<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
-----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 0-16621
-------------------------------------------
GARNET RESOURCES CORPORATION
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 74-2421851
- --------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
333 Clay Street, Suite 4500, Houston, Texas 77002
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 759-1692
----------------------------------------------------
(Registrant's telephone number, including area code)
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
------- -------
As of November 14, 1995, 11,492,162 shares of Registrant's Common Stock, par
value $.01 per share, were outstanding.
<PAGE> 2
GARNET RESOURCES CORPORATION (the "Registrant" or the "Company")
I N D E X
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1995 (unaudited)
and December 31, 1994 3-4
Consolidated Statements of
Operations for the Three Months
and Nine Months Ended September 30, 1995
and 1994 (unaudited) 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
September 30, 1995 and 1994 (unaudited) 6
Notes to Condensed Consolidated Financial
Statements-September 30, 1995 (unaudited) 7-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14-17
PART II - OTHER INFORMATION
- -------
Item 6. Exhibits and Reports on Form 8-K 17-18
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
GARNET RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1995 1994
- ------ ------------ -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,169,328 $ 7,990,605
Accounts receivable 2,108,948 2,276,500
Inventories 989,209 1,257,207
Prepaid expenses 208,850 133,692
----------- -----------
Total current assets 5,476,335 11,658,004
----------- -----------
NET ASSETS HELD FOR DISPOSITION 400,386 514,624
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties
(full-cost method)-
Proved 43,133,803 35,948,942
Unproved (excluded from
amortization) 7,415,953 6,416,808
----------- -----------
50,549,756 42,365,750
Other equipment 136,216 142,993
----------- -----------
50,685,972 42,508,743
Less - Accumulated depreciation,
depletion and amortization (9,562,752) (6,446,953)
----------- -----------
41,123,220 36,061,790
----------- -----------
OTHER ASSETS 968,737 1,065,619
----------- -----------
$47,968,678 $49,300,037
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
GARNET RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Continued
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ ------------ ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 129,278 $ 1,932,156
Accounts payable and accrued
liabilities 2,158,864 3,703,494
----------- -----------
Total current liabilities 2,288,142 5,635,650
----------- -----------
LONG-TERM DEBT, net of current portion 19,358,640 17,506,105
----------- -----------
DEFERRED INCOME TAXES 354,635 -
----------- -----------
OTHER LONG-TERM LIABILITIES 472,268 368,030
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
20,000,000 shares authorized,
11,492,162 shares issued and
outstanding as of September 30,
1995, 11,125,537 shares issued
and outstanding as of
December 31, 1994 114,922 111,255
Capital in excess of par value 52,491,212 51,395,004
Retained earnings (deficit) (27,111,141) (25,716,007)
----------- -----------
Total stockholders' equity 25,494,993 25,790,252
----------- -----------
$47,968,678 $49,300,037
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
GARNET RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Oil sales $ 2,207,800 $ 1,119,462 $ 6,415,941 $ 2,754,546
Interest 24,670 98,606 180,218 293,489
----------- ----------- ----------- -----------
2,232,470 1,218,068 6,596,159 3,048,035
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Production 1,000,342 506,567 2,698,769 1,713,629
Exploration - 6,883 16,204 7,088
General and
administrative 220,035 210,069 1,172,816 890,571
Interest 374,594 244,998 1,058,015 705,211
Depreciation, depletion
and amortization 1,018,155 509,062 3,128,299 1,248,020
Foreign currency
translation
gain (193,954) (34,847) (704,654) (1,433)
----------- ----------- ----------- -----------
2,419,172 1,442,732 7,369,449 4,563,086
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (186,702) (224,664) (773,290) (1,515,051)
PROVISION FOR
INCOME TAXES 212,466 252,419 621,844 297,847
----------- ----------- ----------- -----------
NET LOSS $ (399,168) $ (477,083) $(1,395,134) $(1,812,898)
=========== =========== =========== ===========
NET LOSS PER SHARE $ (.03) $ (.04) $ (.12) $ (.16)
=========== =========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 11,492,162 11,125,537 11,391,441 11,125,537
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
GARNET RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,395,134) $(1,812,898)
Exploration costs 16,204 7,088
Depreciation, depletion and
amortization 3,128,299 1,248,020
Deferred income taxes 354,635 41,940
Changes in components of
working capital (1,184,280) (511,402)
Other 264,613 134,647
----------- -----------
Net cash provided by (used for)
operating activities 1,184,337 (892,605)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,702,595) (6,114,209)
Decrease in joint venture and
contractor advances 895,784 2,167,134
Acquisition of interests in Argosy Energy
International, net of cash acquired (92,621) -
Other 112,166 (21,758)
----------- -----------
Net cash used for
investing activities (6,787,266) (3,968,833)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of debt - 4,161,080
Repayments of debt (161,063) (582,714)
Costs of debt issuances (57,285) (258,773)
----------- -----------
Net cash provided by (used for)
financing activities (218,348) 3,319,593
----------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (5,821,277) (1,541,845)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 7,990,605 11,332,144
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,169,328 $ 9,790,299
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid for -
Interest, net of amounts capitalized $ 998,801 $ 621,962
Income taxes 370,241 82,439
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE> 7
GARNET RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
(1) Financial statement presentation-
The condensed consolidated financial statements include the accounts of
Garnet Resources Corporation, a Delaware corporation ("Garnet"), and its wholly
owned subsidiaries. Garnet and its wholly owned subsidiaries are collectively
referred to as the "Company." These financial statements have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and include all adjustments (which consist
solely of normal recurring adjustments) which, in the opinion of management,
are necessary for a fair presentation of financial position and results of
operations. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
Company's prior audited consolidated financial statements and the notes
thereto.
(2) Colombian operations-
Through its ownership of interests in Argosy Energy International, a
Utah limited partnership ("Argosy"), the Company has an indirect interest in a
risk sharing contract in Colombia (the "Santana Contract") with Empresa
Colombiana de Petroleos, the Colombian national oil company ("Ecopetrol"). The
Santana Contract currently entitles Argosy and its joint venture partner to
explore for oil and gas on approximately 86,000 acres located in the Putumayo
Region of Colombia (the "Santana Block"), and provides for a 10-year
exploration period expiring in 1997, subject to a requirement for additional
partial relinquishments in 1997, and for a production period expiring in 2015.
Argosy and its joint venture partner also have two association contracts (the
"Fragua Contract" and the "Yuruyaco Contract") with Ecopetrol. The Fragua
Contract covers an area of approximately 32,000 acres contiguous to the
northern boundary of the Santana Block (the "Fragua Block"), while the Yuruyaco
Contract covers an area of approximately 39,000 acres contiguous to the eastern
boundaries of the Santana Block and the Fragua Block (the "Yuruyaco Block").
The Yuruyaco Contract is expected to become effective in November 1995, after
ratification by Colombia's Ministry of Mines and Energy. The 10-year
exploration periods provided by the Fragua Contract and the Yuruyaco Contract
will expire in 2002 and 2005, respectively, and the 28-year contract terms will
expire in 2020 and 2023, respectively. Argosy and its joint venture partner
also have the right until 2003 to explore for and produce oil and gas from
approximately 77,000 acres located in the Putumayo Region (the "Aporte Putumayo
Block") pursuant to other agreements with Ecopetrol. Argosy
7
<PAGE> 8
and its joint venture partner have notified Ecopetrol that they intend to
relinquish the Aporte Putumayo Block and have recently suspended production
from the wells on the block, which were first placed on production in 1976,
because declining production rates have made continued operation economically
unattractive under the terms of the contract with Ecopetrol for sale of the oil
production.
Argosy serves as the operator of the Colombian properties under joint
venture agreements. The Santana Contract, the Fragua Contract and the Yuruyaco
Contract provide that Ecopetrol will receive a royalty equal to 20% of
production on behalf of the Colombian government and, in the event a discovery
is deemed commercially feasible, Ecopetrol will acquire a 50% interest in the
production, bear 50% of the development costs, and reimburse the joint venture,
from Ecopetrol's share of future production, for 50% of the joint venture's
costs of certain exploration activities. In the event accumulated oil
production from the Santana Contract exceeds seven million barrels, Ecopetrol
will continue to bear 50% of development costs, but its interest in production
revenues and operating costs will increase to 65%. If a commercial field on
the Fragua Block produces in excess of 60 million barrels, Ecopetrol's interest
in production and costs increases in 5% increments from 50% to 70% as
accumulated production from the field increases in 30 million barrel increments
from 60 million barrels to 150 million barrels. If a commercial field on the
Yuruyaco Block produces in excess of 60 million barrels, Ecopetrol's interest
in production and costs ranges from 50% to 75%, based on annual measurements of
profitability as defined in the contract. The joint venture paid all costs of
the exploration program for the Santana Block during the first two years of the
contract and thereafter the joint venture and Ecopetrol have been obligated to
pay 70% and 30%, respectively, of such exploration costs. The joint venture
bears all costs and risks of exploration activities on the Fragua Block and the
Yuruyaco Block, subject to Ecopetrol's right to acquire a 50% interest in
commercial discoveries. In the event a discovery is made and is not deemed by
Ecopetrol to be commercially feasible, the joint venture may continue to
develop the field at its own expense and will recover 200% of the costs
thereof, at which time Ecopetrol will acquire a 50% interest therein at no cost
to Ecopetrol or further reimbursement by Ecopetrol to Argosy.
In March 1995 the Company increased its ownership in Argosy by exchanging
366,625 shares of Garnet's common stock with a value of $3.00 per share and
cash totalling $142,703 for the partnership interests held by certain of
Argosy's limited partners.
The Company's net participations in revenues and costs for the Santana
Contract, the Fragua Contract and the Yuruyaco Contract are as follows:
8
<PAGE> 9
<TABLE>
<CAPTION>
Production Operating Exploration Development
Revenues Costs Costs Costs
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Santana Contract:
Before seven million barrels
of accumulated production 21.8% 27.2% 38.1% 27.2%
After seven million barrels
of accumulated production 15.3% 19.1% 38.1% 27.2%
Fragua Contract:
Before 60 million barrels
of accumulated production 21.8% 27.3% 54.6% 27.3%
After 150 million barrels
of accumulated production 13.1% 16.4% 54.6% 27.3%
Yuruyaco Contract:
Before 60 million barrels
of accumulated production 22.0% 27.5% 55.0% 27.5%
After 60 million barrels of
accumulated production at
maximum profitability 11.0% 13.8% 55.0% 27.5%
</TABLE>
The joint venture has completed its seismic acquisition and drilling
obligations for the first eight years of the Santana Contract, resulting in the
discovery of four oil fields, all of which have been declared commercial by
Ecopetrol. The joint venture has the right to continue the exploration program
through 1997 with an obligation to conduct exploration programs to be approved
by Ecopetrol in 1995 through 1997. The joint venture has also completed its
obligations for the first two years of the Fragua Contract; no wells have yet
been drilled in the contract area.
Under the terms of a contract in force through December 31, 1994, oil
produced from the Santana Block either was sold to Ecopetrol or was exported if
Ecopetrol elected not to purchase it. If the joint venture's share of crude
production from the Santana Block was required for Colombia's domestic market,
the price paid by Ecopetrol was based on the equivalent value of products
refined from the crude, less a stipulated refining cost. Under the terms of a
new contract effective January 1, 1995, all oil produced from the Santana Block
is sold to Ecopetrol. If Ecopetrol exports the oil, the price paid is the
export price received by Ecopetrol adjusted for quality differences less a
handling and commercialization fee of $.465 per barrel. If Ecopetrol does not
export the oil, the price paid is based on quoted prices for Colombia's Cano
Limon crude oil adjusted for quality differences, plus or minus a sales value
differential to be determined by independent analysis, less Ecopetrol's cost to
transport the crude to Cartagena and a handling and commercialization fee of
$.365 per barrel. Prices determined under terms of the new contract are not
expected to be significantly different than those calculated pursuant to the
previous contract. Under the terms of contracts with Ecopetrol, 25% of all
revenues from oil sold to Ecopetrol is paid in Colombian pesos which may only
be utilized in Colombia. To date, Argosy has experienced no difficulty in
repatriating the remaining 75% of such payments which are payable in United
States dollars.
As general partner, the Company's subsidiary is contingently liable for
any obligations of Argosy and may be contingently liable
9
<PAGE> 10
for claims generally related to the conduct of Argosy's business.
(3) Exploration licenses in Papua New Guinea-
Garnet PNG Corporation, a wholly owned subsidiary of Garnet ("Garnet
PNG"), owns working interests in two petroleum prospecting licenses in Papua
New Guinea which entitle it and its joint venture partners to explore for oil.
Garnet PNG owns a 7.73% interest (the "PPL-174 Interest") in Petroleum
Prospecting License No. 174 ("PPL-174") which covers 126,000 acres (the
"PPL-174 Area"), and a 6% interest (the "PPL-181 Interest") in Petroleum
Prospecting License No. 181 ("PPL-181") which covers 952,000 acres (the
"PPL-181 Area"). Until September 1995, Garnet PNG also held a 40% interest
(the "PPL-77 Interest") in Petroleum Prospecting License No. 77 ("PPL-77"),
which included most of the area now covered by PPL-181 and was surrendered in
connection with the issuance of PPL-181, as further described below. In 1986
oil was discovered approximately 10 miles from the northern border of PPL-181
in an adjoining license area operated by Chevron Niugini Pty. Limited, a
subsidiary of Chevron Overseas Petroleum Inc. ("Chevron").
In 1989 Garnet PNG, Niugini Energy Pty. Limited ("Niugini") and
Chevron entered into a farmout agreement, pursuant to which Chevron paid 100%
of certain exploration costs on PPL-77 including the drilling of an exploratory
well, which was plugged and abandoned as a dry hole in 1990, and a 400-mile
seismic survey, which resulted in interpretation of a large potential oil
prospect (the "Kamusi Prospect") on PPL-77 and two adjoining licenses. In 1991
Chevron withdrew from the joint venture with Garnet PNG and Niugini, and
reassigned its interest in PPL-77 to Garnet PNG and Niugini. As Garnet PNG was
unable to consummate a farmout agreement or make other arrangements to drill
the well which was then required to be drilled by December 1992, management of
the Company concluded in 1992 that the Company's investment in PPL-77 should be
charged to expense.
Notwithstanding this conclusion, the Company continued its efforts to
arrange for the drilling of a well on the Kamusi Prospect and entered into an
agreement in 1994 with several other companies to fund the costs of such well.
In January 1995 the Government of Papua New Guinea issued PPL-174 to Garnet PNG
and its joint venture partners. PPL-174 covers the Kamusi Prospect and
includes a portion of the acreage formerly within the boundaries of PPL-77 and
adjoining areas. Garnet PNG expects to contribute approximately $238,000 to
the costs of the well.
In April 1995 the Company entered into an agreement with Occidental
International Exploration and Production Company ("Occidental") covering
PPL-77. Under the agreement, an application for a new license was submitted to
the Papua New Guinea Government. PPL-181 was issued in September 1995 and is
owned by Occidental (88%), Garnet PNG (6%) and Niugini (6%). Occidental agreed
to drill and complete at its cost a test well on the PPL-181 Area within the
first two years.
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<PAGE> 11
In connection with its acquisition of the PPL-77 Interest from Niugini
in 1987, Garnet PNG agreed to pay the first $2,545,000 of the costs to be
incurred by Garnet PNG and Niugini in connection with an exploration program on
PPL- 77 (the "Commitment Amount"), all of which has been paid. Garnet PNG has
agreed to continue to pay 100% of certain costs until the well on the Kamusi
Prospect has been drilled, and will recoup Niugini's 60% share of such costs
out of Niugini's net share of proceeds from production, if any. Such costs in
excess of the Commitment Amount are expected to include only nominal amounts to
be incurred in concluding the aforementioned contractual arrangements for
drilling the well on the Kamusi Prospect.
Upon presentation of a tax clearance certificate evidencing Garnet PNG's
compliance with the relevant provisions of Papua New Guinea's income tax laws,
profits, dividends and certain other payments, if any, up to an amount of
500,000 kina (approximately $US380,000) per year may be fully remitted out of
Papua New Guinea. Amounts in excess of 500,000 kina may also be remitted,
subject to clearance from the Bank of Papua New Guinea.
(4) Long-term debt-
Long-term debt at September 30, 1995 and December 31, 1994 consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
9 1/2% convertible subordinated $15,000,000 $15,000,000
debentures
Note payable by Argosy to a
U.S. bank 4,358,640 4,161,080
Note payable by Argosy to a
Colombian bank 129,278 277,181
----------- -----------
19,487,918 19,438,261
Less - Current portion (129,278) (1,932,156)
----------- -----------
$19,358,640 $17,506,105
=========== ===========
</TABLE>
In 1993 Garnet issued $15,000,000 of convertible subordinated debentures
(the "Debentures") due December 1998. The Debentures bear interest at 9 1/2%
per annum payable quarterly and are convertible at the option of the holders
into Garnet common stock at $5.50 per share. If the Company elects to prepay
the Debentures under certain circumstances, it will issue warrants under the
same economic terms as the Debentures. At the option of a holder, in the event
of a change of control of the Company, the Company will be required to prepay
such holder's Debenture at a 30% premium. The Debentures are secured by a
pledge of all of the common stock of Garnet's wholly owned subsidiary which
serves as the general partner of Argosy (see Note 2). Under the terms of an
agreement with the holders of its Debentures, Garnet has
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<PAGE> 12
agreed that it will not pay dividends or make distributions to the holders of
its common stock.
In May 1994 Argosy entered into a finance agreement with Overseas Private
Investment Corporation, an agency of the United States government ("OPIC"),
pursuant to which OPIC agreed to guarantee up to $9,200,000 in bank loans to
Argosy. The loan was funded in two stages of $4,400,000 in August 1994 and
$4,800,000 in October 1995. The Company plans to use these funds to drill
development wells and complete the construction of its production facilities in
Colombia. OPIC's guaranty is secured by Argosy's interest in the Santana
Contract and related assets, as well as the pledge of Garnet's direct and
indirect interests in Argosy. The terms of the guaranty agreement also
restrict Argosy's ability to make distributions to its partners prior to the
repayment of the guaranteed loans. The maximum term of the loans is not to
exceed seven years, and the principal amortization schedule is based on
projected cash flows from wells on the Santana Block. The loans bear interest
at the lender's eurodollar deposit rate plus .25% per annum for periods of two,
three or six months as selected by Argosy. The interest rate at September 30,
1995 was 6 1/8%. In addition Argosy paid the lender a commitment fee of .25%
per annum on the undisbursed and uncancelled amount of the guaranty and a
facility fee of $46,000. In consideration for OPIC's guaranty, Argosy agreed
to pay OPIC certain fees, including a facility fee of $92,000, a guaranty fee
of 2.4% per annum on the outstanding balance of the loans guaranteed, a
commitment fee of .67% per annum on the undisbursed and uncancelled amount of
the guaranty, and a cancellation fee equal to .67% of the amount canceled.
In 1993 Argosy received a loan from a Colombian bank, which is secured by
receivables from Ecopetrol for well costs allocable to Ecopetrol but paid by
Argosy. The loan bears interest at U.S. prime plus 2%, and is repaid in
varying amounts from Ecopetrol's share of production from the wells. The
interest rate at September 30, 1995 was 10 3/4%.
(5) Stockholders' equity-
Stock option plans-
Garnet and a predecessor entity have adopted stock option plans (the
"Employees' Plans") pursuant to which an aggregate of 1,488,000 shares of
Garnet's common stock is authorized to be issued upon exercise of options
granted to officers, employees, and certain other persons or entities who
perform substantial services for or on behalf of Garnet or its subsidiaries.
The Stock Option and Compensation Committee of Garnet's Board of Directors
(the "Committee") is vested with sole and exclusive authority to administer and
interpret the Employees' Plans, to determine the terms upon which options may
be granted, to prescribe, amend and rescind such interpretations and
determinations and to grant options to directors. Current Committee members
are not eligible to receive options under the Employees' Plans.
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<PAGE> 13
In addition, Garnet has adopted the 1990 Directors' Stock Option Plan (the
"Directors' Plan") pursuant to which an aggregate of 470,000 shares of Garnet's
common stock is authorized to be issued to directors who are not employees of
the Company. Under the terms of the Directors' Plan, as amended, options may
be granted at the discretion of the Board of Directors, provided, however, that
the timing of option grants is restricted to the second quarter of Garnet's
fiscal year.
Each option is exercisable for a period of 10 years and 30 days from the
date of grant. The purchase price of shares issuable upon exercise of an
option may be paid in cash or by delivery of shares with a value equal to the
exercise price of the option. The Committee has determined that the right to
exercise non-incentive options issued to employees vests over a period of four
years, so that 20% of the option becomes exercisable on each anniversary of the
date of grant. Non-incentive options issued to directors and other eligible
participants generally are fully exercisable on and after the date of grant.
The following is a summary of stock option activity in connection with the
Employees' Plans and the Directors' Plan:
<TABLE>
<CAPTION>
Shares Price Range
------ -----------
<S> <C> <C>
Options outstanding at December 31, 1992 952,500 $2.50-$13.83
Options granted 310,000 4.78- 5.75
Options exercised (3,000) 2.50
Options expired (30,000) 4.78- 13.83
--------- ------------
Options outstanding at December 31, 1993 1,229,500 2.50- 13.83
Options granted 140,000 4.05
--------- ------------
Options outstanding at December 31, 1994 1,369,500 2.50- 13.83
Options granted 618,000 2.50- 2.87
Options expired (658,398) 2.50- 13.83
--------- ------------
Options outstanding at September 30, 1995 1,329,102 $2.50-$13.83
========= ============
</TABLE>
As of September 30, 1995, options for 1,071,878 shares were exercisable.
(6) Income taxes-
The provisions for income taxes relate to the Colombian activities of
Argosy. No United States deferred taxes were provided because the tax bases of
the Company's assets exceed the financial statement bases, resulting in a
deferred tax asset which the Company has determined is not presently
realizable.
As of December 31, 1994, the Company had a regular tax net operating loss
carryforward and an alternative minimum tax loss carryforward of approximately
$22,500,000 and $22,100,000, respectively. These loss carryforwards will
expire beginning in 2001 if not utilized to reduce U.S. income taxes otherwise
payable in future years, and are limited as to utilization because of the
occurrences of "ownership changes" (as defined in Section 382 of the Internal
13
<PAGE> 14
Revenue Code of 1986, as amended) in 1991 and earlier years. Such loss
carryforwards also exclude regular tax net operating loss carryforwards
aggregating approximately $4,500,000 attributable to certain of Garnet's
subsidiaries, which can be used in certain circumstances to offset taxable
income generated by such subsidiaries.
(7) Acquisition of RGO Energy Inc. and RGO Partners, Ltd.-
In 1991, in transactions accounted for as purchases, Garnet acquired RGO
Energy Inc. and RGO Partners, Ltd., two privately-owned entities (referred
to collectively herein as "the RGO Entities"). At the date of acquisition,
approximately 60% of the assets of the RGO Entities was comprised of cash, with
the balance being primarily working, royalty and mineral interests in producing
and undeveloped oil and gas properties in the United States. All of the
working interests acquired in the mergers were sold in 1993. Because
management intends to sell the remaining royalty and mineral interests when the
market conditions are suitable, these assets are reflected as "Net assets held
for disposition" in the accompanying consolidated balance sheets.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
Since December 31, 1994, the Company has expended approximately
$8,100,000 for the acquisition, exploration and development of its oil and gas
properties. Such expenditures include approximately $7,200,000 for exploration
and development activities on the Santana Block and Fragua Block in Colombia,
approximately $100,000 for exploration and related costs in Papua New Guinea,
and approximately $800,000 for exploration activities in Turkey and other
countries.
Funding for these activities was provided primarily by cash flow from
operations and by available cash balances. Other than the OPIC guaranty, the
Company has no significant lines of credit.
Argosy and its joint venture partner have completed the seismic
acquisition and drilling obligations for the first eight years of the Santana
Contract, resulting in the discovery of four oil fields. The joint venture has
the right to continue the exploration program through 1997 with an obligation
to conduct exploration programs to be approved by Ecopetrol in 1995 through
1997. The Company plans to perform additional seismic work and to drill an
additional exploratory well on the Santana Block during 1996, with estimated
total costs to the Company of $2,150,000. The seismic programs required during
the first two years of the Fragua Contract have also been completed. An
additional seismic survey is planned for 1996, for which the Company's share of
the costs is estimated to be $250,000. The Company also plans to conduct a
seismic program on the Yuruyaco Block in 1996, for which its share of the costs
is estimated to be $400,000.
The Toroyaco and Linda fields, the first two fields discovered
14
<PAGE> 15
on the Santana Block, began producing in 1992. The Mary and Miraflor fields,
the last two fields discovered, were declared commercial by Ecopetrol in 1993.
In August 1994 the Company resumed a limited early production program from one
well in the Mary field, and added additional wells in the Mary and Miraflor
fields to this program in the first and second quarters of 1995. Production
from the four fields is presently approximately 7,000 barrels of oil per day.
The Company's share of such production is 21.8%; it also receives an additional
21.8% of the production from certain wells until it recovers the drilling and
completion costs for those wells allocable to Ecopetrol but paid by the
Company.
As of September 30, 1995, the Company was completing the construction of
production facilities for the Mary and Miraflor fields, for which the Company's
share of the remaining costs is expected to be approximately $1,000,000.
The Company also plans to drill three additional development wells in the
Toroyaco and Linda fields in 1996. The Company's share of the costs of
drilling and completing each of the wells in these fields is expected to range
from $800,000 to $1,000,000. To increase producing rates in existing wells,
the Company plans to perform hydraulic fracture stimulations on seven wells in
1995, at an estimated total cost to the Company of $950,000.
Garnet PNG expects to contribute approximately $238,000 to the costs of
the exploratory well on the Kamusi Prospect in Papua New Guinea well in
1996.
As described herein, the Company's operations are primarily located
outside the United States. Although certain of such operations are conducted
in foreign currencies, the Company considers the U.S. dollar to be the
functional currency in most of the countries in which it operates. In
addition, the Company has no significant operations in countries with highly
inflationary economies. As a result, the Company's foreign currency
transaction gains and losses have not been significant. Exchange controls
exist for the repatriation of funds from Colombia and Papua New Guinea. The
Company believes that the continuing viability of its operations in these
countries will not be affected by such restrictions.
It is anticipated that the Company's foreign exploration and development
activities will require substantial amounts of capital. To finance its planned
exploration and development activities, the Company intends to utilize its
existing working capital, cash flow from production in Colombia, the $4.8
million proceeds of the second stage of the OPIC-guaranteed financing received
in October 1995, and cash proceeds expected to be received from the sale of
assets held for disposition, although there can be no assurance that any of
such assets can be sold on terms acceptable to the Company. The Company has
also identified and is implementing more than $1.5 million in annual reductions
of U.S. and Colombian general and administrative expenses and production costs.
The Company may also consider entering into arrangements whereby certain costs
of exploration will be paid by others to earn an interest in the properties.
The present environment for financing the acquisition of oil
15
<PAGE> 16
and gas properties or the ongoing obligations of an oil and gas business is
uncertain due, in part, to the substantial instability in oil and gas prices in
recent years and to the volatility of financial markets. There can be no
assurance that the additional financing which may be necessary to fund the
Company's operations and obligations will be available on economically
acceptable terms. In addition, the Company's ability to continue its
exploration and development programs may be dependent upon its joint venture
partners financing their portion of such costs and expenses. There can be no
assurance that the Company's partners will contribute, or be in a position to
contribute, their costs and expenses of the joint venture programs. If the
Company's partners cannot finance their obligations to the joint ventures, the
Company may be required to accept an assignment of the partners' interests
therein and assume their financing obligations. If sufficient funds cannot be
raised to meet the Company's obligations in connection with its properties, the
interests in such properties might be sold or forfeited.
Results of Operations
Three months and nine months ended September 30, 1995
compared with the same periods in 1994
-----------------------------------------------------
The Company reported net losses of $399,168 ($.03 per share) and $477,083
($.04 per share) for the three months ended September 30, 1995 and 1994,
respectively, and $1,395,134 ($.12 per share) and $1,812,898 ($.16 per share)
for the nine months ended September 30, 1995 and 1994, respectively.
Increases in 1995 in oil and gas revenues, production costs and
depreciation, depletion and amortization primarily reflect higher oil prices
and production from new wells in Colombia. Production costs per barrel for the
first nine months of 1995 decreased because of a lower tariff on the
Trans-Andean pipeline which became effective in February 1994, and because of
reduced trucking charges resulting from the completion of the
Uchupayaco-Santana pipeline in June 1994. The Company's comparative average
daily sales volumes in barrels of oil per day ("BOPD"), average sales prices
and costs per barrel in Colombia for such periods were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
1995 1994 1995 1994
--------- -------- ------- --------
<S> <C> <C> <C> <C>
Average oil sales (BOPD) 1,486 929 1,434 797
Average oil price per barrel $16.15 $13.09 $16.38 $12.66
Production costs per barrel $ 7.32 $ 5.92 $ 6.89 $ 7.88
Depreciation, depletion and
amortization per barrel $ 7.42 $ 5.92 $ 7.96 $ 5.70
</TABLE>
General and administrative expenses increased as a result of charges
incurred in connection with management changes in 1995. The increase in 1995
in interest expense, net of amounts capitalized,
16
<PAGE> 17
is attributable primarily to the OPIC-guaranteed loan received in August 1994.
The foreign currency translation gain recorded in 1995 resulted from an
approximate 17% devaluation in the Colombian peso during the first nine months
of 1995 and the settlement of a liability. The provision for income taxes, all
of which relates to Colombian operations, was higher because of a deferred tax
provision recorded in 1995 and a deferred tax benefit recorded in 1994.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Item Exhibit
No. Item Title No.
---- -------------------------------------- -------
<S> <C> <C>
(2) Plan of acquisition, reorganization,
arrangement, liquidation or succession:
Not Applicable
(3) Articles of Incorporation and By-Laws:
Not Applicable
(4) Instruments defining the rights of
security holders, including indentures:
Not Applicable
(10) Material contracts:
(A) Petroleum Prospecting License
No. 181. 10(A)
(B) Papua New Guinea PPL-77 Agreement
dated April 27, 1995 among Garnet
PNG Corporation, Niugini Energy Pty.
Limited and Occidental International
Exploration and Production Company. 10(B)
(C) Amendment No. 2 dated March 24, 1995
to Finance Agreement between Argosy
Energy International and Overseas
Private Investment Corporation. 10(C)
(D) Amendment No. 3 dated September 26,
1995 to Finance Agreement between
Argosy Energy International and
Overseas Private Investment
Corporation. 10(D)
(E) Stage II Promissory Note dated
October 25, 1995 from Argosy
Energy International to Texas
Commerce Bank National Association
in the principal amount of
$4,800,000. 10(E)
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
(F) Letter Agreement dated June 28,
1995 between George M. Nevers and
Garnet Resources Corporation 10(F)
(11) Statement regarding computation of per
share earnings is not required because
the relevant computations can be clearly
determined from the material contained
in the Financial Statements included
herein.
(15) Letter re unaudited interim financial
information: Not Applicable
(18) Letter re change in accounting principles:
Not Applicable
(19) Report furnished to security holders:
Not Applicable
(22) Published report regarding matters
submitted to vote of security holders:
Not Applicable
(23) Consents of experts and counsel:
Not Applicable
(24) Power of attorney: Not Applicable
(27) Financial Data Schedule. 27
(99) Additional Exhibits: Not Applicable
</TABLE>
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by Registrant during the
three months ended September 30, 1995.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GARNET RESOURCES CORPORATION
Date: November 14, 1995 /s/ W. Kirk Bosche'
----------------------------
W. Kirk Bosche',
Vice President and Treasurer
(As both a duly authorized
officer of Registrant and as
principal financial officer
of Registrant)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Item Exhibit
No. Item Title No.
---- -------------------------------------- -------
<S> <C> <C>
(2) Plan of acquisition, reorganization,
arrangement, liquidation or succession:
Not Applicable
(3) Articles of Incorporation and By-Laws:
Not Applicable
(4) Instruments defining the rights of
security holders, including indentures:
Not Applicable
(10) Material contracts:
(A) Petroleum Prospecting License
No. 181. 10(A)
(B) Papua New Guinea PPL-77 Agreement
dated April 27, 1995 among Garnet
PNG Corporation, Niugini Energy Pty.
Limited and Occidental International
Exploration and Production Company. 10(B)
(C) Amendment No. 2 dated March 24, 1995
to Finance Agreement between Argosy
Energy International and Overseas
Private Investment Corporation. 10(C)
(D) Amendment No. 3 dated September 26,
1995 to Finance Agreement between
Argosy Energy International and
Overseas Private Investment
Corporation. 10(D)
(E) Stage II Promissory Note dated
October 25, 1995 from Argosy
Energy International to Texas
Commerce Bank National Association
in the principal amount of
$4,800,000. 10(E)
</TABLE>
<PAGE> 21
<TABLE>
<S> <C> <C>
(F) Letter Agreement dated June 28,
1995 between George M. Nevers and
Garnet Resources Corporation 10(F)
(11) Statement regarding computation of per
share earnings is not required because
the relevant computations can be clearly
determined from the material contained
in the Financial Statements included
herein.
(15) Letter re unaudited interim financial
information: Not Applicable
(18) Letter re change in accounting principles:
Not Applicable
(19) Report furnished to security holders:
Not Applicable
(22) Published report regarding matters
submitted to vote of security holders:
Not Applicable
(23) Consents of experts and counsel:
Not Applicable
(24) Power of attorney: Not Applicable
(27) Financial Data Schedule. 27
(99) Additional Exhibits: Not Applicable
</TABLE>
<PAGE> 1
EXHIBIT 10(A)
[PAUPA NEW GUINEA LOGO]
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Petroleum Act (Chapter No. 198)
PETROLEUM PROSPECTING LICENSE NO: 181
I, JOHN R. GIHENO, MP, Minister for Mining and Petroleum, acting pursuant to
Section 20 of the Petroleum Act, Chapter No. 198 and all other powers me
enabling and having considered a report of the Petroleum Advisory Board, HEREBY
GRANT to:
OCCIDENTAL OF PAPUA NEW GUINEA LTD;
GARNET PNG CORPORATION; and
NIUGINI ENERGY PTY LIMITED
("the Licensee") this Petroleum Prospecting License No: 181 in respect of the
blocks described hereunder for a period of six years subject to the conditions
set out hereunder:
Interpretation:
In this License, "the Act" means the Petroleum Act, Chapter No. 198 and
includes any amendment of re-enactment of that Act and words and expressions
used in this License have the same respective meanings as in the Act.
1
<PAGE> 2
Description Blocks:
All blocks listed hereunder can be identified by map title and section number
as shown on the Graticular Section maps (1:1 000 000) prepared and published
under the authority of the Minister and available at the Department of Mining
and Petroleum, Port Moresby.
MAP SHEET FLY RIVER S.B. 54
BLOCKS: (all inclusive)
2295
2367 2368 2369
2441 2442 2443
2514 2515 2516 2517
2587 2588 2589
2659 2660 2661
2731 2732 2733
2803 2804 2805
2875 2876 2877
2947 2948 2949
3020 3021
3092 3093
3162 3163 3164 3165
3234 3235 3236 3237
3306 3307 3308 3309
The total number of blocks in this License is 45 and all are inclusive.
2
<PAGE> 3
Conditions:
1. This Licence shall take effect from the date of grant.
2. The Licensee shall at all times comply with:-
(a) the provisions of the Act and the Regulations; and
(b) all directions given to him under the Act or the Regulations.
3. The Licensee shall not transfer, or in any other way deal in, this
Licence unless to or with a "related corporation" within the meaning
of the Companies Act, during the first two years of the Licence unless
the intending farminee(s) are acceptable to the Minister.
4. Within two years from the date of grant of this Licence, the Licensee,
at a cost of not less than US$7,000,000 shall:-
(a) review previous filed studies and data within and adjacent to
proposed licence area;
(b) acquire additional field data in areas of interest by way of
geological field work and a low level aeromagnetic survey; and
(c) drill an exploration well to a target approved by the Director
3
<PAGE> 4
5. The Licensee shall, not later than two months before the expiration of
the second year of this Licence, submit acceptable proposals for work
and expenditure in the third and fourth years of this Licence to the
Minister for approval which shall at least include:-
(a) the acquisition of additional geological field data and further
studies;
(b) if a satisfactory prospect is defined drill one exploration
well to a target approved by the Director; or
(c) acquire 150 line kilometers of seismic; and
(d) particulars of the financial resources available to the
Licensee to carry out the forgoing work programme or if so
requested by the Director an acceptable schedule of actions to
be taken by the Licensee to ensure the availability of the
necessary financial resources and of documentary evidence which
will be submitted to the Director at appropriate times during
the third and fourth years of this Licence to demonstrate that
such actions have been taken.
6. If:
(a) the programme carried out and completed under Conditions 4
does not show significant results; or
(b) the proposals and financial particulars submitted under
Condition 5, together with any additional or alternative
proposals and financial particulars which may be requested by
the Minister, or submitted by the Licensee, are not acceptable
to the Licensee or the
4
<PAGE> 5
Minister, and have not been approved within two months of the
submission of the final submission of the proposals under
Condition 5;
the Licensee may, by written notice served on the Director, apply to
the Minister for consent to surrender the Licence.
7. The Licensee shall, not later than two months before the expiration of
the fourth year of this Licence, submit acceptable proposals for
work and expenditure in the fifth and sixth years of this Licence to
the Minister for approval which shall at least include:
(a) the drilling of an exploration well in each of years 5 AND 6 to
test a target approved by the Director;
(b) further geological studies as required;
(c) the completion of a comprehensive Integrated Report; and
(d) if so requested by the Director, provide particulars of the
financial resources available to the Licensee to carry out the
foregoing work programme and an acceptable schedule of actions to
be taken by the Licensee to ensure the availability of necessary
financial resources and of documentary evidence which will be
submitted to the Director at appropriate times during the fifth
and sixth years of this Licence to demonstrate that such actions
have been taken.
8. If:
(a) the programme carried out and completed under condition 5 does not
show significant results; or
5
<PAGE> 6
(b) the proposals and financial particulars submitted under
Condition 7, together with any additional or alternative
proposals and financial particulars which may be requested by
the Minister, or submitted by the Licensee, are not acceptable
to the Licensee or the Minister, and have not been approved
within two months of the final submission of the proposals under
Condition 7;
the Licensee may, by written notice served on the director, apply to
the Minister for consent to surrender the Licence.
9. Subject to Section 99 of the Act, the Licensee after service of notice
under Condition 6 or 8 shall cease to be liable for any obligations in
respect of this Licence whether arising under the Act, the Regulations
any directions given to the Licensee under the Act, or Regulations, or
these Conditions to be performed or observed after the date of service
of the notice, but this shall not affect the liability of the Licensee
for any such obligations which should have been performed or observed
before such date. A notice under Conditions 6 or 8 may be served on
the Director in accordance with Section 115 or the Act.
10. If the Licensee should surrender this Licence under Condition 6 or 8,
this Licence shall terminate upon the date of service of the
instrument under Section 97(6) of the Act.
11. The Licensee may take samples of any petroleum found in the Licence
area for the purpose of testing and determining its chemical
composition. With prior approval of the Director well flow tests may
be carried out, but the Licensee shall not otherwise recover any
petroleum from the licence area.
6
<PAGE> 7
12. The Independent State of Papua New Guinea ("The State") and the
Licensee shall execute a Petroleum Agreement in respect of this
Licence. The agreement shall, inter alia, provide that:-
The State shall be given the right to participate as a joint owner to
the extent of not more than 22.5% in any development and in any
petroleum development licence which results from the discovery of
petroleum under this Licence. Such participation shall be on a
carried interest basis whereby the cost of The State's ownership
interest will be paid for out of its share of the petroleum produced.
DATED this 29th day of September, 1995.
/s/ JOHN R. GIHENO
- ---------------------------------
John R. Giheno, MP.
Minister for Mining and Petroleum
7
<PAGE> 1
EXHIBIT 10(B)
PAPUA NEW GUINEA PPL 77 AGREEMENT
THIS AGREEMENT is made and entered into this 27th day of April, 1995,
by, between and among Garnet PNG Corporation, 333 Clay Street, Suite 4500,
Houston, Texas 77002 ("Garnet"), Niugini Energy Pty Limited, 1660 South Albion
Street, Suite 829, Denver, Colorado 80222 ("Niugini Energy"), and Occidental
International Exploration and Production Company, P.O. Box 12021, Bakersfield,
California 93389 ("Oxy").
1. BACKGROUND. Garnet and Niugini Energy together own Petroleum
Prospecting License 77 ("PPL 77") in Papua New Guinea, originally issued by the
Minister for Minerals and Energy on December 1, 1986, and now covering 45
graticular blocks. Oxy wishes to explore the lands covered by PPL 77, which, by
Direction S.96 dated December 3, 1992, has been extended for a period of twelve
months from the date a Petroleum Agreement is executed by the PNG Government and
the Licensees. Such a Petroleum Agreement was executed by the Government on
December 21, 1994 and by the Licensees on January 30, 1995.
In order to secure the greater time and certainty necessary to
identify drillable locations and to drill exploration wells within the license
area in a responsible fashion, the parties have agreed that Garnet and Niugini
Energy will seek to surrender PPL 77, so that Garnet, Niugini Energy and Oxy
may jointly apply to the PNG Government for a new license covering all of the
lands now within PPL 77.
2. LICENSE SURRENDER AND APPLICATION; ALTERNATIVE MECHANISMS. The
parties agree that within 30 days after the date of this agreement, Garnet and
Niugini Energy shall formally seek to surrender and relinquish PPL 77 in its
entirety, conditioned upon the grant of a new petroleum prospecting license to
Garnet, Niugini Energy and Oxy's subsidiary to be named later ("Occidental")
covering the same lands. At that same time, Garnet, Niugini Energy and
Occidental shall formally apply for such a new license (the "New License")
covering all of the lands now within PPL 77. This New License will be applied
for and, if issued, held by Garnet (6%), Niugini Energy (6%), and Occidental
(88%).
The parties' principal objective is to secure, for their
collective benefit, a new license allowing responsible exploration and
development of the lands covered by PPL 77. If at any time it appears that
another alternative, such as seeking a variance and extension of PPL 77 or some
other arrangement, might more easily accomplish this objective, the parties
may, by unanimous agreement, pursue such alternative path.
3. OCCIDENTAL PROMISES. PPL 77 is currently owned 40% by Garnet
and 60% by Niugini Energy. The conditional surrender and New License
application contemplated by this agreement will substantially reduce their
interests, yet Garnet and Niugini Energy hereby agree to seek the conditional
surrender and to allow Occidental an 88% interest in the New License in
consideration of Occidental's promises that:
3.1 Occidental will drill and complete a new test well on lands
covered by the New License satisfactory to the Department of Minerals and
Petroleum within the first two years of the New License term;
<PAGE> 2
3.2 Occidental will pay 100% of all security deposits, bonds,
bonuses, rentals, stamp duties, exploration costs, and other costs of every type
and nature in connection with the New License and all activities thereon until
this new test well has been drilled and completed (either as a dry hole or as a
producer), although Garnet and Niugini Energy will bear their own travel, legal,
and other expenses which they may incur in connection with the surrender of PPL
77; and
3.3 Oxy and Occidental will not seek or accept any interest in
any license covering lands now within PPL 77 prior to December 31, 1996, unless
it first allows Garnet and Niugini Energy each to participate in such interest
on the terms and conditions contemplated by this agreement.
4. OPERATING AGREEMENT. The parties agree that when the New License is
issued, the parties shall enter into a unanimously agreed operating agreement
covering the New License, which shall include terms and conditions normally
found in joint operating agreements in the international petroleum industry,
including designation of Occidental as operator and providing that each party
shall pay its proportionate share of all expenses incurred after the new test
well has been drilled and completed. Before the new test well is completed, all
decisions concerning the nature, scope and timing of the exploration work and
the drilling and completion of the new test well will be made solely by
Occidental, after an opportunity for comment by Garnet and Niugini Energy.
5. NO LIABILITY. The parties recognize that the success of the
contemplated surrender of PPL 77 and issuance of the New License is entirely
dependent upon the discretion of the Department of Minerals and Petroleum, and
the parties hereby expressly release each other, absent conduct by a party in
bad faith, from any liability associated with the conditional surrender, the
denial of the New License, or any other consequences of an action undertaken in
furtherance of this agreement.
GARNET PNG CORPORATION NIUGINI ENERGY PTY LIMITED
By: /s/ ILLEGIBLE By: /s/ ILLEGIBLE
----------------------------- ------------------------------
Title: Vice President Title: Managing Director
OCCIDENTAL INTERNATIONAL EXPLORATION
AND PRODUCTION COMPANY
By: /s/ ILLEGIBLE
-----------------------------
Title: Vice President Expl Operations
2
<PAGE> 1
EXHIBIT 10(C)
[OPIC COMPANY LETTERHEAD]
March 24, 1995
Argosy Energy International
333 Clay Street
Suite 4500
Houston, TX 77002
Attention: Mr. Kirk Bosche', Vice President
Garnet Resources Corporation
Re: Amendment No. 2 to Finance Agreement between
Overseas Private Investment Corporation ("OPIC")
and Argosy Energy International ("Argosy")
Gentlemen:
Reference is made to the Finance Agreement between Argosy and OPIC
dated May 2, 1994, as amended by Amendment No. 1 dated July 28, 1994, (as
amended, the "Finance Agreement"), setting forth the understanding and agreement
between OPIC and Argosy with respect to an OPIC guaranty of a loan or loans to
Argosy of up to $9,200,000. All capitalized terms used herein and not otherwise
defined have the meanings set forth in the Finance Agreement.
The Finance Agreement provides, among other things, that the Commitment
Period shall terminate, at the latest, on March 31, 1995. In consideration of
Argosy's continuing development of its oil operations in Colombia, OPIC agrees
to amend the Finance Agreement as follows:
1. Section 1.1 of the Finance Agreement is amended by deleting the
words "March 31, 1995" in the definition of "Commitment Period" and
inserting in their place the words "September 30, 1995".
2. Section 8.6 is amended by deleting the words "four fiscal
quarters" and inserting in their place the words "first three fiscal
quarters". In all other respects, the terms of the Finance Agreement
shall remain in full force and effect.
<PAGE> 2
Argosy Energy International
Page 2
If you agree to the foregoing amendments, please sign the two original
execution copies of this Amendment No. 2 and return to OPIC one copy thereof
via facsimile and by mail. Upon OPIC's receipt by facsimile of such executed
copy, this Amendment No. 2 will constitute a binding agreement between us
amending the Finance Agreement effective as of March 24, 1995.
Very truly yours,
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ [illegible]
---------------------------------
Title: Vice President for Finance
ACCEPTED AND AGREED TO
as of the date of this letter:
ARGOSY ENERGY INTERNATIONAL
By: /s/ [illegible]
- --------------------------
Title: Vice President,
Argosy Energy Inc.,
General Partner
<PAGE> 1
EXHIBIT 10(D)
[OPIC LETTERHEAD]
September 26, 1995
Argosy Energy International
333 Clay Street
Suite 4500
Houston, Texas 77002
Attention: Mr. W. Kirk Bosche
Re: Amendment No. 3 ("Amendment No. 3") to Finance Agreement between
Overseas Private Investment Corporation ("OPIC") and Argosy Energy
International (the "Partnership")
Ladies and Gentlemen:
Reference is made to the finance agreement between the Partnership and
OPIC dated May 2, 1994, as amended by Amendment No. 1 dated July 28, 1994, and
Amendment No. 2 dated March 24, 1995 (as amended, the "Finance Agreement"),
setting forth the understanding and agreement between OPIC and the Partnership
with respect to an OPIC guaranty of a loan or loans to the Partnership of up to
$9,200,000.00. All capitalized terms used herein and not otherwise defined
have the meanings set forth in the Finance Agreement.
1. Amendments to Section 1.1 of the Finance Agreement.
(a) Section 1.1 of the Finance Agreement is amended by adding the
following definition of Accounts Payable:
"Accounts Payable" means liabilities arising in the ordinary course
from the purchase of goods and services that have been received or
that are in transit, which liabilities have a term of not more than
one year."
(b) The definition of "Commitment Period" is hereby amended by deleting
the words "September 30, 1995" and inserting in their place the words
"October 31, 1995."
(c) The definition of "Debt Service Coverage Ratio" is amended in its
entirety as follows:
"Debt Service Coverage Ratio" means, for any Fiscal Year for which the
calculation is made, the ratio of (a) the sum of Net Revenues for
such Fiscal Year plus Reimbursement Revenues for such Fiscal Year
plus, if such Fiscal Year is the then current Fiscal Year, the
Liquid Assets (less any Accounts Payable) then owned by the
Partnership,
<PAGE> 2
2
if any, to (b) the sum of all installments of principal,
interest and other fees in respect of all of the Partnership's
Indebtedness (including the Loan, but excluding any Accounts Payable
and the Garnet Loan, as defined below) scheduled to be due and payable
during such Fiscal Year in accordance with the amortization schedules
applicable to such Indebtedness. The calculation of the amounts
described in clause (b) of the preceding sentence shall be based upon
the following assumptions; (i) that all payments of principal shall be
made when due and that no prepayments will be made unless such
prepayments have become mandatory as of the date of calculation, (ii)
in the case of a floating interest rate, that the interest rate in
effect on the date of calculation shall remain in effect during the
entire period covered by such calculation, and (iii) that the principal
amount of $4,286,488.00, plus accrued interest, which the Partnership
has borrowed from Garnet since August 12, 1994 (the "Garnet Loan"),
will not be due and payable until the Fiscal Year following the Fiscal
Year in which all amounts due or to become due under the Finance
Agreement and the Notes are paid in full.
(d) The definition of "Present Value Ratio" is amended by:
(i) deleting subsection (i)(z) thereof and inserting in its place the
following subsection:
"(z) the Liquid Assets (less any Accounts Payable) then
owned by the Partnership, if any, to"
and (ii) deleting subsection (ii)(z) thereof and inserting in its place the
following subsection:
"(z) the amount of all other outstanding Indebtedness of
the Partnership (excluding Accounts Payable)."
(e) The definition of "Reimbursement Revenues" is amended
by deleting the words "provided, however, that Reimbursement Revenues shall
not include any reimbursement amounts subject to any assignment or factoring
arrangements pursuant to the Credit Bank Documents".
(f) The definition of "Sales Contract" is amended in its
entirety as follows:
"Sales Contract" means the Contract for Sale of Santana Crude dated
March 5, 1995, by and among Ecopetrol, the Partnership and Neo.
(g) The definition of "Stage II Wells" is amended by
deleting the words "Toroyaco 4 and the Linda 3 wells" and inserting in their
place the words "Mary 3 and the Mary 5 Wells".
2. Amendment to Section 8.4 of the Finance Agreement. Section 8.4,
Insurance, of the Finance Agreement is amended by deleting subsection (b) and
inserting in its place the following subsection:
"(b) name OPIC as the loss payee or additional insured, as
its interest may appear, in all policies (except in the case of public
liability or other liability policies and except for policies covering vehicles
as long as the aggregate value of all vehicles covered by such policies does
not exceed $25,000.00):"
3. Miscellaneous.
(a) Governing Law. This Amendment No. 3 shall be construed
and enforced in accordance with the laws of the State of New York in the United
States of America without regard to its conflict of laws principles.
<PAGE> 3
3
(b) Confirmation of Agreement. Except as amended hereby,
all of the terms of the Finance Agreement shall remain and continue in full
force and effect and are hereby confirmed in all respects. This Amendment No. 3
embodies the entire understanding of the parties hereto with respect to the
subject matter hereof, and supersedes all prior negotiations, understandings,
and agreements among them with respect thereto. The provisions of this
Amendment No. 3 may be waived, supplemented, or amended only by an instrument
n writing signed by duly authorized representatives of the Partnership and OPIC.
(c) Successors and Assigns. This Amendment No. 3 shall
inure to the benefit of and be binding upon the successors and assigns of the
parties hereto, provided that the Partnership shall not, without the prior
written consent of OPIC, assign or delegate all or any of its interest or
obligations hereunder.
(d) No Waiver. Each agreement, representation, and warranty
contained or referred to in this Amendment No. 3 shall survive any
investigation at any time made by OPIC and the disbursement of the Loan, and
shall terminate only when all amounts due or to become due under the Finance
Agreement and the Notes are paid in full. No course of dealing and no failure
or delay by OPIC in exercising any right, power, or remedy under the Finance
Agreement shall operate as a waiver thereof or otherwise prejudice OPIC's
rights powers, or remedies.
(e) Counterparts. This Amendment No. 3 may be executed in
separate counterparts, each of which shall be an original and all of which
taken together shall constitute one and the same instruments.
If you agree to the foregoing amendments, please sign the two
original execution copies of this Amendment No. 3 and return to OPIC one copy
thereof via facsimile and by mail. Upon OPIC's receipt by facsimile of such
executed copy, this Amendment No. 3 will constitute a binding agreement between
us amending the Finance Agreement effective as the date hereof.
Very truly yours,
OVERSEAS PRIVATE INVESTMENT CORPORATION
BY: /s/ CHARLES D. TOY
--------------------------------
Title: Vice President for Finance
--------------------------------
ACCEPTED AND AGREED TO
as of the date of this letter:
ARGOSY ENERGY INTERNATIONAL
By: Argosy Energy Incorporated
its general partner
By: /s/ ILLEGIBLE
----------------------------
Title: Vice President
----------------------------
<PAGE> 1
EXHIBIT 10(E)
ARGOSY ENERGY INTERNATIONAL
STAGE II
PROMISSORY NOTE
U.S.$4,800,000 October 25, 1995
FOR VALUE RECEIVED, ARGOSY ENERGY INTERNATIONAL ("Borrower"), a limited
partnership organized and existing under the laws of the State of Utah, hereby
promises to pay to the order of Texas Commerce Bank National Association
(herein, together with any successor or assign thereof, the "Lender"), in
lawful currency of the United States of America and in immediately available
funds, at the principal office of the Lender (located at 712 Main Street,
Houston, Texas), the principal sum of Four Million Eight Hundred Thousand
United States Dollars (U.S.$4,800,000), or, if less, the aggregate principal
amount outstanding hereunder together with interest thereon as hereinafter
provided. The principal amount hereof shall be repayable in semi-annual
installments as set forth on Schedule I hereto, as such schedule may be
modified by the Overseas Private Investment Corporation ("OPIC") in accordance
with Sections 3.6 and 3.8 of the Finance Agreement between Borrower and OPIC
dated may 2, 1994 (as amended, restated or supplemented from time to time, the
"Finance Agreement"). Each such principal payment installment date being
referred to herein as a "Payment Date".
Borrower shall pay interest to the Lender on the outstanding, paid
principal amount hereof accruing from and including the date hereof at the
lesser of (a) the Interbank Offered Rate (as hereinafter defined and as
adjusted from time to time as hereinafter provided), plus 0.25% per annum or
(b) the highest rate permitted by applicable law (the "Highest Lawful Rate").
Borrower shall make interest payments to the Lender on each Interest Payment
Date (as hereinafter defined) occurring during an Interest Period. The
interest payment due on any such Interest Period, terminating immediately prior
to such Interest Payment Date, except that the final installment of the unpaid
principal amount of this Promissory Note is paid (the "Stage II Maturity
Date"). For purposes hereof, "Interest Payment Date" means each March 15,
June 15, September 15 and December 15 so long as this Promissory Note remains
outstanding.
The term "Interest Period" shall mean the period commencing on the day
following the last day of the immediately preceding Interest Period (or, in the
case of the first Interest Period, the date hereof) and ending at the close of
business on the last day of the period selected by the Borrower pursuant to
Section 2.2 of the Loan Agreement.
<PAGE> 2
Borrower may, upon notice received by the Lender, select in accordance with
Section 2.2 of the Loan Agreement; provided however, that:
(i) the duration of any Interest Period which commences before any Payment
Date required hereunder and otherwise ends after such date shall end on such
date:
(ii) the duration of any Interest Period which otherwise ends after the
15th day of the last month of such Interest Period shall end on the 15th day of
such month;
(iii) whenever the last day of any Interest Period would otherwise occur on
a day other than a Business Day (as hereafter defined), the last day of such
Interest Period shall be extended to occur on the next succeeding Business Day;
and
(iv) there shall be no more than one Interest Period in effect at any one
time.
For any Interest period, "Interbank Offered Rate" shall mean the rate of
interest determined by the Lender to be the prevailing rate per annum at which
deposits in U.S. dollars are offered to the Lender by first-class banks in the
interbank eurodollar market in which it regularly participates on or about 10:00
a.m. (Houston time) two Business Days before the first day of such Interest
Period. The Interbank Offered Rate shall be predetermined as above for each
Interest Period. The Interbank Offered Rate shall be predetermined as above for
each Interest Period, and the rate so adjusted will be in effect as of the first
day of each Interest Period and shall continue in effect throughout such
Interest Period.
All computations of interest hereunder shall be made on the basis of a
360-day year and paid for the actual number of days elapsed. Whenever any
payment under this Promissory Note shall be payable on any day that is not a
Business Day, such payment shall be made on the next succeeding Business Day.
The term "Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks in Houston, Texas, or Washington, D.C., or New
York City, New York are authorized by law to close.
All payments shall be by wire transfer of immediately available funds in
accordance with instructions given by the Lender to Borrower, or, at the
Borrower's option, by debiting an account of the Borrower maintained with the
Lender. All scheduled payments shall be applied: first, to the payment of
accrued and unpaid interest then due and payable, and second, to the payment of
principal then due and payable.
This Promissory Note is issued under and is subject to the provisions of
(i) the Finance Agreement and (ii) the letter loan agreement between Borrower
and Lender dated as of August 3, 1994 (as amended, restated or supplemented
from time to time, the "Loan Agreement"). This Promissory Note is valid only
when the Guaranty Endorsement of OPIC has been affixed hereto. Subject to the
Guaranty Agreement, the
-2-
<PAGE> 3
Lender may enforce the agreements of Borrower contained herein which are for
the benefit of the Lender, and may exercise the remedies of the Lender provided
for herein or in the Guaranty Agreement or otherwise available at law or in
equity.
Prior to the last day of the Commitment Period (as defined in the Finance
Agreement), Borrower shall not have the right to prepay any principal amount
outstanding hereunder. Thereafter, Borrower shall have the right to prepay the
outstanding principal amount of this Promissory Note in whole or in increments
of $100,000 from time to time on any Payment Date, without payment of premium to
the Lender, provided the Borrower (i) gives OPIC and the Lender at least five
(5) Business Days' notice of the amount and payment date of such optional
prepayment and (ii) has paid to OPIC any premium required by Section 3.7 of the
Finance Agreement at least five (5) Business Days prior thereto. Any such
optional prepayment will be applied first to accrued, unpaid interest and then
to principal installments of this Promissory Note in inverse order of
maturities.
This Promissory Note is also subject to mandatory prepayment under the
terms of the Finance Agreement. Borrower shall give OPIC and the Lender at
least five (5) Business Days' notice of the amount and payment date of such
mandatory prepayment, which will be applied first to accrued, unpaid interest
and then to principal installments of this Promissory note in inverse order of
maturities.
Upon the occurrence, and during the continuance, of an Event of Default
(as defined in the Finance Agreement), the Principal of this Promissory Note
and interest occurred hereon may be declared by OPIC to be forthwith due and
payable as provided in the Finance Agreement.
Subject to Section 10.4 of the Loan Agreement, no reference herein to the
Finance Agreement, the Loan Agreement or the Guaranty Agreement (as defined in
the Guaranty Endorsement hereto) and no provision of this Promissory Note, the
Finance Agreement, the Loan Agreement or the Guaranty Agreement shall alter or
impair the obligation of Borrower to pay the principal of and interest on this
Promissory Note as provided herein. The provisions of this Promissory Note may
be modified or amended only by an instrument in writing signed by duly
authorized representatives of the Lender, OPIC and Borrower.
Without prejudice to the rights of the holder of this Promissory Note to
bring suit in the courts of any other jurisdiction, any proceeding by the
Lender to enforce this Promissory Note or related rights may be brought in the
courts of the United States of America in the District of Columbia. Borrower
hereby waives any present or future objection to such venue and irrevocably
consents and submits to the nonexclusive jurisdiction in personam of any such
court. Borrower has irrevocably designated and appointed CT Corporation System,
1025 Vermont Avenue, NW, Washington, D.C., as its authorized agent to receive,
accept and acknowledge on its behalf service of process in any such proceeding,
and its agrees that service of process upon such agent shall be
-3-
<PAGE> 4
deemed and held in every respect to be valid personal service upon it. Borrower
shall maintain such appointment continuously in effect at all times while
Borrower is indebted hereunder.
The Borrower hereby waives grace, demand, presentment for payment, notice
of dishonor, default, notice of acceleration or notice of intent to accelerate
the maturity hereof, protest and notice of protest and diligence in collecting
and bringing of suit against any party hereto, and agrees to all renewals,
extensions or partial payments hereon and to any release or substitution of
security herefor, in whole or in part, with or without notice, before or after
maturity. No failure on the part of the Lender to exercise, and no delay on the
part of the Lender in exercising, any right under this Promissory note or
otherwise shall operate as a waiver of such right nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law. No course of
dealing between the Borrower and the Lender shall operate as a waiver of any
right of the Lender.
All agreements between the Borrower and the Lender, whether now existing
or hereafter arising and whether written or oral, are hereby expressly limited
so that in no contingency or event whatsoever, whether by reason of demand
being made in respect of an amount due under any Loan Document or otherwise,
shall the amount paid, or agreed to be paid, to the Lender for the use,
forbearance, or detention of the money to be loaned under the Loan Agreement,
this Promissory Note, or any other Loan Document or otherwise or for the
payment or performance of any covenant or obligation contained herein or in any
other Loan Document exceed the Highest Lawful Rate. If, as a result of any
ciecumstances whatsoever, fulfillment of any provision hereof or of any of such
documents, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by applicable usury law,
then, ipso facto, the obligation to be fulfilled shall be reduced to the limit
of such validity, and if, from any such circumstance, the Lender shall ever
receive interest or anything which might be deemed interest under applicable
law which would exceed the Highest Lawful Rate, such amount which would be
excessive interest shall be applied to the reduction of the principal amount
owing on account of the Lender's Notes or the amounts owing on other
obligations of the Borrower to the Lender under any Loan Document and not to
the payment of interest or if such excessive interest exceeds the unpaid
principal balance of the Notes and the amounts owing on other obligations of
the Borrower to the Lender under any Loan Document, as the case may be, such
excess shall be refunded to the Borrower. All sums paid or agreed to be paid to
the Lender for the use, forbearance, or detention of the indebtedness of the
Borrower to the Lender, to the extent permitted by applicable law, shall be
amortized, prorated, allocated, and spread throughout the full term of such
indebtedness until payment in full of the principal (including the period of
any renewal or extension thereof) so that the interest on account of such
indebtedness shall not exceed the Highest Lawful Rate. Notwithstanding anything
to the contrary contained in any Loan Document, it is understood and agreed
that if at any time the rate of interest which accrues on the
-4-
<PAGE> 5
outstanding principal balance of the Notes shall exceed the Highest Lawful
Rate, the rate of interest which accrues on the outstanding principal balance
of the Notes shall be limited to the Highest Lawful Rate, but any subsequent
reductions in the rate of interest which accrues on the outstanding principal
balance of the Notes shall not reduce the rate of interest which accrues on the
outstanding principal balance of any Note below the Highest Lawful Rate until
the total amount of interest accrued on the outstanding principal balance of
the Notes equals the amount of interest which would have accrued if such
interest rate had at all times been in effect.
THIS PROMISSORY NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE DISTRICT OF COLUMBIA WITHOUT REGARD TO ITS CONFLICT OF LAWS
PROVISIONS.
IN WITNESS WHEREOF, Borrower acting by its duly authorized representative
has caused this Promissory Note to be executed and delivered to the Lender on
the date first above written.
ARGOSY ENERGY INTERNATIONAL,
a limited partnership
By: Argosy Energy Incorporated
its general partner
By: W. KIRK BOSCHE
---------------------------
Name: W. Kirk Bosche
---------------------------
Title: Vice President
---------------------------
GUARANTY ENDORSEMENT
This Promissory Note is one of the Guaranteed Notes described in the
Guaranty Agreement dated July 26, 1994, between Overseas Private Investment
Corporation and Texas Commerce Bank National Association (as amended, restated
or supplemented from time to time, the "Guaranty Agreement"). Subject to the
terms thereof, Overseas Private Investment Corporation guarantees the prompt
payment when due of the principal of and interest on this Guaranteed Note.
OVERSEAS PRIVATE INVESTMENT
CORPORATION
By: CHARLES D. TOY
---------------------------
Its: Vice President for Finance
---------------------------
-5-
<PAGE> 6
Schedule I
ARGOSY ENERGY INTERNATIONAL
STATE II PROMISSORY NOTE
SCHEDULE OF PRINCIPAL PAYMENTS*
<TABLE>
<CAPTION>
PAYMENT DATE PRINCIPAL AMOUNT DUE
------------ --------------------
<S> <C>
1995 December 15 $1,051,000
1996 June 15 $ 589,500
December 15 $ 589,500
1997 June 15 $ 441,000
December 15 $ 441,000
1998 June 15 $ 390,000
December 15 $ 390,000
1999 June 15 $ 284,500
December 15 $ 284,500
2000 June 15 $ 164,500
December 15 $ 164,500
2001 June 15 $ 10,000
</TABLE>
- ---------------
* This Schedule of Principal Payments is subject to change as set forth in
section 3.6 and 3.8 of the Finance Agreement dated May 2, 1994, as amended,
between Argosy and OPIC.
<PAGE> 1
EXHIBIT 10F
June 28, 1995
Mr. George M. Nevers
1902 Wroxton Road
Houston, Texas 77005
In recognition of your resignation, effective June 21, 1995, from your
positions as President and Chief Executive Officer and as an employee and
director of Garnet Resources Corporation ("Garnet") and as an officer and
director of Garnet's subsidiaries, which you hereby confirm, this letter sets
forth the terms of our mutual understanding concerning your severance.
1. We have agreed to provide you with the following severance benefits
which are over and above those to which you would normally be entitled:
(a) You will be paid an amount equal to $203,300, which amount
will be paid in twenty-four equal monthly installments payable on the first
business day of each month commencing with July 1995.
(b) Until June 30, 1997, Garnet shall maintain in full force
and effect, for your continued benefit, the benefits under the $1,000,000 life
insurance policy currently in effect. Garnet shall continue to provide you with
the benefits under the medical and long term disability policies maintained by
Garnet until December 31, 1995. For a period of eighteen months commencing
January 1, 1996, Garnet will pay to you, or at your direction directly to the
insurance carrier, the amount of the premium required to be paid to keep the
medical insurance for the benefit of you and your dependents effective for a
period of eighteen months commencing January 1, 1996 under COBRA.
(c) In consideration of your agreement to relinquish the stock
options held by you and listed on Schedule A attached hereto, Garnet will
deliver to you, simultaneously with the execution of this agreement, a stock
option entitling you to
<PAGE> 2
purchase 200,000 shares of Garnet Common Stock at an exercise price of $2.50
per share at any time after the date hereof and prior to June 21, 1998, which
option shall be in the form attached hereto as Exhibit A.
2. In consideration of the foregoing benefits:
(a) You agree to be available during the transition period
commencing on the date hereof and ending on December 31, 1995 to perform such
consulting services as the management and directors of Garnet may from time to
time reasonably request. Garnet shall reimburse you for all properly documented
reasonable out-of-pocket expenses incurred in the performance of your duties as
a consultant.
(b) You hereby relinquish all stock options currently held by
you in consideration of the issuance of the option in accordance with paragraph
1(c) above. You acknowledge that no additional severance benefits, bonus
payments, other compensation or reimbursement, except as specifically set forth
above, are payable to you by Garnet, or its subsidiaries or affiliates. You
acknowledge that all payments under paragraph 1 and any gain realized upon the
exercise of the option set forth in paragraph 1(c) will be subject to
applicable statutory withholding taxes.
(c) You, for yourself and for your successors and assigns, do
hereby fully and completely RELEASE, ACQUIT and FOREVER DISCHARGE Garnet, and
its affiliates, subsidiaries or other related entities as well as its
shareholders, officers, directors, employees or agents, from any and all
claims, debts, demands, actions, causes of action, suits, sums of money,
contracts, agreements, judgments and liabilities whatsoever, both in law and in
equity ("claims") of any kind and any character that you might now have, or
could have had, whether in contract, tort or otherwise, including specifically
any claims of discrimination that you may claim in connection with your
employment or the termination thereof. This includes but is not limited to,
claims arising under the federal, state or local laws prohibiting
discrimination on the basis of one's sex, race, age, disability, national
origin, color or religion, or claims growing out of any legal restriction on
Garnet's right to terminate its employees. This also specifically includes the
waiver of any rights or claims arising under the Age Discrimination in
Employment Act of 1967 (29 U.S.C. 621 et seq.). It is also understood that the
execution of this agreement shall be construed as a release and covenant not to
sue, that you will not sue Garnet or any subsidiary, affiliate, officer,
director, employee or committee thereof, or file any claims of any sort with
any administrative agency for anything arising out of your employment, and the
terms of this agreement supersede any and all
2
<PAGE> 3
other agreements relating to your employment whether written or oral.
(d) You agree to return to Garnet all documents, records and
other property relating to Garnet and its business which are in your possession
or under your control. You agree not to disclose to anyone any confidential or
non-public information which relates to Garnet or its subsidiaries.
3. Garnet encourages you to carefully review the terms of this
agreement and, if you wish, to seek advice and counsel from an attorney before
signing this agreement.
4. This Agreement shall inure to the benefit of and shall be binding
upon you and your executor, administrator, heirs, personal representatives and
assigns, and Garnet and its successors and assigns; provided, however, that you
shall not be entitled to assign or delegate any of your rights or obligations
hereunder without the prior written consent of Garnet.
5. This Agreement constitutes the entire agreement between the parties
relating to the subject matter hereof. It cannot be altered or amended except
by a writing duly executed by the party against whom such alteration or
amendment is sought to be enforced.
6. As the terms of this agreement were negotiated in the City of New
York at a meeting held therein, this agreement shall in all respects be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed entirely within such state. In the event
of any dispute between the parties relating in any way to this letter or to your
employment by Garnet a proceeding relating to such dispute may be brought only
in the Federal or state courts sitting in the City of New York, to the
jurisdiction and venue of which both parties hereby submit. Process, including
original process in any such proceeding may be served by certified or registered
mail, return receipt requested or by any other lawful means. Costs in any such
proceeding shall be paid by the unsuccessful party as determined by the court
presiding over such proceeding.
7. If any one or more of the provisions contained in this agreement
shall be held illegal or unenforceable, no other provision shall be affected.
We are pleased that we have been able to reach this agreement. After
you have the chance to review this agreement and to consult with your attorney,
if you wish, please sign the enclosed copy and return it to me within 22 days.
3
<PAGE> 4
After you have executed and delivered this agreement, you will have
seven (7) days following the date of execution during which time you may revoke
this agreement, provided, however, that, if you elect to return an executed
copy of the document to us before the expiration of 22 days from the date
hereof, you may revoke this agreement at any time before the later to occur of
seven (7) days following the date of execution or 22 days after the date
hereof. If we do not receive a written revocation from you, or your attorney,
prior to the expiration of the period in which you may revoke this agreement,
this agreement will become effective on the date after the expiration of the
applicable revocation period.
GARNET RESOURCES CORPORATION
By /s/ EDGAR A. MORTON
------------------------------
Accepted and Agreed:
/s/ GEORGE M. NEVERS
- ---------------------------------
George M. Nevers
I acknowledge that I have been given the opportunity to consider this
agreement for at least twenty-one (21) days, that I have been advised to
discuss this agreement with an attorney of my choice, that I have carefully
read and fully understand and agree to all of the provisions of this agreement
and that I am voluntarily entering into this agreement.
Finally, I also understand that I have seven (7) days after I sign this
agreement (or twenty-two days after the date hereof, if later) to change my
mind and that I may revoke this agreement by providing written notice of
revocation to you prior to the expiration of the applicable period.
July 11, 1995 /s/ GEORGE M. NEVERS
- ------------------------- ---------------------------------
Date of Execution George M. Nevers
4
<PAGE> 5
SCHEDULE A
DATE OF NUMBER OF NUMBER OF
GRANT SHARES GRANTED SHARES VESTED EXERCISE PRICE
--------- -------------- ------------- --------------
2/ 6/90 54,441 54,441 $11.75
12/ 4/90 50,000 50,000 $ 6.625
12/ 8/92 5,352 3,211 $ 4.00
6/23/93 56,250 22,500 $ 5.75
5
<PAGE> 6
EXHIBIT A
GARNET RESOURCES CORPORATION
AGREEMENT RELATING TO STOCK OPTIONS
WHICH ARE NOT "INCENTIVE OPTIONS"
PURSUANT TO THE 1990 STOCK OPTION PLAN
------------------------------
Option granted in New York, New York, as of June 28, 1995 (hereinafter
referred to as the "Date of Grant") by GARNET RESOURCES CORPORATION (the
"Corporation") to George M. Nevers (the "Grantee"):
1. THE OPTION. Subject to the execution, delivery and effectiveness of
the letter agreement dated June 28, 1995 between the Corporation and the
Grantee (the "Agreement"), the Corporation hereby grants to the Grantee,
effective on the Date of Grant, a stock option (the "Option") to purchase, on
the terms and conditions herein set forth, up to 200,000 of the Corporation's
fully paid, non-assessable shares of Common Stock, par value $0.01 per share
(the "Shares"), at the option price set forth in Section 2 below.
The Option is granted pursuant to the Agreement and the Corporation's
1990 Stock Option Plan (the "Plan"), a copy of which is delivered herewith by
the Corporation and receipt thereof is acknowledged by the Grantee. The Option
is subject in its entirety to all the applicable provisions of the Agreement
and the Plan which are incorporated herein by reference. The Option is a
"Non-incentive Stock Option" within the meaning of Section 2 of the Plan.
2. THE PURCHASE PRICE. The purchase price of the Shares shall be $2.50
per share (the "Option Price").
3. EXERCISE OF OPTION.
(a) Except as otherwise provided in the Plan and this Option Agreement,
and provided the Grantee is not in breach of the Agreement, the Option is
exercisable over a period commencing on the date hereof and ending at the close
of business on June 21, 1998. The Option may be exercised from time to time
during the option period as to the total number of Shares allowable under this
Section 3(a), or any lesser amount thereof. In the event of the death of the
Grantee, this Option may be exercised by the person or persons entitled to do
so under the Grantee's will (a "legatee"), or, if the Grantee shall fail to
make testamentary disposition of this Option, or shall die intestate, by the
Grantee's legal representative (a "legal representative"). If the Grantee shall
die or become disabled within the meaning of Section
<PAGE> 7
22(e)(3) of the Internal Revenue Code of 1986, as amended, during the period in
which this Option is exercisable, the Stock Option and Compensation Committee
may, in its discretion, extend the period in which this Option may be
exercised. If this Option shall extend to 100 or more Shares, then this Option
may not be exercised for less than 100 Shares at any one time, and if this
Option shall extend to less than 100 Shares, then this Option must be exercised
for all such Shares at one time.
(b) Not less than five days nor more than thirty days prior to the date
upon which all or any portion of the Option is to be exercised, the person
entitled to exercise the Option shall deliver to the Corporation written notice
(the "Notice") of his election to exercise all or a part of the Option, which
Notice shall specify the date for the exercise of the Option and the number of
Shares in respect of which the Option is to be exercised. The date specified in
the Notice shall be a business day of the Corporation.
(c) On the date specified in the Notice, the person entitled to
exercise the Option shall pay to the Corporation the Option Price of the Shares
in respect of which the Option is exercised, and the minimum amount of any
Federal and state withholding tax and any employment tax. The Option Price shall
be paid in full at the time of purchase, in cash or by check or with stock of
the Corporation, the value of which shall be determined in the same manner as
provided for determining the fair market value of a share of Common Stock
subject to an Incentive Stock Option as set forth in Section 6(a) of the Plan.
If the Option is exercised in accordance with the provisions of the Plan and
this Option Agreement, within three business days of receipt of the purchase
price, the Corporation shall deliver to such person certificates representing
the number of Shares or other securities in respect of which the Option is being
exercised which Shares or other securities shall be registered in his name.
(d) In addition to the procedures set forth above, if Regulation T of
the Securities Exchange Act of 1934, as amended ("Regulation T") is applicable
to the exercise of this Option and so permits, the person entitled to exercise
this Option may direct the Corporation in the Notice to deliver all or any part
of the number of Shares or other securities to which he is entitled upon
exercise of this Option directly to a broker specified in the Notice. In such
event, the Corporation shall accept payment of the Option Price in cash or by
check from such broker on behalf of the person entitled to exercise this Option
and shall take all action necessary to effect the prompt delivery of such
Shares or other securities to such broker in accordance with the provisions of
Regulation T. Notwithstanding the foregoing, the Corporation shall not be
required to comply with the provisions of this Section 3(d) if, as a result of
a change in the accounting rules and regulations applicable to the Corporation,
or the
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<PAGE> 8
interpretation thereof, compliance with the provisions of this Section 3(d)
will result in the imposition of substantial adverse financial reporting
requirements on the Corporation.
(e) In the event of the dissolution, liquidation, merger or
consolidation of the Corporation, or the sale of all or substantially all of
its assets, during the term hereof, the Corporation shall provide the Grantee
with at least 30 days' notice of the consummation of any of the events referred
to in the preceding sentence, during which period the Grantee may so exercise
the Option.
4. REPRESENTATIONS, WARRANTS AND COVENANTS.
(a) The Grantee represents and warrants that he is acquiring
this Option and, in the event this Option is exercised, the Shares, for
investment, for his own account and not with a view to the distribution
thereof, and that he has no present intention of disposing of this Option or
the Shares or any interest therein or sharing ownership thereof with any other
person or entity.
(b) The Grantee agrees that he will not offer, sell,
hypothecate, transfer or otherwise dispose of any of the Shares unless either:
(i) A registration statement covering the Shares which are to
be so offered has been filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933 (the "Securities
Act") and such sale, transfer or other disposition is accompanied by
a prospectus relating to a registration statement which is in effect
under the Securities Act covering the Shares which are to be sold,
transferred or otherwise disposed of and meeting the requirements of
Section 10 of the Securities Act; or
(ii) Counsel satisfactory to the Corporation renders a reasoned
opinion in writing and addressed to the Corporation, satisfactory in
form and substance to the Corporation and its counsel, that in the
opinion of such counsel such proposed sale, offer, transfer or other
disposition of the Shares is exempt from the provisions of Section 5
of the Securities Act in view of the circumstances of such proposed
offer, sale, transfer or other disposition.
(c) The Grantee acknowledges that (i) the Shares and this
Option constitute "securities" under the Securities Act and/or the Securities
Exchange Act of 1934 and/or the Rules and Regulations promulgated under said
acts; (ii) the Shares must be held indefinitely unless subsequently registered
under the
-3-
<PAGE> 9
Securities Act or an exemption from such registration is available; and (iii)
except as set forth in Section 8 below, the Corporation is not under any
obligation with respect to the registration of the Shares.
(d) The Grantee is advised that he or his legatee or legal
representative, as the case may be and as defined above, may be required to
make an appropriate representation at the time of any exercise of this Option
in form and substance similar to the representations contained herein,
relating to the Shares then being purchased.
5. SUCCESSORS AND ASSIGNS. This Option Agreement shall be binding upon
and shall inure to the benefit of any successor or assign of the Corporation
and, to the extent herein provided, shall be binding upon and inure to the
benefit of the Grantee's legatee or legal representative, as defined above;
provided, however, that under no circumstances shall the rights provided under
Section 8 hereof be transferred to or inure to the benefit of anyone other than
the Grantee, including without limitation the Grantee's legatee or legal
representative.
6. ADJUSTMENT OF OPTIONS.
(a) The number of Shares issuable upon exercise of this Option,
or the amount and kind of other securities issuable in addition thereto or in
lieu thereof upon the occurrence of the events specified in Section 9 of the
Plan, shall be determined and subject to adjustment, as the case may be, in
accordance with the procedures therein specified.
(b) Fractional shares resulting from any adjustment in options
pursuant to this Section may be settled in cash or otherwise as the Stock
Option and Compensation Committee shall determine. Notice of any adjustment in
this Option shall be given by the Corporation to the holder of this Option and
such adjustment (whether or not such notice is given) shall be effective and
binding for all purposes of the Plan.
7. EXERCISE AND TRANSFERABILITY OF OPTION. During the lifetime of the
Grantee, this Option is exercisable only by him and shall not be assignable or
transferable by him and no other person shall acquire any rights therein. If
the Grantee shall die during the period in which this Option is exercisable,
his or her legatee or legal representative shall have the rights provided in
Section 3(a) above.
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<PAGE> 10
8. REGISTRATION OF SHARES. In the event that the Shares issued or
issuable pursuant to this Option have not been otherwise registered under the
Securities Act and the Corporation, at any time or from time to time after an
initial offering of its securities registered under the Securities Act for sale
to the public generally (otherwise than in connection with a merger or offering
of its securities in exchange for securities or assets of another person, the
issuance to employees of securities or options or other rights to purchase
securities, and other similar transactions) (an "Offering"), the Corporation
proposes to effect an additional Offering (a "Subject Offering"), the
Corporation shall give written notice thereof to the Grantee, and the Grantee,
by written notice to the Corporation within 30 days after the giving of such
notice by the Corporation, may elect to cause the Corporation to register for
inclusion in the Subject Offering, upon the terms and subject to the conditions
hereof, all or any portion of the Shares held or to be held by the Grantee, as
at the date of filing of the registration statement, and which are or will have
been acquired upon the exercise in whole or in part of the Option, including
such other securities of the Corporation issued in replacement for or in
addition to such Shares pursuant to Section 9 of the Plan (such Shares and
other securities being herein referred to collectively as "Registrable Stock").
Such notice shall set forth the quantity of Registrable Stock sought to be
included in the Subject Offering and the intended manner of distribution
thereof; provided that, if the Subject Offering is to be underwritten, the
Registrable Stock may be sold only to or through the underwriter or
underwriters acting in respect of the Subject Offering. If and to the extent
that the underwriter or underwriters acting in respect of the Subject Offering
reasonably determine that the inclusion of the Registrable Stock may
substantially prejudice or hinder the consummation of the Subject Offering, the
amount of Registrable Stock which the Grantee shall be entitled to offer
therein shall be reduced or eliminated. Notwithstanding the foregoing, the
Corporation shall have the right, after the giving of notice of a proposed
Subject Offering hereunder and regardless of whether the Grantee shall have
requested the inclusion of any Registrable Stock therein, to elect not to file
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof. Subject to the foregoing, the
Corporation shall use its best efforts to cause the registration statement
filed in respect of each Subject Offering including shares of Registrable Stock
hereunder to become effective and to remain effective for a period of at least
90 days, or for such greater period as may be required by law for the delivery
of a prospectus, and to qualify the Registrable Stock for sale in each state
wherein such qualification is requested by the Grantee, provided that the
Corporation shall not be obligated to make any changes in its capital structure
necessary to effect such qualification in any jurisdiction nor be required to
execute or file any general consent to service of process nor to qualify as a
foreign
-5-
<PAGE> 11
corporation to do business under the laws of any such jurisdiction. Upon
electing to participate in any Subject Offering hereunder, the Grantee shall
furnish such information and execute such documents as may be required by the
Securities and Exchange Commission and other regulatory authorities or otherwise
reasonably requested by the Corporation, and shall enter into an agreement with
the Corporation containing customary provisions for mutual indemnification
against liabilities associated with the offering. The Corporation shall bear all
costs and expenses of such registration and qualification, including printing
costs, accounting fees and the fees and expenses of counsel for the Corporation,
provided that the Grantee shall bear the fees and expenses of the Grantee's
counsel, applicable transfer taxes and underwriting discounts, commissions and
fees applicable to the shares of Registrable Stock sold by the Grantee.
If the foregoing is in accordance with the Grantee's understanding and
approved by him, he may so confirm by signing and returning the duplicate of
this Option Agreement delivered for that purpose.
GARNET RESOURCES CORPORATION
By
----------------------------------
Title: Vice President
The foregoing is in accordance with my understanding and is hereby confirmed
and agreed to as of the Date of Grant.
-------------------------------------
George M. Nevers
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<PAGE> 12
APPENDIX A
GARNET RESOURCES CORPORATION
1990 STOCK OPTION PLAN, AS PROPOSED TO BE AMENDED
Section 1. Establishments. There is hereby established the Garnet
Resources Corporation 1990 Stock Option Plan ("Plan"), pursuant to which
employees and any other persons who perform substantial services for or on
behalf of GARNET RESOURCES CORPORATION (the "Company"), its subsidiaries and
certain other entities may be granted options to purchase shares of common
stock of the Company, par value $.01 per share ("Common Stock"), and thereby
share in the future growth of the business. Notwithstanding the foregoing, any
director who is not an employee of the Company or any subsidiary of the Company
shall be ineligible to receive options under this Plan. The subsidiaries of the
Company included in this Plan (the "Subsidiaries") shall be any subsidiary of
the Company as defined in Section 425 of the Internal Revenue Code of 1986, as
amended (the "Code").
Section 2. Status of Options. The options which may be granted pursuant
to this Plan will constitute either incentive stock options within the meaning
of Section 422A of the Code ("Incentive Stock Options") or options which are
not Incentive Stock Options ("Non-incentive Stock Options"). Incentive Stock
Options and Non-incentive Stock Options shall be collectively referred to
herein as "Options".
Section 3. Eligibility. All employees of the Company or any of its
Subsidiaries (including officers, whether or not they are members of the Board
of Directors) who are employed at the time of the adoption of this Plan or
thereafter, and any other persons who perform substantial services for or on
behalf of the Company or any of its Subsidiaries, affiliates or any entity in
which the Company has an interest (collectively, the "Grantees") shall be
eligible to be granted Non-incentive Stock Options to purchase shares of Common
Stock under this Plan. All employees of the Company or any of its Subsidiaries
who are employed at the time of adoption of this Plan or thereafter shall be
eligible to be granted Incentive Stock Options under this Plan.
Section 4. Number of Shares Covered by Options; No Preemptive Rights.
The total number of shares which may be issued and sold pursuant to Options
granted under this Plan shall be 1,000,000 shares of Common Stock (or the
number and kind of shares of stock or other securities which, in accordance
with Section 9 of this Plan, shall be substituted for such shares of Common
Stock or to which said shares shall be adjusted; hereinafter, all references to
shares of Common Stock are deemed to be references to said shares or shares so
adjusted.) The issuance of shares upon exercise of an Option shall be free from
any preemptive or preferential right of subscription or purchase on the part of
any stockholder. If any outstanding Option granted under this Plan expires or
is terminated, for any reason, the shares of Common Stock subject to the
unexercised portion of the Option will again be available for Options issued
under this Plan.
Section 5. Administration.
(a) This Plan shall be administered by the committee (the "Committee")
referred to in paragraph (b) of this Section. Subject to the express provisions
of this Plan, the Committee shall have complete authority, in its discretion, to
interpret this Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of the respective option
agreements (which need not be identical), to determine the Grantees to whom, and
the times and the prices at which, Options shall be granted, the option periods,
the number of shares of the Common Stock to be subject to each Option and
whether each Option shall be an Incentive Stock Option or a Non-incentive Stock
Option, and to make all other determinations necessary or advisable for the
administration of the Plan. Each Option shall be clearly identified at the time
of grant as to its status. In making such determinations, the Committee may take
into account the nature of the services rendered by the respective Grantees,
their present and potential contributions to the success of the Company and such
other factors as the Committee, in its discretion, shall deem relevant. Nothing
contained in this Plan shall be deemed to give any Grantee any right to be
granted an Option to purchase shares of Common Stock except to the extent and
upon such terms and conditions as may be determined by the Committee. The
Committee's determination on all of the matters referred to in this Section 5
shall be conclusive.
-1-
<PAGE> 13
(b) The Committee shall consist of from three (3) to five (5)
individuals who may, but need not, be members of the Board. The Committee shall
be appointed by the Board, which may at any time, and from time to time, remove
any member of the Committee, with or without cause, appoint additional members
to the Committee and fill vacancies, however caused, in the Committee. A
majority of the members of the Committee shall constitute a quorum and all
determinations of the Committee shall be made by a majority of such quorum. Any
decision or determination of the Committee reduced to writing and signed by all
of the members of the Committee shall be fully as effective as if it had been
made at a meeting duly called and held.
(c) The Committee may at its election provide in any option agreement
covering the grant of Options under this Plan that, upon the exercise of such
Options, the Company will loan to the holder thereof such amount as shall equal
the purchase price of the shares of Common Stock issuable upon such exercise,
such loan to be on terms and conditions appropriate by the Committee.
(d) Notwithstanding any provision hereof to the contrary, the
Committee shall have sole and exclusive authority with respect to the grant of
Options to directors.
Section 6. Terms of Incentive Stock Options. Each Incentive Stock
Option granted under this Plan shall be evidenced by an Incentive Stock Option
Agreement which shall be executed by the Company and by the person to whom such
Incentive Stock Option is granted, and shall be subject to the following terms
and conditions:
(a) The price at which shares of Common Stock covered by each
Incentive Stock Option may be purchased pursuant thereto shall be
determined in each case on the date of grant by the Committee, but shall
be an amount not less than the par value of such shares and not less
than the fair market value of such shares on the date of grant. For
purposes of this Section, the fair market value of shares of Common
Stock on any day shall be (i) in the event the Common Stock is not
publicly traded, the fair market value on such day as determined in good
faith by the Committee or (ii) in the event the Common Stock is publicly
traded, the last sale price of a share of Common Stock as reported by
the principal quotation service on which the Common Stock is listed, if
available, or, if last sale prices are not reported with respect to the
Common Stock, the mean of the high and low asked prices of a share of
Common Stock as reported by such principal quotation service, or, if
there is no such report by such quotation service for such day, such
fair market value shall be the average of (i) the last sale price (or,
if last sale prices are not reported with respect to the Common Stock,
the mean of the high bid and low asked prices) on the day next preceding
such day for which there was a report and (ii) the last sale price (or,
if last sale prices are not reported with respect to the Common Stock,
the mean of the high bid and low asked prices) on the day next
succeeding such day for which there was a report, or as otherwise
determined by the Committee in its discretion pursuant to any reasonable
method contemplated by Section 422A of the Code and any regulations
issued pursuant to that Section.
(b) The option price of the shares to be purchased pursuant to
each Incentive Stock Option shall be paid in full in cash, or by
delivery (i.e. surrender) of shares of Common Stock of the Company then
owned by the Grantee, at the time of the exercise of the Incentive Stock
Option. Shares of Common Stock so delivered will be valued on the day of
delivery for the purpose of determining the extent to which the option
price has been paid thereby, in the same manner as provided for the
purchase price of Incentive Stock Options as set forth in paragraph (a)
of this Section, or as otherwise determined by the Committee, in its
discretion, pursuant to any reasonable method contemplated by Section
422A of the Code and any regulations issued pursuant to that Section.
(c) Each Incentive Stock Option Agreement shall provide that
such Incentive Stock Option may be exercised by the Grantee, in such
parts and at such times as may be specified in such Agreement, within a
period not exceeding ten years after the date on which the Incentive
Stock Option is granted (hereinafter called the "Incentive Stock Option
Period") and, in any event, only during the continuance of the
employee's employment by the Company or any of its Subsidiaries or
during the period of three months after the termination of such
employment to the extent that the right to exercise such Incentive Stock
Option had accrued at the date of such termination; provided, however,
that if Incentive Stock Options as to 100 or more shares are held by a
Grantee, then such Incentive Stock Options may not be exercised for
-2-
<PAGE> 14
less than 100 shares at any one time, and if Incentive Stock Options for
less than 100 shares are held by a Grantee, then Incentive Stock Options
for all such shares must be exercised at one time; and provided,
further, that, if the Grantee, while still employed by the Company or
any of its Subsidiaries, shall die within the Incentive Stock Option
Period, the Incentive Stock Option may be exercised, to the extent
specified in the Incentive Stock Option Agreement, and as herein
provided, but only prior to the first to occur of:
(i) the expiration of the period of one year after the
date of the Grantee's death, or
(ii) the expiration of the Incentive Stock Option
Period, by the person or persons entitled to do so under the
Grantee's will, or, if the Grantee shall fail to make
testamentary disposition of said Incentive Stock Option, or
shall die intestate, by the Grantee's legal representative or
representatives.
(d) Each Incentive Stock Option granted under this Plan shall by
its terms be non-transferable by the Grantee except by will or by the
laws of descent and distribution.
(e) Notwithstanding the foregoing, if an Incentive Stock Option
is granted to a person at any time when such person owns, within the
meaning of Section 425(d) of the Code, more than 10% of the total
combined voting power of all classes of stock of the employer
corporation (or a parent or subsidiary of such corporation within the
meaning of Section 425 of the Code) the price at which each share of
Common Stock covered by such Incentive Stock Option may be purchased
pursuant to such Incentive Stock Option shall not be less than 110% of
the fair market value (determined as in paragraph (a) of this Section)
of the shares of Common Stock at the time the Incentive Stock Option is
granted, and such Incentive Stock Option must be exercised within a
period specified in the Incentive Stock Option Agreement which does not
exceed five years after the date on which such Incentive Stock Option is
granted.
(f) The Incentive Stock Option Agreement entered into pursuant
hereto may contain such other terms, provisions and conditions not
inconsistent herewith as shall be determined by the Committee including,
without limitation, provisions (i) requiring the giving of satisfactory
assurances by the Grantee that the shares are purchased for investment
and not with a view to resale in connection with a distribution of such
shares, and will not be transferred in violation of applicable
securities laws, (ii) restricting the transferability of such shares
during a specified period and (iii) requiring the resale of such shares
to the Company at the option price if the employment of the employee
terminates prior to a specified time. In addition, the Committee, in its
discretion, may afford to holders of Incentive Stock Options granted
under this Plan the right to require the Company to cause to be
registered under the Securities Act of 1933, as amended, for public sale
by the holders thereof, shares of Common Stock subject to such Incentive
Stock Options upon such terms and subject to such conditions as the
Committee may determine to be appropriate.
(g) In the discretion of the Committee, a single Stock Option
Agreement may include both Incentive Stock Options and Non-incentive
Stock Options, or those options may be included in separate stock option
agreements.
Section 7. Terms of Non-incentive Stock Options. Each Non-incentive
Stock Option granted under this Plan shall be evidenced by a Non-incentive
Stock Option Agreement which shall be executed by the Company and by the person
to whom such Non-incentive Stock Option is granted, and shall be subject to the
following terms and conditions:
(a) The price at which shares of Common Stock covered by each
Non-incentive Stock Option may be purchased pursuant thereto shall be an
amount not less than the par value of such shares.
(b) Each Non-incentive Stock Option Agreement shall provide that
such Non-incentive Stock Option may be exercised by the Grantee, in such
parts and at such times as may be specified in such
-3-
<PAGE> 15
Agreement, within a period up to and including ten years and thirty
days after the date on which the Non-incentive Stock Option is
granted.
(c) Each Non-incentive Stock Option granted under this Plan
shall by its terms be non-transferable by the optionee except by will
or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title 1 of the
Employee Retirement Income Security Act, or the rules thereunder.
(d) The Non-incentive Stock Option Agreement entered into
pursuant hereto may contain such other terms, provisions and conditions
not inconsistent herewith as shall be determined by the Committee, in
its sole discretion, including without limitation the terms, provisions
and conditions set forth in Section 6(f) with respect to Incentive
Stock Option Agreements.
Section 8. Limit on Option Amount. Notwithstanding any provision
contained herein, the aggregate fair market value (determined under Section
6(a) as of the time such Incentive Stock Options are granted) of the shares of
Common Stock with respect to which Incentive Stock Options are first
exercisable by any employee during any calendar year (under all stock option
plans of the employee's employer corporation and its parent and subsidiary
corporation within the meaning of Section 425 of the Code) shall not exceed
$100,000. An option may be granted which exceeds this $100,000 limitation, as
long as under then applicable law only the portion of such an option which is
exercisable for shares of Common Stock in excess of the $100,000 limitation
shall be treated as a Non-incentive Stock Option. The limit in this paragraph
shall not apply to options which are designated as Non-incentive Stock Options,
and, except as otherwise provided herein, there shall be no limit on the amount
of such options which may be first exercisable in any year.
Section 9. Adjustment of Number of Shares. In the event that a dividend
shall be declared upon the shares of Common Stock payable in shares of Common
Stock, the number of shares of Common Stock then subject to any Option granted
hereunder, and the number of shares reserved for issuance pursuant to this Plan
but not yet covered by an Option, shall be adjusted by adding to each of such
shares the number of shares which would be distributable thereon if such share
had been outstanding on the date fixed for determining the stockholders entitled
to receive such stock dividend. In the event that the outstanding shares of
Common Stock shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation,
whether through reorganization, recapitalization, stock split-up, combination of
shares, merger or consolidation, then there shall be substituted for each share
of Common Stock subject to any such Option and for each share of Common Stock
reserved for issuance pursuant to the Plan but not yet covered by an Option, the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be so changed or for which each such
share shall be exchanged; provided, however, that in the event that such change
or exchange results from a merger or consolidation, and in the judgment of the
Board of Directors such substitution cannot be effected or would be
inappropriate, or if the Company shall sell all or substantially all of its
assets, the Company shall use reasonable efforts to effect some other adjustment
of each then outstanding Option which the Board of Directors, in its sole
discretion, shall deem equitable. In the event that there shall be any change,
other than as specified above in this Section 9, in the number or kind of
outstanding shares of Common Stock or of any stock or other securities into
which such shares of Common Stock shall have been changed or for which they
shall have been exchanged, then, if the Board of Directors shall determine that
such change equitably requires an adjustment in the number or kind of shares
theretofore reserved for issuance pursuant to the Plan but not yet covered by an
Option and of the shares then subject to an Option or Options, such adjustment
shall be made by the Board of Directors and shall be effective and binding for
all purposes of this Plan and of each stock option agreement. Notwithstanding
the foregoing, if any adjustment in the number of shares which may be issued and
sold pursuant to Options is required by the Code or regulations issued pursuant
thereto to be approved by the stockholders in order to enable the Company to
issue Incentive Stock Options pursuant to this Plan, then no such adjustment
shall be made without the approval of the stockholders. In the case of any such
substitution or adjustment as provided for in this Section, the option price in
each stock option agreement for each share covered thereby prior to such
substitution or adjustment will be the total option price for all shares of
stock or other securities which shall have been substituted for each such share
or to which such share shall
-4-
<PAGE> 16
have been adjusted pursuant to this Section 9. No adjustment or substitution
provided for in this Section 9 shall require the Company, in any stock option
agreement, to sell a fractional share, and the total substitution or adjustment
with respect to each stock option agreement shall be limited accordingly.
Notwithstanding the foregoing, in the case of Incentive Stock Options, if the
effect of the adjustments or substitution is to cause the Incentive Stock
Option to fail to continue to qualify as an Incentive Stock Option or to cause
a modification, extension or renewal of such Incentive Stock Option within the
meaning of Section 425 of the Code, the Board of Directors shall use reasonable
efforts to effect such other adjustment of each then outstanding option as the
Board of Directors, in its sole discretion, shall deem equitable.
Section 10. Amendments. This Plan may be terminated or amended from
time to time by vote of the Board of Directors; provided, however, that no such
termination or amendment shall materially adversely affect or impair any then
outstanding Option without the consent of the Grantee thereof and no amendment
which shall (i) change the total number of shares which may be issued and sold
pursuant to Options granted under this Plan, or (ii) change the designation of
employees eligible to receive Incentive Stock Options or the class of employees
or other persons eligible to receive Options, shall be effective without the
approval of the stockholders. Notwithstanding the foregoing, the Plan may be
amended by the Committee to incorporate any amendments made to the Code which
the Committee deems to be necessary or desirable to preserve incentive stock
option status for outstanding Incentive Stock Options and to preserve the
ability to issue Incentive Stock Options pursuant to this Plan.
Section 11. Termination. Except to the extent necessary to govern
outstanding Options, this Plan shall terminate on, and no additional Options
shall be granted after, ten years from the date the Plan is adopted, or ten
years from the date the Plan is approved by the stockholders, whichever is
earlier.
-5-
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<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,169,328
<SECURITIES> 0
<RECEIVABLES> 1,384,051
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0
114,922
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<INCOME-PRETAX> (773,290)
<INCOME-TAX> 621,844
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