SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to 14(a)
of the Securities Exchange Act of 1934
(Amendment No. N/A)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
American Resources of Delaware, Inc.
------------------------------------
(Name of Registrant as Specified In Its Charter)
---------------------------------------------
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-
6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined):
-------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PRELIMINARY
AMERICAN RESOURCES OF DELAWARE, INC.
160 Morgan Street, P.O. Box 87
Versailles, Kentucky 40383
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On June 30, 1998
-------------------------------
Notice is hereby given that the Annual Meeting of
Stockholders of American Resources of Delaware, Inc. (the
"Company" or "ARI") will be held at 11:00 a.m., Eastern Daylight
Time, on June 30, 1998 at the Marriott Hotel, 1800 Newtown Pike,
Lexington, Kentucky 40511 for the following purposes:
PROPOSAL NO. 1. To elect two directors to serve for terms
of three years.
PROPOSAL NO. 2. To ratify the selection of KPMG Peat Marwick
LLP as the Company's independent auditors for 1998.
PROPOSAL NO. 3. To amend the Company's Restated Certificate
of Incorporation to limit the personal liability of the Company's
directors for monetary damages to the fullest extent permitted by
law.
PROPOSAL NO. 4. The transaction of such other business as
may be brought before the Annual Meeting or any adjournment or
adjournments thereof.
Information regarding the matters to be acted upon at the
Annual Meeting is contained in the Proxy Statement accompanying
this Notice. The Annual Meeting may be adjourned from time to
time without notice other than the announcement of the
adjournment at the Annual Meeting or any adjournment or
adjournments thereof, and any and all business for which notice
is given may be transacted at any such adjourned Annual Meeting.
All stockholders are encouraged to read the accompanying
Proxy Statement carefully for further information concerning the
proposals that will be presented at the Annual Meeting and prior
to completion of the enclosed proxy card.
Only holders of record of outstanding shares of the
Company's Common Stock and Series 1993, 8% Convertible Preferred
Stock at the close of business on May 19, 1998 are entitled to
notice of and to vote at the Special Meeting or any adjournment
or adjournments thereof. All stockholders are invited to attend
the Annual Meeting in person; however, to ensure your
representation, whether or not you plan to attend the Annual
Meeting, please promptly complete, date, sign and return the
enclosed proxy card.
Karen M. Underwood
Corporate Secretary
Versailles, Kentucky
June , 1998
---
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
160 Morgan Street, P.O. Box 87
Versailles, Kentucky 40383
------------------------------
PROXY STATEMENT
------------------------------
THE ANNUAL MEETING
This Proxy Statement is furnished to stockholders of
American Resources of Delaware, Inc. (the "Company") in
connection with the solicitation of proxies by and on behalf of
the Board of Directors of the Company for use at the Annual
Meeting of Stockholders to be held at 11:00 a.m., Eastern
Daylight Time, on June 30, 1998, at the Marriott Hotel, 1800
Newtown Pike, Lexington, Kentucky 40511 and at any adjournment or
adjournments thereof (the "Annual Meeting"). Commencing on or
about June 5, 1998, this Proxy Statement and the enclosed proxy
card are being mailed to stockholders of record of the Company.
The Company will bear the costs of this solicitation, which, in
addition to mail, may include personal interviews, telephone
calls, or telegrams by directors, officers and regular employees
of the Company and its affiliates. The Company has engaged
American Securities Transfer and Trust, Inc., 938 Quail Street,
Suite 101, Lakewood, Colorado 80215, to solicit proxies and
anticipates paying it compensation for such services in the
amount of approximately $3,000.
VOTING.
Only record holders of outstanding shares of the Company's
Common Stock, par value $.00001 per share (the "Common Stock"),
and the Company's Series 1993 Preferred Stock, par value $12.00
per share (the "Series 1993 Preferred Stock"), at the close of
business on the record date, May 19, 1998, are entitled to notice
of and to vote at the Annual Meeting. As of such record date,
10,207,231 shares of Common Stock and 265,517 shares of Series
1993 Preferred Stock were entitled to be voted. The holders of
Common Stock are entitled to cast one vote for each share of
Common Stock owned of record. The holders of Series 1993
Preferred Stock are entitled to cast four votes for each share of
Series 1993 Preferred Stock owned of record. The holders of
Common Stock and the holders of Series 1993 Preferred Stock vote
together as a single class except as otherwise required by law.
As of the record date, the holders of the Common Stock and the
holders of the Series 1993 Preferred Stock were entitled to cast
an aggregate of 11,269,299 votes. Cumulative voting is not
permitted with respect to any proposal to be acted upon at the
Annual Meeting. See "Security Ownership" with respect to the
ownership of voting stock of the Company by directors, executive
officers and certain other holders.
1
<PAGE>
The presence in person or by proxy of the holders of shares
of Common Stock and/or Series 1993 Preferred Stock entitled to
cast a majority of the aggregate votes entitled to be cast at the
Meeting shall constitute a quorum. If a quorum should not be
present, the Annual Meeting may be adjourned from time to time
until a quorum is obtained. Stockholders are urged to sign the
accompanying proxy card and return it promptly.
The accompanying proxy card is designed to permit each
stockholder of record at the close of business on the record date
to vote in the election of directors and the proposals described
in the Proxy Statement. The proxy card provides space for a
stockholder to vote in favor of or to withhold voting for any or
all nominees for the Board of Directors, to vote for or against
any proposal to be considered at the Annual Meeting or to abstain
from voting for any proposal if the stockholder chooses to do so.
To ensure representation at the Annual Meeting, each holder
of outstanding shares of Common Stock and Series 1993 Preferred
Stock entitled to be voted at the Annual Meeting is requested to
complete, date, sign and return to the Company the enclosed proxy
card, which requires no postage if mailed in the United States.
Stockholders are urged to sign the accompanying proxy card and
return it promptly. Banking institutions, brokerage firms,
custodians, trustees, nominees, and fiduciaries who are record
holders of Common Stock and/or Series 1993 Preferred Stock
entitled to be voted at the Annual Meeting are requested to
forward all proxy cards, this Proxy Statement, and the
accompanying materials to the beneficial owners of such shares
and to seek authority to execute proxies with respect to such
shares. Upon request, the Company will reimburse such record
holders for their reasonable out-of-pocket forwarding expenses.
The costs of this solicitation will be borne by the Company,
including the costs of assembling and mailing the enclosed proxy
card and this Proxy Statement.
If properly executed and received by the Company before the
Annual Meeting, or any adjournment or adjournments thereof, any
proxy representing shares of Common Stock or Series 1993
Preferred Stock entitled to be voted at the Annual Meeting and
specifying how it is to be voted will be voted accordingly.
Shares as to which authority to vote has been withheld with
respect to the election of any nominee for director will not be
counted as a vote for such nominee and neither an abstention nor
a broker nonvote will be counted as a vote for a proposal. Any
properly executed proxy received that does not specify how it is
to be voted on a proposal for which a specification may be made
will be voted FOR such proposal at the Annual Meeting and any
adjournment or adjournments thereof.
Each stockholder returning a proxy card to the Company has
the right to revoke it, at any time before it is voted, by
submitting a later dated proxy in proper form, by notifying the
Secretary of
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<PAGE>
the Company in writing (signed and dated by the stockholder) of
such revocation, or by appearing at the Annual Meeting,
requesting the return of the proxy, and voting the shares in
person.
When a signed proxy card is returned with choices specified
with respect to voting matters, the shares represented are voted
by Proxies designated on the proxy card in accordance with the
stockholder's instructions. The Proxies are Rick G. Avare,
President and Chief Executive Officer of the Company, and Douglas
L. Hawthorne, Chairman of the Board of the Company, each of whose
names are listed on the proxy card. A stockholder wishing to name
another person as his or her proxy may do so by crossing out the
names of the two designated Proxies and inserting the name(s) of
such other person(s) to act as his or her proxy(ies). In that
case, it will be necessary for the stockholder to sign the proxy
card and deliver it to the person(s) named as his or her proxy
and for the person(s) so named to be present and to vote at the
Annual Meeting. Proxy cards so marked should not be mailed to the
Company.
PROPOSAL N0. 1
TO ELECT TWO DIRECTORS TO SERVE FOR TERMS OF THREE YEARS.
The affirmative vote of the holders of a majority of the
combined voting power of all of the issued and outstanding shares
of Common Stock and Series 1993 Preferred Stock voted at the
Annual Meeting, voting together as a single class, is required to
elect each director.
The Company's Board of Directors is divided into three
classes with staggered three year terms. In accordance with the
Company's Bylaws, the Board of Directors has fixed the number of
directors at seven. The terms of two of the directors, Douglas
L. Hawthorne and Donald A. Schellpfeffer, expire in 1998 and
their successors will be elected at the Annual Meeting.
The Board of Directors has nominated Douglas L. Hawthorne
and Joseph P. Shields for election as directors at the Annual
Meeting to serve for a term of three years.
There are no family relationships among any directors,
nominee for director, or executive officers of the Company. Each
of the nominees has consented to being named as a nominee and to
serve as a director if elected. However, if for any reason any
nominee for director is not a candidate at the election, the
enclosed proxy will be voted for the election of a substitute
nominee at the discretion of the person or persons voting the
enclosed proxy. The Board of Directors has no reason to believe
that any nominee named herein will be unable to serve.
Information regarding the nominees and the directors of the
Company whose terms do not expire is provided below and under
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"Directors and Executive Officers", "Security Ownership",
"Executive Compensation", and "Certain Relationships and Related
Transactions".
NOMINEES FOR ELECTION AS DIRECTORS.
<TABLE>
Term of Age Principal Occupation Director
- ------- --- -------------------- --------
Office Expires in Since
- ----------------- -----
2001
- ----
<S> <C> <S> <C>
Douglas L. Hawthorne 56 Business Consultant 1993
Joseph P. Shields 41 Senior Vice President,
Energy Services for
New Jersey Natural
Gas Company N/A
</TABLE>
DIRECTORS WHOSE TERMS EXPIRE AT ANNUAL MEETING.
<TABLE>
Term of Office Age Principal Occupation Director
--- -------------------- --------
Expires in 1998 Since
- --------------- -----
<S> <C> <S> <C>
Douglas L. Hawthorne 56 Business Consultant 1993
Donald A.
Schellpfeffer 55 Physician 1993
</TABLE>
DIRECTORS CONTINUING IN OFFICE.
<TABLE>
Term of Office Age Principal Occupation Director
- -------------- --- ---------------------
Expires in 1999 Since
- --------------- -----
<S> <C> <S> <C>
Leonard K. Nave 63 Chairman, President, 1994
and Chief Executive
Officer of Southern
Gas Co. of Delaware,
Inc.
Len Aldrich 60 Real Estate Manage- 1997
ment and Development
Robert L. McIntyre 52 Attorney at Law 1997
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<PAGE>
Term of Office Age Principal Occupation Director
--- -------------------- --------
Expires in 2000 Since
- --------------- -----
Rick G. Avare 36 President and Chief 1994
Executive Officer
of the Company
David Fox, Jr. 77 President of Appalachian 1996
Production Company
and President and
Chairman of the Board
of FGO, Inc.
</TABLE>
Biographical information on all of the above persons except
Joseph P. Shields is included under the caption Directors and
Executive Officers below.
JOSEPH P. SHIELDS has been employed by New Jersey Natural
Gas Company since 1983. He served as Manager of Gas Supply
Operations from 1990 to 1995, as Director of Gas Supply from
1995 to 1996, as Vice President of Gas Supply from January 1996
to January 1997, and as Senior Vice President, Energy Services
since January 1997. Mr. Shields does not own any stock in the
Company.
PROPOSAL NO. 2
TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR 1998.
Approval of Proposal No. 2 requires the affirmative vote of
the holders of a majority of the combined voting power of all of
the issued and outstanding shares of Common Stock and Series 1993
Preferred Stock voted at the Annual Meeting, voting together as
a single class.
KPMG Peat Marwick LLP has served as the Company's
independent auditors since 1994. The Board of Directors is of the
opinion that KPMG Peat Marwick LLP is well qualified to continue
such service and recommends that the stockholders vote FOR
ratification of the selection of KPMG Peat Marwick LLP. One or
more representatives of KPMG Peat Marwick LLP are expected to be
present at the Annual Meeting, to have the opportunity to make a
statement if they so desire, and to be available to respond to
appropriate questions.
PROPOSAL NO. 3
TO AMEND THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO LIMIT THE MONETARY LIABILITY OF THE COMPANY'S
DIRECTORS TO THE FULLEST EXTENT PERMITTED BY THE DELAWARE GENERAL
CORPORATION LAW.
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<PAGE>
Approval of Proposal No. 3 requires the affirmative vote of
the holders of a majority of the combined voting power of all of
the issued and outstanding shares of Common Stock and 1993
Preferred Stock entitled to vote at the Annual Meeting, voting
together as a single class.
Under the Delaware General Corporation Law, the business and
affairs of a corporation are managed by or under the direction of
a board of directors. The directors owe the duties of loyalty and
care to the corporation and its stockholders. The duty of care
requires directors to discharge their duties (i) in good faith,
(ii) with the care an ordinarily prudent person in a like
position would exercise under similar circumstances and (iii) in
a manner he or she reasonably believes to be in the best interest
of the corporation. The duty of care is qualified by the business
judgment rule. Under this rule, a court will not substitute its
judgment for that of the director if the director acted in good
faith, was reasonably informed and rationally believed the action
taken was in the best interest of the corporation. The duty of
loyalty requires directors to exercise their powers in the
interests of the corporation and not in the director's own
interest or the interest of another person or organization.
Although the Company is not aware of any pending or
threatened legal actions against the Company's directors, the
Company's directors could incur substantial personal liability if
they breach their duties as directors. Because of concerns about
the potential personal liability of directors, Section 102(b)(7)
of the Delaware General Corporation Law was amended in 1986 to
authorize corporations to include in their certificates of
incorporation a provision limiting the personal liability of a
director to the corporation or its stockholders for monetary
damages for breach of his or her fiduciary duties as a director,
but such provision does not eliminate or limit the liability of a
director for: (i) breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law, (iii) approving an unlawful distribution to
stockholders under Section 174 of the Delaware General
Corporation Law, or (iv) any transaction from which the director
derived an improper personal benefit. Furthermore, if adopted,
the provision does not eliminate or limit the personal liability
of a director for any act or omission occurring prior to the
effective date of the amendment to the corporation's certificate
of incorporation adopting the provision.
The proliferation of litigation involving the personal
liability of directors coupled with the significantly increased
costs of defending lawsuits has generally had an adverse effect
on the ability of corporations to attract and retain qualified
directors. To enable the Company to attract and retain qualified
directors, the Board of Directors has unanimously approved and
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recommends that the stockholders adopt the following amendment to
the Company's Restated Certificate of Incorporation:
"To the fullest extent permitted by the Delaware
General Corporation Law as the same exists or hereafter
may be amended, no director of this corporation shall
be liable to this corporation or to its stockholders
for monetary damages for breach of fiduciary duty as a
director."
DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the names, ages, positions and
business experience of the directors and executive officers of
the Company is set forth below.
Name Age Position
- ---- --- --------
Rick G. Avare(1)(6) 36 Director, President
and Chief
Executive Officer
Douglas L. Hawthorne(2)(6)(7) 56 Chairman of the Board
Leonard K. Nave(3)(6) 63 Director
Donald A. Schellpfeffer(8) 55 Director
David Fox, Jr.(7)(8) 77 Director
Len Aldridge(8) 60 Director
Robert L. McIntyre(7) 52 Director
William D. Bishop(5) 57 Former Director
Ralph A. Currie(4) 43 Vice President of
Finance, Chief
Financial Officer and
Treasurer
William M. Gray 43 Vice President and
Chief Operating
Officer of American
Resources Offshore,
Inc. ("ARO")
David J. Stetson 42 General Counsel and
Assistant Corporate
Secretary
7
<PAGE>
Name Age Position
- ---- --- --------
Karen M. Underwood(9) 42 Vice President-
Corporate Compliance
and Corporate
Secretary
(1) Also serves as a director, Executive Vice President and
Chief Operating Officer of ARI's wholly owned subsidiary,
Southern Gas Co. of Delaware, Inc. ("Southern Gas") as well
as Chairman of the Board and Chief Executive Officer of
ARI's wholly owned subsidiary, American Resources Offshore,
Inc. ("ARO").
(2) Also serves as a director of Southern Gas.
(3) Also serves as Chairman of the Board, President and Chief
Executive Officer of Southern Gas.
(4) Also serves as Chief Financial Officer and Treasurer of both
Southern Gas and ARO as well as a director of ARO.
(5) Mr. Bishop served as a director of the Company from July 8,
1997 until he resigned effective September 22, 1997.
(6) Member of Executive Committee.
(7) Member of Compensation Committee.
(8) Member of Audit Committee.
(9) Also serves as a director, Vice President of Administration
and Corporate Secretary of Southern Gas.
RICK G. AVARE has served as President and Chief Executive Officer
of ARI since May 1996, and as a director of ARI since September
1994. Mr. Avare served as Chief Operating Officer and Executive
Vice President of ARI from August 1995 until May 1996, and he
served as Chief Financial Officer of ARI from September 1994
through December 1995. He has held various executive and director
positions with Southern Gas since 1994 and ARO since 1997. Mr.
Avare also serves as Administrative Member of Prima Capital, LLC
and MAP, LLC. Mr. Avare is a certified public accountant. See
"Certain Relationships and Related Transactions."
DOUGLAS L. HAWTHORNE has served as a director and Chairman of the
Board of ARI since March 1993, and has been a director of
Southern Gas since February 1994, having also served in this
position in March and April, 1993. Mr. Hawthorne has served as a
director of Bullet Sports International, Inc. since 1995. Mr.
Hawthorne has been a principal of Carillon Capital, Inc., a
Dayton, Ohio investment banking firm, since 1992. From 1991 to
1994, Mr. Hawthorne was a principal in SPECTRA Group, Inc., a
management consulting firm also based in Dayton, Ohio. See
"Certain Relationships and Related Transactions."
LEONARD K. NAVE has served as Chairman of the Board, Chief
Executive Officer, and President of Southern Gas since February
1994. He has served as a director of ARI since September 1994
and also served in that position in March and April 1993. Mr.
Nave has served as a director for Bullet Sports International,
Inc. since
8
<PAGE>
1995. Mr. Nave served as the President, Chief Executive Officer
and a director of Southern Gas Company from its inception in
March 1983 until its dissolution in February 1995. Since October
1988, Mr. Nave has served as the President and a director of
Southern Gas Holding Company. In addition, Mr. Nave currently
holds the following positions: President and a director of
Nawenco Equipment, Ltd. (since March 1992); and President and a
director of Woodway Farms, Inc. (since August 1983). In February
1996, Mr. Nave filed for reorganization and protection under
Chapter 11 of the United States Bankruptcy Code. This action was
initiated primarily because of the attempted enforcement of
certain guaranties which Mr. Nave had signed on behalf of an
unrelated corporation. Mr. Nave's discharge from Chapter 11 was
effective March 18, 1998. Mr. Nave is an active member of the
Kentucky Bar Association. See "Certain Relationships and Related
Transactions."
DONALD A. SCHELLPFEFFER, M.D. has served as a director of ARI
since March 1993. Dr. Schellpfeffer has been engaged in the
practice of medicine in Sioux Falls, South Dakota since 1985.
DAVID FOX, JR. has served as a director of ARI since August 1996.
Mr. Fox has served as Vice Chairman and Secretary-Treasurer of
McJunkin Appalachian Oil Field Supply Company since 1989. He
also serves as President of Appalachian Production Co., an oil
and gas producing company, President and Chairman of the Board of
FGO, Inc., a West Virginia residential real estate development
company, and as a Director of KYOWVA Container Corporation;
River Cities Association; Bank One, West Virginia, Charleston;
Bank One, West Virginia; and the Marshall University Foundation.
He also serves as the President of the Marshall University
Foundation.
LEN ALDRIDGE has served as a director of ARI since July 1997. He
has served as Vice President of Limited Partners of Lexington, a
Kentucky corporation engaged in the development and management of
real estate, since March 1984. Mr. Aldridge also currently holds
the following positions: Partner of Poole & Aldridge (since
1975), Vice President of Poole Enterprises, Inc. (since 1988),
Director of Rafferty's Inc. (Since 1991), and Vice
President/Treasurer of Mason Headley Development (since 1994).
Mr. Aldrich is a certified public accountant.
ROBERT L. MCINTYRE has served as a director of ARI since July
1997. From April 1992 through September 1996, he was a partner
with the law firm of Breeding, McIntyre & Cunningham, PSC,
Lexington, Kentucky, managing the firm's energy, corporate,
transactional and international practice. He has been Of Counsel
to the law firm of Breeding, Cunningham, Dance and Cress, PLC,
Lexington, Kentucky, since October 1996. He is an active member
of the State Bar Associations of Kentucky and Texas.
RALPH A. CURRIE has served as Vice President, Treasurer and Chief
Financial Officer of ARI since 1997. He also serves as Chief
9
<PAGE>
Financial Officer of ARI's wholly-owned subsidiaries, Southern
Gas and ARO, as well as a director of ARO. Mr. Currie has served
as Chief Financial Officer of American Rehabilitation Group,
P.S.C., a Kentucky-wide physical therapy company, since 1994.
From 1991 to 1994, he was a partner with the regional business
and financial planning firm of Cramer, Currie & Company,
Lexington, Kentucky. Mr. Currie is a certified public accountant.
WILLIAM M. GRAY has served as President and Chief Operating
Officer of ARO since its inception in 1997. He served as
President and Chief Executive Officer of Gulfstream Resources,
Inc. from 1992 to 1996.
DAVID J. STETSON has served a General Counsel of ARI since
January 1997 and as Assistant Corporate Secretary since July
1997. Mr. Stetson was engaged in the private practice of law from
1982 to 1997.
KAREN M. UNDERWOOD has served as Corporate Secretary of ARI since
January 1996 and as Vice President-Corporate Compliance of ARI
since July 1997. She also has served as a director, Vice
President-Administration and Corporate Secretary of Southern Gas
since February 1994. She served in those positions for Southern
Gas's predecessor company at various times from 1983 to February
1994.
MEETINGS AND COMPENSATION.
BOARD OF DIRECTORS. During the year ended December 31, 1997, the
Board of Directors of the Company met on five occasions, either
in person or telephonically. Each of the Company's directors
attended at least 75% of the meetings of the Board of Directors
except for Donald A. Schellpfeffer who attended 60% of the
meetings.
During 1997, the Company's non-employee directors, Dr.
Schellpfeffer and Messrs. Aldridge, McIntyre and Bishop, received
no compensation for their services to the Company; however, they
were reimbursed for reasonable travel expenses incurred, if any,
in connection with their attendance at meetings of the Board of
Directors.
EXECUTIVE COMMITTEE. The Executive Committee is composed on
Messrs. Hawthorne, Nave and Avare. The Committee has all of the
powers and authority of the Board of Directors in the management
of the business, including the declaration of dividends on
preferred stock and the sale and issuance of shares of common and
preferred stock, provided, however, that the Committee does not
have the power or authority to approve, adopt or recommend to the
stockholders any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders
for approval, or to adopt, amend or repeal any by-law of the
Company. The Executive Committee met thirteen times during 1997.
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AUDIT COMMITTEE. The Audit Committee is composed of Messrs.
Aldridge and Fox and Dr. Schellpfeffer. The Audit Committee's
duties include (1) recommending the selection of independent
auditors, (2) reviewing the scope and results of the audit made
by the Company's auditors, (3) ensuring that disagreements, if
any, as to the application of generally accepted accounting
principles are resolved to the satisfaction of the Company's
auditors, and (4) reviewing the Company's financial reporting
activities and the accounting standards and principles followed.
The Audit Committee met two times during 1997.
COMPENSATION COMMITTEE. The Compensation Committee consists of
Messrs. Hawthorne, Fox and McIntyre. The Compensation Committee
makes recommendations to the full Board of Directors regarding
salaries and benefits provided to executive officers and the
establishment of various employee benefit plans. The Compensation
Committee met one time during 1997.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's officers and directors and persons who own
more than 10% of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership
with the SEC. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms
furnished to the Company or written representations that no other
reports were required, the Company believes that during the 1997
fiscal year, all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied
with.
SECURITY OWNERSHIP
The following table reflects certain information regarding
the beneficial ownership of the outstanding equity securities of
the Company as of March 14, 1998, to the extent known to the
Company's Board of Directors. Such information is included for
(i) persons who own 5% or more of such equity securities, (ii)
directors, (iii) the executive officers identified in the
discussion under the heading "Executive Compensation" (the "Named
Executives"), and (iv) officers and directors of the Company as a
group. Unless otherwise indicated, the Company believes that
each person named below has the sole power to vote and dispose of
the equity securities beneficially owned by such person.
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<TABLE>
Beneficial Owner Title Beneficially Percent
Name/Address Of Class Owned(1) Of Class(2)
- ------------ -------- -------- --------
<S> <S> <C> <C>
Douglas L.
Hawthorne(7) 8% Pfd 3,334 1.26%
4325 Delco
Dell Road Common 487,163 4.70%
Kettering, OH
45429
Donald A.
Schellpfeffer,
M.D.(9)
910 East 20th
Street
Sioux Falls,
SD 57105 Common 327,247 3.22%
Southern Gas
Holding Co., Inc.
160 Morgan Street
Versailles, KY 40383 Common 643,623 6.43%
Leonard K. Nave
(3)(6)
160 Morgan Street
Versailles, KY 40383 Common 948,462 9.23%
Leonard K. Nave,
Trustee(3)(4)
160 Morgan Street
Versailles, KY 40383 Common 643,623 6.43%
Rick G. Avare (5)
160 Morgan Street 8% Pfd 187,500 70.62%
Versailles, KY 40383 Common 1,886,250 17.46%
Prima Capital LLC
1532 Lake Wood Drive
Lexington, KY 40502 Common 602,008 6.02%
David J. Fox, Jr.
Appalachian
Production Company
605 9th Street,
Ste. 519
Huntington, WV
25701 Common 43,834 *
</TABLE>
12
<PAGE>
<TABLE>
Beneficial Owner Title Beneficially Percent
Name/Address Of Class Owned(1) Of Class(2)
- ------------ -------- -------- --------
<S> <S> <C> <C>
Len Aldrich
1999 Richmond Road
Suite 2-A
Lexington, KY 40502 Common 101,000 1.01%
Ralph A. Currie
160 Morgan Street
Versailles, KY 40383 Common 75,000 *
David J. Stetson
160 Morgan Street
Versailles, KY 40383 Common 26,000 *
Whispering Pines of
Thomasville, Inc.
P. O. Box 638
Thomasville, GA 8% Pfd 28,334 10.67%
Andrew J. Kacic (8)
6119 N. Black Bear
Loop
Tucson, AZ 85715 Common 711,540 6.65%
Karen M. Underwood Common 15,138 *
3929 Rock Ledge Lane
Lexington, KY 40513
Directors and
Executive Officers
as a group All
(9 persons) Classes 3,890,094 33.74%
</TABLE>
* Represents less than 1% of the Company's outstanding stock
for the indicated class.
(1) Share information reflects the 1-for-4 reverse stock split
of the Company's common stock effected on June 8, 1994. 8%
Preferred Stock is convertible into common stock at the rate
of one share of common stock for each share of Preferred
Stock.
(2) Percentage assumes full exercise of outstanding options and
warrants to purchase shares of the Company's common stock
and conversion of 8% Preferred Stock into common stock.
(3) Includes 643,623 shares of common stock owned by Southern
Gas Holding Company, Inc. ("SGH"). SGH is owned 7.5% by
Leonard K. Nave, individually, and 32.5% by Leonard K. Nave,
as
13
<PAGE>
Trustee (See Note 4). Mr. Nave, individually and as
trustee, disclaims the beneficial ownership of such shares
of the Company's common stock to the extent they exceed his
percentage ownership of SGH.
(4) Leonard K. Nave is both the grantor and trustee of a trust
which owns 325 shares (32.5%) of SGH. The Trust Agreement
provides that 75 shares (7.5%) shall be distributed to each
of his three children and 100 shares (10%) shall be
distributed to his wife not later than April 30, 2000.
Neither Mr. Nave's wife nor children have a right to vote
the shares or to cause the trust to sell or otherwise
dispose of them.
(5) Includes 680,704 shares subject to options and conversion
rights exercisable within 60 days, 602,088 shares owned by
Prima Capital, LLC ("Prima") in which Mr. Avare owns a 20%
interest, and 1,134 shares owned by JJR Investments, a
Kentucky general partnership. Mr. Avare disclaims
beneficial ownership of 80% of the shares of the Company's
common stock owned by Prima.
(6) Includes 271,603 shares subject to options exercisable
within 60 days.
(7) Includes 357,649 shares subject to options and conversion
rights exercisable within 60 days, 121,400 shares held in
Mr. Hawthorne's retirement plan and 1,792 shares to which
Mr. Hawthorne is entitled as a 1/3 beneficiary of the
Frances R. Hawthorne Trust.
(8) Includes 690,590 shares subject to options exercisable
within 60 days, 6,750 shares owned by the Andrew J. Kacic
Profit Sharing Plan, 6,390 shares held by Advisory Services
and 7,810 shares held by Andrew J. Kacic & Associates.
(9) Includes 169,973 shares subject to options exercisable
within 60 days, 10,655 shares held by AAI, 470 shares held
by Midwest Anesthesiology Service II Profit Sharing Plan,
2,068 shares held in trusts for the benefit of Dr.
Schellpfeffer's children, with respect to which Dr.
Schellpfeffer acts as custodian, 12,185 shares held in
Individual Retirement Plans for Dr. Schellpfeffer and
members of his family, and 70,872 shares held by DARS
Limited, of which Dr. Schellpfeffer is a principal.
EXECUTIVE COMPENSATION:
The tables below set forth information concerning the annual
and long-term compensation for services to the Company and its
subsidiaries, Southern Gas and ARO, for the fiscal years ended
December 31, 1997, 1996 and 1995 of those persons who were, at
December 31, 1997 (i) the chief executive officer and (ii) the
14
<PAGE>
other four most highly compensated executive officers of the
Company (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
Annual Long-Term
Compensation Compensation
------------ ------------
Securities
Underlying
Name and Principal Other Annual Stock LTIP All Other
Position (1) Year Salary Bonus Compensation Options Payouts Compensation
- ------------ ---- ------ ----- ------------ ------- ------- ------------
<S> <C> <C> <S> <C> <C> <S> <C>
Douglas L. Hawthorne 1997 -- -- $40,000 354,315 -- --
Chairman of the Board 1996 -- -- 60,000 354,315 -- --
1995 -- -- 54,000 354,315 -- --
Leonard K. Nave 1997 $175,000 -- $ 4,655 271,603 -- $8,000(2)
Chairman of the Board 1996 175,761 -- 3,281 271,603 -- 8,750(2)
President & Chief 1995 175,500 -- 4,692 246,603 -- 8,750(2)
Executive Officer,
Southern Gas
Rick G. Avare 1997 $166,455 $140,000 $ 3,678 493.204 -- $8,000(2)
President & Chief 1996 137,684 50,000 17,400(3) 493,204 -- 6,846(2)
Executive Officer 1995 99,546 50,000 18,533(4) 268,204 -- 4,952(2)
Ralph A. Currie 1997 $68,138 $32,000 $ 7,200(5) -- -- --
Vice President & 1996 -- -- -- -- -- --
Chief Financial Officer 1995 -- -- -- -- -- --
Jeffrey J. Hausman 1997 $80,042 -- -- 75,000 -- $4,002(2)
Former Vice President & 1996 71,546 -- -- 25,000 -- --
Chief Financial Officer 1995 -- -- -- -- -- --
David J. Stetson 1997 $99,821 $39,500 $11,020(5) 33,333 -- $3,830(2)
General Counsel 1996 -- -- -- 16,667(6) -- --
1995 -- -- -- -- -- --
</TABLE>
<PAGE>
(1) The disclosures in this table for Messrs. Hawthorne, Curri,
Hausman and Stetson have been provided for informational
purposes only and in light of their status as significant
employees of the Company. SEC rules require only the
disclosure of the four most highly compensated executive
officers whose total annual salary and bonus exceeds
$100,000.
(2) Represents contribution made on behalf of the Named Officer
to a 401(K) plan.
(3) Includes car allowance of $11,907.
(4) Includes car allowance of $12,038.
(5) Includes car allowance of $7,200.
(6) 50,000 options granted on March 4, 1996, under the Company's
CSO Plan, vesting 1/3 immediately, 1/3 on March 4, 1997 and
1/3 on March 4, 1998.
The table below contains information on grants of stock
options during 1997 to the Named Officers. No stock appreciation
rights were granted during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Name Granted (#) 1997 ($/share) Date
- ---- ----------- ---- --------- ----
<S> <S>
Douglas L. Hawthorne None
Leonard K. Nave None
Rick G. Avare None
Ralph A. Currie None
Jeffrey J. Hausman None
David J. Stetson None
</TABLE>
15
<PAGE>
Shown below is information with respect to all unexercised
options to purchase the Company's Common Stock granted to the
Named Officers through the end of fiscal year 1997. No options
were exercised by the Named Officers during 1997. No stock
appreciation rights have been granted.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
Number of Value of
Securities Unexercised
Underlying in-the-Money
Unexercised Options Options
Shares at FY- End at FY-End($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable
- ---- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Douglas L. Hawthorne -- -- 354,315/0 0/0
Leonard K. Nave -- -- 271,603/0 0/0
Rick G. Avare -- -- 493,204/0 0/0
Ralph A. Currie -- -- 0/0 0/0
Jeffrey J. Hausman -- -- 75,000/0 0/0
David J. Stetson -- -- 33,333/16,667 0/0
</TABLE>
On April 14, 1994, the Board of Directors adopted two formal
stock plans: (i) the CSO Plan, and (ii) the 1994 Employee Stock
Compensation Plan ("Employee Plan"). The CSO Plan is a
compensatory (non-statutory) stock option plan covering 2,000,000
(post-reverse stock split) shares of the Company's common stock,
which is not a qualified plan under Section 422 of the Internal
Revenue Code of 1986. The number of shares authorized for
issuance under the CSO was originally 750,000; however, this
amount was increased to 2,000,000 on June 22, 1995, by approval
of the shareholders.
The Employee Plan is an employee stock compensation plan
covering 650,000 (post-reverse stock split) shares of the
Company's Common Stock. The Employee Plan is not qualified under
section 401(a) of the Internal Revenue Code of 1986. As of
December 31, 1997, 321,000 shares have been issued under the
Employee Plan.
From March 19, 1994, and at various dates until February 2,
1995, the Company entered into separate Compensatory Stock Option
Agreements with the following individuals: (i) Douglas L.
Hawthorne, Chairman of the Board; (ii) Donald Schellpfeffer,
Director; (iii) Leonard K. Nave, Director of the Company and
President, Chief Executive Officer and a Director of Southern
Gas; and (iv) Rick G. Avare, Director and President and Chief
Executive Officer of the Company and Director, Vice President of
Finance and Chief Operating Officer of Southern Gas and Chairman
of the Board and Chief Executive Officer of ARO. Pursuant to the
terms of these agreements, Messrs. Hawthorne, Schellpfeffer, Nave
and Avare were granted options to purchase 307,712, 150,000,
200,000 and 175,000 shares of Common Stock, respectively, at
exercise prices of between $6.00 and $8.00 per share and
expiring between March 18, 2003, and February 1, 2005. Effective
March 4, 1996, the Board of
16
<PAGE>
Directors of the Company approved a Resolution wherein all
options previously granted under the CSO Plan may be amended, at
the election of the optionee, to provide that the option price be
reduced to $4.50 per share and the term be reduced to 5 years
from March 4, 1996.
On November 12, 1996, the Company's Board of Directors
adopted an Incentive Bonus Plan (the "Bonus Plan"). The Bonus
Plan provides that in each Contribution Period, as hereinafter
defined, (the "Bonus Period") the Company will make a Bonus
Contribution to the Bonus Plan. One-half of the Bonus
Contribution will be an amount equal to two and one-half cents
($.025) per thousand cubic feet equivalent of the net increase in
the Company's proved producing reserves during the Bonus Period;
and the other one-half of the Bonus Contribution will be an
amount equal to two percent (2%) of the Company's net income
before taxes during the Bonus Period as determined in accordance
with generally accepted accounting principles, excluding
extraordinary items such as net gain or loss resulting from the
sale, exchange or other disposition of capital assets (other than
in the ordinary course of business), and, to the extent deducted
in arriving at net income, interest, depreciation, depletion and
amortization expenses. However, the Bonus Contribution made
during any Bonus Period cannot exceed the sum of $500,000.
The initial contribution period begins January 1, 1997, and
calendar year 1997 and each successive calendar year thereafter
constitutes a Contribution Period until such time as the Bonus
Plan is modified or terminated by the Board of Directors.
Within 60 days after the end of each Bonus Period, the
President of the Company is required to recommend the manner in
which the Bonus Contribution is to be distributed among the
Company's Chief Executive Officer, Chief Financial Officer,
Senior Vice Presidents, General Counsel, Corporate Secretary and
other key personnel. All distributions are subject to approval by
the Compensation Committee of the Board of Directors and by the
Board of Directors. For 1997 and 1996, the total bonus pool was
$225,000 and $125,000, respectively.
EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS.
On March 19, 1993, the Company executed a five-year
employment agreement with Mr. Hawthorne, its Chairman of the
Board, providing for such compensation as the Board of Directors
deems appropriate and the grant of an option to purchase 392,541
shares of the Company's common stock (which number was
subsequently adjusted to 32,712 following the Company's reverse
stock splits). Pursuant to the terms of a separate registration
rights agreement, Mr. Hawthorne also was granted piggy-back
registration rights with respect to the securities underlying the
options granted under his employment agreement; however, on July
15, 1994, the Board of
17
<PAGE>
Directors cancelled the previously issued options and granted
replacement options to Mr. Hawthorne on the same terms as the
previous options but with a new exercise price. These
replacement options were issued under the Company's 1994 CSO.
Mr. Hawthorne's employment agreement does not require that he
devote his full time to the Company.
In April 1993, SGC executed a five-year employment agreement
with Mr. Nave providing for such compensation as the Board of
Directors deems appropriate and providing for severance pay to
Mr. Nave under certain conditions. The Company assumed this
agreement as a result of the purchase transaction with SGC in
February 1994.
On November 12, 1996, the Company entered into an Employment
Agreement with Rick G. Avare, the Company's President and Chief
Executive Officer, to serve in such capacity for a period of five
years. If written notice of intent to terminate the agreement is
not given by either party at least six months prior to the third
anniversary of the agreement, after the fifth anniversary of the
agreement it is automatically extended from year to year unless
either party gives written notice of intent to terminate at least
six months prior to the next anniversary date, at which time the
agreement will terminate. As consideration for Mr. Avare's
agreement to serve as President and Chief Executive Officer, the
Company agreed to pay him a salary of $160,000 per year plus
benefits customarily paid to executives holding similar
positions. Mr. Avare's salary is subject to annual review by the
Board of Directors. It can be increased by the Board of
Directors, but it cannot be decreased. Effective March 17, 1998,
the Board of Directors approved an increase in Mr. Avare's base
salary to $185,000 per year.
On the same date, the Company entered into a Change of
Control Agreement with Mr. Avare. The agreement is for a term of
five years. If written notice of intent to terminate the
agreement is not given by either party at least six months prior
to the third anniversary of the agreement, it is automatically
extended from year to year after the fifth anniversary of the
agreement unless either party gives written notice of intent to
terminate at least six months prior to the next anniversary date,
at which time the agreement will terminate. However, the Company
is prohibited from giving notice of intent to terminate if within
one year prior to the termination date the Company has received
notice of or has reason to believe that a change of control may
occur.
The agreement provides that if a change of control occurs
and Mr. Avare's employment subsequently terminates for any
reason, the Company will pay to Mr. Avare an amount of monies
equal to the sum of (i) any monies due him under the remaining
term of his employment contract, (ii) any monies received by him
from the sale of the Company's common stock acquired as the
result of the exercise of stock options, (iii) 2.99 times the
bonus awarded to
18
<PAGE>
him for the prior year under the Company's Incentive Bonus Plan
or $300,000, whichever is greater, and (iv) all legal fees and
expenses incurred by him as a result of such termination and in
seeking to obtain or enforce any right under the agreement. In
addition, the Company is obligated to permit Mr. Avare to
participate, for a period of three years after termination, in
the Company's insurance programs at no cost to Mr. Avare.
Under the agreement, a change of control is deemed to occur
if (i) any person or group of persons, other than a group of
persons consisting of the Company's officers and directors as of
the date of the agreement, acting in concert, acquires beneficial
ownership of the Company's then outstanding capital stock
representing 20% or more of the voting power of all of such
shares, (ii) the Company or any of its subsidiaries sell, assign
or transfer assets for consideration greater than 50% of the book
value of the Company's then consolidated assets as determined
under generally accepted accounting principles, (iii) the Company
or any of its subsidiaries merge, consolidate or otherwise
reorganize and the Company's officers and directors as of the
date of the agreement receive less than 35% of the voting power
of the capital stock of the surviving or resulting entity, (iv)
the Company adopts a plan of liquidation or dissolution, (v) the
commencement of a tender offer for the Company's common stock,
which, if successful, would result in a deemed change of control
as defined in the agreement, (vi) a determination by the Board of
Directors of the Company, in view of then current circumstances
or impending events, that a deemed change of control as defined
in the agreement has occurred or is imminent, (vii) the persons
who were directors of the Company immediately prior to any
merger, consolidation, sale of assets or contested election, or
any combination of the foregoing, cease to constitute a majority
of the Company's Board of Directors, and (viii) the persons who
were directors immediately prior to a tender offer or exchange
offer for the Company's voting stock (other than by the Company
or any of its subsidiaries) cease to constitute a majority of the
Company's Board of Directors within two years after such tender
or exchange offer.
On January 1, 1997, the Company entered into an Employment
Agreement with David J. Stetson, the Company's General Counsel,
to serve in such capacity for a period of five years. If a
written notice of intent to terminate the agreement is not given
by either party at least three months prior to the third
anniversary of the agreement and each anniversary date
thereafter, it is automatically extended from year to year after
the fifth anniversary of the agreement unless either party gives
written notice of intent to terminate at least three months prior
to the next anniversary date, at which time the agreement will
terminate. As consideration for Mr. Stetson's agreement to serve
as General Counsel, the Company agreed to pay him a salary of
$102,000 for the first year, $112,000 for the second year,
$120,000 for the third year and not less than $120,000 for each
year thereafter, plus benefits customarily paid
19
<PAGE>
to executives holding similar positions, including participation
in the Company's Bonus Plan.
On April 1, 1997, the Company entered into an Employment
Agreement with Ralph A. Currie, the Company's Chief Financial
Officer, to serve in such capacity for a period of three years.
If written notice of intent to terminate the agreement is not
given by either party at least three months prior to the second
anniversary of the agreement, it is automatically extended from
year to year after the third anniversary of the agreement unless
either party gives written notice of intent to terminate at least
three months prior to the next anniversary date, at which time
the agreement will terminate. As consideration for Mr. Currie's
agreement to serve as Chief Financial Officer, the Company agreed
to pay him a salary of $85,000 for the first year, $95,000 for
the second year, $105,000 for the third year and not less than
$105,000 for each year thereafter, plus benefits customarily paid
to executives holding similar positions, including participation
in the Company's Bonus Plan.
On November 21, 1997, the Company entered into an Employment
Agreement with William M. Gray to serve as the President and
Chief Executive Officer of ARO until December 31, 2000. As
consideration for serving in such capacity the Company agreed to
pay Mr. Gray an annual salary of $167,500 plus cost of living
increases as published by the Bureau of Labor Statistics and
benefits customarily paid to executives holding similar
positions, including participation in the Company's Bonus Plan.
The Company also maintains Indemnity Agreements with the
Board of Directors and with Rick G. Avare, Ralph A. Currie, and
Karen M. Underwood in their capacities as officers of the
Company.
MANAGEMENT CHANGES.
Jeffrey J. Hausman served as Chief Financial Officer of the
Company from January 1, 1996 through March 31, 1997, and
Treasurer from August 1996 through March 31, 1997. During this
time, Mr. Hausman resided with his family in Nashville,
Tennessee. Due to the excess time required of Mr. Hausman's
position as a result of the Company's growth and his family's
desire to remain in Nashville, Mr. Hausman tendered his
resignation as an officer of the Company effective April 1, 1997.
However, he agreed to continue with the Company in an advisory
capacity. Mr. Hausman was succeeded by Ralph A. Currie.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SOUTHERN GAS.
Mr. Nave, in his capacity as Trustee of a Trust for the
benefit of his family, an executive officer of Southern Gas and
20
<PAGE>
director of ARI, is the principal stockholder, director and
executive officer of Southern Gas Holding Company ("SGH"). Mr.
Avare, in his capacity as an executive officer of Southern Gas
and an executive officer and director of ARI, was a stockholder,
director and officer of SGH from October 1988 until February
1998. SGH was the parent company of Southern Gas Company, a
Kentucky corporation ("SGC"), and as part of the dissolution of
SGC, SGH received 993,623 shares of common stock of the Company.
From March 29, 1993, to April 27, 1993, Messrs. Nave and Avare
served as directors of the Company and have served as directors
continuously since September 1994. Mr. Avare resigned as
president and director of SGH in February 1998 and divested
himself of his ownership of stock in SGH in exchange for 350,000
shares of the common stock of the Company. During 1994 and 1995,
the Company engaged in various transactions involving SGH and SGC
and certain third parties regarding the acquisition of oil and
gas properties and interests therein, including the acquisition
of substantially all of the assets and certain liabilities of SGC
in February 1994. At the time such transactions were negotiated
and consummated, Messrs. Nave and Avare were neither directors
nor officers or stockholders of the Company.
At December 31, 1997, the Company has made advances to SGH
totaling $230,784 which the principal of SGH intends to secure
with 143,000 shares of the Company's common stock held by SGH.
OFFICE LEASE.
In connection with the acquisition of the assets of SGC, the
Company has assumed the obligations of a certain lease dated June
1, 1986, between Nave Properties, a sole proprietorship, and SGC
relating to certain office space located in Versailles, Kentucky.
This office serves as the principal headquarters of Southern Gas
(formerly the principal headquarters of SGC); and effective
January 31, 1996, the Company's Scottsdale, Arizona, office was
closed and operations were consolidated in the Kentucky office.
Nave Properties, which is owned by Leonard K. Nave, is an
affiliate of the Company. The lease provides for monthly lease
payments of $3,100 ($37,200 annually). The lease is currently
being renegotiated for renewal.
LOAN TRANSACTIONS.
In March 1995, in order to meet a corporate commitment, the
Company borrowed monies totalling $500,000 from Douglas L.
Hawthorne and Rick G. Avare, who are officers/directors of the
Company. The funds bore interest at the rate of 10% per annum
and were due in full in July 1996. The note was secured by gas
properties, and the individuals had the option to convert their
note to a working interest position in wells to be drilled
offshore Louisiana. In July 1995, the related parties converted
their note to a 13.75% working interest in two wells. Pursuant
to an
21
<PAGE>
agreement between the parties, the Company had the right to
repurchase the working interest position on or before September
30, 1995. The Company exercised the right, as amended, to
repurchase the working interest position for $750,000 plus a
3.875% overriding royalty interest prior to September 30, 1995.
In 1996, the Company purchased Mr. Avare's overriding royalty
interest in the Ship Shoal 150 B-3 well for $125,000. During
1997, the Company purchased the remaining overriding royalties of
Messrs. Hawthorne and Avare in the Ship Shoal 150 wells, for
$150,000 and $180,000, respectively, based upon the fair market
value of the wells utilizing the 1996 year-end reserve report.
In July 1995, in order to fulfill a loan commitment to
Century Offshore Management Corporation ("Century"), an aggregate
of $400,000 was funded by the directors of the Company. These
monies were paid to the Company in exchange for a $400,000
participation in an existing note from Century to the Company in
the amount of $6,500,000 (the Century Note) and upon which
interest was being paid at the rate of 22% per annum. Due to the
fact that the Century Note was relinquished as a part of the
Company's acquisition of the South Timbalier 148 properties, the
Company and the directors simultaneously agreed to terminate the
directors' participation in the Century Note. The Company
entered into Termination of Participation Agreements with the
directors wherein payment of the balance was due in monthly
installments of $12,352, beginning April 1, 1997, with the final
payment due March 1, 1999; however, the Company paid the balance
due in full during 1997 due to the high interest rate associated
with the loan.
In April 1996, the Company entered into agreements with two
individuals, one of whom is Douglas L. Hawthorne, a director of
the Company. Under the agreements, the individuals each paid to
the Company $250,000 in exchange for the right to participate on
a pro rata basis in the Century Note. The agreement allowed the
individuals to receive a combined payment of $500,000 plus
interest at 22% from the Century Note repayment. The agreements
assigned the payments from the portion of the Century Note which
was not pledged to the Company's primary lender. The proceeds
received by the Company under the agreements, which reduced the
carrying value of the Century Note, were used to fund additional
development activities in the Gulf Coast Region. In July 1996,
the Century Note was canceled as part of the consideration paid
by the Company to Century for the purchase of certain oil and gas
properties. The Company and the individuals simultaneously
agreed to terminate the individuals' participation in the Century
Note in exchange for the Company assuming the liability to repay
$500,000 to the individuals plus interest thereon at the rate of
22% per annum. The Company paid the non-affiliated individual in
full prior to December 31, 1996. The Company entered into a
Termination of Participation Agreement with Mr. Hawthorne wherein
payment terms of the balance included $50,000 which was due and
payable by March 10, 1997, with the remaining balance due in
monthly installments of $10,293
22
<PAGE>
beginning April 1, 1997, with the final payment due March 1,
1999; however, the Company paid the balance due in full during
1997 due to the high interest rate associated with the loan.
PRIMA TRANSACTIONS.
On September 15, 1997, the Company entered into a Letter of
Intent with Prima, a limited liability company in which Rick G.
Avare owns a 20% interest, providing for the acquisition of an
interest in certain producing and non-producing oil and gas
properties (the "Properties") located in Mississippi. The
purchase price for the Properties was $2,800,000 payable
$1,300,000 on or before closing which occurred October 10, 1997,
and the balance of $1,500,000 in an interest bearing note with
recourse only to the Properties. The Company already owned up to
3.5% interest in the Properties; and after reviewing an
independent geologist's report on the Properties, the Letter of
Intent was approved by a majority of the disinterested directors
of the Company at a special meeting of the Board of Directors
held on September 15, 1997.
Under a letter agreement dated October 17, 1994, the Company
had the right to acquire 2,471.3 shares of the common stock in
Century for $4,000,000 (the "Century Securities" which were
referred to as the "Settle Securities" prior to the merger of
Settle into Century). Due to the fact that the Company was not
in a position to acquire this equity interest, the agreement was
subsequently amended to permit a third party to acquire the
Century Securities for $2,500,000. The funds used to effect the
foregoing acquisition were borrowed by the third party from
Prima, a limited liability company in which Rick G. Avare owns a
20% interest. The third party is also a member of Prima and the
principal stockholder of Southern Resources, Inc. Prima, in
turn, borrowed the funds it used to provide the foregoing loan
from a bank in Lexington, Kentucky. In connection with this
transaction, the Company entered into a Put Agreement (the "Put
Agreement") dated March 15, 1995, with Prima which provided that
in the event Prima obtained title to the Century Securities,
Prima had the right to require the Company to purchase them for
$4,000,000, payable in cash and common stock.
The Put Agreement with Prima was terminated in July 1995,
and a new agreement, as amended, providing for the Company's
ability to call the Century Securities from the third party
member of Prima for $4,000,000 was substituted therefor (the
"Call Agreement"). The Call Agreement also provided for non-
refundable monthly installments of $31,250 (as originally
required under the Put Agreement) until such time as a total of
$1,000,000 was advanced under the Call Agreement (including
payments previously made under the Put Agreement). In the event
the Company elected to call the Century Securities, the advance
payments would be credited toward the purchase price.
Additionally, a $500,000 certificate of deposit held as
collateral for Prima's loan was liquidated by the Company and the
funds were advanced to Prima under the potential
23
<PAGE>
Call Agreement. Prima used the $500,000 to purchase shares of
Series B Preferred Stock from a third party, which Preferred
Stock it subsequently converted to common stock. In the event
the Company exercised the Call option, the $500,000 would be
credited towards the purchase. The Company's right to call the
Settle Securities began January 15, 1997 and ended December 31,
1997.
On November 4, 1997, the Board of Directors approved the
exercise of the Company's rights under the Call Agreement; and
all funds due pursuant thereto had been paid on or before
December 31, 1997. Due to the subsequent decline in oil and gas
prices, the Company determined there was an other than temporary
decline in the carrying value of the Century common stock. As of
December 31, 1997, the Company recorded a $1.5 million impairment
to its investment in Century, resulting in a net book value of
$2.5 million. The impairment of the Century stock was determined
by comparing the carrying value of the stock on the Company's
books, after the exercise of the Century "Call Agreement," to the
estimated fair value of the stock based on the most recent sale
activity.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder of the Company intends to present
at the 1999 Annual Meeting of Stockholders must be received by
the Secretary at the Company's principal executive offices by
March 1, 1999 in order to be considered by the Board of Directors
for inclusion in the Board of Directors' proxy solicitation
materials for that meeting.
ANNUAL REPORT
The Company's 1997 Annual Report to Stockholders accompanies this
Proxy Statement. All financial statements and other financial
information and managements discussion and analysis of the
financial condition and results of operations included in the
Annual Report are incorporated herein by reference. Otherwise,
the Annual Report does not form any part of the material for the
solicitation of proxies.
<PAGE>
PROXY SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS OF
AMERICAN RESOURCES OF DELAWARE, INC.
The undersigned hereby constitutes and appoints Douglas L.
Hawthorne and Rick G. Avare, and each of them (acting together if
both are present and voting, or if only one of them is present
and voting, then by one), with full power of substitution in each
of them, the attorneys and proxies of the undersigned to vote as
designated below at the Annual Meeting of Stockholders of
American Resources of Delaware, Inc. (the "Company") to be held
on June 3, 1997, or at any adjournment or adjournments thereof
(the "Meeting"), all shares which the undesigned is entitled to
vote at the Meeting.
PROPOSAL NO. 1: Election of Two Directors:
Nominees: Douglas L. Hawthorne and Joseph P. Shields.
/ / VOTE FOR NOMINEES LISTED ABOVE, EXCEPT VOTE
WITHHELD FROM FOLLOWING NOMINEES (IF ANY):
-----
------------------------------------------------
/ / VOTE WITHHELD FROM ALL NOMINEES.
PROPOSAL NO. 2: Ratification of the selection of KPMG Peat
Marwick LLP as independent auditors of the Company for
1997.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL NO. 3: Amendment to the Company's Restated Certificate
of Incorporation to limit the personal liability of the
directors for monetary damanges to the fullest extent
permitted by the Delaware General Corporation Law.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL NO. 4: In their discretion, upon such other matters as
may be brought properly before the Meeting.
This proxy, if in proper form and not revoked, will be voted
as specified by the stockholder. IF NO CHOICE IS SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE APPROVAL OF PROPOSALS NO. 1, 3 AND 4
AND FOR THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL NO. 2.
This proxy is revocable at any time before it is voted as
indicated in the accompanying Proxy Statement. The accompanying
proxy statement describes the discretionary authority of the
proxies to vote for a substitute nominee if any of the nominees
named above fails to stand for election at the Meeting.
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<PAGE>
PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY.
Please sign your name legibly exactly as it appears hereon. Each
joint owner should sign. If executed by a corporation, please
sign full corporate name by a duly authorize officer. Attorneys,
executors, administrators, trustees, guardians, etc., should give
full title as such.
DATE:
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