SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
May 21, 1999
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Date of Report (Date of earliest event reported)
AMERICAN RESOURCES OF DELAWARE, INC.
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(Exact name of Registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-21472 86-0713506
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(Commission File Number) (IRS Employer Identification No.)
160 Morgan Street
P. O. Box 87
Versailles, Kentucky 40383
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(Address of principal executive offices) (Zip Code)
(606) 873-5455
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(Registrant's Telephone Number, including Area Code)
Not Applicable
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(Former name or former address, if changed since last report)
Item 1. Changes in Control of Registrant. Not Applicable.
Item 2. Acquisition or Disposition of Assets. The registrant
entered into a letter of intent with Blue Dolphin Exploration
Company ("BDEX") for the sale to BDEX of a 75% ownership interest
of the Registrant through the issuance of new shares.
Concurrently with and as a condition precedent to the
transaction, the Registrant will dispose of all of its
Appalachian assets to an undetermined third party as well as 80%
of its interest in its Gulf of Mexico assets to a third party
designated by BDEX. After closing, the primary assets of the
Registrant will consist of 20% of the Gulf of Mexico assets. The
letter of intent is attached hereto as Exhibit 10.97.
The total purchase price for the Registrant stock and 80% of
the Registrant's Gulf of Mexico assets is $33.75 million and
consists of approximately $5.3 million in cash, subject to
adjustments for operations of the Registrant from the effective
date and the results of due diligence. As a further condition to
the Closing, the Registrant must demonstrate to BDEX that all
debts and obligations of the Registrant as of December 31, 1998
have been satisfied. In order to assure that the Registrant's
representations will be accurate post closing, BDEX will acquire
in excess of $21 million of secured indebtedness from the
Registrant's primary lenders. At a post-closing date to be
determined, the Registrant's indebtedness will be cancelled once
BDEX has confirmed that the Registrant has complied fully with
its representations, warranties and obligations. There are no
assurances the Registrant will be able to satisfy this
requirement; and in that event, BDEX would have the right to
enforce the secured indebtedness. The proceeds from the sale to
BDEX and third parties will be used primarily to retire secured
indebtedness of the Registrant.
The effective date of the transaction will be January 1,
1999. The parties are currently performing due diligence and
negotiating a definitive agreement which is expected to be
executed by mid-June, with closing to occur during the third
quarter of this year.
Item 3. Bankruptcy Receivership. Not Applicable.
Item 4. Change in Registrant's Certified Accountant.
Not Applicable.
Item 5. Other Events.
Item 6. Resignation of Registrant's Directors. Not Applicable.
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements. Not applicable.
(b) Pro Forma Financial Information. Not applicable.
(c) Exhibits.
Exhibit 10.97 Letter of intent dated May 21, 1999
between Blue Dolphin Exploration
Company and American Resources
Offshore, Inc.
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/Ralph A. Currie
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Ralph A. Currie
Its: Chief Financial Officer
Dated: June 7, 1999
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American Resources Offshore, Inc.
May 21, 1999
Page 1
May 21, 1999
AMERICAN RESOURCES OFFSHORE, INC.
160 Morgan Street
Versailles, KY 40383
Gentlemen:
The purpose of this letter (this "Letter of Intent") is to set
forth certain non-binding understandings and certain binding
agreements between Blue Dolphin Exploration Company ("BDEX"), a
Delaware corporation, and American Resources Offshore, Inc.
("ARO"), a Delaware corporation, with respect to the possible
acquisition (the "Possible Acquisition") of certain shares of
capital stock, and assets of ARO, on the terms set forth below.
The following numbered paragraphs of this Letter of Intent
(collectively, the "Non-binding Provisions") reflect our mutual
understanding of the matters described in them, but BDEX and ARO
each acknowledge that the Non-binding Provisions are not intended
to create or constitute any legally binding obligation between
them and neither BDEX nor ARO shall have any liability to the
other with respect to the Non-binding Provisions until a fully
integrated, definitive agreement (the "Definitive Agreement"),
and other related documents, are prepared, authorized, executed
and delivered by and between BDEX and ARO. In this Letter of
Intent, ARO and BDEX are sometimes referred to as the "Parties".
PART ONE
To facilitate the negotiation of a Definitive Agreement, the
Parties request that BDEX's counsel prepare an initial draft
thereof. The execution of any such Definitive Agreement would be
subject to the satisfactory completion of BDEX's ongoing
investigation of ARO's business, and would also be subject to
approval by the respective Parties' board of directors. Based on
the information currently known to BDEX, it is proposed that the
Definitive Agreement include the following terms:
1. BASIC TRANSACTION. ARO is authorized to issue 50,000,000
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shares of $.00001 par value common stock and 3,000,000
shares of preferred stock, of which 10,420,000 common shares
and 230,000 shares of preferred stock are issued and
outstanding. ARO will take such action to convert the
preferred stock of its officers and directors to common
stock, to enable BDEX to have a 75% ownership interest in
ARO upon the completion of the transactions contemplated
herein (the "Shares"). BDEX shall be entitled to anti-
dilutive rights in the event any preferred shares, warrants
or options issued by ARO prior to the Closing remain
outstanding and have not been cancelled pursuant to Article
3 b. The parties intend that the closing of the proposed
transaction will occur on or before September 30, 1999 (the
"Closing") with an effective date of January 1, 1999 (the
"Effective Date"). ARO shall provide corporate managerial
services to BDEX for a period of eighteen (18) months from
the date of Closing, for a monthly fee of thirty five
thousand dollars ($35,000).
American Resources Offshore, Inc.
May 21, 1999
Page 2
2. PURCHASE-PRICE. Based on the information known to BDEX on
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the date hereof, the purchase price for (i) the Shares, and
(ii) 80% of ARO's interest in the offshore Gulf Coast
properties, will be Thirty Three Million Seven Hundred Fifty
Thousand Dollars ($33,750,000), less Net Revenues received
for production from the effective date to the date of
Closing, as defined Exhibit "A". It is understood that BDEX
shall have no obligations with regard to the acquisition or
disposition of the ARO Appalachian properties.
3. OTHER TERMS. At or prior to the Closing:
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a. ARO shall take all appropriate action to have fully
satisfied and been released from all monetary
obligations (excluding obligations to ARO's bank and
TECO Oil & Gas, Inc. ("TECO"), which are being assigned
to BDEX), including but not limited to (i) accounts
payable, and joint interest billings, (except for those
arising in the ordinary course of business from the
effective date until Closing and as to which purchase
price adjustments are made), or those incurred with
written approval of BDEX, (ii) all employment
agreements, and (iii) office lease agreements.
b. Existing Management and Board Members shall agree to a
voting trust to support the terms and conditions of the
transaction contemplated herein and terminate any
options or warrants issued to them by ARO.
c. ARO shall take all appropriate action to divest itself
of all Appalachian assets and dissolve all subsidiaries
prior to the Closing.
d. Separate assignments in favor of BDEX executed by TECO
and ARO's bank of their respective claims, contract
rights and security interests as to ARO are to be
delivered to BDEX. The Definitive Agreement would
provide for BDEX to release the assigned rights at a
point sufficiently subsequent to the Closing to enable
BDEX to confirm that ARO has complied fully with its
representations, warranties and obligations under the
Definitive Agreement provided that a material breach
has not occurred.
e. BDEX agrees that production marketing positions listed
in Exhibit "B" entered into by ARO since the Effective
Date shall be deemed to be in the ordinary course of
business. ARO agrees that any production marketing
positions not listed on Exhibit "B" shall not be deemed
to be in the ordinary course of business and that BDEX
shall have no responsibility whatsoever therefore, and
that the settlement costs for such positions shall not
be made from the Net Revenues attributable to the
period from the Effective Date to the Closing.
f. ARO shall notify BDEX of any authority for expenditures
("AFE") received by ARO, and ARO shall attempt to
farmout on best terms, failing which it shall not
consent to the AFE unless (i) it receives written
consent and approval from BDEX, or (ii) ARO's Bank
advances the necessary capital to fund the AFE. If
BDEX approves the AFE it shall advance the necessary
capital to fund the AFE and shall be entitled to a
first lien on the assets to secure repayment of this
advance. The property which is the subject matter of
the AFE shall be deemed to be included as property to
be conveyed (as described below), to Fidelity Oil
Holdings, Inc. ("Fidelity"), or owned by the surviving
entity without any additional compensation.
g. ARO shall immediately take steps to terminate its joint
venture agreements with Houston Energy on terms and
conditions agreed to and approved by BDEX.
American Resources Offshore, Inc.
May 21, 1999
Page 3
IN CONNECTION WITH THE CLOSING, 80% OF THE OFFSHORE GULF COAST
PROPERTIES OF ARO, AS DESCRIBED IN PARAGRAPH 2. (II), WILL BE
ASSIGNED TO FIDELITY WITH AN EFFECTIVE DATE OF JANUARY 1, 1999,
FOR NO ADDITIONAL CONSIDERATION TO ARO.
4. DEFINITIVE AGREEMENT. ARO will make comprehensive
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representations and warranties to BDEX, and will provide
comprehensive covenants, indemnities and other protections
for the benefit of BDEX. If a Definitive Agreement is not
executed by June 15, 1999, or the Parties have not extended
this Letter of Intent by mutual agreement in writing, this
Letter of Intent shall automatically expire as of June 15,
1999, at 5:00 P.M. Central Daylight Time. The consummation
of the contemplated transaction by BDEX would be subject to
the satisfaction of various conditions, including, but not
limited to:
a. ARO has no knowledge of any Environmental Liability
relating to or arising out of the companies' assets
except as disclosed at or prior to the Effective Date.
This warranty shall not apply to (a) any liability
relating to the (i) plugging and abandonment of wells
and (ii) associated site restoration (except to the
extent that it involves the removal of Hazardous
Substances therefrom); or (b) each individual claim in
respect of Environmental Liability of less than $25,000
up to a maximum aggregate of $250,000.
b. A limited warranty to the effect that there are no
title defects, liens, claims, or encumbrances occurring
by, through or under ARO or any of its subsidiaries, or
relating to events or actions which occurred prior to
Closing, which would have a material adverse effect on
the value of the companies' assets, but with full
substitution and subrogation of BDEX in and to all
representations and warranties of every kind and
character heretofore given or made to ARO or its
subsidiaries and their predecessors in title by others
with respect thereto.
c. BDEX will perform standard due diligence to: (i)
confirm the oil and gas reserve report information
provided to BDEX by ARO, (ii) confirm the accuracy of
the title to the properties owned by ARO as represented
in said reserve reports, and (iii) determine the
financial condition and pending legal matters of ARO.
The Definitive Agreement will contain default and remedy
provisions typical of a transaction of this type.
PART TWO
The following paragraphs of this letter (the "Binding
Provisions") are the legally binding and enforceable agreements
of BDEX and ARO.
1. ACCESS. During the period from the date this letter is
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signed by ARO (the "Signing Date") until the date on which
either Party provides the other Party with written notice
that negotiations toward a Definitive Agreement are
terminated (the "Termination Date"), ARO will afford BDEX
full and free access to ARO, its personnel, properties,
contracts, books and records, and all other documents and
data.
2. EXCLUSIVE DEALING. Until the later of (i) (90) days after
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the, Signing Date or (ii) the Termination Date:
a. ARO will not, directly or indirectly, through any
representative or otherwise, solicit or entertain
offers from, negotiate with or in any manner encourage,
discuss, accept, or consider any proposal of any other
person relating to the acquisition of the Shares, its
assets or business, in whole or in part, whether
directly or indirectly, through purchase, merger,
consolidation, or otherwise (other than in the ordinary
course). Notwithstanding the foregoing, BDEX's
exclusive rights shall terminate prior to the end of
the ninety day
American Resources Offshore, Inc.
May 21, 1999
Page 4
period if during such period ARO receives an
unsolicited offer and ARO's Board of Directors
determines in good faith, based on the advice of
outside counsel, that its failure to accept such an
unsolicited offer would constitute a breach of the
Board of Directors' fiduciary duty; and
b. ARO will immediately notify the BDEX regarding any
contact between ARO and their respective
representatives and any other person regarding any such
offer or proposal or any related inquiry.
3. CONDUCT OF BUSINESS. During the period from the Signing
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Date until the Termination Date, ARO shall operate its
business in the ordinary course and shall refrain from any
extraordinary transactions.
4. CONFIDENTIALITY. Except as and to the extent required by
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law, BDEX will not disclose or use, and will direct its
representatives not to disclose or use any Confidential
Information (as defined below) with respect to ARO furnished, or
to be furnished, by either ARO or their respective
representatives to BDEX or its representatives at any time or in
any manner to top lease any ARO oil and gas leases.
"Confidential Information" means seismic data, well logs, and
lease title information, unless (a) such information is already
known to BDEX or its representatives or to others not bound by a
duty of confidentiality or such information becomes publicly
available through no fault of BDEX or its representatives, (b)
the use of such information is necessary or appropriate in making
any filing or obtaining any consent or approval required for the
consummation of the Possible Acquisition, or (c) the furnishing
or use of such information is required by or necessary or
appropriate in connection with legal proceedings or negotiations
with any creditor of ARO. The provisions of this section
supercede any prior agreement between the parties pertaining to
confidentiality matters. Upon the written request of ARO, BDEX
will promptly return to ARO or destroy any Confidential
Information in its possession and certify in writing to ARO that
it has done so.
5. DISCLOSURE. Except as and to the extent required by law,
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without the prior written consent of the other Party,
neither BDEX nor ARO will, and each will direct its
representatives not to make, directly or indirectly, any
public comment, statement, or communication with respect to,
or otherwise to disclose or to permit the disclosure of the
existence of discussions regarding, a possible transaction
between the Parties or any of the terms, conditions, or
other aspects of the transaction proposed in this letter.
If a Party is required by law to make any such disclosure,
it must first provide to the other Party the content of the
proposed disclosure, the reasons that such disclosure is
required by law, and the time and place that the disclosure
will be made.
6. COSTS. BDEX and ARO be responsible for and bear all of its
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own costs and expenses (including any broker's or finder's
fees and the expenses of its representatives) incurred at
any time in connection with pursuing or consummating the
Possible Acquisition. Notwithstanding the preceding
sentence, BDEX will pay one half and ARO will pay one-half
of the HSR Act filing fee, if applicable.
7. CONSENTS. During the period from the Signing Date until the
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Termination Date, BDEX and ARO will cooperate with each
other and proceed, as promptly as is reasonably practical,
to prepare and to file the notifications required by the HSR
Act, if applicable.
8. ENTIRE AGREEMENT. The Binding Provisions constitute the
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entire agreement between the parties, and supersede all
prior oral or written agreements, understandings,
representations and warranties, and courses of conduct and
dealing between the parties on the subject matter hereof.
Except as otherwise provided herein, the Binding Provisions
may be amended or modified only by a writing executed by all
of the parties.
9. GOVERNING LAW. The Binding Provisions will be governed by
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and construed under the laws of the State of Delaware
without regard to conflicts of laws principles.
American Resources Offshore, Inc.
May 21, 1999
Page 5
10. JURISDICTION - SERVICE OF PROCESS. Any action or proceeding
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seeking to enforce any provision of, or based on any right
arising out of, this Letter may be brought against any of
the parties in the courts of the State of Delaware and each
of the parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action
or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in
the preceding sentence may be served on any party anywhere
in the world.
11. TERMINATION. The Binding Provisions will automatically
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terminate on June 15 1999 and may be terminated earlier upon
written notice by either party to the other party
unilaterally, for any reason or no reason, with or without
cause, at any time; provided, however, that the termination
of the Binding Provisions will not affect the liability of a
party for breach of any of the Binding Provisions prior to
the termination. Upon termination of the Binding
Provisions, the parties will have no further obligations
hereunder, except as stated in Paragraphs 2, 3, 5, 7, 9, 10,
11, 12, 13 and 14 of this Part Two, which will survive any
such termination.
12. COUNTERPARTS. This Letter may be executed in one or more
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counterparts, each of which will be deemed to be an original
copy of this Letter and all of which, when taken together,
will be deemed to constitute one and the same agreement.
13. NO LIABILITY. The paragraphs and provisions of Part One of
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this letter do not constitute and will not give rise to any
legally binding obligation on the part of any of the
Parties. Moreover, except as expressly provided in the
Binding Provisions (or as expressly provided in any binding
written agreement that the Parties may enter into in the
future), no past or future action, course of conduct, or
failure to act relating to the Possible Acquisition, or
relating to the negotiation of the terms of the Possible
Acquisition or any Definitive Agreement, will give rise to
or serve as a basis for any obligation or other liability on
the part of the Parties.
If you are in agreement with the foregoing, please sign and
return one copy of this letter agreement, which thereupon will
constitute our agreement with respect to its subject matter.
Yours truly,
BLUE DOLPHIN EXPLORATION
COMPANY
By: /s/John P. Atwood
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John P. Atwood
Vice President, Finance &
Corporate Development
American Resources Offshore, Inc.
May 21, 1999
Page 6
Duly executed and agreed as to the Binding Provisions on this
21st day of May, 1999.
AMERICAN RESOURCES OFFSHORE,
INC.
By: /s/Rick G. Avare
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Name: Rick G. Avare
Title: President & C.E.O.
Exhibit "A"
Net Revenue shall be defined as:
gross revenues from oil and gas sales, process revenues and other
sources of revenue that are attributable to the period commencing
on January 1, 1999 through the Closing Date, attributable to the
Gulf Coast offshore properties; less the items set forth in (i)
through (iii) costs for additions to property and equipment
(including, without limitation, drilling costs) attributable to
the period commencing on January 1, 1999 through the Closing
Date, attributable to the Gulf Coast offshore properties,
incurred in the ordinary course of the business of managing oil
and gas properties; plus
lease operating expenses attributable to the period commencing on
January 1, 1999 through the Closing Date, attributable to the
Gulf Coast offshore properties; plus
reasonable general and administrative expenses (including the
expense of maintaining ARO's exploration joint ventures with
Houston Energy, subject to termination instructions in Article 3
g. of the Letter Agreement to which this Exhibit "A" is
attached.) attributable to the period commencing on January 1,
1999 through the Closing Date, that are allocable to the Gulf
Coast offshore properties using a reasonable allocation method.
Exhibit "B"
AMERICAN RESOURCES OFFSHORE, INC.
Gas Marketing Agreements
FORWARD SALE CONTRACTS
CONTRACT
MONTHS VOLUME PRICE
June 1999 600,000 1.8700
July 1999 620,000 1.9000
August 1999 620,000 1.9250
1,840,000
September 1999 300,000 2.1900
October 1999 310,000 2.2150
610,000
COVERED CALL OPTIONS
March 1999 to 10,000 per day 2.7500
February 2001
BLUE DOLPHIN EXPLORATION COMPANY
