-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I+WSRQE15bG+Ja3mN3yE8Mhk+cdF45QMIJ/mf3iYH+nQvS4l7J+2E+9rdfci4sSZ eB5AgIBW4ss2+sGQAEPstA== 0000950129-95-001455.txt : 19951119 0000950129-95-001455.hdr.sgml : 19951119 ACCESSION NUMBER: 0000950129-95-001455 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARNET RESOURCES CORP /DE/ CENTRAL INDEX KEY: 0000820084 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 742421851 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16621 FILM NUMBER: 95592567 BUSINESS ADDRESS: STREET 1: 333 CLAY ST STE 4500 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7137591692 MAIL ADDRESS: STREET 2: 333 CLAY ST STE 4500 CITY: HOUSTON STATE: TX ZIP: 77002 10-Q 1 GARNET RESOURCES CORPORATION FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1995 ----------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission file number 0-16621 ------------------------------------------- GARNET RESOURCES CORPORATION ------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 74-2421851 - --------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 333 Clay Street, Suite 4500, Houston, Texas 77002 --------------------------------------------------------- (Address of principal executive offices) (Zip Code) (713) 759-1692 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- As of November 14, 1995, 11,492,162 shares of Registrant's Common Stock, par value $.01 per share, were outstanding. 2 GARNET RESOURCES CORPORATION (the "Registrant" or the "Company") I N D E X PART I - FINANCIAL INFORMATION
Page ---- Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1995 (unaudited) and December 31, 1994 3-4 Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 1995 and 1994 (unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1994 (unaudited) 6 Notes to Condensed Consolidated Financial Statements-September 30, 1995 (unaudited) 7-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-17 PART II - OTHER INFORMATION - ------- Item 6. Exhibits and Reports on Form 8-K 17-18
2 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. GARNET RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, ASSETS 1995 1994 - ------ ------------ ----------- (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 2,169,328 $ 7,990,605 Accounts receivable 2,108,948 2,276,500 Inventories 989,209 1,257,207 Prepaid expenses 208,850 133,692 ----------- ----------- Total current assets 5,476,335 11,658,004 ----------- ----------- NET ASSETS HELD FOR DISPOSITION 400,386 514,624 ----------- ----------- PROPERTY AND EQUIPMENT, at cost: Oil and gas properties (full-cost method)- Proved 43,133,803 35,948,942 Unproved (excluded from amortization) 7,415,953 6,416,808 ----------- ----------- 50,549,756 42,365,750 Other equipment 136,216 142,993 ----------- ----------- 50,685,972 42,508,743 Less - Accumulated depreciation, depletion and amortization (9,562,752) (6,446,953) ----------- ----------- 41,123,220 36,061,790 ----------- ----------- OTHER ASSETS 968,737 1,065,619 ----------- ----------- $47,968,678 $49,300,037 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 GARNET RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Continued
September 30, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 - ------------------------------------ ------------ ------------ (unaudited) CURRENT LIABILITIES: Current portion of long-term debt $ 129,278 $ 1,932,156 Accounts payable and accrued liabilities 2,158,864 3,703,494 ----------- ----------- Total current liabilities 2,288,142 5,635,650 ----------- ----------- LONG-TERM DEBT, net of current portion 19,358,640 17,506,105 ----------- ----------- DEFERRED INCOME TAXES 354,635 - ----------- ----------- OTHER LONG-TERM LIABILITIES 472,268 368,030 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 20,000,000 shares authorized, 11,492,162 shares issued and outstanding as of September 30, 1995, 11,125,537 shares issued and outstanding as of December 31, 1994 114,922 111,255 Capital in excess of par value 52,491,212 51,395,004 Retained earnings (deficit) (27,111,141) (25,716,007) ----------- ----------- Total stockholders' equity 25,494,993 25,790,252 ----------- ----------- $47,968,678 $49,300,037 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 GARNET RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- -------------------------- 1995 1994 1995 1994 ----------- ----------- ----------- ----------- REVENUES: Oil sales $ 2,207,800 $ 1,119,462 $ 6,415,941 $ 2,754,546 Interest 24,670 98,606 180,218 293,489 ----------- ----------- ----------- ----------- 2,232,470 1,218,068 6,596,159 3,048,035 ----------- ----------- ----------- ----------- COSTS AND EXPENSES: Production 1,000,342 506,567 2,698,769 1,713,629 Exploration - 6,883 16,204 7,088 General and administrative 220,035 210,069 1,172,816 890,571 Interest 374,594 244,998 1,058,015 705,211 Depreciation, depletion and amortization 1,018,155 509,062 3,128,299 1,248,020 Foreign currency translation gain (193,954) (34,847) (704,654) (1,433) ----------- ----------- ----------- ----------- 2,419,172 1,442,732 7,369,449 4,563,086 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (186,702) (224,664) (773,290) (1,515,051) PROVISION FOR INCOME TAXES 212,466 252,419 621,844 297,847 ----------- ----------- ----------- ----------- NET LOSS $ (399,168) $ (477,083) $(1,395,134) $(1,812,898) =========== =========== =========== =========== NET LOSS PER SHARE $ (.03) $ (.04) $ (.12) $ (.16) =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 11,492,162 11,125,537 11,391,441 11,125,537 =========== =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 GARNET RESOURCES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, -------------------------- 1995 1994 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,395,134) $(1,812,898) Exploration costs 16,204 7,088 Depreciation, depletion and amortization 3,128,299 1,248,020 Deferred income taxes 354,635 41,940 Changes in components of working capital (1,184,280) (511,402) Other 264,613 134,647 ----------- ----------- Net cash provided by (used for) operating activities 1,184,337 (892,605) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (7,702,595) (6,114,209) Decrease in joint venture and contractor advances 895,784 2,167,134 Acquisition of interests in Argosy Energy International, net of cash acquired (92,621) - Other 112,166 (21,758) ----------- ----------- Net cash used for investing activities (6,787,266) (3,968,833) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuances of debt - 4,161,080 Repayments of debt (161,063) (582,714) Costs of debt issuances (57,285) (258,773) ----------- ----------- Net cash provided by (used for) financing activities (218,348) 3,319,593 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (5,821,277) (1,541,845) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,990,605 11,332,144 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,169,328 $ 9,790,299 =========== =========== Supplemental disclosures of cash flow information: Cash paid for - Interest, net of amounts capitalized $ 998,801 $ 621,962 Income taxes 370,241 82,439
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 7 GARNET RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (Unaudited) (1) Financial statement presentation- The condensed consolidated financial statements include the accounts of Garnet Resources Corporation, a Delaware corporation ("Garnet"), and its wholly owned subsidiaries. Garnet and its wholly owned subsidiaries are collectively referred to as the "Company." These financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and include all adjustments (which consist solely of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of financial position and results of operations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the Company's prior audited consolidated financial statements and the notes thereto. (2) Colombian operations- Through its ownership of interests in Argosy Energy International, a Utah limited partnership ("Argosy"), the Company has an indirect interest in a risk sharing contract in Colombia (the "Santana Contract") with Empresa Colombiana de Petroleos, the Colombian national oil company ("Ecopetrol"). The Santana Contract currently entitles Argosy and its joint venture partner to explore for oil and gas on approximately 86,000 acres located in the Putumayo Region of Colombia (the "Santana Block"), and provides for a 10-year exploration period expiring in 1997, subject to a requirement for additional partial relinquishments in 1997, and for a production period expiring in 2015. Argosy and its joint venture partner also have two association contracts (the "Fragua Contract" and the "Yuruyaco Contract") with Ecopetrol. The Fragua Contract covers an area of approximately 32,000 acres contiguous to the northern boundary of the Santana Block (the "Fragua Block"), while the Yuruyaco Contract covers an area of approximately 39,000 acres contiguous to the eastern boundaries of the Santana Block and the Fragua Block (the "Yuruyaco Block"). The Yuruyaco Contract is expected to become effective in November 1995, after ratification by Colombia's Ministry of Mines and Energy. The 10-year exploration periods provided by the Fragua Contract and the Yuruyaco Contract will expire in 2002 and 2005, respectively, and the 28-year contract terms will expire in 2020 and 2023, respectively. Argosy and its joint venture partner also have the right until 2003 to explore for and produce oil and gas from approximately 77,000 acres located in the Putumayo Region (the "Aporte Putumayo Block") pursuant to other agreements with Ecopetrol. Argosy 7 8 and its joint venture partner have notified Ecopetrol that they intend to relinquish the Aporte Putumayo Block and have recently suspended production from the wells on the block, which were first placed on production in 1976, because declining production rates have made continued operation economically unattractive under the terms of the contract with Ecopetrol for sale of the oil production. Argosy serves as the operator of the Colombian properties under joint venture agreements. The Santana Contract, the Fragua Contract and the Yuruyaco Contract provide that Ecopetrol will receive a royalty equal to 20% of production on behalf of the Colombian government and, in the event a discovery is deemed commercially feasible, Ecopetrol will acquire a 50% interest in the production, bear 50% of the development costs, and reimburse the joint venture, from Ecopetrol's share of future production, for 50% of the joint venture's costs of certain exploration activities. In the event accumulated oil production from the Santana Contract exceeds seven million barrels, Ecopetrol will continue to bear 50% of development costs, but its interest in production revenues and operating costs will increase to 65%. If a commercial field on the Fragua Block produces in excess of 60 million barrels, Ecopetrol's interest in production and costs increases in 5% increments from 50% to 70% as accumulated production from the field increases in 30 million barrel increments from 60 million barrels to 150 million barrels. If a commercial field on the Yuruyaco Block produces in excess of 60 million barrels, Ecopetrol's interest in production and costs ranges from 50% to 75%, based on annual measurements of profitability as defined in the contract. The joint venture paid all costs of the exploration program for the Santana Block during the first two years of the contract and thereafter the joint venture and Ecopetrol have been obligated to pay 70% and 30%, respectively, of such exploration costs. The joint venture bears all costs and risks of exploration activities on the Fragua Block and the Yuruyaco Block, subject to Ecopetrol's right to acquire a 50% interest in commercial discoveries. In the event a discovery is made and is not deemed by Ecopetrol to be commercially feasible, the joint venture may continue to develop the field at its own expense and will recover 200% of the costs thereof, at which time Ecopetrol will acquire a 50% interest therein at no cost to Ecopetrol or further reimbursement by Ecopetrol to Argosy. In March 1995 the Company increased its ownership in Argosy by exchanging 366,625 shares of Garnet's common stock with a value of $3.00 per share and cash totalling $142,703 for the partnership interests held by certain of Argosy's limited partners. The Company's net participations in revenues and costs for the Santana Contract, the Fragua Contract and the Yuruyaco Contract are as follows: 8 9
Production Operating Exploration Development Revenues Costs Costs Costs ---------- --------- ----------- ----------- Santana Contract: Before seven million barrels of accumulated production 21.8% 27.2% 38.1% 27.2% After seven million barrels of accumulated production 15.3% 19.1% 38.1% 27.2% Fragua Contract: Before 60 million barrels of accumulated production 21.8% 27.3% 54.6% 27.3% After 150 million barrels of accumulated production 13.1% 16.4% 54.6% 27.3% Yuruyaco Contract: Before 60 million barrels of accumulated production 22.0% 27.5% 55.0% 27.5% After 60 million barrels of accumulated production at maximum profitability 11.0% 13.8% 55.0% 27.5%
The joint venture has completed its seismic acquisition and drilling obligations for the first eight years of the Santana Contract, resulting in the discovery of four oil fields, all of which have been declared commercial by Ecopetrol. The joint venture has the right to continue the exploration program through 1997 with an obligation to conduct exploration programs to be approved by Ecopetrol in 1995 through 1997. The joint venture has also completed its obligations for the first two years of the Fragua Contract; no wells have yet been drilled in the contract area. Under the terms of a contract in force through December 31, 1994, oil produced from the Santana Block either was sold to Ecopetrol or was exported if Ecopetrol elected not to purchase it. If the joint venture's share of crude production from the Santana Block was required for Colombia's domestic market, the price paid by Ecopetrol was based on the equivalent value of products refined from the crude, less a stipulated refining cost. Under the terms of a new contract effective January 1, 1995, all oil produced from the Santana Block is sold to Ecopetrol. If Ecopetrol exports the oil, the price paid is the export price received by Ecopetrol adjusted for quality differences less a handling and commercialization fee of $.465 per barrel. If Ecopetrol does not export the oil, the price paid is based on quoted prices for Colombia's Cano Limon crude oil adjusted for quality differences, plus or minus a sales value differential to be determined by independent analysis, less Ecopetrol's cost to transport the crude to Cartagena and a handling and commercialization fee of $.365 per barrel. Prices determined under terms of the new contract are not expected to be significantly different than those calculated pursuant to the previous contract. Under the terms of contracts with Ecopetrol, 25% of all revenues from oil sold to Ecopetrol is paid in Colombian pesos which may only be utilized in Colombia. To date, Argosy has experienced no difficulty in repatriating the remaining 75% of such payments which are payable in United States dollars. As general partner, the Company's subsidiary is contingently liable for any obligations of Argosy and may be contingently liable 9 10 for claims generally related to the conduct of Argosy's business. (3) Exploration licenses in Papua New Guinea- Garnet PNG Corporation, a wholly owned subsidiary of Garnet ("Garnet PNG"), owns working interests in two petroleum prospecting licenses in Papua New Guinea which entitle it and its joint venture partners to explore for oil. Garnet PNG owns a 7.73% interest (the "PPL-174 Interest") in Petroleum Prospecting License No. 174 ("PPL-174") which covers 126,000 acres (the "PPL-174 Area"), and a 6% interest (the "PPL-181 Interest") in Petroleum Prospecting License No. 181 ("PPL-181") which covers 952,000 acres (the "PPL-181 Area"). Until September 1995, Garnet PNG also held a 40% interest (the "PPL-77 Interest") in Petroleum Prospecting License No. 77 ("PPL-77"), which included most of the area now covered by PPL-181 and was surrendered in connection with the issuance of PPL-181, as further described below. In 1986 oil was discovered approximately 10 miles from the northern border of PPL-181 in an adjoining license area operated by Chevron Niugini Pty. Limited, a subsidiary of Chevron Overseas Petroleum Inc. ("Chevron"). In 1989 Garnet PNG, Niugini Energy Pty. Limited ("Niugini") and Chevron entered into a farmout agreement, pursuant to which Chevron paid 100% of certain exploration costs on PPL-77 including the drilling of an exploratory well, which was plugged and abandoned as a dry hole in 1990, and a 400-mile seismic survey, which resulted in interpretation of a large potential oil prospect (the "Kamusi Prospect") on PPL-77 and two adjoining licenses. In 1991 Chevron withdrew from the joint venture with Garnet PNG and Niugini, and reassigned its interest in PPL-77 to Garnet PNG and Niugini. As Garnet PNG was unable to consummate a farmout agreement or make other arrangements to drill the well which was then required to be drilled by December 1992, management of the Company concluded in 1992 that the Company's investment in PPL-77 should be charged to expense. Notwithstanding this conclusion, the Company continued its efforts to arrange for the drilling of a well on the Kamusi Prospect and entered into an agreement in 1994 with several other companies to fund the costs of such well. In January 1995 the Government of Papua New Guinea issued PPL-174 to Garnet PNG and its joint venture partners. PPL-174 covers the Kamusi Prospect and includes a portion of the acreage formerly within the boundaries of PPL-77 and adjoining areas. Garnet PNG expects to contribute approximately $238,000 to the costs of the well. In April 1995 the Company entered into an agreement with Occidental International Exploration and Production Company ("Occidental") covering PPL-77. Under the agreement, an application for a new license was submitted to the Papua New Guinea Government. PPL-181 was issued in September 1995 and is owned by Occidental (88%), Garnet PNG (6%) and Niugini (6%). Occidental agreed to drill and complete at its cost a test well on the PPL-181 Area within the first two years. 10 11 In connection with its acquisition of the PPL-77 Interest from Niugini in 1987, Garnet PNG agreed to pay the first $2,545,000 of the costs to be incurred by Garnet PNG and Niugini in connection with an exploration program on PPL- 77 (the "Commitment Amount"), all of which has been paid. Garnet PNG has agreed to continue to pay 100% of certain costs until the well on the Kamusi Prospect has been drilled, and will recoup Niugini's 60% share of such costs out of Niugini's net share of proceeds from production, if any. Such costs in excess of the Commitment Amount are expected to include only nominal amounts to be incurred in concluding the aforementioned contractual arrangements for drilling the well on the Kamusi Prospect. Upon presentation of a tax clearance certificate evidencing Garnet PNG's compliance with the relevant provisions of Papua New Guinea's income tax laws, profits, dividends and certain other payments, if any, up to an amount of 500,000 kina (approximately $US380,000) per year may be fully remitted out of Papua New Guinea. Amounts in excess of 500,000 kina may also be remitted, subject to clearance from the Bank of Papua New Guinea. (4) Long-term debt- Long-term debt at September 30, 1995 and December 31, 1994 consisted of the following:
1995 1994 ----------- ----------- 9 1/2% convertible subordinated $15,000,000 $15,000,000 debentures Note payable by Argosy to a U.S. bank 4,358,640 4,161,080 Note payable by Argosy to a Colombian bank 129,278 277,181 ----------- ----------- 19,487,918 19,438,261 Less - Current portion (129,278) (1,932,156) ----------- ----------- $19,358,640 $17,506,105 =========== ===========
In 1993 Garnet issued $15,000,000 of convertible subordinated debentures (the "Debentures") due December 1998. The Debentures bear interest at 9 1/2% per annum payable quarterly and are convertible at the option of the holders into Garnet common stock at $5.50 per share. If the Company elects to prepay the Debentures under certain circumstances, it will issue warrants under the same economic terms as the Debentures. At the option of a holder, in the event of a change of control of the Company, the Company will be required to prepay such holder's Debenture at a 30% premium. The Debentures are secured by a pledge of all of the common stock of Garnet's wholly owned subsidiary which serves as the general partner of Argosy (see Note 2). Under the terms of an agreement with the holders of its Debentures, Garnet has 11 12 agreed that it will not pay dividends or make distributions to the holders of its common stock. In May 1994 Argosy entered into a finance agreement with Overseas Private Investment Corporation, an agency of the United States government ("OPIC"), pursuant to which OPIC agreed to guarantee up to $9,200,000 in bank loans to Argosy. The loan was funded in two stages of $4,400,000 in August 1994 and $4,800,000 in October 1995. The Company plans to use these funds to drill development wells and complete the construction of its production facilities in Colombia. OPIC's guaranty is secured by Argosy's interest in the Santana Contract and related assets, as well as the pledge of Garnet's direct and indirect interests in Argosy. The terms of the guaranty agreement also restrict Argosy's ability to make distributions to its partners prior to the repayment of the guaranteed loans. The maximum term of the loans is not to exceed seven years, and the principal amortization schedule is based on projected cash flows from wells on the Santana Block. The loans bear interest at the lender's eurodollar deposit rate plus .25% per annum for periods of two, three or six months as selected by Argosy. The interest rate at September 30, 1995 was 6 1/8%. In addition Argosy paid the lender a commitment fee of .25% per annum on the undisbursed and uncancelled amount of the guaranty and a facility fee of $46,000. In consideration for OPIC's guaranty, Argosy agreed to pay OPIC certain fees, including a facility fee of $92,000, a guaranty fee of 2.4% per annum on the outstanding balance of the loans guaranteed, a commitment fee of .67% per annum on the undisbursed and uncancelled amount of the guaranty, and a cancellation fee equal to .67% of the amount canceled. In 1993 Argosy received a loan from a Colombian bank, which is secured by receivables from Ecopetrol for well costs allocable to Ecopetrol but paid by Argosy. The loan bears interest at U.S. prime plus 2%, and is repaid in varying amounts from Ecopetrol's share of production from the wells. The interest rate at September 30, 1995 was 10 3/4%. (5) Stockholders' equity- Stock option plans- Garnet and a predecessor entity have adopted stock option plans (the "Employees' Plans") pursuant to which an aggregate of 1,488,000 shares of Garnet's common stock is authorized to be issued upon exercise of options granted to officers, employees, and certain other persons or entities who perform substantial services for or on behalf of Garnet or its subsidiaries. The Stock Option and Compensation Committee of Garnet's Board of Directors (the "Committee") is vested with sole and exclusive authority to administer and interpret the Employees' Plans, to determine the terms upon which options may be granted, to prescribe, amend and rescind such interpretations and determinations and to grant options to directors. Current Committee members are not eligible to receive options under the Employees' Plans. 12 13 In addition, Garnet has adopted the 1990 Directors' Stock Option Plan (the "Directors' Plan") pursuant to which an aggregate of 470,000 shares of Garnet's common stock is authorized to be issued to directors who are not employees of the Company. Under the terms of the Directors' Plan, as amended, options may be granted at the discretion of the Board of Directors, provided, however, that the timing of option grants is restricted to the second quarter of Garnet's fiscal year. Each option is exercisable for a period of 10 years and 30 days from the date of grant. The purchase price of shares issuable upon exercise of an option may be paid in cash or by delivery of shares with a value equal to the exercise price of the option. The Committee has determined that the right to exercise non-incentive options issued to employees vests over a period of four years, so that 20% of the option becomes exercisable on each anniversary of the date of grant. Non-incentive options issued to directors and other eligible participants generally are fully exercisable on and after the date of grant. The following is a summary of stock option activity in connection with the Employees' Plans and the Directors' Plan:
Shares Price Range ------ ----------- Options outstanding at December 31, 1992 952,500 $2.50-$13.83 Options granted 310,000 4.78- 5.75 Options exercised (3,000) 2.50 Options expired (30,000) 4.78- 13.83 --------- ------------ Options outstanding at December 31, 1993 1,229,500 2.50- 13.83 Options granted 140,000 4.05 --------- ------------ Options outstanding at December 31, 1994 1,369,500 2.50- 13.83 Options granted 618,000 2.50- 2.87 Options expired (658,398) 2.50- 13.83 --------- ------------ Options outstanding at September 30, 1995 1,329,102 $2.50-$13.83 ========= ============
As of September 30, 1995, options for 1,071,878 shares were exercisable. (6) Income taxes- The provisions for income taxes relate to the Colombian activities of Argosy. No United States deferred taxes were provided because the tax bases of the Company's assets exceed the financial statement bases, resulting in a deferred tax asset which the Company has determined is not presently realizable. As of December 31, 1994, the Company had a regular tax net operating loss carryforward and an alternative minimum tax loss carryforward of approximately $22,500,000 and $22,100,000, respectively. These loss carryforwards will expire beginning in 2001 if not utilized to reduce U.S. income taxes otherwise payable in future years, and are limited as to utilization because of the occurrences of "ownership changes" (as defined in Section 382 of the Internal 13 14 Revenue Code of 1986, as amended) in 1991 and earlier years. Such loss carryforwards also exclude regular tax net operating loss carryforwards aggregating approximately $4,500,000 attributable to certain of Garnet's subsidiaries, which can be used in certain circumstances to offset taxable income generated by such subsidiaries. (7) Acquisition of RGO Energy Inc. and RGO Partners, Ltd.- In 1991, in transactions accounted for as purchases, Garnet acquired RGO Energy Inc. and RGO Partners, Ltd., two privately-owned entities (referred to collectively herein as "the RGO Entities"). At the date of acquisition, approximately 60% of the assets of the RGO Entities was comprised of cash, with the balance being primarily working, royalty and mineral interests in producing and undeveloped oil and gas properties in the United States. All of the working interests acquired in the mergers were sold in 1993. Because management intends to sell the remaining royalty and mineral interests when the market conditions are suitable, these assets are reflected as "Net assets held for disposition" in the accompanying consolidated balance sheets. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources Since December 31, 1994, the Company has expended approximately $8,100,000 for the acquisition, exploration and development of its oil and gas properties. Such expenditures include approximately $7,200,000 for exploration and development activities on the Santana Block and Fragua Block in Colombia, approximately $100,000 for exploration and related costs in Papua New Guinea, and approximately $800,000 for exploration activities in Turkey and other countries. Funding for these activities was provided primarily by cash flow from operations and by available cash balances. Other than the OPIC guaranty, the Company has no significant lines of credit. Argosy and its joint venture partner have completed the seismic acquisition and drilling obligations for the first eight years of the Santana Contract, resulting in the discovery of four oil fields. The joint venture has the right to continue the exploration program through 1997 with an obligation to conduct exploration programs to be approved by Ecopetrol in 1995 through 1997. The Company plans to perform additional seismic work and to drill an additional exploratory well on the Santana Block during 1996, with estimated total costs to the Company of $2,150,000. The seismic programs required during the first two years of the Fragua Contract have also been completed. An additional seismic survey is planned for 1996, for which the Company's share of the costs is estimated to be $250,000. The Company also plans to conduct a seismic program on the Yuruyaco Block in 1996, for which its share of the costs is estimated to be $400,000. The Toroyaco and Linda fields, the first two fields discovered 14 15 on the Santana Block, began producing in 1992. The Mary and Miraflor fields, the last two fields discovered, were declared commercial by Ecopetrol in 1993. In August 1994 the Company resumed a limited early production program from one well in the Mary field, and added additional wells in the Mary and Miraflor fields to this program in the first and second quarters of 1995. Production from the four fields is presently approximately 7,000 barrels of oil per day. The Company's share of such production is 21.8%; it also receives an additional 21.8% of the production from certain wells until it recovers the drilling and completion costs for those wells allocable to Ecopetrol but paid by the Company. As of September 30, 1995, the Company was completing the construction of production facilities for the Mary and Miraflor fields, for which the Company's share of the remaining costs is expected to be approximately $1,000,000. The Company also plans to drill three additional development wells in the Toroyaco and Linda fields in 1996. The Company's share of the costs of drilling and completing each of the wells in these fields is expected to range from $800,000 to $1,000,000. To increase producing rates in existing wells, the Company plans to perform hydraulic fracture stimulations on seven wells in 1995, at an estimated total cost to the Company of $950,000. Garnet PNG expects to contribute approximately $238,000 to the costs of the exploratory well on the Kamusi Prospect in Papua New Guinea well in 1996. As described herein, the Company's operations are primarily located outside the United States. Although certain of such operations are conducted in foreign currencies, the Company considers the U.S. dollar to be the functional currency in most of the countries in which it operates. In addition, the Company has no significant operations in countries with highly inflationary economies. As a result, the Company's foreign currency transaction gains and losses have not been significant. Exchange controls exist for the repatriation of funds from Colombia and Papua New Guinea. The Company believes that the continuing viability of its operations in these countries will not be affected by such restrictions. It is anticipated that the Company's foreign exploration and development activities will require substantial amounts of capital. To finance its planned exploration and development activities, the Company intends to utilize its existing working capital, cash flow from production in Colombia, the $4.8 million proceeds of the second stage of the OPIC-guaranteed financing received in October 1995, and cash proceeds expected to be received from the sale of assets held for disposition, although there can be no assurance that any of such assets can be sold on terms acceptable to the Company. The Company has also identified and is implementing more than $1.5 million in annual reductions of U.S. and Colombian general and administrative expenses and production costs. The Company may also consider entering into arrangements whereby certain costs of exploration will be paid by others to earn an interest in the properties. The present environment for financing the acquisition of oil 15 16 and gas properties or the ongoing obligations of an oil and gas business is uncertain due, in part, to the substantial instability in oil and gas prices in recent years and to the volatility of financial markets. There can be no assurance that the additional financing which may be necessary to fund the Company's operations and obligations will be available on economically acceptable terms. In addition, the Company's ability to continue its exploration and development programs may be dependent upon its joint venture partners financing their portion of such costs and expenses. There can be no assurance that the Company's partners will contribute, or be in a position to contribute, their costs and expenses of the joint venture programs. If the Company's partners cannot finance their obligations to the joint ventures, the Company may be required to accept an assignment of the partners' interests therein and assume their financing obligations. If sufficient funds cannot be raised to meet the Company's obligations in connection with its properties, the interests in such properties might be sold or forfeited. Results of Operations Three months and nine months ended September 30, 1995 compared with the same periods in 1994 ----------------------------------------------------- The Company reported net losses of $399,168 ($.03 per share) and $477,083 ($.04 per share) for the three months ended September 30, 1995 and 1994, respectively, and $1,395,134 ($.12 per share) and $1,812,898 ($.16 per share) for the nine months ended September 30, 1995 and 1994, respectively. Increases in 1995 in oil and gas revenues, production costs and depreciation, depletion and amortization primarily reflect higher oil prices and production from new wells in Colombia. Production costs per barrel for the first nine months of 1995 decreased because of a lower tariff on the Trans-Andean pipeline which became effective in February 1994, and because of reduced trucking charges resulting from the completion of the Uchupayaco-Santana pipeline in June 1994. The Company's comparative average daily sales volumes in barrels of oil per day ("BOPD"), average sales prices and costs per barrel in Colombia for such periods were as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ -------------------- 1995 1994 1995 1994 --------- -------- ------- -------- Average oil sales (BOPD) 1,486 929 1,434 797 Average oil price per barrel $16.15 $13.09 $16.38 $12.66 Production costs per barrel $ 7.32 $ 5.92 $ 6.89 $ 7.88 Depreciation, depletion and amortization per barrel $ 7.42 $ 5.92 $ 7.96 $ 5.70
General and administrative expenses increased as a result of charges incurred in connection with management changes in 1995. The increase in 1995 in interest expense, net of amounts capitalized, 16 17 is attributable primarily to the OPIC-guaranteed loan received in August 1994. The foreign currency translation gain recorded in 1995 resulted from an approximate 17% devaluation in the Colombian peso during the first nine months of 1995 and the settlement of a liability. The provision for income taxes, all of which relates to Colombian operations, was higher because of a deferred tax provision recorded in 1995 and a deferred tax benefit recorded in 1994. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits
Item Exhibit No. Item Title No. ---- -------------------------------------- ------- (2) Plan of acquisition, reorganization, arrangement, liquidation or succession: Not Applicable (3) Articles of Incorporation and By-Laws: Not Applicable (4) Instruments defining the rights of security holders, including indentures: Not Applicable (10) Material contracts: (A) Petroleum Prospecting License No. 181. 10(A) (B) Papua New Guinea PPL-77 Agreement dated April 27, 1995 among Garnet PNG Corporation, Niugini Energy Pty. Limited and Occidental International Exploration and Production Company. 10(B) (C) Amendment No. 2 dated March 24, 1995 to Finance Agreement between Argosy Energy International and Overseas Private Investment Corporation. 10(C) (D) Amendment No. 3 dated September 26, 1995 to Finance Agreement between Argosy Energy International and Overseas Private Investment Corporation. 10(D) (E) Stage II Promissory Note dated October 25, 1995 from Argosy Energy International to Texas Commerce Bank National Association in the principal amount of $4,800,000. 10(E)
17 18 (F) Letter Agreement dated June 28, 1995 between George M. Nevers and Garnet Resources Corporation 10(F) (11) Statement regarding computation of per share earnings is not required because the relevant computations can be clearly determined from the material contained in the Financial Statements included herein. (15) Letter re unaudited interim financial information: Not Applicable (18) Letter re change in accounting principles: Not Applicable (19) Report furnished to security holders: Not Applicable (22) Published report regarding matters submitted to vote of security holders: Not Applicable (23) Consents of experts and counsel: Not Applicable (24) Power of attorney: Not Applicable (27) Financial Data Schedule. 27 (99) Additional Exhibits: Not Applicable
(b) Reports on Form 8-K No Reports on Form 8-K were filed by Registrant during the three months ended September 30, 1995. 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GARNET RESOURCES CORPORATION Date: November 14, 1995 /s/ W. Kirk Bosche' ---------------------------- W. Kirk Bosche', Vice President and Treasurer (As both a duly authorized officer of Registrant and as principal financial officer of Registrant) 19 20 EXHIBIT INDEX
Item Exhibit No. Item Title No. ---- -------------------------------------- ------- (2) Plan of acquisition, reorganization, arrangement, liquidation or succession: Not Applicable (3) Articles of Incorporation and By-Laws: Not Applicable (4) Instruments defining the rights of security holders, including indentures: Not Applicable (10) Material contracts: (A) Petroleum Prospecting License No. 181. 10(A) (B) Papua New Guinea PPL-77 Agreement dated April 27, 1995 among Garnet PNG Corporation, Niugini Energy Pty. Limited and Occidental International Exploration and Production Company. 10(B) (C) Amendment No. 2 dated March 24, 1995 to Finance Agreement between Argosy Energy International and Overseas Private Investment Corporation. 10(C) (D) Amendment No. 3 dated September 26, 1995 to Finance Agreement between Argosy Energy International and Overseas Private Investment Corporation. 10(D) (E) Stage II Promissory Note dated October 25, 1995 from Argosy Energy International to Texas Commerce Bank National Association in the principal amount of $4,800,000. 10(E)
21 (F) Letter Agreement dated June 28, 1995 between George M. Nevers and Garnet Resources Corporation 10(F) (11) Statement regarding computation of per share earnings is not required because the relevant computations can be clearly determined from the material contained in the Financial Statements included herein. (15) Letter re unaudited interim financial information: Not Applicable (18) Letter re change in accounting principles: Not Applicable (19) Report furnished to security holders: Not Applicable (22) Published report regarding matters submitted to vote of security holders: Not Applicable (23) Consents of experts and counsel: Not Applicable (24) Power of attorney: Not Applicable (27) Financial Data Schedule. 27 (99) Additional Exhibits: Not Applicable
EX-10.A 2 PETROLEUM PROSPECTING LICENSE NO. 181 1 EXHIBIT 10(A) [PAUPA NEW GUINEA LOGO] THE INDEPENDENT STATE OF PAPUA NEW GUINEA Petroleum Act (Chapter No. 198) PETROLEUM PROSPECTING LICENSE NO: 181 I, JOHN R. GIHENO, MP, Minister for Mining and Petroleum, acting pursuant to Section 20 of the Petroleum Act, Chapter No. 198 and all other powers me enabling and having considered a report of the Petroleum Advisory Board, HEREBY GRANT to: OCCIDENTAL OF PAPUA NEW GUINEA LTD; GARNET PNG CORPORATION; and NIUGINI ENERGY PTY LIMITED ("the Licensee") this Petroleum Prospecting License No: 181 in respect of the blocks described hereunder for a period of six years subject to the conditions set out hereunder: Interpretation: In this License, "the Act" means the Petroleum Act, Chapter No. 198 and includes any amendment of re-enactment of that Act and words and expressions used in this License have the same respective meanings as in the Act. 1 2 Description Blocks: All blocks listed hereunder can be identified by map title and section number as shown on the Graticular Section maps (1:1 000 000) prepared and published under the authority of the Minister and available at the Department of Mining and Petroleum, Port Moresby. MAP SHEET FLY RIVER S.B. 54 BLOCKS: (all inclusive) 2295 2367 2368 2369 2441 2442 2443 2514 2515 2516 2517 2587 2588 2589 2659 2660 2661 2731 2732 2733 2803 2804 2805 2875 2876 2877 2947 2948 2949 3020 3021 3092 3093 3162 3163 3164 3165 3234 3235 3236 3237 3306 3307 3308 3309 The total number of blocks in this License is 45 and all are inclusive. 2 3 Conditions: 1. This Licence shall take effect from the date of grant. 2. The Licensee shall at all times comply with:- (a) the provisions of the Act and the Regulations; and (b) all directions given to him under the Act or the Regulations. 3. The Licensee shall not transfer, or in any other way deal in, this Licence unless to or with a "related corporation" within the meaning of the Companies Act, during the first two years of the Licence unless the intending farminee(s) are acceptable to the Minister. 4. Within two years from the date of grant of this Licence, the Licensee, at a cost of not less than US$7,000,000 shall:- (a) review previous filed studies and data within and adjacent to proposed licence area; (b) acquire additional field data in areas of interest by way of geological field work and a low level aeromagnetic survey; and (c) drill an exploration well to a target approved by the Director 3 4 5. The Licensee shall, not later than two months before the expiration of the second year of this Licence, submit acceptable proposals for work and expenditure in the third and fourth years of this Licence to the Minister for approval which shall at least include:- (a) the acquisition of additional geological field data and further studies; (b) if a satisfactory prospect is defined drill one exploration well to a target approved by the Director; or (c) acquire 150 line kilometers of seismic; and (d) particulars of the financial resources available to the Licensee to carry out the forgoing work programme or if so requested by the Director an acceptable schedule of actions to be taken by the Licensee to ensure the availability of the necessary financial resources and of documentary evidence which will be submitted to the Director at appropriate times during the third and fourth years of this Licence to demonstrate that such actions have been taken. 6. If: (a) the programme carried out and completed under Conditions 4 does not show significant results; or (b) the proposals and financial particulars submitted under Condition 5, together with any additional or alternative proposals and financial particulars which may be requested by the Minister, or submitted by the Licensee, are not acceptable to the Licensee or the 4 5 Minister, and have not been approved within two months of the submission of the final submission of the proposals under Condition 5; the Licensee may, by written notice served on the Director, apply to the Minister for consent to surrender the Licence. 7. The Licensee shall, not later than two months before the expiration of the fourth year of this Licence, submit acceptable proposals for work and expenditure in the fifth and sixth years of this Licence to the Minister for approval which shall at least include: (a) the drilling of an exploration well in each of years 5 AND 6 to test a target approved by the Director; (b) further geological studies as required; (c) the completion of a comprehensive Integrated Report; and (d) if so requested by the Director, provide particulars of the financial resources available to the Licensee to carry out the foregoing work programme and an acceptable schedule of actions to be taken by the Licensee to ensure the availability of necessary financial resources and of documentary evidence which will be submitted to the Director at appropriate times during the fifth and sixth years of this Licence to demonstrate that such actions have been taken. 8. If: (a) the programme carried out and completed under condition 5 does not show significant results; or 5 6 (b) the proposals and financial particulars submitted under Condition 7, together with any additional or alternative proposals and financial particulars which may be requested by the Minister, or submitted by the Licensee, are not acceptable to the Licensee or the Minister, and have not been approved within two months of the final submission of the proposals under Condition 7; the Licensee may, by written notice served on the director, apply to the Minister for consent to surrender the Licence. 9. Subject to Section 99 of the Act, the Licensee after service of notice under Condition 6 or 8 shall cease to be liable for any obligations in respect of this Licence whether arising under the Act, the Regulations any directions given to the Licensee under the Act, or Regulations, or these Conditions to be performed or observed after the date of service of the notice, but this shall not affect the liability of the Licensee for any such obligations which should have been performed or observed before such date. A notice under Conditions 6 or 8 may be served on the Director in accordance with Section 115 or the Act. 10. If the Licensee should surrender this Licence under Condition 6 or 8, this Licence shall terminate upon the date of service of the instrument under Section 97(6) of the Act. 11. The Licensee may take samples of any petroleum found in the Licence area for the purpose of testing and determining its chemical composition. With prior approval of the Director well flow tests may be carried out, but the Licensee shall not otherwise recover any petroleum from the licence area. 6 7 12. The Independent State of Papua New Guinea ("The State") and the Licensee shall execute a Petroleum Agreement in respect of this Licence. The agreement shall, inter alia, provide that:- The State shall be given the right to participate as a joint owner to the extent of not more than 22.5% in any development and in any petroleum development licence which results from the discovery of petroleum under this Licence. Such participation shall be on a carried interest basis whereby the cost of The State's ownership interest will be paid for out of its share of the petroleum produced. DATED this 29th day of September, 1995. /s/ JOHN R. GIHENO - --------------------------------- John R. Giheno, MP. Minister for Mining and Petroleum 7 EX-10.B 3 PAPUA NEW GUINEA PPL-77 AGREEMENT - 04/27/95 1 EXHIBIT 10(B) PAPUA NEW GUINEA PPL 77 AGREEMENT THIS AGREEMENT is made and entered into this 27th day of April, 1995, by, between and among Garnet PNG Corporation, 333 Clay Street, Suite 4500, Houston, Texas 77002 ("Garnet"), Niugini Energy Pty Limited, 1660 South Albion Street, Suite 829, Denver, Colorado 80222 ("Niugini Energy"), and Occidental International Exploration and Production Company, P.O. Box 12021, Bakersfield, California 93389 ("Oxy"). 1. BACKGROUND. Garnet and Niugini Energy together own Petroleum Prospecting License 77 ("PPL 77") in Papua New Guinea, originally issued by the Minister for Minerals and Energy on December 1, 1986, and now covering 45 graticular blocks. Oxy wishes to explore the lands covered by PPL 77, which, by Direction S.96 dated December 3, 1992, has been extended for a period of twelve months from the date a Petroleum Agreement is executed by the PNG Government and the Licensees. Such a Petroleum Agreement was executed by the Government on December 21, 1994 and by the Licensees on January 30, 1995. In order to secure the greater time and certainty necessary to identify drillable locations and to drill exploration wells within the license area in a responsible fashion, the parties have agreed that Garnet and Niugini Energy will seek to surrender PPL 77, so that Garnet, Niugini Energy and Oxy may jointly apply to the PNG Government for a new license covering all of the lands now within PPL 77. 2. LICENSE SURRENDER AND APPLICATION; ALTERNATIVE MECHANISMS. The parties agree that within 30 days after the date of this agreement, Garnet and Niugini Energy shall formally seek to surrender and relinquish PPL 77 in its entirety, conditioned upon the grant of a new petroleum prospecting license to Garnet, Niugini Energy and Oxy's subsidiary to be named later ("Occidental") covering the same lands. At that same time, Garnet, Niugini Energy and Occidental shall formally apply for such a new license (the "New License") covering all of the lands now within PPL 77. This New License will be applied for and, if issued, held by Garnet (6%), Niugini Energy (6%), and Occidental (88%). The parties' principal objective is to secure, for their collective benefit, a new license allowing responsible exploration and development of the lands covered by PPL 77. If at any time it appears that another alternative, such as seeking a variance and extension of PPL 77 or some other arrangement, might more easily accomplish this objective, the parties may, by unanimous agreement, pursue such alternative path. 3. OCCIDENTAL PROMISES. PPL 77 is currently owned 40% by Garnet and 60% by Niugini Energy. The conditional surrender and New License application contemplated by this agreement will substantially reduce their interests, yet Garnet and Niugini Energy hereby agree to seek the conditional surrender and to allow Occidental an 88% interest in the New License in consideration of Occidental's promises that: 3.1 Occidental will drill and complete a new test well on lands covered by the New License satisfactory to the Department of Minerals and Petroleum within the first two years of the New License term; 2 3.2 Occidental will pay 100% of all security deposits, bonds, bonuses, rentals, stamp duties, exploration costs, and other costs of every type and nature in connection with the New License and all activities thereon until this new test well has been drilled and completed (either as a dry hole or as a producer), although Garnet and Niugini Energy will bear their own travel, legal, and other expenses which they may incur in connection with the surrender of PPL 77; and 3.3 Oxy and Occidental will not seek or accept any interest in any license covering lands now within PPL 77 prior to December 31, 1996, unless it first allows Garnet and Niugini Energy each to participate in such interest on the terms and conditions contemplated by this agreement. 4. OPERATING AGREEMENT. The parties agree that when the New License is issued, the parties shall enter into a unanimously agreed operating agreement covering the New License, which shall include terms and conditions normally found in joint operating agreements in the international petroleum industry, including designation of Occidental as operator and providing that each party shall pay its proportionate share of all expenses incurred after the new test well has been drilled and completed. Before the new test well is completed, all decisions concerning the nature, scope and timing of the exploration work and the drilling and completion of the new test well will be made solely by Occidental, after an opportunity for comment by Garnet and Niugini Energy. 5. NO LIABILITY. The parties recognize that the success of the contemplated surrender of PPL 77 and issuance of the New License is entirely dependent upon the discretion of the Department of Minerals and Petroleum, and the parties hereby expressly release each other, absent conduct by a party in bad faith, from any liability associated with the conditional surrender, the denial of the New License, or any other consequences of an action undertaken in furtherance of this agreement. GARNET PNG CORPORATION NIUGINI ENERGY PTY LIMITED By: /s/ ILLEGIBLE By: /s/ ILLEGIBLE ----------------------------- ------------------------------ Title: Vice President Title: Managing Director OCCIDENTAL INTERNATIONAL EXPLORATION AND PRODUCTION COMPANY By: /s/ ILLEGIBLE ----------------------------- Title: Vice President Expl Operations 2 EX-10.C 4 AMENDMENT NO. 2 - 03/24/95 TO FINANCE AGREEMENT 1 EXHIBIT 10(C) [OPIC COMPANY LETTERHEAD] March 24, 1995 Argosy Energy International 333 Clay Street Suite 4500 Houston, TX 77002 Attention: Mr. Kirk Bosche', Vice President Garnet Resources Corporation Re: Amendment No. 2 to Finance Agreement between Overseas Private Investment Corporation ("OPIC") and Argosy Energy International ("Argosy") Gentlemen: Reference is made to the Finance Agreement between Argosy and OPIC dated May 2, 1994, as amended by Amendment No. 1 dated July 28, 1994, (as amended, the "Finance Agreement"), setting forth the understanding and agreement between OPIC and Argosy with respect to an OPIC guaranty of a loan or loans to Argosy of up to $9,200,000. All capitalized terms used herein and not otherwise defined have the meanings set forth in the Finance Agreement. The Finance Agreement provides, among other things, that the Commitment Period shall terminate, at the latest, on March 31, 1995. In consideration of Argosy's continuing development of its oil operations in Colombia, OPIC agrees to amend the Finance Agreement as follows: 1. Section 1.1 of the Finance Agreement is amended by deleting the words "March 31, 1995" in the definition of "Commitment Period" and inserting in their place the words "September 30, 1995". 2. Section 8.6 is amended by deleting the words "four fiscal quarters" and inserting in their place the words "first three fiscal quarters". In all other respects, the terms of the Finance Agreement shall remain in full force and effect. 2 Argosy Energy International Page 2 If you agree to the foregoing amendments, please sign the two original execution copies of this Amendment No. 2 and return to OPIC one copy thereof via facsimile and by mail. Upon OPIC's receipt by facsimile of such executed copy, this Amendment No. 2 will constitute a binding agreement between us amending the Finance Agreement effective as of March 24, 1995. Very truly yours, OVERSEAS PRIVATE INVESTMENT CORPORATION By: /s/ [illegible] --------------------------------- Title: Vice President for Finance ACCEPTED AND AGREED TO as of the date of this letter: ARGOSY ENERGY INTERNATIONAL By: /s/ [illegible] - -------------------------- Title: Vice President, Argosy Energy Inc., General Partner EX-10.D 5 AMENDMENT NO. 3 - 09/26/95 TO FINANCE AGREEMENT 1 EXHIBIT 10(D) [OPIC LETTERHEAD] September 26, 1995 Argosy Energy International 333 Clay Street Suite 4500 Houston, Texas 77002 Attention: Mr. W. Kirk Bosche Re: Amendment No. 3 ("Amendment No. 3") to Finance Agreement between Overseas Private Investment Corporation ("OPIC") and Argosy Energy International (the "Partnership") Ladies and Gentlemen: Reference is made to the finance agreement between the Partnership and OPIC dated May 2, 1994, as amended by Amendment No. 1 dated July 28, 1994, and Amendment No. 2 dated March 24, 1995 (as amended, the "Finance Agreement"), setting forth the understanding and agreement between OPIC and the Partnership with respect to an OPIC guaranty of a loan or loans to the Partnership of up to $9,200,000.00. All capitalized terms used herein and not otherwise defined have the meanings set forth in the Finance Agreement. 1. Amendments to Section 1.1 of the Finance Agreement. (a) Section 1.1 of the Finance Agreement is amended by adding the following definition of Accounts Payable: "Accounts Payable" means liabilities arising in the ordinary course from the purchase of goods and services that have been received or that are in transit, which liabilities have a term of not more than one year." (b) The definition of "Commitment Period" is hereby amended by deleting the words "September 30, 1995" and inserting in their place the words "October 31, 1995." (c) The definition of "Debt Service Coverage Ratio" is amended in its entirety as follows: "Debt Service Coverage Ratio" means, for any Fiscal Year for which the calculation is made, the ratio of (a) the sum of Net Revenues for such Fiscal Year plus Reimbursement Revenues for such Fiscal Year plus, if such Fiscal Year is the then current Fiscal Year, the Liquid Assets (less any Accounts Payable) then owned by the Partnership, 2 2 if any, to (b) the sum of all installments of principal, interest and other fees in respect of all of the Partnership's Indebtedness (including the Loan, but excluding any Accounts Payable and the Garnet Loan, as defined below) scheduled to be due and payable during such Fiscal Year in accordance with the amortization schedules applicable to such Indebtedness. The calculation of the amounts described in clause (b) of the preceding sentence shall be based upon the following assumptions; (i) that all payments of principal shall be made when due and that no prepayments will be made unless such prepayments have become mandatory as of the date of calculation, (ii) in the case of a floating interest rate, that the interest rate in effect on the date of calculation shall remain in effect during the entire period covered by such calculation, and (iii) that the principal amount of $4,286,488.00, plus accrued interest, which the Partnership has borrowed from Garnet since August 12, 1994 (the "Garnet Loan"), will not be due and payable until the Fiscal Year following the Fiscal Year in which all amounts due or to become due under the Finance Agreement and the Notes are paid in full. (d) The definition of "Present Value Ratio" is amended by: (i) deleting subsection (i)(z) thereof and inserting in its place the following subsection: "(z) the Liquid Assets (less any Accounts Payable) then owned by the Partnership, if any, to" and (ii) deleting subsection (ii)(z) thereof and inserting in its place the following subsection: "(z) the amount of all other outstanding Indebtedness of the Partnership (excluding Accounts Payable)." (e) The definition of "Reimbursement Revenues" is amended by deleting the words "provided, however, that Reimbursement Revenues shall not include any reimbursement amounts subject to any assignment or factoring arrangements pursuant to the Credit Bank Documents". (f) The definition of "Sales Contract" is amended in its entirety as follows: "Sales Contract" means the Contract for Sale of Santana Crude dated March 5, 1995, by and among Ecopetrol, the Partnership and Neo. (g) The definition of "Stage II Wells" is amended by deleting the words "Toroyaco 4 and the Linda 3 wells" and inserting in their place the words "Mary 3 and the Mary 5 Wells". 2. Amendment to Section 8.4 of the Finance Agreement. Section 8.4, Insurance, of the Finance Agreement is amended by deleting subsection (b) and inserting in its place the following subsection: "(b) name OPIC as the loss payee or additional insured, as its interest may appear, in all policies (except in the case of public liability or other liability policies and except for policies covering vehicles as long as the aggregate value of all vehicles covered by such policies does not exceed $25,000.00):" 3. Miscellaneous. (a) Governing Law. This Amendment No. 3 shall be construed and enforced in accordance with the laws of the State of New York in the United States of America without regard to its conflict of laws principles. 3 3 (b) Confirmation of Agreement. Except as amended hereby, all of the terms of the Finance Agreement shall remain and continue in full force and effect and are hereby confirmed in all respects. This Amendment No. 3 embodies the entire understanding of the parties hereto with respect to the subject matter hereof, and supersedes all prior negotiations, understandings, and agreements among them with respect thereto. The provisions of this Amendment No. 3 may be waived, supplemented, or amended only by an instrument n writing signed by duly authorized representatives of the Partnership and OPIC. (c) Successors and Assigns. This Amendment No. 3 shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto, provided that the Partnership shall not, without the prior written consent of OPIC, assign or delegate all or any of its interest or obligations hereunder. (d) No Waiver. Each agreement, representation, and warranty contained or referred to in this Amendment No. 3 shall survive any investigation at any time made by OPIC and the disbursement of the Loan, and shall terminate only when all amounts due or to become due under the Finance Agreement and the Notes are paid in full. No course of dealing and no failure or delay by OPIC in exercising any right, power, or remedy under the Finance Agreement shall operate as a waiver thereof or otherwise prejudice OPIC's rights powers, or remedies. (e) Counterparts. This Amendment No. 3 may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instruments. If you agree to the foregoing amendments, please sign the two original execution copies of this Amendment No. 3 and return to OPIC one copy thereof via facsimile and by mail. Upon OPIC's receipt by facsimile of such executed copy, this Amendment No. 3 will constitute a binding agreement between us amending the Finance Agreement effective as the date hereof. Very truly yours, OVERSEAS PRIVATE INVESTMENT CORPORATION BY: /s/ CHARLES D. TOY -------------------------------- Title: Vice President for Finance -------------------------------- ACCEPTED AND AGREED TO as of the date of this letter: ARGOSY ENERGY INTERNATIONAL By: Argosy Energy Incorporated its general partner By: /s/ ILLEGIBLE ---------------------------- Title: Vice President ---------------------------- EX-10.E 6 STAGE II PROMISSORY NOTE - 10/25/95 ARGOSY ENERGY 1 EXHIBIT 10(E) ARGOSY ENERGY INTERNATIONAL STAGE II PROMISSORY NOTE U.S.$4,800,000 October 25, 1995 FOR VALUE RECEIVED, ARGOSY ENERGY INTERNATIONAL ("Borrower"), a limited partnership organized and existing under the laws of the State of Utah, hereby promises to pay to the order of Texas Commerce Bank National Association (herein, together with any successor or assign thereof, the "Lender"), in lawful currency of the United States of America and in immediately available funds, at the principal office of the Lender (located at 712 Main Street, Houston, Texas), the principal sum of Four Million Eight Hundred Thousand United States Dollars (U.S.$4,800,000), or, if less, the aggregate principal amount outstanding hereunder together with interest thereon as hereinafter provided. The principal amount hereof shall be repayable in semi-annual installments as set forth on Schedule I hereto, as such schedule may be modified by the Overseas Private Investment Corporation ("OPIC") in accordance with Sections 3.6 and 3.8 of the Finance Agreement between Borrower and OPIC dated may 2, 1994 (as amended, restated or supplemented from time to time, the "Finance Agreement"). Each such principal payment installment date being referred to herein as a "Payment Date". Borrower shall pay interest to the Lender on the outstanding, paid principal amount hereof accruing from and including the date hereof at the lesser of (a) the Interbank Offered Rate (as hereinafter defined and as adjusted from time to time as hereinafter provided), plus 0.25% per annum or (b) the highest rate permitted by applicable law (the "Highest Lawful Rate"). Borrower shall make interest payments to the Lender on each Interest Payment Date (as hereinafter defined) occurring during an Interest Period. The interest payment due on any such Interest Period, terminating immediately prior to such Interest Payment Date, except that the final installment of the unpaid principal amount of this Promissory Note is paid (the "Stage II Maturity Date"). For purposes hereof, "Interest Payment Date" means each March 15, June 15, September 15 and December 15 so long as this Promissory Note remains outstanding. The term "Interest Period" shall mean the period commencing on the day following the last day of the immediately preceding Interest Period (or, in the case of the first Interest Period, the date hereof) and ending at the close of business on the last day of the period selected by the Borrower pursuant to Section 2.2 of the Loan Agreement. 2 Borrower may, upon notice received by the Lender, select in accordance with Section 2.2 of the Loan Agreement; provided however, that: (i) the duration of any Interest Period which commences before any Payment Date required hereunder and otherwise ends after such date shall end on such date: (ii) the duration of any Interest Period which otherwise ends after the 15th day of the last month of such Interest Period shall end on the 15th day of such month; (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day (as hereafter defined), the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; and (iv) there shall be no more than one Interest Period in effect at any one time. For any Interest period, "Interbank Offered Rate" shall mean the rate of interest determined by the Lender to be the prevailing rate per annum at which deposits in U.S. dollars are offered to the Lender by first-class banks in the interbank eurodollar market in which it regularly participates on or about 10:00 a.m. (Houston time) two Business Days before the first day of such Interest Period. The Interbank Offered Rate shall be predetermined as above for each Interest Period. The Interbank Offered Rate shall be predetermined as above for each Interest Period, and the rate so adjusted will be in effect as of the first day of each Interest Period and shall continue in effect throughout such Interest Period. All computations of interest hereunder shall be made on the basis of a 360-day year and paid for the actual number of days elapsed. Whenever any payment under this Promissory Note shall be payable on any day that is not a Business Day, such payment shall be made on the next succeeding Business Day. The term "Business Day" shall mean any day except a Saturday, Sunday or other day on which commercial banks in Houston, Texas, or Washington, D.C., or New York City, New York are authorized by law to close. All payments shall be by wire transfer of immediately available funds in accordance with instructions given by the Lender to Borrower, or, at the Borrower's option, by debiting an account of the Borrower maintained with the Lender. All scheduled payments shall be applied: first, to the payment of accrued and unpaid interest then due and payable, and second, to the payment of principal then due and payable. This Promissory Note is issued under and is subject to the provisions of (i) the Finance Agreement and (ii) the letter loan agreement between Borrower and Lender dated as of August 3, 1994 (as amended, restated or supplemented from time to time, the "Loan Agreement"). This Promissory Note is valid only when the Guaranty Endorsement of OPIC has been affixed hereto. Subject to the Guaranty Agreement, the -2- 3 Lender may enforce the agreements of Borrower contained herein which are for the benefit of the Lender, and may exercise the remedies of the Lender provided for herein or in the Guaranty Agreement or otherwise available at law or in equity. Prior to the last day of the Commitment Period (as defined in the Finance Agreement), Borrower shall not have the right to prepay any principal amount outstanding hereunder. Thereafter, Borrower shall have the right to prepay the outstanding principal amount of this Promissory Note in whole or in increments of $100,000 from time to time on any Payment Date, without payment of premium to the Lender, provided the Borrower (i) gives OPIC and the Lender at least five (5) Business Days' notice of the amount and payment date of such optional prepayment and (ii) has paid to OPIC any premium required by Section 3.7 of the Finance Agreement at least five (5) Business Days prior thereto. Any such optional prepayment will be applied first to accrued, unpaid interest and then to principal installments of this Promissory Note in inverse order of maturities. This Promissory Note is also subject to mandatory prepayment under the terms of the Finance Agreement. Borrower shall give OPIC and the Lender at least five (5) Business Days' notice of the amount and payment date of such mandatory prepayment, which will be applied first to accrued, unpaid interest and then to principal installments of this Promissory note in inverse order of maturities. Upon the occurrence, and during the continuance, of an Event of Default (as defined in the Finance Agreement), the Principal of this Promissory Note and interest occurred hereon may be declared by OPIC to be forthwith due and payable as provided in the Finance Agreement. Subject to Section 10.4 of the Loan Agreement, no reference herein to the Finance Agreement, the Loan Agreement or the Guaranty Agreement (as defined in the Guaranty Endorsement hereto) and no provision of this Promissory Note, the Finance Agreement, the Loan Agreement or the Guaranty Agreement shall alter or impair the obligation of Borrower to pay the principal of and interest on this Promissory Note as provided herein. The provisions of this Promissory Note may be modified or amended only by an instrument in writing signed by duly authorized representatives of the Lender, OPIC and Borrower. Without prejudice to the rights of the holder of this Promissory Note to bring suit in the courts of any other jurisdiction, any proceeding by the Lender to enforce this Promissory Note or related rights may be brought in the courts of the United States of America in the District of Columbia. Borrower hereby waives any present or future objection to such venue and irrevocably consents and submits to the nonexclusive jurisdiction in personam of any such court. Borrower has irrevocably designated and appointed CT Corporation System, 1025 Vermont Avenue, NW, Washington, D.C., as its authorized agent to receive, accept and acknowledge on its behalf service of process in any such proceeding, and its agrees that service of process upon such agent shall be -3- 4 deemed and held in every respect to be valid personal service upon it. Borrower shall maintain such appointment continuously in effect at all times while Borrower is indebted hereunder. The Borrower hereby waives grace, demand, presentment for payment, notice of dishonor, default, notice of acceleration or notice of intent to accelerate the maturity hereof, protest and notice of protest and diligence in collecting and bringing of suit against any party hereto, and agrees to all renewals, extensions or partial payments hereon and to any release or substitution of security herefor, in whole or in part, with or without notice, before or after maturity. No failure on the part of the Lender to exercise, and no delay on the part of the Lender in exercising, any right under this Promissory note or otherwise shall operate as a waiver of such right nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. No course of dealing between the Borrower and the Lender shall operate as a waiver of any right of the Lender. All agreements between the Borrower and the Lender, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand being made in respect of an amount due under any Loan Document or otherwise, shall the amount paid, or agreed to be paid, to the Lender for the use, forbearance, or detention of the money to be loaned under the Loan Agreement, this Promissory Note, or any other Loan Document or otherwise or for the payment or performance of any covenant or obligation contained herein or in any other Loan Document exceed the Highest Lawful Rate. If, as a result of any ciecumstances whatsoever, fulfillment of any provision hereof or of any of such documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable usury law, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if, from any such circumstance, the Lender shall ever receive interest or anything which might be deemed interest under applicable law which would exceed the Highest Lawful Rate, such amount which would be excessive interest shall be applied to the reduction of the principal amount owing on account of the Lender's Notes or the amounts owing on other obligations of the Borrower to the Lender under any Loan Document and not to the payment of interest or if such excessive interest exceeds the unpaid principal balance of the Notes and the amounts owing on other obligations of the Borrower to the Lender under any Loan Document, as the case may be, such excess shall be refunded to the Borrower. All sums paid or agreed to be paid to the Lender for the use, forbearance, or detention of the indebtedness of the Borrower to the Lender, to the extent permitted by applicable law, shall be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full of the principal (including the period of any renewal or extension thereof) so that the interest on account of such indebtedness shall not exceed the Highest Lawful Rate. Notwithstanding anything to the contrary contained in any Loan Document, it is understood and agreed that if at any time the rate of interest which accrues on the -4- 5 outstanding principal balance of the Notes shall exceed the Highest Lawful Rate, the rate of interest which accrues on the outstanding principal balance of the Notes shall be limited to the Highest Lawful Rate, but any subsequent reductions in the rate of interest which accrues on the outstanding principal balance of the Notes shall not reduce the rate of interest which accrues on the outstanding principal balance of any Note below the Highest Lawful Rate until the total amount of interest accrued on the outstanding principal balance of the Notes equals the amount of interest which would have accrued if such interest rate had at all times been in effect. THIS PROMISSORY NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA WITHOUT REGARD TO ITS CONFLICT OF LAWS PROVISIONS. IN WITNESS WHEREOF, Borrower acting by its duly authorized representative has caused this Promissory Note to be executed and delivered to the Lender on the date first above written. ARGOSY ENERGY INTERNATIONAL, a limited partnership By: Argosy Energy Incorporated its general partner By: W. KIRK BOSCHE --------------------------- Name: W. Kirk Bosche --------------------------- Title: Vice President --------------------------- GUARANTY ENDORSEMENT This Promissory Note is one of the Guaranteed Notes described in the Guaranty Agreement dated July 26, 1994, between Overseas Private Investment Corporation and Texas Commerce Bank National Association (as amended, restated or supplemented from time to time, the "Guaranty Agreement"). Subject to the terms thereof, Overseas Private Investment Corporation guarantees the prompt payment when due of the principal of and interest on this Guaranteed Note. OVERSEAS PRIVATE INVESTMENT CORPORATION By: CHARLES D. TOY --------------------------- Its: Vice President for Finance --------------------------- -5- 6 Schedule I ARGOSY ENERGY INTERNATIONAL STATE II PROMISSORY NOTE SCHEDULE OF PRINCIPAL PAYMENTS*
PAYMENT DATE PRINCIPAL AMOUNT DUE ------------ -------------------- 1995 December 15 $1,051,000 1996 June 15 $ 589,500 December 15 $ 589,500 1997 June 15 $ 441,000 December 15 $ 441,000 1998 June 15 $ 390,000 December 15 $ 390,000 1999 June 15 $ 284,500 December 15 $ 284,500 2000 June 15 $ 164,500 December 15 $ 164,500 2001 June 15 $ 10,000
- --------------- * This Schedule of Principal Payments is subject to change as set forth in section 3.6 and 3.8 of the Finance Agreement dated May 2, 1994, as amended, between Argosy and OPIC. EX-10.F 7 LETTER AGREEMENT - 06/28/95 - GEORGE M. NEVERS 1 EXHIBIT 10F June 28, 1995 Mr. George M. Nevers 1902 Wroxton Road Houston, Texas 77005 In recognition of your resignation, effective June 21, 1995, from your positions as President and Chief Executive Officer and as an employee and director of Garnet Resources Corporation ("Garnet") and as an officer and director of Garnet's subsidiaries, which you hereby confirm, this letter sets forth the terms of our mutual understanding concerning your severance. 1. We have agreed to provide you with the following severance benefits which are over and above those to which you would normally be entitled: (a) You will be paid an amount equal to $203,300, which amount will be paid in twenty-four equal monthly installments payable on the first business day of each month commencing with July 1995. (b) Until June 30, 1997, Garnet shall maintain in full force and effect, for your continued benefit, the benefits under the $1,000,000 life insurance policy currently in effect. Garnet shall continue to provide you with the benefits under the medical and long term disability policies maintained by Garnet until December 31, 1995. For a period of eighteen months commencing January 1, 1996, Garnet will pay to you, or at your direction directly to the insurance carrier, the amount of the premium required to be paid to keep the medical insurance for the benefit of you and your dependents effective for a period of eighteen months commencing January 1, 1996 under COBRA. (c) In consideration of your agreement to relinquish the stock options held by you and listed on Schedule A attached hereto, Garnet will deliver to you, simultaneously with the execution of this agreement, a stock option entitling you to 2 purchase 200,000 shares of Garnet Common Stock at an exercise price of $2.50 per share at any time after the date hereof and prior to June 21, 1998, which option shall be in the form attached hereto as Exhibit A. 2. In consideration of the foregoing benefits: (a) You agree to be available during the transition period commencing on the date hereof and ending on December 31, 1995 to perform such consulting services as the management and directors of Garnet may from time to time reasonably request. Garnet shall reimburse you for all properly documented reasonable out-of-pocket expenses incurred in the performance of your duties as a consultant. (b) You hereby relinquish all stock options currently held by you in consideration of the issuance of the option in accordance with paragraph 1(c) above. You acknowledge that no additional severance benefits, bonus payments, other compensation or reimbursement, except as specifically set forth above, are payable to you by Garnet, or its subsidiaries or affiliates. You acknowledge that all payments under paragraph 1 and any gain realized upon the exercise of the option set forth in paragraph 1(c) will be subject to applicable statutory withholding taxes. (c) You, for yourself and for your successors and assigns, do hereby fully and completely RELEASE, ACQUIT and FOREVER DISCHARGE Garnet, and its affiliates, subsidiaries or other related entities as well as its shareholders, officers, directors, employees or agents, from any and all claims, debts, demands, actions, causes of action, suits, sums of money, contracts, agreements, judgments and liabilities whatsoever, both in law and in equity ("claims") of any kind and any character that you might now have, or could have had, whether in contract, tort or otherwise, including specifically any claims of discrimination that you may claim in connection with your employment or the termination thereof. This includes but is not limited to, claims arising under the federal, state or local laws prohibiting discrimination on the basis of one's sex, race, age, disability, national origin, color or religion, or claims growing out of any legal restriction on Garnet's right to terminate its employees. This also specifically includes the waiver of any rights or claims arising under the Age Discrimination in Employment Act of 1967 (29 U.S.C. 621 et seq.). It is also understood that the execution of this agreement shall be construed as a release and covenant not to sue, that you will not sue Garnet or any subsidiary, affiliate, officer, director, employee or committee thereof, or file any claims of any sort with any administrative agency for anything arising out of your employment, and the terms of this agreement supersede any and all 2 3 other agreements relating to your employment whether written or oral. (d) You agree to return to Garnet all documents, records and other property relating to Garnet and its business which are in your possession or under your control. You agree not to disclose to anyone any confidential or non-public information which relates to Garnet or its subsidiaries. 3. Garnet encourages you to carefully review the terms of this agreement and, if you wish, to seek advice and counsel from an attorney before signing this agreement. 4. This Agreement shall inure to the benefit of and shall be binding upon you and your executor, administrator, heirs, personal representatives and assigns, and Garnet and its successors and assigns; provided, however, that you shall not be entitled to assign or delegate any of your rights or obligations hereunder without the prior written consent of Garnet. 5. This Agreement constitutes the entire agreement between the parties relating to the subject matter hereof. It cannot be altered or amended except by a writing duly executed by the party against whom such alteration or amendment is sought to be enforced. 6. As the terms of this agreement were negotiated in the City of New York at a meeting held therein, this agreement shall in all respects be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such state. In the event of any dispute between the parties relating in any way to this letter or to your employment by Garnet a proceeding relating to such dispute may be brought only in the Federal or state courts sitting in the City of New York, to the jurisdiction and venue of which both parties hereby submit. Process, including original process in any such proceeding may be served by certified or registered mail, return receipt requested or by any other lawful means. Costs in any such proceeding shall be paid by the unsuccessful party as determined by the court presiding over such proceeding. 7. If any one or more of the provisions contained in this agreement shall be held illegal or unenforceable, no other provision shall be affected. We are pleased that we have been able to reach this agreement. After you have the chance to review this agreement and to consult with your attorney, if you wish, please sign the enclosed copy and return it to me within 22 days. 3 4 After you have executed and delivered this agreement, you will have seven (7) days following the date of execution during which time you may revoke this agreement, provided, however, that, if you elect to return an executed copy of the document to us before the expiration of 22 days from the date hereof, you may revoke this agreement at any time before the later to occur of seven (7) days following the date of execution or 22 days after the date hereof. If we do not receive a written revocation from you, or your attorney, prior to the expiration of the period in which you may revoke this agreement, this agreement will become effective on the date after the expiration of the applicable revocation period. GARNET RESOURCES CORPORATION By /s/ EDGAR A. MORTON ------------------------------ Accepted and Agreed: /s/ GEORGE M. NEVERS - --------------------------------- George M. Nevers I acknowledge that I have been given the opportunity to consider this agreement for at least twenty-one (21) days, that I have been advised to discuss this agreement with an attorney of my choice, that I have carefully read and fully understand and agree to all of the provisions of this agreement and that I am voluntarily entering into this agreement. Finally, I also understand that I have seven (7) days after I sign this agreement (or twenty-two days after the date hereof, if later) to change my mind and that I may revoke this agreement by providing written notice of revocation to you prior to the expiration of the applicable period. July 11, 1995 /s/ GEORGE M. NEVERS - ------------------------- --------------------------------- Date of Execution George M. Nevers 4 5 SCHEDULE A DATE OF NUMBER OF NUMBER OF GRANT SHARES GRANTED SHARES VESTED EXERCISE PRICE --------- -------------- ------------- -------------- 2/ 6/90 54,441 54,441 $11.75 12/ 4/90 50,000 50,000 $ 6.625 12/ 8/92 5,352 3,211 $ 4.00 6/23/93 56,250 22,500 $ 5.75 5 6 EXHIBIT A GARNET RESOURCES CORPORATION AGREEMENT RELATING TO STOCK OPTIONS WHICH ARE NOT "INCENTIVE OPTIONS" PURSUANT TO THE 1990 STOCK OPTION PLAN ------------------------------ Option granted in New York, New York, as of June 28, 1995 (hereinafter referred to as the "Date of Grant") by GARNET RESOURCES CORPORATION (the "Corporation") to George M. Nevers (the "Grantee"): 1. THE OPTION. Subject to the execution, delivery and effectiveness of the letter agreement dated June 28, 1995 between the Corporation and the Grantee (the "Agreement"), the Corporation hereby grants to the Grantee, effective on the Date of Grant, a stock option (the "Option") to purchase, on the terms and conditions herein set forth, up to 200,000 of the Corporation's fully paid, non-assessable shares of Common Stock, par value $0.01 per share (the "Shares"), at the option price set forth in Section 2 below. The Option is granted pursuant to the Agreement and the Corporation's 1990 Stock Option Plan (the "Plan"), a copy of which is delivered herewith by the Corporation and receipt thereof is acknowledged by the Grantee. The Option is subject in its entirety to all the applicable provisions of the Agreement and the Plan which are incorporated herein by reference. The Option is a "Non-incentive Stock Option" within the meaning of Section 2 of the Plan. 2. THE PURCHASE PRICE. The purchase price of the Shares shall be $2.50 per share (the "Option Price"). 3. EXERCISE OF OPTION. (a) Except as otherwise provided in the Plan and this Option Agreement, and provided the Grantee is not in breach of the Agreement, the Option is exercisable over a period commencing on the date hereof and ending at the close of business on June 21, 1998. The Option may be exercised from time to time during the option period as to the total number of Shares allowable under this Section 3(a), or any lesser amount thereof. In the event of the death of the Grantee, this Option may be exercised by the person or persons entitled to do so under the Grantee's will (a "legatee"), or, if the Grantee shall fail to make testamentary disposition of this Option, or shall die intestate, by the Grantee's legal representative (a "legal representative"). If the Grantee shall die or become disabled within the meaning of Section 7 22(e)(3) of the Internal Revenue Code of 1986, as amended, during the period in which this Option is exercisable, the Stock Option and Compensation Committee may, in its discretion, extend the period in which this Option may be exercised. If this Option shall extend to 100 or more Shares, then this Option may not be exercised for less than 100 Shares at any one time, and if this Option shall extend to less than 100 Shares, then this Option must be exercised for all such Shares at one time. (b) Not less than five days nor more than thirty days prior to the date upon which all or any portion of the Option is to be exercised, the person entitled to exercise the Option shall deliver to the Corporation written notice (the "Notice") of his election to exercise all or a part of the Option, which Notice shall specify the date for the exercise of the Option and the number of Shares in respect of which the Option is to be exercised. The date specified in the Notice shall be a business day of the Corporation. (c) On the date specified in the Notice, the person entitled to exercise the Option shall pay to the Corporation the Option Price of the Shares in respect of which the Option is exercised, and the minimum amount of any Federal and state withholding tax and any employment tax. The Option Price shall be paid in full at the time of purchase, in cash or by check or with stock of the Corporation, the value of which shall be determined in the same manner as provided for determining the fair market value of a share of Common Stock subject to an Incentive Stock Option as set forth in Section 6(a) of the Plan. If the Option is exercised in accordance with the provisions of the Plan and this Option Agreement, within three business days of receipt of the purchase price, the Corporation shall deliver to such person certificates representing the number of Shares or other securities in respect of which the Option is being exercised which Shares or other securities shall be registered in his name. (d) In addition to the procedures set forth above, if Regulation T of the Securities Exchange Act of 1934, as amended ("Regulation T") is applicable to the exercise of this Option and so permits, the person entitled to exercise this Option may direct the Corporation in the Notice to deliver all or any part of the number of Shares or other securities to which he is entitled upon exercise of this Option directly to a broker specified in the Notice. In such event, the Corporation shall accept payment of the Option Price in cash or by check from such broker on behalf of the person entitled to exercise this Option and shall take all action necessary to effect the prompt delivery of such Shares or other securities to such broker in accordance with the provisions of Regulation T. Notwithstanding the foregoing, the Corporation shall not be required to comply with the provisions of this Section 3(d) if, as a result of a change in the accounting rules and regulations applicable to the Corporation, or the -2- 8 interpretation thereof, compliance with the provisions of this Section 3(d) will result in the imposition of substantial adverse financial reporting requirements on the Corporation. (e) In the event of the dissolution, liquidation, merger or consolidation of the Corporation, or the sale of all or substantially all of its assets, during the term hereof, the Corporation shall provide the Grantee with at least 30 days' notice of the consummation of any of the events referred to in the preceding sentence, during which period the Grantee may so exercise the Option. 4. REPRESENTATIONS, WARRANTS AND COVENANTS. (a) The Grantee represents and warrants that he is acquiring this Option and, in the event this Option is exercised, the Shares, for investment, for his own account and not with a view to the distribution thereof, and that he has no present intention of disposing of this Option or the Shares or any interest therein or sharing ownership thereof with any other person or entity. (b) The Grantee agrees that he will not offer, sell, hypothecate, transfer or otherwise dispose of any of the Shares unless either: (i) A registration statement covering the Shares which are to be so offered has been filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 (the "Securities Act") and such sale, transfer or other disposition is accompanied by a prospectus relating to a registration statement which is in effect under the Securities Act covering the Shares which are to be sold, transferred or otherwise disposed of and meeting the requirements of Section 10 of the Securities Act; or (ii) Counsel satisfactory to the Corporation renders a reasoned opinion in writing and addressed to the Corporation, satisfactory in form and substance to the Corporation and its counsel, that in the opinion of such counsel such proposed sale, offer, transfer or other disposition of the Shares is exempt from the provisions of Section 5 of the Securities Act in view of the circumstances of such proposed offer, sale, transfer or other disposition. (c) The Grantee acknowledges that (i) the Shares and this Option constitute "securities" under the Securities Act and/or the Securities Exchange Act of 1934 and/or the Rules and Regulations promulgated under said acts; (ii) the Shares must be held indefinitely unless subsequently registered under the -3- 9 Securities Act or an exemption from such registration is available; and (iii) except as set forth in Section 8 below, the Corporation is not under any obligation with respect to the registration of the Shares. (d) The Grantee is advised that he or his legatee or legal representative, as the case may be and as defined above, may be required to make an appropriate representation at the time of any exercise of this Option in form and substance similar to the representations contained herein, relating to the Shares then being purchased. 5. SUCCESSORS AND ASSIGNS. This Option Agreement shall be binding upon and shall inure to the benefit of any successor or assign of the Corporation and, to the extent herein provided, shall be binding upon and inure to the benefit of the Grantee's legatee or legal representative, as defined above; provided, however, that under no circumstances shall the rights provided under Section 8 hereof be transferred to or inure to the benefit of anyone other than the Grantee, including without limitation the Grantee's legatee or legal representative. 6. ADJUSTMENT OF OPTIONS. (a) The number of Shares issuable upon exercise of this Option, or the amount and kind of other securities issuable in addition thereto or in lieu thereof upon the occurrence of the events specified in Section 9 of the Plan, shall be determined and subject to adjustment, as the case may be, in accordance with the procedures therein specified. (b) Fractional shares resulting from any adjustment in options pursuant to this Section may be settled in cash or otherwise as the Stock Option and Compensation Committee shall determine. Notice of any adjustment in this Option shall be given by the Corporation to the holder of this Option and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of the Plan. 7. EXERCISE AND TRANSFERABILITY OF OPTION. During the lifetime of the Grantee, this Option is exercisable only by him and shall not be assignable or transferable by him and no other person shall acquire any rights therein. If the Grantee shall die during the period in which this Option is exercisable, his or her legatee or legal representative shall have the rights provided in Section 3(a) above. -4- 10 8. REGISTRATION OF SHARES. In the event that the Shares issued or issuable pursuant to this Option have not been otherwise registered under the Securities Act and the Corporation, at any time or from time to time after an initial offering of its securities registered under the Securities Act for sale to the public generally (otherwise than in connection with a merger or offering of its securities in exchange for securities or assets of another person, the issuance to employees of securities or options or other rights to purchase securities, and other similar transactions) (an "Offering"), the Corporation proposes to effect an additional Offering (a "Subject Offering"), the Corporation shall give written notice thereof to the Grantee, and the Grantee, by written notice to the Corporation within 30 days after the giving of such notice by the Corporation, may elect to cause the Corporation to register for inclusion in the Subject Offering, upon the terms and subject to the conditions hereof, all or any portion of the Shares held or to be held by the Grantee, as at the date of filing of the registration statement, and which are or will have been acquired upon the exercise in whole or in part of the Option, including such other securities of the Corporation issued in replacement for or in addition to such Shares pursuant to Section 9 of the Plan (such Shares and other securities being herein referred to collectively as "Registrable Stock"). Such notice shall set forth the quantity of Registrable Stock sought to be included in the Subject Offering and the intended manner of distribution thereof; provided that, if the Subject Offering is to be underwritten, the Registrable Stock may be sold only to or through the underwriter or underwriters acting in respect of the Subject Offering. If and to the extent that the underwriter or underwriters acting in respect of the Subject Offering reasonably determine that the inclusion of the Registrable Stock may substantially prejudice or hinder the consummation of the Subject Offering, the amount of Registrable Stock which the Grantee shall be entitled to offer therein shall be reduced or eliminated. Notwithstanding the foregoing, the Corporation shall have the right, after the giving of notice of a proposed Subject Offering hereunder and regardless of whether the Grantee shall have requested the inclusion of any Registrable Stock therein, to elect not to file such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. Subject to the foregoing, the Corporation shall use its best efforts to cause the registration statement filed in respect of each Subject Offering including shares of Registrable Stock hereunder to become effective and to remain effective for a period of at least 90 days, or for such greater period as may be required by law for the delivery of a prospectus, and to qualify the Registrable Stock for sale in each state wherein such qualification is requested by the Grantee, provided that the Corporation shall not be obligated to make any changes in its capital structure necessary to effect such qualification in any jurisdiction nor be required to execute or file any general consent to service of process nor to qualify as a foreign -5- 11 corporation to do business under the laws of any such jurisdiction. Upon electing to participate in any Subject Offering hereunder, the Grantee shall furnish such information and execute such documents as may be required by the Securities and Exchange Commission and other regulatory authorities or otherwise reasonably requested by the Corporation, and shall enter into an agreement with the Corporation containing customary provisions for mutual indemnification against liabilities associated with the offering. The Corporation shall bear all costs and expenses of such registration and qualification, including printing costs, accounting fees and the fees and expenses of counsel for the Corporation, provided that the Grantee shall bear the fees and expenses of the Grantee's counsel, applicable transfer taxes and underwriting discounts, commissions and fees applicable to the shares of Registrable Stock sold by the Grantee. If the foregoing is in accordance with the Grantee's understanding and approved by him, he may so confirm by signing and returning the duplicate of this Option Agreement delivered for that purpose. GARNET RESOURCES CORPORATION By ---------------------------------- Title: Vice President The foregoing is in accordance with my understanding and is hereby confirmed and agreed to as of the Date of Grant. ------------------------------------- George M. Nevers -6- 12 APPENDIX A GARNET RESOURCES CORPORATION 1990 STOCK OPTION PLAN, AS PROPOSED TO BE AMENDED Section 1. Establishments. There is hereby established the Garnet Resources Corporation 1990 Stock Option Plan ("Plan"), pursuant to which employees and any other persons who perform substantial services for or on behalf of GARNET RESOURCES CORPORATION (the "Company"), its subsidiaries and certain other entities may be granted options to purchase shares of common stock of the Company, par value $.01 per share ("Common Stock"), and thereby share in the future growth of the business. Notwithstanding the foregoing, any director who is not an employee of the Company or any subsidiary of the Company shall be ineligible to receive options under this Plan. The subsidiaries of the Company included in this Plan (the "Subsidiaries") shall be any subsidiary of the Company as defined in Section 425 of the Internal Revenue Code of 1986, as amended (the "Code"). Section 2. Status of Options. The options which may be granted pursuant to this Plan will constitute either incentive stock options within the meaning of Section 422A of the Code ("Incentive Stock Options") or options which are not Incentive Stock Options ("Non-incentive Stock Options"). Incentive Stock Options and Non-incentive Stock Options shall be collectively referred to herein as "Options". Section 3. Eligibility. All employees of the Company or any of its Subsidiaries (including officers, whether or not they are members of the Board of Directors) who are employed at the time of the adoption of this Plan or thereafter, and any other persons who perform substantial services for or on behalf of the Company or any of its Subsidiaries, affiliates or any entity in which the Company has an interest (collectively, the "Grantees") shall be eligible to be granted Non-incentive Stock Options to purchase shares of Common Stock under this Plan. All employees of the Company or any of its Subsidiaries who are employed at the time of adoption of this Plan or thereafter shall be eligible to be granted Incentive Stock Options under this Plan. Section 4. Number of Shares Covered by Options; No Preemptive Rights. The total number of shares which may be issued and sold pursuant to Options granted under this Plan shall be 1,000,000 shares of Common Stock (or the number and kind of shares of stock or other securities which, in accordance with Section 9 of this Plan, shall be substituted for such shares of Common Stock or to which said shares shall be adjusted; hereinafter, all references to shares of Common Stock are deemed to be references to said shares or shares so adjusted.) The issuance of shares upon exercise of an Option shall be free from any preemptive or preferential right of subscription or purchase on the part of any stockholder. If any outstanding Option granted under this Plan expires or is terminated, for any reason, the shares of Common Stock subject to the unexercised portion of the Option will again be available for Options issued under this Plan. Section 5. Administration. (a) This Plan shall be administered by the committee (the "Committee") referred to in paragraph (b) of this Section. Subject to the express provisions of this Plan, the Committee shall have complete authority, in its discretion, to interpret this Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), to determine the Grantees to whom, and the times and the prices at which, Options shall be granted, the option periods, the number of shares of the Common Stock to be subject to each Option and whether each Option shall be an Incentive Stock Option or a Non-incentive Stock Option, and to make all other determinations necessary or advisable for the administration of the Plan. Each Option shall be clearly identified at the time of grant as to its status. In making such determinations, the Committee may take into account the nature of the services rendered by the respective Grantees, their present and potential contributions to the success of the Company and such other factors as the Committee, in its discretion, shall deem relevant. Nothing contained in this Plan shall be deemed to give any Grantee any right to be granted an Option to purchase shares of Common Stock except to the extent and upon such terms and conditions as may be determined by the Committee. The Committee's determination on all of the matters referred to in this Section 5 shall be conclusive. -1- 13 (b) The Committee shall consist of from three (3) to five (5) individuals who may, but need not, be members of the Board. The Committee shall be appointed by the Board, which may at any time, and from time to time, remove any member of the Committee, with or without cause, appoint additional members to the Committee and fill vacancies, however caused, in the Committee. A majority of the members of the Committee shall constitute a quorum and all determinations of the Committee shall be made by a majority of such quorum. Any decision or determination of the Committee reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made at a meeting duly called and held. (c) The Committee may at its election provide in any option agreement covering the grant of Options under this Plan that, upon the exercise of such Options, the Company will loan to the holder thereof such amount as shall equal the purchase price of the shares of Common Stock issuable upon such exercise, such loan to be on terms and conditions appropriate by the Committee. (d) Notwithstanding any provision hereof to the contrary, the Committee shall have sole and exclusive authority with respect to the grant of Options to directors. Section 6. Terms of Incentive Stock Options. Each Incentive Stock Option granted under this Plan shall be evidenced by an Incentive Stock Option Agreement which shall be executed by the Company and by the person to whom such Incentive Stock Option is granted, and shall be subject to the following terms and conditions: (a) The price at which shares of Common Stock covered by each Incentive Stock Option may be purchased pursuant thereto shall be determined in each case on the date of grant by the Committee, but shall be an amount not less than the par value of such shares and not less than the fair market value of such shares on the date of grant. For purposes of this Section, the fair market value of shares of Common Stock on any day shall be (i) in the event the Common Stock is not publicly traded, the fair market value on such day as determined in good faith by the Committee or (ii) in the event the Common Stock is publicly traded, the last sale price of a share of Common Stock as reported by the principal quotation service on which the Common Stock is listed, if available, or, if last sale prices are not reported with respect to the Common Stock, the mean of the high and low asked prices of a share of Common Stock as reported by such principal quotation service, or, if there is no such report by such quotation service for such day, such fair market value shall be the average of (i) the last sale price (or, if last sale prices are not reported with respect to the Common Stock, the mean of the high bid and low asked prices) on the day next preceding such day for which there was a report and (ii) the last sale price (or, if last sale prices are not reported with respect to the Common Stock, the mean of the high bid and low asked prices) on the day next succeeding such day for which there was a report, or as otherwise determined by the Committee in its discretion pursuant to any reasonable method contemplated by Section 422A of the Code and any regulations issued pursuant to that Section. (b) The option price of the shares to be purchased pursuant to each Incentive Stock Option shall be paid in full in cash, or by delivery (i.e. surrender) of shares of Common Stock of the Company then owned by the Grantee, at the time of the exercise of the Incentive Stock Option. Shares of Common Stock so delivered will be valued on the day of delivery for the purpose of determining the extent to which the option price has been paid thereby, in the same manner as provided for the purchase price of Incentive Stock Options as set forth in paragraph (a) of this Section, or as otherwise determined by the Committee, in its discretion, pursuant to any reasonable method contemplated by Section 422A of the Code and any regulations issued pursuant to that Section. (c) Each Incentive Stock Option Agreement shall provide that such Incentive Stock Option may be exercised by the Grantee, in such parts and at such times as may be specified in such Agreement, within a period not exceeding ten years after the date on which the Incentive Stock Option is granted (hereinafter called the "Incentive Stock Option Period") and, in any event, only during the continuance of the employee's employment by the Company or any of its Subsidiaries or during the period of three months after the termination of such employment to the extent that the right to exercise such Incentive Stock Option had accrued at the date of such termination; provided, however, that if Incentive Stock Options as to 100 or more shares are held by a Grantee, then such Incentive Stock Options may not be exercised for -2- 14 less than 100 shares at any one time, and if Incentive Stock Options for less than 100 shares are held by a Grantee, then Incentive Stock Options for all such shares must be exercised at one time; and provided, further, that, if the Grantee, while still employed by the Company or any of its Subsidiaries, shall die within the Incentive Stock Option Period, the Incentive Stock Option may be exercised, to the extent specified in the Incentive Stock Option Agreement, and as herein provided, but only prior to the first to occur of: (i) the expiration of the period of one year after the date of the Grantee's death, or (ii) the expiration of the Incentive Stock Option Period, by the person or persons entitled to do so under the Grantee's will, or, if the Grantee shall fail to make testamentary disposition of said Incentive Stock Option, or shall die intestate, by the Grantee's legal representative or representatives. (d) Each Incentive Stock Option granted under this Plan shall by its terms be non-transferable by the Grantee except by will or by the laws of descent and distribution. (e) Notwithstanding the foregoing, if an Incentive Stock Option is granted to a person at any time when such person owns, within the meaning of Section 425(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the employer corporation (or a parent or subsidiary of such corporation within the meaning of Section 425 of the Code) the price at which each share of Common Stock covered by such Incentive Stock Option may be purchased pursuant to such Incentive Stock Option shall not be less than 110% of the fair market value (determined as in paragraph (a) of this Section) of the shares of Common Stock at the time the Incentive Stock Option is granted, and such Incentive Stock Option must be exercised within a period specified in the Incentive Stock Option Agreement which does not exceed five years after the date on which such Incentive Stock Option is granted. (f) The Incentive Stock Option Agreement entered into pursuant hereto may contain such other terms, provisions and conditions not inconsistent herewith as shall be determined by the Committee including, without limitation, provisions (i) requiring the giving of satisfactory assurances by the Grantee that the shares are purchased for investment and not with a view to resale in connection with a distribution of such shares, and will not be transferred in violation of applicable securities laws, (ii) restricting the transferability of such shares during a specified period and (iii) requiring the resale of such shares to the Company at the option price if the employment of the employee terminates prior to a specified time. In addition, the Committee, in its discretion, may afford to holders of Incentive Stock Options granted under this Plan the right to require the Company to cause to be registered under the Securities Act of 1933, as amended, for public sale by the holders thereof, shares of Common Stock subject to such Incentive Stock Options upon such terms and subject to such conditions as the Committee may determine to be appropriate. (g) In the discretion of the Committee, a single Stock Option Agreement may include both Incentive Stock Options and Non-incentive Stock Options, or those options may be included in separate stock option agreements. Section 7. Terms of Non-incentive Stock Options. Each Non-incentive Stock Option granted under this Plan shall be evidenced by a Non-incentive Stock Option Agreement which shall be executed by the Company and by the person to whom such Non-incentive Stock Option is granted, and shall be subject to the following terms and conditions: (a) The price at which shares of Common Stock covered by each Non-incentive Stock Option may be purchased pursuant thereto shall be an amount not less than the par value of such shares. (b) Each Non-incentive Stock Option Agreement shall provide that such Non-incentive Stock Option may be exercised by the Grantee, in such parts and at such times as may be specified in such -3- 15 Agreement, within a period up to and including ten years and thirty days after the date on which the Non-incentive Stock Option is granted. (c) Each Non-incentive Stock Option granted under this Plan shall by its terms be non-transferable by the optionee except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title 1 of the Employee Retirement Income Security Act, or the rules thereunder. (d) The Non-incentive Stock Option Agreement entered into pursuant hereto may contain such other terms, provisions and conditions not inconsistent herewith as shall be determined by the Committee, in its sole discretion, including without limitation the terms, provisions and conditions set forth in Section 6(f) with respect to Incentive Stock Option Agreements. Section 8. Limit on Option Amount. Notwithstanding any provision contained herein, the aggregate fair market value (determined under Section 6(a) as of the time such Incentive Stock Options are granted) of the shares of Common Stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year (under all stock option plans of the employee's employer corporation and its parent and subsidiary corporation within the meaning of Section 425 of the Code) shall not exceed $100,000. An option may be granted which exceeds this $100,000 limitation, as long as under then applicable law only the portion of such an option which is exercisable for shares of Common Stock in excess of the $100,000 limitation shall be treated as a Non-incentive Stock Option. The limit in this paragraph shall not apply to options which are designated as Non-incentive Stock Options, and, except as otherwise provided herein, there shall be no limit on the amount of such options which may be first exercisable in any year. Section 9. Adjustment of Number of Shares. In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to any Option granted hereunder, and the number of shares reserved for issuance pursuant to this Plan but not yet covered by an Option, shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such share had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each share of Common Stock subject to any such Option and for each share of Common Stock reserved for issuance pursuant to the Plan but not yet covered by an Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; provided, however, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Board of Directors such substitution cannot be effected or would be inappropriate, or if the Company shall sell all or substantially all of its assets, the Company shall use reasonable efforts to effect some other adjustment of each then outstanding Option which the Board of Directors, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 9, in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Board of Directors shall determine that such change equitably requires an adjustment in the number or kind of shares theretofore reserved for issuance pursuant to the Plan but not yet covered by an Option and of the shares then subject to an Option or Options, such adjustment shall be made by the Board of Directors and shall be effective and binding for all purposes of this Plan and of each stock option agreement. Notwithstanding the foregoing, if any adjustment in the number of shares which may be issued and sold pursuant to Options is required by the Code or regulations issued pursuant thereto to be approved by the stockholders in order to enable the Company to issue Incentive Stock Options pursuant to this Plan, then no such adjustment shall be made without the approval of the stockholders. In the case of any such substitution or adjustment as provided for in this Section, the option price in each stock option agreement for each share covered thereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall -4- 16 have been adjusted pursuant to this Section 9. No adjustment or substitution provided for in this Section 9 shall require the Company, in any stock option agreement, to sell a fractional share, and the total substitution or adjustment with respect to each stock option agreement shall be limited accordingly. Notwithstanding the foregoing, in the case of Incentive Stock Options, if the effect of the adjustments or substitution is to cause the Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option or to cause a modification, extension or renewal of such Incentive Stock Option within the meaning of Section 425 of the Code, the Board of Directors shall use reasonable efforts to effect such other adjustment of each then outstanding option as the Board of Directors, in its sole discretion, shall deem equitable. Section 10. Amendments. This Plan may be terminated or amended from time to time by vote of the Board of Directors; provided, however, that no such termination or amendment shall materially adversely affect or impair any then outstanding Option without the consent of the Grantee thereof and no amendment which shall (i) change the total number of shares which may be issued and sold pursuant to Options granted under this Plan, or (ii) change the designation of employees eligible to receive Incentive Stock Options or the class of employees or other persons eligible to receive Options, shall be effective without the approval of the stockholders. Notwithstanding the foregoing, the Plan may be amended by the Committee to incorporate any amendments made to the Code which the Committee deems to be necessary or desirable to preserve incentive stock option status for outstanding Incentive Stock Options and to preserve the ability to issue Incentive Stock Options pursuant to this Plan. Section 11. Termination. Except to the extent necessary to govern outstanding Options, this Plan shall terminate on, and no additional Options shall be granted after, ten years from the date the Plan is adopted, or ten years from the date the Plan is approved by the stockholders, whichever is earlier. -5- EX-27 8 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 2,169,328 0 1,384,051 0 989,209 5,476,335 50,685,972 (9,562,752) 47,968,678 2,288,142 19,358,640 0 0 114,922 25,380,071 47,968,678 6,415,941 6,596,159 2,698,769 2,698,769 3,144,503 0 1,058,015 (773,290) 621,844 (1,395,134) 0 0 0 (1,395,134) (0.03) (0.03)
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