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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): OCTOBER 30, 1998
ALLIANCE RESOURCES PLC
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(Exact name of registrant as specified in its charter)
ENGLAND AND WALES 0-27750 NONE
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(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Identification No.)
Number)
4200 EAST SKELLY DRIVE, SUITE 1000, TULSA, OKLAHOMA 74135
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 44 171 930 9337
(NOT APPLICABLE)
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective October 30, 1998, Alliance Resources PLC ("Alliance" or the
"Company"), completed its acquisition of (i) the whole of the issued share
capital of Difco Limited ("Difco"), and (ii) through Difco, an undivided 10
percent of the right, title and interest of Burlington Resources (Irish Sea)
Limited, in 13 blocks in the East Irish Sea and Liverpool Bay areas off the West
Coast of the United Kingdom (the "U.K. Interests") (together, with the
acquisition of Difco, the "Acquisitions"). Pursuant to the terms of the
Acquisitions, the former shareholders of Difco received an aggregate of
10,000,000 newly created convertible restricted voting shares ("Acquisition
Shares") and a contingent right to receive additional ordinary shares
("Shares"), subject to the sales production actually achieved from the U.K.
Interests. The Acquisition Shares are entitled to one-half vote per share on
all matters in which the Shares are entitled to vote and otherwise will have
rights identical to the Shares, except for certain restrictions on transfer.
In addition to the Acquisition Shares, the holders of Difco capital stock
received a contingent right to acquire up to 10,000,000 Shares over the next
five years. The number of Shares that are actually issued as a result of this
contingent right will depend on the sales production actually achieved from, or
the estimated value attributable to, the U.K. Interests, as set out in the table
below. The Difco shareholders will receive only 5,000,000 Shares if none of the
production targets is achieved, will receive 20,000,000 Shares if all the
production targets or reserve values are achieved and will receive a number of
Shares within this range if only some of the production targets or reserve
valuations are achieved.
If any Sustained Production Level (as defined below) is achieved, the Difco
holders will be entitled to exchange that number of Acquisition Shares, on a
one-for-one basis, equal to the number of Shares set forth below corresponding
to such Sustained Production Level. Once all Acquisition Shares have been
converted, then the Difco shareholders will receive a number of additional
Shares which, when aggregated with any Shares issuable on conversion of the
Acquisition Shares, equals the number of Shares set forth below corresponding to
the Sustained Production Level. "Sustained Production Level" means sales of
production attributable to the U.K. Interests for a period of at least 90
consecutive days at rates equal to or in excess of the levels described in the
table set out below.
If the first three Sustained Production Levels set out below are achieved,
but the fourth or fifth Sustained Production Levels set out below are not
achieved, and the Reserves Value (as defined below) is equal to or in excess of
that set out below with respect to such Sustained Production Level which has not
been achieved, then additional Shares shall be issued to the Difco holders so
that the total number of additional Shares issued to the Difco holders is equal
to the amount which would have been issued had the Sustained Production Level
been achieved which corresponds to such Reserves Value. "Reserves Value" means
the net present value of the following reserves, bearing interest or discounted
at the rate of 10%, as applicable, net of U.K. corporate tax, and determined in
accordance with generally accepted reservoir engineering standards: (i) the
proceeds previously received which are attributable to the total volume of
reserves produced and sold from the U.K. Interests from and after January 1,
1998, less the aggregate amount of all capital expenditures and operating costs
incurred since January 1, 1998 which are attributable to the U.K. Interests and
(ii) the proceeds estimated to be received attributable to the total volume of
hydrocarbon reserves that geological and engineering data demonstrate, with a
greater than 50% certainty, as determined by
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statistical means, to be recoverable from the U.K. Interests in the future from
known reservoirs under existing operating conditions based upon the most recent
reserve report prepared by Alliance's third-party engineering firm, which report
shall be prepared no less often than annually, less the aggregate amount of all
capital expenditures and operating costs attributable to such reserves.
Sustained Production Base Number of Alliance Estimated Issuance
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Level Shares to be Issued Reserves Value (1) Date (2)
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8 MMcf/day 8,000,000 N/A First Quarter, 2000
12 MMcf/day 3,000,000 N/A First Quarter, 2001
16 MMcf/day 3,000,000 N/A Second Quarter, 2001
20 MMcf/day 3,000,000 $ 34.15 million Third Quarter, 2001
24 MMcf/day 3,000,000 $ 37.5 million Not Applicable
(1) These Reserves Values are not comparable to Pre-tax PV10 value or the
Standardized Measure of the reserves attributable to the Company's
properties or to the U.K. Interests described in other filings by the
Company because the calculation of "Reserves Value" is to be made in the
manner described in the paragraph preceding this table, which is different
than the manner in which the Pre-tax PV10 value and the Standardized
Measure are calculated.
(2) The Estimated Issuance Dates are based upon the reserve report prepared by
the Company's independent petroleum engineers. There can be no assurances,
however, as to the Sustained Production Levels or Reserves Values that will
ultimately be attributable to the U.K. Interests.
If, after five years after the completion of the Difco Acquisition, none of
the Sustained Production Levels set out above has been achieved, the Acquisition
Shares will automatically convert on that date into 5,000,000 Shares and
5,000,000 deferred shares having nominal value and no voting rights. If by that
date more than 5,000,000 but less than all of the Acquisition Shares have
converted into Shares, then any remaining Acquisition Shares shall automatically
convert into deferred shares. The Company shall be entitled to purchase all such
deferred shares for an aggregate consideration of 1p.
As a result of the issuance of the Acquisition Shares, the former
shareholders of Difco have the voting rights equivalent to approximately 8.7% of
the outstanding Shares, and upon conversion of the Acquisition Shares and
issuance of the contingent ordinary shares, could receive up to 28.3% of the
Shares of the Company then outstanding, based upon the production from, or
reserves attributable to, the U.K. Interests.
The Company acquired, through Difco, the U.K. Interests for cash
consideration of approximately $17,000,000.
In connection with the Acquisitions, the Company also entered into
agreements providing up to $65,750,000 in debt to the Company. The Company has
received this debt financing from two lenders.
Bank of America Debt. Bank of America National Trust & Savings Association
("BoA"), Alliance's principal lender, increased the Company's previous revolving
credit facility from approximately $23 million to $55 million. The revised
credit facility will consist of three tranches.
Tranche A will be a borrowing base facility initially capped at $30
million, of which $18.5 million will initially be available and drawn. The
borrowing base capacity of this tranche will be redetermined semi-annually. The
interest rate will be either (i) the greater of Bank of America's reference rate
and the federal funds rate plus 0.25 percent or (ii) the interbank rate plus 2
percent. While Tranche B is outstanding (see below) 0.5 percent will be added to
the interest margin. Principal will be due in equal quarterly installments
beginning in the first quarter of 2001 and ending five years after completion of
the Acquisitions.
Tranche B will be a $20 million term loan facility, all of which will
initially be available, that will mature in the first quarter of 2001, at which
point the outstanding balance will become due and payable. To enable repayment
of this tranche, the Directors envisage that the Company will enter into a
refinancing of its debt facilities at this time. The interest rate on this
tranche will be either (i) Bank of America's reference rate plus 2 percent or
(ii) the interbank rate plus 4 percent, payable quarterly. Interest will
increase by 0.5 percent semi-annually after completion of the Acquisitions.
Tranche C will consist of a $5 million facility, all of which will
initially be available and drawn. The interest rate on this tranche will be
either (i) Bank of America's reference rate plus 5 percent or (ii) the interbank
rate plus 7 percent, payable quarterly. Principal will be due in equal
quarterly installments beginning two years after and ending six years after
completion of the Acquisitions.
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The Company paid BoA a cash fee of $850,000 and granted BoA warrants to
purchase 3,275,000 ordinary shares at a price of 1p per share. In addition, BoA
received an overriding royalty interest in the U.K. Interests of 3.0% beginning
January 1, 2001. The overriding royalty interest will entitle BoA 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. In connection with
obtaining the debt financing from BoA, the Company agreed to enter into
commodity price risk management contracts 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 proved producing reserves at the date of
closing. BoA also required the Company to agree 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.
EnCap Debt. The Company issued to affiliates of EnCap Investments, L.C.
("EnCap") debt of $9,750,000, at an interest rate of 10% per year, and
15,000,000 Shares for an aggregate cash consideration of $10,000,000. Interest
on the EnCap debt is payable semiannually; principal is payable in full seven
years after completing the Acquisitions. For the first three years, the Company
has the option of increasing the amount of debt from EnCap in the amount of the
interest payments due, in lieu of paying the interest. The EnCap debt is
unsecured.
The Company also issued to EnCap 545,454 Shares in consideration of a fee
of $292,500. In addition, EnCap will have the right to designate one member of
the Company's board of directors.
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The Company also issued to EnCap 545,454 Shares in consideration of a fee
of $292,500. In addition, EnCap will have the right to designate one member of
the Company's board of directors.
Pursuant to the terms of the Acquisitions, the former Difco shareholders
also have the right to designate one member of the Company's board of directors.
Any such designation will be in accordance with the Company's Articles of
Association. Once an appointment has been made, the former Difco shareholders
will have no further right to appoint any directors of Alliance.
In addition, pursuant to the terms of the Acquisitions, 615,385 shares were
issued to NM Rothschild & Sons Ltd. in settlement of fees of (pounds)200,000,
and 115,895 shares were issued to NM Rothschild & Sons (Washington) LC in
settlement of a debt of $115,000.
The Alliance Shares resumed trading on the London Stock Exchange on
November 2, 1998, under the symbol "ARS." The consideration paid in the
Acquisition and related transactions was determined through arms-length
negotiations.
The Acquisitions and related transactions are intended to increase the
potential of the Company as an oil and gas exploration, development and
production company.
The Acquisitions and the related transactions related are described in
greater detail in the proxy statements of Alliance dated July 13,1998 and
October 7, 1998, which is incorporated by reference into this report.
ITEM 5. OTHER EVENTS
In connection with the Acquisitions, with shareholder approval, the Company
also effected certain other changes in its Articles of Association, as described
below.
Reduction of Par Value. Prior to the Acquisitions, the Company's Shares
had a par value of 40p each. At the Extraordinary General Meeting called to
consider the Acquisitions, the shareholders approved, and the Company's Articles
of Association were thereafter amended, to reduce the par value of the Shares.
This was achieved by sub-dividing each of the Shares into one new ordinary share
with a par value of 1p and 39 deferred shares with a par value of 1p each. The
resulting ordinary shares, for all practical purposes, have the same rights as
those previously attaching to the ordinary shares of 40p each. The deferred
shares effectively have no rights, are not represented by certificates issued to
shareholders and may be redeemed by the Company by the payment of a total of 1p
for all of the deferred shares. Therefore, certificates representing a specific
number of existing ordinary shares continue to represent the same number of
ordinary shares having the same rights after the change in par value. There was
no net change in the total shareholders' equity reflected on the Company's
balance sheet as a result of the reduction of par value.
Creation of Acquisition Shares. As the initial consideration for the Difco
Acquisition was paid in the form of 10,000,000 Acquisition Shares of 1p each,
shareholders also approved the creation of the Acquisition Shares. These shares
have rights identical to the Company's outstanding Shares, except that they have
only one-half vote per share and are subject to limited rights of transfer.
Authorization of the Issuance of Additional Securities. Unlike in the
U.S., the Board of Directors of a U.K. company has no general authority to issue
shares or other equity securities without first obtaining shareholder approval.
Therefore, it is customary for the shareholders to routinely approve resolutions
permitting the Board of Directors to issue up to a specified amount of
additional securities on such terms as the Board of Directors may determine for
a specified period of time after the authorization. At the Extraordinary
General Meeting, the shareholders adopted a resolution that permits the Board to
allot the Acquisition Shares and additional Shares issuable in accordance with
the terms of the revised Difco Acquisition Agreement or upon the exercise of any
warrants or loan notes and otherwise, to issue securities having a nominal value
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up to one-third of the aggregate nominal value of all Shares outstanding or
unconditionally allotted and fully paid following completion of the
Acquisitions. This authority will expire at the Annual General Meeting of the
Company to be held in 2003, except with respect to any securities the Company
had agreed to issue before that time.
Increase of Maximum Borrowing Authority. The Company's Articles of
Association limit the Company's ability to borrow money, as is customary for
U.K. companies. To permit the Company to obtain the financing necessary to
complete the Acquisitions and to have sufficient borrowing authority for
foreseeable future corporate purposes, the shareholders approved an increase in
the Company's borrowing authority to a multiple of ten (10) times adjusted
capital and reserves, which based on the Pro Forma Condensed Combined Balance
Sheet as of July 31, 1998, would be approximately $118.0 million.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Not applicable.
(B) PRO FORMA FINANCIAL INFORMATION.
Pro forma financial information with respect to the transactions
described in Item 2 above is included beginning on page 7 of the supplemental
proxy statement of the Company dated October 7, 1998, and is incorporated into
this filing by reference.
(C). EXHIBITS
The following exhibits are furnished in accordance with Item 601 of
Regulation S-K:
3.1 Articles of Association of the Company as revised October 30, 1998.
3.2 Memorandum of Association of the Company as revised October 30, 1998.
10.1 Purchase Agreement dated October 27, 1998, by and between Alliance
Resources PLC and EnCap Equity 1996 Limited Partnership and Energy
Capital Investment Company Plc.
10.2 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.
10.3 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.
10.4 Registration Rights Agreement dated as of October 30, 1998 between the
Company and LaSalle Street Natural Resources Corporation.
10.5 Registration Rights Agreement dated as of October 30, 1998, among
Alliance Resources PLC and F. Fox Benton and certain members of his
family.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ALLIANCE RESOURCES PLC
(Registrant)
Date: November 16, 1998 By: /s/John A. Keenan
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John A. Keenan
Chairman and Managing Director
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INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY
NO. EXHIBIT NUMBERED PAGE
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3.1 Articles of Association of the Company as revised
October 30, 1998
3.2 Memorandum of Association of the Company as revised
October 30, 1998.
10.1 Purchase Agreement dated October 27, 1998, by and
between Alliance Resources PLC and EnCap Equity 1996
Limited Partnership and Energy Capital Investment
Company Plc.
10.2 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.
10.3 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.
10.4 Registration Rights Agreement dated as of October 30,
1998 between the Company and LaSalle Street Natural
Resources Corporation.
10.5 Registration Rights Agreement dated as of October 30,
1998, among Alliance Resources PLC and F. Fox Benton
and certain members of his family.
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