SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Amendment No. 2
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
March 5, 1998
- -----------------------------------------------------------------
Date of Report (Date of earliest event reported)
AMERICAN RESOURCES OF DELAWARE, INC.
- -----------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware
- -----------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-21472 86-0713506
- -----------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
160 Morgan Street
P. O. Box 87
Versailles, Kentucky 40383
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(606) 873-5455
- -----------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
Not Applicable
- -----------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 1. Changes in Control of Registrant. Not Applicable.
Item 2. Acquisition or Disposition of Assets.
On March 16, 1998, the Registrant filed a Current
Report on Form 8-K reporting the acquisition of certain
properties from TECO Oil & Gas, Inc. ("TECO") pursuant to a
Purchase and Sale Agreement filed as Exhibit 10.89 thereto (the
"Original Purchase Agreement"). Concurrent with the closing of
the Original Purchase Agreement, the parties entered into an
Amended Purchase and Sale Agreement (the "Amended Purchase
Agreement"), a copy of which is attached hereto as Exhibit 10.93
and incorporated herein by reference, which increased the
aggregate purchase price from $57,500,000 to $57,680,000 and
amended the manner of payment.
The current report on Form 8-K filed on March 16, 1998
correctly stated the amended aggregate purchase price and the
amended method of payment.
In connection with the closing of the Amended Purchase
Agreement, the Registrant, TECO and DNB Energy Assets, Inc.
("DNB," a successor to Den norske Bank ASA, the Registrant's
primary lender) entered into an Intercreditor Agreement dated
March 5, 1998. A copy of the Intercreditor Agreement is attached
hereto as Exhibit 10.94 and incorporated herein by reference.
The Intercreditor Agreement provides for certain limitations on
TECO's ability to receive payment under the Registrant's note
delivered in partial payment of the aggregate purchase price or
to take action against the assets of the Registrant and its
subsidiaries.
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 Statement of Businesses Acquired.
The audited Statements of Revenues and Direct
Operating Expenses of the TECO properties for each of the years
in the three-year period ended December 31, 1997 are presented
with accompanying notes.
(b) Pro Forma Financial Information.
The Unaudited Pro Forma Condensed Consolidated
Balance Sheet at December 31, 1997 is presented assuming that the
purchase of certain oil and gas properties and equipment from
TECO occurred on January 1, 1997. The Unaudited Pro Forma
Consolidated Statement of Operations for the year ended December
31, 1997 and March 31, 1998 are presented assuming that the
purchase of certain oil and gas properties and equipment from TECO
2
<PAGE>
occurred on January 1, 1997. The Unaudited Pro Forma Financial
Statements have been prepared based on the historical financial
statements as of and for the year ended December 31, 1997 and the
unaudited financial statements for the three months ended March 31,
1998 as indicated and are not necessarily indicative of the results
which would have been obtained had the acquisition taken place on
such dates.
(c) Exhibits.
Exhibit "10.93"-- Amended Purchase and Sale
Agreement between American
Resources of Delaware, Inc.,
American Resources Offshore,
Inc., TECO Oil & Gas, Inc.
and TECO Energy, Inc.
Exhibit "10.94"-- Intercreditor Agreement between
American Resources of Delaware,
Inc., American Resources
Offshore, Inc., Southern Gas Co.
of Delaware, Inc., TECO Oil &
Gas, Inc. and DNB Energy Assets,
Inc.
3
<PAGE>
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 Currie
-------------------------------------
Its: Chief Financial Officer
Dated: May 19, 1998
------------------
4
<PAGE>
Independent Auditors' Report
----------------------------
To the Board of Directors
American Resources of Delaware, Inc.:
We have audited the accompanying statements of revenues and
direct operating expenses of the TECO Properties purchased by
American Resources of Delaware, Inc. for each of the years in the
three-year period ended December 31, 1997. These statements of
revenues and direct operating expenses are the responsibility of
the property owner's management. Our responsibility is to
express an opinion on these statements of revenues and direct
operating expenses based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the statements of revenues and direct operating expenses are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
statements of revenues and direct operating expenses. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall presentation of the statements of revenues and direct
operating expenses. We believe that our audits of the statements
of revenues and direct operating expenses provide a reasonable
basis for our opinion.
The accompanying statements were prepared as described in note 1
for the purpose of complying with certain rules and regulations
of the Securities and Exchange Commission (SEC) for inclusion in
certain SEC regulatory reports and filings and are not intended
to be a complete financial presentation.
In our opinion, the accompanying statements of revenues and
direct operating expenses present fairly, in all material
respects, the revenues and direct operating expenses of the TECO
Properties purchased by American Resources of Delaware, Inc. for
each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
May 13, 1998
F-1
<PAGE>
THE TECO PROPERTIES PURCHASED BY
AMERICAN RESOURCES OF DELAWARE, INC.
STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES
Years ended December 31, 1997, 1996 and 1995
and
Period ended January 31, 1998 (Unaudited)
<TABLE>
January 31, December 31, December 31, December 31,
1998 1997 1996 1995
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $768,629 $6,637,030 $4,742,994 $ -
Direct operating
expenses (163,124) 2,491,825 1,522,129 663,690
-------- ---------- ---------- ---------
Revenues, net of
direct operating
expenses $605,505 $4,145,205 $3,220,865 ($663,690)
======== ========== ========== ==========
</TABLE>
See accompanying notes to the Statements of Revenues and Direct
Operating Expenses
F-2
<PAGE>
THE TECO PROPERTIES PURCHASED BY
AMERICAN RESOURCES OF DELAWARE, INC.
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING Policies
BASIS OF PRESENTATION
The accompanying statements present the revenues and direct
operating expenses of the working interests in certain oil
and gas properties purchased by American Resources of
Delaware, Inc. (ARI) from TECO Oil & Gas, Inc. (TECO) in
February 1998 for approximately $57.7 million in cash and
notes payable. The TECO Properties are located in 41
offshore blocks in the Gulf of Mexico and include producing
properties and certain unproved properties.
In the opinion of management, the accompanying unaudited
statements shown contain all adjustments, consisting only of
those of a normal recurring nature, necessary to present
fairly the Company's revenues and direct operating expenses
for the years ended December 31, 1997, 1996 and 1995. These
results are not indicative of the results to be expected for
the full fiscal years.
The accompanying statements of revenues and direct operating
expenses were derived from the historical accounting records
of TECO. The statements include only the oil and gas
revenues and direct lease operating expenses attributable to
the TECO Properties and are not intended to be a complete
set of financial statements. Oil and gas revenues and
direct lease operating expenses included herein are not
necessarily representative of future operations.
Additionally, the statements do not include depreciation,
depletion and amortization, general and administrative
expenses, interest income or expense, or federal and state
income taxes since historical expenses of this nature
incurred by TECO are not necessarily indicative of the costs
to be incurred by ARI. Presentation of full historical
financial statements is not practicable as these properties
were never separately audited and such financial statements
are not reasonably available.
Historical financial information reflecting financial
position, results of operations and cash flows are not
presented because the purchase price was assigned to the oil
and gas property interests acquired. Accordingly, the
historical statements of revenues and direct operating
expenses are presented in lieu of the financial statements
required under Rule 3-05 of Securities and Exchange
Commission Regulation S-X.
F-3
<PAGE>
REVENUE RECOGNITION
The sales method is used for accounting for gas revenues.
(2) CAPITAL EXPENDITURES (UNAUDITED)
Direct operating expenses do not include exploration and
development expenditures related to the properties which
totaled approximately $6,533,456, $4,639,855 and $0 for the
years ended December 31, 1997, 1996 and 1995, respectively.
(3) COMMITMENTS AND CONTINGENCIES
Management is unaware of any legal, environmental or other
commitments or contingencies that would be materially
important in relation to these statements of revenues and
direct operating expenses.
(4) SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
Total proved and proved developed oil and gas reserves of
the TECO Properties for the periods presented have been
estimated based on reserve estimates prepared by Ryder Scott
Company as of July, 1, 1997 and December 31, 1997. The
future net cash flows from production of these proved
reserve quantities were computed by applying current prices
of oil and gas (with consideration of price changes only to
the extent provided by contractual arrangements) as of the
report date to estimated future production of proved oil and
gas reserves less the estimated future expenditures (based
on current costs) as of the report date to be incurred in
developing and producing the proved reserves. Changes in
reserve estimates were derived by adjusting such quantities
and values for actual production using current prices and
costs.
F-4
<PAGE>
THE TECO PROPERTIES PURCHASED BY
AMERICAN RESOURCES OF DELAWARE, INC.
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
Estimated Quantities of Oil and Gas Reserves:
<TABLE>
Year ended December 31,
-----------------------------
1997 1996 1995
---- ---- ----
(Mcfe) (Mcfe) (Mcfe)
<S> <C> <C> <S>
Proved reserves:
Beginning of year 6,509,059 - N/A
Revision of prior year
estimate (964,545) -
New discoveries and
extensions 23,980,844 8,457,927
Production (2,719,308) (1,948,868)
---------- ---------- ---
End of year 26,806,050 6,509,059 N/A
========== ========== ===
Proved developed reserves:
Beginning of Year 6,509,059 N/A N/A
========== === ===
End of Year 16,022,178 6,509,059 N/A
========== ========== ===
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating
to Proved Oil and Gas Reserves (in 000s):
<TABLE>
Year ended December 31,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <S>
Future cash flows $63,383 15,036 N/A
Future development costs (10,836) -
Future production costs (6,902) (328)
------- -------
45,644 14,708
Future taxes (15,975) (5,148)
------- -------
29,669 9,560
Future net cash flows,
10% annual discount
for estimated timing
of cash flows (7,115) (2,292)
------- ------- ---
Standardized measure of
discounted future
net cash inflows $22,554 7,268 N/A
======= ======= ===
</TABLE>
(Continued)
F-5
<PAGE>
THE TECO PROPERTIES PURCHASED BY
AMERICAN RESOURCES OF DELAWARE, INC.
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
Changes in Standardized Measure of Discounted Future Net Cash
Flows Relating to Proved Oil and Gas Reserves (in 000s):
<TABLE>
Year ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <S>
Standardized measure,
beginning of year 7,268 -
Purchases of reserves
in-place (net of future
development costs;
discounted @ 10%) 27,895 14,603
Sales, net of production
costs (4,145) (3,221)
Net change in income taxes (8,321) (3,913)
Change in production
rates, and other (1,261) (201)
Accretion of discount 1,118 -
------ ------ ------
Standardized measure,
end of year 22,554 7,268 N/A
====== ====== ===
</TABLE>
F-6
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Balance Sheet
at December 31, 1997 is presented assuming that the purchase
of certain oil and gas properties and equipment from TECO
Oil & Gas, Inc. occurred in January 1997. The Unaudited
Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1997 and March 31, 1998 are
presented assuming that the purchase of certain oil and gas
properties and equipment from TECO Oil & Gas, Inc. occurred
on January 1, 1997. The Unaudited Pro Forma Financial
Statements have been prepared based on the historical
financial statements as of and for the year ended December
31, 1997 and the unaudited financial statements for the
three months ended March 31, 1998 as indicated and are not
necessarily indicative of the results which would have been
obtained had the acquisitions taken place on such dates.
F-7
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1997
<TABLE>
American Adjustments
Resources of --------------------- Unaudited
Delaware, Inc. Debit Credit Pro Forma
-------------- ----- ------ ---------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 1,180,638 1,300,000(1) (119,362)
Accounts and notes
receivable 4,964,253 4,964,253
Deferred income taxes,
prepaid and other 424,483 424,483
---------- -----------
Total current assets 6,569,374 5,269,374
Net property and equipment 51,249,493 57,680,000(1) 108,929,493
Other assets 3,747,067 3,747,067
---------- -----------
Total assets $61,565,934 117,945,934
========== ===========
Current liabilities:
Current installments of
long-term debt 4,682,006 16,500,000(1) 39,682,006
18,500,000(1)
Unearned revenue 820,051 820,051
Accounts payable 963,169 963,169
Other current liabilities 924,763 924,763
---------- -----------
Total current liabilities 7,389,989 42,389,989
Long-term debt, excluding
current maturities 25,392,892 21,380,000(1) 46,772,892
Deferred income taxes
and other 2,165,882 2,165,882
Unearned revenue 2,095,643 2,095,643
Stockholder's equity 24,521,528 24,521,528
---------- -----------
Total liabilities and
stockholders' equity $61,565,934 117,945,934
========== ===========
</TABLE>
(1) To record the acquisition of the TECO properties. As consideration
for the properties, ARI paid $57,680,000 of which $1,300,000 was
paid in cash upon execution of the Purchase and Sale Agreement,
$37,880,000 was paid from funds borrowed under ARI's existing
credit facility and a new facility with DNB Energy Assets, Inc.,
and the balance of $18,500,000 was in the form of a promissory
note in favor of TECO.
F-8
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
American Adjustments
Resources of Teco --------------------- Unaudited
Delaware, Inc. Properties Debit Credit Pro Forma
-------------- ---------- ----- ------ ---------
<S> <C> <C> <C> <C>
Revenues $38,032,146 6,637,030 44,669,176
Expenses 35,030,980 2,491,825 2,433,352(1) 39,956,157
Administrative expenses 3,322,887 - -(2) 3,322,887
---------- ---------- ----------
Operating income (loss) (321,721) 4,145,205 1,390,132
Other income (expense), net (2,717,344) - 5,069,800(3) (7,787,144)
---------- ---------- ----------
Income before income
tax expense (3,039,065) 4,145,205 (6,397,012)
Income tax expense 1,192,474 - 1,343,179(4) 2,535,653
---------- ---------- ----------
Net income (loss) $(1,846,591) 4,145,205 (3,861,359)
========== ========== ==========
Per common share:
Basic ($.21) ($.43)
==== ====
Weighted average number
of common shares
outstanding 9,021,810 9,021,810
========== ==========
</TABLE>
(1) To record pro forma depletion and depreciation expense on
the TECO properties acquired.
(2) The Company does not anticipate incurring additional administrative
expenses in the management of these properties.
(3) To record pro forma interest expense on additional borrowings
which would have been required to finance the cash portion
of the purchase of the properties. This assumes no issuance
of stock to TECO.
(4) To adjust pro forma income tax expense.
F-9
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended March 31, 1998
<TABLE>
American Adjustments
Resources of Teco --------------------- Unaudited
Delaware, Inc. Properties Debit Credit Pro Forma
-------------- ---------- ----- ------ ---------
<S> <C> <C> <C> <C>
Revenues $8,702,552 768,629 9,471,181
Expenses 6,509,005 163,124 482,315(1) 7,154,444
Administrative expenses 768,211 - -(2) 768,211
---------- ---------- ----------
Operating income (loss) 1,425,337 605,505 1,548,526
Other income (expense), net (920,935) - 875,061(3) (1,823,904)
---------- ---------- ----------
Income before income
tax expense 504,402 605,505 (247,470)
Income tax expense (201,761) - 300,749(4) 98,988
---------- ---------- ----------
Net income (loss) $ 302,641 605,505 (148,483)
========== ========== ==========
Per common share:
Basic $0.03 ($0.02)
===== =====
Weighted average number
of common shares
outstanding 9,998,564 9,998,564
========== ==========
Fully diluted $0.03
====
Weighted average number of
common shares and common
share equivalents
outstanding 10,265,748
==========
</TABLE>
(1) To record pro forma depletion and depreciation expense on
the TECO properties acquired.
(2) The Company does not anticipate incurring additional administrative
expenses in the management of these properties.
(3) To record pro forma interest expense on additional borrowings
which would have been required to finance the cash portion
of the purchase of the properties. This assumes no issuance
of stock to TECO.
(4) To adjust pro forma income tax expense.
F-10
<PAGE>
EXHIBIT 10.93
FIRST AMENDMENT TO THE PURCHASE AND SALE AGREEMENT
This Amendment to the Purchase and Sale Agreement dated
February 17, 1998 (the "Amended Agreement") entered into this 5th
day of March, 1998 by and between TECO OIL & GAS, INC., a Florida
corporation formerly known as "TECO Gas & Oil, Inc." ("SELLER"),
and AMERICAN RESOURCES OFFSHORE, INC., a Delaware corporation
("PURCHASER") (collectively, the "PARTIES").
RECITALS:
WHEREAS, the parties entered into a Purchase and Sale
Agreement (the "Agreement") dated February 17, 1998; and
WHEREAS, the parties wish to amend the Agreement to provide
for an increase in the purchase price.
WITNESSETH:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties in the Agreement and as set forth in
this Amended Agreement, the parties agree as follows:
1. AMENDMENT OF SECTION 3.1. Section 3.1(a) is amended to
read in part as follows:
"3.1 Purchase Price; Method of Payment; Deposit. (a)
The purchase price for the Assets shall be $57,680,000,
which amount shall be ...."
2. AMENDMENT OF SECTION 3.2(A). Section 3.2(a) is amended
to read as follows:
"3.2 (a) Purchaser shall pay to Seller cash in the
amount of $37,880,000 (representing $39,180,000 less
the amount of the Deposit); and
3. RATIFICATION. Each of the parties hereto does hereby
adopt, ratify and confirm the Agreement and all things in
accordance with the terms and provisions thereof, as amended by
this Amended Agreement.
IN WITNESS THEREOF, this First Amendment to the Purchase and
Sale Agreement is executed effective the date first hereinabove
written.
SELLER
TECO OIL & GAS, INC.
By: /s/ Joseph L. Pritchett, III
-------------------------------------
Joseph L. Pritchett, III
Vice President
PURCHASER
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/ David J. Stetson
-------------------------------------
David J. Stetson
Secretary/General Counsel
<PAGE>
EXHIBIT 10.94
INTERCREDITOR AGREEMENT
This Intercreditor Agreement is entered into as of March 5,
1998, by and among TECO OIL & GAS, INC., a Florida corporation
(hereinafter, together with each other holder, if any, and its
successors and assigns, of Junior Claims (as hereinafter
defined), collectively referred to as the "Junior Creditor"), DNB
ENERGY ASSETS, INC., a Delaware corporation and successor to Den
Norske Bank AS, a Norwegian bank ("DNB" and, together with each
other holder, if any, and its successors and assigns, of Senior
Claims (as hereinafter defined), collectively referred to as the
"Senior Creditor"), and AMERICAN RESOURCES OF DELAWARE, INC.,
("ARI"), SOUTHERN GAS CO. OF DELAWARE, INC. ("Southern") and
AMERICAN RESOURCES OFFSHORE, INC. ("Offshore"), each a Delaware
corporation (references herein to the "Borrower" being references
to ARI, Southern and Offshore, together, or any of them
individually). Capitalized terms used but not defined herein
have the meanings assigned to them in the Senior Credit Agreement
(as hereinafter defined).
In order to induce the Senior Creditor to continue to extend
credit and other financial accommodations to the Borrower
pursuant to the Senior Credit Agreement and understanding that
the Senior Creditor is relying hereon in extending such credit
and financial accommodations to the Borrower, the Junior Creditor
has agreed to (i) subordinate its security interests in the
property and assets of the Borrower and (ii) limit its rights to
receive payments from Borrower and to enforce such security
interests, all on the terms and conditions hereinafter set forth,
and, therefore, the parties hereto agree as follows, intending to
be bound legally, to-wit:
1. Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the following meanings:
"Collateral" means all Property and assets of the Borrower,
----------
real and personal, tangible and intangible, now existing and
owned or hereafter acquired or arising, including without
limitation all of the Borrowers' present and future fee,
leasehold, or other interests in or under mineral estates or oil,
gas, and other liquid or gaseous hydrocarbon leases with respect
to Properties situated in the United States or offshore from any
State of the United States, including, without limitation,
overriding royalty and royalty interests, leasehold estate
interests, net profits interests, production payment interests,
and mineral fee interests, together with contracts executed in
connection therewith and all tenements, hereditaments,
appurtenances and Properties appertaining, belonging, affixed, or
incidental thereto.
"Junior Claims" means all principal of and interest
-------------
(including interest accrued subsequent to the filing of any
petition under any bankruptcy, insolvency or similar law) on all
present and future indebtedness of the Borrower to the Junior
Creditor for borrowed money and all other indebtedness,
obligations and liabilities of the Borrower to the Junior
Creditor secured by any of the Collateral, including, without
limitation, all future and present indebtedness pursuant to the
Junior Note.
"Junior Note" means that certain promissory note, dated
-----------
March 5, 1998, executed by Offshore and payable to the order of
the Junior Creditor, in the original principal amount of
$18,500,000, and the guaranties thereof by ARI and Southern,
together with any and all amendments, modifications, supplements,
renewals, extensions, increases and rearrangements thereof.
"Permitted Junior Securities" means debt or equity interests
---------------------------
subordinated to the same extent as, or a greater extent than, the
Junior Note.
"Proceeding" means any (a) insolvency, bankruptcy,
----------
receivership, custodianship, liquidation, reorganization,
readjustment, composition or other similar proceeding relating to
the Borrower or its property, whether under any bankruptcy,
reorganization or insolvency law or laws, federal or state, or
any law, federal or state, relating to relief of debtors,
readjustment of indebtedness, reorganization, composition or
extension, (b) proceeding for any liquidation, liquidating
distribution, dissolution or other winding up of the Borrower,
voluntary or involuntary, whether or not involving insolvency or
bankruptcy proceedings, (c) assignment for the benefit of
creditors of the Borrower or (d) other marshalling of the assets
of the Borrower.
"Senior Claims" means all present and future indebtedness,
-------------
obligations, and liabilities of every kind and character of the
Borrower which may be from time to time directly or indirectly
incurred by the Borrower to the Senior Creditor, whether due and
owing or to become due and owing, howsoever created or arising or
evidenced, whether joint or several, or joint and several,
whether absolute or contingent, and all renewals, extensions,
increases, and rearrangements of such indebtedness, obligations
or liabilities, including any and all amounts of principal,
interest (including, without limitation, interest accrued
subsequent to the filing of any petition under any bankruptcy,
insolvency or similar law and interest that would have accrued
and been payable but for the commencement of a Proceeding),
attorneys' fees, costs of collection and other amounts payable in
respect thereof, including without limitation all present and
future indebtedness pursuant to the Senior Credit Agreement or
any of the documents or instruments executed pursuant thereto or
in connection therewith, and all amendments, modifications,
supplements, renewals, refinancings, extensions, increases, and
rearrangements thereof; provided, however, that the aggregate
principal amount of loans and other extensions of credit at any
time outstanding included in the definition of "Senior Claims"
for purposes hereof shall not exceed an amount equal to
$91,500,000 minus the amount of principal theretofore repaid on
the Term Loan.
"Senior Credit Agreement" means that certain First Amended
-----------------------
and Restated Credit Agreement, dated November 1, 1997, by and
among the Senior Creditor and the Borrower, as amended by that
certain First Amendment to First Amended and Restated Credit
Agreement, effective as of March 5, 1998, by and among the Senior
Creditor and Borrower and as the same may be further amended,
modified, supplemented, renewed, extended, rearranged, or
restated from time to time.
"Senior Event of Default" means any Default or Event of
-----------------------
Default in respect of any of the Senior Claims.
"Senior Liens" has the meaning set forth in Section 12
------------
hereof.
"Term Loan" means those certain loans by DNB to Borrower in
---------
the original aggregate principal sum of $16,500,000 pursuant to
Section 2.25 of the Senior Credit Agreement, and all interest and
other amounts now or hereafter payable in respect thereof, as the
obligations of the Borrower in respect thereof may be amended,
modified, supplement, renewed, extended or rearranged from time
to time.
2. Subordination Prior to Proceeding or Senior Event of
----------------------------------------------------
Default. Unless and until the Senior Claims shall have been
- -------
fully paid in cash and any and all obligations of the Senior
Creditor to extend credit or other financing arrangements to the
Borrower shall have been terminated, the Borrower will not,
without the express prior written consent of the Senior Creditor,
make, give or permit, directly or indirectly, by set-off,
redemption, purchase or in any other manner, nor will the Junior
Creditor be entitled to receive, directly or indirectly, any
payment for the whole or any part of the Junior Claims, and,
without the express prior written consent of the Senior Creditor,
the Junior Creditor will not accelerate the scheduled maturity,
or otherwise amend the terms of payment, of the Junior Claims;
provided, however, that, so long as none of the events described
in Section 4 below shall have occurred, ARI may pay all Junior
Claims and/or redeem the Junior Note with proceeds of a future
sale of equity securities or a future sale of debt securities
subordinated to the Senior Claims, subject, however, to the prior
payment of an amount equal to $15,000,000 of the principal amount
of the Term Loan in full in cash from the proceeds of such sale
of equity or debt securities (excluding from the calculation of
said $15,000,000 the proceeds of a sale of equity or debt
securities to officers and/or members of the Boards of Directors
of Borrower or any other person designated by Rick G. Avare,
Chief Executive Officer, to fund the Borrower's obligations in
respect of the remaining $1,500,000 principal amount of the Term
Loan).
3. Lien Subordination. In addition to the foregoing, the
------------------
Junior Creditor hereby agrees that any and all rights, titles,
interests, security interests, liens and/or claims it now has or
hereafter may have, if any, in, to or on the Collateral or any
portion thereof are and shall be subordinate and inferior to any
present or future rights, titles, interests, security interests,
liens and/or claims which the Senior Creditor now has or
hereafter may have in, to or on the Collateral or any portion
thereof. As between the Junior Creditor and the Senior Creditor,
the priority, operation and effect of all security interests,
liens and other rights which the Junior Creditor has or may
acquire hereafter in the Collateral, if any, shall be junior and
inferior to the present and future security interests, liens and
rights therein of the Senior Creditor, whether or not such
security interests, liens and rights are perfected and with the
same force and effect as though the security interests, liens and
rights of the Senior Creditor had attached and were perfected
prior to the time the security interests, liens and rights of the
Junior Creditor attached thereto and were perfected.
4. Subordination in the Event of a Senior Event of
-----------------------------------------------
Default. Upon the occurrence of any Senior Event of Default
- -------
(which has not been waived in writing), all Senior Claims shall
first be paid in full in cash and any and all obligations of the
Senior Creditor to extend credit or other financing arrangements
to the Borrower shall first be terminated before any payment or
distribution, principal, interest, or otherwise, whether in cash,
securities or other property (other than Permitted Junior
Securities), shall be made to the Junior Creditor on account of
any Junior Claim.
5. Turnover of Improper Payments. If any payment or
-----------------------------
distribution of any character, whether in cash, property or
securities (other than Permitted Junior Securities), shall be
received by any holder of any Junior Claim in contravention of
any of the terms of this Agreement and before all the Senior
Claims shall have been paid in full in cash and any and all
obligations of the Senior Creditor to extend credit or other
financing arrangements to the Borrower shall have been
terminated, such payment or distribution or security shall be
received in trust for the benefit of, and shall be promptly paid
over or delivered and transferred to, the Senior Creditor for
application to the payment of all Senior Claims at the time
outstanding in accordance with the priorities then existing among
the holders of the Senior Claims, to the extent necessary to pay
all such Senior Claims in full.
6. Borrower's Obligations Absolute. Nothing contained
-------------------------------
herein shall impair, as between the Borrower and the Junior
Creditor, the obligations of the Borrower, which are absolute and
unconditional, to pay to the holder thereof all amounts payable
in respect of such Junior Claims as and when the same shall
become due and payable in accordance with the terms thereof, or
is intended to or shall affect the relative rights of the Junior
Creditor and creditors of the Borrower other than the Senior
Creditor.
7. Subrogation. The Junior Creditor shall be subrogated,
-----------
to the extent of any amounts required to be paid over to the
Senior Creditor pursuant hereto, to all rights of the Senior
Creditor to receive any payments or distributions applicable to
the Senior Claims; provided, however, that the Junior Creditor
shall not be entitled to enforce such rights until such time as
all Senior Claims have been paid in full in cash and any and all
obligations of the Senior Creditor to extend credit or other
financing arrangements to the Borrower have been terminated. For
the purposes of the foregoing subrogation, no payment or
distribution received by the Senior Creditor of cash, property or
securities to which the Junior Creditor would have been entitled
except for these subordination provisions shall, as between the
Borrower and its creditors other than the Senior Creditor, on the
one hand, and the Junior Creditor, on the other hand, be deemed
to be a payment or distribution by the Borrower to or on account
of the Senior Claims, it being understood that the provisions of
this Agreement are solely for the purpose of defining the
relative rights of the Senior Creditor, on the one hand, and the
Junior Creditor, on the other hand.
8. Other Documents. All Junior Claims shall be evidenced
---------------
by a promissory note or other instrument in form satisfactory to
the Senior Creditor. The face of the instruments evidencing the
Junior Claims shall be permanently marked with a legend
indicating that the instrument is subject to this Agreement. The
Junior Creditor further agrees to execute such financing
statements or financing statement amendments and other documents
and instruments as the Senior Creditor may request to further
evidence the subordination of liens pursuant to this Agreement.
9. Representations, Warranties and Covenants of the
------------------------------------------------
Borrower and the Junior Creditor. Each of the Borrower and the
- --------------------------------
Junior Creditor hereby warrants and represents to the holders of
the Senior Claims that (i) except for the obligations under the
Junior Note, the Borrower currently has no other indebtedness to,
or commitments for loans from, the Junior Creditor, and none are
currently in negotiation, (ii) except as disclosed to the Senior
Creditor, the Junior Creditor has not received or requested any
collateral or security for any portion of the Junior Claims, and
(iii) no Person other than the Borrower guarantees or has been
requested to guarantee, directly or indirectly, any portion of
the Junior Claims. Each of the Borrower and the Junior Creditor
hereby covenants to the Senior Creditor that no guarantee of any
Person will be taken or requested by the Junior Creditor and no
assets or properties of the Borrower or any other Person will be
encumbered or requested to be encumbered by the Junior Creditor,
as security or surety for any portion of the Junior Claims,
without such Person joining in this Agreement to acknowledge the
rights of the Senior Creditor as to the Junior Claims herein set
forth, all upon terms and provisions satisfactory to the Senior
Creditor in its sole and absolute discretion.
10. Release of Liens; Power of Attorney. Each of the
-----------------------------------
Borrower and the Junior Creditor agrees (i) that in the event
that the Senior Creditor desires to sell or to permit the sale of
all or any portion of the Collateral in one or more consensual
sales, any security interests in and liens on the Collateral in
favor of the Junior Creditor, if any, shall be automatically
released and terminated without the need for any affirmative
action on the part of the Junior Creditor, and (ii) to execute
any release, termination, pledge or other document promptly upon
the request of the Senior Creditor in order to permit one or more
consensual sales of all or any portion of the Collateral in lieu
of foreclosure.
11. Senior Liens. Notwithstanding any defect, deficiency,
------------
error or omission contained in any Security Instrument, now,
heretofore or hereafter executed, creating any lien or security
interest securing payment of all or any portion of the Senior
Claims ("Senior Liens") and notwithstanding any defect,
deficiency, error or omission in the execution, acknowledgment or
filing or recording of same, the Junior Creditor hereby waives
and relinquishes all rights to contest, question or raise any
such defect, deficiency, error or omission. Without the prior
written consent of the Senior Creditor, the Borrower agrees not
to grant, and agrees to cause each subsidiary of the Borrower not
to grant, and the Junior Creditor agrees not to accept, any
security interest or lien covering any property of the Borrower
and/or any subsidiary of the Borrower. The Senior Creditor shall
have no obligation, implicit or otherwise, to consent to any such
liens.
12. No Prejudice or Impairment. The Junior Creditor agrees
--------------------------
that the Senior Creditor shall have uncontrolled power and
discretion, without notice to the Junior Creditor, to deal in any
manner with the Senior Claims owing to the Senior Creditor,
including interest, costs and expenses payable by the Borrower to
the Senior Creditor, and any security and guarantees therefor,
including, but not by way of limitation, release, surrender,
extension, renewal, acceleration, increase, compromise or
substitution. The Senior Creditor may at any time and from time
to time and in its sole and absolute discretion, change the
manner, place or terms of payment, change or extend the time of
payment of, or renew, increase, amend, modify, supplement, or
alter, any Senior Claim or security therefor, or release, sell or
exchange such security, or amend or supplement any instrument
pursuant to which any Senior Claim is issued or secured, or
exercise or refrain from exercising any of its rights in respect
of the Senior Claims including, without limitation, the waiver of
default thereunder, all without notice to or assent from the
Junior Creditor, and all without impairing, abridging, releasing
or affecting the subordination provisions hereof. The Junior
Creditor hereby waives and agrees not to assert against the
Senior Creditor any rights which a guarantor or surety could
exercise, but nothing in this Agreement shall constitute the
Junior Creditor a guarantor or surety. The Junior Creditor
hereby waives the right, if any, to require that the Senior
Creditor marshal or otherwise require the Senior Creditor to
proceed to dispose of or foreclose upon Collateral in any manner
or order. The Junior Creditor hereby expressly waives notice of
acceptance by the Senior Creditor of the subordination and other
provisions of this Agreement and all other notices whatsoever,
including, without limitation, notice of the creation of any
indebtedness or liability of the Borrower to the Senior Creditor,
notice of the giving or extension of credit by the Senior
Creditor to the Borrower, notice of protest and default, and all
other notices to which the Junior Creditor might otherwise be
entitled. The Junior Creditor expressly waives reliance upon the
Senior Creditor upon the agreements contained herein and waives
presentment, demand and protest. The Junior Creditor agrees that
the Senior Creditor has made no warranties or representations
with respect to the due execution, legality, validity,
completeness or enforceability of the Senior Credit Agreement or
any other document or instrument evidencing or relating to the
Senior Claims, or the collectability of the Senior Claims, and
that the Senior Creditor shall have no liability to the Junior
Creditor for, and waives any claim which the Junior Creditor may
now or hereafter have against the Senior Creditor arising out of,
(a) any and all actions which the Senior Creditor takes or omits
to take (including, without limitation, actions with respect to
the creation, perfection or continuation of liens or security
interests in Collateral, actions with respect to the occurrence
of a Senior Event of Default, actions with respect to the
foreclosure upon, sale, release of, depreciation of or failure to
realize upon any of the Collateral, and actions with respect to
the collection of any claim for all or any part of the Senior
Claims from any account debtor, guarantor or any other party)
with respect to the Senior Credit Agreement or any other
agreement related thereto or to the Senior Claims or the
valuation, use, protection or release of Collateral, (b) the
Senior Creditor's election in any Proceeding, and/or (c) any
borrowing or grant of a security interest under Section 364 of
the Bankruptcy Code; provided, however, that the principal amount
of loans and other extensions of credit by the Senior Creditor to
the Borrower outstanding shall not exceed the maximum amount
permitted hereunder and that the Junior Creditor waives no claims
arising from Senior Creditor's breach of this Agreement. The
Junior Creditor hereby assumes responsibility for keeping itself
informed of the financial condition of the Borrower, any and all
endorsers and any and all guarantors of the Senior Claims and of
all other circumstances bearing upon the risk of nonpayment of
the Junior Claims, and the Junior Creditor hereby agrees that the
Senior Creditor shall have no duty to advise the Junior Creditor
of information known to the Senior Creditor regarding such
condition or any such circumstances.
13. Enforcement of Junior Claims. Until such time as all
----------------------------
of the Senior Claims have been paid in full in cash and any and
all obligations of the Senior Creditor to extend credit and other
financing arrangements to the Borrower have been terminated, the
Junior Creditor will not, without the prior written consent of
the Senior Creditor, take any of the following actions, except to
the extent necessary to prevent discharge thereunder and as
permitted under Section 2 hereof: transfer, assign, accelerate
the maturity of, demand, collect, enforce, or release all or any
part of the Junior Claims or take any action to dispose of,
foreclose, realize upon or release any collateral securing said
Junior Claims or enforce any liens, security interests, deeds of
trust, mortgages, lien instruments or other encumbrances securing
the Junior Claims, or any other rights and remedies or file or
join in any bankruptcy petition unless the Senior Creditor is a
party to such petition.
14. Continuing Agreement. This Agreement shall continue in
--------------------
full force and effect after the filing of any Proceeding and all
converted or succeeding cases in respect thereof. All references
herein to the Borrower shall be deemed to apply to any successor
or assign of the Borrower, to the Borrower as debtor-in-
possession and to a receiver or trustee for the Borrower. This
Agreement is a continuing agreement and shall not be terminated
unless and until the earlier of (i) all of the Senior Claims
shall have been fully and finally paid in cash and discharged and
any commitment to advance any Senior Claims shall have been
terminated or (ii) payment in full of the Junior Claims and
release of any and all security interests and/or liens in favor
of the Junior Creditor covering any of the Collateral. If at any
time payment of any of the Senior Claims is rescinded or must
otherwise be returned by the Senior Creditor upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, the
provisions of this Agreement shall continue to be effective or be
reinstated, as the case may be, all as though such payment had
not been made.
15. Further Assurances. The Junior Creditor, at any time
------------------
and from time to time, will execute and deliver such
endorsements, assignments and other instruments and take such
further action as may reasonably be requested by the Senior
Creditor in order to cure any defects in the execution and
delivery of, or to comply with or accomplish the covenants and
agreements contained in, this Agreement and to enforce any and
all claims and to collect any and all payments or disbursements
which may be made at any time on account of the Junior Claims.
16. Authority. Each of the parties hereto represents and
---------
warrants that its undersigned representative has full and
complete authority to execute this Agreement on behalf of said
party, and that, after such execution, this Agreement will be
binding and enforceable against said party in accordance with its
terms.
17. No Continuing Obligation. Nothing contained in this
------------------------
Agreement in any way shall obligate the Senior Creditor to make
any loan or extend any credit to the Borrower.
18. Notices. All notices, requests and demands shall be
-------
given to or made upon the respective parties hereto at the
addresses set forth on the signature pages hereto. All notices
and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have
been given to any party upon receipt (or when delivery is
refused) when received by telecopy or by hand, or within three
(3) days of being deposited in the U. S. mail (registered or
certified mail), in each case addressed to such party as provided
herein or in accordance with the latest unrevoked direction from
such party.
19. Binding Effect. This Agreement shall be binding upon
--------------
the heirs, administrators, personal representatives, successors
and assigns of the parties hereto, and shall inure to the benefit
of said heirs, administrators, personal representatives,
successors and assigns.
20. Counterparts. This Agreement may be executed in any
------------
number of counterparts and all of such counterparts taken
together shall be deemed to constitute one and the same
instrument.
21. Severability. In case any one or more of the
------------
provisions contained in this Agreement or any other documents
executed in connection herewith should be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and
therein shall not be affected in any way thereby.
22. Amendment. This Agreement may not be amended except in
---------
writing signed by the parties hereto.
23. Descriptive Headings. Descriptive headings of the
--------------------
several sections of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
24. Governing Law. This Agreement and all rights and
-------------
liabilities of the parties shall be governed by and construed and
interpreted in accordance with the laws of the State of Texas,
except to the extent that the federal laws of the United States
of America may apply.
25. SUBMISSION TO JURISDICTION. WITH RESPECT TO ANY
--------------------------
AND ALL DISPUTES ARISING HEREUNDER OR UNDER ANY OF THE OTHER
INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH, EACH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY
NOTE AND ANY DOCUMENT TO WHICH IT IS A PARTY, OR FOR
RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
OF ANY THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION
OF THE COURTS OF THE STATE OF TEXAS, THE COURTS OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF
TEXAS, AND APPELLATE COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING
MAY BE BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY
SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT
SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE
SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY
THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM AND MAIL), POSTAGE PREPAID, TO
IT AT ITS ADDRESS SPECIFIED ON THE SIGNATURE PAGE HEREOF;
AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE
RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY
OTHER JURISDICTION.
26. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND
------------------
THE INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION
HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
27. Rights of Junior Creditor. Notwithstanding the
-------------------------
provisions of this Agreement, the Junior Creditor shall not be
charged with knowledge of the existence of any facts that would
prohibit the making of any payment or distribution to the Junior
Creditor out of the proceeds of a future sale of equity
securities or a future sale of debt securities subordinated to
the Senior Claims to which the Senior Creditor has consented in
writing unless the Junior Creditor shall have received at least
one Business Day prior to the date of such payment written notice
from the Senior Creditor of the facts that would cause the
payment of any Junior Claims to violate the terms of this
Agreement. In the absence of such a notice, the Junior Creditor
shall be entitled to assume that such payment is permitted.
Nothing in this Agreement shall be construed to impair the rights
of the Junior Creditor to exercise its rights under the Warrant
Agreement dated March 5, 1998 between it and ARI or under the
Warrant issued pursuant to the terms thereof.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this agreement effective as of the date first
above-written.
TECO OIL & GAS, INC. DNB ENERGY ASSETS, INC.
By: s/ Joseph L. Pritchett, III By: /s/ William V. Moyer
----------------------------- --------------------------
Name: Joseph L. Pritchell, III Name: William V. Moyer
Title: Vice President and Title: First Vice President
General Manager
By: /s/ Morten Kreutz
--------------------------
Name: Morten Kreutz
Title: Vice President
Address: Address:
702 North Franklin Street Three Allen Center
Tampa, Florida 33602 333 Clay Street
Attn: Royston K. Eustace Houston, Texas 77002
Telephone: (813) 228-4323 Attn: William V. Moyer
Fax: (813) 228-4811 Telephone:
Fax: (713) 757-1167
AMERICAN RESOURCES OF AMERICAN RESOURCES OFFSHORE,
DELAWARE, INC. INC.
By: /s/ David J. Stetson By: /s/ David J. Stetson
--------------------------- ---------------------------
Name: David J. Stetson Name: David J. Stetson
Title: Assistant Secretary Title: Secretary
Address: Address:
160 Morgan Street 3850 North Causeway Blvd.
P.O. Box 87 Suite 1145
Versailles, Kentucky 40383 Metairie, Louisiana 70002
Attn: David J. Stetson Attn: William Gray
Telephone: (606) 873-5455 Telephone: (504) 830-7638
Fax: (606) 873-4689 Fax: (504) 831-1528
SOUTHERN GAS CO. OF DELAWARE, INC.
By: /s/ David J. Stetson
-----------------------------
Name: David J. Stetson
Title: General Counsel
Address:
160 Morgan Street
P.O. Box 87
Versailles, Kentucky 40383
Attn: David J. Stetson
Telephone: (606) 873-5455
Fax: (606) 873-4689
