U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
--- ----
Commission File No. 0-21472
AMERICAN RESOURCES OF DELAWARE, INC.
(Name of small business issuer in its charter)
DELAWARE 86-0713506
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 Morgan Street, P. O. Box 87
Versailles, Kentucky 40383
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 606-873-5455
Check whether the issuer: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES xx NO
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by a court.
YES xx NO
------ -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
Issuer's classes of common equity, as of the last practicable
date:
On June 30, 1998, 10,242,632 shares of the Registrant's
Common Stock, par value $.00001 per share, were issued and
outstanding and 230,516 shares of the Registrant's Series 1993 8%
Convertible Preferred Stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes ; No xx .
--- -------
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
FORM 10-Q
INDEX TO FINANCIAL STATEMENTS
Page
Number
PART I - FINANCIAL INFORMATION 1
Item 1 - Financial Statements 1
Introduction to the Financial Statements 1
Condensed Consolidated Balance Sheets -
June 30, 1998 (unaudited) and
December 31, 1997 3
Condensed Consolidated Statements of
Operations - Quarter and Six Months
Ended June 30, 1998 (unaudited) and 1997 5
Condensed Consolidated Statements of
Cash Flows - Six Months Ended June 30,
1998 (unaudited) and 1997 6
Notes to Condensed Consolidated
Financial Statements (unaudited) 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13
PART II - OTHER INFORMATION 19
Item 1 - Legal Proceedings 19
Item 4 - Submission of Matters to a Vote of
Security Holders 19
Item 6 - Exhibits and Reports on Form 8-K 20
Signature 22
Exhibit Index 26
ii
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The Financial Statements for the six months ended June 30,
1998 and 1997 include, in the opinion of the Company, all
adjustments (which consist only of normal recurring adjustments)
necessary to present fairly the results of operations for such
periods. Results of operations for the six months ended June 30,
1998, are not necessarily indicative of results of operations
which will be realized for the year ending December 31, 1998.
The Financial Statements should be read in conjunction with the
Company's Report on Form 10-KSB for the year ended December 31,
1997.
1
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
CONDENSED, CONSOLIDATED FINANCIAL
---------------------------------
STATEMENTS
----------
FOR THE QUARTER AND SIX MONTHS ENDED
------------------------------------
JUNE 30, 1998 AND 1997
----------------------
2
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
CONDENSED, CONSOLIDATED BALANCE SHEETS
--------------------------------------
ASSETS
------
<TABLE>
JUNE 30,
--------
1998 DECEMBER 31,
---- ------------
(UNAUDITED) 1997(*)
----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ 1,181
Accounts and notes receivable, net 12,989 4,964
Deferred tax asset 112 112
Prepaid expenses and other 429 313
-------- --------
Total current assets 13,530 6,570
-------- --------
Oil and gas properties, at cost
(successful efforts method) 123,306 57,173
Property and equipment, at cost 13,240 12,352
-------- --------
136,546 69,525
Less accumulated depreciation,
depletion and amortization (26,864) (18,276)
-------- --------
Net property and equipment 109,682 51,249
-------- --------
Other assets:
Investment in unconsolidated entities 2,547 2,547
Notes receivable 374 407
Deferred financing costs, net 1,368 470
Other assets 267 323
-------- --------
Total other assets 4,556 3,747
-------- --------
$127,768 $61,566
======== ========
</TABLE>
(Continued)
See accompanying notes to condensed, consolidated financial statements.
*Derived from audited financial statements.
3
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
CONDENSED, CONSOLIDATED BALANCE SHEETS (CONTINUED)
--------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
JUNE 30,
--------
1998 DECEMBER 31,
---- ------------
(UNAUDITED) 1997(*)
----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 43,110 $ 4,682
Note payable to related third party - 225
Accounts payable-trade 14,348 963
Accrued taxes payable 59 175
Unearned revenue 694 820
Accrued expenses and other 723 525
-------- --------
Total current liabilities 58,934 7,390
-------- --------
Long-term debt, excluding
current maturities 42,471 25,393
Unearned revenue 3,484 2,096
Deferred tax liability 566 2,165
-------- --------
Total other liabilities 46,521 29,654
-------- --------
Stockholders' equity:
Series 1993 8% Convertible Preferred
Stock, par value $12.00 per share;
230,516 and 268,851 shares issued
and outstanding at June 30, 1998
and December 31, 1997, respectively 1,871 2,182
Common Stock, par value $.00001 per
share; 50,000,000 shares authorized;
10,242,632 and 10,193,676 shares
issued and outstanding at June 30,
1998 and December 31, 1997,
respectively - -
Additional paid-in capital 22,840 22,500
Retained earnings (deficit) (1,685) 553
Treasury stock (713) (713)
-------- --------
Total stockholders' equity 22,313 24,522
-------- --------
Commitments and contingencies
-------- --------
$127,768 $61,566
======== ========
</TABLE>
See accompanying notes to condensed, consolidated financial statements.
*Derived from audited financial statements.
4
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
CONDENSED, CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
-----------------------------------------------------------
<TABLE>
QUARTER ENDED SIX MONTHS ENDED
------------- ---------------
JUNE 30 JUNE 30
------- -------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands,
except per share data)
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas production $ 8,473 $ 4,882 $14,726 $ 8,645
Transportation 198 223 390 435
Marketing 1,827 2,865 3,992 13,400
Other 335 36 427 47
------- ------- ------- -------
10,833 8,006 19,535 22,527
------- ------- ------- -------
Operating expenses:
Oil and gas production 1,209 576 2,077 1,118
Exploration costs 1,786 - 1,786 -
Transportation 71 108 129 202
Marketing 1,872 2,852 3,960 13,400
Depreciation, depletion and
amortization 5,046 2,124 8,510 3,502
Impairment of assets 2,168 - 2,168 -
Administrative expenses 819 785 1,587 1,581
Other 21 77 52 113
------- ------- ------- -------
12,992 6,522 20,269 19,916
------- ------- ------- -------
Operating income (loss) (2,159) 1,484 (734) 2,611
Other income (expense):
Interest expense (2,177) (670) (3,126) (1,354)
Other 23 14 51 27
------- ------- ------- -------
(2,154) (656) (3,075) (1,327)
------- ------- ------- -------
Income (loss) before income
tax expense (benefit) (4,313) 828 (3,809) 1,284
Income tax expense (benefit) (1,801) 336 (1,600) 514
------- ------- ------- -------
Net income (loss) (2,512) 492 (2,209) 770
Preferred dividends (29) (22) (29) (22)
------- ------- ------- -------
Net income (loss) available
for common shares $(2,541) $ 470 $(2,238) $ 748
======= ======= ======= =======
Per common share:
Basic $ (0.25) $ 0.05 $ (0.22) $ 0.09
======= ======= ======= =======
Weighted average number of
common shares outstanding 10,023 8,806 10,011 8,020
======= ======= ======= =======
Diluted $ (0.25) $ 0.05 $ (0.22) $ 0.08
======= ======= ======= =======
Weighted average number of
common shares and dilutive
potential common shares 10,023 9,075 10,011 8,969
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed, consolidated financial statements.
5
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
CONDENSED, CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------
<TABLE>
SIX MONTHS ENDED
JUNE 30,
----------------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities $14,737 $ 3,792
------- -------
Investing activities:
Purchase of oil and gas properties (70,119) (2,263)
Purchases of property and equipment (1,302) (267)
Proceeds from sale of assets 1,250 9
Other 9 178
------- -------
Net cash used in investing activities (70,162) (2,343)
------- -------
Financing activities:
Proceeds from borrowings 59,273 2,004
Payments on borrowings (3,992) (1,967)
Redemption of convertible securities - (589)
Increase in deferred financing costs (1,037) (231)
Other - (38)
------- -------
Net cash provided by (used in)
financing activities 54,244 (821)
------- -------
Increase (decrease) in cash (1,181) 628
Cash and cash equivalents at
beginning of period 1,181 353
------- -------
Cash and cash equivalents at
end of period - $ 981
======= =======
</TABLE>
Non-Cash Transactions:
The Company declared stock dividends and issued 10,621 and 10,754
shares of Common Stock to holders of the Series 1993 and Series B
Preferred Stock during the six months ended June 30, 1998 and
1997, respectively.
During the six months ended June 30, 1997, holders of $5,538,483
($4,519,914 net of placement costs) of an aggregate of $6,000,000
of Convertible Securities converted the securities into 3,052,188
shares of Common Stock and received 49,676 shares of Common Stock
dividends related to the Convertible Securities. The remaining
$461,517 was redeemed by the Company for a price of $589,023.
See accompanying notes to condensed, consolidated financial
statements.
6
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT
----------------------------------------------------
(UNAUDITED)
-----------
(1) GENERAL
American Resources of Delaware, Inc. (ARI or the Company), a
Delaware corporation organized on August 14, 1992, is an
independent oil and gas company engaged in the acquisition,
exploration, development and production of oil and gas
properties offshore Louisiana and onshore Mississippi (Gulf
Coast Region) and in southeastern Kentucky (Appalachian
Region). The Company also gathers and markets natural gas
in the Appalachian Region. These activities are considered
to be one business segment for financial reporting purposes.
The accompanying condensed, consolidated financial
statements include the accounts of ARI and its subsidiaries,
collectively referred to as the Company. All significant
intercompany balances and transactions have been eliminated
in consolidation in order to make the financial statements,
in the opinion of management, not misleading.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with
instructions to Form 10-Q and, therefore, do not include all
disclosures required by generally accepted accounting
principles. However, in the opinion of management, these
statements include all adjustments, which are of a normal
recurring nature, necessary to present fairly the financial
position at June 30, 1998 and December 31, 1997 and the
results of operations and changes in cash flows for the
periods ended June 30, 1998 and 1997. These financial
statements should be read in conjunction with the financial
statements and notes to the financial statements in the 1997
Form 10-KSB of the Company that was filed with the
Securities and Exchange Commission.
Basic and diluted income per common share were computed
after consideration of dividend requirements on Preferred
Stock, using the weighted average number of shares
outstanding and the weighted average number of common shares
and dilutive potential common shares outstanding,
respectively, during each of the years presented.
Outstanding stock options and warrants are potential Common
Stock equivalents and have been considered when the effect
is dilutive.
Certain reclassifications have been made to the prior period
financial statements to conform with the current period
presentation.
(2) PROPERTY AND EQUIPMENT
On March 5, 1998, the Company purchased interests in 43
leaseblocks in the Gulf of Mexico from TECO Oil & Gas, Inc.
(TECO). The purchase consists of an average 30% interest in
approximately 198,300 acres containing 5 producing wells and
approximately $35 million PV10 of proved reserves,
partnership interests in Louisiana Offshore Ventures and
Texas 3D Ventures and access to approximately 13,500 square
miles of 3-D seismic data. Louisiana Offshore Ventures and
Texas 3D Ventures are exploration and development
partnerships managed by Houston Energy Development (HED).
HED has specialized in 3-D seismic evaluation and prospect
selection for over ten years and provides the Company with
access to 14 additional geoscientists and 13 state of the
art 3-D seismic workstations. The Company believes that the
TECO acquisition provides ample opportunity to increase
reserves, production and cash flow from development and
exploration activities and, with HED, has identified in
excess of 35 initial drilling locations on the acquired
properties.
As consideration for the properties, the Company paid
$57,680,000, of which $1,300,000 was paid in cash upon
execution of the Purchase and Sale Agreement, $21,380,000
was paid from funds borrowed under the Company's credit
facility, and $16.5 million was paid from funds borrowed
under bridge loans provided by DNB Energy Assets, Inc.
(DNB), successor to Den norske Bank, AS (Den norske),
7
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT
----------------------------------------------------
(UNAUDITED)
-----------
$1.5 million of which was due July 1, 1998, with the
remainder due September 30, 1998. The balance of
$18,500,000 was in the form of a promissory note in favor of
TECO (TECO Note). The $1.5 million bridge loan from DNB has
been amended to extend the maturity date to September 30,
1998. The TECO Note bears interest at the initial rate of
10% per annum and increases 2% each quarter commencing July
1, 1998, with a maximum interest rate of 18%. The TECO Note
matures on October 1, 1998 and is secured by a lien on all
properties of the Company and its subsidiaries.
In addition to the TECO Note, the parties entered into a
warrant agreement (TECO Warrant Agreement) granting TECO
warrants to acquire 600,000 shares of common stock of the
Company (First Warrants) at a price of $2.67 per share if
the TECO Note is not paid in full by October 1, 1998.
Additionally, the TECO Warrant Agreement granted TECO
warrants to acquire common stock equal to 10% of the
Company's outstanding common stock and options if the TECO
Note is not paid in full by October 1, 1998. This
percentage will increase by an additional 5% if the TECO
Note is not paid in full by January 1, 1999, and by an
additional 5% if the TECO Note is not paid in full by April
1, 1999 (collectively, Secondary Warrants). The price per
share of common stock evidenced by the Secondary Warrants is
$.00001. The Company filed Forms 8-K and 8-K/A regarding
this transaction with the Securities and Exchange Commission
on January 16, 1998, March 16, 1998, May 19, 1998 and May
29, 1998.
Assuming the acquisition had occurred on January 1, 1997,
the following unaudited proforma operating data gives effect
to the acquisition for the six months ended June 30, 1998
and the year ended December 31, 1997:
<TABLE>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Total revenue $20,304 $44,669
======= =======
Net income (loss) from operations $(2,719) $(3,745)
======= =======
Basic earnings (loss) per share $ (0.27) $ (0.42)
======= =======
Diluted earnings (loss) per share $ (0.27) $ (0.42)
======= =======
</TABLE>
8
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT
----------------------------------------------------
(UNAUDITED)
-----------
(3) LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
June 30, December 31,
1998 1997
-------- ------------
(Dollars in thousands)
<S> <C> <C>
Borrowings under the Company's credit
facility, as amended, with DNB,
reduction subject to availability under
borrowing base, $50,000,000 available
borrowing base effective March 5, 1998,
monthly reduction against the available
borrowing base of $425,000, increasing to
$600,000 on June 1, 1998, interest payable
monthly at the Floating Rate, or LIBO Rate
plus 2 1/2%, secured by oil and gas properties,
equipment and receivables. $49,373 $28,700
Term Loan A, as amended, payable to DNB,
due September 30, 1998, with interest payable
monthly at the Floating Rate, or LIBO Rate
plus 3% per annum, secured by oil and gas
properties. 15,000 -
Term Loan B payable to DNB, due
September 30, 1998, with interest payable
monthly at the Floating Rate, or LIBO Rate
plus 3% per annum, secured by oil and gas
properties. 1,500 -
Note payable to TECO Oil & Gas, Inc., with
interest at 10% per annum, increasing 2%
each quarter the note remains unpaid
commencing July 1, 1998, with a maximum
rate of 18%, due October 1, 1998. 18,500 -
Note payable to related party, recourse only
to specific properties, interest payable at 9.5%
in connection with the purchase of oil and gas
properties from Prima Capital, LLC. 1,174 1,500
9
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT
----------------------------------------------------
(UNAUDITED)
-----------
June 30, December 31,
1998 1997
-------- ------------
(Dollars in thousands)
Other notes 34 100
------- -------
85,581 30,300
Less - Current portion (43,110) (4,907)
------- -------
Long-term debt $42,471 $25,393
======= =======
</TABLE>
On September 28, 1995, the Company entered into a
$20,000,000 revolving credit facility through February 1,
2002 with Den norske. By November 1, 1997, the revolving
credit facility had been increased to $75,000,000 and the
available borrowing base was increased to $30,000,000. On
March 5, 1998, the borrowing base under the revolving credit
facility was assigned to DNB and increased to $50,000,000 to
facilitate the purchase of oil and gas properties from TECO
Oil & Gas, Inc. (TECO). As of June 30, 1998, the balance
due under the revolving credit facility was $49,393,000.
Additional borrowings under the credit facility are
dependent upon a redetermination of the borrowing base,
which is primarily dependent upon the value of the mortgaged
properties as determined under DNB's internal lending
procedures. Reductions of the credit facility are also
dependent upon the borrowing base. Commencing June 1, 1998,
monthly principal reductions are $600,000. The borrowing
base will be redetermined semi-annually on each October 1st
and April 1st prior to February 1, 2002.
On March 5, 1998, DNB also provided bridge loans totaling
$16,500,000 in order for the Company to complete the
acquisition of the TECO properties. The bridge loans, as
amended, mature on September 30, 1998.
Under the credit agreement with DNB, the Company is required
to maintain certain financial ratios relating to debt
coverage ratio, current ratio, tangible net worth, general
and administrative expenses and quarterly interest ratio.
At June 30, 1998, the Company was in compliance with all of
the required financial covenants except current ratio and
quarterly interest ratio. The Company has obtained a waiver
of the compliance requirements from DNB.
Also in order to complete the acquisition of the TECO
properties, on March 5, 1998, the Company executed a note in
favor of TECO in the amount of $18,500,000 which matures in
October 1998.
(4) STOCKHOLDERS' EQUITY
On January 15, 1998, the Board of Directors declared
dividends payable in Common Stock on January 22, 1998, to
holders of the Series 1993 Preferred Stock totaling 10,621
shares.
10
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT
----------------------------------------------------
(UNAUDITED)
-----------
The following tables illustrate the reconciliation of the
numerators and denominators of the basic and diluted
earnings per common share computations for (loss) income
related to the unexercised stock options outstanding for the
three and six months ended June 30, 1998 and 1997,
respectively.
<TABLE>
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
----------------------------- ------------------------------
thousands except Per Share Per Share
per share amounts Loss Shares Amount Income Shares Amount
---- ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
(Loss) Income available to
common stockholders $(2,451) 10,023 $(0.25) $470 8,806 $0.05
------ -----
Potential common shares -- -- -- 269
------- ------ ---- -----
Diluted earnings per share
(Loss) Income available to
common stockholders and
assumed conversion $(2,451) 10,023 $(0.25) $470 9,075 $0.05
------- ------ ------ --- ----- -----
</TABLE>
<TABLE>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
----------------------------- ------------------------------
thousands except Per Share Per Share
per share amounts Loss Shares Amount Income Shares Amount
---- ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
(Loss) Income available to
common stockholders $(2,238) 10,011 $(0.22) $748 8,020 $0.09
------ -----
Potential common shares -- -- -- 944
------- ------ --- -----
Diluted earnings per share
(Loss) Income available to
common stockholders and
assumed conversion $(2,238) 10,011 $(0.22) $748 8,964 $0.08
------- ----- ------ --- ----- -----
</TABLE>
<PAGE>
(5) COMMITMENTS AND CONTINGENCIES
The Kentucky Revenue Cabinet has assessed the Company's
wholly-owned subsidiary, Southern Gas Company of Delaware,
Inc. (Southern Gas), for outstanding sales tax of
approximately $1,500,000, plus penalties and interest,
allegedly owed to the Commonwealth of Kentucky by Southern
Gas Company ("SGC"), a dissolved entity, prior to Southern
Gas' acquisition of the assets of SGC. Southern Gas has
denied the liability and believes it will be successful in
its defense of this assessment. Southern Gas' defenses to
the assessment and/or in support of reduction of the
assessment include, but are not limited to, that credit
should be received for all gas delivered to (1) interstate
customers; (2) customers who resold the product; (3) direct
pay customers; and (4) industries where the consumable
materials are utilized in the manufacturing process. Based
on these defenses, as well as the assertion by Southern Gas
that it is not responsible for the debts of SGC, management
intends to vigorously defend its position and believes that
any resulting liability will not have a significant impact
on the Company's financial condition, operations or
liquidity.
On May 13, 1998, the Company and Southern Gas were named as
defendants in litigation filed by Wright Enterprises
asserting successor liability to certain alleged obligations
of SGC. Based upon the allegations set forth in the
complaint, the Company believes there is a strong likelihood
that it will
11
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT
----------------------------------------------------
(UNAUDITED)
-----------
be successful in the defense of this matter; and the
litigation will have no material impact on the Company's
financial condition, operating results or cash flows.
In the normal course of business, the Company enters into
short-term supply and purchase agreements. These agreements
can stipulate either a fixed contract price or a floating
price based on spot prices.
Management attempts to schedule deliveries to mitigate any
possible adverse effects of changing prices; however, gas
prices are susceptible to change due to industry supply and
demand positions.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995:
This Quarterly Report on Form 10-Q includes "forward looking
statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, (the "Exchange Act). All statements
other than statements of historical facts included in this Report
on Form 10-Q, including without limitation, statements under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," regarding the planned capital
expenditures, increases in oil and gas production, the number of
anticipated wells to be drilled in 1998 and thereafter, the
Company's financial position, business strategy and other plans
and objectives for future operations, are forward-looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have
been correct. There are numerous uncertainties inherent in
estimating quantities of proved oil and natural gas reserves and
in projecting future rates of production and timing of
development expenditures, including many factors beyond the
control of the Company. Reserve engineering is a subjective
process of estimating underground accumulations of oil and
natural gas that cannot be measured in an exact way, and the
accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation
and judgment. As a result, estimates made by different engineers
often vary from one another. In addition, results of drilling,
testing and production subsequent to the date of an estimate may
justify revisions of such estimate and such revisions, if
significant, would change the schedule of any further production
and development drilling. Accordingly, reserve estimates are
generally different from the quantities of oil and natural gas
that are ultimately recovered. Additional important factors that
could cause actual results to differ materially from the
Company's expectations are disclosed elsewhere in this Form 10-Q
and in the Form 8-K which the Company filed with the Securities
and Exchange Commission on July 25, 1997.
RECENT DEVELOPMENTS
On March 5, 1998, the Company purchased interests in 43
leaseblocks in the Gulf of Mexico from TECO Oil & Gas, Inc.
(TECO). The purchase consists of an average 30% interest in
approximately 198,300 acres containing 5 producing wells and
approximately $35 million PV10 of proved reserves, partnership
interests in Louisiana Offshore Ventures and Texas 3D Ventures
and access to approximately 13,500 square miles of 3-D seismic
data. Louisiana Offshore Ventures and Texas 3D Ventures are
exploration and development partnerships managed by Houston
Energy Development (HED). HED has specialized in 3-D seismic
evaluation and prospect selection for over ten years and provides
the Company with access to 14 additional geoscientists and 13
state of the art 3-D seismic workstations. The Company believes
that the TECO acquisition provides ample opportunity to increase
reserves, production and cash flow from development and
exploration activities and, with HED, has identified in excess of
35 initial drilling locations on the acquired properties.
As consideration for the properties, the Company paid
$57,680,000, of which $1,300,000 was paid in cash upon execution
of the Purchase and Sale Agreement, $21,380,000 was paid from
funds borrowed under the Company's credit facility, and $16.5
million was paid from funds borrowed under bridge loans provided
by DNB Energy Assets, Inc. (DNB), successor to Den norske Bank,
AS (Den norske), $1.5 million of which was due July 1, 1998, with
the remainder due September 30, 1998. The balance of $18,500,000
was in the form of a promissory note in favor of TECO (TECO
Note). The $1.5 million bridge loan from DNB has been amended to
extend the maturity date to September 30, 1998. The TECO Note
bears interest at the initial rate of 10% per annum and increases
2% each quarter commencing July 1, 1998, with a maximum interest
rate of 18%. The TECO Note matures on October 1, 1998 and is
secured by a lien on all properties of the Company and its
subsidiaries.
In addition to the TECO Note, the parties entered into a
warrant agreement (TECO Warrant Agreement) granting TECO warrants
to acquire 600,000 shares of common stock of the Company (First
Warrants) at a price of $2.67 per share if the TECO Note is not
paid in full by October 1, 1998. Additionally, the TECO Warrant
Agreement granted TECO warrants to acquire common stock equal to
10% of the
13
<PAGE>
Company's outstanding common stock and options if the TECO Note
is not paid in full by October 1, 1998. This percentage will
increase by an additional 5% if the TECO Note is not paid in full
by January 1, 1999, and by an additional 5% if the TECO Note is
not paid in full by April 1, 1999 (collectively, "Secondary
Warrants). The price per share of common stock evidenced by the
Secondary Warrants is $.00001. The Company filed Forms 8-K and
8-K/A regarding this transaction with the Securities and Exchange
Commission on January 16, 1998, March 16, 1998, May 19, 1998 and
May 29, 1998.
During the first quarter of 1998, the Company entered into
an agreement with J. M. Huber Corporation for the development of
Grand Isle Block 55, offshore Louisiana, wherein two wells were
to be drilled. During the drilling of the initial well, reserves
were encountered; however, control of the well was lost
necessitating the well to be shut in and a sidetrack well to be
initiated. The additional costs of the re-drill as well as the
cost of the material and equipment lost in the original well,
estimated to be approximately $4 million, is reimbursable by the
Company's insurance program, less deductibles totaling $300,000.
Confirmation of coverage was received by the Company from the
underwriters on July 22, 1998, and the settlement process is
currently underway. The Company owns a 50% working interest in
the wells.
During the first quarter of 1998, the Company participated
in the drilling of a well on Galveston Block 213, a property
purchased in the TECO acquisition. The well commenced production
on May 28, 1998 at an initial rate in excess of 9 million cubic
feet equivalent (mmcfe) of natural gas per day and is currently
producing at a rate of approximately 15 mmcfe of gas per day.
The Company owns a 33.3% working interest in the well which is
being operated by Basin Exploration, Inc.
In April 1998, the Company entered into a Participation
Agreement with Westport Oil & Gas Company, Inc. to develop
Vermillion Block 220, offshore Louisiana. The parties commenced
the drilling of a well; and after review of the drilling results,
the Company has elected not to complete the well.
On May 6, 1998, the Company entered into a Participation
Agreement to acquire 16.67% working interest in High Island Block
105, offshore Texas. The parties drilled a well on that block
and elected not to complete the well after reviewing the drilling
results.
During the second quarter of 1998, the Company participated
in drilling a successful exploratory well on West Cameron Block
172, a property purchased in the TECO acquisition. The West
Cameron Block 172 discovery well, which has been completed and
temporarily suspended pending development, encountered gas pay in
multiple sands and tested 10.2 million cubic feet (mmcf) of gas
and 90 barrels of oil per day. A development well designed to
also test a deeper objective in the same fault block is now
underway. Design and construction of a platform and facilities
for development of this discovery are in progress with initial
production anticipated by early 1999. Additional prospective
fault blocks are identified, and two additional wells may be
drilled by year-end. The Company's working interest in this
discovery well is 28.72%.
In June 1998, the Company participated in the drilling of a
successful well on West Cameron Block 368 on which the Company
had existing production. It is anticipated that the well will be
completed and begin producing in September 1998.
The Company has entered into an agreement to provide
drilling services for Chevron USA for which it receives a monthly
fee. Pursuant to the terms of the agreement, the Company is
required to advance payment of all costs and expenses incurred in
the drilling operations and is reimbursed for all such costs and
expenses on a monthly basis.
14
<PAGE>
ADOPTION OF NEW ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS NO. 130). The adoption of SFAS No. 130 had no
impact on the Company's financial statements for the quarter
ended June 30, 1998.
In June 1997, the Financial Accounting Standards Board
(FASB) also issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131). This statement establishes
standards for reporting information about operating segments in
annual financial statements and requires selected information
about operating segments be included in interim reports issued to
shareholders. SFAS No. 131 is effective for financial statements
for periods beginning after December 15, 1997. As SFAS No. 131
establishes standards for reporting and display, the Company does
not expect the adoption of this statement to have a material
impact on its financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement
establishes standards of accounting for and disclosures of
derivative instruments and hedging activities. This statement is
effective for fiscal years beginning after June 15, 1999. The
Company has not yet determined the impact of this statement on
the Company's financial condition or results of operations.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1997
REVENUES. Total revenues for the Company decreased 13% to
$19.5 million for the first six months of 1998 from $22.5 million
for the comparable period in 1997. Marketing revenues decreased
approximately $9.4 million, or 70%, primarily due to the
termination of the gas sales contract with Southern Resources,
Inc., resulting from the Company's decision to focus on
exploration and development activities. However, due to the
small profit margins and administrative expenses associated with
the Southern Resources gas sales contract, the termination had no
adverse effect on the Company's net income due to a corresponding
$9.4 million reduction in marketing expense.
OIL AND GAS PRODUCTION REVENUE. Oil and gas production
revenue increased 70% to $14.7 million in the first six months of
1998, due primarily to production attributable to wells acquired
and drilled on acreage acquired in the TECO acquisition. The
increase in oil and gas production revenue was partially offset
by reduced oil and gas prices.
The following table summarizes production volumes, average
sales prices and period to period comparisons for the Company's
oil and gas operations for the periods indicated:
15
<PAGE>
<TABLE>
SIX MONTHS ENDED
JUNE 30,
----------------- % INCREASE
1998 1997 (DECREASE)
---- ---- -----------
<S> <C> <C> <C>
Production volumes:
Natural gas (MMcf). . . . . . . . . 5,181 2,116 145
Oil (MBbls) . . . . . . . . . . . . 227 178 28
Total (MMcfe) . . . . . . . . . . . 6,542 3,187 105
Average sale prices:*
Natural gas (per Mcf) . . . . . . . $ 2.28 $ 2.40 (5)
Oil (per Bbl) . . . . . . . . . . . 12.95 19.81 (35)
Per Mcfe. . . . . . . . . . . . . . 2.25 2.72 (17)
Expenses (per Mcfe):
Lease operating (including
production taxes) . . . . . . . . $ 0.32 $ 0.35 (9)
Depreciation, depletion and
amortization. . . . . . . . . . . 1.30 1.10 18
Administrative. . . . . . . . . . . 0.24 0.50 (52)
</TABLE>
*Includes effect of hedging.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production
expense increased 86% to $2.1 million, in the first six months of
1998 due primarily to operating costs associated with increased
production. Oil and gas production expense was $0.32 per Mcfe
for the first six months of 1998 compared to $0.35 for the same
period in 1997, an increase of 9%.
EXPLORATION COSTS. During the six months ended June 30,
1998, costs of approximately $1.8 million were attributable to
dry hole expense and the purchase of seismic data, analysis of
such data and other directly allocable geological and geophysical
costs which must be expensed under the Company's accounting
method. No such costs were incurred in the same period of 1997.
IMPAIRMENT OF ASSETS. As of January 1, 1996, the Company
began assessing the impairment of capitalized costs of proved oil
and gas properties and other long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121 (SFAS No.
121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." SFAS No.
121 requires that an impairment loss be recognized whenever the
carrying amount of an asset exceeds the sum of the estimated
future undiscounted cash flows of the asset. For each asset
determined to be impaired, an impairment loss equal to the
difference between the carrying value and the fair value of the
asset was recognized. With respect to the Company's oil and gas
properties, fair value, on a depletable basis, was estimated to
be the present value of expected future cash flows computed by
applying estimated future natural gas and oil prices, as
determined by management, to estimated future production of oil
and gas reserves over the economic lives of the reserves. During
the first six months of 1998, the Company recorded a non-cash
charge of $2.2 million representing impairment of non-core oil
and gas properties.
ADMINISTRATIVE EXPENSE. Administrative expense increased
less than 1% to $1.6 million in the first six months of 1998, and
was $.24 per Mcfe, a decrease of 52% from the prior year. The
per unit decrease occurred as the result of increased production
volumes, principally attributable to new Gulf Coast Region wells.
Subsequent to June 30, 1997, the Company expanded its Gulf Coast
operations by forming ARO and staffing it with technical
personnel experienced in Gulf Coast Region exploration and
development activities.
DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A) EXPENSE.
DD&A expense increased 143% to $8.5 million in the first six
months of 1998 and was $1.30 per Mcfe, an increase of 18% from
the prior year. The increase resulted primarily from the TECO
acquisition and increased depletion attributable to the
acquisition costs and successful drilling activities.
16
<PAGE>
INTEREST EXPENSE. Interest expense increased 131% to $3.1
million, in the first six months of 1998, due to additional
borrowings to fund the TECO acquisition and expanded exploration
and development activities.
NET INCOME. Due to the factors described above, net income
decreased to a loss of $2.2 million for the six months ended June
30, 1998.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1997
REVENUES. Total revenues for the Company increased 35% to
$10.8 million for the second quarter of 1998 compared with $8.0
million in 1997, due primarily to an increase in production.
Marketing revenues decreased approximately $1.0 million, or 36%,
primarily due to the termination of the gas sales contract with
Southern Resources, Inc., resulting from the Company's decision
to focus on exploration and development activities. However, due
to the small profit margins and administrative expenses
associated with the Southern Resources gas sales contract, the
termination had no adverse effect on the Company's net income.
OIL AND GAS PRODUCTION REVENUE. Oil and gas production
revenue increased 74% in the second quarter of 1998 to $8.5
million due primarily to the production attributable to wells
acquired and drilled on acreage acquired in the TECO acquisition.
The increase in production was partially offset by reduced oil
prices.
The following table summarizes production volumes, average
sales prices and period to period comparisons for the Company's
oil and gas operations for the periods indicated:
<TABLE>
THREE MONTHS ENDED
JUNE 30,
------------------ % INCREASE
1998 1997 (DECREASE)
---- ---- -----------
<S> <C> <C> <C>
Production volumes:
Natural gas (MMcf). . . . . . . . 3,038 1,282 137
Oil (MBbls) . . . . . . . . . . . 115 106 8
Total (MMcfe) . . . . . . . . . . 3,727 1,920 94
Average sale prices:*
Natural gas (per Mcf) . . . . . . $ 2.29 $ 2.28 -
Oil (per Bbl) . . . . . . . . . . 13.27 18.48 (28)
Per Mcfe. . . . . . . . . . . . . 2.64 2.54 4
Expenses (per Mcfe):
Lease operating (including
production taxes) . . . . . . . $0.32 $0.30 7
Depreciation, depletion and
amortization. . . . . . . . . . 1.35 1.11 22
Administrative. . . . . . . . . . 0.22 0.41 (46)
</TABLE>
*Includes effect of hedging.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production
expense increased 110% to $1.2 million in the second quarter of
1998 due primarily to increased production volumes and operating
costs associated with the Company's active participation in the
exploration and development of the properties acquired in the
TECO acquisition. Oil and gas production expense was $0.32 per
Mcfe in the second quarter of 1998 as compared to $0.30 in 1997,
an increase of 7%.
EXPLORATION COSTS. During the second quarter of 1998, costs
of approximately $1.8 million were attributable to dry hole
expense and the purchase of seismic data, analysis of such data
and other directly allocable geological and geophysical costs
which must be expensed under the Company's accounting method. No
such costs were incurred in the same period of 1997.
17
<PAGE>
IMPAIRMENT OF ASSETS. As of January 1, 1996, the Company
began assessing the impairment of capitalized costs of proved oil
and gas properties and other long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121 (SFAS No.
121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 121 requires that
an impairment loss be recognized whenever the carrying amount of
an asset exceeds the sum of the estimated future undiscounted
cash flows of the asset. For each asset determined to be
impaired, an impairment loss equal to the difference between the
carrying value and the fair value of the asset was recognized.
With respect to the Company's oil and gas properties, fair value,
on a depletable basis, was estimated to be the present value of
expected future cash flows computed by applying estimated future
natural gas and oil prices, as determined by management, to
estimated future production of oil and gas reserves over the
economic lives of the reserves. In the second quarter of 1998,
the Company recorded a non-cash charge of $2.2 million
representing impairment of non-core oil and gas properties.
ADMINISTRATIVE EXPENSE. Administrative expense increased 4%
to $819,000 in the second quarter of 1998 and was $.22 per Mcfe,
a decrease of 46% from the prior year. This expense increased
primarily due to the establishment of the Company's Gulf Coast
Region office in late 1996 and the expanded staffing of that
office during the fourth quarter of 1997. The per unit decrease
occurred as the result of increased production volumes,
principally attributable to new Gulf Coast Region wells.
DD&A EXPENSE. DD&A expense increased 138% to $5.0 million
for the second quarter of 1998 and was $1.35 per Mcfe, an
increase of 22% from the prior year. The increase resulted
primarily from the TECO acquisition and increased depletion
attributable to the acquisition costs and successful drilling
activities.
INTEREST EXPENSE. Interest expense increased 225% to $2.2
million in the second quarter of 1998. The increase was
attributable to additional borrowings to fund acquisition,
exploration and development activities.
NET INCOME. Due to the factors described above, net income
for the Company decreased to a loss of $2.5 million.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents at June 30, 1998 totaled less than
$500 as compared to $1,180,638 at December 31, 1997.
Historically, the Company has funded its oil and gas exploration
and development activities with operating cash flows, bank
borrowings and issuance of equity and debt securities. The
Company has a $75 million credit facility through DNB which
provides a $50 million borrowing base. Of the $50 million
borrowing base, $49 million has been fully utilized in order to
complete the acquisition of the TECO properties in March 1998.
The remaining purchase price for the TECO properties was provided
by bridge loans of $16.5 million from DNB and the TECO Note in
the amount of $18.5 million.
Under the credit facility with DNB, the Company is required
to maintain certain ratios relating to debt coverage ratio,
current ratio, tangible net worth, general and administrative
expenses and quarterly interest ratio. Under the covenants, the
financial amounts used to compute the requirements are
specifically defined in the agreement. At June 30, 1998, the
Company was in compliance with all of the required financial
ratios except current ratio and quarterly interest ratio. The
Company has obtained a waiver of the compliance requirements from
DNB.
In its Report on Form 10-Q for the quarter ending March 31,
1998, the Company estimated the capital expenditures for its
development and exploratory program to be $34 million in 1998.
The Company currently anticipates a capital expenditure budget of
$38 million for 1998, of which $1 million is allocated to
Kentucky with the balance of $37 million allocated to the Gulf
Coast Region. Through June 30, 1998, the Company has expended
approximately $21 million in its 1998 exploration and development
program. The Company's
18
<PAGE>
estimate of its capital expenditure budget will change on a month
to month basis based upon drilling results and new opportunities.
These expenditures are substantially at the discretion of the
Company; and while the Company does not currently have sufficient
cash to fully fund the proposed program, it does intend to obtain
the necessary funds. There are no assurances that the funds can
be obtained or that they can be obtained under terms acceptable
to the Company. In the event the Company is unable to obtain
sufficient funds under acceptable terms, it will be necessary for
the Company to adjust the level of the development and
exploratory program.
The DNB bridge loans, as amended, mature on September 30,
1998; and in the event the Company fails to satisfy these
commitments or refinance the debt, the Bank could declare the
Company in default. To date, the Company has not taken any steps
to adjust its capital expenditures in order to cover the DNB
bridge loans. Unless DNB extends the terms of the bridge loans,
the shortage will have to be covered from funds from other
sources, including additional borrowings.
The TECO Note matures in October 1998; and in the event the
Company fails to satisfy this commitment or refinance the debt,
TECO could declare the Company in default. However, TECO is a
party to an agreement between the Company and DNB which
substantially limits TECO's remedies against the Company unless
the Bank is paid in full or declares a default and takes
affirmative action against the Company. Unless TECO extends the
terms of the loan, the shortage will have to be covered from
funds from other sources, including additional borrowings.
As of June 30, 1998, the Company had total current assets of
$13.5 million and total current liabilities of $58.9 million.
However, of the $58.9 million in total current liabilities, $35
million pertains to maturities of debt associated with the TECO
acquisition, $8.1 million represents current maturities of
long-term debt and $15.8 million relates to the Company's ongoing
operating activities, including development of properties
acquired from TECO and other prospects.
The Company is currently in discussions with conventional
lenders regarding a refinancing package and additional
development funding as well as exploring other avenues available.
YEAR 2000 ISSUE. The Company does not believe that costs
incurred to address the Year 2000 issue with respect to its
financial and administrative systems will have a material effect
on the Company. The Company is uncertain, however, whether it
will be indirectly affected by the impact that the Year 2000
issue will have on the companies with which it conducts business.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company has previously reported legal proceedings in its
Form 10-K (see the Company's Report on Form 10-KSB for the year
ended December 31, 1997).
On May 13, 1998, the Company and its wholly-owned
subsidiary, Southern Gas Co. of Delaware, Inc., were named as
defendants in litigation filed by Wright Enterprises asserting
successor liability to certain alleged obligations of Southern
Gas Company, Inc., the company from which the Company purchased
its Kentucky operations. Based upon the allegations set forth in
the complaint, the Company believes there is a strong likelihood
that it will be successful in the defense of this matter; and the
litigation will have no material impact on the Company's
financial condition, operating results or cash flows.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At its Annual Meeting of Stockholders on June 30, 1998, the
Stockholders of the Company re-elected one (1) director and
elected one (1) new director to serve for three-year terms on its
seven (7) member Board of Directors, ratified the Board's
selection of accountants for 1998 and approved an amendment to
19
<PAGE>
the Company's Restated Certificate of Incorporation to limit the
monetary liability of the Company's directors to the fullest
extent permitted by Delaware General Corporation Law.
The voting results with respect to the foregoing matters are
set forth below:
Proposal #1 ELECTION OF DIRECTORS FOR THREE-YEAR TERMS
For Withhold
DOUGLAS L. HAWTHORNE 9,616,770 120,568
JOSEPH P. SHIELDS 9,611,320 126,018
Proposal #2 RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK
LLP AS INDEPENDENT PUBLIC ACCOUNTANT FOR THE
COMPANY FOR ITS 1998 FISCAL YEAR
For Against Abstain
9,646,069 44,494 46,775
Proposal #3 AMEND THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO LIMIT THE MONETARY LIABILITY OF
THE COMPANY'S DIRECTORS TO THE FULLEST EXTENT
PERMITTED BY DELAWARE GENERAL CORPORATION LAW
For Against Abstain
9,267,557 287,043 62,574
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following Exhibits are either attached
hereto or incorporated herein by reference:
10.88 Press release announcing agreement to acquire
offshore Gulf of Mexico assets from TECO Oil
& Gas, Inc. (incorporated by reference to
Exhibit 10.88 to the Company's Report on Form
8-K filed on January 16, 1998).
10.89 Purchase and Sale Agreement between American
Resources of Delaware, Inc., American
Resources Offshore, Inc., TECO Oil & Gas,
Inc. and TECO Energy, Inc. (incorporated by
reference to Exhibit 10.89 to the Company's
Report on Form 8-K/A filed on March 16,
1998).
10.90 Promissory Note from American Resources
Offshore, Inc. in favor of TECO Oil & Gas,
Inc. (incorporated by reference to Exhibit
10.90 to the Company's Report on Form 8-K/A
filed on March 16, 1998).
10.91 Warrant Agreement between American Resources
of Delaware, Inc. and TECO Oil and Gas, Inc.
(incorporated by reference to Exhibit 10.91
to the Company's Report on Form 8-K/A filed
on March 16, 1998).
20
<PAGE>
10.92 First Amendment to First Amended and Restated
Credit Agreement dated March 5, 1998 between
American Resources of Delaware, Inc.,
Southern Gas Co. of Delaware, Inc., American
Resources Offshore, Inc. and DNB Energy
Assets, Inc. (incorporated by reference to
Exhibit 10.92 to the Company's Report on Form
10-Q for the quarterly period ending March
31, 1998).
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. (incorporated
by reference to Exhibit 10.93 to the
Company's Report on Form 8-K/A2 filed on May
19, 1998).
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. (incorporated by
reference to Exhibit 10.94 to the Company's
Report on Form 8-K/A2 filed on May 19, 1998).
10.95 Certificate of Amendment dated July 2, 1998
amending the Company's Restated Certificate
of Incorporation.*
*Filed herewith.
(b) Reports on Form 8-K:
On May 19, 1998, the Company filed Amendment No. 2
to its Report on Form 8-K filed January 16, 1998, in
order to provide the Financial Statements required by
Item 7 of Form 8-K and to attach a copy of the Amended
Purchase Agreement between the Company and TECO as well
as a copy of the Intercreditor Agreement between the
Company, TECO and DNB Energy Assets, Inc.
On May 29, 1998, the Company filed Amendment No. 3
to its Report on Form 8-K filed January 16, 1998, in
order to amend the Financial Statements provided in
Amendment No. 2.
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and
Exchange Act of 1934, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN RESOURCES OF DELAWARE INC.
Date: By: /s/ Ralph A. Currie
---------------- ------------------------------------
Ralph A. Currie
Chief Financial Officer
(Principal Accounting and
Financial Officer)
22
<PAGE>
EXHIBIT INDEX
AMERICAN RESOURCES OF DELAWARE, INC.
Exhibit
Number Description Page No.
10.88 Press release announcing agreement to acquire
offshore Gulf of Mexico assets from TECO Oil &
Gas, Inc. (incorporated by reference to Exhibit
10.88 to the Company's Report on Form 8-K filed
on January 16, 1998). *
10.89 Purchase and Sale Agreement between American
Resources of Delaware, Inc., American Resources
Offshore, Inc., TECO Oil & Gas, Inc. and TECO
Energy, Inc. (incorporated by reference to
Exhibit 10.89 to the Company's Report on
Form 8-K/A filed on March 16, 1998). *
10.90 Promissory Note from American Resources
Offshore, Inc. in favor of TECO Oil & Gas,
Inc. (incorporated by reference to Exhibit
10.90 to the Company's Report on Form 8-K/A
filed on March 16, 1998). *
10.91 Warrant Agreement between American Resources
of Delaware, Inc. and TECO Oil and Gas, Inc.
(incorporated by reference to Exhibit 10.91
to the Company's Report on Form 8-K/A filed
on March 16, 1998). *
10.92 First Amendment to First Amended and Restated
Credit Agreement dated March 5, 1998 between
American Resources of Delaware, Inc., Southern
Gas Co. of Delaware, Inc., American Resources
Offshore, Inc. and DNB Energy Assets, Inc.
(incorporated by reference to Exhibit 10.92
to the Company's Report on Form 10-Q for the
quarterly period ending March 31, 1998). *
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. (incorporated by
reference to Exhibit 10.93 to the Company's
Report on Form 8-K/A2 filed on May 19, 1998). *
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. (incorporated by reference to
Exhibit 10.94 to the Company's Report on
Form 8-K/A2 filed on May 19, 1998). *
10.95 Certificate of Amendment dated July 2, 1998
Amending the Company's Restated Certificate
of Incorporation. 26
*Previously filed.
<PAGE>
Exhibit 10.95
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
**********
American Resources of Delaware, Inc., a corporation
organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST. That a meeting of the Board of Directors of American
Resources of Delaware, Inc., a resolution was duly adopted
setting forth the following proposed amendment to the Restated
Certificate of Incorporation of said corporation, declaring said
amendment to be advisable, and providing that said amendment be
presented for consideration by the corporation's stockholders at
the 1998 annual meeting of stockholders of the corporation. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that subject to the approval of the corporation's
stockholders, that the corporation's Restated Certificate of
Incorporation be amended to add ARTICLE TWELVE thereto to read as
follows:
"To the fullest extent permitted by the
Delaware General Corporation Law as the same
exists or hereafter may be amended, no
director of the corporation shall be liable
to this corporation or to its stockholders
for monetary damages for breach of fiduciary
duty as a director."
SECOND. That thereafter, the necessary number of shares
required by statute were voted in favor of said amendment at the
1998 Annual Meeting of the stockholders of said corporation duly
called and held on June 30, 1998 upon notice given in accordance
with Section 222 of the General Corporation Law of the State of
Delaware.
<PAGE>
THIRD. That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said American Resources of Delaware,
Inc. has caused this certificate to be signed by Rick G. Avare,
its President and Chief Executive Officer, this 2nd day of July,
1998.
American Resources of Delaware, Inc.
By: /s/ Rick G. Avare
---------------------------------
Rick G. Avare
President and Chief
Executive Officer
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<NAME> AMERICAN RESOURCES OF DELAWARE, INC.
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