<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1999
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 333-19013
ALLIANCE RESOURCES PLC
(Exact name of registrant as specified in its charter)
ENGLAND AND WALES 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) 491-1100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
(NONE) (NONE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Ordinary Shares 1p each
(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. [ X ]
The aggregate market value of the Registrant's voting stock held by non-
affiliates as of August 9, 1999 was approximately $3,858,330.
On August 9, 1999, there were 47,487,142 shares of the Registrant's
ordinary shares outstanding and 10,000,000 shares outstanding of the
Registrant's convertible restricted voting stock.
Documents Incorporated by the Reference
NONE
<PAGE>
ALLIANCE RESOURCES PLC
FORM 10-K
FISCAL YEAR ENDED APRIL 30, 1999
--------------------------------
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C> <C>
Item 1. Business........................................................................................... 1
Item 2. Properties......................................................................................... 3
Item 3. Legal Proceedings.................................................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders................................................ 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................. 11
Item 6. Selected Financial Data............................................................................ 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................................. 14
Item 8. Financial Statements and Supplementary Data........................................................ 23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................................... 23
PART III
Item 10. Directors and Executive Officers of the Registrant................................................. 23
Item 11. Executive Compensation............................................................................. 24
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 27
Item 13. Certain Relationship and Related Transactions...................................................... 29
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................... 29
Signatures.................................................................................................... 31
</TABLE>
Cautionary Statement Regarding Forward Looking Statements
In the interest of providing the Company's stockholders and potential investors
with certain information regarding the Company's future plans and operations,
certain statements set forth in this Form 10-K relate to management's future
plans and objectives. 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. Although any
forward-looking statements contained in this Form 10-K or otherwise expressed by
or on behalf of the Company are, to the knowledge and in the judgement 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, competition, risks inherent in the Company's oil and gas operations,
the inexact nature of interpretation of seismic and other geological and
geophysical data, imprecision of reserve estimates, the Company's ability to
replace and expand oil and gas reserves, and such other risks and uncertainties
described from time to time in the Company's periodic reports and filing with
the Securities and Exchange Commission. Accordingly, stockholders and potential
investors are cautioned that certain events or circumstances could cause actual
results to differ materially from those projected, estimated, or predicted.
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PART I
ITEM 1. BUSINESS
Alliance Resources PLC (the "Company" or "Alliance") is organized as a
public limited company under the laws of England and Wales. Alliance is a
London-based holding company of a group ("the Group") whose principal activities
are the acquisition, exploration, development and production of oil and gas
properties.
All financial data (and, consequently, all oil and gas reserve
information, descriptions of properties and business and all information
associated with financial or reserve information ) prior to the Company's merger
with LaTex Resources, Inc. ("LaTex") on May 1, 1997, described below, has been
restated to reflect LaTex as the predecessor company to the Company. For
financial, reserve and associated information concerning Alliance prior to its
May 1, 1997 merger with LaTex, reference should be made to the Company's
Registration Statement on Form F-4 (which was filed in its final form with the
Securities Exchange Commission on April 9, 1997 and which contains information
regarding Alliance through January 31, 1997) and to the Company's filing on Form
20-F (which was filed in its final form with the Securities and Exchange
Commission on June 18, 1998).
Because for corporate law purposes (but not financial accounting
purposes) Alliance is the surviving corporation of the May 1, 1997 merger, all
references to the "Company" both prior and subsequent to May 1, 1997 refer to
Alliance Resources PLC and its subsidiaries unless otherwise indicated. Unless
the context requires otherwise, all references to "LaTex" include LaTex
Resources, Inc., and its consolidated subsidiaries.
Alliance was incorporated and registered under the laws of England and
Wales on August 20, 1990. Alliance's corporate headquarters are at 4200 East
Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
RECENT DEVELOPMENTS
On October 30, 1998, Alliance completed its acquisition (the
"Acquisition") of Difco Limited ("Difco"). Alliance acquired all of the capital
stock of Difco and, indirectly a contract to acquire 10% of Burlington Resources
(Irish Sea) Limited's ("Burlington") interest in the East Irish Sea Properties
("U.K. Interests"). The Difco shareholders received approximately 8.7% of the
outstanding shares of the Company and could receive up to 29.6% of the
outstanding shares of the Company based upon the production from, or reserves
attributable to, the U.K. Interests.
The Company acquired, through Difco, 10% of Burlington's interest in
the East Irish Sea Properties for cash consideration of approximately
$17,800,000. In addition, the Company issued to one of its lenders 15,000,000
ordinary shares and loan notes with a face value of $9,750,000 for a total
consideration of $10,000,000 and 545,454 ordinary shares in payment of a fee of
$292,000. The Company paid another lender a cash fee of $700,000 and granted
the lender warrants to purchase 3,275,000 ordinary shares at a price of 1p per
share and an overriding royalty interest in the U.K. Interests of 0.3% beginning
January 1, 2001. The overriding royalty interest will entitle the lender to
receive a payment equal to the specified percentage of the net revenues
generated by the U.K. Interests. The overriding royalty interest would have the
effect of reducing the Company's revenues from the U.K. Interests. The Company
also issued to its financial advisors 615,385 ordinary shares in payment of a
fee of $330,000.
On April 23, 1999, the Company announced the successful drilling and
testing of the 110/2b - R1 well. The well was the first to be drilled on the
Company's recently acquired East Irish Sea assets and is located in the Dalton
Field. The well was spudded on February 26, 1999, drilled to 4,222 feet, and
suspended on April 12, 1999. Log analysis estimates 605 feet of gross gas
column to be present in the well. Production testing from gross perforations
between 3,395 - 3,700 feet achieved flow rates up to 78 MMCFG/D at 730 psig
flowing tubing pressure.
Also, on April 23, 1999 the Company announced that it had recommended its
recompletion program on its U.S. properties, yielding early success. Notably,
the Ernest Roberts No. 1 Gas Unit in Hinds County, Mississippi was recompleted
in March 1999. The well is currently producing at a rate of 1,626 MCFG/D with
35 BOPD. In addition, the Millie 2-20 well located in Dewey County, Oklahoma,
was recompleted in February, 1999 and is currently producing 560 MCFG/D and 2
BOPD.
1
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On July 23, 1999 the Company announced that the Dalton R2 well has been
successfully reentered and recompleted. The R2 well tested at a maximum flow
rate of approximately 54 MMSCF/D on a 120/64 inch choke at 772 psig flowing
tubing pressure. In the East Millom Field, the Millom Q1 well has been
successfully reentered and recompleted. The Q1 well tested at a maximum flow
rate of 18 MMSCF/D on a 68/64 inch choke at 725 psig flowing tubing pressure.
The Dalton R1, R2 and Millom Q1 wells are in the process of being tied back to
the North Morecambe Bay Platform. First production is anticipated in August,
1999.
Effective July 30, 1999, the Company and its principal lender agreed to
amend the terms of its credit agreement to allow for additional immediate
borrowings of $5,000,000, to defer the date of the borrowing base
redetermination from July 31, 1999 to December 31, 1999, and to defer the
repayment date of a portion of the indebtedness from January 31, 2001 to July
31, 2001.
American Rivers Oil Company ("AROC") and Alliance announced that on July
22, 1999, they entered into a preliminary agreement, under which subject to the
satisfaction of certain of various pre-conditions a new subsidiary of AROC would
make a share for share offer for Alliance. The principal conditions to the
making of the offer are the filing of a registration statement with the
Securities and Exchange Commission and due diligence conducted by both parties.
If the share offer is completed, it is expected that the shares of the new
company will be quoted on the U.S. OTC Bulletin Board and will not be listed on
the London Stock Exchange. If the transaction is completed and all the Alliance
shareholders accept the offer, the shareholders of Alliance would hold 98% and
the shareholders of AROC would hold 2% of the enlarged group.
COMPETITION
The oil and natural gas industry is highly competitive in all its
phases. Alliance encounters strong competition from many other energy companies
in acquiring economically desirable producing properties and drilling prospects
and in obtaining equipment and labor to operate and maintain its properties. In
addition, many energy companies possess greater resources than Alliance.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
Oil and gas production is subject to regulation under many international
and U.S. Federal and State statutes, rules, orders and regulation. Permits for
drilling, reworking and recompletion operations, drilling bonds and reports
concerning operations are required. Most jurisdictions have regulations
governing conservation matters, establishing maximum rates of production and the
regulation of the spacing, plugging and abandonment of wells.
Environmental laws and regulations may affect the Company's operations
and costs. In particular, production and saltwater disposal operations and use
of facilities from treating, processing or otherwise handling hydrocarbons and
wastes therefrom are subject to stringent environmental regulations.
Environmental regulations are subject to frequent change and the Company cannot
predict ongoing costs of compliance or the future impact of such regulations on
operations.
OPERATIONS 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 result in damage or injury to, or
destruction of, drilling rigs and equipment, formation, 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 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.
2
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EMPLOYEES
At April 30, 1999, Alliance had 15 management and administrative
employees and 9 technical and operating employees, none of whom belonged to a
union. The employees include 15 people located in its Tulsa, Oklahoma office, 8
people in the Tensaw, Alabama office who conduct lease operations in the
Company's South Carlton Field, and 1 field person in Louisiana. The Company's
other field activities are accomplished through independent contractors. The
Company believes its relations with its employees and contractors are excellent.
MARKETING
Alliance's production is primarily from developed fields close to
major pipelines or refineries and established infrastructure. As a result,
Alliance has not experienced any difficulty in finding a market for its product
as it becomes available or in transporting its product to those markets.
Oil Marketing
Alliance markets its oil to a variety of purchasers, most of which are
large, established companies. The oil is generally sold under short-term
contracts with the sales price based on an applicable posted price, plus a
negotiated premium. This price is determined on a well-by-well basis and the
purchaser generally takes delivery at the wellhead.
Gas Marketing
Virtually all of Alliance's gas production is close to existing pipelines
and, consequently, Alliance generally has a variety of options to market its
gas. Alliance sells the majority of its gas on the spot market, with prices
fluctuating month-to-month based on published pipeline indices with slight
premiums or discounts to the applicable index.
ITEM 2. PROPERTIES
PRODUCTION
Alliance owns producing properties located in 10 states in the U.S.,
with proved reserves located primarily in the states of Alabama, Louisiana,
Mississippi, Oklahoma, and Texas. Alliance 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.
Alliance operates 144 producing wells (119.6 net) in these areas and
also owns non-operated interests in a further 122 active producing wells and
units (21.9 net). These properties produced at a gross average rate of 4,300.9
Bbls of oil per day and 59,749.8 Mcf of gas per day (802.6 BBls of oil per day
and 4,353.2 Mcf of gas per day net to the Company's interest) for the year ended
April 30, 1999. Oil and gas sales from Alliance's producing oil and gas
properties accounted for substantially all of Alliance's revenues for the year
ended April 30, 1999.
The following summarizes Alliance's principal areas of oil and gas
production activity as of April 30, 1999.
South Carlton Field, Alabama. The South Carlton Field is located in
Clarke and Baldwin Counties in southwest Alabama, approximately 50 miles north
of Mobile, Alabama. The field is situated on the Alabama River, and all crude
oil produced is exported from the field by barge. Alliance operates 56 active
producing oil wells and three saltwater disposal wells. Production is from the
Massive and Pilot Sands of the Tuscaloosa Formation at a depth of approximately
6,000 ft. The field produced at a gross average daily rate of 301.8 Bbls of oil
per day (249.6 Bbls of oil per day net to the Company's interest) for the
duration of the year ended April 30, 1999. Production from the field was
allowed to fall during the course of 1998 in order to minimize the impact of low
oil prices on the overall profitability of operations and reached a gross
average daily low of 206 Bbls of oil per day in the month of December 1998.
Workover activities which were kept to a minimum in 1998 were stepped up in
early 1999, and many
3
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temporarily shut-in wells were returned to production. The field is now
producing consistently at gross daily rates in excess of 400 Bbls of oil per day
and in July 1999 again reached gross production levels of over 500 Bbls of oil
per day.
Additional infill drilling has been identified in the field, and the
Company believes that the application of horizontal drilling techniques has the
potential to significantly improve recovery per well in view of the heavy
gravity of the oil (12-14/0/ API). Alliance's working interest in this field is
100%. Net proved reserves to Alliance as of April 30, 1999 were 5,864.6 MBbls of
oil.
Bolton Field, Mississippi. The Bolton Field is located in Hinds
County, Mississippi and approximately 18 miles west of Jackson, Mississippi.
Alliance operates 1 active producing well in this field, the Ernest Roberts #1
Gas Unit. Production is from the Cotton Valley Sands at a depth of over 15,500
ft. This property produced at a gross average daily rate of 527 Mcf of gas per
day and 14.2 Bbls of oil per day (372.1 Mcf of gas per day and 10.1 Bbls of oil
per day net to the Company's interest) for the duration of the year ended April
30, 1999.
The well was recompleted in March 1999 in several Cotton Valley Sands
at depths of between 15,590 and 15,916 ft. The well is currently producing at a
stabilized gross rate of approximately 1,620 Mcf of gas per day and 40 Bbls of
oil per day. Alliance's working interest in this field is currently 91%.
Additional proved behind pipe potential has been identified in the well and net
proved reserves to Alliance as of April 30, 1999 were 3,619 MMcf of gas and
132.3 MBbls of oil.
Black Warrior Basin, Mississippi and Alabama. Alliance owns operated
and non-operated working interests in 51 wells (38 operated and 13 non-operated)
in Lamar, Fayette and Pickens Counties, Alabama and Lee and Chickasaw Counties,
Mississippi. Production from these wells and units is from multiple sandstones
of Mississippian (Carter, Lewis and Millerella) and Pennsylvanian (Benton and
Coats) age at depths of 1,900 to 4,600 ft. These properties produced at a gross
average daily rate of 4,046.8 Mcf of gas per day and 318.4 Bbls of oil per day
(1,450.5 Mcf of gas per day and 11.8 Bbls of oil per day net to the Company's
interest) for the duration of the year ended April 30, 1999. Alliance's working
interest in these properties varies from between 1.8% to 100%. Significant
proved behind pipe reserves have been identified in the properties and the
majority are scheduled for recompletion over the next few years with the
potential to add significantly to net cash flow. Net proved reserves to
Alliance as of April 30, 1999 were 14.2 MBbls of oil and 9,698.4 MMcf of gas.
War-Wink South/East Quito Fields, Texas. Alliance owns non-operated
working interests in 41 active wells operated by Texaco and Chevron in the War-
Wink South and East Quito Fields in Ward County, Texas. These fields currently
produce from multiple reservoirs in the Fusselman dolomite (Middle Silurian),
Atoka limestone (Middle Pennsylvanian), and the Wolfcamp and Cherry Canyon
(Lower and Middle Permian) Sands at depths of 6,200 feet to 17,500 feet. These
properties produced at a gross average daily rate of 9,253.7 Mcf of gas per day
and 548.6 Bbls of oil per day (753.8 Mcf of gas per day and 46.1 Bbls of oil per
day net to the Company's interest) for the duration of the year ended April 30,
1999. The University 10-18-1U well which was completed in the Fusselman
dolomite produced at a gross average daily rate of 6,175 Mcf of gas per day
throughout the year. This amounts to approximately 67% of the gross gas
produced from the properties in which Alliance has an interest in these fields.
A number of proved undeveloped drilling locations have been identified on these
properties. Net proved reserves to Alliance as of April 30, 1999 were 94.7
MBbls of oil and 1,697.2 MMcf of gas.
Jefferson Island Field, Louisiana. The Jefferson Island field is
located approximately 12 miles southwest of the town of New Iberia in Iberia
Parish, Louisiana. Alliance has a working interest in a 525-acre lease on the
south side of Lake Peigner, which is currently being maintained by production
from the Will Drill Resources (Texaco) JISMC #4 well. This well is now owned by
Continental Resources Limited ("Continental"). Production intervals are known
to exist in the Siphoni Davisi and Discorbis B sandstone reservoirs at depths of
approximately 8,000 to 9,000 ft. The reservoir traps are combination
structural-stratigraphic traps in a piercement salt dome setting. However,
Alliance has not yet established production from the property. A number of
proved undeveloped drilling locations have been identified on the property and
the Company's working interest in this property is currently 100%. Net proved
reserves to Alliance as of April 30, 1999 were 431.7 MBbls of oil and 1,230.2
Mcf of gas.
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The Company entered into a farm-out agreement with Continental on this
property, whereby Continental, at its sole risk and expense, has conducted a 3D
seismic survey and is to drill and complete two wells on the lease to earn a
two-thirds working interest. Continental completed the 3-D seismic survey in
late 1998 and spudded the first well under the farm-out agreement in June 1999.
This well was drilled to a total depth of approximately 10,000 ft. and several
potentially productive pay zones were identified on electric logs in Siphoni
Davisi Sands at depths of 8,500 to 9,000 ft. Continental is currently
attempting to complete the well in the lowermost potentially productive sand at
a depth of approximately 9,000 ft.
Tinsley Field, Mississippi. The Tinsley Field is located in Yazoo
County, Mississippi, and approximately 34 miles northwest of the town of
Jackson, Mississippi. Alliance operates 5 active producing wells and 2
saltwater disposal wells. Production is from upper Cretaceous age Eutaw Sands
at depths of around 4,500 ft. This property produced at a gross average daily
rate of 55.4 Bbls of oil per day (45.4 Bbls of oil per day net to the Company's
interest) for the duration of the year ended April 30, 1999. The Company has a
working interest in the property of 100%. One proved undeveloped drilling
location has been identified on the property. Net proved reserves to Alliance
as of April 30, 1999 were 360.3 MBbls of oil.
South Elton Field, Louisiana. The South Elton Field is located
approximately 19 miles north of the town of Jennings in Jefferson Davis Parish,
Louisiana. Alliance operates 4 active producing oil and gas wells and 2
saltwater disposal wells. Production is primarily from the Oligocene age sands
of the Homeseekers D Formation at a depth of approximately 9,000 ft. This
property produced at a gross average daily rate of 140 Bbls of oil per day and
76.7 Mcf of gas per day (99.0 Bbls of oil per day and 45.6 Mcf of gas per day
net to the Company's interest) for the duration of the year ended April 30,
1999. The Company has a working interest in the property of between 65.3% and
99.6%. Another operator is currently acquiring a 3-D seismic survey over the
area and Alliance will receive copies of the data acquired over its property
within two months of completion of processing of the data. One proved
undeveloped drilling location has been identified on the property. Net proved
reserves to Alliance as of April 30, 1999 were 259.8 MBbls of oil and 86.4 Mcf
of gas.
Perkins Field, Louisiana. The Perkins Field is located approximately
4 miles south of the town of De Quincy in Calcasieu Parish, Louisiana. Alliance
operates 7 active producing wells and 1 saltwater disposal well. Production is
from various Miocene age sands at depths of 5,000 to 7,500 ft. The property
produced at a gross average daily rate of 75.1 Bbls of oil per day (58.6 Bbls of
oil per day net to the Company's interest) for the duration of the year ended
April 30, 1999. The Company has a working interest in the property of 100%.
Net proved reserves to Alliance as of April 30, 1999 were 221.7 MBbls of oil.
In addition to these properties, the Company has other producing oil
and gas properties located in Alabama, Arkansas, Colorado, Kansas, Louisiana,
Michigan, Mississippi, Montana, Oklahoma and Texas. These properties produced
at a gross daily rate of 2,847.4 Bbls of oil per day and 45,845.7 Mcf of gas per
day (281.9 Bbls of oil per day and 1,731.1 Mcf of gas per day net to the
Company's interest) for the duration of the year ended April 30, 1999. Net
proved reserves to Alliance, as of April 30, 1999, from these other properties
were 1,328.0 MBbls of oil and 6,520.2 Mcf of gas.
RESERVES
Lee Keeling and Associates, Inc. ("LKA"), Alliance's independent
petroleum engineering consulting firm, has made estimates of Alliance's oil and
gas reserves at April 30, 1999. LKA's report covers the estimated present value
of future net cash flows before income taxes (discounted at 10%) attributable to
Alliance's estimated future net cash flows therefrom.
The quantities of Alliance's proved reserves of oil and natural gas
presented below include only those amounts which Alliance 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 Alliance's
proved developed reserves. Alliance's proved undeveloped reserves include only
those quantities which Alliance reasonably expects to recover from the drilling
of new wells
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based on geological evidence from offsetting wells. The risks of recovering
these reserves are higher from both geological and mechanical perspective than
the risks of recovering proved developed reserves.
As required by the Securities and Exchange Commission, the estimates
of net proved reserves and proved developed reserves and the estimated future
net revenues from such reserves set forth below, have been made 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 for indirect
costs, such as general corporate overhead. The discounted value was computed by
discounting future net revenues at 10% per annum, without deduction for income
taxes.
The following table sets forth estimates of the proved oil and natural
gas reserves of Alliance at April 30, 1999, as evaluated by LKA.
<TABLE>
<CAPTION>
Oil (MBbls) Gas (Mmcf)
------------------------------------------- ----------------------------------------------
Developed Undeveloped Total Developed Undeveloped Total
------------ ---------------- ----------- ------------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Reserves
-------------
Alabama 3,855 2,030 5,885 6,429 - 6,429
Louisiana 753 520 1,273 766 2,458 3,224
Mississippi 487 144 631 7,228 - 7,228
Oklahoma 61 - 61 2,373 548 2,921
Texas 406 13 419 2,463 83 2,546
Other 439 - 439 260 243 503
----- ----- ----- ------ ----- ------
Total 6,001 2,707 8,708 19,519 3,332 22,851
===== ===== ===== ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
Oil (MBbls) Gas (Mmcf)
--------------------------------------------- ------------------------------------------------
Developed Undeveloped Total Developed Undeveloped Total
------------ ---------------- ----------- ------------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
U.K. Reserves
-------------
Dalton Sweet
Field - - - - 9,733 9,733
============ ================ =========== ============= =============== ==========
</TABLE>
The following table sets forth amounts as of April 30, 1999 determined in
accordance with the requirements of the applicable accounting standards
pertaining to the estimated future net cash flows from production and sale of
the proved reserves attributable to Alliance's oil and gas properties before
income taxes and the present value thereof. Nymex benchmark prices used in
determining the future U.S. net cash flow estimates at April 30, 1999 were
$18.66 per barrel for oil and $2.35 per MMBtu for gas. A delivery price of 9.05
pence per therm, equivalent to $1.54 per MMBtu for gas was used in determining
the future U.K. net cash flow estimates at April 30, 1999.
<TABLE>
<CAPTION>
Proved Proved Total
Developed Undeveloped Proved
Reserves Reserves Reserves
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
U.S. Reserves
-------------
Estimated future net cash flows from proved
reserves before income taxes $ 68,142 $ 25,042 $ 93,184
========== ========== ==========
Present value of estimated future net cash flows
from proved reserves before income taxes
(discounted at 10%) $ 32,224 $ 11,615 $ 43,838
========== ========== ==========
Standardized Measure $ 25,781 $ 9,088 $ 34,869
========== ========== ==========
</TABLE>
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<TABLE>
<S> <C> <C> <C>
U.K. Reserves
-------------
Estimated future net cash flows from proved
reserves before income taxes $ - $ 3,926 $ 3,926
========== ========== ==========
Present value of estimated future net cash flows
from proved reserves before income taxes
(discounted at 10%) $ - $ 2,794 $ 2,794
========== ========== ==========
Standardized Measure $ - $ 2,794 $ 2,794
========== ========== ==========
</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. Assumptions have to be made regarding the timing of
future production and the timing and amount of future development and production
costs. The calculations assume that economic conditions existing at the end of
the reporting period will continue. Other, but equally valid, assumptions might
lead to a significantly different final result. Therefore, the reserve data
presented herein should not be construed as being exact. Any reserve estimate
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. The information provided, therefore, does not represent management's
estimate of Alliance's expected future cash flows or value of proved reserves.
Alliance has filed estimates of proved reserves with the London Stock
Exchange. These estimates do not differ materially from those contained in this
document.
For further information on reserves, costs relating to oil and gas
activities, and results of operations from producing activities, see Note 17 to
the Consolidated Financial Statements--Supplementary Financial Information for
Oil and Gas Producing Activities incorporated by reference herein.
The following table sets forth Alliance's producing wells at April 30,
1999.
<TABLE>
<CAPTION>
Productive Wells
Oil Gas Total
--------------------- ---------------------- -----------------------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. 148 100.1 118 41.3 266 141.4
--- ----- --- ---- --- -----
U.K. - - 2 0.2 2 0.2
--- ----- --- ---- --- -----
Total 148 100.1 120 41.5 268 141.6
=== ===== === ==== === =====
</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
that are completed in more than one producing horizon are counted as one well.
Of the gross wells reported above, 12 had multiple completions.
Developed and Undeveloped Acreage
The following table sets forth the developed and undeveloped leasehold
acreage held by Alliance at April 30, 1999. Developed acres are acres that are
spaced or assignable to productive wells. Undeveloped acres are acres on which
wells have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas, regardless of whether or not
such acreage contains proved reserves. Gross acres are the total number of
acres in which Alliance has a working interest. Net acres are the sum of
Alliance's fractional interests owned in the gross acres.
States in which Alliance held developed and undeveloped acreage at
April 30, 1999 include Alabama, Arkansas, Colorado, Kansas, Louisiana,
Mississippi, Montana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming.
7
<PAGE>
<TABLE>
<CAPTION>
Gross Net
--------- --------
U.S.
----
<S> <C> <C>
Developed acreage......................................... 27,011.9 20,102.7
Undeveloped acreage....................................... 10,956.6 8,428.5
--------- --------
Total..................................................... 37,968.5 28,531.2
========= ========
Gross Net
--------- --------
U.K.
----
Developed acreage......................................... 1,462.0 146.2
Undeveloped acreage....................................... 206,658.0 20,665.8
--------- --------
Total..................................................... 208,120.0 20,812.0
========= ========
</TABLE>
PRODUCTION, UNIT PRICES AND COSTS
The following table sets forth information with respect to sales of
production and average unit prices and costs for the periods indicated.
<TABLE>
<CAPTION>
Nine months
Year ended April 30 ended April 30,
------------------------- ---------------
1999 (2) 1998 1997
---------- ---------- ---------------
<S> <C> <C> <C>
Production:
Gas (Mmcf) 1,402 1,689 1,640
Oil (MBbls) 278 396 190
Average sales prices (1)
Gas (per Mcf) $ 1.79 $ 2.36 $ 1.70
Oil (per Bbl) $ 13.20 $ 15.75 $ 15.34
Average production costs per BOE (3) $ 6.05 $ 8.13 $ 6.77
</TABLE>
(1) After giving effect to the impact of Alliance's price hedging arrangements
with Alliance's principal bank. Without such hedging arrangements, the
average sales prices for the years ended April 30, 1999 and 1998 would have
been $10.11 and $15.14 for oil and $1.92 and $2.34 for gas, respectively,
and $19.15 for oil and $2.40 for gas for the nine months ended April 30,
1997.
(2) No figures are included for U.K. production activities since first
production is not anticipated until mid-August 1999.
(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.
8
<PAGE>
(4) DRILLING ACTIVITY
During the periods indicated, Alliance drilled or participated in the
drilling of the following exploratory and development wells. The information
excludes wells in which Alliance has only an overriding interest.
<TABLE>
<CAPTION>
Year ended April 30 Nine months ended April 30
------------------------------------------------- ----------------------------
1999 1998 1997
-------------------------- --------------------- ----------------------------
Gross Net Gross Net Gross Net
----------- ------------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
- ------
Exploratory:
Productive - - - - - -
Non-Productive - - 1 0.10 - -
----------- ------------- --------- ---------- ------------- -----------
Total - - 1 0.10 - -
=========== ============= ========= ========== ============= ===========
Development:
Productive - - 7 0.53 2 .20
Non-Productive - - - - - -
----------- ------------- --------- ---------- ------------- -----------
Total - - 7 0.53 2 .20
=========== ============= ========= ========== ============= ===========
Total:
Productive - - 8 0.53 2 .20
Non-Productive - - 1 0.10 - -
----------- ------------- --------- ---------- ------------- -----------
Total - - 9 0.63 2 .20
=========== ============= ========= ========== ============= ===========
U.K.
- ------
Development:
Productive 1 0.1 - - - -
Non-Productive - 0.0 - - - -
----------- ------------- --------- ---------- ------------- -----------
Total 1 0.1 - - - -
=========== ============= ========= ========== ============= ===========
</TABLE>
At April 30, 1999, Alliance was not participating in the drilling of any oil and
gas wells.
All of Alliance's drilling activities are conducted with independent
contractors. Alliance owns no drilling equipment.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, Alliance conducts only a
perfunctory title examination at the time properties believed to be suitable for
drilling operations are first acquired. Prior to commencement of drilling
operations, a thorough drill site title examination is normally conducted and
curative work is performed with respect to significant defects. During
acquisitions, title reviews are performed on all material properties being
acquired.
ITEM 3. LEGAL PROCEEDINGS
The Group is a named defendant in lawsuits, 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 Group
cannot be predicted with certainty, management does not expect these additional
matters to have material adverse effect on the financial position or results of
operations or liquidity of the Group.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 30, 1998, Alliance held an Extraordinary General Meeting in
which it adopted resolutions approving the following items:
(a) the acquisition by Alliance of all of the issued share capital of
Difco Limited ("Difco") in exchange for 10 million newly created
convertible restricted voting shares of 1p each (the "Convertible
Restricted Voting Shares") and a contingent right to receive
additional shares, subject to the sales of production actually
achieved from the U.K. Interests (as defined below);
(b) the acquisition through Difco of an undivided ten percent (10%) of
the interest of Burlington Resources (Irish Sea) Limited in and to 13
blocks in the East Irish Sea and Liverpool Bay areas off the West
Coast of the United Kingdom (the "U.K. Interests") for a cash
consideration of approximately $17.8 million;
(c) the creation of the Convertible Restricted Voting Shares and the
allotment of the Convertible Restricted Voting Shares and the
additional shares issuable under the terms of the acquisition
agreement between Alliance and the Difco shareholders;
(d) the allotment of certain ordinary shares and warrants to the lenders
of Alliance and the allotment of equity securities in other specified
instances;
(e) the increase of the borrowing powers of the Directors;
(f) a reduction in the par value of the ordinary shares of the Company;
(g) the adoption of certain amendments to the Articles of Association of
the Company; and
(h) other matters relating to the foregoing.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MARKET INFORMATION AND DIVIDENDS
The Company's Ordinary Shares are traded on the London Stock Exchange
under the symbol "ARS."
The following table sets forth in pounds, for the calendar quarter
indicated, the high and low sales prices for the Alliance Shares on the London
Stock Exchange (in pence) for the periods indicated derived from the official
list of the London 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>
Prices
Alliance Ordinary Shares
----------------------------
High Low
<S> <C> <C>
Fiscal year ended April 30, 1998
First Quarter 60 23.5
Second Quarter 35.5 25
Third Quarter 29.5 23
Fourth Quarter 32.5 21
Fiscal year ended April 30, 1999
First Quarter 32.5 32.5
Second Quarter 32.5 32.5
Third Quarter 19 8
Fourth Quarter 8 4.5
</TABLE>
As of April 30, 1999, the approximate number of record holders of the
Alliance Ordinary Shares was 2,300.
Quotations for shares listed on the London Stock Exchange are not
generally readily available in newspapers or other publication in the United
States, but are available in the daily U.S. edition of the Financial Times.
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. Under current U.K. law, the transfer of 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.
Alliance has not paid any cash dividends on the Alliance Shares for at
lease the last two complete fiscal years. In addition, Alliance is now
restricted from paying dividends under the Company's credit agreement with the
Bank of America.
EXCHANGE RATES
The table below sets forth, for the periods and dates indicated,
certain information regarding the US dollar/pound sterling exchange rate, based
on the Noon Buying Rate, expressed in US dollars per (Pounds)1.00.
<TABLE>
<CAPTION>
Calendar Year Period End Average Rate High Low
------------- ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
1996 1.71 1.56 1.72 1.49
1997 1.64 1.64 1.70 1.58
1998 1.66 1.66 1.71 1.61
1999 (1) 1.61 1.63 1.66 1.59
</TABLE>
(1) 1999 exchange rates are for the period from January 1, 1999 to April
30, 1999 only.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
On May 1, 1997, Alliance completed its acquisition of LaTex. The
acquisition resulted in the issuance of 21,448,747 shares to the former
shareholders of LaTex compared to the 8,103,816 shares then outstanding. As a
result, the former LaTex shareholders had a controlling interest in the combined
group and so for accounting and financial reporting purposes, LaTex is treated
as having acquired Alliance ("Reverse Acquisition"). The historical financial
information for all financial periods to April 30, 1997 reflect the results of
operations and assets and liabilities of LaTex. LaTex's fiscal year end was
July 31, whereas that of Alliance is April 30.
On October 30, 1998, Alliance completed its acquisition of Difco and
indirectly a contract to acquire an interest in the U.K. Interests. The results
of operations and assets and liabilities of Difco have been included since the
date of acquisition.
12
<PAGE>
The selected financial information presented below should be read in conjunction
with the Company's audited 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.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(in thousands, except per share amounts and average sales data)
<TABLE>
<CAPTION>
Nine months ended
Year ended April 30 April 30 Years ended July 31
Income Statement Data: 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 6,234 $ 10,210 $ 5,699 $ 11,980 $ 8,586
Crude oil and gas marketing -- -- 146 540 1,223
-------- -------- -------- -------- --------
Total revenues 6,234 10,210 5,845 12,520 9,809
-------- -------- -------- -------- --------
Operating expenses:
Lease operating expense 3,096 5,506 3,117 5,472 4,643
Cost of crude oil and gas marketing -- -- 16 133 744
Cessation of overseas exploration (1) -- -- -- 3,447 --
General and administrative 3,486 3,364 3,481 2,893 2,736
Depreciation, depletion and amortization 1,671 2,598 1,542 3,511 3,364
Impairment of oil and gas properties 28,260 -- -- -- --
Loss on termination of derivative contract (2) -- 1,128 -- -- --
-------- -------- -------- -------- --------
Total operating expenses 36,513 12,596 8,156 15,456 11,487
-------- -------- -------- -------- --------
Loss from operations (30,279) (2,386) (2,311) (2,936) (1,678)
-------- -------- -------- -------- --------
Other income(expense):
Equity in losses and write-offs of investments
in affiliates -- -- (20) (4,034) (235)
Write-off deferred loan costs (870) -- -- -- --
Gain(loss) on sale of assets (9) 35 -- -- --
Interest income 26 62 52 280 58
Interest expense (3,355) (2,573) (2,102) (2,830) (1,416)
Miscellaneous income(expense) (3) 23 133 (8) (1,810) --
-------- -------- -------- -------- --------
Net loss before income taxes (34,464) (4,729) (4,389) (11,330) (3,271)
Income tax expense -- -- -- -- (35)
-------- -------- -------- -------- --------
Net loss (34,464) (4,729) (4,389) (11,330) (3,306)
Preferred stock dividends -- -- 518 571 133
-------- -------- -------- -------- --------
Net loss for ordinary shareholders $(34,464) $ (4,729) $ (4,907) $(11,901) $ (3,439)
======== ======== ======== ======== ========
Income(loss) per share $ (0.82) $ (0.15) $ (0.30) $ (0.77) $ (0.22)
======== ======== ======== ======== ========
Weighted average shares outstanding (4) 41,936 31,126 16,585 15,508 15,317
======== ======== ======== ======== ========
Balance Sheet Data (end of period):
Total assets $ 36,162 $ 34,760 $ 30,858 $ 36,493 $ 46,549
Net property, plant and equipment 30,355 29,808 26,708 29,473 36,336
Working capital(deficit) (5,621) (9,480) (9,620) (27,970) (7,264)
Long term debt 43,177 18,792 18,095 -- 20,635
Stockholders' equity (deficit) (16,637) 2,183 85 3,846 14,628
Reserve and Production Data:
Production:
Oil (MBbls) 278 396 190 405 359
Gas (MMcf) 1,402 1,689 1,640 3,481 2,612
Average sales prices:
Oil (per Bbl) $ 13.20 $ 15.75 $ 15.34 $ 15.24 $ 12.86
Gas (per Mcf) 1.79 2.36 1.70 1.67 1.48
Proved reserves (end of period):
Oil (MBbls) 8,708 6,494 6,581 6,353 5,432
Gas (MMcf) 32,584 26,321 25,955 28,172 28,113
Present value of estimated future oil and gas net
revenues before income taxes (discounted 10%) $ 46,642 $ 48,600 $ 39,631 $ 53,499 $ 32,912
Standardized Measure $ 37,663 $ 45,106 $ 35,368 $ 43,889 $ 28,802
</TABLE>
<PAGE>
1) During the year ended July 31, 1996, the Company ceased its overseas
exploration activities in both Tunisia and Kazakhstan and wrote off its
costs relating to these activities of $3,447.
2) On May 15, 1997, the existing commodity price hedging agreements were
terminated through a buyout. On October 23, 1997, new commodity price
hedging agreements were initiated. The loss relating to the buy-out, $1,128
has been recognized in its entirety in the year ended April 30, 1998.
3) The miscellaneous expenses in the year ended July 31, 1996 arose from
litigation in connection with the sale in July 1993 of a subsidiary of the
Company.
4) For periods ending on or before April 30, 1997, the weighted average number
of shares outstanding has been based on the number of Alliance shares
issued on May 1, 1997, which represent the number of LaTex shares
outstanding in each of the relevant periods based on the exchange ratio in
the acquisition of LaTex. The loss for each period is stated after
deducting dividends on the LaTex preferred stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's acquisition of LaTex on May 1, 1997 has been accounted for as
a "reverse acquisition" of the Company by LaTex. As such, the historical
financial statements and financial information as of and for each of the years
in the two-year period ended July 31, 1996 and for the nine-month period ended
April 30, 1997 are for the business of LaTex alone and include no information
for the Company.
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 Form 10-K which are presented in
accordance with U.S. GAAP.
Unless otherwise indicated, the financial information in this Form 10-K has
been prepared in accordance with U.S. generally accepted accounting principles
("U.S. GAAP"). U.S. GAAP differs in certain respects from generally accepted
accounting principles in the U.K. ("U.K. GAAP"). As a result of the Company's
listing on the London Stock Exchange, the Company is required to file reports
with the London Stock Exchange prepared in accordance with U.K. GAAP.
RESULTS OF OPERATIONS
The factors which most significantly affect results of operations are (i)
the sale prices of crude oil and gas, (ii) the level of total sales volumes,
(iii) the level of lease operating expenses and (iv) the level of and interest
rates on borrowings. Total sales volumes and the level of borrowings are
significantly impacted by the degree of success in efforts to acquire oil and
gas properties and in the ability to maintain or increase production from
existing oil and gas properties through development activities.
The following table reflects certain historical operating data for the
periods presented.
14
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Year ended April 30 ended April 30
---------------------- ----------------
1999 1998 1997
---------------------- ----------------
<S> <C> <C> <C> <C>
Net sales volumes
Oil (Mbbls) 278 396 190
Natural gas (Mmcf) 1,402 1,689 1,640
Oil equivalent (MBOE) 512 678 463
Average sales prices
Oil (per Bbl) $13.20 $15.75 $15.34
Natural gas (per Mcf) $ 1.79 $ 2.36 $ 1.70
Operating expenses per BOE of net sales
Lease operating $ 5.41 $ 7.16 $ 5.55
Severance tax $ 0.64 $ 0.97 $ 1.22
Depreciation, depletion and amortization $ 3.27 $ 3.84 $ 3.33
General and administrative $ 6.81 $ 4.97 $ 7.52
Loss on termination of commodity
derivative contract $ - $ 1.67 $ -
</TABLE>
YEAR ENDED APRIL 30, 1999 COMPARED TO THE YEAR ENDED APRIL 30, 1998
Total revenues for the year ended April 30, 1999 were $6,234,477 compared
to $10,209,881 for the year ended April 30, 1998. This 39% decrease in total
revenue can be attributed to a 30% decrease in oil sales volumes (primarily at
the South Carlton Alabama field), and a 17% decrease in natural gas sales
volumes. A portion of the decreased sales volumes is due to the sale of non-
operated, non-strategic properties. Additionally there was a 16% decrease in the
average sales price received for oil, and a 24% decrease in the average sales
price received for natural gas. Crude oil contributed 56% and natural gas
contributed 44% of oil and gas production revenues during the year ended April
30, 1999. For the year ended April 30, 1998, crude oil contributed 61% and
natural gas contributed 39% of oil and gas production revenues, respectively.
Lease operating expenses decreased 44% to $3,096,468 for the year ended
April 30, 1999, compared to $5,505,826 for the year ended April 30, 1998. The
reduction in operating expenses is a result of a reduced property base, lower
expenses in the Alabama operations, and the shutting-in of marginal operated
wells. On an equivalent barrel basis, lease operating expenses decreased by
$1.75 to $5.41 for the year ended April 30, 1999, compared to $7.16 for the year
ended April 30, 1998.
Depreciation, depletion and amortization expense decreased 36% from
$2,598,066 for the year ended April 30, 1998 to $1,670,711 for the year ended
April 30, 1999. This was due primarily to lower production volumes and reserve
revisions resulting from price declines. On an equivalent barrel basis
depreciation, depletion, and amortization decreased $0.57 to $3.27 for the year
ended April 30, 1999, compared to $3.84 for the year ended April 30, 1998.
Alliance limits, on a country-by-country basis, the net capitalized cost of
proved oil and gas properties, to estimated future net cash flows from proved
oil and gas reserves discounted at 10 percent, net of related tax effects, plus
the lower of cost or fair value of unproved properties included in the costs
being amortized. Since the acquisition of the U.K. Interests on October 30,
1998, developments plans have become firmer, drilling and well re-entry and
recompletion result on 3 wells have been reviewed and significant progress has
been made on the development of the Dalton and Millom Fields. This additional
information indicates that, while the aggregate reserves estimates at the time
of acquisition are confirmed, the reserves are likely to be produced at a slower
rate than originally anticipated and that development costs are likely to be in
excess of those originally anticipated. These factors have led to an impairment
in value of the U.K. Interests. The Company intends to sell a significant
portion of its production from the U.K. Interests
15
<PAGE>
under a term contract which will achieve prices significantly greater than the
spot price of gas at April 30, 1999 (9.05 pence per therm). The Directors are
confident of achieving a price of between 13 and 15 pence per therm. (This is a
forward-looking statement; refer to the Cautionary Statement Regarding Forward
Looking Statements). However, as no contract is yet in place, the Group has
utilized the spot price at April 30, 1999 in calculating the carrying cost limit
resulting in an impairment charge of some $28 million. The charge has no impact
on cash flows from operating activities.
Interest costs for 1999 increased $780,981, or 25%, from 1998 primarily due
to the revised credit facility put in place to fund the East Irish Sea
acquisition and development. In 1999, Alliance wrote off $869,906 in deferred
loan costs related to the Company's previous credit facility.
General and administrative expenses for the year ended April 30, 1999 were
$3,486,007 which represents an increase of 3.6% over the $3,363,885 incurred in
the prior fiscal year. On an equivalent barrel basis general and administrative
expenses rose by $1.84 to $6.81 for the year ended April 30, 1999 compared to
$4.97 for the year ended April 30, 1998.
The net loss for the year ended April 30, 1999 was $34,463,502 ($0.82 per
ordinary share) compared to a net loss of $4,728,923 ($0.15 per ordinary share)
for the year ended April 30, 1998.
YEAR ENDED APRIL 30, 1998 COMPARED TO NINE MONTHS ENDED APRIL 30, 1997
Total revenues from the Company's operations for the year ended April 30,
1998 were $10,209,881 compared to $5,844,871 for the nine months ended April 30,
1997. Revenues increased proportionately over the comparable period a year
earlier due principally to the beneficial effect of higher realized gas and
higher oil volumes, offset partially by the absence of marketing margins in the
revenue category. The higher oil volumes were partially attributable to the
inclusion of Alliance's sales volumes and additional volumes attributable to the
acquisition of the BoA ORRI in the 1998 period following the LaTex Merger.
Although sales volumes for the year ended April 30, 1998, were adversely
affected by a continuing decline in volumes from the LaTex properties during the
initial three months of the period, the remedial work program had a beneficial
impact on volumes from the LaTex properties (discussed below). In addition, the
inclusion of Alliance's sales volumes from the start of the current reporting
period more than compensated for the initial decline in the LaTex properties.
The Company concentrated its efforts immediately after the LaTex Merger on
increasing production from eleven existing producing fields operated by LaTex in
the states of Alabama, Mississippi, Oklahoma, Texas and Louisiana. Workover
operations on these fields commenced in early May 1997 and comprised mainly
returning shut-in wells to production. Gross production from these eleven
fields was increased from an average of 244 BOE per day in April 1997 to an
average of 980 BOE per day by October 1997. Most of the production increase
came from remedial workover operations in the South Carlton field in Alabama.
Gross production from this field alone increased from an average of 89 BOE per
day in April 1997 to an average of 575 BOE per day in September 1997.
Total operating expenses increased proportionately to $12,595,777 for the
year ended April 30, 1998 compared to $8,155,557 for the nine months ended April
30, 1997. On May 15, 1997, the existing commodity price hedging arrangements
were bought out with a loss of $1,128,000 recognized in its entirety in the year
ended April 30, 1998 as a result of new agreements being initiated on October
23, 1997. Lease operating expenses increased to $5,505,826 for the year ended
April 30, 1998 compared to $3,117,341 for the nine months ended April 30, 1997.
The year ended April 30, 1998 was impacted by the remedial work program
mentioned above and the inclusion of the Alliance properties partially offset by
lower operating costs due to the sale of non-operated, non-strategic wells.
Depreciation, depletion and amortization increased to $2,598,066 for the 1998
period compared to $1,541,415 due to higher volumes resulting from the inclusion
of Alliance. General and administrative expenses decreased marginally from
$3,481,003 during the nine months ended April 30, 1997 to $3,363,885 for the
year ended April 30, 1998 primarily due to an employee stock award of $528,125
in the 1997 period.
16
<PAGE>
In addition to the marginal increase in the net operating loss to
$2,385,896 for the year ended April 30, 1998 from $2,310,686 for the nine months
ended April 30, 1997, there was also a proportionate decrease in other
income/expense. This was the result of higher interest expense taking into
account the additional quarterly payment.
In summary, due to the above factors, the net loss for the ordinary
shareholders for the year ended April 30, 1998 decreased to $4,728,923 ($0.15
per ordinary share) compared to a net loss of $4,906,946 ($0.30 per ordinary
share) for the nine months ended April 30, 1997.
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, and the servicing of the Company's debt.
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 and the acquisition of
additional reserves.
CASH FLOWS AND LIQUIDITY
At April 30, 1999, Alliance reported current assets of $2,451,077 and
current liabilities of $8,072,252, which resulted in a net current deficit of
$5,621,175.
For the year ended April 30, 1999 and April 30, 1998, Alliance's operating
activities resulted in negative cash flow of $3,991,251 and $5,184,000,
respectively. The Company had a positive cash flow of $2,098,566 for the nine
months ended April 30, 1997.
Investing activities of Alliance used $24,174,756 as compared to providing
$3,084,970 in net cash flow for the years ended April 30, 1999 and April 30,
1998, respectively. The 1999 increase was a result of the acquisition of Difco
and the U.K. Interests as well as the capital expenditures for oil and gas
development activities.
Financing activities provided $28,043,726 for the year ended April 30,
1999, compared to $2,434,660 for the year ended April 30, 1998. The increase
was due primarily to the issuance of long-term debt of $45,464,123, the issuance
of common stock for $6,360,000, the refinancing of long-term debt of $22,566,762
and the payment of loan acquisition costs of $1,213,635, all in connection with
the Difco and U.K. Interests acquisitions.
The domestic spot prices of oil and gas have traded, in a volatile manner
over various periods in recent years. To the extent that oil and gas prices are
volatile, material fluctuations in revenues from quarter to quarter can be
expected which, in turn, could adversely affect the Company's ability to service
its debt with its principal bank in a timely manner and to 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.
The Company continues to experience net losses and working capital
deficits. These factors may indicate the Company will be unable to continue as a
going concern for a reasonable period of time. Despite its negative cash flow,
the Company has been able to secure financing to support its operations to date.
The Company was not in compliance with certain covenants of its loan agreements
at April 30, 1999, however, a waiver has been obtained for such violations.
Agreement has been reached with the Company's principal lender to amend the
terms of its credit agreement to allow for additional immediate borrowings of
$5,000,000, to defer the date of the repayment of a portion of its indebtedness
from January 31, 2001 to July 31, 2001 and to defer the date of the borrowing
base redetermination from July 31, 1999 to December 31, 1999. The amendment does
not change the scheduled repayment dates of other portions of its debt, the
first payment of which is due July 31, 2000.
17
<PAGE>
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
continue to comply with the terms of its borrowing agreements, to obtain
additional financing or refinancing as will be required and ultimately to attain
profitability. Management believes it has a business plan that, if successfully
executed, will achieve these objectives.
CAPITAL EXPENDITURES
The timing of most of the Company's U.S. capital expenditures is
discretionary. Currently, there are no material long-term commitments
associated with the Company's U.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 funds
available under its credit facility 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 banking or other obligations, the
Company may reduce the level of discretionary U.S. capital expenditures or
increase the sale of non-strategic oil and gas properties in order to meet such
obligations.
The timing of the Company's U.K. capital expenditures is determined annually
by a budget prepared by Burlington and approved by Alliance. Currently, there
are material commitments for the 2000 fiscal year. These commitments will be
met by funds available under the Company's credit facility and internally
generated cash flow.
The level of the Company's capital expenditures will vary in future periods
depending on energy market conditions and other related economic factors. As a
result, the Company will continue its current policy of funding capital
expenditures with funds available under its credit facility and internally
generated cash flow. (This is a forward-looking statement; refer to the
Cautionary Statement Regarding Forward Looking Statements).
FINANCING ARRANGEMENTS
Alliance entered into a Credit Agreement (the "Alliance Credit Agreement")
with the Bank of America effective May 1, 1997, amending and restating the
Group's previous credit agreement. A portion of the borrowings under the
Alliance Credit Agreement bore interest, payable monthly, at a rate equal to the
higher of the Bank of America Reference Rate plus 1% and the Federal Funds Rate
plus 1-1/4%. Another portion of the borrowings bore interest, payable monthly,
at a rate equal to the London Interbank Offered Rate plus 2%. The rate at April
30, 1998 was 7.875%. Principal payments were scheduled to commence on October
31, 1998. The note was scheduled to mature on March 31, 2000. Amounts
outstanding were secured by mortgages which cover the majority of the Group's
oil and gas properties.
In connection with the Difco Acquisition, the Company entered into agreements
with Bank of America National Trust & Savings Association ("BoA"), Alliance's
principal lender and EnCap Equity 1996 Limited Partnership and EnCap Capital
Investment Company PLC (collectively "EnCap") providing up to $64,750,000 in
debt, as follows:
BoA:
Tranche A $30,000,000
Tranche B 20,000,000
Tranche C 5,000,000
-----------
55,000,000
EnCap 9,750,000
-----------
$64,750,000
===========
Tranche A consists of a revolving credit facility secured by a first priority
lien and security interest in all of the oil and gas properties of the Company.
The Company's initial borrowing base is $18,500,000 and is redetermined
semiannually on January 31 and July 31. Interest is at a rate determined by the
Company from time to time, of either
18
<PAGE>
(i) the greater of BoA's refernce rate and the federal funds effective rate plus
0.5%, or (ii) 2.0% above the current Interbank rate (7.5% at April 30, 1999).
While any Tranche B loan is outstanding, the preceding margins will be increased
by an additional 0.5% semi-annually on April 26 and on October 26 of each year.
Interest is payable quarterly and principal is due in equal quarterly payments
beginning October 30, 2000 and ending on October 30, 2003.
Tranche B consists of a credit facility secured by a first priority lien and
security interest in all of the oil and gas properties of the Company. Interest
is at a rate determined by the Company from time to time, of either (i) BoA's
Tranche B reference rate plus 2.0%, or (ii) 4.0% above the current Interbank
rate (9.0% at April 30, 1999). The margins for all Tranche B loans will be
increased by an additional 0.5% semi-annually on April 26 and on October 26 of
each year. Interest is payable quarterly and principal is due in full on
January 31, 2001.
Tranche C consists of a credit facility secured by a first priority lien and
security interest in all of the oil and gas properties of the Company. Interest
is at a rate determined by the Company from time to time, of either (i) BoA's
reference rate plus 5.0%, or (ii) 7.0% above the current Interbank rate (12.0%
at April 30, 1999). Interest is payable quarterly and principal is due in equal
quarterly payments beginning January 31, 2001 and ending on October 30, 2004.
The BoA debt facility contains various covenants, including, but not limited to,
maintenance of minimum current and interest coverage ratios, as defined in the
agreement.
EnCap debt is unsecured and bears interest at 10%. Interest is payable
quarterly and principal is due in full on October 30, 2005. Until October 30,
2001, the Company has the option, in lieu of paying cash, of increasing the
principal amount of the debt by the interest due.
The Company paid BoA a cash fee of $700,000 and granted BoA warrants to
purchase 3,275,000 ordinary shares at a price of 1p per share. The fair value
of the warrants $1,335,000 attaching to the debt was treated as a discount. In
addition, the Company will grant BoA an overriding royalty interest, valued at
the value of the underlying oil and gas reserves, in the U.K. Interests of 0.3%
beginning January 1, 2001. The overriding royalty interest will entitle BoA to
receive payment equal to the specified percentage of the net revenues generated
by the U.K. Interests and has the effect of reducing the Company's revenues
from the U.K. Interests. In connection with obtaining the debt financing from
BoA, the Company was required to enter into commodity price risk management
contract on terms that are mutually agreeable to BoA and the Company for a
period not less than two years with respect to at least 50% of the Company's
estimated producing reserves as of October 31, 1998. BoA also required the
Company to enter into interest rate risk management contracts providing for a
maximum interest rate of 9.0% on the notional amount projected to be outstanding
on the revolving credit facility.
The Company was not in compliance with certain covenants of the loan
agreements, which included but were not limited to the maintenance of minimum
levels of working capital and interest coverage. Prior to these violations
causing an event of default, which would have resulted in an acceleration of the
repayment of the loans, the Company obtained waivers from the lenders for all
covenant violations. Effective July 30, 1999 the loan agreement was amended to
revise the borrowing limit of Tranche B to $25,000,000 and reduce the limit of
Tranche A to a similar amount. This enabled the Company to borrow an additional
$5,000,000 as of July 30, 1999. The due date of Tranche B was extended from
January 31, 2001 to July 31, 2001. In addition, the date of the borrowing base
and collateral value redetermination scheduled to occur on July 31, 1999 was
deferred until December 31, 1999.
SEASONALITY
The results of operations of the Company are somewhat seasonal due to
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.
19
<PAGE>
INFLATION AND PRICES
In recent years, inflation has not had a significant impact on the
operations or financial condition of the Company. 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.
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 oil and gas have fluctuated significantly in recent years.
The following table sets forth the average price received by the Company.
Oil Gas
--------- ----------
Year ended April 30, 1999 $13.20 $1.79
Year ended April 30, 1998 $15.75 $2.36
Nine months ended April 30, 1997 $15.34 $1.70
On October 31, 1998, the Company's commodity price hedge agreements
expired. During February 1999 the Company completed a transaction to hedge
approximately 65% of its existing monthly gas production by installing a floor
of $1.60/MMBTU and a cap of $2.07/MMBTU. This will protect the Company from any
severe declines in natural gas prices over the next six months and conversely
limit the benefit of prices in excess of the cap. During April 1999 the Company
completed a transaction to hedge approximately 40% of its existing monthly oil
production by installing a floor of $12.00/barrel. This will protect the
Company from any severe declines in oil prices over the next six months.
ISSUES RELATED TO THE YEAR 2000
GENERAL
The following Year 2000 statements constitute a Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998. The Year 2000 problem has arisen because many existing
computer programs use only the last two digits to refer to a year. Therefore,
these computer programs do not properly recognize and process date-sensitive
information beyond 1999. In general, there are two areas where Year 2000
problems may exist for the Company: information technology such as computers,
programs and related systems ("IT") and non-information technology systems such
as embedded technology on a silicon chip ("Non IT").
THE PLAN
Alliance's Year 2000 Plan (the "Plan") has four phases: (i) assessment,
(ii) inventory, (iii) remediation, testing and implementation and (iv)
contingency plans. Approximately twelve months ago, the Company began its phase
one assessment of its particular exposure to problems that might arise as a
result of the new millennium. The assessment and inventory phases have been
substantially completed and have identified Alliance's IT systems that must be
updated or replaced in order to be Year 2000 compliant. Remediation, testing and
implementation are scheduled to be completed by September 30, 1999, and the
contingency plan phase of the Plan is scheduled to be completed by October 31,
1999. Alliance's assessment of the readiness of third parties whose IT systems
might have an impact on Alliance's business has thus far not indicated any
material problems.
20
<PAGE>
With regard to Alliance's Non IT systems, the Company believes that most of
these systems can be brought into compliance on schedule. Alliance's assessment
of third party readiness is not yet completed. Because the potential problem
with Non IT systems involves embedded chips, it is difficult to determine with
complete accuracy where all such systems are located. As part of its Plan, the
Company is making formal and informal inquiries of its vendors, customers and
transporters in an effort to determine the third party systems that might have
embedded technology requiring remediation.
ESTIMATED COSTS
Although it is difficult to estimate the total costs of implementing the
Plan through January 1, 2000 and beyond, Alliance's preliminary estimate is that
such costs will not be material. To date, the Company has determined that its IT
systems are either compliant or can be made compliant for less than $50,000.
However, although management believes that its estimates are reasonable, there
can be no assurance, for the reasons stated in the next paragraph, that the
actual cost of implementing the Plan would not differ materially from the
estimated costs.
POTENTIAL RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. This risk exists both as to Alliance's IT and Non IT systems, as
well as to the systems of third parties. Such failures could materially and
adversely affect Alliance's results of operations, cash flow and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third party
suppliers, vendors and transporters, the Company is unable to determine at this
time whether the consequences of Year 2000 failures will have a material impact
on Alliance's results of operations, cash flow or financial condition. Although
the Company is not currently able to determine the consequences of Year 2000
failures, its current assessment is that its area of greatest potential risk in
its third party relationships is in connection with the transporting and
marketing of the oil and gas produced by the Company. The Company is contacting
the various purchasers and pipelines with which it regularly does business to
determine their state of readiness for the Year 2000. Although the purchasers
and pipelines will not guaranty their state of readiness, the responses received
to date have indicated no material problems. The Company believes that in a
worst case scenario, the failure of its purchasers and transporters to conduct
business in a normal fashion could have a material adverse effect on cash flow
for a period of six to nine months. Alliance's Year 2000 Plan is expected to
significantly reduce Alliance's level of uncertainty about the compliance and
readiness of these material third parties. The evaluation of third party
readiness will be followed by Alliance's development of contingency plans.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition, the dates for completion of the phases of the Year 2000 Plan
are based on Alliance's best estimates, which were derived using numerous
assumptions of future events. Due to the general uncertainty inherent in the
Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-parties and the interconnection of computer systems, the
Company cannot ensure its ability to timely and cost-effectively resolve
problems associated with the Year 2000 issue that may affect its operations and
business. 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.
QUANTITATIVE AND QUALITATIVE ANALYSIS ON MARKET RISK
The Company's primary market risks relate to changes in interest rates and
in the prices received from sales of oil and natural gas. The Company's primary
risk management strategy is to partially mitigate the risk of adverse changes in
its cash flows caused by increases in interest rates on its variable rate debt,
and decreases in oil and natural
21
<PAGE>
gas prices, by entering into derivative financial and commodity instruments,
including swaps, collars and participating commodity hedges. By hedging only a
portion of its market risk exposures, the Company is able to participate in the
increased earnings and cash flows associated with decreases in interest rates
and increases in oil and natural gas prices; however, it is exposed to risk on
the unhedged portion of its variable rate debt and oil and natural gas
production.
Historically, the Company has attempted to hedge the exposure related to its
variable rate debt and its forecasted oil and natural gas production in amounts
which it believes are prudent based on the prices of available derivatives and,
in the case of production hedges, the Company's deliverable volumes. The
Company attempts to manage the exposure to adverse changes in the fair value of
its fixed rate debt agreements by issuing fixed rate debt only when business
conditions and market conditions are favorable.
The Company does not use or hold derivative instruments for trading purposes
nor does it use derivative instruments with leveraged features. The Company's
derivative instruments are designated and effective as hedges against its
identified risks, and do not of themselves expose the Company to market risk
because any adverse change in the cash flows associated with the derivative
instrument is accompanied by an offsetting change in the cash flows of the
hedged transaction.
Personnel who have appropriate skills, experience and supervision carry out
all derivative activity. The personnel involved in derivative activity must
follow prescribed trading limits and parameters that are regularly reviewed by
senior management. The Company uses only well-known, conventional derivative
instruments and attempts to manage its credit risk by entering into financial
contracts with reputable financial institutions.
Following are disclosures regarding the Company's market risk sensitive
instruments by major category. Investors and other users are cautioned to avoid
simplistic use of these disclosures. Users should realize that the actual
impact of future interest rate and commodity price movements will likely differ
from the amounts disclosed below due to ongoing changes in risk exposure levels
and concurrent adjustments to hedging positions. It is not possible to
accurately predict future movements in interest rates and oil and natural gas
prices.
Interest Rate Risks (non-trading) - the Company uses both fixed and variable
rate debts to partially finance operations and capital expenditures. As of
April 30, 1999, the Company's debt consists of $39,830,348 in borrowings under
its Credit Agreement which bear interest at a variable rate, and $10,243,775 in
borrowings under its 10% Senior Subordinated Notes which bear interest at a
fixed rate. The Company hedges a portion of the risk associated with its
variable rate debt through derivative instruments which consist of interest rate
swaps and collars. Under the swap contracts, the Company makes interest
payments on its Credit Agreement as scheduled and receives or makes payments
based on the differential between the fixed rate of the swap and a floating rate
plus a defined differential. These instruments reduce the Company's exposure to
increases in interest rates on the hedged portion of its debt by enabling it to
effectively pay a fixed rate of interest or a rate, which only fluctuates within
a predetermined ceiling and floor. A hypothetical increase in interest rates of
two percentage points would cause a loss in income and cash flows of $800,000
during 1999, assuming that outstanding borrowings under the Credit Agreement
remain at current levels. This loss in income and cash flows would be offset by
a $0 increase in income and cash flows associated with the interest rate swap
and collar agreements that are in effect for 1999. A hypothetical decrease in
interest rates of two percentage points would cause an increase in the fair
value of $0 in the Company's Senior Subordinated Notes from their fair value at
April 30, 1999.
Commodity Price Risk (non trading) - The Company hedges a portion of the price
risk associated with the sale of its oil and natural gas production through the
use of derivative commodity instruments, which consist of collars and
participating hedges. These instruments reduce the Company's exposure to
decreases in oil and natural gas prices on the hedged portion of its production
by enabling it to effectively receive a fixed price on its oil and natural gas
sales or a price that only fluctuates between a predetermined floor and ceiling.
As of July 1, 1999, the Company had entered into derivative commodity hedges
covering an aggregate of 40,000 barrels of oil and 320,000 MMbtu's of
22
<PAGE>
gas that extend through October 1999. Under these contracts, the Company sells
its oil and natural gas production at spot market prices and receives or makes
payments based on the differential between the contract price and a floating
price which is based on spot market indices. The amount received or paid upon
settlement of these contracts is recognized as oil or natural gas revenues at
the time the hedged volumes are sold. A hypothetical decrease in oil and natural
gas prices of 10% from the price in effect as of April 30, 1999, would cause a
loss in income and cash flows of $383,250 during 1999, assuming that oil and gas
production remain at current levels. This loss in income and cash flows would be
offset by a $0 increase in income and cash flows associated with the oil and
natural gas derivative contracts that are in effect.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-5
Consolidated Statements of Changes in Stockholders' Equity................ F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to the Consolidated Financial Statements............................ F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
John A. "Jak" Keenan, aged 45, is the Chairman and Managing Director
of Alliance. He has worked in the oil industry since 1976 and was successively
first vice president of corporate development, chief operating officer and
director and president of the oil and gas division of Great Western Resources,
Inc. He resigned his position at Great Western Resources, Inc. in August 1995
and accepted a position at the law firm of Jenkens & Gilchrist in Houston,
Texas, where he specialized in oil and gas transactions. He joined the Board of
Alliance in April 1996.
Michael E. Humphries, aged 42, is the Interim Finance Director of
Alliance. Having begun his career at Britoil Plc, he has spent 16 years working
in the international oil and gas arena and is currently Senior Vice President of
Rothschild Natural Resources, LLC, based in Washington DC, where he has
responsibility for Rothschild's oil and gas activities in North America. He
joined the Board of Alliance in December 1997.
Paul R. Fenemore, aged 43, is the Operations and Business Development
Director of Alliance. He has a B.Sc. degree in combined science obtained in
1975 and a M.Sc. degree in marine geotechnics. He has extensive experience in
detailed technical and economic evaluations of exploration and oil field
appraisal and development projects and project management and has held several
technical and senior management positions with Gulf Oil Corporation, Amoco
Europe and West Africa Limited, Amerada-Hess UK Limited, Hamilton Brothers (UK)
Limited, CSX Oil and Gas Corporation, Cairn Energy PLC and Hunting Surveys
Limited. From 1991 until 1995, he was managing director of Petroleum Ventures
International and Spectron Petroleum Limited and became a fellow of the
Geological Society in 1992. He joined the Board of Alliance in May 1996.
23
<PAGE>
Phillip Douglas, aged 60, is a non-executive Director of Alliance. He was
a director and head of international investment at Morgan Grenfell for 16 years
and was a director of G T Management. He also has a number of other non-
executive directorships in public and private companies. He joined the Board of
Alliance in November 1993.
William J. A. Kennedy, aged 60, is a non-executive Director of Alliance.
After 25 years experience in the investment industry, he became vice president
of a major conglomerate, Crownx, Inc. For the past nine years, he has operated
a management consulting service and sits on the board of two public Canadian
companies. He joined the Board of Alliance in January 1994.
John R. Martinson, aged 63, is a non-executive Director of Alliance. He has
a B.Sc. degree in engineering and a masters degree in business administration.
He became a director of LaTex in May 1995, having served as a consultant to that
company since 1994. He is Managing Director of Wood Roberts, LLC, where he has
been engaged in financial consulting since January 1989. From 1973 to 1988, Mr.
Martinson was an independent oil and gas entrepreneur. Previously, he was with
Kidder Peabody & Co., Oppenheimer & Co. and Mobil Corporation. He joined the
Board of Alliance in May 1997.
Other Key Employees and their Business Histories
In addition to the Executive Directors, the Company employs two senior
executives. The names, current ages and positions of these other key employees
are as follows:
Name Age Position
---- --- --------
Francis M. Munchinski 45 General Counsel
Robert E. Schulte 41 Controller
Francis M. Munchinski is the General Counsel of Alliance. He is a U.S.
citizen and a doctor of law. Prior to joining the Company in June 1998, he was
a shareholder at the law firm of Jenkens & Gilchrist in Dallas, Texas where he
specialized in oil and gas law for over 13 years. Mr. Munchinski has been
involved in the oil and gas business for over 18 years.
Robert E. Schulte is the Controller of Alliance. He is a U.S. citizen and
has a B.S. degree in accounting. He has worked in the oil and gas industry
since 1981 in both domestic and international arenas. He has held management
positions with Bow Valley Petroleum, Kelt Energy, Great Western Resources and
Apache Corporation before joining Alliance in September 1997.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid or accrued during each of the Company's last three fiscal years to the
Company's Managing Director, John A. Keenan and each of the other most highly
compensated executive officers who earned at least $100,000 in salary and bonus
in fiscal 1999 (the "Named Executives"):
24
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
----------------------------- ----------------------
Securities
Underlying All Other
Name and Principal Position Fiscal Year Salary ($) Bonus ($) Options/SARs (#) Compensation ($)
- -------------------------------- --------------- -------------- ------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
John A. Keenan.................. 1999 162,000 75,000 890,000 22,500
Managing Director(1) 1998 174,500 30,000 400,000 107,103
1997 150,333 -- 150,000 5,061
Paul R. Fenemore................ 1999 172,000 45,000 670,000 10,000
Operations and Business 1998 164,990 20,000 200,000 8,361
Development Director(2) 1997 142,789 -- 25,000 --
Francis M. Munchinski........... 1999 75,833 42,000 520,000 8,526
General Counsel(3) 1998 -- -- -- --
1997 -- -- -- --
Robert E. Schulte............... 1999 82,083 42,000 285,000 10,321
Controller(4) 1998 45,569 4,000 25,000 4,208
1997 -- -- -- --
</TABLE>
(1) Mr. Keenan assumed his position with Alliance on May 22, 1996. Amounts
shown under All Other Compensation in 1999 represent pension and benefits.
Amounts shown under All Other Compensation in 1998 represent relocation
expenses.
(2) Mr. Fenemore assumed his position with Alliance on May 21, 1996. Amounts
shown under All Other Compensation in 1999 represent pension.
(3) Mr. Munchinski assumed his position with Alliance on June 16, 1998.
Amounts shown under All Other Compensation in 1999 represent relocation
expenses and benefits.
(4) Mr. Schulte assumed his position with Alliance on September 17, 1997.
Amounts shown under All Other Compensation in 1999 represent relocation
expenses and benefits.
25
<PAGE>
Options Grants in Last Fiscal Year
The following table sets forth all individual grants of options to the
Named Executives of the Company during the fiscal year ended April 30, 1999.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
- ----------------- Value at Assumed
Annual Rates of Stock
Price Appreciation
For Option Term
-----------------------
% Of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Expiration
Name Granted(#) Fiscal Year Price(1)($) Date 5% ($) 10% ($)
---- ---------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John A. Keenan.................. 890,000 37.6 13.5p 11/29/08 195,844.50 311,188.50
Managing Director
Paul R. Fenemore................ 670,000 28.3 13.5p 11/29/08 147,433.50 234,265.50
Operations and Business
Development Director
Francis M. Munchinski........... 520,000 22.0 13.5p 11/29/08 114,426.00 181,818.00
General Counsel
Robert E. Schulte............... 285,000 12.1 13.5p 11/29/08 62,714.25 99,650.25
Controller
</TABLE>
(1) Represents the closing mid-market price of the ordinary shares on the London
Stock Exchange on November 27, 1998.
Fiscal Year End Option Values
Shown below is information with respect to the Named Executives of the
Company regarding option exercises during the fiscal year ended April 30, 1999,
and the value of unexercised options held as of April 30, 1999.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money
at April 30, 1999 Options at April 30, 1999
-------------------------------------- -------------------------------------
Name Unexercisable Exercisable Unexercisable Exercisable
---- ------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
John A. Keenan.......................... 1,290,000 -- -- --
Managing Director
Paul R. Fenemore........................ 870,000 -- -- --
Operations and Business
Development Director
Francis M. Munchinski................... 520,000 -- -- --
General Counsel
Robert E. Schulte....................... 310,000 -- -- --
Controller
</TABLE>
26
<PAGE>
Employment Agreements
Each of Messrs. Keenan, Fenemore, Munchinski, and Schulte 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, September 20, 1996, January 1, 1999 and January 1, 1999, respectively, and
having automatic extensions of the initial term for additional two-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 two-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 twice the annual salary, bonuses and benefits paid
to the executive. 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 of one
lump sum of cash in an amount equal to two and a half times the annual salary,
bonus and benefits paid to the executive.
The annual salary under each agreement is $180,000 for Mr. Keenan,
(pounds)100,000 for Mr. Fenemore, $140,000 for Mr. Munchinski and $100,000 for
Mr. Schulte, plus any bonuses or other compensation determined by Alliance's
Board of Directors in its discretion.
Compensation of Directors
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 the
twelve months ended April 30, 1999, the following directors were paid the
indicated fees for their services as directors: Mr. Douglas $16,000, Mr. Kennedy
$16,000, Mr. Samuelson $12,000, Mr. Martinson $12,000 and Mr. Humphries $12,525.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 30, 1999, with
respect to the beneficial ownership of Shares (i) by any person or "group," as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934,
known to the Company to own beneficially more than 5% of the outstanding Shares,
(ii) by each director, including executive directors, and each other key
employee of the Company named in the Summary Compensation Table, and (iii) by
all directors, including executive directors, and all key employees of the
Company as a group. Except as otherwise indicated, each of the persons named
below is believed by the Company to possess sole voting and investment power
with respect to the Shares beneficially owned by such person.
<TABLE>
<CAPTION>
Name and Address of Shares Owned Percent Owned
Beneficial Owner(1) Beneficially Beneficially
- ------------------- ------------ -----------
<S> <C> <C>
John A. Keenan........................................... 1,390,000(2) 2.6%
Paul R. Fenemore......................................... 870,000(3) 1.7%
Francis M. Munchinski.................................... 520,000(4) 1.0%
Robert E. Schulte........................................ 310,000(5) *
Michael E. Humphries..................................... - -
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C>
William J.A. Kennedy..................................... 4,125 *
Philip Douglas........................................... 99,583 *
John R. Martinson........................................ 778,987(6) 1.5%
Enron Reserve Acquisition Corp. (7)...................... 3,239,708 6.2%
LaSalle Street Natural Resources Corporation(8).......... 7,179,519 12.3%
EnCap Equity 1996 Limited Partnership(9)................. 11,250,000 21.4%
Energy Capital Investment Company PLC(10)................ 3,750,000 7.1%
EnCap Investments L.C.(11)............................... 15,545,454 29.6%
All Directors, including executive directors, and all
key employees of Alliance as a group
(8 persons) (2), (3), (4), (5), (6)................... 3,972,695 5.7%
</TABLE>
- --------------------------------
* Less than 1%
(1) All of the Company's directors may be contacted at 12 St. James's Square,
London SW1Y 4RB.
(2) Includes options to purchase 1,290,000 Shares granted pursuant to the
Company's executive share option plans.
(3) Consists of options to purchase 870,000 Shares granted pursuant to the
Company's executive share option plans.
(4) Consists of options to purchase 520,000 Shares granted pursuant to the
Company's executive share option plans.
(5) Consists of options to purchase 310,000 Shares granted pursuant to the
Company's executive share option plans.
(6) Includes presently exercisable warrants to purchase 374,877 Shares held by
Wood Roberts, Inc., a corporation under the control of Mr. Martinson and
presently exercisable warrants to purchase 218,334 Shares held by Wood
Roberts, LLC, a Texas limited liability company 50% owned by Mr. Martinson.
(7) The address of Enron Reserve Acquisition Corp. is 1400 Smith Street,
Houston, Texas 77002. After April 30, 1999, Enron Reserve Acquisition
Corp. advised the Company that it sold all of its shares.
(8) Consists of 1,500,000 Shares, convertible loan notes and immediately
exercisable warrants convertible into or exercisable for 2,404,519 Shares
issued to an affiliate of Bank of America and warrants to purchase
3,275,000 Shares at a price of 1p per share. The address of LaSalle Street
Natural Resources is 231 S. LaSalle Street, Chicago, Illinois 60697.
(9) The address of EnCap Equity 1996 Limited Partnership is 1100 Louisiana,
Suite 3150, Houston, Texas 77002. EnCap Equity 1996 Limited Partnership
shares voting and dispositive power with EnCap Investments L.C., its
general partner.
28
<PAGE>
(10) The address of Energy Capital Investment Company PLC is c/o Aberdeen Asset
Management, 1 Bow Churchyard, Cheapside, London EC4M 9HH, England. Energy
Capital Investment Company PLC shares dispositive and voting power over
these shares with EnCap Investments L.C.
(11) The address of EnCap Investments L.C. is 1100 Louisiana, Suite 3150,
Houston, Texas 77002. EnCap Investments L.C. shares dispositive and voting
power over 15,000,000 of these shares with EnCap Equity 1996 Limited
Partnership and Energy Capital Investment Company PLC.
(12) In addition to the interests set out above, John A. Keenan is interested in
45,000 Shares held in the name of Diamond Securities Limited and 102,500
Shares held in the name of Havensworth Limited by virtue of having proxy
over the voting rights attached to these Shares pending their sale, as
required by a settlement of legal proceedings with the former Managing
Director of the Company in August 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements (included at Item 8. Financial Statements and
Supplementary Data)
(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 April 30, 1999.
(c) Exhibits.
Exhibit Description
- ------- -----------
3.1(3) Memorandum of Association of Alliance Resources Plc (3.1)
3.2(3) Articles of Association of Alliance Resources Plc (3.7)
3.3(2) Form of Warrant Agreement relating to Warrants issued to Society
National Bank as Warrant Agent for holders of certain LaTex Warrants
(3.3)
3.4(2) Warrant Agreement and form of Warrant issued to all other holders of
LaTex Warrants (3.4)
3.5(2) Form of Convertible Loan Note Instrument entered into between
Alliance Resources Plc and Bank of America NT & SA (3.5)
3.6(2) Registration Rights Agreement between Alliance Resources Plc and
affiliate of Bank of America NT & SA (3.6)
10.1(1)(2) Executive Service Agreement between Alliance Resources Plc and John
A. Keenan dated October 15, 1996 as amended by Supplemental
Agreement dated April 7, 1998 and Second Supplemental Agreement
dated as of December 1, 1998 (10.1)
10.2(1)(2) Executive Service Agreement between Alliance Resources Plc and Paul
R. Fenemore dated September 20, 1996 as amended by Supplemental
Agreement dated April 16, 1998 and Second Supplemental Agreement
dated as of December 1, 1998 (10.2)
10.3(1) Executive Service Agreement between Alliance Resources Plc and
Francis M. Munchinski dated as of December 1, 1998.
29
<PAGE>
10.4(1) Executive Service Agreement between Alliance Resources Plc and
Robert E. Schulte dated as of December 1, 1998.
10.5(3) Purchase Agreement dated October 27, 1998, by and between Alliance
Resources PLC and EnCap Equity 1996 Limited Partnership and Energy
Capital Investment Company Plc.
10.6 First Amendment to the Purchase Agreement, dated effective as of
July 30, 1999.
10.7(3) Registration Rights Agreement dated as of October 30, 1998 by and
between Alliance Resources PLC, EnCap Equity 1996 Limited
Partnership, Energy Capital Investment Company Plc and EnCap
Investments, L.C.
10.8(3) Third Amended and Restated Credit Agreement dated as of October 27,
1998, among Alliance Resources PLC and certain of its subsidiaries
and Bank of America National Trust and Savings Association.
10.9 First Amendment to the Third Amended and Restated Credit Agreement,
dated effective as of July 30, 1999.
10.10(3) Registration Rights Agreement dated as of October 30, 1998 between
the Company and LaSalle Street Natural Resources Corporation.
10.11(3) Registration Rights Agreement dated as of October 30, 1998, among
Alliance Resources PLC and F. Fox Benton and certain members of his
family.
10.12 Exchange and Merger Agreement by and among American Rivers Oil
Company, a Wyoming corporation, American Rivers Oil Company, a
Delaware corporation, and Alliance Resources Plc, dated July 22,
1999.
22.1 Subsidiaries
- -------------
(1) Constitutes compensation plan or arrangement
(2) Incorporated by reference from the indicated exhibit filed with Alliance's
Registration Statement on Form F-4 (No. 333-19013).
(3) Incorporated by reference from the indicated exhibit filed with Alliance's
Form 8-K filed November 16, 1998.
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.
Alliance Resources PLC
Date: August 12, 1999 /s/ John A. Keenan
---------------------
John A. Keenan, Chairman
and Managing Director
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/ John A. Keenan Chairman and Managing Director August 12, 1999
- -------------------------
John A. Keenan
/s/ Paul R Fenemore Operations and Business Development August 12, 1999
- ------------------------- Director
Paul R Fenemore
30
<PAGE>
/s/ Phillip Douglas Director August 12, 1999
- -------------------------
Phillip Douglas
/s/ William J A Kennedy Director August 12, 1999
- -------------------------
William J A Kennedy
/s/ Michael E Humphries Director August 12, 1999
- -------------------------
Michael E Humphries
/s/ John R Martinson Director August 12, 1999
- -------------------------
John R Martinson
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-5
Consolidated Statements of Changes in Stockholders' Equity................ F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to the Consolidated Financial Statements............................ F-8
F-1
<PAGE>
Independent Auditors' Report
Board of Directors
Alliance Resources PLC and Subsidiaries
We have audited the consolidated balance sheets of Alliance Resources PLC and
subsidiaries as of April 30, 1998 and 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the nine
months ended April 30, 1997 and the years ended April 30, 1998 and 1999. 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 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 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 consolidated financial position of
Alliance Resources PLC and subsidiaries as of April 30, 1998 and 1999, and the
results of their operations and their cash flows for the nine months ended April
30, 1997 and the years ended April 30, 1998 and 1999, in conformity with
generally accepted accounting principles in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has suffered recurring losses from operations,
has a net capital deficiency and is obliged to commence repayments on its
borrowings on October 30, 2000. These matters 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.
KPMG Audit Plc
London, United Kingdom
August 12, 1999
F-2
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1998 and 1999
<TABLE>
<CAPTION>
Assets 1998 1999
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash $ 408,439 $ 286,158
Accounts receivable 2,132,654 2,105,082
Other current assets 73,977 59,837
------------ ------------
Total current assets 2,615,070 2,451,077
------------ ------------
Property and equipment, at cost
Oil and gas properties, full cost method:
United States 43,200,388 42,901,608
United Kingdom - 31,054,083
Other depreciable assets 1,029,118 1,095,147
------------ ------------
44,229,506 75,050,838
Less accumulated depreciation, depletion, and (14,421,400) (44,695,726)
impairments ------------ ------------
Net property, plant and equipment 29,808,106 30,355,112
------------ ------------
Other assets:
Deposits and other assets 144,989 141,422
Deferred acquisition costs 970,305 -
Deferred loan costs, less accumulated amortization 1,221,650 3,215,384
------------ ------------
$ 34,760,120 $ 36,162,995
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1998 and 1999
(continued)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1998 1999
------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 8,972,704 $ 7,238,502
Accrued expenses payable 847,190 833,750
Current portion of long-term debt 2,275,000 -
------------ ------------
Total current liabilities 12,094,894 8,072,252
Long-term liabilities:
Long-term debt, less current portion 18,791,762 43,176,621
Other liabilities 139,626 -
Convertible subordinated unsecured loan notes 1,550,700 1,550,700
------------ ------------
Total liabilities 32,576,982 52,799,573
------------ ------------
Stockholders' equity:
Ordinary Shares-par value 40 pence;
46,000,000 shares authorized; 31,209,408 issued and outstanding
at April 30, 1998 20,114,634 -
Ordinary Shares - par value 1 pence;
415,001,376 authorized; 47,487,142 issued and outstanding
at April 30, 1999 - 768,823
Deferred Shares - par value 1 pence;
1,414,998,624 authorized; 1,217,155,912 issued and
outstanding at April 30, 1999 - 19,611,767
Convertible Shares - par value 1 pence;
10,000,000 authorized; 10,000,000 issued and outstanding
at April 30, 1999 - 278,000
Additional paid-in capital 5,911,050 21,042,094
Accumulated other comprehensive income(loss) 13,823 (17,391)
Accumulated deficit (23,856,369) (58,319,871)
------------ ------------
Total stockholders' equity(deficit) 2,183,138 (16,636,578)
------------ ------------
Commitments (Note 13)
$ 34,760,120 $ 36,162,995
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Statements of Operations
Nine Months Ended April 30, 1997
and Years Ended April 30, 1998 and 1999
<TABLE>
<CAPTION>
Nine months
ended Year ended Year ended
April 30, 1997 April 30, 1998 April 30, 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues
Oil and gas revenue $ 5,698,490 $10,209,881 $ 6,234,477
Crude oil and gas marketing 146,381 - -
----------- ----------- ------------
Total revenues 5,844,871 10,209,881 6,234,477
----------- ----------- ------------
Operating expenses
Lease operating expenses 3,117,341 5,505,826 3,096,468
Cost of crude oil and gas marketing 15,798 - -
General and administrative expenses 3,481,003 3,363,885 3,486,007
Depreciation, depletion, and amortization 1,541,415 2,598,066 1,670,711
Impairment of oil and gas properties - - 28,260,037
Loss on termination of derivative contracts - 1,128,000 -
----------- ----------- ------------
Total operating expenses 8,155,557 12,595,777 36,513,223
----------- ----------- ------------
Loss from operations (2,310,686) (2,385,896) (30,278,746)
----------- ----------- ------------
Other income (expense):
Write-off of deferred loan costs - - (869,906)
Interest expense (2,102,933) (2,573,646) (3,354,627)
Interest income 52,038 62,226 26,299
Miscellaneous income (expense) ( 27,752) 132,951 22,662
Gain (loss) on sale of assets - 35,442 (9,184)
----------- ----------- ------------
Total other income (expense) (2,078,647) (2,343,027) (4,184,756)
----------- ----------- ------------
Net loss (4,389,333) (4,728,923) (34,463,502)
Preferred stock dividends (517,613) - -
----------- ----------- ------------
Net loss for ordinary
shareholders $(4,906,946) $(4,728,923) $(34,463,502)
=========== =========== ============
Basic loss per ordinary share $ (0.30) $ (0.15) $ (0.82)
=========== =========== ============
Weighted average number of shares outstanding 16,585,113 31,125,689 41,935,718
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Alliance Resources PLC and Subsidiaries
Consolidated Statements of Stockholders'
Equity (Deficit) and Comprehensive Income
Nine Months Ended April 30, 1997
and Years Ended April 30, 1998 and 1999
<TABLE>
<CAPTION>
Additional
Preferred Ordinary Deferred Convertible Paid-in
Stock Shares Shares Shares Capital
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1996 $ 2,680,411 $ 10,681,373 $ -- $ -- $ 5,193,888
Issuance of 85,986 shares for services -- 55,857 -- -- 44,143
Issuance of 1,453,079 shares for
employee bonuses -- 943,920 -- -- (415,795)
Issuance of 51,735 shares for dividends 190,703 -- -- -- 326,910
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at April 30, 1997 2,871,114 11,681,150 -- -- 5,149,146
Issuance of 4,419,818 shares for
preferred shares (2,871,114) 2,871,114 -- -- --
Issuance of 8,103,816 shares to Alliance
shareholders -- 5,105,550 -- -- (1,066,211)
Issuance of 1,343,750 shares for acquisition
of overriding royalty interest -- 872,900 -- -- 1,498,400
Issuance of 256,250 shares for settlement
of various advisory and banking fees -- 165,904 -- -- 187,096
Issuance of 56,805 shares for warrants -- 37,148 -- -- 12,852
Cancellation of 953,099 treasury shares -- (619,132) -- -- 129,767
Comprehensive income:
Foreign exchange adjustment -- -- -- -- --
Net loss -- -- -- -- --
Total comprehensive loss
------------ ------------ ------------ ------------ ------------
Balance at April 30, 1998 -- 20,114,634 -- -- 5,911,050
Capital reorganization -- (19,611,767) 19,611,767 -- --
Issuance of 10,000,000 shares for Difco Limited -- -- -- 278,000 6,930,000
Issuance of 15,545,454 shares to lender -- 254,000 -- -- 6,398,000
Warrants issued to principal lender -- -- -- -- 1,335,000
Issuance of 732,280 shares for services -- 11,956 -- -- 468,044
Comprehensive income:
Foreign exchange adjustment -- -- -- -- --
Net loss -- -- -- -- --
Total comprehensive loss
------------ ------------ ------------ ------------ ------------
Balance at April 30, 1999 $ -- $ 768,823 $ 19,611,767 $ 278,000 $ 21,042,094
------------ ------------ ------------ ------------ ------------
<CAPTION>
Accumulated
Other
Comprehensive Accumulated Treasury
Income (Loss) Deficit Stock Total
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at July 31, 1996 $ -- $(14,220,500) $ (489,365) $ 3,845,807
Issuance of 85,986 shares for services -- -- -- 100,000
Issuance of 1,453,079 shares for
employee bonuses -- -- -- 528,125
Issuance of 51,735 shares for dividends -- (517,613) -- --
Net loss -- (4,389,333) -- (4,389,333)
------------ ------------ ------------ ------------
Balance at April 30, 1997 -- (19,127,446) (489,365) 84,599
Issuance of 4,419,818 shares for
preferred shares -- -- -- --
Issuance of 8,103,816 shares to Alliance
shareholders -- -- -- 4,039,339
Issuance of 1,343,750 shares for acquisition
of overriding royalty interest -- -- -- 2,371,300
Issuance of 256,250 shares for settlement
of various advisory and banking fees -- -- -- 353,000
Issuance of 56,805 shares for warrants -- -- -- 50,000
Cancellation of 953,099 treasury shares -- -- 489,365 --
Comprehensive income:
Foreign exchange adjustment 13,823 -- -- 13,823
Net loss -- (4,728,923) -- (4,728,923)
------------
Total comprehensive loss (4,715,100)
------------ ------------ ------------ ------------
Balance at April 30, 1998 13,823 (23,856,369) -- 2,183,138
Capital reorganization -- -- -- --
Issuance of 10,000,000 shares for Difco Limited -- -- -- 7,208,000
Issuance of 15,545,454 shares to lender -- -- -- 6,652,000
Warrants issued to principal lender -- -- -- 1,335,000
Issuance of 732,280 shares for services -- -- -- 480,000
Comprehensive income:
Foreign exchange adjustment (31,214) -- -- (31,214)
Net loss -- (34,463,502) -- (34,463,502)
------------
Total comprehensive loss (34,494,716)
------------ ------------ ------------ ------------
Balance at April 30, 1999 $ (17,391) $(58,319,871) $ -- $(16,636,578)
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended April 30, 1997
and Years Ended April 30, 1998 and 1999
<TABLE>
<CAPTION>
Nine months
ended Year ended Year ended
April 30, April 30, April 30,
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,389,333) $(4,728,923) $(34,463,502)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 1,541,415 2,598,066 1,670,711
Write-off of deferred loan costs - - 869,906
Impairment of oil and gas properties - - 28,260,037
Other amortization 394,000 813,096 1,289,493
Employee bonus 528,125 - -
(Gain)loss on sale of assets - (35,442) 9,184
Changes in assets and liabilities, net of
effects from acquisition:
Accounts receivable 1,204,903 487,427 27,572
Due from related parties 392,297 - -
Other assets 161,530 97,500 17,707
Accounts payable 2,239,165 (4,032,763) (1,519,293)
Accrued expenses payable (169,319) 409,454 (13,440)
Other liabilities 195,783 (792,554) (139,626)
----------- ----------- ------------
Net cash provided by (used in) operating 2,098,566 (5,184,139) (3,991,251)
activities ----------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 1,573,625 5,729,300 1,742,336
Purchases of property and equipment, including (350,322) (2,407,162) (3,829,425)
interest capitalized
Acquisition of Difco - (221,987) (22,087,667)
Decrease in accounts and notes receivable-other 1,273,320 - -
Effect of LaTex acquisition - (15,181) -
----------- ----------- ------------
Net cash provided by (used in) investing activities $ 2,496,623 $ 3,084,970 $(24,174,756)
----------- ----------- ------------
Cash flows from financing activities:
Deferred loan and reorganization costs $ (401,208) $ (385,680) $ (1,213,635)
Proceeds from issuance of long-term debt - 2,770,340 45,464,123
Exercise of warrants - 50,000 -
Payments of long-term debt (4,140,370) - (22,566,762)
Proceeds from issuance of stock - - 6,360,000
----------- ----------- ------------
Net cash provided by (used in) financing activities (4,541,578) 2,434,660 28,043,726
----------- ----------- ------------
Net increase (decrease) in cash 53,611 335,491 (122,281)
Cash at beginning of period 19,337 72,948 408,439
----------- ----------- ------------
Cash at end of period $ 72,948 $ 408,439 $ 286,158
=========== =========== ============
Supplemental disclosures of cash flow information-
Cash paid during the period for interest $ 1,623,985 $ 1,634,360 $ 2,910,000
=========== =========== ============
Supplemental disclosure of noncash investing and
financing activities:
Common stock issued for services and bonus $ 100,000 $ 353,000 $ 772,000
Shares issued for employee bonus 462,500 - -
Issuance of convertible loan notes - 150,000 -
Common stock issued on acquisition of LaTex - 4,039,339 -
Common stock issued for overriding royalty - 2,371,300 -
Convertible loan notes issued for overriding royalty - 1,400,700 -
Convertible shares issued to Difco shareholders - - 7,208,000
Overriding royalty interest conveyed to bank - - (2,100,000)
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Organization and Summary of Significant Accounting Policies
Organization and basis of presentation
Alliance Resources PLC ("Alliance" or "the Company") and its subsidiaries
are engaged in the exploration, development and production of oil and gas
and, until April 30, 1997, oil and gas marketing. Oil and gas production
operations are currently conducted principally in Oklahoma, Texas,
Louisiana, Mississippi and Alabama. The Company acquired proved
undeveloped oil and gas interests in the East Irish Sea effective October
30, 1998 (See Note 2). Included in oil and gas revenue are sales from 10
significant producing properties which aggregated approximately $2,700,000,
$2,210,000, and $2,155,000 for the nine months ended April 30, 1997, and
years ended April 30, 1998 and 1999, respectively.
Alliance is a London-based public limited company organized under the laws
of England and Wales and its shares are listed on the London Stock
Exchange. The Company prepares its statutory financial statements in
accordance with U.K. law and U.K. generally accepted accounting principles.
These financial statements are prepared in accordance with generally
accepted accounting principles in the United States.
On May 1, 1997, Alliance completed its acquisition of LaTex Resources, Inc.
("LaTex"), a US independent oil and gas exploration and production company.
As the LaTex shareholders had a controlling interest in the combined group,
LaTex was treated as having acquired Alliance ("Reverse Acquisition").
Accordingly, in the consolidated financial statements for the period
beginning May 1, 1997, the assets and liabilities of Alliance are recorded
at fair values while the assets and liabilities of LaTex and its
subsidiaries are recorded at their historical costs. The consolidated
financial statements of the Company for the nine months ended April 30,
1997, reflect the results of operations and assets and liabilities of LaTex
and its subsidiaries. Adjustments have been made to reflect, in that
period, the changes in the capital structure resulting from the
acquisition. Earnings per share have been restated on the basis of the
number of Alliance shares which, based on the exchange ratio used in the
acquisition, represents the weighted average number of LaTex common shares
outstanding in the relevant period.
In these financial statements the "Group" refers to Alliance and its
subsidiaries for periods ending on or after May 1, 1997 and to LaTex
Resources, Inc. and its subsidiaries for periods ending on or before April
30, 1997.
Financial Condition
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As shown in the financial
statements during the nine months ended April 30, 1997 and the years ended
April 30, 1998 and 1999, the Company incurred losses of $4,389,333;
$4,728,923; and $34,463,502, respectively, continues to experience working
capital deficits and is obliged to commence repayments on the borrowings on
October 30, 2000. These factors among others may indicate the Company will
be unable to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. Despite its
negative cash flow, the Company has been able to secure financing to
support its operations to date. As described in note 7, the Company was
not in compliance with certain covenants of its loan agreements at April
30, 1999, but a waiver was obtained for such violations. The Company has
also reached agreement with its principal bank to amend certain provisions
of the loan agreement to allow for additional borrowing capacity under
Tranche B, to defer the borrowing base redetermination date from July 31,
1999 to December 31, 1999 and extend the repayment due date to July 31,
2001. The amendment does not, however, change the scheduled repayment
dates of Tranche A which commence on October 30, 2000.
F-8
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet is obligations on a timely basis,
to continue to comply with the terms of its borrowing agreements, to obtain
additional financing or refinancing as will be required and ultimately to
attain profitability. Management believes it has a business plan that, if
successfully executed, will achieve these objectives.
Reporting Currency
The current operations are in the oil and gas industry in the United States
and the United Kingdom and are conducted through subsidiaries, LaTex
Petroleum Corporation, Alliance Resources (USA) Inc., Germany Oil Company,
Difco Limited, and Source Petroleum Inc. Transactions are conducted
primarily in U.K. Sterling and US dollars. The directors consider that the
US dollar is the functional currency of the Group and the Group's
consolidated financial statements have been prepared in US dollars.
Consolidation
The consolidated financial statements comprise the financial statements of
the Company and all other companies in which the Group's holding exceeds 50
percent. Transactions and balances between group companies are eliminated
on consolidation.
Earnings Per Share
Basic loss per share has been computed by dividing the net loss
attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period.
The effect of potential common shares (warrants, options and convertible
subordinated unsecured loan notes) is anti-dilutive. Accordingly, diluted
loss per share is not presented.
Foreign Currency Translation
The financial statements 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 net assets are reported as a component of
stockholders' equity(deficit) in accumulated other comprehensive loss. In
the underlying financial statements, transactions with third parties are
translated into the functional currency at the exchange rate prevailing at
the date of each transaction. Monetary assets and liabilities denominated
in currencies other than the functional currency 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 consolidated statement of
operations.
The Group's share capital is denominated in sterling and for the purposes
of the consolidated financial statements, is translated into US dollars at
the rate of exchange at the time of its issue.
Revenues
Revenues represents income from production and delivery of oil and gas,
recorded net of royalties in kind. The Group follows the sales method of
accounting for gas imbalances. A liability is recorded only if the Group's
excess takes of gas volumes exceed its estimated recoverable reserves from
the relevant well and no receivable is recorded where the Group has taken
less than its entitlement to gas production.
F-9
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 capitalized as tangible fixed assets. Such costs include
lease acquisition costs, geological costs, the costs of drilling both
productive and non-productive wells, capitalized interest, production
equipment and related overhead costs. Capitalized 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
net proved reserve volumes. Reserve volumes are combined into equivalent
units using approximate 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 except for sales involving significant reserves where a
gain or loss is recognized.
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 after income taxes, discounting and using prices and cost
levels at the balance sheet date.
Provision is made for abandonment costs net of estimated salvage values, on
a unit-of-production basis, where appropriate.
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 write
off the cost of assets, net of estimated residual values, over their
estimated useful lives as follows:
Fixtures and equipment - 3 to 7 years
Buildings - 30 years
Deferred Taxation
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 the consolidated statement of operations in the period that includes the
enactment date.
Joint Ventures
The Group's exploration, development and production activities are
generally conducted in joint ventures with other companies. The
consolidated financial statements reflect the relevant proportions of
turnover, production, capital expenditure and operating costs applicable to
the Group's interests.
F-10
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The effects of redeterminations of equity interests in joint ventures are
accounted for when the outcome of the redetermination is known.
Leases
Rentals under operating leases are charged to the consolidated statement of
operations on a straight line basis over the lease term.
Debt Issuance Costs
Debt issuance costs are initially capitalized as intangible assets and are
amortized over the term of the debt to which they relate.
Derivatives
Changes in value of financial instruments, utilized to hedge commodity
price and interest rate risk are recognized in the consolidated statement
of operations when the underlying transactions are recognized. Changes in
value of financial instruments which do not meet the criteria to be treated
as a hedge of an underlying risk are recognized in the consolidated
statement of operations as they occur.
The Group's criteria for a derivative instrument to qualify for hedge
accounting treatment are as follows:
--the timing or duration, quantum and characteristics of the underlying
exposure must have been identified with reasonable certainty;
--changes in the value of the derivative must correlate to a high degree
with changes in the present value of the exposure under a wide range of
possible circumstances;
--the derivative has been designated as a hedge or is a synthetic
alteration of a specific asset, liability or anticipated transaction;
and
--the derivative instrument either: (a) reduces exposure of net income or
cash flow to fluctuations caused by movements in commodity prices,
currency exchange rates or interest rates, including fixing the cost of
anticipated debt issuance; or (b) alters the profile of the group's
interest rate or currency exposures, or changes the maturity profile of
the investment portfolio, to achieve a resulting overall exposure in
line with policy guidelines.
For any termination of derivatives receiving hedge accounting treatment,
gains and losses are deferred when the relating underlying exposures remain
outstanding and are included in the measurement of the related transaction
or balance. In addition, upon any termination of the underlying exposures,
the derivative is marked-to-market and the resulting gain or loss is
included with the gain or loss on the terminated transaction. The Group
may re-designate the remaining derivative instruments to other underlying
exposures provided the normal criteria are all met.
Cash Flow Statement
For the purposes of the consolidated statement of cash flows, the Group
treats all investments with an original maturity of three months or less to
be cash equivalents.
Stock Option Plan
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-
based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock-Based
F-11
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Compensation, and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in future years if
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Accounting Estimates
In the course of preparing financial statements, management makes various
assumptions and estimates to determine the reported amounts of assets,
liabilities, revenue and expenses and in relation to the disclosure of
commitments and contingencies. Changes in these assumptions and estimates
will occur as a result of the passage of time and the occurrence of future
events and, accordingly, the actual results could differ from the amounts
estimated.
Business Segments
The Group adopted Financial Accounting Standard (FAS) 131 "Segment
Disclosures and Related Information" during the year ended April 30, 1998.
Prior to April 30, 1997, the Group sold a portion of its oil and gas
production volumes through its oil and gas marketing subsidiary although
the operations and net assets of that subsidiary were not separately
managed. The Group considers itself to be involved in one business
activity and does not meet the criteria established by FAS 131.
Accordingly, information regarding marketing activities has not been
included for any periods presented.
Comprehensive Income (Loss)
The Company has adopted Financial Accounting Standards Board issued
Statement of Financial Standards No. 130, "Reporting Comprehensive Income"
(Statement No. 130). Statement No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company has reported accumulated
other comprehensive loss as a separate line item in consolidated balance
sheets. The components of total comprehensive income (loss) for the
periods consist of net losses and foreign currency translation.
Significant Differences between U.S. and U.K. Accounting Principles
The accounting policies used in the preparation of these financial
statements conform with U.S. generally accepted accounting principles
("U.S. GAAP") which differ in certain respects from U.K. generally accepted
accounting principles ("U.K. GAAP"). Differences which may have a
significant effect on net loss and shareholders' deficit are set out below.
<TABLE>
<CAPTION>
Nine months ended Year ended Year ended
April 30, 1997 April 30, 1998 April 30, 1999
(in thousands) (in thousands) (in thousands)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Effect on net loss--
Net loss under U.S. GAAP $(4,389) $(4,729) $(34,464)
Ceiling test adjustment (a) - - 23,481
------- ------- --------
Approximate net loss under U.K.
GAAP $(4,389) $(4,729) $(10,983)
======= ======= ========
</TABLE>
F-12
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
April 30
------------------------------
1998 1999
(in thousands) (in thousands)
-------------- --------------
<S> <C> <C>
Effect on shareholders deficit--
Stockholders' equity under U.S. GAAP $2,183 $(16,637)
Adjustments:
Ceiling test (a) - 23,481
Convertible subordinated unsecured loan notes (b) 1,551 1,551
Acquisition of Difco (c) - 1,272
------ --------
$3,734 $ 9,667
====== ========
</TABLE>
(a) Under U.S. GAAP, ceiling tests are calculated using prices prevailing
at the year end. Under U.K. GAAP, a reasonable assessment of future
prices is used. At April 30, 1999, the spot price for gas in the U.K.
was significantly below management's reasonable expectation of future
prices resulting in a significantly greater charge under U.S. GAAP
than under U.K. GAAP.
(b) Under U.S. GAAP, the convertible subordinated unsecured loan notes are
treated as a liability. Under U.K. GAAP, the convertible subordinated
unsecured loan notes are included as part of shareholders' equity as
in substance their terms are economically equivalent to warrants with
a zero strike price and Alliance has no obligation to transfer future
economic benefit to the holder of the loan notes.
(c) Under U.S. GAAP, the shares issued to the vendors of Difco are
recorded at the more readily determinable value. Under U.K. GAAP, the
shares are recorded at the value of the underlying interest in the
East Irish Sea Interests.
In addition there are a number of other classification and disclosure
differences which do not impact net loss or shareholders' deficit.
(2) Acquisition of Difco Limited and U.K. Interests
On October 30, 1998, Alliance completed its acquisition of Difco Limited
("Difco"). Alliance acquired all of the capital stock of Difco and,
indirectly, a contract to acquire 10% of Burlington Resources (Irish Sea)
Limited's ("Burlington") interest in the East Irish Sea Properties ("U.K.
Interests"). The Difco shareholders received 10,000,000 convertible shares
valued at $7,208,000. Such value was derived based on the value of the
underlying market value of the shares issued. The shares issued represented
approximately 8.7% of the outstanding shares of the Company. The former
Difco shareholders could receive up to 29.6% of the outstanding shares of
the Company based upon the production from, or reserves attributable to,
the U.K. Interests. The Company acquired, through Difco, 10% of
Burlington's interest in the East Irish Sea Properties for cash
consideration of approximately $17,800,000. The Company issued to its
financial advisor 615,385 ordinary shares in payment of a fee of $330,000
incurred in connection with the transactions. The total acquisition cost,
including transaction costs, was allocated to oil and gas properties.
F-13
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Difco as if the
acquisition had occurred as of the beginning of fiscal years 1998 and 1999,
after giving effect to certain adjustments, including increased interest
expense on debt related to the acquisition and amortization of deferred
loan costs and debt discount. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had
the Company and Difco constituted a single entity during such periods.
(Unaudited)
--------------------------------
Year ended April 30
--------------------------------
1998 1999
----------- ------------
Revenues $10,209,881 $ 6,234,477
=========== ============
Net loss $(7,760,657) $(36,497,108)
=========== ============
Loss per share $ (0.15) $ (0.77)
=========== ============
(3) Acquisition of LaTex
On May 1, 1997, Alliance, completed its acquisition of LaTex, whereby a
newly formed wholly-owned subsidiary of Alliance merged with and into LaTex
with LaTex being the surviving corporation for accounting purposes. In
consideration the shareholders and warrant holders of LaTex received an
aggregate of 21,448,787 shares of Alliance (the "New Alliance Shares") and
warrants to purchase an additional 1,927,908 New Alliance Shares.
As a result, after giving effect to a 40-to-1 reverse stock split of the
Alliance ordinary shares, each shareholder of LaTex on May 1, 1997,
received 0.85981 ordinary shares for each share of LaTex common stock,
2.58201 ordinary shares for each share of the LaTex Series A preferred
stock then held, 6.17632 ordinary shares for each share of LaTex Series B
preferred stock then held, and a warrant to purchase 0.85981 share for each
share of LaTex Common Stock subject to warrants.
The purchase price was arrived at as follows:
Value of 8,103,816 Alliance shares outstanding $4,039,339
Acquisition costs 871,000
----------
$4,910,339
==========
The value of the Alliance shares outstanding was arrived at by using the
share price of LaTex at the time of announcement of the acquisition
adjusted by the exchange ratio.
Transaction costs incurred by Alliance reduced the fair value of Alliance's
monetary assets and liabilities at the date of the acquisition.
The fair value of the assets and liabilities of the acquired business at
the effective date of acquisition is as follows:
Cash $ 1,460,555
Other current assets 480,045
Other assets 202,253
Oil and gas assets 5,268,929
Other fixed assets 253,386
Debt (85,420)
Other liabilities and provisions (2,669,409)
-----------
$ 4,910,339
===========
F-14
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In connection with the acquisition, Alliance issued to Bank of America, the
Company's principal lender, 156,250 ordinary shares and convertible
subordinated unsecured loan notes convertible into 115,456 ordinary shares
to settle fees of $200,000 and $150,000 payable upon restructuring of
LaTex's bank debt. In addition the Company agreed to issue 116,895 ordinary
shares to Rothschild Natural Resources, LLC in settlement of outstanding
fees of $150,000.
Alliance has also issued 1,343,750 ordinary shares, convertible
subordinated unsecured loan notes convertible into 1,078,125 ordinary
shares and 1,210,938 warrants to Bank of America in exchange for an
overriding royalty interest in most of LaTex's properties held by Bank of
America.
The purchase price was allocated to oil and gas properties and has been
arrived at as follows:
Value of 1,343,750 ordinary shares and warrants issued $2,371,300
Value of convertible subordinated unsecured loan
note issued 1,400,700
----------
$3,772,000
==========
(4) Impairment of U.K. Interests
As discussed in Note 1, the Company utilizes the full cost method of
accounting for its oil and gas operations and performs a "ceiling test."
The ceiling test limits the costs accumulated in respect of each cost pool
to net amounts that can be recovered from the estimated production of
proved reserves. The net amounts recovered are determined utilizing a 10%
discount factor and pricing and cost levels at the balance sheet date.
The U.K. Interests consist of proven reserves and the current development
program is being conducted to produce these reserves. Although the Company
intends to enter into term gas delivery contracts which would be expected
to be at prices above the spot price at April 30, 1999, the Group does not
have contracts in place at April 30, 1999 with purchasers and, accordingly,
has utilized the spot market price to value such interests. The utilization
of these factors has resulted in a ceiling test write-down of approximately
$28,000,000 for U.S. GAAP purposes.
(5) Financial Instruments
The carrying value of cash and cash equivalents, accounts receivables and
accounts payable approximate the estimated fair value of those financial
instruments due to their short maturities. The estimated fair value of the
interest rate swap agreement, based on current market rates, approximated a
net payable of $445,767 and $248,884 at April 30, 1998 and 1999,
respectively. The estimated fair value of the commodity derivative
instruments approximates a net receivable of $409,395 at April 30, 1998 and
a net payable of $128,479 at April 30, 1999. The carrying value of long-
term debt approximates to the fair value, as advised by the Group's
bankers. See note 15.
Fair value is defined as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
F-15
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Income Taxes
Income taxes different from the amounts computed by applying the U.S.
federal tax rate of 34% as a result of the following (in thousands):
<TABLE>
<CAPTION>
Nine months
ended Year ended Year ended
April 30, April 30, April 30,
1997 1998 1999
--------------- ----------------- -----------------
<S> <C> <C> <C>
Computed expected tax benefit $ (1,492) $ (1,608) $ (11,718)
Increase in valuation allowance for 1,301 6,792 11,296
deferred tax, assets
Net operating losses acquired - (5,513) -
Other 191 329 422
------- ------- --------
Actual income tax benefit $ - $ - $ -
======= ======= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below in
thousands:
<TABLE>
<CAPTION>
1998 1999
----------------- ------------------
<S> <C> <C>
Total deferred tax liabilities -
Property and equipment $ 1,754 $ -
-------- --------
Deferred tax assets:
Net operating and other loss carryovers 15,473 15,238
Property and equipment - 10,034
Investment write-downs 917 917
Percentage depletion carryforward 390 267
Accrued expenses not deductible until paid 219 85
-------- --------
Total deferred tax assets 16,999 26,541
Valuation allowance (15,245) (26,541)
-------- --------
Net deferred tax assets 1,754 -
-------- --------
Net deferred tax asset (liability) $ - $ -
======== ========
</TABLE>
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 Group has net operating loss carryovers to offset future taxable
earnings of approximately $44,000,000, including approximately $36,000,000
of losses limited under Section 382 of the Internal Revenue Code. If not
previously utilized or limited, the net operating losses will expire in
varying amounts from 2004 to 2019.
F-16
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Long-Term Debt
Long-term debt at April 30, 1998 and 1999 consists of the following:
<TABLE>
<CAPTION>
1998 1999
------------ -----------
<S> <C> <C>
BoA:
Tranche A $ - $18,500,000
Tranche B - 16,330,348
Tranche C - 5,000,000
EnCap - 10,243,775
Alliance Credit Agreement 21,066,762 -
----------- -----------
21,066,762 50,074,123
Less unamortized discount - 6,897,502
----------- -----------
Long-term debt 21,066,762 43,176,621
Less current portion 2,275,000 -
----------- -----------
Long-term debt less current portion $18,791,762 $43,176,621
=========== ===========
</TABLE>
Alliance entered into a Credit Agreement (the "Alliance Credit Agreement")
with the Bank of America effective May 1, 1997, amending and restating the
Group's previous credit agreement. A portion of the borrowings under the
Alliance Credit Agreement bore interest, payable monthly, at a rate equal
to the higher of the Bank of America Reference Rate plus 1% and the Federal
Funds Rate plus 1-1/4%. Another portion of the borrowings bore interest,
payable monthly, at a rate equal to the London Interbank Offered Rate plus
2%. The rate at April 30, 1998 was 7.875%. Principal payments were
scheduled to commence on October 31, 1998. The note was scheduled to
mature on March 31, 2000. Amounts outstanding were secured by mortgages
which cover the majority of the Group's oil and gas properties.
In connection with the Difco Acquisition (See Note 2), the Company entered
into agreements with Bank of America National Trust & Savings Association
("BoA"), Alliance's principal lender and EnCap Equity 1996 Limited
Partnership and EnCap Capital Investment Company PLC (collectively "EnCap")
providing up to $64,750,000 in debt, as follows:
BoA:
Tranche A $30,000,000
Tranche B 20,000,000
Tranche C 5,000,000
-----------
55,000,000
EnCap 9,750,000
-----------
$64,750,000
===========
Tranche A consists of a revolving credit facility secured by a first
priority lien and security interest in all of the oil and gas properties of
the Company. The Company's initial borrowing base is $18,500,000 and is
redetermined semiannually on January 31 and July 31. Interest is at a rate
determined by the Company from time to time, of either (i) the greater of
BoA's reference rate and the federal funds effective rate plus 0.5%, or
(ii) 2.0% above the current Interbank rate (7.5% at April 30, 1999).
While any Tranche B loan is outstanding, the preceding margins will be
increased by an additional 0.5% semi-annually on April 26 and on October 26
of each year. Interest is payable quarterly and principal is due in equal
quarterly payments beginning October 30, 2000 and ending on October 30,
2003.
F-17
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Tranche B consists of a credit facility secured by a first priority lien
and security interest in all of the oil and gas properties of the Company.
Interest is at a rate determined by the Company from time to time, of
either (i) BoA's Tranche B reference rate plus 2.0%, or (ii) 4.0% above the
current Interbank rate (9.0% at April 30, 1999). The margins for all
Tranche B loans will be increased by an additional 0.5% semi-annually on
April 26 and on October 26 of each year. Interest is payable quarterly and
principal is due in full on January 31, 2001.
Tranche C consists of a credit facility secured by a first priority lien
and security interest in all of the oil and gas properties of the Company.
Interest is at a rate determined by the Company from time to time, of
either (i) BoA's reference rate plus 5.0%, or (ii) 7.0% above the current
Interbank rate (12.0% at April 30, 1999). Interest is payable quarterly
and principal is due in equal quarterly payments beginning January 31, 2001
and ending on October 30, 2004. The BoA debt facility contains various
covenants, including, but not limited to, maintenance of minimum current
and interest coverage ratios, as defined in the agreement.
EnCap debt is unsecured and bears interest at 10%. Interest is payable
quarterly and principal is due in full on October 30, 2005. Until October
30, 2001, the Company has the option, in lieu of paying cash, of increasing
the principal amount of the debt by the interest due.
The Company paid BoA a cash fee of $700,000 and granted BoA warrants to
purchase 3,275,000 ordinary shares at a price of 1p per share. The fair
value of the warrants, $1,335,000, attaching to the debt was treated as a
discount. In addition, the Company granted BoA an overriding royalty
interest, valued at the value of the underlying oil and gas reserves, in
the U.K. Interests of 0.3% beginning January 1, 2001. The overriding
royalty interest will entitle BoA to receive payment equal to the specified
percentage of the net revenues generated by the U.K. Interests. In
connection with obtaining the debt financing from BoA, the Company was
required to enter into commodity price risk management contract on terms
that are mutually agreeable to BoA and the Company for a period not less
than two years with respect to at least 50% of the Company's estimated
producing reserves as of October 31, 1998. BoA also required the Company
to enter into interest rate risk management contracts providing for a
maximum interest rate of 9.0% on the notional amount projected to be
outstanding on the revolving credit facility (See Note 2).
In connection with the issuance of the EnCap debt, the Company sold EnCap
15,000,000 ordinary shares with a fair value of $6,360,000 for cash
consideration. The difference was treated as a discount on the debt. The
Company also issued EnCap Investments L.C. 545,454 shares in consideration
of a fee of $292,000.
The Company was not in compliance with certain covenants of the loan
agreements, which included but were not limited to the maintenance of
minimum levels of working capital and interest coverage. Prior to these
violations causing an event of default, which would have resulted in an
acceleration of the repayment of the loans, the Company obtained waivers
from the lenders for all covenant violations. Effective July 30, 1999, the
loan agreement was amended to revise the borrowing limit of Tranche B to
$25,000,000 and reduce the limit of Tranche A to a similar amount. The due
date of Tranche B was extended from January 31, 2001 to July 31, 2001. In
addition, the date of the borrowing base and collateral value
redetermination, scheduled to occur on July 31, 1999, was deferred until
December 31, 1999.
The revised schedule of contractual maturities of long-term debt at April
30, 1999 are as follows and do not include $5,000,000 borrowed under
Tranche B subsequent to year end which is repayable during the year ending
April 30, 2002:
Year ending April 30, 2000 $ -
2001 5,245,775
2002 23,740,348
2003 7,410,000
2004 2,810,000
Thereafter 10,868,000
F-18
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Group capitalizes interest cost as a component of the North Sea U.K.
Interests development program. The following is a summary of interest cost
incurred:
<TABLE>
<CAPTION>
Nine Months ended Year ended April 30
April 30
------------------- ---------------------------------------
1997 1998 1999
------------------- ------------------ -------------
<S> <C> <C> <C>
Interest cost capitalized $ - $ - $1,170,235
Interest cost charged to income 2,102,933 2,573,646 3,354,627
---------- ---------- ----------
Total interest cost incurred $2,102,933 $2,573,646 $4,524,862
========== ========== ==========
</TABLE>
(8) Savings and Profit Sharing Plan
The Group 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) saving portion and a noncontributory defined contribution portion.
Employees are qualified to participate after approximately one year of
service. Participating in the 401(k) plan is voluntary, and the Group
matches contributions up to six percent of the employees' salary at a rate
of 50 percent of the employee's contribution. The Group contributed
$8,481, $9,243, and $17,523 to the plan during the nine months ended April
30, 1997, and the years ended April 30, 1998 and 1999, respectively.
The noncontributory portion of the Plan allows the Group to share annual
profits with employees. Annual payments to the Plan are elective.
Management elected to make no contributions to the Plan for the nine months
ended April 30, 1997 and the years ended April 30, 1998 and 1999. The
Group is under no obligation to make contributions to the Plan in the
future.
(9) Capital Stock
On May 1, 1997, the Company's share capital was consolidated such that
every 40 ordinary shares of 1 pence each were consolidated into 1 ordinary
share of 40 pence. All prior capital stock amounts have been restated to
reflect this reverse stock split. At the same date, the Company issued
21,448,747 ordinary shares of 40 pence each to the holders of the issued
ordinary shares and preference shares of LaTex outstanding at that date.
On October 30, 1998, the Company entered into a capital reorganization plan
that subdivided each ordinary share into one new ordinary share with a par
value of 1 pence and 39 deferred shares with a par value of 1 pence each.
The resulting ordinary shares have the same rights as the ordinary shares
at 40 pence each. The deferred shares have no substantive rights, are not
represented by certificates issued to shareholders, and may be redeemed by
the Company by the payment of a total of 1 pence for all of the deferred
shares.
(10) Stock Option Plans
Effective October 21, 1996, each holder of options granted under the
Group's 1993 Incentive Stock Plan agreed to terminate all options held and
receive grants of 1,690,000 Restricted shares of LaTex Common Stock which,
on May 1, 1997, was exchanged for Alliance shares. The Group recognized an
employee bonus of $528,125 related to this transaction based on the market
value of LaTex's stock on the date of grant. No tax gross up rights were
granted in connection with the issue of the Restricted Stock.
F-19
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Since May 1, 1997, the Group operates two employee share option schemes.
Both schemes have similar terms, the principal terms being:
-- any director or employee may be granted options over Shares;
-- the subscription price will be no less than market price at the date
of grant;
-- options granted to an individual are limited such that the aggregate
market value of shares subject to option taken together with the
aggregate market value of shares which have been acquired under rights
granted under the schemes in the previous ten years does not exceed
four times cash salary;
-- the exercise of options may be subject to performance tests. Long term
options (exercisable after 5 years) may be subject to growth in
earnings per share over the immediately preceding five years matching,
exceeding growth in earnings per share of the companies ranked in the
top 25 of the FTSE-100 share index, or growth in the Company's share
price during the five year exercise period.
A summary of the status of the share option schemes is as follows:
Shares Weighted average
service price
--------- ----------------------
As at May 1, 1997 - -
Granted 675,000 24.5 pence
On acquisition of LaTex 237,500 80 pence
---------
As at April 30, 1998 912,500 38.9 pence
Granted 2,365,000 13.5 pence
Cancelled (175,000) 80 pence
---------
As at April 30, 1999 3,102,500 17.2 pence
=========
Included in the options granted during the year ended April 30, 1999 were
1,700,000 long-term options which were subject to the Company's share price
increasing three-fold during the five year exercise period of the options.
The Group's accounting policy for compensation cost is in line with
Accounting Principles Board Opinion 25. Accordingly, compensation cost has
not been recognized for share option plans except to deal with any
discounts on option exercise prices, compared with market prices at the
measurement date. For the year ended April 30, 1998, had compensation
costs been charged against income based on the fair value at the grant-
dates for awards under the share option plans, consistent with Statement of
Financial Accounting Standards No. 123, the net loss and net loss per share
would not have been materially different. This was determined using the
Black Scholes option pricing model utilizing the following assumptions:
Risk free interest rate 5.3%
Expected life 10 years
Volatility 5.93%
At April 30, 1999, the Company also had outstanding 50,000 options to
purchase shares at 300 pence per share which have been issued other than
pursuant to the employee share options schemes.
F-20
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Warrants
On May 1, 1997 the Company issued warrants to subscribe for 1,927,908
ordinary shares of 40 pence each in exchange for the then outstanding
warrants to subscribe for ordinary shares in LaTex. For periods ended on
or before April 30, 1997, the warrants outstanding reflect the Alliance
warrants issued on May 1, 1997, as though issued at the date of issue of
the LaTex warrants for which the Alliance warrants were exchanged.
Warrants to subscribe for 1,210,938 ordinary shares were issued to Bank of
America as part consideration for the acquisition of the overriding royalty
interest (see note 3). At April 30, 1998, the Company had outstanding
2,916,527 warrants.
Warrants to subscribe to 3,275,000 common shares at a price of 1 pence per
share were issued to Bank of America in connection with the Difco
acquisition (see Note 7).
In November, 1998, warrants to purchase 1,112,378 Ordinary Shares at a
price equal to the sterling equivalent of $4.94 expired.
<TABLE>
<CAPTION>
Warrant series Strike price Last date for exercise No. of shares
<S> <C> <C> <C>
Series "D" $0.87 March 31, 2001 287,119
Series "E" $0.87 October 31, 2001 30,953
Series "F" $1.40 December 16, 2002 275,139
Series "G" (BOA) (Pounds) 1.00 April 30, 2007 1,210,938
Series "H" 1 p. October 31, 2009 3,275,000
---------
5,079,149
---------
</TABLE>
(12) Convertible Subordinated Unsecured Loan Notes
At April 30, 1998 and 1999 the Group had outstanding loan notes convertible
into 1,193,581 ordinary shares of which loan notes convertible into
1,078,125 ordinary shares were issued in part consideration for the
acquisition of the overriding royalty interest amounting to $1,400,700 (see
note 3) and loan notes convertible into 115,456 ordinary shares were issued
to settle restructuring and arrangement fees of $150,000 in connection with
the LaTex acquisition. The loan notes, which are non-interest bearing, are
convertible by the holders (on the payment of a nominal cash consideration)
any time up to ten years following their date of issue. They are
convertible in the following six months on like terms at the option of the
Company. Any loan notes not converted prior to the date ten years and six
months from issue will be repaid on that date at an amount equal to twice
the amount paid up on the notes.
(13) Contingencies and Commitments
The Group is a named defendant in lawsuits, 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
Group cannot be predicted with certainty, management does not expect these
additional matters to have material adverse effect on the financial
position or results of operations or liquidity of the Group.
F-21
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Group leases office space and certain property and equipment under
various lease agreements. As of April 30, 1999, future minimum lease
commitments were approximately as follows:
Year Ending April 30
--------------------
2000 $ 193,701
2001 196,905
2002 200,098
2003 203,301
2004 16,964
Rent expense under all operating leases was $160,780, $252,627, and
$251,447 during the nine months ended April 30, 1997, and the years ended
April 30, 1998 and 1999, respectively.
(14) Related Party Transactions
The Group, prior to May 1, 1997, has made loans to certain officers,
directors and stockholders. During the nine months ended April 30, 1997,
the board of directors forgave $391,218, of notes and accrued interest, due
from directors and former officers of the Group. This amount is included
in general and administrative expenses.
During the year ended April 30, 1998, the Company received $123,000 of
proceeds from the sale of 10,351,966 shares in the Company which had
previously been owned by the former Chief Executive of the Company. The
right to receive the proceeds from the sale of the shares arose from a
settlement agreed between the Company and Mr. O'Brien following the
discovery that the Company had suffered a financial loss as a result of a
number of transactions involving Mr. O'Brien or parties connected with him.
(15) Derivatives
Oil and Gas
Effective May 15, 1997, the Group terminated a previously existing oil and
gas pricing derivative at a cost of $1,128,000 settled by an increase in
the Bank of America loan. The loss relating to the buy-out was recognized
in its entirety during the year ended April 30, 1998, consequent upon the
Group entering into a new price protection agreement.
On October 23, 1997, the Group entered into commodity price hedge
agreements to protect against price declines which may be associated with
the volatility in oil and gas spot prices. The commodity price hedges were
achieved through the purchase of put options (floors) by the Group, and the
associated premium cost was funded by additional drawdowns under the
current credit agreement. The commodity price hedges covered 32,000 bbls
and 100,000 MMBTUs per month for the year to October 31, 1998, and covered
in excess of 90% of the Group's current monthly sales volumes. The floors
equated to approximately $18.50/bbl Nymex WTI contract and $2.20/MMBTU
Nymex Natural Gas contract. On October 31, 1998, the Group's commodity
price hedge agreements expired.
During February 1999, the Company completed a transaction to hedge
approximately 65% of its existing monthly gas production by installing a
floor of $1.60/MMBTU and a cap of $2.07/MMBTU (NYMEX Natural Gas). During
April 1999, the Company completed a transaction to hedge approximately 40%
of its existing monthly oil production by installing a floor of
$12.00/barrel (NYMEX WTI). This commodity price hedge agreement will
protect the Company from any severe declines in oil and gas prices until
expiration on October 31, 1999.
F-22
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Interest
The Group is required, by agreement with its primary lender (see Note 7) to
participate in an interest rate protection program, for interest on the
debt payable to the primary lender until March 31, 2000. Interest is
hedged to achieve a fixed rate of 7.49% calculated on a monthly basis
based on a fixed amortization schedule determined on loan origination. The
notional principal is reduced each month by $365,000. The notional
principal outstanding at April 30, 1999 was $13,784,000 and this will have
reduced at termination to $9,769,000. The hedging gains/losses are
included in interest expense.
(16) Disposition of Oil and Gas Properties
During the nine months ended April 30, 1997 and the years ended April 30,
1998 and 1999, the Group sold oil and gas properties for approximately
$1,500,000, $5,600,000 and $1,742,000, respectively. Proceeds of such
sales were credited to the full cost pool.
(17) Supplemental Financial Information for Oil and Gas Producing Activities
(Unaudited)
Results of Operations from Oil and Gas Producing Activities
The following sets forth certain information with respect to the Group's
results of operations from oil and gas producing activities for the nine
months ended April 30, 1997 and the years ended April 30, 1998 and 1999.
All of the Group's oil and gas producing activities are located within the
United States.
<TABLE>
<CAPTION>
1997 1998 1999
(in thousands) (in thousands) (in thousands)
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues $ 5,698 $ 10,210 $ 6,234
Production costs (2,550) (4,849) (2,770)
Gross production taxes (567) (657) (326)
Depreciation, depletion and impairments (1,457) (2,571) (29,931)
Loss on termination of derivative contract - (1,128) -
----------- ----------- ----------
Income (loss) from operations before income taxes 1,124 1,005 (26,793)
Income tax expense - - -
----------- ----------- ----------
Results of operations (excluding corporate $ 1,124 $ 1,005 $ (26,793)
overhead and interest costs) =========== =========== ==========
</TABLE>
F-23
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Capitalized Costs and Cost Incurred Relating to Oil and Gas Activities
<TABLE>
<CAPTION>
1997 1998 1999
(in thousands) (in thousands) (in thousands)
------------------- ------------------ -------------------
<S> <C> <C> <C>
United States $ 36,107 $ 43,200 $ 42,902
United Kingdom - - 31,054
--------- --------- ---------
Total capitalized costs 36,107 43,200 73,956
Less accumulated depreciation, 9,432 13,571 43,842
depletion and impairments --------- --------- ---------
Net capitalized costs $ 26,675 $ 29,629 $ 30,114
========= ========= =========
Costs incurred during the year:
Exploration costs:
United States $ - $ - $ -
United Kingdom - - -
--------- --------- ---------
$ - $ - $ -
========= ========= =========
Development costs:
United States $ 348 $ 1,821 $ 974
- 276 3,535
--------- --------- ---------
United Kingdom $ 348 $ 2,097 $ 4,509
========= ========= =========
Purchase of minerals in place:
United States $ - $ 9,041 $ 125
United Kingdom - - 29,625
--------- --------- ---------
$ - $ 9,041 $ 29,750
========= ========= =========
</TABLE>
F-24
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Estimated Quantities of Proved Oil and Gas Reserves
The estimates of proved oil and gas reserves were prepared by independent
petroleum engineers. The Group 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
Group'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 Group's proved oil and gas reserves.
<TABLE>
<CAPTION>
United States United Kingdom
--------------------------------------- --------------------
Oil (Mbbls) Gas (MMcf) Gas (MMcf)
------------------- ------------------ --------------------
<S> <C> <C> <C>
Proved reserves at July 31, 1996 6,353.0 28,172 -
Revisions of previous estimates 417.7 (577) -
Production (190.0) (1,640) -
--------- -------- ----------
Proved reserves at April 30, 1997 6,580.7 25,955 -
Revisions of previous estimates (735.5) 2,149 -
Production (396.2) (1,689) -
Purchases of reserves-in-place 1,335.7 4,173 -
Sales of reserves-in-place (290.4) (4,266) -
--------- -------- ----------
Proved reserves at April 30, 1998 6,494.3 26,322 -
Purchase of reserves-in-place - - 73,870
Revisions of previous estimates 2,624.7 (1,125) (64,137)
Production (278.1) (1,402) -
Sales of reserves-in-place (133.6) (943) -
--------- -------- ----------
Proved reserves at April 30, 1999 8,707.3 22,852 9,733
========= ======== ==========
Proved developed reserves at:
April 30, 1997 5,166.9 25,461 -
========= ======== ==========
April 30, 1998 3,773.7 22,632 -
========= ======== ==========
April 30, 1999 6,000.7 19,519 -
========= ======== ==========
</TABLE>
During the nine months ended April 30, 1997, the Group sold oil and gas
properties for approximately $1,500,000. The Group chose not to include
those properties in its reserve appraisal at July 31, 1996.
F-25
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Discounted Future Net Cash Flows
In accordance with Statement of Financial Accounting Standards No. 69,
estimates of the standardized measure of discounted future cash flows were
determined by applying period-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 period-end costs to determine
pre-tax cash inflows over the Group's tax basis in the associated proved
oil and gas properties. Net operating losses, 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.
Future income tax expenses are estimated using the statutory tax rate of
34% and 30% in the United States and United Kingdom, respectively.
Estimates for future general and administrative and interest expense have
not been considered.
The estimated standardized measure of discounted future cash flows (in
thousands) follows:
<TABLE>
<CAPTION>
U.S. U.K.
-------------------------------------------- -------------
1997 1998 1999 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Future cash inflows $ 139,587 $ 131,858 $ 167,154 $ 13,981
Future production and (64,086) (48,683) (73,970) (10,055)
development costs ------------ ------------ ------------ -------------
Future net cash inflows before 75,501 83,175 93,184 3,926
income tax expense
Future income tax expense (11,477) (10,444) (18,416) -
------------ ------------ ------------ -------------
Future net cash flows 64,024 72,731 74,768 3,926
10% annual discount for estimated (28,656) (27,625) (39,899) (1,132)
timing of cash flows ------------ ------------ ------------ -------------
Standardized measure of discounted $ 35,368 $ 45,106 $ 34,869 $ 2,794
future net cash flows ============ ============ ============ =============
</TABLE>
The changes in standardized measure of discounted future net cash flows
(in thousands) follows:
<TABLE>
U.S. U.K.
------------------------------------------------ --------------
Nine months
ended Year ended Year ended Year ended
April 30, 1997 April 30, 1998 April 30, 1999 April 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Beginning of period $ 43,889 $ 35,368 $ 45,106 $ -
Increases (decreases)
Sales, net of production costs (4,074) (4,338) (2,765) -
Net change in sales prices, net of
production costs (12,690) 7,671 (1,903) (10,205)
Changes in estimated future
development costs (280) (1,161) (924) (134)
Revisions of previous quantity estimates 1,282 (1,778) 12,115 (4,254)
Accretion of discount 5,350 3,963 4,856 827
Net change income taxes 5,345 813 (2,700) -
Purchases of reserves-in-place - 12,720 - 16,560
Sales of reserves-in-place - (4,975) (1,875) -
Changes of production rates
(timing) and other (3,454) (3,177) (17,041) -
-------------- -------------- -------------- ---------------
End of period $ 35,368 $ 45,106 $ 34,869 $ 2,794
============== ============== ============== ===============
</TABLE>
F-26
<PAGE>
Exhibit 10.1
DATED AS OF DECEMBER 1, 1998
----------------------------
(1) ALLIANCE RESOURCES PLC
-and-
(2) JOHN A. KEENAN
SECOND SUPPLEMENTAL AGREEMENT
TO
EXECUTIVE SERVICE
AGREEMENT
Dated 15 October 1996
<PAGE>
SECOND SUPPLEMENTAL AGREEMENT TO EXECUTIVE SERVICE
--------------------------------------------------
AGREEMENT
---------
THIS SECOND SUPPLEMENTAL AGREEMENT TO EXECUTIVE SERVICE AGREEMENT dated as of
the 1st day of December 1998 and made 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 3134 E. 86th Street, Tulsa, Oklahoma 74137-2534, USA
("the Executive")
is supplemental to an Agreement dated 15th October 1996 and made between the
same parties are parties hereto as modified by Supplemental Agreement to
Executive Service Agreement dated 7 April, 1998.
RECITALS
(A) The Company and the Executive have previously entered into executive
service agreement dated 15th October 1996 as modified by Supplemental
Agreement to Executive Service Agreement dated 7 April 1998 ("the
Agreement") which provides for the Executive to be employed by the Company
upon the terms and conditions therein appearing. All defined terms used in
the Supplemental Agreement and not otherwise defined have the meanings
given in the Agreement.
(B) The Company now wishes to make certain alterations to the Agreement as
hereinafter appearing.
NOW, THEREFORE, the Parties hereto have agreed and do hereby agree as follows:
1. Clause 2.4 of the Agreement shall be deleted and the following Clause 2.4
shall be inserted in its place:
On termination of the employment of the Executive at any time and for
whatever reason and howsoever arising including, but not limited to,
termination of the employment of the Executive following his receipt of the
notice provided in Clause 2.3, 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 equal to twice (a) the Executive's annual salary
as specified in this Agreement, and (b) aggregate bonuses and benefits for
the preceding calendar year.
2. Clause 7.3 of the Agreement shall be deleted and the following Clause 7.3
shall be inserted in its place:
<PAGE>
During the continuance of his employment hereunder the Executive shall be
paid a car allowance sufficient to enable the Executive to acquire, operate
and maintain an automobile commensurate with the Executive's capacity which
allowance shall accrue from day to day and be paid in arrears on the last
day of each month, or if that is not a business day, on the immediately
preceding business day.
3. Clause 12.8 (d) (i) of the Agreement shall be deleted and the following
clause shall be inserted in its place:
(i) In one lump sum a cash payment equal to 2.5 times (A) the Executive's
annual salary as specified in this Agreement, and (B) aggregate bonuses
and benefits for the preceding calendar year.
4. Save as varied by this supplemental agreement the Agreement shall remain in
full force and effect.
IN WITNESS whereof this Agreement has been executed on the date first above
written.
Signed by Philip Douglas (Director and Chairman }
of the Remuneration Committee of the Board of }
Directors) for and on behalf of ALLIANCE }-----------------------------
RESOURCES PLC in the presence of: }
Signed by JOHN A. KEENAN in the }
presence of: }-----------------------------
<PAGE>
Exhibit 10.2
DATED AS OF DECEMBER 1, 1998
----------------------------
(1) ALLIANCE RESOURCES PLC
-and-
(2) PAUL R. FENEMORE
SECOND SUPPLEMENTAL AGREEMENT
TO
EXECUTIVE SERVICE
AGREEMENT
Dated 20 September 1996
<PAGE>
SECOND SUPPLEMENTAL AGREEMENT TO
---------------------------------
EXECUTIVE SERVICE AGREEMENT
---------------------------
THIS SECOND SUPPLEMENTAL AGREEMENT TO EXECUTIVE SERVICE AGREEMENT dated as of
the 1st day of December 1998 and made 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 Flat1, 16-18 Kivelis Street, Nicosia, Cyprus ("the
Executive")
is supplemental to an Agreement dated 20th September 1996 and made between the
same parties as are parties hereto as modified by Supplemental Agreement to
Executive Service Agreement dated 6th April 1998.
RECITALS
(A) The Company and the Executive have previously entered into an executive
service agreement dated 20th September 1996 as modified by Supplemental
Agreement to Executive Service Agreement dated 6th April 1998 ("the
Agreement") which provides for the Executive to be employed by the Company
upon the terms and conditions therein appearing. All defined terms used in
this Supplemental Agreement and not otherwise defined have the meanings
given in the Agreement.
(B) The Company now wishes to make certain alterations to the Agreement as
hereinafter appearing.
NOW, THEREFORE, the Parties hereto have agreed and do hereby agree as follows:
1. Clause 2.2 of the Agreement shall be deleted and the following Clause 2.2
shall be inserted in its place:
The employment of the Executive shall (subject to the provisions of Clause
12) be for an initial fixed period of two (2) years from 20th September 1996
and shall automatically be extended without further action of either party
for additional two (2) 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 two (2) year
period of employment. In the event of the latter the provisions of Clause
2.3 shall still apply.
2. Clause 2.3 of the Agreement shall be deleted and the following Clause 2.3
shall be inserted in its place:
<PAGE>
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 twice (a) the
Executive's annual salary as specified in this Agreement, and (b) aggregate
bonuses and benefits for the preceding calendar year.
3. A new clause 7.3 shall be inserted to read:
During the continuance of his employment hereunder the Executive shall be
paid a car allowance sufficient to enable the Executive to acquire, operate
and maintain an automobile commensurate with the Executive's capacity which
allowance shall accrue from day to day and be paid in arrears on the last
day of each month, or if that is not a business day, on the immediately
preceding business day.
4. Clause 12.8(d) of the Agreement shall be deleted and the following Clause
12.8(d) shall be inserted in its place:
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
2.5 times (A) the Executive's annual salary as specified in this Agreement,
and (B) aggregate bonuses and benefits for the preceding calendar year.
5. Save as varied by this supplemental agreement the Agreement shall remain in
full force and effect.
IN WITNESS whereof this Agreement has been executed on the date first above
written
Signed by Philip Douglas (Director and Chairman }
of the Remuneration Committee of the Board of }
Directors) for and on behalf of ALLIANCE }----------------------------
RESOURCES PLC in the presence of: }
Signed by PAUL R. FENEMORE in the }
presence of: }----------------------------
<PAGE>
Exhibit 10.3
DATED AS OF DECEMBER 1, 1998
----------------------------
(1) ALLIANCE RESOURCES PLC
----------------------
- and -
(2) FRANCIS M. MUNCHINSKI
---------------------
EXECUTIVE
---------
SERVICE AGREEMENT
-----------------
<PAGE>
THIS AGREEMENT is made as of the 1st day of December, 1998
- ---------------
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) FRANCIS M. MUNCHINSKI of 5541 E. 107TH Street., Tulsa, Oklahoma 74137
("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 required words 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 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 of 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
<PAGE>
2. COMMENCEMENT AND TERM
---------------------
2.1 The Executive's employment began on June 16, 1998.
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 canceled with effect from the date of commencement of this
Agreement.
2.3 The employment of the Executive shall (subject to the provisions of Clause
12) be for an initial fixed period of two (2) years from January 1, 1999
and shall automatically be extended without further action of either party
for additional two (2) 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 two
(2) year period of employment.
2.4 On termination of the employment of the Executive at any time and for
whatever reason and howsoever arising, including, but not limited to,
termination of the employment of the Executive following his receipt of the
notice provided in Clause 2.3, 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 equal to twice (a) the Executive's annual
salary as specified in this Agreement and (b) aggregate bonuses and
benefits for the preceding calendar year.
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
General Counsel and shall perform such duties as are customary for a
general counsel of comparable companies;
(b) faithfully and diligently perform such duties and exercise such powers
consistent with them as the Managing Director may from time to time
properly assign to or confer upon him;
(c) if and so long as the Managing Director 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;
3
<PAGE>
(f) promptly give to the Managing Director (in writing if so requested)
all such information, explanations and assistance as he 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 Managing Director devote the whole of his
time, attention, and abilities during his hours or 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 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 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 Managing Director 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 the 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 (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 the prior written consent of the Managing Director (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 aggregated 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 recognized
investment exchange (as defined by Section 207(1) of the Financial Services
Act 1986).
4
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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.
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 One
Hundred Forty Thousand U.S. Dollars (U.S. $140,000) 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
Managing Director in his 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 Managing Director may in his 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 Managing Director and/or 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 First
-----
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
5
<PAGE>
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 provide 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 bequest 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, accommodation,
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.
7.3 During the continuance of his employment hereunder the Executive shall be
paid a car allowance sufficient to enable the Executive to acquire, operate
and maintain an automobile commensurate with the Executive's capacity which
allowance shall accrue from day to day and be paid in arrears on the last
day of each month, or if that is not a business day, on the immediately
preceding business day.
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 Managing Director.
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 Managing
Director.
6
<PAGE>
8.3 Upon 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 authorized 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 (26)
weeks, the Managing Director shall decide at his 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 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.
7
<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 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 Managing Director or unless
ordered by a court of competent jurisdiction) at any time either during the
continuance of his employment of 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 unauthorized 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 Managing
Director 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 contacts with or requirements of
customers; and
8
<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; or
(f) becomes incapable by reason of mental disorder of discharging his
duties.
12.2 [RESERVED]
12.3 The employment of the Executive may be terminated by the Company forthwith
by twelve (12) months notice in writing to the Executive if the Executive
is 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.
9
<PAGE>
12.6 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for periods in excess of 6 months in aggregate in any
period of twelve consecutive months the Company may terminate his
employment by giving to him not less than three months' notice in written
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 but
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 Managing Director immediately resign
without claim or compensation from office as a director of 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 authorized
to appoint some person in his name and on his behalf to sign and
deliver such resignations to the Managing Director;
(c) shall not at any time thereafter make any untrue or misleading oral or
written statement concerning the business and 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 authorized
to deduct from any wages of the Executive a sum equal to any such
debts or loans.
10
<PAGE>
12.8 The following provisions will apply in the event of a Change in Control:
(a) The Board recognizes 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 recognizes (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
interest 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 which may be converted into shares of
common stock 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%) 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;
11
<PAGE>
(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 2.5 times (A) the
Executive's annual salary as specified in this Agreement, and
(B) aggregate bonuses and benefits for the preceding calendar
year.
(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 failure 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
12
<PAGE>
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 a 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
13
<PAGE>
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 on 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 2 days after posting (6 days if sent air
mail) and in proving 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 part is 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
gratia 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
------------------
14
<PAGE>
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.
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.
15
<PAGE>
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 John A. Keenan (Managing Director) }
for ALLIANCE RESOURCES PLC in the presence of: }
}
}
Signature
--------------------------------
Name
--------------------------------
Address
--------------------------------
--------------------------------
Occupation
--------------------------------
Signed as a deed by }
FRANCIS M. MUNCHINSKI (Executive) }
in the presence of: }
}
Signature
--------------------------------
Name
--------------------------------
Address
--------------------------------
--------------------------------
Occupation
--------------------------------
16
<PAGE>
THE FIRST SCHEDULE
------------------
One hundred seventy thousand (170,000) Ordinary Options to be issued
at the closing mid-market price of Ordinary Shares on the date of
grant of such options.
Three hundred fifty thousand (350,000) Long Term Options exercisable
upon the Company's share price increasing threefold during the 5-year
exercise period of such options.
All options are to be issued under the Company Share Option Scheme
(No. 2) as adopted by the Company in general meeting on 4 May 1995.
17
<PAGE>
Exhibit 10.4
DATED AS OF DECEMBER 1, 1998
----------------------------
(1) ALLIANCE RESOURCES PLC
----------------------
- and -
(2) ROBERT E. SCHULTE
-----------------
EXECUTIVE
---------
SERVICE AGREEMENT
-----------------
<PAGE>
THIS AGREEMENT is made as of the 1st day of December, 1998
- --------------
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) ROBERT E. SCHULTE of TULSA, OKLAHOMA ("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 required words 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 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 of 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
<PAGE>
2. COMMENCEMENT AND TERM
---------------------
2.1 The Executive's employment began on or about September 20, 1997.
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 canceled with effect from the date of commencement of
this Agreement.
2.3 The employment of the Executive shall (subject to the provisions of Clause
12) be for an initial fixed period of two (2) years from January 1, 1999
and shall automatically be extended without further action of either party
for additional two (2) 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
two (2) year period of employment.
2.4 On termination of the employment of the Executive at any time and for
whatever reason and howsoever arising, including, but not limited to,
termination of the employment of the Executive following his receipt of
the notice provided in Clause 2.3, 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 equal to twice (a) the Executive's annual
salary as specified in this Agreement, and (b) aggregate bonuses and
benefits for the preceding calendar year.
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
controller and shall perform such duties as are customary for a
controller of comparable companies;
(b) faithfully and diligently perform such duties and exercise such
powers consistent with them as the Managing Director may from time to
time properly assign to or confer upon him;
(c) if and so long as the Managing Director 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;
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(f) promptly give to the Managing Director (in writing if so requested)
all such information, explanations and assistance as he 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 Managing Director devote the whole of his
time, attention, and abilities during his hours or 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 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 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 Managing Director 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 the 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 (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 the prior written consent of the Managing Director (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 aggregated 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 recognized
investment exchange (as defined by Section 207(1) of the Financial
Services Act 1986).
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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.
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
One Hundred Thousand U.S. Dollars (U.S. $100,000) 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
Managing Director in his 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 Managing Director may in his 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 Managing Director and/or
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 First
-----
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
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<PAGE>
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 provide 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 bequest 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, accommodation,
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.
7.3 During the continuance of his employment hereunder the Executive shall be
paid a car allowance sufficient to enable the Executive to acquire,
operate and maintain an automobile commensurate with the Executive's
capacity which allowance shall accrue from day to day and be paid in
arrears on the last day of each month, or if that is not a business day,
on the immediately preceding business day.
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 Managing Director.
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 Managing
Director.
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8.3 Upon 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 authorized 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 (26)
weeks, the Managing Director shall decide at his 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 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.
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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 Managing Director or
unless ordered by a court of competent jurisdiction) at any time either
during the continuance of his employment of 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 unauthorized
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 Managing
Director 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 contacts with or requirements of
customers; and
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<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; or
(f) becomes incapable by reason of mental disorder of discharging his
duties.
12.2 [RESERVED]
12.3 The employment of the Executive may be terminated by the Company forthwith
by twelve (12) months notice in writing to the Executive if the Executive
is 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.
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12.6 If the Executive shall have been absent from work due to sickness, injury
or other incapacity for periods in excess of 6 months in aggregate in any
period of twelve consecutive months the Company may terminate his
employment by giving to him not less than three months' notice in written
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 but
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 Managing Director immediately resign
without claim or compensation from office as a director of any
Associated Company and from any other office held by him the in
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
authorized to appoint some person in his name and on his behalf to
sign and deliver such resignations to the Managing Director;
(c) shall not at any time thereafter make any untrue or misleading oral
or written statement concerning the business and 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
authorized to deduct from any wages of the Executive a sum equal to
any such debts or loans.
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<PAGE>
12.8 The following provisions will apply in the event of a Change in Control:
(a) The Board recognizes 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 recognizes (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
interest 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 which may be converted into shares of
common stock 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%) 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;
11
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(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 2.5 times (A) the
Executive's annual salary as specified in this Agreement, and
(B) aggregate bonuses and benefits for the preceding calendar
year.
(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
failure 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
12
<PAGE>
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 a 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
13
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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 on 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 2 days after posting (6 days if sent air
mail) and in proving 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 part is 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
gratia 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
------------------
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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.
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.
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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 John A. Keenan (Managing Director) }
for ALLIANCE RESOURCES PLC in the presence of: }
}
}
Signature
------------------------------
Name
------------------------------
Address
------------------------------
------------------------------
Occupation
------------------------------
Signed as a deed by }
ROBERT E. SCHULTE (Executive) }
in the presence of: }
}
Signature
------------------------------
Name
------------------------------
Address
------------------------------
------------------------------
Occupation
------------------------------
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THE FIRST SCHEDULE
- ------------------
Eighty-five thousand (85,000) Ordinary Options to be issued at the closing mid-
market price of Ordinary Shares on the date of grant of such options.
Two hundred thousand (200,000) Long Term Options exercisable upon the Company's
share price increasing threefold during the 5-year exercise period of such
options.
All options are to be issued under the Company Share Option Scheme (No. 2) as
adopted by the Company in general meeting on 4 May 1995.
17
<PAGE>
Exhibit 10.6
FIRST AMENDMENT TO PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AGREEMENT (this "Amendment") is made as of
the 30/th/ day of July, 1999 among Alliance Resources PLC, a public limited
company organized under the laws of England and Wales (the "Company"), and EnCap
Equity 1996 Limited Partnership, a Texas limited partnership ("EnCap LP"), and
Energy Capital Investment Company PLC, an English investment company ("ECIC")
(with EnCap LP and ECIC sometimes being herein collectively called "Buyer").
W I T N E S S E T H:
WHEREAS, the Company, EnCap LP and ECIC entered into that certain Purchase
Agreement dated as of October 27, 1998 (the "Original Agreement") for the
purposes and consideration therein expressed, pursuant to which Buyer purchased
the Securities; and
WHEREAS, the Company, EnCap LP and ECIC desire to amend the Original
Agreement to reflect certain changes in the ownership of the capital stock of
certain Subsidiaries of the Company, with the result being that Difco is the
owner of all of the outstanding capital stock of Alliance Resources (Delaware),
Inc., a newly formed Delaware corporation, which in turn is the owner of all of
the outstanding capital stock of Alliance Group and LRI;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I. -- Definitions and References
--------------------------
(S) 1.1. Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
(S) 1.2. Other Defined Terms. Unless the context otherwise requires, the
-------------------
following terms when used in this Amendment shall have the meanings assigned to
them in this (S) 1.2.
"Amendment" means this First Amendment to Purchase Agreement.
---------
"Amendment Documents" means this Amendment, the Consent and Agreement
-------------------
of Subsidiary Guarantors attached hereto, the Subsidiary Guaranty of even
date herewith by Alliance Resources (Delaware), Inc. in favor of EnCap LP
and ECIC and the other documents to be delivered pursuant to Section
3.1(c).
"Purchase Agreement" means the Original Agreement as amended hereby.
------------------
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ARTICLE II. -- Amendments to Original Agreement
--------------------------------
(S) 2.1. Defined Terms. The definitions of "Change of Control", "Key
-------------
Employment Agreements", "Senior Credit Facility" and "Subsidiary Guarantors" set
forth in Section 1.1 of the Original Agreement are hereby amended in their
entirety to read as follows:
"Change of Control" means the occurrence of any of the following
events: (a) any Person or two or more Persons, other than Buyer or any
affiliate of Buyer, acting as a group shall acquire beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Exchange Act, and including holding proxies to vote for the
election of directors other than proxies held by the Company's management
or their designees to be voted in favor of persons nominated by the
Company's Board of Directors) of 33% or more of the outstanding voting
securities of the Company, measured by voting power (including both
ordinary shares and any preferred stock or other equity securities
entitling the holders thereof to vote with the holders of common stock in
elections for directors of the Company), exclusive of the issuance of
ordinary shares contemplated under this Agreement, (b) the Company shall
fail beneficially to own 100% of the outstanding shares of voting capital
stock of Manx or Difco on a fully-diluted basis, (c) Difco shall fail
beneficially to own 100% of the outstanding shares of voting capital stock
of Alliance Delaware on a fully-diluted basis, (d) Alliance Delaware shall
fail beneficially to own 100 % of the outstanding shares of voting capital
stock of Alliance Group and LRI on a fully-diluted basis, (e) LRI shall
fail beneficially to own 100% of the outstanding shares of the voting
capital stock of LPC, GOCA, New GOC or Enpro, on a fully-diluted basis, (f)
Alliance Group shall fail beneficially to own 100% of the outstanding
shares of the voting capital stock of Source, ARNO, ARCOL or Alliance USA,
(g) one-third or more of the directors of the Company shall consist of
persons not nominated by the Company's Board of Directors (not including as
Board nominees any directors which the Board is obligated to nominate
pursuant to shareholders agreements, voting trust arrangements or similar
arrangements) or (h) within three years of the Closing Date, the employment
by the Company of John Keenan or Paul Fenemore terminates for any reason.
"Key Employment Agreements" means (i) that certain Executive Service
Agreement dated October 5, 1996 between the Company and John A. Keenan, as
amended by Supplemental Agreement dated October 15, 1996 and Second
Supplemental Agreement dated December 1, 1998, and (ii) that certain
Service Agreement dated September 20, 1996 between the Company and Paul
Raymond Fenemore, as amended by Supplemental Agreement dated September 20,
1996 and Second Supplemental Agreement dated December 1, 1998.
"Senior Credit Facility" means that certain Third Amended and Restated
Credit Agreement dated October 27, 1998 by and among the Company, Alliance
USA, GOCA, LPC, New GOC and Source and Bank of America National Trust and
Savings Association, as amended by that certain First Amendment to Third
Amended and Restated Credit Agreement dated July 30, 1999.
2
<PAGE>
"Subsidiary Guarantors" means Difco, Alliance Delaware, Alliance
Group, Alliance USA, Source, LRI, LPC, GOCA, New GOC and Enpro.
Section 1.1 of the Original Agreement is hereby amended by adding a new
definition of "Alliance Delaware" immediately following the definition of
"affiliate", to read as follows:
"Alliance Delaware" means Alliance Resources (Delaware), Inc., a
Delaware corporation.
(S) 2.2 Consent to Changes in Stock Ownership. Buyer hereby consents to
-------------------------------------
the changes in stock ownership among the Company and certain of its
Subsidiaries, whereby Difco became the owner of all of the outstanding capital
stock of Alliance Resources (Delaware), Inc., a newly formed Delaware
corporation, which in turn became the owner of all of the outstanding capital
stock of Alliance Group and LRI, and waives any Default or Event of Default
under Sections 10.9, 11.3, 11.5 or 11.6 of the Purchase Agreement caused
thereby.
(S) 2.3 Consent to Amendment of Senior Credit Facility. Buyer hereby
----------------------------------------------
consents to an amendment to the Senior Credit Facility of even date herewith,
substantially in the form of the final draft furnished to Buyer.
(S) 2.4 Waiver re: Untimely Delivery of Financial Information. The
-----------------------------------------------------
Company previously failed to timely deliver certain financial information in
respect of the Fiscal Quarters ended October 31, 1998 and January 31, 1999, as
required in Section 10.2 (b) of the Purchase Agreement. Buyer hereby confirms
that such information, for such periods, was subsequently delivered to Buyer,
and Buyer hereby waives such failure to timely deliver such information and any
Default related thereto.
(S) 2.5 Buyer Acknowledgment and Agreement re: East Irish Sea Asset Write
-----------------------------------------------------------------
Down. As a result of an SEC ceiling test calculation, the Company is required
- ----
to write down the cost of the East Irish Sea Assets to approximately $2.5
million for U.S. financial reporting purposes, with such write down being
recognized in the Fiscal Year ended April 30, 1999 (the "Required Write Down").
Buyer hereby acknowledges and agrees that the Required Write Down does not, in
and of itself, constitute a Material Adverse Effect.
ARTICLE III. -- Conditions of Effectiveness
---------------------------
(S) 3.1. Effective Date. This Amendment shall become effective as of the
--------------
date first above written when and only when the Company will deliver the
following documents to Buyer:
(a) This Amendment, duly executed by the Company and each Subsidiary
Guarantor.
(b) The Subsidiary Guarantee of Alliance Delaware, duly executed by
Alliance Delaware.
(c) Certified copy of a written consent or resolutions of the Board of
Directors of the Company and the Subsidiary Guarantors authorizing the
execution, delivery and
3
<PAGE>
performance by the Company and the Subsidiary Guarantors of this Amendment
and the Amendment Documents, as necessary.
(d) An Omnibus Certificate, substantially in the form of the omnibus
certificates delivered by the Company and Subsidiary Guarantors at Closing,
with respect to Alliance Delaware, with attached accurate and complete
copies of Alliance Delaware's Organic Documents, the consent or resolutions
described in clause (c) above, and indicating the incumbency and specimen
signatures of officers executing the Amendment and Ancillary Documents on
behalf of Alliance Delaware.
(e) Certificate of existence and good standing with respect to
Alliance Delaware, dated within a number of days prior to the date hereof
reasonably acceptable to Buyer.
(f) Such other certificates, instruments, and documents as may be
reasonably requested by Buyer prior to the date hereof to carry out the
intent and purposes of this Amendment.
ARTICLE IV. -- Representations and Warranties
------------------------------
(S) 4.1. Representations and Warranties of the Company. To confirm
---------------------------------------------
Buyer's understanding concerning the Company's and its Subsidiaries' businesses,
properties and obligations, and to induce Buyer to enter into this Amendment,
the Company represents and warrants to Buyer that:
(a) (i) All the representations and warranties of the Company and its
Subsidiaries contained in the Purchase Agreement and Ancillary Documents
are true and correct in all material respects on and as of the date hereof
as if made on and as of such date, except as affected by transactions
permitted thereby, and except to the extent that any such representation or
warranty is made as of a specified date, in which case such representation
or warranty shall have been true and correct in all material respects as of
such specified date (for the sole purpose of determining whether or not any
of such representations and warranties are true and correct as aforesaid on
and as of the date hereof, no effect shall be given to any materiality
qualification contained in such representation or warranty), (ii) the
Company and its Subsidiaries have performed and complied with in all
material respects all covenants and agreements contained in the Purchase
Agreement and Ancillary Documents, and (iii) no Default or Event of Default
has occurred.
(b) The Company and each Subsidiary Guarantor has full power and
authority to execute and deliver the Amendment Documents and to perform
their obligations thereunder, to the extent a party thereto, and to
consummate the transactions contemplated hereby and thereby. The
execution, delivery, and performance by the Company and each Subsidiary
Guarantor of the Amendment Documents, to the extent a party thereto, and
the consummation by it of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary actions of the Company and each
Subsidiary Guarantor. The Amendment Documents have been duly executed and
4
<PAGE>
delivered by the Company and each Subsidiary Guarantor, to the extent a
party thereto, and constitute, a valid and legally binding obligation of
the Company and each Subsidiary Guarantor, enforceable against the Company
and each Subsidiary Guarantor in accordance with their respective terms,
except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally and (ii) equitable principles which
may limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
(c) The execution, delivery and performance of the Amendment Documents
by the Company and each Subsidiary Guarantor, to the extent a party
thereto, and the consummation by them of the transactions contemplated
hereby and thereby do not and will not (a) violate or conflict with the
Organic Documents of the Company or any Subsidiary, (b) conflict with or
result in any violation of any provision of, or constitute (with or without
the giving of notice or the passage of time or both) a default under, or
give rise (with or without the giving of notice or the passage of time or
both) to any right of termination, cancellation, or acceleration under, or
require any consent, approval, authorization or waiver of, or notice to,
any party to, any bond, debenture, note, mortgage, indenture, lease,
contract, agreement, or other instrument or obligation to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or
any of their respective properties may be bound or any Permit held by the
Company or any Subsidiary, (iii) result in the creation or imposition of
any Lien upon the properties of the Company or any Subsidiary (other than
as provided in the Senior Credit Facility) or (iv) violate any Applicable
Law binding upon the Company or any Subsidiary.
(d) No consent, approval, authorization, license, order or permit of,
or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, is required to be made
or obtained by the Company or any Subsidiary in connection with the
execution, delivery and performance of the Amendment Documents and the
consummation of the transactions contemplated hereby and thereby.
ARTICLE V. -- Miscellaneous
-------------
(S) 5.1. Ratification of Agreements. The Original Agreement as hereby
--------------------------
amended is hereby ratified and confirmed in all respects. The Purchase
Agreement and Ancillary Documents, as they may be amended or affected by the
various Amendment Documents, are hereby ratified and confirmed in all respects.
Any reference to the Purchase Agreement in any Ancillary Document shall be
deemed to refer to this Amendment also, and any reference in the Purchase
Agreement or any Ancillary Document to any other document or instrument amended,
renewed, extended or otherwise affected by any Amendment Document shall also
refer to such Amendment Document. The execution, delivery and effectiveness of
this Amendment and the other Amendment Documents shall not, except as expressly
provided herein or therein, operate as a waiver of any right, power or remedy of
Buyer under the Purchase Agreement or any Ancillary Document nor constitute a
waiver of any provision of the Purchase Agreement or any Ancillary Document.
5
<PAGE>
(S) 5.2. Survival of Agreements. All representations, warranties,
----------------------
covenants and agreements of the Company herein shall survive the execution and
delivery of this Amendment and the performance hereof, and shall further survive
until all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by the Company or any
Subsidiary Guarantor hereunder or under the Purchase Agreement to Buyer shall be
deemed to constitute representations and warranties by, or agreements and
covenants of, the Company under this Amendment and under the Purchase Agreement.
(S) 5.3. Ancillary Documents. This Amendment and the other Amendment
-------------------
Documents are each an Ancillary Document, and all provisions in the Purchase
Agreement pertaining to Ancillary Documents apply hereto and thereto.
(S) 5.4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF ENGLAND AND WALES, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
(S) 5.5. Entire Agreement. This Agreement, together with the Schedules and
----------------
other writings referred to herein or delivered pursuant hereto, constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
(S) 5.6. Counterparts. This Amendment may be separately executed in
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C., General Partner
By: -----------------------------------------------
Gary R. Peterson, Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: -----------------------------------------------
Gary R. Peterson, Director
ALLIANCE RESOURCES PLC
By: -----------------------------------------------
Francis M. Munchinski, Authorized Signatory
6
<PAGE>
CONSENT AND AGREEMENT
The undersigned hereby (i) consents to the execution and delivery of (a)
that certain First Amendment to Purchase Agreement (the "Amendment") by and
among Alliance Resources PLC, a public limited company organized under the laws
of England and Wales (the "Company"), and EnCap Equity 1996 Limited Partnership,
a Texas limited partnership ("EnCap LP"), and Energy Capital Investment Company
PLC, an English investment company ("ECIC") (with EnCap LP and ECIC sometimes
being herein collectively called "Buyer"), amending the Purchase Agreement (as
defined in the Amendment), and (b) the other documents and instruments executed
in connection therewith, including without limitation the execution and delivery
of the other Amendment Documents, and to the provisions and transactions
contemplated therein, and (ii) ratifies and confirms that its Subsidiary
Guarantee and any other security or other documents, agreements or instruments
(collectively, the "Security Documents") delivered by it to Buyer in connection
with the Purchase Agreement or any transaction contemplated therein and agree
that all of its respective obligations and covenants thereunder (to the extent
it is a party thereto) shall remain unimpaired by the execution and delivery of
the Amendment and the other documents and instruments executed in connection
therewith and that the Security Documents to which it is a party shall remain in
full force and effect.
IN WITNESS WHEREOF, this Consent and Agreement is executed by the
undersigned as of July 30, 1999.
DIFCO LIMITED
By:---------------------------------------------
Francis M. Munchinski
Authorized Signatory
ALLIANCE RESOURCES GROUP, INC.
ALLIANCE RESOURCES (USA), INC.
SOURCE PETROLEUM, INC.
LATEX RESOURCES, INC.
LATEX PETROLEUM CORPORATION
LATEX/GOC ACQUISITION, INC.
GERMANY OIL COMPANY
ENPRO, INC.
ALLIANCE RESOURCES (DELAWARE), INC.
By:---------------------------------------------
Francis M. Munchinski, Vice President
7
<PAGE>
Exhibit 10.9
FIRST AMENDMENT
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------------
This First Amendment to Third Amended and Restated Credit Agreement (this
"Amendment") is entered into and effective as of the 30th day of July, 1999, by
- ----------
and among BANK OF AMERICA, N.A. (formerly known as Bank of America National
Trust and Savings Association) in its individual capacity as the sole Lender
("Lender") and as Agent for the Lenders ("Agent"), and LATEX PETROLEUM
- -------- -----
CORPORATION, LATEX/GOC ACQUISITION, INC., GERMANY OIL COMPANY, ALLIANCE
RESOURCES (USA), INC., SOURCE PETROLEUM, INC. and ALLIANCE RESOURCES PLC
(individually, a "Borrower," and collectively, "Borrowers").
-------- ---------
W I T N E S S E T H:
-------------------
WHEREAS, Lender, Agent and Borrowers are parties to that certain Third
Amended and Restated Credit Agreement dated as of October 26, 1998 pursuant to
which Lender has made certain loans and provided certain other credit
accommodations to Borrowers (the "Credit Agreement") (unless otherwise defined
----------------
herein, all defined terms used herein which are defined in the Credit Agreement
shall have the meanings assigned to such terms in the Credit Agreement); and
WHEREAS, Borrowers have requested that the Credit Agreement be amended to
(a) increase the Tranche B Commitment Amount to $25,000,000, (b) decrease the
Tranche A Commitment Amount to $25,000,000 and (c) reflect certain changes in
the ownership of the capital stock of certain Subsidiaries of Alliance Plc; and
WHEREAS, subject to and upon the terms and conditions set forth herein,
Lender and Agent are willing to enter into the amendments and grant the waivers
Borrowers have requested.
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereto hereby agree as follows:
SECTION 1. Amendments. Subject to and upon the terms and conditions
----------
set forth herein, the Credit Agreement is hereby amended as follows:
1.1 Additional Definitions. Section 1.1 of the Agreement is hereby
----------------------
amended to add thereto definitions of "Alliance Delaware,""El Paso," "First
----------------- ------- -----
Amendment," and "Participation Agreement" which shall read in full as follows:
- --------- -----------------------
"Alliance Delaware" means Alliance Resources (Delaware), Inc., a Delaware
-----------------
corporation and the sole shareholder of Alliance Group and LRI.
1
<PAGE>
"El Paso" means El Paso Capital Investments, L.L.C., a Delaware
-------
corporation.
"First Amendment" means that certain First Amendment to Credit Agreement
---------------
dated as of July 30, 1999 by and among Borrowers, Lenders and Agent.
"Participation Agreement" means a Participation Agreement dated as of July
-----------------------
30, 1999 by and between Bank of America and El Paso.
1.2 Amendment to Existing Defined Terms. The definitions of "Agreement,"
----------------------------------- ---------
"Alliance Group," "Alliance Plc," "Change of Control," "Guaranties,"
-------------- ------------ ----------------- ----------
"Guarantors," "Pledge Agreements," "Security Agreements," "Stated Maturity
---------- ----------------- ------------------- ---------------
Date," "Tranche A Commitment Amount," "Tranche B Availability Termination Date"
--------------------------- ---------------------------------------
and "Tranche B Commitment Amount" contained in Section 1.1 of the Credit
---------------------------
Agreement are hereby amended to read in full as follows:
"Agreement" means on any date, this Third Amended and Restated Credit
---------
Agreement as amended by the First Amendment and as subsequently amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Alliance Group" means Alliance Resources Group, Inc., a Delaware
--------------
corporation and the sole shareholder of each of the Alliance U.S. Subsidiaries.
"Alliance Plc" is defined in the Preamble and is the sole shareholder of
------------ --------
Manx and Difco.
"Change in Control" means if (a) any Person or "group" (as defined in the
-----------------
Securities Exchange Act of 1934) other than (i) John A. Keenan, (ii) Difco
Holders, (iii) any trust existing solely for the benefit of the above
individuals or the estate or any executor, administrator, conservator, or other
legal representative of any of the above individuals, or (iv) EnCap shall own
directly or directly greater than 33 1/3% of the issued and outstanding voting
share capital of Alliance Plc, (b) Alliance Plc shall fail beneficially to own
100% of the outstanding shares of the voting capital stock of Manx or Difco, on
a fully-diluted basis, (c) Difco shall fail beneficially to own 100% of the
outstanding shares of the voting capital stock of Alliance Delaware, on a fully-
diluted basis, (d) Alliance Delaware shall fail beneficially to own 100% of the
outstanding shares of the voting capital stock of LRI or Alliance Group, on a
fully-diluted basis, (e) LRI shall fail beneficially to own 100% of the
outstanding shares of the voting capital stock of LPC, GOCA, New GOC or ENPRO,
on a fully-diluted basis, (f) Alliance Group shall fail beneficially to own 100%
of the outstanding shares of the voting capital stock of Source, ARNO, ARCOL or
Alliance USA, on a fully-diluted basis, or (g) during the period from the date
of one annual general meeting, of Alliance Plc to the next annual meeting,
beginning with the 1998 annual general meeting individuals who at the beginning
of such period were members of the Board of Directors of Alliance Plc shall
cease for any reason to constitute a majority of the members of the Board of
Directors of Alliance Plc.
"Guaranties" means the guaranties of the Obligations executed and delivered
----------
pursuant to Sections 6.1.4 and 6.2.7 of this Agreement or Section 7.3 of the
-------------- ----- ------------
First Amendment, substantially in the form of Exhibit D-2, given by each of LRI,
-----------
ENPRO, Alliance Group, and Alliance Delaware and substantially in the form of
Exhibit D-1, given by Difco.
- -----------
2
<PAGE>
"Guarantors" means Alliance Group, LRI, ENPRO, Difco and Alliance Delaware.
----------
"Pledge Agreements" means a Pledge Agreement executed and delivered
-----------------
pursuant to Section 6.1.5 and 6.2.8 of this Agreement or Section 7.4 of the
------------- ----- -----------
First Amendment, substantially in the form of Exhibit F-3 given by each of LRI,
-----------
Alliance Group and Alliance Delaware, and substantially in the form of Exhibit
-------
F-2 given by Alliance Plc and Difco or such other form as may be appropriate in
- ---
a jurisdiction other than the US, or a state thereof, and in each case, as
amended, supplemented, restated or otherwise modified from time to time.
"Security Agreement" means a security agreement and any similar instrument
------------------
or agreement, executed or delivered pursuant to Sections 6.1.7 and 6.2.6 of this
-------------- -----
Agreement or Section 7.5 of the First Amendment substantially in the form of
-----------
Exhibit C-1 hereto, or such other form as may be appropriate in a jurisdiction
- -----------
other than the U.S. or a state thereof, and in each case as amended,
supplemented, restated or otherwise modified from time to time.
"Stated Maturity Date" means (i) with respect to the Tranche A Loans, the
--------------------
date that is three (3) years after the Tranche A Availability Termination Date,
(ii) with respect to Tranche B Loans July 31, 2001; and (iii) with respect to
Tranche C Loans, October 30, 2004.
"Tranche A Commitment Amount" means the lesser of (i) $25,000,000 as
---------------------------
reduced from time to time pursuant to the provisions of Section 2.2, and (ii)
-----------
the Borrowing Base.
"Tranche B Availability Termination Date" means July 31, 2001.
---------------------------------------
"Tranche B Commitment Amount" means $25,000,000 as reduced from time to
---------------------------
time pursuant to the provisions of Section 2.2.
1.3 Amendment to General Commitment. The second sentence of Section 2.1
------------------------------- -----------
shall be amended to read in full as follows:
On the terms and subject to the conditions hereof, the Borrowers may, from
time to time, borrow and prepay Tranche A Loans and Tranche B Loans, but
may not borrow or reborrow Tranche B Loans after July 30, 1999 and may not
reborrow any amounts paid or repaid in respect of Tranche C Loans.
1.4 Amendment to Tranche B Commitment. Section 2.1.2 of the Credit
--------------------------------- -------------
Agreement is hereby amended (a) to restate clause (x) thereof to read in full
"July 30, 1999", and (b) to insert the following sentences at the end of such
Section:
Without limiting the foregoing, on the effective date of the First
Amendment, but subject to the satisfaction of all conditions precedent to
the effectiveness of such amendment set forth therein, Lenders will make
Tranche B Loans to Borrowers in an aggregate amount of $5,000,000;
provided, that, notwithstanding Section 11.11.2 hereof Lenders shall only
---------------
be obligated to make such Loans on such date if prior thereto El Paso has
purchased for $5,000,000 a participation interest in Tranche B Loans
pursuant to the Participation Agreement; and provided, further, that
-------- -------
notwithstanding the provisions of Section 2.7(b), such Tranche B Loans may
--------------
3
<PAGE>
be used by Borrower for general corporate and working capital purposes in
addition to Approved Development Activities in respect of the East Irish
Sea Assets. Unless and until El Paso purchases such participation
interest, Lenders shall have no obligation hereunder or under any other
Loan Document to make Tranche B Loans which would result in the aggregate
outstanding principal balance of all Tranche B Loans exceeding $20,000,000.
1.5 Amendment to Optional Commitment Termination Provisions. Section
------------------------------------------------------- -------
2.2.1 of the Credit Agreement is hereby amended to read in full as follows:
- -----
Section 2.2.1. Optional. The Borrowers may, from time to time on any
--------
Business Day, voluntarily reduce the Commitments in the following
order: first, the Tranche A Commitment Amount and when the Tranche A
Commitment has been reduced to zero, then the Tranche B Commitment
Amount and, when the Tranche B Commitment has been reduced to zero,
then the Tranche C Commitment Amount; provided, however, that all such
-------- -------
reductions shall require at least three (3) Business Days' prior
notice to the Agent and be permanent, and any partial reduction of the
Commitment Amount shall be in a minimum amount of $250,000 and in an
integral multiple of $50,000.
1.6 Amendment to Optional Prepayment Provisions. Clause (i) of Section
------------------------------------------- -------
3.1.1(a) of the Credit Agreement is hereby amended to read in full as follows:
- --------
(i) any such prepayment shall be made (A) first to Tranche A Loans
until all Tranche A Loans have been paid in full, (B) second to
Tranche B Loans until all Tranche B Loans have been paid in full, and
(C) then to Tranche C Loans.
1.7 Amendment to ORRI Provision. Section 3.5(b) of the Credit Agreement
---------------------------
is hereby deleted.
SECTION 2. Deferral of July 31, 1999 Scheduled Redetermination of the
----------------------------------------------------------
Borrowing Base and Collateral Value. The redetermination of the Borrowing Base
- -----------------------------------
and Collateral Value scheduled to occur on July 31, 1999 pursuant to Section
-------
2.6(a) of the Credit Agreement shall be deferred until December 31, 1999.
- ------
SECTION 3. Certain Acknowledgments of Borrowers. Each Borrower
------------------------------------
acknowledges and agrees that as of the date hereof (a) the Borrowing Base is
$18,500,000, (b) the aggregate amount of all Tranche A Loans outstanding and all
Letter of Credit Outstandings is $18,500,000 (i) the amount available to be
drawn under the Tranche A Commitment is zero (0), (c) the Tranche B Commitment
is $25,000,000, (d) the aggregate principal amount of all Tranche B Loans
outstanding is $20,000,000, (e) the aggregate amount available to be drawn under
the Tranche B Commitment is $5,000,000 (provided, that the availability of such
Tranche B Commitment is subject to El Paso's purchase of a participation
interest in the Loans in a corresponding amount and Borrowers' satisfaction of
all other conditions precedent to the
4
<PAGE>
availability of Tranche B Loans under the Credit Agreement and the other Loan
Documents), (f) the Tranche C Commitment is $5,000,000, (g) the aggregate
outstanding principal amount of all Tranche C Loans is $5,000,000, and (h) the
aggregate amount available to be drawn under the Tranche C Commitment is zero
(0).
SECTION 4. Certain Acknowledgment of Guarantors. By executing the
------------------------------------
acknowledgment to this Amendment, each Guarantor hereby confirms and agrees that
the Guaranty and each Security Document to which it is a party is, and shall
continue to be, in full force and effect and is hereby ratified and confirmed in
all respects, except that, on and after the date hereof, each reference therein
to the "Credit Agreement," "thereunder," "thereof" or words of like import
referring to the Credit Agreement, shall mean and refer to the Credit Agreement
after giving effect to this Amendment.
SECTION 5. Releases. Each Borrower hereby releases, and each other
--------
Obligor by executing its acknowledgment hereto hereby releases Agent, Lender and
their respective officers, directors, shareholders, agents, employees,
attorneys, Affiliates and representatives (collectively, the "Released Parties")
from all claims, liabilities, looses, damages or demands whether liquidated or
unliquidated, actual or contingent, now known, unknown or unforeseen
(hereinafter, collectively, the "Claims") which any Borrower or any Obligor may
hold which in anyway arise out of, or relate to, the Commitments, the Loans, the
Credit Agreement, the Loan Documents, or any transaction contemplated thereby or
which in anyway arise out of or relate to any prior credit facility provided by
Lender, any of its predecessors or any of their Affiliates to any Borrower or
any other Obligor, any of their predecessors or any of their Affiliates (any
"Prior Credit Facility"). Without limiting the foregoing, the claims released
herein expressly include any claims arising out of, or alleged to arise out of
(a) the application for or the negotiation of the terms of the Loans, the Loan
Documents or any Prior Credit Facility, (b) the administration by Lender of the
Commitments, the Loans, the Loan Documents and any Prior Credit Facility, or (c)
the contracting for charging, taking, reserving, collecting or receiving
interest in excess of the highest lawful rate applicable thereto.
SECTION 6. Representations and Warranties. In order to induce Agent
------------------------------
and Lender to enter into the amendments to the Credit Agreement contained in
Section 1, Borrowers hereby represent and warrant to Lender and Agent as
- ---------
follows:
6.1 Reaffirmation of Representations and Warranties. After giving effect
-----------------------------------------------
to the amendments contained in Section 1 hereof and certain waivers contained in
---------
a letter agreement of even date herewith by and among Agent, Lender and
Borrowers (the "Waiver Letter"), each representation and warranty of Borrowers
-------------
contained in the Credit Agreement and the other Loan Documents is true and
correct.
6.2 Due Authorization, No Conflicts. The execution, delivery and
-------------------------------
performance by each Borrower of this Amendment and the Waiver Letter are within
each Borrower's corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing with, any
governmental body, agency or official and do not violate or constitute a default
under any provision of application law or any material agreement binding upon
any Borrower or any of its Subsidiaries or result in the creation or imposition
of any Lien upon any of its respective assets.
5
<PAGE>
6.3 Validity and Binding Effect. This Amendment and the Waiver Letter
---------------------------
constitute the valid and binding obligations of each Borrower enforceable in
accordance with its terms, except as (a) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditor's rights
generally, and (b) the availability of equitable remedies may be limited by
equitable principles of general application.
6.4 No Defenses. Neither any Borrower nor any other Obligor has any
-----------
defense to payment, counterclaim or right of set-off with respect to the
Obligations existing on the date hereof.
SECTION 7. Conditions to Effectiveness.
---------------------------
7.1 Effective Date. This amendments contained in Section 1 hereof shall
-------------- ---------
be effective on July 30, 1999, when each of the conditions set forth in this
Section 7 have been satisfied.
- ---------
7.2 Resolutions, etc. The Agent and Lender shall have received from each
-----------------
Borrower, LRI, Alliance Group, Alliance Delaware, ENPRO, Difco and any other
Obligor a certificate of the Secretary of Assistant Secretary of such Obligor as
to:
(a) resolutions of the Board of Directors of such Obligor then in full
force and effect authorizing the execution, delivery and performance of
this Amendment and the Waiver Letter and each other Loan Document, as
applicable, to be executed by it pursuant hereto;
(b) the incumbency and signatures of those of its officers or Persons
authorized to act with respect to this Amendment, and the Waiver Letter and
each other Loan Document, as applicable, executed by it pursuant hereto;
(c) with respect to Alliance Delaware only, the Organic Documents of
such Obligor; and
(d) with respect to Alliance Delaware only, evidence that such Obligor
is in good standing under Applicable Laws of the jurisdiction of its
organization,
upon which certificate the Agent may conclusively rely until it shall have
received a further certificate of the Secretary of such Obligor canceling or
amending such prior certificate.
7.3 Guaranty. The Agent shall have received executed counterparts of a
--------
Guaranty, dated as of the date hereof, in form, substance and scope satisfactory
to the Agent, duly executed by Alliance Delaware.
7.4 Pledge Agreements. The Agent shall have received executed
-----------------
counterparts of Pledge Agreements or amendments of Pledge Agreements previously
delivered under the Credit Agreement, dated as of the date hereof, in form,
substance and scope satisfactory to the Agent, duly executed by (i) Alliance Plc
pledging its interest in the capital stock of Manx and Difco, (ii Difco pledging
its interest in the capital stock of Alliance Delaware, and (iii) Alliance
Delaware pledging its interest in the capital stock of Alliance Group and LRI,
together with the
6
<PAGE>
certificates, evidencing all of the issued and outstanding shares of capital
stock pledged pursuant to such pledge agreement or amendment, which certificates
shall in each case be accompanied by undated stock powers duly executed in
blank, or, if any securities pledged pursuant to such pledge agreement are
uncertificated securities, confirmation and evidence satisfactory to the Agent
that the security interest in such uncertificated securities has been
transferred to and perfected by the Agent in accordance with Section 8-313 and
Section 8-321 of the Uniform Commercial Code, as in effect in the State of
Illinois, and as applicable, with the evidence of completion (or satisfactory
arrangement for the completion) of all filings and recording of such pledge
agreements as may be necessary, or in the reasonable opinion of the Agent,
desirable, effectively to create a valid, perfected first priority lien against
and security interest in the collateral covered thereby.
7.5 Security Agreements. The Agent shall have received from Alliance Plc,
-------------------
Alliance Delaware and Difco duly executed, original counterparts of Security
Agreements, or amendments of Security Agreements previously delivered under the
Credit Agreement, in form, substance and scope satisfactory to the Agent,
together with:
(a) executed copies of Uniform Commercial Code financing statements
(Form UCC-1), in proper form for filing, naming the Borrowers (or their
Subsidiaries, as applicable) as the debtor and the Agent as the secured
party, or other similar instruments or documents, filed (or satisfactory
arrangements for the completion of all filings and recordings) under the
Uniform Commercial Code in all jurisdictions as may be necessary or, in the
opinion of the Agent, desirable, effectively to create valid, perfected
first priority liens against and security interests in the collateral
covered thereby; and
(b) executed copies of proper Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens and other
rights of any Person in any collateral described in such Security Agreement
together with such other Uniform Commercial Code Form UCC-3 termination
statements as the Lender may reasonable request from the Borrowers.
7.6 Stock Transfer Agreement. The Agent shall have received and approved
------------------------
a true, correct and complete copy of the documents evidencing the transfer of
all of the outstanding shares of voting capital stock of Alliance Group and LRI
from Alliance Plc to Alliance Delaware.
7.7 Amendment to EnCap Purchase Agreement. The Agent shall have received
-------------------------------------
and approved a true, correct and complete copy of the documents under which the
Purchase Agreement dated as of October 27, 1998 among Alliance Plc, EnCap Equity
1996 Limited Partnership and Energy Capital Investment Company PLC is being
amended to reflect the same changes in the ownership of the capital stock of
certain Subsidiaries of Alliance Plc as are more particularly described in the
Waiver Letter.
7.8 Execution of Counterparts. The Agent shall have received counterparts
-------------------------
of this Amendment duly executed and delivered on behalf of each Obligor, the
Agent and the Lenders.
7
<PAGE>
7.9 Closing Fees, Expenses, etc. The Agent shall have received all fees
----------------------------
and all reasonable costs and expenses due and payable pursuant to Sections 3.3
------------
and 11.3 of the Credit Agreement, if then invoiced, including, without
----
limitation, all fees and expenses of counsel to Agent incurred by Agent in
connection with the preparation, negotiation, execution and closing of this
Amendment and the Waiver Letter.
7.1 Legal Details, etc. All documents executed or submitted pursuant
------------------
hereto, and all legal matters incident thereto, shall be satisfactory in form
and substance to the Agent and its counsel.
7.1 July 31 Interest Payment. All interest on the Loans which has accrued
------------------------
or shall accrue through July 31, 1999 shall be paid in full.
7.1 Termination Date. If all of the conditions set forth in Section 7
---------------- ---------
hereof shall not have been satisfied on or prior to 5:00 p.m. Dallas, Texas
time, July 30, 1999, the agreements of the parties contained in this Amendment
and the Waiver Letter shall, unless otherwise agreed by the Agent, terminate
effective immediately at such time and without further action.
SECTION 8. Miscellaneous.
-------------
8.1 Reaffirmation of Loan Documents; Extension of Liens. Any and all of
---------------------------------------------------
the terms and provisions of the Credit Agreement and the Loan Documents shall,
except as amended and modified hereby, remain in full force and effect. Each
Borrower hereby ratifies, confirms and extends the Liens securing the
Obligations until the Obligations have been paid in full or are specifically
released by Agent prior thereto, and agrees that the amendments and
modifications herein contained shall in no manner adversely affect or impair the
Obligations or the Liens securing payment and performance thereof.
8.2 Parties in Interest. All of the terms and provisions of this
-------------------
Amendment shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
8.3 Legal Expenses. Borrowers hereby agree to pay on the date hereof all
--------------
reasonable fees and expenses of counsel to Agent incurred by Agent, in
connection with the preparation, negotiation and execution of this Amendment and
all related documents.
8.4 Counterparts. This Amendment may be executed in counterparts, and all
------------
parties need not execute the same counterpart. Facsimiles shall be effective as
originals.
8.5 Complete Agreement. THIS AMENDMENT, THE CREDIT AGREEMENT (AS AMENDED
------------------
PURSUANT TO THIS AMENDMENT) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
8
<PAGE>
8.6 Headings. The headings, captions and arrangements used in this
--------
Amendment are, unless specified otherwise, for convenience only and shall not be
deemed to limit, amplify or modify the terms of this Amendment, nor affect the
meaning thereof.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Amendment to be
executed by their respective officers hereunto duly authorized as of the day and
first year above written.
BORROWERS:
----------
LATEX PETROLEUM CORPORATION
By:
-----------------------------------------------
Title:
--------------------------------------------
LATEX/GOC ACQUISITION, INC.
By:
-----------------------------------------------
Title:
--------------------------------------------
GERMANY OIL COMPANY
By:
-----------------------------------------------
Title:
--------------------------------------------
ALLIANCE RESOURCES (USA), INC.
By:
-----------------------------------------------
Title:
--------------------------------------------
SOURCE PETROLEUM, INC.
By:
-----------------------------------------------
Title:
--------------------------------------------
ALLIANCE RESOURCES PLC
By:
-----------------------------------------------
Title:
--------------------------------------------
10
<PAGE>
AGENT:
-----
BANK OF AMERICA, N.A., FORMERLY
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent for
the Lenders
By:
-----------------------------------------------
Title:
---------------------------------------
LENDERS:
-------
BANK OF AMERICA, N.A., FORMERLY
KNOWN AS BANK OF AMERICA
NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:
-----------------------------------------------
Title:
---------------------------------------
Acknowledged and Accepted:
LATEX RESOURCES, INC.
By:
---------------------------
Name:
Title:
ENPRO, INC.
By:
---------------------------
Name:
Title:
11
<PAGE>
ALLIANCE RESOURCES (DELAWARE), INC.
By:
--------------------
Name:
Title:
ALLIANCE RESOURCES GROUP, INC.
By:
--------------------
Name:
Title:
DIFCO LIMITED
By:
--------------------
Name:
Title:
12
<PAGE>
Exhibit 10.12
EXCHANGE AND MERGER AGREEMENT
BY AND AMONG
AMERICAN RIVERS OIL COMPANY,
a Wyoming corporation,
AMERICAN RIVERS OIL COMPANY,
a Delaware corporation,
AND
ALLIANCE RESOURCES PLC
* * * * *
DATED: JULY 22, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Definitions........................................................... 1
2. The Exchange Offer and Merger......................................... 5
2.1. Filings by AROC......................................... 5
2.2. Filings by Alliance..................................... 6
2.3. Solicitation of Offer................................... 7
2.4. Solicitation of The Merger.............................. 7
3. Mailing Date Actions and Completion of the Merger..................... 7
3.1. Mailing Date............................................ 7
3.2. The Merger.............................................. 9
4. Representations, Warranties and Covenants of AROC..................... 12
4.1. Corporate Organization.................................. 12
4.2. Capitalization.......................................... 12
4.3. Authority; No Violation................................. 13
4.4. Consents and Approvals.................................. 14
4.5. Violations of Laws, Permits, etc........................ 14
4.6. AROC Reports............................................ 14
4.7. AROC Financial Statements............................... 14
4.8. No Undisclosed Liabilities, etc......................... 14
4.9. Absence of Certain Changes.............................. 15
4.10. Data Regarding the AROC Assets.......................... 15
4.11. Litigation.............................................. 15
4.12. Tax Returns and Payments................................ 16
4.13. Bank Accounts........................................... 16
4.14. Contracts............................................... 16
4.15. Compensation and Employee Plans......................... 17
4.16. Brokers, Finders and Advisors........................... 17
4.17. Labor Force............................................. 17
4.18. Books and Records....................................... 17
4.19. Payments................................................ 18
4.20. Commission Filings...................................... 18
4.21. Disclosure.............................................. 18
5. Representations, Warranties and Covenants of Alliance................. 18
5.1. Organization, etc....................................... 18
5.2. Capitalization.......................................... 19
5.3. Authority; No Violation................................. 19
5.4. Consents and Approvals.................................. 20
5.5. Violations of Laws, Permits, etc........................ 20
5.6. Alliance Reports........................................ 20
5.7. Alliance Financial Statements........................... 20
i
<PAGE>
5.8. No Undisclosed Liabilities, etc......................... 21
5.9. Absence of Certain Changes.............................. 21
5.10. Data Regarding the Alliance Assets...................... 21
5.11. Litigation.............................................. 21
5.12. Tax Returns and Payments................................ 22
5.13. Contracts............................................... 22
5.14. Compensation and Employee Plans......................... 23
5.15. Brokers, Finders and Advisors........................... 23
5.16. Labor Force............................................. 23
5.17. Books and Records....................................... 23
5.18. Payments................................................ 23
5.19. Commission Filings...................................... 24
5.20. Disclosure.............................................. 24
6. Actions of AROC Prior to the Mailing Date............................. 24
6.1. Affirmative Covenants................................... 24
6.2. Negative Covenants...................................... 24
6.3. Consents................................................ 24
6.4. Advice of Changes....................................... 24
6.5. Best Efforts............................................ 25
6.6. Access to Properties and Records........................ 25
6.7. Supply Documents, Reports, etc.......................... 25
6.8. AROC Disclosure Schedule................................ 25
7. Actions of Alliance Prior to the Mailing Date......................... 25
7.1. Affirmative Covenants................................... 25
7.2. Negative Covenants...................................... 26
7.3. Consents................................................ 26
7.4. Advice of Changes....................................... 26
7.5. Best Efforts............................................ 26
7.6. Access to Properties and Records........................ 26
7.7. Supply Documents, Reports, etc.......................... 26
7.8. Alliance Disclosure Schedule............................ 27
8. Conditions to Alliance's Obligations.................................. 27
9. Conditions to AROC's Obligations...................................... 28
10. Additional Agreements................................................. 29
10.1. Confidentiality......................................... 29
10.2. Further Assurances...................................... 29
10.3. Offices................................................. 30
10.4. Warrants................................................ 30
10.5. Convertible Shares...................................... 30
10.6. Convertible Loan Notes.................................. 30
10.7. AROC Delaware Capitalization............................ 30
ii
<PAGE>
10.8. Indemnification......................................... 30
11. Termination, Waiver and Amendment..................................... 31
11.1. Termination............................................. 31
11.2. Manner of Exercise...................................... 32
11.3. Effect of Termination................................... 32
12. Miscellaneous......................................................... 32
12.1. Survival................................................ 32
12.2. Expenses................................................ 32
12.3. Press Releases.......................................... 32
12.4. Binding Effect.......................................... 32
12.5. Severability............................................ 32
12.6. Notices................................................. 33
12.7. Entire Agreement........................................ 33
12.8. Amendments; Waivers..................................... 33
12.9. Headings................................................ 33
12.10. Counterparts............................................ 34
12.11. Specific Performance.................................... 34
12.12. GOVERNING LAW........................................... 34
12.13. Schedules............................................... 34
12.14. Time of Essence......................................... 34
12.15. Best Efforts............................................ 34
iii
<PAGE>
EXCHANGE AND MERGER AGREEMENT
-----------------------------
THIS EXCHANGE AND MERGER AGREEMENT (this "Agreement") is entered into as of
July 22, 1999, by and among AMERICAN RIVERS OIL COMPANY, a Wyoming corporation
("AROC"), AMERICAN RIVERS OIL COMPANY, a Delaware corporation ("AROC Delaware"),
and ALLIANCE RESOURCES PLC, a public limited company incorporated in England and
Wales ("Alliance").
Recitals
--------
The parties desire to effect certain transactions 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" means the Age Discrimination in Employment Act, as amended, or
any successor statute.
"Affiliate" means an "affiliate" or associate" as those terms are
defined in Rule 12b-2 promulgated by the Commission under the Exchange Act.
"Alliance" means Alliance Resources PLC, a public limited company
incorporated in England and Wales.
"Alliance Assets" means 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, all oil, gas and mineral properties
of every kind and character, whether producing, non-producing, developed or
undeveloped, wherever situated, including without limitation all of the rights,
titles and interests of the Alliance Entities in and to all leases, royalty
interests, overriding royalty interests, 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 Mailing Date appurtenant to
such properties or used, obtained or held for use in connection with the
operation of such properties or with the production, treatment, sale or disposal
of hydrocarbons or water produced therefrom or attributable thereto.
"Alliance Disclosure Schedule" means the Disclosure Schedule delivered
by Alliance to AROC within seven calendar days after the execution of this
Agreement. Each heading in the Alliance Disclosure Schedule shall refer to the
applicable section of this Agreement.
1
<PAGE>
"Alliance Entities" means Alliance and its Subsidiaries.
"Alliance Financial Statements" means, collectively, the audited
consolidated financial statements of the Alliance Entities as of and for the
year ended April 30, 1998; and the unaudited interim financial statements of the
Alliance Entities as of and for the nine months ended January 31, 1999.
"Alliance Convertible Loan Notes" means the convertible loan notes of
Alliance that are convertible into 1,193,581 Alliance Ordinary Shares.
"Alliance Convertible Shares" means the convertible restricted voting
shares of (Pounds)0.01 each in the capital of Alliance.
"Alliance Form 10-K" means Alliance's Annual Report on Form 10-K for
the year ended April 30, 1998.
"Alliance Ordinary Shares" means the ordinary shares of (Pounds)0.01
each in the capital of Alliance.
"Alliance Proxy Statement" means the proxy statement for the annual
meeting of Alliance Stockholders held March 5, 1999.
"Alliance Reports" means each registration statement, schedule,
report, proxy statement or information statement prepared by Alliance since
April 30, 1998, including, without limitation, (i) the Alliance Form 10-K, (ii)
Alliance's Quarterly Reports on Form 10-Q for the periods ended July 31, October
31, 1998 and January 31, 1999, and (iii) the Alliance Proxy Statement, each in
the form (including exhibits and any amendments thereto) filed with the
Commission.
"Alliance Shares" means the Alliance Ordinary Shares and the Alliance
Convertible Shares.
"Alliance Stockholders" means the holders of Alliance Shares from time
to time.
"Alliance Warrants" means the outstanding warrants to purchase a total
of 5,079,149 Alliance Ordinary Shares.
"AROC" means American Rivers Oil Company, a Wyoming corporation.
"AROC Assets" means all assets of the AROC Entities.
"AROC Class B Shares" means all of the issued and outstanding shares
of class B common stock of AROC, par value $0.01 per share.
"AROC Common Shares" means all of the issued and outstanding common
stock of AROC, par value $0.01 per share.
"AROC Delaware" means American Rivers Oil Company, a Delaware
corporation.
2
<PAGE>
"AROC Delaware Shares" means the common stock, par value $0.01 per
share, of AROC Delaware.
"AROC Disclosure Schedule" means the Disclosure Schedule delivered by
AROC to Alliance within seven calendar days after the execution of this
Agreement. Each heading in the AROC Disclosure Schedule shall refer to the
applicable section of this Agreement.
"AROC Entities" means AROC and its Subsidiaries.
"AROC Financial Statements" means, collectively, the respective
audited consolidated financial statements of the AROC Entities as of and for the
years ended March 31, 1998 and 1999.
"AROC Form 10-K" means AROC's Annual Report on Form 10-K for the year
ended March 31, 1999.
"AROC Reports" means each registration statement, schedule, report,
proxy statement or information statement prepared by AROC since March 31, 1998,
including, without limitation, (i) the AROC Form 10-K, and (ii) AROC's Quarterly
Reports on Form 10-Q for the periods ended June 30, September 30 and December
31, 1998, each in the form (including exhibits and any amendments thereto) filed
with the Commission.
"AROC Shares" means the AROC Common Shares and the AROC Class B
Shares.
"AROC Stockholders" means the holders of AROC Shares from time to
time.
"City Code" means the City Code on Takeovers and Mergers of the United
Kingdom.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Commission" means the Securities and Exchange Commission and/or any
other Governmental Entity that administers either the Securities Act or the
Exchange Act.
"DGCL" means the Delaware General Corporation Law.
"Dissenting Shares" has the meaning given that term in Section
3.2(g)(1).
"Effective Time" has the meaning given that term in Section 3.2(a).
"Encumbrance" means any option, pledge, security interest, lien,
charge, encumbrance, or restriction (whether on voting, sale, transfer,
disposition or otherwise), whether imposed by agreement, understanding, law or
otherwise, except those arising under applicable federal or state securities
laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
3
<PAGE>
"Exchange Agent" means the transfer agent for the AROC Shares.
"Excluded Shares" has the meaning given that term in Section
3.2(g)(1).
"GAAP" 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.
"Governmental Entity" means any federal, state, municipal, domestic or
foreign court, tribunal, administrative agency, department, commission, board,
bureau or other governmental authority or instrumentality.
"Indemnified Parties" has the meaning given in Section 10.8.
"Information Statement" means the information statement filed by AROC
pursuant to Section 2.1(b) and any amendments or supplements to the information
statement.
"Mailing Date" has the meaning given in Section 3.1.
"Material Effect" means a material adverse effect on the business or
financial condition of a party and its Subsidiaries taken as a whole.
"Merger" means the merger of AROC with and into Newco, with Newco
being the surviving corporation, pursuant to Section 3.2.
"Merger Consideration" has the meaning given that term in Section
3.2(g)(1).
"Newco" means a Delaware corporation to be formed as a subsidiary of
AROC Delaware.
"Offer" means the offer made pursuant to Section 2.3.
"Offer Documents" means the prospectus included in the Registration
Statement and any other documents used to solicit the Alliance Stockholders to
accept the Offer.
"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 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.
"Registration Statement" means the registration statement filed by
AROC Delaware pursuant to Section 2.1 and any amendments or supplements to the
registration statement.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
4
<PAGE>
"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.
"Surviving Corporation" has the meaning given that term in Section
3.2(b).
"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" means a report, return or other information required to
be supplied by a party comprising a part of the Alliance Entities or the AROC
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.
"WBCA" means the Wyoming Business Corporation Act.
2. The Exchange Offer and Merger.
-----------------------------
2.1. Filings by AROC.
---------------
(a) As soon as reasonably practicable after the date of this Agreement,
AROC Delaware will, in compliance with all applicable state and federal laws,
and in form and substance satisfactory to Alliance, file with the Commission a
registration statement relating to the AROC Delaware Shares to be offered to the
Alliance Stockholders pursuant to the Offer and to be issued to the AROC
Shareholders in the Merger (the "Registration Statement"), and will thereafter
use its best efforts to obtain as promptly as possible and to continue the
effectiveness of the Registration Statement.
(b) As soon as reasonably practicable after the date of this Agreement,
AROC will, in compliance with all applicable state and federal laws, and in form
and substance satisfactory to Alliance, file with the Commission an information
or proxy statement relating to a meeting of the AROC Stockholders to approve the
Merger (the "Information Statement"), and will thereafter use its best efforts
to respond as promptly as possible to all comments of the Commission with
respect to the Information Statement.
(c) Prior to delivering the Offer Documents to the Alliance Stockholders,
AROC Delaware will, in compliance with all applicable state and federal laws,
and in form and substance satisfactory to Alliance, file with the Commission a
Tender Offer Statement on Schedule 14D-1 relating to the Offer containing the
prospectus included in the Registration Statement.
(d) AROC Delaware will prepare and file with the Commission and use its
best efforts to cause as promptly as possible and to continue the effectiveness
of such amendments and supplements to the registration statement, the prospectus
included in the Registration Statement and the Schedule 14D-1 for so long as the
Offer shall continue, and to comply with the requirements of all applicable laws
regarding the conduct of the Offer.
5
<PAGE>
(e) AROC Delaware will use its best efforts to register or qualify the
AROC Delaware Shares offered pursuant to the Offer and the Merger under the
securities or blue sky laws of such jurisdictions as Alliance shall request and
do any and all other acts or things that may be necessary or advisable to enable
to Offer and the Merger to be made and consummated.
(f) After the Commission completes its review of the Information
Statement, and contemporaneously with the making of the Offer, AROC will deliver
the Information Statement, together with such documents as are required under
the City Code, to the AROC Stockholders.
(g) The materials filed by AROC and AROC Delaware with the Commission and
the materials sent by AROC Delaware to the Alliance Stockholders in connection
with the Offer and to the AROC Stockholders in connection with the Information
Statement 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. The materials shall in form and substance be satisfactory to
Alliance and shall include all information regarding the AROC Entities required
by applicable law and the City Code to inform the Alliance Stockholders of the
Offer and to inform the AROC Stockholders of the matters contemplated by this
Agreement.
(h) Alliance agrees to furnish to AROC and AROC Delaware all information
(which shall meet the standard of the preceding paragraph) reasonably requested
by AROC and AROC Delaware in connection with preparing such materials.
2.2. Filings by Alliance.
-------------------
(a) Not less than 10 business days after the commencement of the Offer,
Alliance will, in compliance with all applicable state and federal laws, and in
form and substance satisfactory to AROC, file with the Commission and deliver to
the Alliance Stockholders a Tender Offer Solicitation/Recommendation Statement
on Schedule 14D-9, and file with applicable state authorities such other
documents as may be necessary or appropriate, recommending (subject to the
fiduciary duties of the directors of Alliance) that the Alliance Stockholders
accept the Offer.
(b) Alliance will prepare and file with the Commission and use its best
efforts to cause as promptly as possible and to continue the effectiveness of
such amendments and supplements to the Schedule 14D-9 for so long as the Offer
shall continue, and to comply with the requirements of all applicable laws and
the City Code regarding the conduct of the Offer.
(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 AROC, file with London Stock Exchange Limited and all other
applicable regulatory bodies in the United Kingdom, all materials reasonably
necessary to make, and use its best efforts, to obtain the approval of those
authorities to, the Offer.
(d) The materials filed by Alliance and the materials sent by Alliance to
the Alliance Stockholders in connection with the Offer 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. The materials shall in
form and substance be satisfactory to AROC and shall include all information
regarding the
6
<PAGE>
Alliance Entities required by applicable law and the City Code to inform the
Alliance Stockholders of the Offer.
(e) AROC agrees to furnish to Alliance all information (which shall meet
the standard of the preceding paragraph) reasonably requested by Alliance in
connection with preparing such materials.
2.3. Solicitation of Offer. Promptly after the satisfaction of all
---------------------
applicable regulatory requirements, including the filings contemplated by
Sections 2.1 and 2.2 and the completion of the actions contemplated by Section
3, each of Alliance, AROC and AROC Delaware agrees (subject to the fiduciary
duties of the directors of each of them):
(a) that AROC will deliver the Information Statement, together with such
documents as are required under the City Code, to the AROC Stockholders;
(b) to use its best efforts to solicit the Alliance Stockholders to accept
the offer of AROC Delaware to exchange one AROC Delaware Share for each Alliance
Ordinary Share and 0.5 AROC Delaware Shares for each Alliance Convertible Share
(the "Offer");
(c) to make such press announcements as are required under the City Code
in relation to the Offer;
(d) to make the Offer unconditional under U.K. law and the City Code as
soon as practicable after Alliance Stockholders holding a majority of both the
Alliance Ordinary Shares and the Alliance Convertible Shares have accepted the
Offer; and
(e) to continue the Offer for so long as required by applicable U.S. and
U.K. law and the City Code.
2.4. Solicitation of The Merger. Promptly after the satisfaction of all
--------------------------
applicable regulatory requirements, including the filings contemplated by
Sections 2.1 and 2.2 and the completion of the actions contemplated by Section
3, each of Alliance, AROC and AROC Delaware agrees (subject to the fiduciary
duties of the directors of each of them):
(a) to use its best efforts to deliver the Information Statement to the
AROC Stockholders and recommend and solicit the vote of the AROC Stockholders to
approve the Merger;
(b) to hold the meeting of AROC Stockholders contemplated by the
Information Statement;
3. Mailing Date Actions and Completion of the Merger.
--------------------------------------------------
3.1. Mailing Date. On or prior to the date the Offer Documents are to be
------------
mailed to the Alliance Stockholders (the "Mailing Date"), the parties shall
deliver the following documents at the offices of Jenkens & Gilchrist, P.C.,
1445 Ross Avenue, Suite 3200, Dallas, Texas at 10:00 a.m., local time.
(a) AROC shall deliver to Alliance the following:
7
<PAGE>
(1) A copy of the charters of each of the AROC Entities certified as of a
date within ten days of the Mailing 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 Mailing
Date;
(2) A certificate from the appropriate governmental officials of the state
of incorporation as to the existence and good standing of each of the AROC
Entities and the payment of Taxes by each of the AROC Entities as of a date
within ten days of the Mailing Date, and, if available, a telecopy from such
officials as to the same matters dated the business day before the Mailing
Date;
(3) A certificate of the corporate secretary of each of the AROC Entities
attaching thereto a true and correct copy of the bylaws of the respective
entity;
(4) A certificate of the corporate secretary of AROC attaching copies of
the resolutions of the board of directors approving the Offer;
(5) All correspondence of AROC with the Commission relating to the filing
of the documents referred to in Section 2.1;
-----------
(6) The certificate of an officer of AROC referred to in Section 8(c);
------------
(7) The opinion of AROC's counsel referred to in Section 8(e);
------------
(8) All consents or approvals of any third party that are required to be
identified pursuant to Section 4.4; and
-----------
(9) Such other documents as are required pursuant to this Agreement or as
may reasonably be requested from AROC by Alliance or its counsel.
(b) Alliance shall deliver to AROC the following:
(1) 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 Mailing Date;
(2) a copy of the charters of each of Alliance's U.S. Subsidiaries
certified as of a date within ten days of the Mailing 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 Mailing Date;
(3) A certificate from the appropriate governmental officials of the
jurisdiction of organization of each of Alliance's U.S. Subsidiaries as to the
existence and good standing of such Subsidiary as of the date within ten days
of the Mailing Date, and, if available, a telecopy from such officials as to
the same matters dated the business day before the Mailing Date;
8
<PAGE>
(4) A certificate of the corporate secretary of each of Alliance's U.S.
Entities attaching thereto a true and correct copy of the bylaws of the
respective entity;
(5) A certificate of the corporate secretary of Alliance attaching copies
of corporate resolutions duly adopted by its board of directors resolving to
recommend the Offer;
(6) All correspondence of Alliance with the Commission relating to the
filing of the documents referred to in Section 2.2;
(7) The certificate of an officer of Alliance referred to in Section 9(b);
------------
(8) The opinion of Alliance's counsel referred to in Section 9(d);
------------
(9) All consents or approvals of any third party that are required to be
identified pursuant to Section 5.4;
-----------
(10) Such other documents as are required pursuant to this Agreement or as
may reasonably be requested from Alliance by AROC or its counsel.
3.2. The Merger.
----------
(a) As soon as practicable after the AROC shareholders have approved the
Merger and it is determined that at least a majority of the Alliance
Stockholders have accepted the Offer, and immediately before the Offer becomes
unconditional and AROC Delaware Shares are issued to those Alliance Stockholders
who have accepted the Offer, provided that this Agreement has not been
terminated or abandoned pursuant to Article 11, AROC and Newco will cause a (i)
a Certificate of Merger to be executed and filed with the Secretary of State of
Delaware as provided in Section 251 of the DGCL and (ii) Articles of Merger to
be executed and filed with the Secretary of State of Wyoming as provided in
Section 17-16-1105 of the WBCA. The Merger shall become effective on the date
on which the Delaware Certificate of Merger has been duly filed with the
Secretary of State of Delaware and the Wyoming Articles of Merger have been duly
filed with the Secretary of State of the State of Wyoming, and such time is
hereinafter referred to as the "Effective Time."
(b) At the Effective Time AROC shall be merged with and into Newco and the
separate corporate existence of AROC shall thereupon cease. Newco shall be the
surviving corporation (the "Surviving Corporation") in the Merger and shall
continue to be governed by the laws of the State of Delaware, and the separate
corporate existence of Newco with all its rights, privileges, immunities, powers
and franchises shall continue unaffected by the Merger, except as set forth in
Section 3.2(f) and (g). The Merger shall have the effects specified in the
- -------------- ---
Delaware General Corporation Law and the Wyoming Business Corporation Act.
(c) Change of Name of AROC Delaware. The Information Statement and
-------------------------------
Registration Statement shall provide for, and concurrently with the Effective
Time, AROC Delaware shall file a Certificate of Amendment to its Certificate of
Incorporation to effect, a change of the name of AROC Delaware to "Alliance
Resources Inc."
9
<PAGE>
(d) The Certificate of Incorporation. The Certificate of Incorporation of
--------------------------------
Newco 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.
(e) By-Laws. The By-Laws of Newco in effect at the Effective Time shall
-------
be the By-Laws of the Surviving Corporation, until duly amended in accordance
with the terms thereof and the DGCL.
(f) Directors and Officers. The directors and officers of AROC Delaware
----------------------
and of Newco shall, from and after the Effective Time, and until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the respective
corporation's Certificate of Incorporation and By-Laws, be the following:
John A. Keenan President and Director of AROC Delaware
and Newco
Francis M. Munchinski Secretary of AROC Delaware and Newco
Paul R. Fenemore Director of AROC Delaware and Newco
Robert E. Schulte Director of Newco
M. Phillip Douglas Director of AROC Delaware
Michael E. Humphries Director of AROC Delaware
William J.A. Kennedy Director of AROC Delaware
John R. Martinson Director of AROC Delaware
(g) Conversion or Cancellation of Shares. The manner of converting or
------------------------------------
canceling shares of AROC in the Merger shall be as follows:
(1) At the Effective Time, each AROC Share issued and outstanding
immediately prior to the Effective Time, other than AROC Shares that are owned
by AROC or any direct or indirect subsidiary of AROC or Shares ("Dissenting
Shares") which are held by stockholders ("Dissenting Stockholders") properly
exercising appraisal rights pursuant to (S)17-16-1321 and (S)17-16-1323 of the
WBCA, if applicable (collectively, "Excluded Shares") shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive, 0.11 AROC Delaware Shares (the "Merger
Consideration"). At the Effective Time, all AROC Shares, by virtue of the
Merger and without any action on the part of the holders thereof, shall no
longer be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such AROC Shares
(other than Excluded Shares) shall thereafter cease to have any rights with
respect to such AROC Shares, except the right to receive the Merger
Consideration for such AROC Shares upon the surrender of such certificate in
accordance with Section 3.2(h) or the right, if any, to receive payment from
the Surviving Corporation of the "fair value" of such Shares as determined in
accordance with (S)17-16-1325 of the WBCA.
10
<PAGE>
(2) At the Effective Time, each AROC Share issued and outstanding at the
Effective Time and owned by AROC Delaware or held in AROC's treasury or owned
by AROC or any direct or indirect subsidiary of AROC shall, by virtue of the
Merger and without any action on the part of the holder thereof, cease to be
outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(3) At the Effective Time, each Newco Share issued and outstanding at the
Effective Time shall continue to be outstanding and shall not be affected by
the Merger.
(4) At the Effective Time, each AROC Delaware Share issued and outstanding
at the Effective Time (other than AROC Delaware Shares issued or to be issued
pursuant to the Offer) shall, by virtue of the merger and without any action
on the part of the holder thereof, cease to be outstanding, shall be canceled
and retired without payment of any consideration therefore and shall cease to
exist.
(h) Payment for AROC Shares.
-----------------------
(1) AROC Delaware shall make available or cause to be made available to
the Paying Agent at the Effective Time certificates representing the AROC
Delaware Shares sufficient to enable the Paying Agent to deliver the necessary
certificates to the former holders of AROC Shares as required by paragraph
(b).
(2) On or after the Effective Time, each person who was immediately before
the Effective Time a holder of record of issued and outstanding AROC Shares
may deliver to the Paying Agent a letter of transmittal 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 AROC Shares, and AROC Delaware shall cause the Paying Agent to deliver to
such holders certificates in respect of the AROC Delaware Shares and any
dividends or distributions thereon to which such holders are then entitled.
(3) Fractional AROC Delaware Shares will not be issued to any person. In
lieu of issuing a fractional AROC Delaware Share to any person, AROC Delaware
will round the number of AROC Delaware Shares to be issued to each person to
the nearest whole number of AROC Delaware Shares.
(4) If AROC Delaware 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 AROC Delaware or the Paying
Agent that such tax has been paid or is not applicable.
(i) Dissenters' Rights.
------------------
(1) Notwithstanding anything in this Agreement to the contrary, AROC
Shares that are issued and outstanding immediately prior to the Effective Time
and that are held by AROC
11
<PAGE>
Stockholders who have delivered a written demand for appraisal of such AROC
Shares in the manner provided in Section 17-16-1321 of the WBCA (the
"Dissenting Shares") shall not be canceled and the holders thereof shall not
receive the right to receive the consideration provided in Section 3.2(g)(1),
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
WBCA, as the case may be. If such holder shall have failed to perfect or shall
have effectively withdrawn or lost such right, the AROC Shares shall thereupon
be deemed to have been canceled and the holders thereof to have become
entitled, with effect from the Effective Time, to receive the consideration
specified in Section 3.2(g)(1).
(2) AROC promptly shall give Alliance notice of any demand made by or on
behalf of any dissenting AROC Stockholder to be paid the "fair value" of the
AROC Stockholder's AROC Shares, as provided in Section 17-16-1321 of the WBCA,
and the Surviving Corporation shall thereupon have sole and exclusive rights
to conduct and resolve, in its sole discretion, all negotiations and
proceedings with respect to, and the ultimate disposition of, 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.
(j) Transfer of AROC Shares After the Effective Time. No transfers of AROC
------------------------------------------------
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 AROC Shares are presented to the Surviving Corporation, they shall
be canceled and the holders thereof shall instead be entitled to be issued AROC
Delaware Shares as provided in this Section 3.2.
-----------
4. Representations, Warranties and Covenants of AROC. Except as expressly set
-------------------------------------------------
forth and specifically identified by section number of this Agreement in the
AROC Disclosure Schedule, AROC represents, warrants and covenants to Alliance,
on the date hereof and as of the Mailing Date, as follows:
4.1. Corporate Organization.
----------------------
(a) Each of the AROC Entities is a corporation duly organized and validly
existing as a corporation and in good standing under the laws of its
jurisdiction of incorporation.
(b) Each of the AROC 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 AROC 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.
(c) AROC has delivered or made available to Alliance true, correct and
complete copies of each of the AROC Entities' respective Certificate of
Incorporation and Bylaws as presently in effect.
4.2. Capitalization.
--------------
(a) The authorized capital stock of AROC consists of 20,000,000 shares of
common stock, par value $0.01 per share, 3,615,770 of which are issued and
outstanding, 8,000,000 shares of class B common stock, par value $0.01 per
share, 7,267,820 of which are issued and outstanding, and
12
<PAGE>
5,000,000 shares of preferred stock, par value $0.50 per share, none of which
are outstanding. The authorized capital stock of AROC Delaware consists of 100
shares of common stock, par value $0.001 per share, all of which are issued and
outstanding. Section 4.2 of the AROC Disclosure Schedule sets forth the number
and type of securities of AROC that may be acquired pursuant to outstanding
options or rights to purchase AROC Common Shares and the exercise prices at
which such equity securities may be acquired. All of the issued shares of each
of the AROC Entities are, and all of the AROC Delaware Shares to be issued
pursuant to the Offer, when issued in accordance with the terms of the Offer,
will be validly issued, fully paid and nonassessable and none of such shares
have been issued in violation of the preemptive rights of any person. AROC has
no shares of capital stock reserved for issuance.
(b) Except as described in Section 4.2(a), 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 AROC Entities outstanding; (ii) outstanding
subscriptions, puts, options, warrants or other rights, contract ual or
otherwise, to purchase or acquire any capital stock of any of the AROC Entities;
or (iii) contracts, commitments, understandings, arrangements or restrictions by
which any of the AROC 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 AROC owned by the directors,
executive officers and 5% or greater stockholders of AROC is owned of record,
and to the knowledge of AROC, beneficially, as described in the AROC Form 10-K.
AROC 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 AROC 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 AROC have been duly
and validly authorized by the board of directors of AROC and, except for the
approval of the AROC shareholders, no other corporate action is necessary to
authorize the execution, delivery and performance of this Agreement by AROC.
AROC has full, absolute and unrestricted right, power and authority to execute
and perform this Agreement and, subject to the approval of the AROC
shareholders, to carry out the transactions contemplated hereby. This Agreement
has been duly and validly executed by AROC and, is a valid and binding
obligation of AROC, 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 AROC
Entities of or any term or provision of any judgment, decree, order, statute,
injunction, rule or regulation applicable to any of the AROC Entities, or of any
material note, bond, mortgage, indenture, lease, license, franchise, agreement
or other instrument or obligation to which any of the AROC Entities is bound;
(ii) result in the creation of any material Encumbrance upon AROC Shares, any of
the Alliance Assets or any of the AROC Assets 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,
13
<PAGE>
terminate, abandon or refuse to perform or comply with, any material contract,
agreement, arrangement, commitment or plan to which any AROC Entities is a
party, or by which any of the AROC 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 AROC 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 AROC 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 AROC Entities is in violation of any term or provision of
its Certificate of Incorporation or Bylaws. None of the AROC 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 AROC 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.
4.6. AROC Reports. AROC has made available to Alliance each of the AROC
------------
Reports. As of their respective dates, the AROC Reports did not, and any AROC
Reports filed with the Commission subsequent to the date of this Agreement will
not, contain 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 made
therein, in light of the circumstances in which they were made, not misleading.
4.7. AROC Financial Statements.
-------------------------
(a) In all material respects the consolidated AROC 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.
(b) The AROC Financial Statements were prepared from the books and records
of each of the respective entities purported to be covered thereby. Such AROC
Financial Statements do not contain any items of a material special or
nonrecurring nature, except as expressly noted in such statements.
4.8. No Undisclosed Liabilities, etc. None of the AROC 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 AROC Financial Statements or (b) liabilities incurred in the
ordinary course of
14
<PAGE>
business since the date of the latest balance sheet included in the AROC
Financial Statements that are consistent with past practice.
4.9. Absence of Certain Changes. Since the date of the latest audited
--------------------------
AROC Financial Statement, none of the AROC Entities has:
(a) Suffered any change that would result in a Material Effect;
(b) Borrowed 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;
(c) (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;
(d) Acquired any material assets or properties having a value in excess of
$100,000 in the aggregate;
(e) Increased the salaries, compensation, pension or other benefits
payable, or paid any bonuses, to its officers and directors or their Affiliates;
(f) Agreed, either in writing or otherwise, to take any action described
in this Section 4.9.
-----------
4.10. Data Regarding the AROC Assets. All of the information made or to
------------------------------
be made available to Alliance and its representatives regarding the AROC Assets
is accurate and complete in all material respects, when considered in context
and together with all relevant information made available.
4.11. Litigation.
----------
(a) There is no action, proceeding, investigation or inquiry pending or,
to the knowledge of the AROC Entities, threatened (i) against or affecting any
of the AROC Entities or their assets or ordinary conduct of the business that,
if determined adversely to the AROC Entities, would result in a Material Effect,
except as described in the AROC Reports, 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 AROC 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 AROC Entities and that would result in a Material Effect.
(c) AROC 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 AROC to determine that there exists any basis for any material claim
against the AROC Entities for any of the matters described in paragraphs (a) or
(b).
15
<PAGE>
4.12. Tax Returns and Payments.
------------------------
(a) The AROC 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 in the AROC Financial Statements.
(b) There are no tax liens upon any property or assets owned by any of the
AROC Entities that would have a Material Effect.
(c) All Tax Returns of the AROC 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 AROC Entities have been examined by the Internal Revenue Service
for all periods described in Section 4.12 of the AROC Disclosure Schedule, 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 AROC
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 AROC 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 AROC
Entities for any Taxes.
(d) The reserves made for Taxes on the respective balance sheets in the
AROC Financial Statements are sufficient for the payment of all unpaid Taxes due
and payable by the AROC Entities attributable to all periods ended on or before
the date of the respective balance sheets in accordance with GAAP.
4.13. Bank Accounts. AROC has provided Alliance with the names and
-------------
locations of all bank institutions at which the AROC 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.
4.14. Contracts.
---------
(a) AROC 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, to which any of the AROC Entities is a party or by which any of
their properties is bound. Such agreements, contracts and commitments are in
full force and effect, and all of such entities and, to the knowledge of the
AROC 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.
16
<PAGE>
(b) None of the AROC Entities is a party to or bound by any employment,
management, consulting, option, note, loan, lease or other agreements with any
of the officers, directors or shareholders of more than 5% of the outstanding
securities of any of the AROC Entities;
(c) None of the AROC Entities is a party to any agreement that, upon or
after completion of the Merger, could result in the creation of any Encumbrance
upon any of the Alliance Assets or any of the assets of AROC Delaware other than
the AROC Assets.
(d) None of the AROC 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.
4.15. Compensation and Employee Plans.
-------------------------------
(a) AROC 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 AROC Entities and (ii) the number, job
category and range of compensation by job category of all employees of such
entities.
(b) AROC has made available to Alliance the name of each Plan applicable
to any of the AROC Entities and all documents evidencing any Plan applicable to
any of the AROC Entities.
(c) Each Plan applicable to any of the AROC 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.
4.16. Brokers, Finders and Advisors. AROC 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.
4.17. Labor Force. Each of the AROC 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.
4.18. Books and Records. The books and records of each of the AROC
-----------------
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 AROC 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 AROC
Entities concerning the AROC Assets, 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.
17
<PAGE>
4.19. Payments. None of the AROC 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.
4.20. Commission Filings. AROC has filed all forms, reports and documents
------------------
required to be filed with the Commission since January 1, 1996 . 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.
4.21. Disclosure. No representation or warranty made by AROC in this
----------
Agreement (including, without limitation, in the AROC 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 AROC, on the date hereof and as of the Mailing 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.
(b) 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.
(c) 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.
(d) Alliance has delivered or made available to AROC true, correct and
complete copies of the organizational documents of each of the Alliance Entities
as presently in effect.
18
<PAGE>
5.2. Capitalization.
--------------
(a) The authorized capital stock of Alliance consists of 415,001,376
ordinary shares of (Pounds)0.01 each, 47,487,142 of which are issued and
outstanding, 10,000,000 shares of Alliance Convertible Stock, of which
10,000,000 are issued and outstanding and 1,414,998,624 deferred shares of 1p
each of which 1,217,166,912 are issued and outstanding. There are outstanding
options to subscribe for 3,040,000 Alliance Ordinary Shares at subscription
prices varying from 13.5p to (Pounds)3.00. There are outstanding warrants to
purchase 5,079,149 Alliance Ordinary Shares at purchase prices varying from 1p
to (Pounds)1.00 per share and outstanding convertible loan notes that are
convertible into 1,078,125 Alliance Common Shares at any time upon the payment
by the holder to Alliance of 1p per share. All of the issued shares of each of
the Alliance Entities are 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) Except as described in Section 5.2(a), 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, contract ual 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 the Alliance Proxy
Statement. 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 have been
duly and validly authorized by the board of directors of Alliance and no other
corporate action is necessary to authorize the execution, delivery and
performance of this Agreement by Alliance. Alliance has full, absolute and
unrestricted right, power and authority to execute and perform this Agreement
and to carry out the transactions contemplated hereby. This Agreement has been
duly and validly executed by Alliance and is a valid and binding obligation of
Alliance, 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
19
<PAGE>
Shares, any of the AROC Assets or any of the Alliance Assets 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.
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 Reports. Alliance has made available to AROC each of the
----------------
Alliance Reports. As of their respective dates, the Alliance Reports did not,
and any Alliance Reports filed with the Commission subsequent to the date of
this Agreement will not, contain 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 made therein, in light of the circumstances in which they were made,
not misleading.
5.7. 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 January 31, 1999, 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.
20
<PAGE>
5.8. 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.
5.9. Absence of Certain Changes. Since the date of the latest audited
--------------------------
Alliance Financial Statement, except as specifically disclosed in the January
31, 1999, unaudited interim consolidated Alliance Financial Statements, none of
the Alliance Entities has:
(a) Suffered any change that would result in a Material Effect;
(b) Borrowed 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;
(c) (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;
(d) Acquired 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 $100,000 in the aggregate;
(e) Increased the salaries, compensation, pension or other benefits
payable, or paid any bonuses, to its officers and directors or their Affiliates;
(f) Agreed, either in writing or otherwise, to take any action described
in this Section 5.9.
-----------
5.10. Data Regarding the Alliance Assets. All of the information made or
----------------------------------
to be made available to AROC and its representatives regarding the Alliance
Assets is accurate and complete in all material respects, when considered in
context and together with all relevant information made available.
5.11. 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, except as described in the Alliance Reports, or (ii) that
questions this Agreement or any action contemplated by this Agreement or the
transactions contemplated hereby.
(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
21
<PAGE>
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).
5.12. 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 in the Alliance Financial Statements.
(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
federal income tax returns of the Alliance Entities have been examined by the
Internal Revenue Service for all periods described in Section 5.12 of the
Alliance Disclosure Schedule, 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 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 Internal 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 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.
5.13. Contracts.
---------
(a) Alliance has made available to AROC 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, to which any of the Alliance Entities is a party or by
which any of their properties is bound. 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
22
<PAGE>
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.
(b) 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.
5.14. Compensation and Employee Plans.
-------------------------------
(a) Alliance has provided AROC (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) Alliance has made available to AROC the name of each Plan applicable
to any of the Alliance Entities and 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.
5.15. 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.
5.16. Labor Force. 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.
5.17. 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 AROC's representatives or agents by the Alliance
Entities concerning the Alliance Assets, 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.
5.18. 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
23
<PAGE>
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.
5.19. Commission Filings. Alliance has filed all forms, reports and
------------------
documents required to be filed with the Commission since May 1, 1997. 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.
5.20. 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.
6. Actions of AROC Prior to the Mailing Date.
-----------------------------------------
6.1. Affirmative Covenants. Prior to the Mailing Date, AROC covenants
---------------------
that, unless the prior written consent of Alliance is first obtained, which
consent shall not be unreasonably withheld, the AROC 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.
6.2. Negative Covenants. Prior to the Mailing Date, except with the
------------------
prior written consent of Alliance, the AROC Entities will not:
(a) Do any of the restricted acts set forth in Section 4.9 hereof, or
-----------
enter into any agreement of a nature set forth in Section 4.14 hereof;
------------
(b) Enter into or permit any of the AROC 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 AROC Entities.
6.3. Consents. The AROC 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. AROC will promptly advise Alliance in writing
-----------------
from time to time prior to the Mailing Date with respect to any matter hereafter
arising and known to it that, if
24
<PAGE>
existing or occurring at the date of this Agreement, would have been required to
be set forth or described in the AROC Disclosure Schedule or would have resulted
in any representation of AROC in this Agreement being untrue.
6.5. Best Efforts. The AROC Entities will use their best efforts to
------------
cause to be fulfilled those of the conditions to Alliance'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 Mailing Date or the termination of this
Agreement, the AROC Entities shall (a) provide Alliance an identification of and
access to all books, records and documents, including contracts, agreements,
consents, settlements, revenue and expense information, and all other data and
information relating to the AROC Assets, (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 AROC Entities, and (c) cause counsel and accountants to the AROC
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 AROC Entities and their assets.
6.7. Supply Documents, Reports, etc.
-------------------------------
(a) AROC shall furnish or make available to Alliance all documents,
reports and other information and data (including financial statements)
concerning the AROC 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 transactions
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) AROC 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. AROC Disclosure Schedule. AROC agrees to deliver the AROC
------------------------
Disclosure Schedule to Alliance within seven calendar days after the execution
of the Agreement by all parties.
7. Actions of Alliance Prior to the Mailing Date.
---------------------------------------------
7.1. Affirmative Covenants. Prior to the Mailing Date, Alliance
---------------------
covenants that, unless the prior written consent of AROC 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
25
<PAGE>
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 Mailing Date, except with the
------------------
prior written consent of AROC, the Alliance Entities will not:
(a) Do any of the restricted acts set forth in Section 5.9 hereof, or
-----------
enter into any agreement of a nature set forth in Section 5.13 hereof;
------------
(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 AROC in writing
-----------------
from time to time prior to the Mailing 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 AROC'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 Mailing Date or the termination of this
Agreement, the Alliance Entities shall (a) provide AROC 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 Assets, (b) afford
to AROC 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 AROC shall from time to
time request in order that AROC 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 AROC all documents,
reports and other information and data (including financial statements)
concerning the Alliance Entities as AROC may
26
<PAGE>
reasonably require in connection with any statement, application, or document
required to be filed with applicable Governmental Entities in connection with
the transactions 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. Alliance Disclosure Schedule. Alliance agrees to deliver the
----------------------------
Alliance Disclosure Schedule to AROC within seven calendar days after the
execution of the Agreement by all parties.
8. Conditions to Alliance's Obligations. Each and every obligation of
------------------------------------
Alliance under this Agreement to be performed on or before the Mailing Date is,
at the option of Alliance, subject to the satisfaction on or before the date on
which the formal press announcement of the Offer pursuant to the City Code is
made (following which the Offer shall be subject only to the conditions set out
in the press announcement, including the completion of the Merger) of each of
the following conditions:
(a) All outstanding options or rights to purchase or acquire AROC Shares
shall have been canceled.
(b) All employment, management, consulting, option, note, loan, lease or
other agreements with any of the officers, directors or shareholders of more
than 5% of the outstanding securities of any of the AROC Entities shall have
been terminated without liability to Alliance, AROC or AROC Delaware. All
amounts owed to AROC by any officer, director or shareholder of more than 5% of
the outstanding securities of any of the AROC Entities shall have been repaid in
full.
(c) The agreements described in Sections 10.4, 10.5 and 10.6 shall have
------------- ---- ----
been entered into and the actions required by Section 10.7 shall have occurred.
------------
(d) (i) All of the terms, covenants and conditions of this Agreement to be
complied with or performed by AROC at or before the Mailing Date shall have been
duly complied with and performed in all material respects, (ii) the
representations and warranties of AROC set forth in Article 4, as modified by
---------
the statements contained in the AROC Disclosure Schedule, shall be true in all
material respects on and as of the Mailing Date with the same force and effect
as if such representations and warranties had been made on and as of the Mailing
Date (but this provision shall not mean that representations and warranties
relating to a specific date, shall relate to any other date) and (iii) Alliance
shall have received a certificate to such effect from an officer of AROC.
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.
(e) All consents, waivers, approvals, licenses, authorizations of, or
filings or declarations with third parties or Governmental Entities required to
be obtained by the AROC 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
27
<PAGE>
statement required by Section 2.1(a) 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 Offer shall have been
received.
(f) Alliance shall have received the opinion of counsel for AROC, dated
the Mailing Date, in substance and form acceptable to Alliance and its counsel.
(g) 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, which approval shall not be unreasonably withheld.
(h) The AROC 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.
(i) There shall not have been any material loss resulting from destruction
of the AROC Assets 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 AROC Entities.
(j) No material information or data provided or made available to Alliance
by or on behalf of AROC shall be incorrect in any material respect.
9. Conditions to AROC's Obligations. Each and every obligation of AROC under
--------------------------------
this Agreement to be performed on the Mailing Date is, at the option of
AROC, subject to the satisfaction on or before the date on which the formal
press announcement of the Offer pursuant to the City Code is made
(following which the Offer shall be subject only to the conditions set out
in the press announcement, including the completion of the Merger) of each
of the following conditions:
(a) The agreements described in Sections 10.4, 10.5 and 10.6 shall have
------------- ---- ----
been entered into and the actions required by Section 10.7 shall have occurred.
------------
(b) (i) All of the terms, covenants and conditions of this Agreement to
be complied with or performed by Alliance at or before the Mailing Date shall
have been duly complied with and performed in all material respects, (ii) the
representations and warranties of Alliance 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 Mailing Date with the same force and
effect as if such representations and warranties had been made on and as of the
Mailing Date (but this provision shall not mean that representations and
warranties relating to a specific date shall relate to any other date), and
(iii) AROC shall have received a certificate to such effect from an officer of
each of Alliance at Mailing Date. 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 in order to permit
28
<PAGE>
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 2.1(a) 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 of the Alliance Shares pursuant to this Agreement shall
have been received.
(d) AROC shall have received opinions from counsel for Alliance dated the
Mailing Date, in substance and form acceptable to AROC and its counsel.
(e) All outstanding options or other rights to purchase or acquire AROC
Shares (other than the Warrants) shall have been canceled without further
liability to AROC or Alliance.
(f) 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 AROC,
which approval shall not be unreasonably withheld.
(g) Alliance 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 AROC or its counsel.
(h) There shall not have been any material loss resulting from destruction
of the Alliance Assets 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.
(i) No material information or data provided or made available to AROC by
or on behalf of Alliance shall be incorrect in any material respect.
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, the City Code or the rules of the London
Stock Exchange.
10.2. Further Assurances. After the Mailing Date, 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 Mailing
Date, 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.
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<PAGE>
10.3. Offices. After the Offer becomes unconditional, the executive
-------
offices of AROC shall be located in Tulsa, Oklahoma.
10.4. Warrants. On or prior to the Mailing Date, AROC Delaware shall
--------
enter into warrant agreements with the holders of Alliance Warrants, on terms
satisfactory to Alliance, providing that, after the Offer becomes unconditional,
those warrants will represent the right to receive one AROC Delaware Share in
lieu of each Alliance Ordinary Share that they currently represent the right to
receive.
10.5. Convertible Shares. On or prior to the Mailing Date, AROC Delaware
------------------
shall enter into agreements with the holders of the Alliance Convertible Shares,
on terms satisfactory to Alliance, providing that after the then outstanding
Alliance Convertible Shares are tendered pursuant to the Offer and the Offer
becomes unconditional, each then outstanding Alliance Convertible Share shall be
exchanged for 0.5 AROC Delaware Shares and the right to receive additional AROC
Delaware Shares on terms substantially similar to the terms of the Alliance
Convertible Shares.
10.6. Convertible Loan Notes. On or prior to the Mailing Date, AROC
----------------------
Delaware shall enter into agreements with the holders of the Alliance
Convertible Loan Notes, on terms satisfactory to Alliance, providing that after
the Offer becomes unconditional, the then outstanding Alliance Convertible Loan
Notes shall be exchanged for notes convertible into one AROC Delaware Share in
lieu of each Alliance Ordinary Share that they currently represent the right to
receive, on terms substantially similar to the terms of the Alliance Convertible
Loan Notes.
10.7. AROC Delaware Capitalization. On or prior to the Mailing Date, AROC
----------------------------
Delaware shall revise its Certificate of Incorporation to provide that the
authorized capital stock of AROC Delaware shall consist of 175,000,000 shares of
common stock, par value $0.001 per share, 100 of which shall be issued and
outstanding, and 10,000,000 shares of preferred stock, par value $0.001 per
share, none of which shall be issued and outstanding.
10.8. Indemnification.
---------------
(a) Alliance agrees to indemnify and hold harmless each officer and
director of AROC (the "Indemnified Parties") from and against any and all
losses, claims, damages, liabilities and expenses arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
(i) the documents referred to in Sections 2.1 and 2.2 (or any amendment or
------------ ---
supplement to any of them) and (ii) any other document or correspondence
prepared by or on behalf of Alliance and furnished to the AROC shareholders or
Alliance shareholders pursuant to this Agreement, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with information provided by AROC or the
Indemnified Parties.
(b) If any action, suit or proceeding shall be brought against any
Indemnified Person in respect of which indemnity may be sought against Alliance
pursuant to Section 10.8(a), the Indemnified Party shall promptly notify
---------------
Alliance and Alliance shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Alliance shall not settle
30
<PAGE>
any such action, suit or proceeding without the prior written consent of the
Indemnified Party unless such settlement includes an unconditional release of
the Indemnified Party from all liability on claims that are the subject matter
of such action, suit or proceeding. Alliance shall not be liable for any
settlement of any such action, suit or proceeding effected without its written
consent.
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 date on
which the formal press announcement of the Offer pursuant to the City Code is
made.
(a) By mutual consent of AROC and Alliance; or
(b) By Alliance if:
(1) Any representation, warranty or covenant made herein for the
benefit of Alliance 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 AROC's receipt of a notice from
Alliance that such breach exists or has occurred;
(2) AROC 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 AROC's receipt of a notice from Alliance that such breach
exists or has occurred; or
(3) 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 AROC if:
(1) Any representation, warranty or covenant made herein for the
benefit of AROC or any certificate, schedule or document furnished to AROC
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 AROC
that such breach exists or has occurred;
(2) Alliance 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 AROC that such breach
exists or has occurred; or
31
<PAGE>
(3) 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 AROC in its sole discretion within seven calendar days after its
receipt of the Alliance Disclosure Schedule or by Alliance in its sole
discretion within seven calendar days after its receipt of the AROC Disclosure
Schedule; or
(e) By either party if the Mailing Date does not occur on or before
December 31, 1999 (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.
-----------
11.2. Manner of Exercise. In the event of termination and abandonment by
------------------
Alliance or AROC, 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. In the event of the termination and
---------------------
abandonment authorized by Section 11.1, then, 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.
- ------------ ------------
12. Miscellaneous.
-------------
12.1. Survival. Except for Sections 2.1 through 2.3 and this Article 12,
-------- ------------ --- ----------
the representations, warranties, covenants and agreements of the parties to this
Agreement shall not survive after the Offer becomes unconditional 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. Subject to the requirements of law, regulatory
--------------
bodies, the City Code and the rules of the London Stock Exchange, 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
32
<PAGE>
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 AROC (prior to the completion of the Offer):
American Rivers Oil Company
700 East 9/th/ Avenue
Denver, Colorado 80203
Attn: Karlton Terry, President
FAX: (303)832-2404
If to Alliance (prior to completion of the Offer):
Alliance Resources PLC
4200 East Skelly Drive
Suite 1000
Tulsa, Oklahoma 74135
Attn: John A. Keenan, Managing Director
FAX: (918) 494-4918
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. 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.
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<PAGE>
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 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 OKLAHOMA 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 Mailing
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 Offer or to take any step that would not
be commercially reasonable, in light of all of the circumstances.
[Remainder of page intentionally left blank]
34
<PAGE>
EXECUTED as of the day and year first above written.
AROC:
AMERICAN RIVERS OIL COMPANY
By:
-------------------------------------------
Name: Karlton Terry
Title: President
AROC Delaware:
AMERICAN RIVERS OIL COMPANY
By:
-------------------------------------------
Name: Karlton Terry
Title: President
Alliance:
ALLIANCE RESOURCES PLC
By:
-------------------------------------------
Name: John A. Keenan
Title: Managing Director
35
<PAGE>
Exhibit 22.1
PRINCIPAL SUBSIDIARIES
Place of
Subsidiary Registration
- ---------- ------------
Difco Limited England
Alliance Resources (Delaware), Inc. Delaware
LaTex Resources, Inc. Delaware
LaTex Petroleum Corporation Delaware
Germany Oil Company Delaware
Alliance Resources Group, Inc. Delaware
Alliance Resources (USA), Inc. Delaware
Source Petroleum, Inc. Delaware
