SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the Calendar Year ended December 31, 1996
Commission File Number 2-83574
ISRAMCO, INC.
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(Registrant)
Delaware 13-3145265
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(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
575 Madison Avenue, Suite 1006, New York, N.Y. 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 605-0417
---------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock -
$.01 par value
Class A Redeemable Warrants
Class B Redeemable Warrants
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $9,459,547 as of March 6, 1997, based upon the
closing bid price on the NASDAQ National Market System reported for such date.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
26,691,198 shares of Common Stock were issued and 26,398,523 shares were
outstanding as of March 6, 1997.
<PAGE>
Item 1. and Item 2. Business and Properties
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History
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The Company since its formation in 1982 has been active in the exploration
of oil and gas in Israel. From 1982 to 1985 the Company with certain affiliated
entities and other participants expended approximately $8.5 million for oil and
gas exploration in Israel and drilled four wells onshore Israel. The Company's
share of these expenditures was approximately $2.8 million. Although oil was
discovered at the Gurim 4 and 5 wells, only approximately 9,000 barrels have
been produced and none of the wells sustained commercial production.
The Company with related and unrelated parties formed the Negev 1 Venture
in 1985 to continue oil and gas exploration activities in Israel. These parties
included J.O.E.L.-Jerusalem Oil Exploration Ltd. ("JOEL"), Southern Shipping and
Energy (U.K.) ("SSE (U.K.)"), Pass-port Ltd. ("Pass-port"), East Mediterranean
Oil and Gas Ltd. ("EMOG"), Delek - The Israel Fuel Corporation Ltd. ("Delek"),
Delek Oil Exploration Ltd. ("DOEX"), Naphta Israel Petroleum Corporation Ltd.
("Naphta"), HEI Oil and Gas Ltd., a California limited partnership, Donesco
Venture Fund One, Mazal Oil Inc., and L.P.S. Israel Oil Inc. ("HEI").
The participants in the Negev 1 Venture expended approximately $19.2
million for oil and gas exploration activities including seismic exploration and
drilled two wells, both of which were dry holes. The Company's share of these
expenditures was approximately $576,000. The Negev 1 Venture received no
revenues from its activities.
Following the expiration of the Negev 1 Venture in 1988, the Negev 2
Venture was formed by the same participants and held two licenses - Negev Nirim
and Negev Ashquelon. Within the framework of the Negev 2 Joint Venture, two
offshore wells were drilled and seismic and geological studies, both onshore and
offshore were conducted at a cost of $44.55 million. As of 1991, the activities
with the Negev Nirim License were carried out within the Bessor Carveout Area
and as of 1993, the activities within the Negev Ashquelon License were carried
out within the Yam Carveout Area under Sole Risk Agreements. In February 1995,
the Negev Nirim License (including the Bessor Carveout) was relinquished and in
June 1996, the Negev Ashquelon License (including the Yam Carveout) was
relinquished by the Venture participants. The Company, as the Operator is in the
process of winding down the affairs of the Negev 2 Joint Venture.
In 1991 the Negev 2 Venture participants (excluding HEI) received a
Preliminary Permit with Priority Rights to receive petroleum licenses (the Negev
Med Venture). When the Preliminary Permit expired the Venture participants were
granted five (5) licenses: Med Tel Aviv License, Med Yavne License, Med Ashdod
License, Med Hadera License, Med Hasharon License (the Med Licenses) with a
duration which has been extended until June 15, 2000. On January 24, 1994 the
participants in the Med Tel Aviv License spudded the Yam Yafo 1 well in the Yam
Yafo Structure approximately 20 kilometers northwest of the Tel Aviv coast.
There was no economic justification for producing oil and gas from this well.
The total cost of drilling the Yam Yafo well including tests, was approximately
$38 million of which the Company's share was $382,000.
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<PAGE>
On November 15, 1994 the participants in the Med Yavne License spudded the
Yam West 1 well (the well is located approximately 32 kilometers northwest of
Ashdod in a water depth of 2,130 feet) which was declared a dry hole. The total
cost of the well was approximately $23 million of which the Company's share was
approximately $231,000. Expenses of the Yam West 1 well do not include three
invoices from Ben Line Steamers Ltd. in an amount totalling $1.3 million with
respect to damages for costs of repairs, transport and loss of income. The
Operator has rejected these expenditures and no provision for these expenses has
been recorded in the books of the venture.
In 1996 when the Petroleum Commissioner approved the relinquishment of the
Negev Ashquelon License the boundaries of the Med Ashdod License were changed to
include the area of the structure on which the Yam 1 and Yam 2 wells were
drilled, as well as another additional structure which was part of the area of
the relinquished Negev Ashquelon License.
In 1996 the participants in the Med Ashdod License signed an agreement to
create the Yam Ashdod Carveout Area in the license to conduct an exploration
program.
In 1996 the Ministry of Energy awarded to the Company and other venture
participants an onshore drilling license called Shederot/265. This license is
located in part within the area of the relinquished Negev Nirim License area.
The Operator
The Company was the Operator of the Negev 2 Venture (which is being wound
down), the Negev Med Venture, the Bessor Carveout Venture (which wound down in
1995), the Yam Carveout Venture (which is being wound down), the Shederot
Venture and the Yam Ashdod Carveout Venture. As the Operator, the Company is
responsible for directing the oil exploration and drilling activities of each
Venture through its Branch Office in Tel Aviv, Israel. With full-time (five)
employees, outside consultants and subcontractors, the Company carries out the
operations of each Venture within the framework of approved work programs and
budgets and pursuant to the terms of a Joint Operating Agreement.
The Operator charges each Venture participant for all costs incurred in
connection with the exploration and drilling activities conducted by each
Venture and is entitled to receive a fee for its administrative overhead equal
to 6% of all direct charges or minimum monthly compensation of $6,000 per each
License. During the year ending December 31, 1996 the Company was paid fees of
$324,252 in connection with the Negev Med Venture and fees of $36,000 in
connection with the Yam Carveout Venture, fees of $36,000 in connection with the
Yam Ashdod Carveout and fees of $72,000 in connection with the Shederot Venture.
See "Material Agreements". The minimum monthly Operator's fee is currently
$36,000 per month.
General Partner for the Negev 2 Limited Partnership
- ---------------------------------------------------
In 1989 the Company formed in Israel the Negev 2 Limited Partnership (the
"Limited Partnership") to acquire from the Company a substantial portion of its
working interest in the Negev 2 Venture. In exchange for working interests, the
Limited Partnership paid to the Company $700,000 and granted to the Company
certain overriding royalties. In 1992, the Company transferred to the Limited
- 2 -
<PAGE>
Partnership additional rights in the Negev Ashquelon License, the Bessor
Carveout, and the Negev Med Permit with Priority Rights (now the Med Licenses)
in exchange for additional overriding royalties and reimbursement of expenses.
The Company created Isramco Oil and Gas Ltd. ("IOG"), a wholly-owned subsidiary
to act as the General Partner for the Limited Partnership and formed Isramco
Management (1988) Ltd., a wholly-owned subsidiary to act as the nominee holder
of Limited Partnership units held by public investors in Israel. Pursuant to the
Limited Partnership Agreement and the Trust Agreement, a Supervisor was
appointed on behalf of the Limited Partnership unit holders, with sole authority
to appoint the sole director for Isramco Management (1988) Ltd. and to supervise
its activities on behalf of and for the benefit of the Limited Partnership unit
holders. The control and management of the Limited Partnership vests with the
General Partner, however, matters involving the rights of the Limited
Partnership unit holders are subject to the supervision of the Supervisor and in
certain instances the approval of the Limited Partnership unit holders. The firm
of Igal Brightman & Co., Accountants and Mr. David Valiano, Accountant have been
appointed as Supervisors.
The Company during 1992 and 1993, in order to assist the Limited
Partnership in the financing of its oil and gas exploration activities, acted as
offeror of Limited Partnership units to the public in Israel and assisted the
Limited Partnership in raising approximately $123 million from public in Israel.
The Company and its subsidiary, Isramco Underwriters Ltd., along with other
affiliated and non-affiliated companies also acted as an underwriter for the
Limited Partnership unit offerings and during the period March 1, 1992 through
December 31, 1994 received underwriting fees and expense reimbursements in the
approximate amount of $602,000 and fees in the amount of $160,000 for the
preparation of three prospectuses for the Limited Partnership unit offerings.
On March 1, 1997 the Limited Partnership had available $64 million to
finance its share of work obligations under the Licenses with regard to the
Petroleum Assets. The Limited Partnership is the largest holder of Working
Interests in the Negev 2 Venture, the Shederot Venture, the Negev Med Venture
and the Yam Ashdod Carveout Venture. See "Table of Petroleum Assets (Working
Interests) Oil and Gas Ventures".
The Company holds overriding royalties in certain Petroleum Assets through
the Limited Partnership and currently receives a management fee of $40,000 (as
of January 1997) per month from the Limited Partnership for office space,
management and other services. It has been significant to the Company that the
Limited Partnership (in part through the efforts of the Company and others), has
been able to raise monies from the public in Israel to fund the Limited
Partnership's share of the work programs for the Petroleum Assets in connection
with the continuation of oil and gas exploration activities in Israel and to
preserve the existence of the Company's overriding royalties. As of December 31,
1996 the Company held 0.01% of the issued Limited Partnership units and a
subsidiary of the Company, acting as General Partner for the Limited Partnership
held a 0.01% interest in the Limited Partnership.
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<PAGE>
Acquisition of Assets
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The Company (i) paid to NIR Resources Inc. ("NIR") the sum of $677,500 for
its 50% Membership Interest (before recovery of contributions) in Jay Petroleum
LLC ("Jay") which interest for profit allocation purposes reduces to 37.5% after
recovery of capital contribution; and (ii) paid to Stonewall Resources LLC the
sum of $363,750 for its 25% Membership Interest before recovery of contributions
in Jay which interest for profit allocation purposes reduces to 18.75% after
recovery of capital contributions. NIR is a wholly owned subsidiary of Naphtha
Israel Petroleum Corp. Ltd. Naphtha Israel Petroleum Corp. Ltd. owns
approximately 36.5% of the Company's common stock and warrants.) Mr. Yossi Levy,
the Branch Manager for the Israel Branch Office of the Company is a director of
Naphtha Israel Petroleum Corp. Ltd. ("Naphtha") and NIR. Mr. Yuval Ran, the
President of the Company is also a director of Naphtha and NIR. In addition,
officers and directors of the Company are associates of officers and directors
of Naphtha.
In addition, the Company made a $132,650 capital contribution to Jay and
acquired from Jay Resources Corp. a 7.9% Membership Interest in Jay Petroleum
LLC which interest increases to an allocation of profits percentage of 13.81%
after recovery of capital contributions.
In connection with this acquisition of interests in Jay the Company
received a Fair Market Value Letter from the firm of Albrecht and Associates
Inc., independent petroleum engineers, with regard to the oil and gas properties
held by Jay. The Fair Market Value Letter was based in part upon reserve
evaluation and net income projections prepared by Riseden Services Inc.,
independent petroleum engineers. A copy of the Fair Market Value Letter dated
January 27, 1997 and the Riseden Report dated January 16, 1997 have been filed
as Exhibits with Form 8-K for the month of February 1997.
In the aggregate the Company holds an 82.9% Membership Interest in Jay. The
Company's share of profits (before recovery of capital contribution) in Jay is
82.9% and after recovery of capital contribution the allocation of profit
participation will be reduced to 70.06%.
The membership of Jay is comprised of the Company which holds an 82.9%
Membership Interest, Jay Natural Resources LLC which holds a 10.65% Membership
Interest and Jay Resources Corp. which holds a 6.45% Membership Interest, all of
which interests are subject to adjustment after recovery of capital
contributions.
Jay owns both operated and non-operated varying working interests in
over fifty (50) oil and gas wells in the United States. Independent estimates of
the reserves held by Jay Petroleum LLC, which are located in Texas, Oklahoma,
Wyoming, Louisiana and New Mexico are approximately 120,000 net barrels of
proven developed producing oil reserves; 2,000 MMCF's of proven developed
producing natural gas reserves; 220,000 net barrels of proven non-producing oil
reserves; and, 3,000 MMCF's of proven non-producing natural gas reserves.
Jay has entered into a Management Agreement with Jay Management Company LLC
("Management"), a newly formed Texas limited liability company for the purpose
of managing certain of the producing oil and gas interests owned or to be
acquired by Jay. For a capital contribution of $350.00 the Company has received
a 35% membership interest in Management.
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<PAGE>
Pursuant to the Management Agreement, Jay will pay to Management a management
fee of $12,500 per month. Management will also receive all payments as Operator
for operations pursuant to the Operating Agreement for the contract wells. The
term of the Management Agreement is for ten (10) years, unless terminated by
either party on not less than one hundred eighty (180) days notice.
The designated Manager of Jay is Dr. Reuven Hollo. Dr. Hollo will receive a
Management fee of $5,000 per month. Dr. Hollo is also the Manager of Management,
as well as the controlling Member in Jay Resources Corp. and Jay Natural
Resources LLC. (neither of which the Company has any interests).
The acquisition of the interests in Jay, as well as the capital
contribution made by the Company to Jay was made out of working capital funds
available to the Company.
On February 13, 1997 Jay acquired from Snyder Oil Corporation of Fort
Worth, Texas, various operated and non-operated interests in oil and gas wells
in Louisiana, Texas and Wyoming for a cost of $3.1 million. The acquisition was
financed primarily with bank financing obtained by Jay through a $10 million
Revolving Credit Facility with Comerica Bank - Texas, Houston, Texas. The
Company is neither a borrower nor guarantor under this Revolving Credit
Facility.
Based on outside reservoir engineering reports, the newly acquired reserves
from Snyder consist of approximately 160,000 net barrels of proven developed
producing oil reserves; 2,800 MMCF of proven developed producing gas reserves;
10,000 net barrels of proven non-producing oil reserves; and, 1,143 MMCF of
proven non-producing gas reserves.
OIL AND GAS VENTURES AND PETROLEUM ASSETS
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The table below sets forth the Working Interests and Petroleum Assets of
the Company and all affiliated and non-affiliated participants in (i) the
Ventures, (ii) the Petroleum Assets, (iii) the total acreage of each Petroleum
Asset, and (iv) the expiration dates of each of the licenses. This information
pertains only to Petroleum Assets located in Israel. The Company also holds
Overriding Royalties in the Petroleum Assets. See "Table of Overriding
Royalties".
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF PETROLEUM ASSETS (WORKING INTEREST)
OIL AND GAS VENTURES (1)(3)
(% Interest of 100%)
Shederot Negev Med Yam Ashdod
Venture Venture Carveout Venture (2)
------- ------- --------------------
Shederot Med Tel Aviv License
License Med Yavne License
Med Ashdod License
Med Hadera License
Med Hasharon License
--------------------
Name of
Participant
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The Company (4)
- ---------------
<S> <C> <C> <C>
The Company 1.0043 1.0043 1.0043
Affiliates
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Isramco-Negev 2
Limited Partnership 72.9957 70.9957 53.0268
JOEL 8.0000 8.0000 8.0000
Pass-port 6.0000 6.0000 6.0000
Naphtha 4.0000 5.0000 5.10145
Naphtha
Explorations
Limited
Partnership -- 5.0000 5.10145
------- ------- --------
Non-affiliated entities
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Delek Drilling
Limited Partnership 8.0000 4.0000 21.7660
Total 100.0000 100.000 100.0000
Area 90,000 500,000 84,220
(acres)
Expiration Date 12/31/98 6/15/2000 6/15/2000
</TABLE>
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(1) Subject to the fulfillment of applicable provisions of the Israel Petroleum
Law and Regulations, and the conditions and work obligations of each of the
above licenses.
(2) Under the Grant Agreement with the Government of Israel, the Government may
claim that the Company is contingently obligated to repay to the Government
the Grant monies in the amount of $110,000 and to pay a 6.5% Overriding
Royalty on all production from the area. See Grant Agreement with the
Company.
(3) All of the Petroleum Assets are burdened by a 12.5% Overriding Royalty due
to the Government of Israel under the Petroleum Law.
(4) The Company and its subsidiaries also hold the Overriding Royalties and
0.02% of the Limited Partnership Units.
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<PAGE>
Overriding Royalties held by the Company
- ----------------------------------------
The Company holds the following Overriding Royalties:
<TABLE>
<CAPTION>
TABLE
OF
OVERRIDING ROYALTIES
On the First 10% of the
Limited Partnership Share of the
From The Limited Partnership * following Petroleum Licenses
- ------------------------------ ----------------------------
Before Payout After Payout
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<S> <C> <C>
Med Tel Aviv License 1.06% %3.83
Med Yavne License 1.06% %3.83
Med Ashdod License 1.06% %3.83
Med Hadera License 1.06% %3.83
Med Hasharon License 1.06% %3.83
Yam Ashdod Carveout 1.06% %3.83
Shederot License 5.00% %3.00
From JOEL On 8% of JOEL's Interest
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Before Payout After Payout
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Yam Ashdod Carveout 2.5% 12.5%
From Delek Oil Exploration Ltd. (DOEX) (1)(2) On 6% of DOEX's Interest
- --------------------------------------------- ------------------------
Before Payout After Payout
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Yam Ashdod Carveout 2.5% 12.5%
From Delek (1)(2) On 2% of DOEX's Interest
- ----------------- ------------------------
Before Payout After Payout
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Yam Ashdod Carveout 2.5% 12.5%
</TABLE>
The Company has no financial obligation with regard to the Overriding Royalties,
however, in the event the Limited Partnership, JOEL, DOEX or Delek, fails to
fund its obligation with regard to a Petroleum Asset to which an Overriding
Royalty exists, the Company could lose its interest in such Overriding Royalty.
See Glossary for definition of "Payout".
- -------------
(1) The Working Interests of Delek and DOEX have been assigned to Delek
Drilling Limited Partnership.
(2) In a prospectus of the Delek Limited Partnership dated January 26, 1994 it
is stated that the Interest which the Delek L.P. received from Delek and
DOEX is free from any encumbrances except that Isramco, Inc. may argue that
the Interests are subject to an overriding royalty. The Company has no
information available to it as to why this statement is in the Delek L.P.
prospectus.
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<PAGE>
[MAP
OFFSHORE AND ONSHORE LICENSES
March 1997
Med Hasharon License
Tel Aviv License
Med Hadera License
Med Yavne License
Yam Ashdod Carveout
Med Ashdod License
Sherderot License
Omitted]
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<PAGE>
Summary Description of the Ventures, the Petroleum Assets,
Related Work Obligations and Exploration Efforts
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Negev 2 Venture (Negev Ashquelon License and Negev Nirim License)
- -----------------------------------------------------------------
The Negev 2 Venture was formed in 1988 and the Company was designated as
the Operator. The Negev Nirim License (including the Bessor Carveout Area) was
relinquished by the Negev 2 Venture participants in February of 1995 and the
Negev Ashquelon License (including the Yam Carveout Area) was relinquished in
June of 1996.
Within the framework of the Negev 2 Venture (not including the Yam Carveout
Venture or the Bessor Carveout Venture) two offshore wells were drilled and
seismic and geological studies both onshore and offshore were conducted at a
cost of $44.55 million of which the Company's share of expenditures was $495,979
(of which $110,000 was funded by a grant from the Government of Israel).
Bessor Carveout Venture (within the Negev Nirim License)
- --------------------------------------------------------
The participants in the Bessor Carveout Venture relinquished the Negev
Nirim License in 1995. Total expenses of the Bessor Carveout from inception date
to December 31, 1995 were $6,545,073 of which the Company's share of
expenditures was $65,732.
Yam Carveout Venture (Within the Negev Ashquelon License)
- ---------------------------------------------------------
In 1993 the participants in the Negev Ashquelon License with the exception
of Isramco Resources Inc. pursuant to a Sole Risk Agreement formed the Yam
Carveout Venture by delineating the Yam Carveout Area (within the Negev
Ashquelon License Area) to carry out drilling of the Yam 3 well, an offshore
well, at an estimated cost of $25 million (without production tests). In June of
1996, when the participants in the Negev 2 Venture relinquished their interests
in the Negev Ashquelon License, the relinquishment included the Yam Carveout
Area. The Operator is in the process of winding down the Yam Carveout Venture.
Negev Med Venture
- -----------------
When the Negev Med Venture was formed in October of 1991 the Petroleum
Commissioner granted to the participants the Negev Med Preliminary Permit with
priority rights. The Negev Med Preliminary Permit expired on April 28, 1993 and
the participants requested and received five new drilling licenses (the Med
Licenses) valid until June 14, 1996. The duration of the Med Licenses has been
extended until June 15, 2000.
The Med Licenses are the Med Tel Aviv License, the Med Yavne License, the
Med Hadera License, the Med Ashdod License and the Med Hasharon License. In June
of 1996, upon the relinquishment of the Negev Ashquelon License, the boundaries
of the Med Ashdod License were modified to include the area of the structure on
which the Yam 1 and Yam 2 wells were drilled, as well as, another additional
structure which was part of the area of the relinquished Negev Ashquelon
License. The participants in the Negev Med License have delineated the Yam
Ashdod Carveout Area within the Med Ashdod License and this Carveout Area
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<PAGE>
includes all of the areas which were transferred from the Negev Ashquelon
License. Each participants' share in this new Carveout is the same as it was in
the Yam Carveout Venture (which was part of the Negev Ashquelon License). The
activities of the Yam Ashdod Carveout Venture including the accounts and
expenses of the Carveout are reported separately. As of July 1996, the expenses
of the Negev Med Venture set forth herein relate to four (4) licenses only.
There has been no exploration activity within the Med Ashdod Area which is not
within the Yam Ashdod Carveout, and no operating fee is charged under the Joint
Operating Agreement with respect to the Med Ashdod License Area outside of the
Yam Ashdod Carveout.
During the period from inception to December 31, 1996 the participants
authorized expenditure (AFE) in the various licenses and paid advances as
detailed below:
Authorization Advances
for paid
Expenditure
-------------- --------------
U.S. Thousands U.S. Thousands
License
- -------
Med Tel Aviv $39,217.50 $39,122.50
Med Yavne 25,032.50 24,884.50
Med Hasharon 1,514.00 1,412.00
Med Hadera 977.50 889.50
Med Ashdod 762.00 762.00
--------- ---------
Total $67,503.50 $67,070.50
========= =========
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<PAGE>
Shederot License
- ----------------
On January 1, 1996 the Company and the Limited Partnership were awarded an
onshore drilling license called Shederot/265 covering an area of 88,750 acres.
The Company holds a 1.0043% working interest in the license and the Limited
Partnership a 98.9557% interest in the license. The license is located in part
of the relinquished Negev-Nirim license area.
Stipulations in the license are:
(a) a seismic survey of about 35 miles (if necessary) by July 1, 1996
(this work was not undertaken because it was unnecessary);
(b) a contract with a drilling contractor not later than July 1, 1997;
(c) spudding of a deep well (about 13,120 feet) not later than January 1,
1998.
On January 29, 1996 the Company and the Limited Partnership signed a Joint
Venture Agreement and according to this agreement both parties adopted the Negev
2 Joint Venture Joint Operating Agreement dated June 30, 1988, with certain
amendments. The Company is the Operator of the license and entitled to an
Operator's fee equal to the greater of 6% of direct expenses of the Venture, but
not less than $6,000 per month. On January 30, 1996 the Company and the Limited
Partnership approved an AFE in the amount of $160,000 (the Company share was
1.0043%) for carrying out reinterpretation and remapping of the license area.
The Limited Partnership approached the other former participants in the
relinquished Bessor Carveout Venture to participate in the new license according
to proportionate share which they held at the time of the Bessor Carveout
Venture. See Table of Petroleum Assets and Working Interests for the share of
working interests held by each participant. The Company's interest in this
license is 1.0043%.
On March 18, 1996 the Petroleum Commissioner agreed to enlarge the Shederot
License Area to 98,800 acres and added an additional condition to the terms of
the license according to which the participants must commence drilling of a
second well to the same depth as the first not later than December 31, 1998.
In January 1997 the Operator recommended to the participants in the
Shederot Venture drilling the Gevim-1 well on the onshore "Shederot" license.
The well will be located approximately 1.24 miles south of the town Shederot. It
is planned for a total depth of 14,765 feet. Estimated drilling time is
ninety-five (95) days at an estimated cost of $6 million (U.S.) (the Company's
share would be $80,344). In March 1997 an AFE of $80,000 was approved by the
participants for preparatory work for the Gevim-1 well. The Company's share is
$803.
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<PAGE>
Yam Ashdod Carveout Venture
- ---------------------------
In September 1996, the participants in the Med Ashdod License signed an
agreement to create the Yam Ashdod Carveout Area within the license to conduct
an exploration program. The Carveout Area includes the area of the structure on
which the Yam 1 and Yam 2 wells were drilled, as well as an additional structure
which was part of the area of the relinquished Negev Ashquelon License. See
Table of Petroleum Assets and Oil and Gas Ventures for a breakdown of the
working interest of each participant. The Company's working interest is 1.0043%.
The participants in the Yam Ashdod Carveout Venture have adopted the
provisions of the Joint Operating Agreement of the Negev 2 Venture, subject to
adjustments and modifications. The Company as the Operator is entitled to an
Operating fee of 6% of all gross direct charges, but not less than $6,000 per
month. As long as no exploration activity takes place within the Med Ashdod
License Area, outside the Yam Ashdod Carveout Area, no Operating fee will be
charged with respect to the license area outside the Yam Ashdod Carveout. The
participants have also agreed that the license rentals under the Israel
Petroleum Law will be paid and treated as an expenditure under the Yam Ashdod
Carveout Venture.
In January 1997, the Operator recommended to the participants in the Yam
Ashdod Carveout Venture the following work program for 1997:
1. Re-entry of the Yam 2 well, deepening the well 900 feet to a total depth
of approximately 18,500 feet and carrying out production tests at an estimated
cost of $12 million of which the Company's share would be approximately
$120,000. These activities will depend upon engineering evaluation of the well,
the availability of a suitable rig and permission from the Defense Authorities.
2. Shooting a two dimensional seismic survey of approximately 170 line
nautical miles in the area of the Yam Ashdod Carveout, following by seismic data
processing and interpretation. The total cost of acquisition, processing and
interpretation is estimated to be about $775,000 of which the Company's share
will be $7,783. The time table schedule depends on the availability of a
suitable seismic vessel in the area. The seismic work was not done during the
beginning of 1997 due to the fact that an appropriate seismic vessel was not
available. To finance the preparatory work for the proposed re-entry and
deepening of the Yam 2 well, the participants approved an AFE in the amount of
$75,000 of which the Company's share is $753.
Accounting Treatment of Oil and Gas Properties on the Company's
Financial Statements
- ---------------------------------------------------------------
The Company uses the "successful efforts" method of accounting whereby all
costs of acquiring acreage, costs of drilling successful exploration wells and
development costs are capitalized. Producing and non-producing properties are
evaluated periodically, and if conditions warrant (i.e., should a well prove to
be dry and abandoned, or not of commercial value or no development activity is
contemplated in the near future), the related costs are written off. Annual
lease rentals and exploration costs, including geologic and geophysical costs
and exploratory dry hole costs, are charged to expense as incurred.
- 12 -
<PAGE>
MATERIAL AGREEMENTS
The Negev 2 Joint Venture Agreement (the "Joint Venture Agreement") and the
Negev 2 Joint Operating Agreement (the "JOA"), as amended were entered into
between the participants of the Negev 2 Venture to explore, develop and produce
petroleum and/or gas in certain areas onshore and offshore in Israel. The Joint
Venture Agreement is governed by and construed in accordance with the laws of
the State of California, USA, and the place of jurisdiction is the courts of the
State of California. Subject to the provisions of the Joint Venture Agreement
and the JOA, each party participates in all the costs, expenses and obligations
incurred in relation to a contract area in the same proportion as its rights and
interests in such contract area. Under the JOA, the Operator carries out all the
operations contemplated in the JOA, in the framework of approved Work Programs
and within the limitations of approved budgets (AFEs). Subject to the general
supervision of the Operating Committee, the Operator controls and manages all
operations conducted pursuant to the JOA. The Operator may be removed for cause,
by notice in writing given by two or more of the other parties representing at
least 65% of the total interests in a contract area. The Company with its
affiliates hold more than 65% of the total interest in each contract area,
however, the Company only holds a 1.0043% interest in each Venture and does not
control the affiliated parties which are public companies. See "Table of
Petroleum Assets and Oil and Gas Ventures".
Under the JOA, the Operator bills the participants in each Venture for all
costs incurred in the Operator's head office, field office, on site or elsewhere
in connection with a contract area, including, without limitation, rentals,
labor, consultants, materials, transportation, contract services, taxes, legal
and audit expenses, premiums for insurance, losses of joint property, repairs
for damages not covered by insurance and reasonable personal and travel
expenses.
The services and related costs incurred by the Operator in connection with
a contract area (provided they are not charged as a direct charge), are covered
by a monthly overhead charge equal to 6% of all gross direct charges. An
Operating Committee on an annual basis may verify that the monthly overhead
charge of the Operator equitably compensates the Operator for actual costs
incurred. Based on the results of this annual cost analysis, the percentage
chargeable for the benefit of the Operator can be adjusted, upward or downward
as determined by the participants in a contract area.
The holders of the Negev Med Licenses have also entered into a Deed of
Arbitration dated November 10, 1993 to the effect that the parties agreed to
submit to a single arbitrator the following question:
Is it justified, by custom, industry practice, history of previous
agreements between the parties, or otherwise, that in the majority
required under the JOA applicable to the Licenses constituting a
"determining vote" there should be included a party which is not a
member of the "Isramco Group" (namely a party other than Isramco-Negev
2 Limited Partnership, J.O.E.L. - Jerusalem Oil Exploration Ltd.,
Pass-port Ltd. or Isramco, Inc.).
- 13 -
<PAGE>
The person to be appointed as arbitrator was to be selected by mutual
agreement of the parties within thirty (30) days from November 10, 1993,
however, if they failed to do so, an arbitrator will be appointed at the request
of either party by Mr. Avigdor Bartel. The parties have not selected a mutually
agreed upon arbitrator.
Consulting Agreement with Dr. Joseph Elmaleh and Termination
- ------------------------------------------------------------
In July of 1995 the Company formalized its existing oral consulting
agreement with Dr. Joseph Elmaleh and entered into a written Consulting
Agreement for the payment to Dr. Elmaleh of an annual fee of $99,000 payable in
equal monthly installments of $8,250. The term of the Consulting Agreement was
to expire July 31, 1997. On April 17, 1996 pursuant to a Termination Agreement
entered into between the Company and Dr. Joseph Elmaleh, Dr. Elmaleh resigned as
the Chairman of the Board, Chief Executive Officer and a director of Isramco and
its subsidiaries. The Company terminated the 1995 Consulting Agreement and (i)
paid to Dr. Elmaleh the sum of $123,750 representing the balance of unpaid
consulting fees; (ii) Dr. Elmaleh agreed not to directly or indirectly compete
with the Company in connection with the exploration for oil and gas in the State
of Israel, the territorial waters off Israel or the territories currently under
control of the State of Israel for a term of three (3) years in consideration
for the lump sum payment of $270,000. The Company also purchased from Southern
Shipping and Energy Inc., a company controlled by Dr. Elmaleh, 292,675 shares of
the common stock of the Company held by Southern Shipping and Energy Inc. for a
purchase price of $208,238.
Consulting Agreement with Haim Tsuff
- ------------------------------------
In May of 1996 the Company entered into a Consulting Agreement with a
company owned and controlled by Haim Tsuff, the Chairman of the Board of
Directors and Chief Executive Officer of the Corporation. Pursuant to this
Consulting Agreement which has a term commencing June 1, 1996 through May 31,
1998, the Company agreed to pay the sum of $144,000 per annum payable in
installments of $12,000 per month, in addition to reimbursing all reasonable
business expenses incurred during the consulting term in connection with the
performance of consulting services on behalf of the Company.
Consulting Agreement with Yuval Ran
- -----------------------------------
In August of 1996 the Company entered into a Consulting Agreement with
Yuval Ran, the President of the Corporation. Pursuant to this Consulting
Agreement which has a term commencing August 1, 1996 through July 31, 1999, the
Company agreed to pay Mr. Ran the sum of $144,000 per annum payable in
installments of $12,000 per month, in addition to reimbursing all reasonable
business expenses incurred during the consulting term in connection with the
performance of consulting services on behalf of the Company.
Agreements with Danny Toledano
- ------------------------------
In October 1995 the Company entered into an Employment Agreement with Mr.
Toledano which provided for a payment of annual salary of $144,000 per annum
payable in installments of $12,000 per month. The term of the Agreement was for
one (1) year. In June of 1996 the Company terminated its Employment Agreement
- 14 -
<PAGE>
with Mr. Toledano and paid to Mr. Toledano a lump sum of $72,000 for the balance
of the employment term. Pursuant to the terms of a Termination Agreement, Mr.
Toledano resigned as President and Chief Operating Officer of the Company, and
executed a Covenant Not to Compete Agreement with the Company. Pursuant to the
terms of the Covenant Not to Compete, Mr. Toledano agreed that for a period of
five (5) years he would not directly or indirectly compete with the Company in
connection with the exploration for oil and gas in the State of Israel, the
territorial waters off Israel or the territories currently under control of the
State of Israel. In consideration for the covenant not to compete, the Company
paid to Mr. Toledano the sum of $200,000. The Company also entered into a
Consulting Agreement with Natural Resources Exploration Services B.V., a
Netherlands corporation controlled by Mr. Toledano. Pursuant to the Consulting
Agreement between the Company and Natural Resources Exploration Services B.V.,
the Company paid a lump sum payment of $72,000 to Natural Resources Exploration
Services B.V. to provide the services of Mr. Toledano to the Company through
June 23, 1997.
EMPLOYEES
During calendar year ending December 31, 1996, the Company had eight (8)
full-time employees at its Branch Office in Israel in connection with its
activities in Israel. With the exception of Mr. Toledano (whose employment has
been terminated), all employees of the Company were located at the Branch Office
in Israel. As of the date hereof the Company has five (5) full-time employees at
its Branch Office.
OFFICES
On July 14, 1992, the Company became a tenant in the offices of JOEL at
Shavit House, 4 Raoul Wallenberg Street, Tel Aviv 69174, Israel. In
consideration for occupying these offices the Company as of October 15, 1996
pays to JOEL the sum of $8,000 per month for rental space, office services,
secretarial services and computer services (this amount was reduced in October
1996 from $15,000 per month to $8,000 per month upon Naphtha taking occupancy in
the offices and paying its respective share of charges). The rental payable to
JOEL also includes the right of the Limited Partnership to occupy and use the
Company's offices. The Company believes that the payment for its office and
office services is comparable to charges the Company would be required to pay to
non-affiliated parties at other similar locations in Tel Aviv.
Office Facilities and Various Agreements
- ----------------------------------------
The Company as of September 1996 moved its New York office to 575 Madison
Avenue, New York, New York. Pursuant to a month to month rental agreement the
Company pays $275 per month for shared executive office facilities. Previously,
the Company had a license agreement from Petronav Inc. to use its New York
office at 800 Fifth Avenue, New York, New York. During 1996, the Company paid
$24,000 to Petronav Inc. under this license agreement. Petronav Inc. is a
company 100% owned and controlled by Dr. Joseph Elmaleh (the former Chairman of
the Board of Directors and Chief Executive Officer of the Company). Management
believes that the cost for these office premises is comparable to other similar
office space in New York City.
- 15 -
<PAGE>
Item 3. Legal Matters
-------------
The Claim and Summons issued by the Tel Aviv - Jaffa District Court in
Israel (C.C. No. 2448/90) on December 31, 1990 against the Company and others,
along with 1995 claim by the National Insurance Institute with regard to the
same action has been settled. The Company's share of the settlement amount was
approximately $600.00.
The Claim filed in the District Court of Tel Aviv - Jaffa on December 1,
1993 by Chaim Chazan Claim against the Company and others has been settled by
the Limited Partnership paying on behalf of the parties $345,000. The other
defendants (including the Company) are waiting for an arbitrator's decision as
to whether they must reimburse the Limited Partnership and if so, the amount of
each defendant's respective share.
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware Law and the By-laws of the
Corporation provide for indemnification of officers and directors of the Company
as permitted by Section 145 of the Delaware General Corporation Law. The Company
has also entered into agreements to indemnify its officers and directors and the
officers and directors of its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of shareholders during the quarter
ended December 31, 1996.
- 16 -
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters
The number of record holders of the Company's Common Stock on March 6,
1997 was approximately 1,062 not including an undetermined number of persons who
hold their stock in street name. The high and low bid prices as reported on the
National Association of Securities Dealers Automated Quotations System National
Market System are shown in the table below. These over-the-market quotations
reflect prices between dealers, without retail mark-ups, mark-downs or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Class A Class B
Common Stock Warrants Warrants
------------ -------- --------
Quarter Ended High Low High Low High Low
- ------------- ---- --- ---- --- ---- ---
1996
- ----
<S> <C> <C> <C> <C> <C> <C>
March 31 9/16 7/32 1/16 1/16 1/8 3/32
June 30 13/16 21/32 5/32 9/64 3/32 3/32
September 30 5/8 19/32 1/16 1/16 1/16 1/16
December 31 9/16 1/2 1/16 1/16 1/32 1/32
1995
- ----
March 31 1 5/16 9/16 7/32 1/16 3/32 1/32
June 30 17/32 15/32 1/16 1/16 1/32 1/32
September 30 19/32 1/2 5/32 3/32 1/16 1/16
December 31 3/4 1/2 1/16 1/32 1/32 13/32
</TABLE>
The Company has never paid a dividend on its Common Stock. The payment by
the Company of dividends, if any, in the future rests within the discretion of
its Board of Directors and will depend, among other things, upon the Company's
earnings, capital requirements and financial condition.
- 17 -
<PAGE>
Item 6. Selected Financial Data
-----------------------
Statement of Operations Data
<TABLE>
<CAPTION>
Year Ended 12/31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operator's fees 468,252 $1,114,980 $3,148,826 $784,845 $345,505
Oil revenue 335 644 2,930
Interest income 1,175,391 1,125,616 769,067 378,752 144,580
Office services and other 463,142 427,915 444,043 507,827 269,663
Gain (Loss) on 705,859 (366,167) (2,269,347) 2,580,529 22,341
marketable securities
Exploration costs 34,466 173,288 532,272 55,457 9,125
written off
Operator expenses 656,742 618,666 704,017 579,725 618,315
General & admini- 1,253,900 720,356 719,659 597,749 353,242
strative expenses
Net income (loss) 828,331 634,619 59,208 3,293,850 (128,319)
Net income (loss) 0.03 0.02 0.00 0.15 (.01)
per share
Weighted average
number of shares 26,494,745 26,691,198 26,602,912 21,778,678 11,100,092
Balance Sheet Data
- ------------------
Total assets 23,262,966 22,620,629 22,077,244 21,662,620 4,447,091
Total liabilities 334,668 358,279 449,513 405,310 226,183
Shareholders' equity 22,928,298 22,262,350 21,627,731 21,257,310 4,220,908
</TABLE>
- 18 -
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Liquidity and Capital Resources
- -------------------------------
In the calendar year 1996 the Company spent $34,466 in exploration for oil and
gas principally in the activity of seismic interpretation and subsurface
mapping, and the evaluation of prospects over the areas of the offshore licenses
and the onshore license. During the second and third quarters of 1996, a
comparative examination of the different prospects was made to determine the
order of priority for the continuation of the exploration program. In the same
period, the Company, as an operator, continued its search for and examination of
the availability of marine drilling rigs for its work plans in the offshore
licenses, and negotiations with the Ministry of National Infrastructures
concerning the modification of the special conditions in the offshore licenses.
In calendar year 1995 the Company invested $173,288 in exploration for oil and
gas, mainly in the drilling of the Yam West 1 well offshore in the Med Yavne
license. The Company invested $306,640 more in exploration for oil and gas in
the calendar year 1994, mainly as a result of the drilling and testing of the
Bessor 1 well (onshore) in the Bessor Carveout, the Yam Yafo 1 well (offshore)
in the Med Tel Aviv license and the drilling of the Yam West 1 well (offshore)
in the Med Yavne license.
During the second half of 1996, the Company invested approximately $18,500
examining investment opportunities in oil and gas fields in the United States.
In the calendar year 1996 the Company had net cash outflow from the purchase and
sales of marketable securities of $3,000 as compared to net cash outflow of
$1,773,091 and $2,178,063 in the calendar years 1995 and 1994, respectively. In
1995 the Company acquired shares of J.O.E.L. - Jerusalem Oil Exploration Ltd.
("JOEL") at a cost of approximately $974,000 (which shares are traded on the Tel
Aviv Stock Market). During 1996, the Company did not purchase or sell shares of
JOEL. As of December 31, 1996, the Company owned 5.5% of the issued shares of
JOEL.
The Company financed its operations during the calendar years 1996, 1995 and
1994 from its own funds, and did not need to use any lines of credit or loans.
The Company does not presently have any lines of credit with any institution.
The Company believes that it has sufficient funds to fulfill its present capital
requirements.
Results of Operations
- ---------------------
The Company reported net income of $828,331 ($0.03 per share) in the calendar
year 1996 compared to net income of $634,619 ($0.02 per share) and $59,208
($0.00 per share) in the calendar years 1995 and 1994, respectively. The gain
during 1996 is a result of income from operator's fees, interest, gains from a
rise in value of marketable securities and office services to a related party.
- 19 -
<PAGE>
Part of the gain is offset by increase in general and administrative expenses
and operator expenses.
During 1996, the Company continued to participate in work programs in the Negev
Med Venture, the Shederot Venture, the Yam Carveout Venture and the Yam Ashdod
Carveout Venture (as of July 1996). The Company holds a 1.0043% working interest
in each of the petroleum assets held by the various ventures.
Negev Med Venture
- -----------------
Two seismic surveys were carried out and two wells were drilled (the Yam Yafo 1
and the Yam West 1) by the Negev Med Venture since its inception. During 1995
and the beginning of 1996, seismic interpretation, subsurface mapping and
prospects evaluation have been carried out over the five licenses of the
Venture.
The accumulated data on Authorization for Expenditure (AFEs in the five licenses
of the Venture) is as follows:
<TABLE>
<CAPTION>
Total Accumulated
Expenses from
Inception Date
of Licenses
License AFE Expended in 1996 from May 1, 1993 Company's Share
- ------- --- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Med Tel Aviv $39,217,500 $104,388 $38,494,240 $386,598
Med Yavne 25,032,500 220,855 23,592,658 236,941
Med Hasharon 1,514,000 107,187 1,308,783 13,144
Med Hadera 977,500 110,055 795,089 7,985
Med Ashdod 762,000 67,930 759,934 7,632
---------- ---------- ----------- --------
$67,503,500 $610,415 $64,950,704 $652,300
</TABLE>
In June 1996, the Petroleum Commissioner at the Ministry of Energy and
Infrastructure extended the duration of the Med Tel Aviv, Med Yavne, Med
Hasharon, Med Hadera and Med Ashdod licenses by an additional four years until
June 15, 2000 pursuant to the following conditions: During the period of the
extension, the Company will have to carry out a seismic survey of at least 500
kilometers. Two wells are required to be drilled in the area of the licenses to
a minimum depth of 9,840 feet. The first well should be spudded no later than
January 1, 1998 and the second one by no later than one year after the first
well. In addition, the Company is required to carry out deepening and retesting
of the Yam 2 well by no later than January 1, 1998. If the conditions of the
licenses are not satisfied the licenses may terminate.
In June 1996, the Petroleum Commissioner approved the relinquishment of the
Negev Ashquelon license and the change of boundaries of the Med Ashdod license.
As a result of these boundary changes, the Med Ashdod license now includes the
area of the structure on which the Yam 1 and Yam 2 wells were drilled, as well
as another additional structure which was part of the area of the relinquished
Negev Ashquelon license. The participants delineated a carveout within the area
of the Med Ashdod license and this carveout includes all the areas which were
transferred from the Negev Ashquelon license as described above. The Company
- 20 -
<PAGE>
expects to be entitled to the same royalties in this carveout as to those which
were in the relinquished Negev Ashquelon license (including the Yam Carveout).
The participants' share in the new carveout will be the same as in the Yam
Carveout (which was part of the Negev Ashquelon license).
The Yam Carveout Venture (within the Negev Ashquelon License)
- -------------------------------------------------------------
In June 1996, the participants in the Negev 2 Venture relinquished their
interest in the Negev Ashquelon license including the Yam Carveout area and the
operator is in the process of winding down the affairs of the Yam Carveout
Venture. The Company's share was 1.0043%.
Shederot Venture
- ----------------
During the calendar year 1996, the work program in the Shederot license
consisted of reprocessing selected seismic sections, reinterpretation of the
entire seismic data set and remapping prospective structures. During 1996, the
Shederot Venture expended $361,169. The Company's share is 1.0043% or $3,627.
The Yam Ashdod Carveout (within the Med Ashdod License)
- -------------------------------------------------------
In September 1996, the participants in the Med Ashdod license signed an
agreement to create a carveout area within the license in which the exploration
program would be conducted and in which the respective interests of the parties
would be as they were in the Yam Carveout. The parties adopted the Joint
Operating Agreement (J.O.A.) of the Negev 2 Joint Venture dated June 30, 1988,
subject to amendments, adjustments and modifications. According to the J.O.A.,
the Company is the operator and is entitled to an operating fee of 6% of all
gross direct charges, but not less than $6,000 per month. As long as no
exploration activity takes place within the license area but outside the Yam
Ashdod Carveout, no operating fee will be charged under the J.O.A. with respect
to the license area outside the Yam Ashdod Carveout. The participants approved
an AFE in the amount of $173,000. The Company's share is 1.0043% or $1,737.
During the six month period ending December 31, 1996, the Ashdod Carveout
Venture expended $52,580. The Company's share is 1.0043% or $528.
Future Activities
- -----------------
Israel
- ------
In January 1997, the Company, as Operator of the oil exploration in Israel, had
recommended to the participants the following work program for 1997:
1. Re-entry of the Yam 2 well, deepening the well 984 feet to a total depth of
approximately 16,404 feet and carrying out of production tests at an
estimated cost of $12 million (US). These activities depend on engineering
evaluation of the well, on the availability of a suitable rig and on
permission from the Defense Authorities.
- 21 -
<PAGE>
2. Shooting a two dimensional seismic survey of approximately 186 line miles
in the area of the Yam Ashdod Carveout followed by seismic data processing
and interpretation. Total cost of acquisition, processing and
interpretation is estimated to be about $775,000 (US). The time schedule
depends on the availability of a suitable seismic vessel in the area.
3. Drilling the Gevim-1 well on the onshore Shederot license. The well will be
located approximately 1.24 miles south of the town Shederot. It is planned
for a total depth of 14,765 feet. Estimated drilling time is ninety-five
(95) days at an estimated cost of $6 million (US).
In March 1997, the participants approved an authorization for expenditures (AFE)
for the shederot license in the amount of $80,000 to finance preparatory work
for the planned well and an AFE in the amount of $75,000 to finance preparatory
work for the proposed re-entry and production tests of the Yam 2 well. As a
seismic vessel is not available in the area to do the seismic work that had been
planned for the beginning of 1997, this part of the AFE was not approved.
United States
- -------------
The Company in February 1997 purchased for $1 million an interest in Jay
Petroleum LLC ("Jay"). The Company (i) paid to NIR Resources Inc. the sum of
$677,500 for its 50% Membership Interest (before recovery of contributions) in
Jay which interest for profit allocation purposes reduces to 37.5% after
recovery of all capital contribution made to Jay; and (ii) paid to Stonewall
Resources LLC the sum of $363,750 for its 25% Membership Interest (before
recovery of contributions) in Jay which interest for profit allocation purposes
reduces to 18.75% after recovery of all capital contributions made by the
members.
The Company also made a $132,650 capital contribution to Jay and received
from Jay Resources Corp. a 7.9% Membership Interest in Jay which interest
increases to an allocation of profits percentage of 13.81% after recovery of
capital contributions. The total capital contribution made by the members to Jay
to date is $846,000.
The Company now holds an 82.9% Membership Interest in Jay. The Company's
share of profits before recovery of capital contribution in Jay is 82.9% and
after recovery of capital contribution the allocation of profit participation
will be reduced to 70.06%.
Jay owns both operated and non-operated varying working interests in over
fifty (50) oil and gas wells in the United States. Independent estimates of the
reserves held by Jay Petroleum LLC, which are located in Texas, Oklahoma,
Wyoming, Louisiana and New Mexico are approximately 120,000 net barrels of
proven developed producing oil reserves; 2,000 MMCF's of proven developed
producing natural gas reserves; 220,000 net barrels of proven non-producing oil
reserves; and, 3,000 MMCF's of proven non-producing natural gas reserves.
- 22 -
<PAGE>
Jay is managed by Jay Management Company LLC ("Management"), newly formed
Texas limited liability company established for the purpose of managing certain
of the producing oil and gas interests owned or to be acquired by Jay. The
Company has received a 35% interest in Management. Jay will pay to Management a
management fee of $12,500 per month. The Management Company will also receive
all payments to Operator for operations pursuant to the Operating Agreement for
the contract wells.
The acquisition of the interests in Jay, as well as the capital
contribution made by the Company to Jay was made out of working capital funds
available to the Company.
In February 1997 Jay acquired from Snyder Oil Corporation ("Snyder") of
Fort Worth, Texas, various operated and non-operated interests in oil and gas
wells in Louisiana, Texas and Wyoming for a cost of $3.1 million. The
acquisition was financed primarily with bank financing obtained by Jay Petroleum
through a $10 million Revolving Credit Facility with Comerica Bank - Texas,
Houston, Texas. The Company is not a borrower or guarantor under this Revolving
Credit Facility.
Based on outside reservoir engineering reports, the newly acquired reserves
from Snyder consist of approximately 160,000 net barrels of proven developed
producing oil reserves; 2,800 MMCF of proven developed producing gas reserves;
10,000 net barrels of proven non-producing oil reserves; and, 1,143 MMCF of
proven non-producing gas reserves.
Operator's Fees
- ---------------
In 1996 the Company earned $468,000 which was based on the minimum monthly
compensation of $42,000 per month until June 1996 and $36,000 per month as of
July 1996.
In 1995 the Company earned Operator's fees of $664,980 above the minimum monthly
compensation (which was $450,000 for the entire year) primarily from the
drilling of the Yam West 1 well. In 1994 the Company received Operator's fees of
$2,644,826 above the minimum monthly compensation (which was $504,000 for the
entire year), as a result of the drilling and testing the Bessor 1 well and the
Yam Yafo 1 well and the drilling of the Yam West 1 well.
Interest Income
- ---------------
Interest income increased in the years 1996 and 1995 compared to interest income
in 1994, due to higher average interest rates and/or higher average investment
balances.
- 23 -
<PAGE>
Gain on Marketable Securities
- -----------------------------
In the calendar year 1996 the Company had gains from marketable securities of
$705,859 comprised of $865,606 from unrealized holding gains and $159,747 from
realized losses. Sales of marketable securities resulted in realized gains of
$209,888 and $159,407 for 1995 and 1994. At December 31, 1996 and 1995 the
Company had net unrealized losses of $400,000 and $1,267,000, respectively on
securities held for trading.
In 1996 the Company had an unrealized holding gain of $771,165 from its
investment in JOEL. As at March 18, 1997, that gain increased by $160,740.
Increase or decrease in the gains and losses from marketable securities are
dependent on the market prices in general and the composition of the portfolio
of the Company.
Exploration Cost
- ----------------
During 1996, the primary activity of the exploration program was seismic
interpretation, subsurface mapping and evaluation of prospects. The Company also
examined investment opportunities in oil and gas fields in the United States.
The Company expended $139,000 less on oil and gas exploration in Israel than in
the previous period in 1995 when the drilling of the Yam West 1 well took place.
Operator's Expenses
- -------------------
Operator's expenses increased in the calendar year 1996, as compared to the
calendar year 1995, primarily as a result of the costs relating to the
termination of certain employees and an expense from foreign currency exchange.
Part of the increase was offset by fewer office expenses and professional
services.
Operator's expenses in 1996 were less than in 1994 mainly as a result of office
rent and expenses which were reduced in 1996 as compared to 1994.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased in 1996 as compared to the
calendar years 1995 and 1994. Directors' fees, officers' salaries and
professional fees during 1996 were more than during 1995 and 1994.
General and administrative expenses in 1996 included expenses as a result of
officers' salaries and payments made according to agreements which the Company
entered into with Dr. Joseph Elmaleh and Mr. Danny Toledano. In April 1996, Dr.
Joseph Elmaleh resigned as Chairman of the Board, Chief Executive Officer and as
a director of the Company. Pursuant to a Termination Agreement, the Company
agreed to pay Dr. Elmaleh $123,750 representing the balance of unpaid consulting
fees, $270,000 in consideration of a covenant not to compete for a period of
three years, and, purchased from Southern Shipping and Energy Inc., a company
which Dr. Elmaleh controls, 292,675 shares of the Company's common stock for
$208,238. In connection with this agreement, the Company recorded a charge to
earnings of approximately $235,000 in 1996 and will take a charge of $22,500 in
- 24 -
<PAGE>
each of the following nine (9) quarters. In June 1996, Mr. Danny Toledano
resigned as the President and Chief Operating Officer of the Company. Pursuant
to a Termination Agreement, the Company terminated its October 1995 Employment
Agreement with Mr. Toledano and paid to Mr. Toledano the sum of $72,000. The
Company also paid to Mr. Toledano $200,000 in consideration of a covenant not to
compete for a period of five years, and entered into a Consulting Agreement with
a company owned by Mr. Toledano for a term of one year and paid the sum of
$72,000 as an advance consulting payment. In connection with these agreements,
the Company recorded a charge to earnings of approximately $210,000 in 1996 and
expects to take a charge of $28,000 in each of the following two (2) quarters
and $10,000 in each of the sixteen (16) quarters thereafter.
In June 1996, the Company entered into a two year Consulting Agreement with a
company which employs Haim Tsuff, Chairman of the Board and Chief Executive
Officer of the Company, and in August 1996 the Company entered into a three year
Consulting Agreement with Yuval Ran, recently elected as President of the
Company. In connection with these agreements, each of the consultants is
entitled to an annual compensation of $144,000, payable in monthly payments of
$12,000 plus reimbursement for all reasonable business expenses incurred by
them.
- 25 -
<PAGE>
Item 8. Financial Statements and Supplementary Data
- 26 -
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Isramco Inc.
We have audited the consolidated balance sheets of Isramco Inc. and
subsidiaries as at December 31, 1996 and December 31, 1995 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of Isramco, Inc.
and subsidiaries as at December 31, 1996 and December 31, 1995 and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
March 14, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------------
A S S E T S 1996 1995
----------- ------ ------
(in thousands
except for share
information)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 15,999 $ 16,506
Marketable securities, at market 6,478 5,768
Prepaid expenses and other current assets 338 216
-------- --------
T o t a l 22,815 22,490
*
Equipment, less accumulated depreciation of $98 and
$102 at December 31, 1996 and December 31, 1995,
respectively 65 131
Covenants not to compete, less accumulated
amortization of $87 at December 31, 1996 383
-------- --------
T O T A L $ 23,263 $ 22,621
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 334 $ 358
-------- --------
Commitments, contingencies and other matters
Shareholders' equity:
Common stock, $.01 par value; authorized
75,000,000 shares; issued
26,691,198 shares 267 267
Additional paid-in capital 25,928 25,928
Accumulated deficit (3,102) (3,932)
Treasury stock, 292,675 shares at
December 31, 1996 (164)
-------- --------
22,929 22,263
-------- --------
T O T A L $ 23,263 $ 22,621
======== ========
The accompanying notes to financial statements
are an integral part hereof.
F-2
</TABLE>
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
------------------------------------------
1996 1995 1994
----------- ------------ ------------
(in thousands except for share
information)
Revenues:
Operator fees from related
party $ 468 $ 1,115 $ 3,149
Oil sales 1
Interest income 1,175 1,126 769
Gain (loss) on marketable
securities 706 (366) (2,269)
Office services to related
party 464 428 444
Underwriting fee 91
------------ ------------ ------------
Total revenues 2,813 2,304 2,184
------------ ------------ ------------
Expenses:
Interest expense 2 5 5
Depreciation 37 40 43
Exploration costs 34 173 533
Operator expense 656 619 704
General and administrative -
in part to related parties 1,254 721 720
Research and development 28 120
------------ ------------ ------------
Total expenses 1,983 1,586 2,125
------------ ------------ ------------
Income before taxes 830 718 59
Provision for income taxes 83
------------ ------------ ------------
NET INCOME $ 830 $ 635 $ 59
============ ============ ============
Earnings per share $ .03 $ .02 $ .00
============ ============ ============
Weighted average number of shares
outstanding 26,494,745 26,691,198 26,602,912
============ ============ ============
The accompanying notes to financial statements
are an integral part hereof.
F-3
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Additional Treasury Stock Total
----------------------- Paid-In Accumulated ---------------------- Shareholders'
Shares Amount Capital Deficit Shares Amount Equity
------- ------ --------- --------- -------- ------ -------
(in thousands except for share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
January 1,
1994 26,535,592 $ 265 $ 25,618 $ (4,626) $ 21,257
Issuance of
common stock
pursuant to
the exercise
of Class A
warrants 155,606 2 310 312
Net income 59 59
------------ ------------ ------------ ------------ ------------
Balance -
December 31,
1994 26,691,198 267 25,928 (4,567) 21,628
Net income 635 635
------------ ------------ ------------ ------------ ------------
Balance -
December 31,
1995 26,691,198 267 25,928 (3,932) 22,263
Net income 830 830
Purchase of
treasury
stock from
related party (292,675) $ (164) (164)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE -
DECEMBER 31,
1996 26,691,198 $ 267 $ 25,928 $ (3,102) (292,675) $ (164) $ 22,929
============ ============ ============ ============ ============ ============ ============
The accompanying notes to financial statements
are an integral part hereof.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------------------
1996 1995 1994
------ ------ -----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 830 $ 635 $ 59
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 37 40 43
Amortization 87
Exploration costs 34 173 526
(Gain) loss on marketable securities (706) 366 2,269
(Gain) loss on sale of equipment 8 1 (7)
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses and
other current assets (122) 9 130
Increase (decrease) in accounts payable and
accrued expenses (24) (91) 44
Purchase of marketable securities (2,851) (3,080) (11,121)
Proceeds from sale of marketable securities 2,848 1,307 8,943
Payment for covenants not to compete (470)
-------- -------- --------
Net cash provided by (used in)
operating activities (329) (640) 886
-------- -------- --------
Cash flows from investing activities:
Exploration costs (34) (173) (481)
Purchase of equipment (3) (21) (70)
Proceeds from sale of equipment 23 1 25
-------- -------- --------
Net cash (used in) investing activities (14) (193) (526)
-------- -------- --------
Cash flows from financing activities:
Proceeds from exercise of warrants 312
Purchase of treasury stock (164)
-------- --------
Net cash provided by (used in)
financing activities (164) 312
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (507) (833) 672
Cash and cash equivalents - beginning of year 16,506 17,339 16,667
-------- -------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 15,999 $ 16,506 $ 17,339
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2 $ 5 $ 5
The accompanying notes to financial statements
are an integral part hereof.
F-5
</TABLE>
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Summary of Significant Accounting Policies:
- ------------------------------------------------------
[1] The Company:
----------------
Isramco Inc. and subsidiaries (the "Company"), is engaged in the
acquisition, exploration, operation and development of oil and gas properties
and the temporary investment of surplus funds in securities.
[2] Consolidation:
------------------
The consolidated financial statements include the accounts of the Company,
its direct and indirect wholly owned subsidiaries Isramco Oil and Gas Ltd. ("Oil
and Gas") and Isramco Underwriters, Ltd. ("Underwriters"), both Israeli
Companies, Isramco Resources Inc., a British Virgin Islands company and an
immaterial wholly owned foreign subsidiary. Intercompany balances and
transactions have been eliminated in consolidation. Another wholly owned
subsidiary of the Company, Isramco Management (1988) Ltd., an Israeli Company,
is not included in the consolidation because the Company has no voting rights.
This entity serves as the nominee for a Limited Partnership and has no
significant assets or operations.
[3] Method of accounting for oil and gas operations:
----------------------------------------------------
The Company uses the "successful efforts" method of accounting whereby all
costs of acquiring acreage, costs of drilling successful exploration wells and
development costs are capitalized. Producing and nonproducing properties are
evaluated periodically, and if conditions warrant (i.e., should a well prove to
be dry and abandoned, or not of commercial value or no development activity is
contemplated in the near future), the related costs are written off. Annual
lease rentals and exploration costs, including geologic and geophysical costs
and exploratory dryhole costs, are charged to expense as incurred.
[4] Marketable securities:
--------------------------
Statement of Financial Accounting Standard No. 115 ("SFAS No. 115")
requires that marketable securities held for trading be recorded at their market
value. Company management considers the Company's marketable securities to be
held for trading as defined by SFAS No. 115, and as such are reported at fair
value.
(continued)
F-6
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Summary of Significant Accounting Policies: (continued)
- ------------------------------------------------------
[5] Equipment:
--------------
Equipment, consisting of motor vehicles, office furniture and
equipment, is carried at cost less accumulated depreciation, computed by the
straight-line method over the estimated useful lives of the assets.
[6] Translation of foreign currencies:
--------------------------------------
Foreign currency is translated in accordance with Statement of Financial
Accounting Standards No. 52, which provides the criteria for determining the
functional currency for entities operating in foreign countries. The Company has
determined its functional currency is the United States ("U.S.") dollar since
all of its contracts are in U.S. dollars. The financial statements of Oil and
Gas, Isramco Underwriters and the Israel Branch have been remeasured into U.S.
dollars as follows: at rates prevailing during the year for revenue and expense
items (except depreciation); at year-end rates for assets and liabilities except
for fixed assets and prepaid expenses which are translated at the rate in effect
at the time of their acquisition. Depreciation is remeasured based on the
historical dollar cost of the underlying assets. The net effects of translation
were not material in any period.
[7] Income per common share:
----------------------------
At December 31, 1996, December 31, 1995 and December 31, 1994 earnings per
share amounts are based on the weighted average number of shares outstanding.
The assumed conversion of warrants and exercise of options do not result in
material dilution.
[8] Cash equivalents:
---------------------
Cash equivalents include short-term investments with original maturities of
90 days or less and are not limited in their use.
[9] Noncompete agreements:
--------------------------
Noncompete agreements are amortized over the period to be benefitted,
generally from three to five years.
(continued)
F-7
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Summary of Significant Accounting Policies: (continued)
- ------------------------------------------------------
[10] New pronouncement:
-----------------------
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123") "Accounting
for Stock-Based Compensation Arrangements". SFAS No. 123 permits a company to
either choose a new fair value-based method of accounting for stock based
compensation, or retain the intrinsic value-based method of accounting for
stock-based compensation. The statement requires pro forma disclosures of net
income (loss) and earnings (loss) per share computed as if the fair value-based
method had been applied in financial statements of companies that continue to
follow the intrinsic value-based method of accounting. The Company has adopted
SFAS No. 123 for disclosure purposes only, and as a result, the adoption of SFAS
No. 123 has not materially impacted the Company's financial position or results
of operations.
[11] Use of estimates:
----------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
related notes. Actual results could differ from those estimates.
[12] Income taxes:
------------------
The Company accounts for income taxes using the liability method as
prescribed by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for any
tax benefits which are not expected to be realized. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized is the period that
such tax rate changes are enacted.
(NOTE B) - Transactions With Affiliates and Related Parties:
- ------------------------------------------------------------
The Company acts as Operator for joint ventures engaged in the exploration
for oil and gas for which it receives operating fees equal to the larger of 6%
of the actual direct costs or minimum monthly fees of $6,000 per license.
(continued)
F-8
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Transactions With Affiliates and Related Parties:
(continued)
- ------------------------------------------------------------
Operator fees earned and related operator expenses are as follows:
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(in thousands)
Operator fees:
Negev Med Venture $324 $1,025 $2,942
Sherdot Venture 72
Yam Ashdod Carveout 36
Yam Carveout 36 72 72
Bessor Carveout 18 135
----- ------- ------
$468 $1,115 $3,149
===== ======= ======
Operator expenses $656 $ 619 $ 704
===== ======= ======
In November 1996, Jerusalem Oil Exploration Limited ("JOEL"), then a 36%
holder of the Company's issued and outstanding common stock and 33% holder of
the Company's outstanding Class A and Class B warrants, sold such shares and
warrants to Naphtha Israel Petroleum Corporation Limited ("Naphtha"), its
majority owned subsidiary. Naphtha subsequently transferred the investments to a
wholly owned subsidiary, Naphtha Holding Ltd. JOEL and Naphtha are Israeli
corporations whose shares are traded on the Tel-Aviv Stock Exchange.
During 1996, 1995 and 1994, the Company paid JOEL $162,500, $180,000 and
$180,000 respectively, for rent, office, secretarial and computer services.
Effective in October 1996 the Company began paying JOEL $8,000 per month for
such services.
The Company paid JOEL a consulting fee of $6,000 per month for financial
and supervisory services from January 1, 1992 through March 1996.
A subsidiary of the Company is the general partner of Isramco- Negev 2
Limited Partnership from which it received management fees and expense
reimbursements of $420,000 in each of the years in the three-year period ended
December 31, 1996.
The Company occupied facilities of Petronav, Inc. a company owned by the
Company's former Chief Executive Officer, in New York, on a month-to-month
basis, at a rental of $2,000 per month through March 1995 and $3,000 through
August 1996.
(continued)
F-9
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Transactions With Affiliates and Related Parties:
(continued)
- ------------------------------------------------------------
During the year ended December 31, 1994, the Company, through Underwriters,
earned $91,000 in underwriting commissions from Isramco- Negev 2 Limited
Partnership unit offerings.
Pass-Port Ltd. ("Pass-Port"), a significant investor in JOEL, is an Israeli
company whose shares are traded on the Tel-Aviv Stock Exchange. The Company's
former Chief Executive Officer and Chairman of the Board had served as Chairman
of the Board of Directors and General Manager of Pass-Port. The Company paid
Pass-Port $6,000 for consulting services during 1995 and $36,000 during 1994. In
1996, the Company received $15,000 from Pass-Port for consulting services.
During the years ended December 31, 1996, December 31, 1995 and December
31, 1994, the Company incurred $- 0 - , $98,000 and $97,000, respectively, for
legal services and $5,000, $5,000 and $- 0 -, respectively, for consulting
services rendered by officers/directors of the Company.
In October 1995, the Company entered into a one-year employment agreement
with its former President at an annual salary of $144,000. In June 1996, the
President resigned from his office and pursuant to a termination agreement the
Company paid him $72,000. The Company also paid him $200,000 in consideration
for a five year covenant not to compete and entered into a consulting agreement
with a company owned by the former President for a term of one year. $72,000 was
paid in advance in connection with this agreement. The Company recorded a charge
to earnings of approximately $128,000 relating to these agreements in 1996 which
is included in general and administrative expenses.
The Company agreed to pay its former Chief Executive Officer, $8,250 per
month through July 1997 for consulting services. During the period January -
April 1996 and the years ended December 31, 1995 and December 31, 1994 payments
of $33,000, $99,000 and $99,000, respectively, were made to other entities as
directed by the executive, and are included in general and administrative
expenses. In April 1996, the executive resigned from his position. Pursuant to a
termination agreement, the Company agreed to pay him $123,750 representing the
balance of unpaid consulting fees, $270,000 in consideration for a three year
covenant not to compete and, purchased from Southern Shipping and Energy, Inc.,
a company controlled by the former Chief Executive Officer, 292,675 shares of
the Company's common stock for $208,238. In connection with the termination
agreement, the Company recorded a charge to earnings of approximately $235,000,
which is included in general and administrative expenses. The charge includes
$44,000 representing the excess of the purchase price of the Company's common
stock over its fair market value at the time of the transaction.
(continued)
F-10
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Transactions With Affiliates and Related Parties:
(continued)
- ------------------------------------------------------------
In June 1996, the Company entered into a two-year consulting agreement with
a company which employs the present Chairman of the Board and the Chief
Executive Officer of the Company, and in August 1996 the Company entered into a
three-year consulting agreement with the present President of the Company. In
connection with these agreements, each of the consultants is entitled to an
annual compensation of $144,000, payable in monthly payments of $12,000 plus
reimbursement for all reasonable business expenses incurred by them.
(NOTE C) - Marketable Securities:
- ---------------------------------
At December 31, 1996 and December 31, 1995 the Company owned 4,576,561
(approximately 5%) of JOEL, a related party (see Note B), with a cost and market
value of $2,316,000 and $1,844,000, respectively, in 1996 and $2,316,000 and
$1,073,000, respectively, in 1995.
At December 31, 1996 and December 31, 1995, the Company owned 319,529 units
of the Isramco-Negev 2 Limited Partnership, a related party (see Note B), with a
cost and market value of $22,000 and $3,000 in 1996 and 1995, respectively.
Sales of marketable securities resulted in realized gains (losses) of
$(160,000), $210,000 and $159,000 for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994, respectively. The first-in, first-out
method is used to determine the realized gain or loss on a sale.
At December 31, 1996 and December 31, 1995, the Company had net unrealized
losses on marketable securities of $400,000 and $1,267,000, respectively. The
change in net unrealized holdings included in earnings is a gain of $867,000 in
1996, a loss of $577,000 in 1995 and a loss of $2,429,000 in 1994.
(continued)
F-11
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - Marketable Securities: (continued)
- --------------------------------- -----------
Marketable securities, which are primarily traded on the Tel-Aviv Stock
Exchange, consist of the following:
D e c e m b e r 3 1,
------------------------------------------------
1 9 9 6 1 9 9 5
----------------------- -----------------------
Market Market
Cost Value Cost Value
---------- ---------- ---------- ----------
Debentures $3,660,000 $3,714,000 $2,185,000 $2,199,000
Convertible
debentures 97,000 90,000 102,000 82,000
Investment trust
fund 671,000 705,000 2,361,000 2,368,000
Shares 2,450,000 1,969,000 2,386,000 1,118,000
----------- ----------- ----------- ----------
T o t a l $6,878,000 $6,478,000 $7,034,000 $5,767,000
=========== =========== =========== ==========
(NOTE D) - Oil and Gas Properties:
- ----------------------------------
Total
Capitalized
Unproved Proved Costs
---------- ------ ----------
Balance - January 1, 1994 $ 45,000 $- 0 - $ 45,000
Changes in the year ended
December 31, 1994:
Exploration costs in progress 481,000 481,000
Exploration costs written off (526,000) (526,000)
---------- ------ ----------
Balance - December 31, 1994 - 0 - - 0 - - 0 -
Changes in the year ended
December 31, 1995:
Exploration costs in progress 173,000 173,000
Exploration costs written off (173,000) (173,000)
---------- ------ ----------
Balance - December 31, 1995 - 0 - - 0 - - 0 -
Changes in the year ended
December 31, 1996:
Exploration costs in progress 34,000 34,000
Exploration costs written off (34,000) (34,000)
---------- ------ ----------
Balance - December 31, 1996 $ - 0 - $- 0 - $ - 0 -
========== ====== ==========
(continued)
F-12
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Equipment:
- ---------------------
December 31,
----------------------------
1996 1995 1994
--------- --------- --------
Cost:
Balance - beginning of period $233,000 $217,000 $227,000
Purchases 3,000 21,000 70,000
Sales and dispositions (73,000) (5,000) (80,000)
--------- --------- ---------
Balance - end of period 163,000 233,000 217,000
--------- --------- --------
Accumulated depreciation:
Balance - beginning of period 102,000 65,000 84,000
Depreciation expense 37,000 40,000 43,000
Depreciation of equipment
that was sold or retired (41,000) (3,000) (62,000)
--------- --------- ---------
Balance - end of period 98,000 102,000 65,000
--------- --------- --------
Balance - cost less
accumulated depreciation $ 65,000 $131,000 $152,000
========= ========= ========
Annual rates of depreciation are as follows:
Office furniture 7%
Office equipment and vehicles 15% - 20%
(NOTE F) - Shareholders' Equity:
- --------------------------------
The Company's stock option plan (the "Plan") which expired on January 31,
1993, provided for both incentive stock options and nonqualified stock options.
The 1993 stock option plan (the "1993 Plan") was approved at the Annual
General Meeting of Shareholders held on August 13, 1993. 500,000 shares of
common stock are reserved under the 1993 Plan. Options granted under the 1993
Plan may be either incentive stock options under the Internal Revenue Code or
options which do not qualify as incentive stock options. Options are granted for
a period of up to ten years from the grant date. The exercise price for an
incentive stock option may not be less than 100% of the fair market value of the
Company's common stock on the date of grant. The exercise price for a
nonqualified stock option may be set by the administrator.
(continued)
F-13
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Shareholders' Equity: (continued)
Summary of the status of the Company's stock options is presented
below:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1996 1995 1994
------------------------ ----------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
"1993 Plan" and the "Plan":
Outstanding at beginning of year .......... 337,500 $ 1.99 572,500 $ 2.45 547,500 $ 2.48
Granted ................................... 30,000 0.56 25,000 1.91
Expired ................................... (40,000) 1.37 (265,000) 2.76
Outstanding at end of year ................ 297,500 2.08 337,500 1.99 572,500 2.45
Options exercisable at year end ........... 297,500 2.08 337,500 1.99 572,500 2.45
Weighted average fair value of options
granted during the year ................. $- 0 - $ .43
======== ========
</TABLE>
As of December 31, 1996, 297,500 options were outstanding and
exercisable with a price range of $.56 - $2.31, with a weighted-average
remaining contractual life and weighted-average exercise price of 7.3 years and
$2.08, respectively.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
"Consultants and others":
Outstanding at beginning of year ........ 550,000 $ 1.98 517,500 $ 1.84 667,500 $ 1.80
Granted ................................. 550,000 1.98
Expired ................................. (530,000) 1.96 (517,500) 1.84 (150,000) 1.66
Outstanding at end of year .............. 20,000 2.31 550,000 1.98 517,500 1.84
Options exercisable at year-end ......... 20,000 2.31 550,000 1.98 517,500 1.84
Weighted average fair value of options
granted during the year ............... $ - 0 - $ .04
======== ========
</TABLE>
As of December 31, 1996, 20,000 options were outstanding and exercisable at
a price of $2.31 with a remaining contractual life of 6.7 years.
During 1994, the Company granted 25,000 options to an employee pursuant to
the 1993 Plan exercisable through March 2004 at an exercise price of $1.91.
During 1995, the Company granted 30,000 options to a director under the 1993
Plan exercisable through July 2005 at an exercise price of $0.56 per share.
During 1995 and 1994, 517,500 and 150,000 options, respectively, granted
pursuant to consulting arrangements expired.
(continued)
F-14
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Shareholders' Equity: (continued)
- -------------------------------- -----------
On March 16, 1995, the Company granted 500,000 options pursuant to a
one-year consulting arrangement at an exercise price of $2.00 which expired on
March 16, 1996. The value of these options was not significant.
In March 1995, the Company issued 50,000 options to a former director of
the Company to replace, on the same terms, incentive stock options which
terminated at the time he ceased to be a director; 20,000 options at an exercise
price of $2.31 exercisable through August 2003 and 30,000 options at an exercise
price of $1.37 which expired in December 1996. The value of these options was
not significant.
The Company has outstanding Class A Redeemable Warrants and Class B
Redeemable Warrants which it issued pursuant to a public offering in 1993. A
Class A Redeemable Warrant entitles the holder to purchase one share of common
stock at a price of $2.00 at any time after the date of issuance until April 16,
1997 (extended from April 16, 1996). A Class B Redeemable Warrant entitles the
holder to purchase one share of common stock at a price of $4.00 at any time
after issuance until April 16, 1997 (extended from April 15, 1996). At December
31, 1996, 7,498,894 Class A Redeemable Warrants and 7,675,000 Class B Redeemable
Warrants are outstanding. The Class A and Class B warrants are subject to
redemption by the Company at a price of $.001 per warrant on thirty days' notice
after the price of the Company's common shares exceeds $2.10 and $4.20,
respectively.
In connection with the offering the Company issued to the Underwriter a
warrant to purchase 225,000 units (the "Underwriter Warrant") exercisable one
year after issuance but not later than five years at a price of $6.60 per unit.
Each unit is identical to those sold to the public except that the exercise
prices of the Class A Redeemable Warrants and Class B Redeemable Warrants are
$3.20 and $6.40, respectively. Each unit consists of four shares of common
stock, two Class A Redeemable Warrants and two Class B Redeemable Warrants.
(continued)
F-15
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Shareholders' Equity: (continued)
- --------------------------------
During 1994, 155,606 of Class A Redeemable Warrants were exercised.
Accordingly, the Company received proceeds of $312,000.
Shares of common stock reserved for future issuance are:
Options granted under the 1993 Plan 297,500
Options available for grant under the 1993
Plan 202,500
Class A Redeemable Warrants 7,498,894
Class B Redeemable Warrants 7,675,000
Shares underlying the Underwriter Warrant 1,800,000
Other 20,000
----------
T o t a l 17,493,894
==========
The Company applies Accounting Principles Bulletin Opinion No. 25 and
related interpretations in accounting for its options. Accordingly, no
compensation cost has been recognized for its stock option grants. Had
compensation cost for the Company's stock option grants been determined based on
the fair value at the grant dates for awards consistent with the method of SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below (in thousands) except per share data.
Year Ended
December 31,
-------------------
1996 1995
--------- --------
Net income - as reported $830,000 $635,000
========= ========
- pro forma $830,000 $610,000
======== ========
Earnings per share - as reported $.03 $.02
===== ====
- pro forma $.03 $.02
===== ====
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995; dividend yield of zero (0%) percent,
expected volatility of 61 percent, risk free interest rates ranging from 5.51%
to 7.13%, and weighted average expected life of 1.7 years.
(continued)
F-16
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Income Taxes:
- ------------------------
Income (loss) before income taxes from U.S. and foreign results
of operations is as follows:
1996 1995 1994
---------- --------- --------
U.S. $(151,000) $(84,000) $(1,813,000)
Foreign 981,000 802,000 1,872,000
---------- --------- -----------
Total $ 830,000 $718,000 $ 59,000
========== ========= ===========
The provision for income taxes is as follows:
1996 1995 1994
--------- ---------- -------
Current:
U.S. $ 34,000 $ 455,000 $ 920,000
Deferred:
U.S. (34,000) (372,000) (920,000)
--------- ---------- ----------
Total $ - 0 - $ 83,000 $ - 0 -
========= ========== ==========
Deferred taxes are provided principally in relation to temporary
differences in unrealized appreciation (depreciation) in marketable securities
and net operating losses. Income taxes in 1995 arise from the federal
alternative minimum tax.
The deferred tax assets as of December 31, 1996, are as follows:
Assets
---------
Unrealized depreciation of marketable
securities $ 137,000
U.S. Federal net operating losses 659,000
U.S. Federal alternative minimum
tax credits 89,000
--------
885,000
Valuation allowance (885,000)
---------
$ - 0 -
=========
(continued)
F-17
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Income Taxes: (continued)
- ------------------------
A reconciliation between the actual income tax expense and income taxes
computed by applying the U.S. Federal income tax rate to income before taxes is
as follows:
Year Ended December 31,
------------------------------
1996 1995 1994
--------- --------- --------
Computed at U.S.
statutory rates $ 282,000 $ 252,000 $ 21,000
Reduction of valuation
allowance (282,000) (169,000) (21,000)
---------- ---------- ---------
$ - 0 - $ 83,000 $ - 0 -
========== ========== =========
At December 31, 1996, net operating loss carryforwards available to reduce
future federal taxable income amounted to approximately $1,884,000, expiring at
various dates through 2008. Due to certain changes in ownership by shareholders
owning greater than 5% of the Company's outstanding common stock, the net
operating loss carryforward may be subject to annual limitations.
The Company also has net operating loss carryforwards of approximately
$4,012,000 available to reduce future Israeli taxable income from its Israel
Branch and its Israeli subsidiaries. These net operating loss carryforwards are
not limited by an expiration date. The ultimate realization of the tax benefits
is dependent upon these entities earning future taxable income and accordingly,
the Company has established an offsetting valuation allowance because it is not
presently able to predict that such taxable income will be earned.
(NOTE H) - Concentration of Credit Risk:
- ----------------------------------------
A significant portion of the Company's cash and cash equivalents is
invested in three money-market funds.
Substantially all marketable securities owned by the Company are held by
two banks in Israel.
(NOTE I) - Subsequent Events:
- -----------------------------
On February 5, 1997 the Company acquired an 82.9% membership interest in
Jay Petroleum, LLC ("Jay") at an aggregate cost of $1.2 million; $677,500 for a
50% interest from NIR Resources, Inc. ("NIR"), $363,750 for a 25% interest from
Stonewall Resources, LLC, and $132,650 as a capital contribution to Jay for a
7.9% interest. The Company's share of profits after recovery of its investment
(continued)
F-18
<PAGE>
ISRAMCO INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Subsequent Events: (continued)
- -----------------------------
is 70.06%. NIR is a wholly owned subsidiary of Naphtha. The Branch Manager of
the Company's Israel Branch is the General Manager of Naphtha and the Company's
President is also a director of Naphtha. In addition, officers and directors of
the Company are associates of officers and directors of Naphtha.
Jay has entered into a Management Agreement with Jay Management Company
LLC, a newly formed Texas limited liability company for the purpose of operating
certain oil and gas interests and managing certain oil and gas interests owned
or to be acquired by Jay. For a capital contribution of $350.00 the Company has
acquired a 35% interest in Jay Management Company LLC. Pursuant to the
Management Agreement, Jay will pay to Jay Management Company LLC a management
fee of $12,500 per month. The Management Company will also receive all payments
to the operator for operations pursuant to the Operating Agreement for the
contract wells. The term of the Management Agreement is for ten years, unless
terminated by either party on not less than one hundred eighty days notice.
The designated manager of Jay will receive a management fee of $5,000 per
month.
On February 13, 1997 Jay acquired from Snyder Oil Corporation of Fort
Worth, Texas, various operated and nonoperated interests in oil and gas wells in
Louisiana, Texas and Wyoming for a cost of $3.1 million. The acquisition was
financed primarily with bank financing obtained by Jay through a $10 million
Master Note Facility with Comerica Bank - Texas, Houston, Texas. The Company is
not a borrower or guarantor under this Master Note Facility.
F-19
<PAGE>
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
- -------------------------------------------------------
See Form 8-K for the month of July, 1994 filed by the Company July 25,
1994.
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
Daniel Avner has been a director of the Company since May 1996. Mr. Avner since
1992 has been the General Manager of E.D.R. GMBH Co., a company which engages in
investment, development and management of residential property in Germany. From
1991 to 1992 Mr. Avner was a Financial Analyst with Proctor & Gamble Company in
Germany. Mr. Avner holds a BA Degree in Accounting and Economics from the
University of Tel Aviv and a Masters of Business Administration from Duke
University. Mr. Avner is the Secretary of the Company. Age 34.
Yossi Levy has been Branch Manager of the Company's Branch Office in Israel.
Since 1988 Mr. Levy has held the position of General Manager of Naphtha - Israel
Petroleum Corp. and since 1995 has been Chief Executive Officer of N.I.R.
(Naphtha International Resources) Ltd. Mr. Levy has been the Manager of Naphtha
Israel Petroleum Corp. Ltd., a public company in the oil and gas business in
Israel which through its direct subsidiary is a controlling shareholder of the
Company. Age 45.
Zvika Livnat has been a director of the Company since September 1996. Since 1981
Mr. Livnat has been the commercial manager of Taavura Cement Containers Ltd., a
company located in Israel which is engaged in a number of businesses including
inland transportation. Mr. Livnat holds a H.N.D. Degree in Business Studies and
Transportation Studies from the Dorset Institute of Higher Education in the
United Kingdom. Mr. Livnat and his family own a controlling interest in Carmen
Assets and Investments Ltd. See Security Ownership of Certain Beneficial Owners.
Age 43. Mr. Livnat resigned as a director of the Company on March 2, 1997.
Yeheskel Nathaniel has been a director of the Company since September 1996.
Since 1990 Mr. Nathaniel has been a managing director of Tanax BMBG, a company
located in Berlin, Germany which is engaged in the business of commercial and
residential real estate. Mr. Nathaniel holds a post graduate diploma in
management studies (DMS) at Middelsex University, London and a masters in
business administration from Henley University, England. Age 34. Mr. Nathaniel
resigned as a director of the Company in March 1997.
Ido Rosen has been a director of the Company and the Principal Financial Officer
since May 1996. Mr. Rosen since 1995 has been the Director and Chief Financial
Officer of the El-AD Group, a private company which invests, develops and
manages real estate in the New York Metropolitan Area. From 1993 through 1995
Mr. Rosen was Controller of Y.L.R. Capital Markets (1992) Ltd. and from 1990 to
1993 was Senior Accountant with Kesselman & Kesselman, CPAs. Mr. Rosen holds a
Bachelor of Accounting and Economics from Tel Aviv University. Age 30. Mr. Rosen
resigned as a director of the Company and Principal Financial Officer on March
2, 1997.
- 27 -
<PAGE>
Yuval Ran has been the President of the Company since August 1996. during the
past five (5) years Mr. Ran has been the Chairman of the Board and Chief
Executive Officer of Israel Credit Lines (Central) Ltd. and Israel Credit Lines
Complimentary Financial Services Ltd., public companies which engage in finance
activities in Israel and Manager of Prime Financial Consultants and Promote
Finance and Credit and Promote Underwriters Ltd. Group of Companies (engaged in
financial services). In March 1997 Mr. Ran became the Chairman of the Board of
JOEL. Mr. Ran is a director of KU Integrated Holding Ltd., the general partner
of KU Limited Partnership. See Security Ownership of Certain Beneficial Owners.
Age ____.
Natan Schwartz has been a director of the Company since November 3, 1995 and
also serves a director of Isramco Oil and Gas Ltd. Mr. Schwartz in the past five
(5) years has served as manager and a board member of Prime 2000 Ltd. and Prime
Financial Consultants (finance and financial consulting activities), Promote
Construction Ltd. (construction), Promote Finance and Credit Ltd. (real estate)
and Promote Underwriters Ltd. (real estate and investment activities). Mr.
Schwartz is also a member of the board of directors of the following non-U.S.
public companies: Navigator Nadlan Ltd., Ace - Spade Investments Ltd., Oki - Dok
Investments Ltd., Oktova Holdings Ltd., Navigator Investment Ltd. Age 53.
Haim Tsuff has been a director of the Company since January 8, 1996. Mr. Tsuff
is Chairman of the Board of Pass-port Ltd. and a director of Isramco Oil and Gas
Ltd. During the past five (5) years, Mr. Tsuff has served as General Manager of
Firestone Chemical Industries Ltd., a private company which produces printed
material. Mr. Tsuff is also the Managing Director or Chairman of the Board of Y.
Habaron Ltd. (real estate), Firestone Chemical Factors Ltd. (printed material),
Madad Ltd. (printed material), Benfica Holdings Ltd. (construction) and Benfica
Ltd. (construction), all of which are private companies. Age 38. Mr. Tsuff is a
director of United Kingsway Ltd. See Security Ownership of Certain Beneficial
Owners.
- 28 -
<PAGE>
Item 11. Executive Compensation
- -------- ----------------------
SUMMARY OF COMPENSATION
-----------------------
The following table sets forth the compensation paid for years 1994 - 1996
to the Chief Executive Officer and the five (5) other highly paid officers
and/or key employees of the Company.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Long-Term Compensation
Name and Year Salary Bonus Other Annual Securities All Other
Principal Compensation Underlying Compensation
Position (8) Options
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Haim Tsuff 1996 84,000 ---- ---- ---- ----
Chairman of the Board
and Chief Executive Officer (1)
Yuval Ran 1996 60,000 ---- ----
President (2)
Raanan Wiessel 1996 70,565 ---- ---- ----
Treasurer 1995 67,962 34,000
Controller 1994 56,128 39,000
Branch Office 25,000
Yossi Levy 1996 36,055 ----
Branch Manager (3)
Joseph Elmaleh (4) 1996 156,750 ----
Former Chairman of 1995 ---- 99,000
------
the Board and 1994 ---- 100,000 99,000
and Former Chief Executive
Officer
Danny Toledano (5) 1996 144,000
Former President, 1995 30,000 ----
------
Former Chief Operating Officer 1994 ---- 80,000 ----
------
and ---- 30,000
Former Chief Financial Officer
Alex Helfman (6) 1996 157,960 ----
Former Oil and 1995 126,211 55,000 ----
------
Gas Supervisor 1994 114,100 77,100
30,000
Joshua Folkman 1996 106,441 ----
Exploration Manager 1995 92,777 20,000 ----
Branch Office 1994 92,468 10,000
20,000
Conrad E. Maher (7) 1996 ---- ---- 99,600
Former Operations and 1995 112,005 ---- ----
------
Technical Manager 1994 109,791 ---- 78,000 25,000
Branch Office 75,000 ----
- 29 -
</TABLE>
<PAGE>
Notes
(1) In May of 1996 the Company entered into a Consulting Agreement with a
company owned and controlled by Haim Tsuff, the Chairman of the Board and
Chief Executive Officer of the Corporation. Pursuant to this Consulting
Agreement, the Company pays to consultant the sum of $144,000 per annum in
installments of $12,000 per month in addition to reimbursing all reasonable
business expenses incurred in connection with the services rendered on
behalf of the Company.
(2) In August of 1996 the Company entered into a Consulting Agreement with
Yuval Ran, the President of the Corporation. Pursuant to the Consulting
Agreement, the Company has agreed to pay to Mr. Ran the sum of $144,000 per
annum payable in installments of $12,000 per month in addition to
reimbursing all reasonable business expenses incurred in connection with
performing the consulting services on behalf of the Company.
(3) In November of 1996 the Company entered into an Employment Agreement with
Yossi Levy, the Managing Director of Naphtha Israel Petroleum Company Ltd.
to employ Mr. Levy as the General Manager of the Israel Branch of the
Company. The Employment Agreement may be terminated by either party on six
(6) months' notice.
(4) On April 17, 1996 Dr. Elmaleh resigned as Chairman of the Board of
Directors, Chief Executive Officer and a director of the Company. In April
of 1996 the Company pursuant to a Termination Agreement paid to Dr. Elmaleh
the balance of unpaid consulting fees which is reflected under other Annual
Compensation and $270,000 in consideration of a covenant not to compete for
a period of three (3) years. The Company also purchased from Southern
Shipping and Energy Inc. (a company which Dr. Elmaleh controlled) 292,675
shares of the Company's common stock for $208,238.
(5) In June of 1996 Danny Toledano resigned as President and Chief Operating
Officer of the Company and in August 1996 Mr. Toledano resigned as a
director. The Company pursuant to a Termination Agreement paid to Mr.
Toledano the balance of monies due under his 1995 Employment Agreement,
which sum is reflected under salary above, $200,000 in consideration of a
covenant not to compete and entered into a Consulting Agreement with a
company owned by Mr. Toledano and made an advance payment to said company
of $72,000.
(6) Alex Helfman left the Company in September of 1996.
(7) Conrad E. Maher left the Company in April of 1996 and continued to render
services to the Company through December 1996.
(8) Does not include personal benefits which do not exceed 10% of the cash
compensation of all officers as a group.
- 30 -
<PAGE>
The following table sets forth information concerning the exercise of stock
options during 1996 by each of the named executive officer and key employee and
the year end value of unexercised options.
<TABLE>
<CAPTION>
Aggregated Option Exercises
in 1996
and Year End Option Values
--------------------------
Name Shares Value Number of Value of
Acquired Realized ($) Securities Unexercised
on Exercise Underlying In the Money
Unexercised Options at
Options (#) Year End ($)(5)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Danny Toledano (1) 0 0 30,000 0
Alex Helfman (2) 0 0 30,000 0
Joshua Folkman 0 0 20,000 0
Raanan Wiessel 0 0 25,000 0
Conrad Maher (3) 0 0 100,000 0
Barry Sahgal (4) 0 0 30,000 0
</TABLE>
Notes
(1) Ceased to be an officer of the Company in June 1996 and a director of the
Company in August 1996.
(2) Ceased to be an employee in September 1996.
(3) Ceased his relationship with the Company in December 1996.
(4) Ceased to be a director of the Company in May 1996.
(5) The value reported is based on the closing price of the common stock of the
Company as reported on NASDAQ on the date of the exercise less the exercise
price.
- 31 -
<PAGE>
The following table sets forth information concerning individual grants of
stock options made during the 1996 fiscal year to each named executive officer
and key employee. The Corporation did not grant any stock appreciation rights
during 1996 and has no outstanding SAR's.
Option Grants in 1996
---------------------
Individual Grants (1)
---------------------
Name No. of % of Total Exercise Expiration
Shares Options Price Date
Underlying Granted to ($/SH)
Options Employees
Granted (1)
- -------------------------------------------------------------------------------
NONE
Notes
(1) All stock options were granted with an exercise price equal to the market
price of the common stock on the date of grant.
The Company during 1996 did not amend or adjust the exercise price of
outstanding stock options previously awarded to any of the named executive
officers or directors or employees. The only incentive plan which the Company
has is its 1993 Stock Option Plan (the "Stock Option Plan").
Stock Option Plan
The Company's Stock Option Plan was adopted with the intention of
encouraging stock ownership by directors, officers, employees and consultants of
the Company and its subsidiaries. The plan provides for stock options of up to
500,000 shares of common stock of the Company. Options may either be options
intended to qualify as "incentive stock options" or "non-statutory stock
options", as those terms are defined in the Internal Revenue Code.
Employees (including officers) of the Company are eligible to receive
incentive stock options, however, non-statutory stock options may be granted to
officers, directors, employees and consultants of the Company and its
subsidiaries. Options are granted for a period of up to ten (10) years from the
grant date for an exercise price of not less than 100% of the fair market value
of the securities of the Company's common stock on the date of grant. As of this
date no persons have been appointed to fill the current vacancies on the
committee which administers this plan.
- 32 -
<PAGE>
Item 12. Security Ownership of Directors, Officers and Key Employees
On March 6, 1997 the Directors, executive Officers and certain key
employees of the Company beneficially owned, the aggregate 45,000 shares of the
Company's common stock (comprising less than 1% of the shares outstanding)
including 45,000 shares under options which are currently exercisable. Unless
otherwise indicated, the individuals named hold sole voting and investment power
over the shares listed below.
Name Position Number of
Shares
Owned
Beneficially
- --------------------------------------------------------------------------------
Haim Tsuff (1) Chairman of the Board, 0
Chief Executive Officer,
and Director
Yuval Ran (2) President 0
Daniel Avner Secretary and Director 0
Joshua Folkman Exploration Manager 20,000
(6)
Raanan Wiessel Treasurer - Controller 25,000
(7)
Natan Schwartz (3) Director 0
Yeheskel Nathaniel (5) Director 0
Ido Rosen (4) Director 0
Zvika Livnat (4) Director 0
All Directors, Officers and Key Employees as a Group _________
(nine persons) 45,000
Notes
(1) Haim Tsuff is also the Chairman of the Board of Pass-port Ltd. which owns
and controls 43% of JOEL which controls 86% of Naphtha Israel Petroleum
Corporation Ltd. For more information see Security Ownership of Certain
Beneficial Owners.
(2) Yuval Ran is also the Chairman of the Board and Chief Executive Officer of
JOEL, Israel Credit Lines (Central) Ltd. and Israel Credit Lines
Complimentary Financial Services Ltd. ("Credit Lines"). For more
information see Security Ownership of Certain Beneficial Owners.
(3) Natan Schwartz is also a director of Credit Lines.
(4) Ido Rose and Zvika Livnat resigned as directors of the Company in March
1997. For more information see Security Ownership of Certain Beneficial
Owners.
(5) Yeheskel Nathaniel resigned as a director of the Company in March 1997.
(6) Includes 20,000 shares of common stock issuable upon exercise of Stock
Options.
(7) Includes 25,000 shares of common stock issuable upon exercise of Stock
Options.
- 33 -
<PAGE>
Security Ownership of Certain Beneficial Owners
Set forth below is certain information with respect to ownership of the
Company's securities as of March 11, 1997 by persons or entities who are known
by the Company to own beneficially more than 5% of the outstanding shares of the
common stock, as determined in accordance with Rule 13d-3 under the Act.
Name of No. of
Beneficial Owner Common Shares Percentage
- ---------------- ------------- ----------
Naphtha Holdings Ltd. * 14,874,225 47.3% +
Notes
* In a recent Schedule 13D filed by Naphtha, J.O.E.L., Pass-port Ltd.
("Pass-port"), Israel Credit Lines Ltd. ("Credit Lines"), Israel Credit
Lines Complimentary, Financial Services Ltd. ("Complimentary"), K.U.
Limited Partnership (1995), K.U. Integrated Holdings Ltd. ("KU"), Michlol
Kanot Holdings Ltd. ("Michlol"), Carmen Assets and Investments Ltd.
("Carmen"), United Kingsway Ltd. ("Kingsway") (the Naphtha Schedule 13D) it
was announced that Naphtha has transferred to a newly formed holding
company (Naphtha Holdings Ltd.) 9,874,225 shares of the common stock of the
Company and 2.5 million Class A Warrants and 2.5 million Class B Warrants.
Accordingly, Naphtha Holdings Ltd. may be deemed to be the beneficial owner
of 47.3% of the shares of the Company if the Class A and Class B Warrants
are exercised. (The Warrants expire on April 16, 1997.) Naphtha Holdings
Ltd. is a subsidiary of Naphtha, which is a subsidiary of JOEL, which is a
subsidiary of Pass-port Ltd. See Chart of Security Ownership.
According to information received by the Company, on February 2, 1997
Complimentary and Kingsway (a company 100% owned by Mr. Robert Arckens of
Belgium) formed YHK Investment LP (YHK) with each owning 35% and 65% of YHK
respectively. YHK General Managers Ltd. is the general partner of YHK and
Haim Tsuff, Josef Tsuff, Yuval Ran and Tina Mimon-Arckens are its
directors. On March 2, 1997, YHK purchased all the shares of Passport Ltd.
("Pass-port") owned by KU. This transaction eliminated KU and Michlol from
the chain of ownership reported in the Naphtha Schedule 13D. YHK now owns,
of record, 44.5% of Pass-port Ltd. Pass-port owns 43.4% of JOEL. JOEL owns
86.6% of Naphtha, which owns 100% of Naphtha Holding Ltd. Naphtha Holding
Ltd. owns, of record [47.3%] 36.5% of the common stock of Isramco, Inc.
assuming the exercise by Naphtha Holding Ltd. of all the Class A and Class
B Warrants.
Simultaneously with these transactions, Zvika Livnat (whose family controls
Carmen and Michlol) and Ido Rosen resigned from the Board of Directors of
the Company. The vacancies so created have not been filled.
Haim Tsuff is the Chairman of the Board, Chief Executive Officer and a
director of the Company and Chairman of the Board and a director of
Pass-port Ltd., and Kingsway. Yuval Ran, the President of the Company is
the Chairman of the Board of JOEL, Chairman of the Board and Chief
Executive Officer of Complimentary and Credit Lines. Mr. Ran holds 8.21% of
the shares of Complimentary. Prior to the formation YHK, Mr. Ran and Mr.
Livnat, jointly by power of attorney acted on behalf of four corporations
which are board members of J.O.E.L. and on behalf of two corporations which
are board members of Pass-port Ltd. Zvika Livnat is a director of Carmen
and Michlol. Natan Schwartz is a director of Credit Lines and holds 2.51%
of the shares of Complimentary.
As a result of the foregoing, Robert Arckens, Yuval Ran, Credit Lines,
United Kingsway, and YHK Limited Partnership may be deemed to control
Pass-port Ltd., JOEL, Naphtha and the Company.
Information regarding these relationships is more fully available in
Schedule 13D filing and amendments thereto made on behalf of the above
entities which are on file with the Securities and Exchange Commission.
+ This percentage is based on 26,398,523 shares of common stock outstanding
March 6, 1997 plus the required issuance of an additional 5,000,000 shares
of common stock in the event of the exercise of the Class A and Class B
Warrants by Naphtha Holding Ltd.
- 34 -
<PAGE>
<TABLE>
<CAPTION>
The following chart sets forth the chain of ownership of the Company.
<S> <C> <C>
YUVAL RAN NATAN SCHWARTZ
8.21% 2.51%
UNITED COMPLIMENTARY (Public)
KINGSWAY LTD.
(controlled by Robert Arckens)
65% 35%
Y.H.K.
LIMITED PARTNERSHIP (Israel)
44.5%
PASS-PORT LTD.
43.4%
10.1%
J.O.E.L. LTD.
86.6%
NAPHTHA
100%
NAPHTHA HOLDING LTD. 5.5%
36.5%
ISRAMCO, INC.
ISRAMCO OIL AND GAS LTD.
GENERAL PARTNER
ISRAMCO NEGEV 2 LIMITED PARTNERSHIP
- 35 -
</TABLE>
<PAGE>
Item 13. Certain Relationships and Related Transactions
Office Facilities and Various Agreements
- ----------------------------------------
The Company as of September 1996 moved its New York office to 575 Madison
Avenue, New York, New York pursuant to a month to month rental agreement.
Previously, the Company had a license agreement from Petronav Inc. to use its
New York office at 800 Fifth Avenue, New York, New York. During 1996, the
Company paid $24,000 to Petronav Inc. under this license agreement. Petronav
Inc. is a company 100% owned and controlled by Dr. Joseph Elmaleh (the former
Chairman of the Board of Directors and Chief Executive Officer of the Company).
Management believes that the cost for these office premises is comparable to
other similar office space in New York City.
Service Agreement with J.O.E.L.
- -------------------------------
From January 1996 through October 15, 1996 the Company paid to J.O.E.L.
$15,000 per month for office rental, office services, secretarial services and
computer services in Tel Aviv, Israel. In October 1996 this monthly charge was
reduced to $8,000 per month. The payment for 1996 was $162,500. The charge also
includes the usage of offices and office services for Isramco-Negev 2 Limited
Partnership. Management believes that the amount which it pays to J.O.E.L. for
rent and office services is comparable to charges for rent and office services
in comparable locations in Israel.
Agreements with Danny Toledano
- ------------------------------
In October 1995 the Company entered into an Employment Agreement with Mr.
Toledano which provided for a payment of annual salary of $144,000 per annum
payable in installments of $12,000 per month. The term of the agreement was for
one (1) year. In June of 1996 the Company terminated its Employment Agreement
with Mr. Toledano and paid to Mr. Toledano a lump sum of $72,000 for the balance
of the employment term. Pursuant to the terms of a Termination Agreement between
the Company and Mr. Toledano, Mr. Toledano resigned as President and Chief
Operating Officer of the Company, and executed a Covenant Not to Compete
Agreement with the Company. Pursuant to the terms of the Covenant Not to
Compete, Mr. Toledano agreed that for a period of five (5) years he would not
directly or indirectly compete with the Company in connection with the
exploration for oil and gas in the State of Israel, the territorial waters off
Israel or the territories currently under control of the State of Israel. In
consideration for the covenant not to compete, the Company paid to Mr. Toledano
the sum of $200,000. The Company also entered into a Consulting Agreement with
Natural Resources Exploration Services B.V., a Netherlands corporation
controlled by Mr. Toledano. Pursuant to the Consulting Agreement between the
Company and Natural Resources Exploration Services B.V., the Company paid a lump
sum payment of $72,000 to Natural Resources Exploration Services B.V. to provide
the services of Mr. Toledano to the Company through June 23, 1997.
- 36 -
<PAGE>
Consulting Agreement with Dr. Joseph Elmaleh and Subsequent Termination
Agreement
- --------------------------------------------------------------------------------
In July of 1995 the Company formalized its existing oral consulting
agreement with Dr. Joseph Elmaleh and entered into a written Consulting
Agreement for the payment to Dr. Elmaleh of an annual fee of $99,000 payable in
equal monthly installments of $8,250. The expiration of the term of the
Consulting Agreement commenced August 1, 1995 and was to expire July 31, 1997.
Under the terms of a Termination Agreement made on April 17, 1996, Dr. Elmaleh
resigned as the Chairman of the Board, Chief Executive Officer and a director of
Isramco and its subsidiaries, the Company terminated the 1995 Consulting
Agreement with Dr. Elmaleh and (i) paid to him the sum of $123,750 representing
the balance of unpaid consulting fees; (ii) paid to him the sum of $270,000 for
a non-compete agreement in connection with the exploration for oil and gas in
the State of Israel, the territorial waters off Israel or the territories
currently under control of the State of Israel for a term of three (3) years.
The Company also purchased from Southern Shipping and Energy Inc. (a company
controlled by Dr. Elmaleh) 292,675 shares of the common stock of the Company
held by Southern Shipping and Energy Inc. for a purchase price of $208,238.
Consulting Agreement with Haim Tsuff
- ------------------------------------
In May of 1996 the Company entered into a Consulting Agreement with a
company owned and controlled by Haim Tsuff, the Chairman of the Board of
Directors and Chief Executive Officer of the Corporation. Pursuant to this
Consulting Agreement which has a term of two (2) years, the Company agreed to
pay the sum of $144,000 per annum in installments of $12,000 per month, in
addition to reimbursing all reasonable business expenses incurred during the
term in connection with the performance of services on behalf of the Company.
Consulting Agreement with Yuval Ran
- -----------------------------------
In August of 1996 the Company entered into a Consulting Agreement with
Yuval Ran, the President of the Corporation. Pursuant to this Consulting
Agreement which has a term of three (3) years, the Company agreed to pay Mr. Ran
the sum of $144,000 per annum in installments of $12,000 per month, in addition
to reimbursing all reasonable business expenses incurred during the term in
connection with the performance of services on behalf of the Company.
- 37 -
<PAGE>
GLOSSARY
"Authorization for Expenditure (AFE)" shall mean a proposal for financial
expenditure within the framework of petroleum explorations, which the Operator
proposes from time to time to the partners in the Petroleum Assets which it
manages, for the purpose of the approval of the participants. When approved by
them, it constitutes the budget for the execution of the petroleum exploration
and the remainder of the operations of the Petroleum Assets.
"Carveout" shall mean an area in a Petroleum License or Lease in which the
ownership is different from the ownership in the License or Lease.
"Grant Agreement" shall mean the agreement between the Company and the
Government of Israel pursuant to which the Government of Israel has provided
assistance to the Company in connection with its investment in the Negev 2
Venture by providing a grant of 44.34(cent) for each U.S. dollar ($1.00)
invested and expended by the Company in oil and gas activities in Israel within
the framework of the Negev 2 Venture. The Government financing provided for
under the Grant is repayable only from funds emanating from commercial
production in any payout area and then, only to the extent of 30% of the
recipient's share of the net revenue from said payout area, as and when
received. The Grant Agreement entitles the Government of Israel, to receive a
12.5% royalty on oil sales, as well as an overriding royalty of 6.5% of the
Company's share in the petroleum produced and saved after payout. If there is no
commercial discovery of oil, the Company will not be required to repay the grant
monies. A grant agreement was also entered into between the Government of Israel
and HEI, Donesco, L.P.S. and Mazal Oil.
"Joint Operating Agreement" shall mean the Joint Operating Agreement of the
Negev 2 Venture which was signed as of the 30th day of June, 1988, between the
participants in the Negev 2 Venture, as amended or as shall be amended from time
to time.
"Joint Venture Agreement" shall mean the Joint Venture Agreement of the
Negev 2 Venture which was signed as of the 30th of June, 1988 between the
participants in the Negev 2 Venture, as amended from time to time.
"Limited Partnership" shall mean Isramco-Negev 2 Limited Partnership, a
Limited Partnership founded pursuant to a Limited Partnership Agreement made on
the 2nd and 3rd days of March, 1989 (as amended on September 7, 1989, July 28,
1991, March 5, 1992 and June 11, 1992) between the Trustee on part as Limited
Partner and Isramco Oil and Gas Ltd., as General Partner on the other part.
"Limited Partnership Agreement" shall mean the Limited Partnership
Agreement made the 2nd and 3rd days of March, 1989 (as amended September 7,
1989, July 28, 1991, March 5, 1992 and June 11, 1992), between Isramco Oil and
Gas Ltd., as General Partner, and Isramco Management (1988) Ltd. as the Limited
Partner.
- 38 -
<PAGE>
"Negev 2 Venture" shall mean the venture between HEI Oil and Gas Ltd.
Partnership (hereinafter "HEI"), SSE (U.K.), JOEL, Pass-port, Delek Israel Oil
Fuel Ltd., Delek Petroleum Explorations Ltd., Isramco, Inc., Naphtha Israel
Petroleum Company Ltd., L.P.S. Oil Inc., Donesco Venture Fund and Mazal Oil Inc.
with regard to joint operations for oil and gas explorations in various areas of
Israel, both offshore and onshore.
"Negev 2 Venture Agreements" shall mean the Joint Venture Agreement, the
Joint Operating Agreement, the Voting Agreement and every agreement into which
the parties to said agreements have entered, in connection with the Negev 2
Venture.
"Overriding Royalty Interest" shall mean a percentage interest over and
above the base royalty and is free of all costs of exploration and production,
which costs are borne by the Grantor of the Overriding Royalty Interest and
which is related to a particular Petroleum License.
"Payout" shall mean the defined point at which one party has recovered its
prior costs.
"Petroleum" shall mean any petroleum fluid, whether liquid or gaseous, and
includes oil, natural gas, natural gasoline, condensates and related fluid
hydrocarbons, and also asphalt and other solid petroleum hydrocarbons when
dissolved in and producible with fluid petroleum.
"Petroleum Exploration" shall mean test drilling; any other operation or
search for petroleum, including geological, geophysical, geochemical and similar
investigations and tests; and, drilling solely for obtaining geological
information.
"Petroleum Law" shall mean the Israel Petroleum Law, 5712-1952.
"Petroleum Production" shall mean the production of petroleum from a
petroleum field and all operations incidental thereto, including handling and
treatment thereof and conveyance thereof to tankers, a pipe line or a refinery
in or in the vicinity of the field.
"Preliminary Permit", "Preferential Right to Obtain a License", "License"
shall have the meaning(s) set forth in the Petroleum Law of Israel.
"Sole Risk operation" is an operation in which fewer than all of the
participants in a venture participate, and the non-consenting participant has no
financial obligation but also loses his right to participate in the results of
the operation.
"Test Drilling" shall mean the drilling of test wells for the purpose of
finding of petroleum or ascertaining the size or boundaries of a petroleum
field.
"Trust Agreement" shall mean the Trust Agreement made on the 3rd day of
March, 1989 (as amended September 7, 1989, July 28, 1991, March 5, 1992 and June
11, 1992) for the Trust Company of Kesselman and Kesselman.
"Voting Agreement" shall mean the Voting Agreement made the 30th day of
June, 1988 between the Negev 2 Venture participants, excluding HEI.
- 39 -
<PAGE>
"Working Interest" shall mean an interest in a Petroleum Asset granting the
holder thereof the right to participate pro rata in exploiting the Petroleum
Asset for petroleum exploration, development and petroleum production, subject
to its pro rata participation in the expenses involved therein after acquiring
the Working Interest.
Israel Petroleum Law
- --------------------
The Company's business in Israel is subject to regulation by the State of
Israel pursuant to the Petroleum Law, 1952. The administration and
implementation of the Petroleum Law is vested in the Minister of National
Infrastructure (the "Minister") and an Advisory Council.
The following includes brief statements of certain provisions of the
Petroleum Law in effect at the date of this Prospectus. Reference is made to the
copy of the Petroleum Law filed as an exhibit to the Registration Statement
referred to under "Additional Information" and the description which follows is
qualified in its entirety by such reference.
The holder of a preliminary permit is entitled to carry out petroleum
exploration, but not test drilling or petroleum production, within the permit
areas. The term of a preliminary permit is determined by the Commissioner and it
may not exceed eighteen (18) months. The Minister may grant the holder a
priority right to receive licenses in the permit areas, and for the duration of
such priority right no other party will be granted a license or lease in such
areas.
Drilling for petroleum is permitted pursuant to a license issued by the
Commissioner. The term of a license is for three (3) years, subject to extension
under certain circumstances for an additional period up to four (4) years. A
license holder is required to commence test drilling within two (2) years from
the grant of a license (or earlier if required by the terms of the license) and
not to interrupt operations between test drillings for more than four (4)
months.
If any well drilled by the Company is determined to be a commercial
discovery prior to expiration of the license, the Company will be entitled to
receive a Petroleum Lease granting it the exclusive right to explore for and
produce petroleum in the lease area. The term of a lease is for thirty (30)
years, subject to renewal for an additional term of twenty (20) years.
The Company, as a lessee, will be required to pay the State of Israel the
royalty prescribed by the Petroleum Law which is presently, and at all times
since 1952 has been, 12.5% of the petroleum produced from the leased area and
saved, excluding the quantity of petroleum used in operating the leased area.
The Minister may require a lessee to supply at the market price such
quantity of petroleum as, in the Minister's opinion, is required for domestic
consumption, subject to certain limitations.
As a lessee, the Company will also be required to commence drilling of a
development well within six (6) months from the date on which the lease is
granted and, thereafter, with due diligence to define the petroleum field,
develop the leased area, produce petroleum therefrom and seek markets for and
market such petroleum.
- 40 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) Financial Statements
---------------------
The following documents are filed as part of this report:
Page No.
--------
Independent Auditors' Report F-1
Isramco, Inc. and Subsidiaries Consolidated
Financial Statements
Balance Sheets as of December 31, 1996 and 1995 F-2
Statements of Operations for the Years
Ended December 31, 1996, 1995 and 1994 F-3
Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994 F-4
Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6 - F-19
(b) Financial Statement Schedules:
------------------------------
None
(c) Reports on Form 8-K
1. Form 8-K for the month of January 1996 dated January 18, 1996;
2. Form 8-K for the month of April 1996 dated April 1, 1996;
3. Form 8-K for the month of April 1996 dated April 17, 1996;
4. Form 8-K for the month of May 1996 dated May 6, 1996;
5. Form 8-K for the month of May 1996 dated June 10, 1996;
6. Form 8-K for the month of June 1996 dated July 2, 1996;
7. Form 8-K for the month of August 1996 dated August 7, 1996;
8. Form 8-K for the month of August 1996 dated August 22, 1996.
- 41 -
<PAGE>
(d) Exhibits
--------
1.1 Underwriting Agreement, filed as an Exhibit with the S-1
Registration Statement, File No. 33-57482.
1.2 Selected Dealers Agreement, filed as an Exhibit with the S-1
Registration Statement, File No. 33-57482.
1.3 Underwriter's Warrant Agreement, filed as an Exhibit with
the S-1 Registration Statement, File No. 33-57482.
3.1 Articles of Incorporation of Registrant with all amendments
filed as an Exhibit to the S-1 Registration Statement, File
No. 2-83574.
3.2 Amendment to Certificate of Incorporation filed March 17,
1993, filed as an Exhibit with the S-1 Registration
Statement, File No. 33-57482.
3.3 By-laws of Registrant with all amendments, filed as an
Exhibit to the S-1 Registration Statement, File No. 2-83570.
4.1 Form of Warrant Agreement with respect to Class A and Class
B Redeemable Warrants, filed as an Exhibit with the S-1
Registration Statement, File No. 33-57482.
4.2 Form of Deposit Agreement, filed as an Exhibit with the S-1
Registration Statement, File No. 33-57482.
10.1 Oil Marketing Agreement, filed as Exhibit with the S-1
Registration Statement, File No. 2-83574.
10.3 License Agreement dated February 29, 1984 between the
Company and Petronav, Inc., filed as an Exhibit to Form 10-K
Fiscal 1984, and incorporated herein by reference.
10.5 Consulting Agreement dated April 1, 1985 between the Company
and Elmco Holdings Limited (subsequently assigned by Elmco
Holdings Ltd. to H.G. Finance Ltd.), filed as an Exhibit to
Form 10-K Fiscal 1985, and incorporated herein by reference.
10.6 Employment Agreement and Stock Option Agreement dated March
1, 1985 between the Company and William W. Houck, filed as
an Exhibit to Form 10-K Fiscal 1985, and incorporated herein
by reference (now expired).
10.9 Farmout Agreement dated March 30, 1986 between the Company
and Naphtha Israel Petroleum Corp. Ltd, filed as an Exhibit
to Form 10-K Fiscal 1986, and incorporated herein by
reference.
- 42 -
<PAGE>
10.12 Exchange Agreement dated May 22, 1986 between the Company
and SSE (UK), filed as an Exhibit to Form 8-K for the month
of May 1986 and incorporated herein by reference.
10.13 Assignment Agreement dated as of May 5, 1988 between the
Company and SSE (UK), filed as an Exhibit to Form 8-K for
the month of June 1988 and incorporated herein by reference.
10.14 Joint Venture Agreement and Joint Operating Agreement dated
June 30, 1988 by and among HEI Oil and Gas Limited
Partnership, JOEL - Jerusalem Oil Exploration Ltd., Delek
Oil Exploration Ltd., Delek, The Israel Fuel Corporation
Ltd., the Company, Southern Shipping and Energy (U.K.),
Naphtha, Israel Petroleum Company Ltd., Oil Exploration of
Paz Ltd., LPS Israel Oil Inc., Donesco Venture Fund One, a
Limited Partnership and Mazaloil Inc. filed as an Exhibit to
Form 8-K for the month of September 1988.
10.15 Agreement (re: Negev Joint Venture No. 2 - Assignment of
Interest) dated December 9, 1988 between the Company and
Southern Shipping and Energy (U.K.), filed as an Exhibit to
Form 8-K for the month of November 1988 and incorporated
herein by reference.
10.17 Amendment No. 1 to Agreement (re: Negev Joint Venture No. 2
- Assignment of Interest) with Southern Shipping and Energy
(U.K.) dated January 12, 1989 between the Company and
Southern Shipping and Energy (U.K.), filed as an Exhibit to
Form 8-K for the month of January 1989 and incorporated
herein by reference.
10.19 Management Services Agreement dated November , 1988 and
effective as of July 1, 1988 between the Company and H.G.
Finance Ltd., filed as an Exhibit to Form 10-Q for the
Company for the quarter ending September 30, 1988 and
incorporated herein by reference.
10.20 Grant Agreement with the Government of Israel, undated,
between the Company and the Government of Israel on behalf
of the State of Israel, filed as an Exhibit to Form 10-Q for
the Company for the period ending September 30, 1988 and
incorporated herein by reference.
10.23 Translated from Hebrew, Transfer of Rights Agreement between
the Company and Isramco-Negev 2 dated March 5, 1989, filed
as an Exhibit to Form 8-K for the month of March 1989 and
incorporated herein by reference.
10.24 Translated from Hebrew, Limited Partnership Agreement
between Isramco Oil and Gas Ltd. and Isramco Management
(1988) Ltd. dated March 2, 1989, filed as an Exhibit to Form
8-K for the month of March 1989 and incorporated herein by
reference.
- 43 -
<PAGE>
10.25 Translated from Hebrew, Trust Agreement between Isramco
Management (1988) Ltd. and Kesselman and Kesselman dated
March 3, 1989, filed as an Exhibit to Form 8-K for the month
of March 1989 and incorporated herein by reference.
10.26 Translated from Hebrew, Indemnity Agreement between the
Company and Isramco Management (1988) Ltd. dated March __,
1989, filed as an Exhibit to Form 8-K for the month of March
1989 and incorporated herein by reference.
10.27 Consulting and Option Agreement dated March 17, 1989 between
the Company and M.H. Meyerson & Co., Inc., filed as an
Exhibit to Form 8-K dated March 20, 1989 and incorporated
herein by reference.
10.29 Agreement dated as of March 30, 1989 between the Company and
SSE (U.K.) and filed as an Exhibit to Form 8-K for the month
of June 1989 and incorporated herein by reference.
10.33 Negev Ashquelon/224 License, filed with Post-effective
Amendment No. 7 to Form S-1 Registration Statement and
incorporated herein by reference. File No. 2-83574.
10.34 Consulting and Option Agreement dated December 4, 1989
between the Company and Ladenburg, Thalmann & Co., Inc.,
filed as an Exhibit to Form 8-K for the month of December
1989.
10.36 Amendment No. 1 to the Negev 2 Venture Agreement made as of
August 1, 1989 and Amendment No. 2 to the Negev 2 Venture
Agreement made as of September 22, 1989 by and between the
Negev 2 Venture Participants, filed as an Exhibit to the
Post-effective Amendment No. 8 to Form S-1 Registration
Statement. File No. 2-83574.
10.37 Amendment Agreement to Grant Agreement between the Company
and the Government of Israel, filed as an Exhibit to this
Post-effective Amendment No. 8 to Form S-1 Registration
Statement. File No. 2- 83574.
10.38 Amendment to Agreement between the Company and M.H. Meyerson
& Co., Inc. made as of February 28, 1991, as filed as an
Exhibit to Form 8-K for the month of February, 1991 and
incorporated herein by reference.
10.40 Stock Option Agreement dated as of May 25, 1990 between the
Company and J. Jerome Williams, filed as an Exhibit to Form
8-K for the month of May, 1990 and incorporated herein by
reference.
- 44 -
<PAGE>
10.41 Supplement to Transfer of Rights Agreement dated July 22,
1991 between the Company and Isramco-Negev 2 Limited
Partnership filed as an Exhibit to Form 8-K of the Company,
dated August 27, 1991, and incorporated herein by reference.
10.42 Clarification Agreement dated March 3, 1992 between the
Company and JOEL - Jerusalem Oil Exploration Ltd., filed as
an Exhibit to Form 10-K for Calendar Year ended December 31,
1991 dated March 26, 1992, and incorporated herein by
reference.
10.43 Underwriting Agreement dated March 11, 1992 between
Isramco-Negev 2 Limited Partnership, Isramco Oil and Gas
Ltd., Paz Oil Exploration Limited, JOEL - Jerusalem Oil
Exploration Ltd., Isramco Management (1988) Limited, East
Mediterranean Oil and Gas Limited and the Company (executed
in Hebrew with an English translation attached), filed as an
Exhibit to Form 10-K for Calendar Year ended December 31,
1991 dated March 26, 1992, and incorporated herein by
reference.
10.44 Assignment of Rights Agreement dated March 8, 1992 between
JOEL - Jerusalem Oil Exploration Ltd., Paz Oil Exploration
Limited, the Company and Isramco-Negev 2 Limited Partnership
(executed in Hebrew with an English translation attached),
filed as an Exhibit to Form 10-K for Calendar Year ended
December 31, 1991 dated March 26, 1992, and incorporated
herein by reference.
10.45 Supplement to Assignment of Rights Agreement dated March 8,
1992 between JOEL -Jerusalem Oil Exploration Ltd., Paz Oil
Exploration Limited, the Company and Isramco-Negev 2 Limited
Partnership (executed in Hebrew with an English translation
attached), filed as an Exhibit to Form 10-K for Calendar
Year ended December 31, 1991 dated March 26, 1992, and
incorporated herein by reference.
10.46 Sole Risk Agreement #1 (NIRIM) dated as of October 1, 1991
between Isramco-Negev 2 Limited Partnership, JOEL -
Jerusalem Oil Exploration Ltd., the Company, Delek Oil
Exploration Ltd., Delek - The Israeli Fuel Corporation Ltd.,
Oil Exploration of Paz Ltd. and Naphtha Israel Petroleum
Company Ltd., filed as an Exhibit to Form 10-K for Calendar
Year ended December 31, 1991 dated March 26, 1992, and
incorporated herein by reference.
10.47 Sole Risk Notice (Nirim) dated August 30, 1991, filed as an
Exhibit to Form 10-K for Calendar Year ended December 31,
1991 dated March 26, 1992, and incorporated herein by
reference.
- 45 -
<PAGE>
10.48 Deed of Assignment for Petroleum License No. 224/Negev
Ashquelon and Petroleum License No. 227/Nirim for the
benefit of Isramco Resources Inc. filed as an Exhibit to
Form 8-K for the month of ended August 1992 and dated
September 9, 1992.
10.49 Service Letter Agreement dated June 28, 1992 between
J.O.E.L. - Jerusalem Oil Exploration Ltd. and the Company
regarding office space and services filed as an Exhibit to
Form 10-Q for the six (6) months ending June 30, 1992, dated
August 10, 1992 and incorporated herein by reference.
10.50 Cancellation of Forfeiture and Ratification Agreement and
Amendment No. 1 to Cancellation of Forfeiture and
Ratification Agreement filed as an Exhibit to Form 8-K for
the month of January 1993 dated January 21, 1993 and
incorporated herein by reference.
10.51 Option Agreement between Isramco Resources Inc. and Naphtha
Petroleum Corporation Ltd. filed as an Exhibit to Form 8-K
for the month of January 1993 dated January 21, 1993 and
incorporated herein by reference.
10.52 Option Agreement between Isramco Resources Inc. and J.O.E.L.
- Jerusalem Oil Exploration Ltd., Oil Exploration of Paz
Ltd., Isramco- Negev 2 Limited Partnership and the Company
filed as an Exhibit to Form 8-K for the month of January
1993 dated January 21, 1993 and incorporated herein by
reference.
10.53 Equalization of Rights Agreement between Isramco-Negev 2
Limited Partnership and Delek Oil Exploration Ltd. and Delek
- The Israel Fuel Corporation Ltd. filed as an Exhibit to
Form 8-K for the month of January 1993 dated January 21,
1993 and incorporated herein by reference.
10.54 Option Agreement between Isramco Resources Inc. and Delek
Oil Exploration Ltd. and Delek - The Israel Fuel Corporation
Ltd. filed as an Exhibit to Form 8-K for the month of
January 1993 dated January 21, 1993 and incorporated herein
by reference.
10.55 Letter to Isramco-Negev 2 Limited Partnership dated as of
January 6, 1993 re: Negev Ashquelon License and Negev Nirim
License filed as an Exhibit to Form 8-K for the month of
January 1993 dated January 21, 1993 and incorporated herein
by reference.
10.56 Agreement between the Company and Technion Research and
Development Foundation dated November 2, 1992 filed as an
Exhibit to Form 10-K for 1993 and incorporated herein by
reference.
10.57 Investment Banking Agreement, filed as an Exhibit with the
S-1 Registration Statement, Filed No. 33-574482.
- 46 -
<PAGE>
10.58 Consulting Agreement with Dr. Joseph Elmaleh dated June 20,
1995, filed as an Exhibit to Form 8-K for the month of July,
1995 and incorporated herein by reference.
10.59 Employment Agreement with Danny Toledano made as of the 16th
day of October, 1995, filed as an Exhibit to Form 8-K for
the month of November, 1995 and incorporated herein by
reference.
10.60 Consulting Agreement with Zenith Holdings Ltd., a company
which employs Haim Tsuff made May __, 1996, filed as an
Exhibit to Form 8-K for the month of June, 1996 and
incorporated herein by reference.
10.61 Termination Agreement between the Company and Danny Toledano
made as of the 23rd day of June, 1996, filed as an Exhibit
to Form 8-K for the month of June, 1996 and incorporated
herein by reference.
10.62 Non-Compete Agreement between the Company and Danny Toledano
made as of the 23rd day of June, 1996, filed as an Exhibit
to Form 8-K for the month of June, 1996 and incorporated
herein by reference.
10.63 Consulting Agreement between the Company and Danny Toledano
made as of the 23rd day of June, 1996, filed as an Exhibit
to Form 8-K for the month of June, 1996 and incorporated
herein by reference.
10.64 Termination Agreement between the Company and Dr. Joseph
Elmaleh dated April 16, 1996, filed as an Exhibit to Form
10-Q for the three month period ending March 31, 1996 and
incorporated herein by reference.
10.65 Consulting Agreement between the Company and Yuval Ran dated
the 1st day of August, 1996, filed as an Exhibit to Form 8-K
for the month of August, 1996 and incorporated herein by
reference.
- 47 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ISRAMCO, INC.
March ___, 1997 By:
---------------------------------------
Haim Tsuff
Chairman of the Board, and
Chief Executive Officer
By:
----------------------------------------
Daniel Avner
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
- --------------------------- Chairman of the Board, March , 1997
Haim Tsuff Chief Executive Officer
and Director
- --------------------------- Principal Accounting Officer March , 1997
Daniel Avner and Director
- --------------------------- Director March , 1997
Natan Schwartz
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