SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to 14(a)
of the Securities Exchange Act of 1934
(Amendment No. N/A)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
American Resources of Delaware, Inc.
------------------------------------
(Name of Registrant as Specified In Its Charter)
---------------------------------------------
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange
Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to ExchangeAct Rule 0-11 (set forth the
amount on which the filing fee is calculated and state
how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
160 Morgan Street, P.O. Box 87
Versailles, Kentucky 40383
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On July 8, 1997
-------------------------------
Notice is hereby given that the Annual Meeting of Stockholders
of American Resources of Delaware, Inc. (the "Company") will be
held at 11:00 a.m., Eastern Daylight Time, on July 8, 1997 at the
Marriott Hotel, 1800 Newtown Pike, Lexington, Kentucky 40511 for
the following purposes:
PROPOSAL NO. 1. To amend the Company's Restated Certificate
of Incorporation to add Article Eleven to classify the Board of
Directors into three classes of directors with staggered three-year
terms.
PROPOSAL NO. 2. To elect directors to serve for terms of one
to three years, respectively, or until their successors are elected
and qualified if Proposal No. 1 is approved, and to elect the same
persons as directors for a term of one year if Proposal No. 1 is
not approved.
PROPOSAL NO. 3. To ratify the selection of KPMG Peat Marwick
LLP as the Company's independent auditors for 1997.
PROPOSAL NO. 4. To amend Article Four of the Company's
Restated Certificate of Incorporation to increase the number of
authorized shares of $.00001 par value common stock from 20,000,000
shares to 50,000,000 shares.
PROPOSAL NO. 5. The transaction of such other business as may
be brought before the Annual Meeting or any adjournment or
adjournments thereof.
Information regarding the matters to be acted upon at the
Annual Meeting is contained in the Proxy Statement accompanying
this Notice. The Annual Meeting may be adjourned from time to time
without notice other than the announcement of the adjournment at
the Annual Meeting or any adjournment or adjournments thereof, and
any and all business for which notice is given may be transacted at
any such adjourned Annual Meeting.
All stockholders are encouraged to read the accompanying Proxy
Statement carefully for further information concerning the
proposals that will be presented at the Annual Meeting and prior to
completion of the enclosed proxy card.
Only holders of record of outstanding shares of the Company's
Common Stock and Series 1993, 8% Convertible Preferred Stock at the
close of business on May 9, 1997 are entitled to notice of and to
vote at the Annual Meeting or any adjournment or adjournments
thereof. All stockholders are invited to attend the Annual Meeting
in person; however, to ensure your representation, whether or not
you plan to attend the Annual Meeting, please promptly complete,
date, sign and return the enclosed proxy card.
Karen M. Underwood
Corporate Secretary
Versailles, Kentucky
June 6, 1997
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
160 Morgan Street, P.O. Box 87
Versailles, Kentucky 40383
------------------------------
PROXY STATEMENT
------------------------------
THE ANNUAL MEETING
This Proxy Statement is furnished to stockholders of American
Resources of Delaware, Inc. (the "Company") in connection with the
solicitation of proxies by and on behalf of the Board of Directors
of the Company for use at the Annual Meeting of Stockholders to be
held at 11:00 a.m., Eastern Daylight Time, on July 8, 1997, at the
Marriott Hotel, 1800 Newtown Pike, Lexington, Kentucky 40511 and at
any adjournment or adjournments thereof (the "Annual Meeting").
Commencing on or about June 13, 1997, this Proxy Statement and the
enclosed proxy card are being mailed to stockholders of record of
the Company. The Company will bear the costs of this solicitation,
which, in addition to mail, may include personal interviews,
telephone calls, or telegrams by directors, officers and regular
employees of the Company and its affiliates. The Company has
engaged American Securities Transfer and Trust, Inc. 938 Quail
Street, Suite 101, Lakewood, Colorado 80215, to solicit proxies and
anticipates paying it compensation for such services in the amount
of approximately $3,000.
VOTING
Only record holders of outstanding shares of the Company's
Common Stock, par value $.00001 per share (the "Common Stock"), and
the Company's Series 1993 Preferred Stock, par value $12.00 per
share (the "Series 1993 Preferred Stock"), at the close of business
on the record date, May 9, 1997, are entitled to notice of and to
vote at the Annual Meeting. As of such record date, 8,273,722
shares of Common Stock and 268,851 shares of Series 1993 Preferred
Stock were entitled to be voted. The holders of Common Stock are
entitled to cast one vote for each share of Common Stock owned of
record. The holders of Series 1993 Preferred Stock are entitled to
cast four votes for each share of Series 1993 Preferred Stock owned
of record. The holders of Common Stock and the holders of Series
1993 Preferred Stock vote together as a single class except as
otherwise required by law. As of the record date, the holders of
the Common Stock and the holders of the Series 1993 Preferred Stock
were entitled to cast an aggregate of 9,349,126 votes. Cumulative
voting is not permitted with respect to any proposal to be acted
upon at the Annual Meeting. See "Security Ownership" with respect
to the ownership of voting stock of the Company by directors,
executive officers and certain other holders.
1
<PAGE>
The presence in person or by proxy of the holders of shares of
Common Stock and/or Series 1993 Preferred Stock entitled to cast a
majority of the aggregate votes entitled to be cast at the Meeting,
shall constitute a quorum. If a quorum should not be present, the
Annual Meeting may be adjourned from time to time until a quorum is
obtained. Stockholders are urged to sign the accompanying proxy
card and return it promptly.
The accompanying proxy card is designed to permit each
stockholder of record at the close of business on the record date
to vote in the election of directors and the proposals described in
the Proxy Statement. The proxy card provides space for a
stockholder to vote in favor of or to withhold voting for any or
all nominees for the Board of Directors, to vote for or against any
proposal to be considered at the Annual Meeting or to abstain from
voting for any proposal if the stockholder chooses to do so. To be
elected, each nominee must receive a majority of all votes cast at
the Annual Meeting. All other matters submitted to the stockholders
require the affirmative vote of majority of the votes cast at the
Annual Meeting.
To ensure representation at the Annual Meeting, each holder of
outstanding shares of Common Stock and Series 1993 Preferred Stock
entitled to be voted at the Annual Meeting is requested to
complete, date, sign and return to the Company the enclosed proxy
card, which requires no postage if mailed in the United States.
Stockholders are urged to sign the accompanying proxy card and
return it promptly. Banking institutions, brokerage firms,
custodians, trustees, nominees, and fiduciaries who are record
holders of Common Stock and/or Series 1993 Preferred Stock entitled
to be voted at the Annual Meeting are requested to forward all
proxy cards, this Proxy Statement, and the accompanying materials
to the beneficial owners of such shares and to seek authority to
execute proxies with respect to such shares. Upon request, the
Company will reimburse such record holders for their reasonable
out-of-pocket forwarding expenses. The costs of this solicitation
will be borne by the Company, including the costs of assembling and
mailing the enclosed proxy card and this Proxy Statement.
If properly executed and received by the Company before the
Annual Meeting, or any adjournment or adjournments thereof, any
proxy representing shares of Common Stock or Series 1993 Preferred
Stock entitled to be voted at the Annual Meeting and specifying how
it is to be voted will be voted accordingly. Shares as to which
authority to vote has been withheld with respect to the election of
any nominee for director will not be counted as a vote for such
nominee and neither an abstention nor a broker nonvote will be
counted as a vote for a proposal. Any properly executed proxy
received that does not specify how it is to be voted on a proposal
for which a specification may be made will be voted FOR such
proposal at the Annual Meeting and any adjournment or adjournments
thereof.
Each stockholder returning a proxy card to the Company has the
right to revoke it, at any time before it is voted, by submitting
a later dated proxy in proper form, by notifying the Secretary of
the Company in writing (signed and dated by the stockholder) of
such
2
<PAGE>
revocation, or by appearing at the Annual Meeting, requesting the
return of the proxy, and voting the shares in person.
When a signed proxy card is returned with choices specified
with respect to voting matters, the shares represented are voted by
Proxies designated on the proxy card in accordance with the
stockholder's instructions. The Proxies are Rick G. Avare,
President and Chief Executive Officer of the Company, and Douglas
L. Hawthorne, Chairman of the Board of the Company, each of whose
names are listed on the proxy card. A stockholder wishing to name
another person as his or her proxy may do so by crossing out the
names of the two designated Proxies and inserting the name(s) of
such other person(s) to act as his or her prox(ies). In that case,
it will be necessary for the stockholder to sign the proxy card and
deliver it to the person(s) named as his or her proxy and for the
person(s) so named to be present and to vote at the Annual Meeting.
Proxy cards so marked should not be mailed to the Company.
SECURITY OWNERSHIP
The following table reflects certain information regarding the
beneficial ownership of the outstanding equity securities of the
Company as of May 9, 1997, to the extent known to the Company's
Board of Directors. Such information is included for (i) persons
who own 5% or more of such equity securities, (ii) directors, (iii)
nominees for director, (iv) the executive officers identified in
the discussion under the heading "Executive Compensation" (the
"Named Executives"), and (v) officers and directors of the Company
as a group. Unless otherwise indicated, the Company believes that
each person named below has the sole power to vote and dispose of
the equity securities beneficially owned by such person.
<TABLE>
<CAPTION>
Shares
Beneficial Owner Title Beneficially Percent
Name/Address Of Class Owned(1) Of Class(2)
- ------------ -------- -------- -----------
<S> <C> <C> <C>
Douglas L.
Hawthorne(3)(8) 8% Pfd 3,334 1.24%
4325 Delco
Dell Road Common 530,853 6.15%
Kettering, OH
45429
Donald A.
Schellpfeffer,
M.D.(3)(10)
910 East the
Street
Sioux Falls,
SD 57105 Common 441,877 5.23%
3
<PAGE>
Shares
Beneficial Owner Title Beneficially Percent
Name/Address Of Class Owned(1) Of Class(2)
- ------------ -------- -------- -----------
Southern Gas
Holding Co., Inc.
160 Morgan Street
Versailles, KY 40383 Common 993,623 12.01%
Leonard K. Nave
(3)(4)(7)
160 Morgan Street
Versailles, KY 40383 Common 1,416,744 16.58%
Leonard K. Nave,
Trustee(4)(5)
160 Morgan Street
Versailles, KY 40383 Common 993,623 12.01%
Rick G. Avare
(3)(4)(6)
160 Morgan Street 8% Pfd 187,500 69.74%
Versailles, KY 40383 Common 2,198,253 24.55%
David J. Fox, Jr.
Appalachian
Production Company
605 9th Street,
Ste. 519 Huntington,
WV 25701 Common 43,834 *
Ralph A. Currie
2920 Sweet William
Court
Lexington, KY 40502 Common 10,000 *
Whispering Pines of
Thomasville, Inc.
P. O. Box 638
Thomasville, GA 8% Pfd 28,334 10.54%
4
<PAGE>
Shares
Beneficial Owner Title Beneficially Percent
Name/Address Of Class Owned(1) Of Class(2)
- ------------ -------- -------- -----------
Andrew J. Kacic
(3)(9)
6119 N. Black Bear
Loop
Tucson, AZ 85715 Common 844,822 9.42%
William D. Bishop Common 55,000 *
(11)
739 Lakeshore Drive
Lexington, KY 40504
Len Aldridge(12) Common 30,000 *
1999 Richmond Road
Suite 2-A
Lexington, KY 40502
Robert L. McIntyre N/A N/A N/A
300 Vine Street
Suite 500
Lexington, KY 40507
Directors, Nominees
and Executive Officers
as a group All
(7 persons) Classes 3,290,492 33.74%
</TABLE>
* Represents less than 1% of the Company's outstanding stock for
the indicated class.
(1) Share information reflects the 1-for-4 reverse stock split of
the Company's common stock effected on June 8, 1994. 8%
Preferred Stock is convertible into common stock at the rate
of one share of common stock for each share of Preferred
Stock.
(2) Percentages assumes full exercise of outstanding options and
warrants to purchase shares of the Company's common stock and
conversion of 8% Preferred Stock into common stock.
(3) Includes 147,482 shares of common stock jointly owned by
Messrs. Hawthorne, Kacic, Schellpfeffer, Nave and Avare. Each
joint owner disclaims beneficial ownership of 80% of such
shares.
5
<PAGE>
(4) Includes 993,623 shares of common stock owned by Southern Gas
Holding Company, Inc. ("SGH"). SGH is owned 52.5% by Rick G.
Avare, 7.5% by Leonard K. Nave, individually, and 32.5% by
Leonard K. Nave, as Trustee (See Note 5). Messrs. Avare and
Nave, individually and as trustee, disclaim the beneficial
ownership of such shares of the Company's common stock to the
extent they exceed their respective percentage ownership of
SGH.
(5) Leonard K. Nave is both the grantor and trustee of a trust
which owns 325 shares (32.5%) of SGH. The Trust Agreement
provides that 75 shares (7.5%) shall be distributed to each of
his three children and 100 shares (10%) shall be distributed
to his wife not later than April 30, 2000. Neither Mr. Nave's
wife nor children have a right to vote the shares or to cause
the trust to sell or otherwise dispose of them.
(6) Includes 680,704 shares subject to options and conversion
rights exercisable within 60 days, 297,482 shares owned by
Prima Capital, LLC ("Prima"), in which Mr. Avare owns a 20%
interest, and 1,134 shares owned by JJR Investments, a
Kentucky general partnership. Mr. Avare disclaims beneficial
ownership of 80% of the shares of the Company's common stock
owned by Prima.
(7) Includes 271,603 shares subject to options exercisable within
60 days.
(8) Includes 358,629 shares subject to options, warrants and
conversion rights exercisable within 60 days and 24,500 shares
held in Mr. Hawthorne's retirement plan.
(9) Includes 690,590 shares subject to options exercisable within
60 days and 6,750 shares owned by the Andrew J. Kacic Profit
Sharing Plan.
(10) Includes 207,415 shares subject to options and warrants
exercisable within 60 days, 20,729 shares subject to warrants
exercisable within 60 days held by Anesthesia Association,
Inc. ("AAI"), 6,122 shares subject to warrants exercisable
within 60 days held by Midwest Anesthesiology Profit Sharing
Plan, 10,655 shares held by AAI, 470 shares held by Midwest
Anesthesiology Service II Profit Sharing Plan, 2,068 shares
held in trusts for the benefit of Dr. Schellpfeffer's
children, with respect to which Dr. Schellpfeffer acts as
custodian, 12,185 shares held in Individual Retirement Plans
for Dr. Schellpfeffer and members of his family, and 70,872
shares held by DARS Limited, of which Dr. Schellpfeffer is a
principal.
(11) Includes 15,000 shares owned of record by Mr. Bishop in his
capacity as trustee of irrevocable trusts for his three adult
children.
(12) Includes 21,000 shares held in Mr. Aldridge's individual
retirement account.
6
<PAGE>
PROPOSAL NO. 1
TO AMEND THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO ADD ARTICLE ELEVEN TO CLASSIFY THE BOARD OF DIRECTORS INTO THREE
CLASSES OF DIRECTORS WITH STAGGERED THREE-YEAR TERMS.
Approval of Proposal No. 1 requires the affirmative vote of
the holders of a majority of the combined voting power of all of
the issued and outstanding shares of Common Stock and 1993
Preferred Stock entitled to be voted at the Annual Meeting, voting
together as a single class.
The Board of Directors has unanimously approved and recommends
that the stockholders adopt an amendment (the "Amendment") to the
Company's Restated Certificate of Incorporation to divide the
Company's Board of Directors into three approximately equal classes
with staggered terms. The purpose of the Amendment is to promote
continuity and stability in the Company's management and policies
by making an attempted takeover of the Company more difficult. The
proposed Amendment is not, however, in response to any effort of
which the Company is aware to accumulate the Company's $.00001 par
value common stock ("Common Stock"), or to obtain control of the
Company. Rather, the Board of Directors wishes to protect
stockholder investments in the Company by ensuring that unsolicited
bidders will not be in a position to place undue pressure on the
Board of Directors or stockholders of the Company and that the
ability of the Board of Directors to negotiate with any potential
acquirer is from the strongest practical position, which is in the
interest of all stockholders. Except as set forth in Proposal No.
4, the Board of Directors does not intend to propose further
amendments to the Company's Restated Certificate of Incorporation
or Amended By-laws that might affect attempts to take over or
change control of the Company.
The Company's Restated Certificate of Incorporation contains
other provisions that may limit or prevent a change in control of
the Company. Article Four thereof, which is proposed to be amended
as described in Proposal No. 4, provides that the authorized
capital of the Company consists of 20,000,000 shares of Common
Stock, 1,000,000 shares of Series 1993, 8% Convertible Preferred
Stock and 2,000,000 shares of preferred stock ("Series Preferred
Stock"). The Board of Directors may issue, from time to time,
Common Stock, Series 1993 Preferred Stock or one or more classes or
series of Series Preferred Stock with such designations and
preferences and voting and other rights as they deem appropriate
without stockholder approval. (See "Proposed Sale of Preferred
Stock to Den norske Bank AS" under Proposal No. 4.) The Board of
Directors, by issuing such Common Stock, Series 1993 Preferred
Stock or Series Preferred Stock, could adversely affect the voting
power of the outstanding shares of Common Stock and discourage any
attempt to gain control of the Company.
7
<PAGE>
To implement the classified Board of Directors, the Amendment
would permit Class I, Class II and Class III directors initially to
be elected at the Annual Meeting of Stockholders for terms of one
year, two years and three years, respectively. If the Amendment is
adopted, Class I directors elected at the Annual Meeting will hold
office until the 2000 Annual Meeting; Class II directors elected at
the Annual Meeting will hold office until the 1999 Annual Meeting;
and Class III directors elected at the Annual Meeting will hold
office until the 1998 Annual Meeting; and, in each case, until
their successors are duly elected and qualified or until their
earlier death, resignation or removal. At each annual meeting
commencing with the 1998 Annual Meeting, directors elected to
succeed those in the class whose terms then expire will be elected
for three-year terms so that the terms of one class of directors
will expire each year. Thus, the stockholders will elect only
approximately one-third of the directors at each annual meeting. In
addition, the Board of Directors may fill any vacancies which occur
for the remainder of the term of the director who ceases to be a
director.
Delaware law provides that the certificate of incorporation of
a corporation may provide that the directors be divided into one,
two or three classes, the terms of the directors initially to be
classified as follows: the first class to expire at the annual
meeting next ensuing; the second class one year thereafter; and the
third class two years thereafter and that at each annual election
held after such classification, directors shall be elected for a
full term. The Amendment is also consistent with the rules of the
Nasdaq Stock Market on which the Company's Common Stock is traded.
ADVANTAGES OF A CLASSIFIED BOARD
The Board of Directors believes that dividing the directors
into three classes is advantageous to the Company and its
stockholders because providing that directors will serve three-year
terms rather than one-year terms increases the likelihood of
continuity and stability in the policies formulated by the Board.
While management has not experienced any problems with continuity
in the past, it wishes to ensure that this experience will continue
and believes that the staggered election of directors will promote
continuity because only approximately one-third of the directors
will be subject to election each year.
The Amendment would significantly extend the time required to
make any change in control of the Board and will tend to discourage
any hostile takeover bid for the Company. Presently, a change in
control of the Board can be made by the holders of a majority of
the outstanding voting stock of the Company at a single annual
meeting. Under the proposed Amendment, it will take at least two
annual meetings for such stockholders to make a change in control
of the Board, since only a minority of the directors will be
elected at each meeting. Staggered terms would also guarantee that
approximately two-thirds of the directors at any one time would
have at least one year's experience as directors of the Company.
8
<PAGE>
DISADVANTAGES OF A CLASSIFIED BOARD
The Amendment will make it more difficult for stockholders to
change the composition of the Board even if stockholders believe
such a change would be desirable. Because of the additional time
required to change control of the Board, the Amendment will also
tend to perpetuate incumbent management. The Amendment will
increase the amount of time required for a takeover bidder to
obtain control of the Company without the cooperation of the Board,
even if the bidder were to acquire a majority of the Company's
outstanding stock; accordingly, it will tend to discourage certain
tender offers, perhaps including some offers which stockholders
might deem to be in their best interest. As a result, stockholders
may be deprived of opportunities to sell some or all of their
shares in a tender offer. Tender offers for control usually involve
a purchase price higher than the current market price and may
involve a bidding contest between competing takeover bidders. The
Amendment could also discourage open market purchases by a
potential takeover bidder. Such purchases could temporarily
increase the market value of the Company's Common Stock, enabling
stockholders to sell their shares at a price higher than that which
would otherwise prevail. Finally, the Amendment could decrease the
market price of the Company's Common Stock by making the stock less
attractive to persons who invest in securities in anticipation of
an increase in price if a takeover attempt develops.
For information regarding the nominees for election to the
Board of Directors at the Annual Meeting and the class of directors
in which each director will initially serve if the Amendment is
adopted, see Proposal No. 2 below.
PROPOSAL NO. 2
TO ELECT DIRECTORS TO SERVE FOR TERMS OF ONE TO THREE YEARS,
RESPECTIVELY, OR UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED
IF PROPOSAL NO. 1 IS APPROVED, AND TO ELECT THE SAME PERSONS AS
DIRECTORS FOR A TERM OF ONE YEAR IF PROPOSAL NO. 1 IS NOT APPROVED.
The affirmative vote of the holders of a majority of the
voting power of all of the issued and outstanding shares of Common
Stock and 1993 Preferred Stock entitled to be voted at the Annual
Meeting, voting together as a single class, is required to elect
each director.
If Proposal No. 1 is approved by the stockholders, the persons
named in the enclosed proxy will vote for the election of the
nominees for each class of the Board of Directors and for the
respective terms designated below unless authority to vote is
withheld. If Proposal No. 1 is not approved, the persons named in
the enclosed proxy will vote for the election of such nominees for
a one-year term expiring at the 1998 Annual Meeting of Stockholders
unless authority to vote is withheld.
In accordance with the Company's Bylaws, the Board of
Directors has fixed the number of directors at eight. The Board of
Directors has nominated Douglas L. Hawthorne,
9
<PAGE>
Rick G. Avare, Leonard K. Nave, David J. Fox, Donald A.
Schellpfeffer, William D. Bishop, Len Aldridge and Robert L.
McIntyre for election as directors at the Annual Meeting. All of
the nominees with the exception of Messrs. Bishop, Aldridge and
McIntyre are currently serving as directors of the Company.
There are no family relationships among any directors, nominee
for director, or executive officers of the Company. Each of the
nominees has consented to being named as a nominee and to serve as
a director if elected. However, if for any reason any nominee for
director is not a candidate at the election, the enclosed proxy
will be voted for the election of a substitute nominee at the
discretion of the person of persons voting the enclosed proxy. The
Board of Directors has no reason to believe that any nominee named
herein will be unable to serve.
Information regarding the nominees is provided below and under
"Security Ownership", "Executive Compensation", and "Certain
Relationships and Related Transactions".
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
Class I (Term of Office Age Principal Occupation Director
Expires in 2000) Since
- ---------------- --- -------------------- -----
<S> <C> <C> <C>
Rick G. Avare(1) 35 President and Chief Sept. 1994
Executive Officer
of the Company
David Fox, Jr.(2) 76 President, Appalachian Aug. 1996
Production Company
and President and
Chairman of the Board
of FGO, Inc.
Class II (Term of Office Age Principal Occupation Director
Expires in 1999) Since
- ---------------- --- -------------------- -----
Leonard K. Nave(1) 61 Chairman, President, Sept. 1994
and Chief Executive
Officer of Southern
Gas Company of Del-
aware, Inc.
Len Aldridge 59 Real Estate Manage- N/A
ment and Development
10
<PAGE>
Class II (Term of Office Age Principal Occupation Director
Expires in 1999) Since
- ---------------- --- -------------------- -----
Robert L. McIntyre 51 Attorney at Law N/A
Class III (Term of Age Principal Occupation Director
Office Expires in Since
1998)
- ----- --- -------------------- -----
Douglas L. Hawthorne
(1)(2) 55 Business Consultant Mar. 1993
William D. Bishop 56 Coal Executive, Quin- N/A
tana Coal Company
Kentucky
Donald A.
Schellpfeffer M.D.(2) 54 Physician Mar. 1993
</TABLE>
(1) Member of Executive Committee.
(2) Member of Audit and Compensation Committees.
Rick G. Avare has served as President and Chief Executive
Officer of ARI since May 15, 1996, and as a director of ARI since
September, 1994. He has also served as Chief Operating Officer of
the Company's wholly-owned subsidiary, Southern Gas Company of
Delaware, Inc. ("Southern Gas"), since January 1, 1996, and as Vice
President, Treasurer and a director of Southern Gas since February,
1994. Mr. Avare served as Chief Operating Officer and Executive
Vice President of ARI from August, 1995 until May 15, 1996, and he
served as Chief Financial Officer of ARI from September, 1994,
through December, 1995. He also served as Chief Financial Officer
of Southern Gas from February, 1994 through December, 1995. Since
March, 1995, Mr. Avare has served as the Administrative Member for
Prima Capital, LLC. From February, 1995, to November 15, 1995, Mr.
Avare served as a director for Bullet Sports International, Inc.
From March 29, 1993, to April 27, 1993, Mr. Avare served as a
director of ARI. Mr. Avare was the Vice President of Finance and
Treasurer of Southern Gas Company, Inc., a Kentucky corporation,
("SGC") from 1987 until its dissolution in 1995. He has served as
Chairman of the Board and Chief Executive Officer of Southern Gas
Holding Co. Inc. ("SGH"), the parent company of SGC, since January,
1995, and as a director and Vice President and Secretary since
October, 1988. Prior to his involvement with SGC, Mr. Avare was
employed by the national accounting firm of Grant Thornton (now
part of KPMG Peat Marwick, LLP) in Lexington, Kentucky. Mr. Avare
received his Bachelor of Arts degree from Transylvania University
in Lexington, Kentucky, in 1983 and his Masters in Accounting from
the University of Kentucky in 1985. Mr. Avare is a certified
public accountant and is currently a member of the American
11
<PAGE>
Institute for Certified Public Accountants and the Kentucky Society
of Certified Public Accountants.
Leonard K. Nave has served since February, 1994, as Chairman
of the Board, Chief Executive Officer, President and a director of
Southern Gas. He has served as a director of ARI since September,
1994, and served in that position from March 29, 1993, to April 27,
1993. Since February, 1995, Mr. Nave has served as a director for
Bullet Sports International, Inc. Mr. Nave served as the
President, Chief Executive Officer and a director of SGC, from its
inception in March, 1983, until its dissolution in February, 1995.
Since October, 1988, Mr. Nave has served as the President and a
director of SGH. In addition, Mr. Nave currently holds the
following positions: President and a director of Nawenco Equipment,
Ltd. (since March, 1992); and President and a director of Woodway
Farms, Inc. (Since August, 1983). In February, 1996, Mr. Nave
filed for reorganization and protection under Chapter 11 of the
Code. This action was initiated primarily because of the attempted
enforcement of certain guaranties which Mr. Nave had signed on
behalf of an unrelated corporation. From November, 1991, through
1995, Mr. Nave was Vice President and a director of Maxwell House,
Inc.; and from May, 1983, through September, 1994, he served as
Vice President and a director of Wright Resources, Inc. From 1980
to 1983, Mr. Nave was a senior partner in the law firm of Nave,
Williams & Palmore (now Jackson & Kelly) in Lexington, Kentucky.
Mr. Nave received his Bachelor of Arts degree from the University
of Kentucky in 1956 and a Bachelor of Laws and Letters degree from
the University of Kentucky College of Law in 1959. Mr. Nave, who
has been engaged in energy and related activities for more than
twenty years, pioneered and implemented the first and largest
direct sale of natural gas on the Columbia Gas of Kentucky system.
Mr. Nave is an active member of the Kentucky Bar Association.
Douglas L. Hawthorne has been a director and Chairman of the
Board of ARI since March 29, 1993, and has been a director of
Southern Gas since February, 1994. Since February, 1995, Mr.
Hawthorne has been a director of Bullet Sports International, Inc.
Since 1992, Mr. Hawthorne has been a principal of Carillon Capital,
Inc., a Dayton-based investment banking firm. From 1991 to 1994,
Mr. Hawthorne was a principal in SPECTRA Group, Inc., a management
consulting firm, also based in Dayton, Ohio. From 1986 to 1991,
Mr. Hawthorne served as the Chairman of the Board, President and
Chief Executive Officer of Society Bank, N.A., Dayton, Ohio
("Society Bank"). From 1971 through 1992, he held a variety of
positions within The Third National Bank and Trust Company ("Third
National"), and its successor, Society Bank, as it grew from $200
million to $3 billion in assets with 90 offices spanning Southern
Ohio. Mr. Hawthorne initially served as Vice President of
Corporate Development, Research and Planning of Third National, and
subsequently assumed successively more responsible senior
management positions, culminating as Chief Executive Officer in
1984. During his association with Society Bank, Mr. Hawthorne was
a member of the Executive Management Committee and Society Bank's
Retail Bank Operating Committee. From 1976 to 1996, he served as
Board Trustee and, most recently, as Vice Chairman of MedAmerica
Health Systems Corporation and Chairman of MedAmerica International
Insurance, Ltd. From 1992 to March, 1995, Mr. Hawthorne
12
<PAGE>
served as a Trustee of Wright State University and is currently a
Trustee of The Dayton Foundation. He received his undergraduate
degree from Wabash College and attended New York University's
Graduate School of Business as well as many professional
development programs.
Donald A. Schellpfeffer, M.D. has served as a full time
practicing anesthesiologist and medical doctor at Sioux Falls
Surgical Center, Sioux Falls, South Dakota since 1985. Dr.
Schellpfeffer was a major investor in one of the drilling programs
sponsored by Standard Oil & Exploration of Delaware, Inc.
("Standard Oil") and was one of the co-plan proponents of Standard
Oil's Plan of Reorganization (the "Plan"). Upon consummation of
the Plan, Dr. Schellpfeffer exchanged his administrative claims
against Standard Oil for equity securities in the Company. See
"Certain Relationships and Related Transactions". In January 1974,
Dr. Schellpfeffer purchased a limited partnership interest in
Grenoble Partnership, a South Dakota limited partnership which
owned and operated an apartment complex in Nebraska. In 1978, Dr.
Schellpfeffer became general partner of the partnership. In August
1991, the partnership filed for bankruptcy protection under Chapter
11 of the U.S. Bankruptcy Code. Through restructuring and extension
of loans, all creditors have been satisfied and the partnership's
plan of reorganization was confirmed on November 15, 1992.
David Fox, Jr. has served as a director of ARI since August,
1996. Mr. Fox has served as Vice Chairman and Secretary-Treasurer
of McJunkin Appalachian Oil Field Supply Company since 1989. He
also currently holds the position of President of Appalachian
Production Co., an oil and gas producing company, as well as
President and Chairman of the Board of FGO, Inc., a West Virginia
corporation engaged in developing residential real estate
properties in and around Huntington, West Virginia; and President
and a Director of Charleston National Properties, LLC, a real
estate development company in the Charleston, South Carolina, area.
Mr. Fox also currently serves as a Director of KYOWVA Container
Corporation; River Cities Association; Bank One, West Virginia,
Charleston; Bank One, West Virginia; and the Marshall University
Foundation. During the past five years, Mr. Fox served as
President of the Marshall University Foundation. Mr. Fox is a
graduate of Greenbrier Military School and attended Marshall
University. He is a past President of Branchland Pipe and Supply
Company and has more than fifty years of experience in energy and
related activities.
William D. Bishop has served as President of Blackhawk Mining
Company, Inc. (formerly Quintana Coal Company) since June 1985. He
has also been part owner and manager of Quintana Coal Kentucky,
LLC since June 1985. Mr. Bishop has nearly thirty years of
experience in energy and related activities, having been employed
since 1969 in executive positions with energy-related companies,
including Ashland Oil, Inc., Ashland Coal, Inc., and Sierra Coal
Company/Utah International, Inc. Mr. Bishop graduated from the
University of Kentucky in May 1965 with a Bachelors of Science
Degree in Economics and in December 1965 with a Masters Degree in
Business Administration.
13
<PAGE>
Len Aldridge has served as Vice President of Limited Partners
of Lexington, a Kentucky corporation engaged in the development and
management of real estate, since March 1984. Mr. Aldridge also
currently holds the following positions: Partner of Poole &
Aldridge (since 1975), Vice President of Poole Enterprises, Inc.
(since 1988), Director of Rafferty's Inc. (since 1991), Vice
President/Treasurer of Mason Headley Development (since 1994). Mr.
Aldridge graduated from the University of Kentucky in 1959 with a
Bachelors of Science Degree in Commerce and has been a certified
public accountant since 1962 as well as a certified financial
planner since 1993. He is also currently a member of the American
Institute of Certified Public Accountants and the Kentucky
Society of Certified Public Accountants.
Robert L. McIntyre has been Of Counsel to the law firm of
Breeding, Cunningham, Dance and Cress, PLC, of Lexington, Kentucky,
since October 1996. From April 1992 through September 1996, Mr.
McIntyre was a partner with the law firm of Breeding, McIntyre &
Cunningham, PSC, wherein he managed the firm's energy, corporate,
transactional and international practice. From April 1985 to March
1992, he served in various positions for Transco Energy Company
("Transco") and its subsidiaries, the most recent of which was as
Vice President and Associate General Counsel for Transco from
September 1989 through March 1992. Mr. McIntyre has nearly twenty-
five years of experience in energy and related activities, having
been employed since 1973 as staff or general counsel for energy-
related companies, including The Superior Oil Company, Occidental
Petroleum Company and subsidiaries, Burmah Oil & Gas Company and
Texas International Company. Mr. McIntyre graduated from the
University of Oklahoma in 1968 with a Bachelors of Science Degree
in Geology and obtained his law degree from the University of
Houston, Bates College of Law, in 1972. He is currently an active
member of the State Bars of Kentucky and Texas, the Americana Bar
Association, the American Petroleum Institute and various legal
committees thereof, the Eastern Mineral Law Foundation, the
American Corporate Counsel Association and the Rocky Mountain
Mineral Law Foundation. Mr. McIntyre is also currently the
Secretary (and former Legal Committee Chairman) for Affiliated Gas
Producer Group and a Director of the American Heart Association
(Houston Chapter). Additionally, he has chaired many programs
involving the transportation, deregulation, marketing, exploration
and production of natural gas and has been featured speaker at
numerous seminars for energy-related associations.
PROPOSAL NO. 3
TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR 1997.
Approval of Proposal No. 3 requires the affirmative vote of
the holders of a majority of the voting power of all of the issued
and outstanding shares of Common Stock and 1993 Preferred entitled
to be voted at the Annual Meeting, voting together as a single
class.
14
<PAGE>
KPMG Peat Marwick LLP has served as the Company's independent
auditors since 1994. The Board of Directors is of the opinion that
KPMG Peat Marwick LLP is well qualified to continue such service
and recommends that the stockholders vote FOR ratification of the
selection of Peat Marwick LLP. One or more representatives of KPMG
Peat Marwick LLP are expected to be present at the Annual Meeting,
to have the opportunity to make a statement if they so desire, and
to be available to respond to appropriate questions.
PROPOSAL NO. 4
TO AMEND ARTICLE FOUR OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
$.00001 PAR VALUE COMMON STOCK FROM 20,000,000 SHARES TO 50,000,000
SHARES.
Approval of Proposal No. 4 requires the affirmative vote of
the holders of a majority of the combined voting power of all of
the issued and outstanding shares of Common Stock and 1993
Preferred Stock entitled to be voted at the Annual Meeting, voting
together as a single class.
The Board of Directors of the Company has unanimously approved
and recommends that Article Four of the Company's Restated
Certificate of Incorporation be amended to increase the number of
authorized shares of common stock from 20,000,000 shares to
50,000,000 shares.
REASONS FOR INCREASE.
The Company is authorized to issue 20,000,000 shares of
$.00001 par value common stock ("Common Stock"). See "Description
of Capital Stock - Common Stock.
At May 9, 1997, the Company had 8,273,722 shares of Common
Stock issued and outstanding and had reserved 11,039,074 shares of
Common Stock for future issuance. (See "Shares Reserved for
Issuance" and "Description of Derivative Securities".
To facilitate growth, the Company has issued and sold shares
of Common Stock and convertible preferred stock for cash and has
granted options and warrants to purchase shares of Common Stock for
cash in private transactions (i) to fund the acquisition of oil and
gas properties, (ii) to repay indebtedness, (iii) to pay for
services, and (iv) to provide working capital. (See "Recent
Financings", "Shares Reserved for Issuance" and "Description of
Derivative Securities".
As a result of the prior issuances of shares of Common Stock
and the reservation of shares of Common Stock to fund the exercise
of outstanding warrants and options and the
15
<PAGE>
conversion of existing and proposed preferred stock, the Company
only has 687,204 shares of Common Stock available unless its
Certificate of Incorporation is amended to increase its authorized
shares of Common Stock.
The Board of Directors believes that the ability to issue
additional shares of Common Stock may be essential to the Company's
continued growth and recommends that the Company's shareholders
vote for the proposal to increase the Company's authorized Common
Stock from 20,000,000 to 50,000,000 shares.
EFFECT OF AN INCREASE.
The Board of Directors is authorized to issue and sell shares
of the Company's Common Stock for any valid corporate purpose at
such prices as it may determine to be in the best interest of the
Company. Although the Board of Directors believes that it is
important to the Company's continued growth that shares of Common
Stock be made available for future issuance, the Company does not
have any present plans, arrangements or understandings to issue any
additional shares of Common Stock other than shares that are
presently reserved for issuance. (See "Proposed Sale of Preferred
Stock to Den norske Bank AS, "Shares Reserved for Issuance" and
"Description of Derivative Securities".)
Holders of Common Stock do not have a preemptive right to
purchase additional shares of Common Stock. Therefore, the issuance
of additional shares of Common Stock would have a dilutive effect
on the percentage of equity of the Company owned by the present
holders of Common Stock. Also, depending on the prices at which
additional shares of Common Stock are issued, such issuances could
have a dilutive effect on the net book value and net earnings per
share of the Common Stock.
PROPOSED SALE OF PREFERRED STOCK TO DEN NORSKE BANK AS.
At March 31, 1997, the Company was indebted to Den norske Bank
AS (the "Bank") under a revolving credit agreement in the principal
amount of $24,083,000 and under a development credit agreement in
the principal amount of $1,004,205.
The Bank and the Company have entered into negotiations under
which the Company would designate, issue and sell to the Bank a
new series of preferred stock with a purchase price of $1,000 per
share and an aggregate purchase price of up to $10,000,000 cash.
The new series of preferred stock would consist of up to 10,000
shares of $.0001 par value preferred stock designated 1997 Series
A Convertible Preferred Stock with the following characteristics:
Dividends: Cumulative annual dividends in the amount of $80.00
---------
per share.
Voting. One vote per share voting as a single class with the
------
Common Stock and 1993 Preferred Stock, except as required by law.
16
<PAGE>
Liquidation. $1,000 per share plus unpaid cumulative
-----------
dividends.
Conversion. Convertible in whole or in part into Common Stock
----------
at the option of the Bank at a conversion price equal to the
average market price of the Common Stock for the five trading days
immediately preceding the date the notice of conversion is given,
but not less than $3.00 per share during the first five years after
issuance of the preferred stock (the "Conversion Price"), provided;
however, that not more than one-third of the shares of preferred
stock held by the Bank can be converted during any twelve month
period and no conversions can be effected during the first twelve
months after issuance of the preferred stock.
Redemption. Redeemable in whole or in part at the option of
----------
the Company, anytime and from time to time one year after issuance
for $1,100.00 per share plus unpaid cumulative dividends payable in
cash or shares of Common Stock. Provided; however, if senior
management standing for reelection are not reelected or an
involuntary change of control of the Company occurs, the Bank would
have the option to require the Company to (i) immediately redeem
all shares of the preferred stock then held by it for $1,150 per
share, plus unpaid cumulative dividends, or (ii) immediately
convert all of the shares of preferred stock into Common Stock at
the Conversion Price. No determination has been made as to what
would constitute an involuntary change of control. Otherwise, the
Bank could not directly own, at any one time, more than 4.9% of the
Company's issued and outstanding Common Stock. In the event the
Company voluntary elects to pay in full its then existing
indebtedness to the Bank, the Bank could elect to apply such
payment to the redemption of the preferred stock rather than the
payment of the indebtedness.
The agreement in principal provides that the Company will pay
the Bank a cash placement fee equal to 7% of the aggregate purchase
price of the preferred stock. If the Company and the Bank enter
into a definitive agreement with respect to the preferred stock,
the Company will have the right to unilaterally terminate the
agreement by paying the Bank $250,000 in liquidated damages. The
agreement in principal also provides that the Company will issue
six year warrants to the Bank to purchase 525,000 shares of Common
Stock for $3.25 per share.
If the sale of preferred stock is consummated, it is estimated
that the net proceeds will total approximately $9,230,000,
substantially all of which would be used to repay indebtedness
with the balance, if any, used for general corporate purposes.
There can be no assurance that the Company and the Bank will
enter into a definitive agreement for the sale of the preferred
stock, or if a definitive agreement is entered into, that the terms
would not change or that the sale would be consummated. The Company
has reserved 525,000 shares of its existing authorized and unissued
Common Stock for the issuance of warrants to the Bank and has
reserved 3,333,333 shares of its existing authorized and unissued
Common Stock for conversion of the preferred stock issued to the
bank. The issuance of the warrants and the preferred stock to the
Bank is not subject to
17
<PAGE>
the approval of the Company's stockholders and the Company may
issue such warrants and shares of preferred stock whether or not
Proposal No. 4 is approved or disapproved at the Annual Meeting.
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, and
2,000,000 shares of series preferred stock ("Preferred Stock").
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, 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 fully
paid and nonassessable.
The Company has never paid a dividend on the Common Stock and
the Company's revolving credit agreement with the Bank 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 "1993 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
18
<PAGE>
prevent a change in control of the Company without any further
action by the stockholders. (See "Proposed Sale of Preferred Stock
to Den norske Bank AS".)
1993 Preferred Stock. The Company is also authorized to issue
--------------------
1,000,000 shares of Series 1993, 8% Convertible Preferred Stock
("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 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, 8%
cumulative annual dividends 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
Proxy Statement. The 1993 Preferred Stock is not redeemable.
SHARES RESERVED FOR ISSUANCE.
At May 9, 1997, the following shares of Common Stock were
reserved for issuance (See "Description of Derivative Securities"):
<TABLE>
No. of Shares: Reserved for Issuance With Respect To:
------------- -------------------------------------
<C> <C>
2,000,000 1994 Compensatory Stock Option Plan.
950,000 Incentive Stock Option Plan.
329,000 1994 Employee Stock Compensation Plan.
268,851 1993 Convertible Preferred Stock.
1,587,235 4% Convertible Debentures.
205,834 1995 Class A Warrants.
205,834 1995 Class B Warrants.
165,000 1996 Class A Warrants.
100,000 Morgan Lang Warrant.
19
<PAGE>
100,000 AMC Consumer Services Warrant.
200,000 Bridgewater Financial Warrant.
225,000 AKS Warrant.
643,987 Andrew Kacic Stock Option.
100,000 Corporate Communications Stock Option.
100,000 World Capital Funding Stock Option.
525,000 Warrants proposed to be issued to the
Bank. (See "Proposed Sale of Preferred
Stock to Den norske Bank").
3,333,333 New Convertible Preferred Stock
---------
proposed to be designated and issued to
the Bank. (See "Proposed Sale of
Preferred Stock to Den norske Bank".)
11,039,074
==========
</TABLE>
DESCRIPTION OF DERIVATIVE SECURITIES.
1994 Compensatory Stock Option Plan. The Company's
-----------------------------------
Compensatory Stock Option Plan was adopted by the Company's Board
of Directors for the purpose of providing an incentive to aid in
attracting and retaining qualified officers, directors and
employees. Options are priced at the current market value on the
date of grant and vest at such time or times specified by the
Compensation Committee of the Board of Directors. The options
expire ten years after the date of grant, except that options
expire 15 months after an optionee's date of death, 12 months after
an optionee's employment is terminated without cause and
immediately if the optionee's employment is terminated with cause.
At March 31, 1997, the Company had granted options under the plan
to purchase 1,943,910 shares of Common Stock and had reserved
56,090 shares for future grants.
1993 Preferred Stock. The Company's 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 Capital Stock -
1993 Preferred Stock".
20
<PAGE>
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 the lesser of (i) the closing bid price of the
common stock as reported by NASDAQ on the date of issuance of the
debenture, and (ii) 75% of the average closing bid prices of the
Common Stock as reported by NASDAQ for the five trading days prior
to the date of conversion (the "Conversion Price"). The closing bid
prices when the debentures were issued ranged between $3.00 and
$3.50 per share. 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. As of May 9, 1997, $3,529,075 principal amount of the 4%
debentures had been converted into shares of Common Stock. (See
"Recent Financings".)
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. (See "Recent
Financings".) 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.
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. (See "Recent
Financings".) 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
21
<PAGE>
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.
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. (See "Recent
Financings".) 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 October 8, 1999. 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.
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.
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.
Bridge Water Financial Warrant. On May 11, 1995, the Company
------------------------------
issued warrants with an expiration date of May 10, 2000 to Bridge
Water Financial to purchase 200,000 shares of Common Stock with an
exercise price of $2.75 per share. The warrants were issued as part
of the consideration for a public relations consulting agreement
that was terminated in January 1996.
22
<PAGE>
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.
Andrew Kacic Options. See "Certain Relationships and Related
--------------------
Transactions- Executive Officers".
Corporate Communications Options. On September 7, 1995, the
--------------------------------
Company issued options to Corporate Communications Network, Inc. to
purchase 100,000 shares of Common Stock for $4.50 per share. The
options expire on September 6, 1998. The options were issued as
part of the consideration for a public relations consulting
agreement.
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. (See "Recent
Financings".)
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
23
<PAGE>
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 the first two days, $200 for the next two days, $300
for the next two days, $400 for the next two days and $500 for each
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 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.
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.
PROPOSAL NO. 5
THE TRANSACTION OF SUCH OTHER BUSINESS AS MAY BE BROUGHT
PROPERLY BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT OR
ADJOURNMENTS THEREOF.
The Board of Directors of the Company currently is unaware of
any proposal to be presented at the Annual Meeting other than the
matters specified in the Notice of Annual Meeting accompanying this
Proxy Statement. Should any other proposal properly come before the
Annual Meeting, the persons named in the enclosed proxy card will
vote on each such proposal in accordance with their discretion.
24
EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual
and long-term compensation for services to the Company and its
subsidiary, Southern Gas Company of Delaware, Inc., for the fiscal
years ended December 31, 1996, 1995 and 1994 of those persons who
were, at December 31, 1996 (i) the chief executive officer and (ii)
the other four most highly compensated executive officers of the
Company (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ------------
Securities
Underlying All Other
Name and Principal Other Annual Stock LTIP Compen-
Position (1) Year Salary Bonus Compensation Options Payouts sation
- ------------ ---- ------ ----- ------------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas L. Hawthorne 1996 -- -- $60,000 354,315 -- --
Chairman of the Board 1995 -- -- 54,000 354,315 -- --
1994 -- -- 27,000 182,712 -- --
Leonard K. Nave 1996 $175,761 -- $ 3,281 271,603 -- $8,750(2)
Chairman of the Board 1995 175,500 -- 4,692 246,603 -- 8,750(2)
President & Chief 1994 175,000 -- -- 100,000 -- 8,750(2)
Executive Officer, Southern Gas
Rick G. Avare 1996 $137,684 $50,000(3) $17,400(4) 493,204 -- $6,846(2)
President & Chief 1995 99,546 50,000(5) 18,533(6) 268,204 -- 4,952(2)
Executive Officer 1994 63,978 -- 11,023(7) 50,000 -- 5,000(2)
Jeffrey J. Hausman 1996 $71,546 -- -- 25,000 -- --
Vice President & Chief 1995 -- -- -- -- -- --
Financial Officer 1994 -- -- -- -- -- --
</TABLE>
(1) The disclosures in this table for Messrs. Hawthorne and
Hausman have been provided for informational purposes only
and in light of their status as significant employees of the
Company. SEC rules require only the disclosure of the four
most highly compensated executive officers whose total annual
salary and bonus exceeds $100,000.
(2)) Represents contribution made on behalf of the Named Officer to
a 401(K) plan.
(3) Represents a bonus for the Named Officer which was accrued as
of December 31, 1996, and $30,000 of which was paid in
February, 1997.
(4) Includes car allowance of $11,907.
(5) In December, 1995, the Board of Directors approved a bonus for
the Named Officer which was accrued as of December 31, 1995,
and paid in January, 1996.
(6) Includes car allowance of $12,038.
(7) Represents a car allowance.
The table below contains information on grants of stock
options during 1996 to the Named Officers. No stock appreciation
rights were granted during 1996.
25
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Name Granted (#) 1996 ($/share)(4) Date
- ---- ----------- ---- ------------ ----
<S> <C> <C> <C> <C>
Leonard K. Nave 25,000(1) 5.0% $4.50 03/03/2001
Rick G. Avare 225,000(1) 45.1% $4.50 03/03/2001
Jeffrey J. Hausman 75,000(2) 15.0% $4.50 (3)
</TABLE>
(1) These options were granted on March 4, 1996, under the
Company's CSO Plan and are immediately exercisable.
(2) These options were granted on March 4, 1996, under the
Company's CSO Plan, and they vest 25,000 immediately; 25,000
on March 4, 1997; and 25,000 on March 4, 1998.
(3) Five years from date of vesting (i.e., 25,000 expire 3/3/2001,
25,000 expire 3/3/2002, and 25,000 expire 3/3/2003.
Shown below is information with respect to all unexercised
options to purchase the Company's Common Stock granted to the Named
Officers through the end of fiscal year 1996. No options were
exercised by the Named Officers during 1996. No stock appreciation
rights have been granted.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Underlying in-the-Money
Unexercised Options Options
Shares at FY-End at FY-End($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable
- ---- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Douglas L. Hawthorne -- -- 354,315/0 0/0
Leonard K. Nave -- -- 271,603/0 0/0
Rick G. Avare -- -- 493,204/0 0/0
Jeffrey J. Hausman -- -- 25,000/50,000 0/0
</TABLE>
On April 14, 1994, the Board of Directors adopted two formal
stock plans: (i) the CSO Plan, and (ii) the 1994 Employee Stock
Compensation Plan ("Employee Plan"). The CSO Plan is a
compensatory (non-statutory) stock option plan covering 2,000,000
(post-reverse stock split) shares of the Company's common stock,
which is not a qualified plan under Section 422 of the Internal
Revenue Code of 1986. The number of shares authorized for issuance
under the CSO was originally 750,000; however, this amount was
increased to 2,000,000 on June 22, 1995, by approval of the
shareholders.
The Employee Plan is an employee stock compensation plan
covering 650,000 (post-reverse stock split) shares of the Company's
Common Stock. The Employee Plan is not
26
<PAGE>
qualified under section 401(a) of the Internal Revenue Code of
1986. As of May 9, 1997, 321,000 shares have been issued under the
Employee Plan.
From March 19, 1994, and at various dates until February 2,
1995, the Company entered into separate Compensatory Stock Option
Agreements with the following individuals: (i) Douglas L.
Hawthorne, Chairman of the Board; (ii) Donald Schellpfeffer,
Director; (iii) Leonard K. Nave, Director of the Company and
President, Chief Executive Officer and a Director of Southern Gas;
and (iv) Rick G. Avare, Director and President and Chief Executive
Officer of the Company and Director, Vice President of Finance and
Chief Operating Officer of Southern Gas. Pursuant to the terms of
these agreements, Messrs. Hawthorne, Schellpfeffer, Nave and Avare
were granted options to purchase 307,712, 150,000, 200,000 and
175,000 shares of Common Stock, respectively, at exercise prices of
between $6.00 and $8.00 per share and expiring between March 18,
2003, and February 1, 2005. Effective March 4, 1996, the Board of
Directors of the Company approved a Resolution wherein all options
previously granted under the CSO Plan may be amended, at the
election of the optionee, to provide that the option price be
reduced to $4.50 per share and the term be reduced to 5 years from
March 4, 1996.
On November 12, 1996, the Company's Board of Directors adopted
an Incentive Bonus Plan (the "Bonus Plan"). The Bonus Plan provides
that in each Contribution Period, as hereinafter defined, (the
"Bonus Period") the Company will make a Bonus Contribution to the
Bonus Plan. One-half of the Bonus Contribution will be an amount
equal to two and one-half cents ($.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 initial contribution period begins January 1, 1997, and
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.
27
<PAGE>
EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS:
On March 19, 1993, the Company executed a five-year employment
agreement with Mr. Hawthorne, its Chairman of the Board, providing
for such compensation as the Board of Directors deems appropriate
and the grant of an option to purchase 392,541 shares of the
Company's common stock (which number was subsequently adjusted to
32,712 following connection with the Company's reverse stock
splits). Pursuant to the terms of a separate registration rights
agreement, Mr. Hawthorne also was granted piggy-back registration
rights with respect to the securities underlying the options
granted under his employment agreement; however, on July 15, 1994,
the Board of Directors cancelled the previously issued options and
granted replacement options to Mr. Hawthorne on the same terms as
the previous options but with a new exercise price. These
replacement options were issued under the Company's 1994 CSO. Mr.
Hawthorne's employment agreement does not require that he devote
his full time to the Company.
In August, 1993, SGC executed a five-year employment agreement
with Mr. Nave providing for such compensation as the Board of
Directors deems appropriate and providing for severance pay to Mr.
Nave under certain conditions. The Company assumed this agreement
as a result of the purchase transaction with SGC in February, 1994.
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.
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
28
<PAGE>
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 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.
The Company also maintains Indemnity Agreements with Rick G.
Avare, in his capacity as President and Chief Executive Officer;
Ralph A. Currie, its Chief Financial Officer; Karen M. Underwood,
its Corporate Secretary; and Douglas L. Hawthorne, Donald A.
Schellpfeffer, Leonard K. Nave, Rick G. Avare and David Fox, Jr.,
its Board of Directors.
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
29
<PAGE>
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.
Jeffrey J. Hausman has served as Chief Financial Officer of
the Company since January 1, 1996, and Treasurer since August,
1996. During this time, Mr. Hausman has resided with his family in
Nashville, Tennessee. Due to the excess time required of Mr.
Hausman's position as a result of the Company's growth and his
family's desire to remain in Nashville, Mr. Hausman resigned as an
officer of the Company effective April 1, 1997. Mr. Hausman was
succeeded by Ralph A. Currie, a certified public accountant and a
former partner of KPMG Peat Marwick, Lexington, Kentucky.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BANKRUPTCY PROCEEDINGS.
Donald Schellpfeffer, a director and beneficial owner of more
than 5% of the Company's Common Stock, Boyt Investment Company,
Donald Szymik, John Dennis, James Perry and Lavonne Anderson
(collectively, the "Sioux Falls Investors") were working interest
owners in the Sand Lake Project, which was owned at such time in
part by the Company's predecessor, Standard Oil. Standard Oil
filed a petition under Chapter 11 of the Code in April, 1991.
Andrew J. Kacic was a director and executive officer of Standard
Oil when the petition was filed. Collectively, the Sioux Falls
Investors invested pre-petition $771,750 in the Sand Lake Project
in late 1989 and received in exchange therefor a 24.5% working
interest in the Project. The Sioux Falls Investors also provided,
post-petition, $737,924 toward expenses incurred in performing an
inquiry into the financial status of Standard Oil as well as toward
legal and accounting expenses, the salary of Mr. Kacic and other
fees necessary to develop and consummate the Plan. The funds
advanced by the Sioux Falls Investors were designated as
administrative expenses in the Plan for which they received
Preferred Stock. Additionally, Jonathan B. Rudney, who was
President of the Company from January 1, 1996, until May 15, 1996,
was Chief Operating Officer of Century when it filed for bankruptcy
protection under Chapter 11 of the Code in August, 1993. In 1996,
Leonard K. Nave, a director of ARI, a director and executive
officer of Southern Gas and a beneficial owner of more than 5% of
the Company's Common Stock, filed for reorganization and protection
under Chapter 11 of the Code. This action was initiated primarily
because of the attempted enforcement of certain guaranties which
Mr. Nave signed on behalf of an unaffiliated corporation.
30
<PAGE>
SOUTHERN GAS, SGC AND SGH.
Mr. Nave, in his capacity as Trustee of a Trust for the
benefit of his family, an executive officer of Southern Gas and
director of ARI, and Mr. Avare, an executive officer of Southern
Gas and an executive officer and director of ARI, are the principal
stockholders, directors and executive officers of SGH. SGH was the
parent company of SGC, a Kentucky corporation; and as part of the
dissolution of SGC, SGH received 993,623 shares of common stock of
the Company. From March 29, 1993, to April 27, 1993, Messrs. Nave
and Avare served as directors of the Company and have served as
directors continuously since September, 1994. During 1994 and
1995, the Company engaged in various transactions involving SGH and
SGC and certain third parties regarding the acquisition of oil and
gas properties and interests therein, including the acquisition of
substantially all of the assets and certain liabilities of SGC in
February, 1994. At the time such transactions were negotiated and
consummated, Messrs. Nave and Avare were neither directors nor
officers or stockholders of the Company.
In 1995, the Company purchased a pipeline in the Gausdale
Field for $400,000 from SGH. The price was determined based upon
future estimated cash flows from transportation fees discounted at
10%.
At December 31, 1996, the Company has made advances to SGH
totaling $163,728 which the principals of SGH intend to secure with
Shares of Company Stock as it becomes available.
SEQUA TRANSACTIONS.
At December 31, 1994, Sequa Financial Corporation ("Sequa")
held 6.57% (202,800 shares) of common stock of the Company.
Pursuant to a Settlement Agreement dated February 28, 1994, among
Sequa, SGC, SGH, Wright Resources, Inc., Natural Resources
Services, Inc. and Leonard K. Nave (the "Settlement Agreement"),
Sequa agreed to the settlement of SGC's indebtedness of
approximately $10,500,000 (including accrued interest) in
consideration for the payment in cash of $5,750,000 and 811,200
shares (pre-reverse split) of the Company's restricted common stock
(which were issued to SGC pursuant to an Asset Purchase Agreement
therewith and subsequently transferred by SGC to Sequa).
In connection with the transfer to Sequa of the 811,200 shares
of common stock, the Company, SGC, SGH and Sequa entered into a
Stockholders Agreement dated February 28, 1994 (the "Stockholders
Agreement"). Pursuant to the Stockholders Agreement, Sequa granted
to the Company the right and option (the "Call Option") to purchase
from Sequa 311,200 restricted shares of common stock of the Company
(the "Call Shares") for an aggregate purchase price of $750,000
plus earnings accrued thereon from the closing to the date of
payment at an interest rate of 15% per annum. This Call Option
expired by its terms on December 31, 1994.
31
<PAGE>
The Shareholders Agreement also granted unlimited piggy-back
registration rights to Sequa exercisable in connection with the
Company's registration of any of its stock or other securities
under the Securities Act of 1933. The shares were included in an
S-3 Registration Statement filed by the Company which became
effective October 8, 1996. Sequa has since liquidated its share
position.
OFFICE LEASE.
In connection with the acquisition of the assets of SGC, The
Company has assumed the obligations of a certain lease dated June
1, 1986, between Nave Properties, a sole proprietorship, and SGC
relating to certain office space located in Versailles, Kentucky.
This office serves as the principal headquarters of Southern Gas
(formerly the principal headquarters of SGC); and effective January
31, 1996, the Company's Scottsdale, Arizona, office was closed and
operations were consolidated in the Kentucky office. Nave
Properties, which is owned by Leonard K. Nave, is an affiliate of
the Company. The lease provides for monthly lease payments of
$3,100 ($37,200 annually). The lease expires on February 28, 1998.
PRIVATE PLACEMENT.
In October and November of 1994, the Company issued and sold
to GFL Ultra Fund Limited ("GFL") for $6,500,000, an aggregate of
650,000 shares of 6% Junior Cumulative Convertible Preferred Stock,
Series B (the "Series B Preferred Stock"), and warrants to purchase
156,000 shares of common stock at $8.75 per share, such warrants
having expired at the end of 1995. In connection with this
transaction, GFL entered into a Standstill and Registration Rights
Agreement (the "Standstill Agreement") with the Company. The
Standstill Agreement provided that GFL would vote all of its
voting securities of the Company in accordance with the
recommendation of the Company. Further, under the terms of the
Standstill Agreement, GFL would not, without the prior written
approval of the Board of Directors of the Company: (a) acquire
beneficial ownership of additional voting securities of the
Company; (b) transfer any voting securities of the Company except
(i) pursuant to an exemption from the registration requirements of
the Securities Act of 1933 (the "Act"); (ii) through a public
offering designed to achieve a widespread distribution; or (iii) in
connection with a Business Combination (as defined in the
Standstill Agreement); (c) do or attempt to do any of the following
matters: (i) submit any proposal with respect to a Business
Combination involving the Company or any affiliate thereof; (ii)
join or in any way participate in any "group" (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934) with
respect to any voting securities of the Company; or (iii) solicit
proxies from the stockholders of the Company; or (d) deposit any
shares held by it in a voting trust or subject any of such shares
to any arrangement or agreement with respect to the voting thereof.
32
<PAGE>
On May 5, 1995, the Company entered into a stock option
agreement, as amended, with the holders of the Series B Preferred
Stock. Under the agreement, the holders granted the Company or its
nominee the right to acquire the then outstanding 425,000 shares of
the Series B Preferred Stock. The agreement was amended to allow
the holders to convert 47,326 shares of the Series B Preferred
Stock to 236,000 shares of common stock. Also pursuant to the
original agreement, 36,638 shares of the Series B Preferred Stock
were acquired jointly by the directors of the Company; and these
shares were subsequently converted into 146,004 shares of common
stock. 36,638 shares of the Series B Preferred Stock were also
acquired by Prima, an investment group in which Rick G. Avare owns
a 20% interest. These shares were also subsequently converted into
146,004 shares of common stock. Of the remaining 304,398 optioned
Series B Preferred Stock shares, the holder converted 50,000 of
such optioned shares into 204,842 shares of common stock in
accordance with the conversion factor. The remaining 254,398
optioned shares could have been purchased by the Company or its
nominee at $13.48803 per share; however, the option terminated on
September 19, 1995, without exercise.
On January 2, 1996, the Company entered into a stock purchase
agreement, as amended, with the holders of the outstanding Series
B Preferred Stock. Under the agreement, the Company or its
assignee has the obligation to purchase the remaining outstanding
Series B Preferred Stock at $13.70 per share. Payment terms under
the agreement are as follows:
<TABLE>
DUE NUMBER
DATE OF SHARES AMOUNT
---- --------- ------
<S> <C> <C>
January 02, 1996 18,248 $250,000
January 15, 1996 18,248 250,000
February 10, 1996 3,650 50,000
February 29, 1996 54,409 745,400
March 31, 1996 47,445 650,000
</TABLE>
The share commitments through January 15, 1996, were purchased
by individuals who are not associated or affiliated with the
Company or any of the Company's directors or executive officers,
and the February 10 and 29, 1996, share commitments were purchased
by the Company, primarily with funds obtained under its credit
facility with Den norske. Upon purchase, the Board of Directors
retired 58,059 shares of Series B Preferred Stock.
The share commitment due March 31, 1996, was amended to allow
the holders of the Series B Preferred Stock to convert 25,679
shares of the Series B Preferred Stock into 100,000 shares of
common stock. The remaining commitment of 21,676 shares of Series
B Preferred Stock for $296,932 was extended by mutual consent to
April 30, 1996. The Company subsequently allowed the holders of
the Series B Preferred Stock to convert the remaining 21,676 shares
of Series B Preferred Stock into 75,410 shares of common stock.
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LOAN TRANSACTIONS.
In March, 1995, in order to meet a corporate commitment, the
Company borrowed monies totalling $500,000 from Douglas L.
Hawthorne and Rick G. Avare, who are officers/directors of the
Company. The funds bore interest at the rate of 10% per annum and
were due in full in July, 1996. The note was secured by gas
properties, and the individuals had the option to convert their
note to a working interest position in wells to be drilled offshore
Louisiana. In July, 1995, the related parties converted their note
to a 13.75% working interest in two wells. Pursuant to an
agreement between the parties, the Company had the right to
repurchase the working interest position on or before September 30,
1995. The Company exercised the right, as amended, to repurchase
the working interest position for $750,000 plus a 3.875% overriding
royalty interest prior to September 30, 1995. In 1996, the Company
purchased Mr. Avare's overriding royalty interest in the Ship Shoal
150 B-3 well for $125,000. The Company is considering repurchasing
the remaining overriding royalty interests of Messrs. Hawthorne and
Avare in the Ship Shoal 150 wells based upon the fair market value
of the wells utilizing the 1996 year-end reserve report. However,
no action has been taken by the Board of Directors at this time.
In July, 1995, in order to fulfill a loan commitment to
Century, an aggregate of $400,000 was funded by the directors of
the Company. These monies were paid to the Company in exchange for
a $400,000 participation in an existing note from Century Offshore
Management Corporation ("Century") to the Company in the amount of
$6,500,000 (the Century Note). Due to the fact that the Century
Note was relinquished as a part of the Company's acquisition of the
South Timbalier 148 properties, the Company and the directors
simultaneously agreed to terminate the directors' participation in
the Century Note. The Company remains liable to the directors for
the outstanding balance at December 31, 1996, of $240,000 plus
interest thereon at the rate of 22% per annum. Pursuant to the
Termination of Participation Agreements entered into between the
Company and the directors, payment of the balance is due in monthly
installments of $12,352, beginning April 1, 1997, with the final
payment due March 1, 1999.
In April, 1996, the Company entered into agreements with two
individuals, one of whom is Douglas L. Hawthorne, a director of
the Company. Under the agreements, the individuals each paid to
the Company $250,000 in exchange for the right to participate on a
pro rata basis in the Century Note. The agreement allowed the
individuals to receive a combined payment of $500,000 plus interest
at 22% from the Century Note repayment. The agreements assigned
the payments from the portion of the Century Note which was not
pledged to the Company's primary lender. The proceeds received by
the Company under the agreements, which reduced the carrying value
of the Century Note, were used to fund additional development
activities in the Gulf Coast region. In July, 1996, the Century
Note was canceled as part of the consideration paid by the Company
to Century for the purchase of certain oil and gas properties. The
Company and the individuals simultaneously agreed to terminate the
individuals' participation in the Century Note in exchange for the
Company assuming the liability to repay $500,000 to the individuals
plus interest thereon at the rate
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of 22% per annum. The Company has paid the non-affiliated
individual in full. Pursuant to the Termination of Participation
Agreement entered into between the Company and Mr. Hawthorne,
payment terms of the balance include $50,000 due and payable by
March 10, 1997, and the remaining balance due in monthly
installments of $10,293 beginning April 1, 1997, with the final
payment due March 1, 1999.
PRIMA TRANSACTIONS.
Under the letter agreement dated October 17, 1994, the Company
had the right to acquire a 10% equity interest in Settle for
$4,000,000 (the "Settle Securities"). Due to the fact that the
Company was not in a position to acquire this equity interest, the
agreement was subsequently amended to permit a third party to
acquire the Settle Securities. The funds used to effect the
foregoing acquisition were borrowed by the third party from Prima,
a limited liability company in which Rick G. Avare owns a 20%
interest. The third party is also a member of Prima and the
principal stockholder of Southern Resources, Inc. Prima, in turn,
borrowed the funds it used to provide the foregoing loan from a
bank in Lexington, Kentucky. The Company has not guaranteed nor is
it obligated on the Prima bank loan, and the bank will look solely
to Prima and its members for payments. In connection with this
transaction, the Company entered into a Put Agreement (the "Put
Agreement") dated March 15, 1995, with Prima which provided that in
the event Prima obtained title to the Settle Securities, Prima had
the right to require the Company to purchase the Settle Securities
for $4,000,000, payable in cash and common stock.
The Put Agreement with Prima was terminated in July, 1995, and
a new agreement, as amended, providing for the Company's ability to
call the Settle Securities from the third party member of Prima for
$4,000,000 has been substituted therefor (the "Call Agreement").
The Call Agreement also provides for non-refundable monthly
installments of $31,250 (as originally required under the Put
Agreement) until such time as a total of $1,000,000 has been
advanced under the Call Agreement (including payments previously
made under the Put Agreement). In the event the Company elects to
call the Settle Securities, the advance payments shall be credited
toward the purchase price. Additionally, a $500,000 certificate of
deposit held as collateral for Prima's loan was liquidated by the
Company and the funds were advanced to Prima under the potential
Call Agreement. Prima used the $500,000 to purchase shares of
Series B Preferred Stock from a third party, which Preferred Stock
it subsequently converted to common stock. In the event the
Company exercises the Call option, the $500,000 will be credited
towards the purchase. The Company's right to call the Settle
Securities begins January 15, 1997, and ends December 31, 1997.
EXECUTIVE OFFICERS.
In September, 1995, the Company bought out a production
platform use agreement from Century Oil, which is owned by Jonathan
Rudney. Mr. Rudney was President of the Company from January 1,
1996, until May 15, 1996.
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Mr. Rudney is also a 25% owner of Century, with whom the
Company is jointly developing certain offshore and onshore
properties in the Gulf Coast region (see Item 2, Description of
Property, Gulf Coast Properties in General, of this Report on Form
10-KSB, regarding the Joint Operating Agreement between the Company
and Century).
The Company has paid or accrued fees of approximately $68,000
and $44,000 during 1995 and 1994, respectively, to Advisory
Services, Inc., for consulting and administrative services.
Advisory Services is owned by Andrew J. Kacic who is a former
officer and director of the Company.
Effective December 31, 1995, the Company entered into a
severance agreement with Andrew J. Kacic, its former President,
Chief Executive Officer and founder, who resigned effective
December 31, 1995. Under the agreement, Mr. Kacic was paid $85,000
and will receive the sum of $10,000 per month through March 31,
1998. In addition, the executive surrendered 515,590 CSO common
stock options which had exercise prices of between $6.00 and $8.00
per share and expired between March 18, 2003, and February 1, 2005.
In return, Mr. Kacic received 643,987 common stock options under a
Severance Plan, at an exercise price of $4.00 per share and which
expire on November 29, 2000. He also retained 46,203 CSO common
stock options immediately exercisable, previously issued to him at
$3.50 per share and which expire on October 11, 2002. The Company
also agreed to provide for payment of an office lease through
October, 1996, and assigned a one percent (1%) gross overriding
royalty interest in certain oil and gas properties. As a result of
the agreement, the Company recognized a charge against income of
$371,346 and accrued a severance liability at December 31, 1995, of
$286,346 based on an eight percent (8%) discount factor. As of
December 31, 1996, this amount had been reduced to $142,293.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder of the Company intends to
present at the 1998 Annual Meeting of Stockholders must be received
by the Secretary at the Company's principal executive offices by
March 2, 1998 in order to be considered by the Board of Directors
for inclusion in the Board of Directors' proxy solicitation
materials for that meeting.
ANNUAL REPORT
The Company's 1996 Annual Report to Stockholders accompanies
this Proxy Statement. All financial statements and other financial
information and managements discussion and analysis of the
financial condition and results of operations included in the
Annual Report are incorporated herein by reference. Otherwise, the
Annual Report does not form any part of the material for the
solicitation of proxies.
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PROXY SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS OF
AMERICAN RESOURCES OF DELAWARE, INC.
The undersigned hereby constitutes and appoints Douglas L.
Hawthorne and Rick G. Avare, and each of them (acting together if
both are present and voting, or if only one of them is present and
voting, then by one), with full power of substitution in each of
them, the attorneys and proxies of the undersigned to vote as
designated below at the Annual Meeting of Stockholders of American
Resources of Delaware, Inc. (the "Company") to be held on June 3,
1997, or at any adjournment or adjournments thereof (the
"Meeting"), all shares which the undesigned is entitled to vote at
the Meeting.
Proposal No. 1: Amendment to the Company's Restated Certificate of
Incorporation to add Article Eleven to classify the Board of
Directors into three classes of directors with staggered three-year
terms.
/ / FOR / / AGAINST / / ABSTAIN
Proposal No. 2: Election of Directors:
Nominees: Rick G. Avare, Leonard K. Nave, Douglas L. Hawthorne,
David Fox, Jr., Donald A. Schellpfeffer, William D. Bishop, Len
Aldridge and Robert L. McIntyre.
/ / VOTE FOR nominees listed above, except vote withheld from
following nominees (if any):
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/ / VOTE WITHHELD from all nominees.
Proposal No. 3: Ratification of the selection of KPMG Peat Marwick
LLP as independent auditors of the Company for 1997.
/ / FOR / / AGAINST / / ABSTAIN
Proposal No. 4: Amendment to Article Four of the Company's Restated
Certificate of Incorporation to increase the number of authorized
shares of common stock from 20,000,000 shares to 50,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
Proposal No. 5: In their discretion, upon such other matters as may
be brought properly before the Meeting.
This proxy, if in proper form and not revoked, will be voted
as specified by the stockholder. IF NO CHOICE IS SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE APPROVAL OF PROPOSALS NO. 1, 3 AND 4
AND FOR THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL NO. 2. This
proxy is revocable at any time before it is voted as indicated in
the accompanying Proxy Statement. The accompanying proxy statement
describes the discretionary authority of the proxies to vote for a
substitute nominee if any of the nominees named above fails to
stand for election at the Meeting.
PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY. Please
sign your name legibly exactly as it appears hereon. Each joint
owner should sign. If executed by a corporation, please sign full
corporate name by a duly authorize officer. Attorneys, executors,
administrators, trustees, guardians, etc., should give full title
as such.
DATE:
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