SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
December 16, 1997
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Date of Report (Date of earliest event reported)
AMERICAN RESOURCES OF DELAWARE, INC.
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(Exact name of Registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-21472 86-0713506
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(Commission File Number) (IRS Employer
Identification No.)
160 Morgan Street
P. O. Box 87
Versailles, Kentucky 40383
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(Address of principal executive offices) (Zip Code)
(606) 873-5455
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(Registrant's Telephone Number, including Area Code)
Not Applicable
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(Former name or former address, if changed since last report)
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Item 1. Changes in Control of Registrant. Not Applicable.
Item 2. Acquisition or Disposition of Assets.
On December 16, 1997, the Registrant entered into a Purchase
and Sale Agreement to acquire proved developed and undeveloped
oil and gas properties, platforms, equipment and pipelines
(collectively the "Assets") located offshore Louisiana on Ship
Shoal Block 222, Ship Shoal Block 225 and West Cameron Block 368
from K.E. Resources, Ltd. The purchase price for the Assets was
Two Million Five Hundred Thousand Dollars ($2,500,000), which was
funded from the Registrant's line of credit with Den norske Bank.
The transaction was completed and funded on December 19, 1997.
On December 22, 1997, the Registrant entered into a Purchase
and Sale Agreement to acquire additional interests in the Assets
located on West Cameron Block 368 from Apache Corporation
pursuant to a preferential right to purchase election. The
purchase price for the Assets was One Hundred and Twenty Seven
Thousand Dollars ($127,000), which was funded from the
Registrant's line of credit with Den norske Bank. It is
anticipated that this transaction will close by December 31,
1997.
Item 3. Bankruptcy Receivership. Not Applicable.
Item 4. Change in Registrant's Certified Accountant. Not
Applicable.
Item 5. Other Events. Not Applicable.
Item 6. Resignation of Registrant's Directors. Not applicable.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements. Not applicable.
(b) Pro Forma Financial Information. Not applicable.
(c) Exhibits:
Exhibit 10.87 Purchase and Sale Agreement by and
between Registrant and K.E.
Resources, Ltd., entered into on
December 16, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
AMERICAN RESOURCES OF DELAWARE, INC.
By: /s/ Ralph A. Currie
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Ralph A. Currie
Its: Chief Financial Officer
Dated: December 24, 1997
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PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
K.E. RESOURCES, LTD.
AND
AMERICAN RESOURCES OFFSHORE, INC.
<PAGE>
TABLE OF CONTENTS
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Page
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I. PURCHASE AND SALE OF ASSETS 1
1.01 Assets To Be Sold 1
1.02 Purchase Price 4
1.03 Deliveries by KE to ARO 4
1.04 Deliveries by ARO to KE 5
1.05 Location and Time of the Closing 5
1.06 Allocation of Purchase Price 6
1.07 Reserved Claims 6
II. REPRESENTATIONS AND WARRANTIES 6
2.01 Existence of KE 7
2.02 Power of KE 7
2.03 Authorization of KE 7
2.04 Litigation - Agreement 8
2.05 Litigation - Assets 8
2.06 MMS Approval 8
2.07 Consents and Waivers 8
2.08 Preferential Purchase Rights 9
2.09 Environmental Matters 9
2.10 Compliance with Laws 10
2.11 Assets in Satisfactory Condition 10
2.12 Permits 11
2.13 Leases 11
2.14 Disclosure 12
2.15 Title Warranty 13
2.16 Contractual Agreements 13
2.17 Material Adverse Effects 14
2.18 Payment of Funds 14
2.19 Gas Imbalance 14
2.20 Wells Previously Plugged and Abandoned 15
III. REPRESENTATIONS AND WARRANTIES OF ARO 15
3.01 Existence of ARO 15
3.02 Power of ARO 15
3.03 Authorization of ARO 16
3.04 Litigation 16
3.05 Acquiring for Own Account 16
3.06 MMS Approval 16
IV. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES 17
4.01 Accuracy of Representations and Compliance with
Covenants 17
4.02 Closing Documents and Proceedings 17
4.03 Opinion of KE's Counsel 17
4.04 Opinion of ARO's Counsel 17
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TABLE OF CONTENTS
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Page
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4.05 No Substantial Damage or Adverse Effect 18
4.06 No Action to Restrain 18
4.07 Consents and Approvals 18
4.08 Delivery of Documents 18
V. INDEMNIFICATION AND REMEDIES 18
5.01 Claims 18
5.02 Indemnity by ARO 19
5.03 Indemnity by KE 19
5.04 Notice of Claim 19
VI. TERMINATION 20
6.01 Methods of Termination 20
VII. POST CLOSING 21
7.01 Receipts and Credits 21
7.02 Final Accounting Settlement 22
7.03 Access 23
7.04 Notification to Third Parties 23
VIII. TAXES 23
8.01 Apportionment of Ad Valorem and Property Taxes 23
8.02 Sales Taxes 24
8.03 Other Taxes 24
IX. MISCELLANEOUS 24
9.01 Knowledge 24
9.02 Entire Agreement and Amendments 25
9.03 Assignment 25
9.04 Headings 25
9.05 Law Governing 25
9.06 Parties in Interest 25
9.07 Further Assurances 25
9.08 Relationship 26
9.09 LSA-R.S. 9:2780 26
9.10 Publicity 26
9.11 Notices 26
9.12 Confidentiality 27
9.13 Severability 28
9.14 No Third Party Beneficiary 28
9.15 Payment of Expenses and Fees 28
9.16 Survival of Representations 29
9.17 No Finder's Fees 29
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement"),
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dated December ____, 1997, is by and between AMERICAN RESOURCES
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OFFSHORE, INC., ("ARO"), a Delaware corporation, as buyer, and
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K.E. RESOURCES, INC., ("KE"), a Delaware corporation, as seller.
--
WHEREAS, KE desires to sell to ARO and ARO desires to
purchase from KE on the terms set forth in this Agreement those
certain oil and gas properties set forth hereinafter.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the benefits to be derived by each party
hereunder, and intending to be legally bound, the parties hereby
agree as follows:
ARTICLE I
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PURCHASE AND SALE OF ASSETS
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1.01 Assets To Be Sold. Subject to the terms and conditions
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of this Agreement, KE shall sell, transfer, assign and deliver to
ARO, and ARO shall purchase from KE, effective September 1, 1997
at 12:01 a.m. Central Standard Time (the "Effective Date"), all
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of KE's right, title and interest in and to the leases, assets,
properties and rights described below, located in, on, under or
pertaining to Ship Shoal Block 222 (Lease OCS-G 1525), Ship Shoal
Block 225 (Lease OCS-G 1984), Ship Shoal Block 225 (Lease OCS-G
14504) and West Cameron Block 368 (Lease OCS-G 5315) on the Outer
Continental Shelf off the coastline of the State of Louisiana,
more particularly described as follows
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(a) Oil and Gas Leases of Submerged Lands Under the
Outer Continental Shelf Lands Act, (i) dated
effective July 1, 1967, granted by the United
States Department of Interior, Bureau of Land
Management, in favor of Southern Natural Gas
Company, covering Ship Shoal Block 222, as shown
on OCS Official Leasing Map, Louisiana Map No. 5,
containing approximately 5,000.00 acres,
designated as OCS-G 1525, (ii) dated effective
September 1, 1970, granted by the United States
Department of Interior, Bureau of Land Management,
in favor of Southern Natural Gas Company,
covering the North Half (N/2) of Ship Shoal Block
225, as shown on OCS Official Leasing Map,
Louisiana Map No. 5, containing approximately
2,500.00 acres, designated as OCS-G 1984, (iii)
dated effective May 1, 1994, granted by the United
States Department of Interior, Bureau of Land
Management, in favor of SONAT Exploration Company,
covering the South Half (S/2) of Ship Shoal Block
225, as shown on OCS Official Leasing Map,
Louisiana Map No. 5, containing approximately
2,500.00 acres, designated as OCS-G 14504, (iv)
dated effective July 1, 1983, granted by the
United States Department of Interior, Bureau of
Land Management, in favor of Shell Offshore Inc.,
Florida Exploration Company, Fluor Oil and Gas
Corporation and Apache Corporation, covering West
Cameron Block 368, as shown on OCS Official
Leasing Map, Louisiana Map No. 1A, containing
approximately 5,000.00 acres, designated as OCS-G
5315 (collectively the "Leases") (KE's interests
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in the Leases described above shall be
collectively referred to as the "Leasehold
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Interest" and are further described on Exhibit A);
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(b) All wells, wellbores, pipe, gathering lines,
compressors, materials, inventory, facilities,
supplies, equipment, platforms, pipelines and any
and all other personal, real, movable and
immovable property, fixtures or equipment which
are located on or presently used in connection
with, or relating to, the wells or the Leasehold
Interest, or the production, treatment or
transportation of oil and gas from the Leasehold
Interest, and any replacements, attachments or
accessories now or hereafter attached, added or
affixed (collectively the "Equipment");
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(c) All gas, oil, casinghead gas, drip gasoline,
natural gasoline and all other liquid and gaseous
hydrocarbons (hereinafter referred to collectively
as "Gas and Oil") produced from or attributable to
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the Leasehold Interest on or after the Effective
Date;
(d) To the extent the same are assignable or
transferable by KE and to the extent and only to
the extent that the same relate to the ownership
or operation of the Leasehold Interest, all
orders, contracts, agreements (including without
limitation all operating agreements, bidding
agreements, transportation agreements, unit
agreements, participation agreements, gathering
agreements, permits and processing agreements),
instruments, licenses, authorizations and other
rights, privileges, benefits and powers conferred
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upon KE (including without limitation the
indemnification and defense agreement granted by
Sea Robin Pipeline and related to Ship Shoal
Blocks 222 and 225) (the "Contracts"); and
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(e) All well record files, reserve reports, maps,
surveys, bonds, title opinions (to the extent that
KE is permitted) permits, audits, claims, liens,
suits, settlements and demands (excepting only the
Excluded Claims, as defined below in Section 2.04)
(the "Data").
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The Leasehold Interest, Equipment, Gas and Oil,
Contracts and Data shall be referred to collectively as the
"Assets".
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1.02 PURCHASE PRICE. The purchase price for the Assets to
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be paid by ARO to KE at Closing, as herein defined, shall be Two
Million Five Hundred Thousand Dollars ($2,500,000.00), in
currency of the United States, deliverable by wire transfer
("Purchase Price").
1.03 DELIVERIES BY KE TO ARO.
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(a) At the Closing, KE shall deliver to ARO:
(i) Certificates from the Secretaries of State
(or equivalent official) of the States of
Delaware and Louisiana as to the good
standing of KE in those States, certified as
of a date within five (5) days of Closing;
(ii) A certificate of an officer of KE attesting
to those matters set forth in Article II;
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(iii) A copy of the resolutions, certified by the
Secretary of KE, authorizing KE to enter into
the transactions contemplated by this
Agreement;
(iv) The Opinion of KE's counsel, in a form
acceptable to ARO's counsel, referred to in
Sections 1.04 (ii); and
(v) Instruments of conveyance including but not
limited to assignments, bills of sale, and/or
other instruments of transfer as more fully
set forth in Exhibit B hereto and further
identified as an Assignment and Bill of Sale
(Exhibit B-1) and Assignment of Operating
Rights (Exhibit B-2), all of which shall be
reasonably satisfactory to ARO's counsel.
1.04 DELIVERIES BY ARO TO KE.
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(a) At the Closing, ARO shall deliver to KE:
(i) The Purchase Price;
(ii) The opinion of the ARO's Counsel referred to
in Section 1.03 hereof; and
(iii) Certificates from the Secretary of State of
Delaware as to the good standing of ARO in
the State of Delaware, certified as of a date
within five (5) days of Closing.
1.05 LOCATION AND TIME OF THE CLOSING. The Closing shall be
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held not later than the 22nd day of December, 1997 at 10:00 AM
(Eastern Time) or as shall be mutually agreed upon by KE and ARO
("Closing"). The Closing shall be held at the offices of
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Schully, Roberts, Slattery and Jaubert in New Orleans, Louisiana
or such other place as the parties hereto may agree in writing.
1.06 ALLOCATION OF PURCHASE PRICE. Attached hereto as
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Exhibit C is the allocation of Purchase Price, agreed upon by the
parties.
1.07 RESERVED CLAIMS. KE and ARO acknowledge the pendency
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of certain litigation styled "COASTWIDE MARINE SERVICES, INC., ET
AL VS. K.E. RESOURCES, LTD., ET AL, Case No. 94-1756, United
States District Court for the Eastern District of Louisiana, New
Orleans Division" (the "Century Litigation") and the bankruptcy
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case of Century Offshore Management Corporation, Case No.
93-51340, U.S. Bankruptcy Court, Eastern District of Kentucky.
KE reserves all of its right, title and interest it may now have
or hereafter have to establish or enforce: (i) its claims, proofs
of claim, liens, orders or judgments filed or entered in the
bankruptcy case of Century Offshore Management Corporation, Case
Number 93-51340, U.S. Bankruptcy Court, Eastern District of
Kentucky; (ii) and/or that certain order or judgment in the
matter of K.E. Resources, Ltd. et al. v. BMO Finance, Inc.
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et al., Case No. 96-5311, U.S. Court of Appeals for the Sixth
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Circuit and (iii) those certain Assignments of Claim described on
Exhibit F. Notwithstanding the foregoing reservation by KE, in
the event KE seeks to enforce or exercise its rights under such
reserved claims, KE agrees that it shall not enforce or exercise
those rights or claims against ARO or any of the Assets (as
defined herein).
ARTICLE II
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REPRESENTATIONS AND WARRANTIES OF KE
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KE hereby represents and warrants to ARO as of the date
hereof that:
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2.01 EXISTENCE OF KE. KE is a corporation duly organized,
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validly existing and in good standing under the laws of the State
of Delaware and is duly qualified with the Louisiana Secretary of
State and the United States Minerals Management Service to carry
on its business on the Outer Continental Shelf, Gulf of Mexico
federal waters, and has the power and authority to own its
property and to carry on its business as now conducted and to
enter into and carry out the terms of this Agreement;
2.02 POWER OF KE. KE has the corporate power to enter into
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and perform this Agreement and the transactions contemplated
hereby. The execution, delivery and performance of this
Agreement by KE, and the transactions contemplated hereby, will
not violate (i) any provision of the certificate of incorporation
or bylaws of KE, (ii) any material agreement or instrument to
which KE is a party or by which KE is bound which pertains to the
Assets, (iii) any judgment, order, ruling, or decree applicable
to KE, or (iv) any law, rule or regulation applicable to KE.
Notwithstanding the foregoing, KE and ARO acknowledge the
existence of certain preferential right to purchase provisions in
operating agreements affecting the Leasehold Interests which
provisions are not applicable to the transactions contemplated by
this agreement.
2.03 AUTHORIZATION OF KE. The execution, delivery and
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performance of this Agreement and the transactions contemplated
hereby have been duly and validly authorized by all requisite
corporate action on the part of KE. This Agreement has been duly
executed and delivered on behalf of KE, and at the Closing all
documents and instruments required to be executed and delivered
by KE pursuant to this Agreement will be duly executed and
delivered. This Agreement does, and such documents and
instruments shall, constitute legal, valid and binding
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obligations of KE enforceable in accordance with their terms,
subject, however, to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in
effect relating to the rights and remedies of creditors, as well
as to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
2.04 LITIGATION-AGREEMENT. No litigation, claims,
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administrative proceedings or other proceedings or governmental
investigations are pending, or threatened, which would prevent or
delay the execution, delivery or performance of this Agreement by
KE.
2.05 LITIGATION - ASSETS. There are no court,
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administrative, regulatory or similar proceeding (whether civil,
quasi-criminal or criminal); arbitration or other dispute
settlement procedure; investigation or inquiry by any government,
administrative, regulatory or similar body or any third person or
entity; or any similar matter or proceeding (collectively
"Proceedings") which would have a material adverse effect on the
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Assets (whether in progress or threatened); as it pertains to the
Assets, no event has occurred which might give rise to any
Proceedings, there is no judgment, decree, injunction, rule,
compliance order, notice, award or order of any court, government
department, board, commission, agency, arbitrator or similar body
outstanding against KE and no complaint, grievance, claim, work
order or investigation has been filed, made or commenced against
KE.
2.06 MMS APPROVAL. To the best of KE's knowledge, there is
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no matter or circumstance which would preclude and/or inhibit
unconditional MMS approval of the assignment of the Leasehold
Interest from KE to ARO.
2.07 CONSENTS AND WAIVERS. There are no consents (except as
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set forth in 2.06 and governmental consents which are customarily
obtained after the assignment), agreements or waivers of
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preferential rights necessary to the valid assignment of the
Assets to ARO at Closing. There are no calls on production with
respect to the production from the Leasehold Interest, except the
call on oil and gas production in favor of Amoco Production
Company related to the N/2 of Ship Shoal Block 225 and all of
Ship Shoal Block 222.
2.08 PREFERENTIAL PURCHASE RIGHTS. KE's sale of the Assets
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to ARO will not activate any preferential purchase rights
applicable to the Assets or any part of the Assets. .
Notwithstanding the foregoing, KE and ARO acknowledge the
existence of certain preferential rights to purchase provisions
in operating agreements affecting the Leasehold Interest which
provisions are not applicable to the transactions contemplated by
this Agreement.
2.09 ENVIRONMENTAL MATTERS. To the best of KE's Knowledge
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(as used in this Agreement, the term "Knowledge" shall have the
meaning ascribed to it in Section 9.01 below), there exists no
Environmental Defect with respect to the Assets. An
Environmental Defect means a condition or circumstance that
exists in connection with the Assets that is not in compliance
with any law, regulation, order, notice, ruling, division or
judgment of or agreement with any federal, state or local agency
or court relating to the environment or that requires any owner
or operator of the Assets to undertake any cleanup, remediation
or other expense (an "Environmental Defect"). KE has not received
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notice of any violation of applicable environmental laws, rules,
regulations, ordinances and orders relating thereto, including
laws relating to actual or threatened emissions, discharges or
releases of pollutants, contaminants or hazardous or toxic
materials or waste into air, water or land, or otherwise relating
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to the generation, manufacture, processing, transportation or
distribution of pollutants, contaminants or hazardous toxic
substances or wastes.
2.10 COMPLIANCE WITH LAWS. To the best of KE's Knowledge,
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the Assets have been operated in compliance with all laws, codes,
notices to lessees, regulations and orders applicable to the
Assets and the operations undertaken in connection therewith. No
notice or demand from any governmental body has been served upon
KE for the Assets claiming any material violation of any law or
any other code, rule or regulation. None of the Assets, nor the
ownership, leasing, occupancy, or the operation thereof, is in
violation of any such law, ordinance, code, rule or regulation.
2.11 ASSETS IN SATISFACTORY CONDITION. To the best of KE's
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Knowledge, all the physical Assets, including the Equipment,
necessary for the operation of the Leasehold Interest are in
satisfactory operating condition for their intended use and KE
has not been made aware of any facts which would suggest that the
Equipment is not in satisfactory, operating condition for their
intended use. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
KE DISCLAIMS AND NEGATES AS TO ANY PERSONAL PROPERTY, FIXTURES,
IMPROVEMENTS AND APPURTENANCES SUBJECT TO THIS AGREEMENT
(INCLUDING ALL WELLS): (A) ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, (B) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS
FOR A PARTICULAR PURPOSE, AND (C) ANY IMPLIED OR EXPRESS WARRANTY
OF CONFORMITY TO MODELS OR SAMPLE OR MATERIALS. ARO EXPRESSLY
AGREES THAT TITLE TO SUCH PERSONAL PROPERTY, FIXTURES,
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IMPROVEMENTS AND APPURTENANCES WILL BE ACCEPTED "AS IS," "WHERE
IS," "WITH ALL FAULTS," AND IN ITS PRESENT CONDITION AND STATE OF
REPAIR.
2.12 PERMITS. To the best of KE's Knowledge, either KE or
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the current operator of the Assets, hold all permits, licenses,
approvals and franchises (collectively, "Permits") which it
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requires, or is required to have, to operate, own or lease the
Assets conveyed hereunder and all such Permits are in full force
and effect. KE is in compliance with all the terms and
conditions relating to such Permits and there are no proceedings
pending or threatened which may result in revocation,
cancellation, suspension or any adverse modification of any of
such Permits. Neither the terms and conditions relating to such
Permits nor the legislation or regulations pursuant to which the
same were issued require the consent or approval of, or filing
with or notice to, any governmental agency or regulatory body or
other person, to assure the continued holding by ARO of such
Permits after completion of the transaction contemplated by this
Agreement.
2.13 LEASES. KE owns the Leasehold Interests and the
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Leasehold Interests are or at Closing will be free and clear of
liens, claims and encumbrances. KE has duly performed all of the
obligations under the Leases that are now or will prior to the
Effective Date be required to be performed by KE. KE has not
received any notice of default under any of the Leases nor is any
such notice pending. The Leases are valid and enforceable in
accordance with their terms and:
(i) To the best of KE's Knowledge, KE has not received
any notice of, and there exists no event of
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default under any of the Leases or event which
constitutes or would constitute (with notice or
lapse of time or both) a default in any material
respect thereunder.
(ii) To the best of KE's Knowledge, with respect to the
Assets, and limited to the time period during
which KE has owned the Assets, all rentals and
royalties (including minimum royalties, shut-in or
otherwise) required to be paid to perpetuate the
Leases have been timely and properly paid to the
proper parties and in the proper amounts.
(iii) The Leases, and all material agreements, orders
and other instruments comprising the Assets or out
of which the Assets arise are legal valid,
binding, subsisting, in good standing and in full
force and effect.
(iv) The Leases are in full force and effect by
operations as approved by the Minerals Management
Service, in accordance with 30 C.F.R. Section
250.13.
2.14 DISCLOSURE.
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KE has no Knowledge of any event or condition which could
reasonably be expected to have a material adverse effect on the
condition (financial or otherwise). The representations and
warranties contained in this Agreement, in the Schedules hereto,
in the agreements entered into pursuant hereto or in connection
herewith, or in any Agreement Certificate shall not be affected
or deemed waived by reason of (i) any investigation made by ARO
or its representatives or (ii) the fact that ARO and/or its
representatives knew or should have known that any such
representation or warranty is or might be inaccurate in any
respect.
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Neither the furnishing of opinions or reports pursuant to
this Agreement nor any information disclosed by any investigation
or examination by ARO, nor any failure by ARO to make any
investigation or examination under this Agreement, nor the
Closing of the transactions contemplated hereby, shall in any way
reduce any rights ARO may have under any representations,
warranties or covenants contained in this Agreement or other
documents executed in connection herewith.
Except as may be specifically set forth to the contrary in
this Agreement, ARO acknowledges that KE has made no
representations or warranties whatever, express or implied (KE
having hereby expressly disclaimed all such warranties) as to the
quality or quantity of hydrocarbon reserves attributable to the
Assets, future production rates, exploratory or development
drilling opportunities or potential for production of
hydrocarbons from the Assets.
2.15 TITLE WARRANTY. KE represents and warrants to ARO that
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KE has not granted or conveyed to any other party any interest in
or any lien or encumbrance on the Assets (excepting only those
which will be fully released and canceled at or prior to
Closing), and KE further agrees that it will defend title to the
Assets against all claims and demands of any and all persons
whomsoever claiming title to the Assets, or any part thereof, by,
through or under KE, but not otherwise.
2.16 CONTRACTUAL AGREEMENTS.
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(i) To the extent same are in its possession or
control, KE has made available to ARO all
operating agreements, farm-out or farm-in
agreements, pooling or unitization orders and
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agreements, oil or gas sales contracts, processing
contracts, drilling or service contracts,
partnership or joint venture agreements and any
other material contracts or agreements affecting
any of the Assets.
(ii) No present or future production from any of the
Assets is dedicated under or subject to and
contract, commitment, agreement, call or
arrangement of any kind.
(iii) KE is not obligated, by virtue of a prepayment
arrangement, a "take or pay arrangement, a
production payment or any other arrangement, to
deliver hydrocarbons produced from the Assets at
some future time without substantially
contemporaneous receiving payment therefor.
(v) KE is not in default of its material obligations
under any of the Contracts.
2.17 MATERIAL ADVERSE EFFECTS. To the best of KE's
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Knowledge, there is no new or recent development, occurrence,
event or condition which has materially and adversely affected or
may materially and adversely affect the Assets. KE has not done
anything with respect to the Assets which is not in the ordinary
course of KE's business, and which would have a material adverse
effect on the Assets.
2.18 PAYMENT OF FUNDS. KE has duly and timely paid all
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taxes, governmental charges, duties, penalties, interests and
fines due and payable by it and affecting the Assets and its
operation on or before the Effective Date, where the failure to
make such payment would have a material adverse effect on the
Assets.
2.19 GAS IMBALANCE. KE and ARO acknowledge, as of the
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Effective Date, the existence of a gas imbalance attributable to
KE's interest in Ship Shoal Blocks 222 and 225, as set forth on
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Exhibit E. To the best of its Knowledge, KE represents and
warrants that no other gas imbalance exists as of the Effective
Date attributable to the Leasehold Interests, other than as set
forth on Exhibit E. At Closing, KE shall pay ARO for any
cumulative over production attributable to the Leasehold
Interests or ARO shall pay KE for any cummulative under
production attributable to the Leasehold Interests, as of the
Effective Date, an amount calculated by multiplying the over or
under imbalance (measured in thousand cubic feet or mcf) by One
($1.00) Dollar (approximated by the parties to be $42,419.00).
2.20 WELLS PREVIOUSLY PLUGGED AND ABANDONED. Any and all
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wells drilled on or under the Leasehold Interest which have been
plugged and abandoned as of the Effective Date, have been plugged
and abandoned in compliance with all applicable laws, rules,
regulations, permits, notices to lessees and orders of any
governmental body or agency having jurisdiction.
ARTICLE III
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REPRESENTATIONS AND WARRANTIES OF ARO
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ARO represents as of the date hereof that:
3.01 EXISTENCE OF ARO. ARO is a corporation duly organized
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and validly existing and in good standing under the laws of the
State of Delaware and has the power and authority to own its
property and to carry on its business as now conducted and to
enter into and to carry out the terms of this Agreement and is
duly qualified with the United States Department of the Interior,
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Minerals Management Service, to carry on business in the Outer
Continental Shelf, Gulf of Mexico federal waters.
3.02 POWER OF ARO. ARO has the corporate power to enter
---- ------------
into and perform this Agreement and the transactions contemplated
hereby. The execution, delivery and performance of this
Agreement by ARO, and the transactions contemplated hereby, will
not violate (i) any provision of the certificate of incorporation
or bylaws of ARO, (ii) any material agreement or instrument to
which ARO is a party or by which ARO is bound, (iii) any
judgment, order, ruling, or decree applicable to ARO as a party
in interest, or (iv) any law, rule or regulation applicable to
ARO.
3.03 AUTHORIZATION OF ARO. The execution, delivery and
---- --------------------
performance of this Agreement and the transactions contemplated
hereby have been duly and validly authorized by all requisite
corporate action on the part of ARO. This Agreement has been
duly executed and delivered on behalf of ARO, and at the Closing
all documents and instruments required to be executed and
delivered by ARO will have been duly executed and delivered.
This Agreement does, and such documents and instruments shall,
constitute legal, valid and binding obligations of ARO
enforceable in accordance with their terms, subject, however, to
the effect of bankruptcy, insolvency, reorganization, moratorium
and similar laws from time to time in effect relating to the
rights and remedies of creditors, as well as to general
principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
3.04 LITIGATION. No litigation, claims, administrative
---- ----------
proceedings or other proceedings or governmental investigations
are pending or threatened, which would prevent or delay the
execution, delivery or performance of this Agreement by ARO.
16
<PAGE>
3.05 ACQUIRING FOR OWN ACCOUNT. ARO is acquiring the Assets
---- -------------------------
for its own account and not with a view to, or for offer of
resale in connection with, a distribution thereof within the
meaning of the Securities Act of 1933, as amended, and the rules
and regulations pertaining to it or a distribution thereof in
violation of any applicable securities laws.
3.06 MMS APPROVAL. ARO has no knowledge of any matter or
---- ------------
circumstance which would preclude and/or inhibit unconditional
United States Minerals Management Service approval of the
Assignment of the Assets from KE to ARO.
ARTICLE IV
----------
CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
--------------------------------------------
The obligation of KE and ARO to complete the transactions
contemplated by this Agreement is subject to the satisfaction of,
or compliance with, at or prior to the Closing, each of the
following conditions, unless waived in writing by the parties:
4.01 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH
---- -----------------------------------------------
COVENANTS. The representations and warranties of the parties
- ---------
made in or pursuant to this Agreement shall be true and correct
at the Closing with the same force and effect as if made at and
as of the Closing; the covenants contained in this Agreement to
be performed by the parties at or prior to the Closing shall have
been performed; and the parties shall not be in breach of any
provision of this Agreement.
4.02 CLOSING DOCUMENTS AND PROCEEDINGS. All documents and
---- ---------------------------------
certificates required by this Agreement to be delivered prior to
or at Closing shall have been delivered.
4.03 OPINION OF KE'S COUNSEL. ARO shall have received at
---- -----------------------
Closing, an opinion of KE's counsel in form and substance
satisfactory to ARO's Counsel and in the form attached hereto as
17
<PAGE>
Exhibit "F". In rendering such opinion, KE's counsel shall be
entitled to rely, as to matters of fact, on certificates of
senior officers of KE and shall be entitled to qualify, by
reference to his knowledge after appropriate inquiry, those
portions of the opinion which it is reasonable and customary to
so qualify.
4.04 OPINION OF ARO'S COUNSEL. KE shall have received an
---- ------------------------
opinion of ARO's at Closing, counsel in form and substance
satisfactory to KE's Counsel substantially to the same effect as
the representations and warranties of the ARO in Article III. In
rendering such opinion, ARO's Counsel shall be entitled to rely,
as to matters of fact, on certificates of senior officers of ARO
and shall be entitled to qualify, by reference to his knowledge
after appropriate inquiry, those portions of the opinion which it
is reasonable and customary to so qualify.
4.05 NO SUBSTANTIAL DAMAGE OR ADVERSE EFFECT. No
---- ---------------------------------------
substantial damage to the Assets by fire, casualty or other
hazard of any kind, which in the sole opinion of ARO is material,
shall have occurred prior to the Closing and no development,
occurrence, event or condition shall have occurred prior to
Closing which materially and adversely affects the Assets.
4.06 NO ACTION TO RESTRAIN. No action or proceeding shall
---- ---------------------
be pending or threatened by any person to restrain or prohibit
ARO from acquiring the Assets contemplated herein.
4.07 CONSENTS AND APPROVALS. In the event that any consents
---- ----------------------
and approvals are required to be obtained by KE, with the
exception of MMS approval of the assignments, the same shall have
been delivered to ARO, in each case in form and substance
satisfactory to ARO and ARO's counsel.
4.08 DELIVERY OF DOCUMENTS. KE shall have delivered all
---- ---------------------
instruments of conveyance referenced herein, in form acceptable
to ARO.
18
<PAGE>
ARTICLE V
---------
INDEMNIFICATION AND REMEDIES
----------------------------
5.01 CLAIMS. As used in this Agreement, the term "Claims"
---- ------ ------
shall mean any and all claims, losses, damages, demands, suits,
causes of action, liabilities, obligations, fines, penalties, and
costs, including without limitation attorney's fees, costs of
litigation and costs associated with environmental remediation.
5.02 INDEMNITY BY ARO. ARO shall release KE from and shall
---- ----------------
fully protect, indemnity and defend KE, its officers, agents and
employees, and hold them harmless, from and against any and all
Claims relating to, arising out of, or connected, directly or
indirectly, with the ownership or operation of the Assets, or any
part thereof, pertaining to the period of time on and after the
Effective Date, including but not limited to, any Claims relating
to injury or death of any person or persons whomsoever, or damage
to or loss of any property or resource, or any pollution or
environmental damage of any kind. The indemnity obligation
provided herein shall apply regardless of cause or of any
negligent acts or omissions of KE, its officers, agents and
employees.
5.03 INDEMNITY BY KE. KE shall release ARO from and shall
---- ---------------
fully protect, indemnify and defend ARO, its officers, agents and
employees, and hold them harmless, from and against any and all
Claims relating to, arising out of, or connected, directly or
indirectly, with the ownership or operation of the Assets, or any
part thereof, pertaining to the period of time on or prior to the
Effective Date, including without limitation, any Claims relating
to injury or death of any person or persons whomsoever, or damage
to or loss of any property or resource, or any pollution or
environmental damage of any kind (including without limitation
19
<PAGE>
any liability associated with the Notice of Proposed Civil
Penalty dated November 12, 1997, issued by the Minerals
Management Service and related to West Cameron Block 368). The
indemnity obligation provided herein shall apply regardless of
cause or of any negligent acts or omissions of ARO, its officers,
agents, and employees.
5.04 NOTICE OF CLAIM. Each indemnified party hereunder
---- ---------------
agrees that upon its discovery of facts giving rise to a Claim,
indemnified hereunder, including without limitation, receipt of
notice of any demand, assertion, action or proceeding, judicial
or otherwise, with respect to any matter to which it believes
itself to be entitled to indemnity under the provisions of this
Agreement, it shall give prompt notice thereof in writing to the
indemnifying party, together with a statement of such information
regarding any of the foregoing as it shall then have. Such
notice shall include a formal demand for indemnification under
this Agreement. The indemnified parties shall afford the
indemnifying party a reasonable opportunity to pay, settle or
contest the Claim and/or remediate the condition at the
indemnifying party's expense. If, in the sole opinion of the
indemnified party, the indemnifying party fails to promptly and
prudently fulfill its obligations under this indemnity, the
indemnified party may take such actions as it deems advisable and
the indemnified party shall be entitled to all reasonable costs,
expenses and attorneys fees incurred by it (determined by a court
of proper jurisdiction) which shall be paid by the indemnifying
party. All other rights and remedies, including without
limitation specific performance and damages, shall be reserved to
the indemnified party.
20
<PAGE>
ARTICLE VI
----------
TERMINATION
-----------
6.01 METHODS OF TERMINATION. The transactions contemplated
---- ----------------------
by this Agreement may be terminated at any time, but not later
than Closing:
(a) By mutual consent of KE and ARO; or
(b) By ARO at or prior to Closing, if any of the
conditions provided for in Article IV to have been
performed by KE has not been performed or waived
in writing by ARO; or
(c) By KE at or prior to Closing, if any of the
conditions provided for in Article IV to have been
performed by ARO has not been performed or waived
in writing by KE.
ARTICLE VII
-----------
POST-CLOSING
------------
7.01 RECEIPTS AND CREDITS. All monies, proceeds, receipts,
---- --------------------
credits and income attributable to the Assets for all periods of
time subsequent to the Effective Date shall be the sole property
and entitlement of ARO, and, to the extent received by KE, KE
shall fully disclose, account for and transmit same to ARO
promptly together with copies of all remittance advises, purchase
statements, meter charts and interpretations and support for
disbursements of royalty, overriding royalty interests, working
interests and taxes to the extent not previously provided.
21
<PAGE>
All monies, proceeds, receipts and income attributable to the
Assets for all periods of time prior to the Effective Date shall
be the sole property and entitlement of KE and, to the extent
received by ARO, ARO shall fully disclose, account for and
promptly transmit same to KE, together with copies of all
remittance advises, purchase statements, meter charts and
interpretations and support for disbursements of royalty,
overriding royalty interests, working interests and taxes not
otherwise provided.
Except as otherwise set forth in Article V, all costs,
expenses, disbursements, obligations and liabilities, with
respect to the Assets attributable to periods of time prior to
the Effective Date, regardless of when due or payable, shall be
the sole obligation of KE, and KE shall promptly pay, or if paid
by ARO, promptly reimburse ARO for and defend and hold ARO
harmless from and against same. Except as otherwise set forth in
Article V, all costs, expenses, disbursements, obligations, and
liabilities with respect to the Assets attributable to periods of
time subsequent to the Effective Date, regardless of when due or
payable, shall be the sole obligation of ARO, and ARO shall
promptly pay, or if correctly paid by KE, promptly reimburse KE
for and defend and hold KE harmless from and against same.
7.02 FINAL ACCOUNTING SETTLEMENT. As soon as reasonably
---- ---------------------------
practical, but no later than 30 days after Closing, KE shall
deliver to ARO a statement setting forth a detailed final
calculation of all post closing adjustments as authorized by this
Agreement. As soon as reasonably practical, but no later than 10
days after receipt of the statement, ARO shall deliver to KE a
written report containing any changes that ARO proposes be made
to the statement. The parties shall there after undertake to
agree with respect to such post closing adjustments within 15
days. If the parties fail to agree within such 15 day period,
22
<PAGE>
then the disputed items shall be resolved by submitting the same
to a firm of independent nationally recognized accountants
mutually acceptable to the parties (the "Accounting Referee").
------------------
The Accounting Referee shall resolve the dispute within 10 days
after having the relevant materials submitted for review. The
decision of the Accounting Referee shall be binding on the
parties and are non-appealable. The fees and expenses associated
with the accounting referee shall be borne equally by KE and ARO.
The date upon which all amounts associated with the final
accounting settlement are agreed to by the parties, whether by
the decision of the Accounting Referee or otherwise, shall be
herein called the "Final Settlement Date". Any amounts owed by
either party to the other as a result of such adjustments shall
be paid within five business days of the Final Settlement Date.
Any revenues received of expenses paid by ARO after the final
accounting settlement which are applicable to operations prior to
the Effective Date and not expressly conveyed to ARO shall be
billed or reimbursed to KE, as appropriate. Any revenues
received or expenses paid by KE after the final accounting
settlement which are applicable to operations after the Effective
Date and not expressly reserved by KE shall be billed or
reimbursed to ARO, as appropriate. In order to verify the
information provided by the parties under this section, ARO and
KE shall exchange their respective relevant records upon
reasonable request relating thereto for a period of six months
after the Closing. Any objections not raised within the six
month period shall be conclusively deemed to be waived for all
purposes for all parties.
7.03 ACCESS. After the Closing and for a transitional
---- ------
period of three months thereafter, upon the reasonable request of
23
<PAGE>
ARO, KE shall, and shall cause its officers and employees to,
cooperate with and assist ARO to ensure an orderly transition of
the ownership of the Assets to ARO and to answer inquires and
supply information, whether written or oral, relating to the
Assets (including legal, accounting, environmental, government
affairs and other information). All out-of-pocket expenses
incurred in connection herewith shall be borne by ARO.
7.04 NOTIFICATION TO THIRD PARTIES. KE shall join in any
---- -----------------------------
notifications to third parties, where necessary, to document the
transfer of ownership of the Assets, including without
limitation, providing notice to purchasers of production,
executing transfer orders and letters in lieu.
ARTICLE XIII
------------
TAXES
-----
8.01 APPORTIONMENT OF AD VALOREM AND PROPERTY TAXES. All ad
---- ----------------------------------------------
valorem taxes, real property taxes, personal property taxes, and
similar obligations attributable to the Assets ("Property Taxes")
--------------
with respect to the tax period in which the Effective Date occurs
shall be apportioned as of the Effective Date between KE and ARO.
The owner of record on the assessment date shall file or cause to
be filed all required reports and returns incident to the
Property Taxes and shall pay or cause to be paid to the taxing
authorities all Property Taxes relating to the tax period on
which the Effective Date occurs but shall be entitled to
reimbursement from the other party for its proportional share.
8.02 SALES TAXES. Any sales, use or other tax on the
---- -----------
transfer of the Assets from KE to ARO shall be borne by ARO .
8.03 OTHER TAXES. To the best of KE's Knowledge, all taxes
---- -----------
(other than income taxes) which are imposed on or with respect to
the production of oil, natural gas or other hydrocarbons or
24
<PAGE>
minerals or the receipt of proceeds therefrom (including but not
limited to severance, production, and excise taxes) shall be
apportioned between the parties based upon the respective shares
of production taken by the parties. All such taxes which have
accrued prior to the Effective Date have been or will be properly
paid or withheld by KE and all statements, returns, and documents
pertinent thereto have been or will be properly filed by KE. ARO
shall be responsible for paying or withholding or cause to be
paid or withheld all such taxes which have accrued after the
Effective Date and for filing all statements, returns, and
documents incident thereto.
ARTICLE IX
----------
MISCELLANEOUS
-------------
9.01 KNOWLEDGE. As used in this Agreement, the term
---- ---------
"Knowledge" shall mean that knowledge that KE would or should
have obtained, acting diligently, by making due inquiry of KE's
officers, directors, employees, agents and/or others reasonably
expected to be familiar with the particular subject matter or
reviewing business records or documents within KE's custody or
control.
9.02 ENTIRE AGREEMENT AND AMENDMENTS. This Agreement
---- -------------------------------
constitutes the entire agreement between KE and ARO with respect
to the transactions contemplated herein, and supersedes all prior
oral or written agreements, commitments, understandings, or
information otherwise furnished by KE and ARO with respect to
such matters and may not be altered or amended, except by an
instrument in writing executed by both parties.
25
<PAGE>
9.03 ASSIGNMENT. This Agreement, and all rights and
---- ----------
obligations hereunder, may not be assigned by either party,
without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
9.04 HEADINGS. The headings of the Articles and Sections of
---- --------
this Agreement are for guidance and convenience of reference only
and shall not limit or otherwise affect any of the terms or
provisions hereof.
9.05 LAW GOVERNING. This Agreement shall be governed by and
---- -------------
construed in accordance with the laws of the State of Louisiana.
9.06 PARTIES IN INTEREST. This Agreement shall be binding
---- -------------------
upon, and shall inure to the benefit of, the parties hereto and,
except as otherwise prohibited, their respective successors and
assigns, and nothing contained in this Agreement, express or
implied, is intended to confer upon any other person or entity
any benefits, rights or remedies.
9.07 FURTHER ASSURANCES. After execution, KE and ARO shall
---- ------------------
execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered such instruments and take such other
action as may be reasonable necessary or advisable to carry out
their obligations under this Agreement and under any document,
certificate or other instrument delivered pursuant hereto.
9.08 RELATIONSHIP. It is not the purpose or intention of KE
---- ------------
or ARO to create any partnership, joint venture, mining
partnership, or any association or any other relationship between
them whether legal or quasi-legal whereby one party is held
liable for the acts or omissions of the other party, and neither
this Agreement nor the operations hereunder shall be construed or
considered as creating any such relationship.
26
<PAGE>
9.09 LSA-R.S. 9:2780. The parties hereto specifically
---- ---------------
recognize that this Agreement is not an agreement pertaining to a
well for oil, gas or water, or drilling for minerals within the
scope of and as defined in LSA-R.S. 9:2780 and specifically agree
that this Agreement is not to be governed by said statute.
9.10 PUBLICITY. The parties agree to consult with each
---- ---------
other prior to the issuance of any public announcements, however,
parties acknowledge each have certain regulatory and statutory
responsibilities to disburse information to the public. Each
party shall provide the other with an advance copy of any press
release noticing the sale contemplated hereby.
9.11 NOTICES. All notices and consents to be given
---- -------
hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally, sent by facsimile
transmission, registered or certified mail, postage prepaid and
return receipt requested, addressed as follows:
If to KE:
KE Resources, Ltd.
c/o Dragon Resources (Holdings) PLC
17 Old Park Lane
London, England WIY 3LH
Telephone: (44-17-1-647-7800)
Facsimile: (44-17-1-629-5543)
Attention: Graeme Thomson
copy to:
Adams and Reese
4500 One Shell Square
New Orleans, Louisiana 70139
Telephone: (504) 585-0411
Facsimile: (504) 566-0210
Attention: Robin B. Cheatham
27
<PAGE>
If to ARO:
American Resources Offshore, Inc.
160 Morgan Street
Versailles, Kentucky 40383
Telephone: (606) 873-5455
Facsimile: (606) 873-4689
Attention: David Stetson
copy to:
Schully, Roberts, Slattery & Jaubert
1100 Poydras Street
Suite 1800
New Orleans, Louisiana 70163
Telephone: (504) 585-7800
Facsimile: (504) 585-7890
Attention: F. Neelis Roberts
The addresses so indicated may be changed by similar written
notice. Notices shall be deemed effective as of the date of
their receipt.
9.12 CONFIDENTIALITY. ARO acknowledges that all information
---- ---------------
furnished or disclosed pursuant hereto must remain confidential
until Closing. Unless otherwise restricted by any of the
Contracts, prior to the Closing, ARO may disclose such
information:
(a) to its employees or consultants or to any related
corporation or the employees or consultants
thereof taking the customary precautions to ensure
that they keep such records, data, studies,
opinions and other information confidential;
(b) as may in the opinion of counsel for ARO (or for
any related corporation) be required by law or for
the reasonable protection of ARO (or for any
related corporation), or their respective
directors or other officers; and
(c) to any government or governmental authority or any
financier or prospective financier of ARO.
28
<PAGE>
9.13 SEVERABILITY. If any term or other provision of this
---- ------------
Agreement is invalid, illegal or incapable of being enforced
under any rule or law, all other terms and provisions of this
Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in a materially adverse
manner with respect to either party.
9.14 NO THIRD PARTY BENEFICIARY. This Agreement is not
---- --------------------------
intended to create, nor shall it be construed as to create, any
rights in any third party under doctrines concerning third party
beneficiaries or stipulations POUR AUTRUI.
9.15 PAYMENT OF EXPENSES AND FEES. ARO and KE shall bear
---- ----------------------------
their respective costs and expenses, including but not limited
to, attorneys' fees incurred in connection with the transactions
contemplated in this Agreement; provided, however, ARO shall pay
all recording fees or transfer taxes in connection with the
recording of any instrument of transfer of the Leasehold Interest
from KE to ARO hereunder.
9.16 SURVIVAL OF REPRESENTATIONS. The covenants,
---- ---------------------------
representations and warranties contained in this Agreement and in
all certifications and documents delivered pursuant to or
contemplated by this Agreement shall survive the Closing. KE and
ARO shall insure that their respective covenants,
representations and warranties contained in this Agreement and in
all certifications and documents delivered pursuant to or
contemplated by this Agreement are true and correct.
9.17 NO FINDER'S FEES. Each of the parties represent and
---- ----------------
warrants to the other parties that such party has not taken, and
agrees that it will not take, any action that would cause any
29
<PAGE>
other party to become liable to any claim or demand for a
brokerage commission, finder's fee or other similar payment.
IN WITNESS WHEREOF, the parties have executed this
Agreement on this 16th day of December, 1997.
K.E. RESOURCES, LTD. AMERICAN RESOURCES OFFSHORE, INC.
By: /s/ Graeme Thomson By: /s/ David J. Stetson
------------------------- --------------------------------
Graeme Thomson David J. Stetson
Its: Chief Financial Officer Its: Corporate Secretary
----------------------- ------------------------------
30
<PAGE>
EXHIBITS
--------
Exhibit A Leases and Wells
Exhibit B Form of Assignments
Exhibit C Allocation of Purchase Price
Exhibit D Opinion of Counsel
Exhibit E Gas Imbalance
Exhibit F Assignments of Claims
1
