<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
GARNET RESOURCES CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of the transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
LOGO
GARNET RESOURCES CORPORATION
11011 RICHMOND AVENUE, SUITE 650
HOUSTON, TEXAS 77042-6720
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 1997
April 30, 1997
To the Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Garnet
Resources Corporation ("Garnet") will be held at the offices of Zimet, Haines,
Friedman & Kaplan, 460 Park Avenue, 9th Floor, New York, New York 10022 on May
22, 1997 at 10:00 a.m. (local time) for the following purposes:
1. To elect six directors to hold office for the term of one year and until
their successors are elected and qualified;
2. To consider and vote upon a proposal to adopt the 1997 Directors' Stock
Option Plan, which provides for the issuance of options to purchase, in
the aggregate, up to 470,000 shares of Garnet's Common Stock to
directors who are not officers or employees of Garnet or its
subsidiaries;
3. To consider and vote upon a proposal to amend Garnet's Certificate of
Incorporation to increase the number of shares of Common Stock which
Garnet is authorized to issue to 75,000,000 shares; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed April 3, 1997 as the record date for the
determination of the shareholders entitled to notice of and to vote at such
meeting or any adjournment thereof, and only shareholders of record at the close
of business on that date are entitled to notice of and to vote at such meeting.
A copy of Garnet's 1996 Annual Report is enclosed herewith.
You are cordially invited to attend the meeting. Whether or not you plan to
attend the meeting, it is important that your shares be represented.
Accordingly, please complete, date and sign the enclosed proxy and return it
promptly.
By Order of the Board of Directors,
Edgar L. Dyes
Secretary
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT.
TO ENSURE A QUORUM, PLEASE COMPLETE AND RETURN THE PROXY IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND
THE MEETING, YOUR PROXY WILL BE RETURNED TO YOU UPON REQUEST TO THE SECRETARY OF
THE MEETING.
- --------------------------------------------------------------------------------
<PAGE> 3
LOGO
GARNET RESOURCES CORPORATION
11011 RICHMOND AVENUE, SUITE 650
HOUSTON, TEXAS 77042-6720
---------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 1997
---------------------
This Proxy Statement and accompanying form of proxy are furnished in
connection with the solicitation of proxies by the Board of Directors of Garnet
Resources Corporation, a Delaware corporation ("Garnet"), for use at the Annual
Meeting of Shareholders to be held on May 22, 1997 at 10:00 a.m. (local time) at
the offices of Zimet, Haines, Friedman & Kaplan, 460 Park Avenue, 9th Floor, New
York, New York 10022, or any adjournment or postponement thereof (the
"Meeting").
A proxy in the accompanying form, which is properly executed, duly returned
to the Board of Directors and not revoked, will be voted in accordance with the
instructions contained in the proxy. If no instructions are given with respect
to any matter specified in the Notice of Annual Meeting to be acted upon at the
Meeting, the proxy will vote the shares represented thereby in favor of Item 1,
2 and 3 as set forth in the Notice of Annual Meeting and in accordance with his
judgment on any matters which may properly come before the Meeting. Each
shareholder who has executed a proxy and returned it to the Board of Directors
may revoke the proxy by notice in writing to the Secretary of Garnet, or by
attending the Meeting in person and requesting the return of the proxy, in
either case at any time prior to the voting of the proxy. Presence at the
Meeting does not by itself revoke the proxy. The cost of the solicitation of
proxies will be paid by Garnet. In addition to the solicitation of proxies by
the use of the mails, management and regularly engaged employees of Garnet may,
without additional compensation therefor, solicit proxies on behalf of Garnet by
personal interviews, telephone, telegraph or other means, as appropriate.
Garnet will, upon request, reimburse brokers and others who are only record
holders of Garnet's Common Stock, par value $.01 per share ("Common Stock"), for
their reasonable expenses in forwarding proxy material to, and obtaining voting
instructions from, the beneficial owners of such stock.
The Board of Directors has fixed the close of business on April 3, 1997 as
the record date for determining the shareholders entitled to notice of and to
vote at the Meeting (the "Record Date"). As of the Record Date, there were
11,492,162 shares of Common Stock issued and outstanding and entitled to vote.
Each share of Common Stock entitles the holder thereof to one vote. A
majority of the shares of Common Stock issued and outstanding and entitled to
vote constitutes a quorum. Abstentions and broker's non-votes are considered
present for purposes of determining whether the quorum requirement is met. A
broker's non-vote occurs when a nominee holds shares for a beneficial owner but
cannot vote on a proposal because the nominee does not have discretionary voting
power and has not received instructions from the beneficial owner. As directors
are elected by a plurality vote, the six nominees receiving the highest vote
totals will be elected and the outcome of the vote for directors will not be
affected by abstentions or broker's non-votes. The approval of the 1997
Directors' Stock Option Plan requires the affirmative vote of a majority of the
total votes cast on the proposal; therefore, the outcome of the vote will not be
affected by abstentions or broker's non-votes. As the approval of the proposed
amendment to the Company's Certificate of Incorporation requires the affirmative
vote of a majority of the shares issued and outstanding, abstentions and
broker's non-votes will have the same effect as votes against the proposal.
This Proxy Statement and the proxy in the accompanying form are being sent
on or about April 30, 1997 to shareholders of record as of the close of business
on the Record Date.
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<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of April 1, 1997 as
to each person who, to the knowledge of Garnet, was the beneficial owner of more
than five percent of the outstanding Common Stock of Garnet.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER OR GROUP BENEFICIAL OWNERSHIP(1) CLASS(2)
------------------------- ----------------------- ----------
<S> <C> <C>
Rockefeller & Co., Inc.................................... 1,301,837(3) 11.3%
30 Rockefeller Plaza
New York, New York 10112
Wexford Management LLC.................................... 1,150,909(4) 9.1%
411 West Putnam Avenue
Greenwich, Connecticut 06830
Pecks Management Partners Ltd............................. 1,090,910(5) 8.7%
One Rockefeller Plaza
New York, New York 10020
R. B. Haave Associates, Inc............................... 788,900(6) 6.9%
36 Grove Street
New Canaan, Connecticut 06840
</TABLE>
- ---------------
(1) Except as set forth below, to the best knowledge of Garnet, each beneficial
owner has sole voting power and sole investment power.
(2) Based on 11,492,162 shares of Garnet's Common Stock issued and outstanding
on April 1, 1997. Treated as outstanding for the purpose of computing the
percentage ownership of each beneficial owner or group are shares
("Convertible Debenture Shares") issuable to such beneficial owner or group
upon conversion of Garnet's 9 1/2% convertible subordinated debentures
("Debentures") and shares issuable upon exercise of vested stock options
issued pursuant to Garnet's stock option plans.
(3) According to information supplied to Garnet by Rockefeller & Co., Inc., by
virtue of serving as a registered investment advisor, Rockefeller & Co.,
Inc. has sole voting and dispositive power with respect to 1,226,837 shares.
The indicated number of shares also includes 75,000 shares issuable to Mr.
Wendell W. Robinson upon exercise of vested stock options issued pursuant to
Garnet's stock option plans. Pursuant to Mr. Robinson's employment with
Rockefeller & Co., Inc., all benefits of such options accrue to Rockefeller
& Co., Inc., which may be deemed the beneficial owner of such shares. See
footnote 7 on page 3.
(4) According to a Schedule 13D dated April 23, 1997, the indicated number of
shares consists of Convertible Debenture Shares issuable upon conversion of
Debentures held by four investment funds. Wexford Management LLC ("Wexford
Management") serves as investment advisor to three of the funds and as
sub-investment advisor to the fourth fund which is organized as a
corporation. Wexford Advisors, LLC ("Wexford Advisors") serves as the
investment advisor to the corporate fund and as general partner to the
remaining funds which are organized as limited partnerships. Wexford
Management shares voting and dispositive power with respect to the
Convertible Debenture Shares with each of the funds, with Wexford Advisors,
and with Charles E. Davidson and Joseph M. Jacobs, each of whom is a
controlling person of Wexford Management and Wexford Advisors.
(5) According to a Schedule 13G dated February 9, 1995 filed by Pecks Management
Partners Ltd. ("Pecks"), as a registered investment advisor, the indicated
number of shares consists of Convertible Debenture Shares issuable to three
investment advisory clients of Pecks upon conversion of Debentures owned by
such clients. One such client, Delaware State Employees' Retirement Fund,
would acquire more than 5% of Garnet's Common Stock, if its Debenture were
converted. Pecks has sole investment and dispositive power with respect to
the Convertible Debentures Shares issuable to its clients and the discretion
to convert the Debentures owned by them.
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<PAGE> 5
(6) According to a Schedule 13G dated January 27, 1997, the indicated number of
shares is held by R. B. Haave Associates, Inc., an investment adviser
registered under the Investment Advisers Act of 1940, which has sole voting
and dispositive powers with respect to such shares.
The following table sets forth certain information as of April 1, 1997
concerning the shares of Common Stock of Garnet owned beneficially by each
director, by each of the Named Executive Officers in the Summary Compensation
Table, and by directors and officers of Garnet as a group:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER OR GROUP BENEFICIAL OWNERSHIP(1) CLASS(2)
------------------------- ----------------------- ----------
<S> <C> <C>
W. Kirk Bosche.......................... 98,580(3) *
Robert J. Cresci........................ 45,000(4) *
Edgar L. Dyes........................... 27,600(5) *
Douglas W. Fry.......................... 106,422(3) *
Santiago Gonzalez....................... 34,235(3) *
Montague H. Hackett, Jr. ............... 221,960(6) 1.9%
Alastair Manson......................... 110,000(3) *
Wendell W. Robinson..................... 102,600(7) *
Directors and officers of Garnet as a
group (8 persons)..................... 746,397(8) 6.2%
</TABLE>
- ---------------
* Less than 1%
(1) Except as noted below, each beneficial owner has sole voting power and sole
investment power.
(2) Based on 11,492,162 shares of Garnet's Common Stock issued and outstanding
on April 1, 1997. Treated as outstanding for the purpose of computing the
percentage ownership of each director, each executive officer and all
directors and executive officers as a group are shares issuable upon
exercise of vested stock options issued pursuant to Garnet's stock option
plans.
(3) Consists solely of shares issuable upon exercise of vested stock options
issued pursuant to Garnet's stock option plans.
(4) Consists solely of shares issuable upon exercise of vested stock options
issued pursuant to Garnet's stock option plans. Does not include Convertible
Debenture Shares issuable to clients of Pecks, of which Mr. Cresci is a
managing director. For information with respect to such shares, see footnote
5 on page 2.
(5) Consists of 5,000 shares held directly by Mr. Dyes and 22,600 shares
issuable upon exercise of vested stock options issued pursuant to Garnet's
stock option plans.
(6) Consists of 75,000 shares held directly by Mr. Hackett, 10,000 shares held
by a trust for the benefit of Mr. Hackett's minor child as to which Mr.
Hackett disclaims beneficial ownership, and 136,960 shares issuable upon
exercise of vested stock options issued pursuant to Garnet's stock option
plans.
(7) Consists of 23,100 shares held directly by Mr. Robinson, 4,500 shares held
by Mr. Robinson's wife and minor child, as to which Mr. Robinson disclaims
beneficial ownership, and 75,000 shares issuable upon exercise of vested
stock options issued pursuant to Garnet's stock option plans. Pursuant to
Mr. Robinson's employment with Rockefeller & Co., Inc., all benefits of such
options accrue to Rockefeller & Co., Inc., which may be deemed the
beneficial owner of such shares. See footnote 3 on page 2.
(8) Includes 117,600 shares beneficially owned and 628,797 shares issuable upon
exercise of vested stock options issued pursuant to Garnet's stock option
plans.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors has nominated the six individuals whose names are
set forth below for election to the Board of Directors, each to hold office
until the next Annual Meeting of Shareholders and until their successors are
duly elected and qualified. Unless otherwise specified, the enclosed proxy will
be voted in favor
3
<PAGE> 6
of the persons named below, all of whom are now directors of Garnet. If events
not now known or anticipated make any of the nominees unable to serve, it is
intended that votes will be cast pursuant to the accompanying proxy for such
substitute nominees as the Board of Directors may designate unless the Board of
Directors reduces the number of directors. The directors are to be elected by
vote of the holders of a plurality of shares of Common Stock entitled to vote
and present in person or represented by proxy at the Meeting.
The information set forth below, furnished to the Board of Directors by the
respective individuals, shows as to each nominee and each director of Garnet his
name, age and principal position with Garnet.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Montague H. Hackett, Jr.................... 64 Chairman of the Board and a Director
Douglas W. Fry............................. 54 President, Chief Executive Officer and a
Director
Wendell W. Robinson........................ 56 Chairman of the Executive Committee and a
Director
Robert J. Cresci........................... 53 Director
Santiago Gonzalez.......................... 60 Director
Alastair Manson............................ 67 Director
</TABLE>
The following sets forth the periods during which directors have served as
such and a brief account of the business experience of such persons during the
past five years.
Montague H. Hackett, Jr. Mr. Hackett has been employed as Chairman of the
Board of Garnet since January 1995 and has served as a director of Garnet since
April 1987. Since January 1996, Mr. Hackett has been employed by Victory
Ventures LLC, a privately held limited liability company ("Victory") that
conducts its operations through small and medium-sized companies in which
Victory holds controlling or other significant equity interests. From October
1989 through June 1994, Mr. Hackett served as President and as a director of
Wood River Capital Corporation, a Small Business Investment Company. From
October 1991 through December 1995, Mr. Hackett was employed by Noel Group,
Inc., a publicly-traded company which conducted its principal operations through
small and medium-sized companies.
Douglas W. Fry. Mr. Fry has been employed as President of Garnet and has
served as a director of Garnet since September 1995, and has been Chief
Executive Officer of Garnet since February 1996. Since 1980 he has also been
President of Argosy Energy Incorporated, a wholly owned subsidiary of Garnet, or
of the subsidiary's predecessor.
Wendell W. Robinson. Mr. Robinson has served as a director of Garnet since
December 1991. Since January 1990, Mr. Robinson has been the Manager of Private
Investments for Rockefeller & Co., Inc., a registered investment adviser. Mr.
Robinson is also a director of Gwalia Consolidated, Ltd., an Australian natural
resource company, Consolidated Nevada Goldfields Corp., a western North America
gold mining company, Elex Computer and several private companies.
Robert J. Cresci. Mr. Cresci has served as a director of Garnet since
December 1993. Mr. Cresci has been a Managing Director of Pecks Management
Partners Ltd., an investment management firm, since September 1990. Mr. Cresci
currently serves on the boards of Bridgeport Machines, Inc., Serv-Tech, Inc.,
EIS International, Inc., Sepracor, Inc., Vestro Natural Foods, Inc., Olympic
Financial, Ltd., GeoWaste, Inc., Hitox, Inc., Natures Elements, Inc., HarCor
Energy, Inc., Meris Laboratories, Inc., Film Roman, Inc., Educational Medical,
Inc. and several private companies.
Santiago Gonzalez. Mr. Gonzalez has served as a director of Garnet since
April 1997. Mr. Gonzalez has been President of the Colombian branch of Argosy
Energy International, a limited partnership through which Garnet conducts its
activities in Colombia, since December 1995, and has been General Manager of the
branch since September 1992. From August 1986 through September 1992, he was
General Manager of BJ Services Colombia.
Alastair Manson. Mr. Manson has served as a director of Garnet since July
1987. From 1978 through 1985, Mr. Manson was the President of BP North America,
Inc., the company responsible for the activities of
4
<PAGE> 7
British Petroleum in the United States. Through 1985, and for several years
prior thereto, Mr. Manson served as a member of the board of directors of
Standard Oil and BP Canada. During 1986, Mr. Manson participated in the
organization of Keep Able, Ltd., which provides services and equipment to the
elderly and disabled. Mr. Manson served as Chairman of the Board of Directors of
Keep Able, Ltd. from December 1986 through July 1988. Mr. Manson currently
serves as a member of the Board of Directors of the Royal Brompton Hospital NHS
Trust of London, England and as chairman of its Finance and Investment
Committees, and as a director of Keep Able, Ltd.
Under the terms of its 9 1/2% Convertible Subordinated Debentures, Garnet
includes a candidate selected by the purchasers of the Debentures in
management's slate of nominees for election as directors and solicits proxies
for such candidate if the purchasers continue to own at least 30% in aggregate
principal amount of the Debentures originally issued. Mr. Cresci is the
candidate selected by the purchasers of the Debentures.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Garnet held four meetings during 1996, and also
took action once by unanimous written consent. All directors attended at least
75% of the total of the meetings of the Board of Directors and the committees of
which they were members.
The Executive Committee, the Audit Committee and the Stock Option and
Compensation Committee are the only standing committees of the Board of
Directors. Garnet does not have a formal nominating committee; the Board of
Directors or the Executive Committee performs this function.
The Executive Committee, which is comprised of Mr. Robinson, its Chairman,
and Messrs. Fry and Hackett, has all the powers of the Board of Directors in the
management of the business affairs of Garnet, except as such powers are limited
by the Delaware General Corporation Law. During 1996, the Executive Committee
held two meetings.
The Audit Committee, which is comprised of Mr. Manson, its Chairman, and
Mr. Cresci, consults with the independent accountants of Garnet and such other
persons as the members deem appropriate, reviews the preparations for and scope
of the audit of Garnet's annual financial statements, makes recommendations as
to the engagement and fees of the independent accountants, and performs such
other duties relating to the financial statements of Garnet as the Board of
Directors may assign from time to time. The Audit Committee met three times
during 1996.
The Stock Option and Compensation Committee, which is comprised of Messrs.
Cresci, Manson and Robinson, has all of the powers of the Board of Directors in
respect of any matters relating to the administration of Garnet's stock option
plans and the compensation of officers, employees and other persons performing
substantial services for Garnet, including the authority to issue stock or other
securities of Garnet. The Stock Option and Compensation Committee met twice in
1996.
DIRECTORS' FEES
From 1990 through 1995, directors who were not full time employees received
options to purchase shares of Garnet Common Stock. Directors are also reimbursed
for expenses incurred in connection with attending meetings of the Board.
Although no options were granted in 1996, subject to the approval of the 1997
Directors' Stock Option Plan by the shareholders of Garnet, the Board of
Directors has approved the grant of certain options to non-employee directors at
an exercise price of $.428, including options to be issued in exchange for
outstanding stock options held by them. See "Proposal No. 2 -- Adoption of 1997
Directors' Stock Option Plan" for additional information.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
earned in each of the last three fiscal years by the Chief Executive Officer,
the Chairman of the Board, and an additional executive officer of Garnet
(collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------- -------------------------------
AWARDS PAYOUTS
OTHER --------------------- -------
ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
FISCAL SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#)(1) ($) ($)
--------------------------- ------ -------- ------- ------- ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas W. Fry................... 1996 $152,500 none none none 146,058 none none
President and Chief Executive 1995 $152,500 none none none 30,000 none none
Officer(2) 1994 $145,200 $61,000 none none none none none
Montague H. Hackett, Jr. ........ 1996 $ 75,000 none none none 11,151 none $8,244
Chairman of the Board(3) 1995 $127,083 none none none 100,000 none $4,944
W. Kirk Bosche................... 1996 $150,000 none none none 96,774 none $1,570
Vice President and Treasurer(4) 1995 $160,750 none none none 35,000 none $1,280
1994 $163,300 $67,000 none none none none $1,060
</TABLE>
- ---------------
(1) The number of options issued in 1996 to Messrs. Fry and Bosche include
112,854 and 96,774 options issued upon exchange of outstanding options held
by such officers. See "Ten-Year Option/SAR Repricings" below.
(2) Mr. Fry was elected President of Garnet in September 1995 and Chief
Executive Officer of Garnet in February 1996. Prior to September 1995, he
served as President of Argosy Energy Incorporated ("Argosy") a wholly-owned
subsidiary of Garnet. The amounts reported for 1995 reflect his compensation
for the full fiscal years, including that earned as President of Argosy. The
amounts reported for 1994 reflect his compensation as President of Argosy.
(3) Mr. Hackett became Chairman of the Board of Garnet in January 1995. The
amounts reported for all other compensation represent the premium paid on a
term life insurance policy for his benefit.
(4) The amounts reported for all other compensation for Mr. Bosche represent the
premium paid on a term life insurance policy for his benefit.
AGREEMENTS WITH EXECUTIVE OFFICERS
In April 1997, Garnet entered into agreements with certain executive
officers and key employees, including Mr. Fry, providing for the payment of
severance benefits to such persons in the event of a termination of their
employment by Garnet (i) without Cause, as defined, (ii) upon death or
disability or (iii) following a Change of Control, as defined; provided,
however, that, in the event of a voluntary termination following a Change of
Control, such payments shall only be made if there is "Good Reason" as defined.
In the event of the termination of Mr. Fry's employment under such
circumstances, Mr. Fry would receive a severance benefit, payable in cash, equal
to one month's base salary for each year, or part thereof, of his employment by
Garnet or its predecessors, which amount was $204,000 as of March 31, 1997. Mr.
Fry would also receive medical insurance coverage for a period of 18 months
following the termination of his employment, life and disability insurance
coverage for a period of two years following such termination and all stock
options would vest and remain exercisable for a period of two years. A Change of
Control is defined to include a transaction or series of transactions in which
any person or group becomes the beneficial owner of outstanding voting
securities representing 40% or more of the combined voting power of the then
outstanding voting securities; the individuals constituting the Board of
Directors, or any individual within the definition of Continuing Directors,
cease to constitute at least a majority of the directors of Garnet; a merger of
consolidation in which Garnet is not the surviving entity or in which the voting
securities issued are entitled to cast, in the aggregate, in excess of 40% of
the number of votes entitled to be cast prior to the transaction; the
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<PAGE> 9
issuance of in excess of 4,596,865 shares in connection with a transaction or
series of transactions between Garnet and one or more Debenture holders; a sale,
lease, exchange or other transfer of all or substantially all of Garnet's
assets; or any other change of control which would be required to be reported
under the Securities Exchange Act of 1934.
OPTION GRANTS DURING 1996
The following table provides information related to options granted to the
Named Executive Officers during 1996. No stock appreciation rights have been
issued by Garnet.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS GRANTED EXERCISE OR OPTION TERM (2)
OPTIONS TO EMPLOYEES IN BASE PRICE -----------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) EXPIRATION DATE 5% 10%
---- ---------- --------------- ----------- --------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Fry.................... 112,854(3) 23.5% $1.1875 4/17/06 $85,178 $216,441
33,204 6.9% $1.1875 4/17/06 $25,061 $ 63,681
Montague H. Hackett, Jr........... 11,151 2.3% $1.1875 4/17/06 $ 8,416 $ 21,386
W. Kirk Bosche.................... 96,774(3) 20.2% $1.1875 4/17/06 $73,041 $185,601
22,178 4.6% $1.1875 4/17/06 $16,739 $ 42,535
</TABLE>
- ---------------
(1) Each of these options was granted pursuant to either the 1990 Stock Option
Plan or the 1987 Stock Option Plan. The exercise price of the options was
equal to the fair market value of a share of Garnet's Common Stock on the
date of grant and may be paid in cash or by delivery of shares of Common
Stock which have a fair market value on the date of exercise equal to the
exercise price. The right to exercise each option vests over a four-year
period but will accelerate upon the occurrence of certain events, including
a change of control. The options are exercisable for a period of 10 years
and 30 days after the date of grant unless the optionee resigns, retires or
dies, in which case the right to exercise the option is limited.
(2) The values set forth in this column represent the gain which would be
realized by each Named Executive Officer assuming (i) the options granted in
1996 are exercised on their respective expiration dates, and (ii) the value
of a share of Garnet Common Stock has increased annually by a rate of 5% and
10%, respectively, during the term of the option. These growth rates are
prescribed by the rules of the Securities and Exchange Commission and are
not intended to forecast possible future appreciation for Garnet Common
Stock.
(3) Option granted in exchange for the surrender of outstanding options issued
under Garnet's stock option plans.
OPTION EXERCISES DURING 1996 AND YEAR END OPTION VALUES
The following table provides information related to options exercised by
the Named Executive Officers during 1996 and the number and value of options
held at year-end. No stock appreciation rights have been issued by Garnet.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FY-END(#) AT FY-END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Fry..................... none none 61,210 134,848 none none
Montague H. Hackett, Jr............ none none 127,230 68,921 none none
W. Kirk Bosche..................... none none 80,289 116,163 none none
</TABLE>
- ---------------
(1) Because the exercise prices of all options exceed $.44, the market value of
a share of Garnet Common Stock at December 31, 1996, the value of
unexercised options was zero.
7
<PAGE> 10
TEN-YEAR OPTION/SAR REPRICINGS
Report of the Stock Option and Compensation Committee of the Board of
Directors on Repricing
Since the adoption of the cost containment program in June 1995, no salary
increases or bonuses have been awarded to the executive officers of Garnet and
the number of Garnet's executive officers decreased. In view of these
developments, the Stock Option and Compensation Committee (the "Compensation
Committee") has sought to balance the objectives of providing competitive
compensation to Garnet's executives with the goal of conserving its cash
resources by emphasizing stock-based compensation arrangements which the
Compensation Committee believes should provide an incentive for executives to
remain with Garnet and to increase share value over the long term. Accordingly,
in March 1996, the Compensation Committee offered to exchange all outstanding
stock options with an exercise price in excess of $2.6875 per share (most of
which were fully vested) held by executive officers and employees for new
options, with a new vesting schedule and an exercise price of $1.1875 per share,
the fair market value per share on the date of grant. The Compensation Committee
believes that the grant of new options combined with the inclusion of the
vesting schedule described above will serve the dual purposes of providing an
incentive to management to increase share value over the long term and
conserving Garnet's cash resources. An aggregate of 336,102 outstanding options
were exchanged, including the options listed in the table below.
Submitted by the following members of the Compensation Committee who served
on the Compensation Committee at the time of the repricing:
<TABLE>
<S> <C> <C>
Robert J. Cresci Alastair Manson
Wendell W. Robinson Arthur L. Swanson John V. Tunney
</TABLE>
The following table sets forth certain information concerning repricings of
stock options held by any executive officers of Garnet during the last ten
completed fiscal years.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET PRICE ORIGINAL
SECURITIES OF STOCK AT EXERCISE PRICE OPTION TERM
UNDERLYING TIME OF AT TIME OF NEW REMAINING AT
OPTIONS/SARS REPRICING OR REPRICING OR EXERCISE DATE OF
REPRICED OR AMENDMENT AMENDMENT PRICE REPRICING OR
NAME DATE AMENDED (#) ($) ($) ($) AMENDMENT
---- ------- ------------ ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Fry.......................... 3/18/96 30,000 $1.1875 $11.750 $1.1875 4.0 years
President and 3/18/96 40,000 $1.1875 $ 6.625 $1.1875 4.8 years
Chief Executive Officer 3/18/96 37,500 $1.1875 $ 5.750 $1.1875 7.4 years
3/18/96 5,354 $1.1875 $ 4.000 $1.1875 6.8 years
W. Kirk Bosche.......................... 3/18/96 28,922 $1.1875 $11.750 $1.1875 4.0 years
Vice President 3/18/96 25,000 $1.1875 $ 6.625 $1.1875 4.8 years
and Treasurer 3/18/96 37,500 $1.1875 $ 5.750 $1.1875 7.4 years
3/18/96.. 5,352 $1.1875 $ 4.000 $1.1875 6.8 years
George M. Nevers,....................... 6/28/95 54,441 $2.5000 $11.750 $2.5000 90 days
Chief Executive Officer 6/28/95 50,000 $2.5000 $ 6.625 $2.5000 90 days
from January 19, 1995 6/28/95 22,500 $2.5000 $ 5.750 $2.5000 90 days
through June 21, 1995 6/28/95 3,211 $2.5000 $ 4.000 $2.5000 90 days
</TABLE>
REPORT ON EXECUTIVE COMPENSATION
Decisions regarding the compensation of executive officers are made by the
Compensation Committee. Pursuant to rules adopted by the Securities and Exchange
Commission, the following report is submitted by members of the Compensation
Committee:
Compensation Policies Regarding Executive Officers. The Compensation
Committee's executive compensation policies are intended to provide competitive
levels of compensation in order to attract and retain qualified executives, to
recognize individual contributions to the successful achievement of Garnet's
business objectives, and to align management's and shareholders' interests over
the long term. Garnet's business strategy is to acquire, explore and develop
potentially significant oil and gas properties located outside of the United
States. Because of the inherent risks in such business strategy and in the
exploration for oil and gas in
8
<PAGE> 11
general, the Compensation Committee believes it is inappropriate to rely upon
mechanistic performance criteria such as profitability, revenue growth, return
on equity, market share, or operating budget performance to determine the
appropriate compensation for its executive officers, including its Chief
Executive Officer. In determining such compensation, the Compensation Committee
relies heavily on the success of management in fulfilling Garnet's business
strategy and the individual contributions which each executive has made and can
be expected to make in the future. In reviewing compensation for 1996, the
Compensation Committee reviewed a number of events and developments in Garnet's
business in 1996 including Garnet's activities in Colombia and in Papua New
Guinea. The Compensation Committee also considered, on an informal basis, the
prevailing levels of compensation paid by companies with which Garnet may be
deemed to compete, the small, streamlined nature of Garnet's management team,
the fact that Garnet has no pension, retirement or profit-sharing plans,
information relating to standard cost-of-living adjustments, and the bonuses and
salary increases previously approved.
In addition, as a result of the implementation of a cost containment
program in 1995, no cash bonuses were awarded for 1995 and two executive
officers agreed to accept reduced salaries effective June 1995. In view of the
cost containment program, no salary increases or cash bonuses were awarded for
1996. As the Compensation Committee has sought to balance the objectives of
providing competitive compensation to Garnet's executives with the goal of
conserving its cash reserves by emphasizing stock-based compensation
arrangements, in March 1996, the Compensation Committee offered to exchange all
outstanding stock options with an exercise price in excess of $2.6875 per share
(most of which were fully vested) held by executive officers and employees for
new options, with a new vesting schedule and an exercise price of $1.1875 per
share, and approved the grant of an additional 123,898 options at an exercise
price equal to $1.1875 per share, including 33,204, 11,151 and 22,178 options
issued to Messrs. Fry, Hackett and Bosche, respectively.
In 1997, following notification of Mr. Bosche's decision to resign as an
executive officer of Garnet, the Compensation Committee took the following
actions to provide additional incentive to management to remain with Garnet and
to increase the share value of the Common Stock over the long term: (i) an
aggregate of 490,075 options with exercise prices ranging from $1.1875 to
$2.6875 per share (including 176,058, 111,151 and 53,952 options held by Messrs.
Fry, Hackett and Bosche) were repriced at $.5625 per share, the fair market
value on the date the repricing was approved; (ii) an additional 158,000 options
were issued to executive officers and employees (including 50,000 options issued
to Mr. Fry) and additional options equal, in the aggregate, to the number of
options held by Mr. Bosche which expire unexercised as a result of his
resignation, will be issued automatically to executive officers and employees
upon such expiration; (iii) two options entitling Messrs. Hackett and Bosche to
purchase 25,000 and 37,500 shares at $2.50 per share, which were scheduled to
expire, were exchanged for new options entitling such persons to purchase 25,000
shares with an exercise price of $.5625 per share; Mr. Hackett's option vests
over a one-year period and has a five-year term; Mr. Bosche's option is fully
vested, has a one-year term, and was granted as partial consideration for his
agreement to remain as an executive officer of Garnet through a specified
period; and (v) agreements with certain executive officers and employees
relating to severance payments upon termination of employment, the terms of
which are more particularly described above under the heading "Agreements with
Executive Officers", were executed.
1996 Compensation of the Chief Executive Officer. In determining the
compensation payable to Mr. Fry, the Compensation Committee applied the same
factors and analyses as it applied to executive officers in general with the
most weight being given to stock-based compensation. Accordingly, Mr. Fry's
salary has remained at the level paid to him as President of Argosy Energy
Incorporated, Garnet's wholly-owned subsidiary, but Mr. Fry was granted
additional stock options in 1996 and 1997.
<TABLE>
<S> <C> <C>
Robert J. Cresci Alastair Manson
Wendell W. Robinson Arthur L. Swanson John V. Tunney
</TABLE>
Messrs. Swanson and Tunney participated in the decisions of the
Compensation Committee which were made prior to their resignations as directors
of Garnet in March 1996 and August 1996, respectively.
9
<PAGE> 12
PERFORMANCE GRAPH
The Securities and Exchange Commission requires the inclusion in this proxy
statement of a line-graph presentation comparing five year cumulative
shareholder returns on an indexed basis with a broad equity market index and
either a published industry index or an index of peer companies selected by
Garnet. Garnet has selected as a broad equity market index the CRSP Total Return
Index for the Nasdaq Stock Market (US Companies) and as a published industry
index the CRSP Index for companies with Standard Industrial Classification Code
Nos. 1310-1319 traded on the New York Stock Exchange, the American Stock
Exchange, and the Nasdaq Stock Market.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
GARNET COMMON STOCK, CRSP INDEX FOR THE NASDAQ STOCK
MARKET (US COMPANIES), AND CRSP INDEX FOR NYSE/AMEX/NASDAQ
(SIC 1310-1319 US) CRUDE PETROLEUM AND NATURAL GAS**
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ STOCK
(FISCAL YEAR COVERED) GARNET RESOURCES MARKET INDUSTRY
<S> <C> <C> <C>
12/31/91 100.0 100.0 100.0
12/31/92 48.0 116.4 111.8
12/31/93 45.3 133.6 129.6
12/31/94 36.0 130.6 126.3
12/31/95 16.7 184.7 154.6
12/31/96 4.7 227.1 203.1
</TABLE>
Assumes $100 invested on January 1, 1992 in Garnet Common Stock, CRSP Index for
The Nasdaq Stock Market (US Companies), and CRSP Index for NYSE/AMEX/Nasdaq (SIC
1310-1319 US) Crude Petroleum and Natural Gas.
* Total return assumes reinvestment of dividends.
** Fiscal year ending December 31.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires officers,
directors and holders of more than 10% of Garnet's Common Stock (collectively,
"Reporting Persons") to file reports of ownership and changes in ownership of
the Common Stock with the Securities and Exchange Commission within certain time
periods and to furnish Garnet with copies of all such reports. Based solely on
its review of the copies of such reports furnished to Garnet by such Reporting
Persons or on the written representations of such Reporting Persons, Garnet
believes that, during the year ended December 31, 1996, all of the Reporting
Persons complied with their Section 16(a) filing requirements.
10
<PAGE> 13
PROPOSAL NO. 2
ADOPTION OF 1997 DIRECTORS' STOCK OPTION PLAN
From 1990 through 1995, directors who were not full time employees received
options to purchase shares of Garnet's Common Stock pursuant to its 1990
Directors' Stock Option Plan (the "1990 Directors' Plan"). Because the 1990
Directors' Plan expired in accordance with its terms on March 8, 1996, no
further options may be issued thereunder. As the Board of Directors believes
that the granting of stock options promotes an identity of interest between
directors and shareholders, the Board has approved and proposes that the
shareholders of Garnet approve the adoption of a new 1997 Directors' Stock
Option Plan (the "1997 Directors' Plan") which will provide for the grant of
stock options to directors who are not employees of Garnet or its subsidiaries.
The following description of the 1997 Directors' Plan is qualified in its
entirety by reference to the copy of the plan annexed hereto as Appendix A.
DESCRIPTION OF THE 1997 DIRECTORS' PLAN
If the 1997 Directors' Plan is approved by the shareholders, an aggregate
of 470,000 shares of Common Stock, with an aggregate fair market value of
approximately $207,000 as of April 1, 1997, will be issued and sold pursuant to
options granted under the 1997 Directors' Plan (collectively, "Directors'
Options"). A director will be eligible to participate in the 1997 Directors'
Plan if, on the date of grant, the director is not an employee of Garnet or any
of its subsidiaries. Directors eligible to participate in the 1997 Directors'
Plan are hereinafter referred to as "Participants". Each of Garnet's three
non-employee directors currently qualifies as a Participant.
To provide an incentive to the non-management directors, the Board of
Directors offered to exchange all outstanding options issued to non-management
directors under the 1990 Directors' Plan for new five-year options to be issued
under the 1997 Directors' Plan with an exercise price of $.428 per share, which
is equal to the Fair Market Value as defined below. If the 1997 Directors' Plan
is approved by the shareholders at the Meeting, an aggregate of 230,000 options
issued to non-employee directors under the 1990 Directors' Plan with exercise
prices ranging from $2.87 to $13.825 per share and expiration dates ranging from
July 2000 to May 2005, will be exchanged and Messrs. Cresci, Manson and Robinson
will receive new options for 45,000, 110,000 and 75,000 shares, respectively, in
exchange for the outstanding options of equal number held by each of them. In
addition, the Board of Directors has approved the grant of additional five-year
options which would entitle Messrs. Cresci, Manson and Robinson to purchase
17,950, 17,950 and 41,075 shares, respectively, at an exercise price of $.428,
which is equal to the Fair Market Value. The grant of all of the options
approved by the Board is subject to the approval of the 1997 Directors' Plan by
the shareholders and each option will be fully exercisable if such approval is
obtained. If the 1997 Directors' Plan is not approved by the shareholders, the
grant of these options will be void and the options held by non-employees
directors under the 1990 Directors' Plan will remain outstanding.
Directors' Options will be granted with an exercise price equal to the
average of the fair market value (the "Fair Market Value") of a share of Common
Stock on the 10 business days preceding the date of the grant. Payment of the
exercise price of Directors' Options under the 1997 Directors' Plan must be paid
in cash. So long as the Participant remains a director of Garnet, Directors'
Options may be exercised within a period not exceeding five years from the date
of grant or within one year of the date of death or disability, if longer. In
the event a Participant shall cease to be a director, for any reason other than
death or disability, the Directors' Option shall terminate on the earlier to
occur of (i) the expiration date of the option, or (ii) unless the Board
provides for a longer period, the later of the expiration of 90 days after the
termination of service or six months and 10 days after the Participant's last
sale or purchase of shares of Common Stock. In the event a Participant dies or
becomes disabled while a director or prior to the termination of the Directors'
Option in accordance with the preceding sentence, the Directors' Option shall
terminate on the first anniversary of the Participant's death or disability. In
the event of the Participant's death, the option may be exercised by the
Participant's legal representative or by any person or persons who shall have
acquired the option directly from
11
<PAGE> 14
the Participant by bequest or inheritance. During the lifetime of the
Participant, Directors' Options shall be exercisable only by the Participant and
shall not be transferable other than by will, by the laws of descent and
distribution or, under certain circumstances, to certain immediate family
members, trusts for their benefit or a partnership in which they are the only
partners.
The number of shares of Common Stock covered by a Directors' Option is
subject to adjustment for stock splits, mergers, consolidations, combinations of
shares, reorganizations and recapitalizations.
The Board of Directors has the power to terminate or amend the 1997
Directors' Plan from time to time in such respects as it deems advisable, except
that no termination or amendment shall materially adversely affect any
outstanding Director's Option without the consent of the grantee and the
approval of Garnet's shareholders is required in respect of any amendment which
would increase the total number of shares subject to the 1997 Directors' Plan.
Except to the extent necessary to govern Directors' Options, the 1997 Directors'
Plan shall terminate on April 20, 2007.
If the proposal is approved, the Board of Directors will be vested with
sole and exclusive authority to administer and interpret the 1997 Directors'
Plan and to determine the date of grant of options and the number of options to
be subject thereto, although the remaining terms of the options will continue to
be governed by the 1997 Directors' Plan. The interpretation and construction of
the 1997 Directors' Plan by the Board will be final.
Garnet believes that under present Federal tax laws the grant of an option
will create no tax consequences for a Participant or Garnet. The Participant
must recognize a specified amount of ordinary income with respect to the
exercise of an option, and Garnet (or its subsidiaries) will generally be
entitled to a deduction of the same amount. Generally, there will be no tax
consequence to Garnet in connection with a disposition of shares acquired under
the option.
VOTE REQUIRED FOR APPROVAL
Approval of the 1997 Directors' Plan requires the affirmative vote of the
holders of a majority of total votes cast on the proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Garnet's Board of Directors recommends a vote FOR Proposal No. 2.
NEW PLAN BENEFITS
The following table sets forth, to the extent determinable, the benefits or
amounts that will be received by the following persons if the 1997 Directors'
Plan is approved by the shareholders.
<TABLE>
<CAPTION>
1997 DIRECTORS'
STOCK OPTION PLAN
-------------------------
DOLLAR VALUE NUMBER OF
NAME AND POSITION ($) SHARES
----------------- ------------ ---------
<S> <C> <C>
Douglas W. Fry.............................................. N/A N/A
Montague H. Hackett, Jr..................................... N/A N/A
W. Kirk Bosche.............................................. N/A N/A
All current executive officers as a group................... N/A N/A
All current directors who are not executive officers as a
group..................................................... (1) 306,975
All employees as a group.................................... N/A N/A
</TABLE>
- ---------------
(1) The dollar value of options granted under the 1997 Directors' Plan will
depend upon the spread between the exercise price of the options and the
value of the Common Stock on the date of exercise of options. Such amounts
are underterminable at this time.
12
<PAGE> 15
PROPOSAL NO. 3
PROPOSED AMENDMENT TO GARNET'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Garnet's Restated Certificate of Incorporation, as currently in effect (the
"Certificate"), authorizes Garnet to issue up to 20,000,000 shares of Common
Stock. On April 20, 1997, Garnet's Board of Directors approved an amendment to
the Certificate (the "Amendment) to increase the number of shares of Common
Stock authorized for issuance thereunder by 55,000,000 to a total of 75,000,000
shares. The text of the Amendment is set forth in Appendix B to this Proxy
Statement.
REASONS FOR THE PROPOSED AMENDMENT
The number of authorized shares of Common Stock has remained at 20,000,000
since 1987. As of March 31, 1997, 11,492,162 shares of Common Stock were issued
and outstanding, 2,727,272 shares were reserved for issuance upon exercise of
the Debentures, 1,794,500 were reserved for issuance under Garnet's stock option
plans and 5,780,566 shares of Common Stock were available for future issuance.
The Board of Directors of Garnet has recommended the proposed Amendment to give
Garnet more flexibility in the event it elects, in the future, to issue
additional shares of Common Stock for cash or property and to insure continued
compliance with Garnet's obligations under the Debenture Purchase Agreement
dated as of December 21, 1993 by and among Garnet and the holders of the
Debentures (the "Debenture Purchase Agreement").
Pursuant to the terms of the Debenture Purchase Agreement, Garnet has
agreed to maintain a sufficient number of authorized and unissued shares
available for issuance upon conversion of the Debentures. As the conversion
price of the Debentures is currently $5.50 per share, Garnet has sufficient
authorized but unissued shares available to effect a full conversion of the
Debentures at this time. Under the terms of the Debenture Purchase Agreement, in
the event Garnet issues shares of its Common Stock at a purchase price which is
lower than the then effective conversion price, the conversion price will
automatically be lowered to the price at which such shares are issued or deemed
issued. As the last sale price of Garnet's Common Stock was $.44 on April 1,
1997, if Garnet issues shares of its Common Stock in the future at or near the
current market price, Garnet will not have sufficient authorized and unissued
shares to effect a full conversion of the Debentures at the adjusted conversion
price. Accordingly, the proposed amendment to the Certificate of Incorporation
is recommended to insure that Garnet will continue to be in compliance with the
covenant in its Debenture Purchase Agreement to maintain a sufficient number of
authorized and unissued shares in the event Garnet elects to issue additional
shares of Common Stock at a time when the market price thereof is below $5.50
per share. If Garnet issued additional shares of Common Stock at the current
market price of $.44 per share, the conversion price of the Debentures would be
reduced to $.44 per share and the number of shares which Garnet would be
required to reserve for issuance upon conversion of the Debentures would be
increased to 34,090,909 shares.
Garnet's Board of Directors also recommends the proposed Amendment as it
believes that it is prudent to increase the number of authorized shares of
Common Stock to the proposed level in order to provide a reserve of shares
available for issuances in connection with possible future actions. Such actions
may include, but are not limited to, additional financings, corporate mergers,
stock or asset acquisitions, joint ventures and for other general corporate
purposes. Although there are no current agreements or arrangements in place
requiring the utilization of additional shares for any such action, and certain
of the transactions listed above may require additional shareholder approval,
the Board of Directors believes that the availability of additional authorized
shares of Common Stock in the future may permit Garnet to engage in financing
transactions and small acquisitions as well as to take advantage of changing
market and financial conditions on a more competitive basis.
POSSIBLE EFFECTS OF THE AMENDMENT
The additional shares of Common Stock to be authorized by adoption of the
Amendment would have rights identical to the currently outstanding Common Stock
of Garnet. Adoption of the proposed Amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding
13
<PAGE> 16
Common Stock of Garnet, except for effects incidental to increasing the number
of shares of Garnet's Common Stock outstanding including, but not limited to,
dilution of the voting power of currently outstanding shares and reduction of
the portion of dividends and of liquidation proceeds payable to the holders of
currently outstanding Common Stock. Current holders of Common Stock have no
preemptive or like rights, which means that current stockholders do not have a
prior right to purchase any new issue of capital stock of Garnet in order to
maintain their proportionate ownership thereof.
If the proposed Amendment is approved, the Board of Directors may cause the
issuance of additional shares of Common Stock without further vote of
stockholders of Garnet, except as required under the Delaware corporate law or
under applicable rules of the National Association of Securities Dealers, Inc.
As the Board of Directors could use authorized but unissued shares to create
impediments to a takeover or a transfer of control of Garnet, the increase in
the number of authorized shares of Common Stock may deter a future takeover
attempt which holders of Common Stock may deem to be in their best interest or
in which holders of Common Stock may be offered a premium for their shares over
the market price. The Board of Directors is not currently aware of any attempt
to take over or to acquire Garnet. While it may be deemed to have potential
anti-takeover effects, the proposed Amendment to increase the authorized Common
Stock is not prompted by any specific effort or takeover threat currently
perceived by management. Moreover, management does not currently intend to
propose additional anti-takeover measures in the foreseeable future.
If the Amendment is adopted, it will become effective upon filing of the
Amendment with the Secretary of State of Delaware. Pursuant to the Delaware
General Corporation Law, Garnet's shareholders are not entitled to dissenters'
rights or appraisal with respect to the proposed Amendment.
VOTE REQUIRED FOR APPROVAL
Affirmative votes constituting a majority of the issued and outstanding
shares of Common Stock will be required to approve the proposed Amendment to
Garnet's Certificate of Incorporation. As neither an abstention nor a broker's
non-vote is an affirmative vote, abstentions and broker's non-votes will have
the same effect as a vote against the proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Garnet's Board of Directors recommends a vote FOR Proposal No. 3.
AUDITORS
The Board of Directors has selected Arthur Andersen LLP, independent public
accountants, to audit the consolidated financial statements of Garnet for the
year ending December 31, 1997. Representatives of Arthur Andersen LLP are
expected to be present at the Meeting and, while they are not expected to make a
statement, they will have the opportunity to do so if they desire. They will
also be available to respond to appropriate questions.
DEADLINE FOR SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the next annual meeting
of shareholders, to be held in 1998, must be received by Garnet at 11011
Richmond Avenue, Suite 650, Houston, Texas 77042-6720 on or before December 30,
1997 to be included in the proxy statement and form of proxy relating to that
meeting.
ANNUAL REPORT ON FORM 10-K
Garnet's Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, is available on request and may be obtained by writing to:
Garnet Resources Corporation, 11011 Richmond Avenue, Suite 650, Houston, Texas
77042-6720, Attention: Edgar L. Dyes.
14
<PAGE> 17
OTHER BUSINESS
The Board of Directors does not know of any matter to be brought before the
Meeting other than the matters specified in the Notice of Annual Meeting
accompanying this Proxy Statement. The persons named in the form of proxy by the
Board of Directors will vote all proxies which have been properly executed. If
any matters not set forth in the Notice of Annual Meeting are properly brought
before the Meeting, such persons will vote thereon in accordance with their
judgment.
By Order of the Board of Directors,
Edgar L. Dyes
Secretary
15
<PAGE> 18
APPENDIX A
GARNET RESOURCES CORPORATION
1997 DIRECTORS' STOCK OPTION PLAN
1. ESTABLISHMENT. There is hereby established the Garnet Resources
Corporation 1997 Directors' Stock Option Plan (the "Plan") pursuant to which
certain directors of Garnet Resources Corporation (the "Corporation") may be
granted options to purchase shares of common stock, par value $.01 per share
("Common Stock"), and thereby share in the future growth of the business. The
purpose of the Plan is to promote continuity of management and identity of
interest between directors and shareholders of the Corporation.
2. STATUS OF OPTIONS. The options to be issued pursuant to this Plan
("Options") shall not constitute incentive stock options within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code").
3. ELIGIBILITY. All directors of the Corporation who are not employees of
the Corporation or any of its subsidiaries (collectively, the "Participants")
shall be eligible to be granted Options under this Plan.
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 470,000 shares of Common Stock (or the number and kind of
shares of stock or other securities which, in accordance with Section 7 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 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.
5. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Corporation. A majority of the members of the Board shall constitute a quorum
and all determinations of the Board shall be made by a majority of such quorum.
Any decision or determination of the Board reduced to writing and signed by all
of the members of the Board shall be fully as effective as if it had been made
at a meeting duly called and held.
(b) Subject to the express provisions of this Plan, the Board 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
Participants to whom, and the times at which, Options shall be granted, the
number of shares of Common Stock to be subject to each Option and to make all
the other determinations necessary or advisable for the administration of the
Plan. In making such determinations, the Board may take into account the nature
of the services rendered by the respective Participants, their present and
potential contributions to the success of the Company and such other factors as
the Board, in its discretion, shall deem relevant. Certain material terms and
conditions governing the Options are set forth in Section 6 hereof and will not
be subject to the discretion of the Board. If any questions of interpretation of
this Plan or of any Options issued hereunder shall arise, they shall be
determined by the Board and such determination shall be final and binding upon
all persons having an interest in the Plan. Nothing contained in this Plan shall
be deemed to give any Participant 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 Board. The determination of the Board on all of the
matters referred to in this Section 5 shall be conclusive.
A-1
<PAGE> 19
6. TERMS AND CONDITIONS OF OPTIONS; STOCK OPTION AGREEMENTS. Each Option
granted pursuant to this Plan shall be evidenced by a written agreement between
the Participant and the Corporation which shall contain the following terms:
(a) OPTION PRICE. The exercise price of each Option shall be one hundred
percent (100%) of the Fair Market Value of the shares subject to such Option on
the date of grant. For purposes of this Section, the "Fair Market Value" of a
share of Common Stock shall mean (i) the average of the last sale price of a
share of Common Stock as reported by the national securities exchange or the
National Association of Securities Dealers, Inc. ("NASDAQ"), as the case may be,
for the ten business days preceding the date of grant; (ii) if last sale prices
are not reported with respect to the Common Stock, the average of the high bid
and low asked prices of a share of Common Stock as reported by NASDAQ, for the
ten business days preceding the date of grant; or (iii) if bid and asked
quotations are not reported on NASDAQ, the average between the closing bid and
asked prices of a share of Common Stock for the ten business days preceding the
date of grant as furnished by a broker-dealer which regularly furnishes price
quotations for the Common Stock.
(b) MEDIUM AND TIME OF PAYMENT. The exercise price of the shares to be
purchased pursuant to an Option shall be paid in full in cash or by check.
(c) TERM AND EXERCISE OF OPTIONS. The term of each Option shall commence on
the date it is granted and, unless sooner terminated as set forth herein, shall
expire five years after its date of grant unless extended as set forth herein.
In the event a Participant shall cease to be a director of the Corporation for
any reason other than death or disability, the Option shall terminate on the
earlier to occur of (i) unless extended by the Board of Directors in its
discretion, the later of ninety (90) days after the date of termination of
service or six months and ten days after such Participant's last purchase or
sale of shares of Common Stock prior to his termination of service as a
director, or (ii) the expiration date of the Option. If the Participant shall
die or become disabled within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended, while still serving as a director or prior to
the termination of the Option in accordance with the preceding sentence, the
Option shall terminate on the first anniversary of the Participant's death or
disability, as the case may be. In the event of the Participant's death, the
Option may be exercised by the person or persons entitled to do so under the
Participant's will or, if the Participant shall fail to make testamentary
disposition of the Option, or shall die intestate, by the Participant's legal
representative.
(d) TRANSFERABILITY. Each Option may be transferrable by the Participant to
(i) the spouse, children or grandchildren of the Participant ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or (iii) a partnership in which such Immediate Family Members
are the only partners, provided that (x) there may be no consideration for any
such transfer, and (y) subsequent transfers of transferred options shall be
prohibited. Following transfer, any such options shall continue to be subject to
the same terms and conditions as were applicable immediately prior to transfer
(provided that the terms "optionee" and "Participant" shall be deemed to refer
to the transferee) and the Option shall be exercisable by the transferee only to
the extent, and for such periods as specified in the option agreement. Each
Option shall also be transferable by the Participant by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by Code or Title I of the Employee Retirement Income Security Act, or
the rules thereunder.
(e) INVESTMENT PURPOSE. Each Participant shall represent and warrant that
he is acquiring the Option and, in the event the Option is exercised, the shares
of Common Stock issuable thereunder, for investment, for his own account and not
with a view to the distribution thereof, and that he will not offer or sell the
shares unless a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") and any applicable state securities law is in
effect, or unless counsel satisfactory to the Corporation renders a reasoned
opinion that the proposed sale is exempt from the registration requirements of
the Securities Act and such state securities act.
(f) ADDITIONAL TERMS. The agreement may contain such other terms,
provisions, and conditions not inconsistent herewith as shall be determined by
the Board of Directors, in its discretion.
A-2
<PAGE> 20
7. 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 shares 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 Corporation 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 this 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. 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 have been adjusted pursuant to this Section 7. No adjustment or
substitution provided for in this Section shall require the Corporation, 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.
8. EFFECTIVE DATE AND TERM OF PLAN. Subject to approval by the stockholders
of the Corporation, this Plan shall become effective as of April 20, 1997, the
date of its adoption by the Board of Directors of the Corporation. Except to the
extent necessary to govern outstanding Options issued, this Plan shall terminate
on, and no additional Options shall be granted after, the tenth anniversary of
its effective date unless earlier terminated by the Board of Directors in
accordance with Section 9 hereof.
9. AMENDMENT OF THE PLAN. 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 Participant and the approval of
the Corporation's stockholders is required in respect of any amendment which
would increase the maximum number of shares subject to this Plan.
A-3
<PAGE> 21
APPENDIX B
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
GARNET RESOURCES CORPORATION
------------------------
PURSUANT TO SECTION 242 OF THE
GENERAL CORPORATION LAW
------------------------
THE UNDERSIGNED, President of Garnet Resources Corporation, a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"), hereby certifies as follows:
FIRST: Article FOURTH of the Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
"FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is SEVENTY-FIVE MILLION
(75,000,000), all of the par value $0.01 per share, all of which shall be
designated Common Stock."
SECOND: The foregoing amendment has been duly adopted in accordance with
the provisions of Sections 242 of the General Corporation Law.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this th
day of May, 1997.
Douglas W. Fry
President
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<PAGE> 22
(SIDE ONE)
GARNET RESOURCES CORPORATION
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Shareholders to be Held May 22, 1997
The undersigned shareholder of Garnet Resources Corporation, a Delaware
corporation (the "Company"), hereby appoints Montague H. Hackett, Jr., Douglas
W. Fry and Edgar L. Dyes, or any of them, acting singly in the absence of the
others, attorneys and proxies, with full power of substitution and revocation,
to vote as designated below, all of the shares of Common Stock of the Company
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
of the Company to be held at the offices of Zimet, Haines, Friedman & Kaplan,
460 Park Avenue, 9th Floor, New York, New York, 10022 on May 22, 1997, at
10:00 a.m. (local time) or any adjournment or postponement thereof. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the meeting.
The proxy is solicited on behalf of the Board of Directors of the
Company and when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, it will be voted "FOR
all nominees" in Proposal No. 1, "FOR" Proposal No. 2 and "FOR" Proposal No. 3.
(Continued and to be signed and dated on reverse side)
<PAGE> 23
(SIDE TWO)
Please mark your votes as shown. /x/
The Board of Directors recommends a vote "FOR all nominees" in Proposal
No. 1, "FOR" Proposal No. 2 and "FOR" Proposal No. 3.
1. Election of the following nominees as Directors: Messrs.: Cresci, Fry,
Gonzalez, Hackett, Manson and Robinson.
/ / FOR all Nominees listed / / WITHHELD FOR all nominees
(except as marked to the right)
Withheld for the following only: (Write the name(s) of the nominee(s) in the
space below.)
2. Approval of the adoption of the 1997 Directors' Stock Option Plan.
For / / Against / / Abstain / /
3. Approval of the amendment to the Certificate of Incorporation to increase
the number of authorized shares of Garnet's Common Stock.
For / / Against / / Abstain / /
Please mark, date and sign as your name appears to the left and return
in the enclosed envelope. If the signer is a corporation, please sign the full
corporate name by duly authorized officer. If the signer is a partnership,
please sign in partnership name by an authorized person. If shares are held
jointly, each shareholder named should sign.
Sign, Date and Return the Proxy Card
Promptly Using the Enclosed Envelope.
Date , 1997 Signature(s)
