days notice to the holders, but only if the
closing price of the Common Stock as quoted on NASDAQ is not less
than $7.00 per share for 20 of 30 consecutive trading days. If
the Company calls the 1995 Class B Warrants, the holders thereof
have the right to exercise their 1995 Class B Warrants within
such 30 day period. The number and exercise price of the 1995
Class B Warrants are subject to adjustment if the Company pays a
dividend in shares of Common Stock (other than Common Stock
dividends paid on preferred stock), subdivides or combines the
Common Stock or pays a dividend on Common Stock with other
securities issued by the Company or by another issuer. The
Company may reduce the exercise price of the 1995 Class B
Warrants to any amount the Company deems appropriate. The 205,834
shares of Common Stock issuable upon exercise of the 1995 Class B
Warrants were registered in the Company's Registration Statement
on Form S-3 which became effective on October 8, 1996 and are
also included herein.
1996 CLASS A WARRANTS. 1996 Class A Warrants to purchase an
aggregate of 165,000 shares of Common Stock were issued by the
Company in the June 1996 Private Placement. Each 1996 Class A
Warrant entitles the holder to purchase one share of Common Stock
at an exercise price of $4.00 per share. The 1996 Class A
Warrants became exercisable on the closing date of the offering
and expire three years after the effective date of a registration
statement covering the shares. The 1996 Class A Warrants are
callable by the Company at any time on 30 days notice to the
holders, but only if the closing price of the Common Stock as
quoted on NASDAQ is not less than $5.50 per share for 20 of 30
consecutive trading days. If the Company calls the 1996 Class A
Warrants, the holders thereof have the right to exercise their
1996 Class A Warrants within such 30 day period. The number and
exercise price of the 1996 Class A Warrants are subject to
adjustment if the Company pays a dividend in shares of Common
Stock (other than Common Stock dividends paid on preferred
stock), subdivides or combines the Common Stock or pays a
dividend on Common Stock with other securities issued by the
Company or by another issuer. The Company may reduce the exercise
price of the 1996 Class A Warrants to any amount the Company
deems appropriate at any time after the effective date of the
registration statement in which the shares of Common Stock
reserved for issuance upon exercise of the 1996 Class A Warrants
40
<PAGE>
becomes effective. The Company agreed to register the shares for
resale under the Act and such shares are included herein.
AMC CONSUMER WARRANT. On June 16, 1995, the Company issued
warrants with an expiration date of June 15, 1998 to AMC Consumer
Services ("AMC") to purchase an aggregate of 150,000 shares of
Common Stock (the "AMC Warrants"). Fifty thousand (50,000) shares
of the AMC Warrants were exercisable at $2.63 per share, 50,000
shares are exercisable at $3.00 per share and 50,000 shares are
exercisable at $3.50 per share. AMC has exercised AMC Warrants to
purchase 50,000 shares of Common Stock for $2.63 per share. The
AMC Warrants were issued as part of the consideration for a
public relations consulting agreement which will terminate on
June 15, 1998. The Company did not agree to register the shares
of Common Stock underlying the AMC Warrants; however, the 50,000
shares purchased by AMC under the warrants were registered in the
Company's Registration Statement on Form S-3 which became
effective on October 8, 1996 and are also included herein.
AKS WARRANT. On February 26, 1996, the Company issued
warrants with an expiration date of December 31, 1998 to AKS to
purchase 225,000 shares of Common Stock with an exercise price of
$5.00 per share (the "AKS Warrants"). The AKS Warrants were
issued as part of the consideration for the purchase price for
certain properties and equipment. The Company agreed to use
commercially reasonable efforts to register the shares of Common
Stock underlying the AKS Warrants within 180 days after AKS
purchases an aggregate of 100,000 shares under the warrants;
however, AKS has not purchased any shares under the warrants and
none of the shares subject to the AKS Warrants are offered
herein.
MORGAN LANG WARRANT. On June 16, 1995, the Company issued
warrants with an expiration date of June 15, 1998 to Morgan Lang
Limited to purchase an aggregate of 150,000 shares of Common
Stock (the "Morgan Lang Warrants"). Fifty thousand (50,000)
shares of the Morgan Lang Warrants were exercisable at $2.63 per
share, 50,000 shares are exercisable at $3.00 per share and
50,000 shares are exercisable at $3.50 per share. Morgan Lang has
exercised Morgan Lang Warrants to purchase 50,000 shares of
Common Stock for $2.63 per share. The Morgan Lang Warrants were
issued as part of the consideration for a public relations
consulting agreement with will terminate on June 15, 1998. The
Company did not agree to register the shares of Common Stock
underlying the Morgan Lang Warrants; however, the 50,000 shares
purchased by Morgan Lang were registered in the Company's
Registration Statement on Form S-3 which became effective on
October 8, 1996 and are also included herein.
4% CONVERTIBLE DEBENTURE. In the fourth quarter of 1996,
the Company issued $6,000,000 principal amount of 4% debentures
that are convertible at the option of the holders into shares of
Common Stock valued at 75% of the average closing bid prices of
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<PAGE>
the Common Stock as reported by NASDAQ for the five trading days
prior to the date of conversion (the "Conversion Price").
Debentures that are not converted prior to their maturity dates
will automatically convert on their maturity dates. Accrued
interest on the debentures will be paid on their conversion dates
by the issuance of shares of Common Stock valued at the
Conversion Price. The Company has the right, subject to certain
terms and conditions, to redeem any debenture for 125% of its
principal balance plus accrued interest if the Conversion Price
falls below the closing bid price on the date of issuance of that
debenture. The Company agreed to register the shares of Common
Stock into which the debentures are convertible within 120 days
after demand is made by a debenture holder. See "Selling
Stockholders - Footnote (11); "Risk Factors - Possible
Liquidated Damages; Possible Insufficient Shares Available to
Convert Debentures" and "Risk Factors - Dilution".
WORLD CAPITAL OPTIONS. In conjunction with the November 1996
Private Placement, the Company issued five-year options to
designees of World Capital Funding, Inc., to purchase 100,000
shares of Common Stock at $4.50 per share. The Company agreed to
register the shares Common Stock underlying the options and such
shares are included herein.
CORPORATE RELATIONS GROUP OPTIONS. In conjunction with the
entry into the agreement with Corporate Relations Group, Inc.,
the Company granted to Corporate Relations Group, Inc. a one-year
option to purchase 100,000 shares of Common Stock for $3.00 per
share, a two-year option to purchase 100,000 shares of Common
Stock for $3.60 per share, a three-year option to purchase
100,000 shares of Common Stock for $4.20 per share, a four-year
option to purchase 100,000 shares of Common Stock for $4.80 per
share and a five-year option to purchase 100,000 shares of Common
Stock for $6.00 per share. The Company agreed to register the
shares of Common Stock underlying the options and such shares are
included herein.
1993 PREFERRED STOCK. The Company's Series 1993, 8%
Convertible Preferred Stock ("Series 1993 Preferred Stock") is
convertible into 1 share of Common Stock at the option of the
holders thereof (subject to adjustment for subsequent issuance of
Common Stock dividends and other changes in the number of shares
of outstanding shares of Common Stock for which the Company
receives no monetary consideration). See "Description of
Securities".
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby may be sold by the
Selling Stockholders 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 in one or more of the
following methods, without limitation: (a) a block trade in which
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<PAGE>
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 a 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 Act in connection with such sales. In addition,
any shares of Common Stock covered by this Prospectus that
qualify for sale pursuant to Rule 144 under the Act might be sold
under Rule 144 rather than pursuant to this Prospectus.
The Selling Stockholders are not restricted as to the prices
at which they may sell their shares and sales of such shares at
less than the market price may depress the market for the
Company's Common Stock. Further, the Selling Stockholders are not
restricted as to the number of shares which may be sold at any
one time, and it is possible that a significant number of shares
could be sold at the same time, which may also depress the market
for the Company's Common Stock.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has entered into Indemnification Agreements with
each of its directors and with Rick G. Avare, its President and
Chief Executive Officer, Jeffrey J. Hausman, its Vice President
and Chief Financial Officer and Karen M. Underwood, its Corporate
Secretary, which provide, subject to the exceptions listed below,
that the Company will hold harmless and indemnify such persons
against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(including any action by or in the right of the Company) to which
such person is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that such
person is, or was or at any time becomes a director of officer,
employee or agent of the Company, or is or was serving or at any
time serves at the request of the Company as a director, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise.
Notwithstanding the foregoing, the Indemnification
Agreements do no require the Company to indemnify such persons
(a) except to the extent that the aggregate losses to be
indemnified exceeds the amount of losses for which such person is
indemnified pursuant to any policy of insurance purchased and
maintained by the corporation, (b) for any liability arising
under Section 16b of the Securities Exchange Act of 1934, as
43
<PAGE>
amended, (c) for any action or omission which is finally adjudged
to constitute wilful misconduct or that is knowingly fraudulent
or deliberately dishonest, or (d) if it is determined by a final
judgment of a court of competent jurisdiction that such
indemnification is unlawful.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the
foregoing Indemnification Agreements, or otherwise, the Company
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.
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 statements of revenues and direct operating expenses of
the properties purchased from AKS by the Company for each of the
years in the two year period ended December 31, 1995, have been
incorporated by reference herein 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 statements of revenues and direct operating expenses of
the properties purchased from Century by the Company for each of
the years in the two year period ended December 31, 1995, have
been incorporated by reference herein 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 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 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.
44
<PAGE>
LEGAL MATTERS
The legality of the Common Stock offered hereby will be
passed upon for the Company by David J. Stetson, Esq., 400 South
Main Street, Suite B, P.O. Box 948, London, Kentucky 40743. Mr.
Stetson serves as General Counsel for the Company.
45
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION* (1)
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee......$ 2,988
Transfer Agent's and Registrar's fees..............$ -0-
Legal fees and expenses............................$20,000
Accounting fees and expenses.......................$ 5,000
Printing fees and expense......................... $ 1,000
------
Total $28,988
</TABLE>
* All amounts estimated except Securities and Exchange
Commission filing fee.
(1) Agreements between the Company and the Selling
Stockholders require that the Company pay all expenses associated
with the registration of the securities.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation and By-Laws
authorize the Registrant to indemnify its directors and officers
to the full extent permitted by Section 145 of the Delaware
General Corporation Law.
Section 145 of the Delaware General Corporation Law
generally authorizes a corporation 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 corporation or is or was serving at the
request of the corporation 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 corporation, no indemnification may be made in
respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless a
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 other
court in which the suit or action was brought shall deem proper.
II-1
<PAGE>
The Registrant has entered into Indemnification Agreements
with each of its directors and with Rick G. Avare, its President
and Chief Executive Officer, Jeffrey J. Hausman, its Vice
President and Chief Financial Officer and Karen M. Underwood, its
Corporate Secretary, which provide, subject to the exceptions
listed below, that the Registrant will hold harmless and
indemnify such persons against any and all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection
with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (including any action by or in the right of the
corporation) to which such person is, was or at any time becomes
a party, or is threatened to be made a party, by reason of the
fact that such person is, or was or at any time becomes a
director or officer, employee or agent of the corporation, or is
or was serving or at any time serves at the request of the
corporation as a director, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise.
Notwithstanding the foregoing, the Indemnification
Agreements do no require the corporation to indemnify such
persons (a) except to the extent that the aggregate losses to be
indemnified exceeds the amount of losses for which such person is
indemnified pursuant to any policy of insurance purchased and
maintained by the corporation, (b) for any liability arising
under Section 16b of the Securities Exchange Act of 1934, as
amended, (c) for any action or omission which is finally adjudged
to constitute wilful misconduct or that is knowingly fraudulent
or deliberately dishonest, or (d) if it is determined by a final
judgment of a court of competent jurisdiction that such
indemnification is unlawful.
The Registrant has purchased a directors, officers and
corporate liability insurance policy.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing Indemnification Agreements, 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.
II-2
<PAGE>
ITEM 16. LIST OF EXHIBITS
3.9 Registrant's Bylaws, as amended. (1)
3.10 Registrant's Restated Certificate of Incorporation.(2)
4.1 Specimen copy of Registrant's Common Stock Certificate.
(3)
4.7 Specimen copy of Registrant's November 1995 Subscription
Agreement and Warrant. (4)
4.8 Specimen copy of Registrant's June 1996 Subscription
Agreement and Warrant. (5)
4.9 Specimen copy of the Registrant's 4% Convertible Debenture
Purchase Agreement and 4% Convertible Debenture. (2)
4.10 Specimen copy of Registrant's Option Agreement with
Corporate Relations Group, Inc. (2)
4.11 Specimen copy of Registrant's Option Agreement with World
Capital Funding, Inc. (2)
5.1 Opinion of David J. Stetson, Esq. as to the legality of
the securities being registered.*
23.1 Consent of KPMG Peat Marwick LLP.*
23.3 Consent of Richard Russell & Associates.*
23.4 Consent of David J. Stetson (included in Exhibit 5)
24 Power of Attorney*
- ------------------
* Previously filed.
(1) Incorporated by reference to Exhibit 3.2 to the Registrant's
Form 10-SB.
(2) Incorporated by reference to same exhibit number to the
Registrant's Current Report on Form 8-K filed on December
12, 1996.
(3) Incorporated by reference to Exhibit 4.1 to the Registrant's
Form 10-SB.
(4) Incorporated by reference to Exhibit 4.7 to the Registrant's
Registration Statement on Form S-3, Registration No. 333-
656.
(5) Incorporated by reference to Exhibit 4.8 to the Registrant's
Registration Statement on Form S-3, Registration No. 333-
656.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) 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 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.
(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 new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(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) The undersigned Registrant hereby undertakes that, for
the purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and 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 in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
(d) To deliver or cause to be delivered with the Prospectus, to
each person to whom a 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 is not
set forth in the Prospectus, to deliver, or to 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.
II-5
<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 Versailles, State of Kentucky, on the 10th of
January, 1997.
AMERICAN RESOURCES OF DELAWARE, INC.
By:/s/ Rick G. Avare
------------------------------------
Rick G. Avare
President and Chief
Executive Officer
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* Director and January 10, 1997
- ------------------------
Douglas L. Hawthorne Chairman of
the Board
/s/Rick G. Avare Director, January 10, 1997
- ----------------
Rick G. Avare President
and Chief
Executive
Officer
/s/Jeffrey J. Hausman* Vice President, January 10, 1997
- ----------------------
Jeffrey J. Hausman Chief Financial
Officer (Principal
Accounting Officer)
Director January , 1997
- ---------------------- ---
David Fox, Jr.
/s/Leonard K. Nave * Director January 10, 1997
- --------------------
Leonard K. Nave
Director January , 1997
- ---------------------- ---
Donald L. Schellpfeffer
*By: /s/Rick G. Avare
-------------------
Rick G. Avare
Attorney-in-Fact
II-6
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
3.9 Registrant's Bylaws, as amended. (1) *
3.10 Registrant's Restated Certificate of
Incorporation.(2) *
4.1 Specimen copy of Registrant's Common
Stock Certificate. (3) *
4.7 Specimen copy of Registrant's November
1995 Subscription Agreement and
Warrant. (4) *
4.8 Specimen copy of Registrant's June
1996 Subscription Agreement and
Warrant. (5) *
4.9 Specimen copy of the Registrant's 4%
Convertible Debenture Purchase
Agreement and 4% Convertible
Debenture.(2) *
4.10 Specimen copy of the Registrant's
Option Agreement with Corporate
Relations Group, Inc.(2) *
4.11 Specimen copy of the Registrant's
Option Agreement with World Capital
Funding, Inc. (2) *
5.1 Opinion of David J. Stetson, Esq. as
to the legality of the securities
being registered. **
23.1 Consent of KPMG Peat Marwick LLP. **
23.3 Consent of Richard Russell &
Associates. **
23.4 Consent of David J. Stetson
(included in Exhibit 5)
24 Power of Attorney **
II-7
- ------------------
* Incorporated by reference.
** Previously filed.
(1) Incorporated by reference to Exhibit 3.2 to the Registrant's
Form 10-SB.
(2) Incorporated by reference to the same exhibit number to the
Registrant's Current Report on Form 8-K filed on December 12,
1996.
(3) Incorporated by reference to Exhibit 4.1 to the Registrant's
Form 10-SB.
(4) Incorporated by reference to Exhibit 4.7 to the Registrant's
Registration Statement on Form S-3, Registration No. 333-656.
(5) Incorporated by reference to Exhibit 4.8 to the Registrant's
Registration Statement on Form S-3, Registration No. 333-656.
II-8
