<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------------------------------
FORM 10-QSB
------------------------------------------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
JUNE 30, 1996
Commission File Number 1-12322
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SABA PETROLEUM COMPANY
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(Exact name of small business issuer as specified in its charter)
Colorado 47-0617589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17512 Von Karman Avenue
Irvine, California 92714
(Address of principal executive offices)
Issuer's telephone number, including area code: (714) 724-1112
Not Applicable
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Former name, former address and former fiscal year, if changed since last report
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--- ---
At August 12, 1996, 4,454,759 shares of common stock, no par value, were
outstanding.
Transitional Small Business Disclosure Format. [ ] YES [X] NO
<PAGE> 2
SABA PETROLEUM COMPANY
CONTENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 1996 3
Condensed Consolidated Statements of Income for the six
and three month periods ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19-20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 236,945
Restricted certificate of deposit 1,784,235
Accounts receivable, net of allowance for doubtful
accounts of $63,200 5,984,980
Other current assets 2,667,104
--------------
Total current assets 10,673,264
--------------
Property and equipment (Note 4):
Oil and gas properties (full cost method) 34,732,006
Land, plant and equipment 5,379,710
--------------
40,111,716
Less accumulated depletion and depreciation (12,324,306)
--------------
Total property and equipment 27,787,410
--------------
Other assets 2,936,075
--------------
$ 41,396,749
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 5,324,308
Current portion of long-term debt 2,019,060
--------------
Total current liabilities 7,343,368
Long-term debt, net of current portion 22,999,173
Other liabilities and deferred taxes 501,023
Minority interest in consolidated subsidiary 586,201
--------------
Total liabilities 31,429,765
--------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock - no par value, authorized
50,000,000 shares; none issued -
Common stock - no par value, authorized
150,000,000 shares; issued and outstanding
4,333,418 shares 7,415,732
Retained earnings 2,527,992
Cumulative translation adjustment 23,260
--------------
Total stockholders' equity 9,966,984
--------------
$ 41,396,749
==============
</TABLE>
Theaccompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30 Ended June 30
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 14,603,688 $ 7,017,489 $ 7,640,802 $ 3,831,179
Other 786,430 147,970 362,026 100,672
------------ ------------ ------------ ------------
Total revenues 15,390,118 7,165,459 8,002,828 3,931,851
------------ ------------ ------------ ------------
Expenses:
Production costs 7,180,776 4,367,586 3,778,786 2,338,992
General and administrative 1,667,961 985,425 964,204 479,362
Depletion, depreciation and amortization 2,368,405 1,219,008 1,227,905 715,321
------------ ------------ ------------ ------------
Total expenses 11,217,142 6,572,019 5,970,895 3,533,675
------------ ------------ ------------ ------------
Operating income 4,172,976 593,440 2,031,933 398,176
------------ ------------ ------------ ------------
Other income (expense):
Other income (expense) (83,226) 15,362 (22,380) 9,447
Interest expense, net of interest capitalized
of $27,369 (1995) (1,197,740) (437,320) (588,653) (257,423)
------------ ------------ ------------ ------------
Total other income (expense) (1,280,966) (421,958) (611,033) (247,976)
------------ ------------ ------------ ------------
Income before income taxes 2,892,010 171,482 1,420,900 150,200
Provision for taxes on income (1,301,500) (61,177) (607,500) (52,027)
Minority interest in earnings of consolidated subsidiary (100,647) -- (79,025) --
------------ ------------ ------------ ------------
Net income $ 1,489,863 $ 110,305 $ 734,375 $ 98,173
============ ============ ============ ============
Net earnings per common share:
Primary $ 0.33 $ 0.03 $ 0.16 $ 0.02
============ ============ ============ ============
Fully-diluted $ 0.32 $ 0.03 $ 0.16 $ 0.02
============ ============ ============ ============
Weighted average common and common equivalent shares outstanding:
Primary 4,541,311 4,289,041 4,569,562 4,349,789
============ ============ ============ ============
Fully-diluted 5,947,510 4,289,041 6,012,917 4,349,789
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
4
<PAGE> 5
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,489,863 $ 110,305
Adjustments to reconcile net income to net cash
provided by operations:
Depletion, depreciation and amortization 2,368,405 1,219,008
Deferred taxes -- 28,672
Amortization of unearned compensation 8,500 8,500
Compensation expense attributable to non-employee option 91,600 --
Minority interest in earnings of consolidated subsidiary 100,647 --
Changes in:
Accounts receivable (1,540,620) (337,581)
Other assets 278,060 (186,171)
Accounts payable and accrued liabilities (1,544,309) 344,567
----------- -----------
Net cash provided by operating activities 1,252,146 1,187,300
----------- -----------
Cash flows from investing activities:
Sale of property and equipment -- 52,062
Expenditures for property and equipment (2,397,947) (5,171,712)
Expenditures for property deposits (250,280) (1,585,000)
----------- -----------
Net cash used in investing activities (2,648,227) (6,704,650)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 6,700,712 9,060,000
Principal payments on notes payable and long-term debt (5,575,275) (4,530,697)
(Increase) decrease in notes receivable (284,056) 150,383
Increase in deferred loan costs (165,777) (42,145)
Net change in accounts with affiliated companies (12,901) 283,124
Net proceeds from issuance of common stock 329,992 81,250
----------- -----------
Net cash provided by financing activities 992,695 5,001,915
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 44 --
----------- -----------
Net decrease in cash (403,342) (515,435)
Cash at beginning of period 640,287 798,984
----------- -----------
Cash at end of period $ 236,945 $ 283,549
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE> 6
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial statements have
been prepared on a basis consistent with the accounting principles and
policies reflected in the financial statements for the year ended December
31, 1995 and should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1995 Form 10-KSB. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals only) necessary to present fairly the Company's consolidated
financial position as of June 30, 1996, and the consolidated results of
operations for the six and three month periods ended June 30, 1996 and 1995
and the consolidated cash flows for the six months ended June 30, 1996 and
1995.
2. RECLASSIFICATION
Certain previously reported financial information has been reclassified to
conform to the current periods' presentation.
3. STATEMENTS OF CASH FLOWS
Following is certain supplemental information regarding cash flows for the
six months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Interest paid $ 1,228,259 $ 458,790
============ ==========
Income taxes paid $ 642,756 $ 27,480
============ ==========
</TABLE>
Non-cash investing and financing transactions:
In February 1996 the Company issued 7,000 shares of Common Stock to a
director of the Company in settlement of an obligation in the amount of
$42,000.
Debentures in the principal amount of $156,000 were converted into
17,828 shares of Common Stock during the six months ended June 30,
1996.
The Company incurred a charge to operations, and a credit to Stockholders'
Equity, in the amount of $91,600 resulting from the issuance of stock
options to a consultant during the six months ended June 30, 1996.
Cumulative foreign currency translation gains in the amount of $1,003 were
recorded during the six months ended June 30, 1996.
In January 1995 the Company awarded 12,000 shares of Common Stock with a
fair market value of $25,500 to an employee.
Accrued interest in the amount of $27,369 was capitalized in connection with
the refurbishment of the refinery facility during the six months ended June
30, 1995.
Cumulative foreign currency translation gains in the amount of $27,017 were
recorded during the six months ended June 30, 1995.
6
<PAGE> 7
4. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1996:
<TABLE>
<S> <C>
9% convertible senior subordinated debentures - due 2005 $ 12,494,000
Revolving loan agreement with a bank 9,100,000
Demand loan agreement with a bank 1,352,333
Promissory note 450,000
Promissory notes - Capco 1,621,900
------------
25,018,233
Less current portion 2,019,060
------------
$ 22,999,173
============
</TABLE>
On December 26, 1995, the Company issued $11,000,000 of 9% convertible
senior subordinated debentures ("Debentures") due December 15, 2005. On
February 7, 1996, the Company issued an additional $1,650,000 of Debentures
pursuant to the exercise of an over-allotment option by the underwriting
group. The Debentures are convertible into Common Stock of the Company, at
the option of the holders of the Debentures, at any time prior to maturity
at a conversion price of $8.75 per share, subject to adjustment in certain
events. Net proceeds to the Company were utilized to reduce the outstanding
balance under the Company's revolving loan agreement and for other purposes.
The Company has reserved 1,500,000 shares of its Common Stock for the
conversion of the Debentures. Debentures in the amount of $156,000 were
converted into 17,828 shares of Common Stock during the six month period
ended June 30, 1996. For the period July 1, 1996 to August 12, 1996,
Debentures in the amount of $1,018,000 were converted into 116,341 shares of
Common Stock.
The revolving loan ("Agreement") is subject to semi-annual redeterminations
and will be converted to a three year term loan on June 1, 1997. Effective
February 26, 1996, the borrowing base was increased from $9,700,000 to
$10,800,000, subject to a monthly reduction of $200,000. In accordance with
the terms of the Agreement, $1,500,000 of the loan balance is classified as
currently payable at June 30, 1996. The Agreement requires, among other
things, that the Company maintain at least a 1 to 1 working capital ratio,
stockholders' equity of $6,250,000, a ratio of cash flow to debt service of
not less than 1.25 to 1.0 and general and administrative expenses at a level
not greater than 20% of revenue, all as defined in the Agreement.
Additionally, the Company is restricted from paying dividends and advancing
funds in excess of specified limits to affiliates.
Prior to March 5, 1996, the Company's Canadian subsidiary had a demand
non-revolving bank loan with principal repayments of $53,500 on the first
day of every month. Effective March 5, 1996, the company renegotiated its
bank loan and now has available a demand revolving reducing loan of
$1,830,000. The maximum principal amount available under the loan reduces by
$36,650 per month commencing April 1, 1996. Interest is payable at a
variable rate equal to the Canadian prime rate plus 1% per annum (7.25% at
June 30, 1996). Although the bank can demand payment in full of the loan at
any time, it has provided a written commitment not to do so except in the
event of a default.
The promissory note is due to the seller of an oil refining facility which
was acquired by the Company in June 1994. Payment of the note balance, which
bears interest at the prime rate in effect on the note anniversary date,
plus two percent (10.25% at June 30, 1996), is due on June 24, 1997.
7
<PAGE> 8
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. LONG-TERM DEBT (CONTINUED)
The promissory notes - Capco are due to the Company's parent company, Capco
Resources Ltd. and to Capco Resources, Inc., formerly wholly-owned by Capco
Resources Ltd. and now majority-owned by Capco Resources Ltd. Payment of the
notes, which bear interest at the rate of 9% per annum, is due April 1,
2006. The notes are subordinated to the same extent the Debentures are
subordinated.
5. COMMON STOCK AND STOCK OPTIONS
As of June 30, 1996, the Company had outstanding options to certain
employees of the Company for the purchase of 366,000 shares of Common Stock.
These options become exercisable over a period of five years from the date
of issue. The exercise price of the options is the fair market value of the
Common Stock at the date of grant. Options to acquire 4,000 shares of Common
Stock were exercised during the six month period ended June 30, 1996.
Options to acquire 108,000 shares of Common Stock were exercisable at June
30, 1996. Options to acquire 5,000 shares of Common Stock were exercised
subsequent to June 30, 1996.
During the six months ended June 30, 1996, the Company issued options to
acquire 50,000 shares of the Company's Common Stock to a consultant. As a
result, the Company incurred a charge to operations, and a credit to
Stockholders' Equity, in the amount of $91,600. Options to acquire 40,000
shares of Common Stock were exercised during the six month period ended June
30, 1996. The unexercised options expire November 21, 1996.
In April 1996 and June 1996, the Company's Board of Directors and
shareholders, respectively, approved the Company's 1996 Incentive Equity
Plan ("Plan"). The purpose of the Plan is to enable the Company to provide
officers, other key employees and consultants with appropriate incentives
and rewards for superior performance. Subject to certain adjustments, the
maximum aggregate number of shares of the Company's Common Stock that may be
issued pursuant to the Plan, and the maximum number of shares of Common
Stock granted to any individual in any calendar year, shall not in the
aggregate exceed 500,000 and 100,000, respectively. At June 30, 1996 no
awards had been made under the Plan.
In January 1995, the Company awarded 12,000 shares of Common Stock to an
employee pursuant to the terms of an employment agreement. The cost of the
stock award, based on the stock's fair market value at the award date, was
charged to stockholders' equity and is amortized against earnings over the
contract term.
6. CONTINGENCIES
The Company is subject to extensive Federal, state, local and foreign
environmental laws and regulations. These requirements, which change
frequently, regulate the discharge of materials into the environment. The
Company believes that it is in compliance with existing laws and
regulations.
The Colombian Ministry of the Environment issued a resolution dated June 7,
1995 that set forth a number of measures aimed at correcting certain
deficiencies that the Ministry has allegedly found in environmental aspects
of the Teca and Nare oil fields. Among such measures, the Ministry ordered
the temporary closing of one of five production modules until Texas
Petroleum Company, the former owner and operator of the properties, provided
a document detailing the timetable to correct the deficiencies. This
temporary closing of the module has not had a substantial effect on total
8
<PAGE> 9
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. CONTINGENCIES (CONTINUED)
production because substantially all of the crude oil which would otherwise
have been processed in the closed module has been directed to other
production modules. The resolution also ordered the opening of an
environmental investigation of Texas Petroleum Company's operation of the
Teca and Nare oil fields. The document containing the requested timetable
was presented to the Ministry of the Environment on July 6, 1995. On August
8, 1995 the Ministry of the Environment requested certain revisions to the
timetable.
Texas Petroleum Company formally appealed the resolution and the Ministry of
Environment, Texas Petroleum Company and Omimex, the current operator of the
Teca and Nare oil fields, have negotiated an agreement for Omimex and the
Company to implement certain corrective actions over a four to six month
period, at which time the closed production module will be allowed to
recommence operations. Texas Petroleum Company had previously estimated that
the costs of compliance with the resolution attributable to the Company's
interest in the Teca and Nare oil fields would not exceed $250,000.
Additionally, the Company engaged an independent consultant to perform an
environmental compliance survey of the Teca and Nare oil fields. That survey
estimated that the costs of environmental compliance attributable to the
Company's interest in the Teca and Nare oil fields would not exceed
$375,000. Omimex has indicated to the Company that it believes that these
cost estimates for the corrective work are accurate. Under the terms of the
Company's agreement with Texas Petroleum Company, however, the Company takes
Texas Petroleum Company's interests "as is" and could be subject to
liability materially greater than the estimated costs. Omimex also estimates
that as much as $250,000 may be expended to upgrade waste water disposal
capabilities.
The Company has a significant contingent liability in connection with the
plugging and abandonment ("P&A") of approximately 225 wells on certain
California property acquired by the Company during 1993. The Company
acquired the mineral rights and fee title to the property. The Company
intends to operate the producing wells on the property as long as
economically feasible and will decide in the future regarding the ultimate
disposition of the land. If the Company chooses to sell the property, it may
decide to sell the land "as is" or incur the P&A costs, thus enhancing the
property's value. The Company estimates that the P&A costs will approximate
$15,000 per well, for a total of $3,375,000. Management believes that the
fair market value of this land, after restoration, will exceed the estimated
P&A costs.
The Company is a defendant in various legal proceedings which arise in the
normal course of business. Based on discussions with legal counsel,
management does not believe that the ultimate resolution of such actions
will have a significant effect on the Company's financial statements or
operations.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements of the Company and notes thereto, included
elsewhere herein.
OVERVIEW
The Company's long-term business strategy is to acquire oil and gas reserves
for current and future production and the enhancement and development of
such reserves. Capital utilized to acquire such reserves has been provided
primarily by secured bank financing, the creation of joint interest
operations and production payment obligations, sale of debentures, and sales
of the Company's equity securities. In pursuit of its business strategy, the
Company has made significant acquisitions of oil and gas producing
properties in recent years. The extent and timing of these acquisitions
complicates period to period comparisons.
The Company's oil and gas producing activities are accounted for using the
full cost method of accounting. Accordingly, the Company capitalizes all
costs, in separate cost centers for each country, incurred in connection
with the acquisition of oil and gas properties and with the exploration for
and development of oil and gas reserves. Such costs include lease
acquisition costs, geological and geophysical expenditures, costs of
drilling both productive and non-productive wells, and overhead expenses
directly related to land acquisition and exploration and development
activities. Proceeds from the disposition of oil and gas properties are
accounted for as a reduction in capitalized costs, with no gain or loss
recognized unless such disposition involves a significant change in
reserves, in which case the gain or loss is recognized.
Depletion of the capitalized costs of oil and gas properties, including
estimated future development costs, is provided using the equivalent
unit-of-production method based upon estimates of proved oil and gas
reserves and production which are converted to a common unit of measure
based upon their relative energy (BTU) content. Unproved oil and gas
properties are not amortized but are individually assessed for impairment.
The cost of any impaired property is transferred to the balance of oil and
gas properties being depleted.
The Company's operating performance is influenced by several factors, the
most significant of which are the price received for its oil and gas and the
Company's production volumes. The world price for crude oil has an overall
influence on the prices that the Company receives for the oil that it
produces. The prices received for different grades of oil are based upon the
world price for crude oil, which is then adjusted based upon the particular
grade, such that, typically, light oil is sold at a premium while heavy
grades of crude are discounted. Additional factors influencing operating
performance include production expenses, overhead requirements, the
Company's method of depleting reserves, and cost of capital.
In May 1995, the Company completed the re-permitting and environmental
impact review process of its Santa Maria refinery with the County of Santa
Barbara and in June 1995 re-commenced refinery operations. The Company
entered into a processing agreement with Petro Source, under which Petro
Source purchases crude oil (including crude oil purchased from the Company),
delivers it to the refinery, reimburses the Company's out-of-pocket costs
for refining, markets the asphalt and other products and generally shares
any profits equally with the Company.
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OVERVIEW (CONTINUED)
Processing operations at the Company's asphalt refinery during the three
months ended June 30, 1996 resulted in a small accumulation of asphalt
inventory. Crude oil throughput amounted to 301,000 barrels, an average of
3,305 barrels per day. Processing the crude oil produced 34,000 tons of
asphalt and 108,000 barrels of related products. Quantities sold during the
quarter consisted of 25,400 tons (75% of production) of asphalt and 90,000
barrels of other products.
ACQUISITION, EXPLORATION AND DEVELOPMENT
Drilling activity during the quarter ended June 30, 1996 included the
completion of one gross (.56 net) gas well in the Black Warrior Basin in
Alabama, the drilling and completion of one gross (1.0 net) horizontal oil
well at the Company's Cat Canyon property in Santa Barbara County,
California, the drilling of one gross (.23 net) gas well in Washita County,
Oklahoma which is currently being completed for production and the drilling
of one gross (.05 net) gas well in Alberta, Canada which is currently being
completed. Subsequent to June 30, 1996, the Company participated in the
drilling and completion of one gross (.50 net) horizontal oil well at the
Company's Richfield East Dome Unit property in Orange County, California and
the drilling and completion of one gross (.50 net) gas well in Solano
County, California.
Additional development drilling activities may be conducted in some of these
areas in the second half of 1996, once well testing is completed and
production performance is evaluated.
RESULTS OF OPERATIONS
Results of the Company's oil and gas producing activities for the six and
three month periods ended June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 United
- ------------------------------ Total States Canada Colombia
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Oil and gas sales $14,603,688 $ 6,859,207 $ 1,333,645 $ 6,410,836
Production costs $ 7,180,776 $ 3,927,488 $ 476,761 $ 2,776,527
Depletion $ 2,099,225 $ 991,305 $ 132,840 $ 975,080
General and administrative expenses $ 1,563,530 $ 1,184,881 $ 289,211 $ 89,438
Oil volume (BBL) 971,367 377,074 62,597 531,696
Gas volume (MCF) 806,035 495,304 310,731 --
Barrels of oil equivalent (BOE) 1,105,707 459,625 114,386 531,696
Average per BOE:
Sales price $ 13.20 $ 14.92 $ 11.65 $ 12.05
Production costs $ 6.49 $ 8.54 $ 4.16 $ 5.22
Depletion $ 1.89 $ 2.15 $ 1.16 $ 1.83
</TABLE>
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1995 United
- ------------------------------ Total States Canada Colombia
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and gas sales $7,017,489 $5,583,785 $ 840,637 $ 593,067
Production costs $4,367,586 $3,688,429 $ 361,106 $ 318,051
Depletion $1,150,616 $ 870,680 $ 241,071 $ 38,865
General and administrative expenses $ 840,371 $ 743,135 $ 97,236 $ --
Oil volume (BBL) 456,356 339,578 34,973 81,805
Gas volume (MCF) 723,773 450,766 273,007 --
Barrels of oil equivalent (BOE) 576,985 414,706 80,474 81,805
Average per BOE:
Sales price $ 12.16 $ 13.46 $ 10.45 $ 7.25
Production costs $ 7.57 $ 8.89 $ 4.49 $ 3.89
Depletion $ 1.99 $ 2.10 $ 3.00 $ 0.48
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1996 United
- -------------------------------- Total States Canada Colombia
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and gas sales $7,640,802 $3,583,696 $ 757,401 $3,299,705
Production costs $3,778,786 $1,962,936 $ 274,632 $1,541,218
Depletion $1,094,106 $ 532,690 $ 74,041 $ 487,375
General and administrative expenses $ 864,559 $ 659,332 $ 157,702 $ 47,525
Oil volume (BBL) 492,262 194,628 33,978 263,656
Gas volume (MCF) 390,705 228,292 162,413 --
Barrels of oil equivalent (BOE) 557,380 232,677 61,047 263,656
Average per BOE:
Sales price $ 13.70 $ 15.40 $ 12.40 $ 12.51
Production costs $ 6.77 $ 8.43 $ 4.49 $ 5.84
Depletion $ 1.96 $ 2.28 $ 1.21 $ 1.84
</TABLE>
12
<PAGE> 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1995 United
- -------------------------------- Total States Canada Colombia
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and gas sales $3,831,179 $3,012,395 $ 463,866 $ 354,918
Production costs $2,338,992 $1,975,423 $ 180,781 $ 182,788
Depletion $ 678,196 $ 513,930 $ 141,161 $ 23,105
General and administrative expenses $ 398,322 $ 357,669 $ 40,653 $ --
Oil volume (BBL) 243,270 175,703 19,125 48,442
Gas volume (MCF) 377,785 251,148 126,637 --
Barrels of oil equivalent (BOE) 306,234 217,561 40,231 48,442
Average per BOE:
Sales price $ 12.51 $ 13.85 $ 11.53 $ 7.33
Production costs $ 7.64 $ 9.08 $ 4.49 $ 3.77
Depletion $ 2.21 $ 2.36 $ 3.51 $ 0.48
</TABLE>
1996 COMPARED TO 1995
The Company reported net income of $1,490,000 and $734,000 for the six and
three month periods ended June 30, 1996, respectively, as compared with net
income of $110,000 and $98,000 for the same periods in 1995.
Oil and gas sales increased $7,586,000 (108.1%) and $3,810,000 (99.5%) for
the six and three month periods ended June 30, 1996, respectively, from
$7,017,000 and $3,831,000 for the same periods of 1995. Exclusive of the
Colombia properties, which were principally acquired in September 1995,
average sales price per BOE increases of $1.30 (10.0%) and $1.29 (9.6%) for
the six and three month periods ended June 30, 1996, respectively, from
$12.97 and $13.48 for the same periods of 1995, resulted in increased oil
and gas sales of $746,000 and $380,000, respectively. Production increases
of 78,800 BOE (15.9%) and 35,900 BOE (13.9%), respectively, from 495,200 BOE
and 257,800 BOE for the same periods of 1995 resulted in increased oil and
gas sales of $1,023,000 and $485,000, respectively. The production increases
were due to production attributable to acquisitions in the second half of
1995 and drilling and rework activities in the first six months of 1996,
reduced by property divestitures and normal production declines during the
same periods. The Teca, Nare and Cocorna oil fields in Colombia, which were
acquired in September and December 1995, provided oil sales of $5,783,000
and $2,983,000, production quantities of 450,300 BOE and 224,300 BOE and
average sales price per BOE of $12.84 and $13.29, respectively, for the six
and three month periods ended June 30, 1996.
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<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Production costs increased $2,813,000 (64.4%) and $1,440,000 (61.6%) for the
six and three month periods ended June 30, 1996, respectively, from
$4,368,000 and $2,339,000 for the same periods of 1995. Exclusive of the
Colombia properties, which were principally acquired in September 1995,
average production costs per BOE decreases of $0.51 (6.2%) and $0.75 (9.0%)
for the six and three month periods ended June 30, 1996, respectively, from
$8.18 and $8.36 for the same periods of 1995, resulted in decreased
production costs of $290,000 and $219,000, respectively, whereas production
increases resulted in increased production costs of $645,000 and $301,000,
respectively. The Teca, Nare and Cocorna oil fields in Colombia which were
acquired in September and December 1995 incurred production costs of
$2,179,000 and $1,225,000, production quantities of 450,300 BOE and 224,300
BOE and average production costs per BOE of $4.83 and $5.46, respectively,
for the six and three month periods ended June 30, 1996.
Depletion, depreciation and amortization expenses increased $1,149,000
(94.3%) and $513,000 (71.7%) for the six and three month periods ended June
30, 1996, respectively, from $1,219,000 and $715,000 for the same periods of
1995. Exclusive of the Colombia properties, which were principally acquired
in September 1995, depletion expense increased $12,000 (1.1%) for the six
months ended June 30, 1996 and decreased $48,000 (7.3%) for the three months
ended June 30, 1996, from $1,112,000 and $655,000 for the same periods of
1995. Production increases of 45,000 BOE and 15,000 BOE for the United
States cost center for the six and three month periods ended June 30, 1996,
respectively, from the same periods of 1995 resulted in depletion increases
of $94,000 and $36,000 for the six and three month periods ended June 30,
1996, respectively, from the same periods of 1995. Production increases of
34,000 BOE and 21,000 BOE for the Canada cost center for the six and three
month periods ended June 30, 1996, respectively, from the same periods of
1995 resulted in depletion increases of $102,000 and $73,000 for the six and
three month periods ended June 30, 1996, respectively, from the same periods
of 1995. An increase in the estimated proved reserves at the beginning of
the respective periods in 1996 caused a reduction in the depletion rate per
BOE for the Canada cost center. Rate per BOE decreases of $1.83 and $2.30
for the six and three month periods ended June 30, 1996, respectively, from
the same periods of 1995 resulted in depletion decreases of $210,000 and
$140,000 for the six and three month periods ended June 30, 1996,
respectively, from the same periods of 1995. Due principally to the
acquisition of the Teca, Nare and Cocorna oil fields in Colombia in
September and December 1995, depletion expense for the Colombia cost center
increased $936,000 and $464,000 for the six and three month periods ended
June 30, 1996, respectively, from the same periods of 1995. Depreciation and
amortization expense increased $201,000 (295.6%) and $97,000 (262.2%) for
the six and three month periods ended June 30, 1996, respectively, from
$68,000 and $37,000 for the same periods of 1995. The increases were due
principally to the Colombia property acquisition in September 1995, which
included oil pipeline facilities and the costs incurred by the Company in
connection with the debenture offering, which closed in December 1995.
Other revenues increased $638,000 (431.1%) and $261,000 (258.4%) for the six
and three month periods ended June 30, 1996, respectively, from $148,000 and
$101,000 for the same periods in 1995, due principally to net pipeline
tariffs of $522,000 and $206,000 for the six and three month periods ended
June 30, 1996, respectively, reported by the Company's Colombia subsidiary,
which began operations in September 1995.
14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses increased $683,000 (69.3%) and $485,000
(101.3%) for the six and three month periods ended June 30, 1996,
respectively, from $985,000 and $479,000 for the same periods of 1995, due
principally to general and administrative expenses incurred as a result of
expanded international operations in Canada and Colombia in the third and
fourth quarters of 1995, and as a result of an increase in employment levels
in the Company's domestic regional offices.
Other income (expense) decreased $98,000 (653.3%) and $31,000 (344.4%) for
the six and three month periods ended June 30, 1996, respectively, from
income of $15,000 and $9,000 for the same periods of 1995. The changes were
primarily due to non-operational expenses of $163,000 and $52,000 for the
six and three month periods ended June 30, 1996, respectively, incurred at
the Company's Colombia operations, reduced by additional interest income of
$33,000 and $17,000, in the two periods, respectively, and by other income
of $28,000 in the six months ended June 30, 1996.
Interest expense increased $761,000 (174.1%) and $332,000 (129.2%) for the
six and three month periods ended June 30, 1996, respectively, from $437,000
and $257,000 for the same periods of 1995. Interest expense of $548,000 and
$278,000 for the six and three month periods ended June 30, 1996,
respectively, was attributable to the Company's debenture offering which
closed in December 1995. Interest expense attributable to the Company's
revolving line of credit increased $61,000 (14.8%) and decreased $6,000
(2.8%) for the six and three month periods ended June 30, 1996,
respectively, from $412,000 and $211,000 for the same periods in 1995. The
average debt balance outstanding under the Company's revolving line of
credit for the six and three month periods ended June 30, 1996 increased
$1,869,000 (26.4%) and $466,000 (5.6%), respectively, from $7,092,000 and
$8,383,000 for the same periods of 1995, due principally to the use of loan
proceeds to fund property acquisitions which closed during 1995. The
weighted average interest rate for the Company's revolving line of credit
decreased 62 basis points (6.3%) and 75 basis points (7.5%) for the six and
three month periods ended June 30, 1996, respectively, from 9.91% and 10.0%
for the same periods of 1995. Interest expense incurred by the Company
attributable to subordinated indebtedness to affiliated companies which was
borrowed in the third quarter of 1995 was $73,000 and $36,000 for the six
and three month periods ended June 30, 1996, respectively. Other interest
expense incurred principally by the Company's Canada, Colombia and refining
subsidiaries increased $76,000 (113.2%) and $24,000 (52.2%) for the six and
three month periods ended June 30, 1996, respectively, from $86,000 and
$46,000 for the same periods in 1995.
The Company's oil and gas producing business is not seasonal in nature.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's total current assets were $10.7 million and
its total current liabilities were $7.3 million. Included in current
liabilities was $2.0 million attributable to the current portion of
long-term debt.
15
<PAGE> 16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Summary cash flow information for the six month periods ended June 30,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 1,252,000 $ 1,187,000
Net cash used in investing activities $ (2,648,000) $ (6,705,000)
Net cash provided by financing activities $ 993,000 $ 5,002,000
</TABLE>
The Company's operating activities during the six months ended June 30, 1996
provided net cash flow of $1.3 million. Net income of $1.5 million, adjusted
for non-cash charges (primarily depletion, depreciation and amortization) in
the amount of $2.5 million, was the primary source of cash inflows from
operations. Working capital requirements attributable principally to
operations at the Company's Colombia oil properties were responsible for
cash outflows of $2.8 million. Cash flows from operating activities provided
net cash flow of $1.2 million in the six months ended June 30, 1995. Net
income of $110,000, adjusted for non-cash charges (primarily depletion,
depreciation and amortization) in the amount of $1.2 million, was the
principal source of cash inflows from operations. Working capital
requirements resulted in a cash outflow of $179,000 during the six months
ended June 30, 1995.
Investing activities during the six months ended June 30, 1996 resulted in a
net cash outflow of $2.6 million. Of this amount, oil and gas property
acquisition, development and exploration expenditures totaled $2.2 million.
An additional $220,000 was expended for other assets. Investing activities
during the six months ended June 30, 1995 resulted in a utilization of cash
amounting to $6.7 million. Expenditures for oil and gas property
acquisitions and exploration and development activities during the six
months ended June 30, 1995, totaled $4.8 million. Deposits in the amount of
$1.6 million were issued in connection with pending acquisitions of oil and
gas properties in New Mexico and Colombia during the six months ended June
30, 1995.
Financing activities during the six months ended June 30, 1996, which
provided net cash flow of $1.0 million, consisted principally of activity on
the Company's revolving loan agreement, and proceeds from the issuance of
debentures, net of related financing costs, in the amount of $1.4 million.
Proceeds from the exercise of options to acquire Common Stock provided cash
inflows of $330,000 during the six months ended June 30, 1996. Financing
activities during the six months ended June 30, 1995 which provided net cash
flow of $5 million, consisted principally of activity on the Company's
revolving loan agreement and retirement of a $606,000 note payable that was
outstanding at December 31, 1994. Advances from affiliated companies in the
amount of $283,000 were used to partially fund the note payment.
16
<PAGE> 17
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company has expanded its operations through acquisitions of oil and gas
producing properties, and intends to do so in the future by means of
additional financing.
The Company has a reducing, revolving line of credit with Bank One, Texas,
N.A. At June 30, 1996, the borrowing base under the credit agreement was
$10.0 million, subject to a monthly reduction of $200,000. Outstanding debt
at June 30, 1996 for this credit facility was $9.1 million. On February 7,
1996, underwriters for the Company's debenture offering exercised their
over-allotment option, resulting in net proceeds to the Company of $1.5
million, a portion of which was utilized to reduce the outstanding balance
under the Company's revolving line of credit. Effective March 6, 1996, the
Company's Canada subsidiary renegotiated its term loan and now has available
a demand revolving reducing loan. At June 30, 1996, the borrowing base under
the loan agreement was $1.7 million, subject to a monthly reduction of
$37,000. Outstanding debt at June 30, 1996 for this credit facility was $1.4
million. The Company believes that the borrowing capacity available under
its credit facilities, plus anticipated cash flows from operations, will be
sufficient to fund its current working capital requirements.
In June 1996 the Company's Board of Directors declared a property dividend
representing 15% of the shares of common stock of its wholly owned
subsidiary, Saba Petroleum of Michigan, Inc. ("SPM"), subject to the
completion of a private placement of common stock of SPM of $2,000,000 and
the assumption of approximately $3,150,000 of the Company's bank debt by
SPM. Subject to the foregoing conditions being met, it is estimated that the
Company will dividend 375,000 shares of SPM to the Company's shareholders,
of which approximately 135,000 shares will be issued to non-affiliates of
the Company. The record and distribution dates for the dividend have not yet
been determined.
Should the Company be unable to obtain equity and/or debt financing in
amounts sufficient to fund projected activities, it may be constrained in
its ability to acquire and/or develop additional oil and gas properties.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
report are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecasted results. These risks and uncertainties include,
among other things, volatility of oil prices, product demand, market
competition, risks inherent in the Company's international operations,
including future prices paid for oil produced at the Colombian oil
properties, imprecision of reserve estimates, and the Company's ability to
replace and expand oil and gas reserves. These and other risks are described
elsewhere herein and in the Company's other filings with the Securities and
Exchange Commission.
17
<PAGE> 18
SABA PETROLEUM COMPANY
PART II - OTHER INFORMATION
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
- - Exhibits filed for the quarter ended June 30, 1996 are as follows:
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.1 Benefits Plans - 1996 Incentive Equity Plan
10.2 Promissory Note of Ilyas Chaudhary to the Company
10.3 Form of Stock Option Agreements between Ilyas
Chaudhary and William Hickey and Francis Barker
10.4 Form of Stock Option Termination Agreements between
the Company and William Hagler and William Richards
11.1 Computation of Earnings per Common Share
- - No reports were filed under Form 8-K during the quarter ended June 30, 1996.
18
<PAGE> 19
SABA PETROLEUM COMPANY
SIGNATURES
In accordance with the requirements of the Exchange Act, the issuer caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SABA PETROLEUM COMPANY
Date: August 14, 1996 By: /s/Ilyas Chaudhary
-------------------- -------------------
Ilyas Chaudhary
President
(Principal Executive
Officer)
Date: August 14, 1996 /s/Walton C. Vance
-------------------- -------------------
Walton C. Vance
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19
<PAGE> 1
EXHIBIT 10.1
SABA PETROLEUM COMPANY
1996 INCENTIVE EQUITY PLAN
1. PURPOSE. The purpose this Plan is to attract and retain officers
and other key employees of and consultants to Saba Petroleum Company (the
"Corporation") and its Subsidiaries and to provide such persons with incentives
and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
"APPRECIATION RIGHT" means a right granted Pursuant to Section 5 of
this Plan, including a Free-standing Appreciation Right and a Tandem
Appreciation Right.
"BASE PRICE" means the price to be used as the basis for determining
the Spread upon the exercise of a Free-standing Appreciation Right.
"BOARD" means the Board of Directors of the Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means the committee described in Section 14(a) of this
Plan.
"COMMON SHARES" means (i) shares of the Common Stock, no par value, of
the Corporation and (ii) any security into which Common Shares may be converted
by reason of any transaction or event of the type referred to in Section 10 of
this Plan.
"DATE OF GRANT" means the date specified by the Committee on which a
grant of Option Rights, Appreciation Rights, Performance Shares or Performance
Units or a grant or sale of Restricted Shares or Deferred Shares shall become
effective, which shall not be earlier than the date on which the Committee takes
action with respect thereto.
"DEFERRAL PERIOD" means the period of time during which Deferred Shares
are subject to deferral limitations under Section 7 of this Plan.
"DEFERRED SHARES" means an award pursuant to Section 7 of this Plan of
the right to receive Common Shares at the end of a specified Deferral Period.
"EFFECTIVE DATE" shall have the meaning set forth in Section 17.
"FREE-STANDING APPRECIATION RIGHT" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an Option
Right or similar right.
1
<PAGE> 2
"INCENTIVE STOCK OPTION" means an Option Right that is intended to
qualify as an "incentive stock option" under Section 422 of the Code or any
successor provision thereto.
"MANAGEMENT OBJECTIVES" means the achievement of performance objectives
established pursuant to this Plan, which may be described in terms of
Corporation-wide objectives or objectives that are related to the performance of
the individual Participant, or the Subsidiary, division, department or function
within the corporation or Subsidiary in which the Participant is employed or
with respect to which the Participant provides consulting services. The
Committee may adjust Management Objectives and the related minimum acceptable
level of achievement if, in the sole judgment of the Committee, events or
transactions have occurred after the Date of Grant that are unrelated to the
performance of the Participant and result in distortion of the Management
Objectives or the related minimum acceptable level of achievement.
"MARKET VALUE PER SHARE" means the fair market value of the Common
Shares as determined by the Committee from time to time.
"NONQUALIFIED OPTION" means an Option Right that is not intended to
qualify as an Incentive Stock Option.
"OPTIONEE" means the person so designated in an agreement evidencing an
outstanding Option Right or the Successor of an Optionee, as the context so
requires.
"OPTION PRICE" means the purchase price payable upon the exercise of an
Option Right.
"OPTION RIGHT" means the right to purchase Common Shares from the
Corporation upon the exercise of a Nonqualified Option or an Incentive Stock
Option granted pursuant to Section 4 of this Plan.
"PARTICIPANT" means a person who is selected by the Committee to
receive benefits under this Plan and (i) is at that time an officer, including
without limitation an officer who may also be a member of the Board, or other
key employee of or a consultant to the Corporation or any Subsidiary or (ii) has
agreed to commence serving in any such capacity, or the Successor of a
Participant, as the context requires.
"PERFORMANCE PERIOD" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating thereto are to be achieved.
"PERFORMANCE SHARE" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
"PERFORMANCE UNIT" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
2
<PAGE> 3
"RELOAD OPTION RIGHTS" means additional Option Rights automatically
granted to an Optionee upon the exercise of Option Rights pursuant to Section
4(f) of this Plan.
"RESTRICTED SHARES" means Common Shares granted or sold pursuant to
Section 6 of this Plan as to which neither the substantial risk of forfeiture
nor the restrictions on transfer referred to in Section 6 hereof has expired.
"RULE 16B-3" means Rule 16b-3, as promulgated and amended from time to
time by the Securities and Exchange Commission under the Securities Exchange Act
of 1934, as amended, or any successor rule to the same effect.
"SPREAD" means, in the case of a Free-standing Appreciation Right, the
amount by which the Market Value per Share on the date when the Appreciation
Right is exercised exceeds the Base Price specified therein or, in the case of a
Tandem Appreciation Right, the amount by which the Market Value per Share on the
date when the Appreciation Right is exercised exceeds the Option Price specified
in the related Option Right.
"SUBSIDIARY" means any corporation in which the Corporation owns or
controls directly or indirectly more than 50 percent of the total combined
voting power represented by all classes of stock issued by such corporation at
the time of the grant.
"SUCCESSOR" of a Participant means the legal representative of the
estate of a deceased Participant or the person or persons who shall acquire the
right to exercise an award hereunder by bequest or inheritance or by reason of
death of the Participant.
"TANDEM APPRECIATION RIGHT" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is granted in tandem with an Option
Right or any similar right granted under any other plan of the Corporation.
3. SHARES AND PERFORMANCE UNITS AVAILABLE UNDER THE PLAN. (a)
Subject to adjustment as provided in Section 10 of this Plan, the number of
Common Shares issued or transferred, plus the number of Common Shares covered by
outstanding awards granted under this Plan, shall not in the aggregate exceed
500,000 Common Shares, which may be Common Shares of original issuance or Common
Shares held in treasury or a combination thereof. For the purposes of this
Section 3(a):
(i) Upon payment in cash of the benefit provided by
any award granted under this Plan, any Common Shares that were
covered by that award shall again be available for issuance or
transfer hereunder.
(ii) Common Shares covered by any award granted under
this Plan shall be deemed to have been issued or transferred, and
shall cease to be available for future issuance or transfer in
respect of any other award granted hereunder, at the earlier of
the time when they are actually issued or transferred or the time
when
3
<PAGE> 4
dividends or dividend equivalents are paid thereon; provided,
however, that Restricted Shares shall be deemed to have been
issued or transferred at the earlier of the time when they cease
to be subject to a substantial risk of forfeiture or the time
when dividends are paid thereon.
(b) The number of Performance Units that may be granted under
this Plan shall not in the aggregate exceed 100,000. Performance Units
that are granted under this Plan, but are paid in Common Shares or are
not earned by the Participant at the end of the Performance Period,
shall be available for future grants of Performance Units hereunder.
4. OPTION RIGHTS. The Committee may from time to time authorize
grants to Participants of options to purchase Common Shares upon such terms and
conditions as the Committee may determine in accordance with the following
provisions:
(a) Each grant shall specify the number of Common Shares to
which it pertains; provided, however, that no participant shall be
granted Option Rights for more than 100,000 Common Shares in any one
fiscal year of the Corporation, subject to adjustment as provided in
Section 10 of this Plan.
(b) Each grant shall specify an Option Price per Common Share,
which may be less than, equal to or greater than the Market Value per
Share on the Date of Grant; provided, however, (i) the Option Price
shall equal at least 85% of the Market Value per Share on the Date of
Grant, or (ii) the Option Price with respect to each Incentive Stock
Option shall not be less than 100% (or 110%, in the case of an
individual described in Section 422(b)(6) of the Code (relating to
certain 10% owners)) of the Market Value per Share on the Date of
Grant.
(c) Each grant shall specify the form of consideration to be
paid in satisfaction of the Option Price and the manner of payment of
such consideration, which may include (i) cash in the form of currency
or check or other cash equivalents acceptable to the Committee, (ii)
subject to Section 4(d), nonforfeitable, unrestricted Common Shares,
which are already owned by the Optionee and have a value at the time of
exercise that is equal to the Option Price, (iii) any other legal
consideration that the Committee may deem appropriate, including
without limitation any form of consideration authorized under Section
4(d) below, on such basis as the Committee may determine in accordance
with this Plan and (iv) any combination of the foregoing.
(d) On or after the Date of Grant of any Nonqualified Option,
the Committee may determine that payment of the Option Price may also
be made in whole or in part in the form of Restricted Shares or other
Common Shares that are subject to risk of forfeiture or restrictions on
transfer. Unless otherwise determined by the Committee on or after the
Date of Grant, whenever any Option Price is paid in whole or in part by
means of any of the forms of consideration specified in this Section
4(d), the Common Shares received by the Optionee upon the exercise of
the Nonqualified Option shall be subject to the same
4
<PAGE> 5
risks of forfeiture or restrictions on transfer as those that applied
to the consideration surrendered by the Optionee; provided, however,
that such risks of forfeiture and restrictions on transfer shall apply
only to the same number of Common Shares received by the Optionee as
applied to the forfeitable or restricted Common Shares surrendered by
the Optionee.
(e) Any grant may provide for deferred payment of the Option
Price from the proceeds of sale through a broker on the date of
exercise of some or all of the Common Shares to which the exercise
relates.
(f) On or after the Date of Grant of any Option Rights, the
Committee may provide for the automatic grant to the Optionee of Reload
Option Rights upon the exercise of Option Rights, including Reload
Option Rights for Common Shares or any other noncash consideration
authorized under Sections 4(c) and (d) above.
(g) Successive grants may be made to the same Participant
regardless of whether any Option Rights previously granted to the
Participant remain unexercised.
(h) Each grant shall specify the conditions, including as and
to the extent determined by the Committee, the period or periods of
continuous employment, or continuous engagement of the consulting
services, of the Optionee by the Corporation or any Subsidiary, or the
achievement of Management Objectives, that are necessary before the
Option Rights or installments thereof shall become exercisable, and any
grant may provide for the earlier exercise of the Option Rights,
including, without limitation, in the event of a change in control of
the Corporation or other similar transaction or event.
(i) Option Rights granted pursuant to this Section 4 may be
Nonqualified Options or Incentive Stock Options or combinations
thereof, as set forth in the award agreement.
(j) On or after the Date of Grant of any Nonqualified Option,
the Committee may provide for the payment to the Optionee of dividend
equivalents thereon in cash or Common Shares on a current, deferred or
contingent basis, or the Committee may provide that any dividend
equivalents shall be credited against the Option Price.
(k) No Option Right granted pursuant to this Section 4 may be
exercised more than 10 years from the Date of Grant (except that, in
the case of an individual described in Section 422(b)(6) of the Code
(relating to certain 10% owners) who is granted an Incentive Stock
Option, the term of such Option Right shall be no more than five years
from the Date of Grant).
(l) Each grant shall be evidenced by an agreement, which shall
be executed on behalf of the Corporation by any officer thereof and
delivered to and accepted by the
5
<PAGE> 6
Optionee and shall contain such terms and provisions as the Committee
may determine consistent with this Plan.
(m) The aggregate Market Value per Share, determined as of the
Date of Grant, of the Common Shares for which any Optionee may be
awarded Incentive Stock Options which are first exercisable by the
Optionee during any calendar year under this Plan (or any other stock
option plan required to be taken into account under Section 422(d) of
the Code) shall not exceed $100,000.
(n) If and to the extent otherwise advisable herein or under
the applicable option agreement, upon and after the death of an
Optionee, such Optionee's Option Rights, to the extent exercisable
after death may be exercised by the Successors of the Optionee. An
Option Right may be exercised, and payment in full of the aggregate
Option Price made, by the Successors of an Optionee only by written
notice (in the form prescribed by the Committee) to the Corporation
specifying the number of Common Shares to be purchased. Such notice
shall state that the aggregate Option Price will be paid in full, or
that the Option Right will be exercised as otherwise provided
hereunder, in the discretion of the Corporation or the Committee, if
and as applicable.
5. APPRECIATION RIGHTS. The Committee may also authorize
grants to Participants of Appreciation Rights. An Appreciation Right shall be a
right of the Participant to receive from the Corporation an amount, which shall
be determined by the Committee and shall be expressed as a percentage (not
exceeding 100 percent) of the Spread at the time of the exercise of an
Appreciation Right. Any grant of Appreciation Rights under this Plan shall be
upon such terms and conditions as the Committee may determine in accordance with
the following provisions:
(a) Any grant may specify that the amount payable upon the
exercise of an Appreciation Right may be paid by the Corporation in
cash, Common Shares or any combination thereof and may (i) either grant
to the Participant or reserve to the Committee the right to elect among
those alternatives or (ii) preclude the right of the Participant to
receive and the Corporation to issue Common Shares or other equity
securities in lieu of cash; provided, however, that no form of
consideration or manner of payment that would cause Rule 16b-3 to cease
to apply to this Plan shall be permitted.
(b) Any grant may specify that the amount payable upon the
exercise of an Appreciation Right shall not exceed a maximum specified
by the Committee on the Date of Grant.
(c) Any grant may specify (i) a waiting period or periods
before Appreciation Rights shall become exercisable and (ii)
permissible dates or periods on or during which Appreciation Rights
shall be exercisable.
6
<PAGE> 7
(d) Any grant may specify that an Appreciation Right may be
exercised only in the event of a change in control of the Corporation
or other similar transaction or event.
(e) On or after the Date of Grant of any Appreciation Rights,
the Committee may provide for the payment to the Participant of
dividend equivalents thereon in cash or Common Shares on a current,
deferred or contingent basis.
(f) Each grant shall be evidenced by an agreement, which shall
be executed on behalf of the Corporation by any officer thereof and
delivered to and accepted by the Optionee and shall contain such other
terms and provisions as the Committee may determine consistent with
this Plan.
(g) Regarding Tandem Appreciation Rights only: Each grant
shall provide that a Tandem Appreciation Right may be exercised only
(i) at a time when the related Option Right (or any similar right
granted under any other plan of the Corporation) is also exercisable
and the Spread is positive and (ii) by surrender of the related Option
Right (or such other right) for cancellation.
(h) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each
Free-standing Appreciation Right a Base Price per Common Share,
which shall be equal to or greater than the Market Value per
Share on the Date of Grant;
(ii) Successive grants may be made to the same
Participant regardless of whether any Free-standing Appreciation
Rights previously granted to the Participant remain unexercised;
provided, however, that no participant shall be granted more than
100,000 Freestanding Appreciation Rights in any one fiscal year
of the Corporation, subject to adjustment as provided in Section
10 of this Plan;
(iii) Each grant shall specify the conditions, including
as and to the extent determined by the Committee, the period or
periods of continuous employment, or continuous engagement of the
consulting services, of the Participant by the Corporation or any
Subsidiary, or the achievement of Management Objectives, that are
necessary before the Free-standing Appreciation Rights or
installments thereof shall become exercisable, and any grant may
provide for the earlier exercise of the Free-standing
Appreciation Rights, including, without limitation, in the event
of a change in control of the Corporation or other similar
transaction or event; and
(iv) No Free-standing Appreciation Right granted under
this Plan may be exercised more than 10 years from the Date of
Grant.
7
<PAGE> 8
6. RESTRICTED SHARES. The Committee may also authorize grants or
sales to Participants of Restricted Shares upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute an immediate transfer
of the ownership of Common Shares to the Participant in consideration
of the performance of services, or as and to the extent determined by
the Committee, the achievement of Management Objectives, entitling such
Participant to dividend, voting and other ownership rights, subject to
the substantial risk of forfeiture and restrictions on transfer
hereinafter referred to.
(b) Each grant or sale may be made without additional
consideration from the Participant or in consideration of a payment by
the Participant that is less than the Market Value per Share on the
Date of Grant.
(c) Each grant or sale shall provide that the Restricted
Shares covered thereby shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period
to be determined by the Committee on the Date of Grant, and any grant
or sale may provide for the earlier termination of such period,
including without limitation, in the event of a change in control of
the Corporation or other similar transaction or event.
(d) Each grant or sale shall provide that, during the period
for which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or
restricted in the manner and to the extent prescribed by the Committee
on the Date of Grant. Such restrictions may include, without
limitation, rights of repurchase or first refusal in the Corporation or
provisions subjecting the Restricted Shares to a continuing substantial
risk of forfeiture in the hands of any transferee.
(e) Any grant or sale may require that any or all dividends or
other distributions paid on the Restricted Shares during the period of
such restrictions be automatically sequestered and reinvested on an
immediate or deferred basis in additional Common Shares, which may be
subject to the same restrictions as the underlying award or such other
restrictions as the Committee may determine.
(f) Each grant or sale shall be evidenced by an agreement,
which shall be executed an behalf of the Corporation by any officer
thereof and delivered to and accepted by the Participant and shall
contain such terms and provisions as the Committee may determine
consistent with this Plan. Unless otherwise directed by the Committee,
all certificates representing Restricted Shares, together with a stock
power that shall be endorsed in blank by the Participant with respect
to the Restricted Shares, shall be held in custody by the Corporation
until all restrictions thereon lapse.
8
<PAGE> 9
7. DEFERRED SHARES. The Committee may also authorize grants or
sales of Deferred Shares to Participants upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute the agreement by the
Corporation to issue or transfer Common Shares to the Participant in
the future in consideration of the performance of services rendered,
subject to the fulfillment during the Deferral Period of such
conditions as the Committee may specify.
(b) Each grant or sale may be made without additional
consideration from the Participant or in consideration of a payment by
the Participant that is less than the Market value per Share on the
Date of Grant.
(c) Each grant or sale shall provide that the Deferred Shares
covered thereby shall be subject to a Deferral Period, which shall be
fixed by the Committee on the Date of Grant, and any grant or sale may
provide for the earlier termination of the Deferral Period, including
without limitation, in the event of a change in control of the
Corporation or other similar transaction or event.
(d) During the Deferral Period, the Participant shall not have
any right to transfer any rights under the subject award, shall not
have any rights of ownership in the Deferred Shares and shall not have
any right to vote the Deferred Shares, but the Committee may on or
after the Date of Grant authorize the payment of dividend equivalents
on the Deferred Shares in cash or additional Common Shares on a
current, deferred or contingent basis.
(e) Each grant or sale shall be evidenced by an agreement,
which shall be executed on behalf of the Corporation by any officer
thereof and delivered to and accepted by the Participant and shall
contain such terms and provisions as the Committee may determine
consistent with this Plan.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee may also
authorize grants of Performance Shares and Performance Units, which shall become
payable to the Participant upon the achievement of specified Management
Objectives, upon such terms and conditions as the Committee may determine in
accordance with the following provisions:
(a) Each grant shall specify the number of Performance Shares
or Performance Units to which it pertains, which may be subject to
adjustment to reflect changes in compensation or other factors.
(b) The Performance Period with respect to each Performance
Share or Performance Unit shall be determined by the Committee on the
Date of Grant and may be subject to earlier termination, including,
without limitation, in the event of a change in control of the
Corporation or other similar transaction or event.
9
<PAGE> 10
(c) Each grant shall specify the Management Objectives that
are to be achieved by the Participant.
(d) Each grant shall specify in respect of the specified
Management Objectives a minimum acceptable level of achievement below
which no payment will be made and shall set forth a formula for
determining the amount of any payment to be made if performance is at
or above the minimum acceptable level but falls short of full
achievement of the specified Management Objectives.
(e) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that shall have been earned,
and any grant may specify that any such amount may be paid by the
Corporation in cash, Common Shares or any combination thereof and may
either grant to the Participant or reserve to the Committee the right
to elect among those alternatives; provided, however, that no form of
consideration or manner of payment that would cause Rule 16b-3 to cease
to apply to this Plan shall be permitted.
(f) Any grant of Performance Shares may specify that the
amount payable with respect thereto may not exceed a maximum specified
by the Committee on the Date of Grant. Any grant of Performance Units
may specify that the amount payable, or the number of Common Shares
issued, with respect thereto may not exceed maximums specified by the
Committee on the Date of Grant.
(g) On or after the Date of Grant of Performance Shares, the
Committee may provide for the payment to the Participant of dividend
equivalents thereon in cash or additional Common Shares on a current,
deferred or contingent basis.
(h) Each grant shall be evidenced by an agreement, which shall
be executed on behalf of the Corporation by any officer thereof and
delivered to and accepted by the Participant and shall contain such
terms and provisions as the Committee may determine consistent with
this Plan.
9. TRANSFERABILITY. (a) No Option Right or other derivative security
(as that term is used in Rule 16b-3) granted under this Plan may be transferred
by a Participant except by will or the laws of descent and distribution. Option
Rights and Appreciation Rights granted under this Plan may not be exercised
during a Participant's lifetime except by the Participant or, in the event of
the Participant's legal incapacity, by his guardian or legal representative
acting in a fiduciary capacity on behalf of the Participant under state law and
court supervision.
(b) Any grant made under this Plan may provide that all or any part
of the Common Shares that are to be issued or transferred by the Corporation
upon the exercise of Option Rights or Appreciation Rights or upon the
termination of the Deferral Period applicable to Deferred Shares or in payment
of Performance Shares or Performance Units, or are no longer
10
<PAGE> 11
subject to the substantial risk of forfeiture and restrictions on transfer
referred to in Section 6 of this Plan, shall be subject to further restrictions
upon transfer.
10. ADJUSTMENTS. The Committee may make or provide for such
adjustments in the number of Common Shares covered by outstanding awards granted
hereunder, the Option Prices per Common Share or Base Prices per Common Share
applicable to any such awards, and the kind of shares (including shares of
another issuer) covered thereby, as the Committee may in good faith determine to
be equitably required in order to prevent dilution or expansion of the rights of
Participants that otherwise would result from (a) any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Corporation or (b) any merger, consolidation, spin-off,
spin-out, split-off, split-up, reorganization, partial or complete liquidation
or other distribution of assets, issuance of warrants or other rights to
purchase securities or any other corporate transaction or event having an effect
similar to any of the foregoing. In the event of any such transaction or event,
the Committee may provide in substitution for any or all outstanding awards
under this Plan such alternative consideration as it may in good faith determine
to be equitable under the circumstances and may require in connection therewith
the surrender of all awards so replaced. Moreover, the Committee may on or after
the Date of Grant provide in the agreement evidencing any award under this Plan
that the holder of the award may elect to receive an equivalent award in respect
of securities of the surviving entity of any merger, consolidation or other
transaction or event having a similar effect, or the Committee may provide that
the holder will automatically be entitled to receive such an equivalent award.
The Committee may also make or provide for such adjustments in the maximum
number of Common Shares specified in Section 3(a) of this Plan, the maximum
number of Performance Units specified in Section 3(b), and the maximum number of
Common Shares and Free-standing Appreciation Rights specified in Sections 4(a)
and 5(h)(ii) of this Plan as the Committee may in good faith determine to be
appropriate in order to reflect any transaction or event described in this
Section 10.
11. FRACTIONAL SHARES. The Corporation shall not be required to
issue any fractional Common Shares pursuant to this Plan. The Committee may
provide for the elimination of fractions or for the settlement thereof in cash.
12. WITHHOLDING TAXES. To the extent that the Corporation is required
to withhold federal, state, local or foreign taxes in connection with any
payment made or benefit realized by a Participant or other person under this
Plan, and the amounts available to the Corporation for the withholding are
insufficient, it shall be a condition to the receipt of any such payment or the
realization of any such benefit that the Participant or such other person make
arrangements satisfactory to the Corporation for payment of the balance of any
taxes required to be withheld. At the discretion of the Committee and subject to
the provisions of Rule 16b-3, any such arrangements may include relinquishment
of a portion of any such payment or benefit. The Corporation and any Participant
or such other person may also make similar arrangements with respect to the
payment of any taxes with respect to which withholding is not required.
11
<PAGE> 12
13. CERTAIN TERMINATIONS OF EMPLOYMENT OR CONSULTING SERVICES,
HARDSHIP AND APPROVED LEAVES OF ABSENCE. Notwithstanding any other provision of
this Plan to the contrary, in the event of termination of employment or
consulting services by reason of death, disability, normal retirement, early
retirement, with the consent of the Corporation, termination of employment or
consulting services to enter public service with the consent of the Corporation
or leave of absence approved by the Corporation, or in the event of hardship or
other special circumstances, of a Participant who holds an Option Right or
Appreciation Right that is not immediately and fully exercisable, any Restricted
Shares as to which the substantial risk of forfeiture or the prohibition or
restriction on transfer has not lapsed, any Deferred Shares as to which the
Deferral Period is not complete, any Performance Shares or Performance Units
that have not been fully earned, or any Common Shares that are subject to any
transfer restriction pursuant to Section 9(b) of this Plan, the Committee may
take any action that it deems to be equitable under the circumstances or in the
best interests of the Corporation, including without limitation, waiving or
modifying any limitation or requirement with respect to any award under this
Plan.
14. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered
by a Committee of the Board, which shall be composed of not less than two
members of the Board, each of whom shall be a "disinterested person" within the
meaning of Rule 16b-3.
(b) The interpretation and construction by the Committee of any
provision of this Plan or any agreement, notification or document evidencing the
grant of Option Rights, Appreciation Rights, Restricted Shares, Deferred Shares,
Performance Shares or Performance Units, and any determination by the Committee
pursuant to any provision of this Plan or any such agreement, notification or
document, shall be final and conclusive. No member of the Committee shall be
liable for any such action taken or determination made in good faith.
15. AMENDMENTS AND OTHER MATTERS. (a) This Plan may be amended from
time to time by the Committee; provided, however, that except as expressly
authorized by this Plan, no such amendment shall increase the number of Common
Shares specified in Section 3(a) hereof, increase the number of Performance
Units specified in Section 3(b) hereof, or otherwise cause this Plan to cease to
satisfy any applicable condition of Rule 16b-3, without further approval of the
stockholders of the Corporation.
(b) With the concurrence of the affected Participant, the Committee
may cancel any agreement evidencing Option Rights or any other award granted
under this Plan. In the event of any such cancellation, the Committee may
authorize the granting of new Option Rights or other awards hereunder, which may
or may not cover the same number of Common Shares or Performance Units as had
been covered by the cancelled Option Rights or other award, at such Option
Price, in such manner and subject to such other terms, conditions and discretion
as would have been permitted under this Plan had the cancelled Option Rights or
other award not been granted.
12
<PAGE> 13
(c) The Committee may grant under this Plan any award or combination
of awards authorized under this Plan in exchange for the cancellation of an
award that was not granted under this Plan, including without limitation any
award that was granted prior to the adoption of this Plan by the Board, and any
such award or combination of awards so granted under this Plan may or may not
cover the same number of Common Shares as had been covered by the cancelled
award and shall be subject to such other terms, conditions and discretion as
would have been permitted under this Plan had the cancelled award not been
granted.
(d) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Corporation or
any Subsidiary and shall not interfere in any way with any right that the
Corporation or any Subsidiary would otherwise have to terminate any
Participant's employment or other service at any time.
(e) (i) To the extent that any provision of this Plan would prevent
any Option Right that was intended to qualify as an Incentive
Stock Option from so qualifying, any such provision shall be null
and void with respect to any such Option Right: provided,
however, that any such provision shall remain in effect with
respect to other Option Rights, and there shall be no further
effect on any provision of this Plan.
(ii) Any award that may be made pursuant to an amendment to this
Plan that shall have been adopted without the approval of the
stockholders of the Corporation shall be null and void if it is
subsequently determined that such approval was required in order
for this Plan to continue to satisfy the applicable conditions of
Rule 16b-3.
16. TERMINATION OF THE PLAN. No further awards shall be granted under
this Plan after the passage of 10 years from the date on which this Plan is
first approved by the stockholders of the Corporation.
17. EFFECTIVE DATE. The effective date of this Plan (the Effective
Date") shall be April 6, 1996, provided, however, that this Plan and each award
granted hereunder shall be void and of no force or effect until and unless this
Plan shall have been approved by a vote of the holders of the majority of the
Common Shares of the Corporation present, or represented, and entitled to vote
at a meeting duly held in accordance with Colorado law.
18. NONTRANSFERABILITY. Each award granted under this Plan shall by
its terms be nontransferable by the Participant except by will or the laws of
decent and distribution of the state wherein the Participant is domiciled at the
time of his death; provided, however, that the Committee may (but need not)
permit other transfers, to the extent consistent with Rule 16b-3; where the
Committee concludes that such transferability does not result in accelerated
taxation and is otherwise appropriate and desirable.
13
<PAGE> 1
EXHIBIT 10.2
PROMISSORY NOTE -- FIXED INTEREST
$300,000.00 May 3, 1996
For value received, the undersigned Ilyas Chaudhary ("Maker"), promises to pay
to Saba Petroleum Company ("Holder"), or order, the sum of Three Hundred
Thousand Dollars ($300,000.00), together with interest from the date above on
the unpaid principal balance due at the rate of prime plus three-quarters of
one-percent (0.75%). Interest shall accrue on the principal amount as follows:
(i) on the initial advance of $150,000, commencing on May 3, 1996, and (ii) on
the second advance of $150,000, commencing on May 28, 1996. Interest shall be
payable quarterly, with the first payment due August 1, 1996. Interest shall be
calculated on the basis of a 360 day year and actual days elapsed. On payment
of this Note in full, interest accrued to the date of payment shall be payable
on the date of payment.
This Note shall be due April 30, 1998, but may be extended by mutual agreement
of the Maker and Holder for two additional six (6) month periods for a maximum
additional one (1) year term. This Note may be prepaid at any time or from time
to time in whole or in part without penalty, premium or permission.
Should default be made in payment of any principal and/or interest, when due,
Maker shall be obligated to pay such costs, fees, expenses, including
attorney's fees, which may be incurred by Holder, or any such Holder hereof, in
connection with any and all enforcement proceedings. In the event of default
hereunder, Holder shall have the right to offset against any compensation
payable to Maker under Maker's employment contract with Holder, such amounts as
are necessary to extinguish this Note as soon as possible after Maker's
default. Alternatively, in the event of default, Holder in its sole discretion,
may determine to cancel all or a portion of those stock options of Holder's
common stock then vested in Maker's name, whose surrender value shall be deemed
to equal the difference between the market value of the Holder's common stock
at time of cancellation less the Maker's option exercise price of $3.00 per
share; an amount shall also be added for accrued interest at time of
cancellation. (Example: if market value is $18.00 at time of cancellation, and
accrued interest is $30,000, Holder may cancel 22,000 options; 20,000 shares
times $15.00 ($18.00 market value, less $3.00 option exercise price) for
principal, plus 2,000 shares times $15.00 for accrued interest).
BY: /s/ Ilyas Chaudhary
---------------------------
<PAGE> 1
EXHIBIT 10.3
STOCK OPTION
Name of Grantor: Ilyas Chaudhary
Name of Grantee: _______________
Date Option Granted: April 30, 1996
A. RECITALS
1. Effective April 30, 1996 the Board of Directors of Saba Petroleum
Company (the "Company") rescinded a stock option plan for the Company's
directors, and _________________ ("Grantee") elected to accept, as consideration
for the cancellation of his option rights under the directors' stock option
plan, an option to acquire 5,000 shares of common stock of the Company
("Shares") at an exercise price of $8.00 per Share.
2. Ilyas Chaudhary, president of the Company ("Grantor"), desires to grant
to Grantee the option to acquire from Grantor up to 5,000 Shares owned by
Grantor and/or corporations that he controls.
B. GRANT OF OPTION
1. Effective April 30, 1996, the Grantor grants to Grantee the right to
purchase from Grantor, on the terms and conditions hereinafter set forth, all or
part of an aggregate of five thousand (5,000) Shares of the presently authorized
and unissued common stock of the Company, no par value, at the purchase price of
Eight Dollars and no cents ($8.00) per Share (the "Option").
2. The Option shall be exercisable at any time from the date hereof through
the Expiration Date, in whole or in part, subject to Section C hereof.
C. METHOD OF EXERCISE
1. The Option may be exercised from time to time by written notice to the
Grantor stating the number of Shares with respect to which the Option is being
exercised, together with payment in full, in cash or by certified or cashier's
check payable to the order of the Grantor, of the purchase price for the Shares
being purchased.
2. As soon after the notice of exercise as the Grantor is reasonably able
to comply, the Grantor shall deliver to the Grantee or any such other person, at
the main office of the Company or such other place as shall be mutually
acceptable, a certificate or certificates for the Shares being purchased upon
exercise of the Shares. The Option may only be exercisable for whole Shares.
D. TERMINATION OF OPTION
1. The Option shall terminate and expire on the earlier to occur of: (i)
one year from the date that Grantee ceases to be a director of the Company, or
(ii) five (5) years from the date of the assignment noted above (the "Expiration
Date"), or
2. The termination of the Option pursuant to Section F hereof.
<PAGE> 2
E. ADJUSTMENTS
1. If there is any change in the capitalization of the Company
affecting in any manner the number or kind of outstanding Shares, whether by
stock dividend, stock split, reclassification or recapitalization of such
stock, or because the Company has merged or consolidated with one or more other
corporations (and provided the Option has not terminated pursuant to Section F
hereof), then the number and kind of Shares then subject to the Option and the
price to be paid therefor shall be appropriately adjusted, provided, however,
that in no event shall any such adjustment result in the Grantor being required
to issue any fractional Shares to the Grantee.
2. Any such adjustment shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the Option, but with an
appropriate adjustment to the price of each Share or other unit of security
covered by this Option.
F. CESSATION OF CORPORATION EXISTENCE
Notwithstanding any other provision of this Option, upon the
dissolution of the Company, the reorganization, merger or consolidation of the
Company with one or more corporations as a result of which the Company is not
the surviving corporation, or the sale of substantially all the assets of the
Company or of more than 80% of the then outstanding common stock of the Company
to another corporation or entity, the Option granted hereunder shall terminate;
provided, however, that (i) each Option for which no option has been tendered
by the surviving corporation in accordance with all the terms of provision (ii)
immediately below shall, within five (5) days before the effective date of such
dissolution or liquidation, merger or consolidation of assets in which the
Company is not the surviving corporation or sale of stock, become fully
exercisable if it is not already so fully exercisable; or (ii) in its sole and
absolute discretion, the surviving corporation may, but shall not be obligated
to, tender to the Grantor (for the benefit of the Grantee), an option or
options to purchase shares of the surviving corporation or acquiring
corporation, and such new option or options shall contain such terms and
provisions as shall be required substantially to preserve the rights and
benefits of this Option.
G. NO STOCKHOLDER RIGHTS
The Grantee or other person entitled to exercise this Option shall have
no rights or privileges as a stockholder with respect to any Shares subject
hereto until the Grantee or such other person has become the holder of record
of such Shares, and no adjustment (except such adjustments as may be affected
pursuant to the provisions of Section E hereof) shall be made for dividends or
distributions of rights in respect to such Shares if the record date is prior
to the date on which the Grantee or such other person becomes the holder of
record.
H. CONDITION TO ISSUANCE OF SHARES
The Grantor's obligation to transfer Shares upon exercise of the Option
is expressly conditioned upon the completion by the Company of any registration
or other qualification of such Shares under any state and/or federal law or
rulings or regulations of any government regulatory body. The Grantor
represents and warrants that such Shares underlying the Option are presently
listed on the American Stock Exchange, and that the Company will complete the
registration of such Shares with the Securities and Exchange Commission no
later than June 30, 1996, such that such Shares upon issuance to the Grantor
and subsequent transfer to the Grantee, upon exercise in whole or part of the
Option, shall be "free trading" Shares.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement on
the date(s) shown below.
GRANTOR GRANTEE
By: ___________________________ By: ___________________________
Ilyas Chaudhary
Date: _________________________ Date: _________________________
Acknowledged by:
SABA PETROLEUM COMPANY
By: ___________________________
Walton C. Vance
Chief Financial Officer
Date: _________________________
______________________________________________________________________________
OPTION EXERCISE FORM
Attn: Mr. Ilyas Chaudhary
c/o Saba Petroleum Company
17512 Von Karman Avenue
Irvine, CA 92714
The holder of this Option hereby requests the exercise of this Option.
By: ___________________________
No. of Shares: ________________
Exercise Date: ________________
<PAGE> 1
EXHIBIT 10.4
STOCK OPTION TERMINATION AGREEMENT
WHEREAS the Board of Directors of Saba Petroleum Company (the "Company") in
August 1995 approved options for each of the Directors, except for Ilyas
Chaudhary, to acquire 5,000 shares of the Company's common stock at $8.00 per
share (the "Options"); and
WHEREAS the undersigned Director and the Company now agree to terminate the
Company's obligation to provide the Options to the undersigned Director and to
absolutely release one another from any obligations or liabilities arising
thereunder in consideration for the Company's cash payment to the undersigned
Director of $4,000.00;
NOW, THEREFORE in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. The undersigned Director and the Company agree and confirm that the
Options as to the undersigned Director are terminated in their entirety in
exchange for cash consideration of $4,000.00, receipt of which is hereby
acknowledged by the undersigned Director.
2. Each of the undersigned parties hereby wholly and fully releases and
discharges the others from any and all obligations or liabilities, absolute or
contingent, arising under or in connection with the Options.
3. This agreement may be executed in any number of counterparts, each of
which when so executed and delivered (whether an original or facsimile copy)
shall be deemed to be an original, all of which, when taken together, shall
constitute one and the same agreement.
IN WITNESS WHEREOF the parties have executed this agreement on the dates
indicated below.
SABA PETROLEUM COMPANY
By: _______________________________
Walton C. Vance, Vice President
Date: _____________________________
DIRECTOR
By: _______________________________
Date: _____________________________
<PAGE> 1
Exhibit 11.1
SABA PETROLEUM COMPANY
Computation of Earnings Per Common Share
For the Six and Three Month Periods Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30 Ended June 30
Primary Earnings 1996 1995 1996 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net income before minority interest in earnings of
consolidated subsidiary $ 1,590,510 $ 110,305 $ 813,400 $ 98,173
Minority interest in earnings of consolidated subsidiary (100,647) 0 (79,025) 0
----------- ----------- ------------ ------------
Net income available to Common $ 1,489,863 $ 110,305 $ 734,375 $ 98,173
----------- ----------- ------------ ------------
Primary Shares
Weighted average number of Common Shares outstanding 4,264,989 4,131,124 4,273,949 4,131,257
Additional shares assuming issuance of shares underlying options 276,322 157,917 295,613 218,532
----------- ----------- ------------ ------------
Primary Shares 4,541,311 4,289,041 4,569,562 4,349,789
----------- ----------- ------------ ------------
Primary Earnings per Common Share
Net income available to Common $ 0.33 0.03 0.16 0.02
----------- ----------- ------------ ------------
Fully Diluted Earnings
Net income before minority interest in earnings of
consolidated subsidiary $ 1,590,510 $ 110,305 813,400 $ 98,173
Minority interest in earnings of consolidated subsidiary (100,647) 0 (79,025) 0
Plus interest expense attributable to Debentures, net of
related income taxes 396,164 0 200,842 0
----------- ----------- ------------ ------------
Net income available to Common $ 1,886,027 $ 110,305 $ 935,217 $ 98,173
----------- ----------- ------------ ------------
</TABLE>
<PAGE> 2
SABA PETROLEUM COMPANY Exhibit 11.1
Computation of Earnings Per Common Share
For the Six and Three Month Periods Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30 Ended June 30
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fully Diluted Shares
Weighted average number of Common Shares outstanding 4,264,989 4,289,041 4,273,949 4,349,789
Additional shares assuming issuance:
Of shares underlying options 276,322 0 295,613 0
Of convertible common shares @ $8.75 per share underlying:
$11,000,000 from 1/1/96 1,257,143 0 1,257,143 0
$1,650,000 from 2/7/96 150,235 0 188,571 0
Less shares actually issued upon conversions (1,179) 0 (2,359) 0
------------ ------------ ------------ ------------
Fully Diluted Shares 5,947,510 4,289,041 6,012,917 4,349,789
============ ============ ============ ============
Fully Diluted Earnings per Common Share
Net income $ 0.32 0.03 0.16 0.02
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
PRESENTED IN QUARTERLY REPORT FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JUNE
30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 237
<SECURITIES> 1,784
<RECEIVABLES> 6,048
<ALLOWANCES> 63
<INVENTORY> 0
<CURRENT-ASSETS> 10,673
<PP&E> 40,112
<DEPRECIATION> 12,324
<TOTAL-ASSETS> 41,397
<CURRENT-LIABILITIES> 7,343
<BONDS> 22,999
0
0
<COMMON> 7,416
<OTHER-SE> 2,551
<TOTAL-LIABILITY-AND-EQUITY> 41,397
<SALES> 0
<TOTAL-REVENUES> 15,390
<CGS> 0
<TOTAL-COSTS> 11,217
<OTHER-EXPENSES> 83
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,198
<INCOME-PRETAX> 2,892
<INCOME-TAX> 1,302
<INCOME-CONTINUING> 1,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,490
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
