<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1996
REGISTRATION NO. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________________
ALLIANCE RESOURCES PLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ENGLAND 1311
(State or Other (Primary Standard None
Jurisdiction of Industrial Classification (I.R.S. Employer
Incorporation or Organization) Code Number) Identification Number)
KINGSBURY HOUSE
15-17 KING STREET
LONDON SWIY 6QU
44 171 930 9337
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JOHN A. KEENAN
1 HOUSTON CENTER
1221 MCKINNEY, SUITE 1814
HOUSTON, TEXAS 77010
(713) 650-0069
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
W. ALAN KAILER S. ERICKSON GRIMSHAW
JENKENS & GILCHRIST, PRAY, WALKER, JACKMAN,
A PROFESSIONAL CORPORATION WILLIAMSON & MARLAR
1445 ROSS AVENUE, SUITE 3200 100 WEST 5TH STREET
DALLAS, TEXAS 75202 TULSA, OKLAHOMA 74102-4218
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
_____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered be Registered (1) per Share (2) Offering Price (2) Registration Fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ordinary Shares 24,121,016 N/A $17,003,903 $5,152
- ---------------------------------------------------------------------------------------------------------------
Warrants 2,672,496 N/A N/A N/A (3)
===============================================================================================================
</TABLE>
(1) Number of shares to be issued in the merger described herein estimated
solely for purposes of calculating the registration fee.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
Based on current market price of securities to be acquired by registrant,
pursuant to Rule 457(f).
(3) No separate registration fee is required pursuant to Rule 457(g).
_____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
[LATEX LOGO]
============
ALLIANCE RESOURCES PLC
MERGER PROPOSAL -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of LaTex Resources, Inc. and Alliance Resources
Plc have agreed on a merger intended to create an oil and gas exploration,
development and production company with greater opportunity for growth through
domestic acquisitions and participation in foreign concessions than either of
the companies could achieve separately. The combined company will be named
Alliance Resources Plc; its executive office will be in London, England and its
U.S. operations headquarters will be in Tulsa, Oklahoma.
If the merger is completed, the Alliance Stock will be "reverse split" so
that each Alliance shareholder at the time of the merger will receive one New
Alliance Share for each 40 Existing Alliance Shares and each LaTex shareholder
at the time of the merger will receive 0.8806 of a New Alliance Share for
each share of LaTex Common Stock then held, 2.6445 New Alliance Shares for each
share of LaTex Series A Stock then held, 5.8709 New Alliance Shares for each
share of LaTex Series B Stock then held, and a warrant to purchase 0.8806 of a
New Alliance Share for each share of LaTex Common Stock subject to warrants is
sued by LaTex then held. The New Alliance Shares to be issued to LaTex
shareholders will represent approximately 72% of the outstanding stock of
Alliance after the merger. The New Alliance Shares held by Alliance
shareholders will represent approximately 28% of the outstanding stock of
Alliance after the merger.
The merger cannot be completed unless the shareholders of both companies
approve it. This document is being furnished only to the LaTex shareholders,
however, as the Alliance shareholders are receiving a separate document
prepared under English law. Both LaTex and Alliance have scheduled special
meetings for their respective shareholders to vote on the merger. YOUR VOTE
IS VERY IMPORTANT.
The Board of Directors of LaTex Resources, Inc., by unanimous vote of the
Board and of the independent Directors, have approved the Merger Agreement and
authorized the Merger and unanimously recommend that you vote FOR the adoption
of the Merger Agreement and authorization of the Merger.
Whether or not you plan to attend the LaTex meeting, please take the time
to vote by completing and mailing the enclosed proxy card to us. If you sign,
date and mail your proxy card without indicating how you want to vote, your
proxy will be counted as a vote in favor of the merger. If you fail to return
your card, your proxy will be counted as a vote against the merger.
The date, time and place of the special meeting of the LaTex shareholders
is:
[LaTex to provide]
________________________________
________________________________
________________________________
________________________________
This Proxy Statement provides you with detailed information about the
proposed merger. In addition, you may obtain information about both LaTex and
Alliance from documents that we have filed with the Securities and Exchange
Commission ("SEC"). We encourage you to read this entire document carefully.
Jeffrey T. Wilson John A. Keenan
Chairman of the Board and President, Managing Director
LaTex Resources, Inc. Alliance Resources Plc
Proxy Statement dated ________________, 1997, and first mailed to shareholders
on _____________, 1997.
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE ALLIANCE/LATEX MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: This merger has been approved by the Boards of both LaTex and Alliance as a
means to create an independent oil company that has a larger interest in
U.S. properties than either of the separate companies currently have,
which, with the potential improvements to cash flow and greater prospect
for financial leverage that this base provides, is anticipated to have a
greater ability to participate in additional domestic and international oil
and gas projects. We believe that the merger will allow the combined
companies to pursue opportunities that would otherwise be unavailable or
incapable of being exploited by either company separately. Management of
Alliance intends to focus particularly on opportunities in the United
States and the former Soviet Union, but will consider opportunities
throughout the world. Of course, there is no guarantee that the combined
companies will be successful in their efforts.
Q: WHAT DO I NEED TO DO NOW?
A: Mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the LaTex special
meeting which will take place ____________, 1997. The Board of Directors of
LaTex unanimously recommends voting in favor of the proposed merger.
Q: PLEASE EXPLAIN THE EXCHANGE RATIO.
A: At the time of the merger, LaTex shareholders will receive 0.8806 of a New
Alliance Share for each share of LaTex Common Stock they hold, 2.6445 New
Alliance Shares for each share of LaTex Series A Stock they hold, 5.8709
New Alliance Shares for each share of LaTex Series B Stock they hold, and a
warrant to purchase 0.8806 of a New Alliance Share for each share of LaTex
Common Stock subject to warrants issued by LaTex they hold. LaTex
shareholders who would be entitled to receive a fractional New Alliance
Share instead will receive cash based on the middle market quotation of a
fractional New Alliance Share derived from the Daily Official List of the
London Stock Exchange on August 9, 1996, being the date prior to the
announcement in London of the merger.
Example: if you currently own 100 shares of LaTex Common Stock, then after
the merger you will be entitled to receive 88 New Alliance Shares and a
check equivalent to the market value of the middle market quotation
referred to above of the .06 fractional share.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: The Boards of Directors of both companies are working towards completing
the merger as quickly as possible. In addition to shareholder approvals, we
must also obtain regulatory approvals in both countries. We hope to
complete the merger as early as ___________, 1997.
Q: WHAT ARE THE TAX CONSEQUENCES TO LATEX SHAREHOLDERS OF THE MERGER?
A: The exchange of LaTex shares by LaTex shareholders in the merger into New
Alliance Shares will be taxable. The taxable income or loss each LaTex
shareholder must recognize will generally be equal to the amount that the
middle market quotation as derived from the Daily Official List of the
London Stock Exchange of the New Alliance Shares held by a shareholder
immediately after the merger exceeds the shareholder's tax basis in the
LaTex Shares. To review the tax consequences to shareholders in greater
detail, see page __.
<PAGE>
Q: HOW ARE THE ALLIANCE SHARES BEING CHANGED?
A: As part of the merger, the Alliance shareholders are being asked to approve
a 40-to-1 reverse stock split of the Alliance stock. It is a condition to
the merger that this reverse stock split be approved by the Alliance
shareholders. Therefore, in connection with the merger, each 40 Existing
Alliance Shares held by an Alliance shareholder at the time of the merger
will be converted into one New Alliance Share. In this Proxy
Statement, all of the references to the New Alliance Shares mean the
Alliance shares after this reverse stock split.
Q: HOW DO I REVOKE MY PROXY IF I DECIDE TO DO SO?
A: You have the unconditional right to revoke your proxy at any time before
your shares are voted. You can revoke the proxy either by appearing in
person and notifying the officials at the special meeting that you wish to
revoke your proxy or by notifying LaTex in writing addressed to: 4200 East
Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135, Attention: Stacey D.
Smethers, Secretary. Your revocation will not be effective unless it has
been received by the Secretary of LaTex before the day of the special
meeting or by the officials in charge of the special meeting before the
shares are voted.
Q: HOW DO I DISSENT AND SEEK AN APPRAISAL OF MY SHARES IF I WISH TO DO SO?
A: If you wish to dissent from the merger and receive the fair value of your
LaTex shares in cash, you must deliver to LaTex, before the special
meeting, a written demand for the appraisal of your LaTex Shares. This
demand must reasonably inform LaTex of your identity and that you intend to
demand the appraisal of your shares. You also must not vote in favor of the
merger. After the vote on the merger, you must then follow additional steps
to obtain the appraisal of your shares. See page __ for additional
information concerning your dissent and appraisal rights and how to pursue
those rights.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions
for exchanging your share certificates.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 31, 1996
ALLIANCE RESOURCES PLC
THIS DOCUMENT SERVES AS A PROSPECTUS FOR SHARES OF ALLIANCE RESOURCES PLC
AND ALSO AS A PROXY STATEMENT FOR A SPECIAL MEETING OF SHAREHOLDERS OF LATEX
RESOURCES, INC. TO BE HELD ON ____________, 1997
This Proxy Statement relates to 21,448,520 ordinary shares of (Pounds)0.40
each (the "New Alliance Shares") in the capital of Alliance Resources PLC
("Alliance") that may be issued to the shareholders of LaTex Resources, Inc.
("LaTex") in exchange for the outstanding shares of its common and preferred
stock, par value $.01 per share (the "LaTex Shares"), pursuant to an Agreement
and Plan of Merger (the "Merger Agreement") providing for the merger (the
"Merger") of Alliance Resources (Delaware), Inc. ("Alliance Delaware"), a newly
formed wholly owned subsidiary of Alliance, into LaTex, and are being offered
subject to the approval of the shareholders of LaTex and subject to the
satisfaction of the other conditions set forth herein and in the Merger
Agreement. A copy of the Merger Agreement is attached as Appendix B to this
Proxy Statement. This Proxy Statement also relates to warrants (the "New
Warrants") to be issued by Alliance in the Merger to replace 3,034,750
currently outstanding warrants issued by LaTex, and to 2,672,496 New Alliance
Shares issuable upon exercise of those New Warrants. The Merger and the Merger
Agreement are to be submitted to a vote of the shareholders of LaTex at a
special meeting to be held on _______________, 1997. If the Merger is
completed, the outstanding LaTex Shares (other than shares, if any, held by
LaTex in treasury and shares held by dissenters) will be automatically canceled
and LaTex shareholders will receive New Alliance Shares at the rate provided in
the Merger Agreement (the "Conversion Rate"). See "The Merger--Terms of the
Merger."
The currently outstanding Alliance shares (the "Existing Alliance Shares")
are traded on the London Stock Exchange under the symbol "ARS." In connection
with the Merger, the Existing Alliance Shares will be subject to a 40-to-1
reverse split, pursuant to which each 40 Existing Alliance Shares will be
consolidated into one New Alliance Share of (Pounds)0.40 each. In view of the
size of the Merger relative to Alliance, the London Stock Exchange, at
Alliance's request, has temporarily suspended trading in the Existing Alliance
Shares. LaTex's Common Stock is traded on the Nasdaq SmallCap Market ("Nasdaq")
under the symbol LATX. On August 9, 1996, the last trading day before the
announcement of the Merger Agreement, the middle market quotation (as derived
from the Daily Official List of the London Stock Exchange) for the Existing
Alliance Shares was (Pounds)0.02 ($0.033) per share (equivalent to (Pounds)0.80
($1.336) per New Alliance Share) and the last reported sale price on Nasdaq for
LaTex's Common Stock was $0.41 per share. On __________, 1997, the last
reported sale price for LaTex's Common Stock as reported by Nasdaq was $____
per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
Application is being made to list the New Alliance Shares to be issued in
connection with the Merger on the London Stock Exchange.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement is ____________________, 1997.
<PAGE>
Alliance has filed a registration statement with the Securities and
Exchange Commission for the New Alliance Shares and New Warrants to which this
Proxy Statement relates. See "Additional Information." For information
concerning the circumstances in which this Proxy Statement may be used, see
"The Merger--Registration and Resale."
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT ALLIANCE, THE NEW ALLIANCE SHARES, THE NEW WARRANTS OR ANY
MATTER REFERRED TO IN THIS PROXY STATEMENT OTHER THAN THE INFORMATION AND
REPRESENTATIONS CONTAINED IN THIS PROXY STATEMENT. IF ANY OTHER INFORMATION OR
REPRESENTATION IS GIVEN OR MADE, THAT INFORMATION OR REPRESENTATION MAY NOT BE
RELIED UPON. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION
OF THE NEW ALLIANCE SHARES OR NEW WARRANTS SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF LATEX OR
ALLIANCE SINCE THE DATE HEREOF. HOWEVER, IF ANY MATERIAL CHANGE IN THE AFFAIRS
OF LATEX OR ALLIANCE OCCURS AT ANY TIME WHEN THIS PROXY STATEMENT IS REQUIRED
TO BE DELIVERED, THE PROXY STATEMENT WILL BE AMENDED OR SUPPLEMENTED.
LaTex is subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and is, therefore, required to file reports and
other information with the Commission relating to its business, financial
condition and other matters. These reports, proxy statements and other
information are available for inspection at the public reference facilities of
the Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
in the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and in Seven World Trade Center, Suite 1300, New York, New York. Copies
may be obtained by mail upon payment of the Commission's customary charges by
writing to its principal office at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Historical information about LaTex is
included in the LaTex Annual Report Form 10-K for the Year Ended July 31, 1996
that is part of this Proxy Statement.
All information contained herein with respect to Alliance and its
subsidiaries has been supplied by Alliance and all information with respect to
LaTex and its subsidiaries has been supplied by LaTex.
Until ______________, 1997 (90 days after the date of this Proxy
Statement), all dealers effecting transactions in the securities offered
hereby, whether or not participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligations of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
In this Proxy Statement, references to "dollar" and "$" are to United
States dollars, and the terms "U.S." and "United States" means the United
States of America, its states, its territories, its possessions and all areas
subject to its jurisdiction. All references to "pound," "sterling," or
"(Pounds)" are to United Kingdom currency, and the terms "United Kingdom,"
"U.K." and "UK" mean the United Kingdom of Great Britain and Northern Ireland,
its possessions and all areas subject to its jurisdiction. Certain amounts
stated in sterling herein have been also stated in dollars solely for
convenience, and should not be construed as a representation that such sterling
amounts actually represent such dollar amounts or could be, or could have been,
converted into dollars at the rate indicated or at any other rate. Unless
otherwise indicated, such dollar amounts have been derived by converting from
sterling to dollars at the rate of (Pounds)1.00 equals $_________, the noon
buying rate in the City of New York for cable transfers in pounds as announced
by the Federal Reserve Bank of New York for customs purposes ("Noon Buying
Rate") on ____________, 1997. This rate may differ from the actual rate that
may have been available at that time.
There are currently no UK decrees or regulations restricting the import or
export of capital or affecting the remittance of dividends or other payments to
holders of the Alliance shares who are non-residents of the UK.
__________________
THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE NEW ALLIANCE SHARES OR THE NEW WARRANTS IN
ANY STATE OR OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY ................................................................................................. 1
Summary Historical and Pro Forma Financial Data ......................................................... 5
Summary Oil and Natural Gas Reserve Data ................................................................ 8
RISK FACTORS ............................................................................................ 9
Volatility of Oil and Gas Prices and Supplies ....................................................... 9
Need to Replace Reserves ............................................................................ 9
Drilling and Operating Risks ........................................................................ 9
Uncertainty of Estimates of Oil and Natural Gas Reserves ............................................10
Acquisition Risks ...................................................................................10
International Acquisitions and Operations ...........................................................11
Substantial Capital Requirements ....................................................................11
Dependence on Key Personnel .........................................................................12
Competition .........................................................................................12
Governmental and Environmental Regulation ...........................................................12
No Dividends ........................................................................................13
Credit Facility Covenants and Restrictions ..........................................................13
Dependence on Other Operators .......................................................................13
Forward-looking Information .........................................................................14
THE MERGER ..............................................................................................15
Introduction ........................................................................................15
Background of the Merger ............................................................................15
Reasons for the Merger ..............................................................................17
Opinion of LaTex's Financial Advisor ................................................................19
Terms of the Merger .................................................................................21
General ..........................................................................................21
The Merger .......................................................................................21
Conversion Rate ..................................................................................22
Conduct of Business Prior to the Merger ..........................................................22
Conditions to the Merger .........................................................................22
Termination ......................................................................................23
No Solicitation Covenants ........................................................................24
Effective Time of the Merger ........................................................................24
Exchange of Certificates ............................................................................24
Registration and Resale .............................................................................25
Regulatory Matters ................................................................................. 25
Interests of Certain Persons in the Merger ..........................................................26
Accounting Treatment ................................................................................26
Summary Comparison of LaTex Common Stock and New Alliance Shares ....................................26
Restrictions on Resales by Affiliates ...............................................................36
Appraisal Rights of Dissenting LaTex Shareholders ...................................................36
PRICE RANGE OF STOCK AND DIVIDENDS ......................................................................38
SPECIAL MEETING OF SHAREHOLDERS .........................................................................39
Purpose of the Meeting ..............................................................................39
Quorum and Voting ...................................................................................40
Recommendation ......................................................................................40
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT ................................................41
LATEX ...................................................................................................43
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ALLIANCE.................................................................................................43
General..............................................................................................43
Recent Developments..................................................................................44
Oil and Gas Interests................................................................................44
International........................................................................................46
Operations...........................................................................................46
Production...........................................................................................47
Drilling Activity....................................................................................47
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF ALLIANCE..................................................48
UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS OF ALLIANCE..................................49
NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS.....................................53
UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURES.................................................54
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ALLIANCE........55
General..............................................................................................55
1996 Compared with 1995..............................................................................55
1995 Compared with 1994..............................................................................56
Liquidity and Capital Resources......................................................................57
MANAGEMENT...............................................................................................59
Directors and Executive Officers of Alliance.........................................................59
Executive Compensation...............................................................................61
DESCRIPTION OF ALLIANCE SHARES...........................................................................63
Dividends............................................................................................63
Liquidation Rights...................................................................................63
Voting Rights........................................................................................63
Pre-emptive Rights...................................................................................64
Variation of Rights..................................................................................64
Disclosure of Interests..............................................................................64
Miscellaneous........................................................................................64
CERTAIN TAX CONSIDERATIONS...............................................................................65
U.S. Tax Consequences of the Merger..................................................................65
UK and US Tax Consequences of Ownership and Disposition of New Alliance Shares.......................66
Taxation of Dividends.............................................................................66
Backup Withholding and Information Reporting......................................................68
Taxation of Capital Gains.........................................................................68
Estate and Gift Tax...............................................................................68
Stamp Duty and Stamp Duty Reserve Tax.............................................................69
Controlled Foreign Corporation Status.............................................................69
Passive Foreign Investment Company Status........................................................ 69
EXPERTS..................................................................................................71
LEGAL MATTERS............................................................................................71
SHAREHOLDER PROPOSALS....................................................................................71
ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS..........................71
ADDITIONAL INFORMATION...................................................................................72
REPORTS TO SHAREHOLDERS..................................................................................74
ALLIANCE FINANCIAL STATEMENTS.......................................................................... F-1
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Appendix A - Definitions................................................................................A-1
Appendix B - Agreement and Plan of Merger, with amendment...............................................B-1
Appendix C - Opinions of Wood Roberts LLC...............................................................C-1
Appendix D - Delaware General Corporation Law (S)262....................................................D-1
LaTex Annual Report Form 10-K for the Year Ended July 31, 1996..........................................S-1
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
Merger fully and for a more complete description of the legal terms of the
Merger Agreement, you should read carefully this entire document.
THE COMPANIES (SEE PAGE ___)
Alliance Resources Plc Alliance is a London-based holding
Kingsbury House company of a group whose principal
15-17 King Street activities are the exploration,
London SW1Y 6QU development and production of oil and
England gas in the United States. The group's
Telephone: 44 171 930 9337 existing producing oil and gas interests
are located in the State of Louisiana.
After the Merger, Alliance's principal
United States operating offices will be
located at 4200 East Skelly Drive, Suite
1000, Tulsa, Oklahoma 74135.
LaTex Resources, Inc. LaTex is an independent oil and gas
4200 East Skelly Drive, Suite 1000 exploration and production company
Tulsa, Oklahoma 74135 located in Tulsa, Oklahoma, primarily
U.S.A. engaged in the acquisition and
Telephone: (918) 747-7000 exploitation of producing oil and gas
properties. LaTex owns and operates
producing oil and gas properties located
in 14 states with reserves located
primarily in the states of Mississippi,
Louisiana, Oklahoma, Texas and Alabama.
Additional information concerning LaTex
is included on LaTex's Annual Report on
Form 10-K for the Year Ended July 31,
1996, which accompanies this Proxy
Statement.
OUR REASONS FOR THE MERGER (SEE PAGE __)
The combined company will have a larger interest in U.S. properties than
either of the separate companies and, with the potential improvements to cash
flow and greater prospect for financial leverage that this base provides, is
anticipated to have a greater ability to participate in domestic and
international projects. In particular, the management and Boards of Directors of
both companies believe that the Merger will allow the combined company the
opportunity to pursue development and acquisition projects that would otherwise
be unavailable or incapable of being exploited by either company separately.
Following the Merger, management of Alliance intends to focus particularly on
opportunities in the United States and the former Soviet Union, but will
consider acquisitions throughout the world. Of course, there is no guarantee
that the combined company will be successful in its efforts.
Management of both LaTex and Alliance are confident that the two companies
may be combined efficiently. The combined company's headquarters will be located
in Alliance's current London offices, which will provide greater access to
international opportunities, while LaTex's Tulsa office will become headquarters
for domestic operations by integrating Alliance's smaller U.S. operation. In
recommending the Merger to its shareholders, LaTex's Board of Directors
considered a number of factors, including (a) the worsening financial condition
of LaTex; (b) management's unsuccessful attempts to secure additional debt
and/or equity financing; (c) the strategic aspects of a merger with Alliance;
(d) the difficulties of continuing to operate as a small independent oil and gas
company in the face of increasing competition for domestic and international
opportunities and (e) the difficulty of significantly increasing the company's
assets, revenue or cash flow by pursuing only domestic projects.
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
OUR RECOMMENDATION TO LATEX SHAREHOLDERS (SEE PAGE __)
The LaTex Board of Directors believes that the Merger is in your best
interest and unanimously recommends that you vote FOR the proposal to approve
and adopt the Merger Agreement and the Merger.
THE MERGER (SEE PAGE ___)
The Merger Agreement is attached as Appendix B to this Proxy Statement. The
LaTex Board of Directors encourages you to read the Merger Agreement as it is
the legal document that governs the Merger.
As part of the Merger, the Alliance shareholders are being asked to approve
a 40-to-1 reverse stock split of the Existing Alliance Shares. It is a condition
to the Merger that this reverse stock split be approved by the Alliance
Shareholders. Therefore, in connection with the Merger, each 40 Existing
Alliance Shares of (Pounds)0.01 each at the time of the Merger will be
consolidated into one New Alliance Share of (Pounds)0.40 each. In this Proxy
Statement, all of the references to the New Alliance Shares mean the Alliance
stock after this reverse stock split.
WHAT LATEX SHAREHOLDERS WILL RECEIVE (SEE PAGE ___)
Alliance will issue up to 21,448,520 New Alliance Shares to LaTex
shareholders in the Merger. At the time of the Merger, LaTex shareholders will
receive 0.8806 of a New Alliance Share for each share of LaTex Common Stock they
hold, 2.6445 New Alliance Shares for each share of LaTex Series A Stock they
hold, 5.8709 New Alliance Shares for each share of LaTex Series B Stock they
hold, and a New Warrant to purchase 0.8806 of a New Alliance Share for each
share of LaTex Common Stock subject to warrants issued by LaTex outstanding at
the time of the Merger. No fractional shares will be issued. Instead, LaTex
shareholders will receive a check in payment for any fractional shares based on
the middle market quotation of a fractional New Alliance Shares derived from the
Daily Official List of the London Stock Exchange on August 9, 1996, being the
date prior to the announcement in London of the Merger, of the fractional New
Alliance Shares to which they are entitled.
You should not send in your stock certificates until instructed to do so
after the Merger is completed.
OWNERSHIP OF THE NEW ALLIANCE FOLLOWING THE MERGER (SEE PAGE ___)
The New Alliance Shares issued to LaTex shareholders in the Merger will
constitute approximately 72% of the outstanding common stock of Alliance
immediately after the Merger. In addition, persons who hold warrants at the time
of the Merger to purchase LaTex Shares will receive New Warrants to purchase
2,672,496 New Alliance Shares, or approximately 8.2% of the New Alliance Shares
outstanding after the Merger, and assuming exercise of all of the New Warrants.
BOARD OF DIRECTORS AND MANAGEMENT OF THE NEW ALLIANCE FOLLOWING THE MERGER (SEE
PAGES ___ AND ___)
It is expected by the current management and the Board of Directors of both
companies that after the Merger is completed John A. Keenan will continue as
Managing Director of the new Alliance, Paul R. Fenemore will continue as
Director of Operations and Business Development of the new Alliance, and H.
Brian K. Williams will continue as Finance Director of the new Alliance. The
current Board of Directors of Alliance will comprise the Board of Directors of
the new Alliance with the addition of two LaTex members to a total of 10
members. Upon completion of the Merger, Jeffrey T. Wilson will resign from his
position as LaTex's Chief Executive Officer. Mr. Wilson and John R. Martinson,
both current directors of LaTex, will become non-executive directors of the new
Alliance.
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CONDITIONS TO THE MERGER (SEE PAGE ___)
The completion of the Merger depends upon meeting a number of conditions,
including the following:
(a) approvals by the holders of a majority of the voting stock of each of
Alliance and LaTex.
(b) the approval of governmental authorities and the London Stock
Exchange;
(c) the absence of any change in or affecting either of the companies that
causes a material adverse effect on either of them; and
(d) the number of LaTex shareholders demanding an appraisal of their
shares prior to the LaTex Special Meeting not exceeding 5% of any
class of the outstanding LaTex Shares.
Certain of these conditions to the Merger may be waived by the party
entitled to assert the condition.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE ___)
The Boards of Directors of either LaTex and Alliance have the right to
terminate the Merger Agreement without completing the Merger, and either party
can terminate the Merger Agreement if any of the following occurs:
(a) the Merger is not completed by February 28, 1997; or
(b) the approval of the holders of a majority of the stock of either
Alliance or LaTex is not received;
(c) a court or other relevant governmental authority prohibits the Merger;
or
(d) the other party breaches or materially fails to comply with any of its
representations or warranties or obligations under the Merger
Agreement;
(e) the Board of Directors of the other party either: (i) withdraws or
modifies in any adverse manner its approval or recommendation in favor
of the Merger, or (ii) approves or recommends a significant
transaction with a third party; or
(f) the business of the other party materially changes for the worse; or
(g) the Board of Directors of either company determines, under certain
circumstances, that the board's fiduciary obligations require
acceptance of an offer from a third party to enter into a significant
transaction.
TERMINATION FEES (SEE PAGE ___)
The Merger Agreement requires Alliance or LaTex to pay to the other a
termination fee of $1 million, plus expenses, if the Merger terminates under
certain circumstances, including a determination by the Board of Directors of
Alliance or LaTex to accept an offer from a third party to enter into a
significant transaction with a third party.
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OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE ___)
In considering the Board's recommendation that you vote in favor of the
Merger, you should be aware that Jeffrey T. Wilson, LaTex's Chief Executive
Officer, will have a consulting agreement with Alliance that will provide him
with interests in the Merger that are different from, or in addition to, yours.
In addition, John R. Martinson, a director of LaTex, is a principal in Wood
Roberts LLC, which on completion of the Merger will receive a fee for rendering
an opinion regarding the fairness of the Merger.
ACCOUNTING TREATMENT (SEE PAGE ___)
The Board of Directors of LaTex expects the Merger to be treated as a
purchase for accounting and financial reporting purposes. For US GAAP
purposes, because LaTex is the larger company, this means that the transaction
will be treated as if LaTex had acquired and assumed the operations of Alliance
on the Effective Time of the Merger.
OPINION OF FINANCIAL ADVISOR (SEE PAGE ___)
In deciding to approve the Merger, the LaTex Board of Directors considered
an opinion provided by LaTex's financial advisor, Wood Roberts LLC ("Wood
Roberts"), as to the fairness to the LaTex shareholders of the Conversion Rate
from a financial point of view. This opinion is attached as Appendix C to this
Proxy Statement. We encourage you to read this opinion.
In connection with delivering this opinion, Wood Roberts performed a
variety of analyses. These included comparing the relative oil and gas reserve
values and net assets of Alliance and LaTex and comparing the financial results
and historical stock prices of LaTex and Alliance to those of other selected oil
and gas companies traded on the London Stock Exchange, and other matters.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE ___)
The exchange of LaTex Shares by LaTex shareholders in the Merger into New
Alliance Shares will be taxable under United States tax law. The taxable income
or loss each LaTex shareholder must recognize will generally be equal to the
amount by which the market value of the New Alliance Shares held by a
shareholder immediately after the Merger differs from the shareholder's basis in
the LaTex Shares.
RESTRICTIONS ON RESALES (SEE PAGE __)
There are certain restrictions on resales of New Alliance Shares to be
received by affiliates of LaTex in the Merger.
DISSENT AND APPRAISAL RIGHTS (SEE PAGE __)
Under Delaware law, any LaTex shareholder will have the right to demand an
appraisal of, and a cash payment for the fair value of, his LaTex Shares by
delivering to LaTex before the Special Meeting a written demand for appraisal.
This demand must reasonably inform LaTex of the shareholder's identity and that
the shareholder intends to demand the appraisal of his shares. The shareholder
must then follow the other requirements for demanding an appraisal.
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COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE __)
The Existing Alliance Shares are traded on the London Stock Exchange and
are not traded in the United States. On August 9, 1996, the last full trading
day on the London Stock Exchange prior to the public announcement of the Merger
Agreement, Alliance stock closed at (Pounds)0.02 ($0.33) per Existing Alliance
Share (equivalent to (Pounds)0.80 ($1.336) per New Alliance Share). At the
request of Alliance, the Existing Alliance Shares have been suspended from
trading since the announcement of the Merger. LaTex Common Stock is traded and
quoted on the Nasdaq SmallCap Market. On August 9, 1996, LaTex Common Stock
closed at $0.41 per share on Nasdaq. On December __, 1996, LaTex Common Stock
closed at $____ on Nasdaq.
LISTING OF ALLIANCE SHARES (SEE PAGE __)
Because Alliance and LaTex believe that the trading market for small
independent oil and gas companies is generally more favorable in London at this
time than in the U.S., Alliance is applying for listing on the London Stock
Exchange of the New Alliance Shares to be issued in connection with the Merger.
Alliance does not intend to list the New Alliance Shares on any United States
stock exchange or the Nasdaq National Market System or SmallCap Market, but
anticipates that the New Alliance Shares may be traded from time to time over
the counter.
SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL AND RESERVE INFORMATION
We are providing the following operating and financial information to aid
you in your analysis of the financial aspects of the Merger.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
This summary historical financial data has been derived from Alliance's and
LaTex's audited financial statements and notes thereto contained elsewhere in
this Proxy Statement and in the LaTex Form 10-K. The summary historical
financial data is qualified in its entirety and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Alliance" on page __, Alliance's Financial Statements" on page F-
1, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Consolidated Financial Statements and Notes" of LaTex included
in the LaTex Form 10-K.
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ALLIANCE
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED APRIL 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
(Restated)
Selected Income Statement Data
Amounts in accordance with UK GAAP
Total Revenues................................. 3,686 1,483 837 631 972
Depletion and depreciation..................... 1,668 14,944 128 278 347
(Loss)from continuing operations
before and after income taxes............... (3,593) (18,213) (1,177) (1,627) (818)
Approximate amounts in accordance with US GAAP
Net (loss) (3,428) (21,641)
(Loss) per Existing Alliance Share (0.7)p (9.6)p
Selected Balance Sheet Information
Amounts in accordance with UK GAAP
Working capital (deficiency)................ 536 (8,215) (1,478) (2,022) (2,364)
Net Property, Plant and Equipment........... 7,311 8,047 14,484 10,594 10,064
Total assets................................ 9,845 9,335 16,334 11,132 10,358
Long-term debt, net of current liabilities.. 92 1,240 925 1,203 -
Total Liabilities........................... 2,090 10,773 4,045 5,068 2,667
Shareholders' equity....................... 7,755 (1,438) 12,289 6,064 7,691
Approximate amounts in accordance with US GAAP
Total Assets 7,582 6,907
</TABLE>
All figures are in U.S. dollars except for per share information.
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LaTex
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED JULY 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
(restated) (in thousands)
Total Revenues ......................... 13,531 10,443 12,085 11,477 7,549
Depletion, depreciation and amortization 4,706 2,711 2,214 2,899 1,724
(Loss) from continuing operations
before income taxes ................... (8,420) (2,456) (423) (329) (462)
Net (loss) from continuing operations... (8,420) (2,491) (423) (190) (303)
Selected Balance Sheet Information
Working capital (deficit)............ (28,420) (7,119) (1,727) (2,117) (10,353)
Net Property, Plant and Equipment.... 31,945 37,709 13,244 12,440 12,304
Total assets......................... 38,966 47,923 21,259 21,246 35,399
Long-term debt, net of current
liabilities....................... 0 20,635 4,467 4,868 2,544
Total liabilities.................... 32,648 31,922 10,979 13,030 32,760
Shareholders' equity................. 6,318 16,001 10,280 8,216 2,639
Pro Forma Combined
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR
THE YEAR
ENDED
April 30, 1996
--------------
<S> <C>
Selected Income Statement Information
Total Revenues....................................... 17,217
Depletion and depreciation........................... (7,050)
(Loss) from continuing operations
before and after income taxes..................... (12,961)
Selected Balance Sheet Information
Working capital (deficiency)......................... (30,657)
Net Property, Plant and Equipment.................... 42,557
Total assets......................................... 51,840
Long-term debt, net of current maturities 92
Total liabilities.................................... 37,238
Shareholders' equity................................. 14,602
</TABLE>
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SUMMARY OIL AND NATURAL GAS RESERVE DATA
The net proved oil and natural gas reserve estimates as of April 30, 1996
with respect to approximately 70% in value of Alliance's properties have been
prepared by Ryder Scott Co., independent petroleum engineers, with the estimates
for the remainder of Alliance's properties having been prepared by internal
engineers. The net proved oil and natural gas reserve estimates as of July 31,
1996, for LaTex have been prepared by Lee Keeling and Associates, Inc.,
independent petroleum engineers. Additional information about Alliance's and
LaTex's oil and natural gas reserves is discussed in "Risk Factors--Uncertainty
of Estimates of Oil and Natural Gas Reserves," "Alliance--Oil and Gas
Properties," Note 11 to the Consolidated Financial Statements of Alliance, and
"Item 1 and Item 2. Business and Properties" and Note 20 to the Consolidated
Financial Statements of LaTex in the LaTex Form 10-K included with this Proxy
Statement.
<TABLE>
<CAPTION>
As of and for the year ended
-------------------------------------
APRIL 30, 1996 JULY 31, 1996
ALLIANCE LATEX
-------- -----
<S> <C> <C>
Estimated Proved Reserves:
Oil (Mbbls)........................ 628 6,353
Natural gas (Mmcf)................. 2,384 28,172
Oil equivalent (MBOE).............. 1,026 11,048
Present value of estimated future
net revenues (thousands)(1)....... 8,897 53,499
Average Oil Price Used............. $22.34 $19.74
Average Gas Price Used............. $2.68 $2.66
Production
Oil (bbls)......................... 125,000 405,000
Natural Gas (Mcf).................. 602,000 3,481,000
</TABLE>
____________________
(1) Determined based on period-end unescalated prices and costs in accordance
with the guidelines of the Securities and Exchange Commission (the "SEC"),
discounted at 10% per annum.
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RISK FACTORS
VOLATILITY OF OIL AND GAS PRICES AND SUPPLIES
The revenues, profitability and future rates of growth of both Alliance and
LaTex are substantially dependent upon the price of, and demand for, oil,
natural gas and natural gas liquids. Historically the markets for oil and
natural gas have been volatile and are likely to continue to be volatile in the
future. Prices for oil and natural gas are subject to wide fluctuations in
response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of additional factors that are
beyond the control of the companies. These factors include the level of consumer
product demand, weather conditions, availability of alternative fuels, political
conditions in the Middle East and other petroleum producing areas, the foreign
supply of oil and natural gas, the price of foreign imports and overall economic
conditions and domestic and foreign government negotiations. It is therefore
impossible to predict future oil and natural gas price movements with any
certainty. Declines in oil and natural gas prices would not only reduce the
company's cash flow, liquidity and profitability, but could also reduce the
combined amount of oil and natural gas that can be produced economically and
could, therefore, have a material adverse effect on the combined company's
financial condition, results of operations and reserves. Although it is the
intention of Alliance management to hedge a substantial portion of the commodity
price risk associated with the combined company's production of oil and natural
gas to achieve some level of constant commodity pricing, the hedging policy for
the combined group has not yet been determined.
The availability of a ready market for oil and natural gas production also
depends on a number of factors, including the demand for and supply of oil and
natural gas and the proximity of reserves to, and the capacity of, oil and
natural gas gathering systems, pipelines or trucking and terminal facilities.
Wells may be temporarily shut in for lack of a market or due to inadequacy or
unavailability of pipeline or gathering system capacity.
NEED TO REPLACE RESERVES
The combined company's future success depends on its ability to find,
develop or acquire additional oil and natural gas reserves that are recoverable
on an attractive economic basis. Unless Alliance successfully replaces the
reserves that it produces (through development, exploration or acquisitions),
its proved reserves will decline. Approximately 29.3% of the combined company's
total proved reserves at July 31, 1996 on a pro forma basis were either proved
undeveloped or proved developed non-producing. Recovery of such reserves will
require significant capital expenditures and successful drilling operations, and
there can be no assurance that Alliance will be successful in its effort to
develop or replace its proved reserves or that Alliance will have success adding
reserves at low finding and development costs. Furthermore, although Alliance's
reserves may increase if oil and natural gas prices increase, Alliance's finding
costs for additional reserves could also increase.
DRILLING AND OPERATING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by Alliance will be productive or that Alliance
will recover all or any portion of its investment. Drilling for oil and natural
gas may involve unprofitable efforts, not only from dry wells but from wells
that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain. In addition, Alliance's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, many of which are beyond Alliance's control, including
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<PAGE>
title problems, weather conditions, compliance with governmental requirements
and shortages or delays in the delivery of equipment and services.
Alliance's operations are subject to all of the risks normally incident to
the operation and development of oil and natural gas properties and the drilling
of oil and natural gas wells, including encountering unexpected formations or
pressures, blow-outs, the release of contaminants into the environment,
cratering and fires, all of which could result in personal injuries, loss of
life, damage to property of Alliance and others, and the imposition of fines and
penalties pursuant to environmental legislation. See "Governmental and
Environmental Regulation." Alliance is not fully insured against all of these
risks, nor are all such risks insurable. Although Alliance maintains liability
insurance in an amount that it considers adequate, the nature of these risks is
such that liabilities could exceed policy limits or, as in the case of
environmental fines and penalties, be uninsurable, in which event Alliance could
incur significant costs that could have a material adverse effect upon its
financial condition. Alliance believes that it has proper procedures in place
and that its operating staff carries out their work in a manner designed to
mitigate these risks.
UNCERTAINTY OF ESTIMATES OF OIL AND NATURAL GAS RESERVES
Estimates of proved developed oil and natural gas reserves and future net
revenues therefrom appearing elsewhere herein are based on reserve reports
prepared by independent petroleum engineers. The estimation of reserves
requires substantial judgment on the part of the petroleum engineers, resulting
in imprecise determinations, particularly with respect to new discoveries.
Different reserve engineers may make different estimates of reserve quantities
and revenues attributable thereto based on the same data. The accuracy of any
reserve estimate depends on the quality of available data as well as engineering
and geological interpretation and judgment. Results of drilling, testing and
production or price changes subsequent to the date of the estimate may result in
revisions to such estimates.
The discounted future net cash flows referred to in this document should
not be construed as the current market value of the estimated oil and natural
gas reserves attributable to either company's properties. In accordance with
applicable requirements of the SEC, the estimated discounted future net cash
flows from proved reserves are generally based on prices and costs as of the
date of the estimate, whereas actual future prices and costs may be materially
higher or lower. Actual future net cash flows will also be affected by factors
such as the amount and timing of actual production, supply and demand for oil
and natural gas, curtailments or increases in consumption by natural gas
purchasers and changes in governmental regulations or taxation. The timing of
actual future net cash flows from proved reserves, and thus their actual present
value, will be affected by the timing of both the production and the incurrence
of expenses in connection with development and production of oil and natural gas
properties. In addition, the 10% discount factor, which is required by the
Securities and Exchange Commission to be used to calculate discounted future net
cash flows for reporting purposes, is not necessarily the most appropriate
discount factor based on interest rates in effect from time to time and risks
associated with either company or the oil and natural gas industry in general.
ACQUISITION RISKS
After the Merger, Alliance intends to pursue acquisition opportunities on
terms management considers favorable. There can be no assurance that suitable
acquisition candidates will be identified in the future, nor that they will be
integrated successfully into Alliance's operations or successful in achieving
desired
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<PAGE>
profitability objectives. In addition, Alliance will compete against other
companies for acquisitions, and there can be no assurance that it will be
successful in the acquisition of any material property interests.
The successful acquisition of producing properties requires an assessment
of recoverable reserves, exploration potential, future oil and natural gas
prices, operating costs, potential environmental and other liabilities and other
factors beyond Alliance's control. In connection with such an assessment,
Alliance will review the subject properties in a manner that it believes to be
generally consistent with industry practices. Nonetheless, the resulting
assessments are necessarily inexact and their accuracy inherently uncertain, and
such a review may not reveal all existing or potential problems, nor will it
necessarily permit a buyer to become sufficiently familiar with the properties
to fully assess their merits and deficiencies. Inspections may not always be
performed on every platform or well, and structural and environmental problems
are not necessarily observable even when an inspection is undertaken.
Additionally, significant acquisitions can change the nature of the
operations and business of Alliance depending upon the character of the acquired
properties, which may be substantially different in operating and geologic
characteristics or geographic location than existing properties. While it is
Alliance's current intent to concentrate on acquiring producing properties with
development and exploration potential, there is no assurance that Alliance will
not pursue acquisitions or properties with differing characteristics.
INTERNATIONAL ACQUISITIONS AND OPERATIONS
Although Alliance's operations are currently conducted in the United
States, it is the intention of management to explore and develop projects both
domestically and internationally. Such international operations are subject to
political, economic and other uncertainties, including, among others, risk of
war, revolution, border disputes, expropriation, renegotiation or modification
of existing contracts, import, export and transportation regulations and
tariffs, taxation policies, including royalty and tax increases and retroactive
tax claims, exchange controls, currency fluctuations and other uncertainties
arising out of foreign government sovereignty over Alliance's potential
operations. Alliance's proposed international operations may also be adversely
affected by laws and policies of the United States affecting foreign trade,
taxation and investment. Furthermore, in the event of a dispute arising from
international operations, Alliance may be subject to the exclusive jurisdiction
of foreign courts or may not be successful in subjecting foreign persons to the
jurisdiction of courts in the United States or Great Britain.
SUBSTANTIAL CAPITAL REQUIREMENTS
In the future, Alliance will require additional funds to develop, maintain
and acquire additional interests in existing or newly-acquired properties.
Historically, Alliance has financed these expenditures primarily with proceeds
from debt and equity financings, cash provided by operating activities, asset
sales and sales of partial interest in international and domestic concessions.
Alliance currently plans to increase capital expenditures from approximately
US$1.7 million in fiscal 1996 to approximately US$2.7 million in fiscal
1997 principally for remedial and developmental capital expenditures for the
combined company's assets in Alabama, Mississippi and Louisiana. Management
believes that, after debt service, it will have sufficient cash provided by
operating activities, availability under the Credit Agreement, as currently
proposed to be amended, and asset sales to fund planned capital expenditures in
1997. There can be no assurance that additional capital will always be available
to Alliance in the future or that it will be available on terms that are
acceptable to Alliance. Should outside capital resources be limited, the rate of
growth would be adversely affected, and there can also be no assurance that
Alliance would be able to increase its oil and natural gas production or oil and
natural gas reserves. If revenues decrease as a result of lower oil and natural
gas prices or otherwise, Alliance may have limited ability to expend the capital
necessary to replace its reserves or to maintain production at current levels,
resulting in a decrease in production over time. Since Alliance is not the
majority owner in all of its oil and gas properties,
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<PAGE>
it may have no control over the timing or amount of capital expenditures
associated with these properties. If Alliance is unable to fund its capital
expenditures, the company's interests in some of its properties may be reduced
or forfeited. If Alliance's cash flow from operations is not sufficient to
satisfy its capital expenditure requirements, there can be no assurance that
additional debt or equity financing, asset sales or sales of partial interests
will be available to meet these requirements.
DEPENDENCE ON KEY PERSONNEL
Alliance believes that its continued success will depend to a significant
extent upon the abilities and continued efforts of its Board of Directors and
its senior management, particularly John A. Keenan, its Managing Director. The
loss of the services from any of its key personnel could have a material adverse
effect on its results of operations. The success of Alliance will also depend,
in part, upon its ability to find, hire and retain additional key management
personnel who are also being sought by other businesses. The inability to find,
hire and retain such personnel could have a material adverse effect upon
Alliance's results of operations. See "Management--Directors and Executive
Officers."
COMPETITION
Alliance operates in a highly competitive environment. It competes with
major integrated and independent energy companies for the acquisition of
desirable oil and natural gas properties, as well as for the equipment and labor
required to develop and operate such properties. Many of these competitors have
financial and other resources substantially greater than those of Alliance. See
"Business and Properties--Competition."
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The production of oil and natural gas is subject to regulation under a wide
range of international and United States federal and state statutes, rules,
orders and regulations. In the United States, state and federal statutes and
regulations require permits for drilling, reworking and recompletion operations,
drilling bonds and reports concerning operations. Most states in which Alliance
will own and operate properties have regulations governing conservation matters,
including provisions for the unitization or pooling of oil and natural gas
properties, the establishment of maximum rates of production from oil and
natural gas wells and the regulation of the spacing, plugging and abandonment of
wells. Many states also restrict production to the market demand for oil and
natural gas and several states have indicated interest in revising applicable
regulations in light of the persistent oversupply and low prices for oil and
natural gas production. These regulations may limit the rate at which oil and
natural gas could otherwise be produced from properties. Some states have also
enacted statutes prescribing ceiling prices for natural gas sold within the
state. See "Business and Properties--Regulations."
Various federal, state and local laws and regulations relating to the
protection of the environment may affect Alliance's operations and costs. In
particular, Alliance's production operations, its salt water disposal operations
and its use of facilities for treating, processing or otherwise handling
hydrocarbons and wastes therefrom are subject to stringent environmental
regulation. Although compliance with these regulations increases the cost of
operations, such compliance has not had a material effect on Alliance's capital
expenditures, earnings or competitive position. Environmental regulations have
historically been subject to frequent change by regulatory authorities and
Alliance is unable to predict the ongoing cost of complying with these laws and
regulations or the future impact of such regulations on its operations. A
significant discharge of hydrocarbons into the environment could, to the extent
such event is not insured, subject Alliance to substantial expense. See
"Business and Properties--Regulations--Environmental Regulations."
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<PAGE>
NO DIVIDENDS
Neither Alliance nor LaTex have paid any dividends on their outstanding
ordinary or common shares, nor does Alliance intend to do so in the foreseeable
future. In addition, Alliance is precluded from paying dividends until such time
as its retained loss is cleared and will further be restricted from paying
dividends under the credit facility it will have with Bank of America after the
Merger. Alliance currently intends to retain its cash for the continued
expansion of its business, including exploration, development and acquisition
activities. The combined company currently intends to retain its cash for the
operation and expansion of its business, including exploration, development and
acquisition activities. The terms of the Credit Agreement also contain
restrictions on the payment of dividends to holders of common stock.
Accordingly, Alliance's ability to pay dividends will depend upon such
restrictions and the company's results of operations, financial condition,
capital requirements and other facts deemed relevant by the Board of Directors.
CREDIT FACILITY COVENANTS AND RESTRICTIONS
LaTex currently owes approximately $19,385,496 under its Credit Agreement
with the Bank of America. The interest rate on the indebtedness is, at the
option of LaTex, either the lending bank's base interest rate plus 1% or up to
2% (based on the principal balance outstanding) over the rate for borrowing
dollars by the lending bank in the London Interbank (LIBOR) market. The
principal must be amortized at the rate of $322,500 per month with the entire
outstanding balance due March 31, 2000. The credit facility is secured by first
mortgages on all of LaTex's oil and gas properties. The Credit Agreement
contains various affirmative and negative covenants including, among others, the
requirements that LaTex maintain certain ratios of current assets to current
liabilities, minimum tangible net worth, restrictions on selling, general and
administrative expenses and the payment of dividends. Material breaches of these
or other covenants which are not cured or waived could result in a default under
the Credit Agreement resulting in this indebtedness becoming immediately due and
payable and empowering the lender to foreclose against the collateral for the
loan. LaTex has been in default under various affirmative and negative covenants
of the Credit Agreement with respect to which the Bank of America has agreed to
not take any action before February 28, 1997.
The current management of Alliance has undertaken negotiations
with the Bank of America to restructure this credit facility, and in this regard
has secured a commitment letter and term sheet for a proposed credit facility
for the combined company. However, there is no guarantee that such restructuring
will result in the combined company's ability to satisfy the requirements of the
proposed credit facility. If the Credit Agreement cannot be refinanced on terms
acceptable to Alliance and the bank, the bank could declare the balance due and
foreclose on LaTex's oil and gas properties. Under such circumstances, the
Merger would not take place and LaTex's shareholders could lose their entire
investment.
DEPENDENCE ON OTHER OPERATORS
With respect to wells not operated by LaTex and Alliance in which they own
a working interest, the independent operators are, in some cases, privately-held
companies which may have limited financial resources. If a third party operator
experiences financial difficulty and fails to pay for materials and services in
a timely manner, the wells operated by such third party operators could be
subject to material and workmen's liens. In such event, the combined company
would occur costs in discharging such liens.
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<PAGE>
FORWARD-LOOKING INFORMATION
All statements other than statements of historical fact contained in this
Proxy Statement, including statements in "Alliance Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Alliance
Business and Properties," or contained in LaTex's Form 10-K, including
statements in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and " Business," generally are accompanied by words such
as "anticipate," "believe," "estimate," "project" or "expect" or similar
statements. Although Alliance and LaTex believe that the expectations reflected
in such forward-looking statements are reasonable, no assurance can be given
that such expectations will prove correct. Factors that could cause actual
results to differ materially from the results discussed in such forward-looking
statements include the risks described under "Risk Factors" above, such as the
fluctuations of the prices received or demand for oil and natural gas, the
uncertainty of drilling results and reserve estimates, operating hazards,
acquisition risks, requirements for capital, general economic conditions, the
competition from other exploration, development and production companies and the
effects of governmental and environmental regulation. All forward-looking
statements in this Proxy Statement and LaTex's Form 10-K are expressly qualified
in their entirety by the cautionary statements in this paragraph.
TRADING MARKETS
The LaTex Common Stock is presently quoted on Nasdaq. Until September 4,
1996, the LaTex Common Stock was also listed on the Pacific Stock Exchange.
Because Alliance and LaTex believe that the trading market for small independent
oil and gas companies is generally more favorable in London than in the U.S. at
this time, Alliance is applying for listing on the London Stock Exchange of the
New Alliance Shares to be issued to LaTex shareholders in the Merger. Alliance
does not intend to list the New Alliance Shares on any U.S. stock exchange or
Nasdaq. Quotations for shares listed on the London Stock Exchange are not
generally readily available in newspapers or other publications in the United
States. However, investors may place orders for the purchase or sale of shares
traded on the London Stock Exchange through most licensed broker dealers in the
United States. As a result, a shareholder may find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, the New Alliance
Shares to be received in the Merger.
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THE MERGER
INTRODUCTION
At the Special Meeting, the shareholders of LaTex will consider and take
action with respect to the Merger Agreement pursuant to which Alliance Resources
(Delaware) Inc., a wholly owned subsidiary of Alliance, will be merged with and
into LaTex. As a result of the Merger, each outstanding LaTex Share (other than
LaTex Shares, if any, held by LaTex in treasury and LaTex Shares held by a
shareholder who has properly exercised his dissent and appraisal rights) will
automatically be canceled and LaTex shareholders will receive New Alliance
Shares at the Conversion Rate. The Board of Directors of LaTex has unanimously
approved the Merger Agreement as being in the best interests of LaTex and its
shareholders and directed that the Merger Agreement be submitted to LaTex's
shareholders for approval.
BACKGROUND OF THE MERGER
John A. Keenan, the chief executive of Alliance, is an attorney who has
been involved in oil and gas transactions and has been an officer of oil and gas
companies in Houston for several years. John Martinson, a director of LaTex, is
also located in Houston and has been involved in numerous transactions with oil
and gas companies. Consequently, Messrs. Keenan and Martinson have had a
business acquaintance for several years. In February 1996, they had a telephone
discussion regarding Mr. Keenan's recent involvement with Alliance, prior to his
appointment as the chief executive, as an advisor and non-executive director.
The telephone conversation consisted mainly of Mr. Keenan's description of the
state of Alliance's operations and the acquisition strategy that the company had
adopted. Mr. Martinson then indicated that LaTex might be interested in a
potential combination with Alliance.
Several phone conversations between Messrs. Keenan and Martinson ensued
regarding a potential combination between Alliance and LaTex which resulted in a
meeting between the two men on March 11, 1996. At the meeting, Mr. Keenan gave
Mr. Martinson an update on Alliance, including some discussion of potential
ventures in the former Soviet Union as well as background on Alliance's largest
shareholder, Trans Arabian Energy Limited ("Trans Arabian"). Both men agreed to
engage in further discussions after briefing management at their respective
companies.
On March 12, 1996, LaTex held a board meeting at which the possibility of a
merger with Alliance was discussed. This was followed by a meeting in Houston on
March 17, 1996 by and among Mr. Keenan, Mr. Martinson and Jeffrey T. Wilson, the
Chairman and CEO of LaTex. The meeting was general in nature and included
discussions of both companies and the relative merits of a combination. Mr.
Keenan related that he would discuss a potential combination with Rothschild
Natural Resources, L.L.C. ("Rothschild"), financial advisers to Alliance, and
Messrs. Martinson and Wilson agreed to discuss same with Bank of America,
LaTex's principal lender. Subsequent discussions with those parties elicited
positive responses, which led to a meeting in LaTex's offices in Tulsa, Oklahoma
on April 9, 1996, where Mr. Keenan met with the members of LaTex Board of
Directors and senior management.
This meeting led to the Board of LaTex agreeing to allow Mr. Wilson to
enter into formal discussions with Alliance regarding a merger of the two
companies. Over the next several weeks, several telephone conversations between
Messrs. Keenan, Wilson and Martinson progressed discussions.
On April 23, 1996, a conference call involving Messrs. Keenan, Martinson
and Wilson led to a list of key issues being agreed. At this time, LaTex drafted
a letter of intent which was circulated internally for discussion purposes.
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Mr. Martinson met Mr. Keenan and Mr. Christopher Samuelson, a non-executive
director of Alliance, on April 26, 1996, to discuss the potential merger of
LaTex and Alliance. Mr. Samuelson indicated a desire to proceed with
discussions whereupon, by a memorandum dated May 1, 1996, Mr. Martinson
recommended a merger with Alliance to fellow board members of LaTex.
On May 6th, Mr. Martinson held separate discussions with Mr. Keenan and Mr.
Wilson concerning the merger, which culminated in a decision by Mr. Wilson and
Mr. Philip Wade, an outside director and significant shareholder of LaTex, to
travel to London the week of May 22, 1996, to discuss the potential merger
between Alliance and LaTex and to meet members of Alliance's board.
Prior to arrival in London, Mr. Keenan held telephone conversations with
Mr. Wilson and Mr. Martinson and a list of discussion items was agreed as well
as an agenda. On May 22nd, Messrs. Wilson and Wade arrived in London and
meetings were held regarding the method of the merger, advisors, regulatory
requirements and general structuring.
Meetings were held all day on May 23rd, culminating in a negotiating
session wherein the percentage ownership terms were discussed as well as other
major terms. The parties agreed to hold further meetings with their respective
Boards of Directors to explore the discussions and agreed that Mr. Keenan and
Mr. Wilson would determine the next steps, if any.
On June 3rd, the members of the LaTex Board of Directors discussed the
transaction by telephone which led to the transmittal of a letter of intent from
LaTex to Alliance on June 4th. The LaTex Board of Directors also discussed the
continued engagement of Wood Roberts as its financial advisor in connection with
the discussions and any transaction. On June 6th, Mr. Martinson and Mr. Keenan
met in London and held discussions on the letter of intent. Further discussions
among the parties took place over the next week leading to a meeting on June 17,
1996 in London among Messrs. Martinson, Keenan and Mr. Michael Humphries of
Rothschild. All facets of the proposed merger were discussed. Mr. Wilson was
briefed by Mr. Martinson following the meeting.
Various meetings in London followed over the next week concerning the
details of the proposed merger which led to a revised draft letter of intent
from LaTex to Alliance dated June 24, 1996. On June 25th, Alliance forwarded a
revised form of a draft letter of intent to LaTex which led to further
discussions by the parties. A revised letter of intent dated June 28, 1996, was
executed by both parties.
During July, both companies conducted due diligence activities and
negotiations concerning the definitive merger agreement. On July 31, 1996, the
Board of Directors of LaTex met to review the status of the merger discussions,
review and approve the sale of assets excluded from the Merger and request a
fairness opinion from Wood Roberts. This culminated with a meeting of the LaTex
Board of Directors on August 9, 1996, at which time, after receiving a report
from Wood Roberts concerning the fairness of the Merger from a financial point
of view to the shareholders of LaTex (included in Appendix C), the LaTex board
unanimously resolved to accept the Merger Agreement as previously negotiated. On
August 12, 1996, the parties executed the Merger Agreement.
As originally executed, the Merger Agreement provided that certain actions
were to take place before September 15, 1996. On September 16, 1996, both
companies executed a letter agreement providing that those actions could take
place at any time before September 27, 1996. The Merger Agreement also contained
a condition to closing that Alliance deliver to LaTex an opinion of counsel that
the Merger would not result in the shareholders of LaTex recognizing taxable
income or loss as a result of the Merger. If Alliance were to be unable to
deliver such an opinion, it could elect at its option to restructure the Merger
so that LaTex would be the surviving entity and the existing shareholders of
Alliance would receive shares of LaTex
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Common Stock in exchange for the Existing Alliance Shares in an amount that
would result in the same percentage ownership of the resulting entity as in the
Merger. After execution of the Merger Agreement, Alliance determined that it
would in fact not be able to deliver the indicated tax opinion. In addition,
after further discussions, the Boards of Directors of both parties concluded
that, in the opinion of each, the New Alliance Shares to be issued in the Merger
would be likely to trade at a more attractive price on the London Stock Exchange
than on a U.S. market and that the shares of a U.K. public limited company would
be likely to trade at a more attractive price on the London Stock Exchange than
the shares of a U.S. corporation. Therefore, the parties agreed to amend the
Merger Agreement to eliminate the condition regarding the delivery of the tax
opinion. This amendment was executed effective September 27, 1996.
REASONS FOR THE MERGER
In considering the merits of a potential merger with Alliance, the LaTex
Board of Directors considered a number of factors and issues, including: (1) the
financial condition of both LaTex and Alliance; (2) the strategic aspects of a
merger with Alliance; (3) management's unsuccessful attempts to secure
additional debt and or equity financing; (4) management's prior discussions with
other potential merger candidates; (5) the stock market implications to LaTex
shareholders; (6) the tax consequences to LaTex shareholders; (7) the social
issues with respect to LaTex's management and staff and (8) the relationship
between Alliance and its principal shareholder.
As a result of the continued working capital deficit of LaTex and the
impact of the limitations contained in its Credit Agreement with its principal
lender on LaTex's ability to manage its vendor and royalty deficiencies through
normal methods, LaTex had been seeking the infusion of additional equity or, in
the alternative, a merger or sale. Despite numerous initiatives on the part of
LaTex and its principal advisor at the time, Rauscher, Pierce and Clark, no firm
commitments were received, which in the opinion of the Board, were in the
interest of LaTex's shareholders. The continued weakness in the share price of
LaTex Common Stock in relation to management's perceived value of LaTex's
operations and assets precluded a traditional equity offering of LaTex's common
stock to raise capital. Management believed that in order to alleviate LaTex's
working capital deficit and, in turn, allow for the refinancing of its debt,
LaTex would require a minimum of $3.0 million in new equity with a high
likelihood that as much as $5.0 million might be required.
LaTex had participated in numerous discussions regarding the desirability
of additional debt and equity financing to resolve its working capital deficit.
The primary impetus behind LaTex's retention of Rauscher, Pierce and Clark as an
investment advisor was to effect an equity or debt placement. Unfortunately, the
share price of LaTex's Common Stock remained below LaTex's perceived value of
its underlying assets. As a result, the Board of Directors of LaTex believed
that the types of debt and equity placements which were available to LaTex were
at values that would be dilutive to its shareholders.
In considering the financial condition of Alliance and its suitability as a
merger partner, LaTex evaluated the oil and gas assets of Alliance, including
computations of future cash flow, reviewed the public filings of Alliance to
determine its working capital position and assessed the likely impact of
Alliance's legal action against its former chief executive. Based on its
internal evaluation, LaTex determined that Alliance had sufficient value in its
oil and gas properties and cash, that if liquidated, would exceed $5.0 million
and thereby be a solution to LaTex's working capital deficit. In addition, LaTex
determined that Alliance's actions against its former chief executive would
require resolution prior to the execution of a merger agreement between the
companies.
The ability of LaTex to execute its strategy of acquiring additional oil
and gas assets had been hampered as a result of its financial condition and
limitations in its Credit Agreement. Based on LaTex's review of Alliance and the
improved financial condition of LaTex after the Merger, which would allow
refinancing of its senior debt, the Board of Directors of LaTex viewed the
potential Merger with Alliance as a strategic step to allow LaTex to become
active again in the acquisition and exploitation of oil and gas properties.
Additionally, because of LaTex's historical attempts to access and participate
in significant international ventures and because of Alliance's intentions to
pursue such ventures, the Board of Directors of LaTex deemed the overall
strategies of the companies to be consistent.
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Management participated in meetings or discussions with six companies other
than Alliance in seeking a merger partner. Only one of those initiatives
resulted in a written offer, which was rejected by management as being
insufficient and substantially below the proposed value of the Merger. In its
efforts to attract new financing, LaTex had received one written offer which
would have required LaTex to issue LaTex Common Stock equal to about 20% of the
equity of LaTex in consideration of a $3-5 million loan to be used for
development operations. LaTex's management and Board rejected the offer as too
dilutive to the shareholders. As a result of these efforts, a merger with
Alliance emerged as the best alternative available to LaTex.
Because the share price of LaTex's Common Stock remained at and around
$0.50 per share and as a result of the terms of the proposed merger with
Alliance whereby the common shareholders would receive 0.8806 of a share of
Alliance which, after giving effect to its reverse split, was trading on the
London Stock Market at $1.24 per share, the Board viewed the exchange of shares
with Alliance as likely to result in an increase in the share value of the
combined company. The conclusion of the LaTex Board was that, within the limits
of the information and analysis that was made, it appeared that LaTex could
reasonably expect a higher share price on the London Stock Exchange than on
Nasdaq.
While the LaTex Board acknowledged the potential for an increased cost to
its shareholders and a likelihood that initially certain of its shareholders may
find it more difficult to both follow and trade the combined company's stock on
the London Stock Exchange, the LaTex Board deemed the likelihood of a
significant share price increase and the financial and strategic benefits of the
Merger as more important. Of equal importance to the Board was the consideration
of market support for the combined company after completion of the Merger.
Initially, the LaTex Board had included as a condition of the Merger that
the transaction be tax-free to LaTex's shareholders. However, after it became
apparent that Alliance would be unable to accomplish a tax-free structure in the
time available, the Latex Board re-evaluated its position. After reviewing the
tax implication of the Merger and discussions with its own advisors, the LaTex
Board determined that the taxable nature of the transaction would likely affect
two groups of its shareholders most: (i) insiders and (ii) shareholders who have
purchased the stock at its present price. Although the preferred position of the
Board was to effect a tax-free transaction, it was determined that the personal
tax considerations of these groups of shareholders could not be known with
certainty, and that the financial and strategic considerations for LaTex were
significant enough to proceed with the Merger under a taxable structure.
Because Trans Arabian had recently acquired a significant position in
Alliance and had obtained two of eight board seats, management of LaTex
investigated the potential motives and ramifications of Trans Arabian's
involvement. Alliance had suggested that in the future it may consider acquiring
assets from corporations affiliated with Trans Arabian. LaTex's major concern
was to ensure that any future transactions with related parties would occur for
value and in a manner deemed appropriate. After reviewing the corporate
governance requirements for companies domiciled in the UK and, after discussions
with members of the Board of Alliance nominated by
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Trans Arabian, LaTex determined that these issues could best be resolved by
requiring equal representation on Alliance's Board with the Trans Arabian group.
As a result, LaTex included as a condition of the Merger, the expansion of the
Alliance Board to ten members and the nomination of Messrs. Wilson and Martinson
to the Board of Alliance.
As a result of the limited staff of Alliance, LaTex viewed Alliance as a
preferable merger partner when considering the livelihood of its employees.
LaTex's staff has been proficient at its core business through the years and the
Board deemed its preservation as an important benefit to the Merger and future
growth of LaTex. In addition, Mr. Wilson agreed to enter into a consulting
agreement concurrent with the Merger to provide a minimum of six months of
transition and to assist the combined company in the acquisition of oil and gas
properties.
OPINION OF LATEX'S FINANCIAL ADVISOR
Wood Roberts was engaged by LaTex to examine the terms of the proposed
Merger and to render an opinion as to the fairness of such terms from a
financial stand point to the shareholders of LaTex. On August 8, 1996, Wood
Roberts delivered its written opinion, along with related documentation, to the
Board of Directors of LaTex to the effect that the terms of the proposed Merger
were fair from a financial standpoint to the shareholders of LaTex.
On September 30, 1996, LaTex asked Wood Roberts to examine the proposed
amendment to the terms of the Merger whereby the exchange of LaTex Shares and
warrants for Alliance shares and warrants ceased to be a tax-free
reorganization, and to render an opinion as to the fairness of such amendment
from a financial standpoint to the shareholders of LaTex. On October 1, 1996,
Wood Roberts delivered its second written opinion, along with related
documentation, to the Board of Directors of LaTex to the effect that the amended
terms of the proposed Merger remained fair from a financial standpoint to the
shareholders of LaTex.
The text of the written opinions, which set forth the assumptions made,
matters considered, limitations to and scope of the review undertaken by Wood
Roberts in rendering its opinions are attached as Appendix C to this Proxy
Statement and are incorporated herein by reference.
In arriving at its opinions, Wood Roberts reviewed the Merger Agreement and
the amendment thereto, information provided by the management of LaTex and
Alliance and by certain of their professional advisors, as well as information
in the public domain. In addition, Wood Roberts met with the management of LaTex
and Alliance to discuss the historical and current business of each company,
their prospects as stand-alone entities and the potential short-term and medium-
term strategic and financial benefits of the proposed Merger.
Wood Roberts' review of the terms of the Merger was undertaken with
reference to, among other things: the relative net asset value, financial
condition and debt ratios; earnings, cash flow and ability to develop or re-work
assets of both LaTex and Alliance; and the pro forma financial position of the
merged company and its ability to obtain debt or equity funding. Wood Roberts
analyzed certain financial, industry and market-related information and data and
examined data indicative of the relative merits of LaTex shareholders exchanging
their shares for shares listed for trading on the London Stock Exchange. Wood
Roberts was not asked to undertake an independent analysis of comparable
transactions but reviewed certain published data in this regard.
In rendering its opinions, Wood Roberts did not independently verify any of
the foregoing information and, in using such information in its review of the
Merger, relied upon it being complete and accurate in all material respects.
Furthermore, Wood Roberts assumed that the appropriate regulatory and
governmental approvals to the Merger would be forthcoming and that no
restriction would be imposed that would have a
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material adverse effect on the contemplated benefits of the Merger. Wood Roberts
was not asked to examine in detail the terms of the disposal of certain assets
of LaTex.
Wood Roberts rendered its opinions on the basis of its knowledge of the
circumstances disclosed to it as of the date of the opinions.
Analysis of Exchange Ratio (Relative Contribution Analysis). Wood Roberts
performed a relative contribution analysis to examine the relationship between
the percentage ownership of the combined company that the shareholders of LaTex
and the shareholders of Alliance would have following the Merger. In making
this analysis, Wood Roberts considered (i) the percentage of the merged
company's outstanding stock that the shareholders of each of LaTex and Alliance
would hold following the Merger, (ii) the relative reserve values of each
company, adjusted by Wood Roberts to the extent it deemed appropriate, and (iii)
the net asset value of each company, taking into account bank debt and payables.
Based on this analysis, Wood Roberts calculated that LaTex was contributing
71.67% of the pro forma assets of the combined company. Under the terms of the
Merger, LaTex shareholders will receive 72% of the stock in the combined
company.
Comparable Public Company Analysis in Relation to Valuation on the London
Stock Exchange. Wood Roberts also compared certain financial results and assets
of LaTex, Alliance and selected companies whose shares are traded on the London
Stock Exchange and that LaTex and Wood Roberts deemed to possess certain
characteristics similar to those the combined company would have (the
"Comparable Public Companies"). The Comparable Public Companies selected by
LaTex included Great Western Resources Inc., Aminex PLC, Aviva Petroleum Inc.,
Dominion Energy PLC, Tuskar Resources PLC and United Energy PLC.
The primary purpose of this analysis was to assess the public market
valuations of the Comparable Public Companies on the London Stock Exchange
relative to the current public market valuation of LaTex on Nasdaq and, on the
same basis, to estimate an indicated value for the shares of the combined
company. The two primary ratios used in this comparison were net assets and
revenues relative to share price. Based on this analysis, Wood Roberts
calculated an approximate indicated value of the shares of the combined company
on the London Stock Exchange of $1.11 to $1.22 per share, compared to a pro
forma net asset value calculated by Wood Roberts of approximately $1.41 per
share. Wood Roberts stated that such indicated value is not a forecasting tool
as the actual price at which the shares will trade will depend upon many
factors.
Other Matters. Certain other matters were considered by Wood Roberts in
rendering its opinion that the terms of the Merger were fair to the shareholders
of LaTex. These additional matters included, but were not limited to, the
determination by Wood Roberts that it was more likely than not: (i) that the
Merger would improve the ability of the combined company to refinance the
current LaTex bank debt and payables; (ii) that the liquidity of and market for
the shares of the merged company on the London Stock Exchange would be greater
than they currently are for LaTex shares; (iii) that, in the absence of the
Merger, LaTex would be unable to raise new equity capital without significant
dilution to the LaTex shareholders at a price that reflects the asset value of
LaTex; (iv) that the management would be stronger as a result of the Merger; and
(v) that the Merger would increase the ability of the LaTex shareholders to
benefit from growth by acquisition. There is no assurance that any of these
results will actually occur. These determinations were made by Wood Roberts
solely for the purpose of analyzing the financial terms of the Merger.
The summary set forth above is not a complete description of Wood Roberts'
analysis of the terms of the Merger or consideration of the fairness of such
terms to the shareholders of LaTex. Such analysis included the consideration of
many factors and assumptions with respect to the energy industry as a whole,
general business and economic conditions, the subjective market valuations
placed on the stock of companies traded on the London Stock Exchange and other
matters, many of which are or may be beyond the control of the combined company
and its management.
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Estimates made by Wood Roberts in its opinions are not necessarily
indicative of actual values and share prices imputed by the analysis performed
by Wood Roberts may not necessarily reflect the actual price placed upon the
shares of the merged company. As such analysis and estimates are inherently
subject to uncertainty, none of Wood Roberts, LaTex or Alliance assume
responsibility for their accuracy.
Wood Roberts is an investment banking firm and as part of its investment
banking business is regularly engaged in the valuation of businesses and
securities in connection with mergers, acquisitions and other corporate
relationships. LaTex selected Wood Roberts to render a fairness opinion in
connection with the Merger because of Wood Roberts' expertise in the oil and gas
industry and its experience in transactions similar to the Merger, as well as
Wood Roberts' prior relationship and familiarity with LaTex. From time to time,
since August 1994, Wood Roberts has provided investment banking services to
LaTex and has acted as financial adviser in matters unrelated to the Merger.
Wood Roberts has received customary compensation for such services. As
compensation for rendering the fairness opinion and for other services in
connection with the Merger, LaTex has agreed to pay Wood Roberts a fee of
$240,000. LaTex has also agreed to reimburse Wood Roberts for its reasonable
expenses in relation to its services and to indemnify Wood Roberts for any
liability arising from its engagement as financial advisor to LaTex.
John R. Martinson, a director of LaTex, is a principal of Wood Roberts and
will be a director of Alliance after the Merger. Mr. Martinson excused himself
from consideration of the terms of the Merger for the purpose of the fairness
opinion.
TERMS OF THE MERGER
General. The detailed terms and conditions of the Merger are contained or
described in the Merger Agreement, which is included in this Proxy Statement as
Appendix B. The Merger Agreement sets forth the representations and warranties
of the parties, certain agreements between the parties pending the Merger, the
conditions precedent to the Merger, the terms of the Merger, the method of
effecting the Merger, the manner of converting LaTex's Shares into New Alliance
Shares and certain other provisions. The statements made in this Proxy Statement
with respect to the terms of the Merger are qualified in their entirety by, and
made subject to, the more complete information contained in the Merger
Agreement.
The Merger Agreement was entered into between LaTex and Alliance on August
12, 1996. Pursuant to the terms of the Merger Agreement, LaTex will acquire
Alliance through the merger of Alliance into LaTex.
The Merger. Under the DGCL, the affirmative vote of the holders of a
majority of the outstanding shares of LaTex's Common Stock is required to
approve and adopt the Merger Agreement.
The Merger is also subject to certain conditions, some of which are beyond
the control of any of the parties to the Merger Agreement. See "Conditions to
the Merger." Consequently, there can be no assurance that the Merger will take
place, even though the Merger Agreement contains the agreement of each of the
parties thereto to use their best efforts to complete the Merger.
Immediately after approval and adoption of the Merger Agreement by the
requisite votes of LaTex's and Alliance's shareholders and the satisfaction or
waiver of the conditions to the Merger described below, the parties will conduct
a closing for purposes of executing and delivering such documents and
certificates as may be required under the Merger Agreement (the date of such
closing being referred to hereinafter as the "Closing Date"). The Merger will
become effective upon the filing of a Certificate of Merger with the Secretary
of State of the State of Delaware (the "Effective Time of the Merger"). It is
presently contemplated
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that the Effective Time of the Merger will, subject to the terms and conditions
of the Merger Agreement, occur either the same day as the Special Meeting or the
following business day. At and after the Effective Time of the Merger, the
surviving company will be a wholly owned subsidiary of Alliance.
At the Effective Time of the Merger, by virtue of the Merger and without
any further action on the part of the holder thereof, each then outstanding
LaTex Share (other than LaTex Shares, if any, held by LaTex in treasury and
shares held by a shareholder who has properly exercised his dissent and
appraisal rights) will automatically be canceled and LaTex shareholders will
receive New Alliance Shares at the Conversion Rate. Each LaTex Share held by
LaTex in treasury will be canceled. No fractional New Alliance Shares will be
issued in connection with the Merger. Instead, LaTex shareholders will receive
cash in payment for any fractional shares based on the middle market quotation
(as derived from the Daily Official List of the London Stock Exchange) of the
New Alliance Shares on August 9, 1996, being the date prior to the announcement
in London of the Merger. The surrender of certificates representing LaTex's
stock for certificates representing New Alliance Shares will be effected
pursuant to documents that will be sent to shareholders as promptly as
practicable after the Effective Time of the Merger. See "Exchange of
Certificates."
Conversion Rate. If the Merger Agreement is approved and the Merger is
completed, each holder of LaTex Shares will be entitled to receive the number of
New Alliance Shares determined by multiplying the number of LaTex Shares held by
the holder by the Conversion Rate. The Conversion Rate will be 0.8806 of a New
Alliance Share for each share of LaTex Common Stock, 2.6445 New Alliance Shares
for each share of LaTex Series A Stock, 5.8709 New Alliance Shares for each
share of LaTex Series B Stock, and a New Warrant to subscribe 0.8806 of a New
Alliance Share for each share of LaTex Common Stock subject to warrants issued
by LaTex.
Conduct of Business Prior to the Merger. Both parties have agreed in the
Merger Agreement that, from the date of the Merger Agreement until the Effective
Time of the Merger, except as expressly contemplated by the Merger Agreement,
each will carry on business in the usual, regular and ordinary course in
substantially the same manner as previously conducted and use all reasonable
efforts to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and key employees, (iii) preserve
its relationships with customers, suppliers and any others having business
dealings with them, and (iv) comply with all laws applicable to them and their
respective properties, operations, business and employees that if not complied
with would result in a material adverse effect to the party. In particular, the
Merger Agreement provides that, prior to the Effective Time of the Merger,
unless consented to by the other party, neither party will (a) engage in any of
certain restricted acts set forth in the Merger Agreement, (b) enter into any
transaction other than in the ordinary course of business, or (c) amend its
respective organizational or governing documents.
Conditions to the Merger. The obligation of LaTex to consummate the Merger
is subject to the following: (i) the shareholders of Alliance shall have
approved the Merger, the issue of the New Alliance Shares and the 40-to-1
reverse stock split of the Existing Alliance Shares; (ii) all of the terms,
covenants and conditions of the Merger Agreement to be complied with or
performed by Alliance at or before the Effective Time of the Merger shall have
been complied with and performed in all material respects; (iii) all
representations and warranties of Alliance in the Merger Agreement shall be true
in all material respects as of the Effective Time of the Merger and LaTex shall
have received a certificate to that effect; (iv) all consents, waivers,
approvals, licenses, authorizations of, or filings or declarations with third
parties or governmental entities required to be obtained by Alliance in order to
permit the Merger to be consummated in accordance with governmental laws, rules,
regulations and agreements shall have been obtained; (v) LaTex shall have
received the opinion from counsel to Alliance with respect to various aspects of
Alliance; (vi) all actions, proceedings, instruments and documents in connection
with the Merger shall have been approved in form and substance by counsel to
LaTex; (vii) Alliance shall have furnished such certificates of its officers and
others to evidence compliance with the conditions of the Merger, as may be
reasonably requested by LaTex or its
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counsel; (viii) there shall not have been any material loss resulting from
destruction of the assets of the Alliance due to acts of God, fire, explosion or
other casualty which is not reimbursable in all material respects under policies
of insurance maintained by or for the benefit of Alliance; (ix) no material
information or data provided or made available to LaTex by or on behalf of
Alliance shall be incorrect in any material respect; and (x) the New Alliance
Shares to be issued pursuant to the Merger shall have been approved for listing
on the London Stock Exchange and the listing shall have become effective in
accordance with the listing rules of the London Stock Exchange.
The obligation of Alliance to consummate the Merger is subject to the
following: (i) holders of LaTex's common stock shall have approved the Merger;
(ii) all of the terms, covenants and conditions of the Merger Agreement to be
complied with or performed by LaTex at or before the Effective Time of the
Merger shall have been complied with and performed in all material respects;
(iii) all representations and warranties of LaTex set forth in the Merger
Agreement shall be true in all material respects as of the Effective Time of the
Merger and Alliance shall have received a certificate to such effect; (iv) all
consents, waivers, approvals, licenses, authorizations of, or filings or
declarations with third parties or governmental entities required to be obtained
by LaTex in order to permit the transactions contemplated by the Merger
Agreement to be consummated in accordance with governmental laws, rules,
regulations and agreements shall have been obtained; (v) LaTex shall have
delivered to Alliance an agreement executed by each of LaTex's Affiliates
regarding his or its investment in the Alliance Shares; (vi) Alliance shall have
received the opinion of counsel to LaTex with respect to various aspects of
LaTex; (vii) the aggregate number of each class of LaTex's stock held by LaTex's
shareholders who have delivered and not withdrawn a written demand for appraisal
of their shares shall not exceed five percent of that class of capital stock
outstanding and entitled to vote at the meeting of LaTex's shareholders; (viii)
all actions, proceedings, instruments and documents in connection with the
completion of the Merger shall have been approved in form and substance by
counsel to Alliance; (ix) LaTex shall have furnished such certificates to
evidence compliance with the conditions set forth in the Merger Agreement as may
be reasonably requested by Alliance or its counsel; (x) there shall not have
been any material loss resulting from destruction of the assets of LaTex due to
acts of God, fire, explosion or other casualty which is not reimbursable in all
material respects under policies of insurance maintained by or for the benefit
of LaTex; (xi) no material information or data provided or made available to
Alliance by or on behalf of LaTex shall be incorrect in any material respect;
(xiii) LaTex shall have sold or otherwise disposed of its interests in certain
entities; and (xiv) the New Alliance Shares to be issued to LaTex's shareholders
pursuant to the Merger shall have been approved for listing on the London Stock
Exchange and the listing shall have become effective in accordance with the
listing rules of the London Stock Exchange.
Termination. Notwithstanding approval of the Merger by LaTex's
shareholders, the Merger Agreement may be terminated at any time prior to the
Effective Time of the Merger by the mutual written consent authorized by the
Boards of Directors of LaTex and Alliance. In addition, the Merger Agreement may
be terminated by either party if the Merger is not completed by February 28,
1997. The Merger Agreement may also be terminated by Alliance prior to the
Effective Time of the Merger if (i) any representation, warranty or covenant
made in the Merger Agreement for the benefit of Alliance is untrue in any
material respect and such breach is not cured within ten days of notice thereof;
(ii) all of the conditions to Alliance's obligation to complete the Merger shall
not have satisfied or waived by Alliance prior to the Closing Date; or (iii)
completion of the Merger would violate any nonappealable final order, decree or
judgment of any court or governmental body having competent jurisdiction. The
Merger Agreement may be terminated by LaTex if (i) Alliance has materially
breached the representations and warranties contained in the Merger Agreement or
has failed to comply in any material respect with its covenants and agreements
set forth in the Merger Agreement and Alliance shall not have cured such breach
or failure within 10 business days of receipt of notice thereof from LaTex, (ii)
all of the conditions to LaTex's obligation to complete the Merger shall have
not been satisfied or waived by LaTex prior to the Closing Date; or (iii)
completion of the Merger would violate any
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nonappealable final order, decree or judgment of any court or governmental body
having competent jurisdiction.
No Solicitation Covenants. LaTex and Alliance have entered into certain
mutual covenants and agreements in the Merger Agreement, including covenants
that provide that neither party will (and will cause each of the executive
officers, directors, employees, representatives or agents not to) directly or
indirectly solicit, initiate or knowingly encourage the initiation of inquiries
or proposals from, or provide any confidential information to, or enter into any
agreement with any person or entity concerning any sale of their assets or
shares of capital stock or any merger, consolidation, business combination,
liquidation or similar transaction involving the respective company. However, if
either company receives an unsolicited offer from a third party that, in the
exercise of its fiduciary duty after consideration of advice from its legal and
financial advisors, the Board of Directors of the company determines is likely
to be more beneficial to its shareholders than the Merger, the respective Board
of Directors may respond to the offer, but will promptly communicate to the
other party to the Merger the terms of any proposal that it may receive in
respect of any such transaction and will keep the other party informed as to the
status of any actions, including negotiations or discussions.
EFFECTIVE TIME OF THE MERGER
It is currently anticipated that if all conditions to the Merger are
satisfied or waived by that time, the Effective Time of the Merger will occur on
either the same day as the Special Meeting or the following business day.
EXCHANGE OF CERTIFICATES
At and after the Effective Time of the Merger, no transfer of LaTex Shares
outstanding prior to the Effective Time of the Merger will be made on the stock
transfer books of LaTex. As soon as practicable after the Effective Time of the
Merger, a letter of transmittal (the "Letter of Transmittal") will be mailed to
all holders of record of the LaTex Shares at the close of business on the date
of the Effective Time of the Merger to be used by such holders in surrendering
to the transfer agent of Alliance (the "Transfer Agent") certificates that,
prior to the Merger, represented LaTex Shares. The Letter of Transmittal will
contain instructions concerning the surrender of such certificates.
CERTIFICATES FOR LATEX SHARES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL IS RECEIVED BY THE SHAREHOLDER.
Following the surrender of certificates formerly representing LaTex Shares,
shareholders will receive in exchange therefor certificates representing the
whole number of New Alliance Shares to which the holder is entitled. After the
Effective Time of the Merger and until so surrendered, each certificate that
prior to the Effective Time of the Merger represented outstanding LaTex Shares
shall be deemed for all corporate purposes to represent and evidence ownership
of the proportional number of New Alliance Shares, except that no dividends or
other distributions payable by Alliance will be paid with respect to such
certificates and no voting rights will accrue to the holders thereof until
surrendered. Such dividends and distributions, if any, will be accumulated and,
at the time of such surrender, all such unpaid dividends or distributions will
be paid, without interest. If a certificate for New Alliance Shares is to be
issued to a person other than the person in whose name the certificates
representing LaTex Shares is registered, it will be a condition of exchange that
the LaTex Shares certificate so surrendered be properly endorsed or otherwise in
proper form for transfer and that the person requesting the exchange will pay
any transfer or other taxes required by reason of the issuance of the Alliance
certificate to a person other than the registered holder of the LaTex
certificate surrendered or establish to the satisfaction of Alliance that such
tax has been paid or is not applicable. The Transfer Agent will issue
certificates representing New Alliance Shares attributable to any certificate
that has been lost or
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destroyed only upon receipt of satisfactory evidence of ownership of the shares
represented thereby and after appropriate indemnification.
REGISTRATION AND RESALE
Pursuant to the Registration Statement of which this Proxy Statement is a
part, Alliance has registered under the Securities Act of 1933, as amended, and
the rules and regulations thereunder (the "Act") the 21,448,520 New Alliance
Shares to be issued in the Merger and New Warrants to be issued by Alliance in
the Merger to replace currently outstanding warrants issued by LaTex, together
with 2,672,496 New Alliance Shares issuable on exercise of the New Warrants.
This Proxy Statement may be used in connection with the following
transactions:
(i) the issuance by Alliance of 21,448,520 New Alliance Shares in
connection with the Merger, and the resale of any of such Shares by any
person who may be deemed to be an underwriter thereof;
(ii) the issuance of the New Warrants by Alliance in the Merger to
replace currently outstanding warrants issued by LaTex, and the resale of
any of such New Warrants by any person who may be deemed to be an
underwriter thereof; and
(iii) the issuance by Alliance of up to 2,672,496 New Alliance Shares
issuable on exercise of the New Warrants.
In connection with any resales or transfers of any of the New Alliance
Shares or New Warrants by any person who may be deemed to be an underwriter of
such securities, such person will be obligated to provide to the purchaser or
transferee a copy of the Proxy Statement containing current information with
respect to Alliance and all of the matters described herein and will be subject
to all of the provisions of the Act which relate to statutory underwriters.
Alliance is not aware that, except as otherwise disclosed in this Proxy
Statement, any of such persons has, as of the date hereof, a specific plan for
the sale, transfer or other distribution of any of such securities. Such sales,
transfers or other distributions may, from time to time, include sales in any
market for such securities, including the London Stock Exchange, privately
negotiated transactions or transactions executed with or through the facilities
of one or more brokers or dealers.
REGULATORY MATTERS
No federal, state or other regulatory approvals are required to be
obtained, nor any regulatory requirements complied with, by any party to the
Merger Agreement, except for the requirements of the DGCL in connection with the
approval of LaTex's shareholders and completion of the Merger, and the
requirements of applicable federal and state securities laws.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER.
In the Merger Agreement, the parties agreed that, as a condition to the
Merger, Alliance would enter into an agreement with Jeffrey T. Wilson, Chairman
and President of LaTex, satisfactory to both parties, pursuant to which Mr.
Wilson will provide certain consulting services to Alliance relating to
acquisitions in the energy industry for Alliance subsequent to the Merger.
Alliance and Mr. Wilson have tentatively agreed that the consulting agreement
will be for a period of six months, will provide for a monthly fee to Mr. Wilson
of $10,000 and will permit Mr. Wilson to invest on the same terms as Alliance
may invest in any transactions presented to Alliance by Mr. Wilson.
As compensation for rendering the fairness opinion and for other services
in connection with the Merger, LaTex has agreed to pay Wood Roberts a fee of
$240,000 upon completion of the Merger. LaTex has also agreed to reimburse Wood
Roberts for its reasonable expenses in relation to its services and to indemnify
Wood Roberts for any liability arising from its engagement as financial advisor
to LaTex. John R. Martinson, a director of LaTex, is a principal of Wood Roberts
and will be a director of Alliance after the Merger. Mr. Martinson recused
himself from consideration of the terms of the Merger for the purpose of the
opinion.
ACCOUNTING TREATMENT
LaTex expects the Merger will be treated as a purchase for accounting and
financial reporting purposes. Because LaTex is the larger company, this means
that the transaction will be treated as if LaTex had acquired and assumed the
operations of Alliance on the Effective Time of the Merger.
SUMMARY COMPARISON OF LATEX COMMON STOCK AND NEW ALLIANCE SHARES
Because LaTex is incorporated under the laws of Delaware while Alliance is
a public limited company organized under the laws of England, there are a number
of differences between the attributes of the LaTex Common Stock and the New
Alliance Shares, as well as the rights and privileges the holders of each of
them. The following summary compares a number of the principal differences.
LATEX COMMON STOCK NEW ALLIANCE SHARES
------------------ -------------------
Right to Call Meetings and Submit Proposals
As permitted by the DGCL, LaTex's Under English law, notwithstanding
Bylaws provide that the holders of any provision to the contrary in a
at least 51% of the outstanding company's articles of association, an
shares may request, in writing, a extraordinary general meeting of
special meeting of shareholders at shareholders may be called by a
any time and for any lawful purpose, request of shareholders holding not
specifying the matter or matters less than one-tenth of the paid-up
(that are appropriate for action at capital of the company having voting
a special meeting) proposed to be rights at general meetings.
presented to the meeting. Each
special meeting will be held at such
place as the person or persons
calling the meeting shall fix.
Conduct of Shareholder Meetings
Under the DGCL, all matters required An ordinary resolution requires 14
to be approved by shareholders must clear days' notice and requires a
be approved by the affirmative vote majority vote of those present and
of the holders of at least a voting. An extraordinary resolution
majority of the outstanding shares requires 14 clear days' notice and a
of LaTex three-quarters majority
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Common Stock. Written vote of those
notice of a meeting of shareholders present and voting. A special
must be given, personally or by resolution requires 21 clear days'
mail, not fewer than ten nor more notice and a three-quarters majority
than sixty days before the meeting vote of those present and voting. An
(unless otherwise required by law) annual general meeting requires 21
to each shareholder entitled to vote clear days' notice regardless of the
at such meeting. This notice must type of resolution to be proposed.
state the place, date and hour of The term "clear days' notice" means
the meeting and the purpose or calendar days and excludes the day of
purposes for which the meeting is mailing, the deemed date of receipt
called and the name or names of the of such notice (normally the day
persons who have directed the following such mailing, if sent by
calling of the meeting. first class mail) and the date of the
meeting itself. "Extraordinary
resolutions" are limited to certain
matters out of the ordinary course of
business, such as a proposal to wind
up the affairs of the company or to
remove a director. Proposals that
are the subject of "special
resolutions" include proposals to
change the name of a company,
proposals to alter a company's
capital structure, proposals to
change or amend the rights of
shareholders, proposals to amend a
company's objects (purpose clause)
and Articles of Association and
proposals to carry out certain other
matters where either a company's
Articles of Association or the
Company's Act require a "special
resolution." All other proposals
relating to the ordinary course of a
company's business, such as the
election of directors, are the
subject of an ordinary resolution.
Notice of any type of meeting must
state the place, date and hour of the
meeting and the general nature of the
business to be transacted at the
meeting.
Right to Shareholder Lists
Shareholders of LaTex have the right, The register of shareholders and
in person or by attorney or other index of shareholders' names of an
agent, upon written demand stating English company may be inspected by a
the purpose thereof, during usual shareholder during business hours
business hours, to inspect for any (subject to any reasonable
proper purpose a list of the names, restrictions imposed by the company)
addresses and shares held by without charge, and by other persons
shareholders. upon payment of a charge. Any person
may request to be supplied with a
copy of the whole or part of the
register upon payment of a charge.
Right to Inspection of Books and Records
Under the DGCL, any shareholder of A shareholder of any English company
LaTex, upon written request stating may inspect the minutes of
the purpose of the inspection, has shareholder meetings and obtain
the right to inspect for any copies (within 7 days) upon payment of
proper a charge. Shareholders are not entitled
to inspect the accounting records of
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purpose LaTex's books and records, a company or minutes of directors'
and to make copies of those records. meetings. However, the Secretary of
State of Trade and Industry may, on
the application of at least 200
shareholders or of shareholders
holding not less than 10% of the
issued share capital of a company,
appoint inspectors to investigate the
affairs of the company and inspect
all documents relating of or to the
company.
Certain registers required to be kept
by a company are open to public
inspection including, the Register of
Directors and Secretaries, Register
of Directors' Interests in Shares and
Debentures, Register of Charges, the
Register of Debenture Holders and the
Register of Interests in Shares.
Service contracts of directors of the
company are available for inspection
in certain circumstances and at
certain times. Copies of instruments
creating charges that are registrable
with the Registrar of Companies
together with any other charges in
the Register of Charges of the
company must be kept and be made
available for inspection by
shareholders and creditors without
charge.
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Voting Rights
The DGCL provides that, unless Under English law, the voting rights
otherwise provided in a company's of shareholders are governed by the
certificate of incorporation, each Companies Act, as amended, and by a
shareholder is entitled to one vote company's articles of association.
for each share of stock held by such Shareholders have the statutory right
shareholder, on each matter to demand a poll (a vote by the
submitted to a vote of shareholders number of shares held rather than by
of the company. LaTex's Certificate a show of hands) at a general meeting
of Incorporation provides that a in certain circumstances. Under
shareholder is entitled to one vote Alliance's Articles of Association, a
for each share of LaTex Common Stock poll may be demanded at any general
held by such shareholder. meeting by (i) the chairman of the
meeting, (ii) at least five
As permitted by its Certificate of shareholders present in person or by
Incorporation, LaTex has filed a proxy and having the right to vote at
Certificate of Designation providing the meeting, (iii) a shareholder or
for the issuance of preferred stock. shareholders present in person or by
Holders of LaTex's preferred stock proxy representing not less than 10%
are not given any voting rights. of the total voting rights of all the
shareholders having the right to vote
Under the DGCL, voting by at the meetings or (iv) a shareholder
shareholders for directors is or shareholders present in person or
noncumulative unless provided by proxy holding shares conferring a
otherwise in the certificate of right to vote at the meeting, being
incorporation. LaTex's Certificate shares on which an aggregate sum has
of Incorporation does not provide been paid-up equal to not less than
for cumulative voting. Therefore, 10% of the total sum paid-up on all
LaTex currently employs the shares conferring that right.
noncumulative voting. Under
noncumulative voting, each Cumulative voting is essentially
shareholder entitled to vote for unknown under English law. Two
directors may vote, for each shareholders present in person
director, the number of votes equal constitute a quorum for purposes of a
to the number of shares held by the meeting unless a company's articles
shareholder. Since voting is of association specify otherwise.
noncumulative, the holders of a Alliance's Articles of Association
majority of the voting stock may specify that two persons entitled to
elect all of the Directors. vote on the business to be
transacted, each being a shareholder
or a proxy for a shareholder or a
duly authorized representative of a
corporation that is a shareholder,
shall constitute a quorum.
Subject to any special rights or
restrictions attached to any shares, on
the show of hands, every shareholder who
(being an individual) is present in
person or (being a corporation) is
present by a duly authorized
representative at any meeting and is
entitled to vote shall have one vote,
and on a poll every shareholder who is
present either personally or by proxy
and is entitled to vote shall have one
vote for every ordinary share held by
him. Although a proxy is normally only
valid for the meeting therein mentioned,
it is also valid for any adjournment of
the meeting. To be valid, the proxy must
be in writing and be deposited in
accordance with Alliance's Articles of
Association,
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which generally requires the proxy to be
delivered to Alliance not less than 48
hours before the time appointed for the
holding of the meeting. If there is a
failure by a shareholder within 14 days
(or 28 days where his shareholding
comprises less than one-quarter of one
percent of the issued shares of any
class of shares) to comply with a
request made by Alliance to disclose
certain information regarding his shares
under Section 212 of the Act, the Board
may suspend the shareholder's voting
rights in relation to such shares and,
where his shareholding represents one-
quarter of one percent or more of the
issued shares of any class of shares,
may direct that Alliance retain
dividends or other moneys payable upon
such shares and/or that no transfer,
other than an "approved transfer" as
defined in the Articles of Association,
of any such shares shall be registered.
Distributions and Dividends
LaTex has not paid any dividends on Holders of New Alliance Shares will
its outstanding common shares during be entitled to receive such dividends
last five years. In addition, as may be declared by the Board of
LaTex is restricted from paying cash Directors of Alliance. All of
dividends under its Credit LaTex's outstanding preferred shares
Agreement. LaTex's Bylaws provide will be converted into New Alliance
that the Board of Directors, at any Shares in the Merger. In the Merger,
regular or special meeting thereof, Alliance will be assuming LaTex's
may declare dividends upon the obligations under its Credit
issued and outstanding shares of Agreement, which will continue to
LaTex's Common Stock, subject to the prohibit Alliance from paying
prior payment of dividends upon any dividends. In addition, Alliance is
series of preferred stock outstanding. precluded from paying dividends until
The holders of Series B Senior such time as its retained loss is
Convertible Preferred Stock are paid cleared. Alliance has not paid any
cumulative cash dividends at the dividends on its outstanding ordinary
annual rate of $1.20 per share. shares during the last five years and
Subject to the prior and superior currently intends to retain its cash
rights of the holders of any series for the continued expansion of its
of LaTex's holders of any series business, including exploration,
preferred stock ranking prior and development and acquisition activities.
superior to the shares of Series A
Convertible Preferred Stock,
including the prior and superior
rights of the holders of LaTex's
Series B Senior Convertible Preferred
Stock, the holders of Series A
Convertible Preferred Stock will be
paid cumulative cash dividends at the
annual rate of $.20 per share.
In lieu of paying cash dividends
on the LaTex Series A Stock and
LaTex Series B Stock, LaTex may pay
such dividends in the form of
additional shares of such preferred
stock.
The ability of LaTex's Board of
Directors to declare dividends for
holders of the common
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stock is limited by the rights
and priority of holders of LaTex's
preferred stock.
Dilution
LaTex's Certificate of Incorporation Without prejudice to any special
permits the issuance of additional rights previously conferred on the
shares of common stock or shares of holders of any existing shares or
preferred stock, pursuant to which class of shares, any shares in the
the interests in the assets, capital of Alliance may be issued
liabilities, cash flow, and results with such special rights, privileges
of operations of LaTex represented or restrictions as Alliance in
by the shares of LaTex Common Stock general meeting may (before the
may be diluted. Under Nasdaq rules, issuance of such shares) from time to
LaTex may not issue common stock time determine.
equal to 20% or more of the then
outstanding shares in connection Alliance may from time to time by
with the acquisition of the stock or ordinary resolution increase its
assets of another entity without capital by the creation of new
shareholder approval. Issuances of shares, consolidate all or any of its
additional shares of common stock or shares into shares of a larger amount
preferred stock could adversely than its existing shares and subdivide
affect existing shareholders' equity its existing shares or any of them into
interest in LaTex and the market shares of smaller amount.
price of the common stock. LaTex's
Board of Directors by resolution may
establish one or more classes or
series of preferred stock having the
number of shares, designations,
relative voting rights, preferences,
and limitations that the Board of
Directors fixes without any
shareholder approval.
Under the DGCL, shareholders are
denied preemptive rights unless
preemptive rights are provided for
in the certificate of incorporation.
LaTex's Certificate of Incorporation
currently does not provide for
preemptive rights.
Liquidation
In the event of a liquidation, Alliances's Articles of Association
dissolution, or winding up of the provide that if the Company is wound
affairs of LaTex, after payment or up, a court-appointed liquidator may,
provision for payment of the debts with the authority of an
and liabilities of LaTex, the extraordinary resolution and any
holders of the Series B Senior other sanction required by law,
Convertible Preferred Stock are divide among the shareholders in
entitled to receive out of the specie the whole or any part of the
remaining assets of LaTex $10 for assets of Alliance, and for that
each share of Series B Senior purpose, set such values as he deems
Convertible Preferred Stock they fair upon the property to be divided,
hold, plus an amount equal to all and determine how the division shall
dividends accumulated and unpaid on be carried out between the shareholders.
each such share through the date The liquidator may, with like
fixed for distribution, before any authority, vest any part of the assets
distribution may be made to holders in trustees upon such trust for the
of any shares of Common Stock and benefit for shareholders as he, with
Series A Convertible Preferred like authority, shall think fit.
Stock. In the event of a
liquidation, dissolution, or
winding-up of the
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affairs of LaTex,
after payment or provision for
payment of debts and liabilities of
LaTex, and after payment of any
prior and superior rights of any
series of LaTex's preferred stock
ranking prior and superior to the
shares of Series A Convertible
Preferred Stock with respect to
liquidation, including the prior and
superior rights of the holders of
LaTex's Series B Senior Convertible
Preferred Stock, the holders of the
Series A Convertible Preferred Stock
are entitled to receive out of the
remaining assets of LaTex $10 for
each of the shares of Series A
Convertible Preferred Stock they
hold, plus an amount equal to all
dividends accumulated and unpaid on
each such share through the date
fixed for distribution, before any
distribution can be made to holders
of Common Stock or any other capital
stock of the Company ranking junior
to the Series A Convertible
Preferred Stock. After payment to
the holders of the Series A
Convertible Preferred Stock,
the entire remaining assets and
funds of LaTex legally available
for distribution, if any, will be
distributed among the holders of
Common Stock and any other capital
stock of the Company ranking junior
to the Series A Convertible
Preferred Stock in proportion to the
shares of such stock then held by
them.
Transferability
LaTex Shares are transferable on There are no restrictions in
LaTex's books, pursuant to Alliance's Articles of Association on
applicable law and any rules as the the transferability of fully-paid
Board of Directors may prescribe ordinary shares. The board may in
from time to time. its absolute discretion, and without
giving a reason therefor, decline to
register a transfer of any share that
is not fully-paid to a person of whom
it does not approve or of any share
over which it has a lien.
Redemption Rights
LaTex, at its option and subject to Holders of Alliance ordinary shares will
conditions stated in its Certificate have no right to surrender their
of Designation, may at any time and shares in exchange for the pro rata
from time to time, redeem all or any share of Alliance's net assets
part of the outstanding Series B attributable to such shares, and the
Senior Convertible Preferred Stock ordinary shares will not be redeemable.
at the rate of $10 per share of such
Preferred Stock plus all dividends
accumulated and unpaid on such share
through the date of redemption.
Subject to the prior and superior
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rights of the holders of any series
of LaTex's preferred stock ranking
prior and superior to the shares of
Series A Convertible Preferred Stock
with respect to redemption,
including the prior and superior
rights of the holders of LaTex's
Series B Senior Convertible
Preferred Stock with respect to
redemption, LaTex, at its option and
subject to the conditions stated in
its Certificate of Designation, may
at any time and from time to time,
redeem all or any part of the
outstanding Series A Convertible
Preferred Stock at the rate of $10
per share plus all dividends
accumulated and unpaid on such share
through the date of redemption.
LaTex Common Stock is not redeemable.
Change of Control
Certain provisions in LaTex's For a company such as Alliance listed
Certificate of Incorporation, on the London Stock Exchange,
including the ability of the Board shareholder approval may be required
of Directors to issue classes or for certain acquisitions or disposals
series of preferred stock and of assets involving directors or
restrictions on the ability of substantial shareholders or their
shareholders to call meetings and associates. In addition, takeovers
propose business at meetings of the of public companies are regulated by
common shareholders, may impede a the City Code on Takeovers and
takeover attempt. LaTex is subject Mergers (the "City Code"),
to the provisions of Section 203 of nonstatutory rules that are
the DGCL, which restricts "business unenforceable at law but administered
combinations" involving a company by the Panel on Takeovers and
and an "interested shareholder" for Mergers, a body comprised of
three years following the date on representatives of certain City of
which the shareholder acquired 15% London financial and professional
or more of the outstanding voting institutions that oversees the
stock of the company, unless certain conduct of such takeovers. The City
statutory exceptions are satisfied. Code provides that (i) when any
person acquires, whether by a series
of transactions over a period of time
or not, shares that (taken together
with shares held or acquired by
persons acting in concert with him)
carry 30% or more of the voting
rights of a public company; or (ii)
when any person, together with
persons acting in concert with him,
holds not less than 30% but not more
than 50% of the voting rights and
such person, or any person acting in
concert with him, acquires in any
period of 12 months additional shares
carrying more than 1% of the voting
rights, such person must generally make
an offer for all of the equity shares of
the company (whether voting or
nonvoting) and all the voting non-equity
shares of the company for cash, or
accompanied by a cash alternative, at
not less than the highest price paid for
the relevant shares during the 12 months
preceding the date of the offer.
Indemnification
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Section 145 of the DGCL permits a Under English law, Alliance may only
corporation to indemnify any person indemnify its officers and directors
who is, or is threatened to be made, against liabilities they incur in
a party to any suit owing to the defending proceedings (whether civil or
fact that the person is or was a criminal) in which (i) a judgment has
director, officer, employee or agent been given in the indemnitee's favor
acting on behalf of the corporation, (ii) the indemnitee is acquitted or
subject to a determination by the (iii) relief has been granted to the
board of directors that indemnitee by the court from
the person has met certain standards liability for negligence, default,
of conduct. Section 145 also breach of duty or breach of trust in
provides that it is not exclusive of relation to the affairs of Alliance or
any other rights to indemnification its subsidiaries. The Articles of
or advancement of expenses. LaTex's Association of Alliance provide that
bylaws require indemnification of directors and officers of Alliance
any director or officer of LaTex to will be entitled to the benefit of
the fullest extent permitted by this indemnification.
Delaware law and permit
indemnification of any employee,
attorney, agent or representative to
the extent permitted by Delaware
law. LaTex's bylaws also authorize
the advancement of expenses incurred
by the Indemnitee. LaTex's
Certificate of Incorporation
authorizes the indemnification of
any person, in accordance with
Delaware law, who is, or is
threatened to be made a party to
such a suit.
Limits on Management's Liability
LaTex's Certificate of Incorporation, English law does not provide any
as permitted by the DGCL, eliminates mechanism for limiting the liability
the monetary liability of LaTex's of directors.
directors for a breach of their
fiduciary duty as directors, except
for liability (i) for any breach of
a director's duty of loyalty to
LaTex or its shareholders, (ii) for
acts or omissions not in good faith
or that involve intentional
misconduct or a knowing violation of
law, (iii) under Section 174 of the
DGCL (which provides for liability
of directors for unlawful payment of
dividends or unlawful stock
purchases or redemptions), or (iv)
for any transaction from which the
director derived an improper
personal benefit.
Appraisal Rights
Under the DGCL, a holder of Common While English law does not generally
Stock who does not vote in favor of provide for appraisal rights, if a
a merger or consolidation of LaTex shareholder applies to a court as
may, upon compliance with certain described below, the court may
procedures, be entitled to receive specify such terms for the
the fair value of the shares in cash acquisition as it considers
in lieu of the consideration that appropriate.
would otherwise be reached in the
merger or consolidation. Appraisal The Companies Act provides that where
rights are not available in certain a take-over offer (as defined
mergers, including (a) mergers in therein) is made for the shares of a
which LaTex is the surviving company incorporated in the UK and
corporation and in which no
34
<PAGE>
vote of its shareholders was the offeror has, within four months
required and (b) mergers when the of the date of the offer, acquired or
common stock was then listed on a contracted to acquire not less than
national securities exchange or nine-tenths in value of the shares to
held of record by more than 2,000 which the offer relates, the offeror
holders and the holders of common may, within two months of reaching
stock are not required to accept the nine-tenths level, notify
in exchange for their shares anything shareholders who did not accept the
other than shares of stock of the offer and require them to transfer
surviving corporation that, on the their shares on the terms of the
effective date of the merger, would offer. A dissenting shareholder may
be listed on a national securities apply to the court within six weeks
exchange or held of record by more of the date on which such notice is
than 2,000 holders, cash in lieu given, objecting to the transfer or
of fractional shares, or any its proposed terms. The court is
combination thereof. unlikely (absent fraud or oppression)
to exercise its discretion to order
that the acquisition not take effect,
but it may order that the offeror shall
not be entitled to acquire the relevant
shares or specify such terms of the
transfer as it finds appropriate. A
minority shareholder is also entitled in
these circumstances to require the
offeror to acquire his shares on the
terms of the offer.
Conflicts of Interest
LaTex's Certificate of Incorporation Alliance's Articles of Association
provides that, to the extent provide that a director, or a firm in
provided by the DGCL, no contract or which he is interested, may act in a
transaction between LaTex and one or professional capacity for Alliance and
more of its directors or officers or will be entitled to remuneration for
between LaTex and any other company, such services as if he were not a
partnership, association or other director, except that such party is not
organization in which one or more of authorized to act as auditor to
its directors or officers are Alliance. A director may contract with
directors or officers of LaTex or Alliance provided he discloses his
have a financial interest, shall be interests. Alliance's Articles of
void or voidable solely for this Association also detail those matters on
reason, or solely because the which an interested director may and may
directors or officers are present at not vote.
or participate in the meeting of the
board or committee thereof which
authorizes the contract or
transaction, or solely because the
directors or officers or their votes
are counted for such purpose.
Common or interested directors may be
counted in determining the presence
of a quorum at a meeting of the
Board of Directors or a committee
thereof which authorizes the
contract or transaction.
Trading in Shares
LaTex's Common Stock is traded on the The Existing Alliance Shares are
Nasdaq SmallCap Market under the traded on the London Stock Exchange
symbol "LATX." Quotations for under the symbol "ARS." Alliance is
shares traded on Nasdaq are applying for listing on the London Stock
generally available in newspapers Exchange of the New Alliance Shares to
and other publications, as well as be issued in connection with the Merger.
some computer online services. Quotations for shares listed on the
Investors may place orders for the London Stock Exchange are not generally
purchase or sale of shares traded on readily available in newspapers or
Nasdaq
35
<PAGE>
through most licensed broker other
dealers in the United States. publications in the United States.
However, investors may place orders
for the purchase or sale of shares
traded on the London Stock Exchange
through most licensed broker dealers
in the United States.
RESTRICTIONS ON RESALES BY AFFILIATES
The issuance of the New Alliance Shares to be received by LaTex
shareholders in connection with the Merger, has been registered under the
Securities Act. Except as described in this paragraph, the New Alliance Shares
may be traded without restriction under the Securities Act. The New Alliance
Shares to be issued in the Merger and received by persons who are deemed to be
"affiliates" (as that term is defined in Rule 144 under the Securities Act) of
LaTex prior to the Merger may be resold by them only in transactions permitted
by the resale provisions of Rule 145. The principal requirement of Rule 145 is
that an affiliate of LaTex may not (together with other persons whose sales are
aggregated under Rule 145) sell during any three-month period a number of New
Alliance Shares exceeding the greater of (i) one percent of the total number of
outstanding New Alliance Shares or (ii) the average weekly trading volume of New
Alliance Shares for a specified four-week period.
APPRAISAL RIGHTS OF DISSENTING LATEX SHAREHOLDERS
Any person who is a holder of record of shares of LaTex Common Stock and
who objects to the terms of the Merger may seek appraisal of the "fair value" of
such holder's LaTex Common Stock under and in compliance with the requirements
of Section 262 of the DGCL (the LaTex Common Stock as to which such appraisal
rights have been asserted being referred to herein as the "Dissenting Shares").
Section 262 provides a procedure by which persons who are holders of LaTex
Common Stock at the Effective Time of the Merger may seek an appraisal of part
of or all their LaTex Common Stock in lieu of accepting New Alliance Shares in
exchange therefor as described above under "Terms of the Merger." In any such
appraisal proceeding, the Delaware Court of Chancery (the "Chancery Court")
would determine the "fair value" of the Dissenting Shares. Holders of LaTex
Common Stock should recognize that such an appraisal could result in a
determination of a value higher or lower than, or equivalent to, the New
Alliance Shares they would receive in the Merger. The following is a summary of
the principal provisions of Section 262 and does not purport to be a complete
description. A copy of Section 262 is attached hereto as Appendix D and is
incorporated herein by reference.
FAILURE TO TAKE ANY NECESSARY STEPS FULLY AND PRECISELY TO SATISFY THE
REQUIREMENTS OF SECTION 262 OF THE DGCL WILL RESULT IN A TERMINATION OR WAIVER
OF THE APPRAISAL RIGHTS OF THE LATEX COMMON SHAREHOLDER UNDER SUCH SECTION. IN
THAT CASE, EACH SHARE OF LATEX COMMON STOCK OWNED BY SUCH SHAREHOLDER
IMMEDIATELY PRIOR TO THE EFFECTIVE DATE WILL BE CONVERTED INTO THE RIGHT TO
RECEIVE NEW ALLIANCE SHARES PURSUANT TO THE MERGER.
Under Section 262, a corporation, not less than 20 days prior to the
meeting at which a proposed merger is to be voted on, must notify each of its
shareholders entitled to appraisal rights as of the record date of the meeting
that appraisal rights are available and include in the notice a copy of Section
262. This Proxy Statement constitutes the notice to the holders of LaTex Common
Stock.
A holder of LaTex Common Stock electing to exercise appraisal rights under
Section 262 must (a) deliver to LaTex, before the taking of the vote on the
Merger, a written demand for appraisal that is made by
36
<PAGE>
or on behalf of the person who is the holder of record of the Dissenting Shares
and (b) not vote in favor of adoption of the Merger. A proxy or vote against
approval and adoption of the Merger does not constitute a sufficient demand. In
addition, mere failure, after the completion of the Merger, to execute and
return a letter of transmittal to the Transfer Agent does not constitute a
demand. A holder of LaTex Common Stock electing to demand appraisal must do so
before the taking of the vote on the Merger by a separate written demand that
reasonably informs LaTex of the identity of the holder of LaTex Common Stock of
record and of the holder's intention thereby to demand the appraisal of the
holder's LaTex Common Stock. Written demands for appraisal should be directed to
LaTex Resources, Inc., 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma
74135, Attention: Stacey D. Smethers, Secretary.
Only the holder of record of LaTex Common Stock is entitled to assert
appraisal rights for the LaTex Common Stock registered in that holder's name.
The holder of LaTex Common Stock asserting appraisal rights must hold LaTex
Common Stock on the date of record of making the demand and continuously through
the Effective Time of the Merger. The demand should be executed by or for the
holder of record, fully and correctly, as the holder's name appears on the
holder's stock certificates. If the stock is owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the stock is owned of record by more
than one person, as in a joint tenancy or tenancy in common, the demand should
be executed by or for all owners. An authorized agent, including one of two or
more joint owners, may execute the demand for appraisal for a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is acting as agent
for the record owner or owners.
A record holder who holds LaTex Common Stock as nominee for beneficial
owners may exercise the holder's right of appraisal with respect to the LaTex
Common Stock held for all or less than all of such beneficial owners. In that
case, the written demand should set forth the number of shares of LaTex Common
Stock covered by it. Where no number of shares of LaTex Common Stock is
expressly mentioned, the demand will be presumed to cover all LaTex Common Stock
held in the name of the record holder.
Within ten days after the Effective Time of the Merger, Alliance will send
notice of the effectiveness of the Merger to each person who, prior to the
Effective Time of the Merger, made proper written demand for appraisal and who
did not vote in favor of, or consent to, the Merger.
Within 120 days after the Effective Time of the Merger, Alliance or any
holder of Dissenting Shares may file a petition in the Chancery Court demanding
a determination of the fair value of all of the Dissenting Shares. Holders of
Dissenting Shares should not assume that (i) Alliance will file a petition with
respect to the appraisal value of their Dissenting Shares, (ii) Alliance will
initiate any negotiations with respect to the "fair value" of such Dissenting
Shares or (iii) Alliance will notify them of any act in connection with the
Merger other than as required by law. Accordingly, holders of LaTex Common Stock
should regard it as their obligation to initiate all necessary action with
respect to the perfection of their appraisal rights within the time periods
prescribed in Section 262 of the DGCL.
Within 120 days after the Effective Time of the Merger, any holder of
Dissenting Shares is entitled, upon written request, to receive from Alliance a
statement setting forth the aggregate number of Dissenting Shares and the
aggregate number of holders of Dissenting Shares. Alliance is required to mail
this statement within ten days after it receives a written request therefor.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Chancery Court will determine the holders of LaTex Common Stock
entitled to appraisal rights and will appraise the Dissenting Shares owned by
the holders, determining their "fair value" exclusive of any element of value
arising from the accomplishment or expectation of the Merger and will determine
a fair rate of interest, if any, to be paid upon
37
<PAGE>
the "fair value." In determining "fair value" of the Dissenting Shares, the
Chancery Court will take into account all relevant factors. The Delaware Supreme
Court has stated that such factors include "market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other facts
which were known or which could be ascertained as of the date of merger which
throw any light on future prospects of the merged corporation." In the case of
Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things,
- -----------------------
that "proof of value by any techniques or methods generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered in an appraisal proceeding. The value so determined for the
Dissenting Shares could be more or less than, or the same as, the New Alliance
Shares to be received in the Merger. The Chancery Court may allocate the costs
of the appraisal proceedings as it deems equitable in the circumstances. The
Chancery Court may also order that all or a portion of the expenses incurred by
any holder of Dissenting Shares in connection with an appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the Dissenting Shares.
Any holder of LaTex Common Stock who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time of the Merger, be
entitled to vote the LaTex Common Stock subject to the demand for any purpose or
be entitled to the payment of dividends or other distributions on the LaTex
Common Stock (other than those payable or deemed to be payable to holders of
LaTex Common Stock of record as of a date prior to the Effective Time of the
Merger) or on any New Alliance Shares otherwise issuable, but for the appraisal
demand, in substitution therefor.
A holder of LaTex Common Stock will fail to perfect, or effectively lose,
the holder's right to appraisal if no petition for appraisal is filed within 120
days after the Effective Time of the Merger, or if a holder of LaTex Common
Stock delivers to LaTex a written withdrawal of the holder's demand for an
appraisal and an acceptance of the Merger, except that any such attempt to
withdraw made more than 60 days after the Effective Time of the Merger requires
the written approval of Alliance. Holders of LaTex Common Stock should also note
that surrender to the designated exchange agent of certificates for their LaTex
Common Stock may constitute a waiver of appraisal rights under the DGCL.
If an appraisal proceeding is timely instituted, the proceeding may not be
dismissed, without the approval of the Chancery Court as to any holder of LaTex
Common Stock who has perfected his right of appraisal.
PRICE RANGE OF STOCK AND DIVIDENDS
The Existing Alliance Shares are traded on the London Stock Exchange under
the symbol "ARS."LaTex's Common Stock is traded on the Nasdaq under the symbol
"LATX" and until September 4, 1996, was listed on the Pacific Stock Exchange
under the symbol "LAT." At the request of Alliance, the trading of the Existing
Alliance Shares on the London Stock Exchange was suspended upon the announcement
of the Merger Agreement and will remain suspended until completion or
abandonment of the Merger. Also at the request of Alliance, the trading of the
Existing Alliance Shares was suspended from September 6, 1995 to November 2,
1995 in connection with the investigation of the matters relating to Mr.
O'Brien, Alliance's former chief executive.
38
<PAGE>
The following table sets forth the high and low sales prices for the
Existing Alliance Shares on the London Stock Exchange (in pounds) and LaTex's
Common Stock on the Nasdaq system for the periods indicated.
<TABLE>
<CAPTION>
SALES PRICES
------------------------------------------------------
ALLIANCE SHARES LATEX COMMON STOCK
----------------- ---------------------
HIGH((Pounds)) LOW((Pounds)) High($) Low ($)
---------------- ------------- ------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994:
First Quarter................................ .0725 .0660 1.563 0.813
Second Quarter............................... .0700 .0676 0.938 0.625
Third Quarter................................ .0776 .0676 1.625 0.875
Fourth Quarter............................... .1126 .0926 1.063 0.750
Year Ended December 31, 1995:
First Quarter................................ .1000 .0660 0.875 0.500
Second Quarter............................... .0726 .0546 0.688 0.438
Third Quarter................................ .066 .046 1.000 0.156
Fourth Quarter............................... .046 .016 0.625 0.344
Year Ending December 31, 1996:
First Quarter................................ .050 .030 0.531 0.313
Second Quarter............................... .0325 .0276 0.563 0.313
Third Quarter (through August 11 for .0276 .0176 0.500 0.375
Alliance)...................................
Fourth Quarter.............................. N/A N/A
</TABLE>
As of _____________, 1997, the approximate number of record holders of the
existing Alliance shares was 2,730.
As of ____, 1997, the approximate number of record holders of LaTex Common
Stock was ___.
On August 9, 1996, the last complete trading day prior to the announcement
of the Merger Agreement, the closing sales prices of LaTex Common Stock was
$0.41 per share and of the Existing Alliance Shares on the London Stock Exchange
was (Pounds)0.02 per share.
On ________, 1997, the closing sale price of LaTex Common Stock on the
NASDAQ System was $_______ per share.
Neither Alliance nor LaTex have paid any cash dividends on the Existing
Alliance Shares or LaTex Common Stock for at least the last two completed fiscal
years. In addition, LaTex is restricted from paying cash dividends under the
Credit Agreement.
SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting is scheduled to be held at a.m. on _________________,
1997, at _______________________________.
PURPOSE OF THE MEETING
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt a proposed Agreement and Plan of Merger, dated as of August
12, 1996 as amended September 16 and 27,
39
<PAGE>
1996, among LaTex, Alliance and Alliance Resources (Delaware), Inc., which is a
newly formed, wholly owned subsidiary of Alliance, pursuant to which, among
other things, (i) Alliance Resources (Delaware), Inc. will be merged with and
into LaTex resulting in LaTex becoming a wholly owned subsidiary of Alliance and
(ii) outstanding shares of LaTex's Common Stock will be canceled and LaTex
shareholders will receive New Alliance Shares at the Conversion Rate.
QUORUM AND VOTING
The record date for the determination of shareholders entitled to notice of
and to vote at the Special Meeting was the close of business on , 1997 (the
"Record Date"). As of the Record Date, there were 19,805,495 shares of LaTex's
Common Stock issued and outstanding.
Each share of LaTex's Common Stock is entitled to one vote on all matters
to be acted upon at the Special Meeting. The presence, in person or by proxy, of
holders of a majority of the issued and outstanding shares of LaTex's Common
Stock entitled to vote at the meeting is necessary to constitute a quorum to
transact business. Abstentions are counted towards determining whether a quorum
is present. Shares represented by broker non-votes are not considered present at
the meeting and are not counted towards a quorum. Abstentions and broker non-
votes are not counted in determining the number of shares voted for or against
any proposal.
The affirmative vote of a majority of the shares of LaTex's Common Stock is
required for the approval and adoption of the Merger Agreement. The directors
and executive officers of LaTex beneficially own and have the right to vote
approximately 28% of the outstanding shares of LaTex's Common Stock and have
indicated their intention to vote in favor of the approval and adoption of the
Merger Agreement at the Special Meeting.
WHEN PROXIES IN THE ACCOMPANYING FORM ARE PROPERLY EXECUTED AND RECEIVED,
THE SHARES REPRESENTED WILL BE VOTED AT THE SPECIAL MEETING IN ACCORDANCE WITH
THE DIRECTIONS NOTED. IF NO DIRECTION IS INDICATED, SHARES WILL BE VOTED IN
FAVOR OF THE MERGER, AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO ANY
OTHER MATTER THAT IS PROPERLY BROUGHT BEFORE THE MEETING.
Each shareholder of LaTex giving a proxy has the unconditional right to
revoke the proxy at any time prior to its exercise either in person at the
Special Meeting or by giving written notice to LaTex addressed to: 4200 East
Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135, Attention: Stacey D. Smethers,
Secretary. No revocation by written notice will be effective until the notice
has been received by the Secretary of LaTex prior to the day of the Special
Meeting or by the inspector(s) of elections at the Special Meeting prior to the
closing of the polls.
In addition to the solicitation of proxies by use of the mail and through
this Proxy Statement, directors, officers and regular employees of LaTex may
solicit the return of proxies, either by mail, personal contact, telephone,
telecopy or telegraph. Officers and employees of LaTex will not be additionally
compensated for their solicitation efforts but will be reimbursed for any
out-of-pocket expenses incurred. Brokerage houses and other custodians,
nominees and fiduciaries will be requested, in connection with shares registered
in their names, to forward solicitation materials to the beneficial owners of
the shares.
RECOMMENDATION
THE LATEX BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN YOUR BEST
INTEREST AND HAS UNANIMOUSLY RECOMMENDED THAT YOU VOTE FOR THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT AND MERGER.
40
<PAGE>
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table and the notes thereto set forth certain information
regarding the beneficial ownership of LaTex Common Stock as of the Record Date,
by (i) each current director of LaTex; (ii) each officer of LaTex who received
at least $100,000 in salary and bonus in fiscal 1996; (iii) all present
executive officers and directors of LaTex as a group; and (iv) each other person
known to LaTex to own beneficially more than five percent of the presently
outstanding LaTex Common Stock; and the number of New Alliance Shares that will
be held immediately after the Merger by (i) each of the foregoing persons; (ii)
each current director and proposed director of Alliance; (iii) all present
executive officers, directors and proposed directors of Alliance as a group;
(iv) each other person known to Alliance who will own beneficially more than
five percent of the New Alliance Shares after the Merger, based on their
ownership on the Record Date and after giving effect to the 40-to-1 reverse
split of the Existing Alliance Shares.
<TABLE>
<CAPTION>
Before the Merger After the Merger
--------------------------------- ------------------------------
Amount and
Class of LaTex New Alliance
Shares Owned Percent Owned Shares Owned Percent Owned
Name and Address of Beneficial Owner(1) Beneficially Beneficially (2) Beneficially Beneficially (2)
- --------------------------------------- -------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
Jeffrey T. Wilson (3) 4,135,000 20.9% 3,641,281 17.0%
A. Dean Fuller 1,058,000 5.3% 931,674 4.3%
Malcolm W. Henley (4) 510,000 2.6% 449,106 2.1%
John R. Martinson (5) 536,000 2.7% 472,002 2.2%
John W. Heinsius (4) 271,500 1.4% 239,083 1.1%
Robert L. Hull (4) 325,000 1.6% 286,195 1.3%
John L. Cox (4) 230,500 1.2% 202,978 *
Trans Arabian Energy Ltd. (6) 0 - 1,575,875 7.3%
D. Patrick Maley 0 - 12,500 *
William J. A. Kennedy 0 - 4,125 *
M. Philip Douglas 0 - 49,583 *
Christopher R. L. Samuelson 0 - 0 -
Stanley J. Robinson 0 - 0 -
John A. Keenan 0 - 150,000 (7) *
Paul R. Fenemore 0 - 25,000 (7) *
H. Brian K. Williams 0 - 62,500 (7) *
All Executive Officers and Directors of LaTex 5,597,000 28.3% 4,928,718 22.5%
as a group (7 persons)
All Executive Officers, Directors and 0 0 4,416,991 20.4%
Proposed Directors of Alliance as a group (10
persons)
</TABLE>
- --------------
*Less than one percent.
41
<PAGE>
(1) All of LaTex's directors and officers may be contacted at LaTex's
offices, 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
All of the Alliance's directors and proposed directors may be
contacted at Alliance's offices, Kingsbury House, 15-17 King Street,
London SW1Y 6QU.
(2) Based on 19,805,495 issued and outstanding shares of LaTex Common
Stock at the Record Date. Shares of LaTex Common Stock that an
individual has the right to acquire within 60 days pursuant to the
exercise of options, warrants, or other convertible securities are
deemed to be outstanding for the purpose of computing the percentage
ownership of such individual, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person
or group shown in the table.
(3) Includes 300,000 shares of Restricted Stock (See "Item 11. Executive
Compensation--Restricted Stock Grants." in the LaTex Form 10-K) and
excludes 300,000 shares held by the Old National Bank in Evansville,
Indiana, Trustee of the Jeffrey T. Wilson and Annalee Wilson
Irrevocable Family Trust for the benefit of the Wilson children.
(4) Includes: (a) with respect to Mr. Henley, 300,000 shares of Restricted
Stock; (b) with respect to Mr. Heinsius, 250,000 shares of Restricted
Stock; (c) with respect to Mr. Hull, 325,000 shares of Restricted
Stock; and (d) with respect to Mr. Cox 225,000 shares of Restricted
Stock.
(5) Includes presently exercisable warrants to purchase 436,000 shares
held by Wood Roberts, a corporation under the control of Mr.
Martinson.
(6) The address of Trans Arabian Energy Ltd. is 50 Town Range, Gibraltar.
(7) Consists of options to purchase the specified number of shares at a
price of 2p. per share. The options which were granted on 16 December
1996 and can be exercised not earlier than three years from the date
of grant and not later than 10 years from that date. The number of
options and the exercise price will be adjusted to reflect the 40-for-
1 reverse stock split.
(8) Based on issued New Alliance Shares upon completion of the Merger, and
based on the exercise of all warrants by the applicable holder.
42
<PAGE>
LATEX
LaTex is an independent oil and gas exploration and production company
located in Tulsa, Oklahoma, primarily engaged in the acquisition of producing
oil and gas properties. LaTex owns and operates producing oil and gas properties
located in 14 states with crude reserves located primarily in the states of
Mississippi, Louisiana, Oklahoma, Texas and Alabama. The executive offices of
LaTex are at 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
ADDITIONAL INFORMATION CONCERNING LATEX, INCLUDING ITS BUSINESS,
PROPERTIES, FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS, IS INCLUDED IN ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED JULY 31, 1996, WHICH IS INCLUDED WITH
THIS PROXY STATEMENT (ATTACHED AS APPENDIX S).
ALLIANCE
GENERAL
Alliance is a London-based holding company of a group whose principal
activities are the exploration, development and production of oil and gas in the
United States. In May 1996, John A. Keenan was appointed as chief executive of
Alliance. In connection with the change in management, Alliance has adopted a
new business strategy. As formulated by its current management, Alliance's near-
term strategy is to focus its operations on the development, enhancement and
operation of producing properties in the United States, which would generate the
cash flow necessary to provide initial funding for international oil development
and enhancement projects, particularly in the former Soviet Union.
Alliance believes that opportunities to increase production in older or
undeveloped fields employing new technology and capital have become available
internationally as a result of the eroding geographic, political and economic
barriers to private investment, particularly in the former Soviet Union.
However, realization of this strategy requires that Alliance have a sufficient
quantity of assets and of cash flow to fund the process of identifying and
securing additional properties for exploitation. Therefore, in 1996, Alliance
has concentrated on pursuing acquisition opportunities that would provide a base
of properties with relatively stable cash flow.
The Board of Directors of Alliance believes that the Merger will provide
necessary critical mass to Alliance, which will enhance prospects for its
further growth and the realization of its stated objective of building an
international portfolio of development prospects. At this time, neither
Alliance nor LaTex holds any rights to any international projects. However,
Alliance's management intends to pursue additional United States acquisitions
with the ultimate intention of utilizing the cash flow generated by those
properties to fund international development, exploitation and enhancement
projects.
Alliance was incorporated and registered under the laws of England and
Wales on August 20, 1990. Alliance's principal executive offices are at
Kingsbury House, 15-17 King Street, London SW1Y 6QU, England. After completion
of the Merger, Alliance will maintain corporate headquarters in London but
intends that its U.S. operations office will be located in LaTex's current
offices at 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
43
<PAGE>
RECENT DEVELOPMENTS
Until September 1995, Mr. John O'Brien served as Alliance's chief executive
and as a director. In August 1995, the Board of Directors of Alliance discovered
that Mr. O'Brien had been fraudulently misrepresenting Alliance's interest in
the Valentine Field in Louisiana. Thereafter, an internal investigation was
carried out that revealed further wrongdoing and breaches of duty on Mr.
O'Brien's behalf. Therefore, on September 6, 1995, the Alliance Board of
Directors removed Mr. O'Brien as a director and the chief executive and
requested the suspension of trading in Alliance's shares on the London Stock
Exchange. After an extensive investigation by the Board of Directors, which
included work by specially engaged forensic accountants, independent petroleum
reservoir engineers and legal counsel, Alliance determined to file litigation
against Mr. O'Brien and to report the matters to the Serious Fraud Office of the
United Kingdom, who continue to conduct their investigation. On August 13, 1996,
Alliance announced that it had agreed to stay its litigation against Mr.
O'Brien. The terms of the settlement are confidential.
D. Patrick Maley, a director of Alliance since November 29, 1995, served as
Chairman of the Company on an interim basis until May 1996. At that time, John
A. Keenan, who had been a non-executive director of Alliance since April 1996,
was appointed as chief executive of Alliance. In addition, Alliance's Board of
Directors appointed Paul Fenemore as Director of Operations and Business
Development of Alliance in May 1996 and Brian Williams as Financial Director
of Alliance in June 1996. Accordingly, although the events surrounding Mr.
O'Brien's activities created significant turmoil within Alliance, Alliance has
now appointed new management and has adopted a new business strategy for
Alliance.
After its fiscal year ended April 30, 1996, Alliance disposed of certain of
its properties and other assets. Specifically, on May 30, 1996, Alliance sold
its interest in four leases offshore Matagorda Island, Texas for net cash
consideration of $432,000. Alliance's interest in these blocks varied between
4.2% and 6.3%. On August 15, 1996, Alliance disposed of its interest in four
leases in Lovaca County, Texas for net cash consideration of $435,000.
Alliance's working interest in these blocks varied between 17.7% and 42.4%. Also
in August 1996, Alliance disposed of its interest in Geological Forecast
Technology Ltd. to Geos Seismology Limited by transferring its 50 A Shares as
part of a final settlement of actions brought by the latter.
In October 1996, Alliance sold its interest in three oil and gas fields
located in Texas and Oklahoma for net cash consideration of $1,425,000. The
fields had combined remaining reserves of approximately 25,920 barrels of oil
and 1,720 million cubic feet of gas as of May 1, 1996, representing
approximately 16% of Alliance's total proved and probable reserves. The interest
comprised 21 wells and Alliance's working interest in those wells varied between
3% and 28%.
OIL AND GAS INTERESTS
Alliance recently completed the disposal of all of its remaining non-
operated oil and gas properties located in Texas and Oklahoma, as described
above, and currently owns and/or operates oil and gas properties with proved
reserves located in the State of Louisiana.
Alliance operates 36 producing wells and also owns non-operated interests
in 4 producing wells. Gross daily production for the oil and gas properties in
which Alliance has an interest is approximately 808 bopd and 916 mcfgpd as of
December 15, 1996, and Alliance's net share is 413 bopd and 147 mcfgpd. Net
proved reserves to Alliance as of April 30, 1996 are 589 mbbls of oil
equivalent.
The following is a summary of Alliance's principal areas of oil and gas
production activity:
44
<PAGE>
South Elton Field. The South Elton Field is located twelve miles north of
the town of Jennings in Jefferson Davis Parish, Louisiana. Alliance currently
has a leasehold of 642 acres and operates six producing wells, two saltwater
disposal wells and three shut-in wells. The field was discovered by Stanolind in
the early 1930's. Production has been established in four Homeseeker (Middle
Frio) Sands, five Ortego (Upper Frio) Sands and two Marginulina (Lower Anahuac)
Sands. The productive reservoirs occur at depths at between 7,180 to 9,300 feet.
The reservoir traps are faulted anticlines caused by south dipping growth
faults.
Gross daily production from the field is approximately 372 bopd and 329
mcfgpd, and Alliance's net share of production is 210 bopd and 100 mcfgpd as of
December 15, 1996. Net proved reserves to Alliance as of April 30, 1996 are 334
mbbls of oil equivalent (using a 6:1 conversion factor for gas to oil).
Valentine Field. The Valentine Field is located south of New Orleans in
Lafourche Parish, Louisiana. Alliance currently has a leasehold of 65 acres and
operates two producing wells and three shut-in wells. In addition, Alliance has
a non-operated interest in the Arrowhead #1 Valentine Sugars well. The field was
discovered in 1935 when Pan American drilled the Marang # 1 well. Production has
been established in Middle Miocene Sands at depths of between 6,450-10,800 feet.
Alliance's oil and gas interests are situated on the west flank of a salt dome.
Gross daily production from Alliance's oil and gas interests in the field
is approximately 145 bopd and 587 mcfgpd, and Alliance's net share of production
is 97 bopd and 47 mcfgpd as of December 15, 1996. Net proved reserves to
Alliance as of April 30, 1996 are 113 mbbls of oil equivalent.
Jennings Field. The Jennings Field is located seven miles north of the
town of Jennings in Acadia Parish, Louisiana. Alliance has a leasehold of 275
acres and operates twenty-five producing wells, three saltwater disposal wells
and nineteen shut-in wells. The field was discovered by the Maywood Brothers in
1901. Production has been established in multiple Miocene age sandstone
reservoirs draped over a salt dome.
Gross daily production from the field is approximately 110 bopd and
Alliance's net share is 78 bopd as of December 15, 1996. Recent work activity in
November/December 1996 has increased gross production from 65 bopd to the
current level of 110 bopd. Net proved reserves to Alliance as of April 30, 1996
are 63 mbbls of oil.
South Crowley Field. South Crowley Field is located at the town of Crowley
in Acadia Parish, Louisiana. Alliance has a leasehold of 40 acres and operates
one producing oil well. The field was discovered in the 1930's by Gulf and has
been developed by many operators. Production has been established in multiple
sands ranging in age from Upper Miocene to Middle Frio. The Guillot #1 well was
drilled in August 1992 and completed as a flowing well from perforations at a
depth of 6,743-44 feet.
Gross daily production from the Guillot #1 well is approximately 32 bopd as
of December 15, 1996. Net proved reserves to Alliance as of April 30, 1996 are
30 mbbls of oil.
North Tepetate Field. The North Tepetate Field is located 24 miles
northeast of the town of Jennings in Acadia Parish, Louisiana. Alliance
presently holds 80 acres under lease and operates one producing well and one
saltwater disposal well. The field was discovered in the 1940's by Vincent and
Welch and production has been established in Oligocene age sands. The reservoir
trap is an anticlinal closure between two south dipping growth faults. The
Sweeney #3 well was drilled in July 1983 and is currently completed in the
Marginulina sands at a depth of approximately 7,000 feet.
45
<PAGE>
Gross daily production from the Sweeney #3 well is approximately 29 bopd
and Alliance's net share of production is 11 bopd as of December 15, 1996. Net
proved reserves to Alliance as of April 30, 1996 are 19 mbbls of oil.
Jefferson Island Field. The Jefferson Island field is located near the
town of Delcambre, approximately 12 miles southwest of the city of New Iberia
in Iberia Parish, Louisiana. Alliance is operator for a 525 acre leasehold which
is currently being maintained by production from the Will Drill Resources
(Texaco) #4 JISMC well. The Alliance lease has seven shut-in wells located on
it. The field was discovered by Texaco in May 1938. Since then production has
been established by various operators in Siphoni Divisi and Discorbis B age
sandstone reservoirs. The reservoir traps are combination structural-
stratigraphic traps in a salt dome piercement setting. Alliance currently has
not established production on the lease and net proved (behind pipe) reserves to
Alliance as of April 30, 1994 are 15 mbbls of oil. A number of potential
drilling locations has been identified on the lease for future exploration
activity.
INTERNATIONAL
In Albania, Alliance held the negotiating rights to the Delvina gas and
condensate field and rights, negotiated by the previous management, for
production enhancement at the Kucova/Arrza oil fields. Following a review of
the prospects by its technical staff, it was determined to focus on the Delvina
Field, as the Kucova/Arrza wells were not sufficiently productive to obtain
economic returns. Accordingly, Alliance has notified Albpetrol, the Albanian
national oil company, that it has relinquished its exclusive negotiating right
to the Kucova/Arrza Fields. Studies on the Delvina Field have determined that a
new pipeline connecting Delvina with the main Albanian gas market may be
necessary. Albpetrol has notified Alliance that it has interrupted Alliance's
exclusive right to negotiate for the Delvina field.
Alliance continues to appraise international opportunities as they arise,
with particular focus on the former Soviet Union.
OPERATIONS
For the year ended April 30, 1996, Alliance carried out the following
activities on its oil and gas properties. In July 1995 Alliance successfully
drilled and completed the Tupper #7 well in South Elton Field, Jefferson Davis
Parish, Louisiana. The well produced upwards of 170 barrels of oil per day
(bopd) and 160 thousand cubic feet of gas per day and was a significant
contributor to revenue during the year. In April 1996 Alliance completed the
workover of the Valentine Sugars #3 well which added 155 bopd to production from
the well which had been shut-in since December 1993.
The Gueno #1 well was drilled in July 1995 in the Branch Field in Acadia
Parish, Louisiana and has been temporarily abandoned. The well encountered two
of the four objective productive sands, but at downdip locations. The leasehold
has been maintained for redrill at an upstructure location. In September 1995
the Jefferson Island Salt Mining Company #1 well was drilled in Iberia Parish.
The well was abandoned following the drill pipe being stuck and the hole junked.
Alliance has received a number of farmout proposals on this lease and is
actively considering its strategy having recently completed extensive geological
re-mapping and re-appraisal of the lease. In May 1996 Alliance farmed out its
interest in Valentine Sugars #2 well to American Explorer. The well was
unsuccessful and was plugged and abandoned.
Alliance completed its review of non-core assets after the fiscal year end,
notably the nonoperated properties owned by the wholly-owned subsidiary ARNO
Inc. Subsequent to the year end, these properties have been disposed of for a
cash consideration in excess of US$2.250 million. Following a review of the US
operations, Alliance also made some significant cuts to its overheads
commensurate with the size of the operations.
46
<PAGE>
PRODUCTION
The following table sets forth information with respect to production for
the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
--------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Production
Gas (Mmcf) 153 206 602
Oil (Mbbls) 27 39 228*
</TABLE>
DRILLING ACTIVITY
During the periods indicated, Alliance drilled or participated in the
drilling of the following exploratory and development wells:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
---------------------------------------------------
1994 1995 1996
---------------- ---------------- ----------------
GROSS NET GROSS NET GROSS NET
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Productive 2 1.88 1 .70 0 0
Non-Productive 1 .72 0 0 2 .6
Total 3 2.60 1 .70 2 .6
Development
Productive 1 .11 0 0 2 1
Non-Productive 0 0 0 0 0 0
Total 1 .11 0 0 2 1
</TABLE>
47
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF ALLIANCE
The selected historical financial information presented in the table below
for and at the end of each of the years ended April 30, 1992, 1993, 1994, 1995
and 1996 is derived from the audited consolidated financial statements of
Alliance, of which the consolidated balance sheets as of April 30, 1994, 1995
and 1996 are included with this Proxy Statement. The selected historical
financial information for the years ended April 30, 1992, and 1993 presented in
the table below are derived from audited financial statements of Alliance that
are not included in this Proxy Statement. The selected financial information
presented below should be read in conjunction with Alliance's consolidated
financial statements and the notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations, included elsewhere in
this Proxy Statement.
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
SELECTED FINANCIAL DATA
(in thousands, except for share data)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED APRIL 30,
------------------------------------------------------
1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
(in thousands)
(Restated)
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data
Amounts in accordance with UK GAAP
Total Revenues................................. 3,686 1,483 837 631 972
Depletion and depreciation..................... 1,668 14,944 128 278 347
(Loss) from continuing operations
before and after income taxes............... (3,593) (18,213) (1,177) (1,627) (818)
Approximate amounts in accordance with US
GAAP
Net (loss) (3,428) (21,641)
(Loss) per Existing Alliance Share (0.7)p (9.6)p
Selected Balance Sheet Information
Amounts in accordance with UK GAAP
Working capital (deficiency)................ 536 (8,215) (1,478) (2,022) (2,364)
Net Property, Plant and Equipment........... 7,311 8,047 14,484 10,594 10,064
Total assets................................ 9,845 9,335 16,334 11,132 10,358
Long-term debt, net of current liabilities.. 92 1,240 925 1,203 -
Total Liabilities........................... 2,090 10,773 4,045 5,068 2,667
Shareholders' equity........................ 7,755 (1,438) 12,289 6,064 7,691
Approximate amounts in accordance with US
GAAP
Total Assets 7,582 6,907
</TABLE>
48
<PAGE>
UNAUDITED PRO FORMA
FINANCIAL STATEMENTS OF ALLIANCE
The following unaudited condensed pro forma combined balance sheet and
unaudited condensed pro forma combined statement of income for Alliance
(collectively, the "Unaudited Pro Forma Financial Statements") have been
prepared to illustrate the estimated effect of the proposed combination of
Alliance and LaTex pursuant to the Merger and are based upon the assumptions set
forth below and in the notes to such statements. The respective historical
consolidated financial statements of Alliance and LaTex are included elsewhere
in this Proxy Statement.
The Merger will be treated as a purchase and, as a result of the LaTex
shareholders owning approximately 72% of the combined company, LaTex will be
treated as having acquired Alliance. Accordingly, in the unaudited pro forma
financial statements, it is the assets and liabilities of Alliance that are
recorded at fair value while the assets of LaTex are recorded at historical
cost.
The unaudited pro forma financial statements include the unaudited
condensed pro forma combined balance sheet at April 30, 1996, giving effect to
the Merger as if it were consummated on that date. Also presented is the
unaudited condensed pro forma combined statement of income for the year ended
April 30, 1996 after giving effect to the Merger as if it were consummated on
May 1, 1995.
The unaudited pro forma financial statements are prepared in accordance
with US GAAP. The financial statements of Alliance have been prepared in
accordance with UK GAAP and the financial statements of LaTex have been prepared
in accordance with US GAAP. Included are relevant adjustments to the Alliance
financial statements to state these in accordance with US GAAP.
The unaudited pro forma financial statements and accompanying notes, which
are an integral part of such statements, should be read in conjunction with the
respective historical financial statements, including the notes thereto, and
other financial information of Alliance and LaTex included elsewhere in this
Proxy Statement. The unaudited pro forma financial statements are provided for
illustrative purposes only and do not purport to represent what the financial
position or results of operations of Alliance and LaTex would actually have been
if the Merger had in fact occurred on the dates indicated or to project the
financial position or results of operations for any future date or period.
49
<PAGE>
CONDENSED PRO FORMA COMBINED BALANCE SHEET
AS AT APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ALLIANCE LaTex
UK US GAAP Alliance US Historical as at Pro forma PRO
GAAP Adjustments GAAP 31 July 1996 Adjustments FORMA
--------- ------------ ------------ ----------------- ------------ ---------
$000 $000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents 1,177 - 1,177 19 - 1,196
Receivables:
Trade 736 - 736 3,324 - 4,060
Other 557 (a) (272) 285 516 - 801
Prepaid expenses 64 - 64 - - 64
Inventory - - - 175 - 175
Other current assets - - - 28 - 28
Assets held for sale - - - 165 165
-------- ---------- -------- -------- ----------- --------
Total current assets 2,534 (272) 2,262 4,227 - 6,489
-------- ---------- -------- -------- ----------- --------
Net property, plant and equipment, at
cost (full cost method for oil and gas
properties) 7,311 (b) (1,991) 5,320 31,945 (c) 5,292 42,557
Other assets:
Notes receivable, net of current portion - - - 758 - 758
Deposits and other assets - - - 131 - 131
Accounts and notes receivable - related Parties - - - 392 - 392
Intangible assets net of amortization - - - 1,513 - 1,513
-------- ---------- -------- -------- --------
Total Assets 9,845 (2,263) 7,582 38,966 5,292 51,840
======== ========== ======== ======== =========== ========
Liabilities and Stockholders' Equity
Current liabilities:
Bank loans and overdrafts 37 - 37 - - 37
Development loans 5 - 5 - - 5
Trade accounts payable 1,279 - 1,279 9,058 - 10,337
Accrued expenses - - - 607 (d) 2,500 3,107
Current portion of long term debt - - - 22,236 - 22,236
Other 677 - 677 747 - 1,424
-------- ---------- -------- -------- ----------- --------
Total current liabilities 1,998 - 1,998 32,648 2,500 37,146
Long-term debt, excluding current 92 - 92 - - 92
installments
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total liabilities 2,090 - 2,090 32,648 2,500 37,238
-------- ----------- -------- -------- -------- --------
Stockholders' equity:
Ordinary shares, (Pounds)0.01 par value.
issued 324,152,633 (Alliance) 5,105 - 5,105 - (e) (5,105) -
Common stock $0.01 par value (LaTex) - - - 191 (g) (191) -
Ordinary shares (Pounds)0.40 par value - - -
29,552,336 shares issued. (f) 19,404 19,404
Series A convertible preferred stock - - - 4,503 (g) (4,503) -
Series B convertible preferred stock - - - 4,793 (g) (4,793) -
Additional paid in capital - - - 9,068 (g) (2,122) 6,946
Treasury stock - - - (489)(g) 489 -
Share premium 20,157 - 20,157 - (e)(20,157) -
Merger reserve 401 - 401 - (e) (401) -
Accumulated deficit (17,908) (2,263) (20,171) (11,748)(e) 20,171 (11,748)
-------- ----------- -------- -------- -------- --------
Total stockholders' equity 7,755 (2,263) 5,492 6,318 2,792 14,602
-------- ----------- -------- -------- -------- --------
Total liabilities and stockholders' equity 9,845 (2,263) 7,582 38,966 5,292 51,840
======== =========== ======== ======== ======== ========
</TABLE>
51
<PAGE>
CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ALLIANCE
UK
GAAP ALLIANCE US LATEX
YEAR US GAAP HISTORICAL
ENDED GAAP YEAR ENDED YEAR ENDED PRO
APRIL 30, ADJUST- APRIL 30, JULY 31, PRO FORMA FORMA
1996 MENTS 1996 1996 ADJUSTMENTS ------------
$000 $000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and Natural Gas Sales and other
operating revenues 3,686 - 3,686 13,531 - 17,217
------- ------- ------- ----------- ----------- -----------
Costs and expenses:
Exceptional amounts relating to oil and gas
interest - - - - - -
Exceptional costs arising from irregularities (589) (a) (272) (861) - - (861)
Direct operating expenses (2,262) - (2,262) (6,608) - (8,870)
Dry hole costs and abandonments - - - (3,586) - (3,586)
Selling, general and administrative expenses (2,629) - (2,629) (3,027) - (5,656)
Depreciation, depletion, amortization (1,668) (b) 437 (1,231) (4,706) (c) (1,113) (7,050)
----------- ------- ------- ----------- ----------- -----------
OPERATING INCOME/(LOSS) (3,462) 165 (3,297) (4,396) (1,113) (8,806)
Other income and deductions
Interest and other income (net) 229 - 229 (2,205) - (1,976)
Profit on sale of fixed assets - - - 2,366 - 2,366
Equity losses and asset write-offs of joint (201) - (201) (4,185) - (4,386)
ventures and affiliates
Foreign exchange losses (159) - (159) - - (159)
----------- ------- ------- ----------- ----------- -----------
NET (LOSS) FROM CONTINUING OPERATIONS (3,593) 165 (3,428) (8,420) (1,113) (12,961)
=========== ======= ======= =========== =========== ===========
LOSS PER SHARE FROM CONTINUING OPERATIONS
(PENCE) (0.8)p (0.7)p - (29.4)p
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 317,175,674 317,175,674 29,377,912
============ =========== ===========
</TABLE>
52
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma financial statements include the following adjustments.
Condensed Pro Forma combined Balance sheet
Alliance US GAAP adjustments:
(a) To eliminate from 'other receivables' an amount recognized as a receivable,
under UK GAAP, relating to the right to receive the proceeds of the sale of
Alliance shares resulting from the settlement with Mr. O'Brien. Under US
GAAP, such proceeds are recognized only on receipt.
(b) To adjust the oil and gas properties as at April 30, 1996 to reflect the
ceiling test write down made in the year ended April 30, 1995 under US
GAAP. Under US GAAP ceiling tests are computed at current prices discounted
to present value at 10%; under UK GAAP, a ceiling test is based on the
company's best estimate of the future cash flows from the underlying
properties.
Pro forma adjustments:
(c) To record the Alliance oil and gas properties at their fair values under US
GAAP using LaTex accounting policies. LaTex uses the successful effort
method of accounting for oil and gas properties; Alliance uses the full
cost method.
(d) To record an accrual for the expenses of the Merger and the share issue.
(e) To eliminate the existing capital and reserves of Alliance from the
condensed pro forma combined balance sheet.
(f) To record the par value of Alliance's ordinary shares, comprising existing
shares after the 40:1 reverse stock split and the New Alliance shares to be
issued as a consequence of the Merger.
(g) To record additional paid in capital of the combined group after taking
into account all other pro forma adjustments including the recording of
Alliance assets at fair value (under US GAAP and LaTex accounting policies)
and the proposed share issue resulting from the merger proposal.
(h) To record the revised maturity of LaTex's bank borrowing following the
re-negotiation completed on [ ].
Condensed Pro Forma Combined Statement of Income
Alliance US GAAP adjustments:
(a) To eliminate income recognized under UK GAAP, relating to the right to
receive proceeds from the sale of Alliance shares resulting from the
settlement with Mr. O'Brien. Under US GAAP, such proceeds are recognized
only on receipt.
(b) To adjust the depreciation, depletion and amortization charge to reflect
the ceiling test write down adjustment made in the condensed pro forma
combined balance sheet described above.
Pro forma adjustments:
(c) To adjust the depreciation, depletion and amortization charge to reflect
the adjustments made to Alliance's oil and gas properties restated at their
fair value under US GAAP using LaTex accounting policies.
53
<PAGE>
54
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ALLIANCE
GENERAL
The information in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refers to the Consolidated Financial
Statements of Alliance included in this Prospectus which are prepared in
accordance with UK GAAP. UK GAAP differs in certain significant respects from
US GAAP. A discussion of the principal differences is set out in Note 29 to
Alliance's Consolidated Financial Statements. The Consolidated Financial
Statements contain a reconciliation of loss after tax (net Loss) and
shareholders' equity to US GAAP.
Alliance's operating results are affected by a variety of factors, the most
significant of which is crude oil and natural gas prices. Lower product prices
have a negative effect on the operating income and cash flow of Alliance. For a
summary of other factors which may affect Alliance's operating results and
financial condition, see "Risk Factors."
1996 COMPARED WITH 1995
Operating Results
Production. In the year ended April 30, 1996, Alliance's production
----------
amounted to 225,000 barrels of oil equivalent ("boe"). The increase of 158% in
Alliance production over 87,000 boe in the year April 30, 1995 was principally
due to the inclusion of a full year's contribution from Source Petroleum Inc.
(which was acquired by Alliance on January 25, 1995) and a full year's
contribution from the producing assets acquired by Alliance from North American
Gas Investment Trust PLC (NAGIT) on April 10, 1995. Production was also
enhanced by the successful drilling during the year ended April 30, 1996 of a
well on the South Elton field.
All Alliance production came from the U.S. Natural gas represented
approximately 45% of total production in both 1996 and 1995.
Sales. Louisiana, South Sweet crude oil prices fluctuated between $15.50
-----
per barrel and over $21.00 per barrel during the year ended April 30, 1996.
Alliance's average crude oil price realized in 1996 was $18.36 per barrel
compared with $16.47 per barrel in 1995. Total sales increased by 148% from
$1.483 million in 1995 to $3.686 million in 1996, reflecting the significant
increase in production.
In 1996 and 1995, all crude oil was sold under contracts with terms of up
to one year.
The average natural gas price increased from $1.10 per mcf in 1995 to $1.73
per mcf in 1996.
Costs and expenses. 1996 operating costs were $2.318 million, compared to
------------------
$0.996 million in 1995, an increase of 133%. This increase reflects the higher
production volumes resulting from a full year's contribution from Source
Petroleum Inc. and the NAGIT assets. On a per barrel basis, lease operating
costs decreased, largely due to reductions in fixed costs, mainly field labor.
Depreciation, which is calculated on a unit of production (boe) basis,
amounted to $1.612 million, reflecting the higher production volumes. In the
previous year, depletion was included as part of the exceptional write down of
oil and gas interests totaling $14.881 million.
55
<PAGE>
Exceptional costs arising from irregularities in 1996 were $0.589 million,
which relate primarily to professional fees incurred in connection with the
investigations into the involvement of Mr. O'Brien in the affairs of Alliance,
and are net of the estimated proceeds resulting from the settlement with Mr.
O'Brien. The exceptional costs arising from irregularities in 1995 of $1.787
million reflect the financial loss resulting from a number of transactions
involving Mr. O'Brien or parties now known to have been connected with him.
The general and administrative expenses incurred in 1996 of $2.629 million
(1995 - $1.637 million) include a number of non-recurring items which were
incidental to the investigation into the activities of Mr. O'Brien.
Loss before and after tax (Net loss). The loss before and after tax was
------------------------------------
$3.593 million in 1996 compared with a loss of $18.213 million in 1995. The 1995
loss included the exceptional write-down of $14.881 million of oil and gas
assets to the carrying value of Alliance's estimated proved oil and gas reserves
together with the exceptional charge of $1.787 million relating to the loss
arising from transactions with certain companies related to Mr. O'Brien.
Net interest income increased from net interest payable of $0.114 million
in 1995 to net interest receivable of $0.070 million in 1996. The increase in
interest receivable from $0.049 million in 1995 to $0.257 million in 1996 arose
as the result of higher cash balances following the receipt of $11.7 million
from the placing and open offer in May 1995. This also enabled Alliance to
substantially reduce its debt and hence reduce bank interest payable from $0.163
million in 1995 to $0.028 million in 1996.
Exceptional amounts written off investments in 1996 of $0.201 represent
additional charges made to the profit and loss account in respect of costs
incurred in relation to investments written off in the year to 30 April 1995 of
$0.464 million.
Loss per Existing Alliance Share in 1996 was (0.8)p [($0.01)] compared with
the loss per Existing Alliance Share in 1995 of (8.1)p [$0.13].
1995 COMPARED WITH 1994
Operating Results.
Production. In the year ended April 30, 1995, Alliance's production
----------
amounted to 87,000 boe. The increase of 102% in Alliance production over 43,000
boe in the year ended April 30, 1994 was principally due to the inclusion of six
months' contribution from Source Petroleum Inc. (which was acquired by Alliance
on January 25, 1995 with an effective November 1, 1994) and four months'
contribution from the producing assets acquired by Alliance from North American
Gas Investment Trust PLC (NAGIT) on April 10, 1995 (effective January 1, 1995).
All Alliance production came from the US. Natural gas represented
approximately 45% of total production in 1995 against 35% in 1994.
Sales. Total sales increased by 79% from $0.837 million in 1994 to $1.483
-----
million in 1995, reflecting the significant increase in production. South
Louisiana Sweet crude fluctuated between $XXX per barrel and over $XXX per
barrel during the year to April 1995. Alliance's average crude oil price
realized in 1995 was $16.47 per barrel compared with $17.24 per barrel in 1994.
In 1995 and 1994, all crude oil was sold under contracts with terms of up
to one year.
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<PAGE>
The average natural gas price decreased from $1.87 per mcf in 1994 to $1.10
per thousand cubic feet in 1995.
Costs and expenses. 1995 operating costs were $0.996 million compared with
------------------
$0.521 million in 1994, an increase of 79%. This increase principally reflects
the higher production volumes resulting from a half year's contribution from
Source Petroleum Inc. and four months from the NAGIT assets. On a per barrel
basis however, lease operating costs actually decreased, largely due to
reductions in fixed costs, mainly field labor.
Depletion was included as part of the exceptional write down of oil and gas
interests totaling $14.881 million. The depletion charge for 1994 was $0.125
million.
The exceptional costs arising from irregularities in 1995 of $1.787 million
reflect the financial loss resulting from a number of transactions involving Mr.
O'Brien or parties now known to have been connected with him. No such
exceptional costs were reported in 1994.
The general and administrative expenses incurred in 1995 of $1.637 million
(1994 - $1.312 million) reflect the increased overheads attributable to the
enlarged group following the acquisition of Source Petroleum Inc.
Profit before and after tax (Net loss). The loss before and after tax was
--------------------------------------
$18.213 million in 1995 compared with a loss of $1.177 million in 1994. The
1995 loss included the exceptional write-down of $14.881 million of oil and gas
assets to the carrying value of Alliance's estimated proved oil and gas reserves
together with the exceptional charge of $1.787 million relating to loss arising
from transactions with certain companies related to Mr. O'Brien.
Net interest payable increased from $0.056 million in 1994 to $0.114
million in 1995, largely reflecting the increase in debt at April 1995.
Exceptional amounts written off investments in 1995 of $0.464 represent
charges made to the profit and loss account in respect of costs incurred in
relation to investments written off in the year to 30 April 1995. No such
charges were incurred in 1994.
Loss per Existing Alliance Share in 1995 was (8.1)p [($0.13)] compared with
the loss per Existing Alliance Share in 1994 of (0.01)p [($0.02)].
LIQUIDITY AND CAPITAL RESOURCES
In 1996 cash outflow from operating activities was $5.399 million compared
with an inflow in 1995 of $1.987 million. In 1996 a portion of the proceeds from
the placing and open offer was used to reduce operating creditors by almost $3.5
million. By comparison, in the year ended April 1995, operating creditors had
increased by $4.7 million.
Cash outflow in 1996 also increased due to high professional fees incurred
in connection with the investigation into the affairs of Mr. O'Brien and
overall, general and administrative expenses increased due to a number of non-
recurring items which were incidental to the O'Brien investigation. The net
outflow on investing activities was $2.512 million in 1996 compared with $4.045
million in 1995.
Capital expenditures in 1996 were $1.672 million compared with $10.320
million in 1995 (1994 - $4.006 million). Of the $10.320 million, $2.264 million
related to the acquisition of Source Petroleum Inc. and $3.080
57
<PAGE>
million related to the purchase of a portfolio of producing properties located
in the US from NAGIT. In addition, the Valentine well was drilled and costs
associated with the Valentine well were capitalized amounting to $2.966 million.
Following the completion of the investigation into the affairs of Mr. O'Brien,
$1.685 million of the $2.966 million was identified as a loss arising from
transactions with certain companies related to Mr. O'Brien and accordingly
reclassified. The capital expenditure in 1996 included the drilling of three
wells, one of which, in part of the South Elton field, was successful and
contributed significantly to the uplift in reserves.
At April 1995, Alliance had capital commitments amounting to $5.300 million
(1994 - $6.037 million). At April 1996, Alliance had no capital commitments.
At April 1995, Alliance had total borrowings of $3.962 million (1994 -
$1.692 million) and after deduction of cash, net borrowings of $3.898 million
(1994 -$1.404 million). In May 1995, Alliance raised $11.700 million (net) by
way of a placing and open offer and at April 1996 Alliance had reduced its debt
to $0.134 million giving a net cash position of $1.043 million. Subsequent to
April 1996, Alliance has raised in excess of $2.250 million from the disposal of
various non-operated properties.
Impact of Inflation and Changing Prices. The business of Alliance is not
seasonal but is sensitive to crude oil and natural gas pricing, margins between
crude oil and refined products, and chemical margins. Inflation impacts
Alliance by increasing costs of labor and suppliers, and increasing costs of
acquiring and replacing property, plant and equipment. The replacement cost of
property, plant and equipment is generally greater than the historical cost as a
result of inflation.
58
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF ALLIANCE
The following table sets forth the name, age, position with Alliance and
principal occupations of each of the present and proposed directors and
executive officers of Alliance.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH ALLIANCE AND PRINCIPAL OCCUPATION
----------------------------- --- -------------------------------------------------
<S> <C> <C>
D. Patrick Maley 52 Chairman
William J. A. Kennedy 57 Director (Chairman of the Audit Committee)
M. Philip Douglas 57 Director (Chairman of the Remuneration Committee)
Christopher R. L. Samuelson 50 Director
Stanley J. Robinson 48 Director
Jeffrey T. Wilson 43 Proposed Director
John R. Martinson 61 Proposed Director
John A. ("Jak") Keenan 42 Managing Director, Chief Executive Officer
Paul R. Fenemore 41 Director, Operations and Business Development
H. Brian K. Williams 42 Director, Chief Financial Officer
</TABLE>
D. Patrick Maley is the non-executive Chairman of Alliance and has over 25
years experience in the oil and gas industry. He has held a variety of
positions with Mobil and Transworld Oil in London, New York and the Middle East.
For the past four years he has been a principal of a consulting firm
specializing in petroleum industry asset evaluation and business development.
William J. A. Kennedy is Chairman of the Audit Committee. After 25 years in
the investment industry, he served as a vice president of a major conglomerate,
Crownx Inc. For the past five years he has operated a management consulting
service and sits on the boards of three public Canadian companies.
M. Philip Douglas is Chairman of the Remuneration Committee and is a former
director of and head of international investment at Morgan Grenfell, where he
spent 16 years. He is also a director of GT Management.
Christopher R. L. Samuelson joined the Board as a non-executive director in
April 1996. He has an extensive background in investment management and banking
and currently holds the position of Group Chief Executive of Valmet, a large
international trust company with whom he has been associated for the last twelve
years. He also holds a wide number of directorships around the world.
Stanley J. Robinson was appointed to the Board as a non-executive director
in April 1996. He is a Vice President for Mannai Corporation and is responsible
for its activities outside of the Middle East. In recent years, his work has
largely concentrated on the development of businesses in the CIS and Eastern
Europe. He currently sits on a number of boards, both public and private, in
executive and non-executive roles.
59
<PAGE>
Jeffrey T. Wilson has been a Director, Chairman of the Board and Chief
Executive Officer of LaTex since December 1991. Mr. Wilson was a Director and
Executive Vice President of Vintage Petroleum, Inc. ("Vintage") from May 1990 to
July 1991. He was Vice President-Production of Vintage from January 1984 to May
1990 and Manager-Acquisitions of Vintage from May 1983 to January 1984.
John R. Martinson has been a Director of LaTex since May 4, 1995, and has
served as a consultant to LaTex since August 1994. Since January 1995, Mr.
Martinson has been a principal in the merchant banking firm Martinson, O'Dell &
Ogden, L.L.C., specializing in corporate and project finance. Mr. Martinson is
also managing director of Wood Roberts, Inc. where he has engaged in financial
consulting since January 1989.
John A. ("Jak") Keenan is an experienced executive in the U.S. and
international oil industry. From 1986 until 1992, Mr. Keenan was First Vice
President of Corporate Development for Great Western Resources Inc., an
independent oil and gas exploration and production company listed on the London
Stock Exchange. In that role he oversaw corporate acquisitions and divestitures
and also was the senior legal officer for the company. In 1990, Mr. Keenan
assumed the additional role of Chief Operating Officer for Great Western and in
that role was responsible for day to day administration of the company's
affairs. In 1992, Mr. Keenan was elected a director of Great Western and
appointed President of its Oil & Gas Division. In that capacity he oversaw the
day to day operations of the division which included both domestic operations as
well as international operations in Peru. He resigned his position at Great
Western in August, 1995 and accepted a position with the law firm of Jenkens &
Gilchrist in Houston, Texas where he specialized in oil and gas transactions.
He left Jenkens & Gilchrist in February, 1996 to assume a role overseeing
Alliance's U.S. operations. He was elected a director of Alliance in April,
1996 and appointed Managing Director in May, 1996.
Paul R. Fenemore was appointed to the Board of Alliance in May 1996 as
Operations and Business Development Director. He has previously served in a
variety of technical and management positions in Amoco, Gulf Oil, Hamilton
Brothers, Cairn Energy and Amerada Hess.
H. Brian K. Williams joined the Board as Finance Director in June 1996. He
is a chartered accountant and formerly the Finance Director of Pict Petroleum
PLC and previously with Hamilton Brothers and British National Oil Corporation.
Directors are elected by the shareholders of Alliance and hold office until
their earlier death, resignation, retirement, disqualification or removal. The
directors may at any time appoint additional directors who will hold office
until the next annual general meeting of Alliance, when they will be eligible
for re-election. One third of the directors retire from office at each annual
general meeting of Alliance but are eligible for re-election. The Board may
appoint any director to the office of Chief Executive or Managing Director or
other executive office upon such terms and for such period as they think fit.
No family relationships exist among the directors or executive officers of
Alliance or its subsidiaries.
Except as indicated below, none of the directors of Alliance is a director
of any other company that has a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, or which is subject to the
requirements of Section 15(b) of that Act or any company registered as an
investment company under the Investment Company Act of 1940.
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<PAGE>
Committees. The Board has established the following standing committees:
The Remuneration Committee is composed of Mr. M. P. Douglas (chair), Mr. C.R.L.
Samuelson and Mr. S.J. Robinson. Its responsibilities include advising the Board
on remuneration of the executive directors. During 1996 the committee met once.
The Audit Committee is composed of Mr. W. J. A. Kennedy (chair), Mr. M.P.
Douglas and Mr. S.J. Robinson. Its responsibilities include recommending to the
shareholders the firm to be employed as Alliance's independent auditors and
consulting with, and reviewing the reports of, Alliance's independent auditors
and financial staff. During fiscal 1996 the committee met once.
EXECUTIVE COMPENSATION
The total compensation paid for each of the three fiscal years ended April
30, 1996, to the persons who served as Managing Director and chief executive,
and to each other executive officer who earned at least $100,000 in salary and
bonus in fiscal 1996 (collectively, the "Named Executive Officers"), is set
forth below in the following Summary Compensation Table:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
Securities All Other
Underlying Compen-
Fiscal Options/ sation
Name and Principal Position Year Salary ($) Bonus ($) SARs (#) ($)
- --------------------------- ------ ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
D. Patrick Maley, Acting 1996 57,311 125 -- --
Managing Director (1)
John X F O'Brien, Former 1996 25,009 -- 2,500,000 --
Managing Director (2) 1995 104,611 -- -- --
1994 82,138 -- -- --
Robert N. Sheard, Former 1996 77,628 30,107 -- 45,010
Managing Director (3)
Nicholas C. Gray, Former 1996 115,672 -- 1,500,000 45,010
Finance Director (4) 1995 64,312 -- -- --
1994 51,477 -- -- --
</TABLE>
_______________
(1) Mr. Maley acted as Executive Chairman from November 29, 1995 to May 22,
1996.
(2) Mr. O'Brien was removed from all offices with Alliance on September 6,
1995.
(3) Mr. Sheard served as Managing Director from September 6, 1995 to April 3,
1995.
(4) Mr. Gray resigned his position with Alliance on March 6, 1996.
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<PAGE>
The following table discloses, for each of the Named Executive Officers,
options granted during the fiscal year ended April 30, 1996 and the potential
realizable values for such options:
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
-------------------------------------------------------- --------------------------------
% OF TOTAL
SECURITIES OPTIONS/SHARES
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR(2) PRICE($) DATE 5% 10%
- ---- ------------- --------------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
JOHN F X O'BRIEN 2,500,000 47% .10 3/6/98 $156,190 $404,110
NICHOLAS C. GRAY 1,500,000 28% .10 9/6/98 93,714 242,466
</TABLE>
_______________
(1) All options reflected in this table expired on the removal or resignation
of the option holder during fiscal 1996.
Director Compensation. The compensation of the non-executive directors is
reviewed by the board of directors from time to time to ensure that this
compensation is in line with current market practice. Under Alliance's Articles
of Association, shareholders determine the maximum aggregate amount payable by
way of fees to directors and this maximum amount is currently fixed at
(Pounds)100,000 per year. During 1996, the following directors were paid the
indicated fees for their services as directors: Mr. Douglas $30,012, Mr. Kennedy
$10,504, Mr. Roberts $2,626, and Mr. Jones $2,626. In addition, Mr. Kennedy was
awarded $52,704 for his executive services as chairman of the management
committee from September 4, 1995.
Management Employment Agreements. Each of Messrs. Keenan, Williams and
Fenemore have entered into Executive Service Agreements with Alliance providing
for his employment in his current capacity for an initial fixed term of two
years beginning October 15, 1996, December 16, 1996, and September 20, 1996,
respectively, and automatic extensions of the initial term for additional one
year periods unless written notice of either party's intention not to extend has
been given to the other party at least three months prior to the expiration of
the then effective one year period of employment, provided that the executive
may at any time terminate his employment by giving a minimum of three months
notice. If the executive's employment terminates for any reason other than the
executive's breach of the agreement, disability or malfeasance, Alliance must
pay the executive an amount equal to the executive's salary for the then
remaining term of the executive's employment. Upon the involuntary termination
of the executive's employment without cause or voluntary termination by the
executive after a change in his office location, his responsibilities or
reduction in compensation following a change in control of Alliance, the
executive is entitled to the payment in one lump sum of cash in an amount equal
to two times the average annual salary, bonus and benefits paid to the executive
for the previous two years.
The annual salary under the agreements is $160,000 for Mr. Keenan,
(Pounds)85,000 for Mr. Williams, and (Pounds)96,000 for Mr. Fenemore, plus any
bonuses or other compensation determined by Alliance's Board of Directors in its
discretion. The agreements also provide for the grant of stock options at an
exercise price of 2p per share for 6,000,000 Existing Alliance Shares for Mr.
Keenan, 2,500,000 Existing Alliance Shares for Mr. Williams, and 1,000,000
Existing Alliance Shares for Mr. Fenemore.
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<PAGE>
DESCRIPTION OF ALLIANCE SHARES
The authorized capital stock of Alliance consists of 465,000,000 ordinary
shares of (Pounds)0.01 each. The following sections include certain
information concerning such shares, based on English law and a summary of
certain provisions of the Memorandum and Articles of Association of Alliance.
This information and summary do not purport to be complete and are qualified in
their entirety by reference to the full Memorandum and Articles of Association,
copies of which have been filed as exhibits to the Registration Statement of
which this Proxy Statement forms a part. LaTex shareholders should also review
the "Summary Comparison of LaTex Common Stock and New Alliance Shares" on p.
____.
All of the 324,152,633 issued and outstanding Existing Alliance Shares are
fully paid or credited as fully paid and not subject to calls for additional
payments of any kind. The Existing Alliance Shares are, and the New Alliance
Shares will be, issued in registered form.
DIVIDENDS
Holders of Alliance Shares are entitled to receive such dividends as may be
declared by the board of directors. To date there have been no dividends paid
to holders of Alliance Shares.
LIQUIDATION RIGHTS
On a liquidation, the court-appointed liquidator may (with the sanction of
an extraordinary resolution) divide amongst the holders of the Alliance shares
the whole or any part of the assets of Alliance and may, for such purpose, set
such values as he deems fair upon any property to be divided and may determine
how such division shall be carried out as between the shareholders.
VOTING RIGHTS
Voting at any general meeting of shareholders is by a show of hands unless
a poll is duly demanded. A poll may be demanded by (i) the chairman of the
meeting, (ii) at least five shareholders entitled to vote at the meeting, (iii)
any shareholder or shareholders representing in the aggregate not less than one-
tenth of the total voting rights of all shareholders entitled to vote at the
meeting or (iv) any shareholder or shareholders holding shares conferring a
right to vote at the meeting on which there have been paid up sums in the
aggregate equal to not less than one-tenth of the total sum paid up on all the
shares conferring that right.
On a show of hands, every shareholder who (being an individual) is present
in person (or being a corporation) is present by a duly authorized
representative at a shareholders meeting of Alliance and entitled to vote will
have one vote, and on a poll, every shareholder who is present in person or by
proxy shall have one vote per share. The necessary quorum for a shareholders'
meeting shall be a minimum of two persons (each of whom is a shareholder or
proxy).
Unless otherwise required by law or the Alliance's Articles of Association,
voting in a general meeting is by ordinary resolution (e.g., resolutions for the
election of directors, the approval of financial statements, the declaration of
final dividends, the appointment of auditors, the increase of authorized share
capital or the grant of authority to allot shares). An ordinary resolution
requires the affirmative vote of a majority of the votes of those persons
present at a meeting at which there is a quorum. A special resolution (e.g.,
modifying the rights of any class of shares at a meeting concerning an
alteration of Alliance's Memorandum or Articles of Association or a winding-up
of Alliance) or an extraordinary resolution requires the affirmative vote of not
less than three-fourths of the eligible votes. Meetings are generally convened
upon advance notice of 21 or
63
<PAGE>
14 days (not including the days of delivery or receipt of the notice) depending
on the nature of the business to be transacted.
PRE-EMPTIVE RIGHTS
The Companies Act of 1985, as amended (the "Companies Act") confers upon
shareholders, to the extent not disapplied, rights of pre-emption in respect of
the allotment of equity securities that are or are to be paid up wholly in cash.
These provisions may be disapplied by a special resolution of the shareholders,
either generally or specifically, for a period not exceeding five years.
Additionally, the Articles of Association of Alliance provide the shareholders
with such a pre-emptive right unless Alliance shall by special resolution
otherwise direct.
VARIATION OF RIGHTS
If at any time the share capital of Alliance is divided into different
classes of shares, the rights attached to any class may be varied or abrogated,
subject to the provisions of the Companies Act, with the written consent of the
holders of not less than three-quarters of the issued shares of the class, or
with the sanction of any extraordinary resolution passed at a separate meeting
of the holders of the shares of that class. At every such separate meeting, the
quorum shall be members of the class present in person or by proxy holding not
less than one-third of the issued shares of the class, or at an adjourned
meeting of such holders as described above a quorum will be established if any
one person entitled to vote at the meeting (or his proxy) is present. Each
holder of shares of the class shall have one vote in respect of every share of
the class held by such person.
DISCLOSURE OF INTERESTS
Under the Companies Act, any person who acquires (alone or, in certain
circumstances, with others) an interest in the relevant share capital of
Alliance in excess of the "notifiable percentage" (currently three percent)
comes under an obligation to disclose prescribed information to Alliance in
respect of those shares. After the "notifiable" level is exceeded, similar
notifications must be made, in respect of the whole percentage figure increases
or decreases, rounding down to the next whole number.
In addition, the Companies Act gives Alliance power to require persons who
it knows are, or has reasonable cause to believe to be, or to have been within
the previous three years, interested in its relevant share capital to disclose
prescribed particulars of those interests. Failure to supply the information
required may lead to disenfranchisement of the relevant shares and a prohibition
on their transfer and on dividend or other payments in respect of them.
In this context, the term "interest" is broadly defined and will generally
include an interest of any kind in shares.
MISCELLANEOUS
There are currently no U.K. foreign exchange controls on the payment of
dividends on the Existing Alliance Shares or the conduct of Alliance's
operations. There are no restrictions under Alliance's Memorandum and Articles
of Association or under English law that limit the right of non-resident or
foreign owners to hold or vote Existing or New Alliance Shares.
64
<PAGE>
CERTAIN TAX CONSIDERATIONS
The following discussion is a summary of the material U.S. federal income
tax consequences of the Merger and the material U.S. federal income tax and U.K.
tax consequences of ownership and disposition of the New Alliance Shares.
However, it is not intended to be a complete discussion of all potential tax
effects that might be relevant to the Merger or the ownership or disposition of
the New Alliance Shares.
This summary deals only with citizens or residents of the United States or
domestic corporations (each a "U.S. Holder"). It may not be applicable to
certain classes of taxpayers, including, U.S. Holders who are a resident (or, in
the case of an individual, resident or ordinarily resident) for U.K. tax
purposes in the U.K. or who carry on business in the U.K. through a branch or
agency, insurance companies, tax-exempt organizations, financial institutions,
securities dealers, broker-dealers, foreign persons, and persons who acquired
LaTex Shares pursuant to an exercise of employee stock options or rights or
otherwise as compensation. These classes of taxpayers should consult their own
tax advisors regarding the tax consequences of the Merger and the ownership and
disposition of the New Alliance Shares. Moreover, the state, local and foreign
(other than certain U.K.) tax consequences of the Merger and the ownership and
disposition of New Alliance Shares are not discussed below.
This summary is based on laws, regulations, rulings, practice and judicial
decisions in effect at the date of this Proxy Statement. Legislative,
regulatory or interpretive changes, future court decisions or specific tax
treaty provisions may significantly modify the statements made in this
description. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences described herein. EACH SHAREHOLDER IS
URGED TO CONSULT WITH THE SHAREHOLDER'S OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO THE HOLDER OF THE TRANSACTIONS DISCUSSED IN THIS SECTION,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF CHANGE IN APPLICABLE TAX LAWS.
U.S. TAX CONSEQUENCES OF THE MERGER
Recognition of Gain. While the Merger qualifies as a reorganization within
the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue
Code of 1986, as amended (the "Code"), because Alliance is a foreign corporation
and the New Alliance Shares to be issued to the U.S. Holders of LaTex Shares are
anticipated to represent more than 50% of the outstanding stock of Alliance
after the Merger, U.S. Holders must recognize any gain realized on the surrender
of LaTex Shares or a LaTex Warrant pursuant to the Merger (such a share or
warrant is referred to as a "Gain LaTex Share"). The amount of gain recognized
with respect to a Gain LaTex Share will be equal to the excess, if any, of (i)
the fair market value immediately after the Merger of the New Alliance Shares
received (including any fractional New Alliance Share treated as received) for
the Gain LaTex Share, over (ii) the U.S. Holder's tax basis in the Gain LaTex
Share. Any gain recognized should be long-term capital gain, provided the Gain
LaTex Share was a capital asset in the hands of the U.S. Holder and had been
held for more than the then applicable long-term holding period (currently one
year). A U.S. Holder will have a tax basis in each New Alliance Share received
(including any fractional New Alliance Share treated as received) for the Gain
LaTex Share equal to the fair market value of the New Alliance Share immediately
after the Merger. The holding period of each New Alliance Share received in
exchange for a Gain LaTex Share will begin as of the Effective Time of the
Merger. To the extent a U.S. Holder holds LaTex Shares subject to a substantial
risk of forfeiture, the U.S. Holder will recognize ordinary income at the time
the substantial risk of forfeiture lapses, equal to (i) the then fair market
value of the LaTex Shares or the New Alliance Shares received in exchange
therefor, as the case may be, over (ii) the U.S. Holder's tax basis in the LaTex
Shares or such New Alliance Shares, as the case may be.
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<PAGE>
Nonrecognition of Loss. Except as provided below with respect to cash in
lieu of fractional New Alliance Shares, U.S. Holders will be not entitled to
recognize any loss realized on the surrender of LaTex Shares or LaTex Warrant
pursuant to the Merger (such a share or warrant referred to as a "Loss LaTex
Share"). U.S. Holders surrendering both Gain LaTex Shares and Loss LaTex Shares
will not be entitled to offset the gains recognized on the Gain LaTex Shares
with the losses realized on the Loss LaTex Shares. A U.S. Holder will have an
aggregate tax basis in the New Alliance Shares received (including any
fractional New Alliance Shares treated as received) for the U.S. Holder's Loss
LaTex Shares equal to such U.S. Holder's aggregate tax basis in the Loss LaTex
Shares. The holding period of the New Alliance Shares will include the holding
period of the Loss LaTex Shares. U.S. Holders should consult their own tax
advisors as to the determination of their tax basis and holding period in any
New Alliance Share.
Cash Received in Lieu of Fractional Shares. No fractional New Alliance
Shares will be issued pursuant to the Merger. A U.S. Holder who, pursuant to the
Merger, receives cash in lieu of fractional New Alliance Shares will be treated
as having received a fractional New Alliance Shares pursuant to the Merger and
as then having received cash in a redemption of the fractional New Alliance
Shares. Under Section 302 of the Code, provided that the deemed redemption is
"substantially disproportionate" or is "not essentially equivalent to a
dividend" with respect to the U.S. Holder, after giving effect to the applicable
constructive ownership rules, the U.S. Holder will recognize capital gain or
loss on the deemed redemption equal to the difference between the amount of cash
received and the U.S. Holder's tax basis in the fractional New Alliance Shares
(determined as described above) rather than ordinary dividend income. Because
U.S. Holders must recognize any gain realized on the surrender of Gain LaTex
Shares, no additional gain should be realized or recognized on the deemed
redemption of the fractional New Alliance Shares treated as received for the
Gain LaTex Shares. With respect to the deemed redemption of fractional New
Alliance Shares treated as received for Loss LaTex Shares, U.S. Holders should
be entitled to recognize the capital loss realized on the deemed redemption. The
capital loss would be a long-term capital loss if the holding period (determined
as described above) for the fractional New Alliance Shares deemed received and
then redeemed is more that one year. The deductibility of capital losses is
subject to certain limitations.
Information Reporting. Since Alliance is a foreign corporation, U.S.
Holders of LaTex Shares and LaTex Warrants may be required to complete, execute
and file IRS Form 926 with such Holder's U.S. federal income tax return for the
year in which the Effective Time of the Merger occurs. Failure to comply with
these reporting requirements may subject a U.S. Holder to a penalty equal to 25%
of the gain realized by the U.S. Holder as a result of the Merger, and the
statute of limitations for assessing tax on arising from the Merger will not
begin to run until the reporting requirement is complied with. U.S. Holders
should consult their tax advisors regarding the U.S. information reporting
requirements as a result of the Merger.
UK AND US TAX CONSEQUENCES OF OWNERSHIP AND DISPOSITION OF NEW ALLIANCE SHARES
TAXATION OF DIVIDENDS
U.K. Taxation. Alliance does not expect to pay dividends for the
foreseeable future. Should Alliance begin paying dividends, it will be required
when paying a cash dividend in respect of its New Alliance Shares to pay to the
U.K. Inland Revenue a payment known as Advance Corporation Tax ("ACT"). The
current rate of ACT is 25% of the net dividend paid to a holder of New Alliance
Shares. An amount equivalent to the amount of the ACT paid in this way is, under
current English law, normally allowed as a credit against the U.K. tax liability
of holders of New Alliance Shares who are resident in the United Kingdom.
A U.S. Holder will generally be entitled under the current Convention
between the U.S. and the U.K. for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gain
(the "Income Tax Convention") and current U.K. law as applied by the U.K. Inland
Revenue
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to receive from the U.K. Inland Revenue, in addition to any dividend paid by
Alliance, an amount in the nature of a tax refund (an "ACT Refund") equal to the
ACT in respect of the dividend, less a U.K. withholding tax of 15% of the sum of
the dividend and the related ACT. Thus, assuming continuance of the ACT at a
rate of 25%, a net dividend paid to a U.S. holder of (Pounds)8 (chosen for
illustrative purposes only) will entitle the U.S. Holder described above to
receive, in addition to the dividend and upon compliance with the refund
procedures described below, an ACT Refund of (Pounds)0.5 calculated by reducing
the ACT of (Pounds)2 by a withholding tax of (Pounds)1.5. Special rules may
apply to certain U.S. Holders, including, without limitation, certain domestic
corporations, partnerships, trusts, estates, residents of the U.K., and domestic
corporations owning, actually or constructively, 10% or more of the voting stock
of Alliance.
A U.S. Holder who is entitled to the ACT Refund may, subject to agreement
with the U.K. Inland Revenue, receive payment in respect of the ACT Refund at
the same time as and together with a payment of the dividend. In order to do
so, a U.S. Holder must have his New Alliance Shares registered in the name of a
nominee approved by the U.K. Inland Revenue for the purpose, and the nominee
must follow certain procedural requirements. A U.S. Holder must provide the
name of his or her nominee in order to participate in this arrangement. In
addition, the U.S. Holder must be either:
1. An individual who (a) is not resident in the U.K.; (b) has not during the
previous four years been in the U.K. for as much as three months a year on
average, or for a period or periods amounting in all to six months in the
U.K. income tax year to which the claim on his behalf relates; (c) has not
been absent from the U.S. for a complete U.S. tax year in any of the
previous four years; (d) does not have a permanent establishment in the
U.K.; (e) does not perform professional/personal services from a fixed base
in the U.K.; and (f) does not own 10% or more of the class of shares in
respect of which the dividend is paid; or
2. A corporation (a) which is managed and controlled in the U.S. and does not
have a permanent establishment in the U.K.; (b) which does not own 10% or
more of the class of shares in respect of which the dividend is paid; (c)
which does not, alone or together with one or more associated corporations,
control, directly or indirectly, 10% of the voting power of Alliance; (d)
which is liable to U.S. tax on the dividend; and (e) at least 75% of the
capital of which is owned directly or indirectly by persons who are U.S.
residents.
These arrangements will be extended to trusts, estates in the course of
administration, pension funds, foundations and similar bodies only with the
prior approval of the U.K. Inland Revenue. These arrangements can be
restricted without notice by the U.K. Inland Revenue.
U.S. Holders who wish to receive an ACT Refund but do not qualify to
receive the ACT Refund directly under the U.K. Inland Revenue arrangements
should consult their tax advisers on their eligibility to receive and the
procedures to obtain an ACT Refund.
The U.K. Finance Act 1994 contains certain provisions allowing companies to
elect to pay a foreign income dividend ("FID") to which special rules apply and,
in particular, which does not carry any tax credit. Alliance has no present
intention of electing to pay any dividends under the FID scheme and the above
applies only to dividends not paid under the scheme.
U.S. Taxation. A U.S. Holder will realize dividend income for U.S. federal
income tax purposes in an amount equal to the sum of any dividend paid by
Alliance, amounts paid in respect of the related refund of ACT and the amount of
any U.K. withholding tax thereon, to the extent paid out of the current or
accumulated earnings and profits of Alliance, as determined under current U.S.
federal income tax principles. The amount included in income to a U.S. Holder
will be the U.S. dollar value of the payment (determined at
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the spot rate on the date of such payment) regardless of whether the payment is
in fact converted into U.S. dollars. Generally, any gain or loss resulting from
currency exchange fluctuations during the period between the date of such
payment and the date the dividend payment is converted into U.S. dollars will be
treated as ordinary income or loss. Dividends paid to a U.S. Holder will
generally not be eligible for the dividends received deduction allowed to
corporations under the Code.
Subject to certain limitations, the U.K. withholding tax will be treated as
a foreign income tax that may be claimed as a deduction from taxable income or
as a credit against the U.S. federal income tax liability of the U.S. Holder.
The particular circumstances of each U.S. Holder will affect their ability to
use the foreign tax credit. U.S. Holders should consult their own tax advisor
about the availability and computation of the foreign tax credit.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A U.S. Holder may, under certain circumstances, be subject to certain
information reporting requirements with respect to dividends paid on the New
Alliance Shares (but currently not backup withholding, although the issue of
whether backup withholding should apply in those circumstances, where
information reporting is required is under consideration by the IRS).
TAXATION OF CAPITAL GAINS
Upon the sale or exchange of a New Alliance Share, a U.S. Holder will
recognize a gain or loss for U.S. federal income tax purposes in an amount equal
to the difference between the amount realized and the U.S. Holder's tax basis in
the New Alliance Share. Such gain or loss will be a capital gain or loss if the
New Alliance Share was a capital asset in the hands of the U.S. Holder and will
be a long-term capital gain or loss if the New Alliance Share has been held for
more than one year on the date of the sale or exchange. The deductibility of
capital losses is subject to limitations.
A U.S. Holder that is not resident (or, in the case of an individual, not
resident or ordinarily resident) in the U.K. will not normally be liable for
U.K. taxation on capital gains realized on the sale of such Holder's New
Alliance Shares unless such U.S. Holder carries on a trade in the U.K. through a
branch or agency and such New Alliance Shares are or have been used, held or
acquired by or for the purposes of such trade, branch or agency or used in or
for the purpose of such trade.
A U.S. citizen who is resident or ordinarily resident in the U.K., a U.S.
corporation which is resident in the U.K. because its business is managed or
controlled there, or a U.S. citizen who, or a U.S. corporation that, carries on
a trade or business through a permanent establishment in the U.K. and that
acquires or holds a New Alliance Share in connection with that permanent
establishment may be subject to both U.S. and U.K. tax on its capital gains upon
disposition of the New Alliance Share. Subject to certain limitations, however,
the U.S. tax laws would permit a tax credit against U.S. federal income tax
liability in the amount of any U.K. tax (namely, capital in the case of an
individual and corporation tax on chargeable gains in the case of a corporation)
which has been paid in respect of such gain.
ESTATE AND GIFT TAX
Under the U.S.-U.K. double taxation convention relating to estate and gift
taxes (the "Estate and Gift Tax Convention"), a New Alliance Share held by an
individual who is domiciled in the U.S. and is not a national of the U.K. will
not be subject to U.K. Inheritance Tax on the individual's death or on a
transfer of the New Alliance Share in trust by a settler not domiciled in the
U.S. and in the exceptional case where the New Alliance Share is part of the
business property of a U.K. permanent establishment of an enterprise or
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pertains to a U.K. fixed base of an individual used for the performance of
independent personal services. The Estate and Gift Tax Convention generally
provides a credit for the amount of any tax paid in the U.K. against the U.S.
federal tax liability in a case where the New Alliance Share is subject both to
U.K. Inheritance Tax and to U.S. federal estate and gift tax.
STAMP DUTY AND STAMP DUTY RESERVE TAX
No U.K. stamp duty or stamp duty reserve tax ("SDRT") will be payable on
the issuance of the New Alliance Shares.
Under current U.K. law, the transfer of New Alliance Shares will generally
give rise to a liability to U.K. stamp duty, normally at the rate of 50p for
every (Pounds)100 (or part thereof) of the actual consideration paid. Where
there is no stamped document recording the sale of the shares, a charge to SDRT,
also at the rate of 0.5%, arises. Provided that the transfer is executed and
stamped within six years of the unconditional contract to sell, any obligation
to pay SDRT is canceled and any SDRT paid is refundable.
Special rules apply in relation to depository receipt arrangements and
clearance services.
Section 186 of the Finance Act 1996 provides that there is to be no
liability for stamp duty on the transfer of shares into CREST, the paperless
trading system which started in July 1996. SDRT is to be chargeable immediately
on entering into an unconditional agreement to transfer shares at the rate of
0.5% of the actual consideration paid (which SDRT is to be canceled or repaid if
the agreement is completed by a duly stamped transfer). Subsequent transfers of
shares within CREST will not give rise to a liability to stamp duty as there
will be no stampable document.
CONTROLLED FOREIGN CORPORATION STATUS
Under Subpart F of the Code, a controlled foreign corporation ("CFC") is a
foreign corporation that on any day of its taxable year is owned directly,
indirectly, or by attribution more than 50%, by vote or value, by "United States
Shareholders." For this purpose, a United States Shareholder is a United States
person who owns directly, indirectly or by attribution at least 10% of the total
combined voting power of all shares entitled to vote of the foreign corporation.
Alliance has represented that it is currently not a CFC and it is not
anticipated to be a CFC immediately after the Merger.
In the event Alliance becomes a CFC for an uninterrupted period of at least
30 days during a taxable year, a United States Shareholder of Alliance must
include in income for his taxable year in which or with which the taxable year
of Alliance ends his pro rata share of certain types of undistributed income of
Alliance (primarily subpart F income and increase in earnings invested in U.S.
property). A U.S. person who owns directly, indirectly, or by attribution less
than 10% of the total combined voting power of all classes of stock of Alliance
entitled to vote would not be taxed on the undistributed income of Alliance.
Such a U.S. person would be taxed under the ordinary rules relating to the
taxation of corporate distributions as discussed above.
U.S. Holders should consult their tax advisors as to the applicable law in
any year in which Alliance is a CFC.
PASSIVE FOREIGN INVESTMENT COMPANY STATUS
Because Alliance will receive interest income and royalties, Alliance may
be classified as a Passive Foreign Investment Company ("PFIC") for U.S. federal
income tax purposes. Under current rules, Alliance will be a PFIC if either 75%
or more of its gross income in a tax year is passive income or the average
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percentage of its assets (by value) which produce or are held for the production
of passive income is at least 50%.
For purpose of the PFIC tests, if a foreign corporation owns directly or
indirectly at least 25% by value of the stock of another corporation, the
foreign corporation is treated as owning its proportionate share of the assets
of the other corporation, and as if it had received directly its proportionate
share of the income of such other corporation. Because Alliance will own 100%
of the stock of LaTex after the Merger, Alliance will be treated as owning all
of LaTex's assets and receiving directly all of LaTex's income for purposes of
the PFIC tests.
If Alliance were to be treated as a PFIC, a U.S. Holder of New Alliance
Shares would be subject to an interest charge on taxes deemed deferred by such
U.S. Holder on receipt of certain "excess" dividend distributions by Alliance to
the U.S. Holder and on recognition of gain on disposition of any New Alliance
Shares of the U.S. Holder (which distributions and gains would generally be
allocated ratably to all days in the U.S. Holder's holding period for such New
Alliance Shares, with the portion so allocated to prior years treated as
ordinary income subject to tax at the highest marginal rate applicable in such
prior years). Alternatively, a U.S. Holder could avoid such interest charge and
adverse tax consequences if Alliance were to agree to comply with certain
reporting requirements, and the U.S. Holder were to elect (a "qualified
election") to be currently taxable on such U.S. Holder's pro rata share of
Alliance's earnings and profits (excluding net capital gain) and net capital
gain for each year (at ordinary and long-term capital gain rates, respectively),
even if no distributions were received. U.S. Holders who make a qualified
election may make an additional election (the "deferral election") to defer
payment of the tax liability on such current income inclusion until the receipt
of distributions from Alliance of the amounts deemed included in the U.S.
Holder's income pursuant to the qualified election. However, a U.S. Holder who
makes a deferral election must pay interest on the deferred tax liability.
Qualified elections are made on a shareholder-by-shareholder basis. A U.S.
Holder may make a qualified election for any taxable year at any time on or
before the due date for filing his U.S. federal income tax return for the
taxable year for which the election is made. A U.S. Holder makes the qualified
election by attaching the shareholder election statement, the PFIC annual
information statement and IRS Form 8621 to such U.S. Holder's timely filed U.S.
federal income tax return and sending a copy of the shareholder election
statement to the Internal Revenue Service Center at P.O. Box 21086,
Philadelphia, Pennsylvania 19114. Once made, the qualified election applies to
all subsequent taxable years of the U.S. Holder with respect to Alliance unless
revoked by the U.S. Holder with the consent of the Internal Revenue Service.
Alliance will supply the PFIC annual information statement required to make a
qualified election to any shareholder or former shareholder who requests it and
to all shareholders of record at any time in any PFIC year.
The deferral election is also made on a shareholder-by-shareholder basis.
The deferral election is made on a year-to-year basis with respect to each
year's tax liability and can be made only by those U.S. Holders who own New
Alliance Shares at the end of Alliance's taxable year to which such tax
liability is attributable. A U.S. Holder may make a deferral election for any
taxable year by attaching IRS Form 8621 or a similar statement with the U.S.
Holder's timely filed U.S. federal income for the taxable year for which the
election is made and sending a copy of the IRS Form 8621 or similar statement to
the Internal Revenue Service Center at P.O. Box 21086, Philadelphia,
Pennsylvania 19114.
U.S. Holders should consult with their own tax advisors to decide whether
and how to make the qualified and deferral elections.
A shareholder may recognize foreign currency gain or loss, if any, with
respect to income included if the qualified election is made at the time it
received an actual distribution from Alliance.
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U.S. Holders should consult their tax advisors as to the applicable law in
any year in which Alliance is a PFIC.
THE SUMMARY OF U.S. AND U.K. TAX CONSEQUENCES SET FORTH ABOVE IS BASED ON
THE INCOME TAX CONVENTION AND ESTATE TAX CONVENTION, U.S. LAW, U.K. LAW AND U.K.
INLAND REVENUE PRACTICE, ALL AS THEY EXIST AS OF THE DATE OF THIS PROXY
STATEMENT. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS THAT MAY BE RELEVANT TO
HOLDERS OF NEW ALLIANCE SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES. IN
PARTICULAR, IT DOES NOT ADDRESS THE CONSEQUENCES TO HOLDERS OF NEW ALLIANCE
SHARES RESIDENT OR DOMICILED IN THE U.K. OR DOING BUSINESS IN THE U.K. HOLDERS
OF NEW ALLIANCE SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER AND THE OWNERSHIP AND
DISPOSITION OF NEW ALLIANCE SHARES.
CERTAIN LONDON STOCK EXCHANGE ("LSE") LISTING REQUIREMENTS
In addition to the provisions of its Articles of Association and the
Companies Act, Alliance is subject to the listing rules of the LSE made under
Section 142 of the Financial Services Act, and, in particular, to the continuing
obligations under those rules. These require a listed company to provide to its
shareholders any information necessary to enable them and the public to appraise
the position of the company and to avoid the false market in its listed
securities. The listed company must ensure equality of treatment for all
shareholders who are in the same position and, where its securities are listed
on more than one stock exchange, must ensure that equivalent information is made
available to the market on each exchange on which the securities are listed. In
addition, the listing rules impose obligations on listed companies to send the
following information to shareholders:
1. audited annual financial statements on a consolidated basis;
2. details relating to certain acquisitions, disposals, takeovers, mergers
and offers either made by or in respect of the company; and
3. an explanatory circular or explanation in the annual report and
accounts whenever a general meeting of the shareholders is convened
which includes any business other than routine business at an annual
general meeting (routine business includes such items as declarations
of final dividends, approval of the report and financial statements,
re-election of directors and appointment of auditors).
In addition to the above requirements, a company is required to notify the
LSE of certain information, which the LSE will then publish. These include
details of any notifications received by the company of interests of 3% or more
in the company's share capital, any changes in the Board of Directors, any
purchase or redemption by the company of its own shares, any changes in
directors' interests in the shares or the debentures of the company and changes
in the share capital of the company. Unaudited half yearly reports of results
for the first six months of any financial year and an unaudited preliminary
announcement of results for any year must also be published. Quarterly results
are not required to be published.
There are additional obligations on companies listed on the LSE in relation
to transactions with related parties such as substantial shareholders, directors
(including directors within the last twelve months) of any group, company, or
associates of such persons. Where a transaction is proposed with a related
party, a circular to shareholders and the prior approval of the company at a
general meeting is generally required. The related party is not permitted to
vote at such general meeting.
EXPERTS
The consolidated financial statements of Alliance for each of the years in
the three-year period ended April 30, 1996 included in this Proxy Statement have
been included in reliance upon the report of KPMG Audit Plc, Independent
Chartered Accountants and Registered Auditors, appearing elsewhere in this Proxy
Statement and upon the authority of that firm as experts in accounting and
auditing. The consolidated financial statements of LaTex for each of the years
in the three-year period ended July 31, 1996 included in this Prospectus have
been included in reliance upon the report of Briscoe & Burke, certified public
accountants, appearing elsewhere in this Proxy Statement, and upon the authority
of that firm as experts in accounting and auditing.
U.K. LISTING PARTICULARS
A copy of a document comprising the U.K. listing particulars relating to
Alliance in accordance with the listing rules made under Section 142 of the U.K.
Financial Services Act of 1986 was delivered to the Registrar of Companies in
England and Wales for registration in accordance with Section 149 of that Act
and is available for inspection at the offices in Ashurst Morris Crisp,
Broadwalk House, 5 Appold Street, London EC2A 2HA, and all the offices of
Alliance in London. The contents of such listing particulars do not form part
of, nor are they incorporated into, this Proxy Statement.
LEGAL MATTERS
Certain legal matters in connection with the New Alliance Shares offered
hereby are being passed upon for Alliance by Ashurst Morris Crisp, English legal
advisors to Alliance. Certain legal matters in connection with the offering of
the New Alliance Shares will be passed upon for Alliance by Jenkens & Gilchrist,
a Professional Corporation, U.S. counsel to Alliance.
SHAREHOLDER PROPOSALS
In the event that the Merger is not consummated, proposals to be included
in LaTex's proxy statement relating to its next Annual Meeting of Shareholders
must have been delivered in writing to LaTex no later than
________________________, 1997.
ENFORCEABILITY OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS
Alliance is a public limited company incorporated under the laws of
England. Three of its ten directors after completion of the Merger (and certain
experts named in this Proxy Statement) are not subject to the jurisdiction of
the U.S. because they are neither citizens nor residents of the U.S. All or a
substantial portion of the assets of these persons and some of the assets of
Alliance and its subsidiaries are located in jurisdictions outside the U.S. As a
result, it may not be possible for investors to effect service of process within
the U.S. upon these persons or upon Alliance or any of its subsidiaries (other
than its U.S. subsidiaries) or to realize upon judgments of U.S. courts
predicated upon civil liability under the U.S. federal or state securities laws.
Alliance has been advised by its English solicitors, Ashurst Morris Crisp, that
there is doubt as to the enforceability in the U.K. against Alliance or any of
its subsidiaries (other than its U.S. subsidiaries) or any of their respective
directors, controlling persons or executive officers or any of the experts named
in this Prospectus who are not residents
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of the U.S., in actions for enforcement of judgments of U.S. courts of
liabilities predicated upon, or in original actions predicated solely upon, U.S.
federal or state securities laws. Nevertheless, Alliance has irrevocably agreed
that, after the Merger is completed, it may be served with process with respect
to actions based on the offer and sale of the New Alliance Shares made by this
Proxy Statement by serving Alliance at its principal U.S. operations office:
Attention: President, 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
Alliance has been advised by its English solicitors, Ashurst Morris Crisp,
that the United States and England do not currently have a treaty providing for
the reciprocal recognition and enforcement of judgments (other than arbitration
awards) in civil and commercial matters. Therefore, a final judgment for the
payment of a fixed debt or sum of money rendered by any federal or state court
in the United States based on civil liability, whether or not predicated solely
upon the U.S. federal securities laws, would not automatically be enforceable in
England. In order to enforce in England any U.S. judgment, proceedings must be
initiated by way of common law action before a court of competent jurisdiction
in England. An English court will, subject to the qualifications below, normally
order summary judgment on the basis that there is no defense to the claim for
payment and will not reinvestigate the merits of the original dispute. In such
an action, an English court will treat the U.S. judgment as creating a valid
debt upon which the judgment creditor could bring an action for payment, as long
as (i) the U.S. court had jurisdiction over the original proceeding in
accordance with English rules of private international law, (ii) the judgment is
final and conclusive on the merits, (iii) the enforcement of the judgment does
not contravene English public policy, (iv) the judgment must not be for a
multiple of penal damages, (v) the judgment has not been obtained by fraud or in
breach of the principles of natural justice, (vi) the judgment was not
inconsistent with a judgment of a competent English court or a previous
judgment of another competent court relating to the same matter, and (vii)
proceedings are instituted to enforce the judgement within the applicable
limitations period. Based on the foregoing, there can be no assurance that U.S.
investors will be able to enforce in England judgments in civil and commercial
matters obtained in any federal or state court in the United States. There is
doubt as to whether an English court would impose civil liability in an original
action predicated solely upon the U.S. federal securities laws brought in a
court of competent jurisdiction in England.
ADDITIONAL INFORMATION
Alliance has filed with the Commission a Registration Statement on Form F-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended, of which this Prospectus is a part, with
respect to the New Alliance Shares and New Warrants offered hereby. This
Prospectus omits certain information contained in the Registration Statement,
and reference is made to the Registration Statement for further information with
respect to Alliance and the New Alliance Shares and New Warrants offered hereby.
Statements contained herein concerning the provisions of documents are
necessarily summaries of these documents and when any such document is an
exhibit to the Registration Statement, each such statement is qualified in its
entirety by reference to the copy of such document filed with the Commission.
Copies of the Registration Statement, including the exhibits and schedules
thereto, may be acquired upon payment of the prescribed fees or examined without
charge at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20539, and at the regional offices of the
Securities and Exchange Commission at 7 World Trade Center, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material can also be obtained by mail at prescribed rates from the
Public Reference Section of the Securities and Exchange Commission at its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
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REPORTS TO SHAREHOLDERS
Upon completion of the Merger, Alliance will furnish its shareholders with
annual reports containing audited financial statements and the report thereon by
its auditors. In addition, Alliance will furnish its shareholders such
additional unaudited financial statements and reports which are required by the
various governmental regulatory agencies to whom it must report. The financial
statements will be prepared under accounting principles generally accepted in
the United Kingdom and include a reconciliation of profit and loss for the year
and shareholders equity to amounts estimated to be in accordance with United
States generally accepted accounting principles, or will be prepared in
accordance with the United States generally accepted accounting principles.
By Order of the Board of Directors
Stacey D. Smethers
Secretary
__________, 1997
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CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
ALLIANCE
Report of Independent Auditors F-2
Statement of Management Responsibility F-3
Consolidated Statement of Income for the years ended
April 30, 1996, 1995, 1994 F-4
Consolidated Balance Sheet as at April 30, 1996 and 1995 F-5
Consolidated Statement of Shareholders' Equity for the years ended
April 30, 1996, 1995, 1994 F-6
Consolidated Statement of Total Recognized Gains and Losses for the
years ended April 30, 1996, 1995, 1994 F-7
Consolidated statement of Cash Flows for the three years ended
April 30, 1996, 1995, 1994 F-8
Notes to the Financial Statements F-9
</TABLE>
F-1
<PAGE>
Legend
- ------
When the refinancing referred to in note 26 to the financial statements has been
consummated, we will be in a position to render the following report.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
ALLIANCE RESOURCES PLC
We have audited the consolidated financial statements of Alliance Resources Plc
and subsidiaries as listed in the accompanying index. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom, which are substantially in accordance with generally
accepted auditing standards in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis evidence supporting the amounts and discloses in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly in all material respects the financial position of Alliance Resources Plc
and subsidiaries as of April 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 1996 in conformity with generally accepted accounting principles
in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected the results of operations and shareholders' equity as
at and for the years ended April 30, 1994, 1995 and 1996, to the extent
summarized in Note 29 to the financial statements.
[KPMG Audit Plc] Chartered Accountants
London, England Registered Auditors
January [ ], 1997
F-2
<PAGE>
Statement of Directors' Responsibility for Consolidated Financial Statements
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
Company and Group and of the profit or loss for that period. In preparing those
financial statements, the Directors are required to:
. select suitable accounting policies and then apply them consistently;
. make judgements and estimates that are reasonable and prudent;
. state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
. prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with
the UK Companies Act 1985. They have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the Group and to
prevent and detect fraud and other irregularities.
F-3
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
--------------------
1996 1995 1994
NOTES $000 $000 $000
----- ------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil and Natural Gas Sales and other operating revenues (2) 3,686 1,483 837
--------- ---------- ---------
Costs and expenses: (5)
Exceptional amounts relating to oil and gas interest (3) - (14,881) -
Exceptional costs arising from irregularities (4) (589) (1,787) -
Direct operating expenses (2,262) (933) (903)
Selling, general and administrative expenses (2,629) (1,637) (927)
Depreciation, depletion, amortization (1,668) (63) (128)
--------- ---------- ---------
OPERATING (LOSS) (6) (3,462) (17,818) (1,121)
Other income and deductions:
Interest and other income (net) (8) 229 (114) (56)
Profit on sales of fixed asset investment - 183 -
Exceptional amounts written off investments (7) (201) (464) -
Foreign exchange losses (159) - -
--------- ---------- ---------
NET (LOSS) (3,593) (18,213) (1,177)
--------- ---------- ---------
LOSS PER SHARE (PENCE) (10) (0.8)p (8.1)p (0.8)p
========= ========== =========
</TABLE>
F-4
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30
-------------------
ASSETS 1996 1995
NOTES $000 $000
----- -------- --------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents 1,177 64
Receivables: (14)
Trade 736 626
Other 557 484
Prepaid expenses 64 88
Other current assets - 26
-------- --------
Total current assets 2,534 1,288
-------- --------
Net property, plant and equipment (full cost method for oil and
gas properties) (11) 7,311 8,047
-------- --------
Total Assets 9,845 9,335
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: (15)
Bank loans and overdrafts 37 366
Development loans 5 2,356
Trade accounts payable 1,279 2,574
Accrued expenses - 1,262
Other 677 2,945
-------- --------
Total current liabilities 1,998 9,503
Long-term debt, excluding current installments (16) 92 1,240
Other liabilities (16) - 30
-------- --------
Total liabilities 2,090 10,773
-------- --------
Stockholders equity:
Ordinary shares (Pounds)0.01 par value. Authorized 465,000,000 shares; issued (17) 5,105 2,524
324,152,633 in 1996 and 161,403,971 shares in 1995
Ordinary shares (Pounds)0.01 par value to be issued (18) - 2,030
Share premium 20,157 7,922
Merger reserve 401 401
Special reserve (19) - 4,300
Retained earnings (17,908) (18,615)
-------- --------
Total Stockholders' equity 7,755 (1,438)
-------- --------
9,845 9,335
======== ========
</TABLE>
F-5
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Ordinary Additional Total
Ordinary shares to be paid in Merger Special Retained Shareholders
shares issued capital reserve reserve Earnings Equity
$000 $000 $000 $000 $000 $000 $000
-------- ------------ ---------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 30, 1993 3,678 - 5,808 - - (3,422) 6,064
Issues of shares 1,707 - 6,308 - - 8,015
Goodwill arising on acquisition - - - - - (1,073) (1,073)
Retained loss for the year - - - - - (1,177) (1,177)
Foreign exchange translation - - - - - 460 460
-------- ------------ ---------- -------- -------- --------- ------------
Balances at April 30, 1994 5,385 - 12,116 - - (5,212) 12,289
Issues of shares 449 - 1,931 401 - - 2,781
Shares to be issued - 2,030 - - - - 2,030
Share issue costs - - (317) - - - (317)
Capital reduction (3,310) - (5,808) - 4,300 4,818 -
Retained loss for the year - - - - - (18,213) (18,213)
Foreign exchange translation - - - - - (8) (8)
-------- ------------ ---------- -------- -------- --------- ---------
Balances at April 30, 1995 2,524 2,030 7,922 401 4,300 (18,615) (1,438)
Issues of shares 2,581 (2,030) 12,678 - - - 13,229
Share issue costs - - (443) - - - (443)
Special reserve transfer - - - - (4,300) 4,300 -
Retained loss for the year - - - - - (3,593) (3,593)
-------- ------------ ---------- -------- -------- --------- ---------
Balances at April 30, 1996 5,105 - 20,157 401 - (17,908) 7,755
======== ============ ========== ======== ======== ========= =========
</TABLE>
F-6
<PAGE>
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
-------------------------------
1996 1995 1994
US$000 US$000 US$000
------ ------- -------
<S> <C> <C> <C>
Loss for the financial period (3,593) (18,213) (1,177)
Foreign exchange translation - (8) 460
------ ------- -------
Total recognised gains and losses for the period (3,593) (18,221) (717)
====== ======= =======
</TABLE>
F-7
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
-----------------------------------
1996 1995 1994
NOTES US$000 US$000 US$000
----- ------ ------ ------
<S> <C> <C> <C> <C>
NET CASH (OUTFLOW)/INFLOW FROM OPERATING
ACTIVITIES (20) (5,399) 1,987 (1,597)
------ ------ ------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 236 49 69
Interest paid (28) (163) (125)
------ ------ ------
NET CASH INFLOW/(OUTFLOW) FROM RETURNS ON 208 (114) (56)
INVESTMENTS AND SERVICING OF FINANCE ------ ------ ------
INVESTING ACTIVITIES
Payments to acquire tangible fixed assets (3,270) (3,413) (3,476)
Payments to acquire investments (59) (165) (402)
Purchases of subsidiary (23) - (941) 416
Receipts from sale of investments 77 474 -
Receipts from sales of tangible fixed assets 740 - -
------ ------ ------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (2,512) (4,045) (3,462)
------ ------ ------
NET CASH OUTFLOW BEFORE FINANCING (7,703) (2,172) (5,115)
------ ------ ------
FINANCING (21)
Proceeds from issue of shares 12,087 - 5,519
Share issue costs (443) (317) -
(Decrease)/increase in bank borrowings (904) (269) 260
Repayment of notes payable - - (483)
(Repayment)/proceeds from development loans (1,351) 2,351 -
(Repayment)/acquisitions of other loans (528) 620 -
------ ------ ------
NET CASH INFLOW FROM FINANCING 8,861 2,385 5,296
------ ------ ------
INCREASE IN CASH AND CASH EQUIVALENTS (22) 1,158 213 181
====== ====== ======
</TABLE>
F-8
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
Basis of preparation
At the time of drawing up the 1995 financial statements, the Company was in the
process of investigating significant irregularities in the Group's affairs
during the period in which Mr O'Brien was chief executive, and a forensic
investigation had uncovered a number of matters which required significant
adjustments to the books and records of the Group. In addition to the forensic
investigation, the Company instructed Ryder Scott Company, a firm of
independent petroleum reservoir engineers, to carry out an evaluation of the
oil and gas reserves attributable to the Group. As the result of both the
investigation which had at that time not been concluded and the Ryder Scott
Company reserve review, exceptional write downs of US$16,668,000 relating to
the Group's oil and gas reserves and US$464,000 relating to fixed asset
investments, were charged to the profit and loss account. It was not possible
to properly allocate these charges between items relating to the irregularities
and the evaluation of the Group's oil and gas reserves.
The forensic investigation has now been concluded and a settlement with Mr
O'Brien has been agreed. Consequently, US$1,787,000 which had originally been
capitalised and provided for in the 1995 accounts as part of the US$16,668,000
exceptional write down of the Group's oil and gas fixed assets, has since been
identified as the estimated loss to the Group arising from the alleged
fraudulent activities and has now been reclassified as a separate item (see note
4). The exceptional write down relating to oil and gas assets has accordingly
been restated as US$14,881,000. The accumulated cost and depletion of oil and
gas interests at May 1, 1995 have been reduced by US$1,787,000. In addition
US$285,000 of payments made to acquire tangible fixed assets have been similarly
classified to operating cash flow.
The accounting policies set out below have been used by the Company in the
preparation of the financial statements.
Accounting conventions
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards in the United
Kingdom.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Company and its subsidiaries.
Goodwill
Goodwill relating to businesses purchased by the Group, where arising, is set
off immediately against reserves.
Reporting currency
The Group's current operations are in the oil and gas industry in the United
States and are conducted through its subsidiaries, Alliance Resources (USA),
Inc. and Source Petroleum, Inc. Transactions are conducted primarily in US
dollars. As a result, the directors consider that the US dollar is the
functional currency of the Group and the Group's financial statements have been
prepared in US dollars. The Company's share capital is denominated in sterling
and for the purposes of the financial statements, is translated into US dollars
at the rate of exchange at the time of its issue.
Foreign currency translation
F-9
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The accounts of companies of the Group whose functional currency is not US
dollars are translated for consolidation purposes at the rate of exchange ruling
at the balance sheet date. Exchange differences arising on the retranslation of
opening net assets are taken directly to reserves.
For those companies whose functional currency is US dollars, transactions with
third parties are translated into US dollars at the exchange rate prevailing at
the date of each transaction. Monetary assets and liabilities denominated in
foreign currencies are translated into US dollars at the exchange rate
prevailing at the balance sheet date. Any exchange gain or loss is dealt with
through the profit and loss account.
Abandonment
Provision is made for abandonment costs net of estimated salvage values, on a
unit-of-production basis, where appropriate.
Turnover
Turnover represents income from production and delivery of oil and gas,
recorded net of royalties and fees for the provision of technical services.
All turnover arises from activities within the United States.
Oil and gas interests
The Group follows the full cost method of accounting for oil and gas operations
whereby all costs of exploring for and developing oil and gas reserves are
capitalised as tangible fixed assets. Such costs include lease acquisition
costs, geological and geophysical costs, the costs of drilling both productive
and non-productive wells, production equipment and related overhead costs.
Capitalised costs, plus estimated future development costs are accumulated in
pools on a country-by-country basis and depleted using the unit-of-production
method based upon estimated proved net reserve volumes. Reserve volumes are
combined into equivalent units using relative energy content.
Costs of acquiring and evaluating unproved properties and major development
projects are excluded from the depletion calculation until it is determined
whether or not proved reserves are attributable to the properties, the major
development projects are completed, or impairment occurs, at which point such
costs are transferred into the pool.
Proceeds from the sale or disposal of properties are deducted from the relevant
cost pool with any overall deficit or surplus being recognised in the profit
and loss account.
The Group performs a 'ceiling test' calculation in line with industry practice.
Costs permitted to be accumulated in respect of each cost pool are limited to
the future estimated net recoverable amount from estimated production of proved
reserves. Future estimated net recoverable amounts are determined using prices
and cost levels at the balance sheet.
Depreciation of other fixed assets
Other tangible fixed assets are stated at cost less accumulated depreciation.
Depreciation is provided on a straight line basis to reduce the cost of assets,
net of estimated residual values, over their estimated useful lives as follows:
Fixtures and equipment - 3 to 7 years
Freehold buildings - 30 years
No depreciation is provided on freehold land.
Deferred taxation
F-10
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Deferred taxation, calculated using the liability method, is provided where it
is probable that a liability will crystallise.
Joint ventures
The Group's exploration, development and production activities are generally
conducted in joint ventures with other companies. The financial statements
reflect the relevant proportions of turnover, production, capital expenditure
and operating costs applicable to the Group's interests.
Fixed asset investments
Fixed asset investments are stated at cost less any provisions required for
permanent diminutions in value.
Leases
Rentals under operating leases are charged to the profit and loss account on a
straight line basis over the lease term.
NOTE 2 - SEGMENTAL REPORTING
The Group's current operating activities are principally conducted in the
United States of America and relate to the oil and gas exploration and
production business and the provision of oil and gas services to this business.
All turnover arises from activities within the United States of America, with
turnover by destination not materially different from turnover by origin.
NOTE 3 - EXCEPTIONAL AMOUNTS WRITTEN OFF OIL AND GAS INTERESTS
The proved oil and gas reserves of the Group and the net recoverable amount
arising therefrom were estimated as at April 30, 1995 by Ryder Scott Company, a
firm of independent petroleum engineers following the discovery that Valentine
#14 well was not capable of commercial production and that the Group had
relinquished title to its undeveloped acreage in the Valentine field.
The amount of US$14,881,000 (see note 1) written off in the year to
April 30, 1995 represents the write down relating to the carrying value of the
Group's oil and gas interests as restated after the reclassification of
US$1,787,000 as a separate exceptional item (see note 4). The net book value
of the oil and gas interests as at April 30, 1995 is included in the balance
sheet at that date at the estimated net amount recoverable through production.
NOTE 4 - EXCEPTIONAL COSTS ARISING FROM IRREGULARITIES
During fiscal 1996, following the discovery that Mr. O'Brien had been
fraudulently misrepresenting the position at the Valentine field relating to the
#14 well, the Company undertook (with the assistance of external advisers) an
investigation into the involvement of Mr. O'Brien in the affairs of the Company.
This investigation has revealed that the Group has suffered a financial loss as
the result of a number of transactions involving Mr O'Brien or parties now
known to have been connected with him.
F-11
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The exceptional charge comprises:
<TABLE>
<CAPTION>
1996 1995
US$000 US$000
------ ------
<S> <C> <C>
Loss arising from transactions with certain companies related to Mr O'Brien 73 1,787
Professional fees 788 -
Estimated proceeds resulting from the settlement with Mr O'Brien (272) -
---- ------
589 1,787
==== ======
</TABLE>
LOSS ARISING FROM TRANSACTIONS WITH CERTAIN COMPANIES RELATED TO MR O'BRIEN
The loss of US$73,000 relates to an improper payment on the June 19, 1995 of
(Pounds)48,750 to Jasmine Consultants Limited. Jasmine Consultants Limited is
an off-shore company beneficially owned by Mr O'Brien.
The loss of US$1,787,000 arises from a number of transactions with certain
companies related to Mr. O'Brien in the year to April 30, 1995 as set out below:
. On August 10, 1994, the Company issued 7,500,000 ordinary shares to Progas
Holdings Limited, a company in which Mr O'Brien now admits to have an
interest and which is incorporated in Delaware, USA. This issue of shares
was in consideration for a 5.75% working interest in the Valentine field.
It has subsequently been discovered that Progas Holdings Limited acquired
this interest in the Valentine field from its previous owners on 21 July
1994 at a price of $255,000.
. On January 15, 1995 the Group entered into a loan agreement with Progas
Holdings Limited to record the terms of a loan of which US$1,129,000 had
been advanced by Progas Holdings Limited between July 28, 1994 and
December 16, 1994.
The principal terms of the loan were:
. a facility of US$1,400,000 to be drawn down solely for the purpose of
drilling and developing the Valentine #14 well;
. if the well was successful in proving commercially recoverable
quantities of oil and gas the amount drawn down together with a 100%
premium would be payable to Progas Holdings Limited from commencement
of production to July 30, 1995 at the latest, with the Group reserving
a right of early settlement in full;
. if the well was abandoned within six months of the date of the
agreement the amount drawn down was repayable immediately.
. On February 22, 1995, on the basis of representations from Mr O'Brien that
Valentine #14 well was successful, it was agreed that 10,351,966 ordinary
shares of the Company would be issued to Progas Holdings Limited at 6p per
share in satisfaction of US$1,000,000 of the debt with the remaining
US$1,258,000 to be repaid in cash.
F-12
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
. On May 9, 1995, 10,351,966 ordinary shares were so issued and the aggregate
sum of (Pounds)794,000 was paid to Progas Holdings Limited to satisfy the
liability of US$1,258,000. The premium paid of US$1,129,000 was not
justified.
. On April 5, 1995, the Group made a payment of US$ 175,000 to Progas
Holdings Limited for no apparent commercial reason.
. Between August 26, 1993 and September 1, 1993, the Group acquired a 1.375%
overriding royalty interest in the Valentine field from Royalty Investments
Limited (a company which Mr O'Brien now admits he owns), for US$185,000.
Royalty had acquired a 0.125% overriding royalty interest in the Valentine
field from an unrelated third party on August 23, 1993 for $7,500. The
Company believes the interest purchased to have been overvalued by
US$102,000.
Professional fees
The exceptional cost of US$788,000 in the year to 30 April 1996 relates to the
estimated cost of professional assistance obtained by the directors in relation
to actions taken arising from the alleged fraudulent activities in the period
in which Mr O'Brien was Chief Executive.
Estimated proceeds resulting from the settlement with Mr O'Brien
The Company has now reached a settlement with Mr O'Brien. One of the terms of
the settlement requires the disposal of 10,351,966 shares in the Company held in
the name of Progas Holdings Limited and the payment of the proceeds of sale of
those shares to the Company. These shares are currently in the custody of an
independent third party, pending their sale. Mr. J. A. Keenan, the Managing
Director of Alliance, has a proxy over the voting rights attaching to these
shares and to certain other shares in the Company held by Mr. O'Brien, Diamond
Securities Limited and Havensworth Limited, the latter two being companies
beneficially owned by Mr. O'Brien pending their sale by Mr. O'Brien and these
companies as required by the settlement. The exceptional credit of US$272,000
relates to the expected proceeds resulting from the sale of the shares in the
name of Progas Holdings Limited calculated using the market price prior to
suspension of the Company's shares.
F-13
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - OPERATING COSTS
<TABLE>
<CAPTION>
1996 1995 1994
US$000 US$000 US$000
------ ------- ------
<S> <C> <C> <C>
Total operating costs were: 7,148 19,301 1,958
====== ======= ======
Made up as follows:
Cost of sales
Exceptional amounts written off oil and gas interests - 14,881 -
(note 3)
Exceptional costs arising from irregularities - 1,787 -
(note 4)
Operating costs and production taxes 2,318 996 903
Depletion on oil and gas interests 1,612 - 125
------ ------- ------
3,930 17,664 1,028
====== ======= ======
Administrative expenses
Exceptional professional fees net of expected settlement proceeds 589 - -
(note 4)
Administrative expenses 2,629 1,637 930
------ ------- ------
3,218 1,637 930
====== ======= ======
The gross (loss) was: (244) (16,181) (191)
====== ======= ======
</TABLE>
F-14
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - OPERATING LOSS
The operating loss has been arrived at after charging the following:
<TABLE>
<CAPTION>
1996 1995 1994
US$000 US$000 US$000
------ ------ ------
<S> <C> <C> <C>
Auditors' remuneration - audit 188 48 30
Auditors' remuneration - non-audit services 41 68 103
Depreciation, depletion and amortisation of tangible fixed assets 56 63 3
(excluding oil and gas assets)
Depreciation, depletion and amortisation of oil and gas fixed assets 1,612 14,881 125
(including ceiling test write-down)
Lease costs on buildings 35 62 41
Hire of plant and equipment 78 4 42
----- ------ ----
</TABLE>
In the year ended April 30, 1995, in addition to the US$68,000 charged to the
profit and loss account , US$129,000 of fees paid to KPMG were charged to the
share premium account in connection with the placing and open offer which was
completed on May 9, 1995.
NOTE 7 - EXCEPTIONAL AMOUNTS WRITTEN OFF INVESTMENTS
Following the removal of Mr O'Brien, the Group reviewed its portfolio of
investments, unlisted investments and joint venture interests. It was
considered unlikely that significant amounts would be recovered from the
Tatarstan investment or from the Geos joint venture. Accordingly, additional
charges have been made to the profit and loss account in the years ended
April 30, 1995 and 1996 in respect of costs incurred in relation to these
investments.
NOTE 8 - INTEREST AND OTHER INCOME (NET)
<TABLE>
<CAPTION>
1996 1995 1994
US$000 US$000 US$000
------ ------ ------
<S> <C> <C> <C>
Interest receivable 257 49 69
Interest payable on bank loans and overdrafts wholly repayable within five years (28) (163) (125)
---- ------ ------
229 (114) (56)
==== ====== ======
</TABLE>
NOTE 9 - TAXATION
No material charge to UK corporation tax or US Federal income tax arises on the
results for the year to April 30, 1996 (1995:US$nil, 1994:US$nil) due to the
availability of substantial losses for taxation purposes.
Deferred taxation has not been provided as at April 30, 1996 as sufficient
losses exist to extinguish potential deferred liabilities (1995: US$nil;
1994:US$nil).
F-15
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - LOSS PER SHARE
The calculation of loss per share is based upon the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Loss for the period (US$000) 3,593 18,213 1,177
===== ====== =====
Weighted average number of shares 317,175,674 140,416,616 99,598,313
=========== =========== ==========
</TABLE>
The exchange rates used as at April 30, 1996 and April 30, 1995 and April 30,
1994 were US$1.5006:(Pounds)1 and US$1.6093:(Pounds)1 and US$1.5163:(Pounds)1
respectively.
F-16
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - NET PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
FREEHOLD
LAND AND OIL AND GAS FIXTURES &
BUILDING INTERESTS EQUIPMENT TOTAL
US$000 US$000 US$000 US$000
-------- ----------- ---------- -------
<S> <C> <C> <C> <C>
COST
At May 1, 1994 - 16,150 55 16,205
Additions - 6,220 49 6,269
Acquisitions 104 2,012 148 2,264
Disposals - - (29) (29)
--------- ------ ---- ------
At May 1, 1995 104 24,382 223 24,709
Additions - 1,657 15 1,672
Disposals - (735) (125) (860)
--------- ------ ---- ------
At April 30, 1996 104 25,304 113 25,521
========= ====== ==== ======
DEPRECIATION, DEPLETION AND
AMORTISATION
At May 1, 1994 - 1,704 17 1,721
Charge for the year 1 - 62 63
Exceptional charge - 14,881 - 14,881
Transfer to current assets - - (3) (3)
--------- ------ ---- ------
At May 1, 1995 1 16,585 76 16,662
Charge for the year 3 1,612 53 1,668
Disposals - - (120) (120)
--------- ------ ---- ------
At April 30,1996 4 18,197 9 18,210
========= ====== ==== ======
NET BOOK VALUE
At April 30, 1996 100 7,107 104 7,311
========= ====== ==== ======
At April 30, 1995 103 7,797 147 8,047
========= ====== ==== ======
</TABLE>
A substantial portion of the Group's oil and gas exploration, development and
production activities are conducted jointly with others.
All of the Group's producing oil and gas interests are located in one onshore
US oil and gas pool.
As at April 30, 1995 the Group had an interest in the Donkerbroek field, a non-
producing pre-development interest located off-shore The Netherlands which had
not been included in the full cost pool and had not been subject to depletion.
On June 5, 1995, the Group sold this interest for consideration after associated
costs of US$398,000. On July 12, 1995, the Group sold its oil and gas interests
in Colorado, USA for net consideration of US$283,000.
F-17
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Freehold land of US$25,000 is not depreciated.
NOTE 12 - INVESTMENTS
<TABLE>
<CAPTION>
US$000
----------
<S> <C>
Cost and net book value
At May 1, 1994 590
Additions 165
Amounts written off (464)
Disposal (291)
----
At May 1, 1995 -
Additions 201
Amounts written off (201)
Disposal -
----
At April 30, 1996 -
====
</TABLE>
As explained in note 7, an exceptional charge of US$201,000 (1995:US$464,000)
was made in the year ended April 30, 1996 relating to the investment in
Tatarstan and Geos joint venture.
F-18
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - PRINCIPAL SUBSIDIARIES
The principal subsidiaries of the Company all of which were wholly owned at
April 30, 1996, were as follows:-
<TABLE>
<CAPTION>
ISSUED AND
PLACE OF FULLY PAID %
REGISTRATION SHARE CAPITAL OWNED NATURE OF BUSINESS
------------ ------------- ------ ------------------
<S> <C> <C> <C> <C>
Alliance Resources (USA) Inc. USA 2,000 100 Oil and gas
common exploration and
shares US$1 production
each
Manx Petroleum Plc* England 2,585,705 100 Oil services
ordinary
shares of 5p
each and
1,300,000
non-voting
deferred
shares of 95p
each
Celtic Basin Oil England 621,110 100 Oil and gas
Exploration Ltd ordinary exploration and
shares of (Pounds)1 production
each
Source Petroleum Inc. USA 100 100 Oil and gas
common exploration and
shares of production
US$1 each
Alliance Resources Group Inc.* USA 100 common 100 Investment holding
shares of
US$1 each
ARNO Inc. USA 100 common 100 Oil and gas
shares of no exploration and
par value production
ARCOL Inc. USA 100 common 100 Oil and gas
shares of no exploration and
par value production
</TABLE>
* owned directly by the Company.
The place of registration of each subsidiary undertaking is also its principal
country of operation.
F-19
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1996 1995
US$000 US$000
------ ------
<S> <C> <C>
Due within one year:
Trade debtors 736 626
Other debtors 557 484
Prepayments and accrued income 64 88
----- -----
1,357 1,198
===== =====
</TABLE>
NOTE 15 - CURRENT LIABILITIES
<TABLE>
<CAPTION>
1996 1995
US$000 US$000
------ ------
<S> <C> <C>
Bank loans (secured) 37 321
Bank overdrafts - 45
Trade creditors 1,279 2,574
Other creditors including taxation and social security 677 2,945
Development loans and other loans 5 2,356
Accruals - 1,262
----- -----
1,998 9,503
===== =====
</TABLE>
Development loans represented specific loans granted during the year ended
April 30, 1995 to provide funds for drilling and developing the Valentine #14
well.
F-20
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 - CREDITORS: FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1996 1995
US$000 US$000
------ ------
<S> <C> <C>
Bank loans (secured) - 620
Trade creditors - 30
Other loans (secured) 92 620
---- ------
92 1,270
==== ======
Bank loans and overdrafts were repayable as follows:
1996 1995
US$000 US$000
------ ------
Less than one year 37 366
Between one and two years - 311
Between two and five years - 309
---- ------
37 986
Less: amounts included in creditors falling due within one year (37) (366)
---- ------
Amounts due after more than one year - 620
==== ======
Development loans and other loans were repayable as follows:
1996 1995
US$000 US$000
------ ------
Less than one year (see note 15) 5 2,356
Between one and two years 6 560
Between two and five years 21 42
After five years 65 18
---- ------
97 2,976
Less: amounts included in creditors falling due within one year (5) (2,356)
---- ------
Amounts due after more than one year 92 620
==== ======
</TABLE>
F-21
<PAGE>
ALLIANCE RESOURCES PLC. AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The bank loan as at April 30, 1995, of US$620,000 falling due after more than
one year and US$308,000 falling due within one year, was repayable in equal
monthly instalments by June 6, 1998 at a fixed rate of interest of 8% and was
secured by a US$3,000,000 collateral mortgage and security interests in certain
mineral leases of the Group. This loan was repaid after April 30, 1995 from the
proceeds of the placing and open offer which was completed on May 9, 1995.
Other loans as at April 30, 1996 and April 30, 1995 comprised a US$92,000
(1995:US$95,000) loan repayable in instalments, bearing interest at 9% per
annum, which was secured on the Group's freehold land and buildings. Also
included in other loans at April 30, 1995 a US$525,000 loan which was free of
interest and secured upon certain mineral leases of the Group.
Further information in relation to development loans is set out in note 25.
NOTE 17 - SHARE CAPITAL
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Authorised
- - ordinary shares of 1p each 465,000,000 216,000,000
=========== ===========
Allotted, called up and fully paid
- - ordinary shares of 1p each 324,152,633 161,403,971
=========== ===========
1996 1995
AMOUNT IN STERLING (Pounds)000 (Pounds)000
----------- -----------
Authorised
- - ordinary shares of 1p each 4,650 2,160
----------- -----------
Allotted, called up and fully paid
- - ordinary shares of 1p each 3,242 1,614
=========== ===========
1996 1995
AMOUNT IN US DOLLARS $000 $000
----------- -----------
Allotted, called up and fully paid
- - ordinary shares of 1p each 5,105 2,524
</TABLE> =========== ===========
AUTHORISED SHARE CAPITAL
F-22
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
On May 9, 1995, the authorised share capital of the Company was increased to
465,000,000 ordinary shares of 1p nominal value by the creation of an
additional 249,000,000 ordinary shares of 1p each, ranking pari passu with the
existing ordinary shares.
ISSUE OF SHARES
The following 1p ordinary shares were issued in the year to April 30, 1996:
(i) on May 9, 1995, 18,426,500 ordinary shares were issued in part
consideration for the acquisition of a portfolio of oil and gas assets in
the US from North American Gas Investment Trust Plc that had been made
during the year ended April 30, 1995;
(ii) on May 9, 1995, 127,470,196 ordinary shares were issued at 6p per share
by way of a placing and open offer which raised net proceeds of
US$11,663,000 after share issue costs of US$443,000;
(iii) on May 10, 1995, 10,351,966 ordinary shares were issued at 6p in part
repayment of a development loan from Progas Holdings Limited;
(iv) on July 19, 1995, 1,500,000 ordinary shares were issued in consideration
for the acquisition of all the issued 'A' ordinary share capital of
Geological Forecast Technology Limited;
(v) on November 27, 1995, 5,000,000 ordinary shares were issued as final
consideration for the repayment of a development loan from North American
Gas Investment Trust Plc that had been made during the year ended
April 30, 1995.
SHARE OPTIONS
On June 15, 1995, the following share options were granted pursuant to Alliance
Resources Plc Share Option Scheme (No. 1) to directors and employees of the
Company, exercisable at 6p per share.
John X F O'Brien 2,500,000 options
Nicholas C Gray 1,500,000 options
Other employees 1,325,000 options
At April 30, 1996 all options had ceased to be exercisable and have subsequently
lapsed.
There are currently no options granted under the schemes but the Board has
resolved that the following share options will be granted to the following
executive directors:
John A Keenan 6,000,000 options
H Brian K Williams 2,500,000 options
Paul R Fenemore 1,000,000 options
Such options will be granted at an appropriate time and at a price yet to be
determined in accordance with the provisions of the Company's Share Option
Scheme.
By an agreement dated April 7, 1994, the Company granted to John Duncan and Co
Limited an option to subscribe for 2,000,000 ordinary shares at 7.5p per share
in consideration for professional services. The option is exercisable in whole
or in part at any time from January 1, 1996 up to and including December 31,
2001.
F-23
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 - SHARES TO BE ISSUED
Shares to be issued at April 30, 1995 represent the remainder of the
consideration payable on the acquisition of a portfolio of oil and gas assets in
the US from North American Gas Investment Trust Plc, made during the year to
April 30, 1995 and consideration payable in repayment of a development loan from
North American Gas Investment Trust Plc.
<TABLE>
<CAPTION>
US$000
------
<S> <C>
Shares in respect of acquisition (issued on May 9, 1995) 1,780
Shares in respect of loan repayment (issued on November 27, 1995) 250
-----
2,030
=====
</TABLE>
Consideration given on May 9, 1995 and November 27, 1995 was made up of
18,426,500 and 5,000,000 ordinary shares of 1p each respectively issued at a
premium. Aggregate increases in share capital and share premium were as follows:
<TABLE>
<CAPTION>
US$000 US$000
------ ------
<S> <C> <C>
Share capital issued on May 9, 1995 297
Share capital issued on November 27, 1995 80
------
377
Premium on shares issued on May 9, 1995 1,483
Premium on shares issued on November 27, 1995 170
------
1,653
------
2,030
======
</TABLE>
NOTE 19 - SPECIAL RESERVE
The special reserve of US$4,300,000 at April 30, 1995 was set up as a result of
a reduction of share capital and share premium account approved by the High
Court on October 5, 1994 and was subject to restrictions imposed by the Court.
These restrictions were to become inoperative when new consideration of an
equivalent amount was received on shares issued after October 6, 1994. This
occurred on May 9, 1995 and, accordingly, the reserve has been transferred to
the accumulated profit and loss account.
F-24
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 - RECONCILIATION OF OPERATING LOSS TO NET CASH (OUTFLOW)/INFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1996 1995 1994
US$000 US$000 US$000
------ ------ ------
<S> <C> <C> <C>
Operating loss (3,462) (17,818) (1,121)
Exceptional amounts written off - 14,881 -
Profit on sale of investments (51) -
Depreciation, depletion and amortisation of oil and gas interests 1,612 - 125
Depreciation of non-oil and gas interests 56 63 3
(Increase)/decrease in debtors (138) 114 601
(Decrease)/increase in creditors (3,416) 4,747 (1,205)
------ ------- ------
Net cash (outflow)/inflow from operating activities (5,399) 1,987 (1,597)
====== ======= ======
</TABLE>
F-25
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 - ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR
<TABLE>
<CAPTION>
SHARE
CAPITAL
NOTES OTHER BANK (INCLUDING
PAYABLE LOANS LOANS PREMIUM)
US$000 US$000 US$000 US$000
------ ------ ------ ----------
<S> <C> <C> <C> <C>
Balance at May 1st, 1993 483 - 965 9,486
Issues of shares for non-cash consideration - - - 2,496
Proceeds from issue of shares - - - 6,031
Share issue cost - - - (512)
Repayment of notes payable (483) - - -
Exchange gain - - (15) -
Repayment of bank borrowings - - 260 -
------ ------ ------ ------
Balance at April 30, 1994 - - 1,210 17,501
Issue of shares for non-cash consideration - - - 2,781
Shares to be issued for non-cash consideration - - - 2,030
Share issue costs - - - (317)
Non-cash share capital reduction - - - (4,818)
Repayment of bank borrowings - - (269) -
Proceeds from development loans - 2,351 - -
Loans acquired with Source acquisition - 625 - -
------ ------ ------ ------
Balance at April 30, 1995 - 2,976 941 17,177
Issue of shares for non-cash consideration - (1,000) - 1,142
Proceeds from issue of shares - - - 12,087
Share issue costs - - - (443)
Non-cash transfer of special reserve - - - (4,300)
Repayment of bank borrowings - - (904) -
Repayment of development loans - (1,351) - -
Repayment of other loans - (528) - -
------ ------ ------ ------
Balance at April 30, 1996 - 97 37 25,663
====== ====== ====== ======
</TABLE>
Other loans include development loans and other loans disclosed in notes 15
and 16.
Share capital includes shares to be issued, share premium, merger reserve and
special reserve.
F-26
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 22 - ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS DURING THE YEAR
<TABLE>
<CAPTION>
US$000
----------------
<S> <C>
Balance at May 1, 1993 (375)
Net Cash inflow 181
------
Balance at May 1, 1994 (194)
Net cash inflow 213
------
Balance at April 30, 1995 19
Net cash inflow 1,158
------
Balance at April 30, 1996 1,177
======
</TABLE>
Analysis of the balances of cash and cash equivalents as shown on the
consolidated balance sheets:
<TABLE>
<CAPTION>
1996 1995 1994
US$000 US$000 US$000
------- ------- -------
<S> <C> <C> <C>
Cash at bank and in hand 1,177 64 288
Bank overdrafts - (45) (482)
----- ------ ------
1,177 19 (194)
===== ====== ======
</TABLE>
F-27
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 - ACQUISITIONS
On January 25, 1995 the Group acquired Source Petroleum Inc. ("Source"), an oil
and gas exploration and production company. The acquisition has been accounted
for using the acquisition method of accounting. The following summarises the
fair value ascribed at the date of acquisition:
<TABLE>
<CAPTION>
Net assets acquired: US$000
-----------
<S> <C>
Tangible fixed assets 2,264
Debtors 340
Bank overdraft (28)
Creditors (1,210)
------
1,366
======
Acquisition cost:
Shares allotted 453
Cash 913
------
1,366
======
</TABLE>
The consideration for the acquisition was satisfied by the issue of 3,205,128
ordinary shares and cash of US$800,000. US$113,000 was expended in costs
connected with the acquisition.
The amounts attributed to the assets and liabilities of Source represent
estimates of fair market values at the date of acquisition. These amounts were
the same as the book values at acquisition, except that the net book value of
tangible fixed assets was US$1,871,000 with the fair value uplift being
US$393,000 and the net book value of creditors was US$1,611,000 with the fair
value attributed being US$1,210,000,
The effect of the acquisition on the Group's results for the year to April 30,
1995 was to increase the loss for the financial year by US$20,000. Unaudited
financial statements of Source for the five month period ended April 30, 1995
showed a loss for the period of US$20,000.
NOTE 24 - EMPLOYEES
<TABLE>
<CAPTION>
April 30, 1996 April 30, 1995 April 30, 1994
US$000 US$000 US$000
<S> <C> <C> <C>
Staff costs (including executive Directors)
Salaries and wages 661 443 215
Social security costs 82 16 6
Termination costs 178 - -
Other pension costs 7 - -
-------- -------- --------
928 459 221
======== ======== ========
<CAPTION>
April 30, 1996 April 30, 1995 April 30, 1994
US$000 US$000 US$000
<S> <C> <C> <C>
Aggregate directors' emoluments (including pension contributions) were:
as directors 46 9 7
for management services
salaries 341 216 137
benefits-in-kind 4 - -
pension contributions 7 - -
fees to third parties 26 - -
Payments to former directors in respect of termination of
contracts 156 - -
-------- -------- --------
580 225 144
======== ======== ========
</TABLE>
The average number of persons employed by the Group, including Executive
Directors, were as follows:
<TABLE>
<CAPTION>
Apr 30, 96 Apr 30, 95 Apr 30, 94
<S> <C> <C> <C>
Management and administration 8 9 5
Technical and operational 7 11 -
-------- -------- --------
15 20 5
======== ======== ========
</TABLE>
F-28
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 25 - DIRECTORS' AND RELATED PARTY TRANSACTIONS
Transactions related with parties now known to be connected with Mr. O'Brien are
dealt with in note 4.
The following related party transactions occurred with North American Gas
Investment Trust Plc (NAGIT) which on May 9, 1995 became a substantial
shareholder of the Company:
(i) on July 29, 1994, the Group had entered into a loan agreement with NAGIT.
The main terms of the interest free loan were:
. a facility of US$250,000 to be drawn down solely for the purpose of
drilling the Valentine #14 well;
. if the well was successful in improving commercially recoverable
quantities of oil and gas, the capital drawn down together with a 100%
premium would be payable to NAGIT from production at 30% of gross
production revenues for the first 125 days, 50% of gross production
thereafter to 365 days after which settlement of the remaining balance
would be made in shares;
. if the well was abandoned, NAGIT was entitled to repayment in shares
to the lesser of 5,000,000 ordinary shares of 1p each and the number
of ordinary shares of 1p each to the value of US$250,000;
. if drilling was suspended for more than 30 days due to lack of funds,
NAGIT was entitled to repayment in shares to the value of US$250,000.
The full amount of the facility was drawn down.
As Mr. O'Brien fraudulently misrepresented that the Valentine #14 well
was successful, on various dates between June 6, 1995 and July 19, 1995
US$347,307 in aggregate was originally paid to NAGIT representing
payments from production volumes. Subsequent to the discovery of the
fraudulent misrepresentation concerning the Valentine #14 well, this
amount was off-set against the US$1,300,000 cash element of the purchase
and sale agreement with NAGIT (see(ii) below).
At April 30, 1995 US$250,000 was included as shares to be issued in
respect of this agreement. These shares were issued on November 27, 1995
as discussed in note 17.
(ii) on January 25, 1995, North American Gas Investment Trust Plc (NAGIT) lent
the Group US$1,200,000 bearing interest at 7% per annum for assistance in
the financing of the acquisition of Source Petroleum Inc and to provide
additional working capital. At April 30, 1995, US$1,200,000 was
outstanding and included in development loans and this amount was repaid
from the proceeds of the placing and open offer on May 9, 1995;
(iii) on April 10, 1995, the Group entered into a purchase and sale agreement
with NAGIT.
The main terms of the agreement were:
. the Group would purchase a portfolio of producing properties located
in the US with an effective date of January 1, 1995;
F-29
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
. consideration for the acquisition would comprise US$1,300,000 in cash
and the issue of 18,426,500 ordinary shares;
The 18,426,500 ordinary shares are included as shares to be issued at
April 30, 1995 at US$1,780,000. The 18,426,500 ordinary shares were
issued to NAGIT on May 9, 1995. At April 30, 1995 US$1,300,000 was
included in other creditors. This was settled by the payment on various
dates of an aggregate amount of US$347,307 and a payment on November 1,
1995 of US$906,000.
NOTE 26 - SUBSEQUENT EVENTS
On August 13, 1996 the Company announced that it had entered into a conditional
agreement to effect a merger ("Merger") with LaTex Resources, Inc. ("LaTex"), a
company listed on the NASDAQ. As a result of the Merger, the Company will issue
to the LaTex shareholders shares of the Company which will equal approximately
72% of the Company's issued shares after the Merger. The Company's shareholders
will own approximately 28% of the issued shares after the Merger. As a condition
of the Merger, the Company will effect a share consolidation, with the result
that each 40 shares that the Company's shareholders currently own will be
converted into one share of the Company; the shares issued to the LaTex
shareholders will be adjusted to take this consolidation into account. At the
Company's request, The London Stock Exchange has suspended the listing of the
Company's shares pending further details of the reorganisation of the Company.
On [ ], 1997, the LaTex bank borrowings, to be available to the combined
group, were successfully renegotiated with its bankers. The principal terms were
[ ].
On August 13, 1996, the Company also announced that it has agreed terms to stay
its current litigation against Mr John O'Brien, its former Chief executive and
other companies beneficially owned by Mr O'Brien. Mr O'Brien has also withdrawn
a counterclaim made against the Company (see note 4).
Other transactions occurred subsequent to April 30, 1996 as follows:
(i) On May 13, 1996 the Group announced that one of its US subsidiaries ARNO
Inc had reached agreement on the sale of its interest in four leases
comprising the McPac field, Matagorda Island, offshore Texas to Louisiana
Land and Exploration Company for a cash consideration of US$525,000. The
Group's interest in these blocks varied between 4.2% and 6.3% and its
interest in the McPac platform was 6.3%. On May 30, 1996, the Group
completed this transaction and the gross consideration was adjusted to
reflect the impact of the effective date of January 1, 1996 and a gas
overlift imbalance. This resulted in a net cash consideration of
US$432,000, which has been taken as a credit against the carrying cost of
the Group's oil and gas assets in the year to April 30, 1997.
(ii) On August 15, 1996 the Group disposed of its interest in 4 leases
comprising the Provident City field, Lavaca County, onshore Texas to
Shana Petroleum for a net cash consideration of US$435,000. The Groups'
working interest in these blocks varied between 17.7% and 42.4%. The
proceeds of the sale have been taken as a credit against the carrying
cost of the Group's oil and gas assets in the year to April 30, 1997.
F-30
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(iii) In August 1996 the Company transferred its interest in Geological
Forecast Technology Ltd by transferring its 50 'A' shares to Geos
Seismology Limited as part of a final settlement of an action brought by
the latter.
(iv) On October 3, 1996, the Group announced that one of its US subsidiaries
ARNO Inc had reached agreement for the sale of its interests in three US
oil and gas fields to BWAB Incorporated for a cash consideration of
US$1,425,000. The disposal covered the Group's interests in the Frost,
Gilmer South and Mocane Laverne fields, which are located in Texas and
Oklahoma and had combined remaining reserves of 25,920 barrels of oil and
1,720 million cubic feet of gas as at May 1, 1996, representing
approximately 16% of the Group's total proved and probable reserves. The
interests comprised 26 wells and the working interests in those wells
varied between 5% and 28%. The proceeds of the sale have been taken as a
credit against the carrying cost of the Group's oil and gas assets in the
year to April 30, 1997.
NOTE 27 - LITIGATION AND CONTINGENCIES
The Group is party to the following litigation:
(i) the Group is seeking to recover US$1,300,000 of unpaid drilling costs
from Drexco Inc, with Drexco Inc and H Huizenga claiming unspecified
damages in respect of conduct, and removal of Alliance Resources (USA)
Inc as operator of the Valentine field. The Group has obtained legal
advice and will vigorously prosecute its claim against Drexco Inc. The
Group denies the counter claim and will vigorously defend the matter;
(ii) the Group has received, on September 12, 1996, a writ from Best Royalties
Plc claiming US$186,368 and a declaration that they are entitled to a sum
equal to 40% of Alliance USA Inc's net cash proceeds received from the
Arrowhead well (and payment of the said sum), alternatively damages, plus
interest thereon. The Group denies the claim and will vigorously defend
this matter;
(iii) Earnest M Closuit et al. have asserted a claim against the Group for
alleged underpayment of amounts due for Closuit et al.'s interest in the
Buller No. 2 well in the South Elton field and have further claimed an
interest in past and future production from certain other wells in the
field. Total claims amount to approximately US$1,200,000. Discovery has
just begun. The Group denies all allegations and claims and will
vigorously defend this matter.
(iv) The directors have not been notified and do not expect to be notified of
any claims arising from the alleged fraudulent activities of Mr O'Brien.
NOTE 28 - CAPITAL COMMITMENTS
The capital commitments in respect of drilling costs for the forthcoming year
which are authorised but not contracted are as follows:
<TABLE>
<CAPTION>
APRIL 30, 1996 APRIL 30, 1995 APRIL 30, 1994
US$000 US$000 US$000
-------------- -------------- --------------
<S> <C> <C> <C>
Capital commitments - 5,300 6,037
========= ========= =========
</TABLE>
NOTE 29 - SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.
The Company's accounting policies conform with United Kingdom generally accepted
accounting principles ("UK GAAP") which differ in certain respects from United
States generally accepted accounting principles ("US GAAP"). Differences which
have a significant effect on the consolidated profit after tax (net income) and
shareholders' equity of the group are set out below.
a) Ceiling tests
A ceiling test has been carried out, in accordance with UK GAAP on an annual
basis, to determine the maximum net book amount of expenditure within the cost
pool of oil and gas assets which may be recognized. The ceiling test is based on
the Company's best estimate of the future cash flows from the underlying
properties. Under US GAAP, SEC regulations require ceiling tests to be computed
at current prices discounted to present value at 10%.
Under UK GAAP a ceiling test deficit should be written off to expense only if it
indicated a permanent diminution in value. Under US GAAP any deficit should be
charged immediately to the profit and loss account.
b) Goodwill
Under UK GAAP goodwill arising on acquisitions has been set off directly against
reserves. Under US GAAP, goodwill arising from acquisitions is capitalized and
amortized over its estimated useful life. However, following the irregularities
mentioned above, US GAAP requires the balance to be written of in 1995.
c) Estimated proceeds of Alliance Shares
As set out in note 4, the Company has recognized an exceptional credit of
US$272,000 relating to the right to receive the expected proceeds of the sale of
Alliance shares resulting from the settlement with Mr O'Brien under UK GAAP.
Under US GAAP, such proceeds are recognized only on receipt.
d) Statements of cash flows
The Company has adopted United Kingdom Financial Reporting Standard No. 1 "Cash
Flow Statements" ("FRS 1"). Its objectives and principles are similar to those
set out in the US Statement of Financial Standards No 95 "Statement of Cash
Flows" ("SFAS 95"). The principal difference between the standards relates to
classification. Under FRS 1, the Company presents its cash flows from (a)
operating activities; (b) returns on investments and servicing of finance; (c)
taxation; (d) investing activities; and (e) financing activities. SFAS 95
requires only three categories of cash flow activity: (a) operating; (b)
investing; and (c) financing. Cash flows and taxation and returns on investments
and servicing of finance shown under FRS 1 would, with the exception of
dividends paid, be included as operating activities under SFAS 95. The payment
of dividends would be included as a financing activity under SFAS 95. Movements
in short term investments would be classified as an investing activity under
SFAS 95 rather than, as shown, as a financing activity.
For purposes of reporting cash flows, all cash at bank and in hand and bank
overdrafts repayable on demand are considered cash equivalents.
F-31
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
EFFECT ON PROFIT AFTER TAX OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US
GAAP:
<TABLE>
<CAPTION>
Reference
to note
above Year ended April 30
--------- --------------------------
1996 1995
$ 000 $ 000
---------- ----------
<S> <C> <C> <C>
(Loss) after tax under UK GAAP (3,593) (18,213)
Adjustments:
Ceiling test a) - (2,428)
Resulting adjustment
to depletion of oil and
gas interests 437 -
Goodwill b) - (1,000)
Estimated Proceeds of Alliance Shares c) (272) -
---------- ----------
Approximate (loss) after tax,
adjusted for US GAAP (3,428) (21,641)
========== ==========
Approximate (loss) per Ordinary
Share (primary), adjusted for US
GAAP (pence) (0.7)p (9.6)p
========== ==========
(Loss) per Ordinary Share, UK GAAP (pence)
(0.8)p (8.1)p
========== ==========
EFFECT ON SHAREHOLDERS' EQUITY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US
GAAP:
<CAPTION>
Reference
to note
above As at April 30
--------- ------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C> <C>
Shareholders' Equity under UK GAAP 7,755 (1,438)
Adjustments
Ceiling tests a) (1,991) (2,428)
Estimated proceeds of Alliance shares c) (272) -
---------------- ----------------
Approximate shareholders' equity in
accordance with US GAAP 5,492 (3,866)
================ ================
</TABLE>
F-32
<PAGE>
<PAGE>
<PAGE>
APPENDIX A
GLOSSARY
The terms defined in this Appendix are used throughout this Proxy Statement.
Alliance. Alliance Resources Plc, a corporation organized and registered
under the laws of England and Wales.
Bank. Bank of America NT & SA.
BBL. One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.
BCF. One billion cubic feet of natural gas.
BOE. One barrel of oil equivalent using the ratio of one barrel of crude oil,
condensate or natural gas liquids to 6 Mcf of natural gas.
BTU. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
Commercial Well. Commercially Productive Well. An oil and gas well which
produces oil and natural gas in sufficient quantities such that proceeds from
the sale of such production exceed production expenses and taxes.
Conversion Rate. The rate at which holders of LaTex Shares will be entitled
to receive New Alliance Shares in the Merger. The Conversion Rate will be 0.8806
New Alliance Shares for each share of LaTex Common Stock, 2.6445 New Alliance
Shares for each share of LaTex Series A Stock, 5.8709 New Alliance Shares for
each share of LaTex Series B Stock, and a warrant to purchase 0.8806 New
Alliance Shares for each share of LaTex Common Stock subject to warrants issued
by LaTex.
Credit Agreement. _______________
Developed Acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Development Well. A development well is a well drilled within the presently
proved productive area of an oil or natural gas reservoir, as indicated by
reasonable interpretation of available data, with the objective of completing in
that reservoir.
DGCL. The Delaware General Corporation Law.
Dry Hole; Dry Well; Non-Productive Well. A well found to be incapable of
producing either oil or natural gas in sufficient quantities to justify
completion as an oil or natural gas well.
Existing Alliance Shares. The ordinary shares of Alliance, of (Pounds)0.01
each, currently outstanding.
Exploratory Well. An exploratory well is a well drilled either in search of a
new, as-yet undiscovered oil or natural gas reservoir or to greatly extend the
known limits of a previously discovered reservoir.
A-1
<PAGE>
Farmout. An assignment of an interest in a drilling location and related
acreage conditional upon the drilling of a well on that location.
Forbearance Agreement. An agreement entered into by LaTex Resources, Inc. and
the Bank of America under which the Bank of America has agreed to delay
enforcement of its rights under the Credit Agreement.
Formation. A succession of sedimentary beds that were deposited under the
same general geologic conditions.
GAAP. Generally accepted accounting principles.
Geopressured. Pressures in excess of the normal increase in pressure with
depth.
Gross Acres or Gross Wells. The total acres or wells, as the case may be, in
which a working interest is owned.
Horizontal Wells. Wells which are drilled at angles greater than 70 degrees
from vertical.
LaTex. LaTex Resources, Inc., a Delaware corporation.
LaTex Common Stock. The common stock, par value $.01 per share, of LaTex.
LaTex Form 10-K. The Annual Report on Form 10-K for the year ended July 31,
1996, of LaTex.
LaTex Series A Stock. The Series A Convertible Preferred Stock of LaTex, par
value $0.01 per share.
LaTex Series B Stock. The Series B Senior Convertible Preferred Stock of
LaTex, par value $0.01 per share.
LaTex Shares. The LaTex Common Stock, LaTex Series A Stock and LaTex Series B
Stock.
MBBL. One thousand barrels of crude oil or other liquid hydrocarbons.
MBOE. One thousand BOEs.
MBTU. One thousand BTUs.
MCF. One thousand cubic feet of natural gas.
Merger. The merger of Alliance Resources (Delaware) Inc., a wholly owned
subsidiary of Alliance, into LaTex with the result that LaTex will become a
wholly owned subsidiary of Alliance and each outstanding LaTex Share (other than
LaTex Shares, if any, held by LaTex in treasury and shares held by a shareholder
who has properly exercised his dissent and appraisal rights) will be
automatically canceled and LaTex shareholders will receive New Alliance Shares
at the Conversion Rate.
Merger Agreement. The Agreement and Plan of Merger among Alliance, Alliance
Resources (Delaware) Inc., a wholly owned subsidiary of Alliance, and LaTex
dated as of August 12, 1996, together with the letter amendments dated September
16 and 27, 1996, all of which are included as Appendix B to this Proxy Statement
A-2
<PAGE>
MMBBL. One million barrels of crude oil or other liquid hydrocarbons.
MMBOE. One million BOEs.
MMBTU. One million BTUs.
MMCF. One million cubic feet of natural gas.
Net; Net Revenue Interest. Production or revenue that is owned by the
respective company and produced for its interest after deducting royalties and
other similar interests.
Net Acres or Net Wells. The sum of the fractional working interests owned in
gross acres or gross wells.
New Alliance Shares. The ordinary shares of Alliance, of (Pounds)0.40 each,
to be outstanding after Alliance completes its 40-to-1 reverse stock split
immediately before the Merger.
New Warrants. The warrants to be issued by Alliance in the Merger to replace
________ currently outstanding warrants issued by LaTex. The New Warrants will
be convertible into 2,672,496 New Alliance Shares following the Merger.
PV10 Value. When used with respect to oil and natural gas reserves, PV10
Value means the estimated future gross revenue to be generated from the
production of proved reserves, net of estimated production and future
development costs, using prices and costs in effect at the determination date,
without giving effect to non-property related expenses such as general and
administrative expenses, debt service and future income tax expense or to
depreciation, depletion and amortization, discounted using an annual discount
rate of 10% in accordance with the guidelines of the SEC.
Productive Well. A well that is producing oil or natural gas or that is
capable of production.
Proved Developed Reserves. Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Proved Reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved Undeveloped Reserves. Reserves that are expected to be recovered from
new wells on undrilled acreage or from existing wells where a relatively major
expenditure is required for recompletion.
Proxy Statement. This Prospectus/Proxy Statement.
Royalty Interest. An interest in an oil and natural gas property entitling
the owner to a share of oil or natural gas production free of costs of
production.
Undeveloped Acreage. Lease acreage on which wells have not been participated
in or completed to a point that would permit the production of commercial
quantities of oil and natural gas regardless of whether such acreage contains
proved reserves.
Working Interest. The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property as well as to a
share of production.
A-3
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
August 12, 1996, by and among ALLIANCE RESOURCES PLC, a public limited company
incorporated in England and Wales ("Alliance"), ALLIANCE RESOURCES (DELAWARE),
INC., a newly formed Delaware corporation ("Newco") and LATEX RESOURCES, INC., a
Delaware corporation ("LaTex").
Recitals
--------
The parties desire to effect a merger on the terms, and subject to the
provisions and conditions, of this Agreement.
Agreement
---------
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements hereinafter set forth, in accordance with the provisions of
applicable law, the parties hereby agree as follows:
1. Definitions. As used in this Agreement and the Exhibits, Schedules and
-----------
documents delivered pursuant to this Agreement, the following terms shall have
the following meanings:
ADEA. "ADEA" means the Age Discrimination in Employment Act, as amended,
----
or any successor statute.
Affiliate. "Affiliate" means an "affiliate" or associate" as those terms
---------
are defined in Rule 12b-2 promulgated by the Commission under the Exchange Act.
Certificate of Merger. "Certificate of Merger" is as defined in Section
--------------------- -------
2.2.
- ---
Closing. "Closing" means the closing referred to in Section 3.1.
------- -----------
Closing Date. The "Closing Date" is the second business day (other than a
------------
Saturday, Sunday or legal holiday) following the day on which the conditions to
the obligations of the parties set forth in Articles 8 and 9 shall have been
---------- -
satisfied or waived, or such other time as shall be set by the parties in
writing.
Code. "Code" means the Internal Revenue Code of 1986, as amended, or any
----
successor statute.
Commission. "Commission" means the Securities and Exchange Commission
----------
and/or any other Governmental Entity that administers either the Securities Act
or the Exchange Act.
DGCL. "DGCL" means the Delaware General Corporation Law, as amended, or
----
any successor statute.
Dissenting Shares. "Dissenting Shares" are as defined in Section 2.8.
----------------- -----------
Effective Time. "Effective Time" is as defined in Section 2.2.
-------------- -----------
Encumbrance. An "Encumbrance" is any option, pledge, security interest,
-----------
lien, charge, encumbrance, or restriction (whether on voting, sale, transfer,
disposition or otherwise), whether
B-1
<PAGE>
imposed by agreement, understanding, law or otherwise, except those arising
under applicable federal or state securities laws.
ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as amended, or any successor statute.
Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, or any successor statute.
Excluded Entities. "Excluded Entities" means LaTex Resources International
-----------------
Inc.; Wexford Technology, Inc.; Imperial Petroleum, Inc. and Phoenix Metals,
Inc.
GAAP. "GAAP," with respect to the LaTex Entities, means generally accepted
----
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, in statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination, and with
respect to the Alliance Entities, means Financial Reporting Standards and
Statements of Standard Accounting Practice issued by the Accounting Standards
Board and its predecessor which are current as of the date of determination.
Good and Defensible Title. "Good and defensible title" means such title
-------------------------
that (i) is deducible of record (or otherwise acceptable to a reasonably prudent
title examiner) and free from reasonable doubt to the end that a prudent person
engaged in the business of the ownership, development and operation of oil and
gas properties with knowledge of all of the facts and appreciation of their
legal significance would be willing to accept the same, (ii) is free and clear
of all Encumbrances, except for Permitted Encumbrances, and (iii) with respect
to each Major Oil and Gas Interest of the Alliance Entities or the LaTex
Entities, as the case may be, entitles the relevant party or Subsidiary to
receive not less than the Net Revenue Interest set forth in Exhibit A-1 or A-2
------------------
(with respect to the Alliance Entities), and Exhibit B-1 or B-2 (with respect to
------------------
the LaTex Entities) with respect to all Hydrocarbons produced and attributable
to such Major Oil and Gas Interest, and obligates the party or the relevant
Subsidiary to pay costs and expenses relating to such Major Oil and Gas Interest
in an amount not greater than the Working Interest set forth in Exhibit A-1 or
--------------
A-
- --
2 (with respect to the Alliance Entities), and Exhibit B-1 or B-2 (with respect
------------------
to the LaTex Entities) with respect to such Major Oil and Gas Interest.
Governmental Entity. A "Governmental Entity" is any federal, state,
-------------------
municipal, domestic or foreign court, tribunal, administrative agency,
department, commission, board, bureau or other governmental authority or
instrumentality.
Hydrocarbons. "Hydrocarbons" mean oil, gas and/or other liquid and
------------
gaseous hydrocarbons or any combination thereof.
LaTex. "LaTex" means LaTex Resources, Inc., a Delaware corporation.
-----
LaTex Common Shares. "LaTex Common Shares" means all of the issued and
-------------------
outstanding common stock of LaTex, par value $.01 per share.
B-2
<PAGE>
LaTex Disclosure Schedule. The "LaTex Disclosure Schedule" is the
-------------------------
Disclosure Schedule delivered by LaTex to Alliance contemporaneously with the
execution of this Agreement. Each heading in the LaTex Disclosure Schedule shall
refer to the applicable section of this Agreement.
LaTex Entities. "LaTex Entities" means LaTex and its Subsidiaries other
--------------
than the Excluded Entities.
LaTex Financial Statements. The "LaTex Financial Statements" are,
--------------------------
collectively, the respective audited consolidated financial statements of the
LaTex Entities as of and for the years ended July 31, 1994 and 1995; and the
respective unaudited interim consolidated financial statements of the LaTex
Entities as of and for the quarter and nine months ended April 30, 1996.
LaTex Interests. "LaTex Interests" means:
---------------
(a) the Major Oil and Gas Interests of the LaTex Entities;
(b) the Miscellaneous Interests of the LaTex Entities; and
(c) all of the rights, titles and interests, whether direct or indirect,
of the LaTex Entities in and to all of the property, rights and interests
incident to such Major Oil and Gas Interests or such Miscellaneous Interests,
including without limitation all of the rights, titles and interests of the
LaTex Entities in and to all LaTex Oil and Gas Contracts, leases, rights-of-way,
easements, options, orders and rulings of applicable regulatory agencies, wells,
lease and well equipment, machinery, production facilities, processing
facilities, gathering systems, transportation systems, disposal systems,
fixtures and other items of personal property and improvements now or as of the
Closing Date appurtenant to such Major Oil and Gas Interests or such
Miscellaneous Interests or used, obtained or held for use in connection with the
operation of such Major Oil and Gas Interests or such Miscellaneous Interests or
with the production, treatment, sale or disposal of Hydrocarbons or water
produced therefrom or attributable thereto.
LaTex's Reimbursable Expenses. "LaTex's Reimbursable Expenses" shall mean
-----------------------------
all costs and expenses, evidenced by reasonable and customary documentary
support, that have been incurred (prior to and following the execution of this
Agreement) by, or for which liability has (prior to and following the execution
of this Agreement) arisen on the part of the LaTex Entities in connection with
(i) the investigation of the Alliance Entities and due diligence conducted by or
on behalf of LaTex and (ii) the negotiation, execution and performance of this
Agreement and the consummation of the transactions contemplated hereby
(including, without limitation, the financing of the Merger), including, without
limitation, (A) any financial advisory fees payable by LaTex, (B) amounts
payable in respect of legal, financial and accounting services provided by
outside advisors to LaTex and (C) other reasonable expenses incurred by LaTex in
connection with the Merger.
LaTex Reserve Report. "LaTex Reserve Report" means that reserve report
--------------------
with respect to LaTex's Major Oil and Gas Interests effective April 1, 1996
prepared by Lee Keeling and Associates.
LaTex Series A Shares. "LaTex Series A Shares" means all of the issued
---------------------
and outstanding Series A Convertible Preferred Stock of LaTex, par value $.01
per share.
LaTex Series B Shares. "LaTex Series B Shares" means all of the issued
---------------------
and outstanding Series B Senior Convertible Preferred Stock of LaTex, par value
$.01 per share.
B-3
<PAGE>
LaTex Shares. "LaTex Shares" means the LaTex Common Shares, LaTex Series A
------------
Shares and LaTex Series B Shares.
LaTex Stockholders. "LaTex Stockholders" means the holders of LaTex Shares
------------------
and holders of Options and Warrants of LaTex from time to time.
Leases. "Leases" means oil, gas and mineral leases, oil and gas leases,
------
oil leases, gas leases, other mineral leases, subleases, assignments of
operating rights and similar agreements, and any extensions or renewals thereof.
Major Non-Producing Leases. "Major Non-Producing Leases" of the Alliance
--------------------------
Entities or the LaTex Entities, as the case may be, means all of such group's
rights, titles and interests, including leasehold interests, whether direct or
indirect, in and to the lands and Leases described in Exhibit A-2 (with respect
-----------
to the Alliance Entities) or Exhibit B-2 (with respect to the LaTex Entities),
-----------
as appropriate.
Major Oil and Gas Interests. "Major Oil and Gas Interests" of Alliance
---------------------------
Entities or the LaTex Entities, as the case may be, means (i) the Major
Producing Leases of the Alliance Entities or the LaTex Entities, as the case may
be, and (ii) the Major Non-Producing Leases of the Alliance Entities or the
LaTex Entities, as the case may be.
Major Producing Leases. "Major Producing Leases" of the Alliance Entities
----------------------
or the LaTex Entities, as the case may be, means all of such group's rights,
titles and interests, whether direct or indirect, in and to the Wells described
in Exhibit A-1 (with respect to the Alliance Entities) or Exhibit B-1 (with
----------- -----------
respect to the LaTex Entities) and in and to any Leases (whether or not
described in Exhibit A-1 (with respect to the Alliance Entities) or Exhibit B-2
----------- -----------
(with respect to the LaTex Entities) upon which such Wells have been drilled or
which have been pooled or unitized with Leases upon which such Wells have been
drilled.
Material Effect. "Material Effect" means a material adverse effect on the
---------------
business or financial condition of a party and its Subsidiaries taken as a
whole.
Merger. "Merger" means the merger of Newco with and into LaTex as
------
described in Section 2.1.
-----------
Miscellaneous Interests. "Miscellaneous Interests" of the Alliance
-----------------------
Entities or the LaTex Entities, as the case may be, means all of such group's
claims, rights, titles and interests, whether direct or indirect, in and to all
Leases, royalty interests, overriding royalty interests and other oil, gas and
mineral properties of every kind and character, whether producing, non-
producing, developed or undeveloped, wherever situated (other than its Major Oil
and Gas Interests), including without limitation those oil, gas and mineral
properties described in Exhibit A-3 (with respect to the Alliance Entities) or
-----------
Exhibit B-3 (with respect to the LaTex Entities).
- -----------
Alliance. "Alliance" means Alliance Resources Plc, a public limited
--------
company incorporated in England and Wales.
Alliance Disclosure Schedule. The "Alliance Disclosure Schedule" is the
----------------------------
Disclosure Schedule delivered by Alliance to LaTex contemporaneously with the
execution of this Agreement. Each heading in the Alliance Disclosure Schedule
shall refer to the applicable section of this Agreement.
Alliance Entities. "Alliance Entities" means Alliance and its
-----------------
Subsidiaries.
B-4
<PAGE>
Alliance Financial Statements. The "Alliance Financial Statements" are,
-----------------------------
collectively, the audited consolidated financial statements of the Alliance
Entities as of and for the year ended April 30, 1995 and the five month period
ended September 30, 1995; and the unaudited interim financial statements of the
Alliance Entities as of and for the six months ended October 31, 1995.
Alliance Interests. "Alliance Interests" means:
------------------
(a) the Major Oil and Gas Interests of the Alliance Entities;
(b) the Miscellaneous Interests of the Alliance Entities; and
(c) all of the rights, titles and interests, whether direct or indirect,
of the Alliance Entities in and to all of the property, rights and interests
incident to such Major Oil and Gas Interests or such Miscellaneous Interests,
including without limitation all of the rights, titles and interests of the
Alliance Entities in and to all Alliance Oil and Gas Contracts, leases, rights-
of-way, easements, options, orders and rulings of applicable regulatory
agencies, wells, lease and well equipment, machinery, production facilities,
processing facilities, gathering systems, transportation systems, disposal
systems, fixtures and other items of personal property and improvements now or
as of the Closing Date appurtenant to such Major Oil and Gas Interests or such
Miscellaneous Interests or used, obtained or held for use in connection with the
operation of such Major Oil and Gas Interests or such Miscellaneous Interests or
with the production, treatment, sale or disposal of Hydrocarbons or water
produced therefrom or attributable thereto.
Alliance's Reimbursable Expenses. "Alliance's Reimbursable Expenses"
--------------------------------
shall mean all costs and expenses, evidenced by reasonable and customary
documentary support, that have been incurred (prior to and following the
execution of this Agreement) by, or for which liability has (prior to and
following the execution of this Agreement) arisen on the part of the Alliance
Entities in connection with (i) the investigation of the LaTex Entities and due
diligence conducted by or on behalf of Alliance and (ii) the negotiation,
execution and performance of this Agreement and the consummation of the
transactions contemplated hereby (including, without limitation, the financing
of the Merger), including, without limitation, (A) any financial advisory fees
payable by Alliance, (B) amounts payable in respect of legal, financial and
accounting services provided by outside advisors to Alliance and (C) other
reasonable expenses incurred by Alliance in connection with the Merger.
Alliance Reserve Report. "Alliance Reserve Report" means that reserve
-----------------------
report with respect to Alliance's Major Oil and Gas Interests effective April 1,
1996, prepared by Ryder Scott Company.
Alliance Shares. "Alliance Shares" means all of the issued and
---------------
outstanding ordinary shares of (Pounds)0.01 each in the capital of Alliance.
Alliance Stockholders. "Alliance Stockholders" means the holders of
---------------------
Alliance Shares from time to time.
Net Revenue Interest. "Net Revenue Interest" (or "NRI") means the
--------------------
decimal interest in and to all production of the Hydrocarbons produced and saved
or sold from the Alliance Interests or the LaTex Interests, as the case may be,
after giving effect to all valid lessors' royalties, overriding royalties and/or
other non-expense bearing burdens against production.
Net Revenue Interest After Payout. "Net Revenue Interest After Payout"
---------------------------------
("NRIAPO") means the NRI after any payout occurs in connection with any NRI
described in Exhibits A-1 and A-2 (with
--------------------
B-5
<PAGE>
respect to the Alliance Entities) or Exhibits B-1 and B-2 (with respect to the
--------------------
LaTex Entities) to this Agreement. Such payouts are defined and shall occur
pursuant to the agreements relating thereto.
Net Revenue Interest Before Payout. "Net Revenue Interest Before Payout"
----------------------------------
("NRIBPO") means the NRI before any payout occurs in connection with any NRI
described in Exhibits A-1 and A-2 (with respect to the Alliance Entities) or
--------------------
Exhibits B-1 and B-2 (with respect to the LaTex Entities) to this Agreement.
- --------------------
Such payouts are defined and shall occur pursuant to the agreements relating
thereto.
Oil and Gas Contracts. "Oil and Gas Contracts" means all Leases, permits,
---------------------
licenses, farmout or farmin agreements, bottom hole or acreage contribution
agreements, operating agreements, unit agreements, declarations or orders, joint
venture, exploration, participation or acquisition agreements, division orders,
production sales, purchase, exchange, processing or transportation agreements
and all other contracts and agreements in effect or in existence on the date
hereof and affecting or relating to the ownership or operation of the Alliance
Interests or the LaTex Interests, as the case may be, or the disposition of the
Hydrocarbons produced therefrom. The Oil and Gas Contracts affecting or relating
to the Alliance Interests are referred to herein as the "Alliance Oil and Gas
Contracts" and the Oil and Gas Contracts affecting or relating to the LaTex
Interests are referred to herein as the LaTex Oil and Gas Contracts.
Paying Agent. "Paying Agent" means the transfer agent for the Alliance
------------
Shares.
Permitted Encumbrances. "Permitted Encumbrances" means (i) lessor's
----------------------
royalties, overriding royalties, division orders and sales contracts covering
Hydrocarbons, reversionary interests and similar burdens and all existing
operating agreements and unit agreements, if the net cumulative effect of the
same does not operate to reduce the Net Revenue Interests of the Alliance
Interests or the LaTex Interests, as the case may be, to less than the Net
Revenue Interests set forth in Exhibits A-1 and A-2 (with respect to the
--------------------
Alliance Entities) or Exhibits B-1 and B-2 (with respect to the LaTex Entities)
--------------------
or increase the Working Interests of the Alliance Interests or the LaTex
Interests, as the case may be, to more than the Working Interests set forth in
Exhibits A-1 and A-2 (with respect to the Alliance Entities) or Exhibits B-1
- -------------------- ------------
and B-2 (with respect to the LaTex Entities) (unless there is a corresponding
- -------
increase in the Net Revenue Interests); (ii) any and all federal and state
regulatory orders and rules to which the Alliance Interests or the LaTex
Interests, as the case may be, are presently subject; (iii) preferential rights
to purchase and required third-party consents to assignments and similar
agreements; (iv) liens for Taxes not due or not delinquent at the time of
Closing or the validity of which are being contested in good faith by
appropriate actions; (v) statutory Encumbrances not yet delinquent; (vi) all
rights to consent by, required notices to, filings with, or other actions by
governmental entities in connection with the sale or conveyance of Leases or
interests therein if the same are customarily obtained after such sale or
conveyance; (vii) easements, rights-of-way, servitudes, permits, surface leases
and other rights in respect of surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like; and easements for streets, alleys,
highways, pipelines, telephone lines, power lines, railways and other easements
and rights-of-way, on, over or in respect of any of the Alliance Interests or
the LaTex Interests, as the case may be; (viii) liens of operators relating to
obligations not yet due or not delinquent; (ix) title problems commonly
encountered in the oil and gas business which would not be considered material
by a reasonable and prudent person engaged in the business of the ownership,
development and operating of oil and gas properties with knowledge of all the
facts and appreciation of their legal significance; and (x) Encumbrances
described in Exhibit A-1, A-2 and A-3 (with respect to the Alliance Entities)
------------------------
or Exhibit B-1, B-2 and B-3 (with respect to the LaTex Entities).
------------------------
Plan. "Plan" means (i) any employee benefit plan as defined in Section
----
3(3) of ERISA, which is (a) maintained by a party or any of its Subsidiaries, or
(b) to which a party or any of its Subsidiaries
B-6
<PAGE>
is making or accruing an obligation to make contributions, or (ii) any other
formal or informal obligation to, arrangement with, or plan or program for the
benefit of, employees of a party or any of its Subsidiaries, including, but not
limited to, stock options, stock bonuses, stock purchase agreements, bonuses,
incentive compensation, deferred compensation, supplemental pensions, vacations,
severance pay, insurance or any other benefit, program or practice.
Securities Act. "Securities Act" means the Securities Act of 1933, as
--------------
amended, or any successor statute.
Subsidiary and Subsidiaries. "Subsidiary" or "Subsidiaries" means any
---------------------------
corporation more than fifty percent (50%) of the voting power of which is owned
directly or indirectly by a party or other relevant person, as the context
requires, other than the Excluded Entities with respect to LaTex.
Surviving Corporation. "Surviving Corporation" is as defined in Section
--------------------- -------
2.1.
- ---
Taxes. "Taxes" means all taxes, charges, fees, levies, duties or other
-----
assessments, including, without limitation, income, gross receipts, excise, ad
valorem, property, production, severance, sales, use, license, payroll and
franchise taxes, imposed by any Governmental Entity and includes any estimated
tax, interest and penalties or additions to tax.
Tax Return. "Tax Return" means a report, return or other information
----------
required to be supplied by a party comprising a part of the Alliance Entities or
the LaTex Entities, as the case may be, to a Governmental Entity in connection
with Taxes including, where permitted or required, combined or consolidated
returns for any group of entities that includes that entity.
Warrants. "Warrants" means those warrants to purchase up to 3,034,750
--------
LaTex Common Shares pursuant to publicly and privately issued warrants.
Wells. "Wells" means the wells described in Exhibit A-1 (with respect to
----- -----------
the Alliance Entities) or Exhibit B-1 (with respect to the LaTex Entities), as
-----------
appropriate. The Wells of the Alliance Entities are referred to herein as
"Alliance's Wells" and the Wells of the LaTex Entities are referred to herein as
"LaTex's Wells."
Working Interest. "Working Interest" ("WI") means the decimal interest in
----------------
the full and entire leasehold estate in any of the Alliance Interests or the
LaTex Interests, as the case may be, and all rights and obligations of every
kind and character pertinent thereto or arising therefrom, without regard to any
valid lessor royalties, overriding royalties and/or other burdens against
production insofar as interest in said leasehold is burdened with the obligation
to bear and pay the cost of exploration, development and operation.
Working Interest After Payout. "Working Interest After Payout" ("WIAPO")
-----------------------------
means the WI after any payout occurs in connection with any WI described in
Exhibits A-1 and A-2 (with respect to the Alliance Entities) or Exhibits B-1
- -------------------- ------------
and B-2 (with respect to the LaTex Entities) to this Agreement. Such payouts
- -------
are defined and shall occur pursuant to the agreements relating thereto.
Working Interest Before Payout. "Working Interest Before Payout ("WIBPO")
------------------------------
means the WI before any payout occurs in connection with any WI described in
Exhibits A-1 and A-2 (with respect to the Alliance Entities) or Exhibits B-1
- -------------------- ------------
and B-2 (with respect to the LaTex Entities) to this Agreement. Such payouts are
---
defined and shall occur pursuant to the agreements relating thereto.
B-7
<PAGE>
2. The Merger.
----------
2.1 The Merger. Subject to the terms and conditions of this Agreement, at
----------
the Effective Time, Newco shall be merged with and into LaTex and the separate
corporate existence of Newco shall cease (the "Merger"). LaTex shall be the
surviving corporation in the Merger (sometimes referred to as the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware, and the separate corporate existence of LaTex with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger, except as set forth below in this Article 2. The Merger shall have the
---------
effects specified in the DGCL.
2.2 Effective Time. On the Closing Date, LaTex and Alliance will cause a
--------------
Certificate of Merger (the "Certificate of Merger") to be executed and filed
with the Secretary of State of Delaware as provided in Section 251 of the DGCL
to reflect the Merger. The Merger shall become effective at the date and time at
which the Certificate of Merger is duly filed with the Secretary of State of
Delaware, and such time is referred to in this Agreement as the "Effective
Time."
2.3 The Certificate of Incorporation. The Certificate of Incorporation of
--------------------------------
LaTex in effect at the Effective Time shall be the Certificate of Incorporation
of the Surviving Corporation, until duly amended in accordance with the terms
thereof and the DGCL.
2.4 The Bylaws. The Bylaws of LaTex in effect at the Effective Time shall
----------
be the Bylaws of the Surviving Corporation, until duly amended in accordance
with the terms thereof and the DGCL.
2.5 Officers and Directors. The officers and directors of Newco at the
----------------------
Effective Time shall be the officers and directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws.
2.6 Conversion or Cancellation of LaTex Shares and Newco Shares. The
-----------------------------------------------------------
LaTex Shares shall be cancelled and the Newco Shares shall be converted in the
Merger as follows:
(a) At the Effective Time,
(i) each LaTex Common Share issued and outstanding immediately
prior to the Effective Time, other than Dissenting Shares, shall by virtue
of the Merger and without any action on the part of the holder thereof, be
cancelled and the holder shall, in consideration of such cancellation,
become entitled to the allotment of 0.8806 Alliance Shares;
(ii) each LaTex Series A Share issued and outstanding immediately
prior to the Effective Time, other than Dissenting Shares, shall by virtue
of the Merger and without any action on the part of the holder thereof, be
cancelled and the holder shall, in consideration of such cancellation,
become entitled to the allotment of 2.6445 Alliance Shares;
(iii) each LaTex Series B Share issued and outstanding immediately
prior to the Effective Time, other than Dissenting Shares, shall by virtue
of the Merger and without any action on the part of the holder thereof, be
cancelled and the holder shall, in consideration of such cancellation,
become entitled to the allotment of 5.8709 Alliance Shares;
(iv) each Warrant outstanding at the signing of this Agreement, and
remaining outstanding at the Effective Time, whether or not then
exercisable or vested, shall be cancelled
B-8
<PAGE>
and the holders shall, in consideration of such cancellation, become
entitled to receive a new warrant issued by Alliance pursuant to which the
holder will have the right to subscribe for, in accordance with the terms
and subject to the conditions of the existing Warrant, that number of
Alliance Shares as the holder would have been entitled to receive had the
holder exercised the existing Warrant immediately prior to the Closing
Date, but only in accordance with the terms and conditions of the existing
Warrant,
with the result that, immediately after the Effective Time, the persons who held
LaTex Shares (including those who receive LaTex Shares in consideration for the
cancellation of outstanding options to purchase LaTex Shares) shall hold
21,448,520 Alliance Shares, constituting 72% of the Alliance Shares then
outstanding (including the 237,500 post-reverse split Alliance Shares issuable
upon exercise of the options approved for management of Alliance) and the
holders of Warrants shall have the right to subscribe an additional 0.8806
Alliance Shares for each LaTex Common Share subject to the Warrants, pursuant to
replacement warrants to be issued by Alliance under the provisions of Section
-------
2.6(a)(iv), subject, in each case, to appropriate adjustments to reflect the
- -----------
reverse stock split referred to in Section 2.10(c).
---------------
(b) By virtue of the Merger and without any action on the part of the
holders thereof, all LaTex Shares and all Warrants shall no longer be
outstanding and shall be canceled and shall cease to exist and each holder of a
certificate representing LaTex Shares or an agreement representing Warrants
shall thereafter cease to have any rights with respect to such LaTex Shares or
such Warrants, and in consideration therefor shall be entitled to receive the
Alliance Shares specified in this Section upon the surrender of the certificate
representing the LaTex Shares as provided in Section 2.7, or the new warrant
-----------
issued by Alliance upon the surrender of the agreement with respect to the
Warrant as provided in Section 2.7 or the right, if any, to receive payment from
-----------
from the Surviving Corporation of the "fair value" of such LaTex Shares as
determined in accordance with Section 262 of the DGCL. This Agreement shall
effect an amendment to the Certificate of Incorporation of LaTex with the
effects described in this Article 2, and approval of this Agreement by holders
---------
of LaTex Shares shall constitute approval of such amendments. Until such
surrender, no dividend or other distribution, if any, payable to holders of
record of Alliance Shares as of any date on or after the Closing Date shall be
paid to the holder of certificates representing LaTex Shares but upon surrender
of certificates representing the LaTex Shares as provided in Section 2.7, such
-----------
holder shall be entitled to receive all dividends and other distributions, if
any, without interest, that have become payable subsequent to the Effective Time
with respect to the number of Alliance Shares such holder is to receive.
(c) At the Effective Time, each Newco Share issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of Newco or the holder of such Shares, be
converted into one share of common stock of the Surviving Corporation.
2.7 Payment for LaTex Shares; New Warrants.
--------------------------------------
(a) Alliance shall, with effect from the Effective Time, allot the new
Alliance Shares to the holders of LaTex Shares which allotment shall be
conditioned on the relevant holders of LaTex Shares complying with Section 2.7
-----------
(b) and shall make available or cause to be made available to the Paying Agent
- ---
at the Effective Time certificates in respect of the Alliance Shares sufficient
to enable the Paying Agent to deliver the necessary certificates in respect of
the Alliance Shares to the holders of LaTex Shares as required by Section 2.6.
-----------
(b) On or after the Closing Date, each person who is at the Effective Time
a holder of record of issued and outstanding LaTex Shares may deliver to the
Paying Agent a letter of transmittal
B-9
<PAGE>
in a form suitable to the Paying Agent duly executed and completed in accordance
with the instructions thereto, together with such holders' certificates
representing such LaTex Shares, and Alliance shall cause the Paying Agent to
deliver to such holders certificates in respect of the Alliance Shares and any
dividends or distributions thereon to which such holders are then entitled. Upon
surrender to the Paying Agent of such certificates, together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, Alliance shall promptly cause to be delivered to the persons entitled
thereto certificates in respect of the Alliance Shares and any dividends or
distributions thereon to which such persons are then entitled.
(c) Fractional Alliance Shares will not be issued to any person. In lieu
of issuing a fractional Alliance Share to any person, Alliance will round the
number of Alliance Shares to be issued to each person to the nearest whole
number of Alliance Shares.
(d) If Alliance Shares are to be issued to a person other than the
registered holder of the certificates surrendered, it shall be a condition of
such issue that the certificates so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
delivery shall pay any transfer or other taxes required by reason of the
delivery to a person other than the registered holder of the certificates
surrendered or establish to the satisfaction of Alliance or the Paying Agent
that such tax has been paid or is not applicable.
(e) Sixty (60) days following the Effective Time, Alliance shall be
entitled to cancel the allotment of Alliance Shares and to cause the Paying
Agent to deliver to Alliance the share certificates in respect of any Alliance
Shares made available to the Paying Agent that have not been delivered to
holders of certificates formerly representing LaTex Shares outstanding at the
Effective Time, and thereafter, such holders shall be entitled to look to
Alliance only as general creditors thereof with respect to the issue of Alliance
Shares and any dividends or distributions thereon upon due surrender of their
certificates or agreements. Notwithstanding the foregoing, neither the Paying
Agent nor any party hereto shall be liable to any holder of certificates
formerly representing LaTex Shares for any Alliance Shares or any dividends or
distributions thereon delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Alliance shall pay all charges and
expenses, including those of the Paying Agent, in connection with the exchange
of Alliance Shares for LaTex Shares.
(f) On or after the Closing Date, each person who is at the Effective Time
a holder of record of issued and outstanding Warrants may deliver to Alliance
the agreements representing such Warrants and Alliance shall deliver to such
holders an agreement representing the new warrants to purchase Alliance Shares
on the terms of, and as provided by, Section 2.6(a)(iv).
2.8 Dissenters' Rights.
------------------
(a) Notwithstanding anything in this Agreement to the contrary, LaTex
Shares that are issued and outstanding immediately prior to the Effective Time
and that are held by LaTex Stockholders who have delivered a written demand for
appraisal of such LaTex Shares in the manner provided in Section 262 of the DGCL
(the "Dissenting Shares") shall not be cancelled and the holders thereof shall
not receive the right to receive the consideration provided in Section 2.6(a),
--------------
unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost the right to appraisal and payment under the DGCL,
as the case may be. If such holder shall have failed to perfect or shall have
effectively withdrawn or lost such right, the LaTex Shares shall thereupon be
deemed to have been cancelled and the holders thereof to have become entitled,
with effect from the Effective Time, to receive the consideration specified in
Section 2.6.
- -----------
B-10
<PAGE>
(b) LaTex promptly shall give Alliance notice of any demand made by or on
behalf of any dissenting LaTex Stockholder to be paid the "fair value" of the
LaTex Stockholder's LaTex Shares, as provided in Section 262 of the DGCL, and
the Surviving Corporation shall thereupon have sole and exclusive rights to
conduct and resolve, in its sole discretion, all negotiations proceedings and
ultimate disposition with respect to any such demands in any manner that the
Surviving Corporation may elect. All such payments shall be made solely by the
Surviving Corporation and shall not be made by, nor shall Alliance reimburse the
Surviving Corporation for, such payments.
2.9 Transfer of LaTex Shares After the Effective Time. No transfers of
-------------------------------------------------
LaTex Shares shall be made on the stock transfer books of the Surviving
Corporation at or after the Effective Time. If, after the Effective Time,
certificates formerly representing LaTex Shares are presented to the Surviving
Corporation, they shall be canceled and the holders thereof shall instead be
entitled to be issued Alliance Shares as provided in this Article 2.
---------
2.10 Approval of the Stockholders and Registration.
---------------------------------------------
(a) As soon as reasonably practicable after the date of this Agreement,
LaTex will, in compliance with all applicable state and federal laws, and in
form and substance satisfactory to Alliance, file with the Commission
solicitation material necessary, and use its best efforts, after effectiveness
of the registration statement referred to in Section 2.10(b), to obtain the
---------------
approval of the LaTex Stockholders to the Merger. The materials sent by LaTex in
connection with the approval of the LaTex Stockholders will not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Alliance agrees to
furnish to LaTex all information (which shall meet the standard of the preceding
sentence) reasonably requested by LaTex in connection with preparing such
materials. The materials shall in form and substance be satisfactory to Alliance
and shall include all information regarding the Alliance Entities required by
applicable law to inform holders of the LaTex Shares of all necessary
information concerning the Merger and of their appraisal rights under the DGCL.
LaTex agrees to use its best efforts to cooperate with Alliance in soliciting
the approval of the LaTex Stockholders to the Merger as soon as is reasonably
practicable. Subject to compliance with their fiduciary duties in connection
with an Alternative Transaction as described in Section 6.9 as advised in
-----------
writing by outside counsel, the board of directors of LaTex shall recommend
approval by the LaTex Stockholders of the Merger, without reservation or
qualification.
(b) As soon as reasonably practicable after the date of this Agreement,
Alliance will, in compliance with all applicable state and federal laws, and in
form and substance satisfactory to LaTex, file with the Commission and
applicable state authorities, and use its best efforts to obtain the
effectiveness of, a registration statement relating to the issuance of the
Alliance Shares in the Merger. The filing may be made in conjunction with the
filing by LaTex of solicitation material for the LaTex Stockholders. The
materials filed by Alliance will not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. LaTex agrees to furnish to Alliance all information
(which shall meet the standard of the preceding sentence) reasonably requested
by Alliance in connection with preparing such materials. The materials shall in
form and substance be satisfactory to LaTex and shall include all information
regarding the Alliance Entities required by applicable law to inform holders of
the LaTex Shares of all necessary information concerning the Merger and of their
appraisal rights under the DGCL.
(c) As soon as reasonably practicable after the date of this Agreement,
Alliance will, in compliance with all applicable laws, and in form and substance
satisfactory to LaTex, file with London
B-11
<PAGE>
Stock Exchange Limited solicitation materials reasonably necessary, and use its
best efforts, to obtain the approval of the Alliance Stockholders to the Merger,
to the issue of the new Alliance Shares and to a 40 to one reverse stock split
of the Alliance Shares. The materials sent by Alliance in connection with the
approval of Alliance Stockholders will not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. LaTex agrees to furnish to Alliance all
information (which shall meet the standard of the preceding sentence) reasonably
requested by Alliance in connection with preparing such materials. The materials
shall in form and substance be satisfactory to LaTex and shall include all
information regarding the LaTex Entities required by applicable law or
regulation to inform holders of the Alliance Shares of all necessary information
concerning the Merger and the reverse stock split. Alliance agrees to use its
best efforts in soliciting the approval of the Alliance Stockholders to the
Merger and the reverse stock split as soon as is reasonably practicable. Subject
to compliance with their fiduciary duties in connection with an Alternative
Transaction as described in Section 7.8 as advised in writing by outside
-----------
counsel, the board of directors of Alliance shall recommend approval by the
Alliance Stockholders of the Merger and the reverse stock split, without
reservation or qualification.
2.11 Restructuring Option. At any time on or before September 15, 1996,
--------------------
Alliance shall have the right (but not the obligation) to elect to restructure
the Merger and the transaction contemplated thereby in a manner determined by
Alliance with the consent of LaTex, which consent will not be unreasonably
withheld, and which restructured transaction will include the following: (a) the
LaTex Stockholders (excluding holders of LaTex Warrants) will, immediately prior
to the completion of the transaction, hold 72% of the equity, and the Alliance
Stockholders and the holders of Alliance options will, immediately prior to the
completion of the transaction, hold 28% of the equity, and (b) the matters to be
addressed in the opinion described in Section 9(k) will be true and correct as
------------
of the closing of such restructured transaction. Furthermore, such restructured
transaction will, to the extent reasonably practical, otherwise contain the
terms reflected in this Agreement. Upon Alliance's timely exercise of its rights
under this Section, the parties shall promptly execute such documents and
agreements and shall take such other action as may be necessary or appropriate
to effect such restructuring.
3. The Closing.
-----------
3.1 Time and Place of Closing. The closing of the Merger (the "Closing"),
-------------------------
shall, unless otherwise agreed to in writing by the parties, take place at the
offices of Jenkens & Gilchrist, P.C., 1445 Ross Avenue, Suite 3200, Dallas,
Texas at 10:00 a.m., local time, on the Closing Date.
3.2 Obligations of LaTex at or Prior to the Closing. At or prior to the
-----------------------------------------------
Closing, LaTex shall deliver to Alliance the following:
(a) A copy of the charters of each of the LaTex Entities certified as of a
date within ten days of the Closing Date by the Secretary of State of the state
of incorporation of each of the respective entities and certified by the
respective corporate secretary as to the absence of any amendments between the
date of certification by the respective Secretary of State and the Closing Date;
(b) A certificate from the appropriate governmental officials of the
state of incorporation as to the existence and good standing of each of the
LaTex Entities and the payment of Taxes by each of the LaTex Entities as of a
date within ten days of the Closing Date, and, if available, a telecopy from
such officials as to the same matters dated the business day before the Closing
Date;
B-12
<PAGE>
(c) A certificate of the corporate secretary of each of the LaTex Entities
attaching thereto a true and correct copy of the bylaws of the respective
entity;
(d) A certificate of the corporate secretary of LaTex attaching copies
of the resolutions of the board of directors and the LaTex Stockholders
approving the Merger;
(e) The Certificate of Merger duly executed on behalf of LaTex;
(f) The certificate of an officer of LaTex referred to in Section 8(b);
------------
(g) The agreement from each of the Affiliates of LaTex relating to his,
her or its investment in the Alliance Shares referred to in Section 8(d);
------------
(h) The opinion of LaTex's counsel referred to in Section 8(e);
------------
(i) All contracts, contract amendments, LaTex Oil and Gas Contracts,
commitments, leases, books, records, files and other data relating to any of the
LaTex Entities and their assets then in the possession of the LaTex
Stockholders;
(j) All consents or approvals of any third party that are required to be
identified pursuant to Section 4.4; and
-----------
(k) Such other documents as are required pursuant to this Agreement or
as may reasonably be requested from LaTex by Alliance or its counsel.
3.3 Obligations of Alliance and Newco at or Prior to the Closing. At or
------------------------------------------------------------
prior to the Closing, Alliance shall deliver to LaTex the following:
(a) a copy of the Memorandum and Articles of Association (and all
amendments thereto, if any) of Alliance and each of Alliance's U.K. Subsidiaries
certified by the corporate secretary as to the absence of any amendments as of
the Closing Date;
(b) a copy of the charters of Newco and each of Alliance's Subsidiaries
not included in Section 3.3(a) certified as of a date within ten days of the
--------------
Closing Date by the appropriate governmental officials of the jurisdiction of
organization of each of the respective entities and certified by the
respective corporate secretary as to the absence of any amendments between the
date of certification by the governmental official and the Closing Date;
(c) A certificate from the appropriate governmental officials of the
jurisdiction of organization of Newco and each of Alliance's Subsidiaries not
included in Section 3.3(a) as to the existence and good standing of such
--------------
Subsidiary as of the date within ten days of the Closing Date, and, if
available, a telecopy from such officials as to the same matters dated the
business day before the Closing Date;
(d) A certificate of the corporate secretary of each of Alliance and Newco
attaching copies of corporate resolutions duly adopted by the board of directors
and stockholders of each of them approving the Merger, the issue of new Alliance
Shares, the reverse stock split and authorizing the consummation of the
transactions contemplated hereby;
(e) The Certificate of Merger duly executed on behalf of Newco;
B-13
<PAGE>
(f) The certificate of an officer of Alliance and Newco referred to in
Section 9(b);
- ------------
(g) The opinions of Alliance's and Newco's counsel referred to in
Section 9(d);
- ------------
(h) All consents or approvals of any third party that are required to be
identified pursuant to Section 5.4;
-----------
(i) Such other documents as are required pursuant to this Agreement or
as may reasonably be requested from Alliance by LaTex or its counsel.
4. Representations, Warranties and Covenants of LaTex. Except as expressly
--------------------------------------------------
set forth and specifically identified by section number of this Agreement in the
LaTex Disclosure Schedule, LaTex represents, warrants and covenants to Alliance
and Newco, on the date hereof and as of the Closing Date, as follows:
4.1 Corporate Organization.
----------------------
(a) Each of the LaTex Entities is a corporation duly organized and
validly existing as a corporation and in good standing under the laws of its
jurisdiction of incorporation. Each of the LaTex Entities has the requisite
corporate power and authority to carry on its business as now being conducted
and to own, lease and operate its property and assets, and each of the LaTex
Entities is duly qualified or licensed to do business and is in good standing in
every jurisdiction in which the failure to be so qualified and licensed could
have a Material Effect. Section 4.1 of the LaTex Disclosure Schedule sets forth
--------------------------------------------
the name and state of incorporation of each of the LaTex Entities and each state
in which each of them is qualified or licensed to do business. LaTex has
heretofore delivered to Alliance true, correct and complete copies of each of
the LaTex Entities' respective Certificate of Incorporation and Bylaws as
presently in effect.
(b) Section 4.1 of the LaTex Disclosure Schedule sets forth a complete
--------------------------------------------
list of the present officers and directors of each of the LaTex Entities.
4.2 Capitalization.
--------------
(a) The authorized, issued and outstanding capital stock of each of the
LaTex Entities is as set forth in Section 4.2 of the LaTex Disclosure
-----------------------------------
Schedule. All of the issued shares of each of the LaTex Entities are validly
- --------
issued, fully paid and nonassessable and none of such shares have been issued
in violation of the preemptive rights of any person.
(b) There are no (i) shares of capital stock or other securities bearing
voting or other equity rights, whether contingent or not, of any of the LaTex
Entities outstanding; (ii) outstanding subscriptions, puts, options, warrants or
other rights, contractual or otherwise, to purchase or acquire any capital stock
of any of the LaTex Entities; or (iii) contracts, commitments, understandings,
arrangements or restrictions by which any of the LaTex Entities is or may become
bound to issue any additional equity interests or any options or rights with
respect thereto, or any securities convertible into any equity interests.
(c) The issued and outstanding stock of LaTex owned by the directors,
executive officers and 5% or greater stockholders of LaTex is owned of record,
and to the knowledge of LaTex, beneficially, as described in Section 4.2 of
--------------
the LaTex Disclosure Schedule. LaTex owns all of the issued
- -----------------------------
B-14
<PAGE>
and outstanding stock of each of its Subsidiaries, directly or indirectly, free
and clear of all Encumbrances. Except for its Subsidiaries, neither LaTex nor
any of its Subsidiaries owns or holds any equity, debt or other interest in any
entity or business or any option to acquire any such interest, except for
accounts receivable that have arisen in the ordinary course of business.
4.3 Authority; No Violation.
-----------------------
(a) The execution and performance of this Agreement by LaTex have been
duly and validly authorized by the board of directors of LaTex and, except for
the approval of the LaTex Stockholders, no other corporate action is necessary
to authorize the execution, delivery and performance of this Agreement by LaTex.
LaTex has full, absolute and unrestricted right, power and authority to execute
and perform this Agreement and, subject to the approval by the LaTex
Stockholders, to carry out the transactions contemplated hereby. This Agreement
has been duly and validly executed by LaTex and, subject to approval by the
LaTex Stockholders, is a valid and binding obligation of LaTex, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, moratorium, reorganization, receivership or similar laws affecting
the rights of creditors generally.
(b) None of the execution, delivery or performance of this Agreement
does or will, after the giving of notice, lapse of time or otherwise, (i) result
in any violation of or be in conflict with or constitute a default under any
term or provision of the Certificate of Incorporation or Bylaws of any of the
LaTex Entities of or any term or provision of any judgment, decree, order,
statute, injunction, rule or regulation applicable to any of the LaTex Entities,
or of any material note, bond, mortgage, indenture, lease, license, franchise,
agreement or other instrument or obligation to which any of the LaTex Entities
is bound; (ii) result in the creation of any material Encumbrance upon LaTex
Shares, the securities of the Surviving Corporation or any of the properties or
assets of the LaTex Entities pursuant to any such term or provision; or (iii)
constitute a material default under or give any party the right to accelerate,
amend or modify, terminate, abandon or refuse to perform or comply with, any
material contract, agreement, arrangement, commitment or plan to which any LaTex
Entities is a party, or by which any of the LaTex Entities or any of their
rights, properties or assets may be subject or bound.
4.4 Consents and Approvals. No consent, waiver, approval or
----------------------
authorization of, or declaration, designation, filing, registration or
qualification with, any Governmental Entity or any third party, is required to
be made or obtained by the LaTex Entities in connection with the execution,
delivery and performance of this Agreement or to preserve any material rights
and benefits enjoyed by any of the LaTex Entities on the date hereof following
the consummation of the transactions contemplated by this Agreement except (a)
those that have already been obtained or (b) those specifically contemplated by
this Agreement.
4.5 Violations of Laws, Permits, etc.
---------------------------------
(a) None of the LaTex Entities is in violation of any term or provision
of its Certificate of Incorporation or Bylaws. None of the LaTex Entities is in
violation of any term or provision of any judgment, decree, order, statute,
injunction, rule, ordinance or regulation applicable to it, or of any agreement
or instrument applicable to such entity where the violation thereof would result
in a Material Effect.
(b) Each of the LaTex Entities holds and has maintained in full force
and effect all certificates, licenses and permits material to the conduct of its
business, and has not received any
B-15
<PAGE>
notification that any revocation or limitation thereof is threatened or pending
where such revocation or limitation would result in a Material Effect.
4.6 LaTex Financial Statements.
--------------------------
(a) In all material respects the consolidated LaTex Financial Statements
fairly present the consolidated assets, liabilities and financial position of
the respective entities purported to be covered thereby as of the dates thereof
and the results of their operations and cash flow for the respective periods
ended on such dates, all in conformity with GAAP consistently applied, except
that the April 30, 1996 unaudited interim financial statements do not contain
footnotes (that, if presented, would not differ materially from those in the
audited LaTex Financial Statements) and are subject to normal, recurring year-
end adjustments (which will not, individually or in the aggregate, have a
Material Effect).
(b) The LaTex Financial Statements were prepared from the books and
records of each of the respective entities purported to be covered thereby. Such
LaTex Financial Statements do not contain any items of a material special or
nonrecurring nature, except as expressly noted in such statements.
4.7 No Undisclosed Liabilities, etc. None of the LaTex Entities has any
--------------------------------
material liabilities or obligations, whether direct, indirect, absolute or
contingent (including, without limitation, liabilities as guarantor or otherwise
with respect to obligations of others), except (a) liabilities that are fully
reflected on or reserved against on the latest balance sheet of such entity
included in the LaTex Financial Statements or (b) liabilities incurred in the
ordinary course of business since the date of the latest balance sheet included
in the LaTex Financial Statements that are consistent with past practice.
4.8 Absence of Certain Changes. Since the date of the latest audited
--------------------------
LaTex Financial Statement, except as specifically disclosed in the April 30,
1996 unaudited interim consolidated LaTex Financial Statements, none of the
LaTex Entities has:
(a) Suffered any change that would result in a Material Effect;
(b) Adopted or made any change in any pension, retirement, profit
sharing or other employee benefit plan or arrangement;
(c) Borrowed or agreed to borrow any money or incurred, assumed or
become subject to, whether directly or by way of guarantee or otherwise, any
other material obligation or liability for borrowed money, whether absolute or
contingent;
(d) (i) Issued, purchased or redeemed any of its capital securities or
any option, warrant or right to purchase any of the same; or (ii) authorized,
declared or made any dividends, distributions of earnings or capital on, or
splits or any other reclassification of its equity securities;
(e) Mortgaged, pledged or subjected to any Encumbrance any of its
assets, tangible or intangible, having a value in excess of $25,000 in the
aggregate;
(f) Acquired or disposed of, or entered into any agreement to acquire or
dispose of, any material assets or properties, other than oil and gas production
in the ordinary course of business, or other assets having a value in excess of
$25,000 in the aggregate;
B-16
<PAGE>
(g) Increased the salaries, compensation, pension or other benefits
payable, or paid any bonuses, to its officers and directors or their Affiliates;
(h) Forgiven or canceled any debts or claims or waived any rights
against the LaTex Stockholders or any officer or director of the LaTex Entities
or their Affiliates or forgiven or canceled any debts or claims or waived any
rights against any other person in excess of $25,000 in the aggregate;
(i) Entered into, terminated or received notice of the termination of
any commitment, contract, agreement or transaction that is material to any of
the LaTex Entities; or
4.9 Agreed, either in writing or otherwise, to take any action described
in this Section 4.8.
-----------
(a) Title to Property; Encumbrances.
-------------------------------
(a) The LaTex Entities, either directly or indirectly, have (and as of
the Closing will have) good and defensible title to the LaTex Interests.
(b) The LaTex Entities own no real property other than the LaTex
Interests. Section 4.29 of the LaTex Disclosure Schedule sets forth a
---------------------------------------------
complete list of all real property other than the LaTex Interests that the LaTex
Entities lease or sublease, and which lease or sublease provides for payments at
an annual rate in excess of $25,000. LaTex has delivered to Alliance correct and
complete copies of all such leases and subleases (the "LaTex Real Property
Leases"). With respect to each such Real Property Lease:
(i) each LaTex Real Property Lease is legal, valid, binding, enforceable
and in full force and effect;
(ii) each LaTex Real Property Lease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby;
(iii) to the knowledge of the LaTex Entities, no party to any LaTex Real
Property Lease is in breach or default and no event has occurred which, with
notice or lapse of time, would constitute a breach or default or permit
termination, modification or acceleration thereunder;
(iv) to the knowledge of the LaTex Entities, no party to any LaTex Real
Property Lease has repudiated any provision thereof;
(v) to the knowledge of the LaTex Entities, there are no disputes, oral
agreements or forbearance programs in effect as to any LaTex Real Property
Lease;
(vi) with respect to each sublease included as a LaTex Real Property
Lease, the representations and warranties set forth in subsections (i) and (v)
above are true and correct with respect to the underlying lease;
(vii) none of the LaTex Entities has assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold ;
(viii) to the knowledge of the LaTex Entities, all facilities leased or
subleased thereunder have received all approvals of all Governmental Entities
(including licenses and permits) required in
B-17
<PAGE>
connection with the operation thereof and have been operated and maintained in
accordance with applicable laws and regulations;
(ix) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities; and
(x) to the knowledge of the LaTex Entities, the owner of the facility
leased or subleased has good and marketable title to the parcel of real
property, free and clear of any security interest, easement, covenant or other
restriction, except for installments of special easements not yet delinquent and
recorded easements, covenants, and other restrictions which do not impair the
current use, occupancy or value or the marketability of title, of the property
subject thereto.
(c) The LaTex Entities, either directly or indirectly, have (and as of
the Closing will have) good and defensible title to and other legal right to use
all properties and assets, real, personal and mixed, tangible and intangible
(other than the LaTex Interests), reflected as owned on the latest balance sheet
included in the LaTex Financial Statements of the relevant entity or acquired
after the date of such balance sheet, except for properties and assets disposed
of in accordance with customary practice in the business or disposed of for full
and fair value since the date of such balance sheet in the ordinary course of
business consistent with past practice and except for matters that would not
have a Material Effect.
(d) There are no properties (real, personal or mixed, tangible or
intangible) owned by any LaTex Stockholders or any Affiliate of the LaTex
Stockholders that are used in the normal day-to-day operations of the LaTex
Entities as conducted prior to the Closing Date.
(e) The properties and assets described in (a), (b) and (c) above are
free and clear of any and all Encumbrances, except the Permitted Encumbrances.
4.10 Proceedings Affecting LaTex Interests. There is no action,
-------------------------------------
proceeding, investigation, inquiry, claim or demand pending or, to the knowledge
of the LaTex Entities, threatened that is likely to result in the material
impairment or loss of any of the LaTex Entities' title to any part of the LaTex
Interests or that might hinder or impede in any material respect the use,
operation or value of the LaTex Interests and LaTex shall promptly notify
Alliance of any such suit, action, investigation, inquiry, claim or demand
arising or threatened prior to the Closing with respect to which LaTex receives
notice. To the knowledge of the LaTex Entities, there are no facts, events or
conditions existing with respect to operations or conditions of the LaTex
Interests which are reasonably likely to hinder or impede the use, operation or
value of the LaTex Interests in any material respect or which are reasonably
likely to form the basis of a claim of any party against any of the LaTex
Entities or any of their assets that would result in a Material Effect.
4.11 LaTex Oil and Gas Contracts.
---------------------------
(a) To the knowledge of the LaTex Entities, all of the Leases included
in the LaTex Interests are in full force and effect and are the valid and
legally binding obligations of the parties to those agreements and are
enforceable in all material respects in accordance with their respective terms.
(b) To the knowledge of the LaTex Entities, none of the LaTex Entities
is in material breach or default with respect to any of its representations,
warranties or obligations pursuant to any of the LaTex Oil and Gas Contracts or
with respect to any regulations incorporated in or governing the LaTex Oil and
Gas Contracts.
B-18
<PAGE>
(c) To the knowledge of the LaTex Entities, all payments (including
royalties, delay rentals, shut-in royalties, payments due under unit or
operating agreements but excluding royalties held in suspense and good faith by
the LaTex Entities for a justifiable purpose) due under the Leases included in
the LaTex Interests have been properly and timely made; all conditions necessary
to keep such Leases in force have been fully performed; and no notices have been
received by the LaTex Entities of any claim to the contrary.
(d) To the knowledge of the LaTex Entities, there are no obligations to
engage in continuous development operations in order to maintain any Lease
included in the LaTex Interests in force and effect.
(e) To the knowledge of the LaTex Entities, the execution and delivery
of this Agreement and the consummation of the transaction as contemplated by
this Agreement will not result in a material breach of, constitute a material
default under, result in a material violation of or entitle any party to a right
of first refusal or preferential right to purchase under any of the LaTex Oil
and Gas Contracts.
(f) To the knowledge of the LaTex Entities, the LaTex Entities have
fulfilled all material requirements for filings, certificates, disclosures of
parties in interest and other similar matters contained in (or otherwise, by
law, rule or regulation, applicable to) the Leases included in the LaTex
Interests and are fully qualified to own and hold all such Leases.
4.12 Operations.
----------
(a) To the knowledge of the LaTex Entities, the LaTex Interests are
being developed, operated and maintained in material compliance with the LaTex
Oil and Gas Contracts. In operating the LaTex Interests, the LaTex Entities are
not dependent on the right to use the property of others, except under valid and
enforceable agreements, rights or other arrangements included in the LaTex Oil
and Gas Contracts.
(b) Since April 30, 1996, none of the LaTex Entities, directly or
indirectly, has operated or in any manner dealt with, incurred obligations with
respect to, or undertaken any transactions relating to, the LaTex Interests
other than in the ordinary course of business consistent with past practice or
other than sales of property in any single transaction having a value of less
than $25,000, and, to the knowledge of the LaTex Entities, the LaTex Interests
have not suffered any destruction, damage, or loss (except depreciation of
equipment through ordinary wear and tear) that would result in a Material
Effect.
(c) To the knowledge of the LaTex Entities, there are no outstanding
authorities for expenditures ("AFEs") covering work in progress or work not yet
started covering the LaTex Interests. Prior to Closing, LaTex will provide
Alliance with an updated listing of similar information concerning AFEs
outstanding as of a date not more than three (3) business days prior to Closing.
(d) To the knowledge of the LaTex Entities, no condition, obligation or
other circumstance, including any prior overproduction under a gas balancing
agreement, exists that would adversely affect the right of the LaTex Entities to
receive their full share of production and full payment of proceeds from the
sale of Hydrocarbons produced from any of the LaTex Interests.
4.13 No Reversionary Interests. To the knowledge of the LaTex Entities,
-------------------------
the LaTex Interests are not subject to any reversionary, back-in or similar
rights, the exercise of which would reduce the LaTex's Entities' Net Revenue
Interests to less than the Net Revenue Interests set forth in Exhibits B-1 and
----------------
B-2.
- ---
B-19
<PAGE>
4.14 Sales and Transportation Agreements. There are no material crude
-----------------------------------
oil and condensate sales, arrangements or gas purchase and sales agreements or
division orders relating to the LaTex Interests (collectively "LaTex Sales
Agreements") and no material transportation agreements relating to the LaTex
Interests that cannot be terminated by the LaTex Entities upon 60 days' or less
notice without penalty or detriment to the LaTex Entities. There are no LaTex
Sales Agreements pursuant to which Hydrocarbons are being sold at less than the
prevailing market price therefor.
4.15 Tax Partnerships. None of the LaTex Entities have filed any federal
----------------
or state income tax returns identifying the LaTex Interests as held by any tax
partnership.
4.16 Prepayments. To the knowledge of the LaTex Entities, there exists
-----------
no material imbalance regarding production taken or marketed from any Lease
included in the LaTex Interests or otherwise affecting any of the LaTex Entities
which could result in (i) a portion of its interest in production therefrom to
be taken or delivered after the Closing Date without the applicable entity
receiving full payment therefor and at the price it would have received absent
such imbalance; or (ii) the applicable entity being obligated to make payment to
any person or entity as a result of such imbalance; or (iii) production being
shut-in or curtailed after the Closing Date due to non-compliance with
allowables, production quotas, proration rules or similar orders or regulations
of a Governmental Entity; and none of the LaTex Entities is obligated, by virtue
of any prepayment arrangement take-or-pay agreement or similar arrangements to
deliver Hydrocarbons produced from the LaTex Interests at some future time
without then receiving full payment therefor in all material respects.
4.17 Production Sales Contracts. To the knowledge of the LaTex Entities,
--------------------------
the buyers under all production sales contracts pursuant to which any of the
LaTex Entities is selling crude oil or natural gas or constituents thereof
produced from the Leases included in the LaTex Interests are in compliance in
all material respects with all the material terms of such contracts and none of
the LaTex Entities has received a notice from any such buyer of such party's
intention or desire to modify, renegotiate or repudiate any such contract or any
of the material terms thereof.
4.18 Calls. To the knowledge of the LaTex Entities, no person has any
-----
call upon, option to purchase, or similar right to purchase any portion of the
Hydrocarbons from the LaTex Interests at a price less than the prevailing market
price therefor.
4.19 Reserve Reports. With respect to such LaTex Reserve Report, (a) the
---------------
information furnished by the LaTex Entities to the reserve engineers in
connection with the preparation of the LaTex Reserve Report was true and correct
in all material respects; (b) to the knowledge of the LaTex Entities, the
assumptions utilized in the preparation of the LaTex Reserve Report are
reasonable in light of the properties involved; (c) to the knowledge of the
LaTex Entities, the calculations and other methodology utilized in the
preparation of the LaTex Reserve Report are consistent with generally accepted
standards of petroleum reservoir engineering at the dates of their preparation;
(d) none of the LaTex Entities have any knowledge that the oil, condensate,
natural gas liquids and gas reserves attributable to the LaTex Interests as of
the date of the LaTex Reserve Report are materially less than the estimates of
quantities of those reserves shown in the LaTex Reserve Report; (e) none of the
LaTex Entities have any knowledge of any change (other than normal depletion by
production in the ordinary course, price changes, and sales of property in any
single transaction having a value of less than $25,000) occurring since the date
of the LaTex Reserve Report that would result in a material change in the
information contained in the LaTex Reserve Report, and (f) to the knowledge of
the LaTex Entities, none of the LaTex Entities or the LaTex Interests are
subject to any agreements, consents, orders or regulations that
B-20
<PAGE>
would materially reduce the rate of production of Hydrocarbons or other
substances from the LaTex Interests below that reflected in the LaTex Reserve
Report.
4.20 Wells.
-----
(a) To the knowledge of the LaTex Entities, all of LaTex's Wells have
been drilled and completed within the boundaries of the Major Producing Leases
of the LaTex Entities or within the limits otherwise permitted by the LaTex Oil
and Gas Contracts, and by law.
(b) To the knowledge of the LaTex Entities, the drilling and completion
of all LaTex's Wells and all development and operations of the LaTex Interests
have been conducted in material compliance with all applicable laws, ordinances,
rules, regulations and permits, and judgments, orders and decrees of any
Governmental Entity.
(c) To the knowledge of the LaTex Entities, none of LaTex's Wells is
subject to material penalties on allowable production after the date of this
Agreement because of any overproduction or any other violation of applicable
laws, rules, regulations or permits or judgments, orders or decrees of any
Governmental Entity that would prevent any of LaTex's Wells from being entitled
to its full legal and regular allowable production from and after the date of
this Agreement as prescribed by any Governmental Entity.
4.21 No Funds in Suspense. To the knowledge of the LaTex Entities, all
--------------------
material proceeds from the sale of Hydrocarbons produced from the LaTex
Interests are currently being paid to the LaTex Entities and no portion of such
proceeds is currently being held in suspense by any purchaser thereof or any
other party by whom proceeds are paid except for immaterial amounts.
4.22 Regulatory Compliance. To the knowledge of the LaTex Entities, all
---------------------
material filings and approvals under the Natural Gas Policy Act of 1978, as
amended for with the Federal Energy Regulatory Commission ("FERC"), or required
under any rules or regulations adopted by FERC which are necessary for the
operation of the LaTex Interests in the manner in which they are presently
operated, have been made or granted.
4.23 Physical Condition of Facilities. To the knowledge of the LaTex
--------------------------------
Entities, in all material respects, the physical facilities on the LaTex
Interests (including facilities held under lease) have been maintained in
accordance with good industry maintenance practices and are in a state of repair
(normal wear and tear excepted) that is adequate for the intended use of such
facilities in the ordinary conduct of the business.
4.24 Data Regarding the LaTex Interests. All of the information
----------------------------------
described in Sections 6.6 and 6.7 made or to be made available to Alliance and
------------ ---
its representatives is accurate and complete in all material respects, when
considered in context and together with all relevant information made available.
4.25 Litigation.
----------
(a) There is no action, proceeding, investigation or inquiry pending or,
to the knowledge of the LaTex Entities, threatened (i) against or affecting any
of the LaTex Entities or their assets or ordinary conduct of the business that,
if determined adversely to the LaTex Entities, would result in a Material Effect
or (ii) that questions this Agreement or any action contemplated by this
Agreement or in connection with the Merger.
B-21
<PAGE>
(b) There are no citations, fines or penalties heretofore asserted
against any of the LaTex Entities or their assets under any federal, state or
local law relating to air, noise or water pollution or other environmental
protection matters, or relating to occupational health or safety, of which
such entity has received notice and that remain unpaid or that could otherwise
bind the assets of any of the LaTex Entities and that would result in a Material
Effect.
(c) LaTex has no knowledge of any state of facts or of the occurrence or
nonoccurrence of any event or group of related events, that should reasonably
cause LaTex to determine that there exists any basis for any material claim
against the LaTex Entities for any of the matters described in paragraphs (a) or
(b).
4.26 Tax Returns and Payments.
------------------------
(a) The LaTex Entities (or the common parent of any affiliated group of
which any of such entities is or has been a member) have duly filed in correct
form in all material respects all Tax Returns required to be filed by such
entities and have duly paid or provided for payment of (or there have been paid
on their behalf) all Taxes due or claimed to be due from them by federal, state,
local or foreign taxing authorities, excluding Taxes that are being contested in
good faith by appropriate proceedings and as to which adequate reserves have
been provided and that are specifically identified in Section 4.26 of the LaTex
-------------------------
Disclosure Schedule.
- -------------------
(b) There are no tax liens upon any property or assets owned by any of
the LaTex Entities that would have a Material Effect.
(c) All Tax Returns of the LaTex Entities filed, including any
amendments to date, have been prepared in good faith without willful
misrepresentation and are complete and accurate in all material respects. The
federal income tax returns of the LaTex Entities have been examined by the
Internal Revenue Service for all periods through December 31, 1990, and all
deficiencies assessed as a result of such examination have been paid in full or
finally settled and no issue has been raised by the Internal Revenue Service in
any such examination that has been resolved adversely to any of the LaTex
Entities or is still pending and, by application of similar principles,
reasonably could be expected to result in an assertion by the Internal Revenue
Service of a material deficiency in any other taxable year or with respect to
any other of the LaTex Entities. There are no outstanding agreements, waivers or
other arrangements providing for an extension of time with respect to the filing
of any Tax Returns or the payment by, or assessment against, any of the LaTex
Entities for any Taxes. Each of the LaTex Entities is taxed as a C corporation
under the Code.
(d) The reserves made for Taxes on the respective balance sheets in the
LaTex Financial Statements are sufficient for the payment of all unpaid Taxes
due and payable by the LaTex Entities attributable to all periods ended on or
before the date of the respective balance sheets in accordance with GAAP.
4.27 Insurance. Section 4.27 of the LaTex Disclosure Schedule contains a
--------- ---------------------------------------------
true, correct, and complete description of all policies of fire, casualty and
extended coverage, public liability, products liability, worker's compensation
and other forms of insurance owned or held by or for the benefit of the LaTex
Entities (other than insurance owned or held by operators for those LaTex
Interests where one of the LaTex Entities is not the operator). All such
policies are sufficient for material compliance with all requirements of law and
all agreements for which those entities are parties, are, to the knowledge of
the LaTex Entities, valid and enforceable policies, will remain in full force
and effect through the respective dates set forth in Section 4.27 of the LaTex
-------------------------
Disclosure Schedule, subject to the timely
- -------------------
B-22
<PAGE>
payment of the premiums set forth therein, and will not in any way be affected
by, or terminate or lapse by reason of, the transactions contemplated by this
Agreement. All premiums due under such policies have been paid and the insureds
have complied in all material respects with such policies.
4.28 Bank Accounts. Section 4.28 of the LaTex Disclosure Schedule sets
------------- ---------------------------------------------
forth the names and locations of all bank institutions at which the LaTex
Entities maintain accounts or lock boxes of any nature, the account or box
number and the names of all persons authorized to draw thereon or make
withdrawals therefrom.
4.29 Contracts.
---------
(a) Section 4.29 of the LaTex Disclosure Schedule contains a complete
---------------------------------------------
and correct list as of the date hereof of all agreements, contracts and
commitments of the following types (and all amendments thereto), written or
oral, to which any of the LaTex Entities is a party or by which any of their
properties is bound:
(i) notes, agreements, mortgages, indentures, security agreements and
other instruments relating to the borrowing of money or evidence of credit or
the deferred purchase price of property, or the direct or indirect guarantee by
such entities of any such indebtedness or deferred purchase price, in excess of
$20,000 ;
(ii) leases of real property and material personal property providing for
payments under any such lease or group of related leases at an annual rate in
excess of $25,000 (other than Leases);
(iii) partnership or joint venture agreements;
(iv) management, employment and consulting agreements or other contracts
for personal services that are not terminable by any of such entities on not
more than one month's notice without penalty;
(v) agreements providing for liability for severance pay, collective
bargaining agreements, labor contracts, or labor or personnel policies;
(vi) surety, performance and maintenance bonds in excess of $5,000;
(vii) agreements or commitments for capital expenditures in excess of
$25,000;
(viii) any plan, contract or arrangement providing for bonuses, pensions,
deferred compensation, retirement plan payments, profit sharing, incentive pay,
or for any other employee benefit plan;
(ix) brokerage or finder's agreements;
(x) any agreement that (a) restricts the right of such entities to
engage in any place in any line of business or (b) would restrict the right of
the Surviving Corporation or any Subsidiary of the Surviving Corporation to
engage in any line of business after the Closing Date;
(xi) any contract, commitment or agreement that involves the disposition
after April 30, 1996 of any assets of any of such entities not in the ordinary
course of business consistent with past practice;
B-23
<PAGE>
(xii) any contract, commitment or agreement between any of such entities
or between any of such entities and any director or officer of any of the LaTex
Entities in excess of $10,000;
(xiii) any LaTex Oil and Gas Contract that commits any of the LaTex
Entities to make any capital expenditures in any calendar year; and
(xiv) other agreements, contracts and commitments that in any way involve
payments or receipts during the remaining term of such agreement, contract or
commitment in excess of $25,000.
(b) LaTex has made available to Alliance complete and correct copies of
all written agreements, contracts and commitments, together with all amendments
thereto, and accurate (in all material respects) descriptions of all oral
agreements, in all cases, described in subparagraph (a). Such agreements,
contracts and commitments are in full force and effect, and all of such entities
and, to the knowledge of the LaTex Entities, all other parties to such
agreements, contracts and commitments have performed all obligations required to
be performed by them to date thereunder in all material respects and are not in
default thereunder in any material respect.
(c) None of the LaTex Entities has outstanding any powers of attorney,
including powers of attorney with respect to representation before any
Governmental Entity, customs agents and brokers, or given in connection with
qualification to conduct business in any other jurisdiction.
4.30 Transactions with Interested Persons. No officer or director of any
------------------------------------
of the LaTex Entities (or spouse or any child thereof) owns, directly or
indirectly, on an individual or joint basis, any material interest in, or serves
as an officer, director or employee of, any customer, competitor or supplier of
or any person or entity that has a material contract or arrangement with any of
the LaTex Entities, except for holdings of capital stock not exceeding one
percent (1%) of the total number of shares of capital stock of such customer,
competitor or supplier outstanding.
4.31 Compensation and Employee Plans.
-------------------------------
(a) LaTex has provided Alliance (i) the names and current annual
compensation rates of all present directors, officers, employees, independent
contractors or agents of each of the LaTex Entities and (ii) the number, job
category and range of compensation by job category of all employees of such
entities.
(b) Section 4.31 of the LaTex Disclosure Schedule sets forth the name of
---------------------------------------------
each Plan applicable to any of the LaTex Entities and lists all documents
evidencing any Plan applicable to any of the LaTex Entities.
(c) Each Plan applicable to any of the LaTex Entities is now, and has
been from its inception, administered in compliance in all material respects
with the provisions of all applicable laws and regulations, including ERISA, the
Code and the ADEA, insofar as such statutes are applicable to such Plan.
4.32 Accounts Receivable; Inventories.
--------------------------------
(a) The accounts receivable of the LaTex Entities as reflected on the
respective balance sheets of the LaTex Financial Statements (except to the
extent collected after the date thereof) (i) have
B-24
<PAGE>
arisen in the ordinary course of business for goods delivered or services
rendered, and (ii) are good and collectible, except as otherwise reserved for on
the respective balance sheets.
(b) To the knowledge of the LaTex Entities, all of the LaTex Entities'
accounts receivable existing at Closing will be collectible in all material
respects at their aggregate recorded amounts (net of any allowances for doubtful
accounts reflected on the LaTex Financial Statements) in the ordinary course of
business within ninety (90) days of the Closing, without resort to litigation,
and will not be subject to counterclaim or set off.
(c) The inventories of the LaTex Entities as reflected on the respective
balance sheets included in the LaTex Financial Statements have been valued in
accordance with GAAP and customary industry practice using COPAS guidelines.
4.33 Brokers, Finders and Advisors. LaTex has not employed any broker,
-----------------------------
finder, or investment advisor on its behalf, or incurred any liability for any
brokerage or finder's fees or commissions in connection with the transaction
contemplated hereby.
4.34 Labor Force.
-----------
(a) Each of the LaTex Entities is in compliance in all material respects
with all applicable laws (including without limitation federal income tax laws),
ordinances, regulations, statutes, rules and restrictions of any Governmental
Entity respecting employment and employment practices and terms and conditions
of employment.
(b) No union representation question exists respecting the employees of
any of the LaTex Entities and, to the knowledge of the LaTex Entities, no union
organizing activities are taking place.
4.35 Books and Records. The books and records of each of the LaTex
-----------------
Entities (including, without limitation, the books of account, minute books and
stock record books) are complete and correct in all material respects and have
been maintained in accordance with sound business practices. The minute books of
each of the LaTex Entities contain accurate and complete records in all material
respects of all meetings held of, and corporate action taken by, the
shareholders and the Boards of Directors of the respective entities and no
meetings of or actions by such shareholders or any such Boards of Directors have
been held or taken for which minutes have not been prepared and are not
contained in such minute books. None of the records and written documents
furnished or made available to Alliance's representatives or agents by the LaTex
Entities concerning the LaTex Interests, when considered in context and together
with any relevant or related documents also so furnished or made available,
contain any untrue statement of material fact or omit a material fact necessary
to make any statement therein not misleading.
4.36 Payments. None of the LaTex Entities has, directly or indirectly,
--------
paid or delivered any fee, commission or other sum of money or item of property
however characterized to any finder, agent, government official or other party,
in the United States or any other country, in any manner related to its business
or operations, which such entity knows or has reason to believe to have been
illegal under any federal, state or local laws of the United States or any other
country or territory having jurisdiction over such entity, and has not
participated, directly or indirectly, in any boycotts or similar practices.
4.37 Public Utility Holding Company. None of the LaTex Entities owns or
------------------------------
operates any facilities used for the retail distribution of natural or
manufactured gas for heat, light or power, nor does
B-25
<PAGE>
any of the LaTex Entities, directly or indirectly, own, control or hold with
power to vote ten percent (10%) or more of the outstanding stock of, or exercise
direct or indirect controlling influence over the management or policies of such
a company or a company so controlling such a company.
4.38 SEC Filings. LaTex has filed all forms, reports and documents
-----------
required to be filed with the Commission since January 1, 1993. All of such
filings were prepared in accordance with the requirements of all applicable laws
and did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4.39 Disclosure. No representation or warranty made by LaTex in this
----------
Agreement (including, without limitation, in the LaTex Disclosure Schedule)
contains any untrue statement of material fact or omits or will omit to state
any material fact necessary to make the statements herein or therein not
misleading in light of the circumstances under which made.
5. Representations, Warranties and Covenants of Alliance.
-----------------------------------------------------
Except as expressly set forth and specifically identified by section number of
this Agreement in the Alliance Disclosure Schedule, Alliance represents,
warrants and covenants to LaTex, on the date hereof and as of the Closing Date,
as follows:
5.1 Organization, etc.
-----------------
(a) Alliance is a public limited company duly incorporated and validly
existing under the laws of England and Wales. Each of Alliance's U.K.
Subsidiaries is a limited company duly incorporated and validly existing under
the laws of England and Wales. Each of Alliance's other Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. Each of the Alliance Entities has the
requisite corporate power and authority to carry on its business as now being
conducted and to own, lease and operate its property and assets, and each of the
United States Alliance Entities is duly qualified or licensed to do business and
is in good standing in every jurisdiction in which the failure to be so
qualified and licensed could have a Material Effect. Section 5.1 of the Alliance
---------------------------
Disclosure Schedule sets forth the name and jurisdiction of incorporation of
- -------------------
each of Alliance's Subsidiaries and each jurisdiction in which each of the
Alliance Entities is qualified or licensed to do business. Alliance has
heretofore delivered to LaTex true, correct and complete copies of the
organizational documents of each of the Alliance Entities as presently in
effect.
(b) Section 5.1 of the Alliance Disclosure Schedule sets forth a
-----------------------------------------------
complete list of the present officers and directors of each of the Alliance
Entities.
5.2 Capitalization.
--------------
(a) The authorized, issued and outstanding capital stock of each of the
Alliance Entities is as set forth in Section 5.2 of the Alliance Disclosure
- --------------------------------------
Schedule. All of the issued shares of each of the Alliance Entities are, and
- --------
all of the Alliance Shares to be issued in consideration of the cancellation
of LaTex Shares upon consummation of the Merger, when issued in accordance
with the terms of this Agreement, will be validly issued, fully paid and
nonassessable and none of such shares have been or will be issued in violation
of the preemptive rights of any person.
B-26
<PAGE>
(b) There are no (i) shares of capital stock or other securities bearing
voting or other equity rights, whether contingent or not, of any of the Alliance
Entities outstanding; (ii) outstanding subscriptions, puts, options, warrants or
other rights, contractual or otherwise, to purchase or acquire any capital stock
of any of the Alliance Entities; or (iii) contracts, commitments,
understandings, arrangements or restrictions by which any of the Alliance
Entities is or may become bound to issue any additional equity interests or any
options or rights with respect thereto, or any securities convertible into any
equity interests.
(c) The issued and outstanding stock of Alliance owned by the directors
and 5% or greater stockholders of Alliance is owned of record, and to the
knowledge of Alliance, beneficially, as described in Section 5.2 of the
------------------
Alliance Disclosure Schedule. Alliance beneficially owns all of the issued
- ----------------------------
and outstanding stock of each of its Subsidiaries, directly or indirectly,
free and clear of all Encumbrances. Except for its Subsidiaries, neither
Alliance nor any of its Subsidiaries owns or holds any equity, debt or other
interest in any entity or business or any option to acquire any such interest,
except for accounts receivable that have arisen in the ordinary course of
business.
5.3 Authority; No Violation.
-----------------------
(a) The execution and performance of this Agreement by Alliance and
Newco have been duly and validly authorized by the respective boards of
directors of Alliance and Newco and, except for the approval of the Alliance
Stockholders, no other corporate action is necessary to authorize the execution,
delivery and performance of this Agreement by Alliance or Newco. Alliance has
full, absolute and unrestricted right, power and authority to execute and
perform this Agreement and, subject to the approval by the Alliance
Stockholders, to carry out the transactions contemplated hereby. This Agreement
has been duly and validly executed by Alliance and Newco and, subject to
approval by the Alliance Stockholders, is a valid and binding obligation of
Alliance and Newco, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, moratorium, reorganization,
receivership or similar laws affecting the rights of creditors generally.
(b) None of the execution, delivery or performance of this Agreement
does or will, after the giving of notice, lapse of time or otherwise, (i) result
in any violation of or be in conflict with or constitute a default under any
term or provision of the organizational documents of any of the Alliance
Entities, or any term or provision of any judgment, decree, order, statute,
injunction, rule or regulation applicable to any of the Alliance Entities or of
any material note, bond, mortgage, indenture, lease, license, franchise,
agreement or other instrument or obligation to which any of the Alliance
Entities is bound; (ii) result in the creation of any material Encumbrance upon
Alliance Shares, the securities of the Surviving Corporation or any of the
properties or assets of any of the Alliance Entities pursuant to any such term
or provision; or (iii) constitute a material default under or give any party the
right to accelerate, amend or modify, terminate, abandon or refuse to perform or
comply with, any material contract, agreement, arrangement, commitment or plan
to which any of the Alliance Entities is a party, or by which any of the
Alliance Entities or any of their rights, properties or assets may be subject or
bound.
(5.4) Consents and Approvals. No consent, waiver, approval or
----------------------
authorization of, or declaration, designation, filing, registration or
qualification with, any Governmental Entity or any third party, is required to
be made or obtained by any of the Alliance Entities in connection with the
execution, delivery and performance of this Agreement or to preserve any
material rights and benefits enjoyed by any of the Alliance Entities on the date
hereof following the consummation of the transactions contemplated by this
Agreement except (a) those that have already been obtained or (b) those
specifically contemplated by this Agreement.
B-27
<PAGE>
5.5 Violations of Laws, Permits, etc.
---------------------------------
(a) None of the Alliance Entities is in violation of any term or
provision of its organizational documents. None of the Alliance Entities is in
violation of any term or provision of any judgment, decree, order, statute,
injunction, rule, ordinance or regulation applicable to it, or of any agreement
or instrument applicable to such entity where the violation thereof would result
in a Material Effect.
(b) Each of the Alliance Entities holds and has maintained in full force
and effect all certificates, licenses and permits material to the conduct of its
business, and has not received any notification that any revocation or
limitation thereof is threatened or pending where such revocation or limitation
would result in a Material Effect.
5.6 Alliance Financial Statements.
-----------------------------
(a) In all material respects the consolidated Alliance Financial
Statements fairly present the consolidated assets, liabilities and financial
position of the respective entities purported to be covered thereby as of the
dates thereof and the results of their operations and cash flow for the
respective periods ended on such dates, all in conformity with GAAP consistently
applied, except that the October 31, 1995 unaudited interim financial statements
do not contain footnotes (that, if presented, would not differ materially from
those in the audited Alliance Financial Statements) and are subject to normal,
recurring year-end adjustments (which will not, individually or in the
aggregate, have a Material Effect).
(b) The Alliance Financial Statements were prepared from the books and
records of each of the respective entities purported to be covered thereby. Such
Alliance Financial Statements do not contain any items of a material special or
nonrecurring nature, except as expressly noted in such statements.
5.7 No Undisclosed Liabilities, etc. None of the Alliance Entities has
--------------------------------
any material liabilities or obligations, whether direct, indirect, absolute or
contingent (including, without limitation, liabilities as guarantor or otherwise
with respect to obligations of others), except (a) liabilities that are fully
reflected on or reserved against on the latest balance sheet of such entity
included in the Alliance Financial Statements or (b) liabilities incurred in the
ordinary course of business since the date of the latest balance sheet included
in the Alliance Financial Statements that are consistent with past practice.
5.8 Absence of Certain Changes. Since the date of the latest audited
--------------------------
Alliance Financial Statement, except as specifically disclosed in the October
31, 1995 unaudited interim consolidated Alliance Financial Statements, none of
the Alliance Entities has:
(a) Suffered any change that would result in a Material Effect;
(b) Adopted or made any change in any pension, retirement, profit
sharing or other employee benefit plan or arrangement;
(c) Borrowed or agreed to borrow any money or incurred, assumed or
become subject to, whether directly or by way of guarantee or otherwise, any
other material obligation or liability for borrowed money, whether absolute or
contingent;
B-28
<PAGE>
(d) (i) Issued, purchased or redeemed any of its capital securities or
any option, warrant or right to purchase any of the same; or (ii) authorized,
declared or made any dividends, distributions of earnings or capital on, or
splits or any other reclassification of its equity securities;
(e) Mortgaged, pledged or subjected to any Encumbrance any material
portion of its assets, tangible or intangible, having a value in excess of
$25,000 in the aggregate;
(f) Acquired or disposed of, or entered into any agreement to acquire or
dispose of, any material assets or properties, other than oil and gas production
in the ordinary course of business, or other assets having a value in excess of
$25,000 in the aggregate;
(g) Increased the salaries, compensation, pension or other benefits
payable, or paid any bonuses, to its officers and directors or their Affiliates;
(h) Forgiven or canceled any debts or claims or waived any rights
against any officer or director of the Alliance Entities or their Affiliates or
forgiven or canceled any material debts or claims or waived any rights against
any other person in excess of $25,000 in the aggregate;
(i) Entered into, terminated or received notice of the termination of
any commitment, contract, agreement or transaction that is material to any of
the Alliance Entities; or
(j) Agreed, either in writing or otherwise, to take any action described
in this Section 5.8.
-----------
5.9 Title to Property; Encumbrances.
-------------------------------
(a) The Alliance Entities, either directly or indirectly, have (and as
of the Closing will have) good and defensible title to the Alliance Interests.
(b) The Alliance Entities own no real property other than the Alliance
Interests. Schedule 5.28 of the Alliance Disclosure Schedule sets forth a
-------------------------------------------------
complete list of all real property other than the Alliance Interests that the
Alliance Entities lease or sublease and which lease or sublease provides for
payments at an annual rate in excess of $25,000. Alliance has delivered to LaTex
correct and complete copies of all such leases and subleases (the "Alliance Real
Property Leases"). With respect to each such Real Property Lease:
(i) each Alliance Real Property Lease is legal, valid, binding,
enforceable and in full force and effect;
(ii) each Alliance Real Property Lease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby;
(iii) to the knowledge of the Alliance Entities, no party to any Alliance
Real Property Lease is in breach or default and no event has occurred which,
with notice or lapse of time, would constitute a breach or default or permit
termination, modification or acceleration thereunder;
(iv) to the knowledge of the Alliance Entities, no party to any Alliance
Real Property Lease has repudiated any provision thereof;
B-29
<PAGE>
(v) to the knowledge of the Alliance Entities, there are no disputes,
oral agreements or forbearance programs in effect as to any Alliance Real
Property Lease;
(vi) with respect to each sublease included as a Alliance Real Property
Lease, the representations and warranties set forth in subsections (i) and (v)
above are true and correct with respect to the underlying lease;
(vii) none of the Alliance Entities has assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(viii) to the knowledge of the Alliance Entities, all facilities leased or
subleased thereunder have received all approvals of all Governmental Entities
(including licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with applicable laws
and regulations;
(ix) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities;
and
(x) to the knowledge of the Alliance Entities, the owner of the facility
leased or subleased has good and marketable title to the parcel of real
property, free and clear of any security interest, easement, covenant or other
restriction, except for installments of special easements not yet delinquent and
recorded easements, covenants, and other restrictions which do not impair the
current use, occupancy or value or the marketability of title, of the property
subject thereto.
(c) The Alliance Entities, either directly or indirectly, have (and as
of the Closing will have) good and defensible title to and other legal right to
use all properties and assets, real, personal and mixed, tangible and intangible
(other than the Alliance Interests), reflected as owned on the latest balance
sheet included in the Alliance Financial Statements of the relevant entity or
acquired after the date of such balance sheet, except for properties and assets
disposed of in accordance with customary practice in the business or disposed of
for full and fair value since the date of such balance sheet in the ordinary
course of business consistent with past practice and except for matters that
would not have a Material Effect.
(d) There are no properties (real, personal or mixed, tangible or
intangible) owned by any Alliance Stockholders or any Affiliate of the Alliance
Stockholders that are used in the normal day-to-day operations of the Alliance
Entities as conducted prior to the Closing Date.
(e) The properties and assets described in (a), (b) and (c) above are
free and clear of any and all Encumbrances, except the Permitted Encumbrances.
5.10 Proceedings Affecting the Alliance Interests. There is no action,
--------------------------------------------
proceeding, investigation, inquiry, claim or demand pending or, to the knowledge
of the Alliance Entities, threatened that is likely to result in the material
impairment or loss of any of the Alliance Entities' title to any part of the
Alliance Interests or that might hinder or impede in any material respect the
use, operation or value of the Alliance Interests and Alliance shall promptly
notify LaTex of any such suit, action, investigation, inquiry, claim or demand
arising or threatened prior to the Closing with respect to which Alliance
receives notice. To the knowledge of the Alliance Entities, there are no facts,
events or conditions existing with respect to operations or conditions of the
Alliance Interests which are reasonably likely to hinder or impede the use,
operation or value of the Alliance Interests in any material respect
B-30
<PAGE>
or which are reasonably likely to form the basis of a claim of any party against
any of the Alliance Entities or any of their assets that would result in a
Material Effect.
5.11 Alliance Oil and Gas Contracts.
------------------------------
(a) To the knowledge of the Alliance Entities, all of the Leases
included in the Alliance Interests are in full force and effect and are the
valid and legally binding obligations of the parties to those agreements and are
enforceable in all material respects in accordance with their respective terms.
(b) To the knowledge of the Alliance Entities, none of the Alliance
Entities is in material breach or default with respect to any of its
representations, warranties or obligations pursuant to any of the Alliance Oil
and Gas Contracts or with respect to any regulations incorporated in or
governing the Alliance Oil and Gas Contracts.
(c) To the knowledge of the Alliance Entities, all payments (including
royalties, delay rentals, shut-in royalties, payments due under unit or
operating agreements but excluding royalties held in suspense and good faith by
the Alliance Entities for a justifiable purpose) due under the Leases included
in the Alliance Interests have been properly and timely made; all conditions
necessary to keep such Leases in force have been fully performed; and no notices
have been received by the Alliance Entities of any claim to the contrary.
(d) To the knowledge of the Alliance Entities, there are no obligations
to engage in continuous development operations in order to maintain any Lease
included in the Alliance Interests in force and effect.
(e) To the knowledge of the Alliance Entities, the execution and
delivery of this Agreement and the consummation of the transaction as
contemplated by this Agreement will not result in a material breach of,
constitute a material default under, result in a material violation of or
entitle any party to a right of first refusal or preferential right to purchase
under any of the Alliance Oil and Gas Contracts.
(f) To the knowledge of the Alliance Entities, the Alliance Entities
have fulfilled all material requirements for filings, certificates, disclosures
of parties in interest and other similar matters contained in (or otherwise, by
law, rule or regulation, applicable to) the Leases included in the Alliance
Interests and are fully qualified to own and hold all such Leases.
5.12 Operations.
----------
(a) To the knowledge of the Alliance Entities, the Alliance Interests
are being developed, operated and maintained in material compliance with the
Alliance Oil and Gas Contracts. In operating the Alliance Interests, the
Alliance Entities are not dependent on the right to use the property of others,
except under valid and enforceable agreements, rights or other arrangements
included in the Alliance Oil and Gas Contracts.
(b) Since October 31, 1995, none of the Alliance Entities, directly or
indirectly, has operated or in any manner dealt with, incurred obligations with
respect to, or undertaken any transactions relating to, the Alliance Interests
other than in the ordinary course of business consistent with past practice or
other than sales of property in any single transaction having a value of less
than $25,000, and, to the knowledge of the Alliance Entities, the Alliance
Interests have not suffered any
B-31
<PAGE>
destruction, damage, or loss (except depreciation of equipment through ordinary
wear and tear) that would result in a Material Effect.
(c) To the knowledge of the Alliance Entities, there are no outstanding
AFEs covering work in progress or work not yet started covering the Alliance
Interests. Prior to Closing, Alliance will provide LaTex with an updated listing
of similar information concerning AFEs outstanding as of a date not more than
three (3) business days prior to Closing.
(d) To the knowledge of the Alliance Entities, no condition, obligation
or other circumstance, including any prior overproduction under a gas balancing
agreement exists, that would adversely affect the right of the Alliance Entities
to receive their full share of production and full payment of proceeds from the
sale of Hydrocarbons produced from any of the Alliance Interests.
5.13 No Reversionary Interests. To the knowledge of the Alliance
-------------------------
Entities, the Alliance Interests are not subject to any reversionary, back-in or
similar rights, the exercise of which would reduce the Alliance Entities' Net
Revenue Interests to less than the Net Revenue Interests set forth in Exhibits
--------
A-1 and A-2.
- -----------
5.14 Sales and Transportation Agreements. There are no material crude
-----------------------------------
oil and condensate sales, arrangements or gas purchase and sales agreements or
division orders relating to the Alliance Interests (collectively "Alliance Sales
Agreements") and no material transportation agreements relating to the Alliance
Interests that cannot be terminated by the Alliance Entities upon 60 days' or
less notice without penalty or detriment to the Alliance Entities. There are no
Alliance Sales Agreements pursuant to which Hydrocarbons are being sold at less
than the prevailing market price therefor.
5.15 Tax Partnerships. None of the Alliance Entities have filed any
----------------
federal or state income tax returns identifying the Alliance Interests as held
by any tax partnership.
5.16 Prepayments. To the knowledge of the Alliance Entities, there
-----------
exists no material imbalance regarding production taken or marketed from any
Lease included in the Alliance Interests or otherwise affecting any of the
Alliance Entities which could result in (i) a portion of its interest in
production therefrom to be taken or delivered after the Closing Date without the
applicable entity receiving full payment therefor and at the price it would have
received absent such imbalance; or (ii) the applicable entity being obligated to
make payment to any person or entity as a result of such imbalance; or (iii)
production being shut-in or curtailed after the Closing Date due to non-
compliance with allowables, production quotas, proration rules or similar orders
or regulations of a Governmental Entity; and none of the Alliance Entities is
obligated, by virtue of any prepayment arrangement take-or-pay agreement or
similar arrangements to deliver Hydrocarbons produced from the Alliance
Interests at some future time without then receiving full payment therefor in
all material respects.
5.17 Production Sales Contracts. To the knowledge of the Alliance
--------------------------
Entities, the buyers under all production sales contracts pursuant to which any
of the Alliance Entities is selling crude oil or natural gas or constituents
thereof produced from the Leases included in the Alliance Interests are in
compliance in all material respects with all the material terms of such
contracts and none of the Alliance Entities has received a notice from any such
buyer of such party's intention or desire to modify, renegotiate or repudiate
any such contract or any of the material terms thereof.
5.18 Calls. To the knowledge of the Alliance Entities, no person has any
-----
call upon, option to purchase, or similar right to purchase any portion of the
Hydrocarbons from the Alliance Interests at a price less than the prevailing
market price therefor.
B-32
<PAGE>
5.19 Reserve Reports. With respect to the Alliance Reserve Report, (a)
---------------
the information furnished by the Alliance Entities to the reserve engineers in
connection with the preparation of the Alliance Reserve Report was true and
correct in all material respects; (b) to the knowledge of the Alliance Entities,
the assumptions utilized in the preparation of the Alliance Reserve Report are
true and correct in all material respects in light of the properties involved;
(c) to the knowledge of the Alliance Entities, the calculations and other
methodology utilized in the preparation of the Alliance Reserve Report are
consistent with generally accepted standards of petroleum reservoir engineering
at the dates of their preparation; (d) none of the Alliance Entities have any
knowledge that the oil, condensate, natural gas liquids and gas reserves
attributable to the Alliance Interests as of the date of the Alliance Reserve
Report are materially less than the estimates of quantities of those reserves
shown in the Alliance Reserve Report; (e) none of the Alliance Entities have any
knowledge of any change (other than normal depletion by production in the
ordinary course, price changes, and sales of property in any single transaction
having a value of less than $25,000) occurring since the date of the Alliance
Reserve Report that would result in a material change in the information
contained in the Alliance Reserve Report, and (f) to the knowledge of the
Alliance Entities, none of the Alliance Entities or the Alliance Interests are
subject to any agreements, consents, orders or regulations that would materially
reduce the rate of production of Hydrocarbons or other substances from the
Alliance Interests below that reflected in the Alliance Reserve Report.
5.20 Wells.
-----
(a) To the knowledge of the Alliance Entities, all of Alliance's Wells
have been drilled and completed within the boundaries of the Major Producing
Leases of the Alliance Entities or within the limits otherwise permitted by the
Alliance Oil and Gas Contracts, and by law.
(b) To the knowledge of the Alliance Entities, the drilling and
completion of all Alliance's Wells and all development and operations of the
Alliance Interests have been conducted in material compliance with all
applicable laws, ordinances, rules, regulations and permits, and judgments,
orders and decrees of any Governmental Entity.
(c) To the knowledge of the Alliance Entities, none of Alliance's Wells
is subject to material penalties on allowable production after the date of this
Agreement because of any overproduction or any other violation of applicable
laws, rules, regulations or permits or judgments, orders or decrees of any
Governmental Entity that would prevent any of Alliance's Wells from being
entitled to its full legal and regular allowable production from and after the
date of this Agreement as prescribed by any Governmental Entity.
5.21 No Funds in Suspense. To the knowledge of the Alliance Entities,
--------------------
all material proceeds from the sale of Hydrocarbons produced from the Alliance
Interests are currently being paid to the Alliance Entities and no portion of
such proceeds is currently being held in suspense by any purchaser thereof or
any other party by whom proceeds are paid except for immaterial amounts.
5.22 Regulatory Compliance. To the knowledge of the Alliance Entities,
---------------------
all material filings and approvals under the Natural Gas Policy Act of 1978, as
amended for with FERC, or required under any rules or regulations adopted by
FERC which are necessary for the operation of the Alliance Interests in the
manner in which they are presently operated, have been made or granted.
5.23 Physical Condition of Facilities. To the knowledge of the Alliance
--------------------------------
Entities, in all material respects, the physical facilities on the Alliance
Interests (including facilities held under lease)
B-33
<PAGE>
have been maintained in accordance with good industry maintenance practices and
are in a state of repair (normal wear and tear excepted) that is adequate for
the intended use of such facilities in the ordinary conduct of the business.
5.24 Data Regarding the Alliance Interests. All of the information
-------------------------------------
described in Sections 7.6 and 7.7 made or to be made available to LaTex and
------------ ---
its representatives is accurate and complete in all material respects, when
considered in context and together with all relevant information made available.
5.25 Litigation.
----------
(a) There is no action, proceeding, investigation or inquiry pending or,
to the knowledge of the Alliance Entities, threatened (i) against or affecting
any of the Alliance Entities or their assets or ordinary conduct of the business
that, if determined adversely to the Alliance Entities, would result in a
Material Effect or (ii) that questions this Agreement or any action contemplated
by this Agreement or in connection with the Merger.
(b) There are no citations, fines or penalties heretofore asserted
against any of the Alliance Entities or their assets under any federal, state or
local law relating to air, noise or water pollution or other environmental
protection matters, or relating to occupational health or safety, of which such
entity has received notice and that remain unpaid or that could otherwise bind
the assets of any of the Alliance Entities and that would result in a Material
Effect.
(c) Alliance has no knowledge of any state of facts or of the occurrence
or nonoccurrence of any event or group of related events, that should reasonably
cause Alliance to determine that there exists any basis for any material claim
against the Alliance Entities for any of the matters described in paragraphs (a)
or (b).
5.26 Tax Returns and Payments.
------------------------
(a) The Alliance Entities (or the common parent of any affiliated group
of which any of such entities is or has been a member) have duly filed in
correct form in all material respects all Tax Returns required to be filed by
such entities and have duly paid or provided for payment of (or there have been
paid on their behalf) all Taxes due or claimed to be due from them by federal,
state, local or foreign taxing authorities, excluding Taxes that are being
contested in good faith by appropriate proceedings and as to which adequate
reserves have been provided and that are specifically identified in
Section 5.26 of the Alliance Disclosure Schedule.
- ------------------------------------------------
(b) There are no tax liens upon any property or assets owned by any of
the Alliance Entities that would have a Material Effect.
(c) All Tax Returns of the Alliance Entities filed, including any
amendments to date, have been prepared in good faith without willful
misrepresentation and are complete and accurate in all material respects. The
United Kingdom income tax returns of the Alliance Entities have been examined by
the Inland Revenue Service or other relevant tax authority for all periods
through April 30, 1994, and all deficiencies assessed as a result of such
examination have been paid in full or finally settled and no issue has been
raised by the Inland Revenue Service or other relevant tax authority in any such
examination that has been resolved adversely to any of the Alliance Entities or
is still pending and, by application of similar principles, reasonably could be
expected to result in an assertion by the Inland Revenue Service or other
relevant tax authority of a material deficiency in any other taxable year or
with respect to any other of the Alliance Entities. There are no outstanding
agreements, waivers or other
B-34
<PAGE>
arrangements providing for an extension of time with respect to the filing of
any Tax Returns or the payment by, or assessment against, any of the Alliance
Entities for any Taxes.
(d) The reserves made for Taxes on the respective balance sheets in the
Alliance Financial Statements are sufficient for the payment of all unpaid Taxes
due and payable by the Alliance Entities attributable to all periods ended on or
before the date of the respective balance sheets in accordance with GAAP.
5.27 Insurance. Section 5.27 of the Alliance Disclosure Schedule
--------- ------------------------------------------------
contains a true, correct, and complete description of all policies of fire,
casualty and extended coverage, public liability, products liability, worker's
compensation and other forms of insurance owned or held by or for the benefit of
the Alliance Entities (other than insurance owned or held by operators for those
Alliance Interests where one of the Alliance Entities is not the operator). All
such policies are sufficient for material compliance with all requirements of
law and all agreements for which those entities are parties, are, to the
knowledge of the Alliance Entities, valid and enforceable policies, will remain
in full force and effect through the respective dates set forth in Section 5.27
------------
of the Alliance Disclosure Schedule subject to the timely payment of the
- -----------------------------------
premiums set forth therein, and will not in any way be affected by, or terminate
or lapse by reason of, the transactions contemplated by this Agreement. All
premiums due under such policies have been paid and the insureds have complied
in all material respects with such policies.
5.28 Contracts.
---------
(a) Section 5.28 of the Alliance Disclosure Schedule contains a complete
------------------------------------------------
and correct list as of the date hereof of all agreements, contracts and
commitments of the following types (and all amendments thereto), written or
oral, to which any of the Alliance Entities is a party or by which any of their
properties is bound:
(i) notes, agreements, mortgages, indentures, security agreements and
other instruments relating to the borrowing of money or evidence of credit or
the deferred purchase price of property, or the direct or indirect guarantee by
such entities of any such indebtedness or deferred purchase price, in excess of
$20,000;
(ii) leases of real property and material personal property providing for
payments under any such lease or group of related leases at an annual rate in
excess of $25,000 (other than Leases);
(iii) partnership or joint venture agreements;
(iv) management, employment and consulting agreements or other contracts
for personal services that are not terminable by any of such entities on not
more than one month's notice without penalty;
(v) agreements providing for liability for severance pay, collective
bargaining agreements, labor contracts, or labor or personnel policies;
(vi) surety, performance and maintenance bonds in excess of $5,000;
(vii) agreements or commitments for capital expenditures in excess of
$25,000;
B-35
<PAGE>
(viii) any plan, contract or arrangement providing for bonuses, pensions,
deferred compensation, retirement plan payments, profit sharing, incentive pay,
or for any other employee benefit plan;
(ix) brokerage or finder's agreements;
(x) any agreement that (a) restricts the right of such entities to
engage in any place in any line of business or (b) would restrict the right of
the Surviving Corporation or any Subsidiary of the Surviving Corporation to
engage in any line of business after the Closing Date;
(xi) any contract, commitment or agreement that involves the disposition
after October 31, 1995, of any assets of any of such entities not in the
ordinary course of business consistent with past practice;
(xii) any contract, commitment or agreement between any of such entities
or between any of such entities and any director or officer of any of the
Alliance Entities (other than those that will be terminated on or prior to
Closing);
(xiii) any Alliance Oil and Gas Contract that commits any of the Alliance
Entities to make any capital expenditures in any calendar year; and
(xiv) other agreements, contracts and commitments that in any way involve
payments or receipts during the remaining term of such agreement, contract or
commitment in excess of $25,000.
(b) Alliance has made available to LaTex complete and correct copies of
all written agreements, contracts and commitments, together with all amendments
thereto, and accurate (in all material respects) descriptions of all oral
agreements, in all cases, described in subparagraph (a). Such agreements,
contracts and commitments are in full force and effect, and all of such entities
and, to the knowledge of the Alliance Entities, all other parties to such
agreements, contracts and commitments have performed all obligations required to
be performed by them to date thereunder in all material respects and are not in
default thereunder in any material respect.
(c) None of the Alliance Entities has outstanding any powers of
attorney, including powers of attorney with respect to representation before any
Governmental Entity, customs agents and brokers, or given in connection with
qualification to conduct business in any other jurisdiction.
5.29 Transactions with Interested Persons. No officer or director of any
------------------------------------
of the Alliance Entities (or spouse or any child thereof) owns, directly or
indirectly, on an individual or joint basis, any material interest in, or serves
as an officer, director or employee of, any customer, competitor or supplier of
or any person or entity that has a material contract or arrangement with any of
the Alliance Entities, except for holdings of capital stock not exceeding one
percent (1%) of the total number of shares of capital stock of such customer,
competitor or supplier outstanding.
5.30 Compensation and Employee Plans.
-------------------------------
(a) Alliance has provided LaTex (i) the names and current annual
compensation rates of all present directors, officers, employees, independent
contractors or agents of each of the Alliance Entities and (ii) the number, job
category and range of compensation by job category of all employees of such
entities.
B-36
<PAGE>
(b) Section 5.30 of the Alliance Disclosure Schedule sets forth the name
------------------------------------------------
of each Plan applicable to any of the Alliance Entities and lists all documents
evidencing any Plan applicable to any of the Alliance Entities.
(c) Each Plan applicable to any of the Alliance Entities is now, and has
been from its inception, administered in compliance in all material respects
with the provisions of all applicable laws and regulations, including ERISA, the
Code and the ADEA, insofar as such statutes are applicable to such Plan.
5.31 Accounts Receivable; Inventories.
--------------------------------
(a) The accounts receivable of the Alliance Entities as reflected on the
respective balance sheets of the Alliance Financial Statements (except to the
extent collected after the date thereof) (i) have arisen in the ordinary course
of business for goods delivered or services rendered, and (ii) are good and
collectible, except as otherwise reserved for on the respective balance sheets.
(b) To the knowledge of the Alliance Entities, all of the Alliance
Entities' accounts receivable existing at Closing will be collectible in all
material respects at their aggregate recorded amounts (net of any allowances for
doubtful accounts reflected on the Alliance Financial Statements) in the
ordinary course of business within ninety (90) days of the Closing, without
resort to litigation, and will not be subject to counterclaim or set off.
(c) The inventories of the Alliance Entities as reflected on the
respective balance sheets included in the Alliance Financial Statements have
been valued in accordance with GAAP and customary industry practice using COPAS
guidelines.
5.32 Brokers, Finders and Advisors. Alliance has not employed any
-----------------------------
broker, finder, or investment advisor on its behalf, or incurred any liability
for any brokerage or finder's fees or commissions in connection with the
transaction contemplated hereby.
5.33 Labor Force.
-----------
(a) Each of the Alliance Entities is in compliance in all material
respects with all applicable laws (including without limitation federal income
tax laws), ordinances, regulations, statutes, rules and restrictions of any
Governmental Entity respecting employment and employment practices and terms and
conditions of employment.
(b) No union representation question exists respecting the employees of
any of the Alliance Entities and, to the knowledge of the Alliance Entities, no
union organizing activities are taking place.
5.34 Books and Records. The books and records of each of the Alliance
-----------------
Entities (including, without limitation, the books of account, minute books and
stock record books) are complete and correct in all material respects and have
been maintained in accordance with sound business practices. The minute books of
each of the Alliance Entities contain accurate and complete records in all
material respects of all meetings held of, and corporate action taken by, the
shareholders and the Boards of Directors of the respective entities and no
meetings of or actions by such shareholders or any such Boards of Directors have
been held or taken for which minutes have not been prepared and are not
contained in such minute books. None of the records and written documents
furnished or made available to LaTex's representatives or agents by the Alliance
Entities concerning the Alliance Interests, when considered in context and
together with any relevant or related documents also so furnished or made
B-37
<PAGE>
available, contain any untrue statement of material fact or omit a material fact
necessary to make any statement therein not misleading.
5.35 Payments. None of the Alliance Entities has, directly or
--------
indirectly, paid or delivered any fee, commission or other sum of money or item
of property however characterized to any finder, agent, government official or
other party, in the United States or any other country, in any manner related to
its business or operations, which such entity knows or has reason to believe to
have been illegal under any federal, state or local laws of the United States or
any other country or territory having jurisdiction over such entity, and has not
participated, directly or indirectly, in any boycotts or similar practices.
5.36 Public Utility Holding Company. None of the Alliance Entities owns
------------------------------
or operates any facilities used for the retail distribution of natural or
manufactured gas for heat, light or power, nor does any of the Alliance
Entities, directly or indirectly, own, control or hold with power to vote ten
percent (10%) or more of the outstanding stock of, or exercise direct or
indirect controlling influence over the management or policies of such a company
or a company so controlling such a company.
5.37 Exchange Filings. Alliance has filed all forms, reports and
----------------
documents required to be filed with the London Stock Exchange Limited since
January 1, 1993. All of such filings were prepared in accordance with the
requirements of all applicable laws and did not at the time they were filed
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
5.38 Disclosure. No representation or warranty made by Alliance in this
----------
Agreement (including, without limitation, in the Alliance Disclosure Schedule)
contains any untrue statement of material fact or omits or will omit to state
any material fact necessary to make the statements herein or therein not
misleading in light of the circumstances under which made.
5.39 Status of Newco. Except in connection with the Merger, Newco has
---------------
never had any assets or conducted any business. As of the Effective Time, all of
the issued and outstanding stock of Newco will be owned by Alliance.
6. Actions of LaTex Prior to the Closing Date.
------------------------------------------
6.1 Affirmative Covenants. Prior to the Closing Date, LaTex, except as
---------------------
otherwise set forth in Section 6.1 of the LaTex Disclosure Schedule, covenants
--------------------------------------------
that, unless the prior written consent of Alliance is first obtained, which
consent shall not be unreasonably withheld, the LaTex Entities will:
(a) Carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and use
all reasonable efforts to (i) preserve intact their respective present business
organizations, (ii) keep available the services of their respective present
officers and key employees and (iii) preserve their respective relationships
with customers, suppliers and any others having business dealings with them; and
(b) Duly comply with all laws applicable to them and their respective
properties, operations, business and employees which if not complied with
would result in a Material Effect.
B-38
<PAGE>
6.2 Negative Covenants. Prior to the Closing Date, except with the
------------------
prior written consent of Alliance, and except as otherwise set forth in
Section 6.2 of the LaTex Disclosure Schedule, which consent shall not be
- --------------------------------------------
unreasonably withheld, the LaTex Entities will not:
(a) Do any of the restricted acts set forth in Section 4.8 hereof, or
-----------
enter into any agreement of a nature set forth in Section 4.29 hereof;
------------
(b) Enter into or permit any of the LaTex Entities to enter into any
transaction other than in the ordinary course of business; or
(c) Amend the respective organizational or governing documents of any of
the LaTex Entities.
6.3 Consents. The LaTex Entities will use their best efforts to obtain
--------
all consents from third parties necessary or appropriate to effectuate the
transactions contemplated by this Agreement.
6.4 Advice of Changes. LaTex will promptly advise Alliance in writing
-----------------
from time to time prior to the Closing Date with respect to any matter hereafter
arising and known to it that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in the LaTex
Disclosure Schedule or would have resulted in any representation of LaTex in
this Agreement being untrue.
6.5 Best Efforts. The LaTex Entities will use their best efforts to
------------
cause to be fulfilled those of the conditions to Alliance's and Newco's
obligations to consummate the transactions contemplated by this Agreement that
are dependent upon their actions and to execute and deliver such instruments and
take such other actions as necessary or appropriate in order to carry out the
intent of this Agreement.
6.6 Access to Properties and Records. From and after the date of this
--------------------------------
Agreement through the earlier of the Closing or the termination of this
Agreement, the LaTex Entities shall (a) provide Alliance an identification of
and access to all books, records and documents, including contracts, agreements,
consents, settlements, maps, revenue and expense information, production data
and geological and geophysical data relating to the LaTex Interests, (b) afford
to Alliance and their officers, attorneys, accountants and other authorized
representatives free and full access during normal business hours to the
offices, properties, books and records of the LaTex Entities, and (c) cause
counsel and accountants to the LaTex Entities to furnish such additional
financial and operating data and other information as Alliance shall from time
to time request in order that Alliance may have full opportunity to make such
investigation as they shall desire to make of the affairs of the LaTex Entities
and their assets.
6.7 Supply Documents, Reports, etc.
-------------------------------
(a) LaTex shall furnish or make available to Alliance all documents,
reports and other information and data (including financial statements)
concerning the LaTex Entities as Alliance may reasonably require in connection
with any statement, application, or document required to be filed with
applicable Governmental Entities in connection with the transaction contemplated
by this Agreement or furnished to any other person, firm, corporation or
Governmental Entity in connection with this Agreement, including, but not
limited to the Commission, the Federal Trade Commission and the Department of
Justice.
B-39
<PAGE>
(b) LaTex represents and warrants that all such information shall be
true, correct, and complete in all material respects and shall not omit any
material fact required to be stated to make such information not misleading in
light of the circumstances under which made.
6.8 Employees. LaTex agrees to use all reasonable efforts to persuade
---------
such of the employees, agents, and independent contractors of the LaTex Entities
as Alliance may designate to continue as employees, agents, and independent
contractors of the LaTex Entities after the Closing Date.
6.9 No Solicitation, etc. LaTex shall not (and will cause each of the
--------------------
executive officers and members of its executive management, as identified in
LaTex's Annual Report to Stockholders for the fiscal year ended July 31, 1995
(collectively, "LaTex's Executives"), and its directors, legal and financial
advisors and Affiliates not to) directly or indirectly make, solicit, encourage,
initiate or enter into any agreement or agreement in principle, or announce any
intention to do any of the foregoing, with respect to any offer or proposal to
acquire all or a substantial part of its or its Subsidiaries' business and
properties or any of its or its Subsidiaries' capital stock whether by merger,
purchase of assets, tender offer or otherwise (an "Alternative Transaction").
LaTex shall not (and will cause each of LaTex's Executives, directors, legal and
financial advisors and Affiliates not to), directly or indirectly, participate
in any negotiations or discussions regarding, or furnish any information with
respect to, or otherwise cooperate in any way in connection with, or assist or
participate in, facilitate or encourage, any effort or attempt to effect or seek
to effect, any Alternative Transaction with or involving any person other than
Alliance unless LaTex shall have received an unsolicited written offer to effect
an Alternative Transaction which, in the exercise of its fiduciary duty after
consideration of advice from its legal and financial advisors, LaTex's Board of
Directors determines is likely to be more beneficial to the LaTex Stockholders
than the Merger. LaTex will promptly communicate to Alliance the terms of any
proposal which it may receive in respect of any such transaction and will keep
Alliance informed as to the status of any actions, including negotiations or
discussions, taken pursuant to the preceding sentence.
7. Actions of Alliance and Newco Prior to the Closing Date.
-------------------------------------------------------
7.1 Affirmative Covenants. Prior to the Closing Date, Alliance, except
---------------------
as otherwise set forth in Section 7.1 of the Alliance Disclosure Schedule,
-----------------------------------------------
covenants that, unless the prior written consent of LaTex is first obtained,
which consent shall not be unreasonably withheld, the Alliance Entities will:
(a) Carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and use
all reasonable efforts to (i) preserve intact their respective present business
organizations, (ii) keep available the services of their respective present
officers and key employees and (iii) preserve their respective relationships
with customers, suppliers and any others having business dealings with them; and
(b) Duly comply with all laws applicable to them and their respective
properties, operations, business and employees which if not complied with would
result in a Material Effect.
7.2 Negative Covenants. Prior to the Closing Date, except with the
------------------
prior written consent of LaTex, and except as otherwise set forth in Section
-------
7.2 of the Alliance Disclosure Schedule, which consent shall not be
- ---------------------------------------
unreasonably withheld, the Alliance Entities will not:
(a) Do any of the restricted acts set forth in Section 5.8 hereof, or
-----------
enter into any agreement of a nature set forth in Section 5.28 hereof;
------------
B-40
<PAGE>
(b) Enter into or permit any of the Alliance Entities to enter into any
transaction other than in the ordinary course of business; or
(c) Amend the respective organizational or governing documents of any of
the Alliance Entities.
7.3 Consents. The Alliance Entities will use their best efforts to
--------
obtain all consents from third parties necessary or appropriate to effectuate
the transactions contemplated by this Agreement.
7.4 Advice of Changes. Alliance will promptly advise LaTex in writing
-----------------
from time to time prior to the Closing Date with respect to any matter hereafter
arising and known to it that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in the Alliance
Disclosure Schedule or would have resulted in any representation of Alliance in
this Agreement being untrue.
7.5 Best Efforts. The Alliance Entities will use their best efforts to
------------
cause to be fulfilled those of the conditions to LaTex's obligations to
consummate the transactions contemplated by this Agreement that are dependent
upon their actions and to execute and deliver such instruments and take such
other actions as necessary or appropriate in order to carry out the intent of
this Agreement.
7.6 Access to Properties and Records. From and after the date of this
--------------------------------
Agreement through the earlier of the Closing or the termination of this
Agreement, the Alliance Entities shall (a) provide LaTex an identification of
and access to all books, records and documents, including contracts, agreements,
consents, settlements, maps, revenue and expense information, production data
and geological and geophysical data relating to the Alliance Interests, (b)
afford to LaTex and their officers, attorneys, accountants and other authorized
representatives free and full access during normal business hours to the
offices, properties, books and records of the Alliance Entities, and (c) cause
counsel and accountants to the Alliance Entities to furnish such additional
financial and operating data and other information as LaTex shall from time to
time request in order that LaTex may have full opportunity to make such
investigation as they shall desire to make of the affairs of the Alliance
Entities and their assets.
7.7 Supply Documents, Reports, etc.
-------------------------------
(a) Alliance shall furnish or make available to LaTex all documents,
reports and other information and data (including financial statements)
concerning the Alliance Entities as LaTex may reasonably require in connection
with any statement, application, or document required to be filed with
applicable Governmental Entities in connection with the transaction contemplated
by this Agreement or furnished to any other person, firm, corporation or
Governmental Entity in connection with this Agreement, including, but not
limited to the Commission, the Federal Trade Commission and the Department of
Justice.
(b) Alliance represents and warrants that all such information shall be
true, correct, and complete in all material respects and shall not omit any
material fact required to be stated to make such information not misleading in
light of the circumstances under which made.
7.8 No Solicitation, etc. Alliance shall not (and will cause each of
--------------------
the executive officers and members of its executive management, as identified in
Alliance's Annual Report to Stockholders for the fiscal year ended April 30,
1996 (collectively, "Alliance's Executives"), and its directors, legal and
financial advisors and Affiliates not to) directly or indirectly make, solicit,
encourage, initiate or
B-41
<PAGE>
enter into any agreement or agreement in principle, or announce any intention to
do any of the foregoing, with respect to any offer or proposal to acquire all or
a substantial part of its or its Subsidiaries' business and properties or any of
its or its Subsidiaries' capital stock whether by merger, purchase of assets,
tender offer or otherwise (an "Alternative Transaction"). Alliance shall not
(and will cause each of Alliance's Executives, directors, legal and financial
advisors and Affiliates not to), directly or indirectly, participate in any
negotiations or discussions regarding, or furnish any information with respect
to, or otherwise cooperate in any way in connection with, or assist or
participate in, facilitate or encourage, any effort or attempt to effect or seek
to effect, any Alternative Transaction with or involving any person other than
LaTex unless Alliance shall have received an unsolicited written offer to effect
an Alternative Transaction which, in the exercise of its fiduciary duty after
consideration of advice from its legal and financial advisors, Alliance's Board
of Directors determines is likely to be more beneficial to the Alliance
Stockholders than the Merger. Alliance will promptly communicate to LaTex the
terms of any proposal which it may receive in respect of any such transaction
and will keep LaTex informed as to the status of any actions, including
negotiations or discussions, taken pursuant to the preceding sentence. Nothing
contained herein shall preclude Alliance from continuing negotiations to acquire
certain assets and companies which have been previously disclosed to LaTex
("Potential Additional Transactions"); provided, however, that the terms of any
-------- -------
Potential Additional Transaction shall have been disclosed in writing and are
acceptable to LaTex prior to the execution of a definitive agreement with
respect to such assets or companies and further provided that any agreement by
Alliance to acquire such assets or companies pursuant to any Potential
Additional Transaction shall require the issuance of a fairness opinion by
Rothschild Natural Resources LLC; and further provided that if LaTex fails or
refuses to accept the terms of any Potential Additional Transaction disclosed to
it in writing by Alliance, such Potential Additional Transaction shall not
constitute an Alternative Transaction, but if Alliance determines to proceed
with a Potential Alternative Transaction, the terms of which have not been
accepted by LaTex, LaTex shall have the absolute right to terminate this
Agreement pursuant to Section 11.1(l), in which event neither party shall have
---------------
any further obligation or liability to the other as more particularly described
in Section 11.3(a).
---------------
8. Conditions to Alliance's or Newco's Obligations. Each and every
-----------------------------------------------
obligation of Alliance and Newco under this Agreement to be performed on or
before the Closing Date is, at the option of Alliance, subject to the
satisfaction on or before the Closing Date of each of the following conditions:
(a) Each class of the LaTex Stockholders shall have approved the Merger.
(b) (i) All of the terms, covenants and conditions of this Agreement to
be complied with or performed by LaTex at or before the Closing Date shall have
been duly complied with and performed in all material respects, (ii) the
representations and warranties of LaTex set forth in Article 4, as modified by
---------
the statements contained in the LaTex Disclosure Schedule, shall be true in all
material respects on and as of the Closing Date with the same force and effect
as if such representations and warranties had been made on and as of the Closing
Date (but this provision shall not mean that representations and warranties
relating to a specific date, such as Section 4.6(a), shall relate to any other
--------------
date) and (iii) Alliance shall have received a certificate to such effect from
an officer of LaTex. Whether the conditions in subparagraphs (i) and (ii) above
have been satisfied shall be determined without regard to any materiality
qualifications or provisions contained in any such covenants, representations or
warranties.
(c) All consents, waivers, ap provals, licenses, authorizations of, or
filings or declarations with third parties or Governmental Entities required to
be obtained by the LaTex Entities in order to permit the transactions
contemplated by this Agreement to be consummated in accordance with governmental
laws, rules, regulations and agreements shall have been obtained, and the
registration
B-42
<PAGE>
statement required by Section 2.10(b) shall be effective under the Securities
---------------
Act, no stop orders suspending the effectiveness of the registration statement
shall have been issued, no action, suit, proceeding or investigation by the
Commission to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities laws or the
Securities Act or the Securities Exchange Act of 1934 relating to the issuance
or trading of the Alliance Shares issuable pursuant to the Merger shall have
been received.
(d) LaTex shall have delivered to Alliance an agreement in the form
attached to this Agreement as Exhibit C, executed by each of LaTex's
---------
Affiliates regarding his or its investment in the Alliance Shares.
(e) Alliance and Newco shall have received the opinion of counsel for
LaTex, dated the Closing Date, opining to certain of the matters referenced in
Sections 4.1, 4.2, 4.3, 4.4, 4.10 and 4.25 and in the form acceptable to
- ------------------------------------------
Alliance and Newco and their counsel.
(f) The aggregate number of each class of LaTex Shares held by the LaTex
Stockholders who have delivered and not withdrawn a written demand for appraisal
of their shares shall not exceed five percent (5%) of that class of LaTex Shares
outstanding and entitled to vote at the meeting of LaTex Stockholders.
(g) All outstanding options or other rights to purchase or acquire LaTex
Shares (other than the Warrants) shall have been canceled without further
liability to LaTex or Alliance.
(h) All actions, proceedings, instruments and documents in connection
with the consummation of the transactions contemplated by this Agreement,
including the forms of all documents, legal matters, opinions and procedures in
connection therewith, shall have been approved in form and substance by counsel
for Alliance, Jenkens & Gilchrist, P.C., which approval shall not be
unreasonably withheld.
(i) The LaTex Entities shall have furnished such certificates to
evidence compliance with the conditions set forth in this Article, as may be
reasonably requested by Alliance or its counsel.
(j) There shall not have been any material loss resulting from
destruction of the LaTex Interests due to acts of God, fire, explosion or other
casualty which is not reimbursable in all material respects under policies of
insurance maintained by or for the benefit of the LaTex Entities.
(k) No material information or data provided or made available to
Alliance by or on behalf of LaTex shall be incorrect in any material respect.
(l) LaTex shall have sold or otherwise disposed of its interests in the
Excluded Entities. The conditions of the sale or disposition shall result in no
less favorable terms to LaTex than if the existing equity and debt reflected on
LaTex's books for these interests were written down to zero. At the time of the
Merger, LaTex shall have no rights or obligations with respect to any of these
entities.
(m) The Alliance Shares to be issued to the LaTex Stockholders pursuant
to the Merger shall have been approved for listing on the London Stock Exchange
and such listing shall have become effective.
B-43
<PAGE>
(n) Each LaTex Stockholder who will directly own five percent (5%) or
more of both the voting power and total value of Alliance as a consequence of
the Merger and the transactions contemplated thereby will enter into a gain
recognition agreement with the Internal Revenue Service.
9. Conditions to LaTex's Obligations. Each and every obligation of LaTex
---------------------------------
under this Agreement to be performed on the Closing Date is, at the option of
LaTex, subject to the satisfaction on or before the Closing Date, of each of the
following conditions:
(a) The Alliance Stockholders shall have approved the Merger, the issue
of the new Alliance Shares and the reverse stock split of the Alliance Shares;
(b) (i) All of the terms, covenants and conditions of this Agreement to
be complied with or performed by Alliance and Newco at or before the Closing
Date shall have been duly complied with and performed in all material respects,
(ii) the representations and warranties of Alliance and Newco set forth in
Article 5, as modified by the statements contained in the Alliance Disclosure
- ---------
Schedule, shall be true in all material respects on and as of the Closing Date
with the same force and effect as if such representations and warranties had
been made on and as of the Closing Date (but this provision shall not mean that
representations and warranties relating to a specific date, such as Section
-------
5.6(a), shall relate to any other date), and (iii) LaTex shall have received a
- ------
certificate to such effect from an officer of each of Alliance and Newco at
Closing. Whether the conditions in subparagraphs (i) and (ii) above have been
satisfied shall be determined without regard to any materiality qualifications
or provisions contained in any such covenants, representations or warranties.
(c) All consents, waivers, approvals, licenses, authorizations of, or
filings or declarations with third parties or Governmental Entities required to
be obtained by Alliance and Newco in order to permit the transactions
contemplated by this Agreement to be consummated in accordance with governmental
laws, rules, regulations and agreements shall have been obtained, and the
registration statement required by Section 2.10(b) shall be effective under the
---------------
Securities Act, no stop orders suspending the effectiveness of the registration
statement shall have been issued, no action, suit, proceeding or investigation
by the Commission to suspend the effectiveness thereof shall have been initiated
and be continuing, and all necessary approvals under state securities laws or
the Securities Act or the Securities Exchange Act of 1934 relating to the
issuance or trading of the Alliance Shares issuable pursuant to the Merger shall
have been received.
(d) LaTex shall have received opinions from counsel for Alliance and
Newco, dated the Closing Date, opining to certain of the matters referenced in
Sections 5.1, 5.2, 5.3, 5.4, 5.6, 5.10 and 5.24 and in the forms acceptable
- ------------------------------------------------
to LaTex and its counsel.
(e) All actions, proceedings, instruments and documents in connection
with the consummation of the transactions contemplated by this Agreement,
including the forms of all documents, legal matters, opinions and procedures in
connection therewith, shall have been approved in form and substance by counsel
for LaTex, Pray, Walker, Jackman, Williamson & Marlar, which approval shall not
be unreasonably withheld.
(f) Alliance and Newco shall have furnished such certificates of its
officers and others to evidence compliance with the conditions set forth in this
Article, as may be reasonably requested by LaTex or its counsel.
B-44
<PAGE>
(g) There shall not have been any material loss resulting from
destruction of the Alliance Interests due to acts of God, fire, explosion or
other casualty which is not reimbursable in all material respects under policies
of insurance maintained by or for the benefit of the Alliance Entities.
(h) No material information or data provided or made available to LaTex
by or on behalf of Alliance shall be incorrect in any material respect.
(i) The Alliance Shares to be issued to the LaTex Stockholders pursuant
to the Merger shall have been approved for listing on the London Stock Exchange
and such listing shall have become effective.
(j) Alliance shall have entered into a definitive agreement with John
O'Brien, the former Chief Executive Officer of Alliance ("O'Brien"), to settle
all claims, disputes, actions and disagreements between Alliance and O'Brien on
terms either previously disclosed in writing to LaTex or otherwise reasonably
satisfactory to LaTex.
(k) LaTex shall have received an opinion from counsel for Alliance and
Newco, dated the Closing Date, in a form reasonably satisfactory to LaTex, to
the effect that
(i) the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code;
(ii) the exchange in the Merger of LaTex Common Stock, LaTex
Series A Shares, LaTex Series B Shares and LaTex Warrants for Alliance
Shares will not give rise to gain or loss to the LaTex Stockholders with
respect to such exchange; and
(iii) LaTex will not recognize gain or loss as a consequence of
the Merger and the transactions contemplated thereby.
(l) Alliance shall have consummated all Potential Additional
Transactions, if any, for which definitive agreements were executed by Alliance
on or before September 15, 1996, in accordance with the provisions of
Section 7.8, and which are required so that the matters to be addressed in the
- -----------
opinion described in Section 9(k) will be true and correct as of Closing.
------------
10. Additional Agreements.
---------------------
10.1 Confidentiality. The parties hereto will, and will cause their
---------------
officers, directors, employees and authorized representatives to, hold in
confidence all, and not to use or to disclose to others any, nonpublic
information received by them from another party hereto in connection with the
transactions contemplated by this Agreement; provided, however, the foregoing
shall not restrict necessary disclosures in compliance with requirements of any
law, governmental order or regulation.
10.2 Further Assurances. After Closing, the parties shall execute,
------------------
acknowledge and deliver or cause to be executed, acknowledged and delivered such
instruments and take such other action including payment of monies as may be
necessary or advisable to carry out their obligations under this Agreement and
under any document, certificate or other instrument delivered pursuant hereto or
required by law. If at any time subsequent to the Closing, any party comes into
possession of money or property belonging to another party, such money or
property shall be promptly turned over to the party entitled thereto.
B-45
<PAGE>
10.3 Resignations. Messrs. Jeffrey T. Wilson and Malcom W. Henley
------------
shall resign as officers, directors and employees of the LaTex Entities as of
Closing, and LaTex shall cause all other officers and directors of the LaTex
Entities to resign as officers and directors as of Closing.
10.4 Alliance Directors. At the Closing Date, the Board of Directors of
------------------
Alliance will be expanded to nine members and Messrs. Jeffrey T. Wilson and John
R. Martinson will be appointed to the Board of Alliance.
10.5 Offices. The executive offices of the Surviving Corporation shall
-------
be located in London, England, with LaTex's present offices becoming the
operational headquarters for the assets located in the United States.
10.6 LaTex Personnel. Alliance agrees that any LaTex personnel
---------------
terminated as a result of the Merger will be compensated on a no less favorable
basis than LaTex's existing policies governing these matters currently provides;
provided, however, that Alliance shall have the right to terminate any employee
at any time for any reason or for no reason. The following key personnel shall
be retained as full-time employees of the Surviving Corporation for a minimum of
six months following the completion of the Merger: Messrs. Hull, Heinsius, Cox,
Ensminger, Smethers and Burns; provided, however, that Alliance shall have the
right to terminate any of the foregoing individuals for good cause.
10.7 Consulting Agreement. As of the Closing Date, Alliance shall enter
--------------------
into a consulting arrangement with Mr. Jeffrey T. Wilson satisfactory to both
parties pursuant to which Mr. Wilson will provide certain consulting services
relating to acquisitions in the energy industry for Alliance subsequent to the
Merger.
11 Termination, Waiver and Amendment.
---------------------------------
11.1 Termination. This Agreement and the transactions contemplated
-----------
herein may be terminated and abandoned at any time on or prior to the Closing
Date:
(a) By mutual consent of LaTex and Alliance; or
(b) By Alliance if:
(i) Any representation, warranty or covenant made herein for the
benefit of Alliance or Newco or any certificate, schedule or document
furnished to Alliance pursuant to this Agreement is untrue in any material
respect (without regard to any materiality or knowledge qualifications or
provisions contained in such representation, warranty or covenant) and such
breach is not cured within ten (10) days of LaTex's receipt of a notice
from Alliance that such breach exists or has occurred;
(ii) LaTex shall have defaulted in any material respect (without
regard to any materiality qualifications or provisions contained in such
representation, warranty or covenant) in performance of any material
obligation under this Agreement and such breach is not cured within ten
(10) days of LaTex's receipt of a notice from Alliance that such breach
exists or has occurred; or
B-46
<PAGE>
(iii) Consummation of the transactions contemplated by this
Agreement would violate any nonappealable final order, decree or judgment
of any court or governmental body having competent jurisdiction; or
(c) By LaTex if:
(i) Any representation, warranty or covenant made herein for the
benefit of LaTex or any certificate, schedule or document furnished to
LaTex pursuant to this Agreement is untrue in any material respect (without
regard to any materiality or knowledge qualifications or provisions
contained in such representation, warranty or covenant) and such breach is
not cured within ten (10) days of Alliance's receipt of a notice from LaTex
that such breach exists or has occurred;
(ii) Alliance or Newco shall have defaulted in any material
respect (without regard to any materiality qualifications or provisions
contained in such representation, warranty or covenant) in performance of
any material obligation under this Agreement and such breach is not cured
within ten (10) days of Alliance's receipt of a notice from LaTex and the
Controlling Stockholders that such breach exists or has occurred; or
(iii) Consummation of the transactions contemplated by this
Agreement would violate any nonappealable final order, decree or judgment
of any court or governmental body having competent jurisdiction; or
(d) By either party if the Closing Date does not occur on or before
January 31, 1997 (or such later date as may be mutually agreed upon by the
parties hereto), and such party has complied with the provisions of Section
-------
6.5 or Section 7.5, as the case may be.
- --- -----------
(e) By either Alliance or LaTex, if this Agreement, the Merger and the
Alliance reverse stock split shall fail to be approved and adopted by the
affirmative vote of the LaTex Stockholders required under the law applicable to
LaTex and LaTex's charter;
(f) By either LaTex or Alliance, if this Agreement, the Merger and the
Alliance reverse stock split shall fail to be approved and adopted by the
affirmative vote of the Alliance Stockholders required under the law applicable
to Alliance and Alliance's charter;
(g) By LaTex, upon the prior payment of a termination fee to Alliance in
the amount of $1,000,000, plus an amount equal to Alliance's Reimbursable
Expenses if LaTex shall have received an unsolicited written offer from a person
to effect an Alternative Transaction which, in the exercise of its fiduciary
duty after consideration of advice from its legal and financial advisors,
LaTex's Board of Directors determines will be more beneficial to the LaTex
Stockholders than the Merger and which LaTex's Board of Directors has determined
to accept; provided that LaTex shall not be entitled to terminate this Agreement
--------
pursuant to this paragraph (g) if LaTex shall have breached Section 6.9 with
-----------
respect to the offer in question;
(h) By Alliance, upon the prior payment of a termination fee to LaTex in
the amount of $1,000,000, plus an amount equal to LaTex's Reimbursable Expenses
if Alliance shall have received an unsolicited written offer from a person to
effect an Alternative Transaction which, in the exercise of its fiduciary duty
after consideration of advice from its legal and financial advisors, Alliance's
Board of Directors determines will be more beneficial to the Alliance
Stockholders than the Merger and which Alliance's Board of Directors has
determined to accept; provided that Alliance shall not be entitled to
--------
B-47
<PAGE>
terminate this Agreement pursuant to this paragraph (h) if Alliance shall have
breached Section 7.8 with respect to the offer in question;
-----------
(i) By LaTex if Alliance's Board of Directors shall have approved,
recommended or endorsed an Alternative Transaction; or
(j) By Alliance if LaTex's Board of Directors shall have approved,
recommended or endorsed an Alternative Transaction.
(k) By LaTex if, on September 15, 1996, the matters to be addressed in
the opinion described in Section 9(k) will not be true and correct as of that
------------
date because Alliance has neither (i) entered into any definitive agreement(s)
with respect to any Potential Additional Transactions in accordance with the
provisions of Section 7.8, after giving effect to such Potential Additional
-----------
Transaction as if it had occurred on September 15, 1996 nor (ii) elected to
restructure the Merger and the transactions contemplated thereby in accordance
with Section 2.11.
------------
(l) By LaTex, pursuant to its rights under Section 7.8 hereof.
-----------
11.2 Manner of Exercise. In the event of termination and abandonment by
------------------
Alliance or LaTex, or both, authorized by Section 11.1, written notice thereof
------------
shall forthwith be given to the other parties and this Agreement shall terminate
and the transactions contemplated hereunder shall be abandoned without further
action by the parties.
11.3 Effect of Termination.
---------------------
(a) In the event of the termination and abandonment authorized by
Section 11.1(a), (b), (c), (d), (e), (f), (k) or (l), then, subject to, and
- ----------------------------------------------------
except as otherwise provided in, the provisions of Section 11.3(d) and Section
--------------- -------
11.3(e), this Agreement shall become void and have no effect, without any
- -------
liability on the part of any of the parties or their directors or officers or
stockholders in respect of this Agreement and the transactions contemplated
hereby, except for the confidentiality obligation of Section 10.1 and this
------------
Section 11.3.
- ------------
(b) LaTex shall pay to Alliance a termination fee in cash of $1,000,000
plus an amount equal to Alliance's Reimbursable Expenses within five business
days of termination of this Agreement by LaTex pursuant to Section 11.1(g) or
---------------
by Alliance pursuant to Section 11.1(j).
---------------
(c) Alliance shall pay to LaTex a termination fee in cash of $1,000,000
plus an amount equal to LaTex's Reimbursable Expenses within five business
days of termination of this Agreement by Alliance pursuant to Section 11.1(h)
---------------
or by LaTex pursuant to Section 11.1(i).
---------------
(d) At the election of Alliance, LaTex shall pay to Alliance a
termination fee in cash of $1,000,000, plus the amount of Alliance's
Reimbursable Expenses within five business days following written notice of
such election by Alliance delivered following termination of this
Agreement by Alliance pursuant to Section 11.1(b)(i) or (b)(ii), provided that
------------------ ------- --------
any breach, in addition to giving rise to Alliance's right to terminate this
Agreement pursuant to Section 11.1(b)(i) or (b)(ii), constituted a knowing
------------------ -------
misrepresentation or intentional breach of warranty by LaTex as of the date
hereof or an intentional breach of an obligation of LaTex, or a knowing or
intentional breach of Article 6 hereof, provided, further, that if Alliance
--------- -------- -------
delivers such written notice, payment in full of the fees and expense
reimbursement pursuant to this Section shall be in complete satisfaction of any
and all liabilities or obligations that LaTex or its officers, directors and
stockholders may have to Alliance as a result of any of the provisions of this
Agreement or the termination thereof.
B-48
<PAGE>
(e) At the election of LaTex, Alliance shall pay to LaTex a termination
fee in cash of $1,000,000, plus the amount of LaTex's Reimbursable Expenses
within five business days following written notice of such election by LaTex
delivered following termination of this Agreement by LaTex pursuant to Section
-------
11.1(c)(i) or (c)(ii), provided that any breach, in addition to giving rise to
- ---------- ------- --------
LaTex's right to terminate this Agreement pursuant to Section 11.1(c)(i) or
------------------
(c)(ii), constituted a knowing misrepresentation or intentional breach of
- -------
warranty by Alliance as of the date hereof or an intentional breach of an
obligation of Alliance, or a knowing or intentional breach of Article 6
---------
hereof, provided, further, that if LaTex delivers such written notice, payment
-------- -------
in full of the fees and expense reimbursement pursuant to this Section shall
be in complete satisfaction of any and all liabilities or obligations that
Alliance or its officers, directors and stockholders may have to LaTex as a
result of any of the provisions of this Agreement or the termination thereof.
12. Miscellaneous.
-------------
12.1 Survival. Except for Sections 2.1 through 2.9 and this Article 12,
-------- ------------ --- ----------
the representations, warranties, covenants and agreements of the parties to this
Agreement shall not survive the Closing and shall thereafter be of no further
force and effect for any purpose.
12.2 Expenses. Except as otherwise provided herein, the parties shall
--------
each pay their own expenses and costs in connection with this Agreement and
the transactions contemplated hereby.
12.3 Press Releases. No party shall make any public announcement or
--------------
press release with respect to this transaction without first consulting with the
other parties and giving such parties the opportunity to review and comment
thereon.
12.4 Binding Effect. This Agreement and all of the provisions hereof
--------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any party
without the prior written consent of the others. Nothing contained herein,
express or implied, is intended to confer on any person other than the parties
hereto or their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
12.5 Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, in such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
12.6 Notices. Any notice, request, instructions or other document to be
-------
given hereunder to any party shall be in writing, sent by facsimile transmission
or delivered personally or by courier or sent by certified mail, postage
prepaid, as follows:
If to LaTex (prior to the Closing):
LaTex Resources, Inc.
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attn: Jeffrey T. Wilson, President
FAX: (918) 747-7010
B-49
<PAGE>
If to Alliance or Newco:
Alliance Resources Plc
Kingsbury House
15-17 King Street
London SWIY 6QU
Attn: John A. Keenan, Managing Director
FAX: 011 44 171 930 6579
With copy to:
Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2711
Attn: Francis M. Munchinski
FAX: (214) 855-4300
Any party may change its address for purposes of this Section by giving written
notice of such change of address to the other parties in the manner herein
provided for giving notice. Any notice or communication hereunder shall be
deemed to have been given when (i) deposited in the United States mail, if by
certified mail, and (ii) received, if delivered personally or by courier or
facsimile transmission.
12.7 Entire Agreement. This Agreement (including the instruments between
----------------
the parties referred to herein and any waivers delivered pursuant hereto)
constitutes the entire agreement among the parties and supersedes all other
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof, including, without
limitation, that certain letter agreement, dated June 28, 1996 between Alliance
and LaTex. The Exhibits and Schedules are a part of this Agreement as if fully
set forth herein. All references to articles, sections, subsections, paragraphs,
clauses, exhibits and schedules shall be deemed references to such part of this
Agreement, unless the context shall otherwise require.
12.8 Amendments; Waivers. No supplement, modification, or amendment of
-------------------
this Agreement or waiver of any provision of this Agreement will be binding
unless executed in writing by, or on behalf of, all parties to this Agreement.
No waiver of any of the provisions of this Agreement will be deemed or will
constitute a waiver of any other provision of this Agreement (regardless of
whether similar), nor will any such waiver constitute a continuing waiver unless
otherwise expressly provided.
12.9 Headings. Descriptive headings contained herein are for convenience
--------
of reference only and shall not affect the meaning or interpretation hereof.
12.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one agreement.
12.11 Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur if any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provision
B-50
<PAGE>
hereof in any court of the United States or any state having jurisdiction, in
addition to any other remedy to which they are entitled at law or in equity.
12.12 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE
-------------
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN THAT STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
12.13 Schedules. Any item disclosed by any party in the its Disclosure
---------
Schedule for one purpose and in response to a specific section of this Agreement
shall not be deemed disclosed for any other purpose and in response to any other
section of the Agreement unless specifically so stated.
12.14 Time of Essence. Time is of the essence of the parties' obligations
---------------
to consummate the transactions contemplated by this Agreement on the Closing
Date.
12.15 Best Efforts. No provision of this Agreement calling for a party to
------------
use its best efforts or reasonable efforts shall be construed so as to require
such party to incur out-of-pocket expenditures other than expenditures normally
incurred in transactions similar to the Merger or to take any step that would
not be commercially reasonable, in light of all of the circumstances.
EXECUTED as of the day and year first above written.
Alliance:
ALLIANCE RESOURCES PLC
By: John A. Keenan
President
NEWCO:
ALLIANCE RESOURCES (DELAWARE),
INC.
By: John A. Keenan
President
LATEX:
LATEX RESOURCES, INC.
By: Jeffrey T. Wilson
President
B-51
<PAGE>
APPENDIX C
OPINIONS OF WOOD ROBERTS, L.L.C.
[Wood Roberts Letterhead]
August 8, 1996
The Board of Directors
LaTex Resources, Inc.
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74170
Gentlemen:
You have asked Wood Roberts, LLC. to examine the terms of the proposed merger
(the "Merger") between LaTex Resources, Inc. ("LaTex") and Alliance Resources
PLC ("Alliance"), as set forth in the Agreement and Plan of Merger scheduled to
be executed on August 9, 1996 (the "Agreement"), in conjunction with the
proposed disposal of certain assets of LaTex as provided by the Agreement, and
to render an opinion as to the fairness of such terms from a financial stand
point to the shareholders of LaTex.
Pursuant to the Agreement, Alliance Resources (Delaware), Inc. ("Alliance
Delaware"), a newly formed, wholly owned subsidiary of Alliance, will be merged
with and into LaTex and the separate corporate existence of Alliance Delaware
will cease. LaTex will be the surviving corporation in the Merger and will be a
wholly owned subsidiary of Alliance.
All issued and outstanding Common Shares, Series A Shares and Series B Shares of
LaTex will be canceled and, in consideration of such cancellation, the holders
will become entitled to the allotment of common shares of Alliance with a par
value (Pounds)0.01 ("Alliance Shares") in the total amount of 24,043,000
Alliance Shares, equal to 72% of the then issued Alliance Shares, and in amounts
for each Common Share, Series A Share and Series B Share as will be set forth in
the Agreement prior to execution. In consequence, the opinion expressed
hereinbelow is qualified with respect to the fairness of the allocation of
Alliance Shares between the separate classes of LaTex shares.
Each warrant to purchase LaTex Common Shares (a "Warrant") will be canceled and,
in consideration of such cancellation, the holder will become entitled to
receive a new warrant to subscribe for the number of Alliance Shares that the
holder of the Warrant would have been entitled to receive if such holder had
exercised the Warrant prior to the Merger and received LaTex shares. The holders
of Warrants will have the right to subscribe to a further number of Alliance
Shares as will be set forth in the Agreement.
The Alliance Shares are currently traded on the London Stock Exchange and LaTex
Common Shares are traded on the over the counter market of the NASD. Following
the Merger, the Alliance Shares will be traded on the London Stock Exchange and
no market will be made on NASDAQ.
C-1-1
<PAGE>
It is a condition of the Agreement that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986 and that the exchange of shares in the Merger will not give rise to gain
or loss to LaTex or its shareholders.
As of the date of this letter, Alliance is in negotiation with certain other
entities regarding the potential acquisition of other assets or companies. We
cannot give an opinion on the effect of such potential acquisitions on the
shareholders of LaTex. However, the terms of the Agreement provide that the
terms of such potential acquisitions must be acceptable to LaTex prior to the
execution of an agreement relating thereto.
The Agreement excludes certain non-performing assets of LaTex from the Merger.
Such assets will be sold to Imperial Petroleum, Inc. for a consideration of
100,000 LaTex Common Shares.
In arriving at our opinion, we have reviewed the Agreement, information provided
to us by the management of LaTex and Alliance and by certain of their
professional advisors, as well as information that is in the public domain.
Furthermore, we have had the opportunity of meeting with the management of LaTex
and Alliance to discuss the historical and current business of each company,
their prospects as stand-alone entities and the potential short-term and medium-
term strategic and financial benefits of the proposed Merger.
Our review of the terms of the Merger has been undertaken with reference to,
among other things: the relative net asset values of LaTex and Alliance;
financial condition and debt ratios; earnings, cash flow and the ability to
develop or re-work assets; and the pro forma financial position of the merged
company and its ability to obtain debt or equity funding. We have analyzed
certain financial, industry and market related information and data.
Furthermore, we have examined data indicative of the relative merits of LaTex
shareholders exchanging their shares for shares listed for trading on the London
Stock Exchange. We have not been asked to undertake an independent analysis of
comparable transactions. However, we have reviewed certain published data in
this regard.
We have not independently verified any of the foregoing information and, in
using such information in our review of the Merger, we have relied upon it being
complete and accurate in all material respects.
In any merger of publicly traded companies, regulatory and governmental
approvals must be sought and obtained. In our review of the Merger of LaTex and
Alliance, we have assumed that such approvals will be forthcoming and that no
restriction will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger. Our opinion is rendered on the basis of our
knowledge of the circumstances disclosed to us as of the date of this letter.
We act as financial advisor to LaTex in relation to the Merger. We have received
fees for such services in the past and have an agreement with LaTex for the
payment of a fee if the Merger is consummated. John R. Martinson, a director of
LaTex, is a principal of Wood Roberts, LLC. Mr. Martinson has recused himself
from consideration of the terms of the Merger for the purpose of this opinion.
Based upon the results of our analysis of the matters set forth above, our
knowledge of the market for and valuation of securities in the U.S.A. and the
United Kingdom, our overall experience in the energy sector in both of the
aforementioned countries, all other factors that we consider to be relevant and
subject to the qualification hereinbefore stated, we are of the opinion that the
financial terms of the Merger are fair to the shareholders of LaTex.
Yours sincerely,
C-1-2
<PAGE>
WOOD ROBERTS, LLC.
C-1-3
<PAGE>
[Wood Roberts Letterhead]
October 1, 1996
The Board of Directors
LaTex Resources, Inc.
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74170
Gentlemen:
You have asked Wood Roberts, LLC. to examine the proposed amended Section 9(k)
of the proposed merger (the "Merger") between LaTex Resources, Inc. ("LaTex")
and Alliance Resources Plc ("Alliance") and Alliance Resources (Delaware), Inc.
("Alliance Delaware"), as set forth in the Agreement and Plan of Merger
scheduled to be executed on August 12, 1996 (the "Agreement") and to render an
opinion as to the fairness of such amendment from a financial stand point to the
shareholders of LaTex.
The amendment, as proposed by Alliance, seeks to eliminate the condition that
counsel for Alliance and Alliance Delaware shall issue a satisfactory opinion
that the Merger is a tax free organization under Section 368(a) of the Internal
Revenue Code of 1986 and that the exchange of LaTex shares and warrants for
Alliance shares will not give rise to gain or loss to the LaTex shareholders.
In rendering this further opinion, Wood Roberts has relied upon information
provided to it by LaTex to the effect that the transaction will be a taxable
event and offers no opinion as to the tax status of the transaction.
Furthermore, Wood Roberts has not been asked to, nor is it willing to, provide
an opinion on the tax effect of the transaction on individual shareholders or
classes of shareholders, and all such shareholders should consult their own tax
advisor with reference to their own position.
The contents of this opinion and the related analysis provided herewith should
be considered in conjunction with and subject in all respects to the terms of
reference, contents of and limitations to the fairness opinion rendered by Wood
Roberts in relation to the Merger on August 8, 1996.
Based upon our understanding of the tax effect of the proposed amendment, our
knowledge of the historical and current price of LaTex shares, our knowledge of
the market for and valuation of securities in the U.S.A. and the United Kingdom,
our experience in the energy sector in both of the aforementioned countries, the
overall and continuing benefits to be obtained by the shareholders of LaTex from
the Merger with Alliance, all other factors that we consider to be relevant and
subject to the qualifications hereinbefore stated, we are of the opinion that
the financial terms of the Merger remain fair to the shareholders of LaTex.
Yours sincerely,
WOOD ROBERTS, LLC.
C-2-1
<PAGE>
APPENDIX D
DELAWARE GENERAL CORPORATION LAW
(S)262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S)228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251, (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the national
Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsections (f) or (g) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger
or consolidation pursuant to (S)(S)251, 252, 254, 257, 258, 263 and
264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock or
depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
D-1
<PAGE>
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under (S)253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
(S)228 or 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger ro consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation
D-2
<PAGE>
of the identity of the stockholder and that the stockholder intends thereby
to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name
D-3
<PAGE>
appears on the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand
for an appraisal and an acceptance of the merger or consolidation, either within
60 days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE>
APPENDIX S
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1996
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-13399
LATEX RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 73-1405081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 East Skelly Drive
Suite 1000
Tulsa, Oklahoma 74135
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 747-7000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
<S> <C>
Common Stock, $0.01 par value per share Pacific Stock Exchange
Common Stock Purchase Warrants Pacific Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 X No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of the Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The aggregate market value of the Registrant's voting stock held by
non-affiliates as of October 25, 1996 was approximately $4,830,888 (based upon
the average of the high bid and closing asked prices on such date).
On October 25, 1996 there were 19,805,495 shares of the Registrant's
common stock issued and outstanding.
Documents Incorporated by Reference
NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S-1
<PAGE>
LATEX RESOURCES, INC.
FORM 10-K
FISCAL YEAR ENDED JULY 31, 1996
--------------------------------------------------------
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Business................................................................................. 3
Item 2. Properties............................................................................... 3
Item 3. Legal Proceedings........................................................................ 21
Item 4. Submission of Matters to a Vote of Security Holders...................................... 23
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.................... 23
Item 6. Selected Financial Data.................................................................. 24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................... 26
Item 8. Financial Statements and Supplementary Data.............................................. 37
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................................ 38
PART III
Item 10. Directors and Executive Officers of the Registrant....................................... 38
Item 11. Executive Compensation................................................................... 40
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 46
Item 13. Certain Relationships and Related Transactions........................................... 48
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................................................. 49
Signatures............................................................................... 61
</TABLE>
Certain statements in this Report under the captions "Item 1. Business and
Item 2. Properties" and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations", and elsewhere in this Report
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual result, performance or achievements of the
Company, or industry trends and results, to be materially different from any
future results, trends, performance, or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and other factors
include, among others, the following: general economic and business conditions;
oil and gas and other industry conditions and trends, including supply and
demand; fluctuations in the prices for oil, gas and refined products;
competition; import protection and regulation (including the implementation of
the World Trade Organization and North American Free Trade Agreement; the loss
of any significant customers; changes in business strategy or development plans;
quality of management; availability, terms and deployment of debt and equity
capital; business abilities and judgment of personnel; availability of qualified
personnel; changes in or the failure to comply with government regulations; and
other factors referenced in this Report. See "Item 1. Business and Item 2.
Properties - Cautionary Statement and Risk Factors."
Without limiting the foregoing, as disclosed in "Item 1. Business and
Item 2. Properties--Proposed Merger with Alliance Resources Plc," the Company
has entered into an Agreement and Plan of Merger with Alliance Resources PLC
("Alliance") pursuant to which the Company will merge (the "Merger") with a
wholly-owned subsidiary of Alliance. Pursuant to the Merger, two of the current
directors of the Company will become directors of Alliance, but the management
of the combined companies will otherwise consist of the current management of
Alliance. Statements made in this Report concerning future drilling,
acquisitions, budgets, spending, capital needs, operating plans and other
activities are made on behalf of the current management of the Company and will
not be indicative of the plans of the new management or activities of the
combined companies in the event the Merger is completed.
S-2
<PAGE>
PART I
Item 1. Business and Item 2. Properties.
As used in this Form 10-K:
"Mcf" means thousand cubic feet, "MMcf" means million cubic feet and
"Bcf" means billion cubic feet. "Mcfe" means thousand cubic feet equivalent,
"MMcfe" means million cubic feet equivalent and "Bcfe" means billion cubic feet
equivalent. "Bbl" means barrel, "MBbls" means thousand barrels and "MMBbls"
means million barrels. "BOE" means equivalent barrels of oil and "MBOE" means
thousands equivalent barrels of oil. Unless otherwise indicated herein, natural
gas volumes are stated at the legal pressure base of the state or area in which
the reserves are located and at 60 (degrees) Fahrenheit. Natural gas equivalents
are determined using the ratio of six Mcf of natural gas to one Bbl of crude
oil.
The term "gross" refers to the total leasehold acres or wells in which
the Company has a working interest. The term "net" refers to gross leasehold
acres or wells multiplied by the percentage working interest owned by the
Company. "Net production" means production that is owned by the Company less
royalties and production due others.
"Proved reserves" are estimated quantities of crude oil, natural gas
and natural gas liquids, which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. "Proved developed reserves"
are those reserves which are expected to be recovered through existing wells
with existing equipment and operating methods. "Proved undeveloped reserves"
are those reserves which are expected to be recovered from new wells on
undrilled acreage or from existing wells where a relatively major expenditure is
required for recompletion.
The term "oil" includes crude oil, condensate and natural gas liquids.
Unless the context requires otherwise, all references to the "Company"
include LaTex Resources, Inc., and its consolidated subsidiaries including,
LaTex Petroleum Corporation ("LaTex Petroleum"), LaTex/GOC Acquisition, Inc.
("GOCA"), Germany Oil Company, formerly known as LRI Acquisition, Inc.
("Germany"), ENPRO, Inc. ("ENPRO"), Phoenix Metals, Inc. ("Phoenix Metals"), and
LaTex Resources International, Inc. ("LaTex Resources International").
The Company
LaTex Resources, Inc. ("the Company") is an independent oil and gas
company primarily engaged in the acquisition of producing oil and gas properties
which possess the potential for increased value through exploitation and
development. The Company seeks to realize such potential through workovers,
recompletions, secondary recovery operations, and the drilling of development or
infill wells. The Company is also engaged in the purchase and marketing of
crude oil and natural gas and the exploration and development of non-producing
oil and gas properties.
The Company owns and operates producing oil and gas properties located
in 12 states, with proved reserves located primarily in the states of
Mississippi, Louisiana, Oklahoma, Texas, and Alabama. Since July 31, 1991, the
Company has acquired approximately 4,500 MBbls of crude oil and 25.8 Bcf of
natural gas reserves involving total capital expenditures of approximately
$30,840,000 for an average acquisition cost of $3.50 per BOE. Daily gross
production from 156 wells operated by the Company in these states currently
averages approximately 1,055 Bbls of oil and 7,600 Mcf of gas. The Company also
owns interests in 342 producing wells and units in the same states which are
operated by others. Daily gross production from both operated and non-operated
wells, net to the Company's interest, currently averages approximately 1,000
Bbls of oil and 8,000 Mcf of gas from a total of 95 net wells.
From the end of its first year of oil and gas operations in 1987, the
Company's proved reserves have grown from 10 MBOE to 11,048 MBOE at July 31,
1996. At July 31, 1996, the Company's proved reserves were 6,353 MBbls of oil
and 28.2 Bcf of gas. The Company has increased its average net daily
S-3
<PAGE>
production from two Bbls of oil during 1987 to 1,000 Bbls of oil and 8,000 Mcf
of gas at July 31, 1996. See "Item 1. Business and Item 2. Properties -
Reserves."
The Company has agreed to sell approximately 400 non-strategic oil and
gas properties for total consideration of approximately $1,526,000, before
adjustments. The oil and gas reserve analysis, well count, acreage summaries
and other data included in this Item I. Business and Item 2. Properties for the
year ended July 31, 1996 do not include these properties.
Historical Background
The Company's predecessor was incorporated as a Texas corporation in
1981 under the name Video Science Technology, Inc. ("VSTI") and was initially
organized to research, develop and market specialized video systems and products
pertaining to medical, petroleum and low power television applications. By
1988, substantially all of VSTI's original businesses had been terminated and
VSTI had become substantially inactive.
In December 1991, Jeffrey T. Wilson ("Wilson"), James G. Borem
("Borem") and Dewitt C. Shreve ("Shreve"), agreed to exchange (the "LaTex
Exchange Transaction") all outstanding shares of common stock of LaTex Petroleum
Corporation, an Oklahoma corporation ("LaTex Petroleum"), for a total of
7,000,000 newly issued shares of VSTI's common stock representing approximately
61% of VSTI's resulting issued and outstanding common stock. As a result, LaTex
Petroleum became a wholly owned subsidiary of VSTI. VSTI moved its principal
offices from Dallas, Texas to its current offices located in Tulsa, Oklahoma and
Messrs. Borem, Wilson and Shreve were elected the Directors and executive
officers of VSTI. As a result of the LaTex Exchange Transaction, VSTI resumed
operation through its wholly-owned subsidiary, LaTex Petroleum, in the business
of acquisition of producing oil and gas properties and exploration for and
production of oil and gas.
In May 1992, VSTI was merged (the "Reincorporation Merger") with and
into the Company (which had been formed as a wholly-owned subsidiary of VSTI
solely for the purpose of effecting the Reincorporation Merger). As a result of
the Reincorporation Merger, the state of incorporation of the Company was
changed from Texas to Delaware and the name of the Company was changed from
"Video Science Technology, Inc." to "LaTex Resources, Inc.". Each outstanding
share of stock of VSTI was converted into one share of stock of the Company and
the existing shareholders of VSTI automatically became shareholders of the
Company. The Reincorporation Merger did not result in any change in the
physical location, business, management, or financial condition of the Company.
In November 1992 the Company completed a public offering of 1,125,000
units, each unit consisting of one share of common stock and two redeemable
Stock Purchase Warrants to purchase one share of common stock. The purchase
price for the units under the offering was $3.70 per unit. Net proceeds to the
Company from the offering, approximately $4,226,063, were used to pay off the
Company's then existing bank debt and for working capital.
Proposed Merger With Alliance Resources Plc
The Company has entered into an Agreement and Plan of Merger
("Alliance Merger Agreement") dated August 12, 1996 with Alliance Resources Plc,
a company organized under the laws of the United Kingdom ("Alliance"), pursuant
to which the Company will merge ("Alliance Merger") with a wholly-owned U.S.
subsidiary of Alliance.
Under the terms of the Alliance Merger Agreement and after giving
effect to a 1 for 40 reverse stock split to be completed by Alliance, the
holders of the Company's common stock will receive 0.8806 ordinary shares of
Alliance for each share of such common stock, the holders of the Company's
Series A Convertible Preferred Stock will receive 2.6445 ordinary shares of
Alliance for each share of such Series A Convertible Preferred Stock, and the
holders of the Company's Series B Senior Convertible Preferred Stock will
receive 5.8709 ordinary shares of Alliance for each share of such Series B
Senior Convertible Preferred Stock. Following the Alliance Merger, the holders
of the Company's common and preferred stock will own, as a group, approximately
72% of the issued and outstanding ordinary shares of Alliance and the Company
will become a wholly-owned subsidiary of Alliance. Holders of outstanding
warrants
S-4
<PAGE>
to purchase shares of the Company's common stock will receive from Alliance
replacement warrants to purchase shares of Alliance ordinary shares on
substantially the same terms.
Under the terms of the Alliance Merger Agreement, the Company is
required to dispose of its interests in its unconsolidated affiliates Wexford
Technology, Inc. ("Wexford") and Imperial Petroleum, Inc. ("Imperial"), and its
interests in its wholly-owned subsidiaries LaTex Resources International, Inc.
("LaTex Resources International") and Phoenix Metals, Inc. ("Phoenix Metals").
Effective July 31, 1996, the Company has written off its $2,372,452 investment
in Wexford, its $1,797,378 investment in Imperial, and its $3,446,795 investment
in LaTex Resources International (which includes $2,491,299 in dry hole costs
and $955,496 in abandonments relating to the Company's investments in Tunisia
and Kazakhstan, respectively). Effective July 31, 1994, the Company wrote off
its $222,918 investment in Phoenix Metals. The Company has entered into a
Purchase Agreement with Imperial pursuant to which the Company will sell its
interests in Wexford, Imperial, LaTex Resources International and Phoenix Metals
to Imperial for 100,000 shares of the Company's common stock. See "Exploration
and Development", "Other Business" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Proposed Merger
With Alliance Resources Plc."
Pursuant to the Alliance Merger, two of the current directors of the
Company will become directors of Alliance, but the management of the combined
companies will otherwise consist of the current management of Alliance.
Statements made in this Report concerning future drilling, acquisitions,
budgets, spending, capital needs, operating plans and other activities are made
on behalf of the current management of the Company and will not be indicative of
the plans of the new management or activities of the combined companies in the
event the Merger is completed.
Cautionary Statement and Risk Factors
Cautionary Statement Regarding Forward-Looking Statements. In the
---------------------------------------------------------
interest of providing the Company's shareholders and potential investors with
certain information regarding the Company, including management's assessment of
the Company's future plans and operations, certain statements set forth in this
Report contain or are based on the Company's projections or estimates of
revenue, income, earnings per share and other financial items or relate to
management's future plans and objectives or to the Company's future economic and
financial performance. Such statements are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are made
pursuant to and in reliance on the safe harbor provisions of such sections.
Although any forward-looking statements contained in this report or
otherwise expressed by or on behalf of the Company are, to the knowledge and in
the judgment of the officers and directors of the Company, expected to prove
true and to come to pass, management is not able to predict the future with
absolute certainty. Forward-looking statements involve known and unknown risks
and uncertainties which may cause the Company's actual performance and financial
results in future periods to differ materially from any projection, estimate or
forecasted result. These risks and uncertainties include, among other things:
volatility of oil and gas prices; product supply and demand; market competition;
risks inherent in the Company's oil and gas operations both domestic and
foreign; imprecision of reserve estimates; the Company's ability to replace and
expand oil and gas reserves; the Company's ability to generate sufficient cash
flow from operations to meet its current and future obligations; the Company's
ability to access external sources of debt and equity capital; and such other
risks and uncertainties described from time to time in the Company's periodic
reports and filings with the Securities and Exchange Commission. These and
other risks are described elsewhere in this report and in the Company's other
filings with the Securities and Exchange Commission. Accordingly, shareholders
and potential investors are cautioned that certain events or circumstances could
cause actual results to differ materially from those projected, estimated or
predicted. In addition, forward-looking statements are based on management's
knowledge and judgment as of the date of this report, and the Company does not
intend to update any forward-looking statements to reflect events occurring or
circumstances existing hereafter.
History of Losses; Accumulated Deficit. For the fiscal years ended
--------------------------------------
July 31, 1996, 1995 and 1994, the Company incurred net losses of $10,230,783,
$2,491,342 and $423,341 respectively. At July 31, 1996, the Company had an
accumulated deficit of $11,747,860 and its working capital deficit was
$28,420,291.
S-5
<PAGE>
It is expected that the Company will continue to experience losses and that, in
order to achieve profitability and generate cash flow, it will be dependent upon
acquiring additional debt or equity capital and acquiring or developing
additional oil and gas properties. There can be no assurance that the Company
will be able to do so. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8. Financial
Statements and Supplementary Data."
Limited Available Capital; Need for Additional Financing. Without
--------------------------------------------------------
raising additional capital, the Company will be unable to acquire additional
producing oil and gas properties and its ability to develop its existing oil and
gas properties will be limited to the extent of available cash flow.
Accordingly, in order for the Company to achieve its business objective and
achieve profitable operations, it will be necessary to generate additional cash
flow from operations, raise additional capital or enter into joint oil and gas
development arrangements. Management intends to fund future acquisitions and
develop its oil and gas reserves using cash flow from operations as well as
borrowings, public and private sales of debt and equity securities and joint oil
and gas development arrangements, among other possible sources. The Company
estimates that it will need approximately $800,000 of capital to develop its
undeveloped oil and gas reserves during the year ended July 31, 1997 and an
additional $1,000,000 to develop such reserves during the following year. The
Company expects to obtain these funds from cash flow, the proceeds from the sale
of certain non-strategic oil and gas properties, and additional borrowings. The
Company has no present arrangements for future borrowings and its cash flow from
operations is not expected to be adequate to provide the funds needed for these
purposes. Although the Company has agreed to sell certain non-strategic oil and
gas properties for approximately $1.5 million, before adjustments, there can be
no assurance that this transaction or other sources will provide funds in
sufficient amounts to allow the Company to successfully implement its present
business strategy of additional oil and gas property acquisitions or the
development of its existing oil and gas reserves. The Company has no present
arrangements to raise additional capital from the sale of its securities or
joint development arrangements. No assurance can be given as to the
availability or terms of any such additional financing or joint development
arrangements or that such terms as are available may not be dilutive to the
interests of the Company's shareholders. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Item 8.
Financial Statements and Supplementary Data."
Credit Facility Covenants and Restrictions. The Company currently
------------------------------------------
owes approximately $22,206,707 under its credit facility with the Company's
principal bank. The interest rate on the indebtedness is, at the option of the
Company, either the lending bank's base interest rate plus 1% or up to 2% (based
on the principal balance outstanding) over the rate for borrowing dollars by the
lending bank in the London Interbank market. The principal must be amortized at
the rate of $365,000 per month with the entire outstanding balance due March 31,
2000. The credit facility is secured by first mortgages on all of the Company's
oil and gas properties. The loan agreement relating to the credit facility
contains various affirmative and negative covenants including, among others, the
requirements that the Company maintain certain ratios of current assets to
current liabilities, minimum tangible net worth, restrictions on selling,
general and administrative expenses and the payment of dividends. Material
breaches of these or other covenants which are not cured or waived could result
in a default under the loan agreement resulting in this indebtedness becoming
immediately due and payable and empowering the lender to foreclose against the
collateral for the loan. The Company has been in default under various
affirmative and negative covenants of the loan agreement with its principal bank
with respect which the bank agreed to not take any action before November 29,
1996. The Bank has indicated its willingness to extend its agreement to forbear
any action on the Company's default through February 28, 1997. If the Company
cannot cure its default, the bank could declare the balance due and foreclose on
the Company's oil and gas properties. Under such circumstances the Company's
shareholders could lose their entire investment. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Capital Resources and Liquidity".
Industry Conditions; Impact on Company's Profitability. The
------------------------------------------------------
profitability and revenues of the Company are dependent, to a significant
extent, upon prevailing market prices for oil and gas. In the past, oil and gas
prices and markets have been volatile. Prices are subject to wide fluctuations
in response to changes in supply of and demand for oil and gas, market
uncertainty and a variety of additional factors that are beyond the control of
the Company. Such factors include supply and demand, political conditions,
weather conditions, government regulations, the price and availability of
alternative fuels and
S-6
<PAGE>
overall economic conditions. Crude oil and natural gas prices have increased
significantly over the past 12 months. Any decline from current oil or gas
prices would have a material adverse effect on the Company's revenues and
operating income and might, under certain conditions, require a write-down of
the book value of the Company's oil and gas properties. If such declines were
severe enough, they could result in a reduction in the Company's borrowing base
under its credit facility with its principal bank and could require the sale of
some of its properties under unfavorable market conditions or require the
Company to seek additional debt or equity capital. There can be no assurance
that the Company could, if the need arose, effect any sale of its debt or equity
securities on terms acceptable to the Company or on terms which would not be
dilutive to the Company's shareholders. See "Marketing".
Acquisition Strategy. The Company must acquire producing properties
--------------------
or locate and develop new oil and gas reserves to replace those being depleted
by production. Without acquisition of producing properties or successful
drilling and exploration activities, the Company's reserves and revenues will
decline. In particular, the Company's principal producing properties are
characterized by a high initial production rate, followed by a steep decline in
production. Subject to the availability of the required capital, the Company
intends to seek to acquire additional producing oil and gas properties. No
funds are currently available for this purpose. Although the Company engages in
discussions regarding the acquisition of additional properties on a regular
basis, as of the date of this report the Company has no agreements or
understandings to acquire any other properties and there can be no assurance
that the Company will be able to identify and acquire additional producing oil
and gas properties that will prove to be profitable to the Company. The process
of integrating acquired properties into the Company's operations may result in
unforeseen difficulties and may require a disproportionate amount of
management's attention and the Company's resources. In connection with
acquisitions, the Company could become subject to significant contingent
liabilities arising from the activities of the acquired properties to the extent
the Company assumes, or an acquired entity becomes liable for, unknown or
contingent liabilities or in the event that such liabilities are imposed on the
Company under theories of successor liability. See "Acquisition Activities,"
"Exploitation Activities" and "Production".
Reliance on Estimates of Proved Reserves; Depletion of Reserves.
---------------------------------------------------------------
There are numerous uncertainties inherent in estimating quantities of proved oil
and gas reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
producer. The reserve data set forth in this report represents estimates only.
Oil and gas reserve engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and estimates by other engineers might differ from those included in this
report. The accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
This report contains estimates of the Company's proved oil and gas reserves and
the projected future net revenue therefrom, which have been prepared by an
independent petroleum engineering firms. Actual future production, oil and gas
prices, revenue, capital expenditures, taxes and operating expenses may vary
substantially from those assumed in making estimates, and the Company's reserves
may be subject to material upward or downward revision and the rate of
production from oil and gas properties declines as reserves are depleted. In
addition, the Company's ability to develop its reserves will be dependent upon
the timely availability of financing for this purpose without which the
Company's ability to produce the projected amounts of oil and gas will be
adversely affected thereby adversely affecting the projected future net revenue.
See "Reserves".
Dependence on Other Operators. With respect to wells not to be
-----------------------------
operated by the Company in which it owns a working interest, the independent
operators are, in some cases, privately-held companies who may have limited
financial resources. If a third party operator experiences financial difficulty
and fails to pay for materials and services in a timely manner, the wells
operated by such third party operators could be subject to material and
workmen's liens. In such event, the Company would incur costs in discharging
such liens. However, the Company has no reason to believe that its current
operators are experiencing significant financial difficulties.
Reliance on Key Personnel. The Company is dependent upon the services
-------------------------
of its President, Jeffrey T. Wilson, its Vice President and Chief Financial
Officer, John L. Cox, its Vice President of Operations, Robert L. Hull, and its
Vice President of Exploration, John W. Heinsius. The loss of their services
could have a material adverse effect upon the Company. The Company does not
have employment agreements with Messrs. Wilson, Cox, Hull or Heinsius. The
Company does not maintain insurance on the lives of
S-7
<PAGE>
Messrs. Wilson, Cox, Hull or Heinsius. See "Item 10. Directors and Executive
Officers of the Registrant."
Competition. The oil and gas industry is highly competitive. The
-----------
Company competes with major integrated and independent oil and gas companies in
acquiring properties. Many competitors have resources substantially exceeding
the resources of the Company. See "Competition".
Operational Hazards, Environmental Concerns, Insurance and Government
---------------------------------------------------------------------
Regulation. The oil and gas industry involves a number of operating risks, such
- ----------
as the risks of fire, blowouts, explosions, cratering, pipe failure, casing
collapse and abnormally pressured formations, the occurrence of any of which
could materially and adversely affect the Company. The business is also subject
to environmental hazards including oil and saltwater spills, gas leaks, ruptures
and discharges of toxic gases. These risks could result in substantial losses
to the Company due to injury and loss of life, severe damage to and destruction
of property and equipment, pollution and other environmental damage, and
suspension of operations. As the owner of working interests in its oil and gas
properties, the Company bears its proportionate share of the obligations and
liabilities arising out of the exploration and development of those properties.
Generally, owners of working interests in oil and gas properties are jointly and
severally liable for all such obligations and liabilities. As a result, there
exists a risk that the Company could become liable for amounts in excess of its
proportionate share of such obligations and liabilities, although generally the
Company would have a right of contribution against the other working interest
owners. In accordance with customary industry practices, the Company maintains
insurance against some, but not all, of such risks and some, but not all of such
losses. The occurrence of such an event not fully covered by insurance could
have a material adverse effect on the financial position and operations of the
Company. The Company maintains insurance against some, but not all, potential
risks, and does not carry insurance covering environmental impairment
liabilities. The Company can provide no assurance that the insurance it carries
will be adequate to cover any loss or exposure to liability, or that such
insurance will continue to be available on terms acceptable to the Company. See
"Operational Hazards and Insurance".
Effect of Warrants and Convertible Preferred Stock Outstanding. The
--------------------------------------------------------------
Company has outstanding (i) warrants which provide for the purchase of an
aggregate of 3,034,750 shares of common stock at prices ranging from $0.75 to
$4.44 per share, (ii) shares of Series A Convertible Preferred Stock ("Series A
Preferred Stock") convertible into an aggregate of 1,350,835 shares of common
stock, if calculated as of July 31, 1996, and (iii) shares of Series B Senior
Convertible Preferred Stock ("Series B Preferred Stock") convertible into an
aggregate of 3,200,167 shares of common stock, if calculated as of July 31,
1996. Issuances of shares of the Company's common stock upon exercise of
warrants or conversion of shares of preferred stock will have a dilutive effect
on the Company's shareholders by decreasing their percentage ownership in the
Company.
Registration Rights. The holders of the outstanding shares of the
-------------------
Company's Series A Preferred Stock and Senior B Preferred Stock and the holders
of warrants to purchase up to 305,000 shares of the Company's common stock have
the right to either require the Company to register shares of the Company's
common stock issuable upon conversion of such preferred stock or exercise of
such warrants under the Securities Act of 1933 ("Securities Act") or to have
such shares included in any registration statement filed by the Company, subject
to certain limitations, to enable a public sale of those shares. In the event
the holders of a material amount of such shares should seek to have their shares
registered for sale under the Securities Act, these obligations could result in
considerable expense to the Company and the effect of the offer and sale of such
shares may be to depress the market price for the Company's common stock.
Compliance with these obligations may also interfere with the Company's ability
to raise additional capital when required.
Authorization and Discretionary Issuance of Preferred Stock; Anti-
-----------------------------------------------------------------
takeover Provisions. The Company's Certificate of Incorporation authorizes the
- -------------------
issuance of preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of holders of the
Company's common stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company, which could have the effect of
discouraging bids for the Company and
S-8
<PAGE>
thereby prevent shareholders from receiving a premium for their shares over the
then-current market prices. Although the Company has no present intention to
issue any additional shares of its preferred stock (other than in payment of
dividends on the Series A and Series B Preferred Stock), there can be no
assurance that the Company will not do so in the future.
The Delaware General Corporation Law includes provisions which are
intended to encourage persons considering unsolicited tender offers or other
unilateral takeover proposals to negotiate with the Company's Directors rather
than pursue non-negotiated takeover attempts. These existing takeover
provisions may have a significant effect on the ability of a shareholder to
benefit from certain kinds of transactions that may be opposed by the incumbent
Directors.
Qualification Requirements for Nasdaq Securities. The common stock of
------------------------------------------------
the Company is presently quoted on Nasdaq, which is administered by the National
Association of Securities Dealers, Inc. (the "NASD"). Until September 4, 1996,
the common stock of the Company was also listed on the Pacific Stock Exchange.
Effective September 4, 1996, the common stock was delisted by the Pacific Stock
Exchange as a result of the failure of the minimum share bid price for the
common stock to meet the minimum listing maintenance requirements of the
Exchange. For the Company's securities to continue to be eligible for inclusion
on Nasdaq, the Company must, among other things, maintain at least $2,000,000 in
total assets and have at least $1,000,000 of capital and surplus and the bid
price of the common stock must be at least $1.00 per share, provided, however,
that, if the Company's stock falls below such minimum bid price, it will remain
eligible for continued inclusion if the market value of the public float is at
least $1,000,000 and the Company has at least $2,000,000 in capital and surplus.
While the Company presently meets the NASDAQ required standards, there can be no
assurance that it will continue to be able to do so. If this should occur,
trading, if any, in the common stock would then continue to be conducted in the
over-the-counter market on the OTC Bulletin Board, an NASD-sponsored inter-
dealer quotation system, or in what are commonly referred to as "pink sheets."
As a result, a shareholder may find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, the Company's securities.
In addition, if the Company's securities cease to be quoted on Nasdaq and the
Company fails to meet certain other criteria, those securities would be subject
to a Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors. For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, if the Company's securities were no longer quoted on
Nasdaq, the rule may affect the ability of broker-dealers to sell the Company's
securities and the ability of shareholders to sell their securities in the
secondary market. See "Item 5. Market for Registrant's Common Equity and
Related Shareholder Matters."
Dividends Unlikely. The Company has never declared or paid dividends
------------------
on its common stock and currently does not intend to pay dividends in the
foreseeable future. The payment of dividends in the future will be at the
discretion of the Board of Directors. In addition, the Company's credit
facility contains a provision which prohibits the payment of dividends except
for dividends on its shares of Series A and Series B Preferred Stock payable in
the form of additional shares of Series A and Series B Preferred Stock.
Government Regulation. The Company's business is subject to extensive
---------------------
federal, state and local laws and regulations relating to the exploration for,
development, production, marketing and transmission of oil and gas, as well as
environmental and safety matters. Such laws and regulations have generally
become more stringent in recent years, often imposing greater liability on a
larger number of potentially responsible parties. Because the requirements
imposed by such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance with such requirements. The
states of Oklahoma, Texas and Louisiana have recently adopted revisions to their
production allowable rules under which they regulate the quantities of natural
gas which producers may produce within their respective borders. The state of
Kansas is considering similar revisions to their allowable rules. Legislation
has recently been introduced in the United States Congress to restrict the
ability of states to regulate the production of natural gas. It is impossible
at this time to determine the effect, if any, these developments may have on the
natural gas industry as a whole. The Company does not believe these
developments will materially affect its operations. There is no assurance that
federal, state or local laws and regulations enacted in the future will not
adversely affect the Company's ability to explore for,
S-9
<PAGE>
produce and market oil and natural gas. See "Regulation" and "Recent and
Proposed Legislation."
Business Strategy
The Company's business strategy has been and will continue to be to
increase shareholder value through the acquisition of producing oil and gas
properties and exploitation of those properties to maximize production and
ultimate reserve recovery. The Company's growth strategy focuses on the
technical expertise of its management and employees to evaluate acquisitions and
to exploit the development potential of each oil and gas property through
recompletions, workovers, cost reduction measures or marketing efforts.
Acquisition Activities
Historically, the Company has allocated a substantial portion of its
capital expenditures to the acquisition of producing oil and gas properties.
From July 31, 1991 through July 31, 1996, the Company completed 12 acquisitions
of oil and gas properties, involving total acquisition costs of approximately
$30,840,000 and resulting in an average reserve replacement cost of
approximately $3.50 per BOE. During the year ended July 31, 1996, the Company
completed the acquisition of approximately 15 oil and gas properties from
Sackett Oil Company for a purchase price of approximately $2,900,000. A portion
of these properties were subsequently sold by the Company for approximately
$2,800,000.
To the extent that it has the capital resources to do so, the Company
intends to continue to pursue a business strategy that emphasizes reserve
additions through acquisitions. The Company may utilize any one or a
combination of lines of credit with banks, public and private sales of debt and
equity securities, joint oil and gas development arrangements and internally-
generated cash flow to finance its acquisition efforts. No assurance can be
given that sufficient external or internal funds will be available to fund the
Company's desired acquisitions. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company may
also use, where appropriate, its equity securities as all or part of the
consideration for such acquisitions.
Prospective acquisitions are evaluated by the Company's management.
After the acquisition of oil and gas properties, management generally develops a
reservoir depletion plan to maximize production rates, ultimate reserve recovery
and cash flow generation. Such plans consider field operating procedures,
workovers, recompletions, secondary recovery implementation, additional drilling
and such other procedures as the situation dictates.
The Company does not have a specific budget for the acquisition of oil
and gas properties since the timing and size of acquisitions are difficult to
forecast. However, the Company is constantly reviewing acquisition
possibilities.
Exploitation Activities
The Company concentrates its acquisition efforts on proved producing
properties which demonstrate a potential for significant additional development
through workovers, behind-pipe recompletions, secondary recovery operations, the
drilling of development or infill wells, and other exploitation activities which
the Company may find appropriate. The Company has pursued an active workover
and recompletion program on the properties it has acquired and intends to
continue its workover and recompletion program in the future as properties
acquired warrant. In connection with oil and gas property acquisitions,
properties are reviewed and evaluated by the Company with a view toward taking
the appropriate actions to maximize production. Such actions may include repair
or replacement of equipment or more extensive efforts such as recompletion in a
different producing zone or implementation of secondary recovery operations.
The expenditures required for the Company's workover and recompletion
program have historically been financed, and it is expected that they will
continue to be financed, by borrowings and internally generated funds.
S-10
<PAGE>
Production
The Company owns and operates producing properties located in 12
states, with its proved reserves located primarily in the states of Mississippi,
Louisiana, Oklahoma, Texas, and Alabama. The Company continuously evaluates the
profitability of its oil, gas and related activities and has a policy of
divesting itself of unprofitable oil and gas properties or areas of operation
that are not consistent with its operating philosophy.
The Company operates 156 producing wells in these areas and also owns
non-operated interests in 342 producing wells and units. Oil and gas sales from
the Company's producing oil and gas properties accounted for substantially all
of the Company's revenues for the years ended July 31, 1994, 1995, 1996,
respectively.
The following summarizes the Company's principal areas of oil and gas
production activity.
South Carlton Field, Alabama. The South Carlton Field is located in
----------------------------
Clarke and Baldwin Counties in southwest Alabama. The Company operates 56
active producing oil wells and three water injection wells. Production is from
the Massive and Pilot sands of the Tuscaloosa Formation with daily gross
production being approximately 380 Bbls of oil. Based on the production history
of certain infill wells previously drilled in this field and an extensive
geological and engineering review, the Company believes that additional infill
drilling potential exists for the Tuscaloosa reservoirs. Net proven reserves to
the Company as of July 31, 1996 are 4,217.3 MBbls of oil.
Black Warrior Basin, Mississippi and Alabama. The Company owns
--------------------------------------------
operated and non-operated working interests in 145 wells (55 operated and 90
non-operated) in Lamar, Fayette and Pickens Counties, Alabama and Lee and
Chickasaw Counties, Mississippi. Production from these wells are from multiple
sandstones of Mississippian age and range in depth from approximately 1,900 feet
to 4,600 feet. Net proven reserves to the Company as of July 31, 1996, are 30.8
MBbls of oil and 10,733.2 MMcf of gas.
War-Wink South/East Quito Fields, Texas. The Company owns non-
---------------------------------------
operated working interests in 45 active wells operated by Texaco, Chevron, Enron
and BC Operating in the War-Wink South and East Quito Fields in Ward County,
Texas. These fields produce from the Fusselman, Atoka, Wolfcamp and Cherry
Canyon Formations at depths ranging from 6,200 feet to 17,500 feet. Based upon
review of geological and engineering data, the Company believes that additional
behind pipe and infill drilling potential exists on these properties. Net
proven reserves to the Company as of July 31, 1996 are 100.2 MBbls of oil and
2,165.2 MMcf of gas.
Wolf Mountain Field, Colorado. The Company operates one well in the
-----------------------------
Wolf Mountain Field in Routt County, Colorado. The well produces oil at a daily
rate of 28 Bbls from the Niobrara reservoir at a depth of approximately 5,500
feet. Additional potential exists behind the pipe to recomplete the well to
other undrained sections of the reservoir. Net proven reserves to the Company
as of July 31, 1996 are 662.4 MBbls of oil.
Perkins Field, Louisiana. The Company operates seven active wells in
------------------------
the Perkins Field which produce crude oil on gas lift from various Miocene sands
at depths ranging from approximately 6,000 to 7,500 feet. The Perkins field is
a multiple reservoir structural feature which is nearing the later stages of
depletion. Net proven reserves to the Company as of July 31, 1996 are 236.3
MBbls of oil.
Tinsley Field, Mississippi. The Tinsley Field is located in Yazoo
--------------------------
County in north central Mississippi and produces from a series of Selma-Eutaw
sands of Upper Cretaceous age. The Company operates five active wells and two
water injection wells in the field having a daily gross production of
approximately 85 Bbls of oil. Through extensive mapping and engineering work,
the Company believes that significant additional oil reserves may remain in
various Eutaw sand and in the underlying Tuscaloosa sand which has not been
extensively tested in the field. Net proven reserves to the Company as of July
31, 1996 are 282.2 MBbls of oil.
Bolton Field, Mississippi. The Bolton Field is located in Hinds
-------------------------
County in west central Mississippi.
S-11
<PAGE>
The Company operates two wells in the field and has non-operated interests in
four additional wells. Production is from the Cotton Valley, Sligo, Rodessa and
Mooringsport Formations. Daily gross production from the operated wells is 425
Mcf of gas and 20 Bbls of oil. Based on a review of the field data, the Company
believes that significant behind pipe potential exists in several of the wells.
Net proven reserves to the Company as of July 31, 1996 are 36.6 MBbls of oil and
768.9 MMcf of gas.
Ozona Field, Texas. The Ozona Field is located in Crockett County in
------------------
west Texas. The Company owns non-operated working interests in 24 wells which
produce from the Cisco and Canyon sand reservoirs. Net proven reserves to the
Company as of July 31, 1996, are 1.0 MBbls of oil and 969 MMcf of gas.
Turtle Bayou/Deer Island Fields, Louisiana. These fields are located
------------------------------------------
in Terrebonne Parish, Louisiana. Production is from multiple sands,
predominantly in the normal pressured upper and middle Miocene. The Company
owns non-operated working interests in six producing wells. Based on geological
and engineering data, the Company believes that additional development potential
exists within the field. Net proven reserves to the Company as of July 31,
1996, are 7.0 MBbls of oil and 806 MMcf of gas.
Springhill Field, Arkansas. The Springhill Field is located in
--------------------------
Columbia County, Arkansas. The Company owns royalty interests in five wells
operated by Sonat which produce from the Haynesville formation at a combined
rate of 16.5 MMCf of gas and 335 Bbls of oil per day. Net proven reserves to
the Company as of July 31, 1996 are 10 MBbls of oil and 667.7 MMcf of gas.
GOM State Tract 904 Field, Texas. The GOM State Tract 904 Field is
--------------------------------
located in offshore waters of Nueces County, Texas. The Company owns interests
in two wells operated by National Energy Group which produce from the Frio sands
at a combined rate of 80 Bbls of oil and 1150 Mcf of gas per day. Net proven
reserves to the Company as of July 31, 1996 are 14.6 MBbls of oil and 560.1 MMcf
of gas.
Marketing
The availability of a market for oil and gas produced or marketed by
the Company is dependent upon a number of factors beyond its control which at
times cannot be accurately predicted. These factors include the proximity of
wells to, and the available capacity of, natural gas pipelines, the extent of
competitive domestic production and imports of oil and gas, the availability of
other sources of energy, fluctuations in seasonal supply and demand, and
governmental regulation. In addition, there is always the possibility that new
legislation may be enacted which would impose price controls or additional taxes
upon crude oil or natural gas, or both. In the event a productive gas well is
completed in an area that is distant from existing gas pipelines, the Company
may allow the well to remain shut-in until a pipeline is extended to the well or
until additional wells are drilled to establish the existence of sufficient
producing reserves to justify the cost of extending existing pipelines to the
area. It appears that the United States is emerging from a period of oversupply
of natural gas which has, and may still, cause delays, restrictions or
reductions of natural gas production and which has adversely affected gas
prices. In addition, increased imports of natural gas from Canada and Mexico
have occurred and are expected to continue. Oversupplies of natural gas can be
expected to recur from time to time and may result in depressed gas prices and
in the gas producing wells of the Company being shut-in.
Since the early 1970's the supply and market price for crude oil has
been significantly affected by policies adopted by the member nations of OPEC.
Members of OPEC establish among themselves prices and production quotas for
petroleum products from time to time with the intent of manipulating the global
supply and price levels for crude oil. In addition, Canada recently revised its
laws affecting the exportation of natural gas to the United States. Mexico also
continues to fine tune its import/export policies. The oil and gas policies of
the United States, Canada and Mexico are impacted by the Canadian/U.S. Free
Trade Agreement, the General Agreement on Tariffs and Trade, and the North
American Free Trade Agreement. These factors are expected to increase
competition and may adversely affect the price of natural gas in certain areas
of the United States. The Company is unable to predict the effect, if any,
which OPEC, Canadian and Mexican policies, and emerging international trade
doctrines will have on the amount of, or the prices received for, oil and
natural gas produced and sold by the Company.
S-12
<PAGE>
Changes in oil and natural gas prices significantly affect the
revenues and cash flow of the Company and the value of its oil and gas
properties. Significant declines in the prices of oil and natural gas could
have a material adverse effect on the business and financial condition of the
Company. The Company is unable to predict accurately whether the price of oil
and natural gas will rise, stabilize or decline in the future. In an effort to
protect the Company against fluctuations in oil and gas prices, the Company has
entered into certain commodity hedging arrangements. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations."
Substantially all of the Company's crude oil and condensate production
is sold at posted prices under short term contracts, as is customary in the
industry. The most significant purchaser of the Company's oil and gas
production (including production sold by the Company's marketing subsidiary,
ENPRO) during the year ended July 31, 1996 was ENRON Reserve Acquisition Corp.
which accounted for 16% of the Company's oil and gas sales. No other purchaser
of crude oil or natural gas during this period exceeded 10% of the Company's oil
and gas sales. With respect to losses incurred by the Company as a result of
its crude and natural gas price hedging arrangements, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Capital Resources and Liquidity."
The Company's wholly-owned subsidiary, ENPRO, purchases and resells
crude oil and natural gas in Alabama, Colorado, Louisiana, Mississippi, Montana,
New Mexico, Oklahoma and Texas. ENPRO currently markets approximately 704 BOE
per day to refiners and large resellers. For its services, ENPRO receives a
margin which averages approximately 9.75% of gross sales. ENPRO currently
markets approximately 969 barrels per day of oil from wells operated by the
Company. By aggregating barrels of crude oil purchased by ENPRO from third
parties with those purchased by ENPRO from the Company, additional revenues are
generated through what the Company believes are improved marketing practices.
ENPRO owns a crude oil trans-shipment facility in Poyner, Texas
approximately 30 miles south of Tyler, Texas. The facility consists of 2,410
barrels of storage capacity on four acres owned by ENPRO. The terminal was
originally constructed and operated as a crude oil blending facility. The
facility is presently inactive.
The Company's gas production and gathered gas is sold primarily on the
spot market or under market sensitive long term agreements with a variety of
purchasers, including intrastate and interstate pipelines, their marketing
affiliates, independent marketing companies and other purchasers who have the
ability to move the gas under firm transportation agreements.
Exploration and Development
General. Development drilling opportunities available to the Company
-------
are largely a result of the Company's acquisition of producing oil and gas
properties. Several infill and development locations exist on Company properties
currently producing oil and gas. As a result, the Company will continue to
evaluate additional opportunities for developmental drilling on its existing
properties.
Exploratory drilling has been minimal to date. In the United States,
the Company reviews exploration proposals from other companies and individuals
and may from time to time participate in certain ventures where the risk-reward
ratio is sufficiently high to warrant capital outlays. The Company does not
anticipate generating exploration projects utilizing its own staff at the
present time. Consequently, exploratory drilling within the United States will
likely only remain a small part of the Company's business.
Outside the United States, the Company has from time to time pursued
foreign exploration concessions which offer limited capital expenditure exposure
through the drilling commitment phase. However, the Company's focus in the
future will be on domestic oil and gas opportunities.
Tunisian Prospect. On June 30, 1993, the Company's wholly-owned
-----------------
subsidiary, LaTex Resources International, together with Enterprise Tunisienne
D'Activities Petroleries, the Tunisian State Oil Company ("ETAP"), ARCO Tunisia,
Inc. ("ARCO") and Premier Pict Petroleum Ltd. (formerly Pict Petroleum (Tunisia)
Ltd.) ("Premier"), acquired from the Republic of Tunisia a permit (the "Sbiba
Permit") for the exploration and production of oil and gas from a 4,936 square
kilometer (1,220,000 acres) area (the "Permit
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<PAGE>
Area") located in north-central Tunisia. The respective participating interests
of the parties in the Permit Area are 50% ETAP, 32% ARCO, 10% Premier and 8%
LaTex Resources International.
The seismic acquisition and processing and the geological and
geophysical evaluations of the Permit Area began in September 1993. In July
1994, the initial well location was recommended and approved by the Sbiba
Operating Committee and wellsite preparation began. The Sbiba #1, scheduled to
be drilled to a total depth of 2,500 meters (8,200 feet), was spudded on
November 9, 1994. The well encountered unexpected and severe overpressure zones
in the Eocene Evaporites resulting in slower than expected drilling rates and
ultimately in having to drill a sidetrack hole at 1,343 meters (4,405 feet). A
total depth of 2,076 meters (6,810 feet) was reached before having to suspend
operations on March 5, 1995 due to overpressure concerns and the presence of
natural gas in the wellbore. The objective reservoir, the Albo-Aptian
carbonates, was never reached or evaluated and the well was temporarily
abandoned. Subsequently, the operator of the project, in response to a request
from the Tunisian government, permanently plugged the well and restored the
drill site.
ARCO and Premier have indicated their interest in terminating their
participation in the Permit. The Company is currently seeking to locate new
participants to acquire the interests of ARCO and Premier. No assurance can be
made that new participants willing to acquire the Arco and Premier interests
will be found.
Since inception of the Tunisian project, approximately $13,168,000 has
been expended by the participants to date, of which LaTex Resources
International's share has been approximately $2,106,880. The Company has
insufficient capital to continue its active participation in the project and,
effective July 31, 1996, the Company has written off its entire investment in
the Sbiba Permit in the amount of $2,491,299.
Kazakhstan Prospect. In April 1995, the Company's wholly-owned
-------------------
subsidiary, LaTex Resources International, agreed to participate, for a 25%
interest, in a production sharing service contract to rehabilitate divisions
three, four and eight of the Uzen oil and gas field located in the Republic of
Kazakhstan, C.I.S. Pursuant to that agreement, the Company agreed to fund the
initial $2.5 million of capital on behalf of itself and Edco Drilling Company
("Edco"). The terms of the project were to provide for immediate cash flow to
the Company's interest. Subsequently, Delcon Petroleum Development Kazakhstan
Limited, L.L.C. ("Delcon"), as operator, entered into a service contract with
Uzenmunaigas Production Association ("UMG") to carry out the work. The
participants in the project, pursuant to an operating agreement signed in August
1995, include Delcon (47.5%), LaTex International (25%), and Petronet (27.5%).
The objective of the Uzen project was to repair, rework and recomplete inactive
oil and gas wells in the field utilizing western technology, expertise and
capital in order to restore or enhance production from the field. In exchange
for providing these services and risk capital, UMG was to advance to the western
participants a total of 200,000 metric tons (1.5 million barrels) of crude oil
in two increments. The proceeds from the sale of this crude was to be utilized
in the rehabilitation project. In addition, the western participants were to
have received reimbursement of all capital costs and expenses. UMG and the
western participants were to each retain a 50% interest in crude oil production
above a base line of approximately 30 barrels of oil per day per well.
During the first quarter of fiscal 1996, the Company received written
notice from both Edco and Delcon that, in their view, the Company was in breach
of its agreement with Edco. The Company strongly disagreed with Edco's position
since the Company was in compliance with the operating agreement governing the
project. In addition, Delcon notified the Company that UMG would seek to
further alter the terms of the service contract in a manner which the Company
believed would be detrimental to the project's viability. There has been no
further progress on, or correspondence between the Company and Delcon or Edco
regarding, the Uzen project since the second quarter of fiscal 1996. There can
be no assurance that the uncertainties surrounding this project will be resolved
in a manner acceptable to the Company.
Effective July 31, 1996, the Company has written off its entire
investment in the Uzen project in the amount of $955,496.
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<PAGE>
Reserves
Lee Keeling and Associates, Inc. ("LKA"), the Company's independent
petroleum engineering consulting firm, has made estimates of the Company's oil
and gas reserves at July 31, 1996. LKA's report covers the estimated present
value of future net cash flows before income taxes (discounted at 10%)
attributable to the Company's proved developed reserves, as well as its proved
undeveloped reserves and estimated future net cash flows therefrom. The oil and
gas reserve and economic data presented below does not include small interests
owned by the Company in approximately 400 operated and non-operated, non-
strategic oil and gas properties which the Company has agreed to sell for
approximately $1.5 million, before adjustments.
The quantities of the Company's proved reserves of oil and natural gas
presented below include only those amounts which the Company reasonably expects
to recover in the future from known oil and gas reservoirs under existing
economic and operating conditions. Proved developed reserves are limited to
those quantities which are recoverable commercially at current prices and costs,
under existing regulatory practices and with existing technology. Accordingly,
any changes in prices, operating and development costs, regulations, technology
or other factors could significantly increase or decrease estimates of the
Company's proved developed reserves. The Company's proved undeveloped reserves
include only those quantities which the Company reasonably expects to recover
from the drilling of new wells based on geological evidence from offsetting
wells. The risks of recovering these reserves are higher from both geological
and mechanical perspectives than the risks of recovering proved developed
reserves.
Set forth below are estimates of the Company's net proved reserves and
proved developed reserves and the estimated future net revenues from such
reserves and the present value thereof based upon the standardized measure of
discounted future net cash flows relating to proved oil and gas reserves in
accordance with the provisions of Statement of Financial Accounting Standards
No. 69. "Disclosures about Oil and Gas Producing Activities." Estimated future
net cash flows from proved reserves are determined by using estimated quantities
of proved reserves and the periods in which they are expected to be developed
and produced based on economic conditions at the date of the report. The
estimated future production is priced at current prices at the date of the
report. The resulting estimated future cash inflows are then reduced by
estimated future costs to develop and produce reserves based on cost levels at
the date of the report. No deduction has been made for depletion, depreciation
or income taxes or for indirect costs, such as general corporate overhead.
Present values were computed by discounting future net revenues at 10% per
annum.
The following table sets forth estimates of the proved oil and natural
gas reserves of the Company at July 31, 1996, as evaluated by LKA.
<TABLE>
<CAPTION>
Oil (MBbls) Gas (MMcf)
----------------------------- ------------------------------
Developed Undeveloped Total Developed Undeveloped Total
--------- ----------- ----- --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Alabama 2,072 1,244 3,316 6,338 --- 6,338
Louisiana 571 --- 571 2,977 --- 2,977
Mississippi 314 141 455 4,160 --- 4,160
Oklahoma 218 --- 218 5,724 --- 5,724
Texas 756 15 771 6,437 415 6,852
Other 1,022 --- 1,022 2,121 --- 2,121
----- ----- ----- ------ --- ------
Total 4,953 1,400 6,353 27,757 415 28,172
===== ===== ===== ====== === ======
</TABLE>
The following table sets forth amounts as of July 31, 1996 determined
in accordance with the requirements of the applicable accounting standards, to
the estimated future net cash flows from production and sale of the proved
reserves attributable to the Company's oil and gas properties before income
taxes and the present value thereof. Benchmark prices used in determining the
future net cash flow estimates at July 31, 1996 were $19.74 per barrel for oil
and $2.66 per MMBtu for gas.
S-15
<PAGE>
<TABLE>
<CAPTION>
At July 31, 1996
--------------------------------
(in thousands)
Proved Proved Total
Developed Undeveloped Proved
Reserves Reserves Reserves
--------- ----------- --------
<S> <C> <C> <C>
Estimated future net cash
flows from proved reserves
before income taxes $93,958 $7,846 $101,804
Present value of estimated
future net cash flows from
proved reserves before
income taxes (discounted
at 10%) $51,540 $1,959 $ 53,499
</TABLE>
The estimation of oil and gas reserves is a complex and subjective
process which is subject to continued revisions as additional information
becomes available. Reserve estimates prepared by different engineers from the
same data can vary widely. Therefore, the reserve data presented herein should
not be construed as being exact. Any reserve estimate depends in part on the
quality of available data, engineering and geologic interpretation, and thus
represents only an informed professional judgment. Subsequent reservoir
performance may justify upward or downward revision of such estimate.
Estimates of the Company's proved reserves have never been filed or
included in reports to any federal authority or agency, other than the
Securities and Exchange Commission.
For further information on reserves, costs relating to oil and gas
activities, and results of operations from producing activities, see Note 14 to
the Company's Consolidated Financial Statements -Supplementary Financial
Information for Oil and Gas Producing Activities incorporated by reference
herein.
Productive Wells and Acreage
The following table sets forth the Company's producing wells and
developed acreage assignable thereto at July 31, 1996.
<TABLE>
<CAPTION>
Productive Wells
------------------------------------
Developed Acreage Oil Gas Total
------------------- ------------ ---------- ----------
Gross Net Gross Net Gross Net Gross Net
----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C>
235,820 43,960 268 65 230 30 498 95
</TABLE>
Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections to commence
deliveries and oil wells awaiting connection to production facilities. Wells
which are completed in more than one producing horizon are counted as one well.
Of the gross wells reported above, 12 had multiple completions.
At July 31, 1996, the Company held by lease a total of 67,897 gross
(10,882 net) undeveloped acres consisting of (i) 4,080 gross (510 net)
undeveloped acres in the State of Colorado, (ii) 4,997 gross (2,166 net)
undeveloped acres in the State of Louisiana, (iii) 1,960 gross (245 net)
undeveloped acres in the State of Oklahoma, (iv) 56,668 gross (7,937 net)
undeveloped acres in the State of Texas, and (v) 192 gross (24 net) undeveloped
acres located in the State of Wyoming.
Production, Unit Prices and Costs
The following table sets forth information with respect to production
and average unit prices and costs for the periods indicated.
S-16
<PAGE>
<TABLE>
<CAPTION>
Year Ended July 31
-----------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Production:
Gas (MMcf) 2,107 2,612 3,481
Oil (MBbls) 335 359 405
Average Sales Prices:
Gas (per Mcf) 1.81 1.48(1) 1.67(2)
Oil (per Bbl) 14.56 12.86(1) 15.24(2)
Average Production
costs per BOE(3) 7.06 6.63 6.71
- ------------------------
</TABLE>
(1) The Company's price hedging arrangements did not have a material effect on
average sales prices for the year ended July 31, 1995.
(2) After giving effect to the impact of the Company's price hedging
arrangements with the Company's principal bank. Without such hedging
arrangements, the average sales prices for the year ended July 31, 1996
would have been $15.73 for oil and $2.03 for gas.
(3) The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but
generally include production taxes, lease overhead, maintenance and repair,
labor and utilities.
Drilling Activity
During the periods indicated, the Company drilled or participated in the
drilling of the following exploratory and development wells.
<TABLE>
<CAPTION>
Year Ended July 31
---------------------------------------------
1994 1995 1996
------------ ------------ -----------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory:
Productive 0 ---- 0 ---- 0 0
Non-Productive 1 0.450 1 0.250 2 1.16
- ----- - ----- - ----
Total 1 0.450 1 0.250 2 1.16
= ===== = ===== = ====
Development:
Productive 6 1.457 6 1.189 6 .46
Non-Productive 0 ---- 0 ---- 1 .08
- ----- - ----- - ----
Total 6 1.457 6 1.189 7 .54
= ===== = ===== = ====
Total:
Productive 6 1.457 6 1.189 6 .46
Non-Productive 1 0.450 1 0.250 3 1.24
- ----- - ----- - ----
Total 7 1.907 7 1.439 9 1.70
= ===== = ===== = ====
</TABLE>
The well information above excludes wells in which the Company has only an
overriding royalty interest.
At July 31, 1996 the Company was not participating in the drilling or
completion of any oil and gas wells.
All of the Company's drilling activities are conducted with independent
contractors. The Company owns no drilling equipment.
S-17
<PAGE>
Competition
Competition in the acquisition of producing oil and gas properties and in
the exploration and production of oil and gas is intense. In seeking to obtain
desirable producing properties, new leases and exploration prospects, the
Company faces competition from both major and independent oil and gas companies
as well as from numerous individuals. Many of these competitors have financial
and other resources substantially in excess of those available to the Company.
Increases in worldwide energy production capability and decreases in energy
consumption as a result of conservation efforts have brought about substantial
surpluses in energy supplies in recent years. This, in turn, has resulted in
substantial competition for markets historically served by domestic natural gas
resources both with alternate sources of energy, such as residual fuel oil, and
among domestic gas suppliers. As a result, there have been reductions in oil
and gas prices, widespread curtailment of gas production and delays in producing
and marketing gas after it is discovered. Changes in government regulations
relating to the production, transportation and marketing of natural gas have
also resulted in significant changes in the historical marketing patterns of the
industry. Generally, these changes have resulted in the abandonment by many
pipelines of long-term contracts for the purchase of natural gas, the
development by gas producers of their own marketing programs to take advantage
of new regulations requiring pipelines to transport gas for regulated fees, and
the emergence of various types of gas marketing companies and other aggregators
of gas supplies. See "Item 1. Business and Item 2. Properties -Regulation." As
a consequence, gas prices, which were once effectively determined by government
regulation, are now largely established by market competition. Competitors of
the Company in this market include other producers, gas pipelines and their
affiliated marketing companies, independent marketers, and providers of
alternate energy supplies, such as residual fuel oil.
Regulation
The oil and gas industry is extensively regulated by federal, state and
local authorities. Legislation affecting the oil and gas industry is under
constant review for amendment or expansion. Numerous departments and agencies,
both federal and state, have issued rules and regulations binding on the oil and
gas industry and its individual members, some of which carry substantial
penalties for the failure to comply. The regulatory burden on the oil and gas
industry increases its cost of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such regulations.
Exploration and Production. Exploration and production operations of the
--------------------------
Company are subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the drilling of
wells, maintaining bonding requirements in order to drill or operate wells, and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilling and
producing, and the plugging and abandoning of wells. The Company's operations
are also subject to various conservation matters. These include the regulation
of the size of drilling and spacing units or proration units, the density of
wells which may be drilled, and the unitization or pooling of oil and gas
properties or interests. In this regard, some states allow the forced pooling
or integration of tracts to facilitate exploration while other states rely on
voluntary pooling of lands and leases. In addition, state conservation laws
establish maximum rates of production from oil and gas wells, generally prohibit
the venting or flaring of gas, and impose certain requirements regarding the
rate of production. The effect of these regulations is to limit the amounts of
oil and gas the Company can produce from its wells, and to limit the number of
wells or the locations at which the Company can drill.
The states of Oklahoma, Texas, Kansas, and Louisiana have adopted and are
considering revisions to their production allowable rules under which they
regulate the quantities of natural gas which may be produced within their
borders. The stated rationale behind such prorationing legislation and
rulemaking is the conservation of natural resources, prevention of waste and
protection of the correlative rights of oil and gas interest owners by limiting
production to the available market. It is impossible at this time to determine
the effect, if any, these developments may have on the natural gas industry as a
whole. The Company does not believe the developments will materially affect its
operations.
S-18
<PAGE>
Certain of the Company's oil and gas leases are granted by the federal
government and administered by various federal agencies. Such leases require
compliance with detailed federal regulations and orders which regulate, among
other matters, drilling and operations on these leases and calculation of
royalty payments to the federal government. The Mineral Lands Leasing Act of
1920 places limitations on the number of acres under federal leases that may be
owned in any one state. While the Company does not have a substantial federal
lease acreage position in any state or in the aggregate, the Company does own
interests in federal oil and gas leases which produce amounts of oil and gas
material to the Company The Mineral Lands Leasing Act of 1920 and related
regulations also may restrict a corporation from holding title to federal
onshore oil and gas leases if stock of such corporation is owned by citizens of
foreign countries which are not deemed reciprocal under such Act. Reciprocity
depends, in large part, on whether the laws of the foreign jurisdiction
discriminate against a United States person's ownership of rights to minerals in
such jurisdiction. The purchase of shares in the Company by citizens of foreign
countries who are not deemed to be reciprocal under such Act could have an
impact on the Company's ownership of federal leases.
The Company's operations are subject to extensive federal, state and local
laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Permits are
required for various of the Company's operations, and these permits are subject
to revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their regulations, and
violations are subject to fines, injunctions or both. It is possible that
increasingly strict requirements will be imposed by environmental laws and
enforcement policies thereunder. The Company is also subject to laws and
regulations concerning occupational safety and health. It is not anticipated
that the Company will be required in the near future to expend amounts that are
material in the aggregate to the Company's overall operations by reason of
environmental or occupational safety and health laws and regulations, but
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance.
Natural Gas Sales and Transportation. Federal legislation and regulatory
------------------------------------
controls have historically affected the price of the gas produced by the Company
and the manner in which such production is marketed. The transportation and
sale for resale of gas in interstate commerce are regulated pursuant to the
Natural Gas Act of 1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the
"NGPA") and Federal Energy Regulatory Commission ("FERC") regulations
promulgated thereunder. Since 1978, maximum selling prices of certain
categories of gas, whether sold in interstate or intrastate commerce, have been
regulated pursuant to the NGPA. The NGPA established various categories of gas
and provided for graduated deregulation of price controls of several categories
of gas and the deregulation of sales of certain categories of gas. All price
deregulation contemplated under the NGPA has already taken place.
Title to Properties
As is customary in the oil and gas industry, the Company performs a minimal
title investigation before acquiring undeveloped properties, which generally
consists of obtaining a title report from legal counsel covering title to the
major properties (for example, properties comprising at least 80% by value of
the acquired properties) and due diligence reviews by independent landmen of the
remaining properties. The Company believes that it has satisfactory title to
such properties in accordance with standards generally accepted in the oil and
gas industry. A title opinion is obtained prior to the commencement of any
drilling operations on such properties. The Company's properties are subject to
customary royalty interests, liens incident to operating agreements, liens for
current taxes and other burdens which the Company believes do not materially
interfere with the use of or affect the value of such properties. Substantially
all of the Company's oil and gas properties are and will continue to be
mortgaged to secure borrowings under the Company's credit facilities. See Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Operational Hazards and Insurance
The operations of the Company are subject to all risks inherent in the
exploration for and production of oil and gas, including such natural hazards as
blowouts, cratering and fires, which could
S-19
<PAGE>
result in damage or injury to, or destruction of, drilling rigs and equipment,
formations, producing facilities or other property, or could result in personal
injury, loss of life or pollution of the environment. Any such event could
result in substantial expense to the Company which could have a material adverse
effect upon the financial condition of the Company to the extent it is not fully
insured against such risk. The Company carries insurance against certain of
these risks but, in accordance with standard industry practice, the Company is
not fully insured for all risks, either because such insurance is unavailable or
because the Company elects not to obtain insurance coverage because of cost.
Although such operational risks and hazards may to some extent be minimized, no
combination of experience, knowledge and scientific evaluation can eliminate the
risk of investment or assure a profit to any company engaged in oil and gas
operations.
Other Business
The Company has invested in the development of certain other business
interests. While the Company continues to believe these ventures have merit,
the Company has been unable, due to its own capital requirements, to provide
sufficient financial assistance and support to achieve its original objectives
in undertaking these investments. The continued viability of these business
ventures is in jeopardy without the infusion of substantial additional capital.
As a result of the Company's own declining financial condition and its inability
to provide any further financial assistance to these ventures, the Company has
abandoned its efforts and written off its investments and loans with respect to
these businesses. Under the terms of the proposed merger of the Company with
Alliance Resources Plc, the Company is required to dispose of its interests in
these ventures, provided that in making such disposition the Company is not
required to pay or mitigate any of the liabilities of these businesses. The
Company has agreed to sell these business interests to Imperial Petroleum, Inc.,
an affiliate of the Company, for 100,000 shares of the Company's common stock.
Completion of the sale is subject to, among other things, the receipt of an
opinion from an independent investment banking firm as to the fairness of the
sale to the Company's stockholders. Even in the event the proposed merger with
Alliance Resources Plc is not completed, the Company intends to proceed with the
sale of its interests in these ventures in order to refocus its efforts on its
core oil and gas business. See "Proposed Merger With Alliance Resources Plc."
Crude Oil Processing. The Company owns 5,000,000 shares of common stock of
--------------------
Wexford Technology, Incorporated ("Wexford") representing approximately 32% of
Wexford's issued and outstanding common stock. In addition, the Company has an
agreement with Wexford that provides for the issuance of additional Wexford
shares to the Company as an incentive for providing certain loans to Wexford.
Wexford's wholly-owned subsidiary, Waste Conversion Corp. ("Waste Conversion"),
holds the exclusive license to certain proprietary microwave technology utilized
to reclaim crude oil from oilfield waste, including tank bottoms, to reform or
blend crude oils with varying gravities, to reduce paraffin content of waxy
crude oil and to remove naturally occurring radio active material from oil field
produced fluids. Wexford is a development-stage company. Through December
1993, the Company had invested in Wexford $943,577 for the construction of a
commercial crude oil blending and processing facility in Troy, Alabama utilizing
the proprietary processing technology. The facility was substantially completed
in April 1992, at which time the Company concluded that the proprietary
technology for crude oil and tank bottoms processing required no further
research and development to meet all material functional and economic
requirements necessary for commercial exploitation. The Company has
subsequently made additional loans to Wexford and Waste Conversion for operating
capital.
The Alabama processing facility is not commercially active and Wexford and
Waste Conversion are seeking to raise additional debt or equity capital
necessary to begin full scale commercial operations. Wexford and Waste
Conversion are currently in default with respect to various debt and other
obligations and have received numerous demands for payment and threats of
litigation. Effective July 31, 1996 the Company has written off its entire
investment in and loans to Wexford and Waste Conversion in the total amount of
$2,372,752.
Mining. The Company owns 3,798,730 shares of the common stock of Imperial
------
Petroleum, Inc. ("Imperial") representing approximately 12% of Imperial's issued
and outstanding common stock. Imperial's wholly-owned subsidiary, Ridgepointe
Mining Company, owns gold and copper mining claims in Arizona and participates
in a joint venture to explore and develop certain gold mining claims in Mexico.
S-20
<PAGE>
The Company's investment in Imperial and Ridgepointe consisted primarily of
loans for operating capital. At present, Imperial is actively seeking to raise
additional debt or equity capital to fund its operations. Imperial is currently
in default under its bank debt. Effective July 31, 1996 the Company has written
off its entire investment in and loans to Imperial in the total amount of
$1,797,378.
Employees
The Company employs a total of 30 people, including 20 people in its Tulsa,
Oklahoma office and one person in its Evansville, Indiana office, whose
functions are associated with management, operations, accounting and oil and gas
marketing. The Company employs seven people in the Tensaw, Alabama office who
are lease operators in the Company's South Carlton field, and one field person
each in the states of Louisiana and Tennessee. The Company's other field
activities are accomplished through independent contractors. The Company
believes its relations with its employees and contractors are excellent.
Item 3. Legal Proceedings.
Torch/Nuevo/Panda Litigation. In connection with the Company's sale of its
----------------------------
subsidiaries Panda Resources, Inc. and Richfield Natural Gas, Inc. in 1993, the
Company became a party to three different lawsuits.
On October 10, 1994, Nuevo Liquids, Inc. ("Nuevo") filed a lawsuit against
the Company and its wholly-owned subsidiary, LaTex Petroleum Corporation ("LaTex
Petroleum") styled Nuevo Liquids, Inc. v. LaTex Resources, Inc. and LaTex
------------------------------------------------------
Petroleum Corp., Case No. 94-049944, District Court of Harris County, Texas,
- ---------------
234th Judicial District. Nuevo alleged that the Company and LaTex Petroleum had
refused to arbitrate certain disputes arising under the Stock Purchase Agreement
dated July 15, 1993 between Nuevo and Panda Resources, Inc. ("Panda"), pursuant
to which Panda sold to Nuevo its former wholly-owned subsidiary, Richfield
Natural Gas, Inc. ("Richfield"). Under the terms of the Stock Purchase
Agreement, the Company was the guarantor of Panda's obligations to Nuevo. The
disputed issues between Nuevo and the Company related to a post-closing final
accounting and settlement statement by which the final purchase price under the
Stock Purchase Agreement was to be adjusted to reflect certain post-closing
costs and events.
On October 12, 1994, Torch Energy Marketing, Inc. ("Torch") filed a lawsuit
against the Company and its wholly-owned subsidiary, LaTex Petroleum styled
Torch Energy Marketing, Inc. v. LaTex Resources, Inc. and LaTex Petroleum Corp.,
- -------------------------------------------------------------------------------
Case No. 94-050945, District Court of Harris County, Texas, 270th Judicial
District. Torch alleged that the Company and LaTex Petroleum had refused to
arbitrate certain disputes arising under the Stock Purchase Agreement dated
July 26, 1993, between Torch and LaTex Petroleum, pursuant to which the Company
sold to Torch its former wholly-owned subsidiary, Panda. The disputed issues
between Torch and the Company related to a post-closing final accounting and
settlement by which the final purchase price under the Stock Purchase Agreement
was to be adjusted to reflect certain post-closing costs and events. On
January 6, 1995, the Company removed both the Nuevo and Torch lawsuits to the
United States District Court for the Southern District of Texas, Houston
Division, Case No. H-95-0029.
On March 21, 1995, the Company filed a lawsuit against its former wholly-
owned subsidiary, Panda, styled LaTex Petroleum Corporation v. Panda Resources,
-----------------------------------------------
Inc., Case No. CJ-95-01302, in the District Court of Tulsa County, Oklahoma.
- ----
The Company sought recovery of $163,191.16 plus interest and attorneys' fees,
for the sale of natural gas to Panda for the period from June 1993, through
March 1994.
On December 7, 1995, the company entered into a Settlement Agreement (the
"Settlement") with Torch, Nuevo, Panda, Steve Wilson and Wilson, Tucker &
Associates to settle each of the referenced lawsuits. Pursuant to the
Settlement, the company agreed (a) to pay Nuevo $20,000 on December 7, 1995, and
an additional $30,000 over the course of 90 days following execution of the
Settlement, and (b) to pay Torch $50,000 within one year of the Settlement, an
additional $50,000 within two years of the Settlement, and an additional
$150,000 within three years of the Settlement, together with interest in the
amount of $36,000. To secure its obligation under the Settlement, the Company
stipulated to an agreed judgment in the amount of $1,000,000 (less any amounts
paid pursuant to the Settlement) upon the Company's
S-21
<PAGE>
default of its obligations under the Settlement. Torch, Nuevo and Panda agreed
to dismiss their respective claims against the Company arising from the
referenced litigation. In addition, the Company agreed to assume and indemnify
Panda and Torch against all obligations and amounts owed under a May 2, 1989,
agreement (the "Dewey County Contract") between Panda and Northern Natural Gas
Company relating to the transportation of natural gas through a facility located
in Dewey County, Oklahoma. The Company has subsequently been asked to indemnify
Torch with respect to claims brought against it by Northern in a lawsuit filed
March 7, 1996, as more fully discussed below.
Northern Natural Gas Company v. LaTex Resources, Inc., Case No. 94-049766,
-----------------------------------------------------
152nd District Court of Harris County, Texas. On October 7, 1994, Northern
Natural Gas Company ("Northern") filed a lawsuit against the Company alleging
that the Company had breached two Firm Transportation Service Agreements dated
December 1, 1990, between Northern and Panda, a former wholly-owned subsidiary
of the Company. Northern claimed damages, including damages for anticipatory
breach, in the amount of $1,600,000, plus other actual damages and interest.
On June 6, 1996, Northern and the Company entered into a Settlement Agreement
pursuant to which (a) the Company issued to Northern 50,000 shares of the
Company's Series B Senior Convertible Preferred Stock which are convertible
(subject to adjustment) into 333,333 shares of the Company's common stock, and
(b) the Company agreed to pay Northern $465,000 in installments of $50,000 by
June 21, 1996, $150,000 by May 1, 1997, $125,000 by May 1, 1998, and $140,000 by
May 1, 1999. An agreed judgment was entered in the case, but Northern has
agreed not to seek to enforce the judgment unless the Company defaults in its
payment obligations. Once the required payments have been made, Northern has
agreed to execute a release of the judgment.
Associated Storage Corp., formerly known as Centennial Storage Corp., a
-----------------------------------------------------------------------
subsidiary of Associated Natural Gas, Inc., a Colorado corporation v. LaTex
- ---------------------------------------------------------------------------
Resources, Inc., Case No. CJ-94-04711, District Court for Tulsa County,
- ---------------
Oklahoma. On November 17, 1994, Associated Storage Corporation ("Associated")
filed a lawsuit against the Company alleging that the Company had breached a
July 21, 1993 agreement between Associated and the Company pursuant to which the
Company allegedly agreed to pay Associated $150,000 in connection with the sale
of the Company's former wholly-owned subsidiary, Panda Resources, Inc., and
Panda's wholly-owned subsidiary, Richfield Natural Gas, Inc. Associated seeks
actual damages in the amount of $150,000, prejudgment interest, court costs and
attorneys' fees.
Jones, et al. v. Hughes Eastern, et al., Case No. CV-95-133, Circuit Court
---------------------------------------
for Lamar County, Alabama; Hubbert, et al. v. Hughes Eastern, et al., Case No.
-----------------------------------------
CV-95-134, Circuit Court for Lamar County, Alabama; Perkins, et al. v. Hughes
-------------------------
Eastern, et al., Case No. CV-95-137, Circuit Court for Lamar County, Alabama.
- ---------------
Each of these cases is a wrongful death or personal injury action arising out of
an accident which occurred at a heater-treatment unit on the Blowhorn Creek
Millerella Oil Unit lease in Lamar County, Alabama. Germany Oil Company, a
wholly-owned subsidiary of the Company, is a working interest owner in the oil
and gas lease relevant to the case and, together with all other working interest
owners, is a named defendant. Each plaintiff seeks damages in the amount of $25
million. All three cases have been referred to Germany Oil Company's insurance
carrier for defense. Each case is in the initial stages of discovery.
Northern Natural Gas Company v. Torch Energy Advisors, Inc., Case No.
-----------------------------------------------------------
96-12462, 269th Judicial District Court of Harris County, Texas. On March 7,
1996, Northern Natural Gas Company ("Northern") filed this lawsuit against Torch
Energy Advisors, Inc. ("Torch" for alleged breach of a May 2, 1989, agreement
(the "Dewey County Contract") between Torch, Panda Resources, Inc. ("Panda"),
and Northern relating to the transportation of natural gas through a facility
located in Dewey County, Oklahoma. The Company has assumed the defense of this
matter pursuant to the indemnification agreement entered into as part of the
December 7, 1995, settlement among Torch, Panda and the Company discussed above.
In addition to the foregoing litigation, the Company is a named defendant
in lawsuits, is a party in governmental proceedings and is subject to claims of
third parties from time to time arising in the ordinary course of business.
While the outcome of lawsuits or other proceedings and claims against the
Company cannot be predicted with certainty, management does not expect these
additional matters to have a material adverse effect on the financial position
of the Company.
S-22
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
On May 16, 1996 the Company held its 1995 annual meeting of shareholders to
(i) elect six directors, and (ii) ratify the selection of Briscoe Robinson Co.,
(now known as Briscoe & Burke) as the Company's independent auditors for 1996.
At the meeting the following individuals were elected directors of the Company.
Each individual elected was a director of the Company prior to the meeting.
<TABLE>
<CAPTION>
Votes Votes
Director For Withheld
-------- ----- --------
<S> <C> <C>
Jeffrey T. Wilson 14,425,882 226,165
Malcolm W. Henley 14,406,107 245,940
Philip J. Wade(1) 14,403,107 248,940
Dennis J. Strauch(2) 14,403,107 248,940
John R. Martinson 14,420,432 231,615
John L. Cox 14,412,432 239,615
</TABLE>
- --------------------
(1) Mr. Wade resigned as a Director of the Company on October 8, 1996.
(2) Mr. Strauch resigned as a Director of the Company on June 24, 1996.
The selection of Briscoe & Burke was ratified by shareholders by a vote of
14,464,929 shares for and 115,303 against with 71,815 shares abstaining.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
Market Information and Dividends
The common stock of the Company (i) is traded over-the-counter and quoted
on NASDAQ under the symbol "LATX" and (ii) until September 4, 1996, was listed
on the Pacific Stock Exchange under the symbol "LAT". Effective September 4,
1996, the Company's common stock was delisted by the Pacific Stock Exchange as a
result of the failure of the minimum bid price for the common stock to meet the
Exchange's listing maintenance requirements.
The following table sets forth, for the periods indicated, (i) the high and
low closing bid prices per share of common stock as quoted by NASDAQ, and (ii)
the high and low closing bid prices per share of common stock as reported on the
Pacific Stock Exchange. Bid quotations represent quotations between dealers
without adjustment for retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Pacific
NASDAQ Stock Exchange(1)
--------------- --------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal Year Ended July
31, 1996:
First Quarter 7/8 7/16 3/4 3/8
Second Quarter 11/16 13/32 3/8 3/8
Third Quarter 1/2 11/32 1/2 1/2
Fourth Quarter 17/32 5/16 N/A(2) N/A(2)
Fiscal Year Ended July
31, 1995:
First Quarter 1 7/8 1/2 1/2 1/2
Second Quarter 1 5/16 23/32 1 3/4
Third Quarter 15/16 1/2 7/8 1/2
Fourth Quarter 5/8 7/16 3/8 1/4
- ---------------------------
</TABLE>
S-23
<PAGE>
(1) Effective September 4, 1996, the Company's common stock was delisted by the
Pacific Stock Exchange as a result of the failure of the minimum bid price
for the common stock to meet the Exchange's listing maintenance
requirements.
(2) There was no trading activity in the Company's common stock on Pacific
Stock Exchange during the fourth quarter of fiscal 1996 and, therefore, no
price information for this period is available.
No cash dividends have been declared by the Company's Board of Directors
during the Company's two most recent fiscal years. The Company does not
presently intend to declare or pay dividends on the common stock. The terms of
the Company's existing bank credit facility do not permit the Company to pay
dividends on the common stock. Payment of dividends in the future, if any, will
depend on applicable legal and contractual restrictions, as well as the
financial condition and requirements of the Company and general business
conditions. The Company presently intends to use its available cash flow for
expansion of the Company's business, including acquisition, development and
enhancement of oil and gas properties.
Recent Sales of Unregistered Securities
During the year ended July 31, 1996, the Company issued (i) effective
March 12, 1996, 58,800 shares of its common stock to Princeton Otolaryngology
Retirement Trust, an entity controlled by Dr. Howard S. Farmer, in payment of
indebtedness of Wexford Technology, Incorporated in the amount of $23,520, and
(ii) effective June 27, 1996, 85,000 shares of its common stock to Thomas J.
Patrick in payment of indebtedness of Wexford Technology, Incorporated in the
amount of $37,000. Following the year ended July 31, 1996 the Company issued a
total of 1,690,000 shares of its common stock to various officers and employees
as described in more detail at "Item 11. Executive Compensation -- Restricted
Stock Grants". In each of the referenced transactions, an exemption from
registration was claimed under Section 4(2) of the Securities Act of 1933, as
amended, and regulations promulgated thereunder because no public offering was
involved and the securities were issued for investment and not with a view to
the distribution thereof. No underwriter was involved in any of the referenced
transactions nor were any underwriting discounts or commissions paid. Each
certificate representing shares issued in the referenced transactions bears a
restrictive legend and stop transfer instructions were entered on the Company's
stock transfer records with respect thereto.
Item 6. Selected Financial Data.
The selected historical financial information presented in the table below
for and at the end of each of the years ended July 31, 1992, 1993, 1994, 1995
and 1996 is derived from the audited consolidated financial statements of the
Company, of which the consolidated balance sheets as of July 31, 1995 (restated)
and 1996, and the consolidated statements of income, shareholders' equity and
cash flows for the years ended July 31, 1994, 1995 (restated) and 1996 are
included under "Item 8. Financial Statements and Supplementary Data."
The selected financial information presented below should be read in
conjunction with the Company's audited consolidated financial statements and the
notes thereto included under Item 8 and Management's Discussion and Analysis of
Financial Condition and Results of Operations at Item 7.
S-24
<PAGE>
Selected Consolidated Financial and Operating Data
(In thousands, except per share amounts and average sales data)
<TABLE>
<CAPTION>
Years Ended
July 31(1)
=========================================================================
1996 1995 1994 1993 1992
============== ============== ============ ============ =============
(Restated)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Oil and gas sales................... $ 11,980 $ 8,586 $ 8,703 $ 8,489 $ 6,778
Crude oil and gas marketing......... 540 1,223 2,781 2,128 210
Lease operating and management fees. 1,011 634 601 860 561
----------- ----------- ----------- ----------- -----------
Total operating income............ 13,531 10,443 12,085 11,477 7,549
----------- ----------- ----------- ----------- -----------
Operating expenses:
Lease operating expense............. 6,608 5,265 4,840 4,735 4,092
Crude oil and gas marketing......... 134 744 2,216 1,740 193
Dry hole costs and abandonments..... 3,586 104 113 --- ---
General and administrative.......... 2,893 2,735 2,497 2,566 1,564
Depreciation, depletion and
amoritization...................... 4,706 2,711 2,214 2,899 1,724
----------- ----------- ----------- ----------- -----------
Total operating expenses.......... 17,927 11,559 11,880 11,940 7,573
----------- ----------- ----------- ----------- -----------
Other Income (expense):
Equity in losses and write offs of
investments in affiliates.......... (4,185) (299) (440) (16) (2)
Gain on sale of assets.............. 2,366 128 393 863 276
Interest income..................... 205 122 17 9 12
Interest expense.................... (2,410) (1,291) (598) (728) (724)
Net loss from continuing operations ----------- ----------- ----------- ----------- -----------
before income taxes.................. (8,420) (2,456) (423) (335) (462)
Provision for income taxes:
Current............................. --- 35 --- (145) (159)(2)
----------- ----------- ----------- ----------- -----------
Net loss from continuing operations... (8,420) (2,491) (423) (190) (303)
Income (loss) from discontinued
operations (net of income taxes).... --- --- --- 974 (962)
Gain (loss) on disposal of subsidiary
(net of income taxes)................ (1,811) --- --- 123 ---
----------- ----------- ----------- ----------- -----------
Net income (loss)..................... $ (10,231) $ (2,491) $ (423) $ 907 $ (1,265)(2)
=========== =========== =========== =========== ===========
Preferred stock dividends............. 571 133 --- --- ---
Net income (loss) for common
shareholders......................... $ (10,801) $ (2,624) $ (423) $ 907 $ (1,265)(2)
Loss per share from continuing =========== =========== =========== =========== ===========
operations........................... $(0.50) $(0.15) $(0.02) $(0.01) $(0.02)
=========== =========== =========== =========== ===========
Income (loss) per common share........ $(0.60) $(0.15) $(0.02) $0.06 $(0.10)
=========== =========== =========== =========== ===========
Weighted average shares outstanding(3) 18,011,826 17,661,428 17,434,159 15,116,096 12,266,372
=========== =========== =========== =========== ===========
Balance Sheet Data (end of period):
Total assets........................ $ 38,966 $ 47,923 $ 21,259 $ 21,246 $ 35,399
Net property, plant and equipment... $ 31,945 $ 37,709 $ 13,077 $ 12,440 $ 12,304
Working capital (deficit)........... $ (28,420) $ (7,119) $ (1,111) $ (2,117) $ (10,353)
Long term debt...................... $ 0 $ 20,635 $ 4,467 $ 4,868 $ 2,544
Stockholders' equity................ $ 6,318 $ 16,001 $ 10,280 $ 8,216 $ 2,639
Reserve and Production Data:
Production:
Oil (MBbls)....................... 405 359 335 280 213
Gas (MMcf)........................ 3,481 2,612 2,107 1,941 1,798
Average sales prices:
Oil (per Bbl)..................... $ 15.24(4) $ 12.86(5) $ 14.56 $ 17.88 $ 17.64
Gas (per Mcf)..................... $ 1.67(4) $ 1.48(5) $ 1.81 $ 1.79 $ 1.57
Proved reserves (end of period):
Oil (MBbls)....................... 6,353.1 4,036.4 4,519.9 2,455.3 1,845.5
Gas (MMcf)........................ 28,172 27,730 10,933 9,391 8,214
Present value of estimated future
oil and gas net revenues before
income taxes (discounted 10%)...... $ 53,499 $ 29,685 $ 23,418 $ 15,658 $ 16,923
</TABLE>
(1) Included in the Company's historical consolidated financial information for
the years ended July 31, 1992, 1993, 1994, 1995 and 1996 are the assets,
liabilities and results of operations of LaTex Resources, Inc. The
financial information reflects (a) the 1991 pooling of Elite Enterprises,
Inc. and Sable Investments Corporation and the 1993 pooling of Panda
Resources, Inc. and its subsidiaries, Panada Exploration, Inc. and
Richfield Natural Gas, Inc., and (b) the discontinued operations from the
subsequent sale of Panda Resources, Inc. and Richfield Natural Gas, Inc.
effective July 1, 1993. The financial information of ENPRO, Inc. and
Phoenix Metals, Inc. has been included subsequent to their June 22, 1992
and December 8, 1992 respective dates of acquisition.
(2) LaTex Resources, Inc. and Sable Investment Corporation elected to be taxed
as C corporations under the Internal Revenue Code effective January 1,
1992. The net loss for fiscal 1992 is net of a proforma provision for
income taxes of $25 that would have been provided had these entities
elected to be taxed as C corporations effective August 1, 1991. Earnings
per share was not affected.
(3) The weighted average shares outstanding is as disclosed in the Notes to the
LaTex Resources, Inc. Consolidated Financial Statements included elsewhere
herein.
(4) After giving effect to the impact of the Company's price hedging
arrangements with the Company's principal bank. Without such hedging
arrangements, the average sales prices for the year ended July 31, 1996,
would have been $15.73 for oil and $2.03 for gas.
(5) The Company's price hedging arrangements did not have material effect on
average sales prices for the year ended July 31, 1995.
S-25
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FASB Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued Statements of
Financial Accounting Standards No. 114 ("SFAS 114"), Accounting by Creditors for
Impairment of a Loan and No. 118 ("SFAS 118"), Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures. In general, these
statements require that impaired loans be measured by creditors at the present
value of expected future cash flows discounted at the loan's effective interest
rate or at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The Company has adopted SFAS
114 and 118 for the fiscal year ended July 31, 1996.
FASB has issued Statement of Financial Accounting Standard No. 119 ("SFAS
119"), Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments. This statement generally requires disclosures about
amounts, nature and terms of derivative financial instruments. The Company has
adopted SFAS 119 for the fiscal year ended July 31, 1996.
FASB has issued Statement of Financial Accounting Standard No. 121 ("SFAS
121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. This statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the
undiscounted future cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. This statement is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
intends to adopt SFAS 121 for the fiscal year ending July 31, 1997. The Company
expects the adoption of SFAS 121 will not have a material effect on its
financial statements.
FASB has issued Statement of Financial Accounting Standard No. 123 ("SFAS
123"), Accounting for Stock-Based Compensation. This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. This statement defines a fair value based method of
accounting for an employee stock option or similar equity instrument plan.
Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is usually the vesting period. This statement is effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The Company intends to adopt the disclosure requirements of SFAS 123 for the
fiscal year ending July 31, 1997.
Results of Operations
The Company follows the "successful efforts" method of accounting for its
oil and gas properties whereby costs of productive wells and productive leases
are capitalized and depleted on a unit-of-production basis over the life of the
remaining proved reserves. Depletion of capitalized costs is provided on a
prospect-by-prospect basis. Exploratory expenses, including geological and
geophysical expenses and annual delay rentals, are charged to expense as
incurred. Exploratory drilling costs, including the cost of stratigraphic test
wells, are initially capitalized, but charged to expense if and when the well is
determined to be unsuccessful.
The factors which most significantly affect the Company's results of
operations are (i) the sale prices of crude oil and natural gas, (ii) the level
of oil and gas sales, (iii) the level of lease operating expenses, (iv) the
level of exploratory activities, and (v) the level of and interest rates on
borrowings. Total sales volumes and the level of borrowings are significantly
impacted by the degree of success the Company experiences in its efforts to
acquire oil and gas properties and its ability to maintain or increase
production from existing oil and gas properties through its development and
production enhancement activities. The following table reflects certain
historical operating data for the periods presented.
S-26
<PAGE>
<TABLE>
<CAPTION>
Year Ended July 31
--------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net Sales Volumes:
Oil (MBbls) 335 359 405
Natural gas (MMcf) 2,107 2,612 3,481
Oil equivalent (MBOE) 686 794 985
Average Sales Prices:
Oil (per Bbl) $ 14.56 $ 12.86(1) $ 15.24(2)
Natural gas (per Mcf) $ 1.81 $ 1.48(1) $ 1.67(2)
Operating Expenses per BOE of Net Sales:
Lease operating $ 6.29 $ 5.91 $ 5.82
Severance tax $ 0.77 $ 0.72 $ 0.89
General and administrative $ 3.75 $ 3.56 $ 2.94
Depreciation, depletion and amortization $ 3.23 $ 3.34 $ 4.60
- --------------------------------------
</TABLE>
(1) The Company's price hedging arrangements did not have a material effect on
average prices for the year ending July 31, 1995.
(2) After giving effect to the impact of the Company's price hedging
arrangements with the Company's principal bank. Without such hedging
arrangements, the average sales prices for the year ended July 31, 1996
would have been $15.73 for oil and $2.03 for gas.
Relatively modest changes in either oil or gas prices significantly impact
the Company's results of operations and cash flow and could significantly impact
the Company's borrowing capacity. Prices received by the Company for sales of
oil and natural gas have fluctuated significantly from period to period. The
Company's ability to maintain current borrowing capacity and to obtain
additional capital on attractive terms is substantially dependent on oil and gas
prices. Domestic spot oil prices have ranged from a low of approximately $11 per
barrel in July 1986 to a high of approximately $40 per barrel in October 1991,
with a current price of approximately $24 per barrel. The fluctuations in oil
prices during these periods reflect market uncertainty regarding OPEC's ability
to control the production of its member countries, as well as concerns related
to the global supply and demand for crude oil. Since the end of the Gulf War in
early 1991, crude oil prices have experienced continued weakness, primarily as a
result of OPEC's inability to maintain disciplined production quotas by member
countries and the uncertainty associated with Iraq's return to the crude oil
export market. These factors continue to overhang the market and will create
significant price volatility for the foreseeable future.
Natural gas prices received by the Company fluctuate generally with changes
in the spot market price for gas. Spot market gas prices have generally
declined in recent years because of lower worldwide energy prices as well as
excess deliverability of natural gas in the United States. However, natural gas
prices have rebounded recently and appear to be poised for further
strengthening. Domestic spot natural gas prices have ranged from a low of
approximately $0.90 per Mcf in January 1992 to a high of approximately $2.70 per
Mcf in April 1996, with a current price of approximately $2.10 per Mcf.
Environmental concerns coupled with recent increases in the use of natural gas
to produce electricity have combined to improve prices. Under FERC Order 636,
U.S. pipelines have been made more accessible to both buyers and sellers of
natural gas and, as a result, natural gas will be able to more effectively
compete for market share with other end-use energy forms. All of this suggests
a continued improvement in the demand for natural gas over the long term.
Within the oil and gas business, it appears that the substantial
restructuring of the major and large independent companies is slowing. The
merger activity of the 1980's has waned, and despite the continued exodus by
U.S. companies to international ventures, it appears that the mid-1990's will be
a "settling in" time for most companies. Nevertheless, there remains a large
inventory of properties available for acquisition within the United States.
However, it is anticipated that as crude oil and natural gas prices stabilize
and strengthen, fewer companies will be inclined to sell their properties in the
future.
S-27
<PAGE>
The Company's principal source of cash flow is the production and sale of
its crude oil and natural gas reserves, which are depleting assets. Cash flow
from oil and gas sales depends upon the quantity of production and the price
obtained for such production. Except as affected by the Company's current
commodity hedging arrangement, an increase in prices permits the Company to
finance its operations to a greater extent with internally generated funds. A
decline in oil and gas prices reduces the cash flow generated by the Company's
operations, which in turn reduces the funds available for servicing debt,
acquiring additional oil and gas properties and exploring for an developing new
oil and gas reserves.
In addition to the foregoing, the results of the Company's operations vary
due to seasonal fluctuations in the sales prices and volumes of natural gas. In
recent years, natural gas prices have been generally higher in the fall and
winter. Due to these seasonal fluctuations, results of operations for
individual quarterly periods may not be indicative of results which may be
realized on an annual basis.
The following events have directly affected the comparability of the
results of operations and financial position of the Company during the periods
presented:
. During the period between July 31, 1992 and July 31, 1996, the Company
completed 12 oil and gas property acquisitions that added substantial
amounts of proved oil and gas reserves for a total expenditure of
approximately $30.8 million. As a result of these transactions, the
Company's equivalent proved reserves increased approximately 560% in
fiscal 1992, 125% in fiscal 1993, 58% in fiscal 1994, 3.5% in fiscal
1995 and 68% in fiscal 1996, and the Company's oil and gas production,
revenues, lease operating expenses, interest expense and net income
have increased significantly.
. The Company acquired Panda Resources in February 1993 and subsequently
sold Panda's gas marketing and storage operations in July 1993.
. In April 1995 the Company completed the acquisition of Germany Oil
Company which approximately doubled the Company's oil and gas
properties and added significantly to the Company's liabilities. The
acquisition was accounted for using the purchase method of accounting.
In connection with this acquisition, the Company refinanced its senior
debt, issued preferred stock and entered into hedging arrangements
with respect to sales prices for its oil and gas production.
. In December 1995 the Company completed the sale of certain oil and gas
properties it had acquired from Phillips Petroleum and Sackett Oil
Company for approximately $2,857,275 net cash to the Company.
. In March 1995 the Company acquired Germany Oil Company in a purchase
transaction. The assets of Germany Oil consisted primarily of oil and
gas properties. In recording the transaction, the Company failed to
allocate the purchase price to all assets acquired as required by
generally accepted accounting principles. During fiscal 1996 the
Company, based on the reports of independent petroleum engineers,
reallocated the adjusted purchase price as of the date of acquisition.
Accordingly, the Company's consolidated financial statements for the
year ended July 31, 1995 have been restated.
Year ended July 31, 1996 Compared to year ended July 31, 1995. Total
-------------------------------------------------------------
revenues from the Company's operations for the year ended July 31, 1996 were
$15,006,816 before reduction by $1,475,653 as a result of losses incurred from
the Company's oil and gas price hedging arrangements. This compares to total
revenues of $10,442,679 for the year ended July 31, 1995, which includes hedging
gains of $157,301. The increase is attributable to a 15% increase in oil and
gas prices and the inclusion of the oil and gas operations of the Company's
wholly-owned subsidiary, Germany Oil Company, for the full year ended July 31,
1996. The increased revenues were partially offset by lower revenues from the
Company's crude oil marketing activities.
Total operating expenses for the year ended July 31, 1996 were $17,926,639
compared to $11,559,488 for the same period a year earlier. Lease operating
expense increased 20% to $6,608,089
S-28
<PAGE>
compared to the prior year primarily as a result of including the full year of
operations of Germany Oil, while expenses associated with the Company's
marketing operations decreased $610,155 due to reduced oil and gas marketing
activity.
Depreciation, depletion and amortization expense increased from $2,710,574
in fiscal 1995 to $4,705,912 in fiscal 1996 primarily as a result of the
acquisition of Germany Oil.
General and administrative expenses for the year ended July 31, 1996 were
$2,893,146 compared to $2,736,261 for the prior year due to routine increases in
the Company's administrative expenses.
The Company incurred dry hole costs of $2,630,541 during the year ended
July 31, 1996 which was principally due to the write-off of the Company's
investment in the Tunisian Prospect. The Company also wrote off its investment
in the Kazakhstan Prospect in the amount of $955,496. See "Item 1. Business
and Item 2. Properties -- Exploration and Development".
The Company's equity in the net losses of its unconsolidated affiliates,
Wexford Technology, Incorporated and Imperial Petroleum, Inc. was $298,839
during the fiscal year July 31, 1995. The current year equity in the losses or
earnings from these unconsolidated affiliates was not subject to determination
by the Company and, therefore, is included in the write off of the investment in
and advances to these affiliates in the total amount of $4,184,881 for the
fiscal year ended July 31, 1996. See "Item 1. Business and Item 2. Properties -
- - Other Business".
The Company recognized gains on the sale of assets of $2,365,807 from the
disposition of non-strategic oil and gas properties during the fiscal year ended
July 31, 1996, an increase of $2,237,881 from the preceding year.
The Company had a net loss from continuing operations for the year ended
July 31, 1996 of $8,420,401 ($0.50 per common share), compared to a net loss
from continuing operations of $2,491,342 ($0.15 per common share) for the year
ended July 31, 1995. The increase in the net loss from continuing operations is
primarily a result of the write off of the cost of the Company's activities in
Tunisia and Kazakhstan (reflected as dry hole cost and abandonments), hedging
contract losses, and equity in losses and write-offs of investments in
affiliates. These increases were partially offset by a gain on the sale of
assets.
The Company also incurred additional losses of $1,810,382 from discontinued
operations in connection with litigation arising out of the sale of its Panda
subsidiary in July 1993. As a result, the Company incurred a net loss of
$10,801,404 ($0.60 per common share) for the year ended July 31, 1996 compared
to a net loss of $2,624,142 ($0.15 per common share) for the prior year.
Year ended July 31, 1995 compared to year ended July 31, 1994. Total
-------------------------------------------------------------
revenues from the Company's operations for the year ended July 31, 1995 were
$10,442,679 compared to $12,085,364 for the year ended July 31, 1994. The
decrease is primarily attributable to a 13% decrease in oil and gas prices which
also resulted in lower revenues from the Company's crude oil marketing
activities. The reduced revenues were partially offset by an increase in oil
and gas sales volume as a result of the acquisition of Germany Oil Company
effective in April 1995. However, oil and gas sales revenues for the fourth
quarter of fiscal 1995 increased 46% compared to revenues in the fourth quarter
of fiscal 1994 as a result of the acquisition of Germany Oil. The Company
anticipates that oil and gas sales revenues will further increase in subsequent
quarters due to this acquisition.
Total operating expenses for the year ended July 31, 1995 were $11,559,488
compared to $11,880,094 for the same period a year earlier. Lease operating
expense increased nine percent to $5,264,858 compared to the prior year
primarily as a result of the acquisition of Germany Oil, while expenses
associated with marketing operations decreased $1,472,684 due to lower product
prices.
Depreciation, depletion and amortization expense increased from $2,213,823
during fiscal 1994 to $2,710,574 during fiscal 1995 as a result of the
acquisition of Germany Oil and due to an increase in depletion rates as a result
of the year-end price impact on the Company's base of oil and gas reserves.
S-29
<PAGE>
General and administrative expenses for the year ended July 31, 1995 were
$2,736,267 compared to $2,496,567 for the prior period. The increase was due to
increases in the Company's legal and accounting fees associated with the closing
of the acquisition of Germany Oil in April 1995.
The Company incurred losses from unconsolidated affiliates of $298,839
during the current fiscal year, with $216,998 of the losses attributable to
Wexford Technology Incorporated, a development stage company engaged in the
crude oil tank bottoms business. See "Item 1. Business and Item 2. Properties -
Other Business."
The Company recognized gains on the sale of assets of $127,926 from the
disposition of non-strategic oil and gas properties during the fiscal year ended
July 31, 1995, a reduction from gains of $265,281 in the previous year.
The Company had an after-tax net loss from continuing operations for the
year ended July 31, 1995 of $2,491,342 ($0.15 per common share) compared to a
net loss of $423,341 ($0.02 per common share) for the year. The increase in the
net loss is a result of lower oil and gas prices and increased operating,
financing, professional, and amortization costs associated with the purchase of
Germany Oil.
Year ended July 31, 1994 compared to year ended July 31, 1993. Total
-------------------------------------------------------------
revenues from the Company's operations for the year ended July 31, 1994 were
$12,085,366 as compared to $11,477,045 for the year ended July 31, 1993. The
increase in revenues is primarily due to the Swift Energy acquisition and
increased marketing margins from the sale of the Company's production in the
South Carlton field in Alabama which were offset partially by a reduction in
crude oil prices from $17.88 per barrel to $14.56 per barrel.
Total operating expenses for the year ended July 31, 1994 were $11,880,094
compared to $11,934,000 for the same period a year earlier. Lease operating
expense increased two percent to $4,840,000 compared to the prior year primarily
as a result of the acquisition of oil and gas properties from Swift Energy,
while expenses from marketing operations were up $476,410 due to increased
marketing efforts on the South Carlton field.
Depreciation, depletion and amortization expense in fiscal 1994 decreased
to $2,213,823 from $2,899,459 for the comparable period a year ago due to
significant downward revisions of oil and gas reserves in July 1993 for the
Wheat field in Loving County, Texas and the Flora field wells in Madison County,
Mississippi. Both of these properties were sold during the fiscal year with the
Company recording significant gains on sale.
General and Administrative expenses for the year ended July 31, 1994 were
$2,496,567 compared to $2,560,000 for the prior period. These expenses are
within 1% of the previous year's results reflecting the Company's commitment to
control overhead.
The Company had an after-tax net loss from continuing operations for the
year ended July 31, 1994 of $423,341 ($0.02 per common share) compared to a net
loss of $190,147 ($0.01 per common share) for the same period a year ago. The
Company wrote off its $222,918 investment in its Phoenix Metals, Inc. subsidiary
during fiscal 1994. To date this subsidiary has been unable to obtain financing
to initiate operations. The Company's equity in the net losses of its
unconsolidated affiliates was $216,998 during the current fiscal year, with
$174,050 of the losses attributable to Wexford Technology, Incorporated, a
start-up company engaged in the crude oil tank bottoms business. See "Item 1.
Business and Item 2. Properties -- Other Business."
The Company recognized gains on the sale of assets of $392,592, primarily
from the sale of non-strategic oil and gas assets during the fiscal year ended
July 31, 1994, a reduction of $470,888 from the previous fiscal year which
included the settlement of a natural gas contract in that period.
The net loss of the Company for the year ended July 31, 1994 was $423,341
($0.02 per common share) compared to net income of $906,839 ($0.06 per common
share) for the previous year. The decrease in net income is a result of a
$1,882,685 net gain (after income taxes) resulting primarily from the sale of a
gas purchasing contract in the prior period in addition to the write off of
Phoenix Metals and the
S-30
<PAGE>
Company's share of the losses of the unconsolidated affiliates.
Capital Resources and Liquidity
The Company's capital requirements relate primarily to the acquisition of
developed oil and gas properties and undeveloped leasehold acreage and
exploration and development activities. In general, because the Company's oil
and gas reserves are depleted by production, the success of its business
strategy is dependent upon a continuous acquisition and exploration and
development program.
Historically, the Company's operating needs and capital expenditures have
been funded by borrowings under its bank credit facilities and cash flow from
operations. As a result of significant capital expenditures since 1991, the
Company has experienced a decrease in its short-term liquidity and a decline in
its working capital. In connection with the Company's acquisition of Germany
Oil in April 1995, the Company's new credit facility provided a source of long-
term financing. As a result of the Germany Oil acquisition, the Company assumed
approximately $4.3 million in liabilities and accounts payable which created a
significant working capital deficit. The Company immediately began a program
designed to reduce these liabilities through negotiated reductions in amounts
owed and term payments out of the Company's cash flow. At July 31, 1996, the
Company had current assets of $4.2 million and current liabilities of $32.6
million which resulted in negative working capital of $28.4 million. This
compares to the Company's current assets of $4.2 million and current liabilities
of $11.3 million, which resulted in negative working capital of $7.1 million, at
July 31, 1995. The increase in the Company's working capital deficit during
fiscal 1996 is primarily due to the current liability classification at July 31,
1996 of all indebtedness of the Company to its principal bank (see "Financing
Arrangements"), additional litigation costs principally resulting from
discontinued operations of $1.8 million, and increases in royalty and vendor
payables in the amount of $1.8 million resulting from the Company's inability to
fund its current obligations due primarily to product hedging losses of $1.5
million. These amounts were partially offset by an increase in oil and gas
receivables resulting from higher product prices of approximately $500,000. The
long-term portion of the Company's debt to its principal bank was $20.6 million
at July 31, 1995. At July 31, 1994, the long-term portion of the Company's debt
to its principal bank was $4.5 million and negative working capital was $1.11
million. The decline in the Company's working capital during the last two years
is primarily the result of the Company's assumption of approximately $4.3
million of indebtedness associated with the acquisition of Germany Oil and the
continued funding of its international operations and two unconsolidated
affiliates. Subject to the availability of capital, the Company intends to
continue to pursue its program to achieve an orderly liquidation of the Germany
Oil indebtedness. There can be no assurance that, without an infusion of
additional debt or equity capital, the Company will be able to timely liquidate
these liabilities. As part of the Company's effort to reduce its working
capital shortage, the Company has entered into the proposed merger transaction
with Alliance Resources Plc. See "Item 1. Business and Item 2. Properties -
Proposed Merger with Alliance Resources Plc."
For the year ended July 31, 1996, the Company's operating activities
resulted in positive cash flow of $3,359,885 compared to a positive cash flow of
$1,742,623 for the year ended July 31, 1995. The improvement in cash flow is
due to additional cash provided by operating activities through increased
accounts payable and additional depreciation depletion and amortization. For
the year ended July 31, 1994, the Company's operating activities resulted in a
positive cash flow of $951,001 compared to providing deficit cash flow of
$2,596,354 for the year ended July 31, 1993.
Investing activities of the Company used $206,426 in net cash flow for the
year ended July 31, 1996 to fund the Company's oil and gas activities.
Investing activities of the Company used $16,750,182 in net cash flow for the
year ended July 31, 1995 compared to using $3,551,072 in net cash flow for the
year ended July 31, 1994. The increase in investing activities in fiscal 1995
was primarily due to the drilling of the first exploration well on the Company's
Tunisian prospect. Investing activities of the Company used $3,588,429 in net
cash flow for the year ended July 31, 1993. The decrease in cash flow used in
investing activities during fiscal 1994 compared to fiscal 1993 was a result of
a reduced number of oil and gas property acquisitions by the Company.
Financing activities used $3,448,351 in net cash flow for the year ended
July 31, 1996 compared to $15,113,389 provided in net cash flow for the year
ended July 31, 1995 and $1,665,499 provided for the year ended July 31, 1994.
The increase during fiscal 1996 was a result of the monthly amortization of the
S-31
<PAGE>
Company's indebtedness to its principal bank and additional debt reduction upon
the sale of oil and gas properties. The increase in fiscal 1995 compared to
fiscal 1994 was a result of the Company's new credit facility with Bank of
America associated with the Company's acquisition of Germany Oil Company in
April 1995. As a result of the Company's default under certain provisions of
its credit facility with Bank of America, the Company does not currently
anticipate being able to increase its level of borrowing under such credit
facility.
The domestic spot price for crude oil has ranged from $11.00 to $40.00 per
barrel over the past ten years. To the extent that crude oil prices continue
fluctuating in this manner, the Company expects material fluctuations in
revenues from quarter to quarter which, in turn, could adversely affect the
Company's ability to timely service its debt to its principal bank and fund its
ongoing operations and could, under certain circumstances, require a write-down
of the book value of the Company's oil and gas reserves.
Since the Company is engaged in the business of acquiring producing oil and
gas properties, from time to time it acquires certain non-strategic and marginal
properties in some of its purchases. A portion of the Company's on-going
profitability is related to the disposition of these non-strategic properties on
a regular basis. The Company expects to continue to pursue sales of these
types of properties in the future. In most cases the revenue from these
properties is insignificant and in many cases does not exceed the lease
operating expense. As a result, a portion of the Company's capital resources
are generated by the sale of assets from continuing operations. Sales of non-
strategic and minor interests oil and gas properties accounted for $2,365,807 in
gains during fiscal 1996, $127,248 in gains during fiscal 1995, and $565,932 in
gains during fiscal 1994. The Company expects to pursue a more aggressive
policy of disposition of oil and gas properties in fiscal 1997. Additionally,
the Company incurred a loss in fiscal 1994 of $173,340 on the disposition of the
40,000 shares of Electric & Gas Technology, Inc. common stock acquired in 1991.
Capital Expenditures. The timing of most of the Company's capital
--------------------
expenditures is discretionary. Currently there are no material long-term
commitments associated with the Company's capital expenditure plans.
Consequently, the Company has a significant degree of flexibility to adjust the
level of such expenditures as circumstances warrant. The Company primarily uses
internally generated cash flow and proceeds from the sale of oil and gas
properties to fund capital expenditures, other than significant acquisitions,
and to fund its working capital deficit. If the Company's internally generated
cash flows should be insufficient to meet its debt service or other obligations,
the Company may reduce the level of discretionary capital expenditures or
increase the sale of non-strategic oil and gas properties in order to meet such
obligations. The level of the Company's capital expenditures will vary in
future periods depending on energy market conditions and other related economic
factors. The Company anticipates that its cash flow will not be sufficient to
fund its domestic operations and debt service at their current levels for the
next year. As a result, the Company anticipates that it will be necessary to
increase the level of sales of the Company's oil and gas properties or seek
additional equity capital, of which there can be no assurance. The Company's
proposed merger with Alliance Resources Plc, if completed, would be a source of
such equity capital. See "Item 1. Business and Item 2. Properties - Proposed
Merger with Alliance Resources Plc."
Substantially all of the Company's capital expenditures over its recent
history have been made to acquire oil and gas properties. During fiscal 1993,
1994, 1995 and 1996, the Company made a number of significant acquisitions of
oil and gas properties. During the year ended July 31, 1993, the Company
completed two acquisitions of oil and gas properties for a cost of approximately
$3,013,000. During the year ended July 31, 1994, the Company completed one
acquisition of oil and gas properties for a cost of approximately $1,740,000.
During the year ended July 31, 1995 the Company completed the acquisition of
Germany Oil for a cost of approximately $18.1 million. Subsequent to July 31,
1995, the Company participated with Oakland Petroleum Operating Company in the
acquisition of producing oil and gas properties from Sackett Oil Company and The
Prudential Insurance Company of America for a total purchase price of
$5,850,000, less adjustments. The properties are located in Texas, Louisiana
and California. Of the total purchase price, the Company paid $2,885,320 for
the properties located in Texas and Louisiana. The Company provided Oakland a
loan in the principal amount of $2,300,000 to finance Oakland's purchase of the
properties. This acquisition was funded through additional borrowings under the
Company's principal credit facility. The Company's strategy is to continue to
expand its reserve base
S-32
<PAGE>
principally through acquisitions of producing oil and gas properties. As a
result, it is likely that capital expenditures will exceed cash provided by
operating activities in years where significant growth occurs in the Company's
oil and gas reserve base. In such cases, additional external financing is likely
to be required.
The Company intends to continue its practice of reserve replacement and
growth through the acquisition of producing oil and gas properties, although at
this time it is unable to predict the number and size of such acquisitions, if
any, which will be completed. The Company's ability to finance its oil and gas
acquisitions is determined by its cash flow from operations and available
sources of debt and equity financing. Exclusive of potential acquisitions and
subject to the availability of capital, the Company presently anticipates
capital expenditures in fiscal 1997 of approximately $800,000 for oil and gas
property enhancement activities.
Financing Arrangements. Since July 31, 1991, the Company has made 12
----------------------
acquisitions of oil and gas properties. These acquisitions have been financed
primarily through borrowings under the Company's bank credit facilities and
through internal cash flow. The Company's acquisition of Germany Oil Company,
including the cash portion of the purchase price paid by the Company for the
volumetric production payments and overriding interests acquired from ENPRO
Reserve Acquisition Corp. and the cash portion of the consideration paid by the
Company pursuant to the exchange offer, were financed through borrowings by the
Company under a credit facility pursuant to a Credit Agreement dated as of March
31, 1995 (the "Credit Agreement") between Bank of America, NT and SA ("Bank")
and the Company's wholly-owned subsidiaries, LaTex Petroleum, Germany Oil and
LaTex/GOC Acquisition ("Borrowers"). In addition, under the credit facility the
Company and the Borrowers refinanced the Company's then existing indebtedness to
the Company's former principal lender. The Company and its wholly-owned
subsidiary, ENPRO, have guaranteed the obligations of the Borrowers under the
Credit Agreement.
Under the Credit Agreement, the Bank agreed to make loans to the Borrowers
(i) in the amount of $23,000,000 (the "Acquisition Loan") for the purposes of
refinancing the Borrower's then existing indebtedness, partially funding the
acquisition of Germany Oil Company and for working capital, and (ii) in the
amount of $2,000,000 (the "Development Loan") for additional approved
development drilling, workover or recompletion work on oil and gas properties
mortgaged by the Borrowers to the Bank as security for the loans under the
Credit Agreement. On July 31, 1996, the outstanding balance of the loans was
$22,206,707.
Advances under the Credit Agreement maintained from time to time as a "Base
Rate Loan" bear interest, payable monthly, at a fluctuating rate equal to the
higher of (i) the rate of interest announced from time to time by the Bank as
its "reference rate", plus 1%, or (ii) the "Federal Funds Rate" (as defined in
the Credit Agreement) plus 1 1/2%. Advances under the Credit Agreement
maintained from time to time as a "LIBO Rate Loan" bear interest, payable on the
last day of each applicable interest period (as defined in the Credit
Agreement), at a fluctuating rate equal to the LIBO Rate (Reserve Adjusted) (as
defined in the Credit Agreement) plus 2%. As of July 31, 1996, all advances to
the Company under the Credit Agreement are maintained as LIBO Rate Loans which
currently bear interest at the annual rate of 7.5%.
Principal on any loans under the Credit Agreement is currently repayable in
monthly installments of $322,500 (net of Oakland Petroleum's monthly principal
payment of $42,500) plus an additional payment equal to the positive difference,
if any, between the net proceeds from Borrower's oil and gas production (as
defined in the Credit Agreement) times a variable dedicated percentage (as
defined in the Credit Agreement) and the minimum monthly payment. All unpaid
principal and accrued interest under the Credit Agreement is due March 31, 2000.
The Company's indebtedness to the Bank under the Credit Agreement is
secured by mortgages on all of the Company's producing oil and gas properties
and pledges of the stock of the Company's subsidiaries, LaTex Petroleum, Germany
Oil Company, LaTex/GOC Acquisition and ENPRO. On a semi-annual basis, the value
of the oil and gas properties securing loans under the Credit Agreement is
redetermined by the Bank based upon its review of the Company's oil and gas
reserves. To the extent that the aggregate principal amount of all loans under
the Credit Agreement exceeds the collateral value
S-33
<PAGE>
as determined by the Bank, the Company must either pay the Bank an amount
sufficient to eliminate such excess, or provide additional oil and gas
properties as security for the loans having a value satisfactory to the Bank.
Under the Credit Agreement, the Company has also granted an affiliate of
the Bank an overriding royalty interest in all of the Company's existing
producing oil and gas properties, other than those situated in the State of
Oklahoma (the "Bank ORRI"). The Bank ORRI is 6.3% of Company's net revenue
interest in each property. The Bank is not entitled to the Bank ORRI on any
property acquired after closing of the financing. On the later to occur of (i)
March 31, 1998 or (ii) at such time as the Bank has received a 15% internal rate
of return on the $25,000,000 commitment amount under the Credit Agreement, the
Bank ORRI will be adjusted downward to 2.1%.
As a condition to the Bank making the loans under the Credit Agreement, the
Company's subsidiary, LaTex Petroleum, has entered into hedging agreements
designed to enable the Company to obtain agreed upon net realized prices for the
Company's oil and gas production and designed to protect the Company against
fluctuations in interest rates with respect to the principal amounts of all
loans under the Credit Agreement. Under the current hedging arrangements with
the Bank, the Company pre-sold certain volumes of its gas production for a three
year period beginning April 1, 1995 at a fixed price of $1.806 per MMBTU. The
dedicated annual volumes for gas average 2,605,384 MMcf in fiscal 1996,
1,948,592 MMcf in fiscal 1997 and 1,115,296 MMcf in fiscal 1998. In addition,
the Company placed a price "collar" on certain volumes of its oil production
between $16.50 per barrel and $19.82 per barrel. The dedicated annual volumes
for oil average 324,288 Bbls in fiscal 1996, 279,828 Bbls in fiscal 1997 and
170,344 Bbls in fiscal 1998. Interest rate protection was provided based on an
interest rate swap at 7.47%. The effect of these hedging arrangements has been
to reduce the Company's working capital in fiscal 1996 by $1,979,956 as a result
of additional payments to the Bank above scheduled principal and interest
payments. At July 31, 1996, the future impact of the hedging agreements are
anticipated to result in additional losses of $3,649,287 based upon the
prevailing commodity prices and interest rate at that time. See "Inflation and
Pricing" and Note 15 to the Company's consolidated financial statements at
Item 8.
The Credit Agreement contains affirmative and negative covenants which
impose certain restrictions and requirements on the Company, including:
limitations on the amount of additional indebtedness the Company may incur;
prohibition against payment by the Company of cash dividends; requirements that
the Company maintains a current ratio (current assets to current liabilities) of
at least 1.0 to 1.0, tangible net worth of at least $5.0 million, no less than
$500,000 in cash equivalent investments on hand at any given time, and no less
than $500,000 in working capital; limitations on the ability of the Company to
sell assets or to merge or consolidate with or into any other person; and
requirements that the Company maintain a consolidated current ratio of at least
1.0 to 1.0 and consolidated tangible net worth of at least $10 million.
During the year ended July 31, 1996, the Company was in violation of
various provisions of the Credit Agreement. The Company has acknowledged to the
Bank these events of default and, pursuant to a Forbearance Agreement between
the Company and the Bank dated July 23, 1996, as amended, the Bank agreed to
delay enforcement of its rights under the Credit Agreement and related loan
documents as a result of these events of default until the earlier of November
29, 1996, the occurrence of any default by the Company under the terms of
Forbearance Agreement, the occurrence of any additional default by the Company
under the Credit Agreement, or the Company's cure of the defaults. The Bank has
indicated its willingness to further amend the Forbearance Agreement to extend
its agreement to forbear any action on the Company's default through February
28, 1997. Under the terms of the Forbearance Agreement, the Company agreed to
(a) obtain promissory notes from Imperial Petroleum, Inc. ("Imperial"), Wexford
Technology, Inc. ("Wexford"), and LaTex Resources International evidencing their
indebtedness to the Company at August 16, 1996 in the amounts of $677,705,
$1,372,799 and $3,363,000, respectively, (b) obtain from Imperial a lien on and
security interest in certain of Imperial's assets (subject to existing perfected
liens and security interests) to secure Imperial's indebtedness to the Company,
and (c) pay all unpaid overriding royalties due LaSalle Street National
Resources Corporation in three monthly installments, beginning August 1, 1996,
with interest at the Bank's prime rate plus two percent.
In addition, in accordance with the requirements of the Forbearance
Agreement, the Company and Bank entered into Amendment No. 2 to Amended and
Restated Credit Agreement dated as of August 16,
S-34
<PAGE>
1996 ("Amendment No. 2") pursuant to which each of the Borrowers and Guarantors
under the Credit Agreement granted Bank a security interest in substantially all
of their assets which had not otherwise been previously pledged to the Bank
under the Credit Agreement. In addition, the Company granted to the Bank a
security interest in the indebtedness owed to the Company by Imperial, Wexford
and LaTex, together with a security interest in the collateral pledged to the
Company by Imperial to secure Imperial's indebtedness to the Company, which
consists primarily of unpatented mining claims in the states of Arizona and
Montana. In addition, the Company granted the Bank a security interest in the
shares of common stock Wexford and Imperial owned by the Company.
The Company has dedicated a significant portion of its available revenues
and cash flows to remaining current in its payment obligations to the Bank. In
addition, proceeds from sales of oil and gas properties by the Company have been
used to further reduce the Company's indebtedness to the Bank, with only limited
amounts of such proceeds being made available to fund the Company's working
capital needs. As a result, the Company continues to fall further behind in
making required payments to royalty owners and vendors. The effect of the
continuation of this policy, over the long term, will be to increase the
Company's accounts payable while reducing its debt to the Bank. Because the
level of required payments to the Bank remains constant over the term of the
Credit Agreement, the rate at which the Company's accounts payable deficit
increases will become greater with time and, ultimately may jeopardize certain
of the Company's oil and gas leases.
The Company believes that its cash flow from operations will be
insufficient to meet its anticipated capital requirements for the foreseeable
future. As a result, the Company will be required to increase the level of
sales of its oil and gas properties, seek additional equity capital, or
restructure its existing Credit Agreement with the Bank, none of which can be
assured. However, because future cash flows and the availability of debt or
equity financing are subject to a number of variables, such as the level of
production and the prices of oil and gas, there can be no assurance that the
Company's capital resources will be sufficient to maintain current operations or
planned levels of capital expenditures.
Proposed Merger With Alliance Resources Plc
As a result of the demands placed upon the Company by the Bank, the
Company's continuing working capital deficit, its deteriorating financial
condition and inability of the Company to raise additional debt or equity
capital, management of the Company, in the fourth quarter of fiscal 1996,
determined to seek an equity infusion through a strategic merger with a suitable
merger candidate. Management's primary objective in seeking a merger partner
was to solve the working capital deficit of the Company through an equity
infusion while minimizing dilution to the shareholders. Although the Company
considered several potential transactions, Alliance Resources Plc ("Alliance")
emerged as the candidate most likely to meet the objectives of the Company.
Subsequent to year end the Company agreed, subject to shareholder approval and
satisfaction of certain other conditions, to enter into an agreement pursuant to
which the Company will merge with Alliance. It is anticipated that the merger
will provide the Company with sufficient capital resources to eliminate its
existing working capital deficit, refinance the Company's senior debt and
eliminate the hedging agreements, and provide development capital for
exploration of the Company's oil and gas properties. In addition, the Company
believes that the combination of the two companies provides strategic benefits
to the Company important to its long term growth and the enhancement of
shareholder value. Although Alliance's domestic oil and gas operations are
significantly smaller than the Company's, the Company believes that the merger
will enhance the overall financial strength of the Company and provide a stable
platform from which future growth can be achieved. The strategic objectives of
the combined Company will be to continue a policy of structured and stable
growth in the domestic U.S. oil and gas sector while implementing projects in
Western Europe, the Middle East and the former Soviet Union.
As a result of the refocus of the Company on its core oil and gas
operations and under the terms of the merger agreement with Alliance, the
Company has agreed to dispose of its interests in Wexford Technology, Inc.,
Imperial Petroleum, Inc., LaTex Resources International, Inc. and Phoenix
Metals, Inc. Despite attempts by management to locate potential purchasers for
these business interests, the financial condition of these entities and
additional capital requirements to achieve stable operations and cash flow have
been significant impediments to their sale. As a result, Imperial Petroleum,
Inc., an affiliate of the Company, has agreed to acquire the Company's interest
in these companies for 100,000 shares of the
S-35
<PAGE>
Company's common stock. Imperial is controlled by the Company's President and
largest stockholder, Jeffrey T. Wilson. Mr. Wilson will contribute to Imperial
the 100,000 shares of the Company's common stock to be used by Imperial in
acquiring the Company's interest in these companies. Prior to the completion of
the sale, the Company will obtain an opinion from an independent investment
banking firm as to the fairness of the transaction to its stockholders. See
"Item 1. Business and Item 2. Properties --Proposed Merger with Alliance
Resources Plc."
Seasonality
The results of operations of the Company are somewhat seasonal due to
seasonal fluctuations in the price for crude oil and natural gas. Recently,
crude oil prices have been generally higher in the third calendar quarter and
natural gas prices have been generally higher in the first calendar quarter.
Due to these seasonal fluctuations, results of operations for individual
quarterly periods may not be indicative of results which may be realized on an
annual basis.
Inflation and Prices
In recent years, inflation has not had a significant impact on the
Company's operations or financial condition. The generally downward pressure on
oil and gas prices during most of such periods has been accompanied by a
corresponding downward pressure on costs incurred to acquire, develop and
operate oil and gas properties as well as the costs of drilling and completing
wells on properties.
In connection with the execution of the Credit Agreement with the Bank, the
company has entered into a crude oil and natural gas hedging arrangement
designed to enable the Company to receive a net realized price of not less than
$1.81 per MMBtu of natural gas and $16.50 per barrel of crude oil on sale of the
volumes of crude oil and natural gas set forth in the Credit Agreement.
Prices obtained for oil and gas production depend upon numerous factors
that are beyond the control of the Company, including the extent of domestic and
foreign production, imports of foreign oil, market demand, domestic and world-
wide economic and political conditions, and government regulations and tax laws.
Prices for both oil and gas have fluctuated significantly in 1996 and 1995. The
following table sets forth the average price received by the Company for each of
the last two years and the effects of the hedging arrangement described below.
<TABLE>
Oil Oil Gas Gas
(excluding the (including the (excluding the (including the
effects of effects of effects of effects of
Year Ended hedging hedging hedging hedging
July 31 transactions) transactions) transactions) transactions)
- ------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1996 $ 15.73 $ 15.24 $ 2.03 $ 1.67
1995 $ 12.86 $ 12.86 $ 1.48 $ 1.48
</TABLE>
The Company has entered into a master agreement to hedge the price of its
oil and natural gas. The purpose of the hedging arrangement is to provide
protection against price drops and to produce a measure of stability in the
volatile environment of oil and natural gas spot pricing. With respect to the
losses incurred by the Company as a result of this hedging arrangement, see
"Capital Resources and Liquidity -- Financing Arrangements". The following
table provides a summary of the Company's financial contracts.
S-36
<PAGE>
<TABLE>
<CAPTION>
Gas
- ------------------------------------------------------------
Contract
Percent of Direct Floor Price
Period Production Hedged (per mcf)
- ------------------- ------------------ ------------
<S> <C> <C>
08/01/96-07/31/97 79% $16.50
08/01/97-03/27/98 75% $16.50
<CAPTION>
Oil
- ------------------------------------------------------------
Contract
Percent of Direct Floor Price
Period Production Hedged (per mcf)
- ------------------- ----------------- ------------
<S> <C> <C>
08/01/96-07/31/97 71% $ 1.81
08/01/97-03/27/98 68% $ 1.81
</TABLE>
In addition, the Company has entered into interest rate hedging agreements
designed to protect the Company against fluctuations in interest rates with
respect to its indebtedness to the Bank under the Credit Agreement.
Item 8. Financial Statements and Supplementary Data.
Audited Financial Statements of LaTex Resources, Inc.
<TABLE>
Page
----
<S> <C>
Independent Auditor's Report............................................ F-1
Consolidated Balance Sheets as of July 31, 1996 and 1995................ F-3
Consolidated Statements of Operations for the years ended
July 31, 1996, 1995 and 1994;....................................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended July 31, 1996, 1995 and 1994;................................. F-5
Consolidated Statements of Cash Flows for the years ended July 31,
1996, 1995
and 1994;........................................................... F-6
Notes to Consolidated Financial Statements.............................. F-8
</TABLE>
S-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
LaTex Resources, Inc.
Tulsa, Oklahoma
We have audited the accompanying consolidated balance sheets of LaTex Resources,
Inc. and subsidiaries (the "Company") as of July 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended July 31, 1996, 1995, and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
July 31, 1996 and 1995 and the results of the Company's operations and its cash
flows for the years ended July 31, 1996, 1995, and 1994, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has incurred a significant
net loss for the year ended July 31, 1996 and has working capital deficiencies
and consolidated tangible net worth deficiencies. As discussed in Notes 1 and 5
to the consolidated financial statements, the Company was not in compliance with
certain financial covenants of its credit agreement with its primary lender at
July 31, 1996. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty and do not include any adjustments to the classification of assets
and liabilities that might result should the Company be unable to continue as a
going concern.
S-38
<PAGE>
As discussed in Note 16, the consolidated financial statements as of and for the
year ended July 31, 1995 have been restated to correct the accounting for the
acquisition of Germany Oil Company.
/s/ Briscoe & Burke
BRISCOE & BURKE
Certified Public Accountants
November 6, 1996 except as to
information presented in Notes 1
and 5, for which the date is
November 30, 1996
Tulsa, Oklahoma
S-39
<PAGE>
LaTex RESOURCES, INC.
Consolidated Balance Sheets
July 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ -------------
(Restated)
<S> <C> <C>
Current assets:
Cash $ 19,337 $ 314,229
Accounts receivable - net of
allowance for doubtful
accounts of $0 in 1996
and $135,000 in 1995 3,324,309 2,836,596
Accounts and notes receivable -
other (Note 3) 515,820 696,688
Inventories 175,493 90,976
Other current assets 27,587 84,791
Assets held for sale 164,792 144,990
------------ ------------
Total current assets 4,227,338 4,168,270
------------ ------------
Property and equipment, at cost
Oil and gas properties (using
successful efforts method) 41,264,573 39,638,656
Exploration prospects in progress - 3,363,000
Other depreciable assets 854,259 954,415
------------ ------------
42,118,832 43,956,071
Accumulated depreciation and
depletion 10,173,524 6,247,190
------------ ------------
Net property and equipment 31,945,308 37,708,881
------------ ------------
Other assets:
Notes receivable, net of
current portion (Note 3) 757,500 -
Deposits and other assets 130,734 137,559
Accounts and notes receivable -
related parties (Note 3) 392,297 590,605
Investments in and advances
to affiliates (Note 3) - 3,647,480
Intangible assets, net of
amortization 1,512,899 1,670,384
------------ ------------
Total other assets 2,793,430 6,046,028
------------ ------------
TOTAL ASSETS $ 38,966,076 $ 47,923,179
============ ============
<CAPTION>
LIABILITIES and STOCKHOLDERS' EQUITY 1996 1995
------------ ------------
(Restated)
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,057,707 $ 4,544,406
Accounts payable - other 747,000 2,959,284
Accrued expenses payable 607,055 139,113
Current portion of long-term debt
(Note 5) 22,235,867 3,644,723
------------ ------------
Total current liabilities 32,647,629 11,287,526
------------ ------------
Long-term debt, net of current portion
(Note 5) - 20,634,809
------------ ------------
Stockholders' equity
Preferred stock - par value $10.00;
5,000,000 shares authorized:
Series A convertible preferred stock,
451,095 and 442,281 issued and
outstanding, respectively 4,503,351 4,415,180
Series B convertible preferred stock,
479,345 and 381,100 issued and
outstanding, respectively (Note 10) 4,793,450 3,811,000
Common stock - par value $.01,
50,000,000 authorized; issued and
outstanding 19,123,995
18,880,195, respectively 191,240 188,802
Additional paid-in capital 9,067,631 8,931,424
Treasury stock 1,008,500 and 958,000
shares, respectively (489,365) (399,106)
Accumulated deficit (11,747,860) (946,456)
------------ ------------
Total stockholders' equity 6,318,447 16,000,844
------------ ------------
Commitments and contingencies (Note 11)
TOTAL LIABILITIES and
STOCKHOLDERS' EQUITY $ 38,966,076 $ 47,923,179
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
S-40
<PAGE>
LaTex RESOURCES, INC.
Consolidated Statements of Operations
Years Ended July 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
(Restated)
<S> <C> <C> <C>
Revenues:
Oil and gas revenue (Note 15) $ 11,979,982 $ 8,585,453 $ 8,703,100
Crude oil and gas marketing 540,156 1,223,188 2,780,543
Lease operations and management fees 1,011,025 634,038 601,723
------------ ----------- -----------
Total operating income 13,531,163 10,442,679 12,085,366
------------ ----------- -----------
Operating expenses:
Lease operating expense 6,608,089 5,264,858 4,840,638
Cost of crude oil and gas marketing 133,455 743,610 2,216,294
Dry hole costs and abandonments (Note 6) 3,586,037 104,179 112,772
General and administrative 2,893,146 2,736,267 2,496,567
Depreciation, depletion, and amortization 4,705,912 2,710,574 2,213,823
------------ ----------- -----------
Total operating expense 17,926,639 11,559,488 11,880,094
------------ ----------- -----------
Net operating income (loss) (4,395,476) (1,116,809) 205,272
Other income (expense):
Equity in losses and write-offs of investments in affiliates (4,184,881) (298,839) (439,916)
Gain on sale of assets 2,365,807 127,926 392,592
Interest expense (Note 15) (2,410,158) (1,291,064) (598,335)
Interest income 204,307 122,540 17,046
------------ ----------- -----------
Net loss from continuing operations before income taxes (8,420,401) (2,456,246) (423,341)
Income tax expense - 35,096 -
------------ ----------- -----------
Net loss from continuing operations (8,420,401) (2,491,342) (423,341)
Loss on disposal of subsidiary, net of income taxes (Note 1) (1,810,382) - -
------------ ----------- -----------
Net loss (10,230,783) (2,491,342) (423,341)
Preferred stock dividends 570,621 132,800 -
------------ ----------- -----------
Net loss for common shareholders $(10,801,404) $(2,624,142) $ (423,341)
============ =========== ===========
Loss per share from continuing operations $ (.50) $ (.15) $ (.02)
============ =========== ===========
Loss per share for common shareholders $ (.60) $ (.15) $ (.02)
============ =========== ===========
Weighted average number of shares outstanding 18,011,826 17,661,428 17,434,159
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
S-41
<PAGE>
LaTex RESOURCES, INC.
Consolidated Statements of Stockholders' Equity
Years Ended July 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Common Stock Additional
Preferred -------------------------- Paid-in Retained
Stock Shares Par Value Capital Earnings
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance July 31, 1993 $ - 16,345,195 $ 163,452 $ 6,226,613 $ 2,101,027
Issued for acquisition of stock of
Wexford Technology, Inc. (Note 6) - 100,000 1,000 330,350 -
Issued pursuant to private placement (Note 1) - 2,000,000 20,000 1,995,843 -
Issued for consulting services - 35,000 350 139,650 -
Net loss - - - - (423,341)
------------ ------------ ------------ ------------ ------------
Balance July 31, 1994 - 18,480,195 184,802 8,692,456 1,677,686
Issued for debt - 150,000 1,500 96,938 -
Issued for acquisition of
Germany Oil Company (Note 1) 8,093,380 250,000 2,500 142,030 -
Purchase of Treasury Stock - - - - -
Issued for dividends 132,800 - - - (132,800)
Net loss (Restated) - - - - (2,491,342)
------------ ------------ ------------ ------------ ------------
Balance July 31, 1995 (Restated) 8,226,180 18,880,195 188,802 8,931,424 (946,456)
------------ ------------ ------------ ------------ ------------
Issued for services - 100,000 1,000 77,125 -
Issued for debt of affiliate - 143,800 1,438 59,082 -
Issued for legal settlement (Note 11) 500,000 - - - -
Purchase of Treasury Stock - - - - -
Issued for dividends 570,621 - - - (570,621)
Net loss - - - - (10,230,783)
------------ ------------ ------------ ------------ ------------
Balance July 31, 1996 $ 9,296,801 $ 19,123,995 $ 191,240 $ 9,067,631 $(11,747,860)
============ ============ ============ ============ ============
<CAPTION>
Total
Treasury Stockholders'
Stock Equity
------------- --------------
<S> <C> <C>
Balance July 31, 1993 $ (275,000) $ 8,216,092
Issued for acquisition of stock of
Wexford Technology, Inc. (Note 6) - 331,350
Issued pursuant to private placement (Note 1)
Issued for consulting services - 2,015,843
Net loss - 140,000
- (423,341)
------------ ------------
Balance July 31, 1994 (275,000) 10,279,944
Issued for debt - 98,438
Issued for acquisition of
Germany Oil Company (Note 1) - 8,237,910
Purchase of Treasury Stock (124,106) (124,106)
Issued for dividends - -
Net loss (Restated) - (2,491,342)
------------ ------------
Balance July 31, 1995 (Restated) (399,106) 16,000,844
------------ ------------
Issued for services - 78,125
Issued for debt of affiliate - 60,520
Issued for legal settlement (Note 11) - 500,000
Purchase of Treasury Stock (90,259) (90,259)
Issued for dividends - -
Net loss - (10,230,783)
------------ ------------
Balance July 31, 1996 $ (489,365) $ 6,318,447
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
S-42
<PAGE>
LaTex RESOURCES, INC.
Consolidated Statements of Cash Flows
Years Ended July 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
(Restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,230,783) $ (2,491,342) $ (423,341)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, amortization, and depletion 4,705,912 2,710,574 2,213,823
Gain on sale of assets (2,365,807) (127,926) (392,592)
Equity in losses and write-offs of investments in affilates 4,184,881 298,839 439,916
Dry hole costs and abandonments 3,586,037 104,179 112,772
Interest income (150,467) (64,231) -
Loss on disposal of subsidiary 1,810,382 - -
Changes in assets and liabilities, net of effects from acquisition:
Accounts receivable (17,248) 1,073,004 787,602
Accounts receivable - related party 198,288 (76,591) 82,208
Accrued expenses payable 467,942 (34,017) (363,271)
Accounts payable 1,211,038 390,146 (1,518,425)
Other assets 44,227 (170,979) (127,334)
Inventories (84,517) 130,967 139,643
------------ ------------ ------------
Net cash provided by operating activities 3,359,885 1,742,623 951,001
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments - - 136,218
Proceeds from sale of property and equipment 3,984,491 357,445 736,200
Purchases of property and equipment (3,774,264) (4,815,409) (4,257,229)
Reorganization cost - - (66,558)
Acquisition of Germany Oil Company, net of cash acquired - (10,592,292) -
Advances to unconsolidated affiliates and notes receivable (326,394) (1,575,820) (99,703)
Purchases of Treasury stock (90,259) (124,106) -
------------ ------------ ------------
Net cash used for investing activities $ (206,426) $(16,750,182) $ (3,551,072)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
S-43
<PAGE>
LaTex RESOURCES, INC.
Consolidated Statements of Cash Flows
Years Ended July 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
(Restated)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred loan costs $ (137,186) $(1,483,143) $ (15,344)
Proceeds from notes payable 9,933,192 26,837,059 2,585,000
Payments on notes payable (7,244,357) (10,100,527) (3,060,000)
Proceeds from notes payable - shareholder - - 490,000
Payments on notes payable - shareholder - (140,000) (350,000)
Proceeds from the issuance of common stock - - 2,015,843
----------- ----------- -----------
Net cash provided by (used for) by financing activities (3,448,351) 15,113,389 1,665,499
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (294,892) 105,830 (934,572)
Cash and cash equivalents beginning of year 314,229 208,399 1,142,971
----------- ----------- -----------
Cash and cash equivalents end of year $ 19,337 $ 314,229 $ 208,399
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,403,158 $ 1,307,264 $ 598,335
Income taxes 5,275 7,739 200,648
=========== =========== ===========
Supplemental schedules of noncash investing and financing activities:
Note receivable in exchange for property $ - $ - $ 1,342,506
Common stock issued to acquire stock of Wexford Technology, Inc. - - 331,350
Common stock issued for services 78,125 98,438 140,000
Common stock issued to acquire Germany Oil Company - 144,530 -
Preferred stock issued to acquire Germany Oil Company - 8,093,380 -
Preferred stock issued for legal settlement 500,000 - -
Common stock issued to pay off debt of unconsolidated affiliate 60,520 - -
Increase in bank borrowings and advances on notes receivable 2,300,000 - -
Reduction of bank borrowings and notes receivable 1,267,500 - -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
S-44
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
1. ORGANIZATION, FINANCIAL CONDITION AND BUSINESS COMBINATIONS
Organization - LaTex Resources, Inc. (the Company) is an oil and gas
------------
company engaged in the acquisition of and enhancements to producing oil and
gas properties. The Company's principal oil and gas production operations
are conducted in Oklahoma, Texas, Louisiana, Mississippi and Alabama. The
Company, until the fourth quarter of fiscal 1996, was also involved in the
exploration and development of oil and gas prospects located in Tunisia and
Kazakhstan, C. I. S.
Financial Condition - The Company's aggressive policy of oil and gas
-------------------
property acquisitions, unsuccessful foreign oil and gas exploration and
unsuccessful investments in their unconsolidated affiliates, along with
substantial operating losses for the current and preceding two years, has
resulted in a working capital deficit and non-compliance with certain loan
covenants at July 31, 1996. (See Note 5)
The items of non-compliance have not been waived by the lender for the year
ended July 31, 1996 and the Company was operating under a "forbearance"
agreement. The "forbearance period" was from July 26, 1996 to November 29,
1996. The Company is currently seeking an extension of the forbearance
agreement until such time as the proposed Alliance Resources Plc merger
(See Note 17) can be consummated.
The Company's financial statements for the year ended July 31, 1996 have
been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal
course of business. The Company incurred a net loss of $10,230,783 for the
year ended July 31, 1996 and as of July 31, 1996 has an accumulated deficit
of $11,747,860 and a deficit working capital of $10,564,424.
The Company expects to incur substantial expenditures to develop its
undeveloped reserves and acquire additional producing oil and gas
properties, however, without raising additional capital the Company will be
unable to achieve its business objective or reduce its working capital
deficit. Management plans for raising additional capital include
consideration of alliances or other partnership arrangements or potential
merger opportunities.
The Company has retained investment banking counsel to advise it on the
possible sale of equity securities as well as to introduce and assist in
the evaluation of potential merger and partnering opportunities. Management
expects that these efforts will result in the introduction of other parties
with interests and resources which may be compatible with that of the
Company. See Note 17 regarding proposed transaction with Alliance Resources
Plc. No assurances can be given that the Company will be successful in
raising additional capital or consummating a business alliance. Further,
there can be no assurance assuming the Company successfully raises
additional funds or enters into a business alliance, that the Company will
achieve profitability or positive cash flow.
S-45
<PAGE>
LaTex RESOURCES, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
1. ORGANIZATION, FINANCIAL CONDITION AND BUSINESS COMBINATIONS (continued)
Disposition of Panda Resources, Inc. and Its Wholly Owned Subsidiary
--------------------------------------------------------------------
Richfield Natural Gas, Inc., July 1993
--------------------------------------
In July 1993 the Company sold its wholly owned subsidiary, Panda Resources,
Inc., and Panda's wholly owned subsidiary, Richfield Natural Gas, Inc.
Final post closing adjustments were in dispute until December 1995 when a
settlement agreement by the various parties resulted in a judgment against
LaTex Resources, Inc. in the amount of $1,810,382. This amount is reflected
in the 1996 consolidated financial statement as a loss on disposal of
discontinued subsidiaries.
Proceeds from Private Placement
-------------------------------
On January 26, 1994, pursuant to a private placement, the Company issued
2,000,000 newly issued shares of common stock.
Proceeds from this offering were as follows:
<TABLE>
<S> <C>
Gross proceeds $ 2,200,061
Less: Commissions 165,000
Legal fees 10,000
Other expenses 9,218
------------
Net proceeds $ 2,015,843
============
</TABLE>
Acquisition of Germany Oil Company
----------------------------------
Effective March 31, 1995 through a series of transactions, the Company
acquired all of the issued and outstanding stock of Germany Oil Company
("Germany") in exchange for 250,000 and 11,800 of the Company's common and
Series A Convertible Preferred Stock, respectively. The ratio of the number
of shares received by the stockholders of Germany was determined through
arms length negotiations between the Chairman of the Board and President of
the Company and the President of Germany. The Company also issued 370,000
shares of the Series B Convertible Preferred Stock and $8,900,000 in cash
to retire a volumetric production payment and acquire all of the related
contract rights mortgages, vendor liens and security interests. In
addition, the Company paid $1,742,294 in cash, issued 482,201 shares of its
Series A Convertible Preferred Stock and $87,998 in notes payable to
acquire and retire certain indebtedness of Germany. The transaction was
accounted for as a purchase. The fair value of assets and liabilities of
Germany at date of acquisition follows:
<TABLE>
<S> <C>
Current assets $ 773,088
Current liabilities (4,309,479)
Oil and gas properties 22,504,593
-------------
$ 18,968,202
=============
</TABLE>
S-46
<PAGE>
LaTex RESOURCES, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
2. SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements is as
follows.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts
have been eliminated in consolidation.
Inventories
-----------
Included in inventories at July 31, 1996 and 1995 are crude oil inventories
at market value of $175,493 and $90,976, respectively.
Accounting Estimates
--------------------
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Financial Instruments
---------------------
The fair value of current assets and current liabilities are assumed to be
equal to their reported carrying amounts due to the short maturities of
these financial instruments. Due to the Company's financial position, it is
not practicable to estimate the fair value of the Company's long-term debt;
additional information pertinent to its value is provided in Note 5 to the
consolidated financial statements.
The Company is required, by agreement with its primary lender (Bank of
America), to participate in various hedging programs, executed by Bank of
America, to protect against fluctuations in oil gas prices and interest
rates. See Note 15 for discussion of the fair market value of these
contracts.
The carrying value of all other financial instruments approximates fair
value.
S-47
<PAGE>
LaTex RESOURCES, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
2. SUMMARY OF ACCOUNTING POLICIES (continued)
Concentrations of Credit Risk
-----------------------------
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company places its cash investments with high
quality financial institutions and limits the amount of exposure to any one
institution. In the case of default of any one financial institution, no
cash investments exist that are not covered by the FDIC. The Company's
revenues are derived principally from uncollateralized sales to customers
in the oil and gas industry. The concentration of credit risk in a single
industry affects the Company's overall exposure to credit risk because
customers may be similarly affected by changes in economic and other
conditions. The Company has not experienced significant credit losses on
such receivables. The Company performs periodic evaluations of its
customers' financial condition and generally does not require collateral.
Revenue Recognition
-------------------
The Company recognizes oil and gas production and gas marketing revenue in
the month of sale. Uncollected revenue is accrued based on known facts and
trends of the relevant oil and gas properties on a monthly basis.
Property, Equipment, Depreciation and Depletion
-----------------------------------------------
The Company uses the successful efforts method to account for costs in the
acquisition and exploration of oil and natural gas reserves. Costs to
acquire mineral interests in proved reserves, and to drill and equip
development wells are capitalized. Geological and geophysical costs and
costs to drill exploratory wells which do not find proved reserves are
expensed. Undeveloped oil and gas properties which are individually
significant are periodically assessed for impairment of value and a loss is
recognized at the time of impairment by providing an impairment allowance.
The remaining unproved oil and gas properties are aggregated and an overall
impairment allowance is provided based on Company experience. Depletion and
depreciation are calculated on the units of production method based upon
current estimates of oil and gas reserves provided by management.
Non oil and gas property and equipment are stated at cost. Depreciation is
computed by the straight-line method over the estimated useful lives of non
oil and gas assets. Expenditures which significantly increase values or
extend useful lives are capitalized. Expenditures for maintenance and
repairs are charged to expenses as incurred. Upon sale or retirement of
property and equipment, the cost and related accumulated depreciation and
depletion are eliminated from the respective accounts and the resulting
gain or loss is included in current earnings.
Intangible Assets
-----------------
Intangible assets consist primarily of debt issuance costs. Debt issuance
costs are amortized over the term of the related debt.
S-48
<PAGE>
LaTex RESOURCES, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
2. SUMMARY OF ACCOUNTING POLICIES (continued)
Income Taxes
------------
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Gas Balancing
-------------
The Company follows the sales method of accounting for gas imbalances. A
liability is recorded only if the Company's excess takes of natural gas
volumes exceed its estimated remaining recoverable reserves. No receivables
are recorded for those wells when the Company has taken less than its
ownership share of gas production.
Earnings Per Common Share
-------------------------
Earnings per common share is computed based upon the weighted average
common shares outstanding. Outstanding stock options and warrants of LaTex
Resources are excluded from the weighted average shares outstanding since
their effect on the earnings per share calculation is immaterial or
antidilutive.
FASB Accounting Standards
-------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 119 (SFAS 119), Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments. This
Statement generally requires disclosures about amounts, nature, and terms
of derivative financial instruments. The Company has adopted SFAS 119 for
the fiscal year ended July 31, 1996.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. This
Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the sum of the undiscounted
future cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. This Statement is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
intends to adopt SFAS 121 for the fiscal year ending July 31, 1997. The
Company expects the adoption of SFAS 121 will not have a material effect on
its financial statements.
S-49
<PAGE>
LaTex RESOURCES, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
2. SUMMARY OF ACCOUNTING POLICIES (continued)
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation. This Statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. This Statement
defines a fair value based method of accounting for an employee stock
option or similar equity instrument plan. Under the fair value based
method, compensation cost is measured at the grant date based on the value
of the award and is recognized over the service period, which is usually
the vesting period. This Statement is effective for transactions entered
into in fiscal years that begin after December 15, 1995. The Company
intends to adopt the disclosure requirements of SFAS 123 for the fiscal
year ending July 31, 1997.
Reclassification
----------------
Certain amounts in the 1995 and 1994 consolidated financial statements have
been reclassified to conform with the 1996 presentation.
3. ACCOUNTS AND NOTES RECEIVABLE AND INVESTMENTS IN AND ADVANCES TO AFFILIATES
<TABLE>
<CAPTION>
Accounts and Notes Receivable - Related Parties
-----------------------------------------------
1996 1995
----------- ----------
(Restated)
<S> <C> <C>
Accounts receivable - officers,
directors and employees $ 100,481 $ 354,261
Note receivable - officers,
directors, shareholders
and employees (See Note 12) 291,816 236,344
---------- ----------
Total $ 392,297 $ 590,605
========== ==========
Accounts and Notes Receivable - Other
-------------------------------------
1996 1995
---------- ----------
(Restated)
Oakland Petroleum Operating Company, Inc. $1,267,500 $ -
Panda Resources, Inc. - 584,172
Other accounts receivable from
third parties 5,820 112,516
---------- ----------
Less current maturities 515,820 696,688
---------- ----------
Total $ 757,500 $ -
========== ==========
</TABLE>
S-50
<PAGE>
LaTex RESOURCES, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
3. ACCOUNTS AND NOTES RECEIVABLE AND INVESTMENTS IN AND ADVANCES TO AFFILIATES
The non-interest bearing note receivable from Oakland Petroleum Operating,
Inc. (Oakland) represents the balance due to the Company for a loan entered
into with the Company's primary lender for a joint purchase of property.
The original amount was approximately $2,300,000 of which $1,267,500 was
still outstanding at July 31, 1996. The note receivable is offset by a
comparable amount included in the Company's long-term debt. Oakland pays
all principal and interest payments directly to the Company's primary
lender.
Investments in and Advances to Affiliates
-----------------------------------------
Investments in and advances to affiliates includes the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Restated)
<S> <C> <C>
Wexford Technology, Inc. $ - $ 1,987,898
Imperial Petroleum, Inc. - 1,640,609
Others - 18,973
----------- -----------
Total $ - $ 3,647,480
=========== ===========
</TABLE>
See Note 6 - WRITE OFFS.
4. INCOME TAXES
The provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(Restated)
(in thousands)
<S> <C> <C> <C>
Current:
State $ - $ 35 $ -
======== ======== ========
</TABLE>
S-51
<PAGE>
LATEX RESOURCES, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
4. INCOME TAXES (continued)
Income taxes differed from the amounts computed by applying the U.S.
federal tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
(Restated)
(in thousands)
<S> <C> <C> <C>
Computed "expected" tax benefit $(3,478) $ (835) $ (144)
State income taxes net of federal
benefit (1) 12 -
Increase in valuation allowance
for deferred tax assets 3,844 294 93
Equity in net losses of affiliates - 102 72
Excess statutory depletion (152) 237 3
Other (213) 225 (24)
------- -------- ---------
Actual income tax expense $ - $ 35 $ -
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ---------- --------
(Restated)
(in thousands)
<S> <C> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 1,574 $1,390 $ 401
------- ------ -------
Total deferred tax liabilities 1,574 1,390 401
------- ------ -------
Deferred tax assets:
Net operating losses 4,300 1,521 350
Investment write-downs 917 - -
Percentage depletion carryforward 392 240 133
Accrued expenses not deductible
until paid 180 - -
Other 5 5 -
------- ------ -------
Total deferred tax assets 5,794 1,766 483
------- ------ -------
Valuation allowance (4,220) (376) (82)
------- ------ -------
Net deferred tax assets 1,574 1,390 401
------- ------ -------
Net deferred tax
asset (liability) $ - $ - $ -
======= ======= =======
</TABLE>
S-52
<PAGE>
LaTex RESOURCES, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
4. INCOME TAXES (continued)
A valuation allowance is required when it is more likely than not that all
or a portion of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax assets is dependent upon future
profitability. Accordingly, a valuation allowance has been established to
reduce the deferred tax assets to a level which, more likely than not, will
be realized.
The Company has net operating loss (NOL) carryforward to offset its
earnings of approximately $11,390,000. Additionally, approximately
$10,490,000 of NOL carryforwards are available to offset the future
separate company earnings of Germany. If not previously utilized, the net
operating losses will expire in varying amounts from 2006 to 2011.
5. NOTES PAYABLE
<TABLE>
<CAPTION>
1996 1995
------------ ------------
(Restated)
<S> <C> <C>
Bank note (A) $ 22,206,707 $ 24,210,000
Other 29,160 69,532
------------ ------------
Total 22,235,867 24,279,532
Less - current maturities 22,235,867 3,644,723
------------ ------------
Long-term debt, net $ - $ 20,634,809
============ ============
</TABLE>
(A) Note payable dated April 18, 1995, for $23,000,000 with option of an
additional $2,000,000 for six months for approved workovers,
recompletions and development drilling of specified reserves.
Principal due monthly of $365,000 including Oakland Petroleum Co.
payment of $42,500 monthly. Interest due monthly at the higher of a
Base Rate (the higher of the Bank of America Reference Rate and the
Federal Fund Rate plus .5% per annum) plus 1% per annum and the London
Interbank Offered Rate plus 2%. The current rate at July 31, 1996 was
7.469%. Matures March 30, 2000. Amounts outstanding are secured by
mortgages which cover certain of the Company's oil and gas properties.
The Company's existing debt agreements contain certain covenants, including
maintaining a positive current ratio of 1.0, excluding current portion of
long-term debt, maintaining a minimum tangible net worth of $10,000,000,
maintaining a minimum cash or cash equivalents balance of $500,000,
maintaining working capital of at least $500,000, the negative covenant
related to permitted investments, and the covenant relating to default on
other indebtedness in excess of $50,000.
S-53
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
5. NOTES PAYABLE (continued)
The Company was not in compliance with the current ratio, cash equivalent,
minimum tangible net worth, and working capital covenants at July 31, 1995.
The items of non-compliance were subsequently waived by the lender for the
year ended July 31, 1995 and through January 31, 1996. The Company was not
in compliance with the above noted covenants at July 31, 1996 and was
operating under a "forbearance" agreement discussed in Note 1 to the
financial statements. The "forbearance" agreement expired on November 29,
1996 and the bank has not extended the agreement. The debt agreement
contains various acceleration provisions of the due date in the event of
non-compliance. Accordingly, the entire unpaid balance has been classified
as a current liability at July 31, 1996.
6. WRITE OFFS
Investments
-----------
During the fourth quarter of fiscal 1996, the Company wrote off its
investments in Wexford Technology, Incorporated (Wexford) and Imperial
Petroleum, Inc. (Imperial). The Company has not been able to obtain
reliable current financial information, accordingly, summarized financial
information is not presented.
The Company acquired 32.3% of Wexford through a series of transactions
culminating in May 1994. During the fourth quarter fiscal 1996, the Company
recorded a charge to earnings of $2,372,752 to write off its investment.
Wexford is presently in default on its bridge debt and has received
numerous written demands for payment and correspondence threatening
litigation. Included in the write off was $1,462,765 in notes receivable.
The Company owns 12% of the common stock of Imperial and certain officers,
directors and employees of the Company own 28.8%. During the fourth quarter
of fiscal 1996, the Company recorded a charge to earnings of $1,797,378 to
write off this investment. Imperial is currently in default on its bank
debt. Included in the write off of the Company's investment was $722,603 in
notes receivable.
Wexford and Imperial are both development stage enterprises that are
seeking capital infusion to complete their facilities and achieve
commercial operations. Neither Wexford nor Imperial have been able to raise
additional debt or equity capital. Further, there can be no assurance,
assuming Wexford and Imperial successfully raise additional funds or enter
into a business alliance, that they will achieve commercial operations or
positive cash flow.
Exploration Prospects
---------------------
During the fourth quarter of fiscal year 1996, the Company recorded a
charge to earnings of $955,496 to write off costs incurred in connection
with a venture in Kazakhstan C.I.S. Subsequent to July 31, 1996, the
Company received written notice that the Company may be in breach of its
agreements related to the venture. The Company believes it is in
substantial compliance with the operating agreement governing the project.
In addition, the Company has been notified that Uzenmunaigaz, the regional
production association for the Middle Caspian Basin, may seek to further
alter the terms of a contract in a manner which the Company believes would
be detrimental to the project's viability.
S-54
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
6. WRITE OFFS (continued)
During fiscal 1993 the Company, through a subsidiary, acquired an interest
in a permit granted by the Republic of Tunisia for the exploration and
production of oil and gas from a 4,936 square kilometer (1,220,000 acres)
area located in north-central Tunisia. Initial seismic acquisition
activities began in 1994. The first exploratory well was spudded in fiscal
1995. This well was drilled and temporarily abandoned prior to reaching the
objective depth.
In fiscal 1996, the operator of the project, in response to a request from
the Tunisian government, permanently plugged the well and restored the well
site. The Company has insufficient capital to continue the project and, due
to the limited time remaining on the exploration permit, decided to abandon
the project and write off its investment.
7. SAVINGS AND PROFIT SHARING PLAN
The Company maintains an employee savings and profit sharing plan (the
Plan) which covers substantially all of its employees. The Plan is
comprised of a 401(k) savings portion and a noncontributory defined
contribution portion. Employees are qualified to participate after
approximately one year of service. Participation in the 401(k) plan is
voluntary, and the Company matches contributions up to four percent of the
employees' salary at a rate of 33 1/3 percent of the employee's
contribution. Employees are allowed to contribute the maximum amount
allowed by the Internal Revenue Code each year, subject to
nondiscrimination rules.
The noncontributory defined contribution portion of the Plan allows the
Company to share annual profits with employees. Annual payments to the Plan
are elective. Management elected to make no contributions to the Plan for
1996, 1995, or 1994. The Company is under no obligation to make
contributions to the Plan in the future.
8. STOCK OPTIONS
Stock Option Plan
-----------------
The 1993 Incentive Stock Plan (the "Plan") was effective December 8, 1993.
The Plan is administered by a Compensation Committee consisting of not less
than three members of the Board of Directors and a special committee
appointed by the Board of Directors, as necessary.
The aggregate number of shares of the Company's Common Stock issuable under
the Plan is 2,000,000. Such stock will be made available from the Company's
authorized but unissued Common Stock or from Stock held as Treasury Stock.
S-55
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
8. STOCK OPTIONS (continued)
Options and Appreciation Rights
-------------------------------
This Plan authorizes the Committee to grant to key employees options to
purchase the Company's Common Stock which may be in the form of incentive
stock options ("ISO's"), or in the form of non-statutory options ("Non-
Statutory Options"). The term of each option shall be for such period as
the Committee determines but no longer than ten years from the date of
grant or five years to an individual who is a 10% stockholder of the
Company.
The aggregate fair market value exercisable by an individual optionee
during any calendar year under all stock option plans of the Company may
not exceed $100,000. The exercise price per share for the Common Stock
covered by any Options shall be determined by the Committee and, provided
that in the case of an ISO and the per share exercise price shall be not
less than the fair market value (or in the case of an ISO granted to an
individual who at the time is a 10% Stockholder, 110% of the fair market
value) of one share of Common Stock. Options to purchase 1,690,000 shares
of common stock were granted under the Plan. (See Note 17)
Restricted Stock Awards
-----------------------
The Plan authorizes the Committee to grant restricted Common Stock
("Restricted Stock") to key employees. The Committee may designate a
restriction period with respect to such shares of not less than one year
but not more than five years (the "Restriction Period") during which an
employee will not be permitted to sell, transfer, pledge or assign shares
of Restricted Stock awarded to him, provided that within such limitations,
the Committee may provide for the lapse of such restrictions installments
where deemed appropriate. Upon termination of employment during the
Restriction Period for any reason, all shares of Restricted Stock with
respect to which restrictions have not yet expired will be forfeited by the
employee and returned to the Company.
The Plan also authorizes the Committee to award tax gross-up rights which
entitle the grantee to cash payments from the Company at such time as
income and/or excise tax liabilities arise with respect to grants under the
Plan. Tax gross-up rights may be granted coincident with or after the date
of grant of the related Option or Restricted Stock awards. No restricted
shares have been issued at July 31, 1996. (See Note 17)
9. WARRANTS
As of July 31, 1996, the Company, in connection with the sale of previously
unissued common stock, has 2,700,000 Warrants outstanding. The sale
included 2,587,500 of the Warrants which were detachable from the
Stock/Warrant Units upon issuance and trade separately from the Units and
Common Stock. Unless exercised, the 2,587,500 Warrants automatically expire
on November 19, 1997. Pursuant to the terms of the Warrants, the Board of
Directors of the Company may reduce the exercise price, $4.25, of the
Warrants and may also extend the period during which the Warrants may be
exercised. The Warrants may be redeemed by the Company at a price of $0.01
per Warrant with 30 days prior written notice by the Company.
S-56
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
9. WARRANTS (continued)
In addition, the Company issued Warrants to the underwriter of the offering
for $.01 per Warrant (underwriter Warrants) to purchase up to 112,500 units
for $4.44 per unit. These Warrants are exercisable, in part or whole, until
November 16, 1997. The Company also has agreed to register, at its sole
cost and expense, all or a portion of the underwriter Warrants and/or the
shares issuable, upon the exercise of the Warrants during the period
November 10, 1993 to November 16, 1997.
The Company has also issued 1,516,000 private Warrants, exercisable at a
price ranging from $.75 to $3.25 at a ratio of 1 to 1. These Warrants
expire at various dates from January 26, 1997 to October 31, 2001.
10. PREFERRED STOCK
The Board of Directors has the authority to issue 5,000,000 shares of
Preferred Stock, in one or more series, and to fix the rights, preferences,
qualifications, privileges, limitations or restrictions of each such series
without any further vote or action by the shareholders, including the
dividend rights, dividend rate, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
the designations of such series.
The Company's Series A Convertible Preferred Stock (i) pays annual
dividends at the rate of $0.20 per share payable quarterly in cash (or, if
payment of cash dividends is prohibited by the Company's senior lender,
payable in additional shares of Series A Convertible Preferred Stock), (ii)
has no voting rights except as otherwise required under Delaware law, (iii)
has a liquidation preference over shares of the Company's common stock of
$10.00 per share plus accrued and unpaid dividends, (iv) is redeemable at
the option of the Company at a redemption price of $10.00 per share plus
accrued and unpaid dividends, (v) is convertible by the holder into shares
of the Company's common stock at a conversion price of $3.33 per share, and
(vi) has piggyback registration rights in the event the Company seeks to
make a registered public offering of its common stock. There are 451,097
and 442,281 shares of Series A Convertible Preferred Stock outstanding at
July 31, 1996 and 1995, respectively.
The Series B Convertible Preferred Stock (i) pays annual dividends at the
rate of $1.20 per share payable quarterly in cash (or, if payment of cash
dividends is prohibited by the Company's senior lender, payable in
additional shares of Series B Convertible Preferred Stock), (ii) has no
voting rights except as otherwise required under Delaware law, (iii) has a
liquidation preference over shares of the Company's Series A Convertible
Preferred Stock and the Company's common stock of $10.00 per share plus
accrued and unpaid dividends, (iv) is redeemable at the option of the
Company at a redemption price of $10.00 per share plus accrued and unpaid
dividends, and (v) is convertible by the holder into shares of the
Company's common stock at an initial conversion price of $1.50 per share,
subject to adjustment from time to time to prevent dilution. By separate
agreement, the Company has granted certain demand registration rights and
piggyback registration rights in the event the Company seeks to make a
registered public offering of its common stock. There are 479,345 and
381,100 shares of Series B Convertible Preferred Stock outstanding at July
31, 1996 and 1995, respectively.
S-57
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
11. LITIGATION, COMMITMENTS AND CONTINGENCIES
Litigation - In connection with the Company's sale of its subsidiaries,
----------
Panda Resources, Inc. and Richfield Natural Gas, Inc. in 1993, the Company
became a party in three different lawsuits.
On December 7, 1995, the Company entered into a Settlement Agreement (the
"Settlement") to settle all matters related to the sale and the related
litigation. Pursuant to the Settlement, the Company agreed to pay to the
plaintiffs (a) $20,000 on December 7, 1995, and an additional $30,000 over
the course of 90 days following execution of the Settlement, and (b) to pay
$50,000 within one year of the Settlement, an additional $50,000 within two
years of the Settlement, and an additional $150,000 within three years of
the Settlement, together with interest in the amount of $36,000. To secure
its obligation under the Settlement, the Company stipulated in an agreed
judgment that it would be liable in the amount of $1,000,000 (less any
amounts paid pursuant to the Settlement) upon the Company's default of its
obligations under the Settlement. In addition, the Company agreed to assume
and indemnify the plaintiffs against all obligations and amounts owed under
a May 2, 1989 agreement between Panda and Northern Natural Gas Company
relating to the transportation of natural gas through a facility located in
Dewey County, Oklahoma. Pursuant to this indemnification, the Company has
been asked to indemnify one of the plaintiffs with respect to claims
brought against it by Northern in a lawsuit filed March 7, 1996, as more
fully discussed below.
March 7, 1996, Northern Natural Gas Company ("Northern") filed a lawsuit
against Torch Energy Advisors, Inc. ("Torch") for alleged breach of a May
2, 1989 agreement (the "Dewey County Contract") between Torch, Panda
Resources, Inc. ("Panda"), and Northern relating to the transportation of
natural gas through a facility located in Dewey County, Oklahoma. The
Company has assumed the defense of this matter pursuant to the
indemnification agreement entered into as part of the December 7, 1995,
settlement among Torch, Panda and the Company discussed above. Northern
contends that Panda failed to transport the required volumes and that the
deficiency resulted in a requirement that Panda pay a total of $973,000,
representing the percentage of the costs of constructing the facilities
calculated under the contract formula. Northern sued Torch under a written
guaranty agreement and has claimed, in addition, that Torch denuded the
assets of Panda and is therefore liable for the debts of Panda. The Company
maintains that, if litigation is unsuccessful to the Company, Northern
would only be entitled to the amount of the contractually required volumes.
On November 17, 1994, Associated Storage Corporation ("Associated") filed a
lawsuit against the Company alleging that the Company had breached a July
21, 1993 agreement between Associated and the Company, pursuant to which
Panda Resources, Inc., and Panda's wholly-owned subsidiary, Richfield
Natural Gas, Inc. Associated seeks actual damages in the amount of
$150,000, prejudgment interest, court costs, and attorneys' fees.
Associated has filed a motion for summary adjuration which was denied by
the court. The Company has asked Associated to submit to mediation.
S-58
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
11. LITIGATION, COMMITMENTS AND CONTINGENCIES (continued)
On October 7, 1994, Northern Natural Gas Company ("Northern") filed a
lawsuit against the Company alleging that the Company had breached two Firm
Transportation Service Agreements dated December 1, 1990, between Northern
and Panda, a former wholly-owned subsidiary of the Company. On June 6,
1996, Northern and the Company entered into a Settlement Agreement pursuant
to which (a) the Company issued to Northern 50,000 shares of the Company's
Series B Senior Convertible Preferred Stock which are convertible (subject
to adjustment) into 333,333 shares of the Company's common stock, and (b)
the Company agreed to pay Northern $465,000 in installments of $50,000 by
June 21, 1996, $150,000 by May 1, 1997, $125,000 by May 1, 1998, and
$140,000 by May 1, 1999. An agreed judgment was entered in the case, but
Northern has agreed not to seek to enforce the judgment unless the Company
defaults in its payment obligations. Once the required payments have been
made, Northern has agreed to execute a release of the judgment. These
amounts have been reflected in the Company's consolidated financial
statements at July 31, 1996.
Germany Oil Company is a named defendant in three wrongful death actions
involving an accident which occurred at a heater-treatment unit on the
Blowhorn Creek Millerella Oil Unit lease in Lamar County, Alabama. Each
plaintiff seeks damages in the amount of $25 million. The three matters are
in the initial stages of discovery and have been referred to Germany Oil
Company's insurance carrier. Germany has an approximate 10% ownership
interest of the property. Management believes that liability insurance
coverage is adequate to cover any potential loss.
Contingencies - In addition to the foregoing litigation, the Company is a
-------------
named defendant in lawsuits, is a party in governmental proceedings, and is
subject to claims of third parties from time to time arising in the
ordinary course of business. While the outcome of lawsuits or other
proceedings and claims against the Company cannot be predicted with
certainty, management does not expect these additional matters to have a
material adverse effect on the financial position of the Company.
Commitments
-----------
The Company leases office space and certain property and equipment under
various lease agreements. As of July 31, 1996, future lease commitments
were approximately as follows:
Year Ending
July 31,
-----------
1997 $ 168,000
1998 142,000
------------
Total minimum payments $ 310,000
============
S-59
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
12. RELATED PARTY TRANSACTIONS
In regard to the modification and cancellation of the non-compete
agreements with the two previous majority shareholders of Panda, Mr.
Jeffrey T. Wilson assumed the notes receivable due the Company by the two
former shareholders in the amount of $339,650 plus accrued interest. The
Board has voted to forgive $380,624, representing the total notes and
accrued interest, due from Mr. Wilson.
The Company from time to time, has made loans to certain officers,
directors and stockholders. The loans are evidenced by demand notes payable
due on or before December 31, 1996, bearing interest of various rates.
13. BUSINESS SEGMENTS
The Company's operations involve oil and gas exploration, production and
lease operations. Additionally, crude oil and crude oil by-products are
marketed through a wholly owned subsidiary. Intersegment sales are made at
prices prevailing in the industry at the time of sale. The following table
sets forth information with respect to the industry segments of the
Company.
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
(Restated)
(in thousands)
<S> <C> <C> <C>
Revenues:
Oil and gas
production and
lease operations $12,991 $ 9,220 $ 9,305
Marketing 540 1,223 2,780
------- ------- -------
13,531 10,443 12,085
Intersegment 3,658 3,023 2,884
------- ------- -------
Total revenues $17,189 $13,466 $14,969
======= ======= =======
Operating income (loss):
Oil and gas
production and
lease operations $(4,477) $(1,440) $ (187)
Marketing 78 231 317
Other 4 93 75
------- ------- -------
Net operating income
(loss) $(4,395) $(1,116) $ 205
======= ======= =======
</TABLE>
The Company sold 16% of its consolidated oil and gas revenue to Enron Reserve
Acquisition Corporation for the year ended July 31, 1996. The Company had no
other purchasers in excess of 10% of consolidated oil and gas revenue.
S-60
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
13. BUSINESS SEGMENTS (continued)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(Restated)
(In thousands)
<S> <C> <C> <C>
Identifiable assets:
Oil and gas production $31,830 $37,371 $12,677
Marketing 429 606 620
Other 6,707 9,946 7,962
------- ------- -------
$38,966 $47,923 $21,259
======= ======= =======
Depreciation, depletion,
and amortization:
Oil and gas production $ 4,210 $ 2,403 $ 1,984
Marketing 3 5 7
Other 493 303 223
------- ------- -------
$ 4,706 $ 2,711 $ 2,214
======= ======= =======
Capital expenditures:
Oil and gas production $ 3,759 $ 4,759 $ 4,205
Marketing - - -
Other 15 56 52
------- ------- -------
$ 3,774 $ 4,815 $ 4,257
======= ======= =======
</TABLE>
14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
Results of Operations from Oil and Gas Producing Activities
-----------------------------------------------------------
The following sets forth certain information with respect to the Company's
results of operations from oil and gas producing activities for the years
ended July 31, 1996, 1995 and 1994. All of the Company's oil and gas
producing activities are located within the United States. The dry hole
costs include $2,491,299 related to the Tunisia project.
S-61
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(continued)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(Restated)
(In thousands)
<S> <C> <C> <C>
Revenues $ 11,980 $ 8,585 $ 8,703
Production costs 5,737 4,693 4,312
Gross production taxes 871 572 529
Dry hole costs and
abandonments 3,586 104 113
Depreciation and depletion 4,210 2,403 1,984
---------- ---------- ----------
Results of operations
before income taxes (2,424) 813 1,765
Income tax expense - - 671
---------- ---------- ----------
Results of operations
(excluding corporate
overhead and interest
costs) $ (2,424) $ 813 $ 1,094
========== ========== ==========
</TABLE>
<TABLE>
Capitalized Costs and Costs Incurred Relating to Oil and Gas Producing Activities
---------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(Restated)
(In thousands)
<S> <C> <C> <C>
Proven properties $ 40,316 $ 38,690 $ 16,208
Unproven properties 949 4,312 -
---------- ---------- ----------
Total capitalized costs 41,265 43,002 16,208
Less - accumulated
depreciation and
depletion 9,435 5,631 3,555
---------- ---------- ----------
Net capitalized costs $ 31,830 $ 37,371 $ 12,653
========== ========== ==========
Costs incurred during
the year:
Property acquisition
costs $ - $ - $ -
Exploration costs 2,631 104 113
Development costs 1,480 763 787
Purchase of minerals
in place 2,800 22,613 1,740
</TABLE>
S-62
<PAGE>
LaTex RESOURCES, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(continued)
Estimated Quantities of Proved Oil and Gas Reserves (Unaudited)
---------------------------------------------------------------
The estimates of proved oil and gas reserves utilized in the preparation of
the consolidated financial statements were prepared by independent
petroleum engineers at July 31, 1996. Such estimates are in accordance with
guidelines established by the Securities and Exchange Commission and the
Financial Accounting Standards Board, which require that reserve reports be
prepared under existing economic and operating conditions with no provision
for price and cost escalations except by contractual arrangements. The
Company's reserves are located onshore in the United States.
The Company emphasizes that reserve estimates are inherently imprecise.
Accordingly, the estimates are expected to change as more current
information becomes available. In addition, a portion of the Company's
proved reserves are undeveloped, which increases the imprecision inherent
in estimating reserves which may ultimately be produced.
Proved reserves are estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved
developed reserves are those which are expected to be recovered through
existing wells with existing equipment and operating methods. The following
is an analysis of the Company's proved oil and gas reserves.
<TABLE>
<CAPTION>
Oil (MBbls) Gas (MMcf)
----------- ----------
<S> <C> <C>
Proved reserves at July 31, 1993 2,455.3 9,391
Revisions of previous estimates 423.3 346
Extensions, discoveries and other additions 2,075.9 2,215
Production (335.3) (2,107)
Purchases of reserves-in-place 112.4 1,924
Sales of reserves-in-place (211.7) (836)
----------- ----------
Proved reserves at July 31, 1994 4,519.9 10,933
Revisions of previous estimates (1,686.8) (1,793)
Extensions, discoveries and other additions - -
Production (359.0) (2,612)
Purchases of reserves-in-place 1,562.3 21,202
Sales of reserves-in-place - -
----------- ----------
Proved reserves at July 31, 1995 (Restated) 4,036.4 27,730
</TABLE>
S-63
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(continued)
<TABLE>
<CAPTION>
Oil (MBbls) Gas (MMcf)
----------- ----------
<S> <C> <C>
Revisions of previous estimates 2,566.8 3,888
Extensions, discoveries and other additions - -
Production (405.0) (3,481)
Purchases of reserves-in-place 248.7 2,190
Sales of reserves-in-place (93.9) (2,155)
----------- ----------
Proved reserves at July 31, 1996 6,353.0 28,172
=========== ==========
<CAPTION>
Oil (MBbls) Gas (MMcf)
----------- ----------
<S> <C> <C>
Proved developed reserves at
July 31, 1993 2,217.0 8,858
July 31, 1994 3,843.0 9,495
July 31, 1995 (Restated) 4,036.4 27,730
July 31, 1996 4,952.9 27,757
</TABLE>
Subsequent to year end, the Company has entered into letters of intent with
two parties to sell oil and gas properties for approximately $1,500,000.
The Company chose not to include those properties in its reserve appraisal
at July 31, 1996.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
---------------------------------------------------------------------------
Oil and Gas Reserves (Unaudited)
--------------------------------
The "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure
requirement under SFAS No. 69. The Standardized Measure does not purport to
present the fair market value of proved oil and gas reserves. This would
require consideration of expected future economic and operating conditions,
which are not taken into account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by
applying year-end prices, adjusted for fixed and determinable escalations,
to the estimated future production of year-end proved reserves. Future cash
inflows were reduced by the estimated future production and development
costs based on year-end costs to determine pre-tax cash inflows. Future
income taxes were computed by applying the statutory tax rate to the excess
of pre-tax cash inflows over the Company's tax basis in the associated
proved oil and gas properties. Tax credits and permanent differences were
also considered in the future income tax calculation. Future net cash
inflows after income taxes were discounted using a 10% annual discount rate
to arrive at the Standardized Measure.
S-64
<PAGE>
LaTex RESOURCES, INC.
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(continued)
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
July 31, 1994 July 31, 1995 July 31, 1996
------------- ------------- -------------
(Restated)
(In thousands)
<S> <C> <C> <C>
Future cash inflows $ 87,093 $ 99,585 $ 181,566
Future costs - future production
and development costs 49,490 43,794 79,763
------------- ------------- -------------
Future net cash inflows before
income tax expense 37,603 55,791 101,803
Future income tax expense 9,151 8,705 25,486
------------- ------------- -------------
Future net cash flows 28,452 47,086 76,317
10% annual discount for estimated
timing of cash flows 14,175 22,130 35,869
------------- ------------- -------------
Standardarized Measure of
discounted future net cash
flows $ 14,277 $ 24,956 $ 40,448
============= ============= =============
</TABLE>
Changes in Standardized Measure of Discounted Future Net Cash Flows
-------------------------------------------------------------------
Relating to Proved Oil and Gas Reserves (Unaudited)
---------------------------------------------------
The following is an analysis of the changes in the Standardized Measure
during the periods presented:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
July 31, 1994 July 31, 1995 July 31, 1996
------------- ------------- -------------
(Restated)
(In thousands)
<S> <C> <C> <C>
Standardized Measure -
beginning of year $ 9,993 $ 14,277 $ 24,956
Increases (Decreases)
Sales, net of production costs (3,799) (3,800) (5,779)
Net change in sales prices,
net of production costs 2,600 (9,108) 20,712
Discoveries and extensions,
net of related future
development production costs 4,762 - -
Changes in estimated future
development costs (1,521) 1,182 (2,889)
Revisions of previous
quantity estimates 225 (4,260) 11,260
Accretion of discount - 1,428 2,181
Net change in income taxes - 236 (8,944)
Purchases of reserves-in-place 2,459 20,700 2,093
Sales of reserves-in-place (974) - (3,142)
Timing of production of
reserves and other 532 4,301 -
------------- ------------- -------------
Standardized Measure - end of year $ 14,277 $ 24,956 $ 40,448
============= ============= =============
</TABLE>
S-65
<PAGE>
Note to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
15. HEDGING
Oil and Gas - The Company is required, by agreement with its primary lender
-----------
(Bank of America), to participate in a price protection program, executed
by Bank of America, for a majority of its gas sales for a 36 month period
until March 31, 1998. Oil is hedged at a floor of $16.50/Bbl and a ceiling
of $19.82/Bbl based on projected monthly production. Gas is hedged at
$1.806/MMBtu based on projected monthly production. The production rates
were calculated by Bank of America from reserve report data and are fixed
by Bank of America. The monthly hedge amount is calculated by Bank of
America from published market rates. The current hedging agreement does not
allow for full benefit from prices above the ceiling amount.
The hedging gains or losses for the years ended July 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(Restated)
<S> <C> <C>
Oil $ (200,447) $ (4,397)
Gas (1.275,206) 161,698
----------- ---------
Net hedging income (loss) $(1,475,653) $ 157,301
=========== =========
</TABLE>
The hedging gains and losses are included in oil and gas revenue for the
years indicated.
Interest - The Company is required, by agreement with its primary lender
--------
(Bank of America), to participate in an interest rate protection program,
executed by Bank of America, until February 29, 2000, for its debt to its
primary lender. Interest is hedged to achieve a fixed rate of 7.49% based
on a fixed amortization schedule determined at loan origination. The
hedging losses for the year ended July 31, 1996 and 1995 are $504,303 and
$80,151, respectively, and are included in interest expense for the years
indicated.
The off-balance sheet liability for all future hedging commitments based on
current year end prices and rates are as follows:
<TABLE>
<S> <C>
Oil $ 669,405
Gas 1,668,202
Interest 1,291,680
-----------
Net liability $ 3,649,287
===========
</TABLE>
S-66
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
16. RESTATEMENT OF PRIOR YEAR
Effective March 31, 1995 the Company acquired Germany Oil Company
("Germany") in a purchase transaction. The net assets acquired consisted
primarily of oil and gas properties. In connection with the transaction the
Company failed to allocate the purchase price to all assets acquired as
required by generally accepted accounting principles. During fiscal 1996
the Company, based on the reports of independent petroleum engineers,
reallocated the adjusted purchase price as of the date of acquisition.
Accordingly, the previously reported 1995 amounts have been restated as
follows:
<TABLE>
<CAPTION>
Statement of
Asset Liability Operations
Increase (Increase) (Increase)
(Decrease) Decrease Decrease
----------- ----------- -----------
<S> <C> <C> <C>
Oil and gas properties $ 7,859,993 $ - $ -
Goodwill (9,929,199) - -
Deferred loan cost 871,270 - -
Accounts payable 1,197,936
Goodwill amortization (220,650) - 220,650
Depletion expense (49,283) - 49,283
Amortization expense 58,085 - (58,085)
----------- ----------- -----------
Total $(1,409,784) $ 1,197,936 $ 211,848
=========== =========== ===========
</TABLE>
17. SUBSEQUENT EVENTS
Proposed Merger With Alliance Resources Plc - As a result of the demands
-------------------------------------------
placed upon the Company by its primary lender, the Company's continuing
working capital deficit, its deteriorating financial condition and the
inability of the Company to raise additional debt or equity capital,
management of the Company, in the forth quarter of fiscal 1996, determined
to seek an equity infusion through a strategic merger with a suitable
merger candidate. Management's primary objective in seeking a merger
partner was to solve the working capital deficit of the Company through an
equity infusion while minimizing dilution to the shareholders. Although the
Company considered several potential transactions. Alliance Resources Plc
("Alliance") emerged as the candidate most likely to meet the objectives of
the Company. The Company has entered into an Agreement and Plan of Merger
("Alliance Merger Agreement") dated August 12, 1996 with Alliance Resources
Plc, a company organized under the laws of the United Kingdom ("Alliance"),
Pursuant to which the Company will merge ("Alliance Merger") with a wholly-
owned U.S. subsidiary of Alliance.
S-67
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
17. SUBSEQUENT EVENTS (continued)
Under the terms of the Alliance Merger Agreement and after giving effect to
a 1 for 40 reverse stock split to be completed by Alliance, the holders of
the Company's common stock will receive 0.8806 ordinary shares of Alliance
for each share of such common stock, the holders of the Company's Series A
Convertible Preferred Stock will receive 2.6445 ordinary shares of Alliance
for each share of such Series A Convertible Preferred Stock, and the
holders of the Company's Series B Senior Convertible Preferred Stock will
receive 5.8709 ordinary shares of Alliance for each share of such Series B
Senior Convertible Preferred Stock. Following the Alliance Merger, the
holders of the Company's common and preferred stock will own, as a group,
approximately 72% of the issued and outstanding ordinary shares of Alliance
and the Company will become a wholly-owned subsidiary of Alliance. Holders
of outstanding warrants to purchase shares of the Company's common stock
will receive from Alliance replacement warrants to purchase shares of
Alliance ordinary shares on substantially the same terms.
It is anticipated that the merger will provide the Company with sufficient
capital resources to eliminate its existing working capital deficit,
refinance the Company's senior debt and eliminate the hedging agreements,
and provide development capital for exploration of the Company's oil and
gas properties. In addition, the Company believes that the combination of
the two companies provides strategic benefits to the Company important to
its long-term growth and the enhancement of shareholder value. Although
Alliance's domestic oil and gas operations are significantly smaller than
the Company's, the Company believes that the merger will enhance the
overall financial strength of the Company and provide a stable platform
from which future growth can be achieved. The strategic objectives of the
combined Company will be to continue a policy of structured and stable
growth in the domestic U.S. oil and gas sector while implementing projects
in Western Europe, the Middle East and the former Soviet Union.
Under the terms of the Alliance Merger Agreement, the Company is required
to dispose of its interests in its unconsolidated affiliates, Wexford
Technology, Inc. ("Wexford") and Imperial Petroleum, Inc. ("Imperial"), and
its interests in its wholly-owned subsidiaries LaTex Resources
International, Inc. ("LaTex Resources International") and Phoenix Metals,
Inc. ("Phoenix Metals"). Effective July 31, 1996, the Company has written
off its $1,811,694 investment in Wexford, its $2,372,452 investment in
Imperial, and its $955,496 Investment in LaTex Resources International. The
Company has entered into a Purchase Agreement with Imperial pursuant to
which the Company will sell its interests in Wexford, Imperial, LaTex
Resources International and Phoenix Metals to Imperial for 100,000 shares
of the Company's common stock. Imperial is controlled by the Company's
President and largest stockholder, Jeffrey T. Wilson. Prior to the
completion of the sale, the Company intends to obtain an opinion from an
independent investment banking firm as to the fairness of the transaction
to the Company's stockholders.
S-68
<PAGE>
Notes to Consolidated Financial Statements
July 31, 1996, 1995, and 1994
17. SUBSEQUENT EVENTS(continued)
Effective October 21, 1996, each holder of options granted under the
Company's 1993 Incentive Stock Plan agreed to terminate all options held
and receive grants of restricted common stock of the Company. 1,690,000
options were canceled and 1,690,000 shares of restricted common stock were
granted. The terms of the Restricted Shares provide that a holder may not
sell, transfer, or otherwise dispose of any Restricted Shares as long as
the Company has the right to a forfeiture of the Shares. The terms of the
Restricted Stock provide that in the event that a holder's employment with
the Company shall terminate for any reason other than death or total
disability prior to the earlier of (a) February 1, 1997, or (b) a change
in control occurs with respect to the Company, the holder shall
immediately forfeit any right to the shares of Restricted Stock for which
the restrictions have not otherwise lapsed.
Disposition of Oil and Gas Properties - Subsequent to year end, the
-------------------------------------
Company has entered into letters of intent with two parties to sell oil
and gas properties for approximately $1,500,000. The Company chose not to
include those properties in its reserve appraisal at July 31, 1996.
S-69
<PAGE>
PART III
Item 9. [Disagreements with Accountants.]
Not Applicable.
Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers
The following table sets forth certain information regarding the directors,
executive officers and key employees of the Company.
Name Age Position
---- --- --------
Jeffrey T. Wilson 43 Director, Chairman of the Board, President,
and Chief Executive Officer
John L. Cox 46 Director, Vice President and Chief
Financial Officer
Malcolm W. Henley 45 Director and Vice President of Marketing
John R. Martinson 61 Director
Robert L. Hull 44 Vice President of Operations
John W. Heinsius 46 Vice President of Exploration
Stacey D. Smethers 28 Secretary
Jeffrey T. Wilson has been a Director, Chairman of the Board and Chief
-----------------
Executive Officer of the Company since December 1991. Mr. Wilson was a Director
and Executive Vice President of Vintage Petroleum, Inc. ("Vintage") from May
1990 to July 1991. He was Vice President--Production of Vintage from January
1984 to May 1990 and Manager--Acquisitions of Vintage from May 1983 to January
1984. From August 1980 to May 1983, Mr. Wilson was an engineer with Netherland,
Sewell & Associates, Inc, a petroleum engineering consulting firm, where his
assignments included annual reserve appraisals, reserve acquisition appraisals
and field studies. From May 1975 to August 1980, he gained experience in the
oil and gas industry with Exxon Company U.S.A. in various engineering and
supervisory capacities in the Louisiana and South Texas areas. Mr. Wilson holds
a Bachelor of Science Degree in Mechanical Engineering from the Rose-Hulman
Institute of Technology.
John L. Cox has served as a Director of the Company since November 1995.
-----------
Mr. Cox became Vice President of Finance and Chief Financial Officer of the
Company in January 1996. From February 1992 to December 1995, Mr. Cox held the
position of Controller for the Company. Mr. Cox held the positions of
Controller of Panada Exploration and Assistant Controller of Panda Resources
from November 1990 to January 1993. Prior to that time, he held various
managerial positions with Reading & Bates Petroleum Corporation. Mr. Cox holds
a Bachelor of Science Degree in Accounting from Oklahoma City University.
Malcolm W. Henley has been Vice President of Marketing of the Company since
-----------------
June 1992. Mr. Henley was elected to the Company's Board of Directors in
September 1993. Mr. Henley has been Chairman of the Board, President, Chief
Executive and Chief Operating officer of the Company's wholly-owned subsidiary
ENPRO, Inc. since August, 1984. From 1981 to 1984, Mr. Henley served as Manager
of Operations for a natural gas pipeline company subsidiary of Champlin
Petroleum (now Union Pacific Resources). From 1976 to 1979 he served as Vice
President and General Manager of Utilities Pipeline Company and between 1975 and
1976 held various positions with Continental Oil Company. Mr. Henley
S-70
<PAGE>
has a Bachelor of Arts Degree in Business Administration from Oklahoma State
University and an Associates Degree in Petroleum Land Technology from Tulsa
Junior College.
John R. Martinson has been a Director of the Company since May 4, 1995.
-----------------
Mr. Martinson has served as a consultant to the Company since August 1994.
Since January 1995, Mr. Martinson has been a principal in the merchant banking
firm Martinson, O'Dell & Ogden, L.L.C., specializing in corporate and project
finance. Mr. Martinson is also managing director of Wood Roberts, Inc. where he
has engaged in financial consulting since January 1989. Mr. Martinson earned
his Bachelor of Science Degree in Engineering at Princeton University and holds
a Masters in Business Administration Degree from Northwestern University.
Robert L. Hull has been Vice President of Operations of the Company since
--------------
January 1992. Prior to joining the Company, Mr. Hull had been employed for
seven years with Vintage Petroleum, Inc. in the position of Senior Operations
Engineer. Prior to that time, Mr. Hull had been employed by other oil related
companies, including Dowell-Schlumberger, Equitable Gas Co., Ladd Petroleum,
Unit Corp. and Mapco. Mr. Hull holds a Bachelor of Science Degree in Geology
from the University of Pittsburgh.
John W. Heinsius has been Vice President of Exploration since February
----------------
1993. From October 1989 to February 1993, Mr. Heinsius held the positions of
Vice President of Exploration and Manager of Gas supply for Panda Resources,
Inc. Mr. Heinsius held the positions of Director of Exploration and Manager of
Gas Marketing for Transok, Inc. from 1985 to October 1989. Prior to this time,
he held the titles of Exploration Manager and Vice President of Exploration for
Buttonwood Petroleum, Chief Geologist for Indian Wells Oil Co., Staff Geologist
for Ladd Petroleum Corp. and Exploration Geologist for Texaco, Inc. Mr.
Heinsius holds a Bachelor of Arts Degree in Geology from Hope College and a
Master of Science Degree in Geology from Western Michigan University.
Stacey D. Smethers has been Secretary of the Company since November 15,
------------------
1995. Ms. Smethers has been Executive Assistant to the President of ENPRO, Inc.
and Marketing Representative for the Company from August 1992 to present. Ms.
Smethers has more than seven years of varied experience in the oil and gas
industry. Her areas of concentration include marketing, administration, and
petroleum land management. Her prior titles include Executive Assistant,
Operations Analyst, Credit Analyst, and Secretary.
Each director is elected for a period of one year at the Company's annual
meeting of shareholders and serves until his successor is duly elected by the
shareholders. Directors who are not officers of the Company receive no cash
compensation for their services. Officers are elected by and serve at the will
of the Board of Directors. There are no family relationships between any
director, officer or person nominated or chosen to become a director or officer
and any other such person.
The Board of Directors has established a Compensation Committee whose
current members are Jeffrey T. Wilson and John R. Martinson. The Compensation
Committee reviews the Company's executive compensation policies and practices
and administers the Company's 1993 Incentive Stock Plan. See "Compensation
Committee Interlocks and Insider Participation." The Board of Directors of the
Company has not established an audit or any other committee. Directors of the
Company do not receive fees for their services as directors.
Section 16(a) Reporting Deficiencies
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires the Company's directors and officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file initial
reports of ownership on Form 3 and reports of changes in ownership on Forms 4
and 5 with the Securities and Exchange Commission (the "SEC") and the National
Association of Securities Dealers ("NASD"). Such persons are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based upon a review of Form 3, 4 and 5 filings made by the Company's
officers and directors during the fiscal year ended July 31, 1996 under Section
16(a) of the Exchange Act, the Company believes that: (i) Jeffrey T. Wilson,
Chief Executive Officer, Chairman of the Board, President, and a Director of the
S-71
<PAGE>
Company, failed to timely file one statement of change in beneficial ownership
on Form 4, respecting one transaction involving his acquisition of options to
purchase common stock; (ii) John L. Cox, Chief Financial Officer, Vice
President, and a Director of the Company, failed to timely file one statement of
change in beneficial ownership on Form 4, respecting one transaction involving
his acquisition of options to purchase common stock; (iii) Malcolm W. Henley,
Vice President of Marketing, and a Director of the Company, failed to timely
file one statement of change in beneficial ownership on Form 4, respecting one
transaction involving his acquisition of options to purchase common stock; (iv)
Philip J. Wade, a Director of the Company until his resignation on October 8,
1996, failed to timely file two statements of change in beneficial ownership on
Form 4, respecting 12 transactions involving the disposition of common stock of
the Company; (v) Robert L. Hull, Vice President of Operations, failed to timely
file one statement of change in beneficial ownership on Form 4, respecting one
transaction involving his acquisition of options to purchase common stock; (vi)
John W. Heinsius, Vice President of Exploration, failed to timely file one
statement of change in beneficial ownership on Form 4, respecting one
transaction involving his acquisition of options to purchase common stock; (vii)
John R. Martinson, a Director of the Company, failed to timely file one
statement of change in beneficial ownership on Form 4, respecting one
transaction involving his acquisition of warrants to purchase common stock;
(viii) Stacey D. Smethers, Secretary of the Company, failed to timely file one
statement of change in beneficial ownership on Form 4, respecting one
transaction involving her acquisition of options to purchase common stock. All
of the referenced delinquent filings have now been made. Except as set forth
above, the Company believes that its current officers and directors have made
all requisite filings under Section 16(a) of the '34 Act on a timely basis.
Item 11. Executive Compensation.
The table below sets forth, in summary form, (1) the compensation paid, for
the years shown, to Jeffrey T. Wilson, the Company's Chairman of the Board,
President and Chief Executive Officer, and the four other highest-paid executive
officers of the Company serving as executive officers on July 31, 1996 (the
"Named Officers"); (2) the stock options and stock appreciation rights granted
to the Named Officers for the years shown; and (3) long-term payouts and other
compensation to the Named Officers for the years shown.
S-72
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Awards Options/ Payouts Compensation
Position Year ($) ($) ($)(1) ($) SARs (#) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffrey T. Wilson, 1996 100,800 --- --- --- 200,000(2) --- ---
Chairman, President 1995 97,200 200 --- --- 150,000(3) --- ---
and Chief Executive 1994 96,000 --- --- --- --- --- ---
Officer
John L. Cox, 1996 74,200 --- --- --- 150,000(2) --- ---
Vice President and 1995 55,500 200 --- --- 50,000(3) --- ---
Chief Financial Officer 1994 54,000 500 --- --- 25,000(4) --- ---
Malcolm W. Henley, 1996 91,000 --- --- --- 150,000(2) --- ---
Vice President of 1995 85,050 200 --- --- 50,000(3) --- ---
Marketing 1994 84,000 500 --- --- 100,000(5) --- ---
John W. Heinsius, 1996 90,400 --- --- --- 150,000(2) --- ---
Vice President of 1995 83,100 200 --- --- 50,000(3) --- ---
Exploration 1994 82,000 500 --- --- 50,000(4) --- ---
Robert L. Hull, 1996 90,400 --- --- --- 150,000(2) --- ---
Vice President of 1995 83,100 200 --- --- 50,000(3) --- ---
Operations 1994 82,000 500 --- --- 125,000(6) --- ---
Dewitt C. Shreve, 1996 9,300 --- --- --- --- --- ---
Executive Vice President 1995 72,900 --- --- --- 50,000(3)(7) --- ---
1994 72,000 --- --- --- 100,000(8)(7) --- ---
</TABLE>
- ------------------------------
(1) None of the executive officers listed received perquisites or other
personal benefits that exceeded the lesser of $50,000 or 10 percent of the
salary and bonus for such officers.
(2) Reflects options issued pursuant to the Company's 1993 Incentive Stock Plan
exercisable at any time until December 5, 2000, at an exercise price of
$0.4375 per share, the fair market value of the Company's common stock at
the time of grant. By agreement between the holder of the referenced
options and the Company, effective October 21, 1996, the referenced options
were terminated. See "Restricted Stock Grants".
(3) Reflects options issued pursuant to the Company's 1993 Incentive Stock Plan
exercisable at any time until August 1, 2000 at an exercise price of $0.47
per share, the fair market value of the Company's common stock on the date
of grant. By agreement between the holder of the referenced options and
the Company, effective October 21, 1996, the referenced options were
terminated. See "Restricted Stock Grants".
(4) Reflects options issued pursuant to the Company's 1993 Incentive Stock Plan
exercisable at any time until May 25, 1999 at an exercise price of $0.875
per share, the fair market value of the Company's common stock on the date
of grant. By agreement between the holder of the referenced options and
the Company, effective October 21, 1996, the referenced options were
terminated. See "Restricted Stock Grants".
(5) Reflects (a) options issued pursuant to the Company's 1993 Incentive Stock
Plan to purchase 50,000 shares of common stock exercisable at any time
until May 25, 1999 at an exercise price of $0.875 per share, the fair
market value of the Company's common stock on the date of grant, and (b)
options issued pursuant to the Company's 1993 Incentive Stock Plan to
purchase 50,000 shares of common stock, issued in replacement of 50,000
non-qualified options issued to Mr. Henley in 1992, exercisable at any time
until May 25, 1999 at an exercise price of $0.875 per share, the fair
S-73
<PAGE>
market value of the Company's common stock on the date of grant. By
agreement between Mr. Henley and the Company, effective October 21, 1996,
the referenced options were terminated. See "Restricted Stock Grants".
(6) Reflects (a) options issued pursuant to the Company's 1993 Incentive Stock
Plan to purchase 50,000 shares of common stock exercisable at any time
until May 25, 1999 at an exercise price of $0.875 per share, the fair
market value of the Company's common stock on the date of grant, and (b)
options issued pursuant to the Company's 1993 Incentive Stock Plan to
purchase 75,000 shares of common stock, issued in replacement of 75,000
non-qualified options issued to Mr. Hull in 1992, exercisable at any time
until May 25, 1999 at an exercise price of $0.875 per share, the fair
market value of the Company's common stock on the date of grant. By
agreement between Mr. Hull and the Company, effective October 21, 1996, the
referenced options were terminated. See "Restricted Stock Grants".
(7) Mr. Shreve resigned his positions as Executive Vice President and a
Director of the Company on January 31, 1996, and his options lapsed at that
time.
(8) Reflects (a) options issued pursuant to the Company's 1993 Incentive Stock
Plan to purchase 50,000 shares of common stock exercisable at any time
until May 25, 1999 at an exercise price of $0.875 per share, the fair
market value of the Company's common stock on the date of grant, and (b)
options issued pursuant to the Company's 1993 Incentive Stock Plan to
purchase 50,000 shares of common stock, issued in replacement of 50,000
non-qualified options issued to Mr. Shreve in 1992, exercisable at any time
until May 25, 1999 at an exercise price of $0.875 per share, the fair
market value of the Company's common stock on the date of grant.
Stock Options
The table below sets forth, in summary form, with respect to the Named
Officers, (i) the name of such officer receiving grants of stock options from
the Company during the fiscal year ended July 31, 1996; (ii) the number of
securities underlying the options; (iii) the percent such grant represents of
the total options granted to employees during the fiscal year ended July 31,
1996; (iv) the per-share exercise price of the options granted; (v) the
expiration date of the options; and(vi) the potential realizable value at
assumed annual rates of stock price appreciation.
Option Grants in Fiscal Year Ended July 31, 1996(1)
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Rates of Stock Price
Appreciation for
Individual Grants Option Term
- ----------------------------------------------------------------------------------- ----------------------
Percent of
Number of Total
Securities Options/SARS
Underlying Granted to Exercise or
Options/SARS Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---------------------- ------------ ----------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey T. Wilson 200,000 20.77% $0.4375 12/05/2000 $111,676 $140,920
John L. Cox 150,000 15.58% $0.4375 12/05/2000 $ 83,756 $105,690
Malcolm W. Henley 150,000 15.58% $0.4375 12/05/2000 $ 83,756 $105,690
John W. Heinsius 150,000 15.58% $0.4375 12/05/2000 $ 83,756 $105,690
Robert L. Hull 150,000 15.58% $0.4375 12/05/2000 $ 83,756 $105,690
Dewitt C. Shreve(2) --- --- --- --- --- ---
- -----------------------------------
</TABLE>
(1) By agreement between each of the individuals, other than Dewitt C. Shreve,
set forth in the table and the Company, effective October 21, 1996 the
referenced options were terminated. See
S-74
<PAGE>
"Restricted Stock Grants."
(2) Mr. Shreve resigned his positions as Executive Vice President and Director
of the Company on January 31, 1996 and his options lapsed at that time.
During the year ended July 31, 1996 (i) no restricted stock awards were
granted, (ii) other than as set forth above, no stock options or stock
appreciation rights were granted, (iii) no options or stock appreciation rights
were exercised, and (iv) no awards under any long-term incentive plan were made
to any of the Named Officers.
The following table sets forth information relating to the exercises of
stock options by each of the Company's Named Officers during the year ended July
31, 1996 and the value of unexercised stock options as of July 31, 1996.
Aggregated Option Exercises in the Fiscal
Year Ended July 31, 1996 and
July 31, 1996 Option Values(1)
<TABLE>
<CAPTION>
Option Exercises
During Year
Ended July 31, 1996 Number of Securities
---------------------
Number of Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired Value July 31, 1996 at July 31, 1996
-------------------------- --------------------------
Name on Exercise Realized Unexercisable Exercisable Unexercisable Exercisable
---- ----------- -------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey T. Wilson -- $ -- --- 350,000 $ --- $ ---
John L. Cox -- $ -- --- 225,000 --- ---
Malcolm W. Henley -- -- --- 300,000 --- ---
John W. Heinsius -- -- --- 250,000 --- --
Robert L. Hull -- -- --- 325,000 --- --
Dewitt C. Shreve (2) -- -- --- --- --- --
- ---------------------------------
</TABLE>
(1) By agreement between each of the individuals, other than Dewitt C. Shreve,
set forth in the table and the Company, effective October 21, 1996 the
referenced options were terminated. See "Restricted Stock Grants."
(2) Mr. Shreve resigned his positions as Executive Vice President and Director
of the Company on January 31, 1996 and his options to purchase 150,000
shares lapsed at that time.
The following table sets forth information relating to the repricing of
stock options held by any executive officer.
S-75
<PAGE>
Option Repricing Table
<TABLE>
<CAPTION>
Market
Number of Price
Securities of Exercise Length of Original
Underlying Stock Price at New Option Term
Date of Repriced at Time Time of Exercise Remaining at Date
Name and Position Repricing Options of Repricing Repricing Price of Repricing
- ----------------- --------- ---------- ------------ --------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm W. Henley, May 24, 50,000 $0.91 $2.47 $.875 3 years, 7 months
Vice President of 1994
Marketing (1)
Robert L. Hull, May 24, 25,000 $0.91 $2.47 $.875 3 years, 7 months
Vice President 1994 50,000 $0.91 $ .85 $.875 1 year, 8 months
of Operations (2)
Dewitt C. Shreve, May 24, 50,000 $0.91 $2.47 $.875 3 years, 7 months
Executive Vice 1994
President (3)
- ---------------------------------
</TABLE>
(1) Reflects options issued pursuant to the Company's 1993 Incentive Stock Plan
to purchase 50,000 shares of common stock, issued in replacement of 50,000
non-qualified options issued to Mr. Henley in 1992, exercisable at any time
until May 25, 1999 at an exercise price of $0.875 per share, the fair
market value of the Company's common stock on the date of grant. By
agreement between Mr. Henley and the Company, effective October 21, 1996
the referenced options were terminated. See "Restated Stock Grants".
(2) Reflects options issued pursuant to the Company's 1993 Incentive Stock Plan
to purchase 75,000 shares of common stock, issued in replacement of 75,000
non-qualified options issued to Mr. Hull in 1992, exercisable at any time
until May 25, 1999 at an exercise price of $0.875 per share, the fair
market value of the Company's common stock on the date of grant. By
agreement between the Mr. Hull and the Company, effective October 21, 1996
the referenced options were terminated. See "Restated Stock Grants".
(3) Reflects options issued pursuant to the Company's 1993 Incentive Stock Plan
to purchase 50,000 shares of common stock, issued in replacement of 50,000
non-qualified options issued to Mr. Shreve in 1992, exercisable at any time
until May 25, 1999 at an exercise price of $0.875 per share, the fair
market value of the Company's common stock on the date of grant. Mr. Shreve
resigned his positions as Executive Vice President and Director of the
Company on January 31, 1996 and his options lapsed at that time.
Incentive Stock Plan
The Board of Directors adopted the LaTex Resources, Inc. 1993 Incentive
Stock Plan (the "Plan") effective December 8, 1993 and the Shareholders approved
the Plan at the Company's Annual Meeting on June 2, 1994. The Plan is
administered by a Compensation Committee consisting of not less than three
members of the Board of Directors and a special committee appointed by the Board
of Directors, as necessary, consisting of not less than three members of the
Board, who are a "disinterested persons" within the meaning of Securities and
Exchange Commission ("SEC") Rule 16b-3, as in effect prior to August 1996, to
address decisions regarding participation by directors and executive officers.
The aggregate number of shares of the Company's common stock issuable under
the Plan is 2,000,000. The Plan authorizes the Committee to grant to key
employees options ("Options") to purchase the Company's common stock which may
be in the form of incentive stock options ("ISOs"), or in the form of non-
statutory options ("Non-Statutory Options"). Additionally, the Committee may
grant stock
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<PAGE>
appreciation rights ("SARs") in connection with such Options. The term of each
Option shall be for such period as the Committee shall determine but no longer
than ten years from the date of grant or five years to an individual who is a
10% shareholder of the Company. The aggregate fair market value exercisable by
an individual optionee during any calendar year under all stock option plans of
the Company may not exceed $100,000. The exercise price per share for the
common stock covered by any Options shall be determined by the Committee,
provided that in the case of an ISO, the per share exercise price shall be not
less than the fair market value (or in the case of an ISO granted to an
individual who at the time is a 10% shareholder, 110% of the fair market value)
of one share of common stock.
The Plan additionally authorizes the Committee to grant restricted common
stock ("Restricted Stock") to key employees. The Committee may designate a
restriction period with respect to such shares of not less than one year but not
more than five years during which an employee will not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded to him provided,
that within such limitations, the Committee may provide for the lapse of such
restrictions where deemed appropriate.
Through July 31, 1996, the Company has granted ISOs under the Plan to
Messrs. Wilson, Cox, Henley, Heinsius, and Hull as described in the Summary
Compensation Table and the Option Grants Table above, for a total of 1,450,000
shares (excluding options for 150,000 shares granted to Mr. Shreve which lapsed
upon his resignation as an officer and Director of the Company on January 31,
1996), as well ISOs under the Plan to non-executive officer employees for a
total of 240,000 shares. By agreement between the holders of all outstanding
ISOs and the Company, effective October 21, 1996 all outstanding ISOs were
terminated. See "Restricted Stock Grants."
Restricted Stock Grants
Effective October 21, 1996, each holder of options granted under the
Company's 1993 Incentive Stock Plan agreed to terminate all options held and
received grants of restricted common stock of the Company ("Restricted Stock").
The following table sets forth options cancelled and shares of Restricted Stock
issued with respect to each of the Company's Named Officers and other employees
of the Company as a group.
<TABLE>
<CAPTION>
Shares of
Restricted Stock
Name of Option Holder Options Cancelled Granted
--------------------- ----------------- ----------------
<S> <C> <C>
Jeffrey T. Wilson 350,000 300,000
John Cox 225,000 225,000
Malcolm Henley 300,000 300,000
John Heinsius 250,000 250,000
Robert Hull 325,000 325,000
Dewitt Shreve(1) --- ---
Other Employees as a Group 240,000 290,000
--------- ---------
Total 1,690,000 1,690,000
========= =========
- ----------------
</TABLE>
(1) Mr. Shreve resigned his positions as Executive Vice President and Director
of the Company on January 31, 1996, and his options lapsed at that time.
The terms of the Restricted Stock provide that a holder may not sell,
transfer, or otherwise dispose of any shares of Restricted Stock as long as the
Company has the right to a forfeiture of the Restricted Stock. In the event
that a holder's employment with the Company shall terminate for any reason other
than death or total disability prior to the earlier of (a) February 1, 1997, or
(b) a Change in Control occurs with respect to the Company, the holder shall
immediately forfeit any right to the shares of Restricted Stock for which the
restrictions have not otherwise lapsed. For the purpose of the Restricted
Stock, a "Change in Control" will be deemed to have occurred with respect to the
Company if: (a) any person becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities; (b)
individuals who constitute the Company's Board of Directors on the date of grant
of the Restricted Stock cease for any
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<PAGE>
reason to constitute at least a majority thereof; (c) there is a merger or
consolidation of the Company in which the Company does not survive as an
independent company; or (d) the business of the Company is disposed of by the
Company pursuant to a partial or complete liquidation of the Company, a sale of
assets (including stock of a subsidiary) of the Company, or otherwise.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended July 31, 1996, Jeffrey T. Wilson, John R.
Martinson and Dennis G. Strauch served as members of the Compensation Committee
of the Board of Directors of the Company. Mr. Strauch resigned his position as
Director of the Company and member of the Compensation Committee on June 24,
1996. Mr. Wilson was, during the fiscal year, Chairman of the Board, President
and Chief Executive Officer of the Company. With respect to certain
relationships between the Company and Messrs. Wilson and Martinson, see "Item
13. Certain Relationships and Related Transactions."
During the last completed fiscal year, (i) no executive officer of the
Company served as a member of the Compensation Committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served on the Compensation Committee of the Company; (ii) no
executive officer of the Company served as a director of another entity, one of
who executive officers served on the Compensation Committee of the Company; and
(iii) no executive officer of the Company served as a member of the compensation
committee (or other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of another entity,
one of whose executive officers served as a director of the Company.
Employment Agreements
The Company has no employment agreements with any of its officers or
employees. All officers of the Company devote substantially all their entire
business time and energies to the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of October 25, 1996, the Company had 19,805,495 issued and outstanding
shares of common stock. The following table sets forth, as of October 25, 1996,
the number and percentage of shares of common stock of the Company owned
beneficially by (i) each director of the Company, (ii) each Named Officer of the
Company named in the Summary Compensation Table in Item 11 above, (iii) all
directors and executive officers of the Company as a group, and (iv) each person
known to the Company to own of record or beneficially more than 5% of the
Company's common stock. Except as otherwise indicated, the persons named in the
table have sole voting and investment power with respect to the shares
indicated. As of October 25, 1996, the Company had 502 holders of common stock
of record.
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<PAGE>
<TABLE>
<CAPTION>
Name of Number of Shares
Beneficial Owner (1) Beneficially Owned Percent of Class (1)
-------------------- ------------------ --------------------
<S> <C> <C>
Jeffrey T. Wilson (2)(3) 4,135,000 20.9%
A. Dean Fuller 1,058,000 5.3%
Dewitt C. Shreve (4) 41,862 *
Malcolm W. Henley (2)(5) 510,000 2.6%
John R. Martinson (6) 536,000 2.6%
John W. Heinsius (2)(5) 271,500 1.4%
Robert L. Hull (2)(5) 325,000 1.6%
John L. Cox (2)(5) 230,500 1.2%
All Executive Officers and 5,597,000 28.3%
Directors as a group
(7 persons) (1)(7)
</TABLE>
- ------------------------------
* less than one percent.
(1) Based upon 19,805,495 issued and outstanding shares of common stock at
October 25, 1996. Shares of common stock which an individual has the right
to acquire within 60 days pursuant to the exercise of options, warrants, or
other convertible securities are deemed to be outstanding for the purpose
of computing the percentage ownership of such individual, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person or group shown in the table.
(2) The mailing address of Messrs. Wilson, Henley, Heinsius, Hull and Cox is
4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
(3) Includes 300,000 shares of Restricted Stock (See "Item 11. Executive
Compensation -- Restricted Stock Grants".) and excludes 300,000 shares held
by the Old National Bank in Evansville, Indiana, Trustee of the Jeffrey T.
and Annalee Wilson Irrevocable Family Trust for the benefit of the Wilson
children.
(4) The mailing address of Mr. Shreve is 2909 Cole Avenue, Suite 100, Dallas,
Texas 75204. Mr. Shreve resigned his positions as Executive Vice President
and a Director of the Company on January 31, 1996.
(5) Includes: (a) with respect to Mr. Henley, 300,000 shares of Restricted
Stock; (b) with respect to Mr. Heinsius, 250,000 shares of Restricted
Stock; (c) with respect to Mr. Hull, 325,000 shares of Restricted Stock;
and (d) with respect to Mr. Cox 225,000 shares of Restricted Stock. See
"Item 11. Executive Compensation -- Restricted Stock Grants".
(6) Includes presently exercisable warrants to purchase 436,000 shares held by
Wood Roberts, Inc., a corporation under the control of Mr. Martinson. The
mailing address of Mr. Martinson is Suite 210, 952 Echo Lane, Houston,
Texas, 77024.
(7) Excludes shares owned by Dewitt C. Shreve who resigned his positions as an
officer and Director of the Company on January 31, 1996.
With respect to the change in control of the Company which would result
upon completion of the proposed merger of the Company with Alliance Resources
Plc, see "Item 1. Business and Item 2. Properties -- Proposed Merger with
Alliance Resources Plc."
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<PAGE>
Item 13. Certain Relationships and Related Transactions.
In connection with the sale by the Company of Panda Resources, Inc. in July
1993, the Company entered into separate agreements dated September 22, 1993 with
Philip J. Wade and Dean Fuller pursuant to which the Company and Messrs. Wade
and Fuller agreed to terminate their Non-Competition Agreements in exchange for
payment by the Company, on or before November 21, 1993, of $25,000 each to
Messrs. Wade and Fuller. In connection with the termination of the Non-
Competition Agreements, Jeffrey T. Wilson, Chairman, President and Chief
Executive Officer of the Company, assumed the indebtedness of Messrs. Wade and
Fuller to the Company in the principal amounts of $162,788 and $176,863,
respectively. At July 31, 1995, Mr. Wilson owed the Company a total of $339,651
pursuant to his assumption of this indebtedness. The Company has forgiven this
and additional indebtedness of Mr. Wilson to the Company as discussed below.
As of July 31, 1996 and subsequent to July 31, 1996, the Company agreed to
forgive the indebtedness of various officers, directors and employees to the
Company at July 31, 1996 as follows:
<TABLE>
<CAPTION>
Amount of Amount of
Indebtedness Indebtedness
Forgiven as of Forgiven Subsequent
July 31, 1996 to July 31, 1996
-------------- -------------------
<S> <C> <C>
Malcolm W. Henley $ 58,138 $ 37,655
Director and Vice President
of Marketing
Robert L. Hull $ --- $ 25,032
Vice President of Operations
Jeffrey T. Wilson $ 180,000 $321,483
Chairman of the Board and
Chief Executive Officer
Other Employees $ --- $ 2,550
---------- --------
Total $ 238,138 $386,720
========== ========
</TABLE>
A portion of the Company's oil and gas production is sold to its wholly-
owned subsidiary, ENPRO, under short-term contracts. The Company believes that
the terms of such contracts are fair and reasonable. The Company receives no
less from the sale of production to ENPRO than it would receive from sales to
unrelated third parties.
Since January 1993 the Company has leased a condominium located in Tulsa,
Oklahoma owned by Jeffrey T. Wilson, Chairman and Chief Executive Officer of the
Company. Under the terms of the oral lease arrangement, the Company pays Mr.
Wilson approximately $1,100 per month. The condominium is used by the Company
to house its out of town employees and guests. At July 31, 1996, the Company
owed Mr. Wilson approximately $8,000 for unpaid rent.
With respect to transactions between the Company and its affiliates,
Wexford Technology, Inc., and Imperial Petroleum, Inc., see "Item 1. Business
and Item 2. Properties - Other Business."
In connection with the proposed merger of the Company and Alliance
Resources Plc, the Company has entered into a Purchase Agreement with Imperial
Petroleum, Inc. ("Imperial") dated September 30, 1996 pursuant to which the
Company has agreed to sell to Imperial its interests in Imperial, Wexford
Technology, Inc., LaTex Resources International, Inc. and Phoenix Metals, Inc.
for 100,000 shares of the Company's common stock. Effective July 31, 1996 the
Company has written off its investments in Imperial, Wexford and LaTex Resources
International in the total amount of $5,139,642. Effective July 31, 1994 the
Company wrote off its investment in Phoenix Metals in the total amount of
$222,918. Imperial is controlled by Jeffrey T. Wilson, Chairman, President and
Chief Executive Officer of the Company. Mr. Wilson will contribute to Imperial
the 100,000 shares of the Company's common stock to be used by
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<PAGE>
Imperial in acquiring the Company's interest in these companies. See "Item 1.
Business and Item 2. Properties - Exploration and Development" and "Other
Business" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Proposed Merger with Alliance Resources."
The Company was previously a party to an agreement with Wood Roberts, Inc.
("WRI"), a company controlled by John R. Martinson, a Director of the Company,
pursuant to which WRI acted as a financial advisor to the Company. Under the
agreement, the Company paid WRI a monthly fee of $4,000 and agreed to pay WRI a
success fee in connection with any merger or acquisition involving a party
introduced to the Company by WRI, and any financing facility arranged by WRI.
WRI assisted the Company in obtaining its credit facility with Bank of America.
Through July 31, 1996, the Company paid WRI cash retainer and success fees of
$55,000. In addition, the Company has issued to WRI six year common stock
purchase warrants to purchase 536,000 shares at $0.75 per share, of which WRI
has exercised and purchased 100,000 shares. As of March 4, 1996, the financial
advisor agreement between the Company and WRI was terminated by agreement of the
parties. By separate agreement the Company agreed to pay Wood Roberts a fee of
$240,000 upon completion of the proposed merger with Alliance Resources Plc and
a fee equal to 0.5% of the amount of any credit facility obtained by the Company
from a bank or other financial institution introduced to the Company by Wood
Roberts in order to refinance its indebtedness to Bank of America.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements (included at Item 8. Financial Statements and
Supplemental Data):
Audited Financial Statements of LaTex Resources, Inc.
Independent Auditor's Report;
Consolidated Balance Sheets as of July 31, 1996 and 1995;
Consolidated Statements of Operations for the years ended
July 31, 1996, 1995, and 1994;
Consolidated Statements of Stockholders' Equity for the years
ended July 31, 1996, 1995 and 1994;
Consolidated Statements of Cash Flows for the years ended
July 31, 1996,
1995 and 1994; and
Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company with the Securities and
Exchange Commission during the fourth quarter of the Company's fiscal year ended
July 31, 1996.
(c) Exhibits.
Exhibit
Number Description Page
- ------- ----------- ----
2.1 Agreement and Plan of Merger dated February 10, 1993,
among Panda Resources, Inc., LRI Acquisition Corp., and
the Registrant. (10)
2.2 Agreement and Plan of Merger dated March 31, 1995, among
Germany Oil Company, LRI Acquisition, Inc., and the
Registrant. (16)
2.3 Purchase and Sale Agreement dated March 30, 1995, between
ENRON Reserve Acquisition Corp., ENRON Capital & Trade
Resources Corp., LaTex/GOC Acquisition, Inc., and
the Registrant. (17)
S-81
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
3.1 Certificate of Incorporation of the Registrant. (1)
3.2 Bylaws of the Registrant. (2)
4.1 Form of common stock certificate of the Registrant (filed as
Exhibit 4.1 to the Registrant's Registration Statement on Form
S-1, Registration No. 33-49452 (the "Registration Statement")).
4.2 Form of common stock Purchase Warren of the Registrant (filed as
Exhibit 4.2 to the Registration Statement").
4.3 Form of Warrant Agreement (filed as Exhibit 4.3 to the
Registration Statement).
4.4 Form of Underwriters' Warrant (filed as Exhibit 4.4 to the
Registration Statement).
4.5 Certificate of Designation, Voting Powers and Rights of Series A
Convertible Preferred Stock of the Registrant. (18)
4.6 Certificate of Designation, Voting Powers and Rights of Series B
Senior Convertible Preferred Stock of the Registrant. (9)
9. Voting Trust Agreement. Not applicable.
10.1 Limited Partnership Agreement by and between LaTex Petroleum
Corporation, Mid-Continent Energy, Inc., and Panada Exploration,
Inc., dated October 26, 1990 (filed as Exhibit 10.1 to the
Registration Statement).
10.2 Letter Agreement by and between Elite Enterprises, Inc.,
Mid-Continent Energy, Inc., and Panada Exploration dated
December 12, 1990 (filed as Exhibit 10.2 to the Registration
Statement).
10.3 Loan Agreement for the principal amount of $100,000 by and
between LaTex Petroleum Corporation and First Texas Bank dated
January 23, 1991 (filed as Exhibit 10.3 to the Registration
Statement).
10.4 Lease Agreement by and between Sable Investment Corporation and
2800 East Skelly Drive, an Oklahoma partnership, dated March 20,
1991 (filed as Exhibit 10.4 to the Registration Statement).
10.5 Lease Agreement by and between Elite Enterprises, Inc. and 2800
East Skelly Drive, an Oklahoma partnership, dated March 20, 1991
(filed as Exhibit 10.5 to the Registration Statement).
10.6 Asset Sale Agreement for sale of oil and gas properties by and
between Latex Petroleum Corporation, Vintage Petroleum, Inc. and
American Exploration Company dated March 11, 1991 (filed as
Exhibit 10.6 to the Registration Statement).
10.7 General Partnership Agreement by and between Elite Enterprises,
Inc. and Panada Exploration, Inc., dated June 7, 1991 (filed as
Exhibit 10.7 to the Registration Statement).
10.8 Purchase Agreement for sale of oil and gas properties by and
between Latex Petroleum Corporation and Presidio Exploration,
Inc., dated September 25, 1991 (filed as Exhibit 10.8 to the
Registration Statement).
10.9 Promissory Note in the principal sum of $50,150 by and between
ENPRO, Inc., and Elite Enterprises, Inc., dated September 27,
1991 (filed as Exhibit 10.9 to the Registration Statement).
S-82
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
10.10 Lease Agreement by and between LBR Associates, an Indiana
limited partnership, and LaTex Petroleum Corporation dated
October 3, 1991 (filed as Exhibit 10.10 to the Registration
Statement).
10.11 Purchase Agreement for sale of oil and gas properties by and
between Latex Petroleum Corporation and Chevron U.S.A., Inc.,
dated October 23, 1991 (filed as Exhibit 10.11 to the
Registration Statement).
10.12 Assignment and Substitution Agreement by and between LaTex
Petroleum Corporation, Chevron U.S.A. and Fig Equity Exchange,
Inc., dated November 13, 1991 (exhibits omitted) (filed as
Exhibit 10.12 to the Registration Statement).
10.13 Participation Agreement by and between Geodyne Tunisia, Ltd.,
Panada Exploration, Inc., Latex Petroleum Corporation and
Concord International, Corp. dated November 21, 1991 (filed as
Exhibit 10.13 to the Registration Statement).
10.14 Purchase and Sale Agreement for sale of oil and gas properties
by and between Latex Petroleum Corporation and Sun Operating
Limited Partnership dated November 25, 1991 (filed as Exhibit
10.14 to the Registration Statement).
10.15 Purchase Agreement for sale of oil and gas properties by and
between Latex Petroleum Corporation and Presidio Exploration,
Inc., dated November 27, 1991. (3)
10.16 Letter Agreement for the sale of oil and gas properties by and
between Latex Petroleum Corporation and Sands Reserve Company
dated December 1, 1991 (filed as Exhibit 10.16 to the
Registration Statement).
10.17 Letter Agreement for the sale of oil and gas properties by and
between Latex Petroleum Corporation and Sands Reserve Company
dated December 1, 1991 (filed as Exhibit 10.17 to the
Registration Statement).
10.18 Letter Agreement by and between Latex Petroleum Corporation and
Sands Reserve Company dated December 2, 1991 (filed as Exhibit
10.18 to the Registration Statement).
10.19 Amendment to General Partnership Agreement by and between Elite
Enterprises Limited Partnership and Panada Exploration, Inc.,
dated December 16, 1991 (filed as Exhibit 10.19 to the
Registration Statement).
10.20 Agreement and Plan of Merger by and between Latex Petroleum
Corporation, Sable Investment Corporation and Elite Enterprises,
Inc., dated December 16, 1991. (4)
10.21 Agreement to Exchange Stock and Plan of Reorganization by and
between Video Science Technology, Inc., Jeffrey T. Wilson, James
G. Borem and Dee C. Shreve dated December 18, 1991. (5)
10.22 Letter Agreement by and between Trans-Exchange Corporation and
Jeffrey T. Wilson dated January 22, 1992 (filed as Exhibit 10.22
to the Registration Statement).
10.23 Second Amended and Restated Credit Agreement by and between
Latex Petroleum Corporation and Bank of Oklahoma, National
Association, effective January 31, 1992 (filed as Exhibit 10.23
to the Registration Statement).
S-83
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
10.24 Stock Option Agreement by and between the Registrant and Cynthia
A. Helms dated January 31, 1992 (filed as Exhibit 10.24 to the
Registration Statement).
10.25 Stock Option Agreement by and between the Registrant and Robert
Hull dated January 31, 1992 (filed as Exhibit 10.25 to the
Registration Statement).
10.26 Letter from Director General of Energy, Republic of Tunisia
dated February 11, 1992 (filed as Exhibit 10.26 to the
Registration Statement).
10.27 Agreement to Terminate the General Partnership Agreement of
Elite/Panada General Partnership by and between Latex Petroleum
Corporation, successor by merger to Elite Enterprises, Inc., and
Panada Exploration, Inc., dated February 13, 1992 (filed as
Exhibit 10.27 to the Registration Statement).
10.28 Purchase Agreement for sale of oil and gas properties by and
between the Registrant and Amax Exploration, Inc., dated
February 14, 1992. (6)
10.29 Agreement by and between Latex Petroleum Corporation and Virgle
Land-roth and Eclipse Petroleum Corporation dated as of February
17, 1992 (filed as Exhibit 10.29 to the Registration Statement).
10.30 Promissory Note in the principal sum of $50,200 by and between
ENPRO, Inc., and LaTex Petroleum Corporation dated February 28,
1992 (filed as Exhibit 10.30 to the Registration Statement).
10.31 Promissory Note in the principal sum of $600,000 by and between
Latex Petroleum Corporation and Bank of Oklahoma, National
Association, dated February 28, 1992 (filed as Exhibit 10.31 to
the Registration Statement).
10.32 Promissory Note in the principal sum of $3,280,000 by and
between Latex Petroleum Corporation and Bank of Oklahoma,
National Association, dated February 28, 1992 (filed as Exhibit
10.32 to the Registration Statement).
10.33 Restated Guaranty Agreement by and between Jeffrey T. Wilson and
Annalee C. Wilson and Bank of Oklahoma, National Association,
dated February 28, 1992 (filed as Exhibit 10.33 to the
Registration Statement).
10.34 Guaranty Agreement by and between Latex Petroleum Corporation
and David L. Wright dated March 4, 1992 (filed as Exhibit 10.34
to the Registration Statement).
10.35 Guaranty Agreement by and between Latex Petroleum Corporation
and Ed J. Wright dated March 4, 1992 (filed as Exhibit 10.35 to
the Registration Statement).
10.36 Amendment to Second Amended and Restated Credit Agreement by and
between Latex Petroleum Corporation and Bank of Oklahoma,
National Association, dated March 19, 1992, effective as of
February 28, 1992 (exhibits omitted). (Filed as Exhibit 10.36
to the Registration Statement).
10.37 Purchase and Sale Agreement for sale of oil and gas properties
by and between Latex Petroleum Corporation and American
Exploration Company dated March 20, 1992 (filed as Exhibit 10.37
to the Registration Statement).
10.38 Security Agreement by and between Latex Petroleum Corporation
and Phoenix Metals, Inc., dated March 27, 1992 (filed as Exhibit
10.38 to the Registration Statement).
S-84
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
10.39 Promissory Note in the principal sum of $10,000 by and between
LaTex Petroleum Corporation and Phoenix Metals, Inc., dated
March 27, 1992 (filed as Exhibit 10.39 to the Registration
Statement).
10.40 Security Agreement by and between the Registrant and Bank of
Oklahoma, National Association, dated March 30, 1992 (filed as
Exhibit 10.40 to the Registration Statement).
10.41 Letter of Intent to License Certain Equipment and Proprietary
Processes by and between the Registrant, Carlton B. Foster, and
Waste Conversion Corporation dated March 31, 1992 (filed as
Exhibit 10.41 to the Registration Statement).
10.42 Agreement and Plan of Merger by and between the Registrant and
Video Science Technology, Inc., dated April 16, 1992. (7)
10.43 Letter from LaTex Petroleum Corporation dated April 20, 1992, to
Brumbaugh & Fulton amending lease agreement (filed as Exhibit
10.43 to the Registration Statement).
10.44 Agreement to Exchange Stock by and between the Registrant and
ENPRO, Inc., dated April 21, 1992 (filed as Exhibit 10.44 to the
Registration Statement).
10.45 Purchase and Sale Agreement for sale of oil and gas properties
by and between LaTex Petroleum Corporation and TOTAL Minatome
Corporation dated April 27, 1992 (filed as Exhibit 10.45 to the
Registration Statement).
10.46 Letter Agreement for sale of stock by and between the Registrant
and Agri-Quest Mining, Inc., dated May 28, 1992 (filed as
Exhibit 10.46 to the Registration Statement).
10.47 Letter Agreement by and between Latex Petroleum Corporation and
TOTAL Minatome Corporation dated June 1, 1992 (filed as Exhibit
10.47 to the Registration Statement).
10.48 Loan Agreement in the principal sum of $200,000 by and between
LaTex Petroleum Corporation and First Texas Bank dated June 1,
1992 (filed as Exhibit 10.48 to the Registration Statement).
10.49 Guaranty by and between S. Mort Zimmerman and First Texas Bank
dated June 1, 1992 (filed as Exhibit 10.49 to the Registration
Statement).
10.50 Security Agreement by and between Trans-Exchange Corporation and
First Texas Bank dated June 1, 1992 (filed as Exhibit 10.50 to
the Registration Statement).
10.51 Owner's Consent to pledge by S. Mort Zimmerman for
Trans-Exchange Corporation dated June 1, 1992 (filed as Exhibit
10.51 to the Registration Statement).
10.52 Security Agreement by and between Gary S. Williky and First
Texas Bank dated June 1, 1992 (filed as Exhibit 10.52 to the
Registration Statement).
10.53 Owner's Consent to pledge by Gary S. Williky dated June 1, 1992
(filed as Exhibit 10.53 to the Registration Statement).
10.54 Promissory Note in the principal sum of $85,145.55 by and
between LaTex Petroleum Corporation and ENPRO, Inc., dated
June 1, 1992 (filed as Exhibit 10.54 to the Registration
Statement).
S-85
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
10.55 Employment Contract by and between ENPRO, Inc., and Malcolm W.
Henley dated June 1, 1992 (filed as Exhibit 10.55 to the
Registration Statement).
10.56 Letter from LaTex Petroleum Corporation dated June 2, 1992, to
Brumbaugh & Fulton amending lease agreements (filed as Exhibit
10.56 to the Registration Statement).
10.57 Letter Agreement by and between the LaTex Petroleum Corporation
and Ed Wright dated July 6, 1992 (filed as Exhibit 10.57 to the
Registration Statement).
10.58 Loan Agreement in the principal sum of $200,000 by and between
LaTex Petroleum Corporation and First Texas Bank dated August
28, 1992 (filed as Exhibit 10.58 to the Registration Statement).
10.59 Promissory Note in the principal sum of $249,351 from I.B.
Energy, Inc., to LaTex Petroleum Corporation dated June 1, 1992
(filed as Exhibit 10.59 to the Registration Statement).
10.60 Letter Agreement between LaTex Petroleum Corporation and I.B.
Energy, Inc., dated September 30, 1992 (filed as Exhibit 10.60
to the Registration Statement).
10.61 Form of Share Escrow Agreement between Jeffrey T. Wilson, James
G. Borem, the Registrant, and Bank of Oklahoma, National
Association (filed as Exhibit 10.61 to the Registration
Statement).
10.62 Agreement to Exchange Stock by and between the Registrant,
Wright & Wright, Inc., Ed J. Wright, David L. Wright, and
Phoenix Metals, Inc., dated September 24, 1992 (filed as Exhibit
10.62 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1993 (the "1993 Form 10-K")).
10.63 Stock Purchase Agreement by and between the Herokas Foundation,
James C. Hadsell and Zaskia Siefert-Hadsell, Howard Finley and
the Registrant dated January 29, 1993 (filed as Exhibit 10.63 to
the 1993 Form 10-K).
10.64 Stock Subscription Agreement by and between J.R. Bothe &
Associates, Inc., and the Registrant dated January 29, 1993
(filed as Exhibit 10.64 to the 1993 Form 10-K).
10.65 Non-Competition Agreement dated February 10, 1993, between the
Registrant and Philip J. Wade. (11)
10.66 Non-Competition Agreement dated February 10, 1993, between the
Registrant and A. Dean Fuller. (12)
10.67 Registration Rights Agreement by and among the Registrant,
Philip J. Wade, A. Dean Fuller, Robert R. Firth, Mark E.
Repasky, Charles M. Kelley, Donald B. Pettine, and Steven L.
Wilson dated February 10, 1993 (filed as Exhibit 10.67 to the
1993 Form 10-K).
10.68 Stock Subscription Agreement by and between Joseph Shoaf, an
individual, and the Registrant dated March 25, 1993 (filed as
Exhibit 10.68 to the 1993 Form 10-K).
10.69 Purchase and Sale Agreement between Mobil Exploration &
Producing U.S., Inc., and Panada Exploration, Inc., dated as of
January 15, 1993 (filed as Exhibit 10.69 to the 1993 Form 10-K).
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Exhibit
Number Description Page
- ------ ----------- ----
10.70 Purchase and Sale Agreement by and between AMAX Oil & Gas, Inc.,
and LaTex Petroleum Corporation dated March 16, 1993 (filed as
Exhibit 10.70 to the 1993 Form 10-K).
10.71 Loan Agreement among LaTex Petroleum Corporation, Panada
Exploration, Inc., Panda Resources, Inc., and First Interstate
Bank of Texas, N.A., dated April 15, 1993, together with
exhibits (filed as Exhibit 10.71 to the 1993 Form 10-K).
10.72 Stock Subscription Agreement by and between the Registrant and
Howard Finley dated May 10, 1993 (filed as Exhibit 10.72 to the
1993 Form 10-K).
10.73 Letter Agreement by and between Geodyne Resources, Inc., and the
Registrant dated November 27, 1992 (filed as Exhibit 10.73 to
the 1993 Form 10-K).
10.74 Letter Agreement by and between ARCO Tunisia, Inc., and Geodyne
Tunisia Ltd. dated April 2, 1993 (filed as Exhibit 10.74 to the
1993 Form 10-K).
10.75 Agreement by and between Geodyne Tunisia Ltd. and Warren
American Oil Company dated May 4, 1993 (filed as Exhibit 10.75
to the 1993 Form 10-K).
10.76 Operating Agreement among ARCO Tunisia, Inc., PICT Petroleum
(Tunisia) Limited, and Geodyne Tunisia Ltd. dated July 9, 1993,
but effective June 30, 1993 (filed as Exhibit 10.76 to the 1993
Form 10-K).
10.77 Letter Agreement by and between AMAX Oil and Gas, Inc., and
LaTex Petroleum Corporation dated May 6, 1993 (filed as Exhibit
10.77 to the 1993 Form 10-K).
10.78 Promissory Note in the principal sum of $254,288.35 by and
between LaTex Petroleum Corporation and AMAX Oil and Gas, Inc.,
dated May 6, 1993 (filed as Exhibit 10.78 to the 1993 Form 10-K).
10.79 Stock Purchase Agreement by and between Panda Resources, Inc.,
and Nuevo Liquids, Inc., dated as of July 16, 1993. (13)
10.80 Stock Purchase Agreement by and between the Registrant and Torch
Energy Marketing, Inc., dated July 26, 1993. (14)
10.81 Letter Agreement between the Registrant and Waste Conversion
Corporation dated August 3, 1993, as agreed to August 11, 1993
(filed as Exhibit 10.81 to the 1993 Form 10-K).
10.82 Agreement by and between the Registrant and Philip J. Wade dated
September 22, 1993 (filed as Exhibit 10.82 to the 1993
Form 10-K).
10.83 Agreement by and between the Registrant and A. Dean Fuller dated
September 22, 1993 (filed as Exhibit 10.83 to the 1993
Form 10-K).
10.84 Letter of LaTex Petroleum Corporation requesting consent of
First Interstate Bank of Texas, N.A., dated September 23, 1993,
together with consent of First Interstate Bank and exhibits
(filed as Exhibit 10.84 to the 1993 Form 10-K).
10.85 Stock Subscription Agreement by and between the Registrant and
Salaheddine Caid Essebsi dated October 8, 1993 (filed as Exhibit
10.85 to the 1993 Form 10-K).
10.86 Promissory Note in the principal sum of $25,000 by and between
Malcolm W. Henley and LaTex Petroleum Corporation dated
December 28, 1992 (filed as Exhibit 10.86 to the 1993
Form 10-K).
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Exhibit
Number Description Page
- ------ ----------- ----
10.87 Promissory Note in the principal sum of $25,000 by and between
Dewitt C. Shreve and LaTex Petroleum Corporation dated March 15,
1993 (filed as Exhibit 10.87 to the 1993 Form 10-K).
10.88 Promissory Note in the principal sum of $29,089 by and between
Malcolm W. Henley and ENPRO, Inc., dated July 30, 1993, marked
"Paid" (filed as Exhibit 10.88 to the 1993 Form 10-K).
10.89 Promissory Note in the principal sum of $5,000 by and between
Malcolm W. Henley and ENPRO, Inc., dated September 28, 1993
(filed as Exhibit 10.89 to the 1993 Form 10-K).
10.90 Promissory Note in the principal sum of $250,000 by and between
LaTex Resources International, Inc., and James G. Borem dated
October 5, 1993 (filed as Exhibit 10.90 to the 1993 Form 10-K).
10.91 Promissory Note in the principal sum of $130,000 by and between
LaTex Resources International, Inc., and Dewitt C. Shreve dated
October 5, 1993 (filed as Exhibit 10.91 to the 1993 Form 10-K).
10.92 Promissory Note in the principal sum of $100,000 by and between
the Registrant and James G. Borem dated October 21, 1993 (filed
as Exhibit 10.92 to the 1993 Form 10-K).
10.93 Promissory Note in the principal sum of $30,000 by and between
LaTex Resources International, Inc., and Dewitt C. Shreve dated
February 2, 1994 (filed as Exhibit 10.73 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31,
1994 (the "1994 Form 10-K")).
10.94 Promissory Note in the principal sum of $50,000 by and between
LaTex Resources International, Inc., and James G. Borem dated
February 2, 1994 (filed as Exhibit 10.94 to the 1994 Form 10-K).
10.95 Promissory Note in the principal sum of $50,000 by and between
the Registrant and James G. Borem dated February 15, 1994 (filed
as Exhibit 10.95 to the 1994 Form 10-K).
10.96 Letter Agreement by and between LaTex Petroleum Corporation and
Petroleum Discovery Systems, Inc., dated December 2, 1992, as
agreed to December 3, 1992 (filed as Exhibit 10.96 to the 1994
Form 10-K).
10.97 Letter Agreement by and between the Registrant and J.R. Bothe &
Associates, Inc., dated December 23, 1992 (filed as Exhibit 10.
97 to the 1994 Form 10-K).
10.98 Letter Agreement by and between LaTex Petroleum Corporation and
Gulf Russia Ltd. dated December 27, 1992 (filed as Exhibit 10.98
to the 1994 Form 10-K).
10.99 Letter Agreement by and between the Registrant and Premier
Capital Ltd. dated January 19, 1993, as agreed to January 29,
1993 (filed as Exhibit 10.99 to the 1994 Form 10-K).
10.100 Agreement and Plan of Merger by and among the Registrant, MOE
Acquisition, Inc., Waste Conversion Corp., and Joseph W. Conerly
dated November 17, 1993 (filed as Exhibit 10.100 to the 1994
Form 10-K).
10.101 1993 Incentive Stock Plan, effective December 8, 1993 (filed as
Exhibit 10.101 to the 1994 Form 10-K).
S-88
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
10.102 First Amendment to Loan Agreement among LaTex Petroleum
Corporation, Panada Exploration, Inc., and First Interstate Bank
of Texas, N.A., dated October 1, 1993 (exhibits omitted) (filed
as Exhibit 10.102 to the 1994 Form 10-K).
10.103 Second Amendment to Loan Agreement by and between LaTex
Petroleum Corporation and First Interstate Bank of Texas, N.A.,
dated January 18, 1994 (exhibits omitted) (filed as
Exhibit 10.103 to the 1994 Form 10-K).
10.104 Third Amendment to Loan Agreement by and between LaTex Petroleum
Corporation and First Interstate Bank of Texas, N.A., dated
July 26, 1994, (filed without exhibits) (filed as Exhibit 10.104
to the 1994 Form 10-K).
10.105 Purchase and Sale Agreement by and among LaTex Petroleum
Corporation, LoIn Energy, Inc., and Swift Energy Company dated
as of January 14, 1994. (15)
10.106 Offshore Securities Subscription Agreement by and between the
Registrant and Brentwood Financial Ltd. dated January 28, 1994
(filed as Exhibit 10.106 to the 1994 Form 10-K).
10.107 Offshore Securities Subscription Agreement by and between the
Registrant and Investment Development Corporation dated January
28, 1994 (filed as Exhibit 10.107 to the 1994 Form 10-K).
10.108 Offshore Securities Subscription Agreement by and between the
Registrant and Gilford Manor Ltd. dated January 28, 1994 (filed
as Exhibit 10.108 to the 1994 Form 10-K).
10.109 Offshore Securities Subscription Agreement by and between the
Registrant and Tesoma Overseas, Inc., dated January 28, 1994
(filed as Exhibit 10.109 to the 1994 Form 10-K).
10.110 Warrant Certificate for purchase of the Registrant's common
stock issued to Baytree Associates, Inc., dated January 26, 1994
(filed as Exhibit 10.110 to the 1994 Form 10-K).
10.111 Purchase and Sale Agreement by and between LaTex Petroleum
Corporation and Confed Oil Incorporated dated August 10, 1994
(filed as Exhibit 10.111 to the 1994 Form 10-K).
10.112 Credit Agreement dated as of March 31, 1995, among Bank of
America National Trust and Savings Association, LaTex Petroleum
Corporation, LaTex/GOC Acquisition, Inc., and LRI Acquisition,
Inc. (20)
10.113 Amended and Restated Credit Agreement dated as of October 20,
1995, among Bank of America National Trust and Savings
Association, LaTex Petroleum Corporation, LaTex/GOC Acquisition,
Inc., and Germany Oil Company (formerly known as LRI
Acquisition, Inc.) (filed as Exhibit 10.113 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31,
1995 (the "1995 Form 10-K")).
*10.114 Amendment No. 1 to Amended and Restated Credit Agreement dated
December 29, 1995, among Bank of America National Trust and
Savings Association, LaTex Petroleum Corporation, LaTex/GOC
Acquisition, Inc., and Germany Oil Company (formerly known as
LRI Acquisition, Inc.).
S-89
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
*10.115 Amendment No. 2 to Amended and Restated Credit Agreement dated
August 16, 1996, among Bank of America National Trust and
Savings Association, LaTex Petroleum Corporation, LaTex/GOC
Acquisition, Inc., and Germany Oil Company (formerly known as
LRI Acquisition, Inc.).
*10.116 Forbearance Agreement dated July 25, 1996, among Bank of America
National Trust and Savings Association, LaTex Petroleum
Corporation, LaTex/GOC Acquisition, Inc., Germany Oil Company
(formerly known as LRI Acquisition, Inc.), Enpro, Inc., and the
Registrant.
*10.117 Agreement and Plan of Merger dated August 12, 1996, among
Alliance Resources Plc, Alliance Resources (Delaware), Inc., and
the Registrant.
*10.118 Purchase Agreement dated September 30, 1996, between the
Registrant and Imperial Petroleum, Inc.
*10.119 Letter Agreement dated November 27, 1995, among Rauscher Pierce
& Clark, Inc., Rauscher Pierce & Clark Limited, and the
Registrant.
*10.120 Letter Agreement dated April 23, 1996, between Wood Roberts,
LLC, and the Registrant.
*10.121 Letter Agreement dated July 22, 1996, between Wood Roberts, LLC,
and the Registrant.
*10.122 Letter Agreement dated July 22, 1996, between Wood Roberts, LLC,
and the Registrant.
*10.123 Settlement Agreement dated as of December 7, 1995, among Torch
Energy Marketing, Inc., Nuevo Liquids, Inc., Panda Resources,
Inc., Wilson Tucker & Associates, Steve Wilson, an individual,
and the Registrant.
*10.124 Settlement Agreement dated as of June 6, 1996, between Northern
Natural Gas Company and the Registrant.
*10.125 Letter Agreement dated November 8, 1996 between Rauscher, Pierce
& Clark and the Registrant.
*10.126 First Amendment to Forbearance Agreement dated October 15, 1996
among Bank of America National Trust and Savings Association,
LaTex Petroleum Corporation, LaTex/GOC Acquisition, Inc.,
Germany Oil Company (formerly known as LRI Acquisition, Inc.),
ENPRO, Inc. and the Registrant.
11 Statement re: computation of per share earnings. Not applicable.
12 Statement re: computation of ratios. Not applicable.
13 Annual Report to security holders, Form 10-Q, or quarterly
report to security holders. Not applicable.
16.1 Letter of Registrant dated November 1, 1991 informing Lane,
Gorman, Trubitt and Company of change in certifying accountants
to Jackson, Brophy and Company. (8)
16.2 Letter of Registrant's counsel dated April 10, 1992 informing
Jackson, Brophy and Company of change in certifying accountants
to Briscoe and Robinson Co. (9)
18 Letter re: change in accounting principles. Not applicable.
S-90
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
21 Subsidiaries of the Registrant (filed as Exhibit 21 to the 1995
Form 10-K).
22 Published report regarding matters submitted to vote of security
holders. Not applicable.
*23.1 Consent of Briscoe & Burke
*23.2 Consent of Lee Keeling and Associates, Inc.
24 Power of Attorney. Not applicable.
27 Financial Data Schedule. Not applicable.
28 Information from reports furnished to state insurance
authorities. Not applicable.
99.1 Estimates of Reserves by Netherland, Sewell & Associates, Inc.,
dated January 1, 1991, regarding oil and gas reserves of the
Registrant (filed as Exhibit 28.1 to the Registration Statement).
99.2 Estimates of Reserves by Netherland, Sewell & Associates, Inc.,
dated July 31, 1991, regarding oil and gas reserves of the
Registrant (filed as Exhibit 28.2 to the Registration Statement).
99.3 Estimates of Reserves by Netherland, Sewell & Associates, Inc.,
dated January 1, 1992, regarding oil and gas reserves of the
Registrant (filed as Exhibit 28.3 to the Registration Statement).
99.4 Estimates of Reserves by Netherland, Sewell & Associates, Inc.,
dated July 31, 1992, regarding oil and gas reserves of the
Registrant (filed as Exhibit 28.4 to the Registration Statement).
99.5 Estimates of Reserves by Netherland, Sewell & Associates, Inc.,
dated September 7, 1993; regarding oil and gas reserves of the
Registrant (filed as Exhibit 99.5 to the 1993 Form 10-K).
99.6 Estimates of Reserves by Netherland, Sewell & Associates, Inc.,
dated October 21, 1994, regarding oil and gas reserves of the
Registrant (filed as Exhibit 99.6 to the 1994 Form 10-K).
99.7 Estimates of Reserves by Netherland, Sewell & Associates, Inc.,
dated November 3, 1995, regarding oil and gas reserves of the
Registrant as of July 31, 1995 (filed as Exhibit 99.7 to the
1995 Form 10-K).
*99.8 Estimates of reserves by Lee Keeling and Associates, Inc. dated
October 30, 1996 regarding oil and gas reserves of the
Registrant as of July 31, 1996.
- ------------------------------
* Filed herewith
(1) Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
June 16, 1992.
(2) Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
June 16, 1992.
(3) Incorporated herein by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
February 18, 1992.
(4) Incorporated herein by reference to Exhibit 2.2 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
January 10, 1992.
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<PAGE>
(5) Incorporated herein by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
January 10, 1992.
(6) Incorporated herein by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
May 1, 1992.
(7) Incorporated herein by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
June 16, 1992.
(8) Incorporated herein by reference to Exhibit 16.1 to the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 11, 1991, and subsequently amended under cover of
Form 8 Amendment No. 2 filed with the Commission on May 1, 1992, and Form 8
Amendment No. 3 filed with the Commission on May 26, 1992.
(9) Incorporated herein by reference to Exhibit 16.1 to the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 23, 1992, and subsequently amended under cover of Form
8 filed with the Commission on May 26, 1992.
(10) Incorporated herein by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
February 24, 1993, and subsequently amended under cover of Form 8 Amendment
No. 1 filed with the Commission on April 26, 1993, and Form 8 Amendment No.
2 filed with the Commission on May 20, 1993.
(11) Incorporated herein by reference to Exhibit 28.1 to the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 24, 1993, and subsequently amended under cover of
Form 8 Amendment No. 1 filed with the Commission on April 26, 1993, and
Form 8 Amendment No. 2 filed with the Commission on May 20, 1993.
(12) Incorporated herein by reference to Exhibit 28.2 to the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 24, 1993, and subsequently amended under cover of
Form 8 Amendment No. 1 filed with the Commission on April 26, 1993, and
Form 8 Amendment No. 2 filed with the Commission on May 20, 1993.
(13) Incorporated herein by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
August 9, 1993, and subsequently amended under cover of Form 8 Amendment
No. 1 filed with the Commission on October 12, 1993.
(14) Incorporated herein by reference to Exhibit 2.2 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
August 9, 1993, and subsequently amended under cover of Form 8 Amendment
No. 1 filed with the Commission on October 12, 1993.
(15) Incorporated herein by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
February 10, 1994.
(16) Incorporated herein by reference to Exhibit 2.1 of the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
April 12, 1995.
(17) Incorporated herein by reference to Exhibit 2.2 of the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
April 12, 1995.
(18) Incorporated herein by reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
April 12, 1995.
(19) Incorporated herein by reference to Exhibit 4.2 of the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
April 12, 1995.
(20) Incorporated herein by reference to Exhibit 28.1 of the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 12, 1995.
S-92
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LaTex Resources, Inc.
Date: November 29, 1996 /s/ Jeffrey T. Wilson
-----------------------------------------
Jeffrey T. Wilson, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Jeffrey T. Wilson Director, Chairman of the November 29, 1996
- ------------------------ Board, President and Chief
Jeffrey T. Wilson Executive Officer
(Principal Executive Officer)
/s/ John L. Cox Director, Vice President and November 29, 1996
- ------------------------ Chief Financial Officer
John L. Cox
/s/ Malcolm W. Henley Director and Vice November 29, 1996
- ------------------------ President of Marketing
Malcolm W. Henley
- -------------------- Director November ___, 1996
John R. Martinson
S-93
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
English law does not permit a company to indemnify a director or an
officer of the company against any liability which by virtue of any rule of
law would otherwise attach to him in respect to negligence, default, breach of
duty or breach of trust in relation to the company except liability incurred
by such director or officer in defending any legal proceeding (whether civil
or criminal), in which judgment is given in his favor or in which he is
acquitted or in certain instances where, although he is liable, a court finds
that such director or officer acted honestly and reasonably and that, having
regard to all the circumstances, he ought fairly to be excused and relief is
granted by the court.
Article 175(b) of the Registrant's Articles of Association provides:
To the extent permitted by the statutes, the Directors may arrange
insurance cover at the cost of the Company in respect of any liability, loss
or expenditure incurred by any Director, officer or auditor of the Company in
relation to anything done or alleged to have been done as a Director, officer or
auditor.
The relevant provision of the Statutes is Section 310 of the Companies Act
1985 which provides:
(1) This section applies to any provision, whether contained in a
company's articles or in any contract with the company or otherwise, for
exempting any officer of the company or any person (whether an officer or not)
employed by the company as auditor from, or indemnifying him against, any
liability which by virtue of any rule of law would otherwise attach to him in
respect of any negligence, default, breach of duty or breach of trust of which
he may be guilty in relation to the company.
(2) Except as provided by the following subsection, any such provision is
void.
(3) This section does not prevent a company --
(a) from purchasing and maintaining for any such officer or auditor
insurance against any such liability, or
(b) from indemnifying any such officer or auditor against any
liability incurred by him --
(i) in defending any proceedings (whether civil or criminal) in
which judgment is given in his favor or he is acquitted, or
(ii) in connection with any application under Section 144(3) or
(4) (acquisition of shares by innocent nominee) or Section
727 (general power to grant
II-1
<PAGE>
relief in case of honest and reasonable conduct) in which
relief is granted by the court.
The Registrant's directors and officers are insured against certain
liabilities which they may incur in their capacity as such under a liability
insurance policy carried by the Registrant.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
The following documents are filed as a part of this registration
statement. Those exhibits previously filed and incorporated herein by
reference are identified below by asterisks.
Exhibit Description
------- -----------
2.1 -- Agreement and Plan of Merger by and among Alliance
Resources Plc, Alliance Resources (Delaware), Inc. and
LaTex Resources, Inc., dated August 12, 1996 (attached as
Appendix B to the Prospectus and Proxy Statement included
as a part of this Registration Statement).
2.2* -- Form of Proxy for Special Meeting of LaTex Resources, Inc.
3.1 -- Memorandum of Association of Alliance Resources Plc
3.2 -- Articles of Association of Alliance Resources Plc
5.1* -- Opinion of Ashurst Morris Crisp
10.1 -- Executive Service Agreement between Alliance Resources Plc
and John A. Keenan dated October 15, 1996.
10.2 -- Executive Service Agreement between Alliance Resources Plc
and Paul R. Fenemore dated September 20, 1996.
10.3 -- Executive Service Agreement between Alliance Resources Plc
and H. Brian K. Williams dated December 16, 1996.
22.1 -- Subsidiaries
24.1* -- Consent of KPMG Audit Plc.
24.2* -- Consent of Ashurst Morris Crisp (included in their opinion
filed as Exhibit 5.2).
24.3* -- Consent of Wood Roberts LLC.
25.1 -- Power of Attorney (contained on the Signature Page of this
Registration Statement).
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules
Not applicable.
(c) Reports, Opinions or Appraisals
Form of opinions of Wood Roberts LLC (attached as Appendix C to the
Proxy Statement included in this registration statement).
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
II-2
<PAGE>
(1) To file, during any period which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change in such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrant
of expenses incurred or paid by a director, officer, or controlling person of
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(5) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable
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<PAGE>
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes: (i) to respond to requests
for infomration that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated docuemtns by first class mail or
other equally prompt means; and (ii) to arrange or provide for a facility in
the U.S. for the purpose of responding to such requests. The undertaking in
subparagraph (i) above include information contained in documents filed
subsequent to the effective date of the registration statement through the
date of rsponding to the request.
The undersigned registrant hereby undertakes to supply by menas of a post-
effective amendment all information concerning a transaction and the company
being acquired involved therein, that was nto the subject of and included in
the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of
Texas, on December ___, 1996.
ALLIANCE RESOURCES PLC
(Registrant)
By:___________________________________
John A. Keenan, Managing Director
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below hereby constitutes and appoints John A. Keenan, H. Brian K.
Williams, Paul R. Fenemore, and each of them, each with full power to act
without the other, his true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution for him and in his name, place
and stead, in any and all capacities, to sign any or all pre-effective and
post-effective amendments to this Registration Statement, and to file the same
with all exhibits thereto and other documents in connection therewith, with
the Commission, granting unto each of said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person hereby ratifying and confirming
that each of said attorneys-in-fact and agents or his substitutes may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
______________________ Managing Director December ____, 1996
John A. Keenan
______________________ Financial Director December ____, 1996
H. Brian K. Williams
______________________ Director of Operations and December ____, 1996
Paul R. Fenemore Business Development
______________________ Director December ____, 1996
Stanley Robinson
______________________ Director December ____, 1996
Christopher Samuelson
______________________ Director Chairman, December ____, 1996
D. Patrick Maley
______________________ Director December ____, 1996
William Kennedy
______________________ Director December ____, 1996
Philip Douglas
II-6
<PAGE>
EXHIBIT 3.1
THE COMPANIES ACT 1985 AND 1989
A PUBLIC COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
OF
MERGECLAIM P.L.C.
(to be renamed ALLIANCE RESOURCES PLC)
(as altered by Special Resolution
passed on 5th December, 1990)
1. The name of the Company is "MERGECLAIM PUBLIC LIMITED COMPANY".
2. The Company is to be a public company.
3. The registered office of the Company will be situated in England.
4./1/ The objects for which the Company is established are:-
(A) To carry on business as a holding company and to acquire and hold shares,
stocks, debentures, debenture stocks, bonds, mortgages, obligations and
securities of any kind issued or guaranteed by any company, corporation or
undertaking of whatever nature and wherever constituted or carrying on
business, and shares, stocks, bonds, obligations and other securities
issued or guaranteed by any government, sovereign ruler, commissioners,
trust, local authority or other public body, whether at home or abroad,
and to vary, transpose, dispose of or otherwise deal with from time to
time as may be considered expedient any of the Company's investments for
the time being.
(B) To co-ordinate the administration, policies, management, supervision,
control, research, planning, trading and any and all other activities of
and to act as financial advisers and consultants to, and to re-organise,
finance and to aid and assist financially or otherwise, any Group Member,
namely any company, group of companies, partnership, joint venture,
consortium or any other business association of any kind now or hereafter
formed or incorporated or acquired which may be or be about to be or
become in any way, and whether directly or indirectly, related to or
associated with the Company and wherever situated; and in this Clause 4
any reference to a Group Member is a reference to such a company, group of
companies, partnership, joint venture, consortium or other business
association.
(C) to carry on business as a general commercial company.
_____________________
/1/ Clause 4 was altered by Special Resolution passed on 5th December, 1990.
<PAGE>
(D) to borrow or raise or secure the payment of money in such manner as the
Company shall think fit and whether for the benefit of the Company or of
the Company or of any Group Member, and in particular by, but not limited
to, the issue of debentures or debenture stock (perpetual or otherwise)
and to secure the repayment of any money borrowed, raised or owing by
mortgage, charge or lien upon all or any of the Company's property (both
present and future), including its uncalled capital, and to purchase,
redeem or pay off any such securities and also by similar mortgage, charge
or lien to secure and guarantee the performance by the Company of any
obligation or liability it may undertake.
(E) To establish or acquire, whether in the United Kingdom or elsewhere, one
or more financing companies or other entities to assist in financing the
activities of the Company or of any Group Member.
(F) To employ the funds of the Company in the development and expansion of the
business of the Company and all or any of the Group Members and in any
other company whether now existing or hereafter to be formed and engaged
in any like business of the Company or of any Group Member or of any other
business activity ancillary thereto or which can be conveniently carried
on in connection therewith.
(G) To acquire any such shares, stocks and other securities and investments
before mentioned by subscription, syndicate participation, tender,
purchase, exchange or otherwise and to subscribe for the same, either
conditionally or otherwise, and to guarantee the subscription thereof and
to exercise and enforce all rights and powers conferred by or incident to
the ownership thereof.
(H) To sell, assign, realise, vary, surrender, exchange or dispose of any
property of any kind or investments for the time being of the Company,
whether for consideration or no consideration, if from time to time it
shall be found necessary, desirable, expedient or advisable so to do.
(I) To pay for any business or other property or any shares, stocks,
securities or rights of any kind acquired by the Company or any Group
Member either in cash or shares, with or without any preferred or deferred
rights, or by any securities which the Company has power to issue, or
partly in one mode and partly in another and generally on such terms as
the Company may determine.
(J) To acquire by purchase, lease, exchange or otherwise and hold by way of
investment land, buildings or other structures thereon, land covered by
water, and any estate, interest, easement, servitude or right in or over
such land, buildings or structures and any real or immovable property of
any tenure or description in the United Kingdom or elsewhere in any part
of the world.
(K) To build, construct, maintain, alter, enlarge, pull down and remove or
replace any buildings, factories, mills, offices, works, wharves, roads,
railways, tramways, machinery, engines, walls, fences, banks, dams,
sluices or watercourses, and to clear sites for the same, or to join with
2
<PAGE>
any person, firm or company in doing any of the things aforesaid, and to
work, manage and control the same, or join with others in so doing.
(L) To carry on any commercial, industrial or financial business or
undertaking whether as investors, developers, dealers, promoters,
manufacturers, engineers, financiers, concessionaires, contractors,
wholesalers, retailers, factors, agents or otherwise in any manner.
(M) To hold, acquire, undertake and carry on the whole or any part of the
business, property and liabilities of any company carrying on any business
which the Company is authorised to carry on or possess, or which may seem
to the Company capable of being conveniently carried on or calculated
directly or indirectly to enhance the value of or render profitable any of
the Company's investments, property or rights or any investments or
property suitable for the purposes of the Company or of any Group Member.
(N) To enter into any arrangement with any governments or authorities
(supreme, municipal, local or otherwise) or any corporations, companies or
persons that may seem conducive to the Company's objects or any of them,
and to obtain from any such government, authority, corporation, company or
person any charters, contracts, decrees, rights, privileges and
concessions which the Company may think desirable, and to carry out,
exercise and comply with any such charters, contracts, decrees, rights,
privileges and concessions.
(O) To enter into partnership or into any arrangement for sharing profits,
union or interests, co-operation, joint venture, reciprocal concession or
otherwise with any company or person, or with any employees of the Company
or of any Group Member, including in such case if thought fit the
conferring of a participation in the management or its directorate, and to
give to any company or person special rights or privileges in connection
with or control over the Company or any Group Member, and in particular
the right to nominate one or more Directors of this Company or any Group
Member.
(P) To guarantee payment or performance of any debts, contracts or
obligations, or provide security, with or without consideration, whether
by direct obligation or covenant or by mortgaging or charging all or any
part of the undertaking, property and assets (present and future) and
uncalled capital of the Company or by both such methods or by any other
manner, for any Group Member and any other person, firm or company, and to
give indemnities for itself, any Group Member and any other person, firm
or company, for any purpose whatsoever.
(Q) To promote any other company for the purpose of acquiring all or any of
the property and liabilities of the Company or of any Group Member, or of
any undertaking, business or operations which may appear likely to assist
or benefit the Company or of any Group Member or to enhance the value of
any property or business of the Company or of any Group Member and to
place or guarantee the placing of, underwrite, subscribe for or otherwise
acquire all or any part of the shares or securities or any such company
aforesaid, or for any other purpose which may seem directly or indirectly
calculated to benefit the Company or any Group Member.
3
<PAGE>
(R) To pay out of the funds of the Company all expenses which the Company may
lawfully pay for or incident to the formation, registration and
advertising of or raising money for the Company, and the issue of its
capital or for contributing to or assisting any issuing house or firm or
person either issuing or purchasing with a view to issue all or any part
of the Company's capital, in connection with the advertising of offering
the same for sale or subscription, including brokerage and commissions for
obtaining applications for or taking, placing or underwriting or procuring
the underwriting of shares, debentures or debenture stock, and to apply at
the cost of the Company to Parliament for any extension of the Company's
power.
(S) To receive money on deposit upon such terms as the Company may approve.
(T) To invest and deal with the moneys of the Company in such manner as may
from time to time be determined.
(U) To lend and advance money or to give credit to such persons and on such
terms as may seem expedient, and in particular to customers and others
having dealings with the Company or any Group Member, and to guarantee the
performance of contracts by any such persons.
(V) To remunerate any person, firm or company for services rendered or to be
rendered, in marketing selectively or otherwise, or assisting to market,
or guaranteeing the marketing or procuring the underwriting or any of the
shares, debentures or other securities of the Company or of any Group
Member or in or about the conduct of the business of the Company whether
by cash payment or by the allotment of shares or securities of the Company
credited as paid up in full or in part, or otherwise.
(W) To purchase with a view to closing or re-selling or otherwise dealing with
in whole or in part any business or properties which may be deemed likely
to injure in any way any business or branch of business which the Company
or any Group Member is authorised to carry on.
(X) To draw, make, accept, endorse, discount, execute and issue promissory
notes, bills of lading, warrants, debentures and other negotiable and
transferable instruments.
(Y) To sell or dispose of the undertaking of the Company, or any part thereof
either together or in portions, for such consideration (if any) as the
Company may think fit, and, in particular, for shares, whether fully or
partly paid up, debentures or securities of any other company.
(Z) To adopt such means of making known the assets, products and services of
the Company or any Group Members may seem expedient, and in particular by
advertising in the press, by circulars, by purchase and exhibition of
works of art or interest, by publication of books and periodicals and by
granting prizes, rewards and donations.
(AA) To establish, support or subscribe to or aid in the establishment of any
charitable, political or public object or entity and any association,
institution, society, club, fund, trust or convenience which may be in the
interest of or for the benefit of the Company or any Group Member or its
or their employees or ex-employees, or the employees of its or their
4
<PAGE>
predecessors in business, or may be connected with any town or place where
the Company or any Group Member carries on or intends to carry on
business.
(BB) To grant pensions, gratuities, bonuses or charitable aid to any officers,
ex-officers, employees or ex-employees of the Company or any Group Member
or to any other person or persons who may have served the Company or any
Group Member or its or their predecessors in business, or to the wives,
children or other relatives or dependants of such persons; to make
payments towards insurance and to form and contribute for the benefit of
any persons employed by or ex-employees of the Company or any Group Member
or their wives, children or other dependants, or by its predecessors in
business, and to subsidise or assist any association of employers or
employees, or any trade association; and to establish and maintain or
concur in establishing and maintaining any share option or share incentive
or profit sharing schemes or trusts, funds or scheme (whether contributory
or non-contributory) for the benefit of any such persons as aforesaid,
their dependants or connections, and to support or subscribe to any
charitable funds or institutions, the support of which may, in the opinion
of the Directors, be calculated directly to benefit in any way the Company
or any Group Member or its or their employees, and to institute and
maintain any club or other establishment or profit-sharing scheme
calculated to advance the interests of the company or any Group Member or
its or their officers or employees.
(CC) To obtain any Provisional Order or Act of Parliament for enabling the
Company or any Group Member to carry any of its objects into effect or for
effecting any modification of the Company's constitution or for any other
purposes which may seem expedient, and to oppose any proceedings or
applications which may seem calculated directly or indirectly to prejudice
the Company's interests or the interests of any Group Member.
(DD) To establish, grant and take up agencies in any part of the world, and to
act as agents or brokers or trustees for any person, firm or company, and
to undertake and perform subcontracts and also to act in any of the
business of the Company or of any Group Member in any part of the world,
and as principals or through or by means of agents, brokers,
subcontractors or others, and to remunerate any person in connection with
the establishment or granting of such agencies.
(EE) To distribute among the members of the Company in specie any of the
property of the Company, and in particular any shares, debentures,
debenture stock or securities of other companies belonging to the Company
or of which the Company may have the power of disposing.
(FF) To amalgamate with any other company having objects altogether or in part
similar to those of this Company.
(GG) To apply for, or join in applying for, purchase or by other means acquire
and protect, prolong and renew, sell or otherwise dispose of, whether in
the United Kingdom or elsewhere, any patents, patent rights, brevets d'
invention, licences, trademarks, know-how, protections and concessions
which may appear likely to be advantageous or useful to the Company or any
Group Member, and to use and turn to account and to manufacture under or
grant licences
5
<PAGE>
or privileges in respect of the same, and to expend money in experimenting
upon and testing and making researches, inventions or rights which the
Company or any Group Member may acquire or propose to acquire.
(HH) To make such arrangements for housing of any of the employees of the
Company or any Group Member or of any of its or their tenants either by
the erection of dwellings or by entering into arrangements with any
Government or public or local authorities or companies or persons for such
erection or othewise as may seem expedient and upon such terms and
conditions as may be determined, and to construct, maintain, improve,
develop, work, control and manage any waterworks, gas works, electricity
supply works, public vehicles or tramways, restaurants, baths, places of
worship, places of amusement or instruction, pleasure grounds, parks,
gardens, reading rooms, stores, shops, diaries and other works and
conveniences which the Company may think advisable in connection with the
housing of any of such employees or tenants of or the development of its
land and property.
(II) To do all such things as are incidental to or conducive to the attainment
of the above objects, or any of them or to any of the objects of any Group
Member and to all or any of the above in any part of the world.
And it is hereby declared that:
(1) the word "company" in this Clause shall be deemed to include any
person or partnership or business association or other body of
persons whether domiciled in the United Kingdom or elsewhere;
(2) words denoting the singular only shall include the plural and vice
versa; and
(3) the objects specified in each paragraph of this Clause shall, except
where othewise expressed in such paragraph, be regarded as
independent objects and in nowise limited or restricted by reference
to or inference from the terms of any other paragraph or the name of
the Company.
5. The liability of the members is limited.
6. The share capital of the company is (Pounds)2,500,000 divided into
25,000,000 shares of 10 pence each.*
_________________________
* The original share capital of the Company was (Pounds)100,000 divided into
100,000 shares of (Pounds)1 each. It was sub-divided into shares of 10 pence
each and then increased to (Pounds)2,500,000 on 5th December, 1990.
6
<PAGE>
WE, the subscribers to this Memorandum of Association, wish to be formed into a
Company pursuant to this Memorandum; and we agree to take the number of shares
shown opposite our respective names.
_______________________________________________________________________________
NAMES AND ADDRESSES OF SUBSCRIBERS Number of shares taken
by each Subscriber
_______________________________________________________________________________
1. For and on behalf of One
Instant Companies Limited
2 Baches Street
London N1 6U
2. For and on behalf of One
Swift Incorporations Limited
2 Baches Street
London N1 6UB
____
Total shares taken Two
______________________________________________________________________________
DATED 10th August 1990
WITNESS to the above Signatures:-
Terry Jayne,
2 Baches Street
London N1 6UB
7
<PAGE>
Exhibit 3.2
THE COMPANIES ACTS 1985 AND 1989
----------------------------------
A PUBLIC COMPANY LIMITED BY SHARES
----------------------------------
ARTICLES OF ASSOCIATION
OF
MERGECLAIM PUBLIC LIMITED COMPANY
(to be renamed Alliance Resources PLC)
(adopted by Special Resolution
passed on 5th December, 1990)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Subject Article Page
- -------
No. No.
--- ---
<S> <C> <C>
I. PRELIMINARY............................................................................... 1
Application.......................................................................... 1 1
Interpretation....................................................................... 2 1
II. CAPITAL................................................................................... 4
A. ISSUES AND RIGHTS................................................................... 4
Authorised share capital........................................................ 3 4
Alterations of share capital.................................................... 4 5
Purchase and redemption of the Company's shares................................. 5 5
Issue of shares with special rights............................................. 6 5
Variation of rights attaching to a class of shares.............................. 7 5
Special rights not varied by an issue of further shares of the class............ 8 6
Financial assistance for the acquisition of the Company's shares................ 9 6
Disqualification from voting - unpaid calls - non-compliance with statutory
requirements - statutory rights and court orders not affected................. 10 6
B. ALLOTMENT OF SHARES................................................................ 8
Allotment of shares............................................................. 11 8
Power to pay commission......................................................... 12 8
Trusts not to be recognised..................................................... 13 8
Issue of warrants............................................................... 14 9
C. CERTIFICATES....................................................................... 9
Form of share certificate and method of sealing................................. 15 9
Number of joint holders......................................................... 16 9
Period for the issue of share certificates...................................... 17 10
Balance certificates............................................................ 18 10
Issue of replacement certificates............................................... 19 10
Certificates for debentures and other securities................................ 20 11
Uncertificated shares and other securities...................................... 21 11
D. LIEN............................................................................... 11
Company's lien on partly-paid shares including dividends........................ 22 11
Enforcement of lien - application of sale proceeds - sale transfer
and good title of transferee to shares........................................ 23 11
E. CALLS ON SHARES.................................................................... 12
Board may make calls............................................................ 24 12
When a call is deemed to be made................................................ 25 12
Liabilities of joint holders.................................................... 26 12
Interest on unpaid calls........................................................ 27 12
Deemed calls.................................................................... 28 13
Board's power to differentiate.................................................. 29 13
Payment up in advance of calls.................................................. 30 13
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Subject Article Page
- -------
No. No.
--- ---
<S> <C> <C>
F. FORFEITURE OF SHARES............................................................... 13
Service of notice requiring payment of unpaid calls............................. 31 13
Contents of call notice......................................................... 32 13
Forfeiture...................................................................... 33 14
Service of notice of forfeiture................................................. 34 14
Forfeited shares to become the Company's property............................... 35 14
Former holders liability for unpaid calls....................................... 36 14
Statutory declaration as evidence............................................... 37 15
G. TRANSFER OF SHARES................................................................. 15
Transfers to be in Writing in usual common form................................. 38 15
No transfer fees payable........................................................ 39 15
No registration fees payable.................................................... 40 15
Execution of transfers.......................................................... 41 15
Board's power of refusal........................................................ 42 16
General conditions as to transfer............................................... 43 16
Temporary suspension of the registration of transfers........................... 44 16
Company to retain transfers and related documents............................... 45 16
Renunciation of allotment....................................................... 46 17
H. TRANSMISSION OF SHARES............................................................. 18
Surviving joint holders or personal representatives alone recognised............ 47 18
Person becoming entitled on death or bankruptcy................................. 48 18
Person electing to be registered required to notify............................. 49 18
Rights of persons entitled by transmission...................................... 50 18
I. UNTRACED SHAREHOLDERS.............................................................. 19
Power to sell shares............................................................ 51 19
J. STOCK.............................................................................. 20
Conversion of shares into stock................................................. 52 20
Rights and privileges of stockholders........................................... 53 20
Conditions as to transfer of stock.............................................. 54 20
Interpretation of "stock" and "stockholder"..................................... 55 21
K. ALTERATIONS OF CAPITAL............................................................. 21
Consolidation, sub-division, cancellation and reduction......................... 56 21
Treatment of resulting fractional entitlements.................................. 57 21
III. GENERAL MEETINGS......................................................................... 22
A. MEETINGS AND NOTICES................................................................ 22
Annual general meeting.......................................................... 58 22
Extraordinary general meetings.................................................. 59 22
Length of notice................................................................ 60 22
Short notice.................................................................... 61 23
Notice of right to appoint a proxy.............................................. 62 23
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Subject Article Page
- -------
No. No.
--- ---
<S> <C> <C>
Notice members' resolutions upon requisition.................................... 63 23
Accidental omission or non-receipt.............................................. 64 23
B. PROCEEDINGS AT GENERAL MEETINGS..................................................... 23
Quorum - overflow meetings...................................................... 65 23
Lack of quorum adjournment or dissolution....................................... 66 24
Chairman........................................................................ 67 24
Adjournment..................................................................... 68 24
Amendments to resolutions....................................................... 69 25
Manner of decision.............................................................. 70 25
Proxy empowered to demand a poll................................................ 71 25
Objections to the qualification of a voter or to votes and errors in
counting votes etc............................................................ 72 25
Manner of and place for taking a poll........................................... 73 26
Chairman's casting vote......................................................... 74 26
When a poll has to be taken..................................................... 75 26
Notice of a poll................................................................ 76 26
Continuance of other business................................................... 77 26
Demand for a poll may be withdrawn.............................................. 78 27
C. VOTES OF MEMBERS.................................................................... 27
Voting rights................................................................... 79 27
Voting by joint holders......................................................... 80 27
Member of unsound mind may vote personal representative......................... 81 27
Proxy may vote on a poll........................................................ 82 28
Member need not cast his votes all in same way.................................. 83 28
Execution of a form of proxy.................................................... 84 28
Proxy need not be a member...................................................... 85 28
Deposit of proxy - duration of validity......................................... 86 28
Form of proxy instrument........................................................ 87 28
Board to send out instruments of proxy.......................................... 88 29
Validity of vote given by proxy................................................. 89 29
D. CORPORATIONS ACTING BY REPRESENTATIVES.............................................. 29
A corporate member may appoint a representative................................. 90 29
Directors entitled to attend and speak at meetings.............................. 91 29
IV. DIRECTORS................................................................................ 30
A. NUMBER AND REMUNERATION OF DIRECTORS................................................ 30
Number of Directors............................................................. 92 30
No share qualification.......................................................... 93 30
Remuneration of Directors....................................................... 94 30
Expenses........................................................................ 95 30
B. POWERS AND DUTIES OF DIRECTORS...................................................... 30
Board to manage the business of the Company..................................... 96 30
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Subject Article Page
- -------
No. No.
--- ---
<S> <C> <C>
Local boards................................................................... 97 31
Appointment of attorneys and agents............................................ 98 31
Overseas branch registers...................................................... 99 31
Limit on borrowings............................................................ 100 31
Power of Board to delegate power to make calls................................. 101 34
Signing cheques and similar instruments........................................ 102 34
C. INTERESTS OF DIRECTORS............................................................. 34
Other office or place of profit - power to act in a professional capacity...... 103 34
Contracts with the Company - disclosure of interest............................ 104 34
Restriction upon voting - quorum............................................... 105 35
Offices and employment - ruling on materiality - notice by
Director of his interest................................................... 106 36
Disapplication of Articles 105 and 106 (a)..................................... 107 37
Company not to make loans, quasi-loans or enter into credit transactions....... 108 37
Director's places of profit in other companies................................. 109 38
Pension and superannuation funds - employees' share schemes -
charitable subscriptions..................................................... 110 38
Power to make provision for employees.......................................... 111 39
D. VACATION OF OFFICE OF DIRECTOR..................................................... 39
Vacation of office............................................................. 112 39
E. MANAGING AND EXECUTIVE DIRECTORS................................................... 40
Appointment of Managing and Executive Directors................................ 113 40
Remuneration for special or additional services................................ 114 40
Powers of Directors holding executive office................................... 115 40
F. ROTATION AND REMOVAL OF DIRECTORS.................................................. 41
One-third of the Directors to retire annually.................................. 116 41
Retiring Director to hold office until dissolution of meeting.................. 117 41
Directors who are to retire by rotation........................................ 118 41
When a retiring Director is deemed re-appointed................................ 119 41
Each re-appointment to be voted on separately.................................. 120 42
Notice required of an intention to propose a new Director...................... 121 42
Increase or reduction in permitted number of Directors......................... 122 42
Appointment of Director to fill a casual vacancy............................... 123 42
Removal of Director by ordinary resolution..................................... 124 42
G. ALTERNATE DIRECTORS................................................................ 43
Appointment and Revocation - approval of alternate by the
Director - remuneration.................................................... 125 43
H. PROCEEDINGS OF DIRECTORS........................................................... 44
Meetings of the Board - determination of questions............................. 126 44
Quorum and attendance by telephone............................................. 127 44
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
Subject Article Page
- -------
No. No.
--- ---
<S> <C> <C>
Restricted powers of Directors if less than prescribed minimum................. 128 45
Chairman of the Board.......................................................... 129 45
Validity of written resolution................................................. 130 45
Powers of quorum of Board...................................................... 131 46
Delegation of powers to Director............................................... 132 46
Appointment of committee of Board.............................................. 133 46
Proceedings of committee of Board.............................................. 134 46
Validity of acts of Board, etc................................................. 135 46
I. MINUTES............................................................................ 47
Minutes........................................................................ 136 47
J. SECRETARY.......................................................................... 47
Appointment and acts of Secretary.............................................. 137 47
K. THE SEAL........................................................................... 47
Custody and use of the Seal.................................................... 138 47
Official seal for use overseas................................................. 139 48
L. AUTHENTICATION OF DOCUMENTS........................................................ 48
Authentication of documents by Directors, Secretary; etc....................... 140 48
V. DIVIDENDS AND DISTRIBUTIONS............................................................. 49
Distribution of profits........................................................ 141 49
Dividends only payable on paid up and called up capital........................ 142 49
Interim dividends.............................................................. 143 49
Record dates................................................................... 144 50
Deduction of unpaid calls...................................................... 145 50
Unclaimed dividends............................................................ 146 50
Dividend warrants.............................................................. 147 50
Any joint holder may give receipt for a dividend............................... 148 51
Dividends to untraced shareholders............................................. 149 51
Dividend in specie............................................................. 150 51
Scrip dividends................................................................ 151 52
VI. RESERVES................................................................................ 53
Board power to carry profits to reserve - investment of reserves -
carry forward of profits................................................. 152 53
VII. CAPITALISATION OF PROFITS............................................................... 53
Capitalisation issue........................................................... 153 53
Board to effect capitalisations................................................ 154 55
VIII. ACCOUNTS AND AUDIT...................................................................... 55
Keeping of accounts and retention and location of accounting records........... 155 55
Accounts to be laid before general meetings.................................... 156 56
</TABLE>
(v)
<PAGE>
<TABLE>
<CAPTION>
Subject Article Page
- -------
No. No.
--- ---
<S> <C> <C>
Auditors' report.............................................................. 157 56
Deliver of reports and accounts to be delivered to members and
debenture holders - summary financial statements........................... 158 56
Non-delivery of reports and accounts.......................................... 159 56
Appointment of auditors....................................................... 160 57
Annual audit of accounts...................................................... 161 57
Validity of acts of auditors.................................................. 162 57
Right of auditors regarding general meetings.................................. 163 57
NOTICES ........................................................................ 57
Notices to be in Writing...................................................... 164 57
Service of notices............................................................ 165 57
New member to be bound by notices already served in respect
of the relevant share........................................................ 166 58
Notice to joint holders....................................................... 167 58
UK address for services....................................................... 168 58
Member present deemed to have received notice................................. 169 58
Advertisement of notice....................................................... 170 58
When service effected......................................................... 171 58
Service on deceased or bankrupt member........................................ 172 59
Convening of meetings by advertisement........................................ 173 59
I. WINDING-UP............................................................................... 59
Distribution of assets in specie.............................................. 174 59
II. INDEMNITY AND INSURANCE................................................................. 59
Indemnity and insurance for Directors and other officers...................... 175 59
</TABLE>
(vi)
<PAGE>
Company Number 2532955
THE COMPANIES ACTS 1985 AND 1989
__________________________________
A PUBLIC COMPANY LIMITED BY SHARES
__________________________________
ARTICLES OF ASSOCIATION
OF
MERGECLAIM PUBLIC LIMITED COMPANY
(to be renamed Alliance Resources PLC)
(adopted by Special Resolution
passed on 5th December, 1990)
I. PRELIMINARY
-----------
1. Application
-----------
No regulations or articles for management of a company contained or set out in
any Act of Parliament or statutory instrument concerning companies shall apply
to the Company and the following shall be the Articles of Association of the
Company.
2. Interpretation
--------------
(a) In these Articles, if not inconsistent with the subject or context, the
words standing in the first column of the following table shall bear the
meanings set opposite to them respectively in the second column thereof:
WORD MEANING
- ---- -------
Articles The Articles of Association as herein
contained or as from time to time
altered by special, or if permitted by
the Statutes ordinary, resolution
Base Rate The base lending rate of National
Westminster Bank PLC (or such other bank
as the Board may elect) as it stands
from time to time
1
<PAGE>
Board The Board of Directors for the time
being of the Company or the Directors
present at a duly convened meeting of
Directors at which a quorum is present
or any of them acting as the Board of
Directors, or a committee thereof, in
accordance with these Articles
clear days In relation to a period of notice, that
period excluding the day when the notice
is given in accordance with these
Articles and the day for which it is
given or on which it is to take effect
Company Mergeclaim p.l.c. or such other name by
which the Company may for the time being
be registered in accordance with the
provisions of the Statutes
Connected In relation to a director, has the
meaning given to it in Section 346
Director A director for the time being of the
Company
dividend Dividend and/or bonus
Executive Director A Director who has been appointed to any
executive office under the Company in
accordance with the provisions of
Article 113
Extended Group The Company, its subsidiaries and its
subsidiary undertakings
Group The Company and its subsidiaries
holder In relation to shares, the member whose
name is entered in the Register as the
holder of the shares
Minimum Amount (Pounds)2.50 or such greater sum as the
Board may approve being not greater than
the maximum sum which The Stock Exchange
may from time to time permit for the
purpose
Office The registered office for the time being
of the Company
Ordinary Shares The Ordinary Shares of 10 pence each in
the capital of the Company referred to
in Article 3 number thereof for the time
being in issue
2
<PAGE>
Overseas Branch Register Branch register of members as defined in
Section 362(2)
paid up or paid Paid up and/or credited as paid up in
respect of the nominal amount of a share
Recognised Clearing House A body declared by an order of the
Secretary of State for the time being in
force to be a recognised clearing house
for the purpose of the Financial
Services Act 1986
Recognised Investment A body declared by an order of the
Exchange Secretary of State for the time being in
force to be a recognised investment
exchange for the purposes of the
Financial Services Act 1986
Register The register of members of the Company
kept as required by Section 352(1)
Seal The common seal (if any) of the Company
Securities Seal The official seal (if any) of the
Company permitted to be used by Section
40
Statutes The Companies Act 1985, the Companies
Act 1989 and every Act and statutory
instrument for the time being in force
concerning companies and affecting the
Company
subsidiary A subsidiary as defined in Section 736
subsidiary undertaking A subsidiary undertaking as defined in
Section 258
The Stock Exchange The International Stock Exchange of the
United Kingdom and the Republic of
Ireland Limited
Transfer Office The address at which the Register is for
the time being situated
United Kingdom The United Kingdom of Great Britain and
Northern Ireland
in Writing Written or produced by any substitute
for writing, including printing,
typewriting, including printing,
typewriting, lithography and
photography, but not including telex or
facsimile.
3
<PAGE>
(b) The following provisions shall apply to the construction or
interpretation of these Articles or any part thereof:
(i) any reference to any section or provision of any Act of Parliament shall
if not inconsistent with the subject or context include every statutory
modification, extension, substitution, amendment or re-enactment thereto
or thereof for the time being in force;
(ii) any reference to a numbered Article shall be a reference to the Article
of these Articles bearing the same number and includes reference to such
Article as amended from time to time;
(iii) any reference to a numbered Section shall, unless stated otherwise, be a
reference to the Section of the Companies Act 1985 bearing the same
number (subject to the provision of paragraph (b)(i) above);
(iv) words importing the singular number include the plural and vice versa;
(v) words importing the masculine gender include the feminine gender;
(vi) words importing persons shall include companies, corporations, firms and
other unincorporated bodies;
(vii) the expression "Secretary" shall mean and include the Secretary and any
joint, deputy or assistant Secretary for the time being of the Company;
(viii) any reference to "share", "member" and "holder" shall include "stock"
and "stockholder";
(ix) save as aforesaid, any words or expressions defined in the Statutes
shall, if not inconsistent with the subject or context, bear the same
meaning in these Articles;
(x) a special or extraordinary resolution shall be effective for any purpose
for which an ordinary resolution is expressed to be required under any
provision of these Articles; and
(xi) the headings contained in these Articles are included for purposes of
reference only and shall not in any way affect or govern the sense or
construction thereof or of any part thereof.
II. CAPITAL
-------
A. ISSUES AND RIGHTS
-----------------
3. Authorised share capital
------------------------
The share capital of the Company at the date of the adoption of these Articles
is (Pounds)2,500,000 divided into 25,000,000 Ordinary Shares of 10 pence each.
4
<PAGE>
4. Alterations of share capital
----------------------------
The Company may increase or otherwise alter its share capital in any of the ways
permitted by Section 121.
5. Purchase and redemption of the Company's shares
-----------------------------------------------
(a) Subject to the provisions of the Statutes and to any necessary amendments
to these Articles, any share may be issued on the terms that it is, or at the
option of the Company or the holder thereof is to be liable, to be redeemed.
(b) The Company may purchase its own shares (including any redeemable shares)
subject to (i) the provisions of the Statutes and of these Articles and (ii) if
there is in issue any class of convertible shares for the time being forming
part of the capital of the Company ("convertible shares") to the holders of not
less than three-quarters thereof giving their consent in Writing or,
alternatively, the holders of the convertible shares passing an extraordinary
resolution at a separate meeting of the holders thereof.
6. Issue of shares with special rights
-----------------------------------
Without prejudice to any rights for the time being conferred on the holders of
any shares or class of shares (which rights shall not be varied or abrogated,
except with such consent or sanction as is provided by Article 7) and subject to
Article 11, any share of the Company may be allotted with such preferred,
deferred or other rights, or such restrictions, whether in regard to dividend,
return of capital, voting, conversion or otherwise, as the Company may from time
to time by ordinary resolution determine (or, failing such determination, as the
Board may determine).
7. Variation of rights attaching to a class of shares
--------------------------------------------------
Subject to the provisions of the Statutes all or any of the rights, privileges
or conditions for the time being attached or belonging to any class of shares
for the time being forming part of the capital of the Company may from time to
time (either while the Company is a going concerning or during or in
contemplation of a winding-up) be modified, affected, varied, extended or
surrendered in any manner as may be provided by such rights, privileges or
conditions or otherwise with the consent in Writing of the holders of not less
than three-quarters of the issued shares of that class or with the sanction of
an extraordinary resolution passed at a separate meeting of the members of that
class. To any such separate general meeting all the provisions of these Articles
as to general meetings of the Company shall mutatis mutandis apply, but so that
(i) the necessary quorum shall be members of the class present in person or by
proxy holding not less than one-third of the issued shares of that class (or, if
at any adjourned class meeting of such holders a quorum as defined above is not
present, any one person present holding shares of the class in question or his
proxy shall be a quorum), (ii) any holder of shares of the class present in
person or by proxy may demand a poll and (iii) every such holder shall, on a
poll, have one vote for every share of the class held by him.
5
<PAGE>
8. Special rights not varied by an issue of further shares of the class
--------------------------------------------------------------------
The rights conferred upon the holders of any shares or class of shares issued
with preferred or other rights shall not (unless otherwise expressly provided by
the rights attached to any such shares) be deemed to be varied by the creation
or issue of further shares ranking pari passu therewith or subsequent thereto
but in no respect in priority thereto.
9. Financial assistance for the acquisition of the Company's shares
----------------------------------------------------------------
Save to the extent prohibited by the Statutes or otherwise by law the Company
shall be entitled, subject to and in accordance with the provisions of the
Statutes, to give financial assistance directly or indirectly for the purpose of
the acquisition or proposed acquisition for the purpose of the acquisition or
proposed acquisition of any shares of the Company or any company of which it is
a subsidiary or for the purpose of reducing or discharging any liability
incurred by any person for the purpose of acquiring any shares of the Company or
any company of which it is a subsidiary.
10. Disqualification from voting - unpaid calls - non-compliance with
------------------------------------------------------------------
statutory requirements - statutory rights and court orders not affected
-----------------------------------------------------------------------
(a) No member shall, unless the Board otherwise determines, be entitled in
respect of any share held by that member to vote at any general meeting either
personally or by proxy or at any separate meeting of the holders of any class of
shares or to exercise any other right conferred by membership in relation to any
such meeting if any call or other sum presently payable by the member in respect
of that share remains unpaid.
(b) any member, or any other person appearing to be interested in any shares
of the Company, has been duly served with a notice under Section 212 (a "Section
212 Notice") and is in default for the prescribed period in supplying to the
Company the information thereby required, then at any time thereafter the Board
may in its absolute discretion by notice to such member (a "direction notice")
direct:
(i) that in respect of the shares in relation to which the default occurred
("default shares", which expression shall include any further shares
issued after the date of the Section 212 Notice in right of the first-
mentioned shares) such member shall not be entitled to vote at any
general meeting either personally or by proxy or at any separate meeting
of the holders of any class of shares or to exercise any other rights
conferred by membership in relation to any such meeting; and/or
(ii) if the default shares represent, at the date of the direction notice,
one-quarter of 1 percent or more of the issued shares of any class of
shares of the Company, that:
(aa) any dividend (or part thereof) or other moneys which would otherwise
be payable on such shares shall be retained by the Company until such
time as the direction ceases to have effect (without any liability on the
part of the Company to pay interest thereon) and that prior to such time
the acceptance of an offer made by the Company under Article 151 in
respect of any such dividend shall be of no effect; and/or
6
<PAGE>
(bb) no transfer, other than an approved transfer, of any of the default
shares shall be registered.
(c) The Company shall send a copy of the direction notice to each other
person appearing to be interested in the relevant default shares of the address
of whom has been notified to the Company, but the failure or omission by the
Company to do so shall not invalidate such notice.
(d) Any direction notice shall have effect in relation to default shares in
accordance with its terms but shall cease to have effect:
(i) when the Company has received in Writing all information required by it
pursuant to a Section 212 Notice in respect of those default shares; or
(ii) if such shares are transferred by means of an approved transfer; or
(iii) if and to the extent that the Board so determines.
(e) For the purposes of this Article:
(i) a person shall be treated as appearing to be interested in any shares if
the member holding such shares has given to the Company a notification
under Section 212 which names such person as being so interested or if
the Company (after taking into account the said notification and any
other notification under the Act or any relevant information otherwise
available to that Company) knows or has reasonable cause to believe that
the person in question is, or may be, interested in the shares, and so
that references to persons interested in shares and to interests in
shares shall be construed in accordance with Section 212(5);
(ii) the prescribed period in respect of any shares is 28 days from the date
of service of the Section 212 Notice in respect thereof, except where the
shares to which such notice related represent one-quarter of 1 percent or
more of the issued shares of any class of shares of the Company in which
case such period shall be 14 days;
(iii) a transfer is an approved transfer if (but only if):
(aa) the transfer results from a sale made through a Recognised
Investment Exchange or any stock exchange outside the United Kingdom
on which the Company's shares (or rights in respect of those shares)
are normally traded; or
(bb) it is a transfer of shares to an offeror by way of acceptance of or
in pursuance of a takeover offer (within the meaning of Section 14
of the Companies Securities (Insider Dealing) Act 1985) for the
Company; or
(cc) the Board is satisfied that the transfer is made pursuant to a sale
to a party who, in the opinion of the Board, is not connected with
the holder thereof or with any other person appearing to be
interested in such shares prior to such transfer (being a party
which itself is not the holder of any shares of the Company in
respect of which a
7
<PAGE>
direction notice is then in force or a person appearing to be
interested in any such shares) and the Board does not have
reasonable grounds to believe that the transferor or any other
person appearing to be interested in such first-mentioned shares
will following such transfer have any interest in such shares;
(iv) a reference to a person being in default in supplying to the Company the
information required by a Section 212 Notice includes a reference to his
having failed or refused to give all or any part of it and also includes
a reference to his having given information which he knows to be false in
a material respect or having recklessly given information which is false
in a material respect; and
(v) any notice by the Company pursuant to Section 212 or this Article may be
given by facsimile or telex in which case it will be deemed received
forthwith upon transmission thereof.
(e) None of the provisions contained in this Article shall in any way limit
or restrict the rights of the Company under Sections 212 and 216 or any
order made by the court under Section 216 nor shall any sanction imposed
by the Board pursuant to this Article cease to have effect, otherwise
than as provided in this Article, unless it is so ordered by the court.
B. ALLOTMENT OF SHARES
-------------------
11. Allotment of shares
-------------------
Subject to Sections 97, 98 and 100 and to the provisions of these Articles the
Board is hereby authorised to allot, grant options over or otherwise dispose of
the unissued shares in the capital of the Company in accordance with any
ordinary resolution passed from time to time authorising the Board for the
purposes of Section 80 to allot relevant securities.
12. Power to pay commission on subscription of shares
-------------------------------------------------
In addition to all other powers of paying commissions the Company (or the Board
on its behalf) may exercise the powers conferred by Section 97 of paying
commissions to persons subscribing or procuring subscriptions for shares of the
Company, or agreeing so to do whether absolutely or conditionally. The Company
(or the Board on its behalf) may also, on any issue of shares, pay such
brokerage as may be lawful.
13. Trusts in relation to shares not to be recognised
-------------------------------------------------
Except as required by law, no person shall be recognised by the Company as
holding any share upon any trust, and (except only as by these Articles or by
law otherwise provided) the Company shall not be bound by or recognise (even
when having notice thereof) any equitable, contingent, future or partial
interest in any share, or any interest in any fractional part of a share, or any
other right in response of any share, except an absolute right to the entirety
thereof in the registered holder.
8
<PAGE>
14. Issue of warrants
-----------------
The Company may, with respect to any fully paid up shares, issue under the Seal
or Securities Seal (or, in the case of shares on an Overseas Branch Register, an
official seal for use in the relevant territory) a warrant stating that the
bearer of the warrant is entitled to the shares specified in it and may provide
(by coupons or otherwise) for the payment of the future dividends on the shares
included in the warrant. Notwithstanding the provisions of Article 138, no
warrant shall require to be signed or countersigned and the method or system of
sealing (if required) and signature (if any) of warrants shall be as for share
certificates under Article 15. If a warrant or coupon is defaced, worn out or
destroyed, it may be renewed on such terms (if any) as to evidence and indemnify
and payment of any exceptional expenses incurred by the Company in investigating
evidence as the Directors may determine but otherwise free of charge and (in the
case of defacement or wearing out) on delivery of the old warrant or coupon and
(in the case of destruction) only if the Directors are satisfied beyond
reasonable doubt that the original has been destroyed. If a warrant or coupon
is lost it will not be renewed unless the Directors are satisfied beyond
reasonable doubt that the original has been destroyed. Any warrant or coupon
surrendered to the Company may be destroyed at the option of the Company after
the expiration of 1 year from the date of surrender.
C. CERTIFICATES
------------
15. Form of share certificate and method of sealing
-----------------------------------------------
Every share certificate shall be issued under the Seal or the Securities Seal
(or, in the case of shares on an Overseas Branch Register, an official seal for
use in the relevant territory) unless otherwise permitted by the Statutes and
(so long as any of the Company's shares are listed thereon) the regulations of
The Stock Exchange. Each certificate shall specify the number and class of
shares to which it relates, the amount paid up thereon and the distinguishing
numbers (if any) of the shares to which it relates. No certificate shall be
issued representing shares of more than one class. Notwithstanding the
provisions of Article 138 of these Articles, no certificate shall be required to
be signed or countersigned. The method or system of affixing the Seal and the
Securities Seal (or, in the case of shares registered on an Overseas Branch
Register, the official seal is used in the relevant territory) to share
certificates may, if the Board so resolves, be controlled by, or the
certificates be approved for sealing by, the auditors, bankers or transfer
auditors of the Company, or by the appropriate department of the Company's
registrars. Any signature may be affixed to any certificate by any mechanical
means approved by the Board.
16. Maximum number of joint holders
-------------------------------
The Company shall not be bound to register more than 4 persons as the joint
holders of any share or shares and in the case of a share held jointly by
several persons the Company shall not be bound to issue more than one
certificate therefor and delivery of a certificate to one of joint holders shall
be sufficient delivery to all.
9
<PAGE>
17. Period for the issue of share certificates
------------------------------------------
Subject to the provisions of Article 16 every person whose name is entered as a
member in the register (except a Recognised Clearing House or a nominee of a
Recognised Clearing House or of a Recognised Investment Exchange, including
Sepon Limited, in respect of whom the Company is not by law required to complete
and have ready for delivery a certificate) shall be entitled without payment to
one certificate for all the shares of any one class registered in his name. Any
certificate or certificates to which any person is entitled hereunder shall be
delivered:
(i) in the case of issue within one month after allotment (or such longer
period as the terms of issue shall provide); or
(ii) in the case of a transfer of fully paid shares within 14 days after
lodgment of the relevant instrument of transfer; or
(iii) in the case of a transfer of partly paid shares within 2 months after
lodgment of the relevant instrument of transfer.
If and so long as all the issued shares, or all the issued shares of a
particular class, in the capital of the Company are fully paid up and rank pari
passu for all purposes, then none of those shares shall bear a distinguishing
number. In all other cases each share which is not fully paid up shall bear a
distinguishing number.
18. Balance certificates
--------------------
Where a member has transferred some only of the shares comprised in a share
certificate, the old certificate shall be canceled and a new certificate for the
balance of such shares shall be issued to him in lieu without charge.
19. Issue of replacement certificates
---------------------------------
(a) Any 2 or more certificates representing shares of any one class held by
any member may at his request be canceled and a single new certificate for such
shares issued in lieu without charge.
(b) If any member shall surrender for cancellation a share certificate
representing shares held by him and request the Company to issue in lieu 2 or
more share certificates representing such shares in such proportions as he may
specify, the Board may, if it thinks fit, comply with such request upon payment
of the reasonable out-of-pocket expenses of the Company in providing the same.
(c) If a share certificate shall be damaged or defaced or worn out or alleged
to have been lost, stolen or destroyed, a new certificate representing the same
shares may be issued to the holder upon request subject to delivery up of the
old certificate or (if it shall be alleged to have been lost, stolen or
destroyed) compliance with such conditions as to evidence and indemnify (if any)
and the payment of any exceptional out-of-pocket expenses of the Company of
investigating such evidence in connection with the request as the Board may
think fit but without any further or other charge.
10
<PAGE>
(d) In the case of shares held jointly by several persons any such request
may be made by any one of the joint holders.
20. Certificates for debentures and other securities
------------------------------------------------
The provisions of these Articles relating to certificates shall, with all
necessary modifications and adaptations, apply to certificates for debentures
and debenture stock and any other securities comprising the share or loan
capital of the Company as they apply to certificates for shares.
21. Uncertificated shares and other securities
------------------------------------------
Subject to the Statutes permitting the issue of shares, debentures or other
securities without certificates or the transfer without the same production of
certificates on the creation or production of written forms of transfer, the
Company may issue shares, debentures or other securities in uncertificated form
(or, as the case may be, permit the same to be transferred without the creation
on production of written forms of transfer) but subject always to any provisions
contained in the Statutes from time to time and, so long as any of the Company's
shares, debentures or other securities are listed on The Stock Exchange, subject
to any requirements placed on it by The Stock Exchange. The Board may from time
to time lay down regulations governing the issue and transfer of uncertificated
securities subject always as provided in this Article, which regulations shall
operate in substitution for the relevant provisions of these Articles governing
certificates and the transfer of securities insofar as the Statutes permit.
D. LIEN
----
22. Company's lien on partly-paid shares - lien extends to dividends
----------------------------------------------------------------
The Company shall have a first and paramount lien on every share (not being a
fully paid share) for all moneys (whether presently payable or not) payable at a
fixed time or called in respect of that share. Such lien shall apply whether
before or after notice to the Company of any equitable or other interest of any
person other than the registered holder or holders of such share, whether the
time for payment or discharge of the same shall have arrived or not and
notwithstanding that the same are joint debts or liabilities of such holder or
his estate and any other person whether a member of the Company or not; but the
Board may at any time declare any share to be wholly or in part exempt from the
provisions of this Article. The Company's lien, if any, on a share shall extend
to all dividends or other moneys payable thereon or in respect thereof. The
Company shall not have a lien or any other charge on its own fully paid shares
(whether taken expressly or otherwise); and in relation to any permitted lien or
other charge the provisions (so far as are applicable) of Section 148(4) and of
paragraph 13(3) of Part I of Schedule 9 to the Companies Act 1985 shall be
complied with in every respect.
23. Enforcement of lien by a sale of shares - application of proceeds of
--------------------------------------------------------------------
sale -Board's power to authorise a transferor to execute a sale transfer
------------------------------------------------------------------------
- good title of transferee to shares
------------------------------------
(a) The Company may sell, in such manner as the Board thinks fit, all or any
of the shares on which the Company has a lien, but not sale shall be made unless
some sum in respect of which the lien exists is presently payable, nor until the
expiration of 14 days after a notice in Writing stating and
11
<PAGE>
demanding payment of the sum presently payable, and giving notice of intention
to sell in default, shall have been served on the registered holder for the time
being of the shares or the person entitled by reason of the death or bankruptcy
of such holder to the shares.
(b) The net proceeds of such sale, after payment of the costs thereof, shall
be applied in or towards payment or satisfaction of the debt or liability in
respect whereof the lien exists, so far as the same is presently payable, and
any residue shall (subject to a like lien for debts or liabilities not presently
payable as existed upon the shares prior to the sale) be paid to the person
entitled to the shares at the time of the sale. For giving effect to any such
sale the Board may authorise some person to transfer the shares sold to, or in
accordance with the directions of, the purchaser thereof. The purchaser shall be
registered as the holder of the shares so transferred and he shall not be bound
to see to the application of the purchase money nor shall his title to the
shares be affected by any irregularity or invalidity in the proceedings in
reference to the sale.
E. CALLS ON SHARES
---------------
24. Board may make calls
--------------------
Subject to the provisions of these Articles and to the terms of allotment
thereof, the Board may from time to time make calls upon the members in respect
of any moneys unpaid on their shares and each member shall (subject to receiving
at least 14 days' notice in Writing specifying the time or times and place so
specified the amount called on his shares. A call may, at any time before
receipt by the Company of a sum due thereunder, be revoked in whole or in part
and payment of a call may in whole or in part be postponed as the Board may
determine. A person upon whom a call is made shall remain liable for calls made
upon him notwithstanding the subsequent transfer of the shares in respect of
which the call was made.
25. When a call is deemed to be made
--------------------------------
A call shall be deemed to have been made at the time when the resolution of the
Board authorising the call was passed and may be required to be paid by
installments.
26. Liabilities of joint holders
----------------------------
The joint holders of a share shall be jointly and severally liable to pay all
calls in respect thereof.
27. Interest on unpaid calls
------------------------
If a sum called in respect of any share or any money payable on a share under
the terms of allotment is not paid before or on the day appointed for payment
thereof, the person from whom the sum is due shall pay interest on the sum from
the day appointed for payment thereof to the time of actual payment at the rate
per annum of 3 percent above the Base Rate or at such lesser rate as the Board
may agree to accept. Such person shall also pay all costs, charges and expenses
which the Company may have incurred or become liable for in order to procure
payment of, or in consequence of such non-payment of, such call or installment,
but the Board shall be at liberty to waive payment of such interest, costs,
charges and expenses wholly or in part.
12
<PAGE>
28. Sums payable on allotment or at any fixed time deemed to be on call
-------------------------------------------------------------------
Any sum or non-cash consideration which by the terms of allotment of a share or
pursuant to the Statutes is or becomes payable upon allotment or at any fixed
date thereafter whether on account of the nominal amount of the share or by way
of premium shall for all the purposes of these Articles be deemed to be a call
duly made and payable on the date on which, by the terms of allotment or
pursuant to the Statutes, the same becomes payable, and in the case of non-
payment all the relevant provisions of these Articles as to payment of interest
and expenses, forfeiture or otherwise shall apply as if such sum had become
payable by virtue of a call duly made and notified.
29. Board's power to differentiate regarding calls
----------------------------------------------
The Board may on the issue of shares differentiate between the holders of shares
as to the amount called to be paid and the times of payment.
30. Payment up of shares in advance of calls
----------------------------------------
The Board may, if it thinks fit, receive from any member willing to advance the
same all or any part of the money unpaid upon the shares held by him beyond the
sums actually called up thereon as a payment in advance of calls, and such
payment in advance of calls shall to that extent extinguish the liability on the
shares in respect of which it is advanced. The Company may (but shall not be
obliged to) pay interest upon the money so received, or so much thereof as from
time to time exceeds the amount of the calls then made and payable upon the
shares in respect of which it has been received, at such rate not exceeding the
Base Rate (unless the Company in general meeting shall otherwise direct) as the
member paying such sum and the Board agree upon.
F. FORFEITURE OF SHARES
--------------------
31. Service of notice requiring payment of unpaid calls
---------------------------------------------------
If a member fails to pay any call or installment of a call before or on the day
appointed for payment thereof, the Board may at any time thereafter, during such
time as any part of such call or installment remains unpaid, serve a notice on
him (or on the person becoming entitled to the share by transmission on death or
bankruptcy or otherwise by operation of law) requiring payment of so much of the
call or installment as is unpaid, together with any interest which may have
accrued and any expenses incurred by the Company by reason of such non-payment.
32. Contents of notice requiring payment of unpaid calls
----------------------------------------------------
The notice shall name a further day (not earlier than 14 days from the date of
service thereof) on or before which, and the place where, the payment required
by the notice is to be made, and shall state that in the event of non-payment at
or before the time and at the place appointed the shares on which the call was
made or installment is payable will be liable to be forfeited.
13
<PAGE>
33. Forfeiture of shares
--------------------
If the requirements of any such notice as aforesaid are not complied with, any
share in respect of which such notice has been given may at any time thereafter,
before payment of all calls or installments and interest due in respect thereof
has been received by the Company, be forfeited by a resolution of the Board to
that effect and such forfeiture shall include all dividends which shall have
been declared on the forfeited share and not actually paid before the forfeiture
and any dividends on such share which may have been declared and paid but which
have not been claimed by the payee at the date of the resolution of the Board by
which such share shall have been forfeited. The Board may accept the surrender
of any share liable to be forfeited hereunder and in such case references in
these Articles to forfeiture shall include surrender.
34. Service of notice of forfeiture
-------------------------------
When any share has been forfeited notice of the forfeiture shall be served upon
the person who was before the forfeiture the registered holder of that share (or
the person entitled thereto by transmission as aforesaid) and an entry of such
notice having been given, and of the forfeiture, with the date thereof, shall be
made forthwith in the Register opposite the entry in respect of the share; but
no forfeiture shall be in any manner invalidated by any omission or neglect to
give notice or make such entry as aforesaid.
35. Forfeited shares to become the Company's property
-------------------------------------------------
Upon being forfeited a share shall thereupon become the property of the Company
and during the period of 3 years immediately following the day prior to the date
of forfeiture of such share may be sold, re-allotted (subject to the provisions
of these Articles) or otherwise disposed of, either to the person who was before
forfeiture the holder thereof or entitled thereto, or to any other person, upon
such terms and in such manner as the Board shall thing fit including the
remission of the whole or any part of the interest made payable by the next
succeeding Article. At any time before such a sale, re-allotment or disposition
the forfeiture may be annulled or canceled on such terms and conditions as the
Board thinks fit. The Board may, if necessary, authorise some person to
transfer such a forfeited share to any other person as aforesaid. If within the
period of 3 years immediately following the day prior to the date of forfeiture
of any share such share has not been sold, re-allotted or otherwise disposed of,
the Board shall before the expiration of the period of 3 years from the date of
forfeiture of the share cancel such share and shall diminish the amount of the
authorised and issued share capital by the nominal amount of the share so
canceled and shall comply with all relevant provisions of Sections 146 to 148.
36. Former holder of forfeited shares remain liable for unpaid calls
----------------------------------------------------------------
A person whose shares have been forfeited shall cease to be a member in respect
of the forfeited shares but shall notwithstanding the forfeiture remain liable
to pay to the Company all moneys which at the date of forfeiture were presently
payable by him to the Company in respect of the shares, with interest thereon at
the rate per annum of 3 per cent above the Base Rate, or at such lower rate as
the Board may determine, from the date of forfeiture until payment, and the
Board may enforce payment
14
<PAGE>
without any allowance for the value of the shares at the time of forfeiture or
for any consideration received on their disposal.
37. Statutory declaration as evidence of forfeiture
-----------------------------------------------
A statutory declaration in Writing signed by the declarant stating that he is a
Director or Secretary of the Company and that a share has been duly forfeited on
a date stated in the declaration shall be conclusive evidence of the facts
therein stated as against all persons claiming to be entitled to the share
adversely to the forfeiture, and such declaration and the receipt of the Company
for the consideration (if any) given for the share on the sale, re-allotment or
disposal thereof, together with the certificate for the share delivered to a
purchaser or allottee thereof, shall (subject to the execution of a transfer if
the same be so required) constitute a good title to the share, and the person to
whom the share is sold, re-allotted or disposed of shall (subject to his having
agreed to become a member of the Company) be registered as the holder of the
share and shall be discharged from all calls and other expense (if any) in
connection therewith made or incurred prior to such sale or disposal and shall
not be bound to see to the application of the consideration (if any) nor shall
his title to the share be affected by any irregularity or invalidity in the
proceedings in relation to the forfeiture, sale, re-allotment or disposal of the
share.
G. TRANSFER OF SHARES
------------------
38. Transfers to be in Writing in usual common form
-----------------------------------------------
Subject to the provisions of Article 21 (transfers without a written
instrument), all transfers of shares shall be effected by transfer in Writing in
any usual or common form or in any other form which the Board may approve
PROVIDED that every transfer by a corporation shall be made by deed or deed poll
unless otherwise permitted by law in which case such transfers shall be executed
as required by the Statutes.
39. No transfer fees payable
------------------------
No fee shall be charged on the registration of a transfer.
40. No registration fees payable
----------------------------
No fee shall be charged on the registration of any probate, letters of
administration, certificate of death or marriage, power of attorney, stop notice
or other instrument relating to or affecting the title to any shares or
otherwise for making any entry in the Register affecting the title to any
shares.
41. Execution of transfers
----------------------
The instrument of transfer of a share shall be executed by or on behalf of the
transferor and the transferor shall be deemed to remain the holder of the share
until the name of the transferee is entered in the Register in respect thereof
PROVIDED that in the case of a partly paid share the instrument of transfer must
also be executed by or on behalf of the transferee.
15
<PAGE>
42. Board's power to refuse to register transfers in certain cases
--------------------------------------------------------------
The Board may, in its absolute discretion and without assigning any reason
therefor, decline to register any transfer of shares (not being fully paid
shares) to a person of whom they shall not approve and they may also decline to
register any shares (not being fully paid shares) on which the Company has a
lien. If the Board declines to register a transfer of any shares, it shall,
within 2 months after the date on which the transfer was lodged with the
Company, send to the transferee notice of the refusal and (except in the case of
fraud or suspected fraud) return the instrument of transfer and any accompanying
certificate to the person presenting the same.
43. General conditions as to transfer
---------------------------------
Subject to the provisions of Article 21, the Board may also decline to register
any instrument of transfer, unless the instrument of transfer:
(i) is duly stamped (if required by law) and is deposited at the Transfer
Office or such other place as the Board may prescribe and is accompanied
by the certificate for the shares to which it relates and such other
evidence (if any) as the Board may reasonably require to show the right
of the transferor to make the transfer (and if the instrument of transfer
is executed by some other person on his behalf the authority of that
person so to do); and
(ii) is in respect of one class of share only; and
(iii) is in favour of not more than 4 transferees.
In the case of an instrument of transfer executed by a Recognised Clearing House
or a nominee of a Recognised Clearing House or of a Recognised Investment
Exchange (including Sepon Limited), the lodgment of a certificate for the shares
being transferred or other evidence as aforesaid will not be required unless and
to the extent that certificates have been issued in respect of the shares in
question.
44. Temporary suspension of the registration of transfers
-----------------------------------------------------
The registration of transfers of shares or of any class of shares or of any
other class of security in the share or loan capital of the Company may be
suspended at such times and for such periods as the Board may from time to time
determine PROVIDED always that such registration shall not be suspended for more
than 30 days in any calendar year.
45. Company to retain transfers and power of Company to destroy transfers and
-------------------------------------------------------------------------
related documents
-----------------
(a) Subject to paragraph (b) of this Article all instruments of transfer
which are registered shall be retained by the Company, but any instrument of
transfer which the board may decline to register shall (except in any case of
fraud or suspected fraud) be returned to the person presenting the same.
(b) Subject as hereinafter provided the Company shall be entitled to destroy:
16
<PAGE>
(i) all instruments of transfer of shares which have been registered at any
time after the expiration of 6 years from the date of registration
thereof;
(ii) registered share certificates which have been canceled or ceased to have
effect at any time after the expiration of 1 year from the date of such
cancellation or cessation;
(iii) all notifications of change of name or address and dividend mandates
after the expiration of 2 years from the date of recording thereof; and
(iv) any other document on the basis of which any entry in the Register is
made at any time after the expiration of 6 years from the date of the
first entry in the Register was made in respect of it;
and it shall conclusively be presumed in favour of the Company that every entry
in the Register purporting to have been made on the basis of an instrument of
transfer or other document so destroyed was duly and properly made and that
every instrument of transfer so destroyed was a valid and effective instrument
duly and properly registered and that every share certificate so destroyed was a
valid and effective document duly and properly canceled and that every other
document so destroyed was a valid and effective document in accordance with the
recorded particulars thereof in the books or records of the Company PROVIDED
that:
(i) the provisions aforesaid shall apply only to the destruction of a
document in good faith and without notice in Writing to the Company of
any claim (regardless of the parties thereto) to which the document might
be relevant;
(ii) nothing herein contained shall be construed as imposing upon the Company
any liability in respect of the destruction of any such document earlier
than as aforesaid or in any case where the conditions of proviso (i)
above are not fulfilled; and
(iii) references herein to the destruction of any document include references
to the disposal thereof in any manner.
The provisions of this Article shall, with all necessary modification and
adaptations, apply to all instruments of transfer, notifications of change of
name or address and mandates relating to and certificates representing
debentures and any other securities comprising the share or loan capital of the
Company as they apply to instruments of transfer of and certificates for and
other documents relating to shares.
46. Renunciation of allotment permitted
-----------------------------------
Nothing in these Articles shall preclude the Board from recognising a
renunciation of the allotment of any share by the allottee in favour of some
other person before any person has been entered in the Register in respect of
such share.
17
<PAGE>
H. TRANSMISSION OF SHARES
----------------------
47. Surviving joint holders or personal representatives alone recognised upon
-------------------------------------------------------------------------
death of a member
-----------------
In case of the death of a member, the survivors or survivor where the deceased
was a joint holder, or the legal personal representatives of the deceased where
he was a sole or only surviving holder, shall be the only persons recognised by
the Company as having any title to his interest in the shares held by him, but
nothing contained in these Articles shall release the estate of a deceased
member from any liability in respect of any share jointly or solely held by him.
48. Person becoming entitled on death or bankruptcy of a member may be
------------------------------------------------------------------
registered
----------
Subject to the provisions of these Articles, any person becoming entitled to a
share in consequence of the death or bankruptcy of a member may upon such
evidence as to his title being produced as may from time to time be properly
required by the Board, and subject as hereinafter provided, elect either to be
registered himself as holder of the share or to have some person nominated by
him registered as the transferee thereof, but the Board shall, in either case,
have the same right to decline or suspend registration as it would have had in
the case of a transfer of that share by that member before his death or
bankruptcy, as the case may be.
49. Person electing to be registered required to notify the Company
---------------------------------------------------------------
If the person becoming entitled to a share shall elect to be registered himself
under the provisions of the foregoing Article, he shall deliver or send to the
Company a notice in Writing signed by him stating that he so elects. If he
shall elect to have another person registered, he shall testify his election by
executing to such person a transfer of such share. All the limitations,
restrictions and provisions of these Articles relating to the right to transfer
and the registration of transfers of shares shall be applicable to any such
notice or transfer as aforesaid as if the death or bankruptcy of the member had
not occurred and the notice or transfer were a transfer signed by such member.
50. Rights of persons entitled to a share by transmission
-----------------------------------------------------
Save as otherwise provided by or in accordance with these Articles, a person
becoming entitled to a share in consequence of the death or bankruptcy of a
member or otherwise by operation of law shall (upon supplying to the Company
such evidence as the Board may reasonably require to show his title to the
share) be entitled to receive, and may give a good discharge for, the same
dividends and other moneys payable in respect thereof as if he was the
registered holder thereof; such person shall also be entitled to all other
advantages to which he would be entitled if he were the registered holder of the
share except that he shall not, before being registered as a member in respect
of the share, be entitled in respect of it to receive notice of or to attend or
vote at meetings of the Company or to exercise any rights conferred by
membership in relation to meetings of the Company; PROVIDED that the Board may
at any time give notice requiring any such person to elect either to be
registered himself or to transfer the share and, if the notice is not complied
with within 60 days, the Board may thereafter:
18
<PAGE>
(i) withhold payment of all dividends and other moneys payable in respect of
the share (but any such action shall not constitute the Company a trustee
in respect of any such dividends or other moneys) and suspend any other
advantages to which such person would otherwise be entitled in respect of
the share until the requirements of the notice have been complied with;
and/or
(ii) at any time give notice requiring a person becoming entitled to a share
as aforesaid to elect either to be registered himself or to transfer the
share and, if the notice is not complied with within such period (being
not less than 42 days) as the Board may fix, the share may be sold at the
best price reasonably obtainable in such manner as the Board thinks fit
and, subject to the provisions of these Articles generally, the
provisions of Article 51(b) shall apply to such sale.
I. UNTRACED SHAREHOLDERS
---------------------
51. Company's power to sell shares
------------------------------
(a) The Company shall be entitled to sell in such manner as the Board thinks
fit at the best price reasonably obtainable the share of a member, or the share
to which a person is entitled by transmission, if and PROVIDED that:
(i) during the period of 12 years prior to the date of the publication of the
advertisements referred to in paragraph (ii) below (or, if published on
different dates, the earlier thereof) all warrants and cheques sent by
the Company through the post in prepaid letters addressed to the holder
of, or to the person entitled by transmission to, such shares at the
address appearing against the member's name in the Register (or which
have been sent to him at such other address, or to such other person at
such other address, as such member or the person so entitled by
transmission shall have instructed the Company to pay dividends otherwise
payable to the member at his registered address) have remained uncashed
PROVIDED that at least 3 dividends (whether interim or final) have been
paid or have become payable and no such dividend has been claimed; and
(ii) on the expiry of the said period of 12 years the Company shall have
inserted advertisements both in 2 national daily newspapers circulating
in the United Kingdom and in a newspaper circulating in the area of the
relevant said address referred to in paragraph (i) above giving notice of
its intention to sell the said shares; and
(iii) during the said period of 12 years and the period of 3 months following
the said advertisements and prior to the exercise of the power of sale,
the Company shall have received no communication from such member of
person entitled by transmission to such shares; and
(iv) notice in Writing shall have been given to the Quotations Department of
The Stock Exchange of its intention so to do.
19
<PAGE>
(b) To give effect to any sale to be made pursuant to the provisions of this
Article or of Article 50, the Company may appoint any person to execute as
transferor an instrument of transfer of such shares or any of them and such
instrument of transfer shall be as effective as if it had been executed by the
holder of, or person entitled by transmission to, such shares and the title of
the transferee shall not be affected by any irregularity or invalidity in the
proceedings relating thereto. The Company shall account to the holder of, or
other person entitled to, such shares for the net proceeds of such sale and the
Company shall be deemed to be his debtor, and not a trustee for him, in respect
of the same. Any moneys not accounted for to the holder of, or other person
entitled to, such shares shall be carried to a separate account and shall be a
permanent debt of the Company. Moneys carried to such separate account may
either be employed in the business of the Company or invested in such
investments (other than shares of the Company or its holding company, if any) as
the Board may from time to time think fit and any profits made thereby and
interest or other income earned thereon shall belong to the Company which shall
have no obligation to account therefor to the holder of, or other person
entitled to, such shares.
J. STOCK
-----
52. Conversion of shares into stock
-------------------------------
The Company may by ordinary resolution convert the whole of any class of paid up
shares into stock, and reconvert any stock into paid up shares of any
denomination. After the passing of any resolution converting all the paid up
shares of any class into stock, any shares of that class which subsequently
become fully paid and rank pair passu in all respects with such shares shall by
virtue of this Article and such resolution be converted into stock transferable
in the same units as the shares already converted.
53. Rights and privileges of stockholders
-------------------------------------
The stockholders shall, according to the amount of the stock held by them, have
the same rights, privileges and advantages as regards dividends, participation
in asses on a winding-up, voting at meetings and in all other respects and be
subject to the same provisions of these Articles as if they held the shares from
which the stock arose, but no such right, privilege or advantage (except
participation in dividends and profits of the Company and in assets on a
winding-up) shall be conferred by an amount of stock which would not, if
existing in shares, have conferred such right, privilege or advantage.
54. Conditions as to transfer of stock - minimum amount transferable
----------------------------------------------------------------
Holders of stock may transfer the same or any part thereof in the same manner,
and subject to the same regulations, as would have applied to the shares from
which the stock arose, or as near thereto as circumstances admit; but the Board
may from time to time, if it thinks fit, fix the minimum amount of stock
transferable, PROVIDED that such amount shall not exceed the nominal amount of
the shares from which the stock arose.
20
<PAGE>
55. Interpretation of "stock" and "stockholder"
-------------------------------------------
The provisions of these Articles which are applicable to paid up shares shall
apply to stock, and the words "share" and "member" or "holder" therein shall
include "stock" and "stockholder."
K. ALTERATIONS OF CAPITAL
----------------------
56. Consolidation, subdivision, cancellation and reduction
------------------------------------------------------
The Company may be ordinary resolution:
(i) consolidate and divide all or any of its share capital into shares of
larger nominal value than its share capital into shares of larger nominal
value than its existing shares; and/or
(ii) sub-divide all or any of its share capital, into shares of smaller
nominal value than is fixed by the memorandum of association, and so that
the resolution whereby any share is sub-divided may determine that, as
between the holders of the shares resulting from such sub-division, one
or more of the shares may have any such preferred or other special rights
over, or may have such deferred rights, or be subject to any such
restrictions as compared with the others, as the Company has power to
attach to shares upon the allotment thereof; and/or
(iii) cancel any shares which, at the date of the passing of the resolution,
have not been subscribed or agreed to be subscribed, by any person, and
diminish the amount of its share capital by the amount of the shares so
canceled;
and may by special resolution:-
(iv) reduce its share capital or any capital redemption reserve or any share
premium account or any other undistributable reserve in any manner
authorised by the Statutes.
57. Treatment of any fractional entitlements arising on consolidation
-----------------------------------------------------------------
(a) Whenever on any consolidation of shares members shall be entitled to any
fractions of shares, the Board may sell to any person (including, subject to the
provisions of the Statutes and of these Articles, the Company) the shares
representing such fractions for the best price reasonably obtainable and, except
as provided below, shall distribute the net proceeds of sale thereof amongst the
members entitled to such fractions in due proportions. Whenever on any
consolidation of shares the value of a fractional entitlement to a share shall
be less than the Minimum Amount in respect of one or more members and an
ordinary resolution of the Company shall have been passed consenting thereto the
proceeds of the sale (after the deduction of the proper expenses of such sale)
of each and every such fractional entitlement amounting to less than the Minimum
Amount shall belong to and be vested in the Company. For the purpose of giving
effect to any such sale, the Board may authorise some person to transfer the
shares sold to the purchaser thereof and the purchaser shall be registered as
the holder of the shares comprised in any such transfer and he shall not be
bound to see to the application of the purchase moneys nor shall his title to
the shares be affected by any irregularity or invalidity in the proceedings
related to the sale.
21
<PAGE>
(b) Upon any consolidation of fully paid shares into shares of larger nominal
value the Board may settle any difficulty which may arise with regard thereto as
it thinks fit and in particular (but without prejudice to the generality of the
foregoing) may as between the holders of shares so consolidated determine which
shares are consolidated into each consolidated share and in the case of any
shares registered in the name of one holer (or joint holders) being consolidated
with shares registered in the name of another holder (or other joint holders)
may make such arrangements for the allocation, acceptance or sale of the
consolidated share or any fractions thereof and for the distribution to the
member entitled thereto of any moneys received in respect thereof as may be
thought fit and for the purpose of giving effect thereto may appoint some person
to transfer the consolidated share or any fractions thereof and to receive the
purchase price thereof and any transfer executed in pursuance thereof shall be
effective and after such transfer has been registered no person shall be
entitled to question its validity.
III. GENERAL MEETINGS
A. MEETINGS AND NOTICES
--------------------
58. Annual general meeting
----------------------
The Company shall in each year hold a general meeting as its annual general
meeting in addition to any other meetings in that year and shall specify the
meeting as such in the notice calling it. Not more than 15 months shall elapse
between the date of one annual general meeting of the Company and that of the
next. The annual general meeting shall be held at such time and place as the
Board shall determine.
59. Extraordinary general meetings
------------------------------
All general meetings, other than annual general meetings, shall be called
extraordinary general meetings. The Board may call an extraordinary general
meetings. The Board may call an extraordinary general meeting whenever it
thinks fit and at such time and place as it shall determine, and extraordinary
general meetings shall be convened by the Board on such requisition, or in
default may be convened by such requisitionists, as provided by the Statutes.
60. Length of notice
----------------
In the case of annual general meeting or of a meeting for the passing of a
special resolution 21 clear days' notice at the least and in any other case 14
clear days' notice at the least specifying the place, the day and the hour of
meeting, and the general nature of the business to be transacted, shall be given
in Writing in the manner hereinafter mentioned to all members (other than those
who under the provisions of these Articles or the conditions attaching to the
shares held by them are not entitled to receive the notice) and to the Directors
(at the addresses supplied by them pursuant to Article 126) and auditors for the
time being of the Company. In the case of a meeting convened for the purpose of
considering the passing of a special or extraordinary resolution, the notice
shall specify the intention to propose the resolution as a special or
extraordinary resolution as the case may be.
22
<PAGE>
61. Short notice
------------
A general meeting of the Company shall, notwithstanding that it is called by
shorter notice than that specified in Article 60, be deemed to have been duly
called if it is so agreed:-
(i) in the case of a meeting called as the annual general meeting, by all the
members entitled to attend and vote threat; and
(ii) In the case of any other meeting, by a majority in number of the members
having a right to attend and vote at the meeting, being a majority
together holding not less than 95 per cent in nominal value of the shares
giving that right.
62. Notice to state right of member to appoint a proxy
--------------------------------------------------
In every notice calling a meeting of the Company there shall appear with
reasonable prominence a statement that a member entitled to attend and vote is
entitled to appoint one or more proxies to attend and on a poll vote instead of
him and that a proxy need not also be a member.
63. Notice to be given of members' resolutions upon requisition
-----------------------------------------------------------
It shall be the duty of the Company, subject to the provisions of the Statutes,
on the requisition in Writing of such number of members as is specified in the
Statutes and (unless the Company otherwise resolves) at the expense of the
requisitionists:-
(i) to give to members entitled to receive notice of the next annual general
meeting notice of any resolution which may properly be proposed and is
intended to be proposed at that meeting; and
(ii) to circulate to members entitled to have notice of any general meeting
sent to them any statement of not more than 1,000 words with respect to
the matter referred to in any proposed resolution or the business to be
dealt with at that meeting.
64. Accidental omission or non-receipt of notice
--------------------------------------------
The accidental omission to give notice to, or the non-receipt of notice by, any
person entitled to receive notice shall not invalidate the proceedings at any
general meeting.
B. PROCEEDINGS AT GENERAL MEETINGS
-------------------------------
65. Quorum - overflow meetings
--------------------------
(a) No business shall be transacted at any general meeting unless a quorum of
members is present when the meeting proceeds to business. Save as in these
Articles otherwise provided, 2 persons present, each of whom is a member or a
proxy for a member or a representative, appointed in accordance with the
Statutes or Article 90, of a corporation which is a member, shall be a quorum
for all purpose.
23
<PAGE>
(b) A general meeting may, if the Board or the chairman of the meeting so
decides, be held simultaneously in more than one room, building or other
location specifically approved for such purpose by the Board PROVIDED that all
those present (in whichever location) can at all times hear and participate
fully in the proceedings.
66. Adjournment or dissolution for lack of quorum
---------------------------------------------
If within 15 minutes from the time appointed for any general meeting or separate
meeting of holders of any class of shares for the time being forming part of the
capital of the Company a quorum is not present or if during a meeting a quorum
ceases to be present, the meeting, if convened on the requisition of or by
members, shall be dissolved. In any other case it shall stand adjourned to the
same day in the next week, at the same time and place, or to such other day and
at such time and place as the Board may determine, and, if at such adjourned
meeting a quorum (as defined in Article 65(a)) is not present within 15 minutes
from the time appointed for holding the meeting, the meeting shall be dissolved.
67. Chairman
--------
The chairman (if any) of the Board shall preside as chairman at every general
meeting of the Company. If there is no such chairman or if at any meeting he
shall not be present within 10 minutes after the time appointed for holding the
same or shall be unwilling to act as chairman, the deputy chairman (if any), if
present and willing to act, shall preside as chairman; but if at any meeting
neither the chairman nor the deputy chairman is present within 10 minutes after
the time appointed for holding the meting, or if neither of them is wiling to
act as chairman, the Directors present shall choose one of their number to act,
or if one Director only is present he shall preside as chairman, if willing to
act. If no Director is present or if each of the Directors present declines to
take the chair, the members present and entitled to vote shall choose one of
themselves to be chairman of the meeting. The appointment of a chairman of a
meeting shall not be treated as part of the business of that meeting.
68. Adjournment
-----------
Notwithstanding his inherent power to adjourn the meeting for such reason as he
may think fit, the chairman of the meeting may:
(i) if he considers there to be insufficient space for those present or
entitled to be present to be accommodated or there is some other reason
why they cannot hear or participate in the proceedings; or
(ii) in any other case, with the consent of any meeting at which a quorum is
present,
and shall if so directed by the meeting, adjourn the meeting from time to time
or sine die and from place to place, but no business shall be transacted at any
adjourned meeting except business which might lawfully have been transacted at
the meeting from which the adjournment took place. Whenever under the
provisions of these Articles a meeting is adjourned for 14 days or more, 7 clear
days' notice at the least specifying the place, the date and the hour of the
adjourned meeting and the
24
<PAGE>
general nature of the business to be transacted, shall be given as in the case
of the original meeting. Save as aforesaid, it shall not be necessary to give
any notice of an adjournment or of the business to be transacted at any
adjourned meting. Where a meeting is adjourned sine die, the time and place for
the adjourned meeting shall be fixed by the Board.
69. Amendments to resolutions
-------------------------
If an amendment shall be proposed to any resolution under consideration but
shall in good faith be ruled out of order by the chairman of the meeting, the
proceedings on the substantive resolution shall not be invalidated by any error
in the ruling. In the case of a resolution duly proposed as a special or
extraordinary resolution, no amendment thereto (other than a mere clerical
amendment to correct a manifest error) may in any event be considered or voted
upon.
70. Manner in which resolution decided - demand for a poll- chairman's
------------------------------------------------------------------
declaration on a result of a show of hands
------------------------------------------
At any general meeting a resolution put to the voter of the meeting shall be
decided on a show of hands unless before or upon the declaration of the result
of the show of hands a poll is demanded by:
(i) the chairman of the meeting; or
(ii) at least 5 members entitled to vote at the meeting; or
(iii) a member or members representing not less than one-tenth of the total
voting rights of all the members having the right to vote at the meeting;
or
(iv) a member or members holding shares conferring a right to vote at the
meeting being shares on which an aggregate sum has been paid up equal to
not less than one-tenth of the total sum paid up on all the shares
conferring that right.
Unless a poll is so demanded, a declaration by the chairman of the meeting that
a resolution has been carried, or carried unanimously or by a particular
majority, or lost or not carried by a particular majority, and an entry to that
effect in the book containing the minutes of the proceedings of the Company,
shall be conclusive evidence of the fact without proof of the number of
proportion of the votes recorded in favour of or against such resolution.
71. Proxy empowered to demand a poll
--------------------------------
The instrument appointing a proxy to vote at a meeting shall be deemed also to
confer authority to demand or join in demanding a poll (and for the purposes of
the last preceding Article a demand for a poll by a person as proxy for, or duly
authorised corporate representative of, a member shall be the same as a demand
by that member) and to vote on a poll or the election of a chairman of the
meeting.
72. Objections to the qualification of a voter or to votes and errors in
--------------------------------------------------------------------
counting votes etc.
-------------------
25
<PAGE>
If any objection is raised as to the qualification of any voter or to the
counting of, or failure to count, any votes or if any votes shall be counted
which ought not to have been counted or might have been rejected or if any votes
were not counted which ought to have been counted, the objection or error shall
not vitiate the result of the voting unless it be raised or pointed out at that
same meeting, or at any adjournment thereof, and it shall in the opinion of the
chairman of the meeting be of sufficient magnitude to vitiate the result of the
voting. The decision of the chairman of the meeting on such matters shall be
final and conclusive.
73. Manner of and place for taking a poll
-------------------------------------
Except as permitted in Article 75, if a poll is duly demanded it shall be taken
in such manner (including the use of ballot or voting papers) and at such place
and at such time as the chairman of the meeting may direct and the result of a
poll shall be deemed to be the resolution of the meeting at which the poll was
demanded. The chairman of the meeting may (and, if so directed by the meeting,
shall), in the event of a poll, appoint scrutineers (who need not be members)
and may adjourn the meeting to some place and time fixed by him for the purpose
of declaring the result of the poll. The result of the poll shall be deemed to
be the relevant resolution of the meeting at which the poll was demanded.
74. Chairman's casting vote
-----------------------
In the case of an equality of votes, whether on a show of hands or on a poll,
the chairman of the meeting at which the show of hands takes place or at which
the poll is demanded shall be entitled to a second or casting vote in addition
to the vote or votes to which he may be entitled as a member or on behalf of any
other member.
75. When a poll has to be taken
---------------------------
A poll on the election of a chairman of the meeting or on a question of
adjournment if validly demanded shall be taken forthwith. A poll validly
demanded on any other question shall be taken either forthwith or at such later
time and place as the chairman of the meeting directs not being more than 30
days from the date of the meeting or adjourned meeting at which the poll was
demanded.
76. Notice of a poll
----------------
No notice need be given of a poll not taken forthwith if the time and place at
which it is to be taken are announced at the meeting in respect of which it is
demanded. In any other case, at least 7 clear days' notice shall be given
specifying the time and place at which the poll is to be taken.
77. Continuance of other business
-----------------------------
The demand for a poll shall not prevent the continuance of the meeting for the
transaction of any business other than the question on which the poll has been
demanded.
26
<PAGE>
78. Demand for a poll may be withdrawn
----------------------------------
A demand for a poll may, before the poll is taken, be withdrawn but only with
the consent of the chairman and a demand so withdrawn shall not be taken to have
invalidated the result of a show of hands declared before the demand was made.
If a demand for a poll is to withdrawn:
(i) before the result of a show of hands is declared, the meeting shall
continue as if the demand had not been made; or
(ii) after a result of a show of hands is declared, the demand shall not be
taken to have invalidated the result of that show of hands, but if a
demand is withdrawn the chairman of the meeting or other member or
members so entitled may himself or themselves demand a poll.
C. VOTES OF MEMBERS
----------------
79. Voting rights
-------------
Subject to any special rights or restrictions as to voting attached to any
shares by or in accordance with these Articles or their terms of issue, on a
show of hands every member who (being an individual) is present in person or
(being a corporation) is present by a duly authorised representative at any
meeting of the Company and entitled to vote shall have one vote and on a poll
every member present either personally or by proxy and entitled to vote shall
have one vote for every Ordinary Share held by him.
80. Voting by joint holders
-----------------------
In the case of joint holders of a share, the vote of the senior who tenders a
vote, whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders, and for this purpose seniority shall be
determined by the order in which the names stand in the Register in respect of
the shares.
81. Member of unsound mind may vote by committee or other appointed
---------------------------------------------------------------
representative
--------------
A member who is a patient for any purpose of any statute relating to mental
health or in respect of whom an Order has been made by any Court having
jurisdiction for the protection or management of the affairs of persons
incapable of managing their own affairs may vote, whether on a show of hands or
on a poll, by his committee, receiver, curator bonis or other person in the
nature of a committee, receiver or curator bonis appointed by such court, and
such committee, receiver, curator bonis or other person may on a poll vote by
proxy PROVIDED that such evidence as the Board may require of the authority of
the person claiming to vote shall have been deposited at the Transfer Office or
at such other place within the United kingdom as is specified in the notice
convening the meeting not less than 48 hours before the time for holding the
meeting or adjourned meeting at which such person claims to vote and in default
the right to vote shall not be exercisable.
27
<PAGE>
82. Proxy may vote on a poll
------------------------
On a poll, votes may be given either personally or by corporate representative
or by proxy.
83. Member need not cast his votes all in same way
----------------------------------------------
On a poll, a member entitled to more than one vote need not, if he votes, use
all his votes or case all the votes he uses in the same way.
84. Execution of a form of proxy
----------------------------
The instrument appointing a proxy shall be in Writing under the hand of the
appointor or his agent duly authorised under the hand of the appointor, or, if
the appointor is a corporation, either under its common seal or under the hand
of an officer or agent so authorised. The Board may, but shall not be bound to,
require evidence of the authority of any such officer or agent. If more than
one proxy is so appointed, the instrument appointing each such proxy shall
specify the shares held by the member in respect of which each such proxy is to
vote and no member may appoint more than one proxy to vote in respect of any one
share held by that member.
85. Proxy need not be a member
--------------------------
Any person (whether a member of the Company or not) may be appointed to act as a
proxy. A member may appoint more than one proxy to attend on the same occasion.
86. Deposit of instrument of proxy - duration of validity of instrument of
----------------------------------------------------------------------
proxy
-----
The instrument appointing a proxy and the power of attorney or other authority
(if any) under which it is executed, or a copy of such power or authority
certified notarially or in some other way approved by the Board, shall be
deposited at the Transfer Office or at such other place within the United
Kingdom as is specified in the notice convening the meeting or in the instrument
of proxy issued by the Company in relation to that meeting not less than 48
hours before the time appointed for holding the meeting or adjourned meeting at
which the person named in the instrument proposed to vote or, in the case of a
poll taken more than 48 hours after it was demanded, be deposited as aforesaid
after the poll has been demanded but not less than 24 hours before the time
appointed for taking the poll or, where the poll is not taken forthwith but is
taken not more than 48 hours after it was demanded, be delivered at the meeting
to the chairman or to the Secretary or to any Director and in default the
instrument of proxy shall not be treated as valid. No instrument appointing a
proxy shall be valid after the expiration of 12 months from the date named in it
as the date of its execution, except at an adjourned meeting or on a poll
demanded at a meeting or an adjourned meeting in cases where the meeting was
originally held within 12 months from the date named in it as the date of its
execution.
87. Form of proxy instrument
------------------------
An instrument of proxy may be in any usual oar common form or in such other form
as the Board shall approve. Instruments of proxy need not be witnessed.
28
<PAGE>
88. Board to send out instruments of proxy to all members
-----------------------------------------------------
The Board shall (while any shares of the Company are listed on The Stock
Exchange) and otherwise may at the expense of the Company send, by post or
otherwise, to the members entitled to be sent notice of a meeting and to vote
thereat instruments of proxy (with or without stamped envelopes or other pre-
paid or similar postal facilities for their return) for use at any general
meeting or at any meeting of any class of members of the Company, either in
blank or nominating in the alternative any one or more of the Directors or any
other persons. If for the purpose of any meeting invitations to appoint a proxy
are issued at the expense of the Company, such invitations shall be issued to
all (and not to some only) of the members entitled to be sent a notice of the
meeting and to vote thereat by proxy. The accidental omission to send such an
instrument, or to give such an invitation to, or the non-receipt thereof by, any
member entitled to attend and vote at a meeting shall not invalidate the
proceedings of that meeting.
89. Validity of vote given by proxy
-------------------------------
A vote given or a poll demanded by a person duly appointed as a proxy or by a
duly authorised representative of a corporation in accordance (in either case)
with the terms of his appointment shall be valid notwithstanding the death or
insanity of the principal or the revocation of the instrument of proxy, or of
the authority under which the instrument of proxy was executed or the
representative was duly appointed, PROVIDED that no intimation in Writing of
such death, insanity or revocation shall have been received by the Company at
the Transfer Office at least 24 hours prior to the commencement of the meeting
or adjourned meeting at which the instrument of proxy is used (or, in the case
of a poll, before the time appointed for the taking of the poll).
D. CORPORATIONS ACTING BY REPRESENTATIVES
--------------------------------------
90. A corporate member may appoint a representative
-----------------------------------------------
Any corporation which is a member of the Company may, by resolution of its
directors or other governing body, authorise such person as it thinks fit to act
as its representative at any meeting of the Company, or at any meeting of any
class of members of the Company, and the person so authorised shall be entitled
to exercise the same powers on behalf of the corporation which he represents as
that corporation could exercise if it were an individual member of the Company
personally present at such meeting.
91. Directors entitled to attend and speak at general meetings
----------------------------------------------------------
Each Director (or, failing him, his alternate, if any) shall be entitled to
attend and speak at any general meeting of the Company and at any separate
meeting of any class of members.
29
<PAGE>
IV. DIRECTORS
---------
A. NUMBER AND REMUNERATION OF DIRECTORS
------------------------------------
92. Number of Directors
-------------------
Unless and until otherwise determined by the Company by ordinary resolution and
subject to the Statutes, the Directors shall not be less than 2 nor more than 20
in number.
93. No share qualification for Directors
------------------------------------
Neither a Director nor an alternate Director shall be required to hold any
qualification shares.
94. Remuneration of Directors
-------------------------
The Directors shall be entitled to remuneration by way of fees for their
services as Directors in such sums as the Board may determine but not exceeding
in aggregate (Pounds)100,000 per annum or such other higher amount as may be
sanctioned by ordinary resolution of the Company, such remuneration to be
divided amongst the Directors as they may be resolution determine or, in default
of agreement, equally. Such remuneration shall be deemed to accrue on a day-to-
day basis. Any remuneration payable to any Director pursuant to this Article
may if the Director concerned so requires and if the Board so agrees, consist in
whole or in part of payments by way of pension contributions or premiums
therefor, whether pursuant to a pension scheme or otherwise. Subject as
aforesaid, a Director holding office for part of a year shall be entitled to a
proportionate part of a full year's remuneration.
95. Expenses
--------
In addition to such remuneration as aforesaid, any Director may be paid such
reasonable travelling, hotel and other expenses as he may properly incur in
connection with the discharge of his duties, including but not limited to in
attending or returning from meetings of the Board or committees of the Board or
general meetings or meetings of the holders of any class of shares.
B. POWERS AND DUTIES OF DIRECTORS
------------------------------
96. Board to manage the business of the Company
-------------------------------------------
The business of the Company shall be managed by the Board, which may exercise
all such powers of the Company as are not by the Statutes or by these Articles
required to be exercised in general meeting, subject nevertheless to the
provisions of the Statutes and of these Articles and to such directions, whether
or not inconsistent with these Articles, as may be prescribed by the Company by
special resolution but no such direction and no alteration of these Articles
shall invalidate any prior act of the Board which would have been valid if that
direction or alteration had not been made. The general powers given by this
Article shall not be limited or restricted by any special authority or power
given to the Board by any other Article and a meeting of the Directors at which
a quorum is present may exercise all the powers exercisable by the Board.
30
<PAGE>
97. Local boards
------------
The Board may establish local boards for managing any of the affairs of the
Company, whether in the United Kingdom or elsewhere, and may appoint any persons
to be members of such local boards and may fix their remuneration and may
delegate to any local board any of the powers, authorities and discretions
vested in the Board (except the power to make calls, forfeit shares or borrow
money) with power to sub-delegate and may authorise the members of any local
board to fill any vacancies therein and to act notwithstanding vacancies. Any
such appointment or delegation may be made upon such terms and subject to such
conditions as the Board may think fit, and the Board may remove any persons so
appointed, and may annul or vary any such delegation, but no person dealing in
good faith and without notice of any such annulment or variation shall be
affected thereby. Notwithstanding the generality of the above, the Board shall
ensure that the number of such persons comprising such local board and that no
resolution of such local board shall be effective unless a majority of members
of the local board present at the meeting and capable of forming part of the
quorum (if any) fixed for such meeting are Directors or alternate Directors of
the Company.
98. Appointment of attorneys and agents
-----------------------------------
The Board may from time to time and at any time appoint, whether in the United
Kingdom or elsewhere, any corporation, firm or person, or any fluctuating body
of persons, whether nominated directly or indirectly by the Board, to be the
attorney or agent of the Board or the Company for such purposes and with such
powers, authorities and discretions (not exceeding those vested in or
exercisable by the Board under these Articles) and for such period and subject
to such conditions as it may think fit and any such appointment may contain such
provisions for the protection and convenience of persons dealing with any such
agent as the Board may think fit and may also authorise any such agent to
delegate all or any of the powers, authorities or discretions vested in him.
The Company may exercise powers conferred by the Statutes with regard to having
an official seal for use abroad and such powers shall be vested in the Board.
99. Overseas branch registers
-------------------------
The Company may exercise the powers conferred upon the Company by the Statutes
with regard to the keeping of an Overseas Branch Register in any territory where
the Company transacts business and the Board may (subject to the provisions of
the Statutes) make and vary such regulations as it thinks fit respecting the
keeping of such register.
100. Limit on borrowings
-------------------
(a) The Board shall restrict the borrowings of the Company and exercise all
powers of control exercisable by the Company in relation to its subsidiaries and
subsidiary undertakings so as to secure (as regards subsidiaries and subsidiary
undertakings, so far as by such exercise it can secure) that, save with the
previous sanction by an ordinary resolution of the Company, no moneys shall be
borrowed if the aggregate principal amount (including any premium payable on
final repayment) outstanding of all moneys borrowed by the Extended Group
(excluding amounts borrowed by any member of the Extended Group from any other
member of the Extended Group) then exceeds or
31
<PAGE>
would as a result of the borrowing exceed an amount equal to two and one half
times the aggregate of:-
(aa) the amount paid up on the share capital of the Company; and
(bb) the total of the capital and revenue reserves of the Extended Group,
including any share premium account, capital redemption reserve, property
revaluation reserve and credit balance on the profit and loss account and
all amounts attributable to the interests of minority shareholders in
subsidiaries and minority and other interests in subsidiary undertakings,
but excluding sums set aside for taxation and deducting any debit balance
on the profit and loss account.
all as shown in the latest group accounts of the Company, but adjusted as may be
necessary in accordance with paragraph (c) of this Article in respect of any
variation in the paid up share capital or reserves of the Extended Group since
the date of that balance sheet.
(b) For the purposes of this Article, but without prejudice to the generality
of the terms "borrowing" and "borrowed"; -
(i) there shall be deducted from the aggregate amount of moneys borrowed for
the purposes of paragraph (a) an amount equal to the aggregate for the
time being outstanding of all cash deposits with banks (not being the
Company or any subsidiary of the Company), certificates of deposit,
securities of governments, and securities of public companies traded on a
Recognised Investments Exchange or an overseas stock exchange and similar
instruments owned by the Company and/or any subsidiary or subsidiary
undertaking of the Company net of a proportion of the total amount for
the time being outstanding of cash deposits and certificates of deposit
and securities of governments, or securities of public companies traded
on a Recognised Investment Exchange or an overseas stock exchange and
similar instruments owned by any partly owned subsidiary or any
subsidiary undertaking which would otherwise fail to be included, such
proportion being that which the issue equity share capital of such partly
owned subsidiary or such subsidiary undertaking which is not for the time
being beneficially owned directly or indirectly by the Company bears to
the whole of its issued equity share capital;
(ii) moneys borrowed for the purpose of repaying the whole or any part of any
moneys previously borrowed and then outstanding (including any premium
payable on final repayment) and to be applied for that purpose within 6
months of the borrowing shall not, pending such application, be taken
into account as moneys borrowed;
(iii) the principal amount (including any premium payable on final repayment)
of any debentures issued in whole or in part for a consideration other
than cash shall be taken into account as moneys borrowed by the member of
the Extended Group issuing them; and
(iv) the principal amount of acceptance credits shall be treated as moneys
borrowed.
32
<PAGE>
(c) For the purposes of this Article, adjustments shall be made to reflect
any variation in the amount of such paid up capital and capital and revenue
reserves (including in respect of any distribution actually made or paid) as
specified in paragraph (a) which has occurred since the date of such group
accounts and for this purpose share capital allotted shall be treated as having
been issued and any share capital already called up or payable at any future
date within the following 12 months shall be treated as already paid up). Any
Interim Report of the Company which includes a profit and loss account (whether
or not in summarised form) shall be prima facie evidence of any profit and/or
loss referred to therein and of any consequential variation in the revenue
reserves of the Company. If the Company proposes to issue any shares for cash
and the issue of such shares has been underwritten, then such shares shall be
deemed to have been issued and the subscription moneys (including any premium)
payable in respect thereof within the following 12 months (to the extent to
underwritten) shall be deemed to have been paid up.
(d) When the aggregate amount of borrowings required to be taken into account
for the purposes of this Article on any particular day is being ascertained, any
of such moneys denominated or repayable (or repayable at the option of any
person other than the Company) in a currency other than sterling shall be
converted for the purpose of calculating the sterling equivalent at the lower
of:-
(i) the rate of exchange prevailing in London on that day; and
(ii) the rate of exchange prevailing in London 6 months before such day.
For this purpose the rate of exchange shall be taken as the middle market rate
as at the close of business on the relevant day.
(e) No debt incurred or security given in respect of moneys borrowed or to be
taken into account as moneys borrowed in excess of the above limit shall be
invalid or ineffectual except in the case of express notice to the lender or the
recipient of the security at the time when the debt was incurred or security
given that the limit hereby imposed has been exceeded, but no lender or other
person dealing with the Company shall be concerned to see or enquire whether the
borrowing limit has been observed.
(f) For the purposes of this Article, the reference to figures appearing in
the "group accounts" shall be those figures as appearing in the Company's group
accounts prepared in accordance with the Companies Act 1985 as amended and
substituted by the Companies Act 1989.
(g) A certificate or report by the auditors for the time being of the Company
as to the amount of the limit on borrowings or the amount of any borrowings or
to the effect that the limit imposed by this Article has not been on will not be
exceeded at any particular time or times shall be conclusive evidence of such
amount or fact for the purposes of this Article.
(h) Notwithstanding any other provision of this Article, the Board may at any
time act in reliance on a bona fide estimate of the amount of the adjusted
capital and reserves and if in consequence the limit herein before contained is
inadvertently exceeded, an amount borrowed equal to the excess may be
disregarded until the expiration of 90 days after the date on which by reason of
a determination
33
<PAGE>
of the Auditors, the publication of group accounts or an Interim Report or
otherwise the Board became aware that such a situation has or may have arisen.
101. Power of Board to delegate the power to make calls
--------------------------------------------------
If any uncalled capital of the Company is included in or charged by any mortgage
or other security, the Board may delegate to the person in whose favour such
mortgage or security is executed, or to any person in trust for him, the power
to make calls on the members in respect of such uncalled capital, and to sue in
the name of the Company or otherwise for the recovery of moneys becoming due in
respect of calls so made and go give valid receipts for such moneys, and the
power so delegated such subsist during the continuance of the mortgage or
security, notwithstanding any change of Directors, and shall be assignable if
expressed so to be.
102. Signing of cheques and similar instruments
------------------------------------------
All cheques, promissory notes, drafts, bills of exchange and other negotiable or
transferable instruments, and all receipts for moneys paid to the Company, shall
be signed, drawn, accepted, endorsed or otherwise executed, as the case may be,
in such manner as the Board shall from time to time by resolution determined.
C. INTERESTS OF DIRECTORS
----------------------
103. Other office or place of profit under the Company - power of a Director
-----------------------------------------------------------------------
to act in a professional capacity
---------------------------------
A Director may hold any other office or place of profit under the Company in
conjunction with his office of Director on such terms as to tenure of office,
remuneration or otherwise as the Board may determine, and he or any firm in
which he is interested may act in a professional capacity for the Company and he
or such firm shall be entitled to remuneration (by way of salary, commission,
fee, participation in profits, pension, superannuation or otherwise) for such
services as if he were not a Director and such remuneration shall be charged as
part of the Company's ordinary working expenses PROVIDED that nothing herein
contained shall authorise a Director or any such firm to act as auditor to the
Company or any company controlled by the Company. In this Article, "firm"
includes "company".
104. Director may contract with the Company - disclosure of interest
---------------------------------------------------------------
Subject as provided in the Statutes, no Director or intending Director shall be
disqualified by his office from contracting with the Company, or any other
company in which the Company may be interested, either with regard to his tenure
of any such other office or place of profit as is referred to in Article 103 or
as vendor, purchaser or otherwise. Further, subject, if and as required by
Section 320, to the approval of the Company in general meeting, and save as
provided in Sections 330 and 341, no such contract nor any other contract,
transaction or arrangement (whether or not constituting a contract) entered into
by or on behalf of the Company, or any other company in which the Company may be
interested, in which any Director is in any way directly or indirectly
interested (whether through persons connected with him or otherwise) shall be
liable to be avoided, nor shall any Director
34
<PAGE>
so contracting or being so interested be liable to account to the Company for
any profit realised by any such contract, transaction or arrangement by reason
of such Director holding that office or of the fiduciary relationship thereby
established, PROVIDED that the nature of his interest (if not declared in
accordance with the provisions of Article 106(c)) has been or is declared by
him:-
(i) at the meeting of the Board at which the question of entering into that
contract, transaction or arrangement is first taken into consideration;
or
(ii) if the Director was not at the date of that meeting interested in the
proposed contract, transaction or arrangement, at the next meeting of the
Board after he became so interested; or
(iii) if that contract, transaction or arrangement or proposed contract,
transaction or arrangement is entered into or to be entered into not by
the Company but by a company in which the Company is interested as to 1
per cent or more of the equity share capital of that company, at the next
meeting of the Board after the Director became aware of his interest or
the Company's interest in such contract, transaction or arrangement.
105. Restriction on voting - quorum - matters upon which a Director may vote
-----------------------------------------------------------------------
(a) Save as herein provided, a Director shall not at any meeting of the Board
vote in respect of any contract, transaction or arrangement (whether or not
constituting a contract) or any proposal whatsoever in which he has any material
interest (whether direct or indirect or through persons connected with him)
otherwise than by virtue of his interest in shares or debentures or other
securities of or otherwise in or through the Company, and if he shall do so his
vote shall not be counted, nor if he has a duty which conflicts or may conflict
with the interests of the Company, nor shall he be counted in the quorum present
upon a motion in respect of any such contract, transactions, arrangement or
proposal. Subject to his complying with the provisions of these Articles and of
the Statutes with respect to disclosure of his interest, these prohibitions
shall not apply to:-
(i) any contract, transaction, arrangement or proposal by a Director to
underwrite shares or debentures or other securities of the Company or any
of its subsidiaries or subsidiary undertakings; or
(ii) any contract, transaction, arrangement or proposal for giving any
Director any security or indemnity in respect of money lent by him to or
obligations undertaken by him for the benefit of the Company, or any of
its subsidiaries or for giving any security or indemnity to any other
person, firm or company for any obligation of the Company, its holding
company or any company controlled by the Company, in which that Director
himself has assumed personal liability in whole or in part whether under
a guarantee or indemnity, or by providing or agreeing to provide security
or otherwise; or
(iii) any contract, transaction, arrangement or proposal concerning any other
company in which that Director is interested directly or indirectly,
whether through a connected person or otherwise and whether as an officer
or shareholder or otherwise PROVIDED that he is not the holder of or
beneficially interested in 1 per cent or more of the issued equity share
capital
35
<PAGE>
of such company or of any third company through which his interest is
derived or of the voting rights available to members of the relevant
company (any such interest being deemed for this purpose to be a material
interest in all the circumstances) and PROVIDED that there shall be
disregarded any shares held by a Director as bare or custodian trustee
and in which he has no beneficial interest, any shares comprised in a
trust in which the Director's interest is in reversion or remainder if
and so long as some other person is entitled to receive the income
thereof and any shares comprised in an authorised unit trust scheme in
which the Director is interested only as a unit holder; or
(iv) any proposal concerning the adoption, modification or operation of a
superannuation fund or retirement benefit scheme under which he may
benefit and which has been approved by or is subject to and conditional
upon approval by the Board of Inland Revenue for taxation purposes; or
(v) any proposal concerning the adoption of insurance cover for the Directors
in accordance with the provisions of Article 175; or
(vi) any arrangement fore the benefit of employees of the Company or of any of
its subsidiaries (including, but not limited to, an employees' share
scheme) under which the Director benefits in a similar manner to such
employees and does not afford to any Director as such any privilege or
advantage not generally afforded to the employees to whom such
arrangement relates.
(b) For the purposes of this Article:-
(i) an interest of any person who is connected with a Director shall be taken
to be the interest of that director; and
(ii) in relation to an alternate Director, an interest of his appointor shall
be treated as an interest of the alternate in addition to any interest
which the alternate has otherwise.
106. Offices and employment - ruling on materiality - power of members to
--------------------------------------------------------------------
amend provisions of this Article - notice by a Director of his interest
-----------------------------------------------------------------------
(a) Where proposals are under consideration concerning the appointment
(including fixing or varying the terms of appointment) of 2 or more Directors to
officers or employments with the Company or any company in which the Company is
interested, such proposals may be divided and considered in relation to each
Director separately and in such case each of the Directors concerned (if not
debarred from voting by reason of being the holder of or beneficially interested
in 1 per cent or more of any class of the equity share capital of any company in
which the Company is interested or of any third company through which his
interest is derived or of the voting rights available to members of the relevant
company) shall be entitled to vote (and be counted in the quorum in respect of
each resolution except that concerning his own appointment.
(b) If any question shall arise at any meeting as to the materiality of a
Director's interest or as to the entitlement of any Director to vote and such
question is not resolved by his voluntarily agreeing
36
<PAGE>
to abstain from voting, such question shall be referred to the chairman of the
meeting (or, if the Director concerned is the chairman, to the other Directors
at the meeting) and his ruling in relation to any Director other than himself
(or, as the case may be, the ruling of the majority of the other Directors in
relation to the chairman) shall be final and conclusive except in a case where
the nature or extent of the interests of the Director concerned have not been
fairly disclosed.
(c) A general notice in Writing given to the Board by any Director to the
effect that:-
(i) he is a member of a specified company or firm and is to be regarded as
interested in any contract, transaction or arrangement which may, after
the date of the notice, be made with that company or firm; or
(ii) he is to be regarded as interested in any contract, transaction or
arrangement which may after the date of the notice be made with a
specified person who is connected with him; or
(iii) he is to be regarded as having an interest of the nature and extent
specitied in the notice in any contract, transaction or arrangement in
which a specified person or class of persons is interested,
shall (if such Director shall give the same at a meeting of the Board or shall
take reasonable steps to secure that the same is brought up and read at the next
meeting of the Board after it is given) be deemed to be a sufficient declaration
of interest in relation to any such contract, transaction or arrangement.
(d) Any interest of which a Director has no knowledge and of which it is
unreasonable to expect him to have knowledge shall not be treated as an interest
of his for the purposes of these Articles.
107. Disapplication of Articles 105 and 106 (a)
------------------------------------------
The provisions of Articles 105 and 106(a) may at any time be suspended or
relaxed to any extent permitted by law, and either generally or in respect of
any particular contract, arrangement or transaction and any transaction not duly
authorised by reason of contravention of either of those Articles may be
ratified, to the extent permitted by law, by the Company by ordinary resolution
in general meeting.
108. Company not to make loans, quasi-loans or enter into credit
-----------------------------------------------------------
transactions with Directors or shadow directors or connected persons
--------------------------------------------------------------------
Save as permitted by the Statutes, the Board shall not:-
(i) make a loan or a quasi-loan to or enter into a credit transaction as a
creditor for a Director (including a shadow director) of the Company or
any person connected with such a Director; or
(ii) enter into any guarantee or provide security in connection with a loan or
quasi-loan or credit transaction made by any person to or for such a
Director or person so connected; or
37
<PAGE>
(iii) take part in any arrangement whereby another person enters into such a
transaction in return for a benefit from the Company or any subsidiary; or
(iv) arrange for the assignment to it of any rights, obligations or liabilities
of any such loan or quasi-loan to such a Director or persons so connected.
For the purposes of this Article the expressions "quasi-loan", "credit
transaction" and "shadow director" shall have the meanings ascribed to them in
Sections 331(3), 331(7) and 741(2) respectively.
109. Director's places of profit in other companies
----------------------------------------------
Any Director may continue to be or become a director (executive or non-
executive), managing director, manager or other officer, or employee or member
of, or holder of any place of profit under, any other company which the Company
may control or in which it may be interested, and no such Director shall be
accountable for any remuneration or other benefits received by him as such. The
Board may exercise the voting power conferred by the shares of any other company
held or owned by the Company in such manner in all respects as it thinks fit
(including the exercise thereof in favour of any resolution appointing members
of the Board or any of them to be directors, managing directors, executive
directors, managers or other officers or employees of, or holders of any places
of profit under, such company, or voting or providing for the payment of
remuneration to the directors, managing directors, executive directors, managers
or other officers or employees of such company), and subject to Articles 104,
105 and 106 any Director of the Company may vote in favour of the exercise of
such voting rights in manner aforesaid, notwithstanding that he may be, or be
about to be, appointed or become a director, managing director, executive
director, manager or other officer or employee or member of, or the holder of
any place of profit under, such other company, and as such is or may become
interested in the exercise of such voting rights in manner aforesaid.
110. Pension and superannuation funds - employees' share schemes -
-------------------------------------------------------------
charitable subscriptions
------------------------
The Board may establish and maintain or procure the establishment and
maintenance of any non-contributory or contributory pension or superannuation
funds or share option or share incentive schemes or profit sharing schemes or
trusts for the benefit of, and give or procure the giving of donations,
gratuities, pensions, allowances, disability benefits or emoluments to (or to
any person in respect of), any persons who are or were at any time in the
employment or service of the Company, or of any company which is or was a
subsidiary or a subsidiary undertaking of the Company or is or was allied to or
associated with or controlled by the company or any such subsidiary or
subsidiary undertaking or who are or were at any time Directors or officers of
the Company or of any such other company as aforesaid, and hold or have at any
time held any salaried employment or office in the Company or such other
company, and the wives, husbands, widows, widowers, families and dependents of
any such persons, and also establish and subsidise or subscribe to any
institution, association, club or fund calculated to be for the benefit of or to
advance the interests and well-being of the Company or of any such other company
as aforesaid, or of any such person as aforesaid, and make payments for or
towards the insurance of any such persons as aforesaid, and subscribe or
guarantee money for any charitable or benevolent objects or for any exhibition,
or for any public, general or useful objective and do any of the matters
aforesaid either alone or in conjunction with any
38
<PAGE>
such other company as aforesaid. Subject always, if the Statutes shall so
require, to particulars with respect to the proposed payment being disclosed to
the members of the Company and to it being approved by the Company, any Director
who holds or has held any such employment or office shall be entitled to
participate in and retain for his own benefit any such donation, gratuity,
pension, allowance or emolument. A Director or former Director shall not be
accountable to the Company or the members for any benefit of any kind conferred
under or pursuant to this Article and the receipt of any such benefit shall not
disqualify any person from being or becoming a Director of the Company. For the
purposes of this Article, a company shall not be deemed to be a company which is
or was allied to or associated with or controlled by the Company or any of its
subsidiaries or subsidiary undertakings unless the Group beneficially owns or
owned at the relevant date for the purposes of this Article 40 per cent or more
of the equity share capital of the said company.
111. Power to make provision for employees
-------------------------------------
The Board is hereby authorised to sanction (by resolution of the Board) the
exercise of any power conferred upon the Company by Section 719.
D. VACATION OF OFFICE OF DIRECTOR
------------------------------
112. Vacation of office
------------------
The office of a Director shall be vacated in any of the following events,
namely:-
(i) if he ceases to be a Director by virtue of any provision of the Statues or
he becomes prohibited otherwise by law from being a Director; or
(ii) if he becomes bankrupt, has a receiving order made against him or makes
any arrangement or composition with his creditors generally; or
(iii) if he is, or may be, suffering from mental disorder and either:-
(a) he is admitted to hospital in pursuance of an application for
admission for treatment under the Mental Health Act 1983 or, in
Scotland, an application for admission under the Mental Health
(Scotland) Act 1960 or, in any other jurisdiction, in pursuance of an
application or otherwise under similar legislation, or
(b) an order is made by a court having jurisdiction (whether in the United
Kingdom or elsewhere) in matters concerning mental disorder for his
detention or for the appointment of any person to exercise powers with
respect to his property or affairs; or
(iv) if he resigns his office by notice in Writing to the Company sent to or
deposited at the Office; or
39
<PAGE>
(v) if, in the case of a Director who holds any executive office with the
Company or any subsidiary, his appointment as such is terminated or
expires and the Directors resolve that his office be vacated; or
(vi) if he is absent for more than 6 consecutive months without permission of
the Directors from meetings of the Directors held during that period and
his alternate Director (if any) shall not during such period have attended
in his stead and the Directors resolve that his office be vacated; or
(vii) if he is requested in Writing by all the other Directors to resign.
E. MANAGING AND EXECUTIVE DIRECTORS
--------------------------------
113. Appointment of Managing and Executive Directors
-----------------------------------------------
The Board may from time to time appoint any one or more of the Directors of the
Company to any executive office, including the offices of executive chairman,
executive vice-chairman, executive deputy chairman, Chief Executive, Managing
Director or to any other executive office or employment under the Company and
subject to the Statutes such appointment may be for such period and on such
terms (as to remuneration and otherwise) as it thinks fit and, subject to the
provisions of any contract between him and the Company, the Board may revoke
such executive appointment or vary the terms thereof. Any resignation from
office given by a Director to the Company pursuant to Article 112(iv) shall have
effect without prejudice to any claim by either against the other for damages
for breach of any contract of service between the relevant Director and the
Company.
114. Remuneration for special or additional services
-----------------------------------------------
A Director appointed to the office of Chief Executive or Managing Director or
other executive office or any Director who discharges any special duty or
function or otherwise performs services any of which in the opinion of the Board
are beyond the attention necessary for the performance of or are outside the
scope of his ordinary duties as a Director or who goes or resides abroad on the
business of the Company shall receive such additional remuneration (whether by
way of salary, commission or participation in profits or otherwise) as the Board
may determine. Any remuneration payable to any Executive Director pursuant to
this Article may if the Director concerned so requires and if the Board so
agrees consist in whole or in part of payments by way of pension contributions
or premiums therefor, whether pursuant to a pension scheme or otherwise.
115. Powers of Directors holding executive office
--------------------------------------------
The Board may entrust to and confer upon any Director appointed to the office of
Chief Executive or Managing Director or other executive office any of the powers
exercisable by them as a Board, other than the power to make calls or forfeit
shares, upon such terms and conditions and with any such restrictions as they
think fit, and either collaterally with or to the exclusion of their own powers,
and may from time to time revoke, withdraw or vary all or any of such powers.
40
<PAGE>
F. ROTATION AND REMOVAL OF DIRECTORS
---------------------------------
116. One-third of the Directors to retire annually
---------------------------------------------
Subject to the provisions of the Statutes and these Articles, one-third of the
Directors for the time being, or, if their number is not 3 or a multiple of 3,
the number nearest to but not exceeding one-third, shall retire from office at
the annual general meeting in every year PROVIDED that if in any year the number
of Directors who are subject to retirement by rotation shall be 2, one or such
Directors shall retire and, if in any year there shall be only one Director who
is subject to retirement by rotation, that Director shall retire. The Directors
to retire by rotation shall include (so far as it is necessary to obtain the
number required) any Director who wishes to retire and not offer himself for re-
election.
117. Retiring Director to hold office until dissolution of meeting
-------------------------------------------------------------
A director retiring at a meeting shall retain office until the dissolution of
that meeting except where a resolution is passed to elect some other person in
the place of the retiring Director or a resolution for his re-election is put to
the meeting and lost (in which case his retirement will take place upon the
determination of the resolution). A retiring Director who is re-elected or
deemed to have been re-elected will continue in office without break.
118. Directors who are to retire by rotation
---------------------------------------
Subject to the provisions of the Statutes and of these Articles, the Directors
to retire in every year shall be those who have been longest in office since
their last appointment, but as between persons who became or were last re-
appointed Directors on the same day, those to retire shall (unless they
otherwise agree among themselves) be determined by lot. A retiring Director
shall be eligible for re-appointment.
119. When a retiring Director is deemed re-appointed
-----------------------------------------------
The Company at the meeting at which a Director retires under any provision of
these Articles may by ordinary resolution fill up the vacated office by
appointing the retiring Director or (subject to the provisions of the Statutes)
some other person thereto, and in default the retiring Director, if willing to
act, shall be deemed to have been re-appointed, except in any of the following
cases:-
(i) where at such meeting it si expressly resolved not to fill up such office
or a resolution for the re-election of such Director is put to the meeting
and lost; or
(ii) where such Director has given notice in Writing to the Company that he is
unwilling to be re-elected; or
(iii) where the default is due to the moving of a resolution in contravention of
the next following Article; or
(iv) where such Director has attained any retiring age applicable to him as
Director.
41
<PAGE>
120. Each re-appointment to be voted on separately
---------------------------------------------
At a general meeting a motion for the appointment of 2 or more persons as
Directors of the Company by a single resolution shall not be made unless a
resolution that it shall be so made has been first agreed to by the meeting
without any vote being given against it and, for the purposes of this Article, a
motion for approving a person's appointment or for nominating a person for
appointment shall be treated as a motion for his appointment.
121. Notice required of an intention to propose a new Director
---------------------------------------------------------
No person other than a Director retiring at the meeting shall, unless
recommended by the Board for appointment, be eligible for appointment to the
office of Director at any general meeting unless, not less than 6 nor more than
48 clear days before the day appointed for the meeting, there shall have been
given to the Company at the Office notice in Writing by some member not being
the person proposed duly qualified to be present and vote at the meeting for
which such notice is given of his intention to propose such person for
appointment, stating the particulars which would, if he were appointed, be
required to be included in the Company's register of Directors and also notice
in Writing signed by the person to be proposed of his willingness to be
appointed, such notice of willingness to be appointed not having been withdrawn.
The Board shall take all reasonable steps to cause the Company to give notice of
each and every candidate for appointment to the office of Director to members at
least 4 days prior to the meeting at which the appointment is to take place.
122. Increase or reduction in permitted number of Directors - casual
---------------------------------------------------------------
vacancies - additional Directors
--------------------------------
Without prejudice to the next following Article, the Company may from time to
time by ordinary resolution increase or reduce the number of Directors, and may
also determine in what rotation such increased or reduced number is to go out of
office, and may appoint any person to be a Director either to fill a casual
vacancy or as an additional Director.
123. Appointment of Director to fill a casual vacancy or as an additional
--------------------------------------------------------------------
director - retirement at next following annual general meeting
--------------------------------------------------------------
The Board shall have power at any time, and from time to time, to appoint any
person to be a Director, either to fill a casual vacancy or as an additional
Director, but so that the total number of Directors shall not at any time exceed
any maximum number fixed in accordance with these Articles. Subject to the
provisions of these Articles, any director so appointed shall hold office only
until the next following annual general meeting and shall then be eligible for
election. Any Director who retires under this Article shall not be taken into
account in determining the Directors who are to retire by rotation at such
meeting.
124. Removal of Director by ordinary resolution
------------------------------------------
The Company may, by ordinary resolution of which special notice has been given
in accordance with Section 379, remove any Director before the expiration of his
period of office, and my, by ordinary resolution, appoint another person in his
stead. The person so appointed shall be subject to
42
<PAGE>
retirement at the same time as if he had become a Director on the day on which
the Director in whose place he is appointed was last appointed a Director.
Nothing in this Article shall be taken as depriving any Director removed
hereunder of compensation or damages payable to him in respect of the
termination of his appointment as a Director or of any executive appointment
ipso facto terminating with his appointment as a Director.
G. ALTERNATE DIRECTORS
-------------------
125. A Director may appoint an alternate - powers of alternate - approval
--------------------------------------------------------------------
of alternate by two-thirds majority - revocation of appointment of
------------------------------------------------------------------
alternate - remuneration of alternate
-------------------------------------
(a) Any Director may at any time appoint any other Director or appoint any
other person willing to act (whether a member of the Company or not) to be his
alternate; and every such alternate shall (subject to his giving to the Company
an address either within the United Kingdom or of an office of the Company
outside the United Kingdom at which notices may be served, including by
facsimile or telex, upon him) be entitled (during any period of absence which
his appointor has notified in Writing to the Secretary) to notice of meetings of
the Directors and to attend and vote as a Director at any such meeting at which
the Director appointing him is not personally present and generally at such
meeting to have and to perform all the functions of his appointor as a Director
in his absence (other than the power to appoint an alternate of the Director
appointing him) PROVIDED that no such appointment of any person not being a
Director shall be operative unless or until the approval of the Directors by a
majority consisting of at least two-thirds of all the Directors shall have been
given.
(b) The Directors may at any time, by a majority consisting of at least two-
thirds of all the Director's, revoke the appointment of an alternate Director.
A Director may at any time revoke the appointment of an alternate appointed by
him, and appoint another person in his place (subject always to the proviso to
paragraph (a) of this Article), and if a Director shall die or otherwise cease
to hold the office of Director the appointment of his alternate shall thereupon
cease and determine PROVIDED that, if any Director retires whether by rotation
or otherwise but is re-appointed by the meeting at which such retirement took
effect or is deemed to have been re-appointed by the meeting at which such
retirement took effect, any appointment made by him pursuant to this Article
which was in force immediately prior to his retirement shall continue to operate
after his re-appointment as if he had not so retired.
(c) Any appointment or revocation by a Director under this Article shall be
effected by notice in Writing to the Company under the hand of the Director
making the same or in any other manner approved by each of the other Directors
of the company for the time being in office, and any such notice if sent to or
left at the Office shall be sufficient evidence of such appointment or
revocation.
(d) Every such alternate shall be an officer of the Company and shall alone be
responsible to the Company for his own acts and defaults, and he shall not be
deemed to be the agent of the Director appointing him.
43
<PAGE>
(e) The remuneration of any such alternate shall be payable out of the
remuneration payable to t he Director appointing him, and shall consist of such
portion (if any) of the last mentioned remuneration as shall be agreed between
such alternate and the Director appointing him. The alternate shall however be
entitled to be paid his expenses and to indemnified by the Company to the same
extent as the Director appointing him.
H. PROCEEDINGS OF DIRECTORS
------------------------
126. Meetings of the Board - determination of questions - chairman's
---------------------------------------------------------------
casting vote - convening of meetings
------------------------------------
The Board may meet for the despatch of its business, adjourn and otherwise
regulate meetings as it thinks fit. Questions arising at any meeting shall be
determined by a majority of votes. In case of an equality of votes the chairman
of the meeting shall have a second or casting vote. A Director who is also an
alternate Director shall be entitled, in the absence of his appointer, to a
separate vote on behalf of the Director he is representing in addition to his
own vote. Any Director may, and the Secretary on the requisition of any
Director shall, at any time summon a meeting of the Board. Due notice of any
meeting of the Board shall be given to each Director (or, during any period of
absence which he has notified in Writing to the Secretary stating or indicating
that during such absence notices should be sent to his alternate, to any
alternate Director appointed by him in accordance with Article 125) either
personally or by sending the same by facsimile, telex or through the post
addressed to him (or, as the case maybe, his alternate) at the address in
the United Kingdom given by him or his alternate to the Company or (if he or, as
the case may be, his alternate is resident outside the United Kingdom) to the
address of the overseas office of the Company specified by him or his alternate
to the Company.
127. Quorum and attendance by telephone
----------------------------------
(a) The quorum necessary for the transaction of the business of the Board may
be fixed by the Board and, unless so fixed at any other number, shall be 3. For
the purposes of this Article an alternate Director shall be counted in a quorum
but so that no less than 2 separate individuals present in person or by
telephone shall constitute the quorum. To count in a quorum, any Director who is
present by telephone must be fully able to hear and participate in the
proceedings.
(b) For the purpose of determining whether a quorum exists for the transaction
of the business of the Board: -
(i) in the case of a resolution of directors (or their alternates), who would
(if attending a meeting) comprise a quorum, in telephonic communication
with one another, any such resolution shall be as valid and effective as if
passed at a meeting of the Board duly convened and held;
(ii) in the case of a meeting of the Board, in addition to the Directors and
alternate Directors (if any) and physically present at the meeting, any
Director or alternate Director in
44
<PAGE>
telephonic communication with such meeting shall be counted in the quorum
and shall be entitled to vote.
128. Restricted powers of Directors to act if number falls below prescribed
----------------------------------------------------------------------
minimum
-------
The continuing Directors or a sole continuing Director may act notwithstanding
any vacancies in their body, but if and so long as the number of Directors is
reduced below the minimum number of Directors fixed by or in accordance with
these Articles, or fixed as the quorum necessary for the transaction of the
business of the Board, the continuing Directors or Director may act for the
purpose of filling up vacancies in their body or of summoning general meetings
of the Company, but not for any other purpose. If there be no Directors or
Director able or willing to act, then any 2 members may summon a general meeting
for the purpose of appointing Directors.
129. Chairman of the Board
---------------------
The Directors (if they think fit) may from time to time elect and remove a
chairman or vice-chairman of their meetings and one or more deputy chairmen of
their meetings and determine the period for which they are respectively to hold
office. The chairman or in his absence the vice-chairman or one of the deputy
chairmen shall preside at all meetings of the Board, but if there be no
chairman, vice-chairman or any deputy chairmen or if at any meeting none of the
chairman, the vice-chairman or any of the deputy chairmen be present and willing
to act within 5 minutes after the time appointed for holding the same, the
Directors present may choose one of their number to be chairman of the meeting.
As between he deputy chairmen present and in default of an agreement between
them, the chair shall be taken by the deputy chairman who has since his last
appointment been longer in that office.
130. Validity of written resolution of Directors
-------------------------------------------
A written resolution signed by all the Directors entitled to receive notice of a
meeting of the Board or of a committee of the Board shall be as effective as a
resolution passed at a meeting of the Board or of a committee of the Board duly
convened and held, and may consist of several documents in the like form each
signed by one or more of the Directors concerned. The signature of an
alternative Director for the time being appointed as alternate for any Director
who has not signed shall be deemed for the purposes of this Article to be the
signature of the Director by whom the alternate is so appointed PROVIDED that at
the time of such signature by any alternate it is, in the reasonable opinion of
the Secretary, impracticable to obtain the signature of the Director who had
appointed him. A resolution executed by an alternate need not also be executed
by his appointor and, if it is executed by a Director who has appointed an
alternate, it need not also be executed by the alternate in that capacity. For
the purposes of this Article, any signature may be affixed to a facsimile copy
of the resolution and any signed resolution shall be valid if the Company
receives the original or a copy by facsimile.
45
<PAGE>
131. Powers of a quorum of the Board
-------------------------------
A meeting of the Board for the time being at which a quorum is present shall be
competent to exercise all powers and discretions for the time being exercisable
by the Board.
132. Delegation of powers to a Director
----------------------------------
The Board may entrust to and confer upon any Director any of the powers
exercisable by it upon such terms and conditions and with such restrictions as
it thinks fit, and either collaterally with, or to the exclusion of, its own
powers, and may from time to time revoke or vary all or any of such powers but
no person dealing in good faith and without notice of such revocation or
variation shall be affected thereby.
133. Appointment of committee of the Board
-------------------------------------
The Board may delegate any of its powers to committees consisting of such
members or member (including alternate Directors) of its body as it thinks fit.
Any committee so formed shall, in the exercise of the powers so delegated,
conform to any regulations that may be imposed on them by the Board. Any such
regulations may, inter alia, provide for or authorise the co-option to the
committee of persons other than Directors and for such co-opted persons to have
voting rights as members of the committee PROVIDED that such co-opted persons
shall be a minority of the committee in number and resolutions of such committee
shall not be effective unless a majority of the members of the committee present
at the meeting and voting in favor are Directors or alternate Directors.
134. Proceedings of a committee of the Board of Directors
----------------------------------------------------
The meetings and proceedings of any committee appointed pursuant to Article 133
and including 2 or more members of the Board shall be governed by the provisions
of these Articles regulating the meetings and proceedings of the Board so far as
the same are applicable and are not superseded by any regulations made by the
Board under Article 133.
135. Validity of acts of the Board or of a committee of the Board or of a
--------------------------------------------------------------------
Director
--------
All acts done bona fide by any meeting of the Board, or of a local board or of a
committee of the Board, or by any person acting as a Director or pursuant to any
resolution duly and validly passed by the Directors or by a committee of the
Board shall, notwithstanding that it be afterwards discovered that there was
some defect in the appointment of any person acting as aforesaid, or that they
or any of them were disqualified from holding office, or had vacated office, or
were disqualified from holding office, or had vacated office, or were not
entitled to vote, be as valid as if every such person had been duly appointed
and was qualified and had continued to be a Director or committee member (as the
case may be) and had been entitled to vote.
46
<PAGE>
I. MINUTES
-------
136. Minutes
-------
The Board shall cause minutes to be made of:
(i) all appointments of officers made by the Board; and
(ii) the names of the Directors (and any alternate Directors) present at each
meeting of the Board and of any local board or committee of the Board; and
(iii) all resolutions and proceedings at all meetings of the Company, of the
holders of any class of shares of the Company, of the Board and of local
boards and committees of the Board.
Any such minutes, if purporting to be signed by the chairman of the meeting at
which the proceedings took place or by the chairman of the next succeeding
meeting, shall be evidence of the proceedings.
J. SECRETARY
---------
137. Appointment of and acts of the Secretary
----------------------------------------
(a) The Secretary and any joint Secretary shall be appointed by the Board for
such term, at such remuneration and upon such conditions as it may think fit;
and any such Secretary so appointed may be removed by the Board, but without
prejudice to any claim which such Secretary may have against the Company.
(b) No person shall be appointed to the office of Secretary or joint Secretary
unless he is duly qualified or eligible under one or more of the categories
specified in Section 286.
(c) The Board may, at any time and from time to time, appoint one or more
persons qualified or eligible under one or more of the categories specified in
Section 286 to be deputy and/or assistant Secretary and anything required or
authorised to be done by or to the Secretary may be done by or to any deputy
and/or assistant Secretary so appointed; any deputy and/or assistant Secretary
may be removed by the Board.
K. THE SEAL
--------
138. Custody and use of the Seal
---------------------------
(a) The Board shall provide for the safe custody of any Seal, Securities Seal
and other official seal and, subject to Articles 14 and 15, no such seal shall
be affixed to any instrument except by the authority of a resolution of the
Board or of a committee of the Board authorised by the Board in that behalf. The
Board may determine whether or not any instrument to which the Seal or
Securities Seal or any other official seal is affixed shall be signed; but, if
it is to be signed, at least
47
<PAGE>
one Director and such other person as the Board may appoint for the purpose
shall sign every instrument to which such seal shall be affixed and in favor of
any purchaser or person bona fide dealing with the Company such signatures, or a
certified copy of the Board resolution resolving that such instrument to which
such seal has been affixed need not be so signed, shall be conclusive evidence
of the fact that such seal has been properly affixed. Subject as aforesaid, the
Board may from time to time make such regulations as it sees fit (subject to the
provisions of Article 14 in relation to warrants, Article 15 in relation to
share certificates and Article 20 in relation to certificates of debenture stock
or loan capital or any other securities comprising the share or loan capital of
the Company) determining the persons and the number of such persons in whose
presence the Seal, Securities Seal or other Official Seal shall be used, and
until otherwise so determined such seal shall be affixed in the presence of one
Director and the Secretary or of 2 Directors.
(b) To the extent permitted by law, a document which is signed by a Director
and the Secretary, or by two Directors, and expressed (in whatever form of
words) to be executed by the Company shall have the same effect as if it were
under seal and a document so executed which: -
(i) is intended by the person or persons making it to be a deed, and
(ii) makes that fact clear on the face of such document (in whatever form of
words)
shall have effect, upon delivery, as a deed; and it shall be presumed, unless a
contrary intention is proved to be deliver upon its being so executed.
139. Official seal for use overseas
------------------------------
The Company may have one or more official seals for use overseas under the
provisions of the Statutes where and as the Board shall determine. The Company
may in Writing under the Seal appoint any agent or committee to be the duly
authorised agent of the company for the purpose of affixing and using abroad any
such official seal and may impose such restrictions on the use thereof as shall
be thought fit. Wherever in these Articles reference is made to the Seal, the
reference shall, when and so far as may be applicable, be deemed to include any
such official seal.
L. AUTHENTICATION OF DOCUMENTS
---------------------------
140. Authentication of documents by Directors, Secretary or any other
----------------------------------------------------------------
person appointed by the Board
-----------------------------
Any Director or the Secretary or any person appointed by the Board for the
purpose shall have power to authenticate any documents affecting the
constitution of the Company and any resolutions passed by the Company or the
Board or any committee of the Board, and any books, records, documents and
accounts relating to the business of the Company, and to certify copies thereof
or extracts therefrom as true copies or extracts; and where any books, records,
documents or accounts are elsewhere than at the Office the local manager or
other officer of the Company having the custody thereof shall be deemed to be a
person appointed by the Board as aforesaid.
48
<PAGE>
A document purporting to be a copy of a resolution, or an extract from the
minutes of a meeting, of the Company or of the Board or any committee of the
Board which is certified as aforesaid shall be conclusive evidence in favour of
all persons dealing with the Company upon the faith thereof that such resolution
has been duly passed or, as the case may be, that such minute or extract is a
true and accurate record of proceedings at a duly constituted meeting.
V. DIVIDENDS AND DISTRIBUTIONS
---------------------------
141. Distribution of profits
-----------------------
The Company may be ordinary resolution declare dividends and such dividends
shall be paid to the members in accordance with their respective rights and
priorities in existence from time to time, and subject thereto in paying a
dividend on the Ordinary Shares PROVIDED that:
(i) no such dividend shall exceed the amount recommended by the Board; and
(ii) generally no dividend or other distribution (as so defined) shall be
declared or made otherwise than in accordance with the provisions of the
Statutes as they from time to time apply to the Company.
142. Dividends only payable on paid up and called up capital
-------------------------------------------------------
Subject to the rights of person, if any, entitled to shares with special rights
as to dividends, all dividends shall be declared and paid according to the
amounts paid up on the shares in respect of which the dividend is paid, but no
amount paid up on a share in advance of calls shall be treated for the purposes
of this Article as paid up on the share. All dividends shall be apportioned and
paid pro rata according to the amounts paid up on the shares during any portion
or portions of the period in respect of which the dividend is paid, except that,
if any share is issued on terms that it shall rank for dividend as if paid up
(in whole or in part) as from a particular date, such share shall rank for
dividend accordingly.
143. Interim dividends
-----------------
Subject to the provisions contained in Articles 141 and 142 and to the
provisions of the Statutes, the Board may:
(i) from time to time pay to the members such interim dividends as appear to
the Board to be justified by the profits of the Company available for
distribution;
(ii) pay half-yearly or at other suitable intervals to be settled by the Board
any dividend expressed to be payable at a fixed rate if it is of the
opinion that the profits of the Company justify the payment;
(iii) if at any time the share capital of the Company is divided into
different classes, declare and pay interim dividends in respect of those
shares in the capital of the Company which
49
<PAGE>
confer on the holders thereof deferred or non-preferred rights as well as
in respect of those shares which confer on the holders thereof preferential
rights with regard to dividends; but no interim dividend shall be paid on
shares carrying deferred or non-preferred rights if, at the time of
payment, any preferential dividend is in arrear; and PROVIDED that the
Board acts bona fide the Directors shall not incur any responsibility to
the holders of shares conferring a preference for any damage that they may
suffer by reason of the payment of an interim dividend on any shares in the
capital of the Company having deferred or non-preferred rights.
144. Record dates for dividend payments and capitalisation distributions
-------------------------------------------------------------------
Notwithstanding any other provision of these Articles but without prejudice to
the rights attached to any shares in the capital of the Company, any resolution
resolving to pay a dividend on shares of any class, whether a resolution of the
Company in general meeting or a resolution of the Board, may specify that the
same shall be payable to the persons registered as the holders of such shares at
the close of business on a particular date, notwithstanding that it may be a
date prior to that on which the resolution is passed, and thereupon the dividend
shall be payable to them in accordance with their respective holdings so
registered, but without prejudice to the rights inter se in respect of such
dividend of transferors and transferees of any such shares. The provisions of
this Article shall mutatis mutandis apply to capitalisation issues to be
effected pursuant to Article 153.
145. Deduction from dividends of unpaid calls
----------------------------------------
The Board may deduct from any dividend or other moneys payable to any member on
or in respect of a share all sums of money (if any) presently payable by him to
the Company on account of calls or otherwise in relation to the shares of the
Company.
146. Company may retain unclaimed dividends
--------------------------------------
The payment by the Board of any unclaimed dividend or other moneys payable on or
in respect of a share into a separate account shall not constitute the Company a
trustee in respect thereof. All unclaimed dividends or other moneys payable on
or in respect of a share may be invested or otherwise made use of by the Board
for the benefit of the Company until claimed; but so that any such dividend
unclaimed after a period of 12 years from the date of declaration shall be
forfeited and shall revert to the Company. No dividend shall bear interest as
against the Company unless otherwise provided by the rights attached to the
share.
147. Dividend warrants
-----------------
Any dividend or other moneys payable on or in respect of a share may be paid by
cheque or warrant sent through the post to the registered addresses of the
member or person entitled thereto, and in the case of joint holders to the
registered address of the joint holder who is first named on the Register, or to
such person and such address as the holer or joint holders may direct by notice
in Writing to the Company signed by such holder or holders. Every such cheque
or warrant shall be made payable to the order of the person to whom it is sent
or of such other person as the holder
50
<PAGE>
or joint holders may direct by notice in Writing to the Company signed by such
holder or holders, and payment of the cheque or warrant, if purporting to be
duly endorsed, or where unendorsed appearing to have been duly paid by the
banker on whom it is drawn, shall be a good discharge to the Company. Every such
cheque or warrant shall be sent at the risk of the person entitled to the money
represented thereby. Any such dividend or other money may also be paid by any
other usual or common banking method (including, without limitation, direct
debit, bank transfer and electronic funds transfer).
148. Any joint holder may give receipt for a dividend
------------------------------------------------
If several persons are registered as joint holders of a share or are entitled
thereto in consequence of the death, bankruptcy or mental disorder of the holder
or by operation of law or any other event, any one of them may give effectual
receipts for any dividend or other moneys payable on or in respect of the share.
149. Company not obliged to send dividend warrants to untraced shareholders
----------------------------------------------------------------------
(a) Without prejudice to the Company's rights under Articles 145 and/or 146, if
on 2 consecutive occasions cheques or warrants in payment of dividends or otehr
moneys payable on or in respect of any shares have been sent through the post in
accordance with the provisions of these Articles but have been returned
undelivered or left uncashed during the periods fro which the same are valid,
the Company need not thereafter despatch further cheques or warrants in payment
of dividends or otehr moneys payable on or in respect of the share in question
until the holder or other person entitled thereto shall have communicated with
the Company and supplied to the Company, by notice in Writing signed by such
holder or other person, an address for the purpose.
(b) The Board may exercise the powers of the Company conferred by paragraph (a)
of this Article in respect of any dividend or other such payment falling due to
be paid 1 month after notice of the Company's intention to exercise such powers
has been served on the relevant member by recorded delivery post.
(c) All moneys represented by warrants or cheques not despatched by the Company
under the provisions of paragraph (a) of this Article shall be deemed to be
unclaimed dividends or moneys and the provisions of Article 146 shall apply
thereto.
150. Payment of dividend in specie
-----------------------------
A general meeting declaring a dividend may, upon the recommendation of the
Board, direct payment of such dividend wholly or in part by the distribution of
specific assets, and in particular of paid up shares, debentures or debenture
stock of any other company or in any one or more of such ways, and the Board
shall give effect to such resolution; and where any difficulty arises in regard
to the distribution it may settle the same as it thinks expedient and in
particular may issue fractional certificates, and may fix the value for
distribution of such specific assets or any part thereof, and may determine that
cash payments shall be made to any members upon the footing
51
<PAGE>
of the values so fixed, in order to adjust the rights of members, and may vest
any specific assets in trustees upon trust for the persons entitled to the
dividend as may seem expedient to the Board, and generally may make such
arrangements for the allotment, acceptance and sale of such specific assets or
fractional certificates, or any part thereof, and distribution of the cash
proceeds of any sale or of the cash equivalent to any member or members and
otherwise as they think fit.
151. Scrip dividends
---------------
The Board may, with the sanction of an ordinary resolution of the Company, offer
to the holders of Ordinary Shares the right to elect to receive an allotment of
additional Ordinary Shares, credited as fully paid, in whole or in part, instead
of cash in respect of any dividend which is specified in the applicable ordinary
resolution or such part of such dividend as the Board may determine. The
following provisions shall have effect:
(i) Any such ordinary resolution may specify a particular dividend or may
specify all or any dividends falling to be declared or paid during a
specified period, being a period expiring not later than five years after
the date of the meeting at which the resolution is passed.
(ii) The basis of allotment shall be determined by the Board so that, as nearly
as may be considered convenient, the value (calculated by reference to the
average quotation) of the additional Ordinary Shares (including any
fractional entitlement) to be allotted instead of any cash amount of
dividend shall be equal to such amount. for such purpose the "average
quotation" of an Ordinary Share shall be the average of the middle market
quotations (less the relevant dividend unless the Ordinary Shares are
already quoted ex such dividend) on The Stock Exchange (derived from the
Daily Official List of the Stock Exchange or any similar publication) on
at least 5 consecutive dealing days selected by the Board, but commencing
no earlier than the day upon which the proposed relevant dividend is
announced by the Board.
(iii) The Board shall give notice in Writing to the holders of the Ordinary
Shares of the rights of election offered to them and shall send with or
following such notice forms of election and specify the procedure to be
followed and the place at which and the latest date and time by which duly
completed forms of election must be lodged in order to be effective.
(iv) The dividend (or that part of the dividend in respect of which a right of
election has been offered) shall not be payable on Ordinary Shares in
respect of which the said election has been duly exercised (the "elected
ordinary Shares") and instead thereof additional Ordinary Shares shall be
allotted to the holders of the elected ordinary Shares on the basis of
allotment determined as aforesaid. For such purpose the Board shall
capitalise, out of such of the sums standing to the credit of reserves
(including any share premium account and capital redemption reserve) or
profit and loss account as the Board may determine, a sum equal to the
aggregate nominal amount of the additional Ordinary Shares to be allowed
on such basis and apply the same in paying up in full the appropriate
number of unissued Ordinary Shares for allotment and distribution to and
amongst the holders of elected Ordinary Shares on such basis.
52
<PAGE>
(v) The additional Ordinary Shares so allotted shall rank pari passu in all
respects with the fully paid Ordinary Shares then in issue save only as
regards participation in the relevant dividend (or share election in
lieu).
(vi) The Board may do all acts and things which it considered necessary or
expedient to give effect to any such offer and capitalisation, with power
to make such provisions as it thinks fit for dealing with shares becoming
distributable in fractions (including provisions whereby, in whole or in
part, fractional entitlements are disregarded or rounded up or the benefit
of fractional entitlements accrues to the Company rather than to the
members concerned). The Board may authorise any person on behalf of all
the members concerned to enter into an agreement with the Company
providing for such capitalisation and matters incidental thereto and an
agreement made under such authority shall be effective and binding on all
persons concerned.
(vii) Notwithstanding anything to the contrary in this Article, the Board may
make such exclusions from any offer of rights of election to holders of
Ordinary Shares as it may think fit in the light of any legal or practical
problems under the laws of, or the requirements of any regulatory ore
stock exchange authority in, any territory.
VI. RESERVES
--------
152. Board may carry profits to reserve - investment of reserves - carry
-------------------------------------------------------------------
forward of profits
------------------
The Board may, before recommending any dividend, whether preferential or
otherwise, carry to reserve out of the profits of the Company (including any
premiums received upon the issue of debentures or other securities of the
Company) such sums as they think proper as a reserve or reserves which shall, at
the discretion of the Board, be applicable for any purpose to which the profits
of the Company may be properly applied, and pending such application may, at the
like discretion, either be employed in the business of the Company or be
invested in such investments other than shares of the Company or of its holding
company (if any) as the Board may from time to time think fit. The Board may
also without placing the same to reserve carry forward any profits which it may
think prudent not to divide.
VII. CAPITALISATION OF PROFITS
-------------------------
153. Capitalisation issue
--------------------
(a) The Company in general meeting may upon the recommendation of the Board at
any time and from time to time, subject as hereinafter provided, by ordinary
resolution resolve:
(i) to capitalise any undivided profits of the Company (whether or not the same
could have been distributed as dividend under the provisions of Article 141
and including profits carried forward or standing to any reserve) or any
sum carried to reserve as a result of the sale or revaluation of the assets
of the Company (other than goodwill) or any part thereof
53
<PAGE>
or any sum standing to the credit of the Company's share premium account
or any capital redemption reserve fund;
(ii) that the Board be authorised and directed to appropriate the profits or
sum resolved to be capitalised to the members in proportion to the nominal
amount of Ordinary Shares (whether or not fully paid up) held by them
respectively which would entitled them to participate in a distribution of
that sum if the shares were fully paid up and the sum were then
distributable and were distributed by way of dividend and to apply such
profits or sum on their behalf, either in or towards paying up the
amounts, if any, for the time being unpaid on any shares, debentures or
other securities held by such members respectively, or in paying up in
full unissued shares, debentures or other securities of the Company of a
nominal amount equal to such profits or sum, and to allot and distribute
such shares, debentures or other securities credited as fully paid up, to
and amongst such members, or as they may direct, in the proportion
aforesaid, or partly in one way and partly in the other;
(iii) that any shares allotted under this Article to any member in respect of a
holding by him of any partly paid Ordinary Shares shall, so long as such
ordinary Shares remain partly paid, rank for dividends only to the extent
that such partly paid Ordinary Shares rank for dividend;
(iv) to make such provision by ignoring fractions or by payment in cash or
otherwise as they determine in the case of the shares or debentures
becoming distributable in fractions;
(v) to authorise any person, on behalf of all the members concerned, to enter
into an agreement with the Company providing for the allotment to them
respectively, credited as fully paid up, or any further shares to which
they are entitled upon such capitalisation, any agreement made under such
authority being binding on all such members; and
(vi) generally to do all acts and things required to give effect to such
resolution as aforesaid;
PROVIDED that:
(aa) the share premium account and the capital redemption reserve fund
and any such profits which could not have been distributed as
dividend under the provisions of Article 141 may, for the
purposes of this Article, only be applied in the paying up of
unissued shares to be issued to members credited as fully or
partly paid; and
(bb) no unrealised profits shall be applied in paying up any
debentures of the Company or any amount unpaid on any share in
the capital of the Company.
(b) This Article is subject to any special conditions which may be attached to
any shares hereafter issued, or upon which any shares may for the time being be
held.
54
<PAGE>
154. Board to effect capitalisations
-------------------------------
Whenever a resolution is passed in pursuance of Article 156 the Board shall
either:
(i) allot unissued shares, debentures or other securities of the Company, as
the case may be, to the amount authorised by the resolution credited as
fully paid up amongst the holders of the shares entitled to participate
therein as nearly as may be in proportion to the number of such last-
mentioned shares held by them respectively with full power to the Board to
make such provisions by way of the issue of fractional certificates or
otherwise as they think fit for the case of fractions, and prior to such
allotment the Board may, if thought fit, authorise any person, on behalf of
all the members to be entitled to the said shares, debentures or other
securities of the Company, to enter into an agreement with the Company
providing for the allotment to them in the proportion aforesaid credited as
fully paid up of the shares, debentures or other securities authorised by
the resolution to be distributed amongst them, and any agreement made under
such authority shall be effective and binding on all the holders of the
said shares, debentures or other securities of the Company for the time
being; and the Board shall have power generally to do all acts and things
required to give effect to such resolutions as aforesaid. Whenever on any
issue of shares, debentures or other securities of the Company in pursuant
of Article 153 the value of a fractional entitlement thereof shall be less
than the Minimum Amount in respect of any member, the proceeds of sale
(after the deduction of the proper expenses of such sale) of each and every
such fractional entitlement amounting to less than the Minimum Amount shall
belong to and be vested in the Company. For the purpose of giving effect to
any such sale, the Board may authorise some person to transfer the
securities sold to the purchase thereof and the purchaser shall be
registered as the holder of the securities comprised in any such transfer
and he shall not be bound to see the application of the purchase money nor
shall his title to the said securities be affected by any irregularity or
invalidity in the proceedings relating to the sale; and/or
(ii) (if the resolution so specifies) apply such profits or sum on behalf of the
members entitled thereto in paying up the amounts, if any, unpaid on any
shares, debentures or other securities held by such members.
VIII. ACCOUNTS AND AUDIT
------------------
155. Keeping of accounts and retention and location of accounting records
--------------------------------------------------------------------
(a) The Board shall cause to be kept proper accounts and accounting records
in accordance with the requirements of the Statutes.
(b) The accounting records shall be kept at the office or (subject to the
provisions of the Statutes) at such other place as the Board thinks fit, and
shall always be open to inspection by the Directors and any other officers of
the Company. No member (other than an officer of the Company) shall h ave any
right of inspecting any account or book or document of the Company
55
<PAGE>
except as conferred by law (including the Statutes) or authorised by order of
the court or by the Board or by the Company in general meeting.
156. Accounts to be laid before general meetings
-------------------------------------------
The Directors shall from time to time, in accordance with the provisions of the
Statutes, cause to be prepared and to be laid before the Company in general
meeting such profit and loss accounts, balance sheets, group accounts (if any)
and reports as are specified in the Statutes.
157. Auditors' report
----------------
The Auditors' report shall be read before the Company in general meeting and
shall be open to inspection as required by the Statutes.
158. Reports and accounts to be delivered to members, debenture holders and
----------------------------------------------------------------------
auditors -summary financial statements
--------------------------------------
(a) Subject to the provisions of paragraph (b) below and of Article 165, a
printed copy of the Directors' and auditors' reports accompanied by printed
copies of the balance sheet, profit and loss account and other documents
required by the Statues to be annexed to the balance sheet (together the
"Statutory Accounts") shall, not less than 21 clear days prior to the annual or
other general meeting at which it is proposed to lay such documents before
members, be delivered or sent by post to the registered address of every member
and holder of debentures of the Company and to the auditors and to every other
person, if any, who is entitled by these Articles or the Statutes to receive
copies of such documents and/or notices of meetings from the Company. Upon a
listing of all or any of the shares or securities comprising the share or loan
capital of the Company being for the time being granted on The Stock Exchange
(or on any other stock exchange in the United Kingdom or elsewhere), the
required number of copies of each of these documents shall at the same time be
forwarded to the appropriate officer of such stock exchange.
(b) The Company may, insofar as is permitted by the Statutes and without
prejudice to the right of any member who wishes to receive the Statutory
Accounts to require the Statutory Accounts to be sent to him, send to members
summary financial statements which comply with the provisions of the Statutes
("Summary Financial Statements") in lieu of the Statutory Accounts, such Summary
Financial Statements to be sent not less than 21 clear days prior to the annual
or other general meeting at which the Statutory Accounts of which the Summary
Financial Statements are a summary are to be laid as provided in paragraph (a)
of this Article. Upon a listing being granted as stated in paragraph (a) above,
there shall be forwarded to The Stock Exchange (as provided above) such number
of copies of any Summary Financial Statements as may for the time being be
required under its regulations or practice.
159. Cases in which reports and accounts need not be delivered
---------------------------------------------------------
The last preceding Article shall not require a copy of the Statutory Accounts or
Summary Financial Statements to be sent to more than one of any joint holders or
to any person of whose
56
<PAGE>
address the Company is not aware, but any member or
holder of debentures or person entitled by the Statutes or these Articles to
receive a copy of the Statutory Accounts or Summary Financial Statements to whom
a copy has not been sent shall be entitled to receive a copy free of charge on
application at the Office.
160. Appointment of auditors
-----------------------
Auditors shall be appointed, and their duties, powers, rights and remuneration
regulated, in accordance with the provisions of the Statutes from time to time
in force.
161. Accounts to be audited annually
-------------------------------
At least once in every financial year of the Company the accounts of the Company
shall be examined and the balance sheet, profit and loss account and the Group
accounts, if any, reported upon by an auditor or auditors.
162. Validity of acts of auditors
----------------------------
Subject to the provisions of the Statutes, all acts done by any person acting as
an auditor shall, as regards all persons dealing in good faith with the Company,
be valid, notwithstanding that there was some defect in his appointment or that
he was at the time of his appointment not qualified for appointment.
163. Right of auditors to receive notice of and attend and speak at general
----------------------------------------------------------------------
meetings
--------
The auditor shall be entitled to attend any general meeting and to receive all
notices of and other communications relating to any general meeting which any
member is entitled to receive, and to be heard at any general meeting on any
part of the business of the meeting which concerns him as auditor.
NOTICES
-------
164. Notices to be in Writing
------------------------
Save as otherwise provided in these Articles, any notice to be given to or by
any person pursuant to these Articles shall be in Writing, except that a notice
calling a meeting of the Board need not be in Writing.
165. Service of notices
------------------
Save as otherwise provided in these Articles, any notice in Writing or document
(including a shares certificate) may be served by the Company on any member
either personally or by sending it through the post in a prepaid cover addressed
to such member, or by delivery in a cover addressed to such member, at his
address as appearing in the Register or such other address as he may from time
to time notify in Writing to the Company as his address for service.
57
<PAGE>
166. Persons becoming entitled to shares to be bound by notices
----------------------------------------------------------
Every person who by operation of law, transfer or other means whatsoever shall
become entitled to any share shall be bound by any notice given by the Company
other than a notice issued by authority of Article 10 in respect of such share
which, before his name and address are entered in the register, shall have been
duly given to the person from whom he derives his title to such share.
167. Notice to joint holders
-----------------------
In the case of joint holders of a share, all notices shall be given to that one
of the joint holders whose name stands first in the Register in respect of the
joint holding, and notice so given shall be sufficient notice to all the joint
holders.
168. Members registered outside the United Kingdom entitled to give an
-----------------------------------------------------------------
address for service in the United Kingdom
-----------------------------------------
Any member described in the Register by an address not within the United Kingdom
who shall from time to time give to the Company an address within the United
Kingdom at which notices may be served upon him shall be entitled to have
notices served upon him at such address, but, save as aforesaid, no member other
than a member described in the Register by an address within the United Kingdom
shall be entitled to receive any notice from the Company.
169. Member present at general meeting deemed to have received notice
----------------------------------------------------------------
Any member present, either personally or by proxy, at any meeting of the Company
shall for all purposes be deemed to have received due notice of such meeting
and, where requisite, of the purposes for which such meeting was convened.
170. Advertisement of notice
-----------------------
Any notice (in Writing or otherwise) required to be given by the Company to the
members of any of them and not provided for by or pursuant to these Articles
shall be sufficiently given if given by advertisement which shall be inserted
once in 2 leading national daily newspapers published in the United Kingdom.
171. When service effected
---------------------
Any notice in Writing or other document, if served by post, shall be deemed to
have been given on the day following that on which the envelope containing the
notice was posted and in proving such service it shall be sufficient to prove
that the envelope containing the notice or document was properly addressed and
duly posted. A notice to be given by advertisement shall be deemed to have been
served on the day on which the advertisement appears.
58
<PAGE>
172. Service of notice on or delivery of document to be deceased or
--------------------------------------------------------------
bankrupt member
---------------
A notice may be given by the Company to the person entitled to a share in
consequence of the death or bankruptcy of a member or otherwise by operation of
law by sending or delivering it in any manner authorised by these Articles for
the giving of notice to a member addressed to that person by name, or by the
title of representative of the deceased or trustee of the bankrupt or by any
like description at the address, if any, within the United Kingdom supplied for
that purpose by the person claiming to be so entitled. Until such an address
has been supplied, a notice may be given in any manner in which it might have
been given if the death or bankruptcy or operative event had not occurred and
such notice shall be deemed a sufficient service of such notice on all persons
interested (whether jointly with or as claiming through or under him) in the
share.
173. Convening of meetings by advertisement
--------------------------------------
If at any time by reason of the suspension or curtailment of postal services
within the United Kingdom the Company is unable to send notices through the post
to addresses in the United Kingdom and is thereby prevented from effectively
convening a general meeting by post, a general meeting may be convened so far as
concerns members whose addresses in the Register or given pursuant to Article
168 are within the United Kingdom, by a notice advertised in at least 2 leading
national daily newspapers published in the United Kingdom and such notice shall
be deemed to have been duly served on all members entitled thereto at noon on
the day when the advertisement appears. In any such case the Company shall send
confirmatory copies of the notice by post if at least 4 days prior to the day of
the meeting the posting of notices to addresses throughout the United Kingdom
again becomes practicable.
I. WINDING-UP
----------
174. Distribution of assets in specie
--------------------------------
In the winding-up (whether the liquidation is voluntary, under supervision or by
the court) of the Company the liquidator may, with the authority of an
extraordinary resolution and any other sanction required by the Statues, divide
among the members in specie the whole or any part of the assets of the Company,
whether or not the assets shall consist of property of one kind, and may for
such purposes set such value as he deems fair upon any one or more class or
classes of property, and may determine how such division shall be carried out as
between the members or different classes of members. The liquidator may, with
the like authority, vest any part of the assets in trustees upon such trusts for
the benefit of members as the liquidator, with the like authority, shall think
fit, and the liquidation of the Company may be compelled to accept any shares in
respect of which there is a liability.
II. INDEMNITY AND INSURANCE
-----------------------
175. Indemnity and insurance for Directors and other officers
--------------------------------------------------------
(a) Subject to the provisions of the Statutes, but without prejudice to any
indemnity to which he may otherwise be entitled, every Director or other officer
or auditor of the Company shall be
59
<PAGE>
indemnified out of the assets of the Company against any liability, loss or
expenditure incurred by him in defending any proceedings, whether civil or
criminal, which relate to anything done or omitted to be done or alleged to have
been done or omitted to be done by him given in his favour or in which he is
acquitted or which are otherwise disposed of without any finding or admission of
guilt or breach of duty on his part or incurred in connection with any liability
in respect of any such act or omission or from liability to pay any amount in
respect of shares acquired by a nominee of the Company.
(b) To the extent permitted by the Statues, the Directors may arrange insurance
cover at the cost of the Company in respect of any liability, loss or
expenditure incurred by any Director, officer or auditor of the Company in
relation to anything done or alleged to have been done or omitted to be done as
Director, officer or auditor.
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EXHIBIT 10.1
DATED OCTOBER 15, 1996
----------------------
(1) ALLIANCE RESOURCES PLC
----------------------
- AND -
(2) JOHN A. KEENAN
--------------
EXECUTIVE
---------
SERVICE AGREEMENT
-----------------
1
<PAGE>
THIS AGREEMENT is made the 15th day of October, 1996
- --------------
BETWEEN:
- --------
(1) ALLIANCE RESOURCES PLC, a company registered in England and Wales whose
----------------------
registered office is at Kingsbury House, 15-17 King Street, London SW1Y 6QU
("the Company") and
(2) JOHN A. KEENAN of 6616 Sewanee Street, Houston, Texas 77005 ("The
--------------
Executive")
WHEREAS
(A) it has been agreed that the Executive is to be employed by the
Company; and
(B) it has been agreed that said employment of the Executive shall be on
the terms and subject to the conditions hereinafter written:
NOW, THEREFORE, THE PARTIES HERETO HAVE AGREED AND DO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 In this Agreement unless the context otherwise requires word and phrases
defined in Part XXVI of the Companies Act 1985 have the same meanings
thereby attributed to them and the following expressions have the following
meanings:
"Associated Company" means any company which is a holding company or a
subsidiary of the Company's holding company;
"the Board" means the Board of Directors present at a meeting of the
directors of the Company at which a quorum is present but excluding the
Executive;
"Group" means the Company and the Associated Companies;
"Intellectual Property" means patent trade marks, service marks, designs,
utility models, design rights applications for registration or any of the
foregoing and the right to apply for them in any part of the world,
inventions, drawings, computer programs, Confidential Information, know-how
and rights of like nature arising or subsisting anywhere in the world in
relation to all of the foregoing whether registered or unregistered.
2. COMMENCEMENT AND TERM
---------------------
2.1 The Executive's employment began on the date first above written.
2.2 This Agreement is in substitution for and shall supersede all or any former
and existing agreements or arrangements for the employment of the Executive
by the Company or an Associated Company all of which shall be deemed to
have been cancelled with effect from the date of commencement of this
Agreement.
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<PAGE>
2.3 The employment of the Executive shall (subject to the provision of Clause
12) be for an initial fixed period of two (2) years from the date of this
Agreement and shall automatically be extended without further action of
either party for additional one (1) year periods, unless written notice of
either party's intention not to extend has been given to the other party
hereto at least three (3) months prior to the expiration of the then
effective one (1) year period of employment. In the event of the latter,
the provisions of Clause 2.4 shall still apply.
2.4 On termination of the employment of the executive at any time and for
whatever reason and howsoever arising, but subject to the provisions of
Clause 12, the Company shall pay to the Executive in one lump sum on the
day of such termination, a cash payment in an amount equal to the
Executive's annual salary, most recent bonus and benefits multiplied by a
number arrived at by dividing the number of months remaining in the period
of employment in effect on the date of such termination by 12; provided,
however, in no event shall the heretofore derived number ever be less than
1; provided further, that for purposes of determining the number of months
remaining in the period of employment in effect on the date of termination,
the month during which such termination takes place shall be included
therein.
3. OBLIGATIONS DURING EMPLOYMENT
-----------------------------
3.1 The Executive shall during the continuance of his employment:
(a) serve the Company to the best of his ability in the capacity of
FINANCE DIRECTOR and shall perform such duties as are customary for a
finance director of comparable companies;
(b) faithfully and diligently perform such duties and exercise such powers
consistent with them as the Board may from time to time properly
assign to or confer upon him provided that the Executive shall not
exercise any of the powers set out in the First Schedule nor do
anything which is inconsistent with prohibitions described therein
unless and until any such power is vested in him by the Board;
(c) if and so long as the Board so directs, perform and exercise the said
duties and powers on behalf of any Associated Company and act as a
director or other officer of any Associated Company;
(d) do all in his power to protect, promote, develop and extend the
business interests and reputation of the Group;
(e) at all times and in all respects conform to and comply with the
business interests and reputation of the Group;
(f) promptly give to the Board (in writing if so requested) all such
information, explanations and assistance as they may require in
connection with the business and affairs of the Company and any
Associated Company for which he is required to perform duties;
(g) unless prevented by sickness, injury or other incapacity or as
otherwise agreed by the Board, devote the whole of his time, attention
and abilities during his hours of work (which shall be normal business
hours and such additional hours as may be necessary for the proper
performance of his duties) to the business and affairs of the Company
and any Associated Company for which he is required to perform duties.
3
<PAGE>
(h) work at such place of business of the Company or any Associated
Company within the United Kingdom as necessary for the proper
performance and exercise of his duties and powers, and, in particular,
it is agreed that the Executive shall remain domiciled and receive
payment for services rendered hereunder in the United States, and the
Executive may be required to travel on the business of the Company and
any Associated Company (whether inside or outside the United Kingdom)
for which he is required to perform duties; and
(i) at such times as the Board may reasonably request and at the expense
of the Company, undergo a medical examination by a doctor of the
Company's choice.
3.2 Notwithstanding the foregoing or any other provision of this Agreement, the
Company may at any time after the Executive has given notice to terminate
this Agreement suspend the Executive and/or exclude him from all or any
premises of the Company or any Associated Company for any period not
exceeding twelve (12) months provided that throughout such period the
Executive's salary and other contractual benefits shall continue to be paid
or provided by the Company.
4. FURTHER OBLIGATIONS OF THE EXECUTIVE
------------------------------------
4.1 During the continuance of his employment, the Executive shall devote his
whole time and attention to his duties under this Agreement and shall not,
without prior written consent of the Board (such consent not to be
unreasonably withheld or delayed), directly or indirectly, carry on or be
engaged, concerned or interested in any other business, trade or occupation
which is similar to or in competition with the business of the Company or
any Associated Company otherwise than as a holder directly or through
nominees of not more than five per cent in aggregate of any class of
shares, debentures or other securities in issue from time to time of any
company which are for the time being quoted or dealt in on any recognised
investment exchange (as defined in Section 207(1) of the Financial Services
Act 1986).
4.2 The Executive shall during the continuance of his employment (and shall
procure that his spouse or partner and his minor children shall comply)
with all applicable rules of law and stock exchange regulations (including
the "Model Code" issued by The International Stock Exchange of the United
Kingdom and the Republic of Ireland Limited) and codes of conduct of the
Company for the time being in force in relation to dealings in shares,
debentures or other securities of the Company or any Associated Company or
any unpublished price-sensitive information affecting the securities of any
other company.
4.3 The Executive shall, in relation to any dealings in securities of overseas
companies, comply with all laws of any foreign state affecting dealings in
the securities of such companies and all regulations of any relevant stock
exchanges on which such dealings take place.
4.4 During the continuance of his employment, the executive shall observe the
terms of any policy issued by the Company in relation to any payment,
rebate, discount, commission, vouchers, gift or other benefit obtained by
him from any third party in respect of any business transacted or proposed
to be transacted (whether or not by him) by or on behalf of the Company or
any Associated Company.
4
<PAGE>
5. REMUNERATION
------------
5.1 The Company shall pay to the Executive during the continuance of his
employment a salary (which shall accrue from day to day) at the rate of
$160,000 (One hundred and sixty thousand United States Dollars) per year.
The salary shall be payable by equal bi-monthly installments in arrears on
or about the 15th and 30th day of each calendar month.
5.2 The salary payable to the executive under Clause 5.1 shall be reviewed on
no less than an annual basis and may be increased by such amount as the
remuneration committee of the Company in its absolute discretion from time
to time decide and notify to the Executive in writing.
5.3 The Executive may during the continuance of his employment be entitled to
be paid bonuses of such amounts (if any) at such times and subject to such
conditions as the remuneration committee of the Company may in its
discretion decide.
5.4 The Executive shall be entitled to be granted such share options in the
share capital of the Company as decided by the Board from time to time.
The Company agrees initially to grant the Executive share options under the
Company Scheme as set forth on the Second Schedule. It is the intention of
the Company to grant the Executive additional share options at a minimum of
two (2) times the Executive's annual salary, at the earliest available
opportunity under the Company Scheme and within the overall constraints of
the rules and regulations of the London Stock Exchange regarding the
granting of such share options. The Company agrees that the executive
shall be entitled to retain all options granted until expiry date in the
event of termination of the employment of the Executive without good cause.
6. INSURANCE
---------
6.1 Subject to his complying with and satisfying any applicable requirements of
the relevant insurers, the Company shall provide and pay for the provision
to the Executive of comprehensive medical, dental and disability insurance
in accordance with arrangements made between the Company and an insurance
company mutually acceptable to the Company and the Executive. In addition,
the Company shall arrange for the provision and pay for the provision to
the Executive of comprehensive travel, associated death and emergency
medical insurance, including cover for emergency repatriation to the U.S.A.
whilst the Executive is outside the U.S.A. on business at the behest of the
Company.
7. EXPENSES
--------
7.1 The Company shall during the continuance of his employment reimburse the
Executive in respect of all reasonable traveling, accommodations,
entertainment and other similar out-of-pocket expenses wholly, exclusively
and necessarily incurred by him in or about the performance of his duties.
7.2 Except where specified to the contrary, all expenses shall be reimbursed in
accordance with the expenses policies of the Company from time to time
subject to the Executive providing appropriate evidence (including
receipts, invoices, tickets and/or vouchers as may be appropriate) of the
expenditure in respect of which he claims reimbursement.
5
<PAGE>
8. HOLIDAYS
--------
8.1 The Executive shall (in addition to the usual public and bank holidays) be
entitled during the continuance of his employment to twenty five (25)
working days' paid holiday in each calendar year to be taken at such times
as shall have been approved by the Board.
8.2 The Executive shall not be entitled to carry forward any annual holiday
entitlement foregone by him for any reason during the calendar year in
which it accrued without the prior written consent of the Board.
8.3 Upon the termination of his employment, the Executive's entitlement to
accrued holiday pay (which accrues at the rate of 2 days per month) shall
be calculated on a pro rata basis in respect of each completed month of
service in the calendar year in which his employment terminates and the
appropriate amount shall be paid to the Executive provided that, if the
Executive shall have taken more days' holiday than his accrued entitlement,
the Company is hereby authorised to make an appropriate deduction from the
Executive's final salary payment.
9. SICKNESS
--------
9.1 Subject to his complying with the Company's procedures relating to the
notification and certification of periods of absence from work, the
Executive shall continue to be paid his salary during any periods of
absence from work due to sickness, injury or other incapacity up to a
maximum of twenty six (26) weeks in aggregate in any period of fifty-two
(52) consecutive weeks.
9.2 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for a continuous period in excess of twenty-six weeks,
the Board shall decide at its absolute discretion whether to terminate the
Executive's employment, in which case the provisions of Clause 2.4 shall
apply or continue to pay the Executive at fifty percent (50%) of his salary
for an additional twenty six (26) weeks. In the event that the Executive's
employment is terminated at the end of the additional twenty-six (26) week
period, the provisions of Clause 2.4 shall still apply.
10. INTELLECTUAL PROPERTY
---------------------
10.1 Subject to the relevant provisions of the Patents Act 1977, the Registered
Designs Act 1949 and the Copyright Designs and Patents Act 1988, if at any
time in the course of his employment the Executive makes or discovers or
participates in the making or discovery of any Intellectual Property
relating to or capable of being used in the business of the Company or any
Associated Company, he shall immediately disclose full details of such
Intellectual Property to the Company and at the request and expense of the
Company he shall do all things which may be necessary or desirable for
obtaining appropriate forms of protection for the Intellectual Property in
such parts of the world as may be specified by the Company and for vesting
all rights in the same in the Company or its nominee.
10.2 The Executive hereby irrevocably appoints the Company to be his attorney in
his name and on his behalf to sign, execute or do any instrument or thing
and generally to use his name for the purpose of giving to the Company or
its nominee the full benefit of the provisions of this Clause and in favour
of any third party. A certificate in writing signed by any director or the
secretary of the Company that any instrument or act falls within the
authority conferred by this Clause shall be conclusive evidence that such
is the case.
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<PAGE>
10.3 The Executive hereby waives all of his moral rights (as defined in the
Copyright Designs and Patents Act 1988) in respect of any acts of the
Company or any acts of third parties done with the Company's authority in
relation to any Intellectual Property which is the property of the Company
by virtue of Clause 10.1.
10.4 All rights an d obligations under this Clause in respect of Intellectual
Property made or discovered by the Executive during his employment shall
continue in full force and effect after the termination of his employment
and shall be binding upon the Executive's personal representatives.
11. CONFIDENTIALITY
---------------
11.1 The Executive shall not (other than in the proper performance of his duties
or without the prior written consent of the Board or unless ordered by a
court of competent jurisdiction) at any time either during the continuance
of his employment or after its termination disclose or communicate to any
person or use for his own benefit or the benefit of any person other than
the Company or any Associated Company any benefits of any confidential
information which may come to his knowledge in the course of his employment
and the Executive shall during the continuance of his employment use his
best endeavours to prevent the unathorized publication or misuse of any
confidential information provided that such restrictions shall cease to
apply to any confidential information which may enter the public domain
other than through the default of the Executive.
11.2 All notes and memoranda of any trade secret or confidential information
concerning the business of the Company and the Associated Companies or any
of its or their suppliers, agents, distributors, customers or others which
shall have been acquired, received or made by the Executive during the
course of his employment shall be the property of the Company and shall be
surrendered by the Executive to someone duly authorized in that behalf at
the termination of his employment or at the request of the Board at any
time during the course of his employment.
11.3 For the avoidance of doubt and without prejudice to the generality of
Clauses 11.1 and 11.2, the following is a non-exhaustive list of matters
which in relation to the Company and the Associated Companies are
considered confidential and must be treated as such by the Executive:
(a) any trade secrets of the Company or any Associated Company;
(b) any information in respect of which the Company or any Associated
Company is bound by an obligation of confidence to any third party;
(c) customer lists and details of contracts with or requirements of
customers; and
(d) any invention, technical data, know-how, instruction or operations
manual or other manufacturing or trade secrets of the Group and their
clients/customers.
12. TERMINATION OF EMPLOYMENT
-------------------------
12.1 The employment of the Executive may be terminated by the Company forthwith
by notice in writing to the Executive if the Executive:
(a) commits any material breach of any of the terms, conditions or
stipulations contained in this Agreement;
7
<PAGE>
(b) is guilty of any serious negligence or gross misconduct in connection
with or affecting the business or affairs of the Company or any
Associated Company for which he is required to perform duties;
(c) is guilty of conduct which brings or is likely to bring himself or the
Company or any Associated Company into disrepute;
(d) is convicted of an arrestable offence (other than an offence under the
road traffic legislation in the United Kingdom or elsewhere for which
a non-custodial penalty is imposed);
(e) is adjudged bankrupt or makes any arrangement or composition with his
creditors;
(f) becomes incapable by reason of mental disorder of discharging his
duties;
(g) is or becomes prohibited by law from being a director.
12.2 The employment of the Executive may be terminated by the Company forthwith
by three (3) months' notice in writing to the executive if at any time the
Executive voluntarily resigns as a director of the Company.
12.3 The employment of the Executive may be terminated with the Company
forthwith by twelve (12) months' notice in writing to the Executive if the
Executive s found unfit to perform his duties on the basis of a medical
report supplied to the Company following his having undergone a medical
examination pursuant to paragraph (i) of Clause 3.1.
12.4 The executive may terminate his employment with the Company forthwith by
notice in writing to the Company if the Company commits any material breach
of the terms, conditions or stipulations contained in this Agreement, in
which case the provisions of Clause 2.4 shall still apply.
12.5 The employment of the Executive shall terminate automatically and without
prior notice upon his attaining the age of 65.
12.6 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for periods in excess of six (6) months in aggregate in
any period of twelve (12) consecutive months, the Company may terminate his
employment by giving to him not less than three months' notice in writing
expiring at any time.
12.7 Upon the termination of his employment (for whatever reason and howsoever
arising) the Executive:
(a) shall not take away, conceal or destroy but shall immediately deliver
up to the Company all documents (which expression shall include
without limitation notes, memoranda, correspondence, drawings,
sketches, plans, designs and any other material upon which data or
information is recorded or stored) relating to the business or affairs
of the Company or any Associated Company or any of their
clients/customers, shareholders, employees, officers, suppliers,
distributors and agents (and the Executive shall not be entitled to
retain any copies or reproductions of any such documents) together
with any other property belonging to the Company or any Associated
Company which may then be in his possession or under his control;
8
<PAGE>
(b) shall at the request of the Board immediately resign without claim or
compensation from office as a director of the Company and any
Associated Company and from any other office held by him in the
Company or any Associated Company (but without prejudice to any claim
he may have for damages for breach of this Agreement) and, in the
event of his failure to do so, the Company is hereby irrevocably
authorised to appoint some person in his name and on his behalf to
sign and deliver such resignations to the Board;
(c) shall not any time thereafter make any untrue or misleading oral or
written statement concerning the business or affairs of the Company or
any Associated Company nor represent himself or permit himself to be
held out as being in any way connected with or interested in the
business of the Company or any Associated Company (except as a former
employee for the purpose of communicating with prospective employers
or complying with any applicable statutory requirements);
(d) shall not at any time thereafter use the name "Alliance Resources" or
any name capable of confusion therewith (whether by using such names
as part of a corporate name or otherwise); and
(e) shall immediately repay all outstanding debts or loans due to the
Company or any Associated Company, and the Company is hereby
authorised to deduct from any wages of the executive a sum equal to
any such debts or loans.
12.8 The following provisions will apply in the event of a Change in Control:
(a) The Board recognises that the Executive is one of several key
employees whose high quality of job performance is essential to
promoting and protecting the best interests of the Company and its
shareholders. The Board further recognises (i) that it is possible
that a Change in Control of the Company could occur at some time in
the future; (ii) that the uncertainty associated with such a
possibility could result in the distraction of the Executive from his
assigned duties and responsibilities; (iii) that it is in the best
interests of the Company and its shareholders to assure the continued
attention by the Executive to such duties and responsibilities without
such distraction; and (iv) that the Executive must be able to
participate in the assessment and evaluation of any proposal which
could effect a Change in Control of the Company without the Executive
being influenced in the exercise of his judgment by uncertainties
regarding the Executive's future financial security.
(b) A "Change in Control" of the Company shall occur if, after the date of
this Agreement:
(i) any Unrelated Party (as hereinafter defined) becomes the
beneficial owner, directly or indirectly, of thirty percent (30%)
or more of the common stock of the Company issued and outstanding
immediately prior to such acquisition and/or securities of the
Company, computing such percentage as if such securities acquired
had been converted and are issued and outstanding for the purpose
of determining such percentage or, if any Unrelated Party is the
beneficial owner of thirty percent (30%) or more of such
securities at the date of this Agreement, such Unrelated Party
acquires an additional ten percent (10%) or more of the shares of
common stock of the Company and/or securities of the Company
which may be converted into shares of common stock of the
Company.
9
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(ii) the shareholders of the Company approve (x) any consolidation or
merger of the Company in which the Company is not the continuing
or surviving corporation or pursuant to which shares of the
common stock of the Company are converted into cash, securities
or other property, other than a merger of the Company in which
the holders of the common stock of the Company immediately prior
to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger,
or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company, or (z) any plan
or proposal for the liquidation or dissolution of the Company.
(iii) a majority of the Board ceases to consist of Continuing
Directors. "Continuing Directors" shall mean members of the
Board who either (1) are members of the Board at the date of this
Agreement or (2) are nominated or appointed to serve as directors
by a majority of the then Continuing Directors; or
(iv) any tender or exchange offer is made to acquire thirty percent
(30%) or more of the common stock of the Company, other than an
offer made by the Company, and shares are acquired pursuant to
that offer.
(c) "Unrelated Party" shall mean any party or group of parties acting
together, excluding, however, the Company, a subsidiary of the Company
and any trustee under any employee benefit plan maintained by the
Company.
(d) Upon (x) the termination of the executive by the Company without Cause
following a Change in Control of the Company or (y) the Executive's
voluntary termination of employment for Good Reason following a Change
in Control of the Company prior to expiration of the then effective
two (2) year period of employment, then the Company shall provide to
the Executive, within thirty (30) days after the applicable event, the
following benefits:
(i) in one lump sum a cash payment equal to the average annual
salary, bonus and benefits paid to the Executive for the past two
(2) years, multiplied by two (2).
(ii) to the extent permitted by applicable law, inclusion in the
Company's life and medical plans as if the Executive were still
employed by the Company until the earlier of two (2) years from
the date of his termination or until the Executive obtains
eligibility under comparable employee plans, with the Company
paying that portion of the premium which it was paying for the
Executive at the time of his termination.
(e) Good Reason. "Good Reason" shall mean:
-----------
(i) without his express written consent, the assignment to the
Executive of any duties inconsistent with his positions, duties,
responsibilities and status with the Company as of the date of
this Agreement or a change in his titles or offices as of same
date, or any removal of the Executive from or any failures to re-
elect the Executive to any of such positions, except in
connection with the termination of his employment
10
<PAGE>
for Cause or as a result of his Disability or death, or
termination by the Executive other than for Good Reason;
(ii) any reduction of the then-existing base salary or a reduction of
more than ten percent (10%) in the aggregate value of any benefit
plans without the prior written consent of the Executive, which
is not remedied within ten (10) calendar days after receipt by
the Company of written notice from the executive of such change
or reduction, as the case may be;
(iii) a determination by the Executive made in good faith that, as a
result of a Change in Control of the Company and a change in
circumstances thereafter significantly affecting his position, he
has been rendered substantially unable to carry out, or has been
substantially hindered in the performance of, any of the
authorities, powers, functions, responsibilities or duties
attached to his position immediately prior to the Change in
Control of the Company, which situation is not remedied within
thirty (30) calendar days after receipt by the Company of written
notice from the Executive of such determination;
(iv) failure by the Company to require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place; or
(v) the Company shall relocate its principal executive office or
require Executive to have his principal location of work or
principal residence any location which is in excess of thirty
miles from the location as of the date hereof; or
(vi) any material breach of this Agreement by the Company.
12.9 The Executive shall not be required to mitigate the amount of any payments
or benefit provided by this Agreement nor shall the amounts of any payment
or benefit provided for by this Agreement be reduced by any compensation
earned by the Executive as the result of employment by the Company or
another employer either before or after a Change in Control of the
Company.
12.10 Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or
other plan or program provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any other agreements with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or
any of its affiliated companies at or subsequent to the termination of
employment hereunder shall be payable in accordance with such plan or
program.
13. NOTICES
-------
13.1 Any notice to be given under this Agreement shall be given in writing and
shall be deemed to be sufficiently served by one party or the other if it
is delivered personally or is sent by registered or
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recorded delivery pre-paid post (air mail if overseas) addressed to either
the Company's registered office for the time being or the Executive's last
known address as the case may be.
13.2 Any notice sent by post shall be deemed (in the absence of evidence of
earlier receipt) to be received two (2) days after posting (six (6) days if
sent air mail) and in providing the time such notice was sent it shall be
sufficient to show that the envelope containing it was properly addressed,
stamped and posted.
13.3 Notwithstanding any other provision of this Agreement, no provision by
virtue of which this Agreement or any agreement or arrangement of which it
forms a part subject to registration under the Restrictive Trade Practices
Act 1976 and 1977 ("RTPA") shall take effect until after particulars
thereof have been furnished to the Director General of Fair Trading in
accordance with the requirements of the RTPA.
14. MISCELLANEOUS
-------------
14.1 The Executive hereby warrants that by virtue of entering into this
Agreement he will not be in breach of any express or implied terms of any
contract or of any other obligation legally binding upon him.
14.2 Any benefits provided by the Company to the Executive or his family which
are not expressly referred to in this Agreement shall be regarded as ex
gratis benefits provided at the entire discretion of the Company and shall
not form part of the Executive's contract of employment.
14.3 The Company shall be entitled at any time during the Executive's employment
to make deductions from the Executive's salary or from any other sums due
to the Executive from the Company or any Associated Company in respect of
any overpayment of any kind made to the Executive or in respect of any debt
or other sum due from him.
15. GENERAL PROVISIONS
------------------
15.1 The headings in this Agreement are for convenience only and shall not
affect its construction or interpretation.
15.2 References in this Agreement to Clauses and paragraphs and the Schedules
are references to Clauses and paragraphs and the Schedules (which are
hereby specifically incorporated in this Agreement) to this Agreement.
15.3 Any reference in this Agreement to the employment of the Executive is a
reference to his employment by the Company whether or not during the
currency of this Agreement.
15.4 Any reference in this Agreement to a person shall, where the context
permits, include a reference to a body corporate and to any unincorporated
body of persons.
15.5 Any word in this Agreement which denotes the singular shall, where the
context permits, include the plural and vice versa, and any word in this
Agreement which denotes the masculine gender shall, where the context
permits, include the feminine and/or the neuter genders and vice versa.
15.6 Any reference in this Agreement to a statutory provision shall be deemed to
include a reference to any statutory amendment modification or re-enactment
of it.
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15.7 This Agreement contains the entire understanding between the parties and
supersedes all (if any) subsisting agreements, arrangements and
understandings relating to the employment of the Executive which such
agreements, arrangements and understandings shall be deemed to have been
terminated by mutual consent.
15.8 This Agreement is governed by and shall be construed in accordance with the
laws of England, and the parties to this Agreement hereby submit to the
exclusive jurisdiction of the English courts.
IN WITNESS whereof this Agreement has been executed as a deed by the parties
- ----------
hereto and is intended to be and is hereby delivered on the date first above
written.
Executed as a deed by: ___________________________________
PHILIP DOUGLAS
Director and Chairman of the Remuneration Committee
of the Board of Directors for ALLIANCE RESOURCES PLC
Signed as a deed by: ___________________________________
JOHN KEENAN
the Executive
in the presence of:
Signature: ___________________________________
Name: ___________________________________
Address: ___________________________________
___________________________________
Occupation: ___________________________________
13
<PAGE>
THE FIRST SCHEDULE
------------------
The following is a list of the powers referred to in the proviso contained in
paragraph (b) of sub-Clause 3.1:
1. Approval of interim and final financial statements.
2. Approval of the interim dividend and recommendation of the final dividend.
3. Approval of any significant changes in accounting policies or practices.
4. Appointment or removal of Company Secretary.
5. Remuneration of auditors and recommendations for appointment or removal of
auditors.
6. Approval of all circulars to shareholders and listing particulars.
7. Approval of all press releases concerning matters decided by the board.
8. Changes relating to the Group's capital structure or its status as PLC.
9. Board appointments and removals.
10. Terms of reference/employment of chairman, vice-chairman, chief executive
and other executive directors.
11. Terms of reference and membership of board committees.
12. Major capital projects.
13. Contracts of the Company or any subsidiary not in the ordinary course of
business.
14. Major investments including the acquisition or disposal of interests of
more than 5% in the voting shares of any company or the making of any take-
over bid.
14
<PAGE>
THE SECOND SCHEDULE
-------------------
Six million (6,000,000) share options to be issued
at 2 pence per share under the Company Scheme.
15
<PAGE>
EXHIBIT 10.2
DATED SEPTEMBER 20, 1996
------------------------
(1) ALLIANCE RESOURCES PLC
----------------------
- AND -
(2) PAUL RAYMOND FENEMORE
---------------------
EXECUTIVE
---------
SERVICE AGREEMENT
-----------------
1
<PAGE>
THIS AGREEMENT is made the 20th day of September, 1996
- --------------
BETWEEN:
- --------
(1) ALLIANCE RESOURCES PLC, a company registered in England and Wales whose
----------------------
registered office is at Kingsbury House, 15-17 King Street, London SW1Y 6QU
("the Company") and
(2) PAUL RAYMOND FENEMORE of Flat 101, 16-18 Kivelis Street, Micosia, Cyprus
---------------------
("The Executive")
WHEREAS
(A) it has been agreed that the Executive is to be employed by the
Company; and
(B) it has been agreed that said employment of the Executive shall be on
the terms and subject to the conditions hereinafter written:
NOW, THEREFORE, THE PARTIES HERETO HAVE AGREED AND DO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 In this Agreement unless the context otherwise requires word and phrases
defined in Part XXVI of the Companies Act 1985 have the same meanings
thereby attributed to them and the following expressions have the following
meanings:
"Associated Company" means any company which is a holding company or a
subsidiary of the Company's holding company;
"the Board" means the Board of Directors present at a meeting of the
directors of the Company at which a quorum is present but excluding the
Executive;
"Group" means the Company and the Associated Companies;
"Intellectual Property" means patent trade marks, service marks, designs,
utility models, design rights applications for registration or any of the
foregoing and the right to apply for them in any part of the world,
inventions, drawings, computer programs, Confidential Information, know-how
and rights of like nature arising or subsisting anywhere in the world in
relation to all of the foregoing whether registered or unregistered.
2. COMMENCEMENT AND TERM
---------------------
2.1 The Executive's employment began on the date first above written. This
Agreement is in substitution for and shall supersede all or any former and
existing agreements or arrangements for the employment of the Executive by
the Company or an Associated Company all of which shall be deemed to have
been cancelled with effect from the date of commencement of this Agreement.
2
<PAGE>
2.2 The employment of the Executive shall (subject to the provision of Clause
12) be for an initial fixed period of two (2) years from the date of this
Agreement and shall automatically be extended without further action of
either party for additional one (1) year periods, unless written notice of
either party's intention not to extend has been given to the other party
hereto at least three (3) months prior to the expiration of the then
effective one (1) year period of employment. In the event of the latter,
the provisions of Clause 2.3 shall still apply.
2.3 On termination of the employment of the executive at any time and for
whatever reason and howsoever arising, but subject to the provisions of
Clause 12, the Company shall pay to the Executive in one lump sum on the
day of such termination, a cash payment in an amount equal to the
Executive's annual salary, most recent bonus and benefits multiplied by a
number arrived at by dividing the number of months remaining in the period
of employment in effect on the date of such termination by 12; provided,
however, in no event shall the heretofore derived number ever be less than
1; provided further, that for purposes of determining the number of months
remaining in the period of employment in effect on the date of termination,
the month during which such termination takes place shall be included
therein.
3. OBLIGATIONS DURING EMPLOYMENT
-----------------------------
3.1 The Executive shall during the continuance of his employment:
(a) serve the Company to the best of his ability in the capacity of
OPERATIONS AND BUSINESS DEVELOPMENT DIRECTOR and shall perform such
duties as are customary of an Executive director of comparable
companies;
(b) faithfully and diligently perform such duties and exercise such powers
consistent with them as the Board may from time to time properly
assign to or confer upon him provided that the Executive shall not
exercise any of the powers set out in the First Schedule nor do
anything which is inconsistent with prohibitions described therein
unless and until any such power is vested in him by the Board; if and
so long as the Board so directs, perform and exercise the said duties
and powers on behalf of any Associated Company and act as a director
or other officer of any Associated Company;
(c) do all in his power to protect, promote, develop and extend the
business interests and reputation of the Group;
(d) at all times and in all respects conform to and comply with the
business interests and reputation of the Group;
(e) promptly give to the Board (in writing if so requested) all such
information, explanations and assistance as they may require in
connection with the business and affairs of the Company and any
Associated Company for which he is required to perform duties;
(f) unless prevented by sickness, injury or other incapacity or as
otherwise agreed by the Board, devote the whole of his time, attention
and abilities during his hours of work (which shall be normal business
hours and such additional hours as may be necessary for the proper
performance of his duties) to the business and affairs of the Company
and any Associated Company for which he is required to perform duties.
3
<PAGE>
(g) work at such place of business of the Company or any Associated
Company within the United Kingdom and/or the United States as
necessary for the proper performance and exercise of his duties and
powers, and, in particular, it is agreed that the Executive shall
remain domiciled in Cyprus and receive payment for services rendered
hereunder in the United Kingdom unless otherwise agreed in writing
between the parties; and the Executive may be required to travel on
the business of the Company and any Associated Company (whether inside
or outside the United Kingdom or Cyprus) for which he is required to
perform duties; and
(h) at such times as the Board may reasonably request and at the expense
of the Company, undergo a medical examination by a doctor of the
Company's choice.
3.2 Notwithstanding the foregoing or any other provision of this Agreement, the
Company may at any time after the Executive has given notice to terminate
this Agreement suspend the Executive and/or exclude him from all or any
premises of the Company or any Associated Company for any period not
exceeding twelve (12) months provided that throughout such period the
Executive's salary and other contractual benefits shall continue to be paid
or provided by the Company.
4. FURTHER OBLIGATIONS OF THE EXECUTIVE
------------------------------------
4.1 During the continuance of his employment, the Executive shall devote his
whole time and attention to his duties under this Agreement and shall not,
without prior written consent of the Board (such consent not to be
unreasonably withheld or delayed), directly or indirectly, carry on or be
engaged, concerned or interested in any other business, trade or occupation
which is similar to or in competition with the business of the Company or
any Associated Company otherwise than as a holder directly or through
nominees of not more than five per cent in aggregate of any class of
shares, debentures or other securities in issue from time to time of any
company which are for the time being quoted or dealt in on any recognised
investment exchange (as defined in Section 207(1) of the Financial Services
Act 1986).
4.2 The Executive shall during the continuance of his employment (and shall
procure that his spouse or partner and his minor children shall comply)
with all applicable rules of law and stock exchange regulations (including
the "Model Code" issued by The International Stock Exchange of the United
Kingdom and the Republic of Ireland Limited) and codes of conduct of the
Company for the time being in force in relation to dealings in shares,
debentures or other securities of the Company or any Associated Company or
any unpublished price-sensitive information affecting the securities of any
other company.
4.3 The Executive shall, in relation to any dealings in securities of overseas
companies, comply with all laws of any foreign state affecting dealings in
the securities of such companies and all regulations of any relevant stock
exchanges on which such dealings take place.
4.4 During the continuance of his employment, the Executive shall observe the
terms of any policy issued by the Company in relation to any payment,
rebate, discount, commission, vouchers, gift or other benefit obtained by
him from any third party in respect of any business transacted or proposed
to be transacted (whether or not by him) by or on behalf of the Company or
any Associated Company.
4
<PAGE>
5. REMUNERATION
------------
5.1 The Company shall pay to the Executive during the continuance of his
employment a salary (which shall accrue from day to day) at the rate of
(Pounds)96,000 (Ninety-Six Thousand United Kingdom Pounds Sterling) Pounds
Sterling per year. The salary shall be payable by equal monthly
installments in arrears on or before three (3) working days prior to the
end of each calendar month.
5.2 The salary payable to the Executive under Clause 5.1 shall be reviewed on
no less than an annual basis and may be increased by such amount as the
remuneration committee of the Company in its absolute discretion from time
to time decides and notifies the Executive in writing.
5.3 The Executive may during the continuance of his employment be entitled to
be paid bonuses of such amounts (if any) at such times and subject to such
conditions as the remuneration committee of the Company may in its
discretion decide.
5.4 The Executive shall be entitled to be granted such share options in the
share capital of the Company as decided by the Board from time to time.
The Company agrees initially to grant the Executive share options under the
Company Scheme as set forth on the Second Schedule. It is the intention of
the Company to grant the Executive additional share options at a minimum of
two (2) times the Executive's annual salary, at the earliest available
opportunity under the Company Scheme and within the overall constraints of
the rules and regulations of the London Stock Exchange regarding the
granting of such share options. The Company agrees that the executive
shall be entitled to retain all options granted until expiry date in the
event of termination of the employment of the Executive without good cause.
6. INSURANCE
---------
6.1 The Company shall provide and pay for the provision to the Executive of
comprehensive travel, accidental death and emergency medical insurance,
including cover for emergency repatriation to the UK whilst the Executive
is outside of the UK on business at the behest of the Company.
7. EXPENSES
--------
7.1 The Company shall during the continuance of his employment reimburse the
Executive in respect of all reasonable traveling, accommodations,
entertainment and other similar out-of-pocket expenses wholly, exclusively
and necessarily incurred by him in or about the performance of his duties.
7.2 Except where specified to the contrary, all expenses shall be reimbursed in
accordance with the expenses policies of the Company from time to time
subject to the Executive providing appropriate evidence (including
receipts, invoices, tickets and/or vouchers as may be appropriate) of the
expenditure in respect of which he claims reimbursement.
8. HOLIDAYS
--------
8.1 The Executive shall (in addition to the usual public and bank holidays) be
entitled during the continuance of his employment to twenty five (25)
working days' paid holiday in each calendar year to be taken at such times
as shall have been approved by the Board.
5
<PAGE>
8.2 The Executive shall not be entitled to carry forward any annual holiday
entitlement foregone by him for any reason during the calendar year in
which it accrued without the prior written consent of the Board.
8.3 Upon the termination of his employment, the Executive's entitlement to
accrued holiday pay (which accrues at the rate of 2 days per month) shall
be calculated on a pro rata basis in respect of each completed month of
service in the calendar year in which his employment terminates and the
appropriate amount shall be paid to the Executive provided that, if the
Executive shall have taken more days' holiday than his accrued entitlement,
the Company is hereby authorised to make an appropriate deduction from the
Executive's final salary payment.
9. SICKNESS
--------
9.1 Subject to his complying with the Company's procedures relating to the
notification and certification of periods of absence from work, the
Executive shall continue to be paid his salary during any periods of
absence from work due to sickness, injury or other incapacity up to a
maximum of twenty six (26) weeks in aggregate in any period of fifty-two
(52) consecutive weeks.
9.2 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for a continuous period in excess of twenty-six weeks,
the Board shall decide at its absolute discretion whether to terminate the
Executive's employment, in which case the provisions of Clause 2.3 shall
apply or continue to pay the Executive at fifty percent (50%) of his salary
for an additional twenty six (26) weeks. In the event that the Executive's
employment is terminated at the end of the additional twenty-six (26) week
period, the provisions of Clause 2.3 shall still apply.
10. INTELLECTUAL PROPERTY
---------------------
10.1 Subject to the relevant provisions of the Patents Act 1977, the Registered
Designs Act 1949 and the Copyright Designs and Patents Act 1988, if at any
time in the course of his employment the Executive makes or discovers or
participates in the making or discovery of any Intellectual Property
relating to or capable of being used in the business of the Company or any
Associated Company, he shall immediately disclose full details of such
Intellectual Property to the Company and at the request and expense of the
Company he shall do all things which may be necessary or desirable for
obtaining appropriate forms of protection for the Intellectual Property in
such parts of the world as may be specified by the Company and for vesting
all rights in the same in the Company or its nominees.
10.2 The Executive hereby irrevocably appoints the Company to be his attorney in
his name and on his behalf to sign, execute or do any instrument or thing
and generally to use his name for the purpose of giving to the Company or
its nominee the full benefit of the provisions of this Clause and in favour
of any third party. A certificate in writing signed by any director or the
secretary of the Company that any instrument or act falls within the
authority conferred by this Clause shall be conclusive evidence that such
is the case.
10.3 The Executive hereby waives all of his moral rights (as defined in the
Copyright Designs and Patents Act 1988) in respect of any acts of the
Company or any acts of third parties done with the Company's authority in
relation to any Intellectual Property which is the property of the Company
by virtue of Clause 10.1.
6
<PAGE>
10.4 All rights and obligations under this Clause in respect of Intellectual
Property made or discovered by the Executive during his employment shall
continue in full force and effect after the termination of his employment
and shall be binding upon the Executive's personal representatives.
11. CONFIDENTIALITY
---------------
11.1 The Executive shall not (other than in the proper performance of his duties
or without the prior written consent of the Board or unless ordered by a
court of competent jurisdiction) at any time either during the continuance
of his employment or after its termination disclose or communicate to any
person or use for his own benefit or the benefit of any person other than
the Company or any Associated Company any benefits of any confidential
information which may come to his knowledge in the course of his employment
and the Executive shall during the continuance of his employment use his
best endeavours to prevent the unathorized publication or misuse of any
confidential information provided that such restrictions shall cease to
apply to any confidential information which may enter the public domain
other than through the default of the Executive.
11.2 All notes and memoranda of any trade secret or confidential information
concerning the business of the Company and the Associated Companies or any
of its or their suppliers, agents, distributors, customers or others which
shall have been acquired, received or made by the Executive during the
course of his employment shall be the property of the Company and shall be
surrendered by the Executive to someone duly authorized in that behalf at
the termination of his employment or at the request of the Board at any
time during the course of his employment.
11.3 For the avoidance of doubt and without prejudice to the generality of
Clauses 11.1 and 11.2, the following is a non-exhaustive list of matters
which in relation to the Company and the Associated Companies are
considered confidential and must be treated as such by the Executive:
(a) any trade secrets of the Company or any Associated Company;
(b) any information in respect of which the Company or any Associated
Company is bound by an obligation of confidence to any third party;
(c) customer lists and details of contracts with or requirements of
customers; and
(d) any invention, technical data, know-how, instruction or operations
manual or other manufacturing or trade secrets of the Group and their
clients/customers.
12. TERMINATION OF EMPLOYMENT
-------------------------
12.1 The employment of the Executive may be terminated by the Company forthwith
by notice in writing to the Executive if the Executive:
(a) commits any material breach of any of the terms, conditions or
stipulations contained in this Agreement;
(b) is guilty of any serious negligence or gross misconduct in connection
with or affecting the business or affairs of the Company or any
Associated Company for which he is required to perform duties;
7
<PAGE>
(c) is guilty of conduct which brings or is likely to bring himself or the
Company or any Associated Company into disrepute;
(d) is convicted of an arrestable offence (other than an offence under the
road traffic legislation in the United Kingdom or elsewhere for which
a non-custodial penalty is imposed);
(e) is adjudged bankrupt or makes any arrangement or composition with his
creditors;
(f) becomes incapable by reason of mental disorder of discharging his
duties;
(g) is or becomes prohibited by law from being a director.
12.2 The employment of the Executive may be terminated by the Company forthwith
by three (3) months' notice in writing to the executive if at any time the
Executive voluntarily resigns as a director of the Company.
12.3 The employment of the Executive may be terminated with the Company
forthwith by twelve (12) months' notice in writing to the Executive if the
Executive s found unfit to perform his duties on the basis of a medical
report supplied to the Company following his having undergone a medical
examination pursuant to paragraph (i) of Clause 3.1.
12.4 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for periods in excess of six (6) months in aggregate in
any period of twelve (12) consecutive months the Company may terminate his
employment by giving notice in writing to the Executive in which case the
provisions of Clause 2.3 and 9.2 shall apply.
12.5 The Executive may terminate his employment with the Company forthwith by
notice in writing to the Company if the Company commits any material breach
of the terms, conditions or stipulations contained in this Agreement, in
which case the provisions of Clause 2.3 shall still apply.
12.6 The employment of the Executive shall terminate automatically and without
prior notice upon his attaining the age of 65.
12.7 Upon termination of his employment (for whatever reason and howsoever
arising), the Executive:
(a) shall not take away, conceal or destroy but shall immediately deliver
up to the Company all documents (which expression shall include
without limitation notes, memoranda, correspondence, drawings,
sketches, plans, designs and any other material upon which data or
information is recorded or stored) relating to the business or affairs
of the Company or any Associated Company or any of their
clients/customers, shareholders, employees, officers, suppliers,
distributors and agents (and the Executive shall not be entitled to
retain any copies or reproductions of any such documents) together
with any other property belonging to the Company or any Associated
Company which may then be in his possession or under his control;
(b) shall at the request of the Board immediately resign without claim or
compensation from office as a director of the Company and any
Associated Company and from any other office held by him in the
Company or any Associated Company (but without prejudice to any claim
he may have for damages for breach of this Agreement) and, in the
event of his
8
<PAGE>
failure to do so, the Company is hereby irrevocably authorised to
appoint some person in his name and on his behalf to sign and deliver
such resignations to the Board;
(c) shall not any time thereafter make any untrue or misleading oral or
written statement concerning the business or affairs of the Company or
any Associated Company nor represent himself or permit himself to be
held out as being in any way connected with or interested in the
business of the Company or any Associated Company (except as a former
employee for the purpose of communicating with prospective employers
or complying with any applicable statutory requirements);
(d) shall not at any time thereafter use the name "Alliance Resources" or
any name capable of confusion therewith (whether by using such names
as part of a corporate name or otherwise); and
(e) shall immediately repay all outstanding debts or loans due to the
Company or any Associated Company, and the Company is hereby
authorised to deduct from any wages of the executive a sum equal to
any such debts or loans.
12.8 The following provisions will apply in the event of a Change in Control:
(a) The Board recognises that the Executive is one of several key
employees whose high quality of job performance is essential to
promoting and protecting the best interests of the Company and its
shareholders. The Board further recognises (i) that it is possible
that a Change in Control of the Company could occur at some time in
the future; (ii) that the uncertainty associated with such a
possibility could result in the distraction of the Executive from his
assigned duties and responsibilities; (iii) that it is in the best
interests of the Company and its shareholders to assure the continued
attention by the Executive to such duties and responsibilities without
such distraction; and (iv) that the Executive must be able to
participate in the assessment and evaluation of any proposal which
could effect a Change in Control of the Company without the Executive
being influenced in the exercise of his judgment by uncertainties
regarding the Executive's future financial security.
(b) A "Change in Control" of the Company shall occur if, after the date of
this Agreement:
(i) any Unrelated Party (as hereinafter defined) becomes the
beneficial owner, directly or indirectly, of thirty percent (30%)
or more of the common stock of the Company issued and outstanding
immediately prior to such acquisition and/or securities of the
Company, computing such percentage as if such securities acquired
had been converted and are issued and outstanding for the purpose
of determining such percentage or, if any Unrelated Party is the
beneficial owner of thirty percent (30%) or more of such
securities at the date of this Agreement, such Unrelated Party
acquires an additional ten percent (10%) or more of the shares of
common stock of the Company and/or securities of the Company
which may be converted into shares of common stock of the
Company.
(ii) the shareholders of the Company approve (x) any consolidation or
merger of the Company in which the Company is not the continuing
or surviving corporation or pursuant to which shares of the
common stock of the Company are converted into cash, securities
or other property, other than a merger of the Company in which
9
<PAGE>
the holders of the common stock of the Company immediately prior
to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger,
or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company, or (z) any plan
or proposal for the liquidation or dissolution of the Company.
(iii) a majority of the Board ceases to consist of Continuing
Directors. "Continuing Directors" shall mean members of the
Board who either (1) are members of the Board at the date of this
Agreement or (2) are nominated or appointed to serve as directors
by a majority of the then Continuing Directors; or
(iv) any tender or exchange offer is made to acquire thirty percent
(30%) or more of the common stock of the Company, other than an
offer made by the Company, and shares are acquired pursuant to
that offer.
(c) "Unrelated Party" shall mean any party or group of parties acting
together, excluding, however, the Company, a subsidiary of the Company
and any trustee under any employee benefit plan maintained by the
Company.
(d) Upon (x) the termination of the executive by the Company without Cause
following a Change in Control of the Company or (y) the Executive's
voluntary termination of employment for Good Reason following a Change
in Control, then the Company shall provide the Executive within thirty
(30) days after the applicable event, in one lump sum a cash payment
equal to the then current annual salary, bonus and benefits paid to
the Executive, multiplied by two (2).
12.9 The Executive shall not be required to mitigate the amount of any payments
or benefit provided by this Agreement nor shall the amounts of any payment
or benefit provided for by this Agreement be reduced by any compensation
earned by the Executive as the result of employment by the Company or
another employer either before or after a Change in Control of the Company.
12.10Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or
other plan or program provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any other agreements with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or
any of its affiliated companies at or subsequent to the termination of
employment hereunder shall be payable in accordance with such plan or
program.
13. GRIEVANCE PROCEDURE
-------------------
13.1 Pursuant to Section 3 of the Employment Protection (Consolidation) Act
1978, the Company hereby notifies the Executive that in the event of the
Executive wishing to seek redress of any grievance relating to his
engagement, he should write to the Board setting out full details of the
matter and the Executive should promptly answer (in writing if required)
such questions (if any) as are put to him by any member of the Board. A
majority decision of the Board on such matter shall be final and binding
and will be communicated to the Executive in writing.
10
<PAGE>
14. NOTICES
-------
14.1 Any notice to be given under this Agreement shall be given in writing and
shall be deemed to be sufficiently served by one party or the other if it
is delivered personally or is sent by registered or recorded delivery pre-
paid post (air mail if overseas) addressed to either the Company's
registered office for the time being or the Executive's last known address
as the case may be.
14.2 Any notice sent by post shall be deemed (in the absence of evidence of
earlier receipt) to be received two (2) days after posting (six (6) days if
sent air mail) and in providing the time such notice was sent it shall be
sufficient to show that the envelope containing it was properly addressed,
stamped and posted.
14.3 Notwithstanding any other provision of this Agreement, no provision by
virtue of which this Agreement or any agreement or arrangement of which it
forms a part subject to registration under the Restrictive Trade Practices
Act 1976 and 1977 ("RTPA") shall take effect until after particulars
thereof have been furnished to the Director General of Fair Trading in
accordance with the requirements of the RTPA.
15. MISCELLANEOUS
-------------
15.1 The Executive hereby warrants that by virtue of entering into this
Agreement he will not be in breach of any express or implied terms of any
contract or of any other obligation legally binding upon him.
15.2 Any benefits provided by the Company to the Executive or his family which
are not expressly referred to in this Agreement shall be regarded as ex
gratis benefits provided at the entire discretion of the Company and shall
not form part of the Executive's contract of employment.
15.3 The Company shall be entitled at any time during the Executive's employment
to make deductions from the Executive's salary or from any other sums due
to the Executive from the Company or any Associated Company in respect of
any overpayment of any kind made to the Executive or in respect of any debt
or other sum due from him.
16. GENERAL PROVISIONS
------------------
16.1 The headings in this Agreement are for convenience only and shall not
affect its construction or interpretation.
16.2 References in this Agreement to Clauses and paragraphs and the Schedules
are references to Clauses and paragraphs and the Schedules (which are
hereby specifically incorporated in this Agreement) to this Agreement.
16.3 Any reference in this Agreement to the employment of the Executive is a
reference to his employment by the Company whether or not during the
currency of this Agreement.
16.4 Any reference in this Agreement to a person shall, where the context
permits, include a reference to a body corporate and to any unincorporated
body of persons.
11
<PAGE>
16.5 Any word in this Agreement which denotes the singular shall, where the
context permits, include the plural and vice versa, and any word in this
Agreement which denotes the masculine gender shall, where the context
permits, include the feminine and/or the neuter genders and vice versa.
16.6 Any reference in this Agreement to a statutory provision shall be deemed to
include a reference to any statutory amendment modification or re-enactment
of it.
16.7 This Agreement contains the entire understanding between the parties and
supersedes all (if any) subsisting agreements, arrangements and
understandings relating to the employment of the Executive which such
agreements, arrangements and understandings shall be deemed to have been
terminated by mutual consent.
16.8 This Agreement is governed by and shall be construed in accordance with the
laws of England, and the parties to this Agreement hereby submit to the
exclusive jurisdiction of the English courts.
IN WITNESS whereof this Agreement has been executed as a deed by the parties
- ----------
hereto and is intended to be and is hereby delivered on the date first above
written.
Executed as a deed by: ____________________________________
PHILIP DOUGLAS
Director and Chairman of the Remuneration Committee
of the Board of Directors for ALLIANCE RESOURCES PLC
Signed as a deed by: ____________________________________
PAUL RAYMOND FENEMORE
the Executive
in the presence of:
Signature: ____________________________________
Name: ____________________________________
Address: ____________________________________
____________________________________
Occupation: ____________________________________
12
<PAGE>
THE FIRST SCHEDULE
------------------
The powers referred to in the proviso contained in following is a list of the
powers referred to in the proviso contained in paragraph (b) of sub-Clause 3.1:
1. Approval of interim and final financial statements.
2. Approval of the interim dividend and recommendation of the final dividend.
3. Approval of any significant changes in accounting policies or practices.
4. Appointment or removal of Company Secretary.
5. Remuneration of auditors and recommendations for appointment or removal of
auditors.
6. Approval of all circulars to shareholders and listing particulars.
7. Approval of all press releases concerning matters decided by the board.
8. Changes relating to the Group's capital structure or its status as PLC.
9. Board appointments and removals.
10. Terms of reference/employment of chairman, vice-chairman, chief executive
and other executive directors.
11. Terms of reference and membership of board committees.
12. Major capital projects.
13. Contracts of the Company or any subsidiary not in the ordinary course of
business.
14. Major investments including the acquisition or disposal of interests of
more than 5% in the voting shares of any company or the making of any take-
over bid.
13
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THE SECOND SCHEDULE
-------------------
One million (1,000,000) share options to be issued
at 2 pence per share under the Company Scheme.
14
<PAGE>
EXHIBIT 10.3
DATED DECEMBER 16, 1996
-----------------------
(1) ALLIANCE RESOURCES PLC
----------------------
- AND -
(2) HARRY BRIAN KERR WILLIAMS
-------------------------
EXECUTIVE
---------
SERVICE AGREEMENT
-----------------
1
<PAGE>
THIS AGREEMENT is made the 16 day of December, 1996
- --------------
BETWEEN:
- --------
(1) ALLIANCE RESOURCES PLC, a company registered in England and Wales whose
----------------------
registered office is at Kingsbury House, 15-17 King Street, London SW1Y 6QU
("the Company") and
(2) H. BRIAN K. WILLIAMS of Church House, Church Street, Rodmersham, Nr
--------------------
Sittingbourne, Kent ME9 OQD ("The Executive")
WHEREAS
(A) it has been agreed that the Executive is to be employed by the
Company; and
(B) it has been agreed that said employment of the Executive shall be on
the terms and subject to the conditions hereinafter written:
NOW, THEREFORE, THE PARTIES HERETO HAVE AGREED AND DO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 In this Agreement unless the context otherwise requires word and phrases
defined in Part XXVI of the Companies Act 1985 have the same meanings
thereby attributed to them and the following expressions have the following
meanings:
"Associated Company" means any company which is a holding company or a
subsidiary of the Company's holding company;
"the Board" means the Board of Directors present at a meeting of the
directors of the Company at which a quorum is present but excluding the
Executive;
"Group" means the Company and the Associated Companies;
"Intellectual Property" means patent trade marks, service marks, designs,
utility models, design rights applications for registration or any of the
foregoing and the right to apply for them in any part of the world,
inventions, drawings, computer programs, Confidential Information, know-how
and rights of like nature arising or subsisting anywhere in the world in
relation to all of the foregoing whether registered or unregistered.
2. COMMENCEMENT AND TERM
---------------------
2.1 The Executive's employment began on 16 December 1996.
2.2 This Agreement is in substitution for and shall supersede all or any former
and existing agreements or arrangements for the employment of the Executive
by the Company or an Associated Company
2
<PAGE>
all of which shall be deemed to have been cancelled with effect from the
date of commencement of this Agreement.
2.3 The employment of the Executive shall (subject to the provision of Clause
12) be for an initial fixed period of two (2) years from the date of this
Agreement and shall automatically be extended without further action of
either party for additional one (1) year periods, unless written notice of
either party's intention not to extend has been given to the other party
hereto at least three (3) months prior to the expiration of the then
effective one (1) year period of employment provided that the Executive may
at any time during the currency of this Agreement give a minimum of three
months notice of termination to the Company. In the event of termination
pursuant to any of the provisions of this Clause 2.3 the provisions of
Clause 2.4 shall still apply.
2.4 On termination of the employment of the Executive at any time and for
whatever reason and howsoever arising, but subject to the provisions of
Clause 12, the Company shall pay to the Executive in one lump sum on the
day of such termination, a cash payment in an amount equal to the
Executive's annual salary, most recent bonus and benefits including
payments to the Executive's pension scheme multiplied by a NUMBER arrived
at by dividing the number of months remaining in the period of employment
in effect on the date of such termination by 12; provided, in no event
shall the heretofore derived NUMBER ever be less than 1; provided further,
that for purposes of determining the number of months remaining in the
period of employment in effect on the date of termination, the month during
which such termination takes place shall be included therein.
3. OBLIGATIONS DURING EMPLOYMENT
-----------------------------
3.1 The Executive shall during the continuance of his employment:
(a) serve the Company to the best of his ability in the capacity of
FINANCE DIRECTOR and shall perform such duties as are customary for a
finance director of comparable companies;
(b) faithfully and diligently perform such duties and exercise such powers
consistent with them as the Board may from time to time properly
assign to or confer upon him provided that the Executive shall not
exercise any of the powers set out in the First Schedule nor do
anything which is inconsistent with prohibitions described therein
unless and until any such power is vested in him by the Board;
(c) if and so long as the Board so directs, perform and exercise the said
duties and powers on behalf of any Associated Company and act as a
director or other officer of any Associated Company;
(d) do all in his power to protect, promote, develop and extend the
business interests and reputation of the Group;
(e) at all times and in all respects conform to and comply with the
business interests and reputation of the Group;
(f) promptly give to the Board (in writing if so requested) all such
information, explanations and assistance as they may require in
connection with the business and affairs of the Company and any
Associated Company for which he is required to perform duties;
3
<PAGE>
(g) unless prevented by sickness, injury or other incapacity or as
otherwise agreed by the Board, devote the whole of his time, attention
and abilities during his hours of work (which shall be normal business
hours and such additional hours as may be necessary for the proper
performance of his duties) to the business and affairs of the Company
and any Associated Company for which he is required to perform duties.
(h) work at such place of business of the Company or any Associated
Company within the United Kingdom as necessary for the proper
performance and exercise of his duties and powers, and, in particular,
it is agreed that the Executive shall remain domiciled in the United
Kingdom and receive payment for service rendered hereunder in the
United Kingdom; and the Executive shall not be obliged to work from an
office outside an area comprising a radius of 10 miles from London;
however, the Executive may be required to travel on the business of
the Company and any Associated Company (whether inside or outside the
United Kingdom) for which he is required to perform duties; and
(i) at such times as the Board may reasonably request and at the expense
of the Company, undergo a medical examination by a doctor of the
Company's choice.
3.2 Notwithstanding the foregoing or any other provision of this Agreement, the
Company may at any time after the Executive has given notice to terminate
this Agreement suspend the Executive and/or exclude him from all or any
premises of the Company or any Associated Company for any period not
exceeding twelve (12) months provided that throughout such period the
Executive's salary and other contractual benefits shall continue to be paid
or provided by the Company.
4. FURTHER OBLIGATIONS OF THE EXECUTIVE
------------------------------------
4.1 During the continuance of his employment, the Executive shall devote his
whole time and attention to his duties under this Agreement and shall not,
without prior written consent of the Board (such consent not to be
unreasonably withheld or delayed), directly or indirectly, carry on or be
engaged, concerned or interested in any other business trade or occupation
which is similar to or in competition with the business of the Company or
any Associated Company otherwise than as a holder directly or through
nominees of not more than five per cent in aggregate of any class of
shares, debentures or other securities from time to time of any company
which are for the time being quoted or dealt in on any recognised
investment exchange (as defined in Section 207(1) of the Financial Services
Act 1986).
4.2 The Executive shall during the continuance of his employment (and shall
procure that his spouse or partner and his minor children shall comply)
with all applicable rules of law and stock exchange regulations (including
the "Model Code" issued by The International Stock Exchange of the United
Kingdom and the Republic of Ireland Limited) and codes of conduct of the
Company for the time being in force in relation to dealings in shares,
debentures or other securities of the Company or any Associated Company or
any unpublished price-sensitive information affecting the securities of any
other company.
4.3 The Executive shall, in relation to any dealings in securities of overseas
companies, comply with all laws of any foreign state affecting dealings in
the securities of such companies and all regulations of any relevant stock
exchanges on which such dealings take place.
4.4 During the continuance of his employment, the Executive shall observe the
terms of any policy issued by the Company in relation to any payment,
rebate, discount, commission, vouchers, gift
4
<PAGE>
or other benefit obtained by him from any third party in respect of any
business transacted or proposed to be transacted (whether or not by him) by
or on behalf of the Company or any Associated Company.
5. REMUNERATION
------------
5.1 The Company shall pay to the Executive during the continuance of his
employment a salary (which shall accrue from day to day) at the rate of
(Pounds)85,800 (Eighty-five thousand United Kingdom Pounds Sterling) per
year. The salary shall be payable in arrears on or before three (3)
working days prior to the end of each calendar month.
5.2 The salary payable to the Executive under Clause 5.1 shall be reviewed on
no less than an annual basis and may be increased by such amount as the
remuneration committee of the Company in its absolute discretion from time
to time decide and notify to the Executive in writing.
5.3 The Executive may during the continuance of his employment be entitled to
be paid bonuses of such amounts (if any) at such times and subject to such
conditions as the remuneration committee of the Company may in its
discretion decide.
5.4 The Executive shall be entitled to be granted such share options in the
share capital of the Company as decided by the Board from time to time.
The Company agrees initially to grant the Executive share options under the
Company Scheme as set forth on the Second Schedule. It is the intention of
the Company to grant the Executive additional share options at a minimum of
two (2) times the Executive's annual salary, at the earliest available
opportunity under the Company Scheme and within the overall constraints of
the rules and regulations of the London Stock Exchange regarding the
granting of such share options. The Company agrees that the Executive
shall be entitled to retain all options granted until expiry date in the
event of termination of the employment of the Executive without good cause.
6. INSURANCE PENSION AND OTHER BENEFITS
------------------------------------
6.1 Subject to his complying with and satisfying any applicable requirements of
the relevant insurers, the Company shall arrange for the provision and pay
for the provision to the Executive of comprehensive medical, dental and
disability insurance in accordance with arrangements made between the
Company and an insurance company mutually acceptable to the Company and the
Executive. In addition, the Company shall arrange for the provision and
pay for the provision to the Executive of comprehensive travel, associated
death and emergency medical insurance, including cover for emergency
repatriation to the United Kingdom whilst the Executive is outside the
United Kingdom on business at the behest of the Company.
6.2 The Company shall (subject to the Inland Revenue Limits so far as they are
applicable) pay for the sole benefit of the Executive a sum equal to 15 per
cent of the Executive's annual salary hereunder by equal monthly
contributions in arrears into such Inland Revenue approved personal pension
scheme as the Executive may from time to time direct. Such monthly
contributions shall be inclusive of the provision of death benefit at four
times the Executive's annual salary. In the event that such Inland Revenue
approved personal pension scheme has not been established by the Executive,
then the Company shall accordingly accrue at a rate of 15 per cent of the
Executive's annual salary monthly which will be paid into such Inland
Revenue approved personal pension scheme when such scheme has been
established.
5
<PAGE>
7. EXPENSES
--------
7.1 The Company shall during the continuance of his employment reimburse the
Executive in respect of all reasonable traveling, accommodations,
entertainment and other similar out-of-pocket expenses wholly, exclusively
and necessarily incurred by him in or about the performance of his duties.
7.2 Except where specified to the contrary, all expenses shall be reimbursed in
accordance with the expenses policies of the Company from time to time
subject to the Executive providing appropriate evidence (including
receipts, invoices, tickets and/or vouchers as may be appropriate) of the
expenditure in respect of which he claims reimbursement.
8. HOLIDAYS
--------
8.1 The Executive shall (in addition to the usual public and bank holidays) be
entitled during the continuance of his employment to twenty five (25)
working days' paid holiday in each calendar year to be taken at such times
as shall have been approved by the Board.
8.2 The Executive shall not be entitled to carry forward any annual holiday
entitlement foregone by him for any reason during the calendar year in
which it accrued without the prior written consent of the Board.
8.3 Upon the termination of his employment, the Executive's entitlement to
accrued holiday pay (which accrues at the rate of 2 days per month) shall
be calculated on a pro rata basis in respect of each completed month of
service in the calendar year in which his employment terminates and the
appropriate amount shall be paid to the Executive provided that, if the
Executive shall have taken more days' holiday than his accrued entitlement,
the Company is hereby authorised to make an appropriate deduction from the
Executive's final salary payment.
9. SICKNESS
--------
9.1 Subject to his complying with the Company's procedures relating to the
notification and certification of periods of absence from work, the
Executive shall continue to be paid his salary during any periods of
absence from work due to sickness, injury or other incapacity up to a
maximum of twenty six (26) weeks in aggregate in any period of fifty-two
(52) consecutive weeks.
9.2 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for a continuous period in excess of twenty-six weeks,
the Board shall decide at its absolute discretion whether to terminate the
Executive's employment, in which case the provisions of Clause 2.4 shall
apply or continue to pay the Executive at fifty percent (50%) of his salary
for an additional twenty six (26) weeks. In the event that the Executive's
employment is terminated at the end of the additional twenty-six (26) week
period, the provisions of Clause 2.4 shall still apply.
10. INTELLECTUAL PROPERTY
---------------------
10.1 Subject to the relevant provisions of the Patents Act 1977, the Registered
Designs Act 1949 and the Copyright Designs and Patents Act 1988, if at any
time in the course of his employment the Executive makes or discovers or
participates in the making or discovery of any Intellectual Property
relating to or capable of being used in the business of the Company or any
Associated Company, he shall immediately disclose full details of such
Intellectual Property to the Company
6
<PAGE>
and at the request and expense of the Company he shall do all things which
may be necessary or desirable for obtaining appropriate forms of protection
for the Intellectual Property in such parts of the world as may be
specified by the Company and for vesting all rights in the same in the
Company or its nominee.
10.2 The Executive hereby irrevocably appoints the Company to be his attorney in
his name and on his behalf to sign execute or do any instrument or thing
and generally to use his name for the purpose of giving to the Company or
its nominee the full benefit of the provisions of this Clause and in favour
of any third party. A certificate in writing signed by any director or the
secretary of the Company that any instrument or act falls within the
authority conferred by this Clause shall be conclusive evidence that such
is the case.
10.3 The Executive hereby waives all of his moral rights (as defined in the
Copyright Designs and Patents Act 1988) in respect of any acts of the
Company or any acts of third parties done with the Company's authority in
relation to any Intellectual Property which is the property of the Company
by virtue of Clause 10.1.
10.4 All rights and obligations under this Clause in respect of Intellectual
Property made or discovered by the Executive during his employment shall
continue in full force and effect after the termination of his employment
and shall be binding upon the Executive's personal representatives.
11. CONFIDENTIALITY
---------------
11.1 The Executive shall not (other than in the proper performance of his duties
or without the prior written consent of the Board or unless ordered by a
court of competent jurisdiction) at any time either during the continuance
of his employment or after its termination disclose or communicate to any
person or use for his own benefit or the benefit of any person other than
the Company or any Associated Company any benefits of any confidential
information which may come to his knowledge in the course of his employment
and the Executive shall during the continuance of his employment use his
best endeavours to prevent the unathorized publication or misuse of any
confidential information provided that such restrictions shall cease to
apply to any confidential information which may enter the public domain
other than through the default of the Executive.
11.2 All notes and memoranda of any trade secret or confidential information
concerning the business of the Company and the Associated Companies or any
of its or their suppliers, agents, distributors, customers or others which
shall have been acquired, received or made by the Executive during the
course of his employment shall be the property of the Company and shall be
surrendered by the Executive to someone duly authorized in that behalf at
the termination of his employment or at the request of the Board at any
time during the course of his employment.
11.3 For the avoidance of doubt and without prejudice to the generality of
Clauses 11.1 and 11.2, the following is a non-exhaustive list of matters
which in relation to the Company and the Associated Companies are
considered confidential and must be treated as such by the Executive:
(a) any trade secrets of the Company or any Associated Company;
(b) any information in respect of which the Company or any Associated
Company is bound by an obligation of confidence to any third party;
(c) customer lists and details of contracts with or requirements of
customers; and
7
<PAGE>
(d) any invention, technical data, know-how, instruction or operations
manual or other manufacturing or trade secrets of the Group and their
clients/customers.
12. TERMINATION OF EMPLOYMENT
-------------------------
12.1 The employment of the Executive may be terminated by the Company forthwith
by notice in writing to the Executive if the Executive:
(a) commits any material breach of any of the terms, conditions or
stipulations contained in this Agreement;
(b) is guilty of any serious negligence or gross misconduct in connection
with or affecting the business or affairs of the Company or any
Associated Company for which he is required to perform duties;
(c) is guilty of conduct which brings or is likely to bring himself or the
Company or any Associated Company into disrepute;
(d) is convicted of an arrestable offence (other than an offence under the
road traffic legislation in the United Kingdom or elsewhere for which
a non-custodial penalty is imposed);
(e) is adjudged bankrupt or makes any arrangement or composition with his
creditors;
(f) becomes incapable by reason of mental disorder of discharging his
duties;
(g) is or becomes prohibited by law from being a director.
12.2 The employment of the Executive may be terminated by the Company forthwith
by three (3) months' notice in writing to the Executive if at any time the
Executive voluntarily resigns as a director of the Company.
12.3 The employment of the Executive may be terminated with the Company
forthwith by twelve (12) months' notice in writing to the Executive if the
Executive s found unfit to perform his duties on the basis of a medical
report supplied to the Company following his having undergone a medical
examination pursuant to paragraph (i) of Clause 3.1.
12.4 The Executive may terminate his employment with the Company forthwith by
notice in writing to the Company if the Company commits any material breach
of the terms, conditions or stipulations contained in this Agreement, in
which case the provisions of Clause 2.4 shall still apply.
12.5 The employment of the Executive shall terminate automatically and without
prior notice upon his attaining the age of 65.
12.6 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for periods in excess of six (6) months in aggregate in
any period of twelve (12) consecutive months, the Company may terminate his
employment by giving to him not less than three months' notice in writing
expiring at any time.
8
<PAGE>
12.7 Upon the termination of his employment (for whatever reason and howsoever
arising) the Executive:
(a) shall not take away, conceal or destroy but shall immediately deliver
up to the Company all documents (which expression shall include
without limitation notes, memoranda, correspondence, drawings,
sketches, plans, designs and any other material upon which data or
information is recorded or stored) relating to the business or affairs
of the Company or any Associated Company or any of their
clients/customers, shareholders, employees, officers, suppliers,
distributors and agents (and the Executive shall not be entitled to
retain any copies or reproductions of any such documents) together
with any other property belonging to the Company or any Associated
Company which may then be in his possession or under his control;
(b) shall at the request of the Board immediately resign without claim or
compensation from office as a director of the Company and any
Associated Company and from any other office held by him in the
Company or any Associated Company (but without prejudice to any claim
he may have for damages for breach of this Agreement) and, in the
event of his failure to do so, the Company is hereby irrevocably
authorised to appoint some person in his name and on his behalf to
sign and deliver such resignations to the Board;
(c) shall not any time thereafter make any untrue or misleading oral or
written statement concerning the business or affairs of the Company or
any Associated Company nor represent himself or permit himself to be
held out as being in any way connected with or interested in the
business of the Company or any Associated Company (except as a former
employee for the purpose of communicating with prospective employers
or complying with any applicable statutory requirements);
(d) shall not at any time thereafter use the name "Alliance Resources" or
any name capable of confusion therewith (whether by using such names
as part of a corporate name or otherwise); and
(e) shall immediately repay all outstanding debts or loans due to the
Company or any Associated Company, and the Company is hereby
authorised to deduct from any wages of the Executive a sum equal to
any such debts or loans.
12.8 The following provisions will apply in the event of a Change in Control (as
hereinafter specified):
(a) The Board recognises that the Executive is one of several key
employees whose high quality of job performance is essential to
promoting and protecting the best interests of the Company and its
shareholders. The Board further recognises (i) that it is possible
that a Change in Control of the Company could occur at some time in
the future; (ii) that the uncertainty associated with such a
possibility could result in the distraction of the Executive from his
assigned duties and responsibilities; (iii) that it is in the best
interests of the Company and its shareholders to assure the continued
attention by the Executive to such duties and responsibilities without
such distraction; and (iv) that the Executive must be able to
participate in the assessment and evaluation of any proposal which
could effect a Change in Control of the Company without the Executive
being influenced in the exercise of his judgment by uncertainties
regarding the Executive's future financial security.
9
<PAGE>
(b) A "Change in Control" of the Company shall occur if, after the date of
this Agreement:
(i) any Unrelated Party (as hereinafter defined) becomes the
beneficial owner, directly or indirectly, of thirty percent (30%)
or more of the common stock of the Company issued and outstanding
immediately prior to such acquisition and/or securities of the
Company, computing such percentage as if such securities acquired
had been converted and are issued and outstanding for the purpose
of determining such percentage or, if any Unrelated Party is the
beneficial owner of thirty percent (30%) or more of such
securities at the date of this Agreement, such Unrelated Party
acquires an additional ten percent (10%) or more of the shares of
common stock of the Company and/or securities of the Company
which may be converted into shares of common stock of the
Company.
(ii) the shareholders of the Company approve (x) any consolidation or
merger of the Company in which the Company is not the continuing
or surviving corporation or pursuant to which shares of the
common stock of the Company are converted into cash, securities
or other property, other than a merger of the Company in which
the holders of the common stock of the Company immediately prior
to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger,
or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company, or (z) any plan
or proposal for the liquidation or dissolution of the Company.
(iii) a majority of the Board ceases to consist of Continuing
Directors. "Continuing Directors" shall mean members of the
Board who either (1) are members of the Board at the date of this
Agreement or (2) are nominated or appointed to serve as directors
by a majority of the then Continuing Directors; or
(iv) any tender or exchange offer is made to acquire thirty percent
(30%) or more of the common stock of the Company, other than an
offer made by the Company, and shares are acquired pursuant to
that offer.
(c) "Unrelated Party" shall mean any party or group of parties acting
together, excluding, however, the Company, a subsidiary of the Company
and any trustee under any employee benefit plan maintained by the
Company.
(d) Upon (x) the termination of the Executive by the Company without Cause
following a Change in Control of the Company or (y) the Executive's
voluntary termination of employment for Good Reason following a Change
in Control of the Company prior to expiration of the then effective
two (2) year period of employment, then the Company shall provide to
the Executive, within thirty (30) days after the applicable event, the
following benefits:
(i) in one lump sum a cash payment equal to the average annual
salary, bonus and benefits paid to the Executive for the past two
(2) years, multiplied by two (2).
(ii) to the extent permitted by applicable law, inclusion in the
Company's life and medical plans as if the Executive were still
employed by the Company until the earlier of two (2) years from
the date of his termination or until the Executive
10
<PAGE>
obtains eligibility under comparable employee plans, with the
Company paying that portion of the premium which it was paying
for the Executive at the time of his termination.
(e) Good Reason. "Good Reason" shall mean:
-----------
(i) without his express written consent, the assignment to the
Executive of any duties inconsistent with his positions, duties,
responsibilities and status with the Company as of the date of
this Agreement or a change in his titles or offices as of same
date, or any removal of the Executive from or any failures to re-
elect the Executive to any of such positions, except in
connection with the termination of his employment for Cause or as
a result of his Disability or death, or termination by the
Executive other than for Good Reason;
(ii) any reduction of the then-existing base salary or a reduction of
more than ten percent (10%) in the aggregate value of any benefit
plans without the prior written consent of the Executive, which
is not remedied within ten (10) calendar days after receipt by
the Company of written notice from the Executive of such change
or reduction, as the case may be;
(iii) a determination by the Executive made in good faith that, as a
result of a Change in Control of the Company and a change in
circumstances thereafter significantly affecting his position, he
has been rendered substantially unable to carry out, or has been
substantially hindered in the performance of, any of the
authorities, powers, functions, responsibilities or duties
attached to his position immediately prior to the Change in
Control of the Company, which situation is not remedied within
thirty (30) calendar days after receipt by the Company of written
notice from the Executive of such determination;
(iv) failure by the Company to require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place; or
(v) the Company shall relocate its principal executive office or
require Executive to have his principal location of work or
principal residence any location which is in excess of thirty
miles from the location as of the date hereof; or
(vi) any material breach of this Agreement by the Company.
12.9 The Executive shall not be required to mitigate the amount of any payments
or benefit provided by this Agreement nor shall the amounts of any payment
or benefit provided for by this Agreement be reduced by any compensation
earned by the Executive as the result of employment by the Company or
another employer either before or after a Change in Control of the Company.
12.10Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or
other plan or program provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or
11
<PAGE>
otherwise affect such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies. Amounts
which are vested benefits or which the Executive is otherwise entitled to
receive under any plan or program of the Company or any of its affiliated
companies at or subsequent to the termination of employment hereunder shall
be payable in accordance with such plan or program.
13. NOTICES
-------
13.1 Any notice to be given under this Agreement shall be given in writing and
shall be deemed to be sufficiently served by one party or the other if it
is delivered personally or is sent by registered or recorded delivery pre-
paid post (air mail if overseas) addressed to either the Company's
registered office for the time being or the Executive's last known address
as the case may be.
13.2 Any notice sent by post shall be deemed (in the absence of evidence of
earlier receipt) to be received two (2) days after posting (six (6) days if
sent air mail) and in providing the time such notice was sent it shall be
sufficient to show that the envelope containing it was properly addressed,
stamped and posted.
13.3 Notwithstanding any other provision of this Agreement, no provision by
virtue of which this Agreement or any agreement or arrangement of which it
forms a part subject to registration under the Restrictive Trade Practices
Act 1976 and 1977 ("RTPA") shall take effect until after particulars
thereof have been furnished to the Director General of Fair Trading in
accordance with the requirements of the RTPA.
14. MISCELLANEOUS
-------------
14.1 The Executive hereby warrants that by virtue of entering into this
Agreement he will not be in breach of any express or implied terms of any
contract or of any other obligation legally binding upon him.
14.2 Any benefits provided by the Company to the Executive or his family which
are not expressly referred to in this Agreement shall be regarded as ex
gratis benefits provided at the entire discretion of the Company and shall
not form part of the Executive's contract of employment.
14.3 The Company shall be entitled at any time during the Executive's employment
to make deductions from the Executive's salary or from any other sums due
to the Executive from the Company or any Associated Company in respect of
any overpayment of any kind made to the Executive or in respect of any debt
or other sum due from him.
15. GENERAL PROVISIONS
------------------
15.1 The headings in this Agreement are for convenience only and shall not
affect its construction or interpretation.
15.2 References in this Agreement to Clauses and paragraphs and the Schedules
are references to Clauses and paragraphs and the Schedules (which are
hereby specifically incorporated in this Agreement) to this Agreement.
15.3 Any reference in this Agreement to the employment of the Executive is a
reference to his employment by the Company whether or not during the
currency of this Agreement.
12
<PAGE>
15.4 Any reference in this Agreement to a person shall, where the context
permits, include a reference to a body corporate and to any unincorporated
body of persons.
15.5 Any word in this Agreement which denotes the singular shall, where the
context permits, include the plural and vice versa, and any word in this
Agreement which denotes the masculine gender shall, where the context
permits, include the feminine and/or the neuter genders and vice versa.
15.6 Any reference in this Agreement to a statutory provision shall be deemed to
include a reference to any statutory amendment modification or re-enactment
of it.
15.7 This Agreement contains the entire understanding between the parties and
supersedes all (if any) subsisting agreements, arrangements and
understandings relating to the employment of the Executive which such
agreements, arrangements and understandings shall be deemed to have been
terminated by mutual consent.
15.8 This Agreement is governed by and shall be construed in accordance with the
laws of England, and the parties to this Agreement hereby submit to the
exclusive jurisdiction of the English courts.
IN WITNESS whereof this Agreement has been executed as a deed by the parties
- ----------
hereto and is intended to be and is hereby delivered on the date first above
written.
Executed as a deed by: _____________________________________
PHILIP DOUGLAS
Director and Chairman of the Remuneration Committee
of the Board of Directors for ALLIANCE RESOURCES PLC
Signed as a deed by: _____________________________________
HARRY BRIAN KERR WILLIAMS
the Executive
in the presence of:
Signature: _____________________________________
Name: _____________________________________
Address: _____________________________________
_____________________________________
Occupation: _____________________________________
13
<PAGE>
THE FIRST SCHEDULE
------------------
The following is a list of the powers referred to in the proviso contained in
paragraph (b) of sub-Clause 3.1:
1. Approval of interim and final financial statements.
2. Approval of the interim dividend and recommendation of the final dividend.
3. Approval of any significant changes in accounting policies or practices.
4. Appointment or removal of Company Secretary.
5. Remuneration of auditors and recommendations for appointment or removal of
auditors.
6. Approval of all circulars to shareholders and listing particulars.
7. Approval of all press releases concerning matters decided by the board.
8. Changes relating to the Group's capital structure or its status as PLC.
9. Board appointments and removals.
10. Terms of reference/employment of chairman, vice-chairman, chief executive
and other executive directors.
11. Terms of reference and membership of board committees.
12. Major capital projects.
13. Contracts of the Company or any subsidiary not in the ordinary course of
business.
14. Major investments including the acquisition or disposal of interests of
more than 5% in the voting shares of any company or the making of any take-
over bid.
14
<PAGE>
THE SECOND SCHEDULE
-------------------
Two million five hundred thousand (2,500,000) share options to be issued
at 2 pence per share under the Company Scheme.
15
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF ALLIANCE RESOURCES PLC
Place of Incorporation
----------------------
Manx Petroleum PLC England
Celtic Basin Oil Exploration Ltd. England
Alliance Resources Group Inc. Delaware
Source Petroleum Inc. Louisiana
ARNO Inc. Delaware
ARCOL Inc. Delaware
Alliance Resources (USA) Inc. Delaware
Geological Forecast Technology Ltd. Israel
NOTE: All of the entities above are directly or indirectly 100% owned by
Alliance Resources PLC, except Geological Forecast Technology Ltd. which is 50%
owned by Alliance Resources PLC.
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<PAGE>
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<NAME> ALLIANCE RESOURCES PLC
<MULTIPLIER> 1
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> APR-30-1995
<PERIOD-END> APR-30-1996
<CASH> 1,177,000
<SECURITIES> 0
<RECEIVABLES> 1,293,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,534
<PP&E> 7,311,000
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<TOTAL-ASSETS> 9,845,000
<CURRENT-LIABILITIES> 37,000
<BONDS> 0
0
0
<COMMON> 5,105,000
<OTHER-SE> 2,650,000
<TOTAL-LIABILITY-AND-EQUITY> 9,845,000
<SALES> 3,686,000
<TOTAL-REVENUES> 3,686,000
<CGS> 0
<TOTAL-COSTS> 6,559,000
<OTHER-EXPENSES> 589,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (229)
<INCOME-PRETAX> (3,593)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,593)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> (1.32)
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