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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ____________
Commission file number 1-547
THE PHOENIX RESOURCE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-1927105
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6525 North Meridian Avenue
Oklahoma City, Oklahoma 73116-1491
(Address of Principal Executive Offices) (Zip Code)
(405) 728-5100
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ----------------------------
Common Stock American Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of the voting stock outstanding and held by
nonaffiliates of registrant: $296,444,079 as of February 20, 1996.
As of February 20, 1996 there were 16,089,756 shares of the
registrant's Common Stock, $0.01 par value, outstanding.
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DEFINITIONS
As used herein, the following terms have these meanings:
BARREL OR BBL. Barrel of 42 U.S. gallons: the basic unit for
measuring production of crude oil and condensate.
BCF. Volume of 1,000,000 Mcf.
BTU. British Thermal Unit: the basic unit for measuring the energy
capacity of natural gas.
COMMON STOCK. The Company's common stock, par value $0.01 per share.
COMPANY. The Phoenix Resource Companies, Inc., a Delaware corporation
incorporated in May 1930, and/or one or more of its wholly-owned subsidiaries.
EGPC. Egyptian General Petroleum Corporation, the national petroleum
company of Egypt.
EGYPT. The Arab Republic of Egypt.
EQUIVALENT OIL BARRELS OR EOB. Designates the amount of crude oil and
natural gas that has been converted to an equivalent barrel of oil. Natural
gas is converted to barrels of oil at a ratio of six Mcf per barrel of oil.
KHALDA CONCESSION. A certain oil and gas exploration and production
concession area in the Western Desert of Egypt, approximately 140 miles west of
Alexandria, Egypt.
KHALDA PARTNERS. The concession holder pursuant to the Khalda
Concession Agreement. The Company, Repsol and Samsung are currently the Khalda
Partners.
MBBLS. Volume of 1,000 barrels.
MCF. Volume of 1,000 cubic feet under standard conditions of pressure
and temperature, which represents the basic unit for measuring the production
of natural gas.
MMCF. Volume of 1,000 Mcf.
QARUN CONCESSION. A certain oil and gas exploration and production
concession area in the Western Desert of Egypt along the western bank of the
Nile River southwest of Cairo, Egypt.
QARUN PARTNERS. The concession holder pursuant to the Qarun
Concession Agreement. The Company and subsidiaries of Apache Corporation and
Global Natural Resources are currently the Qarun Partners.
REPSOL. Repsol Exploracion Egipto, S.A., a wholly-owned subsidiary of
Repsol S.A., a Spanish corporation.
SAMSUNG. Samsung Company Limited, a Korean corporation.
SEC. The Securities and Exchange Commission.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
<S> <C>
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 18
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . 20
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 22
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 24
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 42
PART III
10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 43
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 43
13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 43
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . 43
</TABLE>
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PART I
ITEM 1 BUSINESS
GENERAL
The Phoenix Resource Companies, Inc. is an independent oil and gas
company operating in Egypt. The Company is headquartered in Oklahoma City,
Oklahoma and maintains an office in Cairo, Egypt.
The Company's principal assets are its interests in two large oil and
gas concessions in the Western Desert of Egypt, which in the aggregate contain
18 oil fields and six gas fields. The sale of crude oil and natural gas
accounted for all of the Company's operating revenues in 1993, 1994 and 1995.
Company operations include exploring, developing and operating crude oil and
natural gas properties in Egypt. Most of the Company's oil and gas operations
are currently conducted through Egyptian operating companies owned jointly by
the Company and its partners, including EGPC (the national oil company of
Egypt). At February 20, 1996 the Company had 19 employees.
BUSINESS STRATEGY
The goal of the Company is to increase the wealth of its shareholders.
The Company's business strategy is to increase its oil and gas production and
reserves in Egypt through the exploration, development and acquisition of oil
and gas properties. Through 15 years of continuous business activities in
Egypt, the Company has acquired significant knowledge of the geology of the
Western Desert, oil and gas operations in Egypt and the practical,
administrative and legal aspects of conducting business in Egypt. The Company
intends to continue to capitalize on its Egyptian presence and experience by
identifying and pursuing additional oil and gas investments in Egypt. The
Company regularly evaluates and considers the potential acquisition of
exploratory acreage and interests in producing properties in the Western Desert
of Egypt. The Company will continue to be attentive to opportunities in other
areas, both inside and outside Egypt, as they may present themselves.
FINANCIAL & OPERATING HIGHLIGHTS
(In thousands except per share data, prices and production)
(Unaudited)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
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<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Operating Revenues . . . . . . . . $ 14,727 $ 33,267 $ 32,880 $ 32,722 $ 33,255
Net Income (Loss) . . . . . . . . $ (18,310) $ 12,692 $ 12,336 $ 12,891 $ 10,611
Net Income (Loss) Per Share . . . $ (1.62) $ 0.76 $ 0.73 $ 0.78 $ 0.65
FINANCIAL POSITION (END OF PERIOD)
Working Capital . . . . . . . . . $ 4,518 $ 12,446 $ 26,622 $ 27,669 $ 28,956
Total Assets . . . . . . . . . . . $ 51,525 $ 59,255 $ 50,863 $ 56,441 $ 68,333
Long-term Debt . . . . . . . . . . $ 11,527 $ 708 $ -- $ -- $ --
Stockholders' Equity . . . . . . . $ 5,263 $ 17,894 $ 30,298 $ 33,558 $ 51,808
OPERATING HIGHLIGHTS
Khalda Daily Oil Production
(gross bbls) . . . . . . . . . . 28,915 29,300 32,019 32,731 30,947
Average Oil Price . . . . . . . . $ 17.50 $ 18.04 $ 15.93 $ 15.72 $ 16.88
PROVED RESERVES (END OF PERIOD)
Net Equivalent Oil Barrels . . . . 15,218 17,434 20,507 25,483 30,036
Discounted Future Net Cash Flow . $ 64,326 $ 73,524 $ 54,782 $ 80,039 $129,359
COMMON STOCK INFORMATION (END OF PERIOD)
Shares Outstanding . . . . . . . . 16,616 16,976 16,942 15,708 16,190
Closing Market Price . . . . . . . $ 4.38 $ 6.03 $ 7.84 $ 11.88 $ 17.25
Cash Dividends Per Share . . . . . $ -- $ -- $ -- $ 0.05 $ 0.08
</TABLE>
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RECENT DEVELOPMENTS
On a net proved EOB basis, the Company's year-end 1995 proved reserves
were 18% higher than its year-end 1994 proved reserves, replacing 298% of its
1995 production. This represents the sixth consecutive year that proved
reserves have increased. The Company ended the year with a cash balance of
$22.8 million and no debt. Payment of regular quarterly dividends continued
during 1995 at a 60% increase from the previous year. The Company had two
two-for-one splits of its Common Stock during 1995.
In the Qarun Concession during 1995 the commerciality of the
concession was declared, a new operating company was formed, a major $100
million development project for the Qarun fields was initiated, early
production via trucking was commenced, development drilling was begun and two
additional oil fields were discovered. Moreover, significant quantities of new
seismic data, both 3-D and 2-D, were acquired and processed both to facilitate
development drilling and to prepare for an increased level of exploratory
drilling in 1996 and beyond.
In the Khalda Concession gross oil production rates declined, but for
the third consecutive year, continued in excess of 30,000 barrels of oil per
day. Seven exploratory wells were drilled in 1995 with a 57% success rate,
resulting in the discovery of the now-producing Nader and Salam Southeast oil
fields, the currently shut-in Salam South gas field and the Tut Deep oil and
gas field which is currently producing oil while gas horizons are shut-in.
Additionally, 12 development and service wells were successfully drilled during
1995. The Khalda Offset block, consisting of 2.1 million acres of exploratory
acreage, was added to the concession. To prepare for future exploratory
drilling, new 2-D seismic data was acquired and processed on the original block
and on the Khalda Offset block.
In early 1996 the Company completed the initial stages of project
financing for the Qarun Concession development and borrowed the first $12.5
million installment of what will ultimately become a $50 million loan facility.
This financing was arranged by the International Finance Corporation, an
affiliate of the World Bank, which also made a $10 million equity investment in
the Company by purchasing from the Company 606,000 shares of its Common Stock
at the then current market price in November 1995.
The Company's plans for 1996 have now been formed. Exploratory
drilling will continue in 1996 with the planned drilling of six wildcat wells
on the original Khalda acreage, two exploratory wells on the new Khalda Offset
acreage and four or five wildcats on the Qarun Concession. Development
drilling and construction will continue on the Qarun Concession, with the goal
of commencing production through permanent facilities before the end of 1996.
Development drilling will also continue in the Khalda Concession at a pace
comparable to 1995. Additionally, significant quantities of new seismic data
will be acquired in both the Qarun and Khalda Concessions during 1996.
Finally, the Company believes that it is possible that a project to tie the
Khalda gas fields to the Egyptian natural gas grid may be commenced during
1996, thereby enabling sales of natural gas through the grid by 1999. However,
there can be no assurance that such a pipeline will ever be constructed.
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ITEM 2 PROPERTIES
[MAP]
KHALDA CONCESSION
The Company, exploring on its own, initially discovered commercial
quantities of oil and gas in 1985 in the Khalda Concession in the Western
Desert of Egypt. The Khalda Concession currently consists of 2.4 million
acres: 318,500 acres which are held by production, plus the Khalda Offset
block, consisting of 2.1 million acres of exploratory acreage. The Khalda
Concession is located in the Western Desert of Egypt, 50 miles inland from the
Mediterranean coast and 140 miles west of Alexandria, Egypt. This area of
Egypt has no significant populations, although several small towns are
scattered along the Mediterranean coast. The Khalda Concession is governed by
the Khalda Concession Agreement, a petroleum production sharing arrangement
authorized and approved by the Egyptian Parliament between EGPC and the Khalda
Partners consisting of the Company, Repsol and Samsung.
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Operations. The Khalda Concession is operated by Khalda Petroleum
Company, a non-profit Egyptian corporation with approximately 525 employees,
that is jointly owned by the Khalda Partners and EGPC. Approximately half of
Khalda Petroleum Company's employees are operational field employees and the
remainder work in its headquarters office in a suburb of Cairo. Almost all
employees of Khalda Petroleum Company are Egyptian nationals, complemented by
about ten Repsol employees in various technical and management capacities. The
Company owns 20% of the capital stock of Khalda Petroleum Company and
designates two of the eight members of Khalda Petroleum Company's board of
directors. The other members are designated by Repsol and EGPC.
From inception of the Khalda Concession through 1995, capital
investments of approximately $450 million have been made in the Khalda
Concession (approximately 9% by the Company). As a result, 52 exploratory
wells and 124 development and service wells have been drilled and crude oil is
now being produced from 15 oil fields.
Total gross exploration and development expenditures of approximately
$24 million were made by the Khalda Partners with respect to the Khalda
Concession during 1995 (approximately $3.1 million by the Company). This
includes the cost of drilling seven exploratory wells and 12 development and
service wells.
The seven wildcat wells drilled in 1995 on the Khalda Concession
resulted in the discovery of four new fields: (i) In July 1995 the Nader
wildcat was drilled to a total depth of 9,450 feet and discovered oil in
Cretaceous sands. The discovery well was immediately connected to production
facilities, and through December 31, 1995, had produced at an average rate of
approximately 485 barrels of oil per day; (ii) In September 1995 the Salam
South discovery, drilled to a total depth of 10,115 feet, tested at a combined
rate of 45.1 million cubic feet of gas and 2,695 barrels of condensate per day
from Lower Cretaceous sands. This gas field is shut-in, but additional
appraisal and exploratory work in the area is anticipated; (iii) In December
1995 the Salam Southeast well, drilled to a depth of 10,075 feet, was tested at
a rate of 1,855 barrels of 38 API gravity oil per day and 2.9 million cubic
feet of gas per day from Lower Cretaceous sands. The well was immediately put
on production; and (iv) In December 1995 the Tut Deep well, drilled to a total
depth of 13,400 feet, flowed at a combined rate of 59.7 million cubic feet of
gas and 5,880 barrels of oil and condensate per day. Electric log analysis
indicated approximately 260 feet of net hydrocarbon pay was encountered in
Jurassic age sandstones. This well immediately began production from the oil
zone at around 1,000 barrels of oil per day, but the gas zones are shut-in.
During 1996 oil and gas exploration and development on the Khalda
Concession is expected to continue at approximately the same investment level
as 1995, with the planned drilling of eight exploratory wells (including two on
the Khalda Offset block) and at least ten development and service wells.
Production. The central production facilities are located at the
Salam field which is near the center of the productive area. With the major
facilities centrally located, outlying fields are brought on line with minimal
additional facility investment. Oil production and associated natural gas
production from the Salam and outlying fields are sent through a gathering
system to the central production facilities for separation and treatment. In
addition to primary separation of the oil production, the central facilities
supply necessary electrical power to the fields for artificial lift and send
water for injection to the fields where waterflooding is required. The central
facilities consist of two primary separation trains which together can process
up to 40,000 barrels of oil per day and a water injection system which can
distribute up to 40,000 barrels of water per day to most fields in the Khalda
Concession. A crude oil recovery enhancement unit removes the heavier
hydrocarbon components from the associated natural gas production and blends
the resulting liquids with the
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crude oil production. Field personnel generally work seven-day shifts and are
housed at the central facility crew quarters. Personnel rotations are
accomplished by air flights which land at the air strip shared with the Meleiha
Concession, in which the Company has no interest.
After crude oil is gathered and processed at the Salam central
facilities, it is transported via pipeline through El Hamra and on to Egyptian
refineries in the Sidi Kirir area. The major portion of the pipeline, a
110-mile, 16-inch pipeline with design capacity of 90,000 barrels per day, is
shared with other Western Desert concessions. Associated gas from the Khalda
Concession is transported north from the central facilities via a 50-mile
pipeline to an electrical power generation station in Mersah Matruh.
Crude oil production from the Khalda Concession commenced in late
1986. Cumulative oil production through 1995 on the Khalda Concession has been
approximately 87.6 million barrels. During 1995 average daily gross oil
production from the Khalda Concession was approximately 30,947 barrels. Sales
of associated gas commenced during 1991, and averaged approximately 2.3 MMcf
per day during 1995. Gross production costs for the Khalda Concession in 1995
were $1.34 per equivalent oil barrel. Waterfloods for additional recovery of
oil have been started in most fields. Studies are being conducted to develop
plans for future exploratory, development and delineation drilling.
Western Desert Natural Gas. Exploration activities in the Khalda
Concession have resulted in the discovery of significant quantities of gas,
most of which is currently shut-in. While sales of associated natural gas to
Mersah Matruh have been made in nominal amounts since 1991, Khalda's natural
gas fields will remain shut-in until a pipeline is constructed to provide
access to major natural gas markets. In addition to a pipeline, significant
process facilities and development drilling investment will be required to
produce the natural gas fields. As of December 31, 1995 there were an
estimated 120.2 Bcf of gross proved remaining gas reserves in the Khalda
Concession, much of which is undeveloped. Significant quantities of gas
(including natural gas discovered in Tarek, Tut Deep, Shams and Salam South)
cannot be classified as proved due to lack of access to market. Gross proved
reserves of natural gas consist only of gas estimated for sale to Mersah Matruh
and therefore include only associated gas and certain gas well gas from the
Salam Deep and Amoun reservoirs.
In recent years, Western Desert gas exploration activities near the
Khalda Concession have increased and significant discoveries of natural gas
have been made by the Khalda Partners, Repsol, The Royal Dutch/Shell Group,
Norsk Hydro a.s. and Agip S.p.A. Natural gas exploration activities continue
to be conducted by the Khalda Partners within the Khalda Concession and also by
these major oil and gas companies in nearby concessions in which the Company
owns no interests. The Khalda Concession currently has six shut-in gas fields.
The six discovery wells in these fields tested at a total aggregate rate of
approximately 150 million cubic feet per day during initial production testing.
Engineering studies and discussions pertaining to the possibility of a
major, coordinated Western Desert natural gas pipeline project are ongoing
among EGPC, the Khalda Partners and other oil and gas companies operating in
the vicinity of Khalda. A heightened level of activity is now ongoing relating
to a potential pipeline connecting natural gas discoveries in the Western
Desert with Egypt's natural gas grid. It is becoming clear that such a
pipeline will be built, but the actual timing of such a project is not yet
fixed. There is no assurance that this pipeline will ever be constructed and,
if constructed, gas sales would not commence until at least two years after
plans for the pipeline are finalized. Due to significant uncertainties
regarding this project, it is currently not possible to quantify the Company's
potential investment in this project, if any. However, if such a pipeline is
constructed, the amount of investment by the Company in the development of the
shut-in gas fields, and possibly in the construction of the trunk line, would
very possibly be significantly higher than the Company's current level of
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capital expenditures in Khalda. Under the Khalda Concession Agreement, any
such investment by the Khalda Partners, like most costs associated with the
Khalda Concession, would be recoverable out of both oil and gas production.
The construction of a new 600-megawatt natural gas fired generating
facility is underway at Sidi Kirir, which is located approximately 120 miles
east of the Khalda Concession. The government of Egypt has announced that it
expects to complete construction in late 1998 or 1999. EGPC has informally
suggested that the Khalda Partners and other oil and gas companies operating in
the Western Desert tentatively plan to deliver their natural gas to this
facility via a pipeline. There is no assurance that this facility will be
constructed on schedule, that agreements will be entered into for the purchase
of the Khalda Concession's gas or that arrangements will be entered into for
the construction of the pipeline to this facility. EGPC could decide to obtain
natural gas for this facility from other sources; alternatively, Western Desert
natural gas could be sold to other users.
Reserves. The table below shows the gross proved reserves estimated
to remain in the Khalda Concession as of the dates shown. Because all of the
foreseeable needs of the Mersah Matruh market can be met by associated gas and
other Khalda natural gas fields, and because no other firm arrangements have
otherwise been made for the sale of natural gas from the Khalda Concession, the
gas reserves associated with the Tarek, Tut Deep, Salam South and Shams
discoveries have not been classified as proved reserves. The reduced amount of
gas reserves estimated for 1995 reflects solely a lowered assumption in regard
to the amount of gas which will be sold through the existing pipeline to Mersah
Matruh.
<TABLE>
<CAPTION>
KHALDA CONCESSION
GROSS PROVED RESERVES
AT DECEMBER 31,
-------------------------
1994 1995
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(In thousands)
<S> <C> <C>
Oil (Bbls) . . . . . . . . . . . . . . 69,000 64,191
Natural Gas (Mcf) . . . . . . . . . . 153,645 120,236
Total Equivalent Oil Barrels . . . . . 94,608 84,230
</TABLE>
Khalda Offset Acreage. In 1995 the Khalda Partners were awarded the
right to conduct petroleum activities in the Khalda Offset block. The Khalda
Offset block, which contains 2.1 million acres, adjoins and generally surrounds
the existing Khalda Concession and other producing acreage. Under the
agreement, which has been enacted into Egyptian law, the Khalda Partners will
drill at least seven wells and spend a minimum of $8 million during the initial
exploration phase of four years. The Khalda Partners have the option to extend
the exploratory phase of the Khalda Offset area by up to an additional five
years by committing to additional drilling and financial requirements.
However, over time certain percentages of the acreage not converted to
development leases must be relinquished.
During 1995 the Khalda partners acquired new seismic data and
reprocessed old seismic data on the Khalda Offset block. Plans are to drill
two exploratory wells on the block during the latter half of 1996.
General Description of the Khalda Concession Agreement. Under the
Khalda Concession Agreement, the Khalda Partners pay 100% of capital and
operating costs and the production is split between EGPC and the Khalda
Partners. Up to 40% of the oil and gas produced and sold from the Khalda
Concession is available to the Khalda Partners to recover costs ("cost recovery
petroleum"). Cost recovery petroleum forms a single, unified pool for the
entire concession from which costs of all fields, zones, products and types may
be recovered
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without differentiation, except that operating costs are recovered prior to the
recovery of any capital costs. Capital costs (which include exploration,
development and other equipment and facilities costs) are amortized for
recovery over four years while operating expenses are recoverable on a current
basis. To the extent that costs eligible for recovery in any quarter exceed
the amount of cost recovery petroleum produced and sold in that quarter, such
costs are recoverable from cost recovery petroleum in future quarters with no
limit on the ability to carry forward such costs.
The remaining 60% of oil and gas produced and sold ("profit
petroleum"), together with any cost recovery petroleum not used for the
recovery of costs ("excess cost recovery petroleum"), is divided between EGPC
and the Khalda Partners. All Egyptian income taxes and Egyptian government
royalties attributable to the Khalda Partners on their share of production from
the Khalda Concession are paid by EGPC out of EGPC's share of production.
The Khalda Partners' percentage of the oil segment of profit petroleum
and excess cost recovery petroleum ("profit oil" and "excess cost recovery
oil") is applied to increments of production based on the gross daily average
of oil production determined on a quarterly basis as follows:
<TABLE>
<CAPTION>
GROSS PRODUCTION KHALDA PARTNERS PERCENTAGE OF
SEGMENT PROFIT OIL AND EXCESS
(BBLS OF OIL PER DAY) COST RECOVERY OIL
--------------------- --------------------------------
<S> <C>
Up to 25,000 . . . . . . . . . . . . . . . . . . . . . . . . . 25.0%
25,000 to 50,000 . . . . . . . . . . . . . . . . . . . . . . . 22.5%
50,000 to 75,000 . . . . . . . . . . . . . . . . . . . . . . . 20.0%
75,000 to 100,000 . . . . . . . . . . . . . . . . . . . . . . 17.5%
Over 100,000 . . . . . . . . . . . . . . . . . . . . . . . . . 15.0%
</TABLE>
In addition, if natural gas sales to EGPC average over 12 billion BTUs per day
during any six-month period ending June 30 or December 31, each of the above
percentages is reduced by two percentage points.
The Khalda Partners' percentage of the gas segment of profit petroleum
and excess cost recovery petroleum is 20%, except that the Khalda Partners'
share is 23% of the first 15 MMcf per day of gas produced and sold from areas
other than the Tarek field.
The Khalda Offset agreement is an amendment to the Khalda Concession
Agreement. Under the agreement, the Khalda Offset block has been added to the
Khalda Concession. If and when commercial production from the Khalda Offset
block begins, the recovery of past and future costs and sharing of profit and
excess profit petroleum will be unified with the currently existing structure
of the Khalda Concession pursuant to all of its existing terms. If commercial
production is not established on the Khalda Offset block, none of the
expenditures for the Khalda Offset block will be cost recoverable.
Of the $445 million of capital expenditures recoverable from petroleum
production incurred by the Khalda Partners from inception through 1995,
approximately $42 million remained unrecovered at year-end 1995. The Company's
share of such unrecovered costs was approximately $4.5 million, which amount
will be recovered over the next four years. Currently, all capital
expenditures in the Khalda Concession are being completely recovered as
amortized over four years.
Egypt retains the right of requisition of the Khalda Concession
production and cancellation of the Khalda Concession Agreement upon the
occurrence of specific events,
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including a national emergency due to war, imminent expectation of war or
internal causes, unauthorized assignment of interests in the Khalda Concession,
the Khalda Partners being adjudicated bankrupt by a court of competent
jurisdiction and intentional extraction of any mineral not authorized by the
Khalda Concession Agreement. Requisition or cancellation as a result of the
foregoing or for any other reasons would have a material adverse effect on the
Company.
General Description of Contractor Arrangements. The economic
relationships among the Khalda Partners are governed principally by the Khalda
Concession farmout agreement entered into in 1985 and amended in 1989 after
natural gas rights were added to the Khalda Concession Agreement.
Operating and overhead expenses of Khalda Petroleum Company and
Repsol, as partnership operator, are paid by the parties as follows: 50% by
Repsol, 40% by the Company and 10% by Samsung. Capital expenditures are split
among the parties in two different ways: well costs are generally split
depending upon the geological objective of the wells and the surface location
of the well, while surface costs are generally split depending upon the nature
of the product involved. In general, Repsol pays 100% of the costs of shallow
(generally oil) wells, while deeper (generally gas) wells are split 50%, 40%
and 10% among Repsol, the Company and Samsung, respectively. The distinction
between shallow and deeper wells for this purpose is determined by reference to
various geological markers and is generally at a depth of approximately 10,500
feet. Moreover, in the Salam, Amoun and Shams areas the cost splitting is more
favorable to the Company and Samsung at the expense of Repsol. In the Khalda
Offset block all capital and operating costs are to be split 50%, 40% and 10%
among Repsol, the Company and Samsung, respectively.
The vast majority of the well costs to date have been paid by Repsol,
either because the costs were incurred in areas where Repsol was required to
pay 100% of the costs, or because the costs were incurred prior to gas rights
being added to the Khalda Concession Agreement when Repsol was required to pay
all capital costs.
Surface costs for oil are paid 100% by Repsol and for gas are paid
50%, 40% and 10% by Repsol, the Company and Samsung, respectively.
Accordingly, the Company was required to pay 40% of the costs of the gas
pipeline to Mersah Matruh and would be required to pay 40% of the Khalda
Concession's share, if any, of any unified Western Desert natural gas pipeline,
should it be constructed.
Each member of the Khalda Partners is entitled to recover its
operating expenses from cost recovery petroleum prior to the recovery of any
capital costs. After operating expenses are recovered, the remaining increment
of cost recovery petroleum is split among members of the Khalda Partners pro
rata to their respective shares of unrecovered capital costs.
The Khalda Partners' share of profit petroleum and excess cost
recovery petroleum is generally divided 50% to Repsol, 40% to the Company and
10% to Samsung after payment of a 3% royalty on the Khalda Partners share of
profit oil and excess cost recovery oil. Moreover, a special arrangement
applies to oil production from the Salam field, whereby the Company receives a
more favorable split of such profit oil.
QARUN CONCESSION
In April 1993 the Qarun Partners were awarded the right to conduct
petroleum exploration activities on the Qarun Concession, a 1.9 million acre
block located immediately southwest of Cairo. Most of the concession consists
of barren desert terrain, but the concession also contains Lake Qarun, the city
of Fayoum and fertile areas alongside the Nile River. The
11
<PAGE> 12
Qarun Concession is governed by the Qarun Concession Agreement, a petroleum
production sharing arrangement authorized and approved by the Egyptian
Parliament between EGPC and the Qarun Partners. The Company is the partnership
operator and owns a 50% interest, with subsidiaries of Apache Corporation and
Global Natural Resources each owning 25%.
After reprocessing 3,000 kilometers of old seismic and acquiring 500
kilometers of new seismic, the Qarun Partners drilled their first exploratory
well in 1994. Logs of the well indicated significant zones of oil pay in Lower
Cretaceous zones of what is now called the Qarun A oil field, but the well was
lost prior to testing. A second exploratory well, tested in early 1995,
encountered a smaller oil field, now referred to as the Qarun B field, but was
determined to be fault separated from the first. A third exploratory well was
drilled on the original structure and was successfully completed and tested in
May 1995. The third well encountered a total of 305 net feet of oil pay in
Lower Cretaceous sands, flowed at a cumulative rate of 11,957 barrels of oil
per day and confirmed the existence of the Qarun A field.
In August 1995 the commerciality of the Qarun oil fields was declared,
the area around the Qarun fields was converted to a development lease and a new
operating company, Qarun Petroleum Company, was established to operate the
concession. Qarun Petroleum Company is a non-profit Egyptian corporation
jointly owned by the Qarun Partners and EGPC. Qarun Petroleum Company
currently has approximately 60 employees. Almost all employees of Qarun
Petroleum Company are Egyptian nationals, complemented by five representatives
of the Company in various technical and management capacities. It is expected
that the number of Qarun Petroleum employees will increase over time. The
Company owns 25% of the capital stock of Qarun Petroleum Company and designates
four of the eight members of its board of directors. The other four members
are designated by EGPC.
Since August 1995, significant progress has been made in the
fabrication and construction of processing facilities, pipelines and storage
tanks. Production from the Qarun oil fields will be gathered and processed
through a central processing facility located in the fields. A 16-inch gas
pipeline crosses the concession near where the facilities are being
constructed. The central facilities currently under construction are designed
to have a nominal capacity of 40,000 barrels of oil per day. After processing,
the crude oil will be sent through a 50-kilometer, 16-inch buried pipeline,
which has already been laid, to the Dahshour pumping station of the Sumed
pipeline.
The Sumed pipeline is an internationally owned pipeline designed to
transport crude oil across Egypt from the Red Sea at Ain Sukhna to the
Mediterranean Sea at Sidi Kirir. The pipeline is principally used by
supertankers too large to transport oil through the Suez Canal and currently
transports about 1.8 million barrels a day through two parallel 42-inch
pipelines. Midway on the pipeline route, a pumping station at Dahshour is used
to facilitate transport.
Qarun Petroleum Company is currently constructing two 350,000 barrel
storage tanks at Dahshour. The tanks will be used to store crude oil until
sufficient quantities have accumulated to make a bulk shipment through the
Sumed pipeline. At that time, the crude oil will be sent to the Sidi Kirir
terminal facility, from which it will be exported or sent via pipeline to
Egyptian refineries.
While these facilities are being constructed, development drilling is
continuing in the Qarun field. Through January 1996 five wells capable of
producing crude oil had been completed in the larger Qarun field, known as the
Qarun A field, and one well in the smaller Qarun B field. An additional two
development wells were being drilled during February 1996. A 250-square
kilometer 3-D seismic program was shot over the Qarun fields in 1995. This
data is now being interpreted to facilitate future development drilling in the
Qarun fields and exploratory drilling in the immediate vicinity.
12
<PAGE> 13
Early production from the Qarun fields via trucking commenced at the
end of November 1995. By February 1996 oil was being trucked at rates in
excess of 5,000 barrels of oil per day. Early production is being trucked 75
kilometers to Tebbin where it is then sent via pipeline shipments to the
Mostorod refinery in Cairo. Additional construction activity is in progress,
which could increase trucking volumes to 7,000 barrels of oil per day.
Through December 31, 1995 the Qarun Partners had invested an aggregate
of approximately $50 million. It is currently estimated that crude oil
production will commence through the permanent facilities by the end of 1996
and that by that time the gross investment by the Qarun Partners from inception
will be approximately $160 million.
While development activities have proceeded, three wildcats were
drilled on the concession in 1995 resulting in the discovery of two new oil
fields. The Qarun B field was discovered in February 1995, testing from
Cretaceous sands at a rate of 1,370 barrels of oil per day and 120 thousand
cubic feet of gas per day. The Sakr field, located 8 kilometers southwest of
the Qarun fields, was discovered in November 1995 and flowed at a rate of 405
barrels per day from Cretaceous aged sands. Additional drilling will be
required to more accurately determine the size of this field. Current plans
call for the drilling of four or five wildcat wells in the Qarun Concession
during 1996. Moreover, significant additional seismic data will be acquired in
1996 to enable the continuation of an aggressive exploratory program in 1997
and beyond.
In May 1996, and again in May 1998, the Qarun Partners must relinquish
25% of the original acreage not then converted to development leases. All
acreage not so converted by April 2000 must be relinquished.
Reserves. The table below shows the gross proved reserves estimated
to remain in the Qarun Concession as of the dates shown.
<TABLE>
<CAPTION>
QARUN CONCESSION
GROSS PROVED RESERVES
AT DECEMBER 31,
-------------------------
1994 1995
-------- --------
(In thousands)
<S> <C> <C>
Oil (Bbls) . . . . . . . . . . . . . . 23,621 53,056
Natural Gas (Mcf) . . . . . . . . . . -- 11,857
Total Equivalent Oil Barrels . . . . . 23,621 55,032
</TABLE>
General Description of the Qarun Concession Agreement. Under the
Qarun Concession Agreement, the Qarun Partners pay 100% of capital and
operating costs and the production is split between EGPC and the Qarun
Partners. Up to 40% of the oil and gas produced and sold from the Qarun
Concession is available to the Qarun Partners to recover costs ("cost recovery
petroleum"). Cost recovery petroleum forms a single, unified pool for the
entire concession from which costs of all fields, zones, products and types may
be recovered without differentiation, except that operating costs are recovered
prior to the recovery of any capital costs. Capital costs (which include
exploration, development and other equipment and facilities costs) are
amortized for recovery over five years while operating expenses are recoverable
on a current basis. To the extent that costs eligible for recovery in any
quarter exceed the amount of cost recovery petroleum produced and sold in that
quarter, such costs are recoverable from cost recovery petroleum in future
quarters with no limit on the ability to carry forward such costs. Any portion
of cost recovery petroleum not used to recover costs goes to EGPC.
13
<PAGE> 14
The remaining 60% of oil and gas produced and sold ("profit
petroleum") is divided between EGPC and the Qarun Partners. All Egyptian
income taxes and Egyptian government royalties attributable to the Qarun
Partners on their share of production from the Qarun Concession are paid by
EGPC out of EGPC's share of production.
The Qarun Partners' percentage of the oil segment of profit petroleum
("profit oil") is applied to increments of production based on the gross daily
average of oil production determined on a quarterly basis as follows:
<TABLE>
<CAPTION>
GROSS PRODUCTION SEGMENT QARUN PARTNERS PERCENTAGE OF
(BBLS OF OIL PER DAY) PROFIT OIL
--------------------------- ------------------------------
<S> <C>
Up to 5,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 30%
5,000 to 25,000 . . . . . . . . . . . . . . . . . . . . . . . . 25%
25,000 to 50,000 . . . . . . . . . . . . . . . . . . . . . . . . 22%
Over 50,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
</TABLE>
The Qarun Partners' percentage of the gas segment of profit petroleum
is 22%.
Egypt retains the right of requisition of the Qarun Concession
production and cancellation of the Qarun Concession Agreement upon the
occurrence of specific events, including a national emergency due to war,
imminent expectation of war or internal causes, unauthorized assignment of
interests in the Qarun Concession, the Qarun Partners being adjudicated
bankrupt by a court of competent jurisdiction and intentional extraction of any
mineral not authorized by the Qarun Concession Agreement. Requisition or
cancellation as a result of the foregoing or for any other reasons would have a
material adverse effect on the Company.
General Description of Qarun Partners Arrangements. The Company pays
50% of the costs and expenses of the Qarun Partners and is entitled to receive
50% of the Qarun Partners' share of Qarun revenues.
OTHER PROPERTIES
The Company also owns miscellaneous oil and gas interests, consisting
primarily of certain overriding royalty interests in the United States and
certain overriding royalty interests in properties in the Canadian Arctic which
cannot currently be produced on an economic basis.
CERTAIN OPERATIONAL CONSIDERATIONS
Substantially all of the Company's operations and reserves are located
in Egypt and, therefore, are subject to certain risks relating to economic and
political stability in Egypt and the surrounding region. The Company is
exposed to certain risks due to its concentration of Egyptian operations, which
include possible changes in Egyptian laws, particularly relating to foreign
investments and taxation, renegotiation or modification of existing contracts
and expropriation. In recent years, militants have conducted activities in
Egypt. While many of these militant activities have been directed at
non-Egyptians, neither the Company's personnel nor its operations to date have
been adversely affected. In addition, future exploration opportunities in
Egypt are controlled by the government and subject to the Egyptian Parliament
granting additional concessions. Adverse developments in Egypt and future
changes in Egyptian governmental regulations and policies could have a material
adverse effect on the Company. The Company does not insure against loss of
production or political risks.
The production and sale of oil and gas in Egypt are subject to a
variety of governmental regulations, including regulations relating to the
prevention of waste, the discharge of
14
<PAGE> 15
materials into the environment, the conservation of oil and natural gas,
pollution, permits for drilling operations, the unitization and pooling of
properties and various other matters. Although the Company believes it is in
substantial compliance with applicable environmental and other governmental
laws and regulations in Egypt, there can be no assurance that significant costs
for compliance will not be incurred in the future. In addition, these laws may
become more burdensome in the future.
The nature of the oil and gas business involves a variety of risks,
including operating hazards such as fires, explosions, cratering, blow-outs,
encountering formations with abnormal pressures, and, in horizontal wellbores,
the increased risk of mechanical failure and collapsed holes, the occurrence of
any of which could result in losses to the Company. The Company maintains
insurance against some, but not all, of these risks in amounts that management
believes to be reasonable in accordance with customary industry practices. The
occurrence of a significant event, however, that is not fully insured could
have a material adverse effect on the Company's financial position.
The Company operates in a highly competitive industry. The Company
competes in Egypt with major and independent oil and gas companies, including
Amoco, Agip, Shell, Repsol and Norsk Hydro, for the acquisition of desirable
oil and gas properties. Nearly all of these competitors have financial and
other resources substantially greater than the Company.
RESERVES
The following table sets forth summary information at the dates shown
with respect to the estimates of the Company's net proved oil and gas reserves
in Egypt. Currently all of the Company's net proved reserves are attributable
to the oil and gas fields located in the Khalda and Qarun Concessions in Egypt.
The Company's share of proved reserve quantities includes an assumed dollar
amount of estimated future production necessary to recover costs. Therefore,
the amount of Company net reserves for a given amount of total concession
reserves varies with the assumed price. In addition, EGPC is required to pay,
on behalf of the Company, all Egyptian government royalties and the Company's
Egyptian income taxes from its share of production. The reserve information
presented below includes reserves attributable to such tax payments on behalf of
the Company by EGPC and, accordingly, the reserve information shown for 1993
and 1994 has been restated from amounts previously reported.
<TABLE>
<CAPTION>
PHOENIX NET
PROVED RESERVES - EGYPT
----------------------------------
AT DECEMBER 31,
----------------------------------
1993 1994 1995
--------- -------- --------
(In thousands, except oil price)
<S> <C> <C> <C>
Oil (Bbls) . . . . . . . . . . . . . . . . . . . . . . . . . . 14,214 20,039 25,718
Natural Gas (Mcf) . . . . . . . . . . . . . . . . . . . . . . . 37,316 32,666 25,909
Total Equivalent Oil Barrels . . . . . . . . . . . . . . . . . 20,433 25,483 30,036
Standardized measure of discounted future net cash
flow, after provision for Egyptian income taxes . . . . . . $ 53,933 $ 80,039 $ 129,359
Assumed Egyptian Oil Price (per Bbl) . . . . . . . . . . . . . $ 13.47 $ 15.73 $ 17.97
</TABLE>
The estimation of reserves and of future net revenues is not an exact
science and involves estimates based on many variable and uncertain factors,
including many factors beyond the control of the producer. Estimates of
reserves and of future net revenues prepared by different petroleum engineers
may vary substantially depending, in part, on the assumptions made and may be
subject to adjustment either up or down in the future. The actual amounts of
production, revenues, taxes, development expenditures, operating expenses and
quantities of recoverable oil and gas reserves to be encountered may vary
substantially from the engineers' estimates.
15
<PAGE> 16
The Company's future production depends on its level of success in
developing, acquiring or finding additional reserves. Except to the extent
that the Company acquires properties containing proved reserves or conducts
successful exploration and development activities, or both, the proved reserves
of the Company will decline as reserves are produced. There can be no
assurance that the Company's planned exploration and development projects will
result in significant additional reserves or that the Company will have any
future success in drilling productive wells.
PRODUCTION
The following table summarizes the Company's share of production of
oil and natural gas sold, net of all royalties and other outstanding interests,
for each of the three years ended December 31, 1993, 1994 and 1995. The
Company's share of production in Egypt includes its share of cost recovery
petroleum and, accordingly, the quantity of crude oil and natural gas
attributable to the Company is a function of, among other things, prevailing
prices. The production information shown below for Egypt includes production
attributable to the payment on behalf of the Company by EGPC of the Company's
share of Egyptian income taxes and, accordingly, the production information
shown for 1993 and 1994 has been restated from amounts previously reported.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Oil (Bbls):
Egypt . . . . . . . . . . . . . . . . . . . . 1,819 1,981 1,995
United States . . . . . . . . . . . . . . . . . 25 4 --
------ ------ ------
Total . . . . . . . . . . . . . . . . . . 1,844 1,985 1,995
====== ====== ======
Natural Gas (Mcf):
Egypt . . . . . . . . . . . . . . . . . . . . 179 200 213
United States . . . . . . . . . . . . . . . . . 171 18 --
------ ------ ------
Total . . . . . . . . . . . . . . . . . . 350 218 213
====== ====== ======
</TABLE>
The following table shows the approximate number of producing wells,
in which the Company owned a working interest, as of December 31, 1995. All
producing wells are in Egypt.
<TABLE>
<CAPTION>
OIL WELLS GAS WELLS
--------------- ---------------
GROSS NET GROSS NET
------- ------- ------- ------
<S> <C> <C> <C>
67 27 -- --
</TABLE>
Currently all gas produced by the Company in Egypt is associated gas
produced from oil wells. The data in the above table includes two gross (0.8
net) oil wells in Egypt with multiple completions. In addition to the above,
as of December 31, 1995, 11 gross (4.7 net) wells in Egypt were temporarily
abandoned pending access to additional gas markets or further evaluation.
There are currently 30 water injection wells in the Khalda Concession.
SALES
Production from the Khalda Concession has accounted for substantially
all of the Company's oil and gas revenues for 1993, 1994 and most of 1995. In
late November 1995 early production of crude oil via trucking from the Qarun
Concession also began. The Company's share of crude oil and natural gas sales
from both the Khalda Concession and the Qarun Concession is currently being
sold exclusively to EGPC. The loss of EGPC as a purchaser or adverse
developments in the business practices of EGPC could have a material adverse
effect on the Company.
16
<PAGE> 17
The market price for crude oil has significant and material effects
upon the Company. The volatile nature of the energy markets makes it difficult
to estimate future prices of oil. Both the market price of oil and the amount
that EGPC pays for oil purchased from the Khalda Concession and the Qarun
Concession are beyond the control of the Company.
Until late 1995, the Company's sales of crude oil in Egypt have
consisted solely of the Company's share of oil produced from the Khalda
Concession and have been exclusively to EGPC at a price tied to world markets.
Khalda crude oil is light sweet crude oil with a gravity of approximately 40
degrees API. During 1995 the amount received by the Company for its Khalda
crude oil was slightly less than the selling prices of Dated Brent crude oil.
Qarun crude oil is also light sweet crude oil with a gravity of approximately
40 degrees API. For the first quarter of 1996 the Company is selling all of
its crude oil to EGPC and is receiving a selling price equal to Dated Brent
minus $0.15 for all of its Khalda and Qarun crude oil. Natural gas is
currently sold to EGPC at a price per BTU equal to 85% of prevailing market
prices of fuel oil. For the fourth quarter of 1995, the Company received $3.03
per Mcf for gas sold from the Khalda Concession. Sales of natural gas to the
national grid will be sold at a price per BTU equal to 85% of prevailing market
prices of crude oil.
The table below summarizes the average sales price of oil and natural
gas and the average production costs for the years shown.
<TABLE>
<CAPTION>
AVERAGE SALES PRICE
---------------------- AVERAGE
PRODUCTION COST
OIL GAS ---------------
(PER BBL) (PER MCF) (PER EOB)
--------- --------- ---------------
<S> <C> <C> <C>
1993
Egypt . . . . . . . . . . . . . . . . . . $ 15.93 $ 2.26 $ 3.04
United States . . . . . . . . . . . . . . 17.95 2.25 4.23
All . . . . . . . . . . . . . . . . . . . 15.97 2.25 3.07
1994
Egypt . . . . . . . . . . . . . . . . . . $ 15.72 $ 2.63 $ 2.57
1995
Egypt . . . . . . . . . . . . . . . . . . $ 16.88 $ 2.91 $ 3.16
</TABLE>
Average production costs for Egypt are determined by dividing the
Company's share of production costs by the Company's share of sales quantities.
If average production costs were calculated for Egypt by dividing total
concession production costs by total concession sales quantities, average
production costs (per EOB) for Egypt would be $1.19, $1.07 and $1.38 for 1993,
1994 and 1995, respectively.
ACREAGE
The Company's developed acreage in the United States primarily
consists of areas where the Company owns an overriding royalty interest in
production in conjunction with a working interest in nonproducing strata or
undrilled acreage. The following table shows developed and undeveloped lease
acreage of the Company outside the United States as of February 20, 1996.
<TABLE>
<CAPTION>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE
------------------------ ---------------------------
GROSS NET GROSS NET
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Khalda . . . . . . . . . . . 318,500 127,400 2,097,913 839,165
Qarun . . . . . . . . . . . 19,570 9,785 1,907,841 953,921
-------- --------- ----------- -----------
Total Egypt . . . . . 338,070 137,185 4,005,754 1,793,086
Canadian Arctic . . . . . . -- -- 302,443 21,853
-------- --------- ----------- -----------
Total . . . . . . . . 338,070 137,185 4,308,197 1,814,939
======== ========= =========== ===========
</TABLE>
17
<PAGE> 18
Developed acreage shown above for Khalda is, with the exception of the
Tarek field, held by production to all depths until at least 2010. The Tarek
field acreage is held until 25 years after a gas sales contract for Tarek is
entered into, but in no event beyond 2022. However, if no gas sales contract
for Tarek gas has been entered into by 1999, the Tarek acreage is required to
be relinquished. Developed acreage for Qarun consists of the Qarun Development
Lease, which covers the Qarun A and Qarun B oil fields and is held by
production to all depths until 2020. Undeveloped acreage for Egypt is on the
Qarun Concession and the Khalda Offset block. Undeveloped acreage not
converted to development leases must be relinquished in stages. All lease
terms are believed sufficient for their reasonable exploration and development.
The Canadian Arctic acreage has little or no value under current industry
conditions.
DRILLING
The data in the following table does not include recompletions or
water injection wells. All of the Company's drilling activities during the
periods shown were in Egypt. At December 31, 1995 three gross wells (1.4 net
wells) were in progress.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Development Wells -- Gross
Productive Oil . . . . . . . . . . . . . . . . . . . 7.00 9.00 11.00
Productive Gas . . . . . . . . . . . . . . . . . . . -- -- --
----- ----- ------
Total Productive . . . . . . . . . . . . . . . . . . 7.00 9.00 11.00
===== ===== =====
Dry Holes . . . . . . . . . . . . . . . . . . . . . -- -- 1.00
Development Wells -- Net
Productive Oil . . . . . . . . . . . . . . . . . . . 2.80 3.60 4.60
Productive Gas . . . . . . . . . . . . . . . . . . . -- -- --
----- ----- -----
Total Productive . . . . . . . . . . . . . . . . . . 2.80 3.60 4.60
===== ===== ======
Dry Holes . . . . . . . . . . . . . . . . . . . . . -- -- 0.40
Exploratory Wells -- Gross
Productive Oil . . . . . . . . . . . . . . . . . . . 1.00 3.00 6.00
Productive Gas . . . . . . . . . . . . . . . . . . . 1.00 1.00 1.00
----- ----- -----
Total Productive . . . . . . . . . . . . . . . . . . 2.00 4.00 7.00
===== ===== =====
Dry Holes . . . . . . . . . . . . . . . . . . . . . 2.00 1.00 4.00
Exploratory Wells -- Net
Productive Oil . . . . . . . . . . . . . . . . . . . 0.40 1.30 2.70
Productive Gas . . . . . . . . . . . . . . . . . . . 0.40 0.40 0.40
----- ----- -----
Total Productive . . . . . . . . . . . . . . . . . . 0.80 1.70 3.10
===== ===== =====
Dry Holes . . . . . . . . . . . . . . . . . . . . . 0.50 0.10 1.70
</TABLE>
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
See "Item 8 -- Financial Statements and Supplementary Data" for
financial information about foreign and domestic operations. During 1993, 1994
and 1995 no export sales from the United States were made.
ITEM 3 LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, other
than ordinary routine litigation incidental to its business.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
18
<PAGE> 19
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their respective positions
and ages are set forth below:
George D. Lawrence Jr. -- Mr. Lawrence, age 45, has served as
President, Chief Executive Officer and a member of the Board of Directors since
1990. He has held various positions with the Company since August 1985.
Mark W. Anschutz -- Mr. Anschutz, age 43, has served as Vice President
- - Operations of the Company since May 1994 and as Vice President since April
1990. He has held various positions with the Company since 1981. Mr. Anschutz
is a Registered Professional Engineer within the States of Oklahoma and Texas.
John E. Bruno -- Mr. Bruno, age 44, has served as Vice President -
Egyptian Activities of the Company since May 1994 and as Vice President of the
Company's wholly-owned subsidiary, Phoenix Resources Company of Egypt, since
August 1985. He is currently General Manager of the Company's Cairo office.
Mr. Bruno has held various positions with the Company since 1978. Mr. Bruno is
a Certified Public Accountant registered in the State of Oklahoma.
Inmann T. Dabney, Jr. -- Mr. Dabney, age 51, has served as Vice
President - Exploration and Development of the Company since May 1994 and as
Vice President since April 1990. He has held various positions with the
Company since 1985. Mr. Dabney is a Registered Professional Engineer in the
State of Texas.
Michael C. Nemec -- Mr. Nemec, age 41, has served as Vice President -
Exploration of the Company since May 1995 and as Vice President of the
Company's wholly-owned subsidiary, Phoenix Resources Company of Qarun, since
December 1994. From 1990 to 1994 Mr. Nemec provided geological and geophysical
consulting services to the Company in respect of its Egyptian operations. From
1985 to 1990 Mr. Nemec was an employee of the Company.
Cheryl A. Rich -- Ms. Rich, age 41, has served as Vice President,
Chief Financial Officer and Controller of the Company since May 1994 and as
Vice President since April 1990. She has held various positions with the
Company since 1979. She is a Certified Public Accountant registered in the
State of Oklahoma.
19
<PAGE> 20
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange
and is also traded on The Pacific Stock Exchange, under the symbol PHN on both
exchanges. The table below provides information about historical sales prices
of the Common Stock for the periods indicated, as supplied by the Dow Jones
Historical Stock Quote Reporter Service. The prices shown have been adjusted
to reflect the two-for-one stock splits effected in January and September 1995.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1994
First Quarter . . . . . . . . . . . . . . . . . . . . . . $ 9.97 $ 6.69
Second Quarter . . . . . . . . . . . . . . . . . . . . . 6.91 5.56
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 7.94 6.56
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . 12.00 6.59
1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . $ 12.47 $ 9.38
Second Quarter . . . . . . . . . . . . . . . . . . . . . 17.75 10.88
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 20.50 14.00
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . 19.63 16.13
1996
First Quarter (through February 20, 1996) . . . . . . . . $ 22.63 $ 16.50
</TABLE>
As of February 20, 1996 the Common Stock was held by approximately 639
holders of record.
DIVIDENDS
The Company paid four regular quarterly dividends during 1995 of $0.02
per share (adjusted for two-for-one stock splits in January and September
1995). The Company currently intends to continue paying quarterly cash
dividends at least at substantially the same level. The timing and the amounts
of future dividends will, however, depend upon the Company's earnings and cash
requirements and other factors deemed relevant by the Board of Directors, in
its sole discretion.
20
<PAGE> 21
ITEM 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended or at December 31,
-------------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Oil and gas revenues(1) . . . . . . . $ 14,727 $ 22,481 $ 22,302 $ 21,856 $ 23,433
Revenues dedicated to foreign
tax liability(2) . . . . . . . . -- 10,786 10,578 10,866 9,822
------- -------- ------- ------- --------
Operating revenues . . . . . . . . 14,727 33,267 32,880 32,722 33,255
------- -------- ------- ------- --------
Income (loss) before
extraordinary items . . . . . . (612) 12,692 12,510 12,891 10,611
Net income (loss)(3) . . . . . . . . (18,310) 12,692 12,336 12,891 10,611
Income (loss) before extraordinary
items per share(4) . . . . . . . (0.05) 0.76 0.74 0.78 0.65
Net income (loss) per share(4) . . . (1.62) 0.76 0.73 0.78 0.65
BALANCE SHEET:
Total assets . . . . . . . . . . . . $ 51,525 $ 59,255 $ 50,863 $ 56,441 $ 68,333
Long-term debt . . . . . . . . . . . 11,527 708 -- -- --
Stockholders' equity . . . . . . . . 5,263 17,894 30,298 33,558 51,808
</TABLE>
__________________________________
(1) Revenues and net income for 1991 reflect reduced revenues due to the
delivery of oil from the Company's share of production on the Khalda
Concession, which had been sold and recognized as revenue in 1985. This
commitment was fulfilled in 1991.
(2) The adoption of SFAS 109 effective January 1, 1992 had the effect of
increasing operating revenues and tax expense for 1992, 1993, 1994 and 1995 by
equal and offsetting amounts, but did not affect net income.
(3) Includes extraordinary losses on the early extinguishment of debt of $17.7
million and $0.2 million in 1991 and 1993, respectively, and income taxes of
$0.2 million, $11.1 million, $10.9 million, $11.1 million and $10 million in
1991, 1992, 1993, 1994 and 1995, respectively.
(4) Restated to give effect to the two-for-one stock splits effective January
and September 1995.
21
<PAGE> 22
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the three years ended
December 31, 1995 should be read in conjunction with the Consolidated Financial
Statements and Notes thereto.
RESULTS OF OPERATIONS
1995 Compared to 1994. Net income for 1995 decreased $2.3 million, or
18%, to $10.6 million. Net income decreased primarily due to an increase in
the noncash charge for depreciation, depletion and amortization ("DD&A
expense").
Net operating revenues (operating revenues less production costs)
remained stable during 1995 compared to 1994. Increased crude oil prices and
initial sales from the Qarun Concession were generally offset by lower
production from the Khalda Concession. The average oil price received during
1995 averaged $16.88 per barrel, compared to $15.72 per barrel in 1994. Gross
crude oil production from the Khalda Concession averaged 30,947 barrels per day
during 1995, compared to 32,731 barrels per day in 1994. Crude oil production
from the Qarun Concession commenced in late November and through year-end 1995
averaged 3,618 gross barrels per day.
Interest income for 1995 increased approximately $0.5 million, or 54%,
compared to 1994 due to higher interest rates earned on short-term investments
during 1995 and larger amounts of cash available for short-term investments.
DD&A expense increased approximately $3.6 million, or 162%, in 1995
compared to 1994. This increase in the noncash DD&A expense is primarily due
to the inclusion of costs attributable to proved reserves added from the Qarun
Concession. During 1994 substantially all of the Company's proved reserves
were in the Khalda Concession, whereas in 1995 the Company's proved reserves
are in both the Qarun and Khalda Concessions. Costs in both concessions are
cost recoverable. The computation of DD&A is based on a single country-wide
pool of all past and future costs attributable to all proved reserves in a
particular country and, therefore, because all of the Company's proved reserves
are in Egypt, the Company's DD&A is based on a pooling of all costs. The
Company's share of the past and future costs associated with the Qarun proved
reserves, where the Company pays its full 50% share of the costs, are
substantially higher on a per barrel basis than the Company's share of costs in
the Khalda Concession, because a large portion of the Company's 40% share of
the Khalda costs are paid by one of the Company's partners. Moreover, the
costs recognized on the Qarun Concession for DD&A purposes include future costs
for central processing, pipeline and storage facilities, which facilities may
be utilized to handle production volumes from subsequent additions to proved
reserves. Accordingly, costs attributable to future reserves in Qarun, if and
when added, could be less per barrel than that applicable to reserves presently
considered proved on the Qarun Concession.
1994 Compared to 1993. Net income for 1994 increased 4% to $12.9
million from $12.3 million in 1993.
Operating revenues for 1994 were virtually unchanged from 1993.
Increased crude oil production from the Khalda Concession during 1994 generally
offset the lower oil prices experienced during 1994. Gross crude oil
production from the Khalda Concession averaged 32,731 barrels per day during
1994 compared to 32,019 barrels per day during 1993. The price received for
oil produced on the Khalda Concession averaged $15.72 per barrel during 1994,
compared to $15.93 per barrel during 1993.
22
<PAGE> 23
Interest income for 1994 increased approximately $0.5 million, or
102%, compared to 1993 due to higher interest rates earned on short-term
investments during 1994 and larger amounts of cash available for short-term
investment.
Production costs for 1994 decreased approximately $0.5 million, or 9%,
compared to 1993 primarily due to prior years' credits granted to the Khalda
joint account during 1994.
DD&A expense increased approximately $0.2 million, or 13%, in 1994
compared to 1993 primarily due to an increase in the Egyptian DD&A provision.
The Egyptian DD&A provision increased as a result of the inclusion of Qarun
Concession capitalized costs, future development costs and reserves during the
fourth quarter of 1994.
General and administrative expense decreased approximately $0.3
million, or 13%, in 1994 compared to 1993 primarily due to a larger amount of
general and administrative expense being allocable to exploration and
development activities in 1994 than in 1993.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995 the Company's working capital (current assets
less current liabilities) was approximately $29 million, which included cash
and cash equivalents in the amount of approximately $22.8 million. Net cash
provided by operating activities for the year ended December 31, 1995 was
approximately $12.8 million. Net cash provided by financing activities for the
year ended December 31, 1995 was approximately $7 million. The Company had no
long-term debt as of December 31, 1995.
The Company's current sources of liquidity are working capital, cash
flow from operations and a $50 million project financing facility to be
provided by the International Finance Corporation to fund the Company's share
of expenditures in the Qarun Concession. In early 1996 the Company completed
the initial stages of this financing and borrowed the first $12.5 million
installment. Interest payments on the loan facility will commence June 15,
1996 and will be payable semi-annually at a rate equal to the London Inter-Bank
Offered Rate plus 2-3/8% to 3%. Semi-annual principal payments commence June
15, 1998 and continue through 2002.
The Company believes that its current sources of liquidity are
sufficient to meet its obligations during the next 12 months. Excess working
capital and net cash flow from operations would be available to fund the
development of any of the Company's exploratory successes; to participate in
the development of natural gas reserves in the Khalda Concession, including the
unified Western Desert natural gas pipeline project, if such project is
commenced; and to pursue other oil and gas opportunities that may be identified
by the Company. To the extent these sources of liquidity are deemed to be
inadequate to fund such activities, the Company believes additional external
sources of capital would be available.
23
<PAGE> 24
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statement of Income for each of the three years in the period ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Balance Sheet at December 31, 1994 and 1995 . . . . . . . . . . . . . . . . . . . 27
Consolidated Statement of Stockholders' Equity for each of the three years
in the period ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statement of Cash Flows for each of the three years in the period ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Supplementary Information on Oil and Gas Producing Activities . . . . . . . . . . . . . . . . . 38
Schedule II -- Valuation and Qualifying Accounts and Reserves . . . . . . . . . . . . . . . . S-1
</TABLE>
24
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE PHOENIX RESOURCE COMPANIES, INC.:
We have audited the accompanying consolidated balance sheet of The
Phoenix Resource Companies, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1995 and 1994, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Phoenix
Resource Companies, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the Index
under Item 8 Financial Statements and Supplementary Data is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not a required part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
February 23, 1996
25
<PAGE> 26
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenues:
Oil and gas revenues . . . . . . . . . . . . . . . . . . . $ 22,302 $ 21,856 $ 23,433
Revenues dedicated to foreign tax liability . . . . . . . 10,578 10,866 9,822
------- ------- -------
Operating revenues . . . . . . . . . . . . . . . . . . . 32,880 32,722 33,255
Interest income . . . . . . . . . . . . . . . . . . . . . 464 935 1,436
Other income . . . . . . . . . . . . . . . . . . . . . . . 681 187 345
------- ------- -------
34,025 33,844 35,036
------- ------- -------
Costs and Expenses:
Production costs . . . . . . . . . . . . . . . . . . . . . 5,841 5,301 6,421
Depreciation, depletion and amortization . . . . . . . . . 1,967 2,213 5,795
General and administrative . . . . . . . . . . . . . . . . 2,663 2,314 2,194
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 138 -- --
------- ------- -------
10,609 9,828 14,410
------- ------- -------
Income before income taxes and extraordinary loss . . . . . . 23,416 24,016 20,626
Provision for income taxes:
U.S. alternative minimum tax . . . . . . . . . . . . . . . 328 259 193
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 10,578 10,866 9,822
------- ------- -------
Income before extraordinary loss . . . . . . . . . . . . . . 12,510 12,891 10,611
Extraordinary loss:
Early extinguishment of debt . . . . . . . . . . . . . . . (174) -- --
------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 12,336 $ 12,891 $ 10,611
======= ======= ========
Income Per Share:
Weighted average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . 17,000 16,432 16,214
======= ======= =======
Income before extraordinary loss . . . . . . . . . . . . $ 0.74 $ 0.78 $ 0.65
======= ======= ========
Net income . . . . . . . . . . . . . . . . . . . . . . $ 0.73 $ 0.78 $ 0.65
======= ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
26
<PAGE> 27
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS
December 31,
-------------------------
1994 1995
-------- --------
<S> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 26,536 $ 22,759
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 2,561 5,639
Receivable for payment of foreign taxes . . . . . . . . . . . . . . 10,657 11,026
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 491 2,072
-------- --------
40,245 41,496
-------- --------
Property and Equipment, at cost:
Oil and gas properties (using full cost accounting) . . . . . . . . 18,624 40,842
Other property and equipment . . . . . . . . . . . . . . . . . . . . 1,909 983
-------- --------
20,533 41,825
Less: Accumulated depreciation, depletion and amortization . . . . . . 13,800 18,672
-------- --------
Net Property and Equipment . . . . . . . . . . . . . . . . . . . . 6,733 23,153
Deferred Receivable for payment of foreign taxes . . . . . . . . . . . 9,211 2,997
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 687
-------- --------
$ 56,441 $ 68,333
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,062 $ 562
Accrued foreign taxes . . . . . . . . . . . . . . . . . . . . . . . 10,657 11,026
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . 857 952
-------- --------
12,576 12,540
-------- --------
Long-Term Liabilities:
Deferred foreign taxes . . . . . . . . . . . . . . . . . . . . . . . 9,211 2,997
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,096 988
-------- --------
10,307 3,985
-------- --------
Commitments and Contingencies (Note 5)
Stockholders' Equity:
Preferred stock, par value $0.01 (authorized 5,000 shares, none
outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, par value $0.01 (authorized 20,000 shares, 15,708
shares outstanding in 1994 and 16,190 in 1995) . . . . . . . . . . 170 170
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 39,311 45,170
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 2,929 12,281
Treasury stock, at cost (1,254 shares in 1994 and 772 in 1995) . . . (8,852) (5,813)
-------- --------
33,558 51,808
-------- --------
$ 56,441 $ 68,333
======== ========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
27
<PAGE> 28
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Retained Treasury Stock
------------------ Paid-in Earnings ------------------ Stockholders'
Shares Amount Capital (Deficit) Shares Amount Equity
--------- ------- ------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 . . 16,977 $ 170 $ 39,212 $(21,488) -- $ -- $ 17,894
Stock options exercised . . . 40 -- 68 -- -- -- 68
Shares cancelled . . . . . . (75) -- -- -- -- -- --
Net income . . . . . . . . . -- -- -- 12,336 -- -- 12,336
--------- ---- -------- ------- ------- -------- -------
BALANCE AT DECEMBER 31, 1993 . . 16,942 170 39,280 (9,152) -- -- 30,298
Shares purchased . . . . . . (1,254) -- -- -- 1,254 (8,852) (8,852)
Stock options exercised . . . 20 -- 31 -- -- -- 31
Dividends paid, $0.05 per
share . . . . . . . . . . -- -- -- (810) -- -- (810)
Net income . . . . . . . . . -- -- -- 12,891 -- -- 12,891
--------- ---- -------- ------- ------- -------- -------
BALANCE AT DECEMBER 31, 1994 . . 15,708 170 39,311 2,929 1,254 (8,852) 33,558
Shares issued . . . . . . . . 606 -- 5,533 -- (606) 4,467 10,000
Shares purchased . . . . . . (152) -- -- -- 152 (1,634) (1,634)
Accrual pursuant to
Director Plan . . . . . . -- -- 368 -- -- -- 368
Stock options exercised . . . 28 -- (42) -- (28) 206 164
Dividends paid, $0.08
per share . . . . . . . . -- -- -- (1,259) -- -- (1,259)
Net income . . . . . . . . . -- -- -- 10,611 -- -- 10,611
--------- ---- -------- ------- ------- -------- -------
BALANCE AT DECEMBER 31, 1995 . . 16,190 $ 170 $ 45,170 $ 12,281 772 $ (5,813) $ 51,808
========= ==== ======== ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
28
<PAGE> 29
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1993 1994 1995
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from purchasers . . . . . . . . . . . . . . . $23,274 $21,862 $ 20,442
Cash paid to suppliers and employees . . . . . . . . . . . . (9,510) (8,405) (8,617)
Interest paid . . . . . . . . . . . . . . . . . . . . . . . (144) -- --
Income taxes paid . . . . . . . . . . . . . . . . . . . . . (583) (487) (515)
Interest and other cash receipts . . . . . . . . . . . . . . 821 847 1,462
------ ------ -------
Net cash provided by operating activities . . . . . . . . 13,858 13,817 12,772
------ ------ -------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . (2,651) (2,932) (23,554)
Proceeds from sales of property and equipment . . . . . . . 120 34 --
Supplemental purchase price payment . . . . . . . . . . . . 4,000 -- --
------ ------ -------
Net cash provided by (used in) investing activities . . . 1,469 (2,898) (23,554)
------ ------ ------
Cash flows from financing activities:
Sale of treasury stock . . . . . . . . . . . . . . . . . . . -- -- 10,000
Purchase of treasury stock . . . . . . . . . . . . . . . . . -- (8,852) (1,634)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . -- (810) (1,259)
Debt issue costs . . . . . . . . . . . . . . . . . . . . . . -- -- (266)
Repayments of long-term debt . . . . . . . . . . . . . . . . (1,704) -- --
Proceeds from stock options exercised . . . . . . . . . . . 139 31 164
------ ------ -------
Net cash provided by (used in) financing activities . . . (1,565) (9,631) 7,005
------ ------ -------
Net increase (decrease) in cash and cash equivalents . . . . . 13,762 1,288 (3,777)
Cash and cash equivalents, beginning of year . . . . . . . . . 11,486 25,248 26,536
------ ------ -------
Cash and cash equivalents, end of year . . . . . . . . $25,248 $26,536 $ 22,759
====== ====== =======
Reconciliation of net income to net cash provided
by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $12,336 $12,891 $ 10,611
------ ------ -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . . . 1,967 2,213 5,795
Capitalized general and administrative expense . . . . . (372) (604) (1,055)
Loss on early extinguishment of debt . . . . . . . . . . 174 -- --
Gain on sale of properties . . . . . . . . . . . . . . . (97) -- --
(Increase) decrease in accounts receivable related to
operating activities . . . . . . . . . . . . . . . . . 866 (350) (3,078)
Increase (decrease) in accounts payable related to
operating activities . . . . . . . . . . . . . . . . . (89) (156) 330
Increase (decrease) in accrued liabilities related to
operating activities . . . . . . . . . . . . . . . . . (541) 283 95
Other noncash items . . . . . . . . . . . . . . . . . . . (386) (460) 74
------ ------ -------
Total adjustments . . . . . . . . . . . . . . . . . . 1,522 926 2,161
------ ------ -------
Net cash provided by operating activities . . . . . $13,858 $13,817 $ 12,772
====== ====== =======
</TABLE>
The accompanying notes are an integral part of this statement.
29
<PAGE> 30
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is an independent oil and gas company operating in Egypt.
Company operations include exploring, developing and operating crude oil and
natural gas properties in Egypt.
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Oil and Gas Operations - The Company uses the full cost method of
accounting for oil and gas operations. Under the full cost method, all costs
associated with the acquisition, exploration and development of oil and gas
reserves, including nonproductive costs, are capitalized as incurred. Internal
overhead which is directly identified with acquisition, exploration and
development activities is capitalized. The Company capitalized $0.4 million,
$0.6 million and $1.1 million of internal overhead for the years ended December
31, 1993, 1994 and 1995, respectively.
The capitalized costs of oil and gas properties are accumulated in
cost centers on a country-by-country basis and are amortized using the
unit-of-production method based on proved reserves. Estimated future
development costs are included in the amortization base. Depreciation,
depletion and amortization expense per equivalent oil barrel for Egypt was
$0.66, $0.87 and $2.51 for the years ended December 31, 1993, 1994 and 1995,
respectively. Capitalized costs and estimated future development costs
associated with unevaluated properties are excluded from amortization until the
quantity of proved reserves attributable to the property has been determined or
impairment has occurred. At December 31, 1993 and 1994, the Company excluded
$1 million of capitalized costs related to the Qarun Concession from
amortization. At December 31, 1995 the Company excluded $0.9 million of
capitalized costs related to the Khalda Offset acreage from amortization.
These costs will be included in the amortization base as prospects within the
Khalda Offset acreage are evaluated.
Dispositions of oil and gas properties are recorded as adjustments to
capitalized costs, with no gain or loss recognized unless such adjustments
would significantly alter the relationship between capitalized costs and proved
reserves. Accordingly, the gain on the sale of a portion of the Company's
interest in the Khalda Concession in 1989 and the subsequent supplemental
payments in 1992 and 1993 were recorded as reductions of capitalized costs with
no gain recognized.
The unamortized cost of oil and gas properties less related deferred
income tax may not exceed an amount equal to the net present value discounted
at 10% of proved oil and gas reserves plus the lower of cost or estimated fair
market value of unevaluated properties. To the extent the Company's
unamortized cost of oil and gas properties exceeded this ceiling amount, a
provision for additional depreciation, depletion and amortization would be
required.
30
<PAGE> 31
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Production Entitlements - Pursuant to the entitlement method, the
Company recognizes revenue from its Egyptian concessions in the period it is
entitled to such production. Production costs are expensed as incurred. At
period-end any revenue to which the Company is entitled but has not received is
recorded as an account receivable; revenue the Company has received but is not
entitled to is recorded in current liabilities as deferred revenue. As of
December 31, 1994 and 1995 the Company had recorded an account receivable of
$0.4 million representing approximately 23,000 barrels of crude oil and $0.5
million representing approximately 29,000 barrels of crude oil, respectively.
Taxes on Income - The Company recognizes deferred tax liabilities and
assets for the expected future tax consequences, if any, of temporary
differences between the tax and financial reporting bases of the Company's
assets and liabilities.
The Company operates in two tax jurisdictions, the U.S. and Egypt.
All of the Company's Egyptian operations are conducted through wholly-owned
U.S. subsidiaries, and all income generated by the Egyptian operations is also
included in the Company's consolidated U.S. taxable income. In accordance with
the provisions of Egyptian concession agreements, EGPC's share of revenues
includes Egyptian income taxes and government royalties attributable to the
Company, which are paid directly by EGPC. Payment of these Egyptian income
taxes by EGPC creates for the Company both U.S. taxable income and foreign tax
credits (or deductions, at the option of the Company) which can be utilized to
reduce U.S. income taxes, if any, on earnings from the Company's foreign
operations.
The Company records its share of the Egyptian income tax expense and
revenue dedicated to foreign tax liabilities for the tax payment to be made on
its behalf by EGPC. The Company records an Egyptian deferred income tax
liability, and an identical deferred receivable, related to its share of
temporary differences in reporting Egyptian taxable income by the Company
during the current and prior years.
Cash and Cash Equivalents - For the Statement of Cash Flows, the
Company considers unrestricted cash on hand and all highly liquid debt
instruments purchased with a maturity of generally three months or less to be
cash equivalents.
Foreign Currency Transactions - Nearly all transactions of the Company
and its wholly-owned subsidiaries are made in U.S. dollars. As a result,
foreign currency exchange gains and losses, if any, are recognized in the
period incurred. Total foreign exchange gains and losses are immaterial.
Stock Option Plans - The Company accounts for its stock option plans
using the intrinsic value method in accordance with Accounting Principles
Opinion No. 25. In October 1995 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." The Company will adopt the pro
forma disclosure requirements of SFAS No. 123 in 1996.
31
<PAGE> 32
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- QUARTERLY RESULTS OF OPERATIONS:
The unaudited results of operations for the quarterly periods of 1994
and 1995 are summarized below, in thousands, except per share amounts, oil
prices and average daily gross production.
<TABLE>
<CAPTION>
1994
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Oil and gas revenues . . . . . . . . . . . . . . . . $ 4,474 $ 5,786 $ 5,925 $ 5,671 $21,856
Revenues dedicated to foreign tax liability . . . . . 2,222 2,767 2,977 2,900 10,866
Other revenues . . . . . . . . . . . . . . . . . . . 241 245 287 349 1,122
------- ------ ------ ------ ------
6,937 8,798 9,189 8,920 33,844
------- ------ ------ ------ ------
Production costs . . . . . . . . . . . . . . . . . . 1,102 1,656 1,519 1,024 5,301
Other costs and expenses . . . . . . . . . . . . . . 1,120 943 953 1,511 4,527
------- ------ ------ ------ ------
2,222 2,599 2,472 2,535 9,828
------- ------ ------ ------ ------
Income before income taxes . . . . . . . . . . . . . 4,715 6,199 6,717 6,385 24,016
Provision for income taxes . . . . . . . . . . . . . 2,274 2,837 3,047 2,967 11,125
------- ------ ------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . . . $ 2,441 $ 3,362 $ 3,670 $ 3,418 $12,891
======= ====== ======= ====== ======
Net income, per share . . . . . . . . . . . . . . . . $ 0.14 $ 0.20 $ 0.23 $ 0.21 $ 0.78
======= ====== ======= ====== ======
Average daily gross oil production--Khalda . . . . . 31,244 32,917 34,008 32,724 32,731
Average oil price--Egypt . . . . . . . . . . . . . $ 14.08 $ 15.91 $ 16.24 $ 16.47 $ 15.72
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Oil and gas revenues . . . . . . . . . . . . . . . . $ 5,486 $ 5,891 $ 5,418 $ 6,638 $23,433
Revenues dedicated to foreign tax liability . . . . . 2,831 2,988 2,514 1,489 9,822
Other revenues . . . . . . . . . . . . . . . . . . . 370 436 589 386 1,781
------- ------ ------ ------ ------
8,687 9,315 8,521 8,513 35,036
------- ------ ------ ------ ------
Production costs . . . . . . . . . . . . . . . . . . 1,377 1,654 1,465 1,925 6,421
Other costs and expenses . . . . . . . . . . . . . . 1,342 1,621 2,852 2,174 7,989
------- ------ ------ ------ ------
2,719 3,275 4,317 4,099 14,410
------- ------ ------ ------ ------
Income before income taxes . . . . . . . . . . . . . 5,968 6,040 4,204 4,414 20,626
Provision for income taxes . . . . . . . . . . . . . 2,884 3,038 2,560 1,533 10,015
------- ------ ------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . . . $ 3,084 $ 3,002 $ 1,644 $ 2,881 $10,611
======= ====== ======= ====== ======
Net income, per share . . . . . . . . . . . . . . . . $ 0.19 $ 0.19 $ 0.10 $ 0.17 $ 0.65
======= ====== ======= ====== ======
Average daily gross oil production--Khalda . . . . . 31,372 30,415 31,260 30,746 30,947
Average oil price--Egypt . . . . . . . . . . . . . $ 16.83 $ 17.79 $ 15.86 $ 17.06 $ 16.88
</TABLE>
NOTE 3 -- CAPITAL STOCK AND OPTIONS:
Capital Stock - Two-for-one splits of the number of shares of Common
Stock outstanding were effective in January and September 1995. All references
in the accompanying financial statements and notes to the number of common
shares and per share amounts have been restated to reflect the splits.
A total of 20,000,000 shares of $0.01 par value Common Stock are
authorized. As of December 31, 1995 there were 16,961,920 shares of Common
Stock issued, of which 16,189,756
32
<PAGE> 33
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
were outstanding, and 1,914,000 shares of Common Stock were reserved for
issuance upon exercise of the options described below. As of December 31, 1994
there were 16,961,920 shares of Common Stock issued, of which 15,708,196 were
outstanding, and 1,342,000 shares of Common Stock were reserved for issuance
upon exercise of the options described below.
A total of 5,000,000 shares of $0.01 par value preferred stock are
authorized, none of which were outstanding at December 31, 1994 or 1995.
In November 1995 the Company sold 606,060 shares of its Common Stock
to the International Finance Corporation ("IFC"), an affiliate of the World
Bank, at the then current market price of $16.50 per share. The shares sold to
IFC were treasury shares previously acquired by the Company at an average price
of $7.37 per share.
In conjunction with the March 1994 secondary public offering by a
selling shareholder of 30% of the Company's Common Stock, the Company purchased
515,204 shares of its Common Stock at $6.74 per share. Also during 1994, the
Company purchased 738,520 shares of its Common Stock in open market
transactions at an average price of $7.29 per share. During 1995 the Company
purchased 152,500 shares of its Common Stock in open market transactions at an
average price of $10.71 per share. Shares purchased are held as treasury stock
unless and until reissued.
Stock Options - The 1990 Employee Stock Option Plan, as amended
("Employee Stock Option Plan") and the 1990 Nonemployee Director Stock Option
Plan, as amended ("Director Stock Option Plan"), were established April 9,
1990. The Employee Stock Option Plan authorizes the grant of options to
purchase Common Stock to employees of the Company. The exercise price of the
options granted may not be less than the fair market value on the date of the
grant. At December 31, 1994 and 1995 shares of Common Stock reserved for
issuance pursuant to the Employee Stock Option Plan totaled 1,074,000 and
1,670,000, respectively.
The Director Stock Option Plan authorizes the grant of options to
purchase 12,000 shares of Common Stock to each director of the Company, who is
not otherwise an employee of the Company, upon election to the Board of
Directors. The Plan also provides that each nonemployee director of the
Company be granted additional options covering a sufficient number of shares of
Common Stock, so that after such grant such nonemployee director would hold in
the aggregate, including all options previously granted to such nonemployee
director that remain unexercised, options covering at least 12,000 shares of
Common Stock. The exercise price of options granted is the closing price of
the shares of Common Stock on the date of the grant of such options. At
December 31, 1994 and 1995 shares of Common Stock reserved for issuance
pursuant to the Director Stock Option Plan totaled 268,000 and 244,000,
respectively.
33
<PAGE> 34
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information on the status of options is in the following table.
<TABLE>
<CAPTION>
Employee Plan Director Plan
--------------------------- -----------------------------
Option Price Option Price
Shares Per Share Shares Per Share
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
OUTSTANDING DECEMBER 31, 1993 . . . . . 42,000 $ 1.56 18,000 $ 1.56 - 8.75
Granted . . . . . . . . . . . . . . 740,000 $ 6.59 - 10.06 80,000 $ 6.13
Exercised . . . . . . . . . . . . . (8,000) $ 1.56 (12,000) $ 1.56
--------- --------
OUTSTANDING DECEMBER 31, 1994 . . . . . 774,000 $ 1.56 - 10.06 86,000 $ 6.13 - 8.75
Granted . . . . . . . . . . . . . . 300,000 $ 12.44 8,000 $ 14.44
Exercised . . . . . . . . . . . . . (4,000) $ 1.56 (24,000) $ 6.13 - 8.75
Cancelled . . . . . . . . . . . . . (7,000) $ 6.59 - 12.44 --
--------- --------
OUTSTANDING DECEMBER 31, 1995 . . . . . 1,063,000 $ 1.56 - 12.44 70,000 $ 6.13 - 14.44
========= ========
Exercisable at:
December 31, 1994 . . . . . . . . . 34,000 $ 1.56 2,000 $ 8.75
December 31, 1995 . . . . . . . . . 400,000 $ 1.56 - 10.06 20,000 $ 6.13
</TABLE>
Director Compensation Plan - During the third quarter of 1995 the
Board of Directors adopted a Nonemployee Director Compensation Plan (the
"Director Plan"). The Director Plan, which is subject to shareholder approval,
provides for the grant of 1,500 shares of Common Stock to each nonemployee
director for each year that individual serves as a director since May 11, 1993.
The Common Stock granted is vested ratably over each year of service and would
be issuable to a director upon termination as a director, except in the event
of removal for cause. A total of approximately $0.4 million was recorded in
both Paid-in Capital and General and Administrative Expense in the accompanying
1995 financial statements.
NOTE 4 -- INCOME TAXES:
At December 31, 1995 the Company had net operating loss carryforwards
of approximately $172 million, subject to the significant limitations described
below. These amounts could be carried forward and would expire in varying
amounts from 1997 through 2004 if not utilized. Due to the limitations imposed
by the Tax Reform Act of 1986, the Company does not expect to be able to
utilize more than approximately $80 million of its net operating loss
carryforwards. However, the Company expects to generate future foreign tax
credits, which will be derived from Egyptian tax payments paid on the Company's
behalf by EGPC, sufficient to more than offset the future U.S. income taxes,
excluding alternative minimum taxes, on its operations. The Company expects to
pay future income taxes, excluding Egyptian income taxes paid on its behalf by
EGPC, equal to approximately 2% of its pretax income which represents U.S.
alternative minimum taxes.
In accordance with the Tax Reform Act of 1986, usage of net operating
loss carryforwards is subject to limitations in future years if certain
ownership changes occur. Such ownership changes have occurred. During the
period following the ownership change, the limitation is the sum of (i) an
annual amount (estimated to be approximately $4 million) determined by the
value of the Company immediately before the ownership change, adjusted to
reflect the increase in value resulting from the cancellation of indebtedness
resulting from the reorganization, multiplied by a statutorily determined
interest rate; and (ii) the amount of built-in gains realized during the
five-year period following the ownership change. The Company's built-in gain
is the amount by which the fair market value of its assets exceeded tax basis
at the time of the ownership change. The net operating loss carryforward and
the amount
34
<PAGE> 35
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
available for utilization are subject to review and possible adjustment by the
Internal Revenue Service.
Pretax financial reporting income for the years shown was taxable
under the following jurisdictions:
<TABLE>
<CAPTION>
1993 1994 1995
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
U.S. . . . . . . . . . . . . . . $(1,445) $(1,520) $(2,456)
Egypt . . . . . . . . . . . . . 24,861 25,536 23,082
------ ------ ------
Total . . . . . . . . . . . . $23,416 $24,016 $20,626
====== ====== ======
</TABLE>
Income from the Company's Egyptian operations is also taxable in the U.S., but
is not included in the amounts stated above for the U.S. The 1993, 1994 and
1995 financial reporting income for Egypt includes the revenue dedicated to
payment of foreign taxes of approximately $10.6 million, $10.9 million and $9.8
million, respectively.
The provision for income taxes for the years shown was comprised of
the following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Current tax expense:
U.S. alternative minimum tax . . . . . $ 328 $ 259 $ 193
Foreign--Egyptian . . . . . . . . . . . 12,990 10,560 16,036
Deferred tax expense (benefit):
Foreign--Egyptian . . . . . . . . . . . (2,412) 306 (6,214)
------ ------ -------
Total provision . . . . . . . . . . . . . $ 10,906 $ 11,125 $ 10,015
======= ======== ========
</TABLE>
The provision for income taxes for the years shown differs from the
amount of income tax determined by applying the U.S. statutory federal income
tax rate to pretax income as a result of the following differences:
<TABLE>
<CAPTION>
1993 1994 1995
--------- -------- --------
<S> <C> <C> <C>
Statutory U.S. tax rate . . . . . . . . . . . . . . . . . . . . 35.00% 35.00% 35.00%
Increase (decrease) in rate resulting from:
Egyptian tax on Egyptian earnings . . . . . . . . . . . . . 45.17% 45.24% 47.62%
Realization of net operating loss carryforward benefits . . (33.60%) (33.92%) (34.06%)
----- ----- -----
Effective tax rate . . . . . . . . . . . . . . . . . . . 46.57% 46.32% 48.56%
===== ===== =====
</TABLE>
35
<PAGE> 36
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred U.S. and Egyptian tax assets (liabilities) are comprised of
the following at the dates shown:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------
1994 1995
---------------------- ---------------------
U.S. Egyptian U.S. Egyptian
--------- ---------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C>
Depreciation, depletion and amortization . . . $ 1,774 $ (4,520) $ 3,138 $ (2,738)
Other capitalized expenses . . . . . . . . . . 169 -- 677 --
Net operating loss carryforwards . . . . . . . 63,394 -- 60,225 --
AMT carryover . . . . . . . . . . . . . . . . 2,709 -- 2,893 --
Concession agreement . . . . . . . . . . . . . -- (4,691) -- (259)
-------- ------- ------- -------
Gross deferred tax assets (liabilities) . . 68,046 (9,211) 66,933 (2,997)
Deferred tax asset valuation allowance . . . . (68,046) -- (66,933) --
-------- ------- ------- -------
Net deferred tax assets (liabilities) . . $ -- $ (9,211) $ -- $ (2,997)
======== ======= ======= =======
</TABLE>
The change in the valuation allowance during 1994 and 1995 was a
decrease of $5 million and $1.1 million, respectively, resulting primarily from
the realization of net operating loss carryforwards. No benefit for the
remaining U.S. net operating loss carryforwards or the other U.S. deferred tax
assets has been recognized in the accompanying financial statements, as the
Company believes, based on its current operations, its current proved reserves
and existing income tax laws and regulations, no incremental future tax
benefits will be derived.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES:
Substantially all of the Company's operations and reserves are located
in Egypt and, therefore, are subject to certain risks relating to economic and
political stability in Egypt and the surrounding region. The Company is
exposed to certain risks due to its concentration of Egyptian operations, which
include possible changes in Egyptian laws, particularly relating to foreign
investments and taxation, renegotiation or modification of existing contracts
and expropriation. Adverse developments in Egypt and future changes in
Egyptian governmental regulations and policies could have a material adverse
effect on the Company. The Company does not insure against loss of production
or political risks. The carrying amount of identifiable assets (excluding
cash and cash equivalents in U.S. banks and intercompany balances) of the
Company's foreign operations at December 31, 1994 and 1995 totaled $29.4
million and $46.8 million (including approximately $19.9 million and $14
million related to receivables for payment of foreign taxes which are offset by
an equal amount of foreign tax liabilities), respectively.
Egypt retains the right of requisition of production from Egyptian
concessions and cancellation of the concession agreements upon the occurrence
of specific events, including a national emergency due to war, imminent
expectation of war or internal causes, unauthorized assignment of interests in
the concession, the concession holder being adjudicated bankrupt by a court of
competent jurisdiction and intentional extraction of any mineral not authorized
by the concession agreement. Requisition or cancellation of the Company's
concession agreements as a result of the foregoing or for any other reasons
would have a material adverse effect on the Company.
A portion of the Company's operating revenues represents the sale of
crude oil produced from Egyptian concessions and allocated to the Company for
reimbursement of operating, development and exploration costs. These costs are
subject to review and approval by EGPC.
36
<PAGE> 37
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management does not expect the amount of costs rejected for reimbursement by
EGPC to have a material adverse effect on the Company's financial position or
results of operations.
Various lawsuits are pending against the Company. Management is of
the opinion, based on advice of independent legal counsel, that the ultimate
outcome of all pending litigation is highly unlikely to have a material effect
on the financial position or results of operations of the Company.
The Company is committed, under certain circumstances, to pay $1.8
million pursuant to various employment contracts with certain key employees.
NOTE 6 -- SALES TO MAJOR CUSTOMERS:
Sales to EGPC accounted for 96%, 99% and 100% of the Company's
consolidated oil and gas revenues in 1993, 1994 and 1995, respectively.
NOTE 7 -- SUBSEQUENT EVENTS:
In January 1996 the Company completed the initial stages of project
financing for the Qarun Concession development and borrowed the first $12.5
million installment of what will ultimately become a $50 million loan facility.
This financing was arranged by the International Finance Corporation, an
affiliate of the World Bank. The loan will be secured by the stock and assets
of the Company's wholly-owned subsidiary, Phoenix Resources Company of Qarun,
and prior to the completion of the development project the loan will be
guaranteed by the Company. Interest payments will commence June 15, 1996 and
will be payable semi-annually at a rate equal to the London Inter-Bank Offered
Rate plus 2- 3/8% to 3%. Semi-annual principal payments commence June 15, 1998
and continue through 2002.
During February 1996 the Company purchased 100,000 shares of its
Common Stock in open market transactions at a price of $19.00 per share. All
such shares are held as treasury stock.
37
<PAGE> 38
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
The information in this section is based on engineering estimates of
oil and gas reserves, using the methods and assumptions prescribed by the SEC
for such calculations. Assumed sales prices of hydrocarbons were, as required,
those prices in effect at the respective dates indicated, with no effect given
to price changes which have occurred since those dates or to potential
increases or decreases in prices. The estimation of oil and gas reserves is
not an exact science. Estimates of economically recoverable oil and gas
reserves and of the future net revenues from those reserves depend on a number
of assumptions, all of which may, and frequently do, vary materially from
actual results.
EGPC is required to pay, on behalf of the Company, all Egyptian
government royalties and the Company's Egyptian income taxes from its share of
production. The reserve information presented in the following tables includes
reserves attributable to such tax payments on behalf of the Company by EGPC and
the related deductions for Egyptian income taxes and, accordingly, the reserve
information shown for 1993 and 1994 has been restated from amounts previously
reported.
The value of proved natural gas quantities shown in the table below
has been reduced to account for the currently limited access to natural gas
markets.
Net proved reserves of crude oil and natural gas of the Company were
estimated as of December 31, 1993, 1994 and 1995 by independent petroleum
engineers, Netherland, Sewell & Associates, Inc., of Dallas, Texas.
<TABLE>
<CAPTION>
VALUES OF RESERVES (UNAUDITED)
Future Net Revenues (In thousands)
------------------------------------------------------------------------
Total Present Value
(Undiscounted) (Discounted at 10%)
At December 31, At December 31,
---------------------------------- ------------------------------------
1993 1994 1995 1993 1994 1995
-------- -------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Proved Developed
Producing:
United States . . . . $ 971 $ -- $ -- $ 849 $ -- $ --
Egypt . . . . . . . . 49,978 52,168 63,579 38,402 41,769 52,361
------- ------- ------- ------- ------- -------
Subtotal . . . . . . 50,949 52,168 63,579 39,251 41,769 52,361
------- ------- ------- ------- ------- -------
Proved Developed
Nonproducing:
Egypt . . . . . . . . 17,112 18,930 27,915 10,519 10,748 17,487
------- ------- ------- ------- ------- -------
Proved Undeveloped:
Egypt . . . . . . . . 27,973 77,602 111,840 5,012 27,522 59,511
------- ------- ------- ------- ------- -------
Total Proved Reserves:
United States . . . . 971 -- -- 849 -- --
Egypt . . . . . . . . 95,063 148,700 203,334 53,933 80,039 129,359
------- ------- ------- ------- ------- -------
TOTAL PROVED RESERVES . . . $ 96,034 $ 148,700 $ 203,334 $ 54,782 $ 80,039 $ 129,359
======= ======= ======= ======= ======= ========
Assumed Egyptian
Oil Price . . . . . . $ 13.47 $ 15.73 $ 17.97 $ 13.47 $ 15.73 $ 17.97
</TABLE>
38
<PAGE> 39
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
RESERVE QUANTITY INFORMATION (UNAUDITED)
Oil and gas quantities for Egypt include reserves attributable to the
Company's rights to recover past and future costs, which quantities vary with
price assumptions and cost estimates. In accordance with SEC requirements, the
assumed Egyptian oil price for estimates made as of December 31, 1993, 1994 and
1995 was $13.47, $15.73 and $17.97, respectively. Oil includes oil and gas
condensate and is stated in thousands of barrels; gas is stated in millions of
cubic feet and includes all gas produced, whether or not sold.
<TABLE>
<CAPTION>
U.S. EGYPT TOTAL
-------------- ---------------- -----------------
OIL GAS OIL GAS OIL GAS
------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Proved Reserves:
----------------
Beginning balance . . . . . . . . 38 235 13,353 24,022 13,391 24,257
Revisions of previous estimates . 42 45 1,769 6,484 1,811 6,529
Extensions, discoveries and
other additions . . . . . . . . -- -- 911 8,252 911 8,252
Production . . . . . . . . . . . (25) (171) (1,819) (1,442) (1,844) (1,613)
------ ------ ------ ------ ------ ------
Ending balance . . . . . . . . 55 109 14,214 37,316 14,269 37,425
====== ====== ====== ====== ====== ======
Proved Developed Reserves:
--------------------------
Beginning balance . . . . . . . . 38 235 8,906 3,935 8,944 4,170
====== ====== ====== ====== ====== ======
Ending balance . . . . . . . . . 55 109 11,157 5,771 11,212 5,880
====== ====== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 1994
Proved Reserves:
----------------
Beginning balance . . . . . . . . 55 109 14,214 37,316 14,269 37,425
Revisions of previous estimates . (43) (89) (979) (3,914) (1,022) (4,003)
Extensions, discoveries and
other additions . . . . . . . . -- -- 8,785 1,057 8,785 1,057
Production . . . . . . . . . . . (4) (18) (1,981) (1,793) (1,985) (1,811)
Sales of reserves in place . . . (8) (2) -- -- (8) (2)
----- ---- ------ ------- ------ ------
Ending balance . . . . . . . . -- -- 20,039 32,666 20,039 32,666
====== ====== ====== ====== ====== ======
Proved Developed Reserves:
-------------------------
Beginning balance . . . . . . . . 55 109 11,157 5,771 11,212 5,880
====== ====== ====== ====== ====== ======
Ending balance . . . . . . . . . -- -- 8,998 4,110 8,998 4,110
====== ====== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 1995
Proved Reserves:
----------------
Beginning balance . . . . . . . . -- -- 20,039 32,666 20,039 32,666
Revisions of previous estimates . -- -- (1,025) (9,771) (1,025) (9,771)
Extensions, discoveries and
other additions . . . . . . . . -- -- 8,699 4,810 8,699 4,810
Production . . . . . . . . . . . -- -- (1,995) (1,796) (1,995) (1,796)
------ ------ ------ ------ ------ ------
Ending balance . . . . . . . . -- -- 25,718 25,909 25,718 25,909
====== ====== ====== ====== ====== ======
Proved Developed Reserves:
-------------------------
Beginning balance . . . . . . . . -- -- 8,998 4,110 8,998 4,110
====== ====== ====== ====== ====== ======
Ending balance . . . . . . . . . -- -- 9,555 6,317 9,555 6,317
====== ====== ====== ====== ====== ======
</TABLE>
39
<PAGE> 40
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
(In thousands)
<TABLE>
<CAPTION>
EGYPT
-------
<S> <C>
DECEMBER 31, 1994
Proved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,620
Unproved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,004
------
18,624
Accumulated DD&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,984
------
Net capitalized costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,640
======
DECEMBER 31, 1995
Proved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,948
Unproved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 894
------
40,842
Accumulated DD&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,746
------
Net capitalized costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,096
======
</TABLE>
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
(In thousands)
<TABLE>
<CAPTION>
U.S. EGYPT TOTAL
------ ------ -------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Exploration costs . . . . . . . . . . . . . . . . . . . . . . $ 59 $ 2,941 $ 3,000
Development costs . . . . . . . . . . . . . . . . . . . . . . 35 (13) 22
YEAR ENDED DECEMBER 31, 1994
Exploration costs . . . . . . . . . . . . . . . . . . . . . . $ -- $ 4,059 $ 4,059
Development costs . . . . . . . . . . . . . . . . . . . . . . -- 244 244
YEAR ENDED DECEMBER 31, 1995
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . $ -- $ 408 $ 408
Exploration costs . . . . . . . . . . . . . . . . . . . . . . -- 12,861 12,861
Development costs . . . . . . . . . . . . . . . . . . . . . . -- 8,949 8,949
</TABLE>
40
<PAGE> 41
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES (UNAUDITED)
The standardized measure of discounted future net cash flows relating
to proved oil and gas reserves was calculated based on prices and economic
conditions in effect at each respective year-end. The standardized measure of
discounted future net cash flows should not necessarily be equated with the
fair market value of the Company's oil and gas reserves.
<TABLE>
<CAPTION>
U.S. EGYPT TOTAL
---------- --------- ----------
(In thousands)
<S> <C> <C>
DECEMBER 31, 1993
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . $ 1,131 $ 227,891 $ 229,022
Future production and development costs . . . . . . . . . . . . (160) (76,491) (76,651)
Future Egyptian income tax expense . . . . . . . . . . . . . . -- (56,337) (56,337)
------- -------- ---------
Future net cash flows . . . . . . . . . . . . . . . . . . . 971 95,063 96,034
10% annual discount for estimated timing of net cash flow . . . (122) (41,130) (41,252)
------- -------- ---------
Standardized measure of discounted future net cash flows . . $ 849 $ 53,933 $ 54,782
======= ======== =========
DECEMBER 31, 1994
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . $ -- $ 372,285 $ 372,285
Future production and development costs . . . . . . . . . . . . -- (134,192) (134,192)
Future Egyptian income tax expense . . . . . . . . . . . . . . -- (89,393) (89,393)
------- -------- ---------
Future net cash flows . . . . . . . . . . . . . . . . . . . -- 148,700 148,700
10% annual discount for estimated timing of net cash flow . . . -- (68,661) (68,661)
------- -------- ---------
Standardized measure of discounted future net cash flows . . $ -- $ 80,039 $ 80,039
======= ======== =========
DECEMBER 31, 1995
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . $ -- $ 516,193 $ 516,193
Future production and development costs . . . . . . . . . . . . -- (180,725) (180,725)
Future Egyptian income tax expense . . . . . . . . . . . . . . -- (132,134) (132,134)
------- -------- --------
Future net cash flows . . . . . . . . . . . . . . . . . . . -- 203,334 203,334
10% annual discount for estimated timing of net cash flow . . . -- (73,975) (73,975)
------- --------- ---------
Standardized measure of discounted future net cash flows . . $ -- $ 129,359 $ 129,359
======= ======== =========
</TABLE>
Following are the principal sources of changes in the standardized
measure of discounted future net cash flows during the years shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
---------- --------- --------
(In thousands)
<S> <C> <C> <C>
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . $ 73,524 $ 54,782 $ 80,039
Sales and transfers, net of production costs . . . . . . . . . (16,461) (16,555) (17,012)
Net changes in sales prices, net of production costs . . . . . (21,181) 22,425 26,831
Extensions, discoveries and improved recovery,
net of future production and development costs . . . . . . . 5,015 22,048 48,250
Changes in estimated future development costs . . . . . . . . . (2,080) -- (16,971)
Accrued development costs incurred in the current year . . . . -- -- 4,142
Revisions of quantity estimates . . . . . . . . . . . . . . . . 10,447 (6,556) (7,831)
Accretion of discount . . . . . . . . . . . . . . . . . . . . . 7,353 5,393 8,004
Changes in production rates (timing) and other . . . . . . . . (1,835) (1,498) 3,907
------- ------- --------
Ending balance . . . . . . . . . . . . . . . . . . . . . . $ 54,782 $ 80,039 $ 129,359
======= ======= ========
</TABLE>
In the tables above, no U.S. income tax expense is provided due to the
utilization of net operating loss carryforwards, the availability of future
foreign tax credits and the insignificance of alternative minimum tax. Changes
in future Egyptian income taxes and the equal and offsetting amount of changes
in future cash inflows have been excluded.
41
<PAGE> 42
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES
(EXCLUDING CORPORATE OVERHEAD AND INTEREST)
(In thousands)
<TABLE>
<CAPTION>
U.S. EGYPT TOTAL
-------- -------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ 839 $ 21,463 $ 22,302
Revenues dedicated to foreign tax liability . . . . . . -- 10,578 10,578
------- ------- -------
Operating revenues . . . . . . . . . . . . . . . . . . 839 32,041 32,880
Production costs . . . . . . . . . . . . . . . . . . . . (228) (5,613) (5,841)
Depreciation, depletion and amortization . . . . . . . . (533) (1,361) (1,894)
Egyptian tax provision . . . . . . . . . . . . . . . . . -- (10,578) (10,578)
------- ------- -------
Results of operations from producing activities . . . . $ 78 $ 14,489 $ 14,567
======= ======= ========
YEAR ENDED DECEMBER 31, 1994
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ 108 $ 21,748 $ 21,856
Revenues dedicated to foreign tax liability . . . . . . -- 10,866 10,866
------- ------- -------
Operating revenues . . . . . . . . . . . . . . . . . . 108 32,614 32,722
Production costs . . . . . . . . . . . . . . . . . . . . (120) (5,181) (5,301)
Depreciation, depletion and amortization . . . . . . . . (212) (1,966) (2,178)
Egyptian tax provision . . . . . . . . . . . . . . . . . -- (10,866) (10,866)
------- ------- -------
Results of operations from producing activities . . . . $ (224) $ 14,601 $ 14,377
======= ======= ========
YEAR ENDED DECEMBER 31, 1995
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ -- $ 23,433 $ 23,433
Revenues dedicated to foreign tax liability . . . . . . -- 9,822 9,822
------- ------- -------
Operating revenues . . . . . . . . . . . . . . . . . . -- 33,255 33,255
Production costs . . . . . . . . . . . . . . . . . . . . -- (6,421) (6,421)
Depreciation, depletion and amortization . . . . . . . . -- (5,768) (5,768)
Egyptian tax provision . . . . . . . . . . . . . . . . . -- (9,822) (9,822)
------- ------- -------
Results of operations from producing activities . . . . $ -- $ 11,244 $ 11,244
======= ======= =======
</TABLE>
In the tables above, no U.S. income tax expense is provided due to the
utilization of net operating loss carryforward, the availability of future
foreign tax credits and the insignificance of alternative minimum tax.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
42
<PAGE> 43
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
The information required by this item is contained in the definitive
proxy material of the Company to be filed in connection with its 1996 Annual
Meeting of Stockholders, except for the information regarding executive
officers of the Company which is contained in Part I of this Annual Report on
Form 10-K. The information required by this item contained in such definitive
proxy material is incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this item is contained in the definitive
proxy statement of the Company to be filed in connection with its 1996 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the definitive
proxy statement of the Company to be filed in connection with its 1996 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the definitive
proxy statement of the Company to be filed in connection with its 1996 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
(a)(1) FINANCIAL STATEMENTS
See Index to Financial Statements of Registrant contained in Item 8 .. 24
(a)(2) FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statements of Registrant contained in Item 8 .. 24
(a)(3) EXHIBITS
3(a)(1) Restated Certificate of Incorporation of the Registrant,
Amended and Restated as of April 9, 1990, was filed as
Exhibit 3(a) to Annual Report on Form 10-K for the year ended
December 31, 1989, and is hereby incorporated herein by
reference.
3(a)(2) Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of The Phoenix Resource
Companies, Inc., as of May 11, 1992 was filed as Exhibit
3(a)(2) to Annual Report on Form 10- K for the year ended
December 31, 1992, and is hereby incorporated herein by
reference.
3(a)(3) Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of The Phoenix Resource
Companies, Inc., as of May 9, 1995.
43
<PAGE> 44
3(a)(4) Amended ByLaws of the Registrant as of April 9, 1990 were
filed as Exhibit 3(b) to Annual Report on Form 10-K for the
year ended December 31, 1989, and are hereby incorporated
herein by reference.
4 Specimen of certificate representing Common Stock, $0.01 par
value per share was filed as Exhibit 4(a) to Annual Report on
Form 10-K for the year ended December 31, 1992, and is hereby
incorporated herein by reference.
10(a)(1) 1990 Employee Stock Option Plan of the Registrant was filed
as Exhibit 10(a)(1) to Annual Report on Form 10-K for the
year ended December 31, 1989, and is hereby incorporated
herein by reference.
10(a)(2) 1990 Employee Stock Option Plan of the Registrant, as amended
through May 9, 1995.
10(a)(3) 1990 Nonemployee Director Stock Option Plan of the
Registrant, as amended through May 11, 1994 was filed as
Exhibit 10(a)(2) to Annual Report on Form 10-K for the year
ended December 31, 1994, and is hereby incorporated herein by
reference.
10(a)(4) Nonemployee Director Compensation Plan of the Registrant was
filed as Exhibit 99 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, and is hereby incorporated
herein by reference.
10(b)(1) Concession Agreement for Petroleum Exploration and
Exploitation in Khalda Area in the Western Desert of Egypt by
and among the Arab Republic of Egypt, the Egyptian General
Petroleum Corporation and Phoenix Resources Company was filed
as Exhibit 19(g) to Annual Report on Form 10-K for the year
ended December 31, 1984, and is hereby incorporated herein by
reference.
10(b)(2) Amendment to Concession Agreement for Petroleum Exploration
and Exploitation in Khalda Area in the Western Desert of
Egypt by and among the Arab Republic of Egypt, the Egyptian
General Petroleum Corporation and Phoenix Resources Company
was filed as Exhibit 10(d)(4) to Quarterly Report on Form
10-Q for the quarter ended June 30, 1989, and is hereby
incorporated herein by reference.
10(b)(3) Khalda Concession Area Farmout Agreement by and between
Phoenix Resources Company of Egypt and Conoco Khalda Inc.,
dated September 13, 1985, was filed as Exhibit 10.1 to
Registration Statement No. 33- 1069, and is hereby
incorporated herein by reference.
10(b)(4) Amendment to Khalda Concession Area Farmout Agreement by and
between Phoenix Resources Company of Egypt and Conoco Khalda
Inc. was filed as Exhibit 10(d)(5) to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1989, and is hereby
incorporated herein by reference.
10(c) Concession Agreement for Petroleum Exploration and
Exploitation Between The Arab Republic of Egypt and Egyptian
General Petroleum Corporation and Phoenix Resources Company
of Qarun and Apache Oil Egypt, Inc. in the Qarun Area,
Western Desert, A.R.E. was filed as Exhibit 10(b) to Annual
Report on Form 10- K for the year ended December 31, 1993,
and is hereby incorporated herein by reference.
10(d) Loan Agreement between Phoenix Resources Company of Qarun and
International Finance Corporation, dated January 26, 1996.
10(e)(1) Employment and Severance Agreement dated April 19, 1994,
effective April 24, 1994, by and between the Registrant and
George D. Lawrence Jr. was filed as
44
<PAGE> 45
Exhibit 10 to Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994, and is hereby incorporated herein by
reference.
10(e)(2) Employment Agreement dated January 1, 1995, by and between
the Registrant and Mark W. Anschutz was filed as Exhibit
10(d)(2) to Annual Report on Form 10-K for the year ended
December 31, 1994, and is hereby incorporated herein by
reference.
10(e)(3) Employment Agreement dated January 1, 1995, by and between
the Registrant and John E. Bruno was filed as Exhibit
10(d)(3) to Annual Report on Form 10-K for the year ended
December 31, 1994, and is hereby incorporated herein by
reference.
10(e)(4) Employment Agreement dated January 1, 1995, by and between
the Registrant and Inmann T. Dabney, Jr. was filed as
Exhibit 10(d)(4) to Annual Report on Form 10-K for the year
ended December 31, 1994, and is hereby incorporated herein by
reference.
10(e)(5) Employment Agreement dated January 1, 1995, by and between
the Registrant and Cheryl A. Rich was filed as Exhibit
10(d)(5) to Annual Report on Form 10-K for the year ended
December 31, 1994, and is hereby incorporated herein by
reference.
10(e)(6) Employment Agreement dated January 1, 1995, by and between
the Registrant and Michael C. Nemec was filed as Exhibit
10(d)(6) to Annual Report on Form 10-K for the year ended
December 31, 1994, and is hereby incorporated herein by
reference.
21 Subsidiaries of Registrant.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Netherland, Sewell & Associates, Inc.
27 Financial Data Schedule.
The exhibits listed herein will be furnished to any security holder upon
written request for such exhibit, to the Corporate Secretary, The Phoenix
Resource Companies, Inc., 6525 North Meridian Avenue, Suite 102, Oklahoma City,
Oklahoma 73116-1491, and payment of any reasonable expenses incurred by the
Company.
(b) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed by the Registrant during the
fourth quarter of 1995.
45
<PAGE> 46
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
George D. Lawrence Jr. and Patricia J. Murano, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE PHOENIX RESOURCE COMPANIES, INC.
(Registrant)
By /s/ George D. Lawrence Jr.
-------------------------------
George D. Lawrence Jr.
President and Chief Executive Officer
Date: February 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ George D. Lawrence Jr.
-----------------------------------
George D. Lawrence Jr.
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: February 29, 1996
By: /s/ Cheryl A. Rich
-----------------------------------
Cheryl A. Rich
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 29, 1996
46
<PAGE> 47
By: /s/ Joseph A. Pardo
-----------------------------------
Joseph A. Pardo
Chairman of the Board of Directors
Date: February 29, 1996
By: /s/ Francis L. Durand
-----------------------------------
Francis L. Durand
Director
Date: February 29, 1996
By: /s/ Lawrence M. Miller
-----------------------------------
Lawrence M. Miller
Director
Date: February 29, 1996
By: /s/ Rex A. Sebastian
-----------------------------------
Rex A. Sebastian
Director
Date: February 29, 1996
47
<PAGE> 48
SCHEDULE II
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
<TABLE>
<CAPTION>
Balance at Balance
Beginning at End
of Year Additions Deductions of Year
-------------- --------- ---------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts . . . . . . . . $ 88 $ -- $ 88 $ --
Deferred tax asset valuation allowance . . . . . 76,574 -- 3,498 73,076
YEAR ENDED DECEMBER 31, 1994
Deferred tax asset valuation allowance . . . . . $ 73,076 $ -- $ 5,030 $ 68,046
YEAR ENDED DECEMBER 31, 1995
Deferred tax asset valuation allowance . . . . . $ 68,046 $ -- $ 1,113 $ 66,933
</TABLE>
S-1
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
<S> <C> <C>
3(a)(3) Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant, as of May 9, 1995 . . . . . . . . . . . . . . . 50
10(a)(2) 1990 Employee Stock Option Plan of the Registrant, as amended
through May 9, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10(d) Loan Agreement between Phoenix Resources Company of Qarun and
International Finance Corporation, dated January 26, 1996 . . . . . . . . . . . 52
21 Subsidiaries of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
23(a) Consent of Arthur Andersen LLP. . . . . . . . . . . . . . . . . . . . . . . . . 190
23(b) Consent of Netherland, Sewell & Associates, Inc. . . . . . . . . . . . . . . . . 191
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
</TABLE>
<PAGE> 1
EXHIBIT 3(a)(3)
CERTIFICATE OF AMENDMENT
TO THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THE PHOENIX RESOURCE COMPANIES, INC.
(PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE)
The Phoenix Resource Companies, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), hereby certifies the following:
FIRST: That Article 4.01 of the Amended and Restated Certificate
of Incorporation of the Corporation be, and hereby is, amended to read in its
entirety as follows:
Authorized Shares. The total number of shares of all classes of stock
that the Corporation shall have authority to issue is 25,000,000, of
which 20,000,000 shall be common stock, par value $.01 per share, and
5,000,000 shall be preferred stock, par value $.01 per share. The
number of authorized shares of common stock and preferred stock may be
increased or decreased by the affirmative vote of the holders of at
least a majority of the shares of the CorporationGs capital stock then
entitled to vote in an election of directors, without a separate vote
of holders of preferred stock as a class. Each share of common stock
shall entitle its holder to one vote.
SECOND: That the foregoing amendment to Article IV of the Amended
and Restated Certificate of Incorporation and resolution pertaining thereto was
duly adopted by the Board of Directors of the Corporation in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
THIRD: That the foregoing amendment to Article IV of the Amended
and Restated Certificate of Incorporation was duly adopted and approved by the
stockholders of the Corporation entitled to vote thereon, in accordance with
the provisions of the Amended and Restated Certificate of Incorporation and
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this instrument has been executed for, on behalf
of, and in the name of the Corporation by its officers thereunto duly
authorized on May 9, 1995.
THE PHOENIX RESOURCE COMPANIES, INC.
By: /s/ George D. Lawrence Jr.
-----------------------------------
George D. Lawrence Jr., President
ATTEST: and Chief Executive Officer
By: /s/ Patricia J. Murano
-----------------------------
Patricia J. Murano, Secretary
<PAGE> 1
EXHIBIT 10(a)(2)
AMENDMENT NUMBER ONE
TO
THE 1990 EMPLOYEE STOCK OPTION PLAN
(AMENDED TO REFLECT SEPTEMBER 1995 TWO-FOR-ONE SPLIT)
THIS AMENDMENT NUMBER ONE TO THE 1990 EMPLOYEE STOCK OPTION PLAN OF
THE PHOENIX RESOURCE COMPANIES, INC. (the "Option Plan Amendment") is made as
of May 9, 1995 (the "Effective Date").
WHEREAS, The Phoenix Resource Companies, Inc. (the "Company") adopted
the 1990 Employee Stock Option Plan (the "Plan"), pursuant to which employees
of the Company are eligible to receive options.
WHEREAS, the Plan provides that the stockholders of the Company have
the right to amend the Plan.
WHEREAS, at the 1995 Annual Meeting of Stockholders, the stockholders
of the Company approved an amendment to a provision of the Plan, which is set
forth in this Amendment.
NOW, THEREFORE, the Plan is amended as set forth below:
1. Section 4 of the Plan is hereby amended by adding the following
at the end of the first sentence thereof:
Pursuant to Amendment Number One of the Plan, approved by
the stockholders at its 1995 Annual Meeting, an additional
600,000 shares of Common Stock, par value $.01 per share,
of the Company shall be subject to this Plan, subject to
adjustment as provided in Paragraph 9 hereof.
2. Except as specifically amended as set forth above, all of the
other terms and provisions of the Plan shall remain in full force and effect.
THE PHOENIX RESOURCE COMPANIES, INC.
By: /s/ George D. Lawrence Jr.
-----------------------------------
George D. Lawrence Jr., President
and Chief Executive Officer
<PAGE> 1
Exhibit 10(d)
-------------------------------------------------------------
INVESTMENT NUMBER 7422
Loan Agreement
between
PHOENIX RESOURCES COMPANY OF QARUN
and
INTERNATIONAL FINANCE CORPORATION
Dated January 26, 1996
-------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Definitions and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 1.03. Business Day Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
The Project, Project Cost and Financial Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.01. The Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.02. Project Cost and Financial Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.01. The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.02. Disbursement Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.03. A Loan Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.04. B Loan Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 3.05. Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 3.06. Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.07. Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.08. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.09. Payments in Dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.10. Allocation of partial Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.11. Maintenance Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.12. Funding Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.13. Suspension or Cancellation of disbursements by IFC . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.14. Cancellation by the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.16. Illegality of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.01. Borrower's Letter of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.02. Other Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.03. IFC Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.04. Rights and Remedies not Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Conditions of Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 5.01. Initial Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 5.02. Conditions of each Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 5.03. Other Disbursement Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.04. Borrower Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.05. Conditions for IFC Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.06. Saving of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Particular Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.02. Minimum Retention Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.03. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 6.04. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 6.05. Document Taxes etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.01. Acceleration after Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.02. Events of default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.03. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 7.04. Notice of events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.02. English Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.03. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
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Section 8.04. Financial Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.05. Termination of agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.06. Jurisdiction and enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.07. Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.08. Successors and assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.09. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.11. Remedies and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ANNEX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Information for Annual Operations Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ANNEX 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ANNEX 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
ANNEX 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Anti-substantive Consolidation Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
ANNEX 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Debt Reserve Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SCHEDULE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Form of Request for Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SCHEDULE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Form of Loan Disbursement Receipt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SCHEDULE 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Form of Certificate of Incumbency and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
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SCHEDULE 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Form of Letter to Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SCHEDULE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Form of Guarantor Disbursement Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
SCBEDULE 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Post-Completion Guarantee Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
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<PAGE> 6
LOAN AGREEMENT
AGREEMENT, dated January 26, 1996, between:
(1) PHOENIX RESOURCES COMPANY OF QARUN, a company incorporated
under the laws of the State of Delaware, United States of America (the
"Borrower"); and
(2) INTERNATIONAL FINANCE CORPORATION, an international
organization established by Articles of Agreement among its member countries
("IFC").
ARTICLE I
Definitions and Interpretation
Section 1.01. Definitions. Wherever used in this Agreement, unless the context
otherwise requires, the following terms have the meanings opposite them:
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"A Loan" the loan specified in Section 3.01(a) or, as the context requires, its principal
amount from time to time outstanding;
"A Loan
Disbursement" any disbursement of the A Loan;
"A Loan
Interest Rate" for any Interest Period, the rate of interest payable on the A Loan during that
Interest Period determined in accordance with Section 3.03;
"Accounting
Principles" generally accepted accounting principles in the United States consistently applied;
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"Affiliate" any entity directly or indirectly controlling, controlled by or under common control
with, the Borrower (for purposes of this definition, "control" means the power to
direct the management or policies of an entity, directly or indirectly, whether
through the ownership of securities, by contract or otherwise (provided that the
direct or indirect ownership of 20% or more of the share capital of an entity is
deemed to constitute control of that entity), and "controlling" and "controlled" have
corresponding meanings);
"Apache Egypt" Apache Oil Egypt, Inc., a company incorporated under the laws of the State of Delaware;
"Approved Program
and Budget" any "Program" and "Budget" (as such terms are defined in the Joint Operating
Agreement) approved by the Management Committee in accordance with the provisions of
the Joint Operating Agreement;
"Auditors" Arthur Andersen & Co., or such other firm of independent public accountants as the
Borrower, with IFC's consent (which shall not be unreasonably withheld or delayed),
from time to time appoints as its auditors;
"Authority" any government or governmental, administrative, fiscal, judicial, or government-owned
body, department, commission, authority, tribunal, agency or entity;
"Authorization" includes any consent, registration, filing, agreement, notarization, certificate,
license, approval, permit, authority or exemption from, by or with any Authority,
whether given or withheld by express action or deemed given or withheld by failure to
act within any specified time period and all corporate, creditors and stockholders'
approvals or consents;
"Authorized
Financial
Officer" in relation to the Borrower, its President or Chief Financial Officer;
"Authorized
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Person" in relation to any Person, any officer of such Person appointed by it to act on its
behalf in relation to this Agreement and the other Transaction Documents and, in the
case of the Borrower, whose name and specimen signature appears on the certificate of
incumbency and authority, substantially in the form of Schedule 3, most recently
delivered to IFC by the Borrower;
"bbl" and "bbl/d" barrels of oil and barrels of oil per day;
"B Loan" the loan specified in Section 3.01(b) or, as the context requires, its principal
amount from time to time outstanding;
"B Loan
Disbursement" any disbursement of the B Loan;
"B Loan
Interest Rate" for any Interest Period, the rate of interest payable on the B Loan during that
Interest Period determined in accordance with Section 3.03;
"Borrower's Letter
of Information" the letter, dated September 15, 1995, addressed by the Borrower to IFC and containing
material information and representations concerning the Borrower, the Project, the
Financial Plan, the organization, operations, affiliations, liabilities and assets
(including any Liens on those assets) of the Borrower and any other relevant matters,
and any amendment or supplement to such letter which is acceptable to IFC;
"Borrowers" the Borrower and Apache Egypt;
"Business Day" a day when banks are open for business in New York City and, for the purpose of
determining the A Loan Interest Rate and the B Loan Interest Rate, London, England as
well;
"Cash Call" is defined in Article 1 of the Joint Operating Agreement;
"Cash Calls
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Reserve
Account" is defined in Section 2.01(a)(iii) of the Trust Agreement;
"Code" the U.S. Internal Revenue Code of 1986, as amended from time to time, and the
regulations promulgated and rulings issued thereunder. Section references to the Code
are to the Code, as in effect from time to time;
"Concession" the exclusive concession for the exploration and exploitation of Hydrocarbons in the
Concession Area granted by the Government pursuant to the Concession Agreement;
"Concession
Agreement" the Concession Agreement for Petroleum Exploration and Exploitation, signed by virtue
of Egyptian Law No. 113 of 1993 on May 17, 1993 between Egypt, EGPC, Phoenix Qarun and
Apache Egypt, as amended by the Agreement for Amending the Gas Price Provisions signed
by virtue of Egyptian Law No. 35 of 1994 on June 16, 1994;
"Concession Area" the area of 7,800 square kilometers located approximately 160 kilometers southwest of
Cairo in Egypt in the Western Desert, known as the Qarun Concession Area, as described
in Annexes A and B of the Concession Agreement;
"Corrupt
Practices Acts" the Foreign Corrupt Practices Act of the United States and any similar law of the Arab
Republic of Egypt, as amended from time to time;
"Debt" any obligation (whether actual or contingent) of the Borrower to pay or repay money
including, without limitation:
(i) all Indebtedness for Money Borrowed, excluding any subordinated indebtedness
to the extent permitted under Section 6.03(a)(ii);
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(ii) the aggregate amount then outstanding of all liabilities of any party to the
extent the Borrower guarantees them;
(iii) all liabilities of the Borrower (actual or contingent) under any conditional
sale or a transfer with recourse or obligation to repurchase, including,
without limitation, by way of discount or factoring of book debts or
receivables; and
(iv) the deferred purchase price of assets or services (other than assets or
services obtained on commercial terms in the ordinary course of business);
"Debt Reserve
Letter of Credit" an irrevocable letter of credit issued by an Eligible Bank for the benefit of IFC, the
terms of which shall comply with the provisions set out in Annex 5, and which shall
otherwise be in form and substance acceptable to IFC;
"Debt Reserve
Support Method" any one of the three methods for the maintenance of the Minimum Retention Amount
specified in Section 6.02 (a);
"Debt Service
Coverage Ratio" for any calculation date, the quotient obtained by dividing:
(i) the projected Net Cash Flow in the period of four consecutive Fiscal Quarters
commencing with the Fiscal Quarter in which such date occurs plus the Minimum
Retention Amount as of such date; by
(ii) the aggregate of all scheduled payments of principal of, and interest on, the
Loan falling due in the same period (assuming, if LIBOR has not been
determined for any part of such period, that LIBOR in effect on such
calculation date will remain in effect throughout such period);
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"Deed of
Assignment" the Deed of Assignment, dated July 1, 1994, between Apache Egypt and GNR Egypt and
accepted and approved by Egypt and EGPC;
"Deed of
Assumption" the Deed of Assumption, executed November 22, 1994 but effective July 1, 1994, among
GNR Egypt, the Borrower and Apache Egypt;
"Development
Leases" is defined in the Concession Agreement;
"Development Plan" the plan entitled Qarun Field, Development Plan, describing the Project and its
implementation, attached as Annex B to the Borrower's Letter of Information;
"Disbursement" an A Loan Disbursement or a B Loan Disbursement or both, as the context requires;
"Discount Rate" ten per cent (1O%) per annum;
"Dollars" and
the sign "$" the lawful currency of the United States of America;
"Early Production
Agreement" the Letter of Understanding dated August 13, 1995 between the Borrower and EGPC;
"EGPC" the Egyptian General Petroleum Corporation, a legal entity established by Egyptian Law
No. 167 of 1958 (as amended);
"Egypt" the Arab Republic of Egypt;
"Eligible Bank" a major international bank, acceptable to IFC, having a combined capital and surplus
of not less than $1,000,000,000 and rated not less than AA- by The Standard and Poor's
Corporation or the equivalent of such rating by Moody's Investors Services, Inc. or
Duff and Phelps;
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"Engagement
Agreement" the agreement made or to be made between the Borrowers and the Independent Engineer,
substantially in the form of the draft a copy of which has been initialed by the
Borrowers and IFC for the purpose of identification;
"Environmental
Impact
Assessment" the assessment of the environmental impact of the Project prepared in connection with
the Project, contained in a document dated May 1995 delivered by the Borrower to IFC;
"Environmental
Requirements" the environmental, occupational health and safety policies, standards and guidelines
of the World Bank set out in the Environmental Impact Assessment and those of the
Government or any Authority of Egypt applicable from time to time;
"ERISA" the U.S. Employee Retirement Income Security Act of 1974, as amended from time to
time, and the regulations promulgated and rulings issued thereunder. Section
references to ERISA are to ERISA, as in effect from time to time;
"ERISA Affiliate" each person (as defined in Section 3(9) of ERISA) which together with the Guarantor,
Phoenix International or the Borrower or a Subsidiary of any of the foregoing would be
deemed to be a "single employer":
(i) within the meaning of Section 414(b),(c), (m) or (o) of the Code; or
(ii) as a result of the Guarantor, Phoenix International or the Borrower or a
Subsidiary of any of the foregoing being or having been a general partner of
such person;
"Event of Default" any one of the events specified in Section 7.02;
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"Farmout
Agreement" the Qarun Farmout Agreement, dated July 25, 1994, between Apache Egypt and GNR Egypt;
"Financial Plan" the proposed sources of financing for the Project set out in Section 2.02(c);
"Financial
Statements" with respect to any Person, such Person's quarterly or, as the context requires,
annual balance sheet, income statement, reconciliation of retained earnings and
statement of changes in cash flows for such fiscal period and, in the case of
quarterly financial statements, for the portion of the fiscal year ended at the end of
such fiscal quarter, together with all notes thereto, with comparable figures for the
corresponding periods of, or date in, its previous fiscal year, each prepared in
accordance with the Accounting Principles;
"Fiscal Quarter" a calendar quarter;
"Fiscal Year" the accounting year of the Borrower commencing each year on January 1 and ending on
December 31 in such year, or such other accounting period of the Borrower as the
Borrower, with IFC's consent, from time to time designates as its accounting year;
"GNR Egypt" GNR (Egypt) Limited, a wholly owned subsidiary of Global Natural Resources Inc.;
"Government" the Government of Egypt;
"Government
Approvals" all authorizations, consents, decrees, permits, waivers, privileges, approvals from
and filings with all Authorities necessary for the realization of the Project in
accordance with the Transaction Documents;
"Guarantee
Agreements" together:
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(i) the Performance and Pre-Completion Guarantee Agreement; and
(ii) the Post-Completion Guarantee Agreement (if delivered);
"Guarantor" Phoenix Resource in its capacity as guarantor under the Performance and Pre-Completion
Guarantee Agreement or, as the case may be, the Post-Completion Guarantee Agreement;
"Guarantor
Disbursement
Certificate" a certificate by the Guarantor, substantially in the form set out in Schedule 5;
"Guarantor's Letter
of Information" the letter, dated September 15, 1995, addressed by the Guarantor to IFC and containing
material information and representations concerning the Guarantor, the organization,
operations, affiliations, liabilities and assets (including any Liens on those assets)
of the Guarantor and other matters, and any amendment or supplement to such letter
which is acceptable to IFC;
"Hydrocarbons" is defined in Section 1.2 of the Security Agreement;
"ICA" the United States Investment Company Act of 1940, as amended;
"Indebtedness for
Money Borrowed" as of any date of determination, with respect to the Borrower and without duplication:
(i) any indebtedness for borrowed money then outstanding;
(ii) the outstanding principal amount of any bonds, notes, loan stock, commercial
paper, acceptance credits, debentures and bills or promissory notes
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drawn, accepted, endorsed or issued by the Borrower;
(iii) any credit to the Borrower from a supplier of goods or under any installment
purchase or other similar arrangement in respect of goods or services (except
trade accounts payable within 90 days in the ordinary course of business);
(iv) non-contingent obligations of the Borrower to reimburse any other person in
respect of amounts paid under a letter of credit or similar instrument
(excluding any such letter of credit or similar instrument issued for the
benefit of the Borrower in respect of trade accounts in the ordinary course of
business);
(v) amounts raised under any other transaction having the commercial effect of a
borrowing and which would be classified as a borrowing (and not as an off-
balance sheet financing) under the Accounting Principles including, without
limitation, under leases or similar arrangements entered into primarily as a
means of financing the asset leased;
(vi) any fixed or minimum premium payable on a redemption or replacement of any of
the foregoing obligations; and
(vii) obligations in respect of margin calls pursuant to commodities or financial
futures contracts;
"Independent
Engineer" Netherland, Sewell & Associates, Inc. or such other independent, qualified engineering
firm from time to time agreed in writing between the Borrowers and IFC;
"Interest
Determination
Date" the second Business Day before the beginning of each Interest Period;
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"Interest
Payment Date" June 15 or December 15 of each year;
"Interest Period" each six month period beginning on an Interest Payment Date and ending on the day
immediately before the next following Interest Payment Date; except in the case of the
first period applicable to each Disbursement when it shall mean the period beginning
on the date on which that Disbursement is made and ending on the day immediately
before the next following Interest Payment Date;
"Joint Operating
Agreement" the Joint Operating Agreement dated January 1, 1993 between the Borrower and Apache
Egypt, the obligations of which, insofar as they relate to the participating interest
in the Concession assigned to GNR Egypt by the Farmout Agreement, were accepted and
assumed by GNR Egypt by the Deed of Assumption;
"Letters of
Information" together, the Borrower's Letter of Information and the Guarantor's Letter of
Information;
"Lien" any mortgage, pledge, charge, assignment, hypothecation, security interest, title
retention, preferential right, trust arrangement, right of set-off, counterclaim or
bankers hen, privilege or priority of any kind having the effect of security,
including, without limitations any designation of loss payees or beneficiaries or any
similar arrangement under any insurance policy relating to the transactions
contemplated by this Agreement;
"Life of Loan
Coverage Ratio" for any calculation date, the ratio expressed as a percentage obtained by dividing:
(i) the present value, based on the Discount Rate, of the Borrower's projected Net
Cash Flow derived from the Proven Reserves as of such calculation date in the
period commencing on such calculation date and
</TABLE>
<PAGE> 17
- 12 -
<TABLE>
<S> <C>
ending on the date of the final scheduled maturity of the A Loan plus the
Minimum Retention Amount as of such calculation date; by
(ii) the aggregate amount of principal of the A Loan and the B Loan outstanding on
such calculation date;
"Loan" collectively, the A Loan and the B Loan provided for in Section 3.01 or, as the context requires,
the principal amount of the A Loan and the B Loan outstanding from time to time;
"Loan Obligations" all obligations of the Borrower under this Agreement for the payment to IFC of:
(i) principal of, and interest on, the Loan; and
(ii) all other amounts, including interest, fees, Maintenance Amount, indemnities,
costs and expenses, in respect of or in relation to, the Loan, this Agreement
or any other Transaction Document;
"Long-term Debt" as of the date of determination, that part of the Debt the final maturity of which, by
its terms or the terms of any agreement relating to it, falls due more than one year
after the date of its incurrence;
"Maintenance
Amount" the amount certified in the Maintenance Amount Certification to be IFC's or any
Participant's net incremental costs of making or maintaining the Loan or its
Participation which result from:
(i) any change in any applicable law or regulation or directive (whether or not
having force of law) or in its interpretation or application by any Authority
charged with its administration; or
(ii) compliance with any request from, or requirement of, any central bank or other
monetary or other Authority;
</TABLE>
<PAGE> 18
- 13 -
<TABLE>
<S> <C>
which in any case, after the date of this Agreement:
(A) imposes, modifies or makes applicable any reserve, special deposit or
similar requirement, against assets held by, or deposits with or for
the account of, or loans made by IFC or such Participant;
(B) imposes a cost on IFC or such Participant as a result of its having
made the Loan (or, in the case of the Participant, acquired its
Participation) or reduces the rate of return on the overall capital
of IFC or the Participant which it would have achieved, had it not
made the Loan or acquired the Participation;
(C) changes the basis of taxation on payments received by IFC in respect
of the Loan or by the Participant in respect of its Participation
(otherwise than by a change in taxation of the overall net income of
IFC or the Participant imposed by the jurisdiction of its
incorporation or in which it books its Participation or in any
political subdivision of any such jurisdiction); or
(D) imposes on IFC or the Participant any other condition regarding the
making or maintaining of its Loan or Participation;
but excluding any incremental costs of making or maintaining a Participation which are
a direct result of a Participant having its principal office in Egypt or having or
maintaining a permanent office or establishment in Egypt, if and to the extent that
permanent office or establishment acquires the Participation;
</TABLE>
<PAGE> 19
- 14 -
<TABLE>
<S> <C>
"Maintenance
Amount
Certification" a certification furnished from time to time by IFC, or to IFC
by any Participant, certifying:
(i) the circumstances giving rise to the Maintenance Amount;
(ii) that the Participant's or IFC's net costs have
increased;
(iii) that, in the opinion of IFC or, as the case may be,
the Participant, it has exercised reasonable efforts to
minimize or eliminate such increase; and
(iv) the Maintenance Amount;
"Management
Committee" the Management Committee appointed pursuant to Article 8
of the Joint Operating Agreement;
"Material Adverse
Effect" a material adverse effect on:
(i) the ability of the Borrower or any other party to a Transaction Document to
observe and perform its obligations under any Transaction Document to which it
is a party in a timely manner; or
(ii) the performance, operations or financial condition of the Project;
"Minimum Retention
Amount" as of any determination date, the aggregate amount of all principal of, and interest
(computed at the interest rate or rates then in effect) on the Loan due and payable in
the six months next following such date, excluding any amount due on such date;
"Minimum Retention
Amount Notice" is defined in Section 6.02(a);
</TABLE>
<PAGE> 20
- 15 -
<TABLE>
<S> <C>
"Net Cash Flow" for any period:
(i) all proceeds from the sale of the Borrower's proportionate share of the
Concession's production of Hydrocarbons in such period; less
(ii) the aggregate of:
(A) Permitted Operating Expenses; and
(B) Permitted Capital Expenses.
For the purpose of this definition, the initial oil price will be assumed to be $16
per barrel in 1995 and the inflation assumption for Permitted Operating Expenses and
Permitted Capital Expenses as well as the future oil price will be at the rate of 3%
per annum;
"Operating
Company" Qarun Petroleum Company, a joint stock company established on August 13, 1995 pursuant
to Article VI of the Concession Agreement;
"Participant" any person who acquires a Participation;
"Participation" the investment of a Participant in the B Loan, or as the context requires, in a B Loan
Disbursement;
"Participation
Agreement" an agreement between IFC and a Participant pursuant to which the Participant acquires
a Participation;
"Performance and
Pre-Completion
Guarantee
Agreement" the Performance and Pre-Completion Guarantee Agreement, dated as of the date of this
Agreement, between Phoenix Resource and IFC, substantially in the form of the draft a
copy of which has been initialled by the Borrower and IFC for identification;
</TABLE>
<PAGE> 21
- 16 -
<TABLE>
<S> <C>
"Permitted Capital
Expenses" for any period, the Borrower's proportionate share of
Project capital expenditures included in the relevant Approved Program and
Budget, including development expenditures but excluding exploration
expenditures;
"Permitted Liens" together:
(i) Liens created under the Security Documents;
(ii) Liens for any tax, assessment or other governmental charge not yet
due or being contested in good faith and by appropriate proceedings,
so long as:
(A) such proceedings shall not involve any substantial danger of
the sale, forfeiture or loss of any part of the Project,
title thereto or any interest therein, nor interfere in any
material respect with the use or disposition of the Project;
and
(B) with respect to any such proceeding involving an amount of
$500,000 or more, a bond or other security acceptable to IFC
has been posted or provided in such manner and amount as to
assure IFC that any taxes, assessments or other charges
determined to be due will be promptly paid in full when such
contest is determined;
(iii) retentions of title in favor of materialmen, workers or repairmen, or
other like Liens arising in the ordinary course of business in
connection with the implementation of the Project, either for:
(A) amounts not yet due;
</TABLE>
<PAGE> 22
- 17 -
<TABLE>
<S> <C> <C>
(B) amounts which are not more than thirty (30) days past due; or
(C) for amounts being contested in good faith and by appropriate
proceedings so long as;
(x) such proceedings shall not involve any substantial
danger of the sale, forfeiture or loss of any part
of the Project, title thereto or any interest
therein, and shall not interfere with the use or
disposition of the Project; and
(y) with respect to any such proceeding involving an
amount of $500,000 or more, a bond or other security
acceptable to IFC has been posted or provided in
such manner and amount as to assure IFC that any
amounts determined to be due will be promptly paid
in full when such contest is determined;
(iv) Liens arising out of judgments or awards so long as an appeal or
proceeding for review is being prosecuted in good faith and for the
payment of which adequate reserves, bonds or other security
acceptable to IFC have been provided or are fully covered by
insurance;
(v) Liens arising out of pledges or deposits under workers' compensation
laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation;
(vi) Liens arising under the Concession Agreement, the Joint Operating
Agreement, or any of the Project Documents in respect of.
</TABLE>
<PAGE> 23
- 18 -
<TABLE>
<S> <C> <C>
(A) obligations or amounts which are not yet due;
(B) obligations or amounts which are not more than 30 days past
due; or
(C) obligations or amounts being contested in good faith and by
appropriate proceedings so long as such proceedings shall not
involve any substantial danger of the sale, forfeiture or
loss of any part of the Project, title thereto or any
interest therein, and shall not interfere with the use of or
disposition of the Project.
"Permitted
Maintenance
Expenses" for any period, those Permitted Capital Expenses relating to the repair and
maintenance of the Project;
"Permitted
Operating
Expenses" for any period, the Borrower's proportionate share of noncapital operating
expenses for the Project but excluding Permitted Capital Expenses, principal,
interest and other financing expenses, any other management and overhead
expenses and all non-cash expenses;
"Person" any natural person, corporation, partnership, firm association, Authority or
any other entity whether acting in an individual, fiduciary or other capacity;
"Phoenix
International" Phoenix Resources Company International, a company incorporated under the laws
of the State of Delaware, the parent of the Borrower;
"Phoenix
Resource" The Phoenix Resource Companies, Inc., a company incorporated under the laws of
the State of Delaware, the parent of Phoenix International;
</TABLE>
<PAGE> 24
- 19 -
<TABLE>
<S> <C>
"Plan" any "employee benefit plan" as defined in Section 3(3) of ERISA or any "Plan"
as defined in Section 4975(e)(1) of the Code;
"Pledge Agreement" the Pledge Agreement, dated as of the date of this Agreement, between Phoenix
International and IFC, substantially in the form of the draft a copy of which
has been initialed by the Borrower and IFC for identification;
"Pledged Shares" is defined in the Pledge Agreement;
"Post-Completion
Guarantee
Agreement" the Post-Completion Guarantee Agreement, between Phoenix Resource and IFC,
substantially in the form of the draft, a copy of which is set out in Schedule
6;
"Potential Event
of Default" any event or circumstance which would, with notice, lapse of time or both,
become an Event of Default;
"Pre-Completion
Margin" two and three-eighths per cent (2-3/8%) per annum;
"Proceeds Account" is defined in Section 2.01(a)(i) of the Trust Agreement;
"Project" the project described in Section 2.01;
"Project
Completion Date" the date, determined as provided below, on which all of the
following requirements are satisfied to IFC's reasonable satisfaction:
(i) the Project facilities and development wells have been properly
constructed installed, drilled, completed, tested and commissioned in
accordance with the Development Plan (as it may be updated) and good
international oil industry practices, and are fully operational;
</TABLE>
<PAGE> 25
- 20 -
<TABLE>
<S> <C> <C>
(ii) the Operating Company has accepted all contractors' work and
equipment without reservation other than "punch list" items
that do not materially affect Project operations, and all amounts then due
and payable to all suppliers and contractors have been paid in full
with no material outstanding claims by them;
(iii) the Project facilities have satisfied all contracted performance
criteria (including a minimum level of production of 35,000 bbl/d of
crude oil), output quality and consumption of raw materials;
(iv) the Project facilities have been constructed in accordance with, and
are operating in compliance with, the Environmental Requirements;
(v) the Project has (in accordance with the Development Plan, good
international oil industry practices, prudent long term extraction
plans, and applicable laws) for a period of 90 consecutive days:
(A) produced, processed and delivered at the Dashour Booster
Station of the SUMED pipeline an average of 28,000 bbl/d of
crude oil; and
(B) achieved a production and delivery rate of at least 30,000
bbl/d during at least seven consecutive days of such period;
(vi) the aggregate of the Proven Reserves plus all Hydrocarbons produced
from the Concession to such date is at least 60 million bbl;
(vii) no legal or administrative action in any court or tribunal or by any
Authority is pending, or to the Borrower's best knowledge is
threatened, which would materially and adversely affect the Project;
</TABLE>
<PAGE> 26
- 21 -
<TABLE>
<S> <C> <C>
(viii) all Authorizations, including all permits and consents of Egypt and
any Authority of Egypt required for the operation of the Project and
all other laws, certificates, rights of way and approvals, which are
or will be required to install and operate the Project facilities
have been obtained and are in full force and effect;
(ix) the Transportation Agreement, if required, and the Terminalling
Agreement, if required, has or have been entered into and is or are
in full force and effect;
(x) no Event of Default or Potential Event of Default has occurred and is
continuing;
(xi) the Minimum Retention Amount is available in full under a Debt
Reserve Support Method established in accordance with Section 6.02;
(xii) IFC has received:
(A) a notice signed by an Authorized Person of the Borrower,
certifying that the requirements set out in paragraphs (i)
through (vi) above have occurred and that the requirements
set out in paragraphs (vii) through (x) above have been
satisfied (the "Project Completion Date Certificate");
(B) a certificate from the Independent Engineer that the
requirements set out in paragraphs (i), (iii), (v) and (vi)
above have been satisfied;
(C) a certificate from Environmental Enterprises, Cairo, (or
another independent qualified environmental consulting firm
acceptable to IFC) that the requirements set out in paragraph
(iv) above have been satisfied;
</TABLE>
<PAGE> 27
- 22 -
<TABLE>
<S> <C>
(D) a certificate from the Auditors that the Borrower is, as of
the date of such certificate, in compliance with its
financial covenants contained in Sections 6.01 (s) and 6.03
(a), (g), (j), (o), (p) and (r) as applicable at such date;
and
(E) a certificate from the Borrower that it is in compliance with
the covenants contained in Section 6.03 (b), (d), (e), (f),
(h), (i), (k), (1), (m), (n), (q), (s) and (t); and
(xiii) IFC has delivered the Project Completion Notice, such delivery not to
be unreasonably withheld or delayed;
"Project
Completion Date
Certificate" is defined in paragraph (xii) (A) of the definition of "Project Completion
Date";
"Project Completion
Notice" the notice to be delivered by IFC to the Borrower stating that the Project
Completion Date Certificate and related certificates from the Independent
Engineer and the Auditors received by IFC are acceptable to it;
"Project
Documents" together:
(i) the Concession Agreement;
(ii) the Joint Operating Agreement;
(iii) the Early Production Agreement;
(iv) the Transportation Agreement, if any;
(v) the Terminalling Agreement, if any;
(vi) the Engagement Agreement;
</TABLE>
<PAGE> 28
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<TABLE>
<S> <C>
(vii) the Service Contract;
(viii) the Deed of Assignment;
(ix) the Deed of Assumption;
(x) all Sales Contracts;
(xi) all Development Leases; and
(xii) the Charter of the Operating Company;
"Proven Reserves" as of the date of determination, the estimated quantities of Hydrocarbons
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic
and operating conditions.
For the purposes of this definition, Proven Reserves are limited to those
quantities of Hydrocarbons which can be expected at such date, with little
doubt, to be recoverable commercially at then current prices and costs (as
escalated in accordance with the definition of Net Cash Flow), under then
existing regulatory practices and with then existing conventional equipment
and operating methods;
"PUHCA" the United States Public Utility Holding Company Act of 1935, as amended, and
the rules and regulations adopted thereunder;
"Reserve Account" is defined in Section 2.01(a)(ii) of the Trust Agreement;
"Restricted
Payments" all payments or other distributions by the Borrower to Phoenix Resource or any
affiliate of Phoenix Resource or the Borrower (including, without limitation,
any dividend, return of capital or other distribution, payment or delivery of
cash or property or any redemption, retirement, purchase or other acquisition
of any shares of the capital stock of the Borrower) other than:
</TABLE>
<PAGE> 29
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<TABLE>
<S> <C>
(i) any payment made in accordance with Section 6.01(b);
(ii) payments to Phoenix Resource pursuant to the Service Contract; and
(iii) payments to the Operating Company made in the ordinary course of
business under the Concession Agreement;
"Retention
Account" is defined in Section 2.01(a) of the Trust Agreement;
"Reuters Screen
LIBO Page" the display of London interbank offered rates (commonly known as "LIBOR") of
major banks for Dollar deposits designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or any other page that replaces the LIBO page and
displays London interbank offered rates for Dollar deposits);
"Sales Contracts" is defined in Section 1.2 of the Security Agreement;
"Security" the security created by or pursuant to the Security Documents to secure the
Loan Obligations;
"Security
Agreement" the Security Agreement, dated as of the date of this Agreement, between the
Borrower and IFC, substantially in the form of the draft a copy of which has
been signed by the Borrower and IFC for identification;
"Security
Documents" the documents specified in Annex 3;
"Service Contract" the Service Contract, dated as of January 1, 1993, between the Borrower and
Phoenix Resource;
"Subsidiary" for any Person, any entity:
</TABLE>
<PAGE> 30
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<TABLE>
<S> <C>
(i) over fifty per cent (50%) of whose share capital or other equity
capital is owned, directly or indirectly, by that Person;
(ii) for which that Person may nominate or appoint more than fifty percent
(50%) of the members of the Board of Directors or persons performing
similar functions; or
(iii) which is otherwise effectively controlled by that Person;
"Terminalling
Agreement" any agreement, in form and substance reasonably satisfactory to IFC, providing for
the storage of the Concession's production of crude oil at the oil terminal at Side
Kirir;
"Transaction
Documents" together:
(i) this Agreement;
(ii) the Project Documents; and
(iii) the Security Documents;
"Transportation
Agreement" the agreement, in form and substance reasonably satisfactory to IFC, between
the Borrower and Arab Petroleum Pipeline Company - SUMED, relating to the
transport of the Concession's production of Hydrocarbons to the oil terminal
at Side Kirir;
"Trust Agreement" the Retention Account Trust Agreement, dated as of the date of this Agreement,
among the Borrower, IFC and the Trustee, substantially in the form of the
draft a copy of which has been initialed by the Borrower and IFC for
identification;
</TABLE>
<PAGE> 31
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<TABLE>
<S> <C>
"Trustee" Wilmington Trust Company as Trustee under the Trust Agreement or such other
trustee from time to time appointed pursuant to the Trust Agreement; and
"World Bank" the International Bank for Reconstruction and Development, an international
organization established by Articles of Agreement among its member countries.
</TABLE>
Section 1.02. Interpretation. In this Agreement, unless the context
otherwise requires:
(a) headings and underlinings are for convenience only and do not
affect the interpretation of this Agreement;
(b) words importing the singular include the plural and vice versa;
(c) an expression importing a natural person includes any company,
partnership, trust, joint venture, association, corporation or other body
corporate and any governmental authority or agency;
(d) a reference to an Annex, Article, Section or Schedule is a
reference to that Article or Section of, or that Annex or Schedule to, this
Agreement;
(e) a reference to a document includes an amendment or supplement
to, or replacement or novation of, that document but disregarding any
amendment, supplement, replacement or novation made in breach of this Agreement;
and
(f) a reference to a party to any document includes that party's
successors and permitted assigns.
Section 1.03. Business Day Adjustment. Where the day on or by which a
payment is due to be made pursuant to this Agreement is not a Business Day, that
payment shall be done on or by the next succeeding Business Day. Interest, fees
and charges (if any) accrue for the period from the due date which is not a
Business Day to that next succeeding Business Day.
<PAGE> 32
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ARTICLE II
THE PROJECT, PROJECT COST AND FINANCIAL PLAN
Section 2.01. The Project. The project to be financed consists of the
exploration and commercial development of the Concession Area, initially with a
view to drilling 16 development, 8 water injection/water supply and 8
exploration wells and the construction of:
(a) two parallel 20,000 bbl/d production trains for the separation
and treatment of the produced crude oil, natural gas and water and a 165,000
bbl storage facility;
(b) a 50 kilometer 16" crude oil pipeline for the evacuation of
the produced oil, which will connect from the Concession Area to the Dashour
Booster Pump Station of the SUMED pipeline;
(c) a water injection facility;
(d) two 350,000 bbl storage tanks at Dashour;
(e) a 9,000 m3/hr booster pump station at the Dashour
crude oil storage area;
(f) a 6 MW power generation station for the Concession Area's
electricity requirements; and
(g) housing, offices, warehouses, maintenance shops and a
materials yard at the Concession Area;
as further described in the Development Plan.
Section 2.02. Project Cost and Financial Plan. (a) The total estimated
cost of the Project is the equivalent of $154,900,000 estimated to be applied
as follows:
<PAGE> 33
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<TABLE>
<CAPTION>
$ million
equivalent %
------------ ------
<S> <C> <C>
Exploration Drilling 16.2 10.5
Geological and Geophysical 3.7 2.4
Development Drilling 39.4 2.4
Central Processing Facilities 43.5 28.1
Pipeline 18.9 12.2
Miscellaneous Capital Expenses 3.2 2.1
Overhead 6.8 4.4
Escalation (3%) 3.3 2.1
Contingency (10%) 12.9 8.3
Interest during construction 7.0 4.5
---- ----
TOTAL PROJECT COST 154.9 100.0
===== =====
</TABLE>
(b) The Loan shall be applied by the Borrower to Project costs in
accordance with Section 5.02 (c) without restriction by the categories and
amounts set out above.
(c) Financial Plan. The proposed sources of financing for the
Project are as follows:
<TABLE>
<CAPTION>
$ million
equivalent %
---------- -----
<S> <C> <C>
Equity
Phoenix Qarun 27.5 17.8
Apache Egypt 13.7 8.8
GNR Egypt 38.7 25.0
---- ----
Total Equity 79.9 51.6
Loans
IFC Phoenix Loan 50.0 2.3
IFC Apache Loan 25.0 6.1
---- ----
Total Loans 75.0 48.4
TOTAL FINANCING 154.9 100.0
===== =====
</TABLE>
<PAGE> 34
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ARTICLE III
THE LOAN
Section 3.01. The Loan. On the terms and subject to the conditions of
this Agreement, IFC agrees to lend to the Borrower:
(a) the A Loan, being the amount of twenty million Dollars
($20,000,000);
(b) the B Loan, being the amount of thirty million Dollars
($30,000,000);
Section 3.02. Disbursement Procedure. (a) The Borrower may request
disbursements of the Loan by delivering to IFC, at least 10 Business Days prior
to the proposed date of disbursement, a disbursement request substantially in
the form of Schedule 1.
(b) IFC shall make Disbursements to the credit of the Proceeds
Account in accordance with Section 2.01(b) of the Trust Agreement.
(c) Each Disbursement shall be made in an amount that is an
integral multiple of $1,000 and (except with respect to the final Disbursement)
not less than $1,000,000. Disbursements shall not exceed six in number.
(d) Within five days after the date of each Disbursement, the
Borrower shall deliver to IFC a receipt for the amount disbursed substantially
in the form of Schedule 2.
Section 3.03. A Loan Interest. Subject to Section 3.05, Borrower shall
pay interest on the A Loan in accordance with this Section 3.03.
(a) During each Interest Period, the A Loan (or, in respect of the
first Interest Period of each A Loan Disbursement, the amount of that A Loan
Disbursement) shall bear interest at the A Loan Interest Rate (as determined
under subsection (c) below) for that Interest Period.
(b) Interest shall accrue from day to day on the principal amount
outstanding and be prorated on the basis of a 360-day year for the actual
number
<PAGE> 35
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of days in the relevant Interest Period and be payable in arrears on the
Interest Payment Date immediately following the end of that Interest Period.
(c) (i) The A Loan Interest Rate for each Interest Period
ending with the Interest Period in which the Project
Completion Date occurs, is the offered rate which
appears on the Reuters Screen LIBO Page as of 11:00
a.m., London time, on the Interest Determination Date
for such Interest Period for six months (or, in the
case of the first Interest Period for any A Loan
Disbursement, for one month, two months, three months
or six months, whichever period is closest to the
duration of the relevant Interest Period (or, if two
periods are equally close to the duration of the
relevant Interest Period, the longer one)) plus the
Pre-Completion Margin; and
(ii) the A Loan Interest Rate for each Interest Period
commencing with the Interest Period immediately after
the Interest Period in which the Project Completion
Date occurs, is the offered rate which appears on the
Reuters Screen LIBO Page as of 11:00 a.m., London
time, on the Interest Determination Date for such
Interest Period for six months plus three per cent
(3%) per annum.
(d) If more than one such offered rate appears on the Reuters
Screen LIBO Page, then the offered rate used to determine the A Loan Interest
Rate will instead be the arithmetical average (rounded upward, if necessary, to
the nearest one-sixteenth of one percent (1/16%)) of those offered rates.
(e) If, for any reason, IFC cannot determine the A Loan Interest
Rate for any Interest Period from the Reuters Screen LIBO Page, then IFC shall
notify the Borrower and instead determine that Interest Rate by using the
offered rates of any two (2) of the banks (or of the bank, if only one) whose
rate(s) were last quoted on, or whose rates were last used in determining the
quote last appearing on, the Reuters Screen LIBO Page (but in all other
respects in accordance with subsections (c) and (d) above).
(f) If the services of the Reuters Screen LIBO Page are
discontinued or IFC otherwise believes that its inability to determine the A
Loan Interest Rate will continue indefinitely, then IFC shall notify the
Borrower and thereafter determine the A Loan Interest Rate by using the offered
rates of any three (3) major
<PAGE> 36
- 31 -
banks active in the eurodollar interbank market in London (but in all other
respects in accordance with subsections (c) and (d) above). IFC shall select
these three banks after consulting with the Borrower.
(g) On each Interest Determination Date for any Interest Period,
IFC shall, in accordance with the relevant subsection above, determine the A
Loan Interest Rate applicable to that Interest Period and promptly notify the
Borrower.
(h) The determination by IFC, from time to time, of the A Loan
Interest Rate is final and conclusive and binds the Borrower (unless the
Borrower shows to IFC's satisfaction that the determination involves clerical
error).
Section 3.04. B Loan Interest. Subject to Section 3.05, Borrower shall
pay interest on the B Loan in accordance with this Section 3.04.
(a) During each Interest Period the B Loan (or, in respect of the
first Interest Period of each B Loan Disbursement, the amount of that B Loan
Disbursement) shall bear interest at the B Loan Interest Rate (as determined
under subsection (c) below) for that Interest Period.
(b) Interest shall accrue from day to day on the principal amount
outstanding and be prorated on the basis of a 360-day year for the actual
number of days in the relevant Interest Period and be payable in arrears on the
Interest Payment Date immediately following the end of that Interest Period.
(c) (i) The B Loan Interest Rate for each Interest Period
ending with the Interest Period in which the Project
Completion Date occurs, is the offered rate which
appears on the Reuters Screen LIBO Page as of 11:00
a,m., London time, on the Interest Determination
Date for such Interest Period for six months (or, in
the case of the first Interest Period for any B Loan
Disbursement, for one month, two months, three months
or six months, whichever period is closest to the
duration of the relevant Interest Period (or, if two
periods are equally close to the duration of the
relevant Interest Period, the longer one)) plus the
Pre-Completion Margin; and
(ii) the B Loan Interest Rate for each Interest Period
commencing with the Interest Period immediately after
the Interest Period in which the Project Completion
Date
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occurs, is the offered rate which appears on the
Reuters Screen LIBO Page as of 11:00 a.m., London
time, on the Interest Determination Date for such
Interest Period for six months plus two and
seven-eighths per cent (2-7/8%) per annum.
(d) If more than one such offered rate appears on the Reuters
Screen LIBO Page, then the offered rate used to determine the B Loan Interest
Rate will instead be the arithmetical average (rounded upward, if necessary, to
the nearest one-sixteenth of one percent (1/16%)) of those offered rates.
(e) If, for any reason, IFC cannot determine the B Loan Interest
Rate for any Interest Period from the Reuters Screen LIBO Page, then IFC shall
notify the Borrower and instead determine that Interest Rate by using the
offered rates of any two (2) of the banks (or of the bank, if only one) whose
rate(s) were last quoted on, or whose rates were last used in determining the
quote last appearing on, the Reuters Screen LIBO Page (but in all other
respects in accordance with subsections (c) and (d) above).
(f) If the services of the Reuters Screen LIBO Page are
discontinued or IFC otherwise believes that its inability to determine the B
Loan Interest Rate will continue indefinitely, then IFC shall notify the
Borrower and thereafter determine the B Loan Interest Rate by using the offered
rates of any three (3) major banks active in the eurodollar interbank market in
London (but in all other respects in accordance with subsections (c) and (d)
above). IFC shall select these three banks after consulting with the Borrower.
(g) On each Interest Determination Date for any Interest Period,
IFC shall, in accordance with the relevant subsection above, determine the B
Loan Interest Rate applicable to that Interest Period and promptly notify the
Borrower.
(h) The determination by IFC, from time to time, of the B Loan
Interest Rate is final and conclusive and shall bind the Borrower (unless the
Borrower shows to IFC's satisfaction that the determination involves clerical
error).
Section 3.05. Additional Interest. Without limiting the remedies
available to IFC under this Agreement or otherwise and to the maximum extent
permitted by applicable law, if the Borrower fails to make:
(a) any payment of principal or interest;
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(b) any payment provided for in Section 3.08; or
(c) any Maintenance Amount or any other amount payable under this
Agreement;
on or before its due date as specified in this Agreement (whether at stated
maturity or upon acceleration or otherwise) or, if not so specified, as
notified by IFC to the Borrower, the Borrower shall pay, by way of liquidated
damages, in respect of the amount of such payment due and unpaid, interest at
the rate of two per cent (2%) per annum plus the A Loan Interest Rate (if that
amount relates to the A Loan) or plus the B Loan Interest Rate (if that amount
relates to the B Loan), in effect from time to time from the date any such
payment became due until the date of actual payment (as well after as before
judgment). Such interest shall be payable on demand, or if not demanded, on
each Interest Payment Date after such failure.
Section 3.06. Repayment. (a) The Borrower shall repay the principal
amount of the A Loan outstanding on June 14, 1998 in ten equal semi-annual
installments on each Interest Payment Date, commencing on June 15, 1998.
(b) The Borrower shall repay the principal amount of the B Loan
outstanding on June 14, 1998 in eight equal semi-annual installments on each
Interest Payment Date commencing on June 15, 1998.
Section 3.07. Prepayment. (a) The Borrower may prepay, on any Interest
Payment Date, all or any part of the Loan on not less than 30 days' notice to
IFC, but only if.
(i) the Borrower simultaneously pays all accrued interest
and Maintenance Amount (if any) on the amount of the
Loan to be prepaid together with all other amounts
then payable under this Agreement; and
(ii) for a partial prepayment, such prepayment is (A) an
amount of not less than $1,000,000 and (B) an
integral multiple of $100,000;
(b) IFC shall apply amounts prepaid under this Section:
(i) pro rata between the A Loan and the B Loan in
proportion to their respective principal amounts
outstanding; and
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(ii) to the outstanding repayment installments of the Loan
on a pro rata basis.
(c) Upon delivery of a notice in accordance with subsection (a)
above, the Borrower shall make the prepayment in accordance with the terms of
that notice.
(d) The Borrower may not request disbursement of amounts prepaid
under this Agreement.
Section 3.08. Fees. (a) The Borrower shall pay to IFC a commitment fee
at the rate of one-half of one per cent (1/2%) per annum on that part of the
Loan which from time to time has not been disbursed or cancelled. The
commitment fee shall:
(i) with respect to the A Loan, be paid to IFC for its
own account and begin to accrue, on November 24,
1995;
(ii) with respect to the B Loan, be paid to IFC for the
account of the relevant Participant and begin to
accrue with respect to each Participation on the date
of the Participation Agreement relating to such
Participation;
(iii) be pro-rated on the basis of a 360-day year for the
actual number of days elapsed; and
(iv) be payable semi-annually, in arrears, on the Interest
Payment Dates in each year, the first such payment to
be due on June 15, 1996.
(b) The Borrower shall also pay to IFC:
(i) a front-end fee for the A Loan of an amount equal to
one per cent (1%) of the amount of the A Loan, to be
paid to IFC for its own account within 30 days after
the date of this Agreement, but in any event prior to
the date of the first A Loan Disbursement;
(ii) a front-end fee for the B Loan of an amount equal to
one per cent (1%) of the amount of the B Loan, to be
paid to
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IFC for the account of the Participants within 30
days after the date of the Participation Agreements,
but in any event prior to the date of the first B
Loan Disbursement; and
(iii) an annual loan administration fee of $5,000 for each
Participant, to be paid to IFC for its own account,
in advance, on January 31 in each year until the B
Loan is repaid in full, the first such payment to be
made on January 31, 1996.
Section 3.09. Payments in Dollars. (a) The Borrower shall make all
payments of principal, interest, fees, and any other amount due to IFC under
this Agreement in Dollars, in same day funds, at Northern Trust International
Banking Corporation, New York City, or at such other bank in New York City as
IFC from time to time designates.
(b) The tender or payment of any amount payable under this
Agreement (whether or not by recovery under a judgment) in any currency other
than Dollars does not novate, discharge or satisfy the obligation of the
Borrower to pay in Dollars all amounts payable under this Agreement except to
the extent IFC actually receives Dollars in its account in New York City.
(c) If a currency other than Dollars is tendered or paid (or
recovered under any judgment) and the amount IFC receives at its designated
account in New York falls short of the full amount of Dollars owed to IFC, then
the Borrower shall continue to owe IFC, as a separate obligation, the amount of
the shortfall (regardless of any judgment for any other amounts due under this
Agreement).
(d) Notwithstanding subsections (a) through (c) above, IFC may
require the Borrower to pay (or reimburse IFC) in any currency other than
Dollars for:
(i) any taxes and other amounts payable under Section 6.05; and
(ii) any fees, costs and expenses payable under Section 8.03;
to the extent those taxes, amounts, fees, costs, and expenses are payable in
that other currency.
<PAGE> 41
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Section 3.10. Allocation of Partial Payments. If IFC at any time
receives less than the full amount then due and payable to it under this
Agreement (including, without limitations as a result of the enforcement of all
or any part of the Security), IFC may allocate and apply such payment in any
way or manner and for such purpose or purposes under this Agreement as IFC in
its sole discretion determines, notwithstanding any instruction that the
Borrower may give to the contrary.
Section 3.11. Maintenance Amount. On each Interest Payment Date, the
Borrower shall pay, in addition to interest, the amount which IFC from time to
time notifies to the Borrower as being the aggregate Maintenance Amount of IFC
and each Participant accrued and unpaid prior to that Interest Payment Date.
Section 3.12. Funding Costs. (a) If the Borrower:
(i) fails to pay any amount due under this Agreement on
its due date, or to borrow in accordance with a
request for disbursement made pursuant to Section
3.02 or to prepay in accordance with a notice of
prepayment; or
(ii) prepays all or any portion of the Loan on a date
other than an Interest Payment Date;
and as a result IFC or any Participant incurs any cost, expense or loss, then
the Borrower shall immediately pay to IFC the aggregate amount of the costs,
expenses and losses so incurred, as notified in writing to the Borrower by IFC.
(b) For the purposes of this Section, "costs, expenses or losses"
include any interest paid or payable to carry any unpaid amount and any loss,
premium, penalty or expense to liquidate or obtain third party deposits or
borrowings in order to make, maintain or fund all or any part of the Loan (but
in the case of a late payment, after taking into account any additional
interest received under Section 3.05).
Section 3.13. Suspension or Cancellation of Disbursements by IFC. (a)
IFC may, by notice to the Borrower, suspend or cancel, or in the case of
paragraph (iii) below or paragraph (iv) below suspend only, the right of the
Borrower to disbursements of the Loan:
(i) if the first such disbursement has not been made by
May 31, 1996, or such other date as the parties
agree;
<PAGE> 42
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(ii) if any Event of Default has occurred and is
continuing;
(iii) if any Potential Event of Default has occurred and is
continuing;
(iv) if the Event of Default specified in Section 7.02 (i)
is, in the reasonable opinion of IFC, imminent; or
(v) on or after March 15, 1998.
(b) Upon the giving of any such notice, the right of the Borrower
to disbursement of the undisbursed part of the Loan shall be suspended or
cancelled, as the case may be. The exercise by IFC of its right of suspension
does not preclude IFC from exercising its right of cancellation, either for the
same or any other reason. A suspension does not limit any other provision of
this Agreement.
Section 3.14. Cancellation by the Borrower. (a) The Borrower may, by
notice to IFC, irrevocably request IFC to cancel the undisbursed portion of the
Loan on the date specified in such request (which shall be an Interest Payment
Date no earlier than 30 days after the date of the request).
(b) If IFC is reasonably satisfied that the Borrower has
sufficient alternative funding available (if required), on terms satisfactory
to IFC, to satisfy the Financial Plan, and IFC has received all fees and other
amounts payable under this Agreement on or before such Interest Payment Date,
then IFC shall cancel the entire undisbursed portion of the Loan effective as
of such Interest Payment Date.
Section 3.15. Taxes. (a) The Borrower shall pay or cause to be paid
all present and future taxes, duties, fees and other charges of whatsoever
nature, if any, now or in the future levied or imposed by the Government of
Egypt or the United States of America or by any Authority of Egypt or the
United States of America or by any organization of which Egypt or the United
States of America is a member or any jurisdiction through or out of which a
payment is made on or in connection with the payment of any and all amounts due
under this Agreement.
(b) All payments of principal, interest and other amounts due
under this Agreement shall be made without deduction for or on account of any
such taxes, duties, fees or other charges.
<PAGE> 43
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(c) If the Borrower is prevented by operation of law or otherwise
from making or causing to be made such payments without deduction, the
principal or (as the case may be) interest or other amounts due under this
Agreement shall be increased to such amount as may be necessary so that IFC
receives the full amount it would have received (taking into account any such
taxes, duties, fees or other charges payable on amounts payable by the Borrower
under this subsection) had such payments been made without such deduction.
(d) If subsection (c) above applies and IFC so requires, the
Borrower shall deliver to IFC official tax receipts evidencing payment (or
certified copies of them) within 30 days of the date of payment.
(e) Subsections (a) and (b) above do not apply to taxes, duties,
fees and other charges which directly result from a Participant (or, as the
case may be, a participant with a comparable participation in the A Loan)
having its principal office in Egypt or the United States of America or having
or maintaining a permanent office or establishment in Egypt or the United
States of America, if and to the extent that such permanent office or
establishment acquires the relevant Participation (or a comparable
participation in the A Loan).
Section 3.16. Illegality of Participation. (a) If, after the date of
this Agreement, any change is made in any applicable law or regulation or
official directive, or its interpretation or application by any Authority
charged with its administration makes it unlawful for any Participant to
continue to maintain or to fund its Participation, then the Borrower shall,
upon request by IFC, prepay on the next Interest Payment Date (or upon such
earlier date as IFC may notify the Borrower is the latest day permitted by the
relevant change of law, regulation or official directive or relevant
interpretation or application, in which case Section 3.12 shall apply) in full
that part of the B Loan which IFC advises corresponds to such Participation,
together with all accrued interest and Maintenance Amount (if any) on that part
of the B Loan. In addition, upon receipt of such request from IFC, the Borrower
will have no further right to disbursement of the part of the B Loan
corresponding to such Participation.
(b) Following any prepayment or termination of rights under this
Section, IFC will (if so requested in writing by the Borrower) undertake
commercially reasonable efforts, at the expense of the Borrower, to find a new
Participant or Participants to take a Participation or Participations in an
amount
<PAGE> 44
- 39 -
equivalent to the amount of the B Loan which has been prepaid and/or, as the
case may be, the amount of the B Loan the right to whose disbursement has been
terminated; provided, that IFC shall have no liability to the Borrower or any
other person as a result of such efforts or the failure of them.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Borrower's Letter of Information. The Borrower confirms
the representations contained in the Borrower's Letter of Information as if
they had been fully set out in, and made as of, the date of this Agreement.
Section 4.02. Other Representations. The Borrower also represents and
warrants that:
(a) it is a corporation duly incorporated, validly existing and in
good standing under the laws of Delaware and has the corporate power to own its
assets, conduct its business as presently conducted and to enter into, and
perform its obligations under, the Transaction Documents to which it is a party
or will, in the case of any Transaction Document not executed as at the date of
this Agreement, when such Transaction Document is executed, have the corporate
power to enter into and perform its obligations under such Transaction
Document;
(b) each Transaction Document to which it is a party has been, or,
in the case of any such document to which it will be a party and which is not
yet executed, will be when so executed, duly authorized and executed by the
Borrower and constitutes, or will, when so executed, to the best of its
knowledge, constitute, valid and legally binding obligations of the Borrower,
enforceable in accordance with its terms, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and by other equitable
principles;
(c) no fees or taxes, including without limitation stamp,
transaction, registration or similar taxes, are required to be paid for the
legality, validity, or enforceability of this Agreement or any other
Transaction Document to which it is a party which have not been paid or in
respect of which adequate provision for the payment thereof has not been made;
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(d) neither the making of any Transaction Document to which it is
a party nor (when all the Authorizations referred to in Section 5.01 (i) have
been obtained) the compliance with their respective terms, will conflict with
or result in a breach of any of the terms, conditions or provisions of, or
constitute a default or require any consent under, any indenture, mortgage,
agreement or other instrument or arrangement to which it is a party or by which
it is bound, or violate any of the terms or provisions of its certificate of
incorporation or by-laws or any judgment, decree or order or any statute, rule
or regulation applicable to it or require the consent of any Person under any
existing law or agreement which consent has not already been obtained;
(e) neither it nor any of its property enjoys any right of immunity
from set-off, suit or execution in respect of its assets or its obligations
under any Transaction Document;
(f) the Information Memorandum dated October 1995 prepared by IFC
in connection with the offering of Participations does not contain any
information which is misleading in any material respect nor does it omit any
information which makes the information contained in it misleading in any
material respect;
(g) except for such Permitted Liens as are mandatorily preferred
by law, its obligations under this Agreement rank not less than pari passu with
all of its other Debt;
(h) (i) its unaudited balance sheet as of December 31, 1994
and the related statements of operations and changes
in cash flows for the period from January 1, 1994 to
December 31, 1994, previously furnished to IFC,
present fairly its financial condition as of such
date and the results of its operations and changes in
its cash flows for such period, all in accordance
with the Accounting Principles except for the
provision of footnotes;
(ii) the unaudited balance sheet as of September 30, 1995
and the related statements of operations and changes
in cash flows for the period from January 1, 1995 to
September 30, 1995, previously furnished to IFC,
present fairly its financial condition as of such
date and the results of its operations and changes in
its cash flows for such period, all in accordance
with the Accounting Principles except for the
<PAGE> 46
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provision of footnotes (subject to normal year-end
audit adjustments);
(iii) except as fully disclosed in the financial statements
referred to in paragraphs (i) and (ii) above;
(A) it has not undertaken or agreed to undertake
any material or unusual liability or
obligation (whether absolute, accrued,
contingent or otherwise) unrelated to the
Project; and
(B) no Restricted Payment has been declared or
paid by it other than as permitted by this
Agreement;
(i) except as has been disclosed by it to IFC in writing, there
are no legal, equitable or arbitral proceedings or any proceedings by or before
any court or Authority, now pending or, to the knowledge of it after due
inquiry, threatened against or affecting it or the Project that, if adversely
determined, could reasonably be expected to result in liability in excess of
$1,500,000. The Borrower is not subject to, or a party to, any order of, and,
to the knowledge of the Borrower after due inquiry, it is not the subject of
any investigation or proceeding of, any court or Authority that could
reasonably be expected to have a Material Adverse Effect;
(j) (i) all tax returns and reports of the Borrower required
by applicable laws to be filed have been duly filed,
and all taxes, assessments, fees and other
governmental charges upon it or upon any of its
properties, assets or income, which are due and
payable, have been duly paid, except for those
currently payable without penalty or interest or
which it is contesting in good faith and by
appropriate proceedings, with adequate, segregated
reserves established for such taxes in accordance
with the Accounting Principles, and, to the extent
such taxes are not due, has established reserves that
are adequate for the payment thereof and are as
required by the Accounting Principles except, in each
case, to the extent that failure to do so could not
reasonably be expected to have a Material Adverse
Effect. The charges, accruals and reserves on its
books in respect of applicable taxes and other
governmental charges are, in its opinion, adequate;
and
<PAGE> 47
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(ii) except for registration, recordation and other
miscellaneous taxes and fees payable in connection
with the recordation of the Security Documents, all
of which taxes and fees will have been paid in full
by it on or before the making of the first
Disbursement to the extent then required, neither the
execution and delivery of any Transaction Document,
nor the consummation of any of the transactions
contemplated by such Documents, would result in any
tax, levy, impost, duty, charge or withholding
imposed under any applicable law on or with respect
to such execution, delivery or consummation, or upon
or with respect to IFC;
(k) it is the lawful owner of, has good title to (with full power
of disposal but subject to limitations under applicable laws) and is in lawful
possession of, or has valid leasehold or other interests in, all properties and
other assets (real or personal, tangible, intangible or mixed), which form part
of the Security or are related to the Project, and none of such properties and
assets is subject to any Liens, except Permitted Liens. The Borrower has no
outstanding Liens, and it is not contractually bound to create any Liens, on or
with respect to any of its properties or revenues, except for Permitted Liens;
(l) (i) it is conducting its business (including
construction, development and operation of the
Project, as the case may be), in compliance with all
applicable laws of all relevant Authorities
(including the Environmental Requirements), except
for such failures to comply that, individually or in
the aggregate, would not have a Material Adverse
Effect; and
(ii) the Governmental Approvals that have been obtained by
it prior to, and that remain in full force and effect
as of, the date of this Agreement, or such other date
on which this representation is made, as the case may
be, constitute all Governmental Approvals necessary
or advisable as of such date, and no other
Governmental Approval or payment of any applicable
duty or tax is then necessary or advisable:
(A) to ensure the validity, enforceability,
performance and priority, as the case may be,
of each of the Transaction Documents; or
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(B) to finance, construct, develop and operate
the Project in accordance with (1) good
international oil industry practices, (2) the
Financial Plan, (3) the Borrower's Letter of
Information and (4) the Transaction
Documents;
(m) the information set out in the Letters of Information
represents in all material respects a true and fair view of the information
presented concerning the activities and operations of the Borrower and the
Guarantor on the date of such Letters of Information and continues to represent
in all material respects, as of the date of the first Disbursement, such true
and fair view of the information presented in the Letters of Information and
any opinions, projections and forecasts in such Letters of Information and the
assumptions on which they were based were derived after due and careful
consideration and inquiries;
(n) true copies of its certificate of incorporation and by-laws
certified by an Authorized Person have been provided to IFC and no changes have
been made in any such documents since the date of the latest such
certification;
(o) other than the Operating Company, it has no Subsidiaries and
does not, directly or indirectly, own or otherwise control any voting stock of,
or have any ownership interest in, any company, corporation, partnership or
joint venture. It has not since its incorporation carried on any operation or
business, traded or entered into any agreement, except in relation to the
Project. It has not entered into or agreed to enter into any agreements which
would be subject to the restrictions of any covenant specified in Article VI;
(p) the finance, development, construction and operation of the
Project have been and are being implemented and carried out in accordance with
sound international oil industry practice;
(q) it has not and is not taking any steps (including petition,
proposal or convening a meeting) nor (to the best of its knowledge, information
and belief) is any such step being taken nor are any legal proceedings pending
or being threatened against it for or in respect of.
(i) the composition, assignment or arrangement with all
or any general class of its creditors;
<PAGE> 49
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(ii) the making of any petition in respect of it under any
applicable insolvency, bankruptcy or similar laws in
any jurisdiction;
(iii) the passing of any resolution for (or petitioning
for) its winding up, dissolution or reorganization or
administration or appointment of any trustee,
receiver or similar officer or in respect of it or
any or all of its assets or revenues; or
(iv) the enforcing of any Lien over any part of its
assets;
(r) the Concession Agreement, the Joint Operating Agreement and
the other Project Documents are sufficient in form and scope to permit the
finance, development, construction and operation of the Project as provided in:
(i) the Financial Plan;
(ii) the Borrower's Letter of Information;
(iii) this Agreement; and
(iv) the other Transaction Documents;
(s) (i) it has never maintained or contributed (or had any
obligation to contribute) to any Plan;
(ii) there is no Plan for it or any of its Affiliates; and
(iii) there is no Unfunded Liability (as defined under
ERISA) under any previously existing Plan of any of
its Affiliates which could have a material adverse
effect on the business, financial condition or
results of operations of any such Person or the
ability of any such Person to perform its obligations
under any Transaction Document to which it is a
party;
(t) neither it nor any of its officers, directors, employees,
agents or Affiliates, acting on its behalf, has taken any action in connection
with the Project that violates the Corrupt Practices Acts;
(u) neither it nor any of its Affiliates is:
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(i) an "investment company" or a company "controlled" by
an "investment company", in each case within the
meaning of the ICA; or
(ii) subject to regulation under PUHCA,
(v) the Security Documents create, for the benefit of IFC, valid
Liens on all of the properties, rights and revenues purported to be covered by
them as Security for the Loan Obligations and all other obligations owing to
IFC under the Transaction Documents, subject to no Liens other than Permitted
Liens, enforceable against the Borrower and any other Person, and superior and
prior to the rights of all third Persons now existing or hereafter arising,
(other than the holder of any Permitted Lien) whether by way of mortgage, Lien,
security interest, encumbrance, or otherwise. Except to the extent that
possession of any of the Security is necessary for the perfection of the
security interests therein, all such action as is necessary to establish and
perfect IFC's security interest and rights in and to the Security has been, or,
by the date of the first Disbursement, win have been, taken; and
(w) its management, business and affairs are conducted in
accordance with Annex 4.
Section 4.03. IFC Reliance. (a) The Borrower acknowledges that it makes
the representations in Sections 4.01 and 4.02 with the intention of inducing
IFC to enter into this Agreement (and the Participants to enter into the
Participation Agreements) and that IFC enters into this Agreement (and the
Participants will enter into the Participation Agreements) on the basis of, and
in full reliance on, each of such representations.
(b) The Borrower warrants to IFC (for itself and on behalf of the
Participants) that each of such representations is true and correct in
all material respects as of the date of this Agreement and that none
of them omits any matter the omission of which makes any of such
representations misleading.
Section 4.04. Rights and Remedies not Limited. IFC's rights and
remedies in relation to any misrepresentation or breach of warranty on the part
of the Borrower are not prejudiced:
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(a) by any investigation by or on behalf of IFC (or the
Participants) into the affairs of the Borrower, Phoenix Resource, Phoenix
International or the Project;
(b) by the execution or the performance by IFC of this Agreement,
any other Transaction Document to which it is a party, or the Participation
Agreements; or
(c) by any other act or thing which may be done by or on behalf of
IFC (or the Participants) in connection with this Agreement and which might,
apart from this Section, prejudice such rights or remedies.
ARTICLE V
CONDITIONS OF DISBURSEMENT
Section 5.01. Initial Conditions. The obligation of IFC to make the
first Disbursement is subject to the fulfillment, in a manner satisfactory to
IFC, prior to or concurrently with the making of such Disbursement, of the
following conditions:
(a) the Transaction Documents (other than the Transportation
Agreement, the Terminalling Agreement and the Sales Contracts), each in form
and substance satisfactory to IFC, have been entered into by all parties to
them, have become (or, as the case may be, remain) unconditional, fully
effective and enforceable in accordance with their respective terms (except for
this Agreement having become unconditional and fully effective, if that is a
condition of any of them) and, if IFC requires, IFC has received a copy of each
Transaction Document to which it is not a party, certified by an Authorized
Person as a true, correct and complete copy;
(b) IFC has entered into Participation Agreements with
Participants for the acquisition by them of Participations in an aggregate
amount equal to the full amount of the B Loan and those commitments are
unconditional and in full force and effect;
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(c) arrangements satisfactory to IFC have been made with respect
to the installation and operation of an accounting and cost control system and
a management information system satisfactory to IFC;
(d) IFC has received a copy of the authorization to the Auditors
referred to in Section 6.01 (h);
(e) the Operating Company has insured its properties and business
in accordance with Section 6.04 and Borrower has provided to IFC copies of all
insurance policies required to be in force as at the date of such Disbursement
together with a certificate of the Operating Company's insurer indicating the
properties insured, amounts and risks covered, names of the beneficiaries and
loss payees, names of the insurers and special features of such policies
confirming that such policies are in effect and satisfy the requirements of
Section 6.04;
(f) the Certificate of Incorporation and By-laws of the Borrower
are in full force and effect and have not changed from the most recent
certified copies thereof previously delivered to IFC;
(g) the Security has been duly created and perfected under
applicable law (where permitted by applicable law) as first ranking security
interests in all assets subject to the Security Documents (subject to any
Permitted Liens) and, without limitation to the foregoing, the Borrower has
duly authorized, executed and delivered or, as the case may be, provided:
(i) acknowledgment copies of proper Uniform Commercial
Code financing statements or other instruments duly
filed under applicable law of each jurisdiction as
may be necessary or, in the reasonable opinion of
IFC, desirable, to perfect the security interests
purported to be created by the Security Documents;
(ii) certified copies of requests for information or
copies, or equivalent reports, listing the Uniform
Commercial Code financing statements and instruments
referred to in clause (i) above and all other
effective financing statements that name the Borrower
or Phoenix International as debtor and that are filed
in the jurisdictions referred to in clause (i),
together with copies of such other financing
statements and instruments (none of which shall cover
the assets subject to the Security Documents);
<PAGE> 53
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(iii) evidence of the completion of all other recordings
and filings of, or with respect to, the Security
Documents as may be necessary or, in the reasonable
opinion of IFC, desirable, to perfect the security
interests purported to be created by the Security
Documents; and
(iv) evidence that all other actions necessary or, in the
reasonable opinion of IFC, desirable, to perfect the
security interests purported to be created by the
Security Documents have been taken;
(h) IFC has received evidence of the establishment of the
Retention Account and each sub-account thereof;
(i) the Borrower has obtained, or made arrangements satisfactory
to IFC for obtaining, all Authorizations and other necessary approvals or
consents for:
(i) the Loan;
(ii) the carrying on of the business of the Borrower as it
is presently carried on and is contemplated to be
carried on;
(iii) the carrying out of the Project and the
implementation of the Financial Plan;
(iv) the due execution and delivery of, and performance
under, the Transaction Documents (other than the
Transportation Agreement and the Terminalling
Agreement, if any, and the Sales Contracts) by the
respective parties thereto, and any documents
necessary in their implementation; and
(v) the remittance to IFC or its assignee in Dollars of
all monies payable in respect of the Transaction
Documents;
and has provided IFC with copies of those Authorizations, certified as true
and complete copies by an Authorized Person, if IFC so requires;
<PAGE> 54
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(j) IFC has received a written legal opinion, in form and
substance satisfactory to it, by counsel to the Borrower and Phoenix Resource
with respect to:
(i) the organization, existence and operations of the
Borrower, Phoenix Resource and Phoenix International;
(ii) the matters referred to in subsections (a), (f), (g)
and (i) above with respect to the Borrower, Phoenix
Resource and Phoenix International;
(iii) the title of the Borrower to, or other interest of
the Borrower in, the assets which are the subject of
the Security and the title of Phoenix International
in the Pledged Shares;
(iv) the authorization, execution, validity and
enforceability of this Agreement, the Security
Documents, the other Transaction Documents and any
documents in implementation thereof,
(v) the compliance with all obligations referred to in
Sections 3.15 and 6.05;
(vi) the priorities and privileges, if any, that any
creditor (other than IFC) of the Borrower, Phoenix
Resource and Phoenix International may have by reason
of law; and
(vii) such other matters relating to the transactions
contemplated by this Agreement as IFC reasonably
requests;
(k) IFC has received a written legal opinion or opinions, in form
and substance satisfactory to it, from Kamel Law Office and White & Case, IFC's
special counsel in Egypt and the United States of America, respectively, with
respect to:
(i) the validity and enforceability of this Agreement,
the Security Documents, the other Transaction
Documents and any documents in implementation of any
of them;
(ii) the matters referred to in subsections (g) and (i)
above;
<PAGE> 55
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(iii) the compliance with all obligations referred to in
Sections 3.15 and 6.05;
(iv) the priorities or privileges, if any, that creditors
of the Borrower, other than IFC, may have by reason
of law; and
(v) such other matters relating to the transactions
contemplated by this Agreement as IFC reasonably
requests;
(l) IFC has received:
(i) reimbursement of the fees and expenses of IFC's
counsel described in Section 8.03; and
(ii) the fees specified in Section 3.08 required to be
paid on or before the date of the first Disbursement;
(m) arrangements satisfactory to IFC have been made for
appointment of an agent for service of process by each of the Borrower, Phoenix
Resource, and Phoenix International pursuant to Section 8.06(c) and the
Security Documents, as the case may be;
(n) IFC has received a certificate of incumbency and authority,
substantially in the form of Schedule 3, evidencing the authority of the
Authorized Persons who will, on behalf of the Borrower, sign the requests and
certifications provided for in this Agreement, or take any other action or
execute any other document required or permitted to be taken or executed by the
Borrower under this Agreement, and the authenticated specimen signature of each
such person;
(o) IFC has received certification from the Borrower that the
Project is in compliance with the Environmental Requirements; and
(p) IFC has received all certificates evidencing the Pledged
Shares duly executed in blank and with a stock power attached thereto duly
executed in blank in each case executed by an Authorized Person of Phoenix
International.
Section 5.02. Conditions of Each Disbursement. The obligation of IFC
to make each Disbursement is also subject to the conditions that:
<PAGE> 56
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(a) no Event of Default and no Potential Event of Default has
occurred and is continuing, and no default by the Borrower of any material
obligation under the Joint Operating Agreement or the Concession Agreement has
occurred and is continuing;
(b) since the date of this Agreement, nothing has occurred which
could reasonably be expected to have a Material Adverse Effect;
(c) the proceeds of such Disbursement are, at the date of the
relevant request, needed by the Borrower for the purpose of the Project
(including the repayment of the advances referred to in Section 6.01 (b)), or
will be needed for that purpose within three months of such date;
(d) the Borrower has performed aft of its obligations due to be
performed under each Transaction Document to which it is a party due to be
performed prior to such Disbursement;
(e) the representations and warranties confirmed or made by the
Borrower in Article IV are true in all material respects on and as of the date
of such Disbursement with the same effect as if such representations and
warranties had been made on and as of the date of such Disbursement (but in the
case of Section 4.02 (d), without the words in parenthesis) except to the
extent that any such representation or warranty is no longer accurate because
of a matter that IFC has expressly approved in writing pursuant to the
provisions of Section 6.01 or 6.03;
(f) IFC has received a Guarantor Disbursement Certificate,
substantially in the form of Schedule 5, duly completed and signed on behalf of
Phoenix Resource by an Authorized Person of Phoenix Resource;
(g) the proceeds of such Disbursement are not in reimbursement of,
or to be used for, expenditures in the territories of any country which is not
a member of IFC or the World Bank or for goods produced in or services supplied
from any such country;
(h) after giving effect to such Disbursement, the Borrower is not
in violation of:
(i) its Certificate of Incorporation or By-laws; or
<PAGE> 57
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(ii) any applicable law, rule or regulation directly or
indirectly limiting or otherwise restricting the
Borrower's borrowing power or authority or its
ability to borrow;
(i) the Borrower has the authority to borrow the amount requested
to be disbursed and such amount is within the Borrower's available borrowing
power; and
(j) after giving effect to such Disbursement, the aggregate amount
of the Borrower's contributed share of Project costs (excluding the aggregate
amount of all Disbursements) is not less than 33% of the aggregate amount of
all Project costs.
Section 5.03. Other Disbursement Provisions. (a) Notwithstanding any
other provision of this Agreement, if, following a request by the Borrower for
the first A Loan Disbursement in an amount not exceeding $12,500,000 all
conditions set out in Section 5.01 (except the condition specified in
subsection (b) thereof (execution and effectiveness of the Participation
Agreements)) and Section 5.02 (Conditions of each Disbursement) have been
fulfilled to IFC's satisfaction, IFC will waive fulfillment of the condition
specified in such subsection 5.01 (b) and disburse the amount so requested. The
Borrower acknowledges that IFC will not make any further Disbursement unless
and until such condition is fulfilled.
(b) Subject to subsection (a) above, IFC is not obliged to make
any Disbursement which is not on a pro rata basis as between the A Loan and the
B Loan;and
(c) IFC is not obliged to make any B Loan Disbursement except to
the extent that the Participants provide funds for B Loan Disbursement under
their Participations.
Section 5.04. Borrower Certification The Borrower shall deliver to
IFC in relation to each Disbursement:
(a) as part of its request such Disbursement, a certification,
substantially in the form of Schedule 1, with respect to the conditions
specified in Section 5.02 expressed to be effective as of the date of such
Disbursement;
(b) such evidence as IFC reasonably requests of the proposed
utilization of the proceeds of such Disbursement or the utilization of the
proceeds of any prior Disbursement; and
<PAGE> 58
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(c) if IFC requests, a legal opinion or opinions in form and
substance satisfactory to IFC, of counsel acceptable to IFC, with respect
to any matters relating to such Disbursement.
Section 5.05. Conditions for IFC Benefit. The conditions in
Sections 5.01 through 5.04 are for the benefit of IFC and may be waived only by
IFC at its sole discretion.
Section 5.06. Saving of Rights. Unless IFC otherwise notifies
the Borrower, and without limiting the generality of Section 8.11, the right of
IFC to require compliance with any condition under this Agreement which IFC
waives in respect of any Disbursement is preserved for the purposes of any
subsequent Disbursement.
ARTICLE VI
PARTICULAR COVENANTS
Section 6.01. Affirmative Covenants. Unless IFC otherwise agrees, the
Borrower shall:
(a) carry out the Project in accordance with the Development Plan
and conduct its business with due diligence and efficiency and in accordance
with sound financial and business practices;
(b) use the proceeds of the Loan exclusively for the Project,
including the repayment by the Borrower of any advances made to it by Phoenix
Resource after September 1, 1995 for such purpose;
(c) maintain the accounting and cost control system and management
information system referred to in Section 5.01 (c), and maintain books of
account and other records adequate to reflect truly and fairly the financial
condition of the Borrower and the results of its operations (including the
progress of the Project) in conformity with the Accounting Principles;
(d) as soon as available but in any event within 60 days after the
end of each Fiscal Quarter (or, in the case of paragraph (i) below, the end of
each of the
<PAGE> 59
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first three Fiscal Quarters in each Fiscal Year) beginning with the first
Fiscal Quarter in 1996, deliver to IFC, in relation to such Fiscal Quarter:
(i) two copies of the Borrower's internal unaudited
Financial Statements prepared in accordance with the
Accounting Principles (but omitting footnotes and, in
the case of each Fiscal Quarter in 1996, also
omitting the figures for the comparable period in
1995) and, if requested by IFC, certified by an
Authorized Financial Officer of the Borrower;
(ii) prior to the Project Completion Date, a report, in a
form satisfactory to IFC, on the implementation and
progress of the Project, containing such information
as IFC reasonably requests;
(iii) after the Project Completion Date, written
calculations of:
(A) the Debt Service Coverage Ratio; and
(B) the Life of Loan Coverage Ratio;
in each case, as of the last day of such Fiscal
Quarter;
(iv) a report (if applicable) on any factors which could
reasonably be expected to have a materially adverse
effect on the Borrower's ability to make any payment
or perform and observe any of its other obligations
under the Transaction Documents; and
(v) a certificate from it (in its capacity as operator of
the Concession) containing a description of available
data on monthly rates for oil, gas, water production
and injection rates and extraordinary items relating
to the Project for such Fiscal Quarter;
(e) as soon as available but in any event within 120 days after
the end of each Fiscal Year beginning with the 1996 Fiscal Year, deliver to
IFC:
(i) two copies of its complete audited Financial
Statements for such Fiscal Year (which are in
agreement with its books of account and prepared in
accordance with the Accounting
<PAGE> 60
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Principles, except that comparable figures for the
1995 Fiscal Year may be omitted), together with an
audit report on them, all in form satisfactory to
IFC;
(ii) a copy of any management letter or other
communication from the Auditors to the Borrower or to
its management commenting, with respect to such
Fiscal Year, on, among other things, the adequacy of
the Borrower's financial control procedures and
accounting systems and management information
system;
(iii) a review of the operations of the Borrower during
such Fiscal Year containing the information set out
in Annex 1;
(iv) a certificate of an Authorized Financial Officer of
the Borrower and a report by the Auditors certifying
that, based on its Financial Statements, the
Borrower was in compliance with the financial
covenants contained in subsection (s) below and
Section 6.03 as of the end of such Fiscal Year or, as
the case may be, detailing any noncompliance; and
(v) a certificate from an Authorized Financial Officer of
the Borrower stating that, as of the date thereof,
there exists no Potential Event of Default or Event
of Default or, if any such event exists, stating such
event, its nature, period of existence and what
actions the Borrower proposes to be or is being taken
in relation thereto to cure or remedy such event.
(f) provide to IFC within 90 days of the end of each calendar
year, an updated certification by the Independent Engineer of the Proven
Reserves as of January 1 of that year and, from time to time, but no more than
two times per year, as reasonably requested by IFC, additional updated
certifications by the Independent Engineer of Proven Reserves as of the date so
requested; each such certification also to include the Independent Engineer's
estimates of projected Project development and operating costs and cash flow;
(g) promptly after the same is received by the Borrower, deliver
to IFC a copy of any management letter or other communication sent by the
Auditors or any accountants retained by the Borrower to the Borrower or its
management in
<PAGE> 61
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relation to the Borrower's financial, accounting and other systems, management
or accounts and which has not already been provided to IFC pursuant to
subsection (e)(ii) above;
(h) authorize, in the form of Schedule 4, Arthur Andersen & Co.
(whose fees and expenses shall be for the account of the Borrower) to
communicate directly with IFC at any time regarding the Borrower's accounts and
operations, and deliver to IFC a copy of such authorization;
(i) if Arthur Andersen & Co. cease to be the auditors of the
Borrower for any reason, appoint and maintain as the auditors of the Borrower
another firm of independent public accountants satisfactory to IFC and, within
30 days after such appointment, deliver to IFC a copy of an authorization to
such firm in the form of Schedule 4;
(j) provide to IFC, as soon as practicable after the same is
entered into, a copy of:
(i) the Transportation Agreement (if required);
(ii) the Terminalling Agreement (if required);
(iii) each Sales Contract; and
(iv) any other agreement between the Borrower or the
Operating Company and EGPC or any other Person
relating to the transportation, terminalling or
disposal of Hydrocarbons produced from the Concession
Area;
(k) within 45 days after each meeting of the Management Committee,
provide IFC with the minutes of such meeting;
(1) promptly after the same is received by the Borrower, deliver
to IFC a copy of each Approved Budget and Program and each amendment thereto;
(m) promptly provide to IFC such information as IFC from time to
time reasonably requests relating to the Borrower, its financial condition and
the Project;
<PAGE> 62
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(n) promptly notify IFC of any event or condition which might
materially and adversely affect the carrying out of the Project or the carrying
on of the Borrower's business or operations;
(o) design, construct, operate and maintain all of the Project's
plant, equipment and facilities in accordance with the Environmental
Requirements;
(p) within 30 calendar days after the end of each Fiscal Year,
deliver to IFC an annual monitoring report, based on the requirements outlined
in the Environmental Impact Assessment, confirming compliance with the
Environmental Requirements or, as the case may be, detailing any non-compliance
together with the action being taken to cure such non-compliance and ensure
compliance;
(q) inform IFC promptly after it becomes aware of any default by
any party under any Transaction Document;
(r) cause the Operating Company:
(i) to obtain and maintain in force (or where
appropriate, promptly renew) all Authorizations
necessary for carrying out the Project and obtain and
maintain in force (or renew) all such Authorizations
issued to the Operating Company or in its name; and
(ii) perform and observe all the conditions and
restrictions contained in, or imposed on the
Operating Company by, any such Authorizations;
(s) maintain at all times after the Project Completion Date:
(i) a Debt Service Coverage Ratio of at least 1.15; and
(ii) a Life of Loan Coverage Ratio of at least 1.3;
(t) from time to time, execute, acknowledge and deliver or cause
to be executed, acknowledged and delivered such further instruments as may
reasonably be requested by IFC for perfecting or maintaining in full force and
effect the perfection of the Security or for re-registering the Security or to
otherwise comply with the Borrower's obligations under the Security Documents
and each other Transaction Document;
<PAGE> 63
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(u) permit representatives of IFC upon reasonable notice and
during business hours to visit the Project site and all other premises where
the business of the Borrower is conducted and to have access to the Project's
and its books of account and records;
(v) permit representatives of the Independent Engineer, upon
reasonable notice and during business hours, to visit the Project site and all
other premises of the Project and the Borrower and to have access to the
Project's and the Borrower's records, and otherwise provide reasonable
assistance to, and information as reasonably requested by, the Independent
Engineer, in connection with the performance of its services under the
Engagement Agreement;
(w) if EGPC does not exercise its option to purchase all of the
Concession's production or Hydrocarbons or, having exercised such option,
ceases to purchase all of such production, promptly enter into arrangements, on
term reasonably satisfactory to IFC, for the marketing (including
transportation and terminalling, if required) of the production not so
purchased;
(x) maintain, at all times from and after the Project Completion
Date, the Minimum Retention Amount, in the form and in the manner provided in
Section 6.02; and
(y) conduct, at all times, its management business, affairs and
operations in accordance with Annex 4.
Section 6.02. Minimum Retention Amount.
(a) No later than 45 days prior to the date on which the Borrower
expects that it will issue or be able to issue its Project Completion Date
Certificate, the Borrower shall provide IFC and the Trustee with a written
notice (the "Minimum Retention Amount Notice") specifying whether, from and
after the Project Completion Date, the Minimum Retention Amount shall be
maintained by way of:
(i) the retention of cash amounts by the Trustee in the
Reserve Account;
(ii) the execution and delivery by Phoenix Resource of the
Post-Completion Guarantee Agreement; or
(iii) the delivery to IFC of a Debt Reserve Letter of
Credit.
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(b) If the Borrower fails to provide IFC and the Trustee with the
Minimum Retention Amount Notice as required pursuant to subsection (a) above,
the Borrower shall be deemed to have elected, and IFC and the Trustee shall be
entitled to assume that the Borrower has elected, to maintain the Minimum
Retention Amount by way of the retention of cash amounts by the Trustee in the
Reserve Account.
(c) (i) If the Borrower (A) specifies in the Minimum
Retention Amount Notice that the Minimum Retention
Amount will be maintained by way of the retention of
cash amounts by the Trustee in the Reserve Account or
(B) is deemed to have made such specification
pursuant to subsection (b) above, the Trustee shall
commence reserving such amounts in the Reserve
Account in accordance with Section 4.02 of the Trust
Agreement;
(ii) if the Borrower specifies in its Minimum Retention
Amount Notice that the Minimum Retention Amount will
be maintained by way of the execution and delivery of
the Post-Completion Guarantee Agreement, the Borrower
shall deliver to IFC, with its Project Completion
Date Certificate, the Post-Completion Guarantee
Agreement, fully executed and delivered by Phoenix
Resource, together with a legal opinion as to such
matters with respect thereto as IFC may reasonably
request, in form and substance reasonably
satisfactory to IFC, issued by counsel reasonably
acceptable to IFC; and
(iii) if the Borrower specifies in its Minimum Retention
Amount Notice that the Minimum Retention Amount will
be maintained by way of the delivery of the Debt
Reserve Letter of Credit, the Borrower shall deliver
to IFC, with its Project Completion Date Certificate,
the Debt Reserve Letter of Credit, together with a
legal opinion as to such matters with respect thereto
as IFC may reasonably request, in form and substance
reasonably satisfactory to IFC, issued by counsel
reasonably acceptable to IFC.
(d) (i) The Borrower may, on no more than one occasion during
the term of this Agreement, upon giving not less than
45
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days' prior written notice to IFC and the Trustee,
select a Debt Reserve Support Method different from
the one then in existence; provided that the Borrower
shall not be entitled to select a different Debt
Reserve Support Method at any time after IFC shall be
entitled to instruct the Trustee to commence
reserving cash amounts in the Reserve Account in
accordance with Section 6.02 (e). Any such notice
shall specify:
(A) the Debt Reserve Support Method then in
effect; and
(B) the substitute Debt Reserve Support Method so
selected.
Once so selected, the Borrower shall maintain at all
times until indefeasible payment in full of the Loan
Obligations such substitute Debt Reserve Support
Method.
(ii) If the Debt Reserve Support Method selected under
paragraph (i) of this subsection (d) is either the
execution and delivery by Phoenix Resource of the
Post-Completion Guarantee Agreement or the delivery
to IFC of a Debt Reserve Letter of Credit, the
Borrower shall procure that there is executed and
delivered to IFC such Post Completion Guarantee
Agreement or, as the case may be, such Debt Reserve
Letter of Credit in accordance with the provisions of
subsection (c)(ii) and (iii) above, respectively. Upon
receipt by IFC of such Post-Completion Guarantee
Agreement or Debt Reserve Letter of Credit, in form
and substance acceptable to it, IFC shall so notify
the Trustee (with copy to the Company and the
Guarantor). Upon receipt of such notification, the
Trustee shall cease the retention of cash amounts in
the Reserve Account.
(iii) If the Debt Reserve Support Method selected under
paragraph (i) above is the retention of cash amounts
by the Trustee in the Reserve Account, IFC shall
notify the Trustee in writing to commence such
retention of cash amounts. Upon the deposit of the
Minimum Retention Amount in
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cash in the Reserve Account, IFC shall send a notice
to Phoenix Resource (with a copy to the Borrower):
(A) terminating the Post-Completion Guarantee
Agreement and releasing the parties thereto
from their obligations thereunder (except for
such obligations of Phoenix Resource which,
in accordance with the terms of the Post-
Completion Guarantee Agreement, expressly
survive the termination thereof); or, as the
case may be
(B) consenting to the termination and
cancellation of the Debt Reserve Letter of
Credit.
(e) Notwithstanding anything to the contrary in this Agreement, if
at any time that the Post-Completion Guarantee Agreement is in effect, Phoenix
Resource defaults in any of its obligations thereunder, and such default
continues unremedied for a period of, in the case of any obligation to pay
monies, five days, and in any other case, 30 days, after notice by IFC, IFC
shall be entitled to instruct the Trustee (with a copy to the Borrower and
Phoenix Resource) to commence reserving cash amounts in the Reserve Account
until the amount on deposit therein equals the Minimum Retention Amount. The
Minimum Retention Amount shall thereupon be maintained in cash in the Reserve
Account until the indefeasible payment in full of the Loan Obligations. Upon
the deposit of the Minimum Retention Amount in cash in the Reserve Account, IFC
shall send a notice to Phoenix Resource (with a copy to the Borrower)
terminating the Post-Completion Guarantee Agreement and releasing the parties
thereto from their obligations thereunder (except for such obligations of
Phoenix Resource which, in accordance with the terms of the Post-Completion
Guarantee Agreement, expressly survive the termination thereof).
Section 6.03. Negative Covenants. Unless IFC otherwise agrees, the
Borrower shall not:
(a) incur, assume or permit to exist any Debt except:
(i) the IFC Loan;
(ii) Indebtedness for Money Borrowed constituting loans
from Phoenix Resource, Phoenix International or any
of their Affiliates that are on reasonable
commercial terms and fully
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subordinated at all times to the Loan in accordance
with the subordination provisions set out in Annex 2
or as otherwise approved by IFC; or
(iii) Debt, other than Indebtedness for Money Borrowed,
incurred in the ordinary course of business;
(b) engage in any business activity other than the Project;
(c) make any Restricted Payment:
(i) prior to the Project Completion Date unless the Cash
Calls Reserve Account is fully funded in accordance
with the Trust Agreement;
(ii) if after giving effect to such payment:
(A) the Debt Service Coverage Ratio would be less
than 1.4; or
(B) the Life of Loan Coverage Ratio would be less
than 1.8; or
(iii) if any Event of Default or Potential Event of Default
has occurred and is continuing;
(d) (i) terminate any Transaction Document, unless the same is
replaced by another document of the same or similar effect in form and
substance reasonably satisfactory to IFC; or (ii) amend or waive any material
provision of any Transaction Document;
(e) create or permit to exist any Lien on the Project or any of
its properties except Permitted Liens;
(f) enter into any transaction except in the ordinary course of
business on the basis of arm's-length arrangements, including, without
limitation, arrangements whereby the Borrower might pay more than the ordinary
commercial price for any purchase or might receive less than the full
commercial price (subject to normal trade discounts) for its products;
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(g) guarantee the Debt or the commitments of any person other than
the Operating Company and then only to the extent required to implement the
Development Plan in accordance with Approved Programs and Budgets;
(h) except pursuant to the Project Documents:
(i) enter into any partnership, profit-sharing or royalty
agreement or other similar arrangement whereby the
Borrower's income or profits are, or might be, shared
with any other Person; or
(ii) enter into any management contract or similar
arrangement whereby its business or operations are
managed by any other Person;
(i) except in relation to the Operating Company, form or have any
Subsidiary;
(j) except as permitted under subsection (c) above, make
investments or loans to others, other than investments in short-term marketable
securities and loans to employees in an amount not exceeding in the aggregate
US$100,000 at any time outstanding;
(k) encumber, sell or transfer:
(i) all or part of its participating interest in the
Concession, or all or any part of its interest in, to
or under the Project Documents or of any material
capital asset; or
(ii) all or a substantial part of its assets (whether in a
single transaction or in a series of transactions,
related or otherwise);
(l) agree to any material change in the Development Plan;
(m) change its Certificate of Incorporation or By-laws in any
manner which would be inconsistent with the provisions of any Transaction
Document or the obligations of the Borrower or any other Person thereunder;
(n) change its Fiscal Year;
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(o) undertake or permit any merger, consolidation or
reorganization or petition to wind up its affairs;
(p) enter into any agreement or arrangement to acquire by lease
the use of any property or equipment of any kind, except leases in respect of
operating equipment related to the Project in respect of which the aggregate
lease payments do not exceed the equivalent of $1,000,000 in any Fiscal Year;
(q) use the proceeds of any Disbursement in the territories of any
country which is not a member of IFC or the World Bank or for reimbursements of
expenditures in those territories or for goods produced in or services supplied
from those territories;
(r) establish any Plan;
(s) take any action which could result in any violation by it or
any of its Affiliates of any of the Corrupt Practices Acts; or
(t) take any action which could reasonably be expected to result
in it or any of its Affiliates falling within the definition of an "investment
company" or a company "controlled" by an "investment company" under the ICA or
becoming subject to regulation under PUHCA.
Section 6.04. Insurance. Unless IFC otherwise agrees, the Borrower
shall:
(a) insure and keep insured, or take all action necessary to
procure that the Operating Company insures and keeps insured, with a
financially sound and reputable insurer or insurers:
(i) all its assets and all Project assets that can be
insured against all insurable losses (including,
without limitation, earthquake, but excluding
political risk) on a reinstatement basis utilizing
current full replacement values;
(ii) General Third Party Liability including Pollution
with a sum insured of not less than $5,000,000;
(iii) Control of Well and Redrilling expenses with a sum
insured of not less than $5,000,000 CSL (Combined
Single Limit); and
<PAGE> 70
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(iv) any other insurance required by applicable law;
(b) punctually pay, or take all action necessary to procure that
the Operating Company pays, any premium, commission and any other amount
necessary for effecting and maintaining in force each insurance policy;
(c) ensure that each insurance policy names the Borrower or the
Operating Company, as the case may be, as sole loss payee and cannot be
terminated by the insurer for any reason (including failure to pay the premium
or any other amount) unless both the Borrower and IFC receive at least 30 days'
prior written notice;
(d) not do or omit to do, or permit to be done or not done,
anything which might prejudice the respective rights of the Borrower or the
Operating Company to claim or recover under any insurance policy;
(e) deliver to IFC:
(i) within 30 days after any insurance policy is issued
to the Borrower or the Operating Company, a copy of
that policy (unless a copy of such policy has been
provided to IFC pursuant to Section 5.01 (f));
(ii) not less than 10 days prior to the expiry date of any
insurance policy (or, for insurance with multiple
renewal dates, within 10 days prior to the expiry
date of the policy on the principal asset), a
certificate of renewal from the insurer, insurance
broker or agent continuing the renewal of such policy
and setting out particulars of the renewal period,
the premium, the amounts insured for each asset or
item and any changes in terms or conditions from the
policy's issue date or last renewal; and
(iii) any other information or documents on each insurance
policy IFC requests;
(f) not allow or permit the Operating Company to vary, rescind,
terminate, cancel or cause a material change to any insurance policy referred
to in subsection (a) above;
<PAGE> 71
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(g) notify IFC as soon as possible of any event entitling the
Borrower or the Operating Company to claim for an aggregate amount exceeding
the equivalent of $1,000,000 under any one or more insurance policies;
(h) promptly notify the relevant insurer of any claim by the
Borrower or the Operating Company under any policy written by that insurer and
diligently pursue that claim; and
(i) pay all proceeds of any insurance policy received by the
Borrower to the Proceeds Account promptly after receipt thereof
Section 6.05. Document Taxes etc. (a) The Borrower shall pay all taxes
(including stamp taxes), duties, fees or other charges payable on or in
connection with the execution, issue, delivery, registration or notarization of
the Transaction Documents, and any other documents related to any of them.
(b) The Borrower shall, upon notice from IFC, reimburse IFC or its
assigns for any such taxes, duties, fees or other charges paid by IFC or its
assigns.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01. Acceleration after Default. If any Event of Default
occurs and is continuing (whether it is voluntary or involuntary, or results
from operation of law or otherwise), IFC may, by notice to the Borrower,
require the Borrower to repay the Loan or such part as is specified in that
notice. On receipt of any such notice, the Borrower shall immediately repay the
Loan (or that part of the Loan specified in that notice) and all interest
accrued on it and any other amounts then payable under this Agreement. The
Borrower waives any right it might have to further notice, presentment, demand
or protest in respect of that demand for immediate payment.
Section 7.02. Events of default It is an Event of Default if:
(a) the Borrower fails to pay when due any part of the Loan or to
pay any interest on the Loan and any such failure continues for a period of
five days;
<PAGE> 72
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(b) the Borrower fails to observe or perform any of its
obligations under this Agreement (other than for the payment of principal or
interest or under Section 6.03(d)(i)) or under any Transaction Document or any
other agreement between the Borrower and IFC, or any other party fails to
observe or perform any of its obligations under any Transaction Document in any
manner that has, or could reasonably be expected to have, a Material Adverse
Effect, and in each case such failure continues for a period of 30 days after
IFC notifies the Borrower of such failure;
(c) the Borrower fails to observe or perform its obligation under
Section 6.03(d)(i);
(d) any representation or warranty confirmed or made by Borrower:
(i) in the Borrower's Letter of Information;
(ii) in Article IV in connection with the execution and
delivery of this Agreement; or
(iii) in connection with any request for Disbursement under
this Agreement;
is found to be incorrect when made in any material respect;
(e) the Borrower defaults in the payment of any Indebtedness for
Money Borrowed (other than the Loan) and such default continues for a period
exceeding the grace period (if any) applicable to such payment;
(f) a decree or order by a court is entered against the Borrower,
Phoenix Resource or Phoenix International:
(i) adjudging the Borrower, Phoenix Resource or Phoenix
International bankrupt or insolvent;
(ii) approving as properly filed a petition seeking
reorganization, arrangement, adjustment or
composition of, or in respect of, the Borrower,
Phoenix Resource or Phoenix International or under
any applicable law;
(iii) appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the
Borrower,
<PAGE> 73
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Phoenix Resource or Phoenix International or of any
substantial part of its property or other assets; or
(iv) ordering the winding up or liquidation of the
Borrower, Phoenix Resource or Phoenix International
or its affairs;
or any petition is filed seeking any of the above and is not dismissed within
30 days;
(g) the Borrower, Phoenix Resource or Phoenix International:
(i) requests a moratorium or suspension of payment of
debts from any court;
(ii) institutes proceedings or takes any form of corporate
action to be liquidated, adjudicated bankrupt or
insolvent;
(iii) consents to the institution of bankruptcy or
insolvency proceedings against it;
(iv) files a petition or answer or consent seeking
reorganization or relief under any applicable law,
consents to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of
the Borrower, Phoenix Resource or Phoenix
International or of any substantial part of its
property;
(v) makes a general assignment for the benefit of
creditors; or
(vi) admits in writing its inability to pay its debts
generally as they become due or otherwise becomes
insolvent;
(h) any other event occurs which under any applicable law would
have an effect analogous to any of those events listed in subsections (f) and
(g) above;
(i) any Authority condemns, nationalizes, seizes, or otherwise
expropriates all or any substantial part of the property or other assets of the
Borrower or of its capital stock, or assumes custody or control of such
property or other assets or of the business or operations of the Borrower or of
its capital stock, or takes any action for the dissolution or disestablishment
of the Borrower
<PAGE> 74
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or any action that would prevent the Borrower or its officers from carrying on
all or a substantial part of its business or operations;
(j) any representation or warranty by Phoenix Resource under the
Performance and Pre-Completion Guarantee Agreement or by Phoenix International
under the Pledge Agreement proves to have been false when made in any material
respect;
(k) Phoenix Resource defaults in any payment obligation under the
Performance and Pre-Completion Guarantee Agreement and such default continues
for a period of five days;
(l) Phoenix Resource defaults in any covenant or performance
obligation under the Performance and Pre-Completion Guarantee Agreement or
Phoenix International defaults in any covenant or performance obligation under
the Pledge Agreement and, in each case, such failure continues unremedied for a
period of 30 days after notice by IFC;
(m) any Transaction Document:
(i) is declared in a final, non-appealable court of
competent jurisdiction to be unenforceable against
the Borrower, Phoenix Resource or Phoenix
International unless promptly replaced by another
document of similar effect in form and substance
reasonably satisfactory to IFC; or
(ii) is repudiated by the Borrower, Phoenix Resource or
Phoenix International;
(n) prior to the Project Completion Date, a final judgment is
obtained or rendered against Phoenix Resource, in excess of $5,000,000 and such
judgment remains unpaid for 30 days;
(o) Phoenix Resource defaults:
(i) in the payment of any Debt exceeding $5,000,000; or
(ii) in the performance of any other material obligation
which could reasonably be expected to have a material
adverse effect on the ability of Phoenix Resource to
meet its
<PAGE> 75
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obligations under the Performance and Pre-Completion
Guarantee Agreement;
(p) the Borrower:
(i) sells, transfers or otherwise disposes or encumbers
its interest in the Concession Agreement or
Concession Area without the prior written consent of
IFC; or
(ii) breaches its obligations to the Operating Company or
to any other party with respect to its interest in
the Concession Area or the Concession Agreement; or
(q) the Borrower abandons any part of its interest in the
Concession Agreement.
Section 7.03. Bankruptcy. If the Borrower, Phoenix Resource or Phoenix
International makes a voluntary filing, or an involuntary filing is made
against it, or it otherwise institutes proceedings or proceedings are
instituted against it, under applicable bankruptcy or insolvency law which, in
the case of any such involuntary filing or proceeding instituted against any
such subject entity (other than the Borrower), if opposed by such subject
entity (other than the Borrower) is not dismissed within 30 days, the Loan, all
interest accrued on it and all other Loan Obligations then due to IFC will
become immediately due and payable without any presentment, demand, protest or
notice of any kind, all of which the Borrower waives.
Section 7.04. Notice of Events. If any Event of Default or Potential
Event of Default occurs, the Borrower shall immediately notify IFC by facsimile
or telex specifying the nature of such Event of Default or Potential Event of
Default and any steps the Borrower or any other party in default is taking to
remedy it.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Notices. All notices, requests and other communications
to be given or made under this Agreement shall be in writing. Subject to
Sections
<PAGE> 76
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7.04 and 8.06 (f), such notice, request or other communication shall be deemed
to have been given:
(a) if mailed by first class registered or certified mail, postage
prepaid, upon actual receipt or refusal to accept;
(b) if deposited for overnight delivery with a recognized
international courier service, upon actual receipt or refusal to accept; or
(c) if delivered by hand or in the form of a facsimile
transmission, upon actual receipt;
in each case to the address of the relevant party set out below or to such
other address as such party may, by not less than seven days' notice, give to
the other party.
For the Borrower:
Phoenix Resources Company of Qarun
6525 North Meridian Avenue, Suite 102
Oklahoma City, Oklahoma 73116
Attention: Chief Financial Officer
Facsimile: (405) 728-5259
For IFC:
International Finance Corporation
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Attention: Director, Oil, Gas & Mining Department
Facsimile: (202) 334-0230
(202) 676-9648
<PAGE> 77
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With a copy (in the case of notices relating to payments) to:
Attention: Manager, Accounting Division
Facsimile: (202) 676-1830
Section 8.02. English Language. All documents to be furnished or
communications to be given or made under this Agreement shall be in the English
language or, if in another language, shall be accompanied by a translation into
English satisfactory to IFC certified by a representative of the Borrower,
which translation shall be the governing version between the Borrower and IFC.
Section 8.03. Expenses. The Borrower shall pay to IFC or as IFC may
direct:
(a) the reasonable fees and expenses of IFC's outside counsel
(including its counsel in New York and Egypt) incurred in connection with:
(i) the preparation of the investment by IFC provided
for under this Agreement;
(ii) the preparation and/or review, execution and, where
appropriate, registration of the Transaction
Documents and any other documents related to them;
(iii) the giving of any legal opinions that are required by
IFC pursuant to this Agreement;
(iv) the administration by IFC of the investment provided
for in this Agreement or otherwise in connection with
any amendment, supplement or modification to, or
waiver under, any of the Transaction Documents;
(v) the registration (where appropriate) and the delivery
of the evidences of indebtedness relating to the Loan
and its disbursement; and
(vi) the occurrence of any Event of Default or Potential
Event of Default; and
<PAGE> 78
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(b) the reasonable costs and expenses incurred by IFC in relation
to the enforcement or protection or attempted enforcement or protection of its
rights under any Transaction Document, or the exercise of its rights or powers
consequent upon or arising out of the occurrence of any Event of Default or
Potential Event of Default, including legal and other professional consultants'
fees on a full indemnity basis.
Section 8.04. Financial Calculations. (a) All financial calculations
to be made under, or for the purposes of, this Agreement shall be determined in
accordance with the Accounting Principles and, except as otherwise required to
conform to the definitions contained in Article I or any other provisions of
this Agreement, shall be calculated from the then most recently issued
quarterly financial statements which the Borrower is obligated to furnish to
IFC under Section 6.01 (d).
(b) If the relevant quarterly Financial Statements are in respect
of the last quarter of a Fiscal Year then, at IFC's option, such calculations
may instead be made from the audited Financial Statements for such Fiscal Year.
(c) If any material adverse change in the financial condition of
the Borrower after the end of the period covered by the relevant Financial
Statements has occurred, such material adverse change shall also be taken into
account in calculating the relevant figures.
Section 8.05. Termination of Agreement. This Agreement shall continue
in force until all Loan Obligations have been fully paid in accordance with its
provisions.
Section 8.06. Jurisdiction and Enforcement. (a) This Agreement is
governed by, and shall be construed in accordance with, the laws of the State
of New York, United States of America.
(b) The Borrower irrevocably agrees that any legal action, suit or
proceeding arising out of or relating to this Agreement or any Transaction
Document to which the Borrower is a party may be brought by IFC in the courts
of the State of New York of the United States of America located in the
Southern District of New York. Final judgment against the Borrower in any such
action, suit or proceeding shall be conclusive and may be enforced in any other
jurisdiction, including Egypt, by suit on the judgment, a certified or
exemplified copy of which
<PAGE> 79
-74-
shall be conclusive evidence of the judgment, or in any other manner provided
by law.
(c) By the execution and delivery of this Agreement, the Borrower
irrevocably submits to the non-exclusive jurisdiction of any such court in any
such action, suit or proceeding and designates, appoints and empowers CT
Corporation System, with offices at the date of this Agreement at 1633
Broadway, NY 10019, as its authorized agent to receive for and on its behalf
service of any summons, complaint or other legal process in any such action,
suit or proceeding in the State of New York.
(d) Nothing in this Agreement shall affect the right of IFC to
commence legal proceedings or otherwise sue the Borrower in Egypt or any other
jurisdiction or to serve process, pleadings and other legal papers upon the
Borrower in any manner authorized by the laws of any such jurisdiction.
(e) As long as this Agreement remains in force, the Borrower shall
maintain a duly appointed agent for the service of summons, complaint and other
legal process in New York, New York, United States of America, for purposes of
any legal action, suit or proceeding IFC may bring in respect of this Agreement
or any other Transaction Document. The Borrower shall keep IFC advised of the
identity and location of such agent.
(f) The Borrower also irrevocably consents, if for any reason the
Borrower's authorized agent for service of process of summons, complaint and
other legal process in any such action, suit or proceeding is not present in
New York, New York, to service of such papers being made out of those courts by
mailing copies of the papers by registered United States air mail, postage
prepaid, to the Borrower at its address specified in Section 8.01. In such a
case, IFC shall also send by telex or facsimile, or have sent by telex or
facsimile, a copy of the papers to the Borrower.
(g) Service in the manner provided in subsection (f) above in any
such action, suit or proceeding will be deemed personal service, will be
accepted by the Borrower as such and will be valid and binding upon the
Borrower for all purposes of any such action, suit or proceeding.
(h) The Borrower irrevocably waives to the fullest extent
permitted by applicable law:
<PAGE> 80
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(i) any objection which it may have now or in the future
to the laying of the venue of any such action, suit
or proceedings in any court referred to in this
Section 8.06;
(ii) any claim that any such action, suit or proceeding
has been brought in an inconvenient forum;
(iii) its right of removal of any matter commenced by IFC
in the courts of the State of New York to any court
of the United States of America; and
(iv) any and all rights to demand a trial by jury in any
such action, suit or proceeding brought against the
Borrower by IFC.
(i) To the extent that the Borrower may be entitled in any
jurisdiction to claim for itself or its assets immunity in respect of its
obligations under this Agreement or any other Transaction Document from any
suit, execution, attachment (whether provisional or final, in aid of execution,
before judgment or otherwise) or other legal process or to the extent that in
any jurisdiction such immunity (whether or not claimed) may be attributed to it
or its assets, the Borrower irrevocably agrees not to claim and irrevocably
waives such immunity to the fullest extent permitted by the laws of such
jurisdiction.
(j) The Borrower hereby acknowledges that IFC shall be entitled
under applicable law, including the provisions of the International
Organizations Immunities Act, to immunity from a trial by jury in any action,
suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby or any other Transaction Document, brought
against IFC in any court of the United States of America. The Borrower hereby
waives any and all rights to demand a trial by jury in any action, suit or
proceeding arising out of or relating to this Agreement or any Transaction
Document or the transactions contemplated by this Agreement or such Transaction
Documents, brought against IFC in any forum in which IFC is not entitled to
immunity from a trial by jury.
(k) To the extent that the Borrower may, in any suit, action or
proceeding brought in any of the courts referred to in paragraph (b) above or a
court of Egypt or elsewhere arising out of or in connection with this Agreement
or any other Transaction Document, be entitled to the benefit of any provision
of law requiring IFC in such suit, action or proceeding to post security for
the costs of the Borrower (cautio judicatum solvi), or to post a bond or to
take similar action, the
<PAGE> 81
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Borrower hereby irrevocably waives such benefit, in each case to the fullest
extent now or in the future permitted under the laws of Egypt or, as the case
may be, the jurisdiction in which such court is located.
Section 8.07. Confidential Information. (a) IFC may disclose to any
Participant who has executed a confidentiality agreement in the form previously
agreed between the Borrower and IFC any documents or records of, or information
about, the assets, business or affairs of the Borrower reasonably necessary to
enable the Participant to evaluate or administer its Participation, whether or
not such information is confidential.
(b) IFC may, for the purpose of exercising any power, remedy,
right, authority, or discretion relevant to this Agreement or any other
Transaction Document arising from the exercise of IFC's rights upon the
occurrence and continuance of an Event of Default disclose to any Person any
documents or records of, or information about, any Transaction Document, or the
assets, business or affairs of the Company, whether or not such information is
confidential.
Section 8.08. Successors and Assigns. This Agreement binds and
benefits the respective successors and assigns of its parties. However the
Borrower may not assign or delegate any of its rights or obligations under this
Agreement.
Section 8.09. Amendment. Any amendment of any provision of this
Agreement shall be in writing and signed by the parties.
Section 8.10. Counterparts. This Agreement may be executed in several
counterparts, each of which is an original, but all of which together
constitute one and the same agreement.
Section 8.11. Remedies and Waivers. No failure or delay by IFC in
exercising any power, remedy, discretion, authority or other rights under this
Agreement shall waive or impair that or any other right of IFC. No single or
partial exercise of such a right shall preclude its additional or future
exercise. No such waiver shall waive any other right under this Agreement. All
waivers or consents given under this Agreement shall be in writing.
<PAGE> 82
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed in their respective names as of the date first above written.
PHOENIX RESOURCES COMPANY OF QARUN
By /s/ CHERYL A. RICH
-------------------------------
Authorized Representative
INTERNATIONAL FINANCE CORPORATION
By
-------------------------------
Authorized Representative
<PAGE> 83
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed in their respective names as of the date first above written.
PHOENIX RESOURCES COMPANY OF QARUN
By
-------------------------------
Authorized Representative
INTERNATIONAL FINANCE CORPORATION
By /s/ M. A. K. ALIZAI
-------------------------------
Authorized Representative
<PAGE> 84
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ANNEX I
Page 1 of 2
INFORMATION FOR ANNUAL OPERATIONS REVIEW
(See Section 6.01(e)(iii) of the Loan Agreement)
1) Sponsor and Shareholdings: Information on any change in share
ownership of the Borrower and Phoenix International and any significant change
in share ownership of Phoenix Resource, in each case with the reasons for such
change and identifying each new shareholder in the case of the Borrower and
Phoenix International and new major shareholders in the case of Phoenix
Resource.
2) Country Conditions and Government Policy: Report on any material
changes in local conditions relating to the oil and gas industry, including
government policy changes that directly affect the Borrower (e.g., changes in
government economic strategy, taxation, foreign exchange availability, price
controls, and other areas of regulations).
3) Management and Technology: Information on significant changes in:
(a) senior management or organizational structure of the Borrower and
Phoenix Resource; and
(b) technology used by the Operating Company, including technical
assistance arrangements.
4) Corporate Strategy: Description of any changes in corporate or
operational strategy of the Borrower and Phoenix Resource, including major
changes in products, degree of integration, and business emphasis.
5) Market: Brief analysis of changes in market conditions (both domestic
and export) of the Borrower, with emphasis on changes in market share and
degree of competition.
6) Operating Performance: Discussion of major factors affecting the
year's financial results of the Borrower (sales by value and volume, operating
and financial costs, profit margins, capacity utilization, capital expenditure,
etc.).
7) Financial Condition. Comparison of key financial ratios of the
Borrower as covenanted in the Loan Agreement with such ratios for the preceding
year.
<PAGE> 85
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ANNEX 1
Page 2 of 2
N.B. The Borrower must provide the information relating to Phoenix Resource
and Phoenix International during any period when Phoenix Resource is obligated
to IFC as guarantor under the Performance and Pre-Completion Guarantee
Agreement or under the Post-Completion Guarantee Agreement.
<PAGE> 86
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ANNEX 2
Page l of 4
SUBORDINATION PROVISIONS
(See Section 6.03(a)(ii) of the Loan Agreement)
The indebtedness ("Subordinated Debt") shall at all times be
subordinate and junior in right of payment to the Loan Obligations (the "Loan
Obligations") from International Finance Corporation ("IFC") to Phoenix
Resources Company of Qarun (the "Borrower"). The Loan Obligations are
hereinafter sometimes referred to as "Senior Debt" to the extent and in the
manner hereinafter set forth. All capitalized terms not defined in this Annex
shall have the meanings specified in the Loan Agreement between IFC and
Borrower.
1. (a) In the event of any liquidation, dissolution or other
winding-up of Borrower, or in the event of any receivership,
insolvency, bankruptcy, assignment for the benefit of
creditors, whether or not pursuant to the bankruptcy laws of
any jurisdiction, sale of all or substantially all of the
assets or any other marshalling of the assets and liabilities
of Borrower:
(i) amounts due and owing with respect to Senior Debt
shall first be paid in full before the holder of any
Subordinated Debt shall be entitled to receive any
moneys, dividends or other assets in any proceeding
on account of Subordinated Debt; and
(ii) at the written request of IFC, the holder of any
Subordinated Debt will file any claim, proof of claim
or other instrument of similar character necessary to
enforce the obligations of Borrower in respect of
Subordinated Debt and will hold in trust for IFC and
pay over to IFC, in the form received, to be applied
to the payment of Senior Debt, including, without
limitation, interest payable from the date of entry
of any order, judgment or decree under the bankruptcy
laws of any jurisdiction adjudicating Borrower
bankrupt or insolvent to the date of payment ("Post-
petition Interest"), any and all moneys, dividends or
other assets received in any such proceeding on
account of Subordinated Debt, unless and until Senior
Debt and Post-petition Interest shall have been
indefeasibly paid in full.
<PAGE> 87
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ANNEX 2
Page 2 of 4
(b) In the event that the holder of any Subordinated Debt
shall fail to take such action requested by IFC, IFC
may, as attorney-in-fact for such holder of
Subordinated Debt, take such action on behalf of such
holder of Subordinated Debt, and such holder of
Subordinated Debt hereby appoints IFC as
attorney-in-fact for such holder of Subordinated Debt
to demand, sue for, collect and receive any and all
such moneys, dividends or other assets and give
acquittance therefor and to file any claim, proof of
claim or other instrument of similar character and to
take such other action (including acceptance or
rejection of any plan of reorganization or
arrangement) in the name of IFC or in the name of
such holder of Subordinated Debt as IFC may deem
necessary or advisable for the enforcement of the
subordination provided for by this Agreement; and
such holder of Subordinated Debt will execute and
deliver to IFC such other and further powers of
attorney or other instruments as may be requested in
order to accomplish the foregoing.
(c) Upon indefeasible payment in full of all of the
Senior Debt, the holder of any Subordinated Debt
shall be subrogated to the rights of IFC, to receive
payments or distributions of assets of Borrower made
on Senior Debt until the Subordinated Debt shall be
paid in full, and for the purposes of such
subrogations, no payments to IFC of any cash,
property, stock or obligations which the holder of
any Subordinated Debt would be entitled to receive
except for the provisions of this Agreement shall, as
between Borrower, its creditors (other than the
holders of Senior Debt) and the holders of any
Subordinated Debt deemed to be a payment by Borrower
to or on account of Senior Debt.
2. In the event that the Subordinated Debt or portions thereof shall
become due and payable before its or their expressed maturity for any reason
(under circumstances when the provisions of subsection (1) or (3) of this Annex
shall not be applicable):
(i) the holder of the Subordinated Debt shall give prompt written
notice of such event to IFC; and
<PAGE> 88
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ANNEX 2
Page 3 of 4
(ii) IFC shall be entitled to receive indefeasible payment in full
of all principal of, and premium and interest on, all Senior
Debt before the holder of any Subordinated Debt is entitled to
receive any payment on account of the principal of, or premium
or interest on, such Subordinated Debt.
3. In the event that any Event of Default shall occur and be continuing
with respect to any Senior Debt past any applicable grace period,
then, unless and until such Event of Default shall have been cured, or
unless and until all of the Senior Debt shall be indefeasibly paid in
full, the holder of any Subordinated Debt will not receive or accept
any payment from Borrower on account of Subordinated Debt.
4. No holder of Subordinated Debt will receive or accept any payment on
account of such Subordinated Debt, if the making of such payment would
constitute a violation of any provision of this Agreement, the Loan
Agreement or the Security Documents.
5. No holder of Subordinated Debt will commence any action or proceeding
against Borrower to recover all or any part of any Subordinated Debt
or join with any creditor, unless IFC shall also join, in bringing any
proceedings against Borrower under any bankruptcy and/or insolvency
laws of any jurisdiction to recover all or any part of the
Subordinated Debt unless and until all of the Senior Debt shall be
indefeasibly paid in full, provided that if any such holder shall have
given IFC at least 60 days' prior written notice of its intention to
do so, and IFC shall not have objected in writing, such holder may
bring an action to recover any payment on Subordinated Debt to the
extent not prohibited by subsections (2), (3) and (4) of this Annex.
6. In the event that the holder of any Subordinated Debt shall receive
any payment on account of Subordinated Debt which it is not entitled
to receive under the provisions of subsection (2), (3) or (4) of this
section, it will hold any amount so received in trust for IFC and will
forthwith turn over such payment to IFC in the form received to be
applied to the payment of Senior Debt.
<PAGE> 89
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ANNEX 2
Page 4 of 4
7. IFC may, at any time and from time to time, without the consent of or
notice to the holder of any Subordinated Debt, without incurring
responsibility to the holder of any Subordinated Debt, and without
impairing or releasing any of the rights of any holder of Senior Debt,
or any of the obligations of the holder of Subordinated Debt
hereunder:
(a) change the amount, manner, place or terms of payment or change
or extend the time of payment of or renew or alter any Senior
Debt or amend the Loan Agreement or the Security Documents in
any manner or enter into or amend in any manner any other
agreements (except as otherwise provided in such agreements)
relating to Senior Debt;
(b) sell, exchange, release or otherwise deal with any property by
whomsoever at any time pledged or mortgaged to secure, or
howsoever securing, Senior Debt;
(c) release anyone liable in any manner for the payment or
collection of Senior Debt;
(d) exercise or refrain from exercising any rights against
Borrower and others (including any holder of Subordinated
Debt); and
(e) apply any sums by whomsoever paid or howsoever realized to
Senior Debt.
<PAGE> 90
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ANNEX 3
Page 1 of 1
SECURITY DOCUMENTS
(See Section 1.01 of the Loan Agreement)
A. New York Law Security Documents
1. Trust Agreement
2. Security Agreement
3. Pledge Agreement
4. Performance and Pre-Completion Guarantee Agreement
5. Post-Completion Guarantee Agreement (if delivered)
6. Debt Reserve Letter of Credit (if delivered)
B. Egyptian Law Security Documents (substantially in the form of the
drafts copies of which have been initialed by the Borrower and IFC for
identification)
7. Irrevocable Instructions to EGPC
8. EGPC Acknowledgment
9. Power of Attorney to Dispose of Petroleum
10. Power of Attorney to Execute an Assignment
11. Agreement Regarding Powers of Attorney
<PAGE> 91
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ANNEX 4
Page 1 of 3
ANTI-SUBSTANTIVE CONSOLIDATION PROVISIONS
(See Sections 4.02(w) and 6.01(y) of the Loan Agreement)
PART I
(1) The books of account of the Borrower are maintained separately from
those of Phoenix Resource and Phoenix International and other
affiliates of Phoenix Resource and Phoenix International. Separate
quarterly financial statements (unaudited) of the Borrower are
prepared. The assets of the Borrower are not commingled with the
assets of Phoenix Resource, Phoenix International or their affiliates.
(2) At least one member of the Board of Directors of the Borrower is a
person who is not also a director, officer or employee of Phoenix
Resource or Phoenix International (the "Independent Director").
(3) To the extent that management or other services are furnished to the
Borrower by Phoenix Resource, Phoenix International or any of their
other affiliates, such services are provided under a services
agreement between the Borrower and Phoenix Resource, Phoenix
International or such affiliate, as the case may be, which describes
the services to be provided, establishes compensation rates consistent
with market rates and provides for reimbursement by the Borrower of
out-of-pocket expenses of Phoenix Resource, Phoenix International or
such affiliate, as the case may be.
(4) The Borrower has its own U.S. taxpayer identification number.
(5) The Borrower maintains bank accounts in its own name and utilizes its
own letterhead for all correspondence.
(6) All agreements relating to the business of the Borrower are entered
into by it in its own name and executed on its behalf by one of its
officers. The Borrower has not granted a general power of attorney to
Phoenix International or Phoenix Resource or to any person who is an
officer, director or employee of Phoenix International or Phoenix
Resource.
<PAGE> 92
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ANNEX 4
Page 2 of 3
(7) The Borrower maintains all required corporate formalities as required
under Delaware law, including the maintenance of books and records and
the conduct of shareholders' and Board of Directors' meetings.
(8) The Borrower has obtained in its own name any government permits in
Egypt (in addition to the Concession Agreement) which are necessary or
appropriate to conduct its business in Egypt.
(9) The Borrower has not engaged and will not engage in any transaction
with Phoenix International, Phoenix Resource or their other affiliates
which is not related to the business and operations of the Borrower.
Any such transaction related to the business and operations of the
Borrower engaged in by the Borrower with Phoenix International,
Phoenix Resource or any other affiliate is and will be on an arms'
length basis and will be approved by a majority of the Borrower's
directors, including the Independent Director (as defined in paragraph
(2) above).
(10) There are not any outstanding assumptions of liabilities by Phoenix
International, Phoenix Resource or any of their other affiliates in
respect of the Borrower or any guarantees, support agreements, comfort
letters or other credit support arrangements (other than as disclosed
in writing by Phoenix Resource to IFC on January 4, 1996 or under the
Performance and Pre-Completion Guarantee Agreement, the Pledge
Agreement and, after the Project Completion Date, the applicable Debt
Reserve Support Method) being provided by Phoenix International,
Phoenix Resource or any of their other affiliates on behalf of the
Borrower. The Borrower has not and will not assume any liabilities or
other obligations of Phoenix International, Phoenix Resource or any
affiliate thereof or any affiliate of the Borrower.
(11) Any transaction that affects the fundamental organization of the
Borrower (including, without limitation, any bankruptcy filing by the
Borrower) is required to have the prior approval of a majority of the
Borrower's directors, including the Independent Director (as defined
in paragraph (2) above).
<PAGE> 93
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ANNEX 4
Page 3 of 3
(12) The financial statements of Phoenix Resource and the Borrower shall
state that the assets of the Borrower will only be available to
creditors of Phoenix Resource or its subsidiaries after the Borrower's
obligations to International Finance Corporation have been satisfied
in full.
<PAGE> 94
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ANNEX 5
Page 1 of 2
DEBT RESERVE LETTER OF CREDIT
(See Section 1. 01 of the Loan Agreement)
1. Each Debt Reserve Letter of Credit shall be in form and substance
satisfactory to IFC in an amount equal to the relevant Minimum Retention Amount
and maintained by the Borrower in accordance with this Annex 5. Upon delivery
to IFC of any Debt Reserve Letter of Credit (including upon renewal thereof),
the Borrower shall certify in writing to IFC that the issuing bank thereof is
an Eligible Bank and that the other requirements applicable to a Debt Reserve
Letter of Credit set in this Annex 5 have been satisfied.
2. Any Debt Reserve Letter of Credit, or the reimbursement agreement
related thereto, shall provide, inter alia that:
(a) the costs associated with the issue and maintenance of such
Debt Reserve Letter of Credit shall be for the sole account of
Phoenix Resource and, in any event, not for the account of the
Borrower;
(b) neither the Borrower nor IFC shall have any obligation or
liability to the issuer of such Debt Reserve Letter of Credit,
whether for reimbursement of any amounts drawn thereunder or
otherwise; and
(c) there shall be no conditions to drawing other than the
confirmation by the issuer of such Debt Reserve Letter of
Credit that any documents required to be delivered in
connection with a drawing thereunder appear to comply on their
face with the requirements of such Debt Reserve Letter of
Credit.
3. The Borrower shall ensure that upon the earlier of (i) 30 days prior
to the scheduled expiry date of any Debt Reserve Letter of Credit or
(ii) 20 Business Days prior to the date upon which such Debt Reserve
Letter of Credit requires a notice of cancellation to be issued
pursuant to the terms thereof, either:
<PAGE> 95
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ANNEX 5
Page 2 of 2
(a) the issuing bank of such Debt Reserve Letter of Credit (if
such bank is, at such time, an Eligible Bank) shall provide a
notice to IFC of the renewal thereof for a term expiring not
earlier than (x) the date which is 364 days from the expiry
date of the expiring Debt Reserve Letter of Credit or (y) the
projected date upon which the last payment in respect of the
Loan Obligation will fall due; or
(b) there shall be delivered to IFC a Debt Reserve Letter of
Credit issued by an Eligible Bank, which is effective on or
prior to the expiry date of the existing Debt Reserve Letter
of Credit, and otherwise having terms as provided in this
Annex 5.
If IFC does not receive such notice of renewal or replacement of any Debt
Reserve Letter of Credit by the thirtieth day prior to the scheduled expiry
date thereof, IFC may draw on such Debt Reserve Letter of Credit for the full
amount thereof. Funds obtained by any such drawing shall be (A) deposited in the
Reserve Account, if the Loan has not been accelerated; or (B) applied towards
payment of the Loan Obligations if the Loan has been accelerated.
4. If the issuing Bank of any Debt Reserve Letter of Credit at any time
ceases to be an Eligible Bank:
(a) the Borrower shall provide notice of such event to IFC; and
(b) there shall be delivered to IFC, within 60 days following such
notification, in substitution for and replacement thereof, a
Debt Reserve Letter of Credit issued by an Eligible Bank and
otherwise having terms as provided in this Annex 5.
If IFC does not receive such replacement of any Debt Reserve Letter of Credit
by the end of such 60 day period, IFC may draw on such Debt Reserve Letter of
Credit for the full amount thereof. Funds obtained by any such drawing shall be
(A) deposited in the Reserve Account, if the Loan has not been accelerated; or
(B) applied towards payment of the Loan Obligations if the Loan has been
accelerated.
<PAGE> 96
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SCHEDULE 1
Page l of 3
FORM OF REQUEST FOR DISBURSEMENT
(See Sections 3.02 and 5.04 (a) of the Loan Agreement)
[To be typed on the letterhead of the Borrower]
[Date]
International Finance Corporation
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Attention: Director, Oil, Gas & Mining Department
Ladies and Gentlemen:
Investment No. 7422
Request for Loan Disbursement No. [ ]*
1. Please refer to the Loan Agreement (the "Loan Agreement") dated
January __, 1996 between Phoenix Resources Company of Qarun (the "Borrower")
and International Finance Corporation ("IFC"). Terms defined in the Loan
Agreement have their defined meanings whenever used in this request.
2. The Borrower irrevocably requests the disbursement on _______________,
199_ (or as soon as practicable thereafter) of the amount of $__________ under
the Loan (the "Disbursement") in accordance with the provisions of Section 3.02
of the Loan Agreement. You are requested to pay such amount to the following
account: Wilmington Trust Company (Qarun Proceeds Account), Account No.
_________________ at Wilmington Trust Company, [Address].
3. For the purpose of Section 5.02 of the Loan Agreement, the Borrower
certifies as follows:
- -------------------------
* Each to be numbered in series.
<PAGE> 97
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SCHEDULE 1
Page 2 of 3
(a) no Event of Default and no Potential Event of Default has
occurred and is continuing, and no default by the Borrower of
any material obligation under the Joint Operating Agreement or
the Concession Agreement has occurred and is continuing;
(b) since the date of this Agreement, nothing has occurred which
could reasonably be expected to have a Material Adverse
Effect;
(c) the proceeds of such Disbursement are, at the date of such
Disbursement, needed by the Borrower for the purpose of the
Project (including the repayment of the advances referred to
in Section 6.01 (b)), or will be needed for that purpose
within three months of such date;
(d) the Borrower has performed all of its obligations due to be
performed under each Transaction Document to which it is a
party due to be performed prior to such Disbursement;
(e) the representations and warranties confirmed or made by the
Borrower in Article IV are true in all material respects on
and as of the date of such Disbursement with the same effect
as if such representations and warranties had been made on and
as of the date of such Disbursement (but in the case of
Section 4.02 (d), without the words in parenthesis) except to
the extent that any such representation or warranty is no
longer accurate because of a matter that IFC has expressly
approved in writing pursuant to the provisions of Section 6.01
or 6.03;
(f) IFC has received a Guarantor Disbursement Certificate,
substantially in the form of Schedule 5, duly completed and
signed on behalf of Phoenix Resource by an Authorized Person
of Phoenix Resource
(g) the proceeds of such Disbursement are not in reimbursement of,
or to be used for, expenditures in the territories of any
country which is not a member of IFC or the World Bank or for
goods produced in or services supplied from any such country;
<PAGE> 98
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SCHEDULE 1
Page 3 of 3
(h) after giving effect to such Disbursement, the Borrower will not
be in violation of:
(i) its Certificate of Incorporation or By-laws; or
(ii) any applicable law, rule or regulation directly or
indirectly limiting or otherwise restricting the
Borrower's borrowing power or authority or its
ability to borrow;
(i) the Borrower has the authority to borrow the amount of such
Disbursement and such amount is within its available borrowing
power; and
(j) after giving effect to such Disbursement, the aggregate amount
of the Borrower's contributed share of Project costs
(excluding the aggregate amount of all Disbursements) is not
less than 33% of the aggregate amount of all Project costs.
The above certifications are effective as of the date of this request
for Disbursement and shall continue to be effective as of the date of such
Disbursement. If any certification is no longer valid as of or prior to such
date of Disbursement, the Borrower undertakes promptly to notify IFC in
writing.
Yours truly,
PHOENIX RESOURCES COMPANY OF QARUN.
By
Authorized Representative
Copy to: Manager, Accounting Division
International Finance Corporation
<PAGE> 99
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SCHEDULE 2
Page 1 of 1
FORM OF LOAN DISBURSEMENT RECEIPT
(See Section 3.02 of the Loan Agreement)
[To be typed on the letterhead of the Borrower]
[Date of disbursement by IFC]
International Finance Corporation
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Attention: Manager, Accounting Division
Ladies and Gentlemen:
Investment No. 7422
Disbursement Receipt No. [ ]**
We, Phoenix Resources Company of Qarun, hereby acknowledge receipt
on the date hereof of the sum of $____________ disbursed to us by International
Finance Corporation ("IFC") under the Loan of $50,000,000 provided for in the
Loan Agreement dated January , 1996 between our company and International
Finance Corporation.
Yours truly,
PHOENIX RESOURCES COMPANY OF QARUN
By
-------------------------------
Authorized representative
- -------------------------
** To correspond with number of the Disbursement request. See Schedule 1.
<PAGE> 100
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SCHEDULE 3
Page l of 2
FORM OF CERTIFICATE OF INCUMBENCY AND AUTHORITY
(See Section 5.01(n) of the Loan Agreement)
[To be typed on the letterhead of the Borrower]
[Date]
International Finance Corporation
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Attention: Director, Oil, Gas & Mining Department
Ladies and Gentlemen:
Certificate of Incumbency and Authority
With reference to the Loan Agreement between us, dated January __, 1996
(the "Loan Agreement"), I, the undersigned [Chairman/Director] of Phoenix
Resources Company of Qarun (the "Borrower"), duly authorized to do so, hereby
certify that the following are the names, offices and true specimen signatures
of the persons each of whom will, and will continue to be authorized:
(a) to sign on behalf of the Borrower the requests for the
disbursement of funds provided for in Section 3.02 of the Loan Agreement;
(b) to sign the certifications provided for in Sections 5.02 and
5.04 of the Loan Agreement; and
<PAGE> 101
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SCHEDULE 3
Page 2 of 2
(c) to take any other action required or permitted to be taken,
done, signed or executed under the Loan Agreement or any other agreement to
which IFC and the Borrower may be parties.
<TABLE>
<CAPTION>
*Name Office Specimen Signature
- ----- ------- ------------------
<S> <C> <C>
- ---------------- ------------------- -----------------------
- ---------------- ------------------- -----------------------
- ---------------- ------------------- -----------------------
</TABLE>
You may assume that any such person continues to be so authorized
until you receive authorized written notice from the Borrower that they, or any
of them, is no longer so authorized.
Yours truly,
PHOENIX RESOURCES COMPANY OF QARUN
By
-------------------------------
[Chairman/Director]
- -------------------------
* Designations may be changed by the Company at any time by issuing a
new certificate of Incumbency and Authority authorized by the Board of
Directors of the Company.
<PAGE> 102
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SCHEDULE 4
Page 1 of 2
FORM OF LETTER TO AUDITORS
(See Sections 5.01 (d) and 6.01 (h) and (i) of the Loan Agreement)
[To be typed on the letterhead of the Borrower]
[Date]
[Name of Auditors]
[Address]
Ladies and Gentlemen:
We hereby authorize and request you to give to International Finance
Corporation of 1818 H Street, N.W., Washington, D.C. 20433, United States of
America ("IFC"), all such information as IFC may reasonably request with regard
to the financial statements of the undersigned Borrower, both audited and
unaudited. We have agreed to supply that information and those statements under
the terms of an Loan Agreement between the undersigned Borrower and IFC dated
January __, 1996 (the "Loan Agreement"). For your information we enclose a copy
of the Loan Agreement.
We authorize and request you to send two copies of the audited
accounts of the undersigned Borrower to IFC to enable us to satisfy our
obligation to IFC under Section 6.01 (e)(i) of the Loan Agreement. When
submitting the same to IFC, please also send, at the same time, a copy of your
full report on such accounts in a form reasonably acceptable to IFC.
Please note that under Section 6.01 (e)(ii) and (iv) of the Loan
Agreement, we are obliged to provide IFC with:
(a) a copy of any management letter or other communication from
you to the Borrower or its management commenting on, among other things, the
adequacy of the Borrower's financial control procedures and accounting and
management information systems; and
<PAGE> 103
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SCHEDULE 4
Page 2 of 2
(b) a report by you certifying that, based upon its audited
financial statements, the Borrower is in compliance with the financial
covenants contained in Sections 6.01 (s) and 6.03 of the Loan Agreement as at
the end of the relevant Fiscal Year or, as the case may be, detailing any
non-compliance.
Please also submit each such communication and report to IFC with the
audited accounts.
For our records, please ensure that you send to us a copy of every
letter which you receive from IFC immediately upon receipt and a copy of each
reply made by you immediately upon the issue of that reply.
Yours truly,
PHOENIX RESOURCES COMPANY OF QARUN
By
-------------------------------
Authorized Representative
Enclosure
cc: International Finance Corporation
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Attention: Director, Oil, Gas & Mining Department
<PAGE> 104
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SCHEDULE 5
Page 1 of 2
FORM OF GUARANTOR DISBURSEMENT CERTIFICATE
(See Section 5.02 (f) of the Loan Agreement)
(To be typed on the letterhead of the Guarantor)
[Date]
To: International Finance Corporation ("IFC")
Subject: Phoenix Resources Company of Qarun ("the Borrower"),
Disbursement No.______*
Reference is made to the Loan Agreement dated January 26, 1996 between
the Borrower and IFC (the "Loan Agreement"). All capitalized terms used in this
Certificate and not otherwise defined herein have the meanings given them in
the Loan Agreement. Each of the representations and warranties made in this
Certificate is made as of the date of this Certificate and deemed to be made as
of the date of the Disbursement to which it relates.
In connection with the Borrower's request that IFC disburse on the
date hereof a Disbursement under the Loan Agreement, the Guarantor hereby
certifies as follows:
(1) No default in the performance of any covenant or agreement of the
Guarantor or Phoenix International in the Performance and
Pre-Completion Guarantee Agreement and the Pledge Agreement,
respectively, has occurred and is continuing;
(2) The representations and warranties made by the Guarantor and Phoenix
International in the Performance and Pre-Completion Guarantee
Agreement and the Pledge Agreement, respectively, are true and correct
in all material respects on and as of the date hereof with the same
effect as though such representations and warranties had been made on
and as of the
- -------------------------
* Number to correspond with the number of the relevant Disbursement Request.
<PAGE> 105
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SCHEDULE 5
Page 2 of 2
date hereof (except to the extent any such representation or warranty
expressly referred to the date it was made on or to a prior date and
except to the extent any such representation or warranty is no longer
accurate because of a matter that IFC has expressly waived or approved
in writing pursuant to Section 5 of the Performance and Pre-Completion
Guarantee) Agreement;
(3) The Project is being constructed, developed and operated substantially
and materially in accordance with the Development Plan and sound
international oil and gas industry practices; and
(4) There has been no material adverse change in the business, financial
position, results of operations of the Guarantor and its consolidated
subsidiaries, considered as a whole, since the date of the last
financial statements of the Guarantor delivered to IFC.
THE PHOENIX RESOURCE COMPANIES, INC.
By
------------------------------------
Title
<PAGE> 106
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SCHEDULE 6
Page 1 of 32
- --------------------------------------------------------------------------------
INVESTMENT NUMBER 7422
POST-COMPLETION
GUARANTEE AGREEMENT
BETWEEN
THE PHOENIX RESOURCE COMPANIES, INC.
AS GUARANTOR
AND
INTERNATIONAL FINANCE CORPORATION,
AS SECURED PARTY
- --------------------------------------------------------------------------------
<PAGE> 107
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SCHEDULE 6
Page 2 of 32
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. CAPITALIZED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
2. POST-COMPLETION GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
3. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
3.1 Character of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
3.2 No Reduction or Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
3.3 Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
3.4 No Subrogation, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
3.5 Bankruptcy, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
3.6 Revocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
3.7 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
3.8 Amounts Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
3.9 Obligations Unaffected by Transfer . . . . . . . . . . . . . . . . . . . . . 114
4. REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR . . . . . . . . . . . . . . . . . . . . . . 114
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
4.3 Legality, Validity and Enforceability . . . . . . . . . . . . . . . . . . . . 114
4.4 Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
4.5 Ownership of Shareholder and Borrower . . . . . . . . . . . . . . . . . . . . 115
4.6 Compliance with Legal Requirements; No Conflict . . . . . . . . . . . . . . . 116
4.7 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
4.8 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
4.9 Bankruptcy, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
4.10 Rights of Secured Party Not Limited . . . . . . . . . . . . . . . . . . . . . 118
4.11 Material Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
4.12 True and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 119
4.13 Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
4.14 Management and Operating Practices . . . . . . . . . . . . . . . . . . . . . 119
4.15 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
4.16 Taxes and Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
4.17 Financial Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
</TABLE>
<PAGE> 108
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SCHEDULE 6
Page 3 of 32
<TABLE>
<S> <C>
5. COVENANTS OF THE GUARANTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
5.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
5.2 Merger Consolidation, Sale of Assets . . . . . . . . . . . . . . . . . . . . 121
5.3 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
5.4 Financial Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
5.5 Compliance with Legal Requirements . . . . . . . . . . . . . . . . . . . . . 122
5.6 Books; Records; Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
5.7 Transfer of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
5.8 Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
5.9 Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
5.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
5.11 Subordination of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 125
5.12 Management and Operating Practices . . . . . . . . . . . . . . . . . . . . . 126
6. SUCCESSIONS: ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
7. WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
8. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
9. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
10. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
11. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE . . . . . . . . . . . . . . . . . . . . . . 127
12. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
13. JUDGMENT CURRENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
14. INTEGRATION OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
15. TERMINATION; REINSTATEMENT; SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
16. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
</TABLE>
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POST-COMPLETION GUARANTEE
AGREEMENT
THIS POST-COMPLETION GUARANTEE AGREEMENT (this "Agreement"), dated as
of ___________, ____, between THE PHOENIX RESOURCE COMPANIES, INC., a Delaware
corporation (the "Guarantor") and INTERNATIONAL FINANCE CORPORATION, as secured
party (the "Secured Party").
WITNESSETH:
WHEREAS, Phoenix Resources Company of Qarun, a Delaware corporation
(the "BORROWER") has entered into a loan agreement (the "LOAN AGREEMENT") with
the Secured Party, pursuant to which the Secured Party has agreed to make a
Loan to the Borrower in order to finance a portion of the cost of the Project,
on the term and conditions set forth therein; and
WHEREAS, pursuant to the Loan Agreement, the Minimum Retention Amount
may be established and maintained by the execution and delivery of this
Agreement by the Guarantor;
NOW, THEREFORE, in consideration of the premises set forth above and
other good and valuable consideration, receipt of which is hereby acknowledged,
and as an inducement to the Secured Party to enter into the Loan Agreement with
the Borrower, the Guarantor and the Secured Party hereby agree as follows:
1. Capitalized Terms
1.1 Capitalized terms used but not otherwise defined herein shall have
the respective meanings given them in the Loan Agreement.
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1.2 The following terms shall have the meanings specified below:
"ADVANCES" means any and all Debt loans, advances or similar
amounts provided, whether before or after the date hereof, to the Borrower by
the Guarantor (including without limitation all amounts paid or otherwise
provided to the Borrower under or pursuant to the Bridge Financing Agreement,
dated as of August 15, 1995, between the Guarantor and the Borrower).
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect from time to time.
"CONSOLIDATED WORKING CAPITAL" shall mean, as of any date of
determination, the sum of (x) the consolidated current assets of the Guarantor
less (y) the consolidated current liabilities of the Guarantor, as determined
pursuant to the most recent financial statements delivered by the Guarantor to
the Secured Party pursuant to Section 5.4.
"ENVIRONMENTAL LAW" means, collectively, the environmental,
occupational, health and safety policies, standard and guidelines of the World
Bank set out in the Environmental Impact Assessment (as defined in the Loan
Agreement) and of any Authority in the United States with jurisdiction over the
Guarantor.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect from
time to time.
"ERISA AFFILIATE" means each person (as defined in Section 3(9)
of ERISA) which together with the Guarantor, the Borrower or a Subsidiary of
any of the foregoing would be deemed to be a "single employer" (i) within the
meaning of Section 414(b),(c), (m) or (o) of the Code or (ii) as a result of
the Guarantor, the Borrower or a Subsidiary of any of the foregoing being or
having been a general partner of such person.
"GUARANTOR TRANSACTION DOCUMENT" means this Agreement and each
other Transaction Document to which the Guarantor is party.
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"LEGAL REQUIREMENTS" means all laws, statutes, orders, decrees,
injunctions, licenses, permits, approvals, agreements and regulations of any
Authority having jurisdiction over the matter in question.
"LONG-TERM DEBT RATIO" shall mean, as of any date of
determination, the ratio of (x) the Long-Term Debt of the Guarantor to (y)
the sum of (i) the Long-Term Debt of the Guarantor and (ii) the consolidated
stockholder's equity of the Guarantor, as determined pursuant to the most
recent financial statements delivered by the Guarantor to the Secured Party
pursuant to Section 5.4.
"MAXIMUM POST-COMPLETION GUARANTEE AMOUNT" shall mean the
amount of U.S. $5,625,000, together with interest thereon at the applicable
rate provided in the Loan Agreement.
"PLAN" means any "employee benefit plan" as defined in Section
3(3) of ERISA or any "plan" as defined in Section 4975(e)(1) of the Code.
"POST-COMPLETION GUARANTEE PERIOD" shall mean the period
commencing on the Project Completion Date and ending on the Post-Completion
Guarantee Termination Date.
"POST-COMPLETION GUARANTEE TERMINATION DATE" shall mean the
earlier of (i) the funding in full of the Reserve Account; (ii) the delivery of
a Debt Reserve Letter of Credit; and (iii) the indefeasible payment in full of
all of the Loan Obligations.
"POST-COMPLETION PERIOD OBLIGATIONS" means any and all amounts
of principal and interest payable by the Borrower under the Loan Agreement
during the Post-Completion Guarantee Period.
"SHAREHOLDER" means Phoenix Resources Company International.
1.3 Section 1.02 of the Loan Agreement is incorporated by reference
as if fully set forth herein.
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2. Post-Completion Guarantee
2.1 The Guarantor unconditionally and irrevocably guarantees and
agrees to make payment, within five (5) days of the first written demand by the
Secured Party on the Guarantor, in the manner, in the currency and in the type
of funds set forth in Section 3.09 of the Loan Agreement, of any and all amounts
of Post-Completion Period Obligations due and unpaid by the Borrower during the
Post-Completion Guarantee Period; provided that the maximum aggregate liability
of the Guarantor hereunder shall not exceed the Maximum Post-Completion
Guarantee Amount.
2.2 In addition to its obligations under Section 2.1, the Guarantor
further agrees to make payment, within five (5) days of the first written demand
by the Secured Party on the Guarantor, of all reasonable fees and expenses
incurred by the Secured Party in enforcing the Guarantor's obligations and
liabilities hereunder or the terms hereof, including the reasonable fees and
expenses of legal counsel.
2.3 Each failure by the Borrower to pay any Post-Completion Period
Obligation under the Loan Agreement shall give rise to a separate cause of
action hereunder and no demand by the Secured Party on the Guarantor with
respect to any such failure by the Borrower shall limit or in any way prejudice
any further or subsequent demand or demands by the Secured Party hereunder;
provided that in no event shall the obligations of the Guarantor hereunder
exceed, in the aggregate, the Maximum Post-Completion Guarantee Amount. Separate
suits may be brought hereunder as each such cause of action arises.
3. General Provisions.
3.1 Character of Guarantee.
3.1.1 The obligations of the Guarantor under this Agreement are
primary obligations and are an absolute, unconditional, continuing and
irrevocable guarantee of payment and not of collectibility or performance and
are in no way conditioned on or contingent upon any attempt to enforce in whole
or in part the Borrower's obligations under the Loan Agreement or the
obligations of any other Person under any of the other Transaction Documents.
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3.1.2 The obligations of the Guarantor under this Agreement are not,
and shall not be, subject to any defense or right of set-off, counterclaim,
deduction, diminution, abatement, recoupment, suspension, deferment or
reduction or any other legal or equitable defense which the Guarantor has or
hereafter may have, against any other Person (including without limitation
the Shareholder and the Borrower) for any reason whatsoever (including any
action, failure to act or circumstance which constitutes, or might constitute
or be construed as, an equitable or legal discharge of any or all of the
Borrower's obligations under the Transaction Documents, in bankruptcy or
otherwise).
3.2 No Reduction or Defense.
3.2.1 The Secured Party, may at any time and from time to time
without the consent of or notice to the Guarantor, without incurring
responsibility to the Guarantor, without impairing or releasing the obligations
of the Guarantor hereunder, upon or without any terms or conditions and in
whole or in part:
(i) change the manner, place and terms of payment or change
or extend the time of payment of, renew, or alter any obligation of the
Borrower or any obligations (including any hereunder) incurred directly or
indirectly in respect hereof or in any manner modify, amend or supplement the
terms of the Loan Agreement or any documents, instruments or agreements
executed in connection therewith (other than any document to which the
Guarantor is a party), and the guarantee herein undertaken shall apply to the
obligations of the Borrower as changed, extended, renewed, modified, amended,
supplemented or altered in any manner;
(ii) exercise or refrain from exercising any rights against
the Borrower or others (including the Guarantor) whether under the Transaction
Documents or otherwise, or otherwise act or refrain from acting;
(iii) release any other guarantor or other Person from its
obligations under the Loan Agreement or any of the Security Documents without
obtaining the consent of the Guarantor and without affecting or impairing the
obligations of the Guarantor hereunder;
(iv) settle or compromise any obligations (including any of
those hereunder) incurred directly or indirectly in respect thereof or hereof;
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(v) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner or in any order any property or assets by
whomsoever pledged, transferred, or assigned to secure or howsoever securing the
liabilities or obligations (including any of those hereunder) incurred directly
or indirectly in respect thereof or hereof and/or any offset thereagainst;
(vi) apply any sums by whomsoever paid or howsoever realized
to the obligations of the Borrower under the Loan Agreement;
(vii) consent to or waive any breach of, or any act, omission
or default under, the Loan Agreement or any of such other instruments or
agreements; and/or
(viii) act or fail to act in any manner referred to in this
Agreement which may deprive the Guarantor of any right it may otherwise have
had to subrogation or reimbursement against the Borrower or any other Person to
recover full indemnity for any payments made pursuant to this Agreement.
3.2.2 No invalidity, irregularity or unenforceability of any or all
of the obligations hereby guaranteed shall affect, impair, or be a defense to
this Agreement.
3.3 Waiver of Rights. To the fullest extent permitted by applicable
law, the Guarantor hereby expressly waives and relinquishes all rights and
remedies accorded by applicable law to sureties or guarantors and agrees not to
assert or take advantage of any such rights or remedies, including without
limitation:
(i) any right to require the Secured Party to proceed
against the Guarantor, the Borrower or any other Person or to proceed against
or exhaust any Security held by the Trustee or any other Person on behalf of
the Secured Party at any time or to pursue any other remedy in the Secured
Party's power before proceeding against the Guarantor,
(ii) any right to elect trial by jury, the benefit of the
statute of limitations in any action hereunder or in any action for the
collection or performance of any obligations hereunder or of the Borrower under
the Loan Agreement or the other Transaction Documents;
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(iii) any defense that may arise by reason of the
incapacity, lack of authority, death or disability of any other Person or the
failure of the Secured Party to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other Person;
(iv) any defense based on an act or omission by
the Borrower, the Guarantor, the Trustee, the Secured Party or any other Person
other than payment or performance by the Borrower of all obligations under the
Loan Agreement and the Security Documents;
(v) diligence, demand, presentment, protest and
notice of any kind including notice of acceptance of this Agreement and of any
obligation to which it applies or may apply, and notice of the existence,
creation or incurring of any new or additional indebtedness or obligation or of
any default, indulgence, enforcement or other action or non-action on the part
of the Borrower, the Guarantor, the Secured Party, the Trustee, any endorser or
creditor of the Guarantor or the Borrower, or on the part of any other Person
under this or any other instrument in connection with any obligation or
evidence of indebtedness held on behalf of the Secured Party, as Security or in
connection with any obligations hereunder;
(vi) any defense based upon an election of
remedies by the Secured Party or the Trustee, including an election to proceed
by nonjudicial rather than judicial foreclosure, which destroys or otherwise
impairs the subrogation rights of the Guarantor and/or the Shareholder, or the
right of the Guarantor and/or the Shareholder to proceed against the Borrower
for reimbursement, or both;
(vii) any defense based upon any statute or rule
of law which provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal; and
(viii) any duty on the part of the Secured Party
or any other Person to disclose to the Guarantor any facts that such Person may
now or hereafter know about the Borrower or any other Person.
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3.4 No Subrogation, etc.
3.4.1 The Guarantor hereby irrevocably waives any claim or other
rights which it may now or hereafter acquire against each such other party or
the Borrower, as the case may be, that arise from the existence or performance
of the Guarantor's obligations under this Agreement, including any right of
subrogation, reimbursement, exoneration, contribution, indemnification, any
right to participate in any claim or remedy of the Secured Party or the Trustee
against the Borrower, the Guarantor or any Security which the Secured Party may
now have or hereafter acquire, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, by any payment made
hereunder or otherwise, including the right to take or receive from the
Borrower or the Guarantor directly or indirectly, in cash or other property or
by set-off or in any other manner, payment or security on account of such claim
or other rights.
3.4.2 For the purposes of this Agreement, as between the parties
hereto, the Guarantor acknowledges and agrees that all payments made by the
Guarantor under or on account of this Agreement shall not under any
circumstances be treated as loans to, or on behalf of, the Borrower,
notwithstanding the existence at any time of any agreement to which either of
such parties and the Borrower are party that describe such amounts as
indebtedness.
3.4.3 The Guarantor hereby irrevocably agrees that it will not
exercise any rights which it may acquire by way of contribution under this
Agreement by any payment made hereunder or otherwise, including the right to
take or receive from any other Person, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account
of such contribution rights.
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3.5 Bankruptcy etc.
3.5.1 Without limiting the generality of any of the foregoing
provisions of this Agreement, the Guarantor irrevocably waives, to the fullest
extent permitted by applicable law and for the benefit of, and as a separate
undertaking with, the Secured Party, any defense to the performance of this
Agreement which may be available to the Guarantor as a consequence of this
Agreement being rejected or otherwise not assumed by the Borrower or any
trustee or other similar official for the Borrower or for any substantial part
of the property of the Borrower, or as a consequence of this Agreement being
otherwise terminated or modified, in any proceeding seeking to adjudicate the
Borrower as bankrupt or insolvent or seeking liquidation, winding up,
reorganization, arrangement, protection, relief or composition of the Borrower
or the debts of the Borrower under any law relating to bankruptcy, insolvency
or reorganization or relief or protection of debtors, whether such rejection,
non-assumption, termination or modification be by reason of this Agreement
being held to be an executory contract or by reason of any other circumstance.
3.5.2 If this Agreement shall be so rejected or otherwise not assumed,
or so terminated or modified, the Guarantor agrees, for the benefit of and as a
separate undertaking with, the Secured Party, that it will be unconditionally
liable to pay or to cause to be paid to the Secured Party, an amount equal to
each payment which would otherwise be payable by the Guarantor or by such
Person that the Guarantor would have caused to make payment, under or in
connection with this Agreement if this Agreement were not so rejected or
otherwise not assumed or were otherwise not so terminated or modified, such
amount to be payable to the Secured Party, at the payment address set forth in
the Loan Agreement or otherwise in accordance with the instructions of the
Secured Party, as and when such payment would otherwise be payable hereunder
and such amount to be applied as such payment would otherwise be applied
hereunder.
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3.5.2 The obligations of the Guarantor under this Agreement shall not
be altered, limited or affected by any proceeding, voluntary or involuntary,
involving the bankruptcy, reorganization, insolvency, receivership, liquidation
or arrangement of the Borrower, or by any defense which the Borrower may have
by reason of any order, decree or decision of any court or Authority resulting
from any such proceeding.
3.5.3 The Guarantor shall file, or cause the Shareholder to file, as
the case may be, in any bankruptcy or other proceeding in which the filing of
claims is required or permitted by law, all claims which it may have against
the Borrower relating to any indebtedness of the Borrower to the Guarantor or
the Shareholder, as the case may be. If the Guarantor does not file any such
claim, the Secured Party, as attorney-in-fact for such party, is hereby
authorized to do so in the name of the Guarantor, to cause proofs of claim to
be filed in the name of the Secured Party's nominee and to vote or otherwise
deal with such party's interests in connection with or with respect to all
matters in any proceeding. The foregoing power of attorney is coupled with an
interest and is irrevocable. The Secured Party or its nominee shall have the
sole right to accept or reject any plan proposed in any such proceeding and to
take any other action which a party filing a claim is entitled to take. In all
such cases, whether in administration, bankruptcy or otherwise, the Person
authorized to pay such a claim shall pay the same to the Secured Party;
provided, however, that the obligations hereunder shall not be satisfied except
to the extent that the Secured Party receives cash by reason of any such
payment. If the Secured Party receives anything hereunder other than cash, the
same shall be held as collateral for amounts due under this Agreement.
3.6 Revocation
3.6.1 In the event that, notwithstanding the provisions of Section 3.2,
this Agreement is or is deemed to be revoked in accordance with applicable law,
then any such revocation shall become effective only upon actual receipt by the
Secured Party and the Trustee of written notice of revocation signed by the
Guarantor seeking to revoke this Agreement.
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3.6.2 No revocation or termination hereof shall affect in any manner
rights arising under this Agreement with respect to obligations and liabilities
outstanding on the date of receipt by the Secured Party and the Trustee of
written notice of such revocation or termination, the Guarantor shall remain
liable for all obligations incurred hereunder prior to such revocation or
termination, and the sole effect of such revocation and termination hereof
shall be to exclude from this Agreement obligations and liabilities thereafter
arising which are unconnected to obligations and liabilities theretofore
arising or transactions theretofore entered into.
3.7 Subordination. Except to the extent repaid in accordance with
Section 6.01(b) of the Loan Agreement, all existing and future Advances and any
other indebtedness of the Borrower to the Guarantor and, except for Restricted
Payments made in accordance with Section 6.03(c) of the Loan Agreement, the
right of the Guarantor to withdraw any capital invested by the Guarantor in the
Borrower, is hereby subordinated to the prior and indefeasible payment in full
of all Loan Obligations, including the Loan Obligations guaranteed hereunder,
on the terms and conditions specified in Annex 2 to the Loan Agreement. Except
as otherwise permitted by the express terms of the Loan Agreement, such
subordinated indebtedness shall not be paid or withdrawn in whole or in part,
nor shall the Guarantor accept any payment of or on account of any such
indebtedness or as a withdrawal of capital while this Agreement is in effect.
3.8 Amounts Held in Trust. If any amount shall be paid to the
Guarantor in violation of this Agreement and there are outstanding Loan
Obligations or any amount of the Loan commitment shall remain in effect, such
amount shall be deemed to have been paid to the Guarantor for the benefit of,
and held in trust for the benefit of, the Secured Party and shall forthwith be
paid to the Secured Party to be credited and applied toward payment of the
outstanding Loan Obligations, whether matured or unmatured, in accordance with
the terms of the Loan Agreement.
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3.9 Obligations Unaffected by Transfer. The obligations of the
Guarantor hereunder shall remain unchanged and in full force and effect in
accordance with the terms hereof notwithstanding any transfer of any interest
in any share capital, common stock, securities or economic interest (whether
direct or indirect) in the Borrower by the Guarantor or the Shareholder, or in
the Shareholder by the Guarantor, as the case may be.
4. Representations and Warranties of the Guarantor. The Guarantor
represents and warrants to the Secured Party that:
4.1 Organization. It is a corporation duly organized validly
existing and in good standing under the laws of the jurisdiction of its
formation and has the corporate power and authority to execute and deliver each
Guarantor Transaction Document and to perform its obligations under each
Guarantor Transaction Document.
4.2 Authorization. It has taken all necessary corporate action to
authorize its execution and delivery of each Guarantor Transaction Document and
the performance of its obligations under each Guarantor Transaction Document
and each Guarantor Transaction Document has been duly authorized, executed and
delivered.
4.3 Legality, Validity and Enforceability
4.3.1 Each Guarantor Transaction Document constitutes the legal, valid
and binding obligation of it, enforceable against it, in accordance with its
terms, except to the extent the enforceability thereof may be limited by
applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally and by general equitable principles.
4.3.2 No fees or taxes, including without limitation stamp,
transaction, registration or similar taxes, are required to be paid for the
legality, validity, or enforceability of any Guarantor Transaction Document.
4.4 Authorizations. It possesses all Authorizations necessary for it
to execute, deliver and perform its obligations under each Guarantor
Transaction Document.
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4.5 Ownership of Shareholder and Borrower.
4.5.1 As of the date of this Agreement:
(i) there are 100 authorized shares of the Shareholder,
without par value, of which 100 shares are issued and outstanding;
(ii) all of such issued shares of common stock are owned by the
Guarantor and are duly and validly issued, fully paid and
non-assessable; and
(iii) the Shareholder does not have outstanding
(A) any securities convertible into or exchangeable for its
capital stock, or
(B) any rights to subscribe for or to purchase, or any option
for the purchase of, or any agreement, arrangement or
understanding providing for the issuance (contingent or
otherwise) of or any call, commitment or claims of any
character relating to, its capital stock.
4.5.2 As of the date of this Agreement
(i) there are 100 authorized shares of the Borrower, without par
value, of which 100 shares are issued and outstanding;
(ii) all of such issued shares of common stock are owned and held by
the Shareholder and are duly and validly issued, fully paid and
non-assessable; and
(iii) the Borrower does not have outstanding
(A) any securities convertible into or exchangeable for its
capital stock, or
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(B) any rights to subscribe for or to purchase, or any option
for the purchase of, or any agreement, arrangement or
understanding providing for the issuance (contingent or
otherwise) of, or any call commitment or claims of any
character relating to, its capital stock.
4.6 Compliance with Legal Requirements; No Conflict
4.6.1 It is in compliance with and not in default under any and all
Legal Requirements applicable to it except where non-compliance or default
could not reasonably be expected to have a material adverse effect on its
ability to perform its obligations under any Guarantor Transaction Document.
4.6.2 Its execution, delivery and performance of each Guarantor
Transaction Document:
(i) does not and will not contravene any provisions of its certificate
of incorporation or bylaws;
(ii) does not and will not contravene any Legal Requirement, except
where such contravention could not reasonably be expected to have a
material adverse effect on its ability to perform its obligations under
any Guarantor Transaction Document; and
(iii) does not and will not contravene, or result in any breach of, or
constitute any default under or require any consent under, any
agreement or instrument to which it is a party or by which it or any of
its properties may be bound or affected, except where such
contravention, breach or default or lack of consent could not
reasonably be expected to have a material adverse effect on its ability
to perform its obligations under any Guarantor Transaction Document.
4.6.3 It is not in default under any term of any Guarantor
Transaction Document or any other agreement to which it is a party which could
reasonably be expected to have a material adverse effect on its ability to
perform its obligations under any Guarantor Transaction Document.
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4.7 Proceedings. There is no pending or, to its knowledge,
threatened action or proceeding at law or in equity affecting it before any
court, Authority or arbitrator, which could reasonably be expected to
materially and adversely affect its business, financial condition or results of
operations or its ability to perform its obligations under any Guarantor
Transaction Document.
4.8 Environmental Matters.
4.8.1 It is not or has not in the past been in violation of any
Environmental Law which violation could reasonably be expected to result in a
material adverse effect on its business, financial condition or results of
operations or on its ability to perform its obligations under any Guarantor
Transaction Document. To its knowledge, there is and has been no condition,
circumstance, action, activity or event that could reasonably form the basis
of any violation of any Environmental Law which could reasonably be expected to
result in a material adverse effect on the Guarantor or the Borrower, or any
material liability to the Secured Party.
4.8.2 There is no proceeding, investigation or inquiry by any
Authority or any nongovernmental third party with respect to any material
violation of any Environmental Law by it, the Borrower or any other Subsidiary
which, if adversely determined, could reasonably be expected to have a material
adverse effect on the business, financial condition or results of operations of
the Guarantor and its consolidated subsidiaries or on the Guarantor's ability
to perform its obligations under any Guarantor Transaction Document.
4.8.3 It has been issued and will maintain and will cause the
Shareholder and the Borrower to obtain and maintain, all required Authorizations
relating to any Environmental Law, and it has not received, and neither the
Shareholder nor the Borrower has received, any complaint order, directive,
citation or notice from any Authority with respect to any Environmental Law,
except where any such nonissuance, failure to maintain, or receipt of any such
complaint, order, directive, citation or notice could not reasonably be
expected to have a material adverse effect on its or any such other Person's,
as the case may be, business, financial condition or results of operations or on
its or any such other Person's, as the case may be, ability to perform its
respective obligations under any Transaction Document to which it or any such
other Person is party.
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4.9 Bankruptcy etc., It has not and is not taking any steps
(including petition, proposal or convening a meeting) nor (to the best of its
knowledge, information and belief) is any such step being taken nor are any
legal proceedings pending or being threatened against it for or in respect of:
(i) the composition, assignment or arrangement with all or any general
class of its creditors;
(ii) the making of any petition in respect of it under any applicable
insolvency, bankruptcy or Similar laws in any jurisdiction;
(iii) the passing of any resolution for (or petitioning for) its
winding up, dissolution or reorganization or administration or
appointment of any trustee, receiver or similar officer or in respect
of it or any or all of its assets or revenues; or
(iv) the enforcing of any Lien over any part of its assets, except
where any such enforcement could not reasonably be expected to have a
material adverse effect on its ability to perform its obligations under
any Guarantor Transaction Document.
4.10 Rights of Secured Party Not Limited. The rights and remedies
of the Secured Party under or in relation to this Agreement or any other
Transaction Document shall not be limited or prejudiced by any investigation by
or on behalf of the Secured Party into the affairs of the Borrower, the
Shareholder, the Guarantor or the Project, by the execution or the performance
of this Agreement or any other Transaction Document, or by any other act or
thing which may be done by or on behalf of the Secured Party in connection with
this Agreement or any other Transaction Document and which might, apart from
this Section, prejudice such rights or remedies.
4.11 Material Liabilities. There are no liabilities or obligations
with respect to it of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether or not due) other than those disclosed
therein for the period to which the financial statements referred to in Section
4.15 relate which, either individually or in the aggregate, would be material
to it. It does not know of any reasonable basis for the assertion against it,
the Borrower or the Project of any liability
<PAGE> 125
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or obligation of any nature whatsoever for such relevant period that is not
fully reflected in such financial statements which, either individually or in
the aggregate, could reasonably be expected to be material to it or the
Borrower.
4.12 True and Complete Disclosure. All factual information (taken as
a whole) furnished by or on behalf of it in writing to the Secured Party is
(with respect to information provided through the date of this Agreement) or
will be (with respect to information provided after the date of this Agreement)
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in
any material respect at such time in light of the circumstances under which
such information was provided.
4.13 Regulation
4.13.1 There is no Unfunded Liability (as defined under ERISA)
under any current or previously existing Plan of the Guarantor or any
Subsidiary thereof which could have a material adverse effect on the business,
financial condition or results of operations of any such Person or the ability
of any such Person to perform its obligations under any Transaction Document to
which it is party.
4.13.2 Neither it nor any of its officers, directors, employees,
agents or affiliates, acting on its behalf, has taken any action in connection
with the Project that violates the Foreign Corrupt Practices Act of the United
States, if applicable, or any similar law of the Arab Republic of Egypt, if
applicable (collectively, the "CORRUPT PRACTICES ACTS").
4.13.3 None of it, any of its Affiliates or the Borrower is an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the United States Investment Company Act of 1940, as
amended ("ICA") or is subject to regulation under the Public Utility Holding
Company Act of 1935, as amended, and all rules and regulations adopted
thereunder ("PUHCA").
4.14 Management and Operating Practices. The Borrower's affairs are
conducted in accordance with Annex 4 to the Loan Agreement.
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4.15 Financial Statements. All financial statements previously
delivered by it to the Secured Party are and, in the case of financial
statements to be delivered after the date hereof, will be, true, correct and
complete in all respects as of the date of such statements and do not fail to
disclose any material liabilities, whether direct or contingent, fairly present
its financial condition as of the date thereof and have been prepared in
accordance with the Accounting Principles.
4.16 Taxes and Tax. It has filed, or caused to be filed, all tax
returns that are required to have been filed by it in any jurisdiction, and has
paid all taxes shown to be due and payable on such returns and all other taxes
and assessments payable by it, to the extent the same have become due and
payable (other than those taxes that it is contesting in good faith and by
appropriate proceedings, with adequate, segregated reserves established for
such taxes in accordance with the Accounting Principles) and, to the extent
such taxes are not due, has established reserves that are adequate for the
payment thereof and are as required by the Accounting Principles except, in
each case, to the extent that failure to do so could not reasonably be expected
to have a material adverse effect on its ability to perform its obligations
under any Guarantor Transaction Document.
4.17 Financial Matters.
4.17.1 The Guarantor has not created, incurred or suffered to exist
any Lien in, of or over the share capital of the Shareholder.
4.17.2 The Guarantor's
(i) Consolidated Working Capital is not less than zero (0);
and
(ii) Long-Term Debt Ratio does not exceed 2:1.
5. Covenants of the Guarantor. The Guarantor hereby covenants to
and agrees with the Secured Party that:
5.1 Corporate Existence. It will maintain its, the
Shareholder's and the Borrower's respective corporate existence in good
standing and will maintain in full force and effect all Authorizations that are
required to be obtained by it with
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Page 22 of 32
respect to and each Guarantor Transaction Document to which it is party and
will obtain any Authorization that may become necessary in the future.
5.2 Merger Consolidation, Sale of Assets. It will not
undertake, engage in or consummate any merger, consolidation, sale, lease or
other disposal of all or any part of its property or assets which could
reasonably be expected to materially and adversely affect its ability to
perform its obligations under any Guarantor Transaction Document.
5.3 Financial Covenants.
5.3.1 At any time, the Guarantor will not create, incur or suffer
to exist any Lien in, of or over the share capital of the Shareholder.
5.3.2 From and after the Project Completion Date:
(i) the Guarantor will not permit
(A) its Consolidated Working Capital to be less than zero (0);
nor
(B) its Long-Term Debt Ratio to exceed 2:1; and
(ii) in the event that
(A) the Guarantor's Consolidated Working Capital shall be less
than zero (0); or
(B) its Long-Term Debt Ratio shall exceed 2:1, the Guarantor
shall immediately so notify the Secured Party and the Trustee
in writing.
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5.4 Financial Reports.
5.4.1 It will deliver to the Secured Party within fifteen (15)
days, after filing with the U.S. Securities and Exchange Commission ("SEC")
copies of each quarterly and annual report (including without limitation each
10-Q and 10-K report) and the information, documents, and other reports (or
copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Guarantor is required to file with the SEC
pursuant to Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as
amended (the "1934 ACT").
5.4.2 If the Guarantor shall cease to be subject to the
requirements of Section 13 or 15(d) of the 1934 Act the Guarantor shall deliver
to the Secured Party:
(A) within sixty (60) days after the close of each of the
first three quarterly accounting periods in its fiscal year,
its consolidated balance sheets as at the end of such quarterly
period and the related statements of income, retained earnings
and cash flows for such quarterly period and for the elapsed
portion of the fiscal year ended with the last day of such
quarterly period, prepared in accordance with the Accounting
Principles, in each case setting forth comparative figures for
the related periods in the prior fiscal year, all of which
shall be certified by its chief financial officer or treasurer,
subject to normal year-end audit adjustments; and
(B) within one hundred twenty (120) days after the close of
its fiscal year, its consolidated and consolidating balance
sheets as at the end of such fiscal year, and the related
statements of income, retained earnings and cash flows for such
fiscal year, prepared in accordance with the Accounting
Principles, in each case setting forth comparative figures for
the preceding fiscal year and with an audit report, in the case
of the consolidated financial statements, of independent
certified public accountants of recognized national standing in
the United States.
5.5 Compliance with Legal Requirements It will comply with all
applicable Legal Requirements (including without limitation all Environmental
Laws)
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to which it may be subject, except where any such non-compliance could not
reasonably be expected to have a material adverse effect on its ability to
perform its obligations under any Guarantor Transaction Document.
5.6 Books; Records; Access.It will maintain with respect to itself,
and will cause the Borrower to maintain with respect to itself and the Project,
adequate books, accounts and records in compliance with the regulations of any
Authority having jurisdiction thereof, and, in the case of the Guarantor, with
respect to financial statements, in accordance with generally accepted
accounting principles in the United States, and permit, and cause the Borrower
to permit, employees or agents of the Secured Party and the Independent
Engineer, at any reasonable times and upon reasonable prior notice, to inspect
the Project, to examine or inspect its and the Borrower's books, accounts, and
records pertaining or related to the Project and to make copies and memoranda
thereof.
5.7 Transfer of Interests.
5.7.1 It shall, and shall cause the Shareholder, not to directly
or indirectly sell, assign or transfer any shares, capital stock, securities or
direct or indirect economic interest in the Shareholder or the Borrower, as the
case may be, except
(A) for a valid business purpose;
(B) with the prior written consent of the Secured Party
(such consent not to be unreasonably withheld);
(C) in compliance with all Legal Requirements;
(D) if, with respect to any such transfer of shares, capital
stock, securities or direct or indirect economic interest in
the Borrower, such transferee shall have executed and delivered
a pledge agreement in substantially similar form as the Pledge
Agreement, together with, if the Secured Party so requests, an
opinion of counsel satisfactory to the Secured Party, and in
form and substance satisfactory to the Secured Party, as to
such matters related to any such transfer reasonably requested
by the Secured Party; and
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(E) if there has been provided to the Secured Party any
such other document or instrument, or there has been performed
any such other act or thing, in connection with any such
transfer, as the case may be, as may have been reasonably
requested by the Secured Party;
provided that any such sale shall not constitute a release of
any of the Guarantor's obligations under this Agreement.
5.7.2 It shall, notwithstanding Section 5.7.1, at all times
maintain ownership and control of the Shareholder and the Borrower, as the case
may be (or any successor to the Borrower with responsibility for the operation
of the Project) and Phoenix Resources Company of Egypt.
5.8 Bankruptcy, etc. It shall not take any steps (including
petition, proposal or convening a meeting) or initiate any legal proceedings
for or in respect of:
(i) a composition, assignment or arrangement with all or any general
class of its, the Shareholder's or the Borrower's creditors;
(ii) the making of any petition in respect of it, the Shareholder or
the Borrower under any applicable insolvency, bankruptcy or similar
laws in any jurisdiction; or
(iii) the passing of any resolution for (or petitioning for) its,
the Shareholder's or the Borrower's winding up, dissolution or
reorganization or administration or appointment of any trustee,
receiver or similar officer or in respect of it, the Shareholder or the
Borrower or any or all of its, the Shareholder's or the Borrower's
assets or revenues.
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5.9 Regulation.
5.9.1 If it, the Shareholder or any of their respective
Subsidiaries or any ERISA Affiliate thereof establishes or (as a result of any
merger, acquisition or other transaction) maintain a Plan, it shall comply, or
cause any such other Person to comply, in all respects with ERISA and all other
Legal Requirements applicable thereto, except where such non-compliance would
not have a material adverse effect on it or any such other Person's financial
condition, business or results of operations or its or any such other Person's
ability to perform its obligations under any Transaction Document to which it
or any such other Person is party.
5.9.2 It shall not take any action which could result in any
violation by it, or any of its Subsidiaries or the Borrower of any of the
Corrupt Practices Acts.
5.9.3 It shall not take any action which could reasonably be
expected to result in it or any of its Subsidiaries or the Borrower falling
within the definition of an "investment company" or a company "controlled" by
an "investment company," under the ICA or becoming subject to regulation under
PUHCA.
5.10 Notices. Promptly, and in any event within five (5) Business
Days after an Authorized Financial Officer obtains knowledge thereof, it will
give:
(i) to the Secured Party, notice of the occurrence of any event or of
any litigation or governmental proceeding pending against it or any of
its Affiliates which, if adversely determined, could reasonably be
expected to materially and adversely affect its ability to perform its
obligations under any Guarantor Transaction Document; and
(ii) to the Secured Party and the Trustee, notice of the occurrence of
any Potential Event of Default or Event of Default.
5.11 Subordination of Advances. Except to the extent permitted
in accordance with Section 6.01(b) of the Loan Agreement, it shall ensure that
all Advances made by it to the Borrower (including any of such Advances made
prior to the date hereof) at all times comply with, and are on the terms and
conditions specified in, Annex 2 to the Loan Agreement, which terms and
conditions are incorporated by reference herein and which it covenants and
agrees to be bound by as if such terms and conditions were fully set forth
herein.
<PAGE> 132
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5.12 Management and Operating Practices. It shall ensure that the
Borrower's affairs at all times are conducted in accordance with Annex 4 to the
Loan Agreement.
6. Successions; Assignment.
6.1 This Agreement shall inure to the benefit of any successors
or assigns of the Secured Party.
6.2 This Agreement is binding upon the Guarantor and its
successors and assigns; provided that the Guarantor shall not assign its
obligations hereunder to any other Person without the prior written consent of
the Secured Party and any purported assignment in violation of this provision
shall be void. The Secured Party shall be entitled to assign any or all of its
rights hereunder in connection with any sale, assignment or participation of
all or any part of the Loan.
7. Waivers.
7.1 No delay on the part of the Secured Party in exercising any
of its rights (including those hereunder) and no partial or single exercise
thereof and no action or non-action by the Secured Party or the Trustee with or
without notice to the Guarantor or the Borrower or anyone else, shall
constitute a waiver of any rights or shall affect or impair this Agreement.
7.2 If any amount payable by the Guarantor hereunder is not
paid as and when due, then the Guarantor authorizes the Secured Party to
proceed, without prior notice, against any assets of the Guarantor which may be
at that time in the possession of the Secured Party to the full extent of all
amounts payable to the Secured Party hereunder, including all interest at the
rate applicable to the A Loan as provided in Section 3.05 of the Loan
Agreement.
8. Interpretation. The section headings in this Agreement are
for the convenience of reference only and shall not affect the meaning or
construction of any provision hereof.
9. Notices. All notices in connection with this Agreement shall
be given in writing, hand-delivered or sent by facsimile transmission, or by
certified mail return-receipt requested, airmail if overseas), postage prepaid.
All such notices shall
<PAGE> 133
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be sent to the appropriate telecopier number or address, as the case may be,
set forth below or to such other number or address as shall have been
subsequently specified by written notice to the other party, and shall be sent
with copies, if any, as indicated below. All such notices shall be effective
upon receipt. The addresses for notices shall be as follows:
(i) The address of the Guarantor is:
The Phoenix Resource Companies, Inc.
6525 North Meridian
Oklahoma City, Oklahoma 73116
Attention: Chief Financial Officer
Telecopier No.: (405) 728-5259
(ii) The address of the Secured Party is:
International Finance Corporation
1818 H Street, N.W.
Washington, D.C. 20433
Attention: Director, Oil Gas & Mining Department
Telecopier No.: (202) 334-0230
10. Amendments. This Agreement may be amended only with the
written consent of the Secured Party and the Guarantor.
11. Governing Law; Submission to Jurisdiction; Venue
11.1 This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and be governed by the
law of the State of New York without regard to the conflict of laws rules
thereof (other than the conflict of laws rules set forth in Section 5-1401 of
the New York General Obligations Law).
<PAGE> 134
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11.2 Any legal action or proceeding against the Guarantor with
respect to this Agreement may be brought in the courts of the State of New
York in the County of New York or of the United States for the Southern
District of New York and, by execution and delivery of this Agreement, the
Guarantor and hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts. The Guarantor agrees that a judgement after exhaustion of all
available appeals, in any such action or proceeding shall be conclusive and
binding upon it, and may be enforced in any other jurisdiction, by a suit upon
such judgment, a certified copy of which shall be conclusive evidence of the
judgment, the Guarantor has irrevocably designated, appointed and empowered CT
Corporation System, with offices on the date hereof at 1633 Broadway, New York,
New York 10019, as its designee, appointee and agent to receive, accept and
acknowledge for and on its behalf, and in respect of its property, service of
any and all legal process, summons, notices and documents which may be served
in any such action or proceeding. If for any reason such designee, appointee
and agent shall cease to be available to act as such, the Guarantor agrees to
designate a new designee, appointee and agent in New York City on the terms and
for the purposes of this provision satisfactory to the Secured Party. The
Guarantor further irrevocably consents to the service of process out of any of
the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to it at its
address set forth in Section 9, such service to be effective thirty (30) days
after such mailing. Nothing herein shall affect the right of the Secured Party
to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Guarantor in any other
jurisdiction.
11.3 The Guarantor hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this agreement
brought by the Secured Party in the courts referred to in Section 11.2 above
and hereby further irrevocably waives and agrees not to plead or claim in any
such court that any action or proceeding brought in any such court has been
brought in an inconvenient forum or that any such action or proceeding should
be stayed pending the outcome of any other action or proceeding (including any
arbitration proceeding).
<PAGE> 135
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12. Taxes.
Section 3.15 of the Loan Agreement is incorporated by
reference, mutatis mutandis, as if fully set forth herein.
13. Judgment Currency.
13.1 The Guarantor's obligations hereunder to make payments in
Dollars not be discharged or satisfied by any tender or recovery pursuant to
any judgment expressed in or converted into any currency other than Dollars.
If, for the purpose of obtaining or enforcing judgment against the Guarantor in
any court or in any jurisdiction; it becomes necessary to convert into or from
any currency other than Dollars (such other currency, the "JUDGMENT CURRENCY")
an amount due in Dollars, the conversion shall be made, at the rate of exchange
(as quoted by the Trustee or if the Trustee does not quote a rate of exchange
on such currency, by a known dealer in such currency designated by the Secured
Party) determined, in each case on the Business Day immediately proceeding the
Business Day on which such judgment is given (the "JUDGMENT CURRENCY
CONVERSION DATE").
13.2 If there is a change in the rate of exchange prevailing
between the Judgment Currency Conversion Date and the date of actual payment of
the amount due, the Guarantor covenants to pay, or cause to be paid, such
additional amounts, if any (but in any event not a lesser amount), as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Dollars which could have been purchased with the
amount of Judgment Currency stipulated in the judgment or judicial award at the
rate of exchange prevailing on the Judgment Currency Conversion Date.
13.3 For purposes of determining the rate of exchange under this
Section 13, such amounts shall include any premium and costs payable in
connection with the purchase of the Dollars.
14. Integration of Terms. This Agreement and the agreements
referred to herein contain the entire agreement between the Guarantor and the
Secured Party relating to the subject matter hereof and supersede all oral
statements and prior writing with respect hereto.
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15. Termination; Reinstatement; Survival
15.1 Subject to the provisions of Section 15.2, the obligations
of the Guarantor under this Agreement shall terminate on the Post-Completion
Guarantee Termination Date; provided that, notwithstanding the occurrence of
the Post-Completion Guarantee Termination Date, the obligations of the
Guarantor under this Agreement shall remain in effect with respect to any
amount of Post-Completion Period Obligations which are due, unpaid and
outstanding on such date and shall not terminate until the indefeasible payment
in full of all such amounts.
15.2 Notwithstanding the provisions of Section 15.1, the
obligations of the Guarantor under this Agreement shall be reinstated if, at
any time following the termination of the obligations of the Guarantor under
this Agreement pursuant to Section 15.1, any payment by the Guarantor under
this Agreement is rescinded or must otherwise be returned by the Secured Party
upon the insolvency, bankruptcy, reorganization, dissolution or liquidation of
the Borrower, the Shareholder, the Guarantor or otherwise, all as though such
payment had not been made. Such period of reinstatement shall continue until
satisfaction of the conditions contained in, and shall continue to be subject
to, the provisions hereof, including without limitation this Section 15.
16. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed to be an original, and, all of which,
when so executed and delivered by each of the parties hereto, shall constitute
but one and the same instrument.
<PAGE> 137
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
THE PHOENIX RESOURCE
COMPANIES, INC.,
Guarantor
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
INTERNATIONAL FINANCE
CORPORATION,
Secured Party
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 21
THE PHOENIX RESOURCE COMPANIES, INC.
SCHEDULE OF WHOLLY-OWNED SUBSIDIARIES
PHOENIX RESOURCES COMPANY INTERNATIONAL (DELAWARE)
Phoenix Resources Company of Egypt (Delaware)
Phoenix Resources Company of Qarun (Delaware)
PHOENIX RESOURCES COMPANY OF NORTH AMERICA (DELAWARE)
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into The Phoenix
Resource Companies, Inc.Gs previously filed registration statement on Form S-8
(File No. 33-41594).
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
February 23, 1996
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
The Phoenix Resource Companies, Inc.:
As independent petroleum engineers, we hereby consent to all
references to our firm in the Annual Report on Form 10-K of The Phoenix
Resource Companies, Inc. (the "Company") for the fiscal year ended December 31,
1995.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By /s/ Clarence M. Netherland
------------------------------------
Clarence M. Netherland, Chairman
Dallas, Texas
February 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 22,759
<SECURITIES> 0
<RECEIVABLES> 5,639
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,496
<PP&E> 41,825
<DEPRECIATION> 18,672
<TOTAL-ASSETS> 68,333
<CURRENT-LIABILITIES> 12,540
<BONDS> 0
<COMMON> 170
0
0
<OTHER-SE> 51,638
<TOTAL-LIABILITY-AND-EQUITY> 68,333
<SALES> 33,255
<TOTAL-REVENUES> 35,036
<CGS> 6,421
<TOTAL-COSTS> 14,410
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 20,626
<INCOME-TAX> 10,015
<INCOME-CONTINUING> 10,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,611
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
