<PAGE>
As filed with the Securities and Exchange Commission on June 30, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
_______________
AVIVA PETROLEUM INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
TEXAS 1311 75-1432205
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
8235 DOUGLAS AVENUE JAMES L. BUSBY
SUITE 400 SECRETARY AND TREASURER
DALLAS, TEXAS 75225 AVIVA PETROLEUM INC.
(214) 691-3464 8235 DOUGLAS AVENUE
SUITE 400
DALLAS, TEXAS 75225
(214) 691-3464
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of telephone number, including area
registrant's principal executive offices) code, of agent for service)
Copies to:
VINSON & ELKINS L.L.P. PARSONS BEHLE & LATIMER
FIRST CITY TOWER ONE UTAH CENTER
1001 FANNIN STREET 201 SOUTH MAIN STREET
HOUSTON, TEXAS 77002-6760 SUITE 1800
ATTENTION: WILLIAM E. JOOR III SALT LAKE CITY, UTAH 84145-0898
(713) 758-2222 ATTENTION: STUART A. FREDMAN
(801) 532-1234
</TABLE>
___________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable following the effectiveness of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
_______________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================
PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value 1,149,216 $0.31 $356,257 $105.10
(3)
======================================================================================================
</TABLE>
(1) Consists of up to 1,149,216 shares of Aviva Common Stock that may be issued
in connection with the acquisition by merger of Garnet Resources
Corporation.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c), based on the average of the low
and high sales prices of Garnet Common Stock on the OTC Bulletin Board on
June 25, 1998 of $0.031 and the Exchange Ratio of 0.10 of one share of
Aviva Common Stock for each share of Garnet Common Stock.
(3) Includes up to 229,843 depositary shares, each of which represents five
shares of Aviva Common Stock, issuable in lieu of shares of Aviva Common
Stock.
================================================================================
<PAGE>
GARNET RESOURCES CORPORATION
RR2 BOX 4400
NACOGDOCHES, TEXAS 75961
Dear Stockholder:
A Special Meeting of Stockholders (the "Garnet Special Meeting") of Garnet
Resources Corporation ("Garnet") will be held at 201 South Main, Suite 1800,
Salt Lake City, Utah, on _____________, 1998 at 10:00 a.m. local time.
At the Garnet Special Meeting you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger dated as of June
24, 1998 (the "Merger Agreement") providing for the merger (the "Merger") of an
indirect, wholly owned subsidiary ("Merger Sub") of Aviva Petroleum Inc.
("Aviva") with and into Garnet, pursuant to which (a) Garnet will be the
corporation surviving the Merger (the "Surviving Corporation"), (b) subject to
the next sentence, each share of Garnet Common Stock outstanding immediately
prior to the consummation of the Merger will be converted into 0.10 of one share
of Aviva Common Stock (the "Exchange Ratio"), (c) Garnet will become a wholly
owned subsidiary of Aviva. If any record holder of Garnet Common Stock would
not be entitled to at least 100 shares of Aviva Common Stock upon consummation
of the Merger, the shares of Garnet Common Stock so held will be converted into
the right to receive cash at the rate of $0.02 per share. In the materials
accompanying this letter, you will find a Notice of Special Meeting of
Stockholders, a Joint Proxy Statement/Prospectus relating to the actions to be
taken by Garnet stockholders at the Garnet Special Meeting and a proxy card.
The Joint Proxy Statement/Prospectus more fully describes the proposed Merger
and includes information about Garnet and Aviva.
THE GARNET BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE TRANSACTIONS RELATED THERETO AND HAS DETERMINED THAT THEY ARE FAIR TO
AND IN THE BEST INTERESTS OF GARNET AND ITS STOCKHOLDERS. AFTER CAREFUL
CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE GARNET SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE GARNET SPECIAL MEETING, HOWEVER, PLEASE
COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU
ATTEND THE GARNET SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN
THOUGH YOU HAVE PREVIOUSLY RETURNED YOUR PROXY. IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED AND VOTED AT THE GARNET SPECIAL MEETING.
Sincerely,
Douglas W. Fry
President, Chief Executive Officer and Director
<PAGE>
GARNET RESOURCES CORPORATION
RR2 BOX 4400
NACOGDOCHES, TEXAS 75961
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on ______________, 1998
To the Stockholders of Garnet Resources Corporation:
A Special Meeting of Stockholders (the "Garnet Special Meeting") of Garnet
Resources Corporation, a Delaware corporation ("Garnet"), will be held on
________________, ___________________, 1998 at 10:00 a.m., local time, at 201
South Main, Suite 1800, Salt Lake City, Utah, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger dated as of June 24, 1998 (the "Merger Agreement"), among
Aviva Petroleum Inc., a Texas corporation ("Aviva"), Aviva Merger Inc., a
Delaware corporation and an indirect, wholly owned subsidiary of Aviva
("Merger Sub"), and Garnet. Pursuant to the Merger Agreement, Merger Sub
would be merged with and into Garnet (the "Merger") and, among other things
but subject to the following proviso, each share of common stock, par value
$.01 per share, of Garnet ("Garnet Common Stock") outstanding at the
effective time of the Merger would be converted into 0.10 of one share of
common stock, without par value, of Aviva, all as more fully set forth in
the accompanying Joint Proxy Statement/Prospectus and in the Merger
Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part;
provided, however, that, if any record holder of Garnet Common Stock would
not be entitled to at least 100 shares of Aviva Common Stock upon
consummation of the Merger, the shares of Garnet Common Stock so held will
be converted into the right to receive cash at the rate of $0.02 per share;
and
2. to transact such other business as may properly come before the
Garnet Special Meeting or any adjournment thereof.
The Board of Directors of Garnet has fixed the close of business on
_______________, 1998 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Garnet Special Meeting and any
adjournment thereof. Only holders of record of shares of Garnet Common Stock at
the close of business on the record date are entitled to notice of, and to vote
at, the Garnet Special Meeting. A complete list of such stockholders will be
available for examination at the offices of Garnet in Nacogdoches, Texas during
normal business hours by any Garnet stockholder, for any purpose germane to the
Garnet Special Meeting, for a period of 10 days prior to the meeting.
Stockholders of Garnet are not entitled to appraisal rights under the General
Corporation Law of the State of Delaware in respect of the Merger.
YOUR VOTE IS IMPORTANT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY
OF THE OUTSTANDING SHARES OF GARNET COMMON STOCK ENTITLED TO VOTE IS REQUIRED
FOR ADOPTION OF THE MERGER AGREEMENT. EVEN IF YOU PLAN TO ATTEND THE GARNET
SPECIAL MEETING IN PERSON, WE REQUEST THAT YOU SIGN AND RETURN THE ENCLOSED
PROXY OR VOTING INSTRUCTION CARD AND THUS ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE GARNET SPECIAL MEETING IF YOU ARE UNABLE TO ATTEND. IF YOU DO
ATTEND THE GARNET SPECIAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
Edgar L.Dyes
Secretary
Nacogdoches, Texas
______________, 1998
<PAGE>
AVIVA PETROLEUM INC.
SUITE 400, 8235 DOUGLAS AVENUE
DALLAS, TEXAS 75225
Dear Stockholder:
A Special Meeting in lieu of the 1998 Annual Meeting of Stockholders (the
"Aviva Special Meeting") of Aviva Petroleum Inc. ("Aviva") will be held at
________________________, Dallas, Texas, on _____________, 1998 at ______ a.m.
local time.
At the Aviva Special Meeting you will be asked to consider and vote upon a
proposal to approve the issuance by Aviva of an aggregate of up to 14,036,987
shares of common stock, without par value ("Aviva Common Stock"), of Aviva, of
which (i) up to 1,149,216 shares would be issued pursuant to an Agreement and
Plan of Merger dated as of June 24, 1998 (the "Merger Agreement") providing for
the merger (the "Merger") of an indirect, wholly owned subsidiary of Aviva
Petroleum Inc. ("Aviva") with and into Garnet Resources Corporation ("Garnet"),
as a result of which (a) Garnet will be the corporation surviving the Merger,
(b) subject to the next sentence, each share of common stock, par value $0.01
per share, of Garnet ("Garnet Common Stock") outstanding immediately prior to
the consummation of the Merger will be converted into 0.10 of one share of
common stock, without par value, of Aviva ("Aviva Common Stock") and (c) Garnet
will become a wholly owned subsidiary of Aviva, and (ii) 12,887,771 shares would
be issued pursuant to a Debenture Purchase Agreement (the "Debenture Purchase
Agreement") dated as of June 24, 1998 between Aviva and the holders of
$15,000,000 in aggregate principal amount of Garnet's outstanding 9 1/2%
Convertible Subordinated Debentures due December 21, 1998 (the "Debentures").
If any record holder of Garnet Common Stock would not be entitled to at least
100 shares of Aviva Common Stock upon consummation of the Merger, the shares of
Garnet Common Stock so held will be converted into the right to receive cash at
the rate of $0.02 per share. Consummation of the purchase of the Debentures by
Aviva is a condition to Aviva's obligation to consummate the Merger pursuant to
the Merger Agreement.
In the materials accompanying this letter, you will find a Notice of
Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to
the actions to be taken by the Aviva stockholders at the Aviva Special Meeting
and by the Garnet stockholders at the Garnet Special Meeting and a proxy card.
The Joint Proxy Statement/Prospectus more fully describes the proposed Merger,
the Merger Agreement and the Debenture Purchase Agreement and includes
information about Garnet and Aviva.
THE AVIVA BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE DEBENTURE PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
AND HAS DETERMINED THAT THEY ARE FAIR TO AND IN THE BEST INTERESTS OF AVIVA AND
ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ISSUANCE OF AVIVA COMMON
STOCK PURSUANT TO THE MERGER AGREEMENT AND THE DEBENTURE PURCHASE AGREEMENT.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE AVIVA SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE AVIVA SPECIAL MEETING, HOWEVER, PLEASE
COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU
ATTEND THE AVIVA SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN
THOUGH YOU HAVE PREVIOUSLY RETURNED YOUR PROXY. IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED AND VOTED AT THE AVIVA SPECIAL MEETING.
Sincerely,
Ronald Suttill
President, Chief Executive Officer and Director
<PAGE>
AVIVA PETROLEUM INC.
SUITE 400, 8235 DOUGLAS AVENUE
DALLAS, TEXAS 75225
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on ______________, 1998
To the Stockholders of Aviva Petroleum Inc.:
A Special Meeting in lieu of the 1998 Annual Meeting of Stockholders (the
"Aviva Special Meeting") of Aviva Petroleum Inc., a Texas corporation ("Aviva"),
will be held on ________________, ___________________, 1998 at ___:00 a.m.,
local time, at _________________, Dallas, Texas, for the following purposes:
1. To consider and vote upon the proposed issuance by Aviva of an
aggregate of up to 14,036,987 shares of common stock, without par value
("Aviva Common Stock"), of Aviva (the "Share Issuance"), of which (i) up
to 1,149,216 shares would be issued pursuant to an Agreement and Plan of
Merger dated as of June 24, 1998 (the "Merger Agreement") providing for the
merger (the "Merger") of an indirect, wholly owned subsidiary ("Merger
Sub") of Aviva Petroleum Inc. ("Aviva") with and into Garnet Resources
Corporation, a Delaware corporation ("Garnet"), as a result of which (a)
Garnet will be the corporation surviving the Merger, (b) subject to the
following proviso, each share of common stock, par value $0.01 per share,
of Garnet ("Garnet Common Stock") outstanding immediately prior to the
consummation of the Merger would be converted into 0.10 of one share of
common stock, without par value, of Aviva ("Aviva Common Stock") and (c)
Garnet would become a wholly owned subsidiary of Aviva and (ii) 12,887,771
shares would be issued pursuant to a Debenture Purchase Agreement (the
"Debenture Purchase Agreement") dated as of June 24, 1998 between Aviva and
the holders of $15,000,000 in aggregate principal amount of Garnet's
outstanding 9 1/2% Convertible Subordinated Debentures due December 21,
1998 (the "Debentures") in exchange for the Debentures, all as more fully
set forth in the accompanying Joint Proxy Statement/Prospectus and in the
Merger Agreement and the Debenture Purchase Agreement, copies of which are
filed as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part; provided, however, that, if any record
holder of Garnet Common Stock would not be entitled to at least 100 shares
of Aviva Common Stock upon consummation of the Merger, the shares of Garnet
Common Stock so held will be converted into the right to receive cash at
the rate of $0.02 per share; and
2. to elect a board of directors consisting of two directors; and
3. to approve KPMG Peat Marwick LLP as Aviva's independent auditors
for fiscal year 1998; and
4. to transact such other business as may properly come before the
Special meeting or any adjournment thereof.
The Board of Directors of Aviva has fixed the close of business on
_______________, 1998 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Aviva Special Meeting and any
adjournment thereof. Only holders of record of shares of Aviva Common Stock at
the close of business on the record date are entitled to notice of, and to vote
at, the Aviva Special Meeting. A complete list of such stockholders will be
available for examination at the offices of Aviva in Dallas, Texas during normal
business hours by any Aviva stockholder, for any purpose germane to the Aviva
Special Meeting, for a period of 10 days prior to the meeting. Stockholders of
Aviva are not entitled to appraisal rights under the Texas Business Corporation
Act in respect of the Share Issuance.
YOUR VOTE IS IMPORTANT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY
OF THE SHARES OF AVIVA COMMON STOCK ENTITLED TO VOTE WITH RESPECT TO THE SHARE
ISSUANCE AND PRESENT AT THE AVIVA SPECIAL MEETING IN PERSON OR BY PROXY IS
REQUIRED TO APPROVE THE SHARE ISSUANCE. EVEN IF YOU PLAN TO ATTEND THE AVIVA
SPECIAL MEETING IN PERSON, WE REQUEST THAT YOU SIGN AND RETURN THE ENCLOSED
PROXY OR VOTING INSTRUCTION CARD AND THUS ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE AVIVA SPECIAL MEETING IF YOU ARE UNABLE TO ATTEND. IF YOU DO
ATTEND THE AVIVA SPECIAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
James L. Busby
Secretary
Dallas, Texas
______________, 1998
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES+
+EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 30, 1998
AVIVA PETROLEUM INC.
GARNET RESOURCES CORPORATION
JOINT PROXY STATEMENT/PROSPECTUS
This Joint Proxy Statement/Prospectus relates to the proposed merger of
Aviva Merger, Inc. a Delaware corporation ("Merger Sub") and an indirect, wholly
owned subsidiary of Aviva Petroleum Inc., a Texas corporation ("Aviva"), with
and into Garnet Resources Corporation, a Delaware corporation ("Garnet"),
pursuant to the Agreement and Plan of Merger dated as of June 24, 1998 among
Aviva, Merger Sub and Garnet (the "Merger Agreement"). The merger contemplated
by the Merger Agreement is referred to herein as the "Merger."
This Joint Proxy Statement/Prospectus also relates to the issuance by Aviva
of an aggregate of up to 14,036,987 shares of Aviva Common Stock (the "Share
Issuance"), of which (i) up to 1,149,216 shares would be issued in the Merger
pursuant to the Merger Agreement and (ii) 12,887,771 shares would be issued in
exchange for $15,000,000 in aggregate principal amount of Garnet's outstanding 9
1/2% Convertible Subordinated Debentures due December 21, 1998 (the
"Debentures") pursuant to the Debenture Purchase Agreement dated as of June 24,
1998 between Aviva and the holders of the Debentures (the "Debenture Purchase
Agreement"). Consummation of the purchases of the Debentures by Aviva is a
condition to Aviva's obligation to consummate the Merger.
As a result of the Merger, (i) Garnet would become a wholly owned
subsidiary of Aviva and (ii) each share of common stock, par value $.01 per
share, of Garnet ("Garnet Common Stock") outstanding immediately prior to the
effective time of the Merger (the "Effective Time"), other than Garnet Common
Stock held directly or indirectly by Aviva or Garnet, would be converted into
0.10 of one share of common stock, without par value, of Aviva ("Aviva Common
Stock"); provided, however, that any record holder of Garnet Common Stock who
would not be entitled to at least 100 shares of Aviva Common Stock upon
consummation of the Merger will receive cash at the rate of $0.02 per share for
each of the shares of Garnet Common Stock held by such holder.
This Joint Proxy Statement/Prospectus is being furnished to holders of
Garnet Common Stock in connection with the solicitation of proxies by the Board
of Directors of Garnet for use at the special meeting of stockholders of Garnet
to be held on _________, 1998 (the "Garnet Special Meeting"). At the Garnet
Special Meeting, holders of Garnet Common Stock will be asked to adopt the
Merger Agreement.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Aviva Common Stock in connection with the solicitation of proxies by the Board
of Directors of Aviva for use at the special meeting in lieu of the 1998 annual
meeting of stockholders of Aviva to be held on _________, 1998 (the "Aviva
Special Meeting"). At the Aviva Special Meeting, holders of Aviva Common Stock
will be asked to approve the Share Issuance, to elect two directors and to
approve the selection of KPMG Peat Marwick LLP as Aviva's independent auditors
for fiscal year 1998.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Aviva with respect to up to 1,149,216 shares of Aviva Common Stock to be issued
pursuant to the Merger Agreement.
The shares of Aviva Common Stock issued pursuant to the Merger and in
connection with the purchase of the Debentures will be deposited with
ChaseMellon Shareholder Services L.L.C., as Depositary pursuant to a Depositary
Agreement with Aviva, and the Depositary will issue and deliver to the holders
of Garnet Common Stock and the Debentures Depositary Shares evidenced by
Depositary Receipts on the basis of one Depositary Share for each five shares of
Aviva Common Stock. The Aviva Depositary Shares will be listed on the American
Stock Exchange ("ASE").
On June __, 1998, the middle market price of Aviva Common Stock on the
London Stock Exchange Limited was ___ pence and the closing price of Aviva
Depositary Shares (each of which represents five shares of Aviva Common Stock)
on the ASE was $___. On the same day, the closing price of Garnet Common Stock,
as reported on the OTC Bulletin Board ("OTCBB"), was $______.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS _____________, 1998. THIS
JOINT PROXY STATEMENT/PROSPECTUS AND THE ACCOMPANYING FORM OF PROXY ARE FIRST
BEING MAILED TO STOCKHOLDERS OF GARNET AND AVIVA ON OR ABOUT _____________,
1998.
<PAGE>
No person has been authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement/Prospectus in connection with the solicitation of proxies or the
offering of securities made hereby and, if given or made, such information or
representation must not be relied upon as having been authorized by Aviva or
Garnet. Neither the delivery of this Joint Proxy Statement/Prospectus nor any
distribution of the securities offered hereby shall under any circumstances
create an implication that there has been no change in the affairs of Aviva or
Garnet since the date hereof or that the information set forth or incorporated
by reference herein is correct as of any time subsequent to its date. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, any securities, or the solicitation of a
proxy, in any jurisdiction in which, or to any person to whom, it is unlawful to
make such offer or solicitation of an offer or proxy solicitation.
This Joint Proxy Statement/Prospectus incorporates certain documents by
reference that are not presented herein or delivered herewith. Aviva and Garnet
each undertakes to provide copies of such documents (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference),
without charge, to any person, including any beneficial owner, to whom this
Joint Proxy Statement/Prospectus is delivered, upon written or oral request to,
in the case of documents relating to Aviva, James L. Busby, Secretary and
Treasurer, Aviva Petroleum Inc., 8235 Douglas Avenue, Suite 400, Dallas, Texas,
75225 (telephone (214) 691-3464) and, in the case of documents relating to
Garnet, Douglas Fry, President, Garnet Resources Corporation, 1214 Wilmington
Avenue, Suite 303, Salt Lake City, Utah 84106 (telephone (801) 484-3088). In
order to ensure delivery of the documents, such requests should be received by
____________, 1998.
AVAILABLE INFORMATION
Aviva and Garnet are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (File Nos. 0-
22258 and 0-16621, respectively), and, in accordance therewith, file periodic
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission") relating to their respective businesses, financial
statements and other matters. Reports, proxy statements and other information
filed by Aviva and Garnet can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such material can be obtained by mail from the Public Reference
Section of the Commission at 450 West Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a web site that
contains reports, proxy and information statements and other information
regarding Aviva and Garnet. The address of that web site is http://www.sec.gov.
In addition, reports, proxy statements and other information concerning Aviva
may be inspected at the offices of the ASE, 86 Trinity Place, New York, New York
10006.
Aviva has filed with the Commission a Registration Statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the offering, sale and delivery of the Aviva
Common Stock to be issued pursuant to the Merger Agreement. The
-2-
<PAGE>
information contained herein with respect to Aviva and its affiliates, including
Merger Sub, has been provided by Aviva, and the information contained herein
with respect to Garnet and its affiliates has been provided by Garnet, certain
parts of which were omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
All information contained in this Joint Proxy Statement/Prospectus or
incorporated herein by reference with respect to Aviva was supplied by Aviva,
and all information contained in this Joint Proxy Statement/Prospectus or
incorporated herein by reference with respect to Garnet was supplied by Garnet.
Although neither Aviva nor Garnet has actual knowledge that would indicate that
any statements or information (including financial statements) relating to the
other party contained or incorporated by reference herein is inaccurate or
incomplete, neither Aviva nor Garnet warrants the accuracy or completeness of
such statements or information as they relate to the other party.
Forward Looking Statements
Statements relating to Aviva contained in this Joint Proxy
Statement/Prospectus that are not historical facts are forward-looking
statements. In addition, Aviva, through its management, from time to time makes
forward-looking public statements concerning its expected future operations and
performance and other developments. Such forward-looking statements are
necessarily estimates reflecting Aviva's best judgment based on current
information and involve a number of risks and uncertainties, and there can be no
assurance that other factors will not affect the accuracy of such forward-
looking statements. While it is impossible to identify all such factors,
factors that could cause actual results to differ materially from those
estimated by Aviva include, among other things, general economic conditions,
volatility of oil and gas prices, the impact of possible geopolitical
occurrences world-wide and in Colombia, imprecision of reserve estimates,
changes in laws and regulations, unforeseen engineering and mechanical or
technological difficulties in drilling, working-over and operating wells during
the periods covered by the forward looking statements and worsening financial
difficulties affecting Aviva's co-owner of oil and gas properties in Colombia,
as well as other factors described in this Joint Proxy Statement/Prospectus.
Certain of the matters discussed in this Joint Proxy Statement/Prospectus
relating to Garnet are forward-looking statements, and such statements involve
risks and uncertainties. The forward-looking statements were prepared on the
basis of certain assumptions that relate, among other things, to costs expected
to be incurred in the development of Garnet's properties, the receipt of
environmental and other necessary administrative permits required for such
development, future oil prices, future production rates and the ability to
conclude a business combination or a debt restructuring transaction. Even if
the assumptions on which the projections are based prove accurate and
appropriate, the actual results of Garnet's operations in the future may vary
widely from the financial projections due to unforeseen engineering, mechanical
or technological difficulties in drilling or working over wells, regional
political issues, general economic conditions, increased competition, changes in
government
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regulation or intervention in the oil and gas industry, and other risks
described herein. Accordingly, the actual results of Garnet's operations in the
future may vary widely from the forward-looking statements included herein.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission pursuant to
the Exchange Act, are incorporated herein by reference:
1. For Aviva, its:
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1998: and
(c) Current Reports on Form 8-K dated April 17, 1998 and June 24, 1998.
2. For Garnet, its:
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1998; and
(c) Current Report on Form 8-K dated June __, 1998.
All documents filed by Aviva or Garnet pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the special meetings of the
stockholders of Aviva and Garnet shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
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TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION.................................................................... 2
Forward Looking Statements............................................................. 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................................... 5
QUESTIONS AND ANSWERS ABOUT THE AVIVA/GARNET MERGER...................................... 10
SUMMARY.................................................................................. 13
The Companies.......................................................................... 13
Our Reasons for the Merger............................................................. 13
The Stockholder Meetings............................................................... 13
Our Recommendations to Stockholders.................................................... 13
The Record Date for Voting at the Special Meetings..................................... 14
Votes Required......................................................................... 14
Voting................................................................................. 14
Security Ownership of Management....................................................... 14
The Merger and the Merger Agreement.................................................... 14
Related Transactions................................................................... 15
Ownership of Aviva Following the Merger................................................ 15
Interests of Certain Persons in the Merger............................................. 15
Directors of Aviva Following the Merger................................................ 15
Conditions to the Merger............................................................... 15
No Solicitation........................................................................ 16
Termination of the Merger Agreement.................................................... 16
Material Federal Income Tax Consequences............................................... 17
Anticipated Accounting Treatment....................................................... 17
No Appraisal Rights.................................................................... 17
Comparative Rights of Garnet and Aviva Stockholders.................................... 17
MARKET PRICE AND DIVIDEND DATA........................................................... 18
Dividends.............................................................................. 19
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION................................... 20
Aviva Petroleum Inc.................................................................... 20
Garnet Resources Corporation........................................................... 22
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.............................. 23
COMPARATIVE PER SHARE DATA............................................................... 24
THE COMPANIES............................................................................ 25
Aviva.................................................................................. 25
Merger Sub............................................................................. 25
Garnet................................................................................. 25
THE SPECIAL MEETINGS..................................................................... 26
Garnet................................................................................. 26
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Aviva................................................................................. 27
REASONS FOR THE MERGER.................................................................. 28
General Background.................................................................... 28
Aviva................................................................................. 30
Garnet................................................................................ 30
Pro Forma Financial Condition......................................................... 31
Aviva Board of Directors.............................................................. 32
Garnet Board of Directors............................................................. 33
THE MERGER.............................................................................. 34
General Description of the Merger..................................................... 34
Interests of Certain Persons in the Merger............................................ 34
Certain Federal Income Tax Consequences............................................... 35
Accounting Treatment.................................................................. 35
Governmental and Regulatory Approvals................................................. 36
Restrictions on Resales by Affiliates................................................. 36
Rights of Dissenting Stockholders..................................................... 36
CERTAIN TERMS OF THE MERGER AGREEMENT................................................... 36
Effective Time of the Merger.......................................................... 36
Manner and Basis of Converting Shares................................................. 36
Garnet Options........................................................................ 38
Conditions to the Merger.............................................................. 38
Representations and Warranties........................................................ 39
Certain Covenants; Conduct of Business Prior to the Merger............................ 39
No Solicitation....................................................................... 40
Certain Post-Merger Matters........................................................... 41
Termination or Amendment of the Merger Agreement...................................... 41
Expenses and Termination Fee.......................................................... 42
Indemnification....................................................................... 42
THE DEBENTURE PURCHASE AGREEMENT........................................................ 43
General............................................................................... 43
Representations and Warranties........................................................ 43
Conditions............................................................................ 43
Termination........................................................................... 43
THE BANK CREDIT FACILITY................................................................ 44
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION..................................... 46
Unaudited Pro Forma Condensed Statement of Operations Year Ended December 31, 1997.... 46
Unaudited Pro Forma Condensed Statement of Operations Three Months Ended
March 31, 1998....................................................................... 47
Unaudited Pro Forma Condensed Balance Sheet March 31, 1998............................ 48
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.............. 49
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SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................... 50
Aviva.................................................................................. 50
Garnet................................................................................. 50
DESCRIPTION OF AVIVA CAPITAL STOCK....................................................... 52
General................................................................................ 52
Aviva Common Stock..................................................................... 52
Certain Provisions of Aviva Charter and Bylaws......................................... 52
Transfer Agent and Registrar........................................................... 53
DESCRIPTION OF DEPOSITARY SHARES......................................................... 53
Deposit and Withdrawal of Aviva Common Stock........................................... 53
Dividends, Other Distributions and Rights.............................................. 53
Record Dates........................................................................... 54
Voting of the Aviva Common Stock....................................................... 54
Inspection of Transfer Books........................................................... 55
Reports and Notices.................................................................... 55
Changes Affecting Aviva Common Stock................................................... 55
Amendment and Termination of the Deposit Agreement..................................... 55
Charges of Depositary.................................................................. 56
General................................................................................ 56
COMPARATIVE RIGHTS OF AVIVA AND GARNET STOCKHOLDERS...................................... 56
Amendments to the Charter.............................................................. 57
Amendments to Bylaws................................................................... 57
Board of Directors..................................................................... 57
Removal of Directors................................................................... 57
Newly Created Directorships and Vacancies.............................................. 58
Special Meetings of Stockholders....................................................... 58
Action by Written Consent.............................................................. 58
Voting................................................................................. 59
Mergers and Other Fundamental Transactions............................................. 59
Limitations on Directors' Liability.................................................... 59
Indemnification........................................................................ 59
THE AVIVA SPECIAL MEETING; ADDITIONAL MATTERS............................................ 60
Election of Aviva Directors............................................................ 60
Information Regarding Current Directors................................................ 60
Information Regarding Nominees for Director............................................ 61
Executive Officers of Aviva............................................................ 61
Meetings and Committees of the Board of Directors...................................... 61
Compliance with Section 16(a) of the Securities Exchange Act of 1934................... 62
Summary Compensation Table............................................................. 62
Directors' Fees........................................................................ 63
Option Grants During 1997.............................................................. 63
Option Exercises During 1997 and Year End Option Values................................ 63
Compensation Committee Interlocks and Insider Participation in Compensation Decisions.. 63
Employment Contracts................................................................... 63
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Compensation Committee Report on Executive Compensation................................ 63
Performance Graph...................................................................... 64
Security Ownership of Certain Beneficial Owners........................................ 65
Security Ownership of Management....................................................... 66
INDEPENDENT PUBLIC ACCOUNTANTS........................................................... 67
LEGAL MATTERS............................................................................ 67
EXPERTS.................................................................................. 67
STOCKHOLDER PROPOSALS.................................................................... 67
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QUESTIONS AND ANSWERS ABOUT
THE AVIVA/GARNET MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: Garnet is engaged in the oil and gas exploration and production business
through the ownership and operation of certain properties in Colombia. Aviva
is similarly engaged and is the co-owner of the Colombian oil and gas
properties operated by Garnet. Aviva also owns oil and gas properties
located in the offshore waters of the Gulf of Mexico. For various reasons,
including depressed oil and gas prices, Garnet is experiencing serious
financial difficulties. If Garnet were unable to continue to pay its share
of the costs of operating the Colombian properties, the financial burden of
doing so would fall on Aviva and both companies would risk forfeiture of
their interests in the properties. Aviva is experiencing similar financial
difficulties and is unlikely to be able to bear the additional financial
burden of operating the properties. The managements of the two companies
believe that a merger of the two companies, together with the debt relief to
be provided in conjunction with the merger, will enable the combined company
to withstand the current financial crisis.
Q: WHAT WILL GARNET STOCKHOLDERS RECEIVE FOR THEIR GARNET SHARES?
A: Depending on the number of shares of Garnet common stock you own, you will
receive either cash or depositary shares representing Aviva common stock.
Q: HOW DO I DETERMINE WHICH I WILL RECEIVE?
A: If you own less than 1,000 shares of Garnet common stock, you will receive
cash in the amount of $0.02 per share. If you own 1,000 or more shares
(i.e., enough to entitle you to receive at least 100 shares of Aviva common
stock), you will receive Aviva common stock.
Q: IF I AM ENTITLED TO AVIVA COMMON STOCK, WHAT WILL I RECEIVE?
A: You will receive one-tenth of one share of Aviva common stock in exchange
for each of your shares of Garnet common stock. This exchange ratio will not
change, even if the market price of Aviva's common stock or Garnet's common
stock increases or decreases between now and the date that the merger is
completed. Aviva will not issue fractional shares, but will pay cash in lieu
thereof.
Q: WILL I BE ABLE TO SELL THE AVIVA COMMON STOCK?
A: No, but you will be able to sell the depositary shares you receive in lieu
of Aviva common stock. In the U. S., the only market for Aviva securities is
the American Stock Exchange. The securities listed on that exchange are
depositary shares representing shares of Aviva common stock. Consequently,
the shares of Aviva common stock to be issued pursuant to the merger will be
deposited with an institutional depositary for the benefit of the former
Garnet stockholders. The depositary will issue depositary shares on the
basis of one depositary share for each five shares of Aviva common stock.
The depositary receipts representing the depositary shares will be delivered
to the former Garnet stockholders.
Q: WILL AVIVA STOCKHOLDERS RECEIVE ANY SHARES AS A RESULT OF THE MERGER?
A: No. The merger will not have any effect on the number of shares of Aviva
common stock that you own.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares can be voted at the ______, 1998 Aviva special
stockholder meeting (if you are a Aviva stockholder) or at the _______, 1998
Garnet special stockholder meeting (if you are a Garnet stockholder).
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Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: If you are a Garnet stockholder, your broker will not be able to vote your
shares without instructions from you. If you are an Aviva stockholder, your
broker will not be able to vote your shares without instructions from you,
except with respect to the election of directors and ratification of Aviva's
independent accountants. You should instruct your broker to vote your
shares, following the directions by your broker.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy card is voted
at the applicable stockholder meeting. You can do this in one of three ways.
First, you can send a written notice stating that you would like to revoke
your proxy. Second, you can complete and submit a new proxy card. Third, you
can attend the appropriate meeting and vote in person. Your attendance alone
will not, however, revoke your proxy. If you have instructed a broker to
vote your shares, you must follow directions received from your broker to
change those instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If you are a Garnet stockholder, after the merger is completed you will
receive written instructions for exchanging your shares of Garnet common
stock for depositary shares representing shares of Aviva common stock (and
your cash payment in lieu of any fractional share of Aviva common stock). If
you are an Aviva stockholder, you will keep your certificates.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: Neither Aviva nor Garnet has, during the last fifteen years, paid any
dividends with respect to its outstanding common stock. The board of
directors does not now intend to pay any such dividends in the foreseeable
future.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS?
A: The Merger will not constitute a tax-free reorganization for federal income
tax purposes. Accordingly, even though no cash is received in the
transaction, a holder of Garnet Common stock that exchanges such stock for
Aviva Common stock in the Merger will recognize gain or loss equal to the
difference between the fair market value of the Aviva Common stock received
by such holders in the Merger and the adjusted basis of the Garnet Common
stock surrendered in the Merger. Thus, the Merger could result in a federal
income tax liability even though no cash is received in the transaction.
The merger will not have any effect on Aviva stockholders for federal income
tax purposes.
Q: ARE ANY REGULATORY APPROVALS NEEDED TO COMPLETE THE MERGER?
A: No, other than certain filings under the securities or blue sky laws of
certain states.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We hope to complete the merger in the third quarter of 1998. We are working
toward completing the merger as quickly as possible.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES?
A: Both of our companies file periodic reports and other information with the
Securities and Exchange Commission. You may read and copy this information
at the Commission's public reference facilities. Please call the Commission
at 1-800-SEC-0330 for information about these facilities. This information
is also available at the Internet site maintained by the Commission at
http://www.sec.gov and, in the case of Aviva, at the offices of the American
Stock Exchange. For a more detailed description of the information
available, please see pages 2 and 3.
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Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you are a Aviva stockholder and you have more questions about the merger,
you should contact:
AVIVA PETROLEUM INC.
8235 Douglas Avenue
Suite 400
Dallas, Texas 75225
Telephone: (214) 691-3464
Attn.: Mr. Ronald Suttill
If you are a Garnet stockholder and you have more questions about the merger,
you should contact:
GARNET RESOURCES CORPORATION
1214 Wilmington Avenue
Suite 303
Salt Lake City, Utah 84106
Telephone: (801) 484-3088
Attn.: Mr. Douglas W. Fry
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SUMMARY
This summary primarily highlights selected information from this document and
may not contain all of the information that is important to you. To understand
the merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the other available
information referred to in "Where Can I Find More Information about the
Companies?" (page 11). The merger agreement is filed as an exhibit to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part.
Aviva and Garnet will furnish copies of the merger agreement to any stockholder
of such corporation upon request. We have included page references
parenthetically to direct you to a more complete description of the topics
presented in this summary.
THE COMPANIES (PAGE 25)
AVIVA PETROLEUM INC. (PAGE 25)
8235 Douglas Avenue
Suite 400
Dallas, Texas 75225
Aviva is engaged in the exploration for and development and production of oil
and gas in Colombia and offshore in the United States. At March 31, 1998, Aviva
had consolidated total assets of approximately $12.598 million and consolidated
stockholders' equity of approximately $0.783 million and employed 8 persons.
GARNET RESOURCES CORPORATION (PAGE 25)
RR 2 Box 4400
Nacogdoches, Texas 75961
Garnet is engaged primarily in the exploration, development and production of
oil and gas properties located outside the United States. Garnet currently
holds interests in oil and gas properties in Colombia and in Papua New Guinea.
At March 31, 1998, Garnet had consolidated total assets of approximately $12.659
million and consolidated stockholders' deficit of approximately $(11.959)
million and employed approximately 75 persons.
The report of Garnet's independent public accountants with respect to Garnet's
financial statements as of and for the year ended December 31, 1997 was
qualified by a discussion of the substantial uncertainty that exists regarding
Garnet's ability to continue as a going concern. You should review the
discussion contained in this joint proxy statement/prospectus under the caption
"Reasons for the Merger--Garnet."
OUR REASONS FOR THE MERGER (PAGE 28)
Subsidiaries of Garnet and Aviva are co-owners of oil and gas properties
located in Colombia. For various reasons, including depressed oil and gas
prices, Garnet is experiencing serious financial difficulties. If Garnet were
unable to continue to pay its share of the costs of operating the Colombian
properties, the financial burden of doing so would fall on Aviva and both
companies would risk forfeiture of their interests in the properties. Aviva is
experiencing similar financial difficulties and is unlikely to be able to bear
the additional financial burden of operating the properties. The managements of
the two companies believe that a merger of the two companies, together with the
debt relief to be provided in conjunction with the merger, will enable the
combined company to withstand the current financial crisis.
THE STOCKHOLDER MEETINGS (PAGE 26)
AVIVA. A special meeting of the stockholders of Aviva in lieu of its annual
meeting will be held on ____________, _______________, 1998, at
______________________, Dallas, Texas at ___:00 a.m. local time. At the
meeting, Aviva stockholders will be asked to:
. approve the issuance of shares of Aviva common stock to Garnet stockholders
in the merger and to the holders of the Garnet debentures pursuant to the
debenture purchase agreement,
. elect two directors; and
. ratify the appointment of KPMG Peat Marwick LLP as Aviva's independent
auditors.
GARNET. A special meeting of the stockholders of Garnet will be held on
_______________, 1998, at 201 South Main, Suite 1800, Salt Lake City, Utah at
10:00 a.m. local time. At the meeting, Garnet stockholders will be asked to
approve the merger agreement.
OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGE 33)
TO AVIVA STOCKHOLDERS:
The Aviva Board believes that the merger is fair to you and in your best
interest and unanimously recommends that you vote "FOR" the issuance of the
Aviva shares (i) in the merger and (ii) to the holders of the Garnet debentures
in exchange for the debentures. The Aviva Board also unanimously recommends that
you vote "FOR" the election of the Board's nominees to the Aviva Board of
Directors and "FOR" the ratification of the Board's selection of KPMG Peat
Marwick LLP as Aviva's independent accountants.
TO GARNET STOCKHOLDERS:
The Garnet Board believes that the merger is fair to you and in your best
interest and unanimously
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recommends that you vote "FOR" the approval of the merger agreement.
THE RECORD DATE FOR VOTING AT THE SPECIAL MEETINGS (PAGE 26)
AVIVA. The close of business on __________, 1998 was the record date for
determining the holders of common stock of Aviva that are entitled to vote at
the Aviva special meeting. There are 31,482,716 shares of common stock of Aviva
entitled to be voted at the Aviva special meeting.
GARNET. The close of business on ____________, 1998 was the record date for
determining the holders of common stock of Garnet that are entitled to vote at
the Garnet special meeting. There are 11,492,162 shares of common stock of
Garnet entitled to be voted at the Garnet special meeting.
VOTES REQUIRED (PAGE 26)
AVIVA. The transaction of business at the Aviva special meeting requires the
presence in person or by proxy of the holders of one-third of the shares of
common stock of Aviva entitled to vote in order to constitute a quorum. If a
quorum is present, (i) approval of the Share Issuance requires the affirmative
vote of a majority of the shares of common stock of Aviva entitled to vote with
respect thereto present in person or by proxy at the Aviva special meeting, (ii)
the election of each director requires a plurality of the votes cast and (iii)
ratification of the selection of independent accountants requires the
affirmative vote of the holders of a majority of the shares of common stock of
Aviva present in person or by proxy at the meeting and entitled to vote thereon.
GARNET. The transaction of business at the Garnet special meeting requires
the presence in person or by proxy of the holders of a majority of the shares of
Garnet common stock entitled to vote in order to constitute a quorum. If a
quorum is present, the approval and adoption of the merger agreement requires
the affirmative vote of the holders of a majority of the shares of Garnet common
stock entitled to vote.
VOTING (PAGE 26)
AVIVA. Aviva stockholders will have one vote at the Aviva Special Meeting for
each share of Aviva Common stock held of record on _______, 1998 for each of the
matters to be considered at the meeting. If you are a holder of Aviva
depositary shares, you should instruct the depositary to vote the Aviva common
stock represented by your depositary shares in accordance with your wishes,
following directions provided by the depositary.
GARNET. Garnet stockholders will have one vote at the Garnet special meeting
for each share of Garnet Common stock held of record on _______, 1998 for each
of the matters to be considered at the meeting.
SECURITY OWNERSHIP OF MANAGEMENT (PAGES 50 AND 66)
AVIVA. As of the Aviva record date, the directors and executive officers of
Aviva owned approximately 8.7% of the outstanding shares of Aviva common stock
entitled to vote at the Aviva special meeting. Each of such directors and
executive officers has advised Aviva that he or she plans to vote or to direct
the vote of all such shares of Aviva common stock in favor of the Share
Issuance, the election of the proposed nominees for director and the
ratification of Aviva's independent auditors.
GARNET. At the Garnet record date, the directors and executive officers of
Garnet owned approximately 3.6% of the outstanding shares of Garnet common stock
entitled to vote at the Garnet special meeting. Each of such directors and
executive officers has advised Garnet that he or she plans to vote or to direct
the vote of all such shares of Garnet common stock in favor of the merger
agreement.
THE MERGER AND THE MERGER AGREEMENT
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 34)
AVIVA STOCKHOLDERS:
After the Merger, each share of Aviva common stock will remain outstanding and
will represent one share of the combined companies, which will continue under
the name "Aviva Petroleum Inc."
GARNET STOCKHOLDERS:
At the effective time of the merger,(i) Merger Sub will be merged with and
into Garnet, and Garnet will be the surviving corporation in the merger, (ii)
Garnet will become a wholly owned subsidiary of Aviva and (iii) subject to
certain provisions with respect to fractional shares, each issued and
outstanding share of Garnet common stock will, depending on the number of shares
of Garnet common stock you hold, be converted into the right to receive $0.02 in
cash or be converted into Aviva common stock at the exchange ratio of one-tenth
of one share of Aviva common stock for each share of Garnet common stock.
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If you hold less than 1,000 shares of Garnet common stock (which at such
exchange ratio would entitle you to receive less than 100 shares of Aviva common
stock), you will receive cash at the rate of $0.02 per share. If you hold 1,000
shares of Garnet common stock, you will receive shares of Aviva common stock at
the rate of one-tenth of one Aviva share for each Garnet share.
RELATED TRANSACTIONS (PAGE 43)
GARNET DEBENTURES. Aviva has entered into an agreement to purchase
$15,000,000 in aggregate principal amount of Garnet's outstanding 9 1/2%
Convertible Subordinated Debentures in exchange for 12,887,771 shares of Aviva
common stock. Consummation of this transaction is a condition to the Merger.
BANK CREDIT FACILITY. Aviva and its bank lender have amended Aviva's bank
credit facility to allow Aviva to borrow $15,000,000 at the effective time of
the Merger. Aviva will use these funds to pay $7.44 million owed to its bank
lender and approximately $6.2 million (net of amounts in escrow) owed by Garnet
to another bank, which borrowings were guaranteed by the Overseas Private
Investment Corporation. Consummation of this transaction is a condition to the
Merger.
OWNERSHIP OF AVIVA FOLLOWING THE MERGER (PAGE 34)
Assuming that, following the record dates, there are no changes in the numbers
of shares of Aviva common stock or Garnet common stock outstanding and the
numbers of shares of Garnet common stock held by the holders thereof do not
change prior to the effective date of the merger, Aviva would issue ______
shares of its common stock and pay $____ in cash pursuant to the merger. No
shares of Aviva common stock will be issued on exercise of Garnet stock options
after the merger because the holders of such options will be required to
surrender the options as a condition of the merger. Consequently, current
holders of Garnet common stock would own approximately 3% of the outstanding
Aviva common stock after the merger. The holders of the Garnet debentures will
acquire Aviva common stock representing approximately 28% of the shares
outstanding after the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 34)
In considering the Garnet Board's recommendation that Garnet stockholders vote
in favor of approval and adoption of the merger agreement and the transactions
related thereto, Garnet stockholders should be aware that the President and
Chief Executive Officer and the Vice President-Finance and Secretary of Garnet
have change in control severance agreements with Garnet that give them interests
in the merger that are different from other Garnet stockholders.
DIRECTORS OF AVIVA FOLLOWING THE MERGER (PAGE 60)
Pursuant to the merger agreement, Aviva and Garnet have agreed that the Board
of Directors of Aviva immediately following the merger will be reduced to three
and will consist of two members of Aviva's Board of Directors and, in addition,
Robert J. Cresci, a director of Garnet.
CONDITIONS TO THE MERGER (PAGE 38)
Aviva and Garnet will not complete the merger unless a number of conditions
are satisfied or, if permitted, waived by them. These include:
. the approval and adoption of the merger agreement by the stockholders of
Garnet;
. the approval of the Share Issuance by the stockholders of Aviva;
. the absence of any law, regulation or order making the merger illegal or
otherwise prohibiting consummation of the merger;
. the depositary shares representing the Aviva common stock shall have been
listed on the American Stock Exchange; and
. the accuracy in all material respects of the representations and warranties
of each party and compliance in all material respects with all agreements
and covenants by each party.
In addition, Aviva will not complete the merger unless a number of conditions
are satisfied or, if permitted, waived by it. These include:
. The Garnet debentures shall have been acquired by Aviva in exchange for
12,887,771 shares of Aviva common stock;
. The bank credit agreement shall have been amended and the bank shall have
made available to Aviva credit of $ 15,000,000 against which Aviva shall
have refinanced the indebtedness theretofore outstanding under the
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bank credit agreement and shall have paid and discharged the Garnet bank
debt;
. The aggregate obligation of Garnet with respect to the principal of the
Garnet bank debt shall not, on the closing date, exceed $6,000,000 (net of
escrow amounts);
. The aggregate amount of consolidated current assets of Garnet, less the
aggregate amount of its consolidated liabilities, absolute and contingent,
whether or not accrued (exclusive of indebtedness represented by the Garnet
bank debt and the Garnet debentures), shall not be less than $100,000;
. Each holder of outstanding Garnet stock options shall have surrendered all
such options to Garnet for cancellation.
NO SOLICITATION (PAGE 40)
Garnet has agreed, subject to certain exceptions, not to initiate or engage in
any discussions with another party regarding a business combination with such
other party while the merger is pending.
TERMINATION OF THE MERGER AGREEMENT (PAGE 41)
BY EITHER PARTY. Aviva and Garnet mutually can agree to terminate the merger
agreement at any time, whether before or after the receipt of stockholder
approval, without completing the merger. In addition, either one of them can
terminate the merger agreement if:
. the merger is not completed before September 30, 1998;
. a governmental authority prohibits the merger;
. the stockholders of Garnet do not approve and adopt the merger agreement;
or
. the stockholders of Aviva do not approve the Share Issuance.
BY AVIVA. Aviva may terminate the merger agreement:
. upon a breach of any representation, warranty, covenant or agreement on the
part of Garnet set forth in the merger agreement or if any representation
or warranty of Garnet shall have become untrue, in either case such that
Aviva's conditions to effecting the merger would not be satisfied and such
breach or untruth would result in a material adverse effect on Garnet;
. if (A) a third party acquires securities representing more than 30% of the
outstanding voting securities of Garnet or (B) individuals who as of the
date of this Agreement constitute the Board of Directors of Garnet shall
cease for any reason to constitute a majority of the Board of Directors of
Garnet; or
. if the Board of Directors of Garnet withdraws or modifies its
recommendation of the merger agreement or the merger in a manner adverse to
Aviva or recommends any superior proposal, or resolves to do so.
BY GARNET. Garnet may terminate the merger agreement:
. upon a breach of any representation, warranty, covenant or agreement on the
part of Aviva set forth in the merger agreement or if any representation or
warranty of Aviva shall have become untrue, in either case such that
Garnet's conditions to effecting the merger would not be satisfied, and
such breach or untruth would result in a material adverse effect on Aviva;
or
. at any time prior to approval and adoption of the merger agreement and the
merger by the stockholders of Garnet, upon 72 hours prior written notice to
Aviva, if the Board of Directors of Garnet shall have concluded in good
faith based on advice of outside counsel that such action is necessary to
act in a manner consistent with its fiduciary duties under applicable law
and subject to certain other conditions.
TERMINATION FEES (PAGE 42)
TERMINATION FEES PAYABLE TO AVIVA. If the merger agreement is terminated by
Aviva because the Board of Directors of Garnet shall have withdrawn or modified
its recommendation of the merger in a manner adverse to Aviva or shall have
approved or recommended any superior proposal or because Garnet shall have
breached the merger agreement or because of an acquisition of voting power or
change of board of Garnet, Garnet will be required to pay to Aviva $50,000.
-16-
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 35)
The merger will not constitute a tax-free reorganization for federal income
tax purposes. Accordingly, even though no cash is received in the transaction, a
holder of Garnet common stock that exchanges such stock for Aviva common stock
in the merger will recognize gain or loss equal to the difference between the
fair market value of the Aviva common stock received by such holder in the
merger and the adjusted basis of the Garnet common stock surrendered in the
merger. Thus, the merger could result in a federal income tax liability even
though no cash is received in the transaction.
TAX MATTERS CAN BE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN TAX
ADVISORS TO UNDERSTAND FULLY THE TAX CONSEQUENCES OF THE MERGER TO YOU.
ANTICIPATED ACCOUNTING TREATMENT (PAGE 35)
The merger will be accounted for as a "purchase" of Garnet for financial
accounting purposes.
NO APPRAISAL RIGHTS (PAGE 36)
Neither Aviva's nor Garnet's stockholders are entitled to any appraisal or
dissenter's rights in connection with the merger.
COMPARATIVE RIGHTS OF GARNET AND AVIVA STOCKHOLDERS (PAGE 56)
In the merger, if you are a Garnet stockholder, you will receive depositary
shares, each of which represents five shares of Aviva common stock and you will
thereby become an Aviva stockholder. There are various differences between the
rights of Garnet stockholders and the rights of Aviva stockholders. If you are
an Aviva stockholder, there will be no change in your rights as an Aviva
stockholder after the merger.
-17-
<PAGE>
MARKET PRICE AND DIVIDEND DATA
MARKET PRICES
Aviva Depositary Shares (each representing five shares of Aviva Common Stock)
are traded on the ASE under the symbol "AVV" and Garnet Common Stock is traded
on the OTC Bulletin Board (the "OTCBB") under the symbol "GARN." The following
table sets forth, for the periods indicated, the range of high and low per share
sales prices for Aviva Depositary Shares and Garnet Common Stock as reported on
the ASE and the OTCBB.
<TABLE>
<CAPTION>
Aviva Garnet
-------------- ------------
High Low High Low
------ ------ ----- -----
<S> <C> <C> <C> <C>
1995*
First Quarter........................... $ 6.13 $5.13 $3.50 $2.13
Second Quarter.......................... 7.38 5.13 3.13 1.75
Third Quarter........................... 5.38 4.00 2.38 1.63
Fourth Quarter.......................... 4.88 4.25 2.38 1.00
1996*
First Quarter........................... 4.38 3.88 2.00 0.94
Second Quarter.......................... 11.38 3.50 1.00 0.44
Third Quarter........................... 6.25 3.00 0.63 0.25
Fourth Quarter.......................... 5.75 3.00 0.56 0.25
1997*
First Quarter........................... 4.13 2.88 1.00 0.38
Second Quarter.......................... 3.00 1.63 0.50 0.31
Third Quarter........................... 4.13 1.63 0.50 0.25
Fourth Quarter.......................... 2.06 0.98 0.38 0.03
1998*
First Quarter........................... 1.75 1.00 0.10 0.03
Second Quarter (through June 23, 1998).. 1.19 0.81 0.14 0.01
</TABLE>
__________________________
* Calendar quarters. The fiscal years of both Aviva and Garnet end on
December 31.
The Aviva Common Stock (rather than Aviva Depositary Shares) is traded on the
London Stock Exchange Limited (the "LSE"). The following table sets forth, for
the periods indicated, the middle market prices for the Aviva Common Stock as
published in the Daily Official List and do not represent actual transactions.
Prices on the LSE are expressed in British pounds sterling and, accordingly, the
prices for the Common Stock traded on the LSE included in the following table
are similarly expressed. For ease of reference, these prices are also expressed
in U.S. dollars, having been converted using the exchange rate in effect on the
first day on which the stock price attained the high or low price indicated.
<TABLE>
<CAPTION>
Pounds Dollars
------------------ -------------
High Low High Low
---- ---- ----- ------
<S> <C> <C> <C> <C>
1995
First Quarter........................... (Pounds)0.55 (Pounds)0.47 $0.87 $0.73
Second Quarter.......................... 0.58 0.53 0.93 0.84
Third Quarter........................... 0.53 0.45 0.85 0.71
Fourth Quarter.......................... 0.55 0.38 0.85 0.59
1996
First Quarter........................... 0.46 0.34 0.71 0.52
Second Quarter.......................... 0.41 0.25 0.63 0.38
Third Quarter........................... 0.34 0.25 0.53 0.38
Fourth Quarter.......................... 0.41 0.28 0.67 0.43
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Pounds Dollars
------------------ ------------
High Low High Low
---- ---- ----- -----
<S> <C> <C> <C> <C>
1997
First Quarter........................... (Pounds)0.42 (Pounds)0.28 $0.69 $0.45
Second Quarter.......................... 0.32 0.27 0.51 0.44
Third Quarter........................... 0.30 0.21 0.50 0.34
Fourth Quarter.......................... 0.25 0.17 0.40 0.28
1998
First Quarter........................... 0.28 0.12 0.45 0.20
Second Quarter (through June 23, 1998).. 0.14 0.10 0.22 0.16
</TABLE>
_______________
On April 15, 1998, the last trading day prior to the date of the joint
announcement by Aviva and Garnet that they had entered into an agreement in
principle contemplating the Merger, the closing per share sales prices of Aviva
Depositary Shares (each representing five shares of Aviva Common Stock) and
Garnet Common Stock, as reported on the ASE and the OTCBB, were $1.00 and
$0.0625, respectively. See the cover page of this Joint Proxy
Statement/Prospectus for recent closing prices of Aviva Depositary Shares and
Garnet Common Stock.
Following the Merger, Aviva Common Stock will continue to be traded on the LSE
and Aviva Depositary Shares will continue to be traded on the ASE. Following
the Merger, Garnet Common Stock will cease to be traded on the OTCBB and there
will be no further market for the Garnet Common Stock.
DIVIDENDS
No cash dividends were declared or paid on Aviva Common Stock or Garnet Common
Stock during any of the calendar quarters indicated in the table above.
The Board of Directors of Aviva does not intend for the foreseeable future to
declare any dividends on the outstanding shares of Aviva Common Stock. The
declaration and payment of future dividends, however, will be at the discretion
of the Board of Directors of Aviva and will depend upon, among other things,
future earnings of Aviva, its general financial condition, the success of its
business activities, its capital requirements and general business conditions.
-19-
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
AVIVA PETROLEUM INC.
The following selected historical financial information for each of the years
ended December 31, 1993 through 1997 have been derived from Aviva's Consolidated
Financial Statements, which have been audited by KPMG Peat Marwick LLP,
independent public accountants. The selected consolidated financial data as of
March 31, 1997 and 1998 and for the three month periods ended March 31, 1997 and
1998 have been derived from the unaudited consolidated financial statements of
Aviva, have been prepared on the same basis as the other financial statements of
Aviva and, in the opinion of Aviva, reflect and include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations of Aviva for
such periods. The information set forth below is qualified by reference to and
should be read in conjunction with the consolidated financial statements and
related notes included in Aviva's Annual Report on Form 10-K for the year ended
December 31, 1997 and its Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, incorporated by reference in this Joint Proxy
Statement/Prospectus. The oil and gas price declines discussed under "Reasons
for the Merger--General Background" have materially and adversely affected the
financial results of operations of Aviva and Garnet for the year ended December
31, 1997 and the quarter ended March 31, 1998 and may continue to materially and
adversely affect their financial results of operations for the second and
following quarters of fiscal year 1998 through further write-downs of the
carrying costs of oil and gas properties and otherwise.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------------------------------- ---------------------
1997 1996 1995 1994 1993 1998 1997
--------- -------- -------- -------- -------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA FOR
THE PERIOD:
Revenues $ 9,726 $13,750 $10,928 $ 8,546 $10,682 $ 1,146 $ 3,214
Loss before extraordinary item
and cumulative effect of
accounting change $(22,482) $ (937) $(2,689) $(2,460) $(1,963) $ (2,965) $(2,425)
Extraordinary item -
debt extinguishment $ - $ - $ - $ - $ (341) $ - $ -
Cumulative effect to
January 1, 1993 of change in
accounting for taxes $ - $ - $ - $ - $ (330) $ - $ -
Net loss $(22,482) $ (937) $(2,689) $(2,460) $(2,634) $ (2,965) $(2,425)
Loss before extraordinary
item and cumulative
effect of accounting change
per common share $ (0.71) $ (0.03) $ (0.09) $ (0.08) $ (0.08) $ (0.09) $ (0.08)
Basic and diluted net loss
per common share $ (0.71) $ (0.03) $ (0.09) $ (0.08) $ (0.11) $ (0.09) $ (0.08)
Weighted average
shares outstanding 31,483 31,483 31,483 31,483 24,756 31,483 31,483
Cash dividends per
common share $ - $ - $ - $ - $ - $ - $ -
CONSOLIDATED BALANCE SHEET
DATA AT PERIOD END:
Total assets $ 16,445 $42,944 $45,460 $42,383 $45,017 $ 12,598 $37,713
Long term debt, including
current portion $ 7,690 $ 7,990 $13,067 $ 6,640 $ 5,476 $ 7,440 $ 7,915
Stockholders' equity $ 3,748 $26,230 $27,167 $29,856 $32,316 $ 783 $23,805
</TABLE>
Effective January 1, 1993, Aviva adopted Statement of Financial Accounting
Standards No. 109 ("Statement 109"), without restatement of prior periods.
Statement 109 requires recognition of deferred tax assets in certain
circumstances and deferred tax liabilities for the future tax
-20-
<PAGE>
consequences of temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities. In connection with the
application of the full cost method, Aviva recorded ceiling test write-downs of
oil and gas properties of $19,953,000 in 1997 and $2,764,000 in the first
quarter of 1998.
-21-
<PAGE>
GARNET RESOURCES CORPORATION
The following selected historical financial information for each of the years
ended December 31, 1993 through 1997 have been derived from Garnet's
Consolidated Financial Statements, which have been audited by Arthur Andersen
LLP, independent public accountants. The report of Arthur Andersen LLP with
respect to Garnet's financial statements as of and for the year ended December
31, 1997 was qualified by a discussion of the substantial uncertainty that
exists regarding Garnet's ability to continue as a going concern. See "Reasons
for the Merger--Garnet." The selected consolidated financial data as of March
31, 1997 and 1998 and for the three month periods ended March 31, 1997 and 1998
have been derived from the unaudited consolidated financial statements of
Garnet, have been prepared on the same basis as the other financial statements
of Garnet and, in the opinion of Garnet, reflect and include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations of Garnet for
such periods. The information set forth below is qualified by reference to and
should be read in conjunction with the consolidated financial statements and
related notes included in Garnet's Annual Report on Form 10-K for the year ended
December 31, 1997 and its Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, incorporated by reference in this Joint Proxy
Statement/Prospectus. The oil and gas price declines discussed under "Reasons
for the Merger--General Background" have materially and adversely affected the
financial results of operations of Aviva and Garnet for the year ended December
31, 1997 and the quarter ended March 31, 1998 and may continue to materially and
adversely affect their financial results of operations for the second and
following quarters of fiscal year 1998 through further write-downs of the
carrying costs of oil and gas properties and otherwise.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1998 1997
--------- -------- -------- -------- -------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA FOR
THE PERIOD:
Revenues $ 9,182 $11,709 $ 8,881 $ 4,355 $ 4,597 $ 1,182 $ 3,114
Loss before
cumulative effect
of accounting change $(27,790) $(2,060) $(4,623) $(7,426) $(3,275) $ (4,376) $(3,892)
Cumulative effect to
January 1, 1993 of change in
accounting for taxes $ - $ - $ - $ - $ (172) $ - $ -
Net loss $(27,790) $(2,060) $(4,623) $(7,426) $(3,447) $ (4,376) $(3,892)
Loss before cumulative
effect of accounting change
per common share $ (2.42) $ (0.18) $ (0.40) $ (0.67) $ (0.29) $ (0.38) $ (0.34)
Basic and diluted net loss
per common share $ (2.42) $ (0.18) $ (0.40) $ (0.67) $ (0.31) $ (0.38) $ (0.34)
Weighted average
shares outstanding 11,492 11,492 11,417 11,126 11,125 11,492 11,492
Cash dividends per
common share $ - $ - $ - $ - $ - $ - $ -
CONSOLIDATED BALANCE SHEET
DATA AT PERIOD END:
Total assets $ 16,460 $48,522 $48,959 $49,300 $52,151 $ 12,659 $42,372
Long term debt, including
current portion $ 22,641 $23,634 $24,195 $19,438 $15,436 $ 22,641 $23,634
Stockholders' equity (deficit) $ (7,583) $20,207 $22,267 $25,790 $33,216 $(11,959) $16,315
</TABLE>
Effective January 1, 1993, Garnet adopted Statement of Financial
Accounting Standards No. 109 ("Statement 109") without restatement of prior
periods. Statement 109 requires recognition of deferred tax assets in certain
circumstances and deferred tax liabilities for the future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax bases of assets and liabilities.
-22-
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information has
been derived from and should be read in conjunction with the Unaudited Pro Forma
Condensed Combined Financial Statements and notes thereto included elsewhere in
this Joint Proxy Statement/Prospectus. The following selected unaudited pro
forma combined financial information is based on the historical consolidated
balance sheets and related historical consolidated statements of income of Aviva
and Garnet as adjusted to give effect to the Merger using the purchase method of
accounting for business combinations. In addition, the following selected
unaudited pro forma combined financial information gives effect to the purchase
of the Garnet Debentures by Aviva pursuant to the Debenture Purchase Agreement,
the borrowing by Aviva of $15 million pursuant to the Bank Credit Facility and
the application of such funds to pay Aviva's indebtedness to the bank and
Garnet's OPIC Debt. The following selected unaudited pro forma combined
financial information may not necessarily reflect the financial condition or
results of operations of Aviva that would actually have resulted had the Merger
occurred as of the date and for the periods indicated or reflect the future
earnings of Aviva.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1997 March 31, 1998
------------------ -------------------
(In thousands, except per share data)
<S> <C> <C>
COMBINED INCOME STATEMENT
DATA FOR THE PERIOD:
Revenues $ 18,708 $ 2,270
Net loss (13,632) (6,135)
Basic and diluted net loss per common share (0.30) (0.13)
Cash dividends per common share ------- -------
As of
March 31, 1998
------------------
COMBINED BALANCE SHEET
DATA AT PERIOD END:
Total assets $23,892
Long-term debt, including current portion 15,000
Stockholders' equity 2,827
</TABLE>
-23-
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are the net income and book value per common share data for
Aviva and Garnet on an historical basis, a pro forma basis for Aviva and an
equivalent pro forma basis for Garnet. The Aviva pro forma data was derived by
combining historical consolidated financial information of Aviva and Garnet
using the purchase method of accounting for business combinations, all on the
basis described under "Selected Unaudited Pro Forma Combined Financial
Information" herein. The equivalent pro forma data for Garnet was calculated by
multiplying the Aviva pro forma per common share data by the Exchange Ratio of
0.10. No dividends were paid by either Aviva or Garnet during the periods
presented.
The information set forth below should be read in conjunction with the
respective audited and unaudited consolidated financial statements and related
notes of Aviva and Garnet incorporated by reference in this Joint Proxy
Statement/Prospectus and the unaudited pro forma condensed financial information
and notes thereto included elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended Ended March 31,
December 31, 1997 1998
----------------- ---------------
<S> <C> <C>
Aviva Historical Per Common Share Data:
Loss from continuing operations (basic and diluted) ........ $ (0.71) $ (0.09)
Cash dividends .............................................. -- --
Book value .................................................. 0.12 0.02
Aviva Pro Forma Per Common Share Data:
Loss from continuing operations (basic and diluted) ........ $ (0.30) $ (0.13)
Cash dividends .............................................. -- --
Book value at March 31, 1998 ................................ n/a 0.06
Garnet Historical Per Common Share Data:
Loss from continuing operations (basic and diluted) ........ $ (2.42) $ (0.38)
Cash dividends .............................................. -- --
Book value .................................................. (0.66) (1.04)
Garnet Equivalent Pro Forma Per Common Share Data:
Loss from continuing operations (basic and diluted) ........ $ (0.03) $ (0.01)
Cash dividends .............................................. -- --
Book value at March 31, 1998 ................................ n/a 0.01
</TABLE>
-24-
<PAGE>
THE COMPANIES
AVIVA
Aviva Petroleum Inc. is a Texas corporation that, through its subsidiaries, is
engaged in the exploration for and production and development of oil and gas in
Colombia and offshore in the United States. Aviva was incorporated in 1973 and
the common stock, without par value ("Aviva Common Stock"), of Aviva has been
traded on the London Stock Exchange Limited (the "LSE") since 1982. Depositary
shares ("Depositary Shares"), each representing the beneficial ownership of five
shares of Aviva Common Stock, have traded on the Primary List of the American
Stock Exchange (the "ASE") since May 31, 1995, and, prior to that, on the
Emerging Company Marketplace of the ASE since November 14, 1994. Aviva's
principal executive offices are located in Dallas, Texas and Aviva maintains a
field office in Venice, Louisiana.
Through a wholly owned subsidiary, Aviva is the owner of interests in, and is
engaged in exploration for, and development of oil from, four Colombian
concessions granted by Empresa Colombiana de Petroleos, the Colombian national
oil company ("Ecopetrol"). Aviva's Colombian activities are carried out
pursuant to four joint operating agreements between Neo Energy, Inc., a wholly
owned subsidiary ("Neo"), and Aviva's co-owner Argosy Energy International
("Argosy" or the "Partnership"), a subsidiary of Garnet. Neo has a 45% interest
and Argosy has the remaining 55% interest in the properties covered by the four
joint operating agreements. Argosy is the operator of all the properties
subject to those agreements.
For the year ended December 31, 1997, Aviva had consolidated revenues of
$9.726 million and a consolidated net loss of $22.482 million or $0.71 per
share. For the quarter ended March 31, 1998, Aviva had consolidated revenues of
$1.146 million and a consolidated net loss of $2.965 million or $0.09 per share.
Aviva's consolidated total stockholders' equity at March 31, 1998 was $0.783
million.
MERGER SUB
Merger Sub is a wholly-owned subsidiary of Aviva incorporated on June 24, 1998
in the State of Delaware.
GARNET
Garnet Resources Corporation is a Delaware corporation that is engaged
primarily in the exploration, development and production of oil and gas
properties located outside the United States. Garnet currently holds interests
in oil and gas properties in the Republic of Colombia and the Independent State
of Papua New Guinea.
Garnet's only revenue producing properties are its oil and gas properties
located in Colombia. These properties are co-owned by Argosy and Neo, a wholly
owned subsidiary of Aviva. Argosy Energy Incorporated, a wholly owned
subsidiary of Garnet, is the general partner of Argosy and owns an 89.11%
interest in Argosy. Garnet owns an additional 10.13% interest in Argosy as a
limited partner. Argosy is the operator of all the properties subject to the
four joint operating agreements described above among Argosy, Neo and Ecopetrol.
For the year ended December 31, 1997, Garnet had consolidated revenues of
$9.182 million and a consolidated net loss of $27.790 million or $2.42 per
share. For the quarter ended March 31, 1998, Garnet had consolidated revenues
of $1.182 million and a consolidated net loss of $4.376 million or $0.38 per
share. Garnet's consolidated total stockholders' deficit at March 31, 1998 was
$11.959 million. The report of Garnet's independent public accountants with
respect to Garnet's financial statements as of and for the year ended December
31, 1997 was qualified by a discussion of the substantial uncertainty that
exists regarding Garnet's ability to continue as a going concern.
-25-
<PAGE>
THE SPECIAL MEETINGS
GARNET
DATE, TIME AND PLACE. The Special Meeting of stockholders of Garnet will be
held on ____________, _______________, 1998, at 201 South Main, Suite 1800, Salt
Lake City, Utah, commencing at 10:00 a.m. local time.
PURPOSE OF THE SPECIAL MEETING. The purposes of the Garnet Special Meeting
are to consider and vote upon (i) a proposal to adopt the Merger Agreement and
(ii) such other matters as may properly be brought before the Garnet Special
Meeting.
RECORD DATE AND OUTSTANDING SHARES. Only holders of record of Garnet Common
Stock at the close of business on the Record Date (________, 1998) are entitled
to notice of, and to vote at, the Garnet Special Meeting. There were
approximately ________ holders of record of Garnet Common Stock on the Record
Date, with 11,492,162 shares of Garnet Common Stock issued and outstanding. Each
share of Garnet Common Stock entitles the holder thereof to one vote on each
matter submitted for stockholder approval. See "Security Ownership by Certain
Beneficial Owners and Management" for information regarding persons known to the
management of Garnet to be the beneficial owners of more than 5% of the
outstanding Garnet Common Stock.
VOTING AND REVOCATION OF PROXIES. All properly executed proxies that are not
revoked will be voted at the Special Meeting in accordance with the instructions
contained therein. If a holder of Garnet Common Stock executes and returns a
proxy and does not specify otherwise, the shares represented by such proxy will
be voted "for" adoption of the Merger Agreement in accordance with the
recommendation of the Board of Directors of Garnet. A stockholder of Garnet who
has executed and returned a proxy may revoke it at any time before it is voted
at the Garnet Special Meeting by (i) executing and returning a proxy bearing a
later date, (ii) filing written notice of such revocation with the Secretary of
Garnet, stating that the proxy is revoked or (iii) attending the Garnet Special
Meeting and voting in person.
VOTE REQUIRED. The presence at the Garnet Special Meeting, in person or by
proxy, of the holders of a majority of the outstanding shares of Garnet Common
Stock entitled to vote at the meeting will constitute a quorum for the
transaction of business, and adoption of the Merger Agreement requires the
affirmative vote of a majority of the issued and outstanding Garnet Common Stock
entitled to vote thereon. On the Record Date, there were 11,492,162 shares of
Garnet Common Stock outstanding and entitled to vote at the Garnet Special
Meeting. In determining whether the Merger Agreement has received the requisite
number of affirmative votes, abstentions and broker non-votes will have the same
effect as a vote against the Merger Agreement.
Directors and officers of Garnet own beneficially an aggregate of ________
shares of Garnet Common Stock that were issued and outstanding on the Record
Date (representing approximately 3.6% of the outstanding Garnet Common Stock on
the Record Date). Each of such directors and officers has advised Garnet that
he intends to vote or direct the vote of all such shares of Garnet Common Stock
in favor of adoption of the Merger Agreement at the Garnet Special Meeting.
SOLICITATION OF PROXIES. In addition to solicitation by mail, the directors,
officers, employees and agents of Garnet may solicit proxies from its
stockholders by personal interview, telephone, telegram or otherwise. Garnet
will bear the costs of the solicitation of proxies from its stockholders, except
that Aviva and Garnet will each pay one-half of the cost of printing this Joint
Proxy Statement/Prospectus, Commission and other regulatory filing fees incurred
in connection with this Joint Proxy Statement/Prospectus. Arrangements will
also be made with brokerage firms and other custodians, nominees and fiduciaries
who hold of record voting securities of Garnet for the forwarding of
solicitation materials to the beneficial owners thereof. Garnet will reimburse
such brokers, custodians, nominees and fiduciaries for the reasonable out-of-
pocket expenses incurred by them in connection therewith.
-26-
<PAGE>
OTHER MATTERS. At the date of this Joint Proxy Statement/Prospectus, the
Board of Directors of Garnet does not know of any business to be presented at
the Garnet Special Meeting other than as set forth in the notice accompanying
this Joint Proxy Statement/Prospectus. If any other matters should properly come
before the Garnet Special Meeting, it is intended that the shares represented by
proxies will be voted with respect to such matters in accordance with the
judgment of the persons voting such proxies.
AVIVA
DATE, TIME AND PLACE. The Special Meeting of stockholders of Aviva will be
held on ____________, _______________, 1998, at the ______________________,
_____________, ____________ commencing at ___:00 a.m. local time.
PURPOSE OF THE SPECIAL MEETING. The purposes of the Aviva Special Meeting are
to consider and vote upon (i) the Share Issuance, (ii) the election of a board
of directors consisting of two directors (iii) the selection of KPMG Peat
Marwick LLP as Aviva's independent auditors for fiscal year 1998 and (iv) such
other matters as may properly be brought before the Aviva Special Meeting.
RECORD DATE AND OUTSTANDING SHARES. Only holders of record of Aviva Common
Stock at the close of business on the Record Date (________, 1998) are entitled
to notice of, and to vote at, the Aviva Special Meeting. There were
approximately ________ holders of record of Aviva Common Stock on the Record
Date, with 31,482,716 shares of Aviva Common Stock issued and outstanding. Each
share of Aviva Common Stock entitles the holder thereof to one vote on each
matter submitted for stockholder approval. See "Security Ownership by Certain
Beneficial Owners and Management" for information regarding persons known to the
management of Aviva to be the beneficial owners of more than 5% of the
outstanding Aviva Common Stock.
VOTING AND REVOCATION OF PROXIES. All properly executed proxies that are not
revoked will be voted at the Aviva Special Meeting in accordance with the
instructions contained therein. If a holder of Aviva Common Stock executes and
returns a proxy and does not specify otherwise, the shares represented by such
proxy will be voted "for" approval of the Share Issuance, "for" the election of
the Board's nominees for directors and "for" the selection of KPMG Peat Marwick
LLP as Aviva's independent auditors for fiscal year 1998, all in accordance with
the recommendation of the Board of Directors of Aviva. A stockholder of Aviva
who has executed and returned a proxy may revoke it at any time before it is
voted at the Aviva Special Meeting by (i) executing and returning a proxy
bearing a later date, (ii) filing written notice of such revocation with the
Secretary of Aviva, stating that the proxy is revoked or (iii) attending the
Aviva Special Meeting and voting in person.
VOTE REQUIRED. Quorum. The presence at the Aviva Special Meeting, in person
or by proxy, of the holders of a third of the outstanding shares of Aviva Common
Stock entitled to vote at the meeting will constitute a quorum for the
transaction of business. On the Record Date, there were 31,482,716 shares of
Aviva Common Stock outstanding and entitled to vote at the Aviva Special
Meeting.
SHARE ISSUANCE. The Share Issuance does not, under the Texas Business
Corporation Act (the "TBCA"), require stockholder approval. The rules of the
American Stock Exchange (the "ASE") require, however, that the Share Issuance
be submitted to the stockholders of Aviva and be approved by a majority of the
shares of Aviva Common Stock entitled to vote thereon and present in person or
by proxy at the Aviva Special Meeting. In determining whether the proposal has
received the affirmative vote of a majority of the shares of Aviva Common Stock
present and entitled to vote thereon, abstentions and broker non-votes will not
be counted.
ELECTION OF DIRECTORS. A plurality of the votes cast is required to elect a
nominee to the Aviva Board of Directors. Accordingly, abstentions and broker
non-votes will have no effect on the outcome of the election of directors
assuming a quorum is present or represented at the meeting.
RATIFICATION OF AUDITORS' SELECTION. The affirmative vote of the holders of a
majority of the shares of Aviva Common Stock represented at the Aviva Special
Meeting and entitled to vote on the matter is required to approve the proposal
to ratify the selection of KPMG Peat Marwick LLP as Aviva's independent auditors
for fiscal year 1998. If the stockholders do not ratify the selection of
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KPMG Peat Marwick LLP, the selection of independent auditors will be
reconsidered by the Aviva Board of Directors.
Directors and officers of Aviva own beneficially an aggregate of ________
shares of Aviva Common Stock that were issued and outstanding on the Record Date
(representing approximately 8.7% of the outstanding Aviva Common Stock on the
Record Date). Each of such directors and officers has advised Aviva that he
intends to vote or direct the vote of all such shares of Aviva Common Stock in
favor of the Share Issuance, the election of the Board's nominees for directors
and ratification of the selection of KPMG Peat Marwick LLP as Aviva's
independent auditors for fiscal year 1998.
SOLICITATION OF PROXIES. In addition to solicitation by mail, the directors,
officers, employees and agents of Aviva may solicit proxies from its
stockholders by personal interview, telephone, telegram or otherwise. Aviva
will bear the costs of the solicitation of proxies from its stockholders, except
that Aviva and Garnet will each pay one-half of the cost of printing this Joint
Proxy Statement/Prospectus, the Commission and other regulatory filing fees
incurred in connection with this Joint Proxy Statement/Prospectus and the
solicitation fee of $7,500 described below. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries who hold of
record voting securities of Aviva for the forwarding of solicitation materials
to the beneficial owners thereof. Aviva will reimburse such brokers,
custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses
incurred by them in connection therewith. Aviva has engaged the services of
ChaseMellon Shareholder Services, L.L.C. to distribute proxy solicitation
materials to brokers, banks and other nominees and to assist in the solicitation
of proxies from Aviva stockholders for a fee of $7,500 plus payment of certain
transaction costs and additional out-of-pocket expenses.
OTHER MATTERS. At the date of this Joint Proxy Statement/Prospectus, the
Board of Directors of Aviva does not know of any business to be presented at the
Aviva Special Meeting other than as set forth in the notice accompanying this
Joint Proxy Statement/Prospectus. If any other matters should properly come
before the Aviva Special Meeting, it is intended that the shares represented by
proxies will be voted with respect to such matters in accordance with the
judgment of the persons voting such proxies.
REASONS FOR THE MERGER
GENERAL BACKGROUND
Aviva owns interests in oil and gas properties in both Colombia and offshore
in the United States. The Colombian properties are, however, Aviva's primary
source of oil and gas reserves. Aviva's total standardized measure of discounted
(at 10% per annum) net future cash flows applicable to proved oil and gas
reserves at December 31, 1997 was $11.420 million. Of this amount, $9.967
million was attributable to its interests in the Colombian properties.
These properties are co-owned by subsidiaries of Aviva and Garnet. Neo, a
wholly owned subsidiary of Aviva, owns a 45% interest and Argosy, a subsidiary
of Garnet, owns the remaining 55% interest in the properties covered by four
joint operating agreements among Neo and Argosy and Ecopetrol. Neo and Argosy
are parties to four contracts with Ecopetrol, being called Santana, La Fragua,
Yuruyaco and Aporte Putumayo. All four contracts relate to properties located
in the Putumayo Basin of southwestern Colombia. Argosy is the operator under
all four joint operating agreements.
Argosy has, on behalf of both co-owners, filed with Ecopetrol applications for
formal relinquishment of the La Fragua, Yuruyaco and Aporte Putumayo contracts.
The operations of the co-owners in Colombia are concentrated in the Santana
contract area.
Twenty-one wells have been drilled on the properties covered by the Santana
contract. Of thirteen exploratory wells, seven have been productive and six
were dry holes. Of eight development wells, seven have been productive. Four
fields have been discovered and have been declared commercial by Ecopetrol.
Gross production from the Santana contract has totaled approximately 12.2
million barrels during the period from April 1992, when production commenced,
through
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December 1997. Aviva's share of this production was approximately 1.9 million
barrels and Garnet's share was approximately 2.3 million barrels.
The Santana contract covers a 28 year period and required certain exploration
expenditures in the early years of the contract (all of such obligations have
been fulfilled by the co-owners) and, in the later years of the contract,
permits exploitation of reserves that have been found. The Santana contract
provides that Ecopetrol shall receive, on behalf of the Colombian Ministry of
Mines, royalty payments in the amount of 20% of the gross proceeds of the oil
produced pursuant to the contract, less certain costs of transporting the oil to
the point of sale. Under the contract, application must be made to Ecopetrol for
a declaration of commerciality for each discovery. If Ecopetrol declares the
discovery commercial, it has the right to a 65% reversionary interest in the
field and is required to pay 65% of future operating costs and 50% of future
capital costs. If, alternatively, Ecopetrol declines to declare the discovery
commercial, Neo and Argosy have the right to proceed with development and
production at their own expense until such time as they have recovered 200% of
the costs incurred, at which time Ecopetrol is entitled to back in for a 50%
working interest in the field without payment or reimbursement of any historical
costs. Exploration costs (as defined in the agreement) incurred by the co-owners
prior to the declaration of commerciality are recovered by means of retention by
the co-owners of all of the non-royalty proceeds of production from each well
until costs relating to that well are recovered.
The co-owners may initiate the recompletion of certain existing wells and
various miscellaneous projects. Aviva's share of the estimated future costs of
these development activities is approximately $0.7 million and Garnet's share is
approximately $ 0.9 million, in each case as of March 31, 1998. Depending on the
results of future exploration and development activities, substantial
expenditures that have not been anticipated may be required. Failure by the
co-owners to fund certain of these capital expenditures could, under either the
contract or the joint operating agreement between the co-owners, result in the
forfeiture of all or part of the co-owners' interests in this contract.
Production from the Santana contract has been sold to Ecopetrol pursuant to
various sales contracts, the most recent of which became effective on February
1, 1997, and was extended through December 31, 1998. Prices under the contract
are determined differently depending on whether (in the discretion of Ecopetrol)
the crude oil is exported. If the crude oil is exported, the price received by
the co-owners is the export price less specified handling and commercialization
charges and subject to an adjustment (specified in the contract) for the quality
of the produced crude as compared with the overall pipeline blend at the point
of export (the "Pipeline Blend Adjustment"). If the crude oil is not exported,
the price received by the co-owners is the previous month's average posted price
for Cano Limon crude less specified handling and transportation charges and
subject to (i) the Pipeline Blend Adjustment and (ii) a deduction of $0.56 per
barrel for the quality of the overall pipeline blend at the point of sale as
compared with the quality of Cano Limon crude (the "Cano Limon Adjustment").
During 1997, Ecopetrol exported the crude each month and the net sales price
averaged $17.39 per barrel after the handling and commercialization charges and
the Pipeline Blend Adjustment.
During the last quarter of calendar year 1997 and in the first half of
calendar year 1998, world oil prices have declined dramatically. This decline
in oil prices has been pronounced in Colombia. Colombian oil prices have, during
the fifteen month period ended March 31, 1998, fallen from a high of $22.71 in
January 1997 to $11.50 in March 1998. Whereas the sale price for crude oil from
the Santana contract averaged $21.66 per barrel during the first quarter of
calendar year 1997 and $17.39 per barrel for the year, the sale price averaged
$12.29 per barrel during the first quarter of calendar year 1998.
These price declines have materially and adversely affected the financial
results of operations of Aviva and Garnet for the year ended December 31, 1997
and the quarter ended March 31, 1998 and may continue to materially and
adversely affect their financial results of operations for the second and
following quarters of fiscal year 1998 through further write-downs of the
carrying costs of oil and gas properties and otherwise.
Aviva recorded write-downs of its carrying amounts of its Colombian oil and
gas properties of $17.829 million and $2.302 million for the year ended December
31, 1997 and the quarter ended March 31, 1998, respectively. Together with
comparable write-downs of its carrying amounts of its United States oil and gas
properties of $2.124 million and $0.462 million, respectively, these were the
dominant causes of Aviva's reported consolidated net losses of $22.482 million
for the year ended December 31, 1997 and $2.965 million for the quarter ended
March 31, 1998.
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The effect of these price declines on Garnet was comparable. Garnet recorded
write-downs of its carrying amounts of its Colombian oil and gas properties of
$25.752 million and $3.482 million for the year ended December 31, 1997 and the
quarter ended March 31, 1998, respectively. These were the dominant causes of
Garnet's reported consolidated net losses of $27.790 million for the year ended
December 31, 1997 and $4.376 million for the quarter ended March 31, 1998.
AVIVA
The effect on both Aviva and Garnet of the decline in Colombian oil prices has
been dramatically adverse. As indicated below, the effect on Garnet may be
sufficient to force it to declare bankruptcy if the Merger is not effected and
its debt is not reduced as required by the Merger Agreeement. While, as the
following discussion indicates, Aviva's financial condition has been adversely
affected by the decline in Colombian oil prices, the management of Aviva
believes that a bankruptcy of Garnet, which owns Argosy, the operator of the
Colombian oil and gas properties co-owned by Aviva, would be even more damaging
to Aviva's financial condition. If Argosy cannot fund its obligations under the
joint operating agreement, Aviva may be required to accept an assignment of
Argosy's interest therein and assume those funding obligations. If thereafter,
Aviva were to be unable to raise sufficient funds to meet such obligations,
Aviva's interests in the properties may be forfeited. In light of the reduction
of Aviva's cash flow resulting from the decline in oil prices, management of
Aviva believes that Aviva's cash flow would not, at such prices, be sufficient
to permit Aviva to bear, in addition to its own costs of operating the Colombian
oil and gas properties, the burden of Garnet's operating costs.
GARNET
Garnet is highly leveraged with $22,600,000 in current debt consisting of (i)
$15,000,000 in principal amount of outstanding Debentures and (ii) $7,700,000
($7,600,000 net to Garnet) in principal outstanding under indebtedness of Argosy
(the "OPIC Debt") to the Chase Bank of Texas ("Chase") guaranteed by the
Overseas Private Investment Corporation ("OPIC"). The report of Garnet's
independent public accountants with respect to Garnet's financial statements as
of and for the year ended December 31, 1997 was qualified by a discussion of the
substantial uncertainty that exists regarding Garnet's ability to continue as a
going concern. Based on Argosy's year-end financial statements, Argosy has
determined that it is no longer in compliance with certain covenants required by
the financial agreement governing the OPIC Debt. In the absence of a waiver of
such covenants, either OPIC or Chase has the right to declare a default under
the OPIC Debt, accelerate payment of all outstanding amounts due thereunder and
realize upon the collateral securing the OPIC Debt. Although Argosy may apply
for a waiver, given Garnet's financial position and negative working capital
balance at March 31, 1998, no assurance can be given that such waiver will be
granted or continued. Under the terms of the OPIC Debt, that portion (75%) of
proceeds from Argosy's oil sales that is paid in U.S. dollars is deposited in an
escrow account with Chase to secure payment of the OPIC Debt. Argosy is required
to maintain a minimum balance in such escrow account equal to six months of
interest, principal and other fees due under the OPIC Debt. The escrow account
minimum required balance at April 15, 1998 was $1,700,000 and the total account
balance was $1,960,000. Any excess in the escrow account over the minimum
balance can be released to Argosy and used to pay operating expenses and amounts
due under the OPIC Debt. Even if OPIC grants a waiver of the loan covenants with
which Argosy is not in compliance, if the minimum balance required in such
escrow account increases, as a result of a change in the amortization schedule
or otherwise, sufficient funds may not be available to fund Garnet's operations.
Garnet was unable to pay the interest due on the Debentures on March 31, 1998
and Garnet's financial forecasts indicate that, assuming no changes in its
capital structure, working capital and cash flow from operations, Garnet will
not be able to pay Debenture interest due June 30, 1998 or to continue to
maintain the minimum balance in the escrow account. Garnet also does not expect
working capital and cash flow from operations to be sufficient to repay the
principal amount of the Debentures at maturity or earlier if the Debenture
holders call a default as a result of the non-payment of interest. Garnet must
complete a restructuring transaction or renegotiate the terms of the Debentures
in order to avoid non-compliance with its obligations to pay the Debentures. As
a result, management believes there is substantial doubt about Garnet's ability
to continue as a going concern. In the absence of a business transaction or a
restructuring of Garnet's indebtedness, Garnet may seek protection from its
creditors under the Federal Bankruptcy Code.
In view of its operating losses and financial condition, Garnet initiated
further cost containment programs in 1997 and 1998 including a 28% reduction in
its Colombian personnel and the
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termination of all U.S. personnel other than Douglas W. Fry, the Chief Executive
Officer, and Edgar L. Dyes, the Chief Financial Officer and the closing of the
Garnet executive office in Houston. Garnet also engaged Rauscher Pierce Refsnes,
Inc. (now Dain Rauscher) as a financial advisor to provide assistance in
negotiating a business combination or a debt restructuring transaction to
address Garnet's liquidity issues. Although Garnet engaged in comprehensive
efforts, including extensive negotiations with two separate candidates, Garnet
was not successful in concluding a transaction.
It is anticipated that any future foreign exploration and development
activities will require substantial amounts of capital. If Garnet is unable to
conclude a business combination or a debt restructuring transaction, Garnet will
not have the resources to finance any further exploration or development
activity. Accordingly, there can be no assurance that any additional
exploration or development activities will be conducted, other than those
activities required to deplete Garnet's existing proved reserves. The present
environment for financing the ongoing obligations of an oil and gas business is
uncertain due, in part, to the substantial instability in oil and gas prices and
to the volatility of financial markets. In addition, Garnet's ability to
continue its exploration and development programs may be dependent upon the
ability of its co-owner to finance its portion of such costs and expenses.
There can be no assurance that Garnet's co-owner will contribute, or be in a
position to contribute, its portion of the costs and expenses of the development
of the Santana contract.
PRO FORMA FINANCIAL CONDITION
The conditions to consummation of the Merger include the following: (i) The
exchange of $15 million in aggregate principal amount of the outstanding Garnet
Debentures for Aviva Common Stock and cancellation of the Debentures; (ii) the
funding of an amended Bank Credit Facility for Aviva in the amount of $15
million; and (iii) the use of the proceeds from the Bank Credit Facility to pay
$7.4 million owed by Aviva to the bank and $6.2 million (net of escrow amounts)
owed by Garnet to Chase and guaranteed by OPIC. After utilization of the
proceeds for such purposes, the combined company would have $1.4 million in such
proceeds that it may use to supplement working capital and, to the extent not
funded by cash flow from operations, fund the combined company's remaining
estimated capital expenditures for 1998.
Following the Merger, the only debt service requirements of the combined
company would relate to $15 million of indebtedness of the combined company
incurred pursuant to the Bank Credit Facility. The terms of the Bank Credit
Facility require payments of principal of $50,000 per month until April 1, 1999,
at which time a payment of principal sufficient to reduce the principal amount
of the indebtedness to $9.1 million is required. Thereafter, monthly payments
of principal of $275,758 are required until final maturity at December 31, 2001.
Borrowings under the Bank Credit Facility will bear interest at the London
Interbank Offered Rate ("LIBOR") plus 2.125% per annum. In addition, a guarantee
fee of 2.4% per annum on the portion of the borrowings guaranteed by OPIC will
be payable to OPIC. For further information regarding the terms of the Bank
Credit Facility, see "Bank Credit Facility."
Management of Aviva has prepared an internal projection of the cash flow of
the combined company that assumes (i) a continuation of the prices at which oil
is being sold from its Colombian association contract and the prices at which
oil and gas are being sold from its United States offshore properties, (ii) a
continuation of current interest rates and operating costs, (iii) production
decline curves commensurate with those assumed by the independent engineers with
respect to the oil and gas properties of the combined company, (iv) no other
significant deviations from anticipated volumes of oil and gas production from
its properties and (v) no significant interruptions in production of oil and gas
from its properties. This cash flow projection indicates that the combined
company would be able to meet its debt service obligations under the Bank Credit
Facility (as well as its other normal operating expenditures) by application of
internally generated funds through March 1999. Management of Aviva does not,
however, project that, under such assumptions, the internal cash flow of the
combined company will be sufficient to meet the principal payment due on April
1, 1999 under the Bank Credit Facility. In the past, the Bank has amended or
waived compliance with certain covenants and scheduled payments when Aviva has
been unable to comply with them. There can be no assurance, however, that the
Bank will continue to make similar concessions in the future. In such
circumstances, it will be necessary for the combined company to raise additional
capital through equity issues or by sales of assets to retire the debt. Based
on the
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same assumptions used in connection with the internal projection of cash flow of
the combined company and the further assumption that no reserves are added to
those of the combined company, management of Aviva has projected that the
standardized measure of the discounted (at 10% per annum) net future cash flows
applicable to proved oil and gas reserves of the combined company will be
approximately $ __ million at April 1, 1999. There can be no assurance that the
combined company will be able, through sales of equity or assets, to raise
capital necessary to meet its debt service requirements under the Bank Credit
Facility on April 1, 1999 or at any time thereafter.
AVIVA BOARD OF DIRECTORS
Based on an understanding of the circumstances discussed above, the Board of
Directors of Aviva has determined that the Share Issuance, including the shares
of Aviva Common Stock to be issued pursuant to the Merger Agreement and the
Debenture Purchase Agreement, is in the best interests of Aviva and its
stockholders. The determination of the Aviva Board of Directors to approve and
adopt the Merger Agreement and the Debenture Purchase Agreement and the
transactions contemplated thereby was based on consideration of a number of
factors. The following list includes the material factors considered by the
Aviva Board of Directors in its evaluation of the Merger, the Merger Agreement,
the Debenture Purchase Agreement and the transactions contemplated thereby:
(i) The judgment, advice and analyses of management of Aviva, including its
favorable recommendation of the Merger;
(ii) the businesses conducted by Garnet, including the compatibility of such
business with the operations of Aviva;
(iii) the ability to combine the operations and support functions of the two
companies;
(iv) the substantial likelihood that, if Garnet seeks protection from its
creditors under the United States Bankruptcy Code, Aviva will be unable
to finance the continued operation of the Santana contract and will be
forced to forfeit the contract;
(v) the combination of the two companies will effect a combination of their
interests in the Santana contract and will improve the saleability
thereof if the combined company should determine that a sale is
necessary or desirable;
(vi) the conversion of the Garnet Debentures into Aviva equity will
substantially reduce the leverage of the combined company and its
attendant debt service requirements;
(vii) the refinancing of Aviva's bank debt and Garnet's OPIC Debt through the
Bank Credit Facility, which is viewed as improving the chances that the
combined company will be able to raise additional capital through an
equity financing;
(viii) the improvement represented by pro forma financial condition of the
combined company over that of Aviva currently;
(ix) the terms and conditions of the Merger Agreement and related
agreements, including the Exchange Ratio and structure, which were
considered by both management and the Board of Directors to provide an
equitable basis for the Merger; and
(x) the long standing competitive but amicable relationship between the two
companies.
The Aviva Board of Directors evaluated the risks, inherent in any business
combination, that currently unanticipated difficulties could arise in the
process of integrating the operations of the combining companies. It also
considered the necessity of obtaining additional financing prior to the date
(April 1, 1999) when a substantial payment of principal on the Bank Credit
Facility will be due.
In its evaluation of the Merger, the Board of Directors did not quantify or
assign any particular weight to any of the factors it considered, but the
factors enumerated as (iv), (v), (vi) and (vii) above, if not determinative,
significantly affected its decision. The Aviva Board of Directors made
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its determination based on the total mix of the information available to it, and
the judgments of individual directors may have been influenced to a greater or
lesser degree by different factors.
THE AVIVA BOARD OF DIRECTORS HAS BY THE UNANIMOUS VOTE OF THE DIRECTORS
PRESENT AT THE MEETING APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
DEBENTURE PURCHASE AGREEMENT AND DETERMINED TO RECOMMEND BOTH AGREEMENTS TO
HOLDERS OF AVIVA COMMON STOCK. THE AVIVA BOARD RECOMMENDS THAT THE HOLDERS OF
AVIVA COMMON STOCK VOTE FOR APPROVAL OF THE SHARE ISSUANCE.
GARNET BOARD OF DIRECTORS
THE GARNET BOARD OF DIRECTORS HAS BY THE UNANIMOUS VOTE OF THE DIRECTORS
PRESENT AT THE MEETING APPROVED AND ADOPTED THE MERGER AGREEMENT AND DETERMINED
TO RECOMMEND THE MERGER AGREEMENT TO HOLDERS OF GARNET COMMON STOCK. THE GARNET
BOARD RECOMMENDS THAT THE HOLDERS OF GARNET COMMON STOCK VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
In reaching its determination that the Merger Agreement and the Merger are
fair to and in the best interests of Garnet and its stockholders, the Garnet
Board of Directors considered a number of factors, including, without
limitation, the following:
(i) The judgment, advice and analyses of management of Garnet, including
its favorable recommendation of the Merger;
(ii) the businesses conducted by Aviva, including the compatibility of such
business with the operations of Garnet;
(iii) the ability to combine the operations and support functions of the two
companies;
(iv) the substantial likelihood that, if Garnet is not able to restructure
its indebtedness, it will be forced to seek protection from its
creditors under the United States Bankruptcy Code;
(v) the substantial likelihood that, if Garnet seeks protection from its
creditors under the United States Bankruptcy Code, it will be forced to
assign its interest in the Santana contract to Aviva or will be forced
to forfeit the contract;
(vi) the combination of the two companies will effect a combination of their
interests in the Santana contract and will improve the saleability
thereof if the combined company should determine that a sale is
necessary or desirable;
(vii) the conversion of the Garnet Debentures into Aviva equity will
substantially reduce the leverage of the combined company and its
attendant debt service requirements;
(viii) the refinancing of Aviva's bank debt and Garnet's OPIC Debt through the
Bank Credit Facility, which is viewed as improving the chances that the
combined company will be able to raise additional capital through an
equity financing;
(ix) the improvement represented by pro forma financial condition of the
combined company over that of Garnet currently;
(x) the terms and conditions of the Merger Agreement and related
agreements, including the Exchange Ratio and structure, which were
considered by both management and the Board of Directors to provide an
equitable basis for the Merger; and
(xi) the long standing competitive but amicable relationship between the two
companies.
The foregoing discussion of the information and factors considered by the
Garnet Board of Directors is not meant to be exhaustive but includes all
material factors considered by it. Although the Board of Directors did not
quantify or attach any particular weight to the various factors that it
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considered in reaching its determination that the Merger Agreement and the
Merger are fair to and in the best interests of Garnet and its stockholders, the
Board of Directors did view the factors enumerated as (iv), (v), (vi), (vii) and
(viii) above as very important. As a result of its consideration of the
foregoing and other relevant considerations, the Board of Directors determined
that the Merger Agreement and the Merger are fair to and in the best interests
of Garnet and its stockholders and approved and adopted the Merger Agreement.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, at the Effective Time, Merger Sub will be
merged with and into Garnet with Garnet becoming the Surviving Corporation.
Also at the Effective Time, each outstanding share of Garnet Common Stock (other
than shares of Garnet Common Stock held in the treasury of Garnet or owned by
Aviva or by any direct or indirect wholly owned subsidiary of Aviva or of Garnet
and other than Odd Lot Shares) will be converted into 0.10 of one share of Aviva
Common Stock. The shares of Garnet Common Stock held by holders who would
otherwise be entitled to receive less than 100 shares of Aviva Common Stock
pursuant to the Merger (the "Odd Lot Shares") will be converted into the right
to receive cash at the rate of $0.02 per share. Any fractional shares of Aviva
Common Stock resulting from the conversion of Garnet Common Stock in the Merger
will be settled in cash in the manner described under "Certain Terms of the
Merger Agreement - Manner and Basis of Converting Shares."
Based on the number of shares of Aviva Common Stock and Garnet Common Stock
outstanding as of the Record Date and on the holdings of Garnet Common Stock on
the Record Date, ____________ shares of Aviva Common Stock will be issuable
pursuant to the Merger Agreement, representing approximately _________% of the
total Aviva Common Stock to be outstanding after such issuance, and $_____ in
cash will be payable to those holders entitled to receive cash pursuant to the
Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Garnet's Board of Directors with respect
to the Merger, Garnet's stockholders should be aware that certain members of
Garnet's Board of Directors and officers have certain interests respecting the
Merger separate from their interests as holders of Garnet Common Stock,
including those referred to below.
CHANGE IN CONTROL AGREEMENTS. Douglas Fry, President and Chief Executive
Officer of Garnet, and Edgar Dyes, Vice President-Finance and Secretary of
Garnet, are parties to Change in Control Agreements with Garnet. Under the terms
of such agreements, Messrs. Fry and Dyes would be entitled to receive the
following severance benefits upon consummation of the Merger:
. in the case of Mr. Fry, 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 $224,000 as of March 31, 1998;
. in the case of Mr. Dyes, a severance benefit, payable in cash, equal to
twelve months' base salary, which amount was $135,000 as of March 31, 1998;
. medical insurance coverage for a period of 18 months following termination
of employment;
. life and disability insurance coverage for a period of two years and one
year, respectively, following termination of employment; and
. all stock options would vest and remain exercisable for a period of two
years.
It is a condition to Aviva's obligation to consummate the Merger, however,
that the Change in Control Agreements shall have been amended to reduce the
severance payments thereunder to
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$65,000 in the case of Mr. Fry and $35,000 in the case of Mr. Dyes, to limit the
medical, life and disability insurance coverage requirements to five months,
five months and five months in the case of Mr. Fry and three months, three
months and three months, in the case of Mr. Dyes, and to delete the provisions
thereof relating to stock options.
STOCK OPTIONS. There are currently eight holders of outstanding options to
purchase Garnet Common Stock. The exercise prices under such options range from
$0.38 to $2.50 per share of Garnet Common Stock. It is a condition to Aviva's
obligation to consummate the Merger that each holder of such stock options shall
have surrendered all such stock options to Garnet for cancellation.
INDEMNIFICATION. The Merger Agreement provides that, for a period of three
years after the Effective Time, the indemnification provisions of the
certificate of incorporation and bylaws of the Surviving Corporation will not be
amended in a manner that would reduce or limit the rights of indemnity
thereunder of present or former directors and officers of Garnet, to reduce or
limit the ability of the Surviving Corporation to indemnify such persons or to
hinder or delay the exercise of such rights by such persons. In addition, the
Merger Agreement requires Aviva to cause to be maintained in effect for a
comparable period the current Garnet directors' and officers' liability
insurance or policies that are substantially equivalent thereto, subject to the
proviso that neither the Acquiror nor the Surviving Corporation shall be
required to maintain any such policies to the extent the coverage thereunder
exceeds $3,000,000 or to expend more than 100 percent of the current annual
premiums paid by Garnet for such insurance. See "Certain Terms of the Merger
Agreement -Indemnification."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the Merger to the holders of Garnet Common Stock and is based
upon current provisions of the Code, existing regulations thereunder, current
administrative rulings of the Internal Revenue Service (the "IRS") and court
decisions, all of which are subject to change. No attempt has been made to
comment on all federal income tax consequences of the Merger that may be
relevant to particular holders, including holders that are subject to special
tax rules which may modify or alter the following discussion, such as dealers in
securities, foreign persons, mutual funds, insurance companies, tax-exempt
entities and holders who do not hold their shares as capital assets. Holders of
Garnet Common Stock are advised and expected to consult their own tax advisers
regarding the federal income tax consequences of the Merger in light of their
personal circumstances and the consequences under state, local and foreign tax
laws.
The Merger will not constitute a tax-free reorganization for federal income
tax purposes. Accordingly, even though no cash is received in the transaction, a
holder of Garnet Common Stock that exchanges such stock for Aviva Common Stock
in the Merger will recognize gain or loss equal to the difference between the
fair market value of the Aviva Common Stock received by such holder in the
Merger and the adjusted basis of the Garnet Common Stock surrendered in the
Merger. Such gain or loss will be capital gain or loss if the Garnet Common
Stock surrendered in the Merger is held as a capital asset at the Effective
Time, and will be long-term capital gain or loss if such Garnet Common Stock has
been held for more than one year. For individuals, the maximum federal income
tax rate for long-term capital gain generally is 28% (20% for capital assets
held more than 18 months). There are substantial restrictions on the ability of
both individuals and corporations to deduct capital losses. The basis of a
holder's shares of Aviva Common Stock received in the Merger will be equal to
the fair market value of those shares at the Effective Time.
ACCOUNTING TREATMENT
The Merger will be accounted for using the "purchase" method of accounting for
business combinations pursuant to Opinion No. 16 of the Accounting Principles
Board. See "Unaudited Pro Forma Condensed Financial Information."
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GOVERNMENTAL AND REGULATORY APPROVALS
Aviva and Garnet are not aware of any governmental or regulatory approvals
required for consummation of the Merger, other than compliance with applicable
federal and state securities laws.
No filing by Aviva or Garnet is required under the Hart-Scott-Rodino Antitrust
Amendments Act of 1977. Nonetheless, the Department of Justice, the FTC or a
private person or entity could, at any time before or after the Effective Time,
seek under the antitrust laws, among other things, to enjoin the Merger or to
cause Aviva to divest itself, in whole or in part, of Garnet or of other
businesses conducted by Aviva. There can be no assurance that a challenge to the
Merger will not be made or that, if such a challenge is made, Aviva and Garnet
will prevail.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Aviva Common Stock to be received by Garnet stockholders in
connection with the Merger have been registered under the Securities Act and,
except as set forth in this paragraph, may be traded without restriction. The
shares of Aviva Common Stock to be issued in connection with the Merger and
received by persons who are deemed to be "affiliates" (as that term is defined
in Rule 144 under the Securities Act) of Garnet prior to the Merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 under the Securities Act or as otherwise permitted under the Securities Act.
Accordingly, the Merger Agreement provides that Garnet will use all reasonable
efforts to cause its affiliates to execute an agreement (an "Affiliates'
Agreement"), in the form thereof attached to the Merger Agreement as Annex B, to
the effect that such persons will not sell, transfer or otherwise dispose of any
shares of Aviva Common Stock at any time in violation of the Securities Act or
the rules and regulations promulgated thereunder, including Rule 145.
RIGHTS OF DISSENTING STOCKHOLDERS
Neither holders of Garnet Common Stock nor holders of Aviva Common Stock will
be entitled to dissenters' rights of appraisal under the Delaware General
Corporation Law (the "DGCL") or the TBCA, respectively.
CERTAIN TERMS OF THE MERGER AGREEMENT
The following description does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a copy of which has been
filed as an exhibit to the Registration Statement of which this Joint Proxy
Statement/Prospectus constitutes a part and is incorporated herein by reference.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that, promptly after the satisfaction or, if
permissible, the waiver of the conditions to effecting the Merger or at such
other time as the parties to the Merger Agreement may agree, the parties shall
cause the Merger to be consummated by filing a Certificate of Merger with the
Secretary of State of the State of Delaware, in such form as required by, and
executed in accordance with, the relevant provisions of the DGCL. It is
anticipated that, if the Merger Agreement is approved and adopted at the Garnet
Special Meeting, the Share Issuance is approved at the Aviva Special Meeting and
all other conditions to the Merger have been satisfied or waived, the effective
time (the "Effective Time") will occur on the date of the Special Meetings or as
soon thereafter as practicable.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time, except for shares of Garnet Common Stock held in the
treasury of Garnet or owned by Aviva or any direct or indirect wholly-owned
subsidiary of either Aviva or Garnet, which shares will be canceled at the
Effective Time, and except for Odd Lot Shares, each outstanding share of Garnet
Common Stock will be converted into 0.10 of one share of Aviva Common Stock (the
"Exchange Ratio"). The shares of Garnet Common Stock held by holders who would
otherwise be entitled to receive less than 100 shares of Aviva Common Stock
pursuant to the Merger (being the Odd Lot Shares) will be converted into the
right to receive cash at the rate of
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$0.02 per share. Any fractional shares of Aviva Common Stock resulting from the
conversion of Garnet Common Stock in the Merger will be settled in cash in the
manner described below.
If between the date of the Merger Agreement and the Effective Time the
outstanding shares of Aviva Common Stock shall have been changed, or if the
outstanding shares of Garnet Common Stock shall have been changed, into a
different number of shares or a different class, by reason of any stock
dividend, any subdivision, combination or exchange of shares or any
reclassification or recapitalization, the Exchange Ratio will be correspondingly
adjusted to reflect such stock dividend, subdivision, combination or exchange of
shares or any reclassification or recapitalization.
ChaseMellon Shareholder Services, L.L.C. is the transfer agent in the United
States for the Aviva Common Stock and is the Depositary under that certain
Deposit Agreement dated September 15, 1994 between Aviva and the Depositary
(the "Deposit Agreement"). ChaseMellon Shareholder Services, L.L.C. will also
act as Exchange Agent in connection with the Merger.
As soon as practicable following the Effective Time, Aviva will cause the
Exchange Agent to mail to each record holder of Garnet Common Stock at the
Effective Time information advising such holder of the consummation of the
Merger and a letter of transmittal for use in exchanging Garnet Common Stock
certificates for Depositary Receipts evidencing Depositary Shares (each of which
represents five shares of Aviva Common Stock) or, in the case of Odd Lot Shares,
cash. Letters of transmittal will also be available following the Effective Time
at the offices of the Exchange Agent at 120 Broadway, 13th Floor, New York, New
York 10271, and holders of certificates that previously evidenced Garnet Common
Stock may, at their option after the Effective Time, surrender such certificates
for Depositary Receipts or cash at the offices of the Exchange Agent in person.
After the Effective Time, there will be no further registration of transfers on
the stock transfer books of Garnet of shares of Garnet Common Stock that were
outstanding immediately prior to the Effective Time. Share certificates should
not be surrendered for exchange by stockholders of Garnet prior to the Effective
Time.
Promptly after the Effective Time, Aviva will cause the transfer agent for the
Aviva Common Stock to issue and deliver to the Exchange Agent a certificate
registered in the name of the Exchange Agent evidencing the maximum number of
shares of Aviva Common Stock issuable pursuant to the Merger Agreement that can
be deposited under the Deposit Agreement and Aviva will deliver to the Exchange
Agent cash in an amount sufficient to pay for the Odd Lot Shares. The number of
shares to be evidenced by such certificate will be determined by the Exchange
Agent based on the holdings of Garnet Common Stock of record at the Effective
Time. The Exchange Agent will deposit such number of shares of Aviva Common
Stock with the Depositary and the Depositary will issue Depositary Receipts
evidencing Depositary Shares registered in the names of the record holders on
the basis of one Depositary Share for each five shares of Aviva Common Stock.
The Exchange Agent will then distribute the Depositary Receipts to the record
holders. In the case of holders entitled to a number of shares of Aviva Common
Stock not evenly divisible by five, the Exchange Agent will obtain certificates
from the transfer agent evidencing the remaining shares of Aviva Common Stock
and will deliver such certificates to the holders entitled thereto.
No fractional shares of Aviva Common Stock will be issued in the Merger. Each
holder of Garnet Common Stock entitled to a fractional share will receive an
amount in cash, without interest thereon, determined as follows: Pursuant to
instructions from Aviva, the Exchange Agent will determine the number of
fractional shares allocable to all holders of Garnet Common Stock pursuant to
the Merger Agreement, will aggregate all such fractional shares into whole
shares, will sell such whole shares of Aviva Common Stock in the open market at
then prevailing prices on behalf of the holders who would otherwise be entitled
thereto and will distribute to each such holder, at the time of surrender of
such holder's Garnet Common Stock certificates, such holder's ratable share of
such proceeds, after withholding federal income taxes and any applicable
transfer taxes. All brokers' fees and commissions and fees of the Exchange
Agent incurred in connection with such sales will be paid by Aviva.
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Until so surrendered and exchanged, each certificate previously evidencing
Garnet Common Stock will be deemed, for all purposes other than the payment of
dividends and other distributions, to evidence whole shares of Aviva Common
Stock and the right to receive cash in lieu of fractional shares of Aviva Common
Stock or, in the case of Odd Lot Shares, the right to receive cash. Unless and
until any such certificates that previously evidenced Garnet Common Stock are so
surrendered and exchanged, no dividends or other distributions payable to the
holders of record of Aviva Common Stock as of any time on or after the Effective
Time will be paid to the holders of such certificates previously evidencing
Garnet Common Stock. While the Board of Directors of Aviva does not currently
intend to pay any dividends or make any distributions with respect to the Aviva
Common Stock, upon any such surrender and exchange of such certificates there
will be paid to the record holders of the certificates issued and exchanged
therefor (i), at the time of such surrender and exchange, the amount, without
interest thereon, of dividends and other distributions, if any, with a record
date on or after the Effective Time theretofore paid with respect to such whole
shares of Aviva Common Stock and (ii), at the appropriate payment date, the
amount of dividends or other distributions, if any, with a record date on or
after the Effective Time but prior to surrender and a payment date occurring
after surrender, payable with respect to such whole shares of Aviva Common
Stock.
GARNET OPTIONS
There are currently eight holders of outstanding options to purchase Garnet
Common Stock. The exercise prices under such options range from $0.38 to $2.50
per share of Garnet Common Stock. It is a condition to Aviva's obligation to
consummate the Merger that each holder of such stock options shall have
surrendered all such stock options to Garnet for cancellation.
CONDITIONS TO THE MERGER
The respective obligations of Aviva and Garnet to consummate the Merger are
subject to the satisfaction of the following conditions: (a) the Registration
Statement shall have been declared effective by the Commission under the
Securities Act, no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission and no proceedings for that
purpose shall have been initiated by the Commission; (b) the Merger Agreement
shall have been approved and adopted by the requisite vote of the stockholders
of Garnet; (c) the Share Issuance shall have been approved by the stockholders
of Aviva; (d) no Court or Governmental Authority (as such terms are defined in
the Merger Agreement) shall have enacted, issued, promulgated, enforced or
entered any Law, Regulation, or Order (all as defined in the Merger Agreement)
(whether temporary, preliminary or permanent) which is in effect and which has
the effect of making the Merger illegal or otherwise prohibiting consummation of
the Merger; (e) the Depositary Shares representing the Aviva Common Stock
issuable in the Merger shall have been listed on the ASE subject to official
notice of issuance. The condition specified in clause (e) may be waived by
Aviva and Garnet; neither Aviva nor Garnet, however, intends to waive such
condition without resoliciting the votes of the stockholders of Garnet.
The obligation of each of Aviva and Garnet to effect the Merger is also
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived in writing by the party entitled
to satisfaction thereof, in whole or in part, to the extent permitted by
applicable law: (a) each of the representations and warranties of the other
party contained in the Merger Agreement shall be true and correct in all
material respects as of the date of the Merger Agreement and as of the Effective
Time as though made again as of the Effective Time; and (b) the other party
shall have performed or complied in all material respects with all agreements
and covenants required by the Merger Agreement to be performed or complied with
by it on or prior to the Effective Time.
In addition, the obligation of Aviva to consummate the Merger is subject to
the following conditions: (i) ING Bank (the "Bank") shall have made available
to Aviva a bank credit facility of $15,000,000 in order for Aviva to refinance
its outstanding debt to the Bank of $7,440,000 and to refinance Garnet's bank
indebtedness guaranteed by the Overseas Petroleum Investment Corporation (the
"OPIC Debt"), which shall not exceed $6,000,000 (net of escrow amounts); (ii)
Aviva shall have acquired the Debentures pursuant to the Debenture Purchase
Agreement in exchange for Aviva Common Stock; (iii) the consolidated current
assets of Garnet less liabilities (other than the OPIC
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Debt) shall not be less than $100,000; and (iv) the holders of the outstanding
stock options relating to Garnet Common Stock shall have surrendered all such
stock options to Garnet for cancellation.
There can be no assurance that all of the conditions to the Merger will be
satisfied. All the conditions referenced in the two preceding paragraphs may be
waived by the party entitled to satisfaction thereof. Neither Aviva nor Garnet,
however, intends to waive satisfaction of any such condition if such waiver
would be material to the consideration and vote of the stockholders of Garnet
upon the proposal to adopt the Merger Agreement or to the consideration and vote
of the stockholders of Aviva upon the proposal to approve the Share Issuance
without resoliciting the votes of such stockholders.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of each
of Garnet and Aviva relating to, among other things, (i) its organization and
similar corporate matters, (ii) its capitalization, (iii) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
the absence of conflicts, violations and defaults under its charter and bylaws
and certain other agreements and documents, (iv) the documents and reports filed
by it with the Commission and the accuracy of the information contained therein,
(v) the absence of certain changes and events, (vi) the title to its assets and
properties, including the condition of its oil and gas properties, (vii) its
material contracts and agreements, (viii) the material permits and orders from
Governmental Authorities required to conduct its business, (ix) its litigation
and compliance with laws, (x) its employee benefit plans, (xi) its taxes, (xii)
certain environmental matters, (xiii) its insurance policies, (xiv) its
affiliates, (xv) its brokers or investment bankers involved in the transaction
and (xvi) certain business practices. The representations and warranties of
Garnet and Aviva also extend in many respects to their respective subsidiaries
and, in the case of Aviva, Merger Sub joins in the representations and
warranties. The representations and warranties expire at the Effective Time.
CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO THE MERGER
BUSINESS MAINTENANCE. Each of Garnet and Aviva has agreed that, prior to the
Effective Time, unless expressly contemplated by the Merger Agreement or
otherwise consented to in writing by the other party, it will do and will cause
its subsidiaries to do the following: (a) operate its business in the usual and
ordinary course consistent with past practices; (b) use all reasonable efforts
to preserve substantially intact its business organization, maintain its
material rights and franchises, retain the services of its respective key
employees and maintain its relationships with its respective customers and
suppliers; (c) maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted, and maintain supplies
and inventories in quantities consistent with its customary business practice;
and (d) use all reasonable efforts to keep in full force and effect insurance
and bonds comparable in amount and scope of coverage to that currently
maintained.
NEGATIVE COVENANTS. Each of Garnet and Aviva has agreed that, prior to the
Effective Time, subject to certain exceptions and unless expressly contemplated
by the Merger Agreement or otherwise consented to in writing by the other party,
it will not do, and will not permit any of its subsidiaries to do, any of the
following: (a)(i) increase the compensation payable to or to become payable to
any director or executive officer; (ii) grant any severance or termination pay
to, or enter into or amend in any material respect any employment or severance
agreement with, any director, officer or employee; (iii) establish, adopt or
enter into any employee benefit plan; or (iv) amend, or take any other actions
with respect to, any employee benefit plans of such party; (b) declare or pay
any dividend on, or make any other distribution in respect of, outstanding
shares of capital stock; (c)(i) redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding shares of capital stock of, or other equity
interests in, or any outstanding options, warrants or rights of any kind to
acquire any shares of capital stock of, or other equity interests in, such party
or any of its subsidiaries; (ii) effect any reorganization or recapitalization;
or (iii) split, combine or reclassify any of the capital stock, or other equity
interests in, or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of capital
stock, or such equity interests, of such party or any of its subsidiaries;
(d)(i) offer, sell, issue or grant, or authorize the offering, sale, issuance or
grant, of any shares of capital stock of, or other equity interests in, any
securities convertible into or exchangeable for any shares of capital stock of,
or other equity interest
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in, or any options, warrants or rights of any kind to acquire any shares of
capital stock of, or other equity interest in, such party or any of its
subsidiaries; (ii) amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms more
favorable to the holders thereof; (iii) take any action to accelerate the
vesting of any stock options; or (iv) grant any lien with respect to any shares
of capital stock of, or other equity interest in, any subsidiary of such party;
(e) acquire or agree to acquire any business or other entity, or otherwise
acquire or agree to acquire any assets of any other person; (f) sell or
otherwise dispose of, or grant any lien with respect to, any of its material
assets or any material assets of any of its subsidiaries; (g) adopt certain
amendments to its charter or bylaws; (h) change any of its significant
accounting policies or take certain actions with respect to taxes; (i) incur any
obligation for borrowed money or purchase money indebtedness; (j), in the case
of Garnet, release any third party from its obligations under any existing
standstill provision relating to a Competing Transaction (as defined) or
otherwise under any confidentiality or similar agreement; (k) enter into certain
material contracts; or (l) agree in writing or otherwise to do any of the
foregoing.
ACCESS TO BUSINESS OF OTHER PARTY. During the pendency of the Merger
Agreement, Aviva and Garnet have each agreed to afford, and to cause its
subsidiaries to afford, to the other party and its representatives access at
reasonable times to the officers, employees, agents, properties, offices and
other facilities of such party and its subsidiaries and to their books and
records. Each of them has also agreed to furnish, and to cause its subsidiaries
to furnish, to the other party and its representatives such information
concerning the business, properties, contracts, records and personnel of such
party and its subsidiaries as may be reasonably requested. If the Merger
Agreement is terminated in accordance with its terms, a party that has received
information pursuant to the Merger Agreement is obligated to return or destroy
such information within ten days after a request therefor by the other party.
NO SOLICITATION
Under Merger Agreement, Garnet has agreed (i) that it will not (a) initiate,
solicit or encourage (including by way of furnishing nonpublic information or
assistance) or take any other action knowingly to facilitate any inquiries from
any other person or entity or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal (as defined
below), (b) enter into discussions or negotiations with any person or entity in
furtherance of such inquiries or to obtain an Acquisition Proposal, (c) agree
to, or endorse, an Acquisition Proposal or (d) authorize or permit any of its
directors, officers, employees or other representatives to take any such action,
(ii) that it will promptly notify Aviva of all relevant terms of any such
inquiries and proposals received by Garnet or any of its directors, officers,
employees or other representatives and (iii), if such inquiry or proposal is in
writing, it will deliver a copy thereof promptly to Aviva; provided, however,
that this provision of the Merger Agreement will not prevent the Board of
Directors of Garnet from (A) complying, to the extent applicable, with regard to
an Acquisition Proposal, with Rule 14e-2(a) promulgated under the Exchange Act,
(B) in response to an unsolicited bona fide written Acquisition Proposal from
any Person, recommending such Acquisition Proposal to Garnet's stockholders or
withdrawing or modifying in any adverse manner its approval or recommendation of
this Agreement, or both, or (C) engaging in any discussions or negotiations
with, or providing any information to, any Person in response to an unsolicited
bona fide written Acquisition Proposal by any such Person, if and only to the
extent that, in any such case described in clause (B) or (C), if (i) the
Required Garnet Vote shall not have been theretofore obtained, (ii) the Board of
Directors of Garnet shall have concluded in good faith that such Acquisition
Proposal (x) in the case of that described in clause (B) above would, if
consummated, constitute a Superior Proposal (as defined below) or (y), in the
case described in clause (C) above could reasonably be expected to constitute a
Superior Proposal, (iii) the Board of Directors of Garnet shall have determined
in good faith on the basis of written advice of outside legal counsel that such
action is necessary for such Board of Directors to act in a manner consistent
with its fiduciary duties under applicable law, (iv) prior to providing any
information or data to any person in connection with an Acquisition Proposal by
any such person, the Board of Directors shall have received from such person an
executed confidentiality agreement containing customary terms and provisions and
(v) prior to providing any information or data to any person or entering into
discussions or negotiations with any person, the Board of Directors of Garnet
shall have notified Aviva immediately of such inquiries, proposals or offers
received by, any such information requested from, or any such discussions or
negotiations sought to be initiated or continued with, any of its
representatives indicating, in connection with such notice, the name of such
person and the material terms and
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conditions of any proposals or offers. Garnet has agreed that it will keep
Aviva informed, on a current basis, of the status of any such discussions or
negotiations. Garnet has agreed that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any Acquisition Proposal. An "Acquisition
Proposal" means any proposal or offer with respect to a merger, consolidation,
share exchange, business combination, reorganization, recapitalization,
liquidation, dissolution or similar transaction involving, or any purchase or
sale of all or any significant portion of the assets or 10% or more of the
Equity Securities (as defined in the Merger Agreement) of, Garnet or any of its
subsidiaries that, in any case, could be reasonably expected to interfere with
the consummation of the Merger or the other transactions contemplated by this
Agreement. A "Superior Proposal" means a bona fide Acquisition Proposal that
the Board of Directors of Garnet determines in its good faith judgment (after
consultation with its financial advisers and legal counsel), taking into account
all legal, financial, regulatory and other aspects of the proposal or offer and
the person making the proposal or offer, (i) would, if consummated, result in a
transaction that is more favorable to Garnet's stockholders, from a strategic
and financial point of view, than the transactions contemplated by the Merger
Agreement and (ii) is reasonably capable of being completed; provided, however,
that, for the purposes of this definition, the term "Acquisition Proposal" shall
have the meaning ascribed to it in the Merger Agreement except that the
reference therein to 10% shall be deemed to be a reference to 50% and the
proposal or offer therein described shall be deemed only to refer to a
transaction involving Garnet or the assets of Garnet (including the shares of
its subsidiaries), taken as a whole, rather than any transaction relating to any
of the Subsidiaries of Garnet alone.
CERTAIN POST-MERGER MATTERS
Once the Merger is consummated, Merger Sub will cease to exist as a
corporation, and Garnet, as the Surviving Corporation, will succeed to all of
the assets, rights and obligations of Garnet and Merger Sub.
Pursuant to the Merger Agreement, the certificate of incorporation and the
bylaws of Garnet, as in effect immediately prior to the Effective Time, will be
the certificate of incorporation and bylaws of the Surviving Corporation until
amended as provided therein and pursuant to the DGCL.
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger Agreement by the
stockholders of Garnet: (a) by mutual consent of Aviva and Garnet; (b) by Aviva,
upon a material breach of any covenant or agreement on the part of Garnet set
forth in the Merger Agreement or if any representation or warranty of Garnet
shall have become untrue in any material respect, in either case such that the
conditions to the obligation of Aviva to consummate the Merger would not be
satisfied, subject to a cure period under certain circumstances (a "Terminating
Garnet Breach"); (c) by Garnet, upon a material breach of any covenant or
agreement on the part of Aviva or Merger Sub set forth in the Merger Agreement
or if any representation or warranty of Aviva or Merger Sub shall have become
untrue in any material respect, in either case such that the conditions to the
obligation of Garnet to consummate the Merger would not be satisfied, subject to
a cure period under certain circumstances (a "Terminating Aviva Breach"); (d) by
either Aviva or Garnet, if there shall be any order of any court or governmental
authority that is final and nonappealable preventing the consummation of the
Merger, subject to a limited exception; (e) by either Aviva or Garnet, if the
Merger shall not have been consummated before September 30, 1998; provided,
however, that the Merger Agreement may be extended by written notice given by
either Aviva or Garnet to a date not later than October 31, 1998 if the Merger
shall not have been consummated as a direct result of Garnet, Aviva or Merger
Sub having failed by September 30, 1998 to receive all required regulatory
approvals or consents with respect to the Merger or as the result of the
entering of an order by a court or governmental authority; (f) by either Aviva
or Garnet, if the Merger Agreement shall fail to receive the requisite vote for
adoption by the stockholders of Garnet at the Garnet Special Meeting; (g) by
either Aviva or Garnet, if the Share Issuance shall fail to receive the
requisite vote for approval by the stockholders of Aviva at the Aviva Special
Meeting; (h) by Garnet, if the Board of Directors of Garnet shall, at any time
prior to the Garnet Special Meeting but subject to certain restrictions, approve
a Superior Proposal (as defined); (i) by Aviva, if the Board of Directors of
Garnet shall withdraw or modify in any manner adverse to Aviva the Board's
approval or recommendation of the Merger Agreement, shall fail to reaffirm such
approval or recommendation upon Aviva's request or shall approve or recommend
any Superior
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Proposal; (j) by Aviva, if (1) any person (other than Aviva or any of its
Affiliates) shall have acquired 30% or more of the outstanding Garnet Common
Stock or (2) individuals who as of the date of this Agreement constitute the
Board of Directors of Garnet shall cease for any reason to constitute a majority
of the Board of Directors of Garnet.
Subject to limited exceptions, including the survival of Garnet's agreement to
pay a termination fee to Aviva under certain circumstances, as discussed below,
in the event of the termination of the Merger Agreement, the Merger Agreement
shall become void, there shall be no liability on the part of Aviva, Merger Sub
or Garnet to the other, and all rights and obligations of the parties thereto
shall cease, except that no party will be relieved from its obligations with
respect to any breach of the Merger Agreement.
The Merger Agreement may be amended by the parties thereto by action taken by
or on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of Garnet, no amendment may be made that would reduce the amount or
change the type of consideration into which each share of Garnet Common Stock
will be converted pursuant to the Merger Agreement upon consummation of the
Merger. At any time prior to the Effective Time, any party to the Merger
Agreement may (a) extend the time for the performance of any of the obligations
or other acts of the other party thereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained therein or in any
document delivered pursuant thereto and (c) waive compliance by the other party
with any of the agreements or conditions contained therein. Any such extension
or waiver shall be valid only if set forth in a writing signed by the party or
parties to be bound thereby. Neither Aviva nor Garnet,however, intends to enter
into any amendment to the Merger Agreement or to waive compliance by the other
with the terms of the Merger Agreement if such amendment or waiver would be
material to the consideration and vote of the stockholders of Garnet upon the
proposal to adopt the Merger Agreement or to the consideration and vote of the
stockholders of Aviva upon the proposal to approve the Share Issuance without
resoliciting the votes of such stockholders.
EXPENSES AND TERMINATION FEE
All expenses incurred by Aviva, Merger Sub, and Garnet will be borne by the
party incurring such expenses; provided, however, that the allocable share of
Aviva and Merger Sub, as a group, and Garnet for all expenses related to
printing, filing and mailing this Joint Proxy Statement/Prospectus and all
Commission and other regulatory filing fees incurred in connection with the
Registration Statement or this Joint Proxy Statement/Prospectus shall be one-
half each; and provided further, however, that Aviva may, at its option, pay any
expenses of Garnet that are solely and directly related to the Merger.
Garnet has agreed that, if the Merger Agreement is terminated for any of the
reasons specified in clause (b), (h), (i) or (j) in the first paragraph under "-
- - Termination or Amendment of the Merger Agreement," Garnet will pay to Aviva,
as liquidated damages and expense reimbursement, an amount in cash equal to
$50,000.
INDEMNIFICATION
The Merger Agreement provides that, for a period of six years after the
Effective Time, (i) the certificate of incorporation and bylaws of the Surviving
Corporation as in effect immediately following the Effective Time shall not be
amended to reduce or limit the rights of indemnity afforded to the present and
former directors and officers of Garnet thereunder or as to the ability of the
Surviving Corporation to indemnify such persons or to hinder, delay or make more
difficult the exercise of such rights of indemnity or the ability to indemnify
with respect to any claims made against such persons arising from their service
in such capacities; and (ii) Aviva shall cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
Garnet (or substitute policies under certain circumstances) with respect to
claims arising from facts or events that occurred before the Effective Time,
subject to the proviso that neither Aviva nor the Surviving Corporation shall be
required to maintain any such policies to the extent the coverage thereunder
exceeds $3,000,000 or to expend more than 100 percent of the current annual
premiums paid by Garnet for such insurance.
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<PAGE>
THE DEBENTURE PURCHASE AGREEMENT
GENERAL
Consummation of the Debenture Purchase Agreement is a condition precedent to
the obligation of Aviva to consummate the Merger under the Merger Agreement.
Garnet has outstanding $15,000,000 in aggregate principal amount of its 9 1/2%
Convertible Subordinated Debentures due December 21, 1998 (the "Debentures").
Aviva has entered into a Debenture Purchase Agreement dated as of June 24, 1998
with each of the holders of the Debentures (the "Debenture Purchase Agreement")
pursuant to which the holders (the "Sellers") have agreed to sell to Aviva, and
Aviva has agreed to purchase, the Debentures in exchange for the issuance by
Aviva to the Sellers of an aggregate of 12,887,771 shares of Aviva Common Stock.
REPRESENTATIONS AND WARRANTIES
Each of the Sellers has represented and warranted, severally and not jointly,
to Aviva that such Seller has full authority to enter into the Debenture
Purchase Agreement and to sell the Debentures owned by such Seller; that, with
the exception of certain filings pursuant to federal and state securities laws,
no order of, or filing or registration with, any governmental authority is
required in order to permit the Seller to enter into the Debenture Purchase
Agreement or to sell the Debentures owned by such Seller; that the execution and
delivery of the Debenture Purchase Agreement by such Seller and the sale of the
Debentures thereunder will not violate any law, regulation or order applicable
to such Seller, any organizational document pursuant to which such Seller is
organized or any contract to which it is a party; that such Seller has good
title to the Debentures owned by it and that Aviva will acquire good title
thereto upon consummation of the Agreement, in each case free and clear of any
liens and encumbrances; that such Seller engaged no broker in connection with
such sale; and that such Seller is qualified to purchase the Debentures under a
specified exemption from the registration provisions of the Securities Act.
Aviva has made similar representations and warranties to each of the Sellers
(other than the representation relating to the exemption from the registration
provisions of the Securities Act).
The representations and warranties of each of the parties to the Debenture
Purchase Agreement terminate at the closing.
CONDITIONS
Conditions to the obligations of Aviva and each of the Sellers to consummate
the purchase and sale of the Debentures include (i) the satisfaction of any
statutory requirements with respect to the transaction (including the requisite
filings pursuant to federal and state securities laws); (ii) no governmental
authority or court shall have enacted or issued any law, regulation or order the
effect of which is to declare such transaction illegal or to prohibit
consummation of such transaction; and each such party shall have received any
third party consents to the transaction that are material to such party.
The obligation of Aviva to consummate the transaction is subject to the
additional conditions that all of the Sellers' representations and warranties
shall be true, in all material respects, at closing as if made again on the date
of closing; each of the Sellers shall have performed in all material respects
each covenant required to be performed by it prior to the closing date; and each
and every condition to Aviva's obligation to consummate the Merger Agreement
shall have been fulfilled or waived.
The obligation of each Seller to consummate the transaction is subject to the
additional conditions that all of Aviva's representations and warranties shall
be true, in all material respects, at closing as if made again on the date of
closing and Aviva shall have performed in all material respects each covenant
required to be performed by it prior to the closing date.
TERMINATION
The Debenture Purchase Agreement may be terminated at any time prior to the
closing: (a) by mutual consent of Aviva and a Majority of the Sellers (as
defined in the agreement); (b) by Aviva,
-43-
<PAGE>
upon a material breach of any covenant or agreement on the part of any Seller
set forth in the Debenture Purchase Agreement or if any representation or
warranty of any Seller shall have become untrue in any material respect, in
either case such that the conditions to the obligation of Aviva to consummate
the transaction would not be satisfied, subject to a cure period under certain
circumstances; (c) by a Majority of the Sellers, upon a material breach of any
covenant or agreement on the part of Aviva set forth in the Debenture Purchase
Agreement or if any representation or warranty of Aviva shall have become untrue
in any material respect, in either case such that the conditions to the
obligation of any Seller to consummate the transaction would not be satisfied,
subject to a cure period under certain circumstances; (d) by either Aviva or a
Majority of the Sellers, if there shall be any order of any court or
governmental authority that is final and nonappealable preventing the
consummation of the transaction, subject to a limited exception; (e) by either
Aviva or a Majority of the Sellers, if the transaction shall not have been
consummated before September 30, 1998; provided, however, that the Debenture
Purchase Agreement may be extended by written notice given by either Aviva or a
Majority of the Sellers to a date not later than October 31, 1998 if the Merger
Agreement shall have been so extended in accordance with the terms thereof; (f)
by either Aviva or a Majority of the Sellers, if the Merger Agreement shall fail
to receive the approval of the stockholders of Garnet at the Garnet Special
Meeting or if the Share Issuance shall fail to receive the approval of the
stockholders of Aviva at the Aviva Special Meeting; or (g) by either Aviva or a
Majority of the Sellers, if the Merger Agreement is terminated in accordance
with its terms.
THE BANK CREDIT FACILITY
Aviva has entered into a new credit facility (the "Bank Credit Facility") with
ING Baring (U.S.) Securities, Inc. (the "Bank") that provides a $15,000,000
senior secured revolving line of credit to Aviva. The purpose of the Bank
Credit Facility is to consolidate the bank indebtedness of both Aviva and
Garnet. The proceeds of borrowings will be used to pay Garnet's OPIC Debt
(estimated to be approximately $6.2 million (net of escrow amounts) and Aviva's
indebtedness to the Bank (estimated to be approximately $7.4 million). The
balance of the proceeds (estimated to be approximately $1.4 million) is to be
used to supplement working capital and, to the extent not funded by cash flow
from operations, fund the combined company's remaining estimated capital
expenditures for 1998.
The borrower under the Bank Credit Facility is Neo Energy, Inc. ("Neo"), a
wholly owned subsidiary of Aviva that is the owner of Aviva's Colombian oil and
gas properties. Borrowings under the Bank Credit Facility are to be guaranteed
by Aviva and Aviva America, Inc. ("Aviva America"), a wholly owned subsidiary of
Aviva that is the owner of Aviva's United States oil and gas properties.
Borrowings under the Bank Credit Facility are to be secured by a first mortgage
on all of Aviva's oil and gas properties (including the oil and gas properties
owned by Garnet), a lien on Aviva's accounts receivable (including those of
Garnet) and any other assets deemed appropriate by the Bank and an unrestricted
pledge of all the outstanding capital stock of Neo and Aviva America. A portion
of the credit (estimated to be approximately $6.0 million) under the Bank Credit
Facility will be guaranteed by OPIC.
Borrowings under the Bank Credit Facility will bear interest at the London
Interbank Offered Rate plus 2.125% per annum. In addition, a guarantee fee of
2.4% per annum on the portion of the borrowings guaranteed by OPIC will be
payable to OPIC.
Aviva has agreed to issue to the Bank 800,000 shares of Aviva Common Stock and
warrants to purchase 1,500,000 shares of Aviva Common Stock at an exercise price
of $0.50 per share in payment of financial advisory fees at the time of the
first borrowing thereunder. In addition, an arrangement fee of $150,000 is
payable at that time.
Borrowings under the Bank Credit Facility will be payable as follows: $50,000
per month through February 1999; on April 1, 1999 an amount sufficient to reduce
the indebtedness thereunder to $9,100,000; and thereafter $275,758 per month
until final maturity on December 31, 2001.
Conditions precedent under the Bank Credit Facility include consummation of
the Merger pursuant to the Merger Agreement, consummation of a merger of the
Partnership with Neo, termination of Garnet's bank credit facility through
payment of the OPIC Debt and receipt by the Bank of a guaranty from OPIC with
respect to approximately $6.0 million of the borrowings.
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<PAGE>
Aviva's affirmative covenants under the Bank Credit Facility include (i)
provision to the Bank of annual and quarterly financial statements, annual
reviews of Aviva's insurance policies and monthly production and cash flow
reports, (ii) compliance by Aviva with applicable laws and regulation, including
environmental laws, (iii) notices to the Bank of material litigation and claims,
(iv) maintenance of a consolidated current ratio of not less than 1.0 to 1.0
(excluding the current portion of indebtedness under the Bank Credit Facility)
and (v) for periods subsequent to March 31, 1999, maintenance of consolidated
net worth of not less than $2,500,000 plus 50% of consolidated net income (if
positive) and 50% of the proceeds of future equity sales and maintenance of a
ratio of consolidated EBITDA (earnings before interest, taxes, depreciation,
depletion and amortization) to interest expense of not less than 2.75 to 1.0.
Its negative covenants include (a) no incurrence of additional indebtedness
other than permitted indebtedness which includes capitalized leases if the
annual payment obligations thereunder does not exceed $_______, (b) no
incurrence of additional liens except in the ordinary course of business, (c) no
sales of assets except in the ordinary course of business and (d) the avoidance
of consolidated general and administrative expense of more than $2,000,000 in
any 12-month period.
Events of default under the Bank Credit Facility include, in addition to
nonpayment of principal, interest and fees and breach of representations and
covenants thereunder, breach of other agreements that are material to Aviva, the
incurrence of a material legal judgment against Aviva, the occurrence of certain
ERISA events and a Change of Control of Aviva (as therein defined).
Based on its internal projections of cash flow, Aviva does not believe that
Aviva will be able to make the principal payment due under the Bank Credit
Facility on April 1, 1999 out of its internally generated funds. See the
discussion under "Reasons for the Merger -- Pro Forma Financial Condition."
Moreover, without an infusion of additional equity capital prior to April 1,
1999, management of Aviva believes that Aviva will be in default of the
consolidated net worth covenant described above which comes into effect on that
date.
-45-
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information is
presented to illustrate the effect on the historical financial statements of
Aviva of the Merger and related transactions including (i) the acquisition of
Garnet by Aviva in a stock for stock exchange to be accounted for using the
purchase method of accounting, (ii) the purchase by Aviva of $15 million in
aggregate principal amount of Garnet's outstanding 9 1/2% Convertible
Subordinated Debentures in exchange for 12,887,771 shares of Aviva common stock,
and (iii) additional borrowings by Aviva of $15 million and the use of those
funds to refinance $7.44 million of existing indebtedness of Aviva and
approximately $6 million of indebtedness of Garnet. The unaudited pro forma
condensed statements of operations give effect to these transactions as if they
had occurred on January 1, 1997. The unaudited pro forma condensed balance sheet
gives effect to these transactions as if they had occurred on March 31, 1998.
The unaudited pro forma adjustments are based on available information
and certain assumptions Aviva believes are reasonable, and in the opinion of
management, include all adjustments necessary to present fairly the pro forma
financial information. The pro forma financial statements and accompanying notes
should be read in conjunction with the historical consolidated financial
statements and notes thereto of Aviva and Garnet, incorporated by reference in
this Joint Proxy Statement/Prospectus. The unaudited pro forma condensed
statements of operations are not necessarily indicative of the results that
would have occurred had the Merger and related transactions occurred on January
1, 1997, nor are they necessarily indicative of future operating results of the
combined companies.
AVIVA PETROLEUM INC.
Unaudited Pro Forma Condensed Statement of Operations
Year Ended December 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Aviva Garnet
Historical Historical Pro Forma Pro Forma
Amounts Amounts Adjustments Adjusted Amounts
---------- ---------- -------------- -------------------
<S> <C> <C> <C> <C>
Oil and gas sales ...................................... $ 9,726 $ 8,982 $ 0 $ 18,708
-------- -------- -------- --------
Expense:
Production ......................................... 4,235 3,677 -- 7,912
Depreciation and depletion and
amortization ..................................... 6,067 4,764 (390) (g) 10,441
Write-down of oil and gas properties ............... 19,953 25,761 (34,609) (g) 11,105
General and administrative ......................... 1,510 941 - 2,451
-------- -------- --------- --------
Total expense .................................. 31,765 35,143 (34,999) 31,909
-------- -------- --------- --------
Other income (expense):
Interest and other income (expense), net ........... 122 381 -- 503
Interest expense ................................... (658) (2,295) 1,641 (i) (1,312)
-------- -------- --------- --------
Total other income (expense) ................... (536) (1,914) 1,641 (809)
-------- -------- --------- --------
Loss before income taxes ............................... (22,575) (28,075) 36,640 (14,010)
Income tax benefits .................................... 93 285 -- 378
-------- -------- --------- --------
Net loss ....................................... $(22,482) $(27,790) $ 36,640 $(13,632)
======== ======== ========= ========
Weighted average common shares outstanding ............. 31,483 45,520
========= ========
Basic and diluted net loss per common share ............ $ (0.71) $ (0.30)
========= ========
</TABLE>
See accompanying notes to pro forma condensed financial statements
-46-
<PAGE>
AVIVA PETROLEUM INC.
Unaudited Pro Forma Condensed Statement of Operations
Three Months Ended March 31, 1998
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Aviva Garnet
Historical Historical Pro Forma Pro Forma
Amounts Amounts Adjustments Adjusted Amounts
---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Oil and gas sales .................................... $ 1,146 $ 1,124 $ - $ 2,270
-------- -------- ------ --------
Expense:
Production ....................................... 799 606 - 1,405
Depreciation, depletion and amortization ......... 671 531 122 (g) 1,324
Write-down of oil and gas properties ............. 2,764 3,483 (922) (g) 5,325
General and administrative ....................... 360 282 642
-------- -------- ------ --------
Total expense ................................ 4,594 4,902 (800) 8,696
-------- -------- ------ --------
Other income (expense):
Interest and other income (expense), net ......... 745 87 - 832
Interest expense ................................. (165) (573) 406 (h) (332)
-------- -------- ------ --------
Total other income (expense) ................. 580 (486) 406 500
-------- -------- ------ --------
Loss before income taxes ............................. (2,868) (4,264) 1,206 (5,926)
Income taxes ......................................... (97) (112) - (209)
-------- -------- ------ --------
Net loss ..................................... $ (2,965) $ (4,376) $ 1,206 $ (6,135)
======== ======== ======== ========
Weighted average common shares outstanding ........... 31,483 45,520
======== ========
Basic and diluted net loss per common share .......... $ (0.09) $ (0.13)
======== ========
</TABLE>
See accompanying notes to pro forma condensed financial statements
-47-
<PAGE>
AVIVA PETROLEUM INC.
Unaudited Pro Forma Condensed Balance Sheet
March 31, 1998
(in thousands, except number of shares)
(unaudited)
<TABLE>
<CAPTION>
Aviva Garnet Pro Forma
Historical Historical Pro Forma Adjusted
Amounts Amounts Adjustments Amounts
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................................... $ 543 $ 2,412 $ (82) (d) $ 2,873
Accounts receivable ........................................... 1,396 836 -- 2,232
Inventories ................................................... 576 380 -- 956
Prepaid expenses and other .................................... 106 142 -- 248
--------- -------- -------- --------
Total current assets ..................................... 2,621 3,770 (82) 6,309
--------- -------- -------- --------
Property and equipment, at cost:
Oil and gas properties and equipment (full cost method) ....... 61,251 60,528 (52,922)(b) 68,857
Other ......................................................... 606 134 (134)(b) 606
--------- -------- -------- --------
61,857 60,662 (53,056) 69,463
Less accumulated depreciation, depletion and amortization ......... (53,289) (52,225) 52,225 (b) (53,289)
--------- -------- -------- --------
8,568 8,437 (831) 16,174
Other assets ...................................................... 1,409 452 (452)(c) 1,409
--------- -------- -------- --------
$ 12,598 $ 12,659 $ (1,365) $ 23,892
========= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt ............................. $ 230 $ 22,641 $(22,471)(d) $ 400
Accounts payable and accrued liabilities ...................... 2,790 1,702 (287)(e) 4,205
--------- -------- -------- --------
Total current liabilities ................................ 3,020 24,343 (22,758) 4,605
--------- -------- -------- --------
Long term debt, excluding current portion ......................... 7,210 -- 7,390 (d) 14,600
Gas balancing obligations and other ............................... 1,585 275 -- 1,860
Stockholders' equity:
Common stock, no par value .................................... 1,574 115 (115)(f) 1,574
Additional paid-in capital .................................... 33,376 52,491 (50,447)(f) 35,420
Accumulated deficit ........................................... (34,167) (64,565) 64,565 (f) (34,167)
--------- -------- -------- --------
Total stockholders' equity ............................... 783 (11,959) 14,003 2,827
--------- -------- -------- --------
$ 12,598 $ 12,659 $ (1,365) $ 23,892
========= ======== ======== ========
</TABLE>
See accompanying notes to pro forma condensed financial statements
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<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements reflect the
following pro forma adjustments:
(a) To record the allocation of the purchase price of Garnet based on the fair
value of the assets acquired and liabilities assumed. The purchase price
of approximately $8.3 million consists of $2.3 million related to the
issuance of 14,036,987 shares of Aviva's common stock at $0.167 per share
and the assumption of approximately $6.0 million of debt.
(b) To adjust oil and gas properties and fixed assets to their allocated
purchase price amount.
(c) To remove Garnet's other assets, principally deferred loan costs.
(d) To adjust for financing activity including: (i) the retirement of $15
million of Garnet's 9 1/2% Convertible Subordinated Debentures in exchange
for 12,887,771 shares of Aviva common stock, (ii) additional borrowings by
Aviva of $15 million and the use of those funds to refinance $7.44 million
of existing indebtedness of Aviva and $6 million of indebtedness of Garnet,
(iii) the reclassification of certain portions of long term debt from
current to noncurrent, and (iv) the aggregate effect on cash and cash
equivalents.
(e) To remove the accrued interest payable ($356,000) on Garnet's 9 1/2%
Convertible Subordinated Debentures and record anticipated severance
benefits ($70,000) for the Chief Executive Officer of Garnet. The Vice
President-Finance and Secretary of Garnet is expected to continue
employment with Aviva.
(f) To eliminate Garnet stockholders' equity and record the value of 12,887,771
shares of Aviva common stock issued at $0.167 per share in exchange for $15
million of Garnet's 9 1/2% subordinated debentures and 1,149,216 shares of
Aviva common stock issued at $0.167 per share in exchange for 11,492,162
shares of Garnet common stock, net of estimated issue costs of $300,000.
(g) To adjust depletion, depreciation and amortization of oil and gas
properties determined by the unit-of-production method including the
allocated purchase price of the Garnet oil and gas properties of $7.6
million at January 1, 1997, and to adjust the write-down of oil and gas
properties based on the revised carrying values.
(h) To reduce interest expense in the amount of: (i) $356,000 associated with
Garnet's $15 million of 9 1/2% convertible subordinated debentures that are
being canceled, and (ii) $50,000 resulting principally from lower
amortization of deferred loan costs and lower outstanding borrowings which
would have occurred had Garnet been acquired on January 1, 1997.
(i) To reduce interest expense in the amount of: (i) $1,425,000 associated with
Garnet's $15 million of 9 1/2% convertible subordinated debentures that are
being canceled, and (ii) $216,000 resulting principally from lower
amortization of deferred loan costs and lower outstanding borrowings which
would have occurred had Garnet been acquired on January 1, 1997.
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<PAGE>
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
AVIVA
For information regarding the security ownership of certain beneficial
owners and management of Aviva, see "The Aviva Special Meeting; Additional
Matters -- Security Ownership by Certain Beneficial Owners" and "The Aviva
Special Meeting; Additional Matters -- Security Ownership by Management."
GARNET
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The
following table sets forth, as of the close of business on March 1, 1998,
certain information with respect to the beneficial share holdings of each
director and each of the five most highly compensated executive officers of
Garnet and all executive officers and directors as a group, as well as the
holdings of each stockholder who was known to Garnet to be the beneficial owner,
as defined in Rule 13d-3 under the Exchange Act of more than 5% of the Common
Shares, based upon Garnet records or Commission records. Each of the persons
listed below has sole voting and investment power with respect to such shares,
unless otherwise indicated.
<TABLE>
<CAPTION>
COMMON SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER (1) OWNED OF CLASS (2)
- ------------------------------------------------------------- --------- ------------
<S> <C> <C>
Wexford Management LLC 1,150,909 (3) 9.1 %
411 West Putnam Avenue
Greenwich, Connecticut 06830
Pecks Management Partners Ltd. 1,090,910 (4) 8.7
One Rockefeller Plaza
New York, New York 10020
Robert J. Cresci 62,950 (5) *
Edgar L. Dyes 40,826 (6) *
Douglas W. Fry 138,062 (7) 1.2
Montague H. Hackett, Jr. 191,690 (6) 1.6
All directors and executive officers as a group (4 persons).... 433,528 3.6
(5,6,7)
</TABLE>
_______________
* Less than 1% of the outstanding Common Shares of Garnet.
(1) Except as otherwise indicated, (i) the persons named in the above table
have sole voting and investment power with respect to all shares of Garnet
Common Stock shown as beneficially owned by them, and (ii) none of the
shares shown in such table or referred to in the footnotes thereto are
shares of which the persons named in the table have the right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under the Exchange
Act.
(2) Based on 11,492,162 shares of Garnet's Common Stock issued and outstanding
on March 1, 1998 plus 2,727,273 shares issuable to such owner or group upon
conversion of the outstanding Garnet Debentures ("Conversion Shares") and
shares issuable upon exercise of vested stock options issued pursuant to
Garnet's stock option plans.
(3) According to a Schedule 13D dated April 23, 1997, the indicated number of
shares consists of Conversion Shares issuable on conversion of Debentures
held by four investment funds. Wexford Management LLC ("Wexford
Management") serves as investment advisor to three
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<PAGE>
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
Conversion Shares with each of the funds, with Wexford Advisors, and with
Charles E. Davidson and Joseph M. Jacob, each of whom is a controlling
person of Wexford Management and Wexford Advisors.
(4) 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 Conversion 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 all its Debentures
were converted. Pecks has sole investment and dispositive power with
respect to the Conversion Shares issuable to its clients and the discretion
to convert the Debentures owned by them.
(5) Consists solely of shares issuable upon exercise of vested stock options
issued pursuant to Garnet's stock option plans. Does not include
Conversion Shares issuable to clients of Pecks, of which Mr. Cresci is a
managing director. For information with respect to such shares, see note
(4) above.
(6) Consists solely of shares issuable upon exercise of vested stock options
issued pursuant to Garnet's stock option plans.
(7) Includes ______ shares issuable upon exercise of vested stock options
issued pursuant to Garnet's stock option plans.
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<PAGE>
DESCRIPTION OF AVIVA CAPITAL STOCK
GENERAL
The following descriptions of certain of the provisions of the certificate
of incorporation and bylaws of Aviva are necessarily general and do not purport
to be complete and are qualified in their entirety by reference to such
documents, which are included as exhibits to the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part.
AVIVA COMMON STOCK
Aviva is authorized to issue 348,500,000 shares of Aviva Common Stock,
without par value. As of the Aviva Record Date, there were 31,482,716 shares of
Aviva Common Stock issued and outstanding and approximately _______ holders of
record of Aviva Common Stock. The holders of Aviva Common Stock are entitled to
one vote for each share on all matters submitted to a vote of stockholders. The
holders of Aviva Common Stock do not have cumulative voting rights in the
election of directors. The holders of Aviva Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors of Aviva out of legally available funds. In the event of liquidation,
dissolution or winding up of Aviva, the holders of Aviva Common Stock are
entitled to share ratably in all assets of Aviva remaining after discharge of
all indebtedness of Aviva. The holders of Aviva Common Stock have no
preemptive, subscription, redemptive or conversion rights. The outstanding
shares are fully paid and nonassessable.
CERTAIN PROVISIONS OF AVIVA CHARTER AND BYLAWS
The Aviva Charter contains provisions authorizing the indemnification of
persons who become parties to any threatened, pending or completed action, suit
or proceeding by reason of the fact that such person is or was a director,
officer, employee or agent of Aviva or is or was serving at the request of Aviva
as a director, officer, employee or agent of another corporation, partnership or
other enterprise against expenses and damages incurred thereby under the
circumstances set forth therein. The Aviva Charter also contains provisions
that, in accordance with the TBCA, limit the liability of directors of Aviva for
monetary damage for acts or omissions by directors acting in such capacity.
Pursuant to these provisions, directors of Aviva may only be liable for (i) a
breach of the duty of loyalty to Aviva, (ii) acts or omissions not in good faith
that constitute a breach of duty of the director to the corporation or that
involves intentional misconduct or a knowing violation of law, (iii) any
transaction from which the director received an improper benefit, whether or not
the benefit resulted from an act taken within the scope of the director's office
and (iv) acts or omissions for which the liability of a director is expressly
provided by statute.
The provisions of the Aviva Charter may be amended or repealed by the vote
of holders of a majority of the outstanding capital stock of Aviva entitled to
vote thereon.
Except in the case of nominations by or at the direction of the Aviva Board
of Directors, written notice must be given of any nomination of a director not
later than the close of business on the tenth day following the day of notice of
a stockholders' meeting.
All actions taken by the Aviva Board of Directors, including the
appointment and removal of officers of Aviva, require the affirmative vote of a
majority of the directors. The Aviva Bylaws provide that the number of
directors on the Aviva Board of Directors may be increased or decreased with the
approval of a majority of the then-authorized number of directors. Also, newly
created directorships resulting from any increase in the authorized number of
directors and any vacant directorships may be filled by the affirmative vote of
a majority of the directors then in office.
The Aviva Bylaws may be adopted, amended or rescinded by the vote of a
majority of the Aviva Board of Directors or by the majority of the outstanding
shares of capital stock entitled to vote.
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TRANSFER AGENT AND REGISTRAR
The U. S. transfer agent and registrar for the Aviva Common Stock is
ChaseMellon Stockholders Services, L.L.C.
DESCRIPTION OF DEPOSITARY SHARES
The following is a description of certain provisions of the Deposit
Agreement dated as of September 15, 1994, between Aviva and ChaseMellon
Shareholder Services, L.L.C., as Depositary for the benefit of all registered
holders from time to time of the Depositary Shares issued hereunder (the
"Holders"). Such description does not purport to be complete and is qualified
in its entirety by reference to the Deposit Agreement, which has been filed as
an exhibit to the Registration Statement. Terms used herein and not otherwise
defined have the meanings ascribed thereto in the Deposit Agreement. A copy of
the Deposit Agreement has been filed as an exhibit to the Registration Statement
of which this Joint Proxy Statement/Prospectus is a part and is available for
inspection at the principal office of the Depositary, currently located at 2323
Bryan Street, Suite 2300, Dallas, Texas 75201 (the "Principal Office").
Depositary Receipts evidencing Depositary Shares have been and will be
issued from time to time by the Depositary in exchange for shares of Aviva
Common Stock deposited pursuant to the Deposit Agreement on the basis of one
Depositary Share for five shares of Aviva Common Stock.
DEPOSIT AND WITHDRAWAL OF AVIVA COMMON STOCK
Registered holders of Aviva Common Stock may from time to time and at any
time surrender certificates evidencing shares of Aviva Common Stock to the
Depositary for deposit pursuant to the Deposit Agreement by executing and
delivering such documents as the Depositary may require, including endorsements
of stock certificates or execution of stock powers in blank. Upon satisfaction
of the Depositary's requirements, the Depositary will issue to the former
registered holder of Aviva Common Stock Depositary Shares registered in the name
of the former registered holder of Aviva Common Stock on the basis of one
Depositary Share for each five shares of Aviva Common Stock so deposited.
Depositary Shares issued pursuant to the Deposit Agreement will be evidenced by
Depositary Receipts.
Upon surrender of Depositary Receipts evidencing Depositary Shares at the
Corporate Trust Office of the Depositary and upon payment of the charges
provided for in the Deposit Agreement, Holders are entitled to withdraw the
shares of Aviva Common Stock and any other securities or other property then
represented by the Depositary Shares. Any Holder requesting withdrawal of Aviva
Common Stock must deliver to the Depositary a written order containing delivery
instructions. The forwarding of certificates evidencing Aviva Common Stock and
any other securities or property by the Depositary to the withdrawing Holder
will be at the risk and expense of the Holder.
The owners of Depositary Shares are, by virtue thereof, beneficial owners
of the Aviva Common Stock represented by the Depositary Shares. By their
acceptance of Depositary Receipts evidencing Depositary Shares, the Holders
thereof have agreed to comply with all laws, such as Section 13(d) of the
Exchange Act, relating to ownership of the Aviva Common Stock.
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
To the extent that the Depositary receives cash dividends paid by Aviva on
the Aviva Common Stock, the Depositary is required by the terms of the Deposit
Agreement to distribute such amounts to the Holders of Depositary Shares in
proportion to the number of Depositary Shares held by each such Holder, after
deducting any expenses of the Depositary. The amounts distributed will be
reduced by any amounts required to be withheld by Aviva or the Depositary on
account of taxes or other governmental charges.
If the Depositary receives any distribution upon any deposited Aviva Common
Stock in securities or other property (other than cash, Aviva Common Stock or
rights), the Depositary shall cause such securities or property to be
distributed to the Holders of Depositary Shares entitled thereto, after
deduction or upon payment of any expenses of the Depositary, in proportion to
their holdings, in any manner that the Depositary deems equitable and
practicable. If in the opinion of the
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Depositary, however, the distribution of such securities or property cannot be
made proportionately among such Holders, or if for any other reason (including
any requirement that Aviva or the Depositary withhold an amount on account of
taxes or other governmental charges or that such securities must be registered
under the Securities Act in order to be distributed to Holders) the Depositary
deems such distribution not to be feasible, the Depositary may adopt, with
Aviva's approval, such method as it may deem equitable and practicable for the
purpose of effecting such distribution, including the sale (public or private)
of the securities or property thus received, or any part thereof, and the
distribution to Holders of the net proceeds of any such sale.
If Aviva declares and pays a dividend payable in the form of Aviva Common
Stock on the outstanding Aviva Common Stock, the Depositary may, with the
approval of Aviva, and shall, if Aviva so requests, either (i) distribute to the
Holders, in proportion to their holdings, additional Depositary Receipts
evidencing additional Depositary Shares on the basis of one Depositary Share for
each five shares of Aviva Common Stock paid as a dividend or (ii) reflect on the
records of the Depositary a change in the ratio of Depositary Shares to the
number of shares of Aviva Common Stock represented thereby as necessary to take
into account such Aviva Common Stock dividend. In lieu of issuing fractional
Depositary Shares, the Depositary will sell the number of whole Depositary
Shares represented by the aggregate of such fractions and distribute the net
proceeds in cash, all in the manner and subject to the conditions set forth in
the Deposit Agreement.
If Aviva offers to the holders of Aviva Common Stock any rights to
subscribe for additional Aviva Common Stock or any other rights, the Depositary
will, if Aviva so directs and in such manner as Aviva shall instruct, make such
rights available to the Holders of the Depositary Shares (through the issuance
of warrants representing such rights or otherwise). If, at the time of issuance
of such rights, Aviva shall determine that it is not lawful or feasible to make
such rights available to some or all Holders or if and to the extent that the
Depositary is instructed by Holders of Depositary Shares who do not desire to
exercise such rights, the Depositary shall, if so instructed by Aviva and if
applicable laws and the terms of the rights permit, sell such rights at public
or private sale and distribute the net proceeds to the Holders of Depositary
Shares entitled thereto as in the case of a cash dividend. If the Depositary is
precluded by applicable law, the terms of the rights or otherwise from making
such rights available to the Holders and from selling the rights and
distributing the net proceeds of such sale to the Holders, the Depositary shall
allow the rights to lapse.
The Depositary will not and is not required to offer such rights to Holders
unless and until a registration statement under the Securities Act is in effect
with respect thereto or unless the offering, sale and delivery of such
securities to Holders are exempt from the registration requirements of the
Securities Act. Aviva has agreed in the Deposit Agreement that, if registration
under the Securities Act is required in connection with the offering to the
Holders of the securities to which any such rights relate, Aviva will timely
file a registration statement with respect to such offering and will use its
best efforts to cause it to become effective under the Securities Act.
RECORD DATES
Whenever any cash dividend or other cash distribution becomes payable or
any distribution other than cash is made, or whenever rights are issued or
whenever the Depositary shall receive notice of any meeting of holders of Aviva
Common Stock or of any solicitation of consents with respect thereto, the
Depository will fix a record date, which record date shall be the same record
date fixed by Aviva, or as near as practicable to the record date set by Aviva,
for the determination of the Holders who will be entitled to receive such
dividend, distribution or rights or the net proceeds of the sale thereof, or to
receive notice of, and to give instructions for the exercise of voting rights
at, or the delivery of consents with respect to, any such meeting or consent
solicitation, subject, in each case, to the provisions of the Deposit Agreement.
VOTING OF THE AVIVA COMMON STOCK
At the same time that Aviva mails to its shareholders notice of any meeting
or solicitation of consents or proxies of holders of Aviva Common Stock, Aviva
will provide to the Depositary and the Depositary will mail the information
contained in such notice of meeting to Holders. Holders will be entitled to
instruct the Depositary as to the manner of voting the Aviva Common Stock
evidenced by the Depositary Receipts at any meeting of shareholders. The
Depositary will not itself
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exercise any voting discretion with respect to any Aviva Common Stock deposited
under the Deposit Agreement.
INSPECTION OF TRANSFER BOOKS
The Depositary will keep books at its Corporate Trust Office for the
registration and transfer of Depositary Receipts, which at all reasonable times
will be open for inspection and copying by Holders and Aviva, provided that, in
the case of a Holder, such right to inspect and copy is limited to the same
extent as the right of a holder of Aviva Common Stock is limited by applicable
law.
REPORTS AND NOTICES
Aviva will make available for inspection by Holders at its corporate
headquarters any notices, reports and communications that are made generally
available to the holders of Aviva Common Stock by Aviva. Aviva will also send
to the Depositary and Holders copies of such notices, reports and communications
as provided in the Deposit Agreement.
CHANGES AFFECTING AVIVA COMMON STOCK
Upon any change in par value, split-up, consolidation or any other
reclassification of the Aviva Common Stock, or upon any recapitalization,
reorganization, merger or consolidation or sale of assets affecting Aviva or to
which it is a party, any securities that are received by the Depositary in
exchange for or in conversion of or in respect of such Aviva Common Stock will
be held by the Depositary under the Deposit Agreement, and the Depositary
Receipts evidencing outstanding Depositary Shares will thenceforth represent the
new securities so received, unless additional or new Depositary Receipts are
delivered as described in the following sentence. In any such case the
Depositary may, and will, if Aviva so requests, execute and deliver additional
Depositary Receipts or call for the surrender of outstanding Depositary Receipts
to be exchanged for new Depositary Receipts.
Each Holder of Depositary Shares, by acceptance of the Depositary Receipt
evidencing such Depositary Shares, acknowledges that the Depositary Shares
represent beneficial ownership of the Aviva Common Stock in exchange for which
the Depositary Shares were issued and that, to the extent such Holder is subject
to the laws of the United States or the United Kingdom, such Holder will comply
with the laws of such jurisdiction relating to beneficial ownership of the Aviva
Common Stock, including, in the United States, Section 13(d) of the Securities
Exchange Act of 1934, as amended.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of the Depositary Receipts and the Deposit Agreement may at any
time and from time to time be amended by agreement between Aviva and the
Depositary and, except as provided in the next sentence, such amendment requires
no consent from the Holders. Any amendment that imposes or increases any fees
or charges (other than taxes and other governmental charges) payable by Holders,
or that otherwise prejudices any substantial existing right of the Holders, will
not take effect as to outstanding Depositary Shares until the expiration of
three months after notice of such amendment has been given to the Holders.
Every Holder at the time any such amendment becomes effective will be deemed, by
continuing to hold a Depositary Receipt, to consent and agree to such amendment
and to be bound by the Deposit Agreement as amended thereby.
Whenever so directed by Aviva, the Depositary will terminate the Deposit
Agreement by mailing notice of such termination to the Holders at least 30 days
prior to the date fixed in such notice for such termination. The Depositary may
likewise terminate the Deposit Agreement upon 30 days' notice to the Holders if
at any time 90 days shall have expired after the Depositary shall have delivered
to Aviva a written notice of its election to resign and a successor depositary
shall not have been appointed and accepted its appointment, as provided in the
Deposit Agreement. If any Depositary Shares remain outstanding after the date
of termination, the Depositary thereafter will discontinue the registration of
transfers of Depositary Receipts, will suspend the distribution of dividends to
the Holders and will not give any further notices or perform any further acts
under the Deposit Agreement, except that the Depositary will continue to collect
dividends and other distributions pertaining to the deposited Aviva Common
Stock, will sell rights as provided in the
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Deposit Agreement and will deliver deposited Aviva Common Stock, together with
any dividends or other distributions received with respect thereto and the net
proceeds of the sale of any rights or other property, in exchange for Depositary
Receipts surrendered to the Depositary.
At any time after the expiration of one year from the date of termination,
the Depositary may sell the deposited Aviva Common Stock then held and hold the
net proceeds of any such sale, together with any cash then held, unsegregated
from its other funds and without liability for interest, for the pro rata
benefit of the Holders who have not theretofore surrendered their Depositary
Receipts.
CHARGES OF DEPOSITARY
Aviva will pay all charges of the Depositary and those of the registrar, if
any, under the Deposit Agreement, except for taxes and other governmental
charges and certain cable, telex, facsimile transmission and delivery charges,
which charges shall be paid by the Holders to the Depositary. As a condition to
effecting any delivery, registration, transfer, split-up, combination, surrender
or exchange of any Depositary Receipt evidencing Depositary Shares or any
transfer or withdrawal of Aviva Common Stock deposited under the Deposit
Agreement, the Depositary may require payment of a sum sufficient to reimburse
it for, or evidence satisfactory to the Depositary of the payment of, any tax,
duty or other governmental charge with respect thereto.
GENERAL
Neither the Depositary nor Aviva will be liable to the Holders if prevented
or delayed by law, governmental authority, any provision of the corporate
charter of Aviva or any circumstances beyond its control in performing its
obligations under the Deposit Agreement. The obligations of Aviva and the
Depositary under the Deposit Agreement are expressly limited to using their
reasonable efforts and performing in good faith their respective duties
specified therein.
The Depositary Receipts are transferable on the books of the Depositary;
provided however, that the Depositary may close the transfer books at any time
or from time to time when deemed expedient by it in connection with the
performance of its duties under the Deposit Agreement or at the request of
Aviva. The delivery, transfer and surrender of Depositary Receipts generally
may be suspended during any period when the transfer books of the Depositary or
Aviva are closed, or if any such action is deemed necessary or advisable by the
Depositary or Aviva, in good faith, at any time or from time to time in
accordance with the Deposit Agreement.
The Depositary may refuse to deliver Depositary Receipts, register the
transfer of any Depositary Receipt or make any distribution of, or related to,
Aviva Common Stock until it has received such proof of citizenship, residence,
exchange control approval, legal or beneficial ownership or other information as
it may deem necessary or proper.
Aviva has also appointed the Depositary to act as registrar, and the
Depositary may, with the approval of Aviva, appoint one or more co-registrars
for registration of the Depositary Receipts in accordance with the requirements
of any stock exchange on which such Depositary Receipts are listed. Such
registrars or co-registrars shall, upon Aviva's request, and may, with the
approval of Aviva, be removed and a substitute or substitutes appointed by the
Depositary.
COMPARATIVE RIGHTS OF AVIVA AND GARNET STOCKHOLDERS
As a result of the Merger, Garnet shareholders will receive Aviva Common
Stock in exchange for their shares of Garnet Common Stock. The rights of all
former Garnet stockholders will thereafter be governed by the articles of
incorporation of Aviva (the "Aviva Charter"), the Aviva bylaws (the "Aviva
Bylaws"), and the TBCA. The rights of holders of Garnet are currently governed
by the certificate of incorporation of Garnet (the "Garnet Charter"), the bylaws
of Garnet (the "Garnet Bylaws"), and the DGCL. The following summary, which
does not purport to be a complete statement of the general differences between
the rights of the stockholders of Aviva and Garnet, sets forth certain
differences between the relevant provisions of the Aviva Charter and the Garnet
Charter, the Aviva Bylaws and the Garnet Bylaws, and the TBCA and the DGCL.
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Since Aviva is a Texas corporation and Garnet is a Delaware corporation,
the differences between the rights of the Aviva stockholders and the Garnet
stockholders will arise from the various differences between the TBCA and the
DGCL, as well as from the differences between the various provisions of the
Aviva Charter and Aviva Bylaws and the Garnet Charter and Garnet Bylaws. The
following summary is qualified in its entirety by reference to the TBCA, the
DGCL, the complete text of the Aviva Charter and Aviva Bylaws and the Garnet
Charter and Garnet Bylaws.
AMENDMENTS TO THE CHARTER
Aviva. Article 4.02 of the TBCA provides that an amendment to a
corporation's articles of incorporation must be approved by the holders of at
least two-thirds of the outstanding shares entitled to vote thereon, unless the
corporation's articles of incorporation provide otherwise. Under the Aviva
Charter, provisions of the Charter may be amended or repealed by the vote of
holders of a majority of the outstanding capital stock entitled to vote thereon.
Garnet. Section 242 of the DGCL provides that an amendment to a
corporation's certificate of incorporation must be approved by a resolution of
the board of directors declaring the advisability of the amendment and by the
affirmative vote of a majority of the outstanding shares entitled to vote
thereon. The DGCL also permits a corporation to make provision in its
certificate of incorporation requiring a greater proportion of voting power to
approve a specified amendment.
AMENDMENTS TO BYLAWS
Aviva. The Aviva Bylaws may be adopted, amended or rescinded either by the
vote of a majority of the Board of Directors or by the holders of a majority of
the outstanding shares of the capital stock present and entitled to vote at a
meeting.
Garnet. The Garnet Bylaws may be amended either by the Board of Directors
or by the holders of a majority of the outstanding shares of the capital stock
present and entitled to vote at a meeting.
BOARD OF DIRECTORS
Both the TBCA and the DGCL provide that a majority of the total number of
directors shall constitute a quorum for the transaction of business, unless the
charter or bylaws require a greater number.
Aviva. The TBCA provides that the board of directors of a Texas
corporation shall consist of one or more members as fixed by the articles of
incorporation or bylaws. The Aviva Bylaws grant the Board of Directors the
power to set the number of directors. This number, which is presently set at
five, may be increased or decreased with the approval of a majority of the then
authorized number of directors. All actions taken by the Aviva Board of
Directors, including the appointment and removal of officers of Aviva, require
the affirmative vote of a majority of the directors.
Garnet. The DGCL provides that the board of directors of a Delaware
corporation shall consist of one or more directors as fixed by the certificate
of incorporation or bylaws. The Garnet Bylaws authorize no fewer than three and
no more than seven persons to serve on its Board of Directors at one time.
Garnet presently has three directors. The number of directors may be increased
or decreased by resolution approved by the unanimous vote of the then authorized
directors.
REMOVAL OF DIRECTORS
Aviva. Under the TBCA, a corporation's bylaws or articles of incorporation
may provide that, at any meeting of shareholders called expressly for that
purpose, one or more directors or the entire board may be removed with or
without cause by a vote of the holders of a specified portion, but not less than
a majority, of the shares then entitled to vote in an election of directors.
Garnet. Both the DGCL and the Garnet Bylaws provide that a director or the
entire board of directors of a Delaware corporation may be removed, with or
without cause, by the affirmative vote of the holders of a majority of the
outstanding shares then entitled to vote at an election of directors.
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NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Aviva. Under the TBCA, any vacancy occurring on a board of directors shall
be filled by the affirmative vote of a majority of the remaining members of the
board of directors then in office, even though less than a quorum, provided that
any director so elected shall hold office only for the remainder of the term of
the director whose departure caused the vacancy. Under the TBCA, a directorship
created by reason of an increase in the number of directors may be filled by the
board of directors for a term of office continuing only until the next election
of directors (whether at an annual or special shareholders meeting). The TBCA
further provides that the board of directors shall not fill more than two such
directorships during the period between two successive annual meetings of
shareholders. According to the Aviva Bylaws, newly created directorships
resulting from any increase in the authorized number of directors and any vacant
directorships may be filled by the affirmative vote of a majority of the
directors then in office. This provision of the Aviva Bylaws may be altered,
amended or repealed by the affirmative vote of the majority of either the Aviva
Board of Directors or the outstanding shares of capital stock of Aviva entitled
to vote.
Garnet. The DGCL provides that, unless otherwise provided in the
certificate of incorporation or bylaws, vacancies and newly created
directorships may be filled by a majority vote of the directors then in office,
even if the number of directors then in office is less than a quorum. The Garnet
Bylaws provide that vacancies and newly created directorships resulting from any
such increase may be filled by a majority of the directors then in office. This
provision of the Garnet Bylaws may be altered, amended, or repealed by the
affirmative vote of the majority of either the Garnet Board of Directors or the
outstanding shares of capital stock of Garnet entitled to vote.
SPECIAL MEETINGS OF STOCKHOLDERS
Aviva. Under the TBCA, special meetings of the shareholders may be called
at any time by the board of directors, the chairman of the board, the president,
or holders of at least 10% of the shares entitled to vote at the special
meeting. The Aviva Bylaws, however, provide that a special meeting of
stockholders may be called by the Aviva Board of Directors, the Chairman of the
Board, the President, or by the holders of a majority of the issued and
outstanding shares of the capital stock of Aviva entitled to vote. Written
notice of a special meeting must be mailed out not fewer than ten or more than
sixty days before the meeting to each stockholder of record entitled to vote.
Garnet. The DGCL provides that special meetings of shareholders may be
called by the board of directors or by such person or persons as may be
authorized by the certificate of incorporation or bylaws. The Garnet Bylaws
provide that a special meeting of the stockholders may be called by the Chairman
of the Board, the President, or by the Garnet Board of Directors pursuant to a
resolution approved by the majority of the entire Board. The DGCL and the
Garnet Bylaws provide that written notice of a special meeting must be delivered
not less than ten or more than sixty days before the date of such meeting to
each stockholder of record entitled to vote.
ACTION BY WRITTEN CONSENT
Aviva. The TBCA provides that any action required to be taken at any
annual or special meeting of shareholders may be taken without a meeting and
without prior notice if a consent in writing setting forth the action to be
taken shall be signed by the holders of shares having not less than the minimum
number of votes necessary to take such action at a meeting of shareholders.
Garnet. The DGCL provides that, unless otherwise provided in the
corporation's charter or bylaws, any action required or permitted to be taken at
any annual or special meeting of shareholders may be taken without a meeting,
without prior notice, and without a vote if a consent or consents in writing,
setting forth the action to be so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The Garnet Bylaws permit
action to be taken by the Garnet stockholders without a meeting.
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VOTING
Neither the Aviva nor the Garnet Charter provides for cumulative voting
right for the election of directors.
MERGERS AND OTHER FUNDAMENTAL TRANSACTIONS
Aviva. The TBCA generally requires that a merger, consolidation, sale of
all or substantially all of the assets, or dissolution of a corporation be
approved by the holders of at least two-thirds of the outstanding shares of
stock entitled to vote, unless such corporation's articles of incorporation
provide otherwise. The Aviva Charter does not contain any provisions that would
require greater than a majority of stockholders to approve such transactions
involving Aviva.
Garnet. Under the DGCL, mergers, consolidations, sales of substantially
all of the assets or dissolution of a corporation generally must be approved by
the board of directors and the affirmative vote of a majority of the outstanding
stock entitled to vote thereon, unless the certificate of incorporation requires
approval by a greater number of shares of stock. The Garnet Charter does not
contain any provisions that would require greater than a majority of
stockholders to approve mergers, consolidations, sales of a substantial amount
of assets or other similar transactions involving Garnet.
Unless required by its certificate of incorporation, no stockholder vote is
required of a corporation surviving a merger if (i) such corporation's
certificate of incorporation is not amended by the merger; (ii) each share of
stock of such corporation will be an identical share of the surviving
corporation after the merger; and (iii) either no shares are to be issued by the
surviving corporation or the number of shares to be issued in the merger does
not exceed 20% of such corporation's outstanding common stock immediately prior
to the effective date of the merger.
LIMITATIONS ON DIRECTORS' LIABILITY
Aviva. Under the TBCA, a director shall not be liable to the corporation
or to shareholders as a director if that director exercised ordinary care and
acted in good faith. Additionally, the director shall not be personally liable
for damages that may result from his acts in the discharge of any duty imposed
or power conferred upon him by the corporation if, in the exercise of ordinary
care, he acted in good faith and in reliance upon the written opinion of an
attorney for the corporation. The Aviva Charter contains provisions that limit
the liability of directors of Aviva for breach of fiduciary duty by directors
acting in such capacity. Pursuant to these provisions, directors of Aviva may
be liable for breach of fiduciary duty only (a) in relation to the payment of
unlawful dividends, the unlawful purchases of stock of the corporation or (b)
if, in addition to any and all other requirements for such liability, any such
director (i) shall have breached the duty of loyalty to Aviva, (ii) in acting or
failing to act, shall not have acted in good faith or shall have acted in a
manner involving intentional misconduct or a knowing violation of law or (iii)
shall have derived an improper personal benefit.
Garnet. Under the DGCL and the Garnet Charter, directors shall not be
personally liable to the corporation or any stockholder for monetary damages for
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) for intentional or negligent payment of unlawful
dividends or stock redemptions; or (iv) for any transaction from which the
director derived an improper personal benefit.
INDEMNIFICATION
Aviva. Under Article 2.02-1 of the TBCA and the Aviva Charter, each
current and former director and officer of a Texas corporation, or each person
who served at request as a director or officer of a subsidiary of the
corporation, shall be indemnified by the corporation for liabilities imposed
upon him, expense reasonably incurred by him in connection with any claim made
against him, or any action, suit or proceeding to which he may be a party by
reason of being or having been a director or an officer, and for any reasonable
settlement of any such claim, action, suit or proceeding. The TBCA provides
that a corporation may undertake any indemnification of a director or officer
only if it is determined that such person (i) conducted himself in good faith,
(ii) reasonably believed that, in the case of conduct in his official capacity
as a director, that his conduct was in the corporation's best interests, and in
all other cases, that his conduct was at least not opposed to the
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<PAGE>
corporation's best interests, and (iii) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful, and that a
corporation must indemnify a director against reasonable expenses incurred by
him in connection with a proceeding in which he is a named defendant because he
is or was a director if he has been wholly successful in the defense of the
proceeding. The TBCA further provides that Texas corporations may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of such corporation for any liability asserted against him,
whether or not the corporation would have the power to indemnify him against
liability under the TBCA.
The Aviva Charter authorizes the indemnification of persons who become
parties to any threatened, pending or completed action, suit or proceeding by
reason of the fact that such person is or was a director, officer, employee or
agent of Aviva or is or was serving at the request of Aviva as a director,
officer, employee or agent of another corporation, partnership, or other
enterprise against expenses and damages incurred thereby.
Garnet. Under Section 145 of the DGCL and the Garnet Charter, Garnet shall
indemnify any person made a party or threatened to be made a party to any type
of proceeding (other than an action by or in the right of the corporation)
because he or she is or was an officer, director or employee of Garnet, or was
serving at the request of Garnet as a director, officer, employee or agent of
another corporation or entity, against expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with such
proceeding (i) if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation; or (ii) in the case of a criminal proceeding, such person had no
reasonable cause to believe that his or her conduct was unlawful. Additionally,
the DGCL provides that a corporation must indemnify a director or officer
against expenses (including attorneys' fees) actually and reasonably incurred if
such person successfully defends himself or herself in a proceeding to which
such person was a party because he or she was a director or officer of the
corporation. The DGCL further provides that the corporation may purchase and
maintain insurance on behalf of any director, officer, employee or agent of the
corporation against any liability asserted against such person and incurred by
such person in any such capacity, whether or not the corporation would have the
power to indemnify such person against liability.
THE AVIVA SPECIAL MEETING;
ADDITIONAL MATTERS
ELECTION OF AVIVA DIRECTORS
The by-laws of Aviva grant the Board of Directors the power to set the
number of directors, except that a decrease in the number of directors shall not
have the effect of reducing the term of any incumbent director. On July 30,
1997, the Board of Directors, by resolution, increased the number of directors
from four to five. At that time, Eugene C. Fiedorek was elected a director at a
regular meeting of the Board of Directors.
The Merger Agreement contemplates that the Board of Directors of Aviva
following the Merger will consist of three directors who shall be, if they
continue to be able and willing to serve as such, Ronald Suttill, Eugene C.
Fiedorek and Robert J. Cresci. Messrs. Suttill and Fiedorek currently serve as
directors of Aviva and Mr. Cresci is currently a director of Garnet.
In contemplation of consummation of the Merger, the Board of Directors has,
effective as of the date of the Special Meeting, reduced the number of directors
to three and has nominated two individuals to serve as directors for the ensuing
year and until their successors are elected and qualify: Ronald Suttill and
Eugene C. Fiedorek. If the Merger is consummated, it is the intention of the
Board of Directors that Robert J. Cresci, who has consented to serve, shall be
elected to fill the vacancy on the Board of Directors. If the Merger is not
consummated, the Board of Directors has no current plan to fill such vacancy.
INFORMATION REGARDING CURRENT DIRECTORS
The information set forth below, furnished to Aviva by the respective
individuals, shows as to each individual who is currently serving as a director
of Aviva his name, age and principal positions with Aviva.
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<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITIONS DIRECTOR
---- --- --------- --------
<S> <C> <C> <C>
Ronald Suttill 66 President, Chief Executive Officer 1985
and Director
Eugene C. Fiedorek 66 Director 1997
John J. Lee 61 Director 1993
Elliott Roosevelt, Jr. 61 Director 1994
James E. Tracey 49 Director 1992
</TABLE>
INFORMATION REGARDING NOMINEES FOR DIRECTOR
Ronald Suttill has been a director of Aviva since August 1985 and has been
President and Chief Executive Officer of Aviva since January 1992. In December
1991, Mr. Suttill was appointed President and Chief Operating Officer and prior
to that served as Executive Vice President of Aviva.
Eugene C. Fiedorek has been a director of Aviva since July 1997. Mr.
Fiedorek is a Managing Director of EnCap Investments, L.C., a company he co-
founded in 1988. He was previously associated with RepublicBank Dallas for more
than 20 years, most recently as the Managing Director in the Energy Department
in charge of all energy-related commercial lending and corporate finance
activities. Prior to joining RepublicBank, Mr. Fiedorek was with Shell Oil
Company as an Exploitation Engineer. Mr. Fiedorek currently serves on the boards
of Energy Capital Investment Company PLC, Apache Corporation and privately held
Matador Petroleum Corporation.
Robert J. 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., EIS International, Inc.,
Sepracor, Inc., Arcadia Financial, Ltd., Hitox, Inc., Meris Laboratories, Inc.,
Film Roman, Inc., Educational Medical, Inc., Source Media, Inc., Castle Dental
Centers, Inc., Candlewood Hotel Co., Inc., SeraCare, Inc. and several private
companies.
EXECUTIVE OFFICERS OF AVIVA
The following table lists the names and ages of each of the executive
officers of Aviva and their principal occupations for the past five years.
<TABLE>
<CAPTION>
NAME AND AGE POSITIONS
- ------------ ---------
<S> <C>
Ronald Suttill, 66 President and Chief Executive Officer since
January 1992, President and Chief Operating
Officer from December 1991 to January 1992
and Executive Vice President prior to that.
James L. Busby, 38 Treasurer since May 1994, Secretary since June
1996, Controller since November 1993 and a Senior
Manager with the accounting firm of KPMG Peat
Marwick LLP prior to that.
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Aviva held nine meetings during 1997. Each
director attended at least 75% of the aggregate of (i) the total number of
meetings of the Board of Directors held during the period in which he was a
director and (ii) the total number of meetings held by all committees on which
he served.
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<PAGE>
The Audit Committee and the Compensation Committee are the only standing
committees of the Board of Directors, and the members of such committees are
appointed at the initial meeting of the Board of Directors each year. Aviva does
not have a nominating committee; the Board of Directors performs this function.
The Audit Committee, which is comprised of Messrs. Roosevelt and Tracey,
consults with the independent accountants of Aviva and such other persons as the
committee deems appropriate, reviews the preparations for and scope of the audit
of Aviva'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 Aviva as the Board of Directors
may assign from time to time. The Audit Committee held two meetings during 1997.
The Compensation Committee, which is comprised of Messrs. Lee, Roosevelt
and Tracey, makes recommendations to the Board of Directors regarding the
compensation of executive officers of Aviva, including salary, bonuses, stock
options and other compensation. The Compensation Committee held no meetings
during 1997.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires officers, directors and holders
of more than 10% of the Common Stock (collectively, "Reporting Persons") to file
reports of ownership and changes in ownership of the Common Stock with the SEC
within certain time periods and to furnish Aviva with copies of all such
reports. Based solely on its review of the copies of such reports furnished to
Aviva by such Reporting Persons or on the written representations of such
Reporting Persons, Aviva believes that, during the year ended December 31, 1997,
all of the Reporting Persons complied with their Section 16(a) filing
requirements.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
earned in each of the last three fiscal years by the President and Chief
Executive Officer of Aviva (the "Named Executive Officer").
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL COMPEN- AWARD(S) OPTIONS/ PAYOUTS COMPENSA-
POSITION YEAR SALARY($) BONUS($) SATION($) ($) SARS(#) ($) TION($)
-------- ---- --------- -------- --------- --- ------- --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald Suttill(1)
President and 1997 185,000 -- -- -- -- -- 4,750
CEO
President and 1996 200,000 -- -- -- -- -- 4,750
CEO
President and 1995 200,000 -- -- -- -- -- 4,620
CEO
</TABLE>
/(1)/ The amounts reported for all other compensation for Mr. Suttill represent
matching contributions made under the Aviva Petroleum Inc. 401(k)
Retirement Plan (the "401(k) Plan").
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<PAGE>
DIRECTORS' FEES
Messrs. Fiedorek, Lee, Roosevelt and Tracey each receive $20,000 per year
for their services as directors and are reimbursed for travel and lodging
expenses. Mr. Suttill receives no compensation as a director but is reimbursed
for travel and lodging expenses incurred to attend meetings.
OPTION GRANTS DURING 1997
There were no options granted to the Named Executive Officer during 1997.
No stock appreciation rights have been issued by Aviva.
OPTION EXERCISES DURING 1997 AND YEAR END OPTION VALUES
The following table provides information related to options exercised by
the Named Executive Officers during 1997 and the number and value of options
held at year-end. No stock appreciation rights have been issued by Aviva.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE OPTIONS AT FY-END (#) AT FY-END($)(1)
NAME ON EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Suttill None None 270,000 -- -- --
</TABLE>
/(1)/ No values are ascribed to unexercised options of the Named Executive
Officer at December 31, 1997 because the fair market value of a share of
Aviva's Common Stock at December 31, 1997 ($0.33) did not exceed the
exercise price of any such options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
As indicated above, the Compensation Committee, none of the members of
which is an employee of Aviva, makes recommendations to the Board of Directors
regarding the compensation of the executive officers of Aviva, including salary,
bonuses, stock options and other compensation. There are no Compensation
Committee interlocks. Until this committee was originally appointed in 1993, the
compensation of the executive officers was established by the Board of Directors
as a whole, including Mr. Suttill.
EMPLOYMENT CONTRACTS
Each executive officer serves at the discretion of the Board of Directors,
except that, effective in January 1995, Aviva entered into an employment
contract with Mr. Suttill. Mr. Suttill's contract provides for annual
compensation of not less than $200,000 if his employment is terminated for any
reason other than death, disability or cause, as defined in the contract. Mr.
Suttill's contract was automatically renewed for one-year periods on January 1,
1996, 1997 and 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Aviva currently employs only two executive officers, the names of whom are
set forth above under "Election of Directors - Executive Officers of Aviva."
Decisions regarding compensation of the executive officers are made by the Board
of Directors, after giving consideration to recommendations made by the
Compensation Committee.
Aviva's compensation policies are designed to provide a reasonably
competitive level of compensation within the industry in order to attract,
motivate, reward and retain experienced, qualified personnel with the talent
necessary to achieve Aviva's performance objectives. These objectives are to
increase oil and gas reserves and to control costs, both objectives selected to
increase shareholder value. These policies were implemented originally by the
entire Board of Directors, and, following its establishment, were endorsed by
the Compensation Committee. It is the intention of the Compensation Committee
and the Board of Directors to balance compensation levels of Aviva's executive
officers, including the Chief Executive Officer, with shareholder interests. The
incentive provided by stock options and bonuses, in particular, is intended to
promote congruency of interests between the executive officers and the
shareholders. Neither the
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<PAGE>
Compensation Committee nor the Board of Directors, however, believes that it is
appropriate to rely on a formulaic approach, such as profitability, revenue
growth or return on equity, in determining executive officer compensation
because of the nature of Aviva's business. Aviva's business objectives include
overseeing a significant exploration and development effort in Colombia and the
maintenance of oil and gas production levels and offshore operations in the
United States. Success in one such area is not measurable by the same factors
as those used in the other. Accordingly, the Compensation Committee and the
Board of Directors rely primarily on their assessment of the success of the
executive officers, including the Chief Executive Officer, in fulfilling Aviva's
performance objectives. The Board of Directors also considers the fact that
Aviva competes with other oil and gas companies for qualified executives and
therefore it considers available information regarding compensation levels for
executives of companies similar in size to Aviva.
Compensation for Aviva's executive officers during 1997 was comprised of
salary and matching employer contributions made pursuant to Aviva's 401(k) Plan.
There were no bonuses paid to the executive officers during or for 1997. Aviva's
401(k) Plan is generally available to all employees after one year of service.
Aviva makes matching contributions of 50% of the amount deferred by the
employee, up to 3% of an employee's annual salary.
Compensation Committee
J.J. Lee
E. Roosevelt, Jr.
J.E. Tracey
PERFORMANCE GRAPH
The following line-graph presentation compares five-year cumulative
shareholder returns on an indexed basis with a broad equity market index and a
published industry index. Aviva has selected the American Stock Exchange Market
Value Index as a broad equity market index, and the SIC Index "Crude Petroleum
and Natural Gas" as a published industry index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN OF THE
COMPANY, INDUSTRY INDEX AND BROAD MARKET
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
- ---------------------------------------------------------------------------------
COMPANY 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
AVIVA PETROLEUM INC. 100 215.38 264.10 225.64 200.00 84.62
INDUSTRY INDEX 100 119.15 124.87 137.33 182.60 185.09
BROAD MARKET 100 118.81 104.95 135.28 142.74 171.76
</TABLE>
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to each person who,
to the knowledge of Aviva, is the beneficial owner of more than five percent of
the outstanding Common Stock of Aviva. Unless otherwise noted, the information
is furnished as of February 27, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF BENEFICIAL
OWNER OR GROUP OWNERSHIP /(1)/ PERCENT OF CLASS /(2)/
- ------------------------------ ------------------------------- ----------------------
<S> <C> <C>
Lehman Brothers Inc. /(3)/ 2,966,876 9.42%
3 World Financial Center
11th Floor
New York, NY 10285
Fidelity International Limited 2,780,000 8.83%
and Edward C. Johnson III /(4)/
P.O. Box HM670
Hamilton, HMCX, Bermuda
Yale University /(5)/ 2,551,886 8.11%
230 Prospect Street
New Haven, CT 06511
</TABLE>
(1) Except as set forth below, to the knowledge of Aviva, each beneficial owner
has sole voting and sole investment power.
(2) Based on 31,482,716 shares of the Common Stock issued and outstanding on
February 27, 1998.
(3) Information regarding Lehman Brothers Inc. is based on information received
from Lehman Brothers Inc. on March 16, 1998.
(4) Information regarding Fidelity International Limited is based on an amended
notification of disclosable interests, dated July 25, 1996, pursuant to the
U.K. Companies Act. Fidelity International Limited is the parent holding
company for various direct and indirect subsidiaries that hold these
interests. Mr. Edward C. Johnson III is a principal shareholder and
chairman of Fidelity International Limited.
(5) Information regarding Yale University is based on a Schedule 13G dated
March 11, 1994 filed by Yale University with the Commission.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of February 27, 1998,
concerning the Aviva Common Stock owned beneficially by each director, by the
Named Executive Officer listed in the Summary Compensation Table above, and by
directors and executive officers of Aviva as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF BENEFICIAL
OWNER OWNERSHIP /(1)/ PERCENT OF CLASS /(2)/
- ------------------------------------- ------------------------------- ----------------------
<S> <C> <C>
Ronald Suttill 1,275,050/(3)(4)/ 4.00%
8235 Douglas Avenue, Suite 400
Dallas, TX 75225
Eugene C. Fiedorek 262,153 *
3811 Turtle Creek Blvd., Suite 1080
Dallas, TX 75219
John J. Lee 1,124,428/(5)(6)/ 3.53%
Two Stamford Plaza
281 Tresser Blvd., 16th Floor
Stamford, CT 06901
Elliott Roosevelt, Jr. 60,000/(5)/ *
2626 Cole Avenue, Suite 600
Dallas, TX 75204
James E. Tracey 965,550/(4)(5)/ 3.03%
3, Grey Close
Hampstead Garden Suburb
London, NW11 3QG
All directors and executive officers 2,782,791/(7)/ 8.73%
as a group (6 persons)
</TABLE>
/(1)/ Except as noted below, each beneficial owner has sole voting power and
sole investment power.
/(2)/ Based on 31,482,716 shares of Aviva Common Stock issued and outstanding
on February 27, 1998. Treated as outstanding for purposes of computing
the percentage ownership of each director, the Named Executive Officer
and all directors and executive officers as a group are shares issuable
upon exercise of vested stock options granted pursuant to Aviva's stock
option plans.
/(3)/ Included are options for 270,000 shares exercisable on or within 60 days
of February 27, 1998.
/(4)/ Includes the entire ownership of AMG Limited, a limited liability company
of which Messrs. Suttill and Tracey are members, as of February 27, 1998,
of 935,550 shares of Aviva Common Stock.
/(5)/ Included are options for 30,000 shares exercisable on or within 60 days
of February 27, 1998.
/(6)/ Included are 1,094,428 shares owned by Lee Development Corporation, which
Mr. Lee controls.
/(7)/ Included are 935,550 shares beneficially owned through AMG Limited and
options for 388,000 shares exercisable on or within 60 days of February
27, 1998.
/*/ Less than 1% of the outstanding Aviva Common Stock./
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<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
It is expected that representatives of KPMG Peat Marwick LLP will be
present at the Aviva Special Meeting and representatives of Arthur Andersen LLP
will be present at the Garnet Special Meeting, in each case to respond to
appropriate questions of stockholders and to make a statement if they so desire.
LEGAL MATTERS
The validity of the Aviva Common Stock to be issued in the Merger has been
passed upon for Aviva by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements and schedules of Aviva as of
December 31, 1997 and 1996, and for each of the years in the three-year period
ended December 31, 1997, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The audited consolidated financial statements of Garnet incorporated by
reference in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports. The report of
Garnet's independent public accountants on Garnet's 1997 financial statements
included a fourth paragraph discussing the substantial uncertainty that exists
about the company's ability to continue as a going concern.
STOCKHOLDER PROPOSALS
Any proposals of holders of Aviva Common Stock intended to be presented at
the Annual Meeting of Stockholders of Aviva to be held in 1999 must be received
by Aviva, addressed to the Secretary of Aviva at 8235 Douglas Avenue, Suite 400,
Dallas, Texas 75225, no later than __________, 1998, to be considered for
inclusion in the proxy statement and form of proxy relating to that meeting.
If the Merger is not consummated, any proposals of stockholders of Garnet
intended to be presented at the Annual Meeting of Stockholders of Garnet to be
held in 1999 must be received by Garnet, addressed to the President of Garnet at
1214 Wilmington Avenue, Suite 303, Salt Lake City, Utah 84106, no later than
__________, 1998, to be considered for inclusion in the proxy statement and form
of proxy relating to that meeting.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Article 2.02-1 of the TBCA and the Aviva Charter, each current and
former director and officer of a Texas corporation, or each person who served at
the request of the corporation as a director or officer of a subsidiary of the
corporation, shall be indemnified by the corporation for liabilities imposed
upon him, expenses reasonably incurred by him in connection with any claim made
against him, or any action, suit or proceeding to which he may be a party by
reason of being or having been a director or an officer, and for any reasonable
settlement of any such claim, action, suit or proceeding. The TBCA provides
that a corporation may undertake any indemnification of a director or officer
only if it is determined that such person (i) conducted himself in good faith,
(ii) reasonably believed that, in the case of conduct in his official capacity
as a director, that his conduct was in the corporation's best interests, and in
all other cases, that his conduct was at least not opposed to the corporation's
best interests, and (iii) in the case of any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. In addition, a
corporation must indemnify a director against reasonable expenses incurred by
him in connection with a proceeding in which he is a named defendant because he
is or was a director if he has been wholly successful in the defense of the
proceeding. The Aviva Charter authorizes the indemnification of persons who
become parties to any threatened, pending or completed action, suit or
proceeding by reason of the fact that such person is or was a director, officer,
employee or agent of Aviva or is or was serving at the request of Aviva as a
director, officer, employee or agent of another corporation, partnership, or
other enterprise against expenses and damages incurred thereby.
The TBCA further provides that Texas corporations may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of such corporation for any liability asserted against him, whether or not
the corporation would have the power to indemnify him against liability under
the TBCA. Section 39 of the Bylaws provides that Aviva may maintain insurance,
at its own expense, to protect itself and any director, officer, employee or
agent of Aviva or of another entity against any expense, liability or loss,
regardless of whether Aviva would have the power to indemnify such person
against such expense, liability or loss under the TBCA.
Under article 1302-7.06 of the Texas Civil Statutes, the articles of
incorporation may provide that a director of the corporation shall not be
liable, or shall be liable only to the extent provided in the articles of
incorporation, to the corporation or its shareholders for an act or omission in
the director's capacity as director, except that the articles of incorporation
must not eliminate or limit the liability of a director to the extent the
director is found liable for (1) a breach of the director's duty of loyalty to
the corporation or its shareholders; (2) an act or omission not in good faith
that constitutes a breach of duty of the director to the corporation or an act
or omission that involves intentional misconduct or a knowing violation of the
law; (3) a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office; or (4) an act or omission for which the liability of a
director is expressly provided by an applicable statute. The Aviva Charter
contains provisions that limit the liability of directors of Aviva to the extent
allowable under this law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
Number Description of Exhibits
- ------ -----------------------
2.1+ Agreement and Plan of Merger dated as of June 24, 1998 by and among
Aviva Petroleum Inc., Aviva Merger Inc. and Garnet Resources
Corporation.
2.2+ Debenture Purchase Agreement dated as of June 24, 1998 between Aviva
Petroleum Inc. and the Holders of the Debentures named therein.
2.3* Bank Credit Facility dated July __, 1998 between ING Baring (U.S.)
Securities, Inc. and Neo Energy, Inc.
II-1
<PAGE>
3.1 Restated Articles of Incorporation of Aviva Petroleum Inc. dated
July 25, 1995 (filed as exhibit 3.1 to the Annual Report on Form 10-
K for the year ended December 31, 1995, File No. 0-22258, and
incorporated herein by reference).
3.2 Amended and Restated ByLaws of Aviva Petroleum Inc., as amended
(filed as exhibit 3.2 to the Annual Report on Form 10-K for the year
ended December 31, 1994, File No. 0-22258, and incorporated herein
by reference).
4.1 Deposit Agreement dated September 15, 1994 between Aviva Petroleum
Inc. and ChaseMellon Shareholder Services, L.L.C. (filed as exhibit
10.29 to the Registration Statement on Form S-1, File No. 33-82072,
and incorporated herein by reference).
5.1* Opinion of Vinson & Elkins L.L.P. regarding the legality of the
securities.
23.1* Consent of Vinson & Elkins L.L.P. (set forth in Exhibit 5.1).
23.2+ Consent of KPMG Peat Marwick LLP (Aviva).
23.3+ Consent of Arthur Andersen LLP (Garnet).
99.1+ Powers of Attorney (set forth on signature page).
99.2+ Form of Aviva Proxy.
99.3+ Form of Garnet Proxy.
__________
+ Filed herewith.
* To be filed by amendment.
Financial Statement Schedules:
- -----------------------------
The Financial Statement Schedules have previously been filed as part of
Aviva's Form 10-K for the fiscal year ended December 31, 1997.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for the purpose of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(2) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 29th day of June, 1998.
AVIVA PETROLEUM INC.
By:/s/ RONALD SUTTILL
------------------
Ronald Suttill
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Ronald Suttill and James L. Busby, and each of them
(with full power to each of them to act alone), his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign on his behalf
individually and in each capacity stated below any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents and either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on the 29th day of June, 1998.
Signature Title
--------- -----
/s/ RONALD SUTTILL President, Chief Executive
- ------------------- Officer, and Director
Ronald Suttill
/s/ JAMES L. BUSBY Treasurer, Secretary and
- ------------------- Principal Financial and
James L. Busby Accounting Officer
/s/ EUGENE C. FIEDOREK Director
- -----------------------
Eugene C. Fiedorek
/s/ JOHN J. LEE Director
- ---------------
John J. Lee
/s/ ELLIOTT ROOSEVELT, JR. Director
- --------------------------
Elliott Roosevelt, Jr.
/s/ JAMES E. TRACEY Director
- --------------------
James E. Tracey
II-3
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibits
- ------ -----------------------
2.1+ Agreement and Plan of Merger dated as of June 24, 1998 by and among
Aviva Petroleum Inc., Aviva Merger Inc. and Garnet Resources
Corporation.
2.2+ Debenture Purchase Agreement dated as of June 24, 1998 between Aviva
Petroleum Inc. and the Holders of the Debentures named therein.
2.3* Bank Credit Facility dated July __, 1998 between ING Baring (U.S.)
Securities, Inc. and Neo Energy, Inc.
3.1 Restated Articles of Incorporation of Aviva Petroleum Inc. dated July
25, 1995 (filed as exhibit 3.1 to the Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 0-22258, and incorporated
herein by reference).
3.2 Amended and Restated ByLaws of Aviva Petroleum Inc., as amended (filed
as exhibit 3.2 to the Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-22258, and incorporated herein by
reference).
4.1 Deposit Agreement dated September 15, 1994 between Aviva Petroleum
Inc. and ChaseMellon Shareholder Services, L.L.C. (filed as exhibit
10.29 to the Registration Statement on Form S-1, File No. 33-82072,
and incorporated herein by reference).
5.1* Opinion of Vinson & Elkins L.L.P. regarding the legality of the
securities.
23.1* Consent of Vinson & Elkins L.L.P. (set forth in Exhibit 5.1).
23.2+ Consent of KPMG Peat Marwick LLP (Aviva).
23.3+ Consent of Arthur Andersen LLP (Garnet).
99.1+ Powers of Attorney (set forth on signature page).
99.2+ Form of Aviva Proxy.
99.3+ Form of Garnet Proxy.
__________
+ Filed herewith.
* To be filed by amendment.
<PAGE>
Exhibit 2.01
AGREEMENT AND PLAN OF MERGER
Dated as of June 24, 1998
By and Among
AVIVA PETROLEUM INC.,
AVIVA MERGER INC.
and
GARNET RESOURCES CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions................................................1
-----------
SECTION 1.02 Rules of Construction......................................1
---------------------
ARTICLE II
TERMS OF MERGER
SECTION 2.01 Statutory Merger...........................................2
----------------
SECTION 2.02 Effective Time.............................................2
--------------
SECTION 2.03 Effect of the Merger.......................................2
--------------------
SECTION 2.04 Certificate of Incorporation; Bylaws.......................2
------------------------------------
SECTION 2.05 Directors and Officers.....................................2
----------------------
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 Merger Consideration; Conversion and Cancellation of
----------------------------------------------------
Securities.................................................3
----------
SECTION 3.02 Exchange of Certificates...................................4
------------------------
SECTION 3.03 Closing....................................................7
-------
SECTION 3.04 Stock Transfer Books.......................................7
--------------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01 Organization and Qualification; Subsidiaries................7
--------------------------------------------
SECTION 4.02 Certificate of Incorporation and Bylaws.....................8
---------------------------------------
SECTION 4.03 Capitalization..............................................8
--------------
SECTION 4.04 Authorization of Agreement..................................9
--------------------------
SECTION 4.05 Approvals...................................................9
---------
SECTION 4.06 No Violation...............................................10
------------
SECTION 4.07 Reports....................................................10
-------
SECTION 4.08 No Material Adverse Effect; Conduct........................11
-----------------------------------
SECTION 4.09 Title to Properties........................................12
-------------------
SECTION 4.10 Certain Obligations........................................15
-------------------
AGREEMENT AND PLAN OF MERGER
-ii-
<PAGE>
SECTION 4.11 Authorizations; Compliance.................................15
--------------------------
SECTION 4.12 Litigation; Compliance with Laws...........................16
--------------------------------
SECTION 4.13 Employee Benefit Plans. ..................................16
----------------------
SECTION 4.14 Taxes......................................................16
-----
SECTION 4.15 Environmental Matters......................................17
---------------------
SECTION 4.16 Insurance..................................................18
---------
SECTION 4.17 Affiliates.................................................18
----------
SECTION 4.18 Certain Business Practices.................................18
--------------------------
SECTION 4.19 Brokers....................................................18
-------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
SECTION 5.01 Organization and Qualification; Subsidiaries. ............19
--------------------------------------------
SECTION 5.02 Certificate of Incorporation and Bylaws....................19
---------------------------------------
SECTION 5.03 Capitalization.............................................19
--------------
SECTION 5.04 Authorization of Agreement.................................20
--------------------------
SECTION 5.05 Approvals..................................................20
---------
SECTION 5.06 No Violation...............................................21
------------
SECTION 5.07 Reports....................................................21
-------
SECTION 5.08 No Material Adverse Effect; Conduct........................22
-----------------------------------
SECTION 5.09 Title to Properties........................................22
-------------------
SECTION 5.10 Certain Obligations........................................26
-------------------
SECTION 5.11 Authorizations; Compliance.................................26
--------------------------
SECTION 5.12 Litigation; Compliance with Laws...........................26
--------------------------------
SECTION 5.13 Employee Benefit Plans. ..................................27
----------------------
SECTION 5.14 Taxes......................................................29
-----
SECTION 5.15 Environmental Matters......................................30
---------------------
SECTION 5.16 Insurance. ...............................................30
---------
SECTION 5.17 Certain Business Practices.................................31
--------------------------
SECTION 5.18 Newco......................................................31
------
SECTION 5.19 Brokers....................................................31
-------
ARTICLE VI
COVENANTS
SECTION 6.01 Affirmative Covenants......................................31
---------------------
SECTION 6.02 Negative Covenants.........................................32
------------------
SECTION 6.03 No Solicitation............................................37
---------------
SECTION 6.04 Access and Information.....................................39
----------------------
AGREEMENT AND PLAN OF MERGER
-iii-
<PAGE>
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Meetings of Stockholders...................................39
------------------------
SECTION 7.02 Registration Statement; Proxy Statements...................40
----------------------------------------
SECTION 7.03 Appropriate Action; Consents; Filings......................42
-------------------------------------
SECTION 7.04 Affiliates.................................................43
-----------
SECTION 7.05 Public Announcements.......................................43
--------------------
SECTION 7.06 Stock Exchange Listings....................................44
-----------------------
SECTION 7.07 State Takeover Statute.....................................44
----------------------
SECTION 7.08 Indemnification of Directors and Officers..................44
-----------------------------------------
SECTION 7.09 Event Notices..............................................45
-------------
ARTICLE VIII
CLOSING CONDITIONS
SECTION 8.01 Conditions to Obligations of Each Party Under This Agreement
------------------------------------------------------------
...............................................................45
SECTION 8.02 Additional Conditions to Obligations of the Acquiror
----------------------------------------------------
Companies..................................................46
---------
SECTION 8.03 Additional Conditions to Obligations of the Company........48
---------------------------------------------------
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination................................................48
-----------
SECTION 9.02 Effect of Termination......................................50
---------------------
SECTION 9.03 Amendment..................................................50
---------
SECTION 9.04 Waiver.....................................................50
------
SECTION 9.05 Fees, Expenses and Other Payments..........................51
---------------------------------
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Effectiveness of Representations, Warranties and Agreements
-----------------------------------------------------------
...........................................................51
SECTION 10.02 Notices....................................................52
-------
SECTION 10.03 Headings...................................................53
--------
SECTION 10.04 Severability...............................................53
------------
SECTION 10.05 Entire Agreement...........................................53
----------------
SECTION 10.06 Assignment.................................................53
----------
AGREEMENT AND PLAN OF MERGER
-iv-
<PAGE>
SECTION 10.07 Parties in Interest........................................53
-------------------
SECTION 10.08 Failure or Indulgence Not Waiver; Remedies Cumulative......53
-----------------------------------------------------
SECTION 10.09 Governing Law..............................................53
-------------
SECTION 10.10 Specific Performance.......................................54
--------------------
SECTION 10.11 Counterparts...............................................54
------------
AGREEMENT AND PLAN OF MERGER
-v-
<PAGE>
ANNEXES
-------
Annex A Schedule of Defined Terms
Annex B Affiliate's Agreement (Garnet Resources Corporation Affiliates)
AGREEMENT AND PLAN OF MERGER
-vi-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of June 24, 1998 (this
"Agreement"), is by and among Aviva Petroleum Inc., a Texas corporation (the
"Acquiror"), Aviva Merger Inc., a Delaware corporation and a wholly owned,
indirect subsidiary of the Acquiror ("Newco"), and Garnet Resources Corporation,
a Delaware corporation (the "Company"). The Acquiror and Newco are sometimes
referred to herein as the "Acquiror Companies."
RECITALS:
The Board of Directors of the Company has determined that the business
combination to be effected by means of the Merger is consistent with and in
furtherance of the business strategy of the Company and is fair to, and in the
best interests of, the Company and its stockholders and has approved and adopted
this Agreement and recommended approval and adoption of this Agreement by the
stockholders of the Company.
The Board of Directors of the Acquiror has determined that the business
combination to be effected by means of the Merger is consistent with and in
furtherance of the long-term business strategy of the Acquiror and is fair to,
and in the best interests of, the Acquiror and its stockholders and has approved
and adopted this Agreement and recommended approval and adoption of this
Agreement by the stockholders of the Acquiror.
Upon the terms and subject to the conditions of this Agreement and in
accordance with the GCL, Newco will merge with and into the Company and the
Company will be the Surviving Corporation.
The parties hereto have acknowledged that the Merger will not qualify
as a reorganization within the meaning of the provisions of Section 368(a) of
the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. Certain capitalized and other terms used in
-----------
this Agreement are defined in Annex A hereto and are used herein with the
meanings ascribed to them therein.
SECTION 1.02 Rules of Construction. Unless the context otherwise
---------------------
requires, as used in this Agreement: (a) a term has the meaning ascribed to it
in Annex A; (b) an accounting term not otherwise defined has the meaning
ascribed to it in accordance with GAAP; (c) "or" is not exclusive; (d)
"including" means "including without limitation;" (e) words in the singular
include the plural; (f) words in the plural include the singular; (g) words
applicable to one gender shall be construed to apply to each gender; (h) the
terms "hereof," "herein," "hereby," "hereto" and derivative or similar words
refer to this entire Agreement; (i) the terms "Article" or "Section" shall refer
to the specified
<PAGE>
Article or Section of this Agreement; and (j) the phrase "oil and gas properties
of a party hereto" or any variant thereof shall include the oil and gas
properties of a Subsidiary of such party.
ARTICLE II
TERMS OF MERGER
SECTION 2.01 Statutory Merger. Subject to the terms and conditions and
----------------
in reliance upon the representations, warranties, covenants and agreements
contained herein, Newco shall merge with and into the Company at the Effective
Time. The terms and conditions of the Merger and the mode of carrying the same
into effect shall be as set forth in this Agreement. As a result of the Merger,
the separate corporate existence of each of the Constituent Corporations shall
cease and the Company shall continue as the Surviving Corporation.
SECTION 2.02 Effective Time. As soon as practicable after the
--------------
satisfaction or, if permissible, waiver of the conditions set forth in Article
VIII, the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware, in
such form as required by, and executed in accordance with the relevant
provisions of, the GCL.
SECTION 2.03 Effect of the Merger. At the Effective Time, the effect of
--------------------
the Merger shall be as provided in the applicable provisions of the GCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, the Surviving Corporation shall
possess all the rights, privileges, power and franchises as well of a public as
of a private nature and shall be subject to all the restrictions, disabilities
and duties of each of the Constituent Corporations; and all and singular, the
rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
either of the Constituent Corporations on whatever account, as well for stock
subscriptions as all other things in action or belonging to each of such
Constituent Corporations shall be vested in the Surviving Corporation as they
were of the respective Constituent Corporations, and the title to any real
estate vested by deed or otherwise, under the laws of the State of Delaware, in
either of such Constituent Corporations, shall not revert or be in any way
impaired by reason of the Merger; but all rights of creditors and all liens upon
any property of either of such Constituent Corporation shall be preserved
unimpaired. and all debts, liabilities and duties of the respective Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, liabilities and duties
had been incurred or contracted by it.
SECTION 2.04 Certificate of Incorporation; Bylaws. At the Effective
------------------------------------
Time, the certificate of incorporation and the bylaws of Newco, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation and the bylaws of the Surviving Corporation.
SECTION 2.05 Directors and Officers. The directors of Newco immediately
----------------------
prior to the Effective Time shall be the directors of the Surviving Corporation,
each to hold office in accordance with the certificate of incorporation and
bylaws of the Surviving Corporation, and the officers of the Company immediately
prior to the Effective Time shall be the officers of the
AGREEMENT AND PLAN OF MERGER
-2-
<PAGE>
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 Merger Consideration; Conversion and Cancellation of
----------------------------------------------------
Securities. At the Effective Time, by virtue of the Merger and without any
- ----------
action on the part of the Acquiror Companies, the Company or the holders of any
of the following securities:
(a) (i) Subject to the other provisions of this Article III,
each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (excluding any Company Common Stock
described in Section 3.01(c)) shall be converted into one-tenth (0.1)
of one share of the Acquiror Common Stock. Notwithstanding the
foregoing, if between the date of this Agreement and the Effective Time
the outstanding shares of the Acquiror Common Stock or the Company
Common Stock shall have been changed into a different number of shares
or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares, the Common Stock Exchange Ratio shall be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares.
(ii) Notwithstanding the provisions of subsection 3.01(a)(i)
above, if any former holder of Company Common Stock would be entitled
to receive less than 100 shares of Acquiror Common Stock pursuant to
the provisions of subsection 3.01(a)(i), then no shares of Aquiror
Common Stock shall be issued to such holder and, in lieu thereof, the
Acquiror shall pay such holder cash in the amount of $0.20 for each
share of Acquiror Common Stock to which such holder would, but for this
subsection 3.01(a)(ii), have been entitled.
(b) All shares of Company Common Stock shall, upon conversion
thereof into shares of Acquiror Common Stock at the Effective Time,
cease to be outstanding and shall be automatically canceled and
retired, and each certificate previously evidencing Company Common
Stock outstanding immediately prior to the Effective Time (other than
Company Common Stock described in Section 3.01(c)) shall thereafter be
deemed, for all purposes other than the payment of dividends or
distributions, to represent that number of shares of Acquiror Common
Stock determined pursuant to the Common Stock Exchange Ratio and, if
applicable, the right to receive cash pursuant to Section 3.02(d) or
(e) or both. The holders of certificates previously evidencing Company
Common Stock shall cease to have any rights with respect to such
Company Common Stock except as otherwise provided herein or by law.
(c) Notwithstanding any provision of this Agreement to the
contrary, each share of Company Common Stock held in the treasury of
the Company and each share of Company Common Stock, if any, owned by
the Acquiror or any direct or indirect wholly owned
AGREEMENT AND PLAN OF MERGER
-3-
<PAGE>
Subsidiary of the Acquiror or of the Company immediately prior to the
Effective Time shall be canceled and extinguished without conversion
thereof.
(d) Each share of common stock, par value $0.01 per share, of
Newco issued and outstanding immediately prior to the Effective Time
shall be converted into one share of common stock, par value $0.01 per
share, of the Surviving Corporation.
SECTION 3.02 Exchange of Certificates.
------------------------
(a) Exchange Fund. At the Closing, the Acquiror shall
-------------
deposit, or cause to be deposited, with the Exchange Agent, for the
benefit of the former holders of Company Common Stock and for exchange
through the Exchange Agent in accordance with this Article III, (i)
certificates evidencing that number of shares of the Acquiror Common
Stock equal to the product of the Common Stock Exchange Ratio and the
number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time (exclusive of any such shares
to be canceled pursuant to Section 3.01(c)) and (ii) cash in an amount
sufficient to cover the Acquiror's obligations pursuant to subsection
3.01(a)(ii). The Exchange Agent shall, pursuant to irrevocable
instructions from the Acquiror, deliver certificates evidencing the
Acquiror Common Stock to the Depositary for deposit pursuant to the
Deposit Agreement and shall obtain from the Depositary Depositary
Receipts registered in the names of the holders of record of Company
Common Stock immediately prior to the Effective Time on the basis of
one Depositary Share for each five shares of Acquiror Common Stock to
which such holders are entitled pursuant to this Agreement. The
Exchange Fund shall also include any dividends or other distributions
made with respect to the Acquiror Common Stock to which the former
holders of Company Common Stock would be entitled pursuant to
subsection (d) and the funds obtained by the Exchange Agent from the
sale of Depositary Shares pursuant to subsection (e) of this Section
3.02. The Exchange Fund shall not be used for any purpose other than as
expressly provided in this Section 3.02.
(b) Letter of Transmittal. Promptly after the Effective
---------------------
Time, the Acquiror will cause the Exchange Agent to send to each record
holder of Company Common Stock immediately prior to the Effective Time
a letter of transmittal and other appropriate materials for use in
surrendering to the Exchange Agent certificates that prior to the
Effective Time evidenced shares of Company Common Stock.
(c) Exchange Procedures. Promptly after the Effective Time,
-------------------
the Exchange Agent shall distribute to each holder of record of Company
Common Stock immediately prior to the Effective Time, upon surrender to
the Exchange Agent for cancellation of one or more certificates that
theretofore evidenced shares of Company Common Stock, either (i)
Depositary Receipts evidencing the appropriate number of shares of the
Acquiror Common Stock into which such shares of Company Common Stock
were converted pursuant to the Merger or (ii), in the case of those
holders subject to subsection 3.01(a)(ii), cash in the amount required
by that subsection, together, in each instance, with any cash to be
paid in lieu of fractional interests in shares of Acquiror Common Stock
pursuant to Section 3.02(e) and any dividends or distributions related
to Acquiror Common Stock to be paid pursuant
AGREEMENT AND PLAN OF MERGER
-4-
<PAGE>
to Section 3.02(d). If Depositary Shares are to be issued to a Person
other than the Person in whose name the surrendered certificate or
certificates are registered, it shall be a condition of issuance of the
Acquiror Common Stock that the surrendered certificate or certificates
shall be properly endorsed, with signatures guaranteed, or otherwise in
proper form for transfer and that the Person requesting such payment
shall pay any transfer or other taxes required by reason of the
issuance of the Acquiror Common Stock to a Person other than the
registered holder of the surrendered certificate or certificates or
such Person shall establish to the satisfaction of the Acquiror that
such tax has been paid or is not applicable.
(d) Distributions with Respect to Unexchanged Shares of
---------------------------------------------------
Company Common Stock. No dividends or other distributions declared or
--------------------
made with respect to the Acquiror Common Stock with a record date after
the Effective Time shall be paid to the holder of any certificate that
theretofore evidenced shares of Company Common Stock until the holder
of such certificate shall surrender such certificate. Subject to the
effect of any applicable escheat laws, following surrender of any such
certificate, there shall be paid to the holder of the Depositary
Receipts evidencing shares of the Acquiror Common Stock issued in
exchange for Company Common Stock, without interest, (i) promptly, the
amount of any cash payable with respect to a fractional Depositary
Share to which such holder is entitled pursuant to Section 3.02(e) and
the amount of dividends or other distributions with a record date after
the Effective Time theretofore paid with respect to such whole shares
of the Acquiror Common Stock and (ii), at the appropriate payment date,
the amount of dividends or other distributions, with a record date
after the Effective Time but prior to surrender and a payment date
occurring after surrender, payable with respect to such whole shares of
the Acquiror Common Stock.
(e) No Fractional Shares.
--------------------
(1) Notwithstanding anything herein to the contrary, no
certificates or scrip evidencing fractional shares of the
Acquiror Common Stock or Depositary Shares shall be issued in
connection with the Merger.
(2) Any fractional interests in shares of Acquiror
Common Stock to which a holder of record of Company Common
Stock at the Effective Time would otherwise be entitled shall
not entitle such holder to vote or to any rights of a
stockholder of the Acquiror. In lieu of any such fractional
interests in shares of Acquiror Common Stock, each holder of
record of Company Common Stock at the Effective Time who but
for the provisions of this Section 3.02(e) would be entitled
to receive a fractional interest of a share of the Acquiror
Common Stock by virtue of the Merger shall be paid cash,
without any interest thereon, as hereinafter provided. The
Acquiror shall instruct the Exchange Agent to determine the
number of whole shares and fractional shares of the Acquiror
Common Stock allocable to each holder of record of Company
Common Stock at the Effective Time, to aggregate all such
fractional shares into whole shares, to deposit such whole
shares in the name of the Exchange Agent with the Depositary
pursuant to the Deposit Agreement, to sell the whole
Depositary Shares obtained thereby in the open market at then
prevailing
AGREEMENT AND PLAN OF MERGER
-5-
<PAGE>
prices on behalf of holders who otherwise would be entitled to
receive fractional share interests and to distribute to each
such holder such holder's ratable share of the total proceeds
of such sale based on the fractional interests in shares of
Acquiror Common Stock to which such holder would otherwise
have been entitled compared with the aggregate number of such
fractional interests, after making appropriate deductions of
the amount, if any, required for federal income tax
withholding purposes and after deducting any applicable
transfer taxes. All brokers' fees and commissions incurred in
connection with such sales, as well as the price of any
remaining shares of Acquiror Common Stock that are
insufficient to obtain a whole Depositary Share under the
Deposit Agreement, shall be paid by the Acquiror.
(3) To the extent that a holder of Company Common Stock
would be entitled hereunder to a number of shares of Acquiror
Common Stock that is not evenly divisible by five (5), the
Exchange Agent, after depositing with the Depositary all such
shares of Acquiror Common Stock to which such holder would be
so entitled as will entitle the holder to receive Depositary
Shares pursuant to the Deposit Agreement, shall distribute to
each such holder a certificate evidencing the remaining shares
of Acquiror Common Stock together with the Depositary Receipts
evidencing the Depositary Shares so obtained by the Exchange
Agent.
(f) Termination of Exchange Fund. Any portion of the
----------------------------
Exchange Fund that remains unclaimed by the former holders of Company
Common Stock for 12 months after the Effective Time shall be delivered
to the Acquiror, upon demand, and any former holders of Company Common
Stock who have not theretofore complied with this Article III shall
thereafter look only to the Acquiror for the Acquiror Common Stock (or
Depositary Shares in lieu thereof) and any cash to which they are
entitled. Notwithstanding any other provisions herein, neither the
Exchange Agent nor any party hereto shall be liable to any former
holder of Company Common Stock for any Acquiror Common Stock, any
Depositary Shares, cash in lieu of fractional share interests or
dividends or distributions thereon delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
If any certificates evidencing Company Common Stock shall not have been
surrendered prior to the seventh anniversary of the Effective Time (or
such earlier date on which any shares of the Acquiror Common Stock, any
Depositary Shares, any cash in lieu of fractional share interests or
dividends or distributions with respect to the Acquiror Common Stock to
which the holder of such certificates would otherwise be entitled would
escheat to or become the property of any governmental entity), then,
immediately prior to such date, any such shares, cash, dividends or
distributions in respect of such shares shall, to the extent permitted
by applicable Law, become the property of the Acquiror, free and clear
of all adverse claims and interests of any Person previously entitled
thereto.
(g) Withholding of Tax. The Acquiror shall be entitled to
------------------
deduct and withhold from the consideration otherwise payable pursuant
to this Agreement to any former holder of Company Common Stock such
amounts as the Acquiror (or any affiliate thereof) or the Exchange
Agent is required to deduct and withhold with respect to the making of
such payment under the Code or state, local or foreign tax Law. To the
extent that amounts are
AGREEMENT AND PLAN OF MERGER
-6-
<PAGE>
so withheld by the Acquiror, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the former holder
of Company Common Stock in respect of which such deduction and
withholding was made by the Acquiror.
(h) Investment of Exchange Fund. The Exchange Agent may
---------------------------
invest any cash included in the Exchange Fund in deposit accounts or
short-term money market instruments, as directed by the Acquiror, on a
daily basis. Any interest and other income resulting from such
investments shall be paid to the Acquiror. The Acquiror shall deposit
with the Exchange Agent as part of the Exchange Fund cash in an amount
equal to any loss of principal resulting from such investments promptly
after the incurrence of such a loss.
SECTION 3.03 Closing. The Closing shall take place at the offices of
-------
Vinson & Elkins L.L.P., 4000 Trammel Crow Center, 2001 Ross Avenue, Dallas,
Texas 75201, at 10:00 a.m. on the fifth Business Day following the date on which
the conditions to the Closing have been satisfied or waived or at such other
place, time and date as the parties hereto may agree. At the conclusion of the
Closing on the Closing Date, the parties hereto shall cause the Certificate of
Merger to be filed with the Secretary of State of the State of Delaware.
SECTION 3.04 Stock Transfer Books. At the close of business on the
--------------------
date of the Effective Time, the stock transfer books of the Company shall be
closed and there shall be no further registration of transfers of shares of
Company Common Stock thereafter on the records of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to the provisions of Section 10.01(b), the Company hereby
represents and warrants to the Acquiror as follows:
SECTION 4.01 Organization and Qualification; Subsidiaries. The
--------------------------------------------
Company and each Significant Subsidiary of the Company, including the
Partnership, are legal entities duly organized, validly existing and in good
standing under the Laws of their respective jurisdictions of incorporation or
organization, have all requisite corporate power and authority to own, lease and
operate their respective properties and to carry on their businesses as they are
now being conducted and are duly qualified and in good standing to do business
in the jurisdictions in which the nature of the businesses conducted by them or
the ownership or leasing of their respective properties makes such qualification
necessary, other than any matters, including the failure to be so qualified and
in good standing, that could not reasonably be expected to have a Material
Adverse Effect on the Company. Section 4.01 of the Company's Disclosure Letter
sets forth a true and complete list of all the Company's directly or indirectly
owned Significant Subsidiaries, together with (A) a specification of the nature
of legal organization of such Subsidiary, and (B) the jurisdiction of
incorporation or other organization of such Subsidiary.
AGREEMENT AND PLAN OF MERGER
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<PAGE>
SECTION 4.02 Certificate of Incorporation and Bylaws. The Company has
---------------------------------------
heretofore marked for identification and delivered to the Acquiror complete and
correct copies of the certificate of incorporation and the bylaws or the
equivalent organizational documents, in each case as amended or restated to the
date hereof, of the Company and each Significant Subsidiary, including the
Partnership. The Company is not in violation of any of the provisions of its
certificate of incorporation or bylaws.
SECTION 4.03 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of (i)
75,000,000 shares of Company Common Stock, of which, as of April 30,
1998, 11,492,162 shares were issued and outstanding, all of which are
duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, the Company's
certificate of incorporation or bylaws or any agreement to which the
Company is a party or is bound. Since April 30, 1998, (x) no shares of
Company Common Stock have been issued by the Company, except upon
exercise of Company Stock Options outstanding under the Company Option
Plans, and (y) the Company has not granted any options for, or other
rights to purchase, shares of Company Common Stock.
(b) Except for shares reserved for issuance (i) upon exercise of
Company Stock Options granted pursuant to the Company Option Plans and
listed in Section 4.03(b) of the Company's Disclosure Letter and (ii)
upon conversion of the Debentures, no shares of Common Stock are
reserved for issuance, and, except for Company Stock Options, there are
no contracts, agreements, commitments or arrangements obligating the
Company to offer, sell, issue or grant any Equity Security of the
Company or to redeem, purchase or acquire, or offer to purchase or
acquire, any outstanding Equity Security of the Company.
(c) Section 4.03(c) of the Company's Disclosure Letter sets forth
with respect to each Significant Subsidiary of the Company (i) the
numbers of shares of authorized, issued and outstanding capital stock
of, or other equity interests in, each such Subsidiary, (ii) the number
of such shares of capital stock or other equity interests owned of
record and beneficially by the Company or another Subsidiary of the
Company, together with the name of such holder or holders, and (iii)
the names and addresses of any holders, other than the Company or
another Subsidiary, of record or beneficially of the capital stock or
other equity interests of such Subsidiary. Except as set forth in
Section 4.03(c) of the Company's Disclosure Letter, (x) the issued and
outstanding shares of capital stock of, or other equity interests in,
each of the Significant Subsidiaries of the Company that are owned by
the Company or any of its Subsidiaries have been duly authorized and
are validly issued, and, with respect to capital stock, are fully paid
and nonassessable, and were not issued in violation of any preemptive
or similar rights of any past or present equity holder of such
Subsidiary; (y) all such issued and outstanding shares, or other equity
interests, that are indicated as owned by the Company or one of its
Subsidiaries in Section 4.03(c) of the Company's Disclosure Letter are
owned (A) beneficially as set forth therein and (B) free and clear of
all Liens; (z) no shares of capital stock of, or other equity interests
in, any Significant Subsidiary of the Company are reserved for
issuance, and there are no contracts, agreements,
AGREEMENT AND PLAN OF MERGER
-8-
<PAGE>
commitments or arrangements obligating the Company or any of its
Significant Subsidiaries (A) to offer, sell, issue, grant, pledge,
dispose of or encumber any Equity Security of any of the Subsidiaries
of the Company or (B) to redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding Equity Security of any of the
Subsidiaries of the Company or (C) to grant any Lien on any outstanding
shares of capital stock of, or other equity interest in, any of the
Significant Subsidiaries of the Company; except for any matter under
clause (x), (y) or (z) of this Section 4.03(c) that could not
reasonably be expected to have a Material Adverse Effect on the
Company.
(d) Except for the revocable proxies granted by the Company or its
Subsidiaries with respect to the capital stock of Subsidiaries owned by
the Company or its Subsidiaries, there are no voting trusts, proxies or
other agreements, commitments or understandings of any character to
which the Company or any of its Significant Subsidiaries is a party or
by which the Company or any of its Significant Subsidiaries is bound
with respect to the voting of any shares of capital stock of the
Company or any of its Significant Subsidiaries.
SECTION 4.04 Authorization of Agreement. The Company has all
--------------------------
requisite corporate power and authority to execute and deliver this Agreement
and, subject to approval of this Agreement by the majority of the stockholders
of the Company as required by the applicable provisions of the GCL and the
Company's certificate of incorporation, each instrument required hereby to be
executed and delivered by it at the Closing, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby.
The execution and delivery by the Company of this Agreement and each instrument
required hereby to be executed and delivered by it at the Closing and the
performance of its obligations hereunder and thereunder have been duly and
validly authorized by all requisite corporate action on the part of the Company
(other than, with respect to the Merger, the approval and adoption of this
Agreement by the holders of a majority of the outstanding shares of Company
Common Stock in accordance with the applicable provisions of the GCL and the
Company's certificate of incorporation). This Agreement has been duly executed
and delivered by the Company and (assuming due authorization, execution and
delivery hereof by the other parties hereto) constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as the same may be limited by legal principles of general
applicability governing the application and availability of equitable remedies.
SECTION 4.05 Approvals. Except for the applicable requirements, if
---------
any, of (a) the Securities Act, (b) the Exchange Act, (c) state securities or
blue sky laws, (d) the HSR Act, (e) the applicable Colombian Laws and the
applicable Regulations and Orders of Colombian Governmental Authorities as set
forth in Section 4.05 of the Company's Disclosure Letter, including any required
consent of Ecopetol, the Colombian Ministry of the Environment, the taxing
authority of the Colombian government, the Colombian Superintendency of
Corporations and the Colombian Chamber of Commerce, (f) the OTC Bulletin Board,
(g) the filing and recordation of appropriate merger documents as required by
the GCL and (h) those Laws, Regulations and Orders noncompliance with which
could not reasonably be expected to have a Material Adverse Effect on the
Company, no filing or registration with, no waiting period imposed by and no
Authorization of, any Governmental Authority is required under any Law,
Regulation or Order applicable to the
AGREEMENT AND PLAN OF MERGER
-9-
<PAGE>
Company or any of its Subsidiaries to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
SECTION 4.06 No Violation. Assuming effectuation of all filings and
------------
registrations with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Authorizations of Governmental Authorities
indicated as required in Section 4.05 and receipt of the approval of the Merger
by the stockholders of the Company as required by the GCL and, except as set
forth in Section 4.06 of the Company's Disclosure Letter, neither the execution
and delivery by the Company of this Agreement or any instrument required hereby
to be executed and delivered by it at the Closing nor the performance by the
Company of its obligations hereunder or thereunder will (a) violate or breach
the terms of or cause a default under any Law, Regulation or Order applicable to
the Company, the certificate of incorporation or bylaws of the Company or any
contract or agreement to which the Company or any of its Subsidiaries is a party
or by which it or any of its properties or assets is bound, or (b) with the
passage of time, the giving of notice or the taking of any action by a third
Person, have any of the effects set forth in clause (a) of this Section, except
in any such case for any matters described in this Section that could not
reasonably be expected to have a Material Adverse Effect on the Company. Prior
to the execution of this Agreement, the Board of Directors of the Company has
taken all necessary action to cause this Agreement and the transactions
contemplated hereby to be exempt from the provisions of Section 203 of the GCL.
SECTION 4.07 Reports.
-------
(a) Since December 31, 1994, the Company has filed (i) all SEC
Reports required to be filed by it with the Commission and (ii) the
Company and its Subsidiaries have filed all other Reports required to
be filed by any of them with any other Governmental Authorities, except
where the failure to file any such Reports could not reasonably be
expected to have a Material Adverse Effect on the Company. Such
Reports, including all those filed after the date of this Agreement and
prior to the Effective Time, (x) were prepared in all material respects
in accordance with the requirements of applicable Law (including, with
respect to the Company's SEC Reports, the Securities Act and the
Exchange Act, as the case may be, and the applicable Regulations of the
Commission thereunder) and (y), in the case of the Company's SEC
Reports, did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(b) The Company's Consolidated Financial Statements and any
consolidated financial statements of the Company (including any related
notes thereto) contained in any of the Company's SEC Reports filed by
the Company with the Commission after the date of this Agreement (i)
have been or will have been prepared in accordance with the published
Regulations of the Commission and in accordance with GAAP (except (A)
to the extent required by changes in GAAP and (B), with respect to the
Company's Consolidated Financial Statements, as may be indicated in the
notes thereto) and (ii) fairly present the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
thereof and the consolidated results of their operations and cash flows
for the periods
AGREEMENT AND PLAN OF MERGER
-10-
<PAGE>
indicated (including, in the case of any unaudited interim financial
statements, reasonable estimates of normal and recurring year-end
adjustments).
(c) Except as set forth in Section 4.07(c) of the Company's
Disclosure Letter, there exist no liabilities or obligations of the
Company and its Subsidiaries that are Material to the Company, whether
accrued, absolute, contingent or threatened, and that would be required
to be reflected, reserved for or disclosed under GAAP in consolidated
financial statements of the Company as of and for the period ended on
the date of this representation and warranty, other than (i)
liabilities or obligations that are adequately reflected, reserved for
or disclosed in the Company's Consolidated Financial Statements, (ii)
liabilities or obligations incurred in the ordinary course of business
of the Company since December 31, 1997, (iii) liabilities or
obligations the incurrence of which is permitted by Section 6.02(a) and
(iv) liabilities or obligations that are not Material to the Company.
(d) Accounts receivable reflected on the Company's
Consolidated Balance Sheet have been properly stated at their
realizable value after consideration of all allowances and reserves in
accordance with GAAP.
(e) Crude oil inventories reflected on the Company's
Consolidated Balance Sheet are properly stated at the lower of cost or
market value in accordance with GAAP. Materials inventories are stated
at cost as adjusted for excess and obsolete inventories at net
realizable value.
(f) Except as described in Section 4.07(f) of the Company's
Disclosure Letter, all obligations associated with benefits to be
provided to present and former employees of the Company and its
Subsidiaries after retirement or termination have been properly
recognized as liabilities on the Company's Consolidated Balance Sheet
in accordance with Statements of Financial Accounting Standards Nos.
106 and 112.
SECTION 4.08 No Material Adverse Effect; Conduct.
-----------------------------------
(a) Since December 31, 1997, no event (other than any event
that is of general application to all or a substantial portion of the
Company's industry and other than any event that is expressly subject
to any other representation or warranty contained in Article IV) has,
to the Knowledge of the Company, occurred that, individually or
together with other similar events, could reasonably be expected to
constitute or cause a Material Adverse Effect on the Company.
(b) Except as set forth in Section 4.08(b) of the Company's
Disclosure Letter, during the period from December 31, 1997 to the date
of this Agreement, neither the Company nor any of its Subsidiaries has
engaged in any conduct that is proscribed during the period from the
date of this Agreement to the Effective Time by subsections (i) through
(xii) of Section 6.02(a).
AGREEMENT AND PLAN OF MERGER
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<PAGE>
SECTION 4.09 Title to Properties.
-------------------
(a) The Company or its Subsidiaries, individually or together,
have indefeasible title to all of the properties reflected in the
Company's Consolidated Balance Sheet, other than the Partnership
Properties, any properties reflected in the Company's Consolidated
Balance Sheet that have been sold or otherwise disposed of since the
date of the Company's Consolidated Balance Sheet or are not,
individually or in the aggregate, Material to the Company, free and
clear of Liens, other than (x) Liens the existence of which is
reflected in the Company's Consolidated Financial Statements, (y)
Permitted Encumbrances and (z) Liens that, individually or in the
aggregate, are not Material to the Company. The Company or its
Subsidiaries, individually or together, hold under valid lease
agreements all real and personal properties reflected in the Company's
Consolidated Balance Sheet as being held under capitalized leases, and
all real and personal property that is subject to the operating leases
to which reference is made in the notes to the Company's Audited
Consolidated Financial Statements, and enjoy peaceful and undisturbed
possession of such properties under such leases, other than (i) any
properties as to which such leases have terminated in the ordinary
course of business since the date of the Company's Consolidated Balance
Sheet and (ii) any properties that, individually or in the aggregate,
are not Material to the Company. Except as set forth in Section 4.09(a)
of the Company's Disclosure Letter, neither the Company nor any of its
Subsidiaries has received any written notice of any adverse claim to
the title to any properties owned by them or with respect to any lease
under which any properties are held by them, other than any claims
that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company.
(b) Except as set forth in Section 4.09(b) of the Company's
Disclosure Letter, the Partnership has Marketable Title, free of Title
Defects, to the Partnership Properties.
(c) With respect to each of the Partnership Properties, except as
set forth in Section 4.09(c) of the Company's Disclosure Letter:
(i) All royalties, rentals, shut-in payments and other
payments due with respect to such Partnership Property have been
properly and timely paid, except for payments held in suspense for
title or other reasons that are customary in the industry and that will
not result in grounds for a cancellation of the rights of the
Partnership in such Partnership Property;
(ii) The Partnership is not in default under the terms of any
leases, farmout agreements or other contracts or agreements respecting
such Partnership Property which could (i) interfere with the operation,
value or use thereof, (ii) prevent the Partnership from receiving the
proceeds of production attributable to their interest therein, or (iii)
result in cancellation of the interest of the Partnership therein;
AGREEMENT AND PLAN OF MERGER
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<PAGE>
(iii) The Partnership is not obligated by virtue of any gas
imbalance, prepayment or advance payment arrangement under any contract
for the sale or production of hydrocarbons, or under any other
arrangement, including any "take-or-pay" or similar arrangement, to
deliver any volume of hydrocarbons produced from or attributable to
such Partnership Property, without then or thereafter being entitled to
receive payment therefor and Partnership has not received any "take-or-
pay" production or similar payment that is subject to refund or
recoupment in cash. The status of any gas imbalances are set forth in
Section 4.09(c) of the Company's Disclosure Letter;
(iv) All ad valorem, property, production, severance and other
taxes based on or measured by the ownership of such Partnership
Property or the production of oil and gas therefrom have, if due, been
properly and timely paid;
(v) All expenses payable under the terms of any contracts
associated with such Partnership Property have been properly and timely
paid except for such expenses as are being currently paid prior to
delinquency in the ordinary course of business; and
(vi) No third party (other than Ecopetrol) has a right to
purchase any hydrocarbon production from such Partnership Property
pursuant to a call, futures contract or similar arrangement.
(d) Except as set forth in Section 4.09(d) of the Company's
Disclosure Letter, the Partnership Properties have been operated in compliance
in all material respects with the provisions and requirements of all laws,
orders, regulations, rules and ordinances issued or promulgated by all
governmental authorities having jurisdiction with respect to the Partnership
Properties. All necessary material governmental certificates, consents, permits,
licenses or other authorizations with regard to the ownership or operation of
the Partnership Properties (including without limitation those required by the
Colombian Ministry of the Environment) have been obtained and no violations
exist or have been recorded in respect of such licenses, permits or
authorizations. None of the documents and materials filed with or furnished to
any governmental authority with respect to the Partnership Properties contains
any untrue statement of a material fact or omits any statement of a material
fact necessary to make the statements therein not misleading.
(e) With respect to the oil, gas and other mineral leases, unit
agreements, pooling agreements, communitization agreements and other documents
creating interests comprising the Partnership Properties (the "Oil and Gas
Leases"): (a) the Partnership has fulfilled all requirements for filings,
certificates, disclosures of parties in interest, and other similar matters
contained in (or otherwise applicable thereto by law, rule or regulation) such
leases or other documents and is fully qualified to own and hold all such leases
or other interests; (b) there are no provisions applicable to such leases or
other documents which increase the royalty share of the lessor thereunder except
as such increases are reflected in Section 4.09(e) of the Company's Disclosure
Letter; and (c) upon the establishment and maintenance of production in
commercial quantities, the Oil and Gas Leases and other interests are to be in
full force and effect until such contracts terminate in accordance with their
terms.
AGREEMENT AND PLAN OF MERGER
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<PAGE>
(f) Except as set forth in Section 4.09(f) of the Company's
Disclosure Letter, no parcel of real property so listed as owned is, or its use
is, in violation of any applicable zoning laws nor in violation of any other
local, state or federal laws and regulations affecting the use and occupancy of
such property.
(g) The Partnership enjoys peaceful and undisturbed possession
under all leases of non-mineral interests under which the Partnership holds or
purports to hold a leasehold estate in real property ("Leases"), and all such
Leases are valid, subsisting and in full force and effect. Neither the
Partnership nor the relevant landlord is in default under any Lease. No landlord
has given any written or other notice to the Partnership of any intention of
instituting litigation with respect to any Lease. Complete and correct copies of
each of the Leases as currently in effect have been made available to the
Acquiror, and there is no agreement, written, oral or otherwise, affecting the
Partnership's rights with respect to any Lease, the real property subject to
such Lease, or the Partnership's obligations to or for the benefit of the
landlord under such Lease, except as fully set forth in such Lease or in any
related materials made available to the Acquiror. The Partnership has not
received notice that any landlord under any Lease has commenced any voluntary
case or proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or similar law nor has any involuntary case or proceeding to be
adjudicated as bankrupt or insolvent been commenced against such landlord nor
has such landlord consented to any entry of any decree or order for relief under
any applicable federal or state bankruptcy, insolvency, reorganization or other
similar law.
(h) Except as set forth in Section 4.09(h) of the Company's
Disclosure Letter, there is no pending or, to the Knowledge of the Company,
threatened condemnation or similar proceeding or special assessment affecting
any real property, or any part thereof, nor has the Company or any of its
Subsidiaries received notification that any such proceeding or assessment is
contemplated by any governmental authority.
(i) Except as set forth in Section 4.09(i) of the Company's
Disclosure Letter or the Company Annual Report, the Partnership Properties have
not experienced any material reduction in the rate of production of oil and gas,
other than changes in the ordinary course of operation, changes that result from
depletion in the ordinary course of operation and changes that result from
variances in markets and market prices for the oil and gas and none of the
Partnership Properties have suffered any material destruction, damage or loss.
(j) All of the wells in which the Partnership has an interest
by virtue of its ownership of the Partnership Properties (the "Wells") have been
drilled and completed within the boundaries of such Partnership Property or
within the limits otherwise permitted by contract, pooling or unit agreement,
and by law; and all drilling and completion of the wells included in each
Partnership Property and all development and operations on such Partnership
Property have been conducted in compliance in all material respects with all
applicable laws, ordinances, rules, regulations and permits, and judgments,
orders and decrees of any court or governmental body or agency.
AGREEMENT AND PLAN OF MERGER
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<PAGE>
(k) Except as disclosed on Section 4.09(k) of the Company 's
Disclosure Letter, there are no Wells that
(i) the Partnership is currently obligated by law or contract
to plug and abandon;
(ii) the Partnership will be obligated by law or contract to
plug and abandon with the lapse of time or notice or both because the
Well is not currently capable of producing in commercial quantities;
(iii) are subject to exceptions to a requirement to plug and
abandon issued by a regulatory authority having jurisdiction over the
Leases; or
(iv) have been plugged and abandoned but have not been plugged
in accordance with all applicable requirements of each regulatory
authority having jurisdiction over the Partnership Properties.
(l) Except as set forth in Section 4.09(l) of the Company's
Disclosure Letter, since December 31, 1997, there has not been (i) any damage,
destruction, change in physical condition, or loss to or of any of the
Partnership Properties, or any equipment, facilities, material or other personal
property ("Equipment") used in, on or in connection with the Partnership
Properties, whether or not covered by insurance, other than ordinary wear on
equipment; (ii) any Equipment removed from the Partnership Properties except for
equipment which was surplus to the operation of the Partnership Properties;
(iii) any sale, lease or other disposition of any Partnership Properties (or of
any Equipment other than in the ordinary course); (iv) any contract or
commitment to do any of the foregoing.
SECTION 4.10 Certain Obligations. Except for those listed in Section
-------------------
4.10 of the Company's Disclosure Letter or filed as Exhibits to the Company's
SEC Reports, neither the Company nor any of its Subsidiaries is a party to or
bound by any Material Contract. Except as set forth in Section 4.10 of the
Company's Disclosure Letter, all Material Contracts to which the Company or any
of its Subsidiaries is a party are in full force and effect, the Company or the
Subsidiary of the Company that is a party to or bound by such Material Contract
has performed its obligations thereunder to date and, to the Knowledge of the
Company, each other party thereto has performed its obligations thereunder to
date, other than any failure of a Material Contract to be in full force and
effect or any nonperformance thereof that could not reasonably be expected to
have a Material Adverse Effect on the Company.
SECTION 4.11 Authorizations; Compliance.
--------------------------
(a) The Company and its Subsidiaries have obtained all
Authorizations that are necessary to carry on their businesses as
currently conducted, except for any such Authorizations as to which,
individually or in the aggregate, the failure to possess could not
reasonably be expected to have a Material Adverse Effect on the
Company. Such Authorizations are in full force and effect, have not
been violated in any respect that could
AGREEMENT AND PLAN OF MERGER
-15-
<PAGE>
reasonably be expected to have a Material Adverse Effect on the Company
and there is no action, proceeding or investigation pending or, to the
Knowledge of the Company, threatened regarding suspension, revocation
or cancellation of any such Authorizations, except for any suspensions,
revocations or cancellations of any such Authorizations that,
individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on the Company.
(b) Neither the Company nor any of its Subsidiaries possesses
any rights, privileges, powers or franchises, contracts, arrangements
or understandings that are used in, or are necessary to the business of
any of the Company's Subsidiaries, including the Partnership, as
presently conducted ("Necessary Rights"), except those that will be
transferred to the Acquiror or one of its Subsidiaries as a result of
the Merger and the other transactions contemplated by this Agreement.
The Company and its Subsidiaries, including the Partnership, are
currently vested with all Necessary Rights.
SECTION 4.12 Litigation; Compliance with Laws. There are no
--------------------------------
actions, suits, investigations or proceedings (including any proceedings in
arbitration) pending or, to the Knowledge of the Company, threatened against
the Company or any of its Subsidiaries, at law or in equity, in any Court or
before or by any Governmental Authority, except actions, suits, investigations
or proceedings that are disclosed in the Company's SEC Reports, that are set
forth in Section 4.12 or Section 4.15 of the Company's Disclosure Letter or
that, individually or, with respect to multiple actions, suits or proceedings
that allege similar theories of recovery based on similar facts, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect on
the Company. There are no Material claims pending or, to the Knowledge of the
Company, threatened by any Persons against the Company or any of its
Subsidiaries for indemnification pursuant to any statute, organizational
document, contract or otherwise with respect to any claim, action, suit,
investigation or proceeding pending in any Court or before or by any
Governmental Authority. Except as set forth in Section 4.12 and Section 4.15 of
the Company's Disclosure Letter, the Company and its Subsidiaries are in
substantial compliance with all applicable Laws and Regulations and are not in
default with respect to any Order applicable to the Company or any of its
Subsidiaries, except such events of noncompliance or defaults that, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company.
SECTION 4.13 Employee Benefit Plans. Except as set forth in the
----------------------
Company's SEC Reports or in Section 4.13 of the Company's Disclosure Letter, the
Company is in substantial compliance with each Benefit Plan except for any
noncompliance that could not reasonably be expected to have a Material Adverse
Effect on the Company.
SECTION 4.14 Taxes.
-----
(a) Except as set forth in Section 4.14(a) of the Company's
Disclosure Letter and except for such other matters as could not
reasonably be expected to have a Material Adverse Effect on the
Company, all returns and reports of or with respect to any Tax ("Tax
Returns") that are required to be filed by or with respect to the
Company or any of its Subsidiaries on or before the Effective Time have
been or will be timely filed, all Taxes that are due on or
AGREEMENT AND PLAN OF MERGER
-16-
<PAGE>
before the Effective Time have been or will be timely paid in full, all
withholding Tax requirements imposed on or with respect to the Company
or any of its Subsidiaries have been or will be satisfied in full in
all respects and no penalty, interest or other charge is or will become
due with respect to the late filing of any such Tax Return or late
payment of any such Tax.
(b) Except as set forth in Section 4.14(b) of the
Company's Disclosure Letter, none of such Tax Returns has been audited
by the applicable Governmental Authority.
(c) Except as set forth in Section 4.14(c) of the
Company's Disclosure Letter, there is not in force any extension of
time with respect to the due date for the filing of any such Tax Return
or any waiver or agreement for any extension of time for the assessment
or payment of any Tax due with respect to the period covered by any
such Tax Return.
(d) Except as set forth in Section 4.14(d) of the
Company's Disclosure Letter, there is no claim against the Company or
any of its Subsidiaries for any Taxes, and no assessment, deficiency or
adjustment has been asserted or, to the knowledge of the Company,
proposed with respect to any such Tax Return, that, in either case,
could reasonably be expected to have a Material Adverse Effect on the
Company.
(e) Except as set forth in Section 4.14(e) of the
Company's Disclosure Letter, none of the Company and its Subsidiaries
has, during the last ten years, been a member of an affiliated group
filing a consolidated federal income Tax Return, other than the
affiliated group of which the Company is the common parent corporation.
(f) The schedule set forth in Section 4.14(f) of the
Company's Disclosure Letter is accurate and sets forth fully the tax
basis information pertaining to the branch operations of the
Partnership including the unamortized capital costs and net loss carry
forwards of the branch operations of the Partnership; provided,
however, that the Company makes no representation or warranty with
respect to the Acquiror's ability to utilize such net loss carry
forwards.
SECTION 4.15 Environmental Matters.
---------------------
(a) Except for matters disclosed in the Company's SEC
Reports or in Section 4.15 of the Company's Disclosure Letter and
except for matters that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the
Company, (i) the properties, operations and activities of the Company
and its Subsidiaries are in compliance with all applicable
Environmental Laws; (ii) the Company and its Subsidiaries and the
properties and operations of the Company and its Subsidiaries are not
subject to any existing, pending or, to the Knowledge of the Company,
threatened action, suit, investigation, inquiry or proceeding by or
before any Court or Governmental Authority under any Environmental Law;
(iii) all Authorizations, if any, required to be obtained or filed by
the Company or any of its Subsidiaries under any Environmental Law in
connection with the business of the Company and its Subsidiaries have
been obtained or filed and are valid
AGREEMENT AND PLAN OF MERGER
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<PAGE>
and currently in full force and effect; (iv) there has been no release
of any hazardous substance, pollutant or contaminant into the
environment by the Company or its Subsidiaries or in connection with
their properties or operations; and (v) there has been no exposure of
any Person or property to any hazardous substance, pollutant or
contaminant in connection with the properties, operations and
activities of the Company and its Subsidiaries.
(b) The Company and its Subsidiaries have made available to
the Acquiror all internal and external environmental audits and studies
and all correspondence on environmental matters (in each case relevant
to the Company or any of its Subsidiaries) in the possession of the
Company or its Subsidiaries for such matters as could reasonably be
expected to have a Material Adverse Effect on the Company.
SECTION 4.16 Insurance. The Company and its Subsidiaries own and
---------
are beneficiaries under all such insurance policies underwritten by reputable
insurers that, as to risks insured, coverages and related limits and
deductibles, are customary in the industry in which the Company and its
Subsidiaries operate. All premiums due with respect to all such insurance
policies that are Material have been paid and, to the Knowledge of the Company,
all such policies are in full force and effect.
SECTION 4.17 Affiliates. Section 4.18 of the Company's Disclosure
----------
Letter contains a true and complete list of all Persons who are directors or
executive officers of the Company and any other Persons who, to the Knowledge of
the Company, may be deemed to be Affiliates of the Company. Concurrently with
the execution and delivery of this Agreement, the Company has delivered to the
Acquiror an executed letter agreement, substantially in the form of Annex B
hereto, from each such Person so identified.
SECTION 4.18 Certain Business Practices. As of the date of this
--------------------------
Agreement, neither the Company or any of its Subsidiaries nor any director,
officer, employee or agent of the Company or any of its Subsidiaries has (a)
used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (b) made any unlawful payment
to any foreign or domestic government official or employee or to any foreign or
domestic political party or campaign or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, (c) consummated any transaction, made
any payment, entered into any agreement or arrangement or taken any other action
in violation of Section 1128B(b) of the Social Security Act, as amended, or (d)
made any other unlawful payment, except for any such matters that could not
reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 4.19 Brokers. Except as set forth in Section 4.20 of the
-------
Company's Disclosure Letter, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
AGREEMENT AND PLAN OF MERGER
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<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
Subject to the provisions of Section 10.01(b), the Acquiror hereby
represents and warrants to the Company as follows:
SECTION 5.01 Organization and Qualification; Subsidiaries. The
--------------------------------------------
Acquiror, Newco and each other Significant Subsidiary of the Acquiror are legal
entities duly organized, validly existing and in good standing under the laws of
their respective jurisdictions of incorporation or organization, have all
requisite corporate power and authority to own, lease and operate their
respective properties and to carry on their businesses as they are now being
conducted and are duly qualified and in good standing to do business in each
jurisdiction in which the nature of the business conducted by them or the
ownership or leasing of their respective properties makes such qualification
necessary, other than any matters, including the failure to be so qualified and
in good standing, that could not reasonably be expected to have a Material
Adverse Effect on the Acquiror. Section 5.01 of the Acquiror's Disclosure Letter
sets forth a true and complete list of all the Acquiror's directly or indirectly
owned Significant Subsidiaries, together with (A) a specification of the nature
of legal organization of such Subsidiary and (B) the jurisdiction of
incorporation or other organization of such Subsidiary.
SECTION 5.02 Certificate of Incorporation and Bylaws. The Acquiror
---------------------------------------
has heretofore marked for identification and furnished to the Company complete
and correct copies of the certificate of incorporation and the bylaws or the
equivalent organizational documents, in each case as amended or restated to the
date hereof, of the Acquiror and each of its Significant Subsidiaries. The
Acquiror is not in violation of any of the provisions of its certificate of
incorporation or bylaws.
SECTION 5.03 Capitalization.
--------------
(a) The authorized capital stock of the Acquiror consists of
348,500,000 shares of the Acquiror Common Stock of which as of December 31,
1997, 31,482,716 shares were issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the Acquiror's certificate of
incorporation or bylaws or any agreement to which the Acquiror is a party or is
bound. Since December 31, 1997, (x) no shares of Acquiror Common Stock have been
issued by the Acquiror except Acquiror Common Stock issued pursuant to the
exercise of outstanding Acquiror Stock Options and (y) the Acquiror has not
granted any options for, or other rights to purchase, shares of Acquiror Common
Stock.
(b) Except as set forth in Section 5.03(b) of the Acquiror's
Disclosure Letter and except for shares reserved for issuance pursuant to the
Acquiror Stock Plans, no shares of Acquiror Common Stock are reserved for
issuance, and, except for the Acquiror Stock Options, there are no contracts,
agreements, commitments or arrangements obligating the Acquiror to offer, sell,
issue or grant any Equity Securities of the Acquiror, to redeem, purchase or
acquire, or offer to purchase or acquire, any outstanding Equity Securities of
the Acquiror or to grant any Lien on any shares of capital stock of the
Acquiror.
AGREEMENT AND PLAN OF MERGER
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<PAGE>
(c) Except as set forth in Section 5.03(c) of the Acquiror's
Disclosure Letter, (i) all the issued and outstanding shares of capital stock
of, or other equity interests in, each Significant Subsidiary of the Acquiror
are owned by the Acquiror or one of its Subsidiaries, have been duly authorized
and are validly issued, and, with respect to capital stock, are fully paid and
nonassessable, and were not issued in violation of any preemptive or similar
rights of any past or present equity holder of such Subsidiary; (ii) all such
issued and outstanding shares, or other equity interests, that are owned by the
Acquiror or one of its Subsidiaries are owned free and clear of all Liens; (iii)
no shares of capital stock of, or other equity interests in, any Significant
Subsidiary of the Acquiror are reserved for issuance, and there are no
contracts, agreements, commitments or arrangements obligating the Acquiror or
any of its Significant Subsidiaries (A) to offer, sell, issue, grant, pledge,
dispose of or encumber any Equity Securities of any of the Significant
Subsidiaries of the Acquiror or (B) to redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding Equity Securities of any of the Significant
Subsidiaries of the Acquiror or (C) to grant any Lien on any outstanding shares
of capital stock of, or other equity interests in, any of the Significant
Subsidiaries of the Acquiror; except for any matter under clause (i), (ii) or
(iii) of this Section 5.03(c) that could not reasonably be expected to have a
Material Adverse Effect on the Acquiror.
(d) Except for revocable proxies granted by the Acquiror or
its Subsidiaries with respect to the capital stock of Subsidiaries owned by the
Acquiror or its Subsidiaries, there are no voting trusts, proxies or other
agreements, commitments or understandings of any character to which the Acquiror
or any of its Significant Subsidiaries is a party or by which the Acquiror or
any of its Significant Subsidiaries is bound with respect to the voting of any
shares of capital stock of the Acquiror or any of its Significant Subsidiaries.
SECTION 5.04 Authorization of Agreement. Each of the Acquiror and
--------------------------
Newco has all requisite corporate power and authority to execute and deliver
this Agreement and, subject to approval of this Agreement by the majority of the
stockholders of the Acquiror as required by the applicable provisions of the LSE
and the ASE, each instrument required hereby to be executed and delivered by it
at the Closing, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby. The execution and delivery by
each of the Acquiror and Newco of this Agreement and each instrument required
hereby to be executed and delivered by each of them at the Closing and the
performance of their respective obligations hereunder and thereunder have been
duly and validly authorized by all requisite corporate action on the part of the
Acquiror and Newco, respectively (other than, with respect to the Merger, the
approval and adoption of this Agreement by the holders of a majority of the
outstanding shares of Acquiror Common Stock in accordance with the applicable
provisions of the LSE and the ASE). This Agreement has been duly executed and
delivered by the Acquiror and Newco and (assuming due authorization, execution
and delivery hereof by the other party hereto) constitutes a legal, valid and
binding obligation of the Acquiror and Newco, enforceable against the Acquiror
and Newco in accordance with its terms, except as the same may be limited by
legal principles of general applicability governing the application and
availability of equitable remedies.
SECTION 5.05 Approvals. Except for the applicable requirements, if
---------
any, of (a) the Securities Act, (b) the Exchange Act, (c) state securities or
blue sky laws, (d) the HSR Act, (e) the
AGREEMENT AND PLAN OF MERGER
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<PAGE>
applicable Colombian Laws and the applicable Regulations and Orders of Colombian
Governmental Authorities as set forth in the Acquiror's Disclosure Letter, (f)
the LSE, (g) the ASE, (h) the filing and recordation of appropriate merger
documents as required by the GCL and (i) those Laws, Regulations and Orders
noncompliance with which could not reasonably be expected to have a Material
Adverse Effect on the Acquiror or Newco, no filing or registration with, no
waiting period imposed by and no Authorization of, any Governmental Authority is
required under any Law, Regulation or Order applicable to the Acquiror or Newco
to permit the Acquiror or Newco to execute, deliver or perform this Agreement or
any instrument required hereby to be executed and delivered by it at the
Closing. To the Knowledge of the Acquiror and assuming approval of this
Agreement and the transactions contemplated hereby by the holders of a majority
of outstanding Acquiror Common Stock as required by the LSE and the ASE, there
are no facts or circumstances that could reasonably be expected to preclude the
Acquiror Common Stock to be issued in the Merger from being approved for listing
on the LSE or Depositary Shares representing such Acquiror Common Stock from
being approved for listing on the ASE.
SECTION 5.06 No Violation. Assuming effectuation of all filings and
------------
registrations with, termination or expiration of any applicable waiting periods
imposed by, and receipt of all Authorizations of, Governmental Authorities
indicated as required in Section 5.05, neither the execution and delivery by the
Acquiror or Newco of this Agreement or any instrument required hereby to be
executed and delivered by it at the Closing nor the performance by the Acquiror
or Newco of its obligations hereunder or thereunder will (a) violate or breach
the terms of or cause a default under any Law, Regulation or Order applicable to
the Acquiror or Newco, the certificate of incorporation or bylaws of the
Acquiror or Newco or any contract or agreement to which the Acquiror or any of
its Subsidiaries is a party or by which it or any of its properties or assets is
bound, or (b), with the passage of time, the giving of notice or the taking of
any action by a third Person, have any of the effects set forth in clause (a) of
this Section, except in any such case for any matters described in this Section
that could not reasonably be expected to have a Material Adverse Effect on the
Acquiror or Newco.
SECTION 5.07 Reports.
-------
(a) Since December 31, 1994, (i) the Acquiror has filed all
SEC Reports required to be filed by the Acquiror with the Commission and (ii)
the Company and its Subsidiaries have filed all other Reports required to be
filed by any of them with any other Governmental Authorities, the LSE and the
ASE except where the failure to file any such Reports could not reasonably be
expected to have a Material Adverse Effect on the Company. The Acquiror's
Reports, including those filed after the date of this Agreement and prior to the
Effective Time, (x) were prepared in all material respects in accordance with
the requirements of applicable Law (including, with respect to the Acquiror's
SEC Reports, the Securities Act and the Exchange Act, as the case may be, and
the applicable Regulations of the Commission thereunder) and (y), in the case of
the Acquiror's SEC Reports, did not at the time they were filed contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
AGREEMENT AND PLAN OF MERGER
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<PAGE>
(b) The Acquiror's Consolidated Financial Statements and any
consolidated financial statements of the Acquiror (including any related notes
thereto) contained in any of the Acquiror's SEC Reports filed by the Acquiror
with the Commission after the date of this Agreement (i) have been or will have
been prepared in accordance with the published Regulations of the Commission and
in accordance with GAAP (except (A) to the extent required by changes in GAAP
and (B), with respect to the Acquiror's Consolidated Financial Statements, as
may be indicated in the notes thereto) and (ii) fairly present the consolidated
financial position of the Acquiror and its Subsidiaries as of the respective
dates thereof and the consolidated results of their operations and cash flows
for the periods indicated (including, in the case of any unaudited interim
financial statements, reasonable estimates of normal and recurring year-end
adjustments).
(c) Except as set forth in Section 5.07(c) of the Acquiror's
Disclosure Letter, there exist no liabilities or obligations of the Acquiror and
its Subsidiaries that are Material to the Acquiror, whether accrued, absolute or
contingent, that would be required to be reflected, reserved for or disclosed
under GAAP in consolidated financial statements of the Acquiror as of and for
the period ended on the date of this representation and warranty, other than (i)
liabilities or obligations that are adequately reflected, reserved for or
disclosed in the Acquiror's Consolidated Financial Statements, (ii) liabilities
or obligations incurred in the ordinary course of business of the Acquiror since
December 31, 1997, (iii) liabilities or obligations the incurrence of which is
permitted by Section 6.02(b) and (iv) liabilities or obligations that are not
Material to the Acquiror.
SECTION 5.08 No Material Adverse Effect; Conduct.
-----------------------------------
(a) Since December 31, 1997, no event (other than any event
that is of general application to all or a substantial portion of the Acquiror's
industry and other than any event that is expressly subject to any other
representation or warranty contained in Article V) has, to the Knowledge of the
Acquiror, occurred that, individually or together with other similar events,
could reasonably be expected to constitute or cause a Material Adverse Effect on
the Acquiror.
(b) Except as set forth in Section 5.08(b) of the Acquiror's
Disclosure Letter, during the period from December 31, 1997, to the date of this
Agreement, neither the Acquiror nor any of its Subsidiaries has engaged in any
conduct that is proscribed during the period from the date of this Agreement to
the Effective Time by subsections (i) through (viii) of Section 6.02(b).
SECTION 5.09 Title to Properties.
-------------------
(a) The Acquiror or its Subsidiaries, individually or
together, have indefeasible title to all of the properties reflected in
the Acquiror's Consolidated Balance Sheet, other than any properties
reflected in the Acquiror's Consolidated Balance Sheet that have been
sold or otherwise disposed of since the date of the Acquiror's
Consolidated Balance Sheet or are not, individually or in the
aggregate, Material to the Acquiror, free and clear of Liens, other
than (x) Liens the existence of which is reflected in the Acquiror's
Consolidated Financial Statements, (y) Permitted Encumbrances and (z)
Liens that, individually or in the aggregate, are not Material to the
Acquiror. The Acquiror or its Subsidiaries, individually or together,
hold under valid lease agreements all real and personal properties
reflected in the Acquiror's
AGREEMENT AND PLAN OF MERGER
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<PAGE>
Consolidated Balance Sheet as being held under capitalized leases, and
all real and personal property that is subject to the operating leases
to which reference is made in the notes to the Acquiror's Audited
Consolidated Financial Statements, and enjoy peaceful and undisturbed
possession of such properties under such leases, other than (i) any
properties as to which such leases have terminated in the ordinary
course of business since the date of the Acquiror's Consolidated
Balance Sheet and (ii) any properties that, individually or in the
aggregate, are not Material to the Acquiror. Neither the Acquiror nor
any of its Subsidiaries has received any written notice of any adverse
claim to the title to any properties owned by them or with respect to
any lease under which any properties are held by them, other than any
claims that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Acquiror.
(b) Except as set forth in Section 5.09(b) of the Acquiror's
Disclosure Letter, the Acquiror has Marketable Title, free of Title
Defects, to its Oil and Gas Properties.
(c) With respect to each of the Oil and Gas Properties, except
as set forth in Section 5.09(c) of the Acquiror's Disclosure Letter:
(i) All royalties, rentals, shut-in payments and other
payments due with respect to such Oil and Gas Property have been
properly and timely paid, except for payments held in suspense for
title or other reasons that are customary in the industry and that will
not result in grounds for a cancellation of the rights of the Acquiror
in such Oil and Gas Property;
(ii) The Acquiror is not in default under the terms of any
leases, farmout agreements or other contracts or agreements respecting
such Oil and Gas Property which could (i) interfere with the operation,
value or use thereof, (ii) prevent the Acquiror from receiving the
proceeds of production attributable to their interest therein, or (iii)
result in cancellation of the interest of the Acquiror therein;
(iii) The Acquiror is not obligated by virtue of any gas
imbalance, prepayment or advance payment arrangement under any contract
for the sale or production of hydrocarbons, or under any other
arrangement, including any "take-or-pay" or similar arrangement, to
deliver any volume of hydrocarbons produced from or attributable to
such Oil and Gas Property, without then or thereafter being entitled to
receive payment therefor and Acquiror has not received any "take-or-
pay" production or similar payment that is subject to refund or
recoupment in cash. The status of any gas imbalances are set forth in
Section 5.09(c) of the Acquiror's Disclosure Letter;
(iv) All ad valorem, property, production, severance and other
taxes based on or measured by the ownership of such Oil and Gas
Property or the production of oil and gas therefrom have, if due, been
properly and timely paid;
AGREEMENT AND PLAN OF MERGER
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<PAGE>
(v) All expenses payable under the terms of any contracts
associated with such Oil and Gas Property have been properly and timely
paid except for such expenses as are being currently paid prior to
delinquency in the ordinary course of business; and
(vi) No third party (other than Ecopetrol) has a right to
purchase any hydrocarbon production from such Oil and Gas Property
pursuant to a call, futures contract or similar arrangement.
(d) The Oil and Gas Properties have been operated in compliance in
all material respects with the provisions and requirements of all laws, orders,
regulations, rules and ordinances issued or promulgated by all governmental
authorities having jurisdiction with respect to the Oil and Gas Properties. All
necessary material governmental certificates, consents, permits, licenses or
other authorizations with regard to the ownership or operation of the Oil and
Gas Properties (including without limitation those required by the Colombian
Ministry of the Environment) have been obtained and no violations exist or have
been recorded in respect of such licenses, permits or authorizations. None of
the documents and materials filed with or furnished to any governmental
authority with respect to the Oil and Gas Properties contains any untrue
statement of a material fact or omits any statement of a material fact necessary
to make the statements therein not misleading.
(e) With respect to the oil, gas and other mineral leases, unit
agreements, pooling agreements, communitization agreements and other documents
creating interests comprising the Oil and Gas Properties (the "Oil and Gas
Leases"): (a) the Acquiror has fulfilled all requirements for filings,
certificates, disclosures of parties in interest, and other similar matters
contained in (or otherwise applicable thereto by law, rule or regulation) such
leases or other documents and is fully qualified to own and hold all such leases
or other interests; (b) there are no provisions applicable to such leases or
other documents which increase the royalty share of the lessor thereunder except
as such increases are reflected in Section 5.09(e) of the Acquiror's Disclosure
Letter; and (c) upon the establishment and maintenance of production in
commercial quantities, the Oil and Gas Leases and other interests are to be in
full force and effect until such contracts terminate in accordance with their
terms.
(f) Except as set forth in Section 5.09(f) of the Acquiror's
Disclosure Letter, no parcel of real property so listed as owned is, or its use
is, in violation of any applicable zoning laws nor in violation of any other
local, state or federal laws and regulations affecting the use and occupancy of
such property.
(g) The Acquiror enjoys peaceful and undisturbed possession
under all leases of non-mineral interests under which the Acquiror holds or
purports to hold a leasehold estate in real property ("Leases"), and all such
Leases are valid, subsisting and in full force and effect. Neither the Acquiror
nor the relevant landlord is in default under any Lease. No landlord has given
any written or other notice to the Acquiror of any intention of instituting
litigation with respect to any Lease. Complete and correct copies of each of the
Leases as currently in effect have been made available to the Acquiror, and
there is no agreement, written, oral or otherwise, affecting the Acquiror's
rights with respect to any Lease, the real property subject to such Lease, or
the Acquiror's obligations to or for the benefit of the landlord under such
Lease, except as fully set forth in such
AGREEMENT AND PLAN OF MERGER
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<PAGE>
Lease or in any related materials made available to the Acquiror. The Acquiror
has not received notice that any landlord under any Lease has commenced any
voluntary case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or similar law nor has any involuntary case or
proceeding to be adjudicated as bankrupt or insolvent been commenced against
such landlord nor has such landlord consented to any entry of any decree or
order for relief under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law.
(h) There is no pending or, to the Knowledge of the Acquiror,
threatened condemnation or similar proceeding or special assessment affecting
any real property, or any part thereof, nor has the Acquiror or any of its
Subsidiaries received notification that any such proceeding or assessment is
contemplated by any governmental authority.
(i) Except as set forth in Section 5.09(i) of the Acquiror's
Disclosure Letter, the Oil and Gas Properties have not experienced any material
reduction in the rate of production of oil and gas, other than changes in the
ordinary course of operation, changes that result from depletion in the ordinary
course of operation and changes that result from variances in markets and market
prices for the oil and gas and none of the Oil and Gas Properties have suffered
any material destruction, damage or loss.
(j) All of the wells in which the Acquiror has an interest by
virtue of its ownership of the Oil and Gas Properties (the "Wells") have been
drilled and completed within the boundaries of such Oil and Gas Property or
within the limits otherwise permitted by contract, pooling or unit agreement,
and by law; and all drilling and completion of the wells included in each Oil
and Gas Property and all development and operations on such Oil and Gas Property
have been conducted in compliance in all material respects with all applicable
laws, ordinances, rules, regulations and permits, and judgments, orders and
decrees of any court or governmental body or agency.
(k) Except as disclosed on Section 5.09(k) of the Acquiror's
Disclosure Letter, there are no Wells that
(i) the Acquiror is currently obligated by law or contract
to plug and abandon;
(ii) the Acquiror will be obligated by law or contract to
plug and abandon with the lapse of time or notice or both because the
Well is not currently capable of producing in commercial quantities;
(iii) are subject to exceptions to a requirement to plug and
abandon issued by a regulatory authority having jurisdiction over the
Leases; or
(iv) have been plugged and abandoned but have not been
plugged in accordance with all applicable requirements of each
regulatory authority having jurisdiction over the Oil and Gas
Properties.
AGREEMENT AND PLAN OF MERGER
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<PAGE>
(l) Except as set forth in Section 5.09(l) of the Acquiror's
Disclosure Letter, since December 31, 1997, there has not been (i) any damage,
destruction, change in physical condition, or loss to or of any of the Oil and
Gas Properties, or any equipment, facilities, material or other personal
property ("Equipment") used in, on or in connection with the Oil and Gas
Properties, whether or not covered by insurance, other than ordinary wear on
equipment; (ii) any Equipment removed from the Oil and Gas Properties except for
equipment which was surplus to the operation of the Oil and Gas Properties;
(iii) any sale, lease or other disposition of any Oil and Gas Properties (or of
any Equipment other than in the ordinary course); (iv) any contract or
commitment to do any of the foregoing.
SECTION 5.10 Certain Obligations. Except for those listed in Section
-------------------
5.10 of the Acquiror's Disclosure Letter or filed as Exhibits to the Acquiror's
SEC Reports, neither the Acquiror nor any of its Subsidiaries is a party to or
bound by any Material Contract. Except as set forth in Section 5.10 of the
Acquiror's Disclosure Letter, all Material Contracts to which the Acquiror or
any of its Subsidiaries is a party are in full force and effect, the Acquiror or
the Subsidiary of the Acquiror that is a party to or bound by such Material
Contract has performed its obligations thereunder to date and, to the Knowledge
of the Acquiror, each other party thereto has performed its obligations
thereunder to date, other than any failure of any such Material Contract to be
in full force and effect or any nonperformance thereof that could not reasonably
be expected to have a Material Adverse Effect on the Acquiror.
SECTION 5.11 Authorizations; Compliance. To the Knowledge of the
--------------------------
Acquiror, the Acquiror and its Subsidiaries have obtained all Authorizations
that are necessary to carry on their businesses as currently conducted, except
for any such Authorizations as to which the failure to possess, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Acquiror. Such Authorizations are in full force and effect, have
not been violated in any respect that could reasonably be expected to have a
Material Adverse Effect on the Acquiror and there is no action, proceeding or
investigation pending or threatened regarding suspension, revocation or
cancellation of any of such Authorizations, except in the case of any
suspension, revocation or cancellation of such Authorizations that could not
reasonably be expected to have a Material Adverse Effect on the Acquiror.
SECTION 5.12 Litigation; Compliance with Laws. There are no actions,
--------------------------------
suits, investigations or proceedings (including any proceedings in arbitration)
pending or, to the Knowledge of the Acquiror, threatened against the Acquiror or
any of its Subsidiaries, at law or in equity, in any Court or before or by any
Governmental Authority, except actions, suits, proceedings or investigations
that are disclosed in the Acquiror's SEC Reports, that are set forth in Section
5.12 or Section 5.15 of the Acquiror's Disclosure Letter or that, individually
or, with respect to multiple actions, suits or proceedings that allege similar
theories of recovery based on similar facts, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Acquiror. There
are no Material claims pending or, to the Knowledge of the Acquiror, threatened
by any Persons against the Acquiror or any of its Subsidiaries for
indemnification pursuant to any statute, organizational document, contract or
otherwise with respect to any claim, action, suit, investigation or proceeding
pending in any Court or before or by any Governmental Authority. The Acquiror
and its Subsidiaries are in substantial compliance with all applicable Laws and
Regulations and are not
AGREEMENT AND PLAN OF MERGER
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<PAGE>
in default with respect to any Order applicable to the Acquiror or any of its
Subsidiaries, except such events of noncompliance or defaults that, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Acquiror.
SECTION 5.13 Employee Benefit Plans. Except as set forth in the Acquiror's
----------------------
SEC Reports or in Section 5.13 of the Acquiror's Disclosure Letter:
(a) With respect to each Acquiror Benefit Plan, no event has
occurred and, to the Knowledge of the Acquiror, there exists no condition
or set of circumstances in connection with which the Acquiror or any of its
Subsidiaries could be subject to any liability under the terms of such
Acquiror Benefit Plan, ERISA, the Code or any other applicable Law, other
than any condition or set of circumstances that could not reasonably be
expected to have a Material Adverse Effect on the Acquiror.
(b) Each Current Acquiror Benefit Plan intended to be qualified
under Section 401 of the Code (i) satisfies in form the requirements of
such Section except to the extent amendments are not required by Law to be
made until a date after the Effective Time, (ii) does not require the
receipt of a favorable determination letter from the IRS regarding such
qualified status and (iii) has not been amended other than by amendments
required by applicable Law.
(c) Except as could not reasonably be expected to result in a
Material Adverse Effect on the Acquiror, there has been no termination or
partial termination of any Current Acquiror Benefit Plan within the meaning
of Section 4.11(d)(3) of the Code and, to the Knowledge of the Acquiror,
each Current Acquiror Benefit Plan has been operated in material compliance
with its provisions and with applicable Law.
(d) Any Terminated Acquiror Benefit Plan intended to have been
qualified under Section 401 of the Code received a favorable determination
letter from the IRS with respect to its termination.
(e) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the Knowledge of the Acquiror,
threatened against, or with respect to, any Acquiror Benefit Plan or its
assets that could reasonably be expected to have a Material Adverse Effect
on the Acquiror and, to the Knowledge of the Acquiror, no facts or
circumstances exist that could give rise to any such actions, suits or
claims, except as could not reasonably be expected to have a Material
Adverse Effect on the Acquiror.
(f) To the Knowledge of the Acquiror, there is no matter pending
(other than routine qualification determination filings) with respect to
any Acquiror Benefit Plans before the IRS, the Department of Labor, the
PBGC or any other Governmental Authority, except as could not reasonably be
expected to have a Material Adverse Effect on the Acquiror.
(g) All contributions required to be made to Acquiror Benefit Plans
pursuant to their terms and the provisions of ERISA, the Code or any
other applicable Law have been
AGREEMENT AND PLAN OF MERGER
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<PAGE>
timely made, except as could not reasonably be expected to have a
Material Adverse Effect on the Acquiror.
(h) As to any Current Acquiror Benefit Plan subject to Title IV of
ERISA, (i) there has been no event or condition that presents a significant
risk of plan termination, (ii) no accumulated funding deficiency, whether
or not waived, within the meaning of Section 302 of ERISA or Section 412 of
the Code has been incurred, (iii) no reportable event within the meaning of
Section 4043 of ERISA (for which the disclosure requirements of Regulation
section 4043.1, et seq., promulgated by the PBGC, have not been waived) has
occurred within six years prior to the date of this Agreement, (iv) no
notice of intent to terminate such Benefit Plan has been given under
Section 4041 of ERISA, (v) no proceeding has been instituted under Section
4042 of ERISA to terminate such Benefit Plan, (vi) no liability to the PBGC
has been incurred (other than with respect to required premium payments)
and (vii) the assets of the Benefit Plan equal or exceed the actuarial
present value of the benefit liabilities, within the meaning of Section
4041 of ERISA, under the Benefit Plan, based upon reasonable actuarial
assumptions and the asset valuation principles established by the PBGC,
except as could not reasonably be expected to have a Material Adverse
Effect on the Acquiror.
(i) In connection with the consummation of the transactions
contemplated by this Agreement, no payment of money or other property,
acceleration of benefits or provision of other rights has been or will be
made under any Current Acquiror Benefit Plan that could reasonably be
expected to be nondeductible under Section 280G of the Code, whether or not
some other subsequent action or event would be required to cause such
payment, acceleration or provision to be triggered.
(j) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (i) require
the Acquiror or any of its Subsidiaries to make a larger contribution to,
or pay greater benefits or provide other rights under, any Current Acquiror
Benefit Plan or any of the programs, agreements, policies or other
arrangements described in the Acquiror's Disclosure Letter in response to
paragraph (k) below than it otherwise would, whether or not some other
subsequent action or event would be required to cause such payment or
provision to be triggered or (ii) create or give rise to any additional
vested rights or service credits under any Current Acquiror Benefit Plan or
any of such programs, agreements, policies or other arrangements, whether
or not some other subsequent action or event would be required to cause
such creation or acceleration to be triggered.
(k) Neither the Acquiror nor any of its Subsidiaries is a party to
or is bound by any severance or change in control agreement, program or
policy (involving $10,000 or more of future payments) with respect to any
employee, officer or director.
(l) No Current Acquiror Benefit Plan (other than a Acquiror Benefit
Plan maintained outside the United States that is either fully insured or
fully funded through a retirement plan) provides retiree medical or retiree
life insurance benefits to any Person and
AGREEMENT AND PLAN OF MERGER
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<PAGE>
neither the Acquiror nor any of its Subsidiaries is contractually or
otherwise obligated (whether or not in writing) to provide any Person with
life insurance or medical benefits upon retirement or termination of
employment, other than as required by the provisions of Sections 601
through 608 of ERISA and Section 4980B of the Code.
(m) Neither the Acquiror nor any of its Subsidiaries contributes,
has an obligation to contribute, has within six years prior to the date of
this Agreement contributed or had an obligation to contribute, or had any
other liability, to a multiemployer plan within the meaning of Section
3(37) of ERISA.
(n) The Acquiror has not contributed, transferred or otherwise
provided any cash, securities or other property to any grantee, trust,
escrow or other arrangement that has the effect of providing or setting
aside assets for benefits payable pursuant to any termination, severance or
other change in control agreement.
(o) Except as could not reasonably be expected to have a Material
Adverse Effect on the Acquiror, (i) no collective bargaining agreement is
being negotiated by the Acquiror or any of its Subsidiaries, (ii) there is
no pending or, to the Knowledge of the Acquiror, threatened labor dispute,
strike or work stoppage against the Acquiror or any of its Subsidiaries,
(iii) to the Knowledge of the Acquiror, neither the Acquiror or any of its
Subsidiaries nor any representative or employee of the Acquiror or any of
its Subsidiaries has in the United States committed any Material unfair
labor practices in connection with the operation of the business of the
Acquiror and its Subsidiaries, and (iv) there is no pending or, to the
Knowledge of the Acquiror, threatened charge or complaint against the
Acquiror or any of its Subsidiaries by or before the National Labor
Relations Board or any comparable agency of any state of the United States.
SECTION 5.14 Taxes.
-----
(a) Except for such matters as could not reasonably be expected to
have a Material Adverse Effect on the Acquiror, all Tax Returns that are
required to be filed by or with respect to the Acquiror or any of its
Subsidiaries on or before the Effective Time have been or will be timely
filed, all Taxes that are due on or before the Effective Time have been or
will be timely paid in full, all withholding Tax requirements imposed on or
with respect to the Acquiror or any of its Subsidiaries have been or will
be satisfied in full in all respects and no penalty, interest or other
charge is or will become due with respect to the late filing of any such
Tax Return or late payment of any such Tax.
(b) Except as set forth in Section 5.14(b) of the Acquiror's
Disclosure Letter, each of such Tax Returns has been audited by the
applicable Governmental Authority or the applicable statute of limitations
has expired for the period covered by such Tax Return.
(c) Except as set forth in Section 5.14(c) of the Acquiror's
Disclosure Letter, there is not in force any extension of time with respect
to the due date for the filing of any
AGREEMENT AND PLAN OF MERGER
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<PAGE>
such Tax Return or any waiver or agreement for any extension of time for
the assessment or payment of any Tax due with respect to the period covered
by any such Tax Return.
(d) There is no claim against the Acquiror or any of its
Subsidiaries for any Taxes, and no assessment, deficiency or adjustment has
been asserted or proposed with respect to any such Tax Return, that, in
either case, could reasonably be expected to have a Material Adverse Effect
on the Acquiror.
(e) Except as set forth in Section 5.14(e) of the Acquiror's
Disclosure Letter, none of the Acquiror and its Subsidiaries has, during
the last ten years, been a member of an affiliated group filing a
consolidated federal income Tax Return, other than the affiliated group of
which the Acquiror is the common parent corporation.
SECTION 5.15 Environmental Matters.
---------------------
(a) Except for matters disclosed in the Acquiror's SEC Reports
or in Section 5.15 of the Acquiror's Disclosure Letter and except for
matters that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Acquiror, (a) the
properties, operations and activities of the Acquiror and its Subsidiaries
are in compliance with all applicable Environmental Laws; (b) the Acquiror
and its Subsidiaries and the properties and operations of the Acquiror and
its Subsidiaries are not subject to any existing, pending or, to the
Knowledge of the Acquiror, threatened action, suit, investigation, inquiry
or proceeding by or before any Court or Governmental Authority under any
Environmental Law; (c) all Authorizations if any, required to be obtained
or filed by the Acquiror or any of its Subsidiaries under any Environmental
Law in connection with the business of the Acquiror and its Subsidiaries
have been obtained or filed and are valid and currently in full force and
effect; (d) there has been no release of any hazardous substance, pollutant
or contaminant into the environment by the Acquiror or its Subsidiaries or
in connection with their properties or operations; and (e) there has been
no exposure of any Person or property to any hazardous substance, pollutant
or contaminant in connection with the properties, operations and activities
of the Acquiror and its Subsidiaries.
(b) The Acquiror and its Subsidiaries have made available to
the Company all internal and external environmental audits and studies and
all correspondence on environmental matters (in each case relevant to the
Acquiror or any of its Subsidiaries) in the possession of the Acquiror or
its Subsidiaries for such matters as could reasonably be expected to have a
Material Adverse Effect on the Acquiror.
SECTION 5.16 Insurance. The Acquiror and its Subsidiaries own and are
---------
beneficiaries under all such insurance policies underwritten by reputable
insurers that, as to risks insured, coverages and related limits and
deductibles, are customary for a company of the size and nature of the Acquiror
and which is similarly situated. All premiums due with respect to all such
insurance policies that are Material have been paid and, to the Knowledge of the
Acquiror, all such policies are in full force and effect.
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SECTION 5.17 Certain Business Practices. As of the date of this
--------------------------
Agreement, neither the Acquiror or any of its Subsidiaries nor any director,
officer, employee or agent of the Acquiror or any of its Subsidiaries has (a)
used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (b) made any unlawful payment
to any foreign or domestic government official or employee or to any foreign or
domestic political party or campaign or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, (c) consummated any transaction, made
any payment, entered into any agreement or arrangement or taken any other action
in violation of Section 1128B(b) of the Social Security Act, as amended, or (d)
made any other unlawful payment, except for any such matters that could not
reasonably be expected to have a Material Adverse Effect on the Acquiror.
SECTION 5.18 Newco. Newco is a wholly owned subsidiary of Aviva
-----
Holding Inc., a Delaware corporation (the "Special Purpose Subsidiary"); the
Special Purpose Subsidiary is a wholly owned subsidiary of Aviva America, Inc.,
a Delaware corporation ("Aviva America"); Aviva America is a wholly owned
subsidiary of the Acquiror.
SECTION 5.19 Brokers. Except as set forth in Section 5.19 of the
-------
Acquiror's Disclosure Letter, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Acquiror.
ARTICLE VI
COVENANTS
SECTION 6.01 Affirmative Covenants.
---------------------
(a) The Company hereby covenants and agrees that, prior to
the Effective Time, unless otherwise expressly contemplated by this
Agreement or consented to in writing by the Acquiror, it will and will
cause each of its Subsidiaries to:
(i) operate its business in the usual and ordinary
course consistent with past practices;
(ii) use all reasonable efforts to preserve
substantially intact its business organization, maintain its
rights and franchises, retain the services of its respective
key employees and maintain its relationships with its
respective customers and suppliers;
(iii) maintain and keep its properties and assets in as
good repair and condition as at present, ordinary wear and
tear excepted, and maintain supplies and inventories in
quantities consistent with its customary business practice;
and
(iv) use all reasonable efforts to keep in full force
and effect insurance and bonds comparable in amount and scope
of coverage to that currently maintained;
AGREEMENT AND PLAN OF MERGER
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<PAGE>
except for any matters that, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect on the
Company.
(b) The Acquiror hereby covenants and agrees that, prior to
the Effective Time, unless otherwise expressly contemplated by this
Agreement or consented to in writing by the Company, it will and will
cause each of its Subsidiaries to:
(i) operate its business in the usual and ordinary
course consistent with past practices;
(ii) use all reasonable efforts to preserve
substantially intact its business organization, maintain its
rights and franchises, retain the services of its respective
key employees and maintain its relationships with its
respective customers and suppliers;
(iii) maintain and keep its properties and assets in as
good repair and condition as at present, ordinary wear and
tear excepted, and maintain supplies and inventories in
quantities consistent with its customary business practice;
and
(iv) use all reasonable efforts to keep in full force
and effect insurance and bonds comparable in amount and scope
of coverage to that currently maintained;
except for any matters that, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect on the
Acquiror.
SECTION 6.02 Negative Covenants.
------------------
(a) The Company covenants and agrees that, except as
expressly set forth in the Company's Disclosure Letter, as expressly
contemplated by this Agreement or as otherwise consented to in writing
by the Acquiror, from the date of this Agreement until the Effective
Time, it will not do, and will not permit any of its Subsidiaries to
do, any of the following:
(i) (A) increase the compensation payable to or to
become payable to any director or executive officer, (B) grant
any severance or termination pay; (C) amend or take any other
actions to increase the amount or accelerate the payment or
vesting of any benefit under any Benefit Plan (including the
acceleration of vesting, waiving of performance criteria or
the adjustment of awards or any other actions permitted upon a
change in control of such party or permitted upon a filing
under Section 13(d) or 14(d) of the Exchange Act with respect
to such party) or (D) contribute, transfer or otherwise
provide any cash, securities or other property to any grantee,
trust, escrow or other arrangement that has the effect of
providing or setting aside assets for benefits payable
pursuant to any termination, severance or other change in
control agreement; except (i) pursuant to any contract,
agreement or other legal obligation of the Company or any of
its Subsidiaries existing at the date of this Agreement, (ii)
increases in salary payable or to become payable upon
promotion to an office having
AGREEMENT AND PLAN OF MERGER
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<PAGE>
greater operational responsibilities, (iii), in the case of
severance or termination payments, pursuant to the severance
policy of the Company or its Subsidiaries existing at the date
of this Agreement and (iv), in the case of Benefit Plans,
amendments required by ERISA or other applicable Law.
(ii) (A) enter into any employment or severance
agreement with any director or executive officer, either
individually or as part of a class of similarly situated
persons, or (B) establish, adopt or enter into any new Benefit
Plan; except employment and severance agreements and Benefit
Plans for the benefit of any newly employed or promoted
officers or employees, in which case the terms of such
agreements and Benefit Plans shall be reasonably consistent
with those existing at the date of this Agreement, and except
Benefit Plans relating to health and life insurance benefits
established or adopted in the ordinary course of business
consistent with past practice;
(iii) declare or pay any extraordinary dividend on,
or make any other distribution in respect of outstanding
shares of capital stock, except for dividends by a wholly
owned Subsidiary of the Company to the Company or another
wholly owned Subsidiary of the Company;
(iv) (A) redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding Equity Securities of the
Company or any of its Subsidiaries, other than (1) any such
acquisition by the Company or any of its wholly owned
Subsidiaries directly from any wholly owned Subsidiary of the
Company, (2) any repurchase, forfeiture or retirement of
shares of Company Common Stock or Company Stock Options
occurring pursuant to the terms (as in effect on the date of
this Agreement) of any existing Benefit Plan of the Company or
any of its Subsidiaries, or (3) any periodic purchase of
Company Common Stock for allocation to employee's accounts
occurring pursuant to the terms (as in effect on the date of
this Agreement) of any existing employee stock purchase plan;
(B) effect any reorganization or recapitalization; or (C)
split, combine or reclassify any of the capital stock of, or
other equity interests in, the Company or any of its
Subsidiaries or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in
substitution for, such Equity Securities;
(v) (A) offer, sell, issue or grant, or authorize the
offering, sale, issuance or grant, of any Equity Securities of
the Company or any of its Subsidiaries, other than issuances
of Company Common Stock (1) upon the exercise of Company Stock
Options outstanding at the date of this Agreement in
accordance with the terms thereof (as in effect on the date of
this Agreement) or (2) that constitutes a periodic issuance of
shares of Company Common Stock required by the terms (as in
effect on the date of this Agreement) of any Benefit Plans of
the Company or any of its Subsidiaries, (B) amend or otherwise
modify the terms (as in effect on the date of this Agreement)
of any outstanding options, warrants or rights the effect of
which shall be to make such terms more favorable to the
holders thereof (except as may be
AGREEMENT AND PLAN OF MERGER
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<PAGE>
required by ERISA or other applicable Law); (C) take any
action to accelerate the vesting of any outstanding Company
Stock Options or (D) grant or suffer to exist any Lien with
respect to any outstanding Equity Securities of any Subsidiary
of the Company;
(vi) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or all
or a portion of the assets of, or in any other manner, any
business or any corporation, partnership, association or other
business organization or division thereof or otherwise to
acquire any assets of any other Person (other than the
purchase of assets from suppliers or vendors in the ordinary
course of business and consistent with past practice);
(vii) sell, lease, exchange or otherwise dispose of,
or grant any Lien (other than a Permitted Encumbrance) with
respect to, any of the assets of the Company or any of its
Subsidiaries that are Material to the Company, except for
dispositions of assets and inventories in the ordinary course
of business and consistent with past practice and dispositions
of assets and purchase money Liens incurred in connection with
the original acquisition of assets and secured by the assets
acquired in an amount not to exceed $100,000 in the aggregate;
(viii) adopt any amendments to its charter or bylaws
or other organizational documents that would alter the terms
of its capital stock or other equity interests or would have a
Material Adverse Effect on the Company;
(ix) (A) change any of its methods of accounting in
effect at December 31, 1997, except as may be required to
comply with GAAP, (B) make or rescind any election relating to
Taxes (other than any election that must be made periodically
and that is made consistent with past practice), (C) settle or
compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to
Taxes (except where the cost to the Company and its
Subsidiaries of such settlements or compromises, individually
or in the aggregate, does not exceed $50,000) or (D) change
any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable
year ending December 31, 1996, except, in each case, as may be
required by Law and for matters that could not reasonably be
expected to have a Material Adverse Effect on the Company;
(x) incur any obligations for borrowed money or
purchase money indebtedness (other than purchase money
indebtedness as to which Liens may be granted as permitted by
Section 6.02(a)(vii)) that are Material to the Company,
whether or not evidenced by a note, bond, debenture or similar
instrument, except drawings under credit lines existing at the
date of this Agreement and borrowings evidenced by short term
obligations issued in the ordinary course of business
consistent with past practice.
AGREEMENT AND PLAN OF MERGER
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<PAGE>
(xi) release any third Person from its obligations
under any existing standstill agreement relating to a
Competing Transaction or otherwise under any confidentiality
agreement or similar agreement;
(xii) enter into any Material Contract with any third
Person that provides for an exclusive arrangement with that
third Person or is substantially more restrictive on the
Company or any of its Subsidiaries or substantially less
advantageous to the Company or any of its Subsidiaries than
Material Contracts existing on the date hereof; or
(xiii) agree in writing or otherwise to do any of the
foregoing;
(b) The Acquiror covenants and agrees that, except as
expressly set forth in the Acquiror's Disclosure Letter, as
contemplated by this Agreement, or as otherwise consented to in writing
by the Company, from the date of this Agreement until the Effective
Time, it will not do, and will not permit any of its Subsidiaries to
do, any of the following:
(i) (A) increase the compensation payable to or to
become payable to any director or executive officer, (B) grant
any severance or termination pay; (C) amend or take any other
actions to increase the amount or accelerate the payment or
vesting of any benefit under any Benefit Plan (including the
acceleration of vesting, waiving of performance criteria or
the adjustment of awards or any other actions permitted upon a
change in control of such party or permitted upon a filing
under Section 13(d) or 14(d) of the Exchange Act with respect
to such party) or (D) contribute, transfer or otherwise
provide any cash, securities or other property to any grantee,
trust, escrow or other arrangement that has the effect of
providing or setting aside assets for benefits payable
pursuant to any termination, severance or other change in
control agreement; except (i) pursuant to any contract,
agreement or other legal obligation of the Acquiror or any of
its Subsidiaries existing at the date of this Agreement, (ii)
increases in salary payable or to become payable upon
promotion to an office having greater operational
responsibilities, (iii), in the case of severance or
termination payments, pursuant to the severance policy of the
Acquiror or its Subsidiaries existing at the date of this
Agreement and (iv), in the case of Benefit Plans, amendments
required by ERISA or other applicable Law;
(ii) (A) enter into any employment or severance
agreement with any director or executive officer, either
individually or as part of a class of similarly situated
persons, or (B) establish, adopt or enter into any new Benefit
Plan; except employment and severance agreements and Benefit
Plans for the benefit of any newly employed or promoted
officers or employees, in which case the terms of such
agreements and Benefit Plans shall be reasonably consistent
with those existing at the date of this Agreement, and except
Benefit Plans relating to health and life insurance benefits
established or adopted in the ordinary course of business
consistent with past practice;
AGREEMENT AND PLAN OF MERGER
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<PAGE>
(iii) declare or pay any extraordinary dividend on,
or make any other distribution in respect of outstanding
shares of capital stock, except for dividends by a wholly
owned Subsidiary of the Company to the Company or another
wholly owned Subsidiary of the Company;
(iv) (A) redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding Equity Securities of the
Acquiror or any of its Subsidiaries (other than (1) any such
acquisition by the Acquiror or any of its wholly owned
Subsidiaries directly from any wholly owned Subsidiary of the
Acquiror, (2) any repurchase, forfeiture or retirement of
shares of the Acquiror Common Stock or the Acquiror Stock
Options occurring pursuant to the terms (as in effect on the
date of this Agreement) of any existing Benefit Plan of the
Acquiror or any of its Subsidiaries, or (3) any periodic
purchase of the Acquiror Common Stock for allocation to
employee's accounts occurring pursuant to the terms (as in
effect on the date of this Agreement) of any existing employee
stock purchase plan; (B) effect any reorganization or
recapitalization; or (C) split, combine or reclassify any of
the Equity Securities of the Acquiror or any of its
Subsidiaries or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in
substitution for, such Equity Securities;
(v) (A) offer, sell, issue or grant, or authorize
the offering, sale, issuance or grant, of any Equity
Securities of the Acquiror or any of its Subsidiaries, other
than issuances of the Acquiror Common Stock (1) upon the
exercise of the Acquiror Stock Options outstanding at the date
of this Agreement in accordance with the terms thereof (as in
effect on the date of this Agreement) or (2) that constitutes
a periodic issuance of shares of Acquiror Common Stock
required by the terms (as in effect on the date of this
Agreement) of any Benefit Plan of the Acquiror or any of its
Subsidiaries; (B) amend or otherwise modify the terms (as in
effect on the date of this Agreement) of any outstanding
options, warrants or rights the effect of which shall be to
make such terms more favorable to the holders thereof (except
as may be required by ERISA or other applicable Law); (C) take
any action to accelerate the vesting of any outstanding
Acquiror Stock Options or (D) grant any Lien with respect to
any Equity Securities of any Subsidiary of the Acquiror;
(vi) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or all
or a portion of the assets of, or in any other manner, any
business or any corporation, partnership, association or other
business organization or division thereof, or otherwise to
acquire any assets of any other Person (other than the
purchase of assets from suppliers or vendors in the ordinary
course of business and consistent with past practice);
(vii) sell, lease, exchange or otherwise dispose of,
or grant any Lien (other than a Permitted Encumbrance) with
respect to, any of the assets of the Acquiror or any of its
Subsidiaries that are Material to the Acquiror, except for
dispositions of assets and inventories in the ordinary course
of business and consistent with past
AGREEMENT AND PLAN OF MERGER
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<PAGE>
practice and dispositions of assets and purchase money Liens
incurred in connection with the original acquisition of assets
and secured by the assets acquired in an amount not to exceed
$100,000 in the aggregate;
(viii) adopt any amendments to its charter or bylaws
or other organizational documents that would alter the terms
of its capital stock or other equity interests or would have a
Material Adverse Effect on the Acquiror;
(ix) (A) change any of its methods of accounting in
effect at December 31, 1997, except as may be required to
comply with GAAP, (B) make or rescind any election relating to
Taxes (other than any election which must be made periodically
which is made consistent with past practice), (C) settle or
compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to
Taxes (except where the cost to the Acquiror and its
Subsidiaries of such settlements or compromises, individually
or in the aggregate, does not exceed $50,000) or (D) change
any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable
year ending December 31, 1996, except, in each case, as may be
required by Law and for matters that could not reasonably be
expected to have a Material Adverse Effect on the Acquiror;
(x) incur any obligations for borrowed money or
purchase money indebtedness (other than purchase money
indebtedness as to which Liens may be granted as permitted by
Section 6.02(b)(vii)) that are Material to the Acquiror,
whether or not evidenced by a note, bond, debenture or similar
instrument, except drawings under credit lines existing at the
date of this Agreement and borrowings evidenced by short term
obligations issued in the ordinary course of business
consistent with past practice.
(xi) enter into any Material Contract with any third
Person that provides for an exclusive arrangement with that
third Person or is substantially more restrictive on the
Acquiror or any of its Subsidiaries or substantially less
advantageous to the Acquiror or any of its Subsidiaries than
Material Contracts existing on the date hereof; or
(xii) agree in writing or otherwise to do any of the
foregoing.
SECTION 6.03 No Solicitation. From the date of this
---------------
Agreement until the Effective Time or the termination of this Agreement pursuant
to Section 9.01, the Company agrees that neither the Company nor any of its
Subsidiaries nor any of the directors and officers of the Company or any of its
Subsidiaries shall, and that it shall direct and use its best efforts to cause
the other employees, agents and representatives (including investment bankers,
attorneys and accountants) employed or retained by the Company or any of its
Subsidiaries not to, directly or indirectly, initiate, solicit, encourage or
otherwise facilitate (including by way of furnishing information or assistance)
any Acquisition Proposal or any inquiries that may reasonably be expected to
lead to an Acquisition
AGREEMENT AND PLAN OF MERGER
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<PAGE>
Proposal. The Company further agrees that neither the Company nor any of its
Subsidiaries nor any of the directors and officers of the Company or any of its
Subsidiaries shall, and that it shall direct and use its best efforts to cause
the other employees, agents and representatives (including investment bankers,
attorneys and accountants) employed or retained by the Company or any of its
Subsidiaries not to, directly or indirectly, engage in any discussion with or
provide any confidential information or data to any Person that may reasonably
be expected to lead to an Acquisition Proposal or engage in any negotiations
concerning, or otherwise facilitate any effort or attempt to make or implement,
an Acquisition Proposal. Notwithstanding the foregoing, the Board of Directors
of the Company shall be permitted (A), to the extent applicable, to comply, with
regard to an Acquisition Proposal, with Rule 14e-2(a) promulgated under the
Exchange Act, (B) in response to an unsolicited bona fide written Acquisition
Proposal from any Person, recommend such Acquisition Proposal to the Company's
stockholders or withdraw or modify in any adverse manner its approval or
recommendation of this Agreement, or both, or (C) engage in any discussions or
negotiations with, or provide any information to, any Person in response to an
unsolicited bona fide written Acquisition Proposal by any such Person, if and
only to the extent that, in any such case described in clause (B) or (C), if (i)
the Required Company Vote shall not have been theretofore obtained, (ii) the
Board of Directors of the Company shall have concluded in good faith that such
Acquisition Proposal (x) in the case of that described in clause (B) above
would, if consummated, constitute a Superior Proposal or (y), in the case
described in clause (C) above could reasonably be expected to constitute a
Superior Proposal, (iii) the Board of Directors of the Company shall have
determined in good faith on the basis of written advice of outside legal counsel
that such action is necessary for such Board of Directors to act in a manner
consistent with its fiduciary duties under applicable Law, (iv) prior to
providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, the Board of Directors shall have
received from such Person an executed confidentiality agreement containing
customary terms and provisions and (v) prior to providing any information or
data to any Person or entering into discussions or negotiations with any Person,
the Board of Directors of the Company shall have notified the Acquiror
immediately of such inquiries, proposals or offers received by, any such
information requested from, or any such discussions or negotiations sought to be
initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such Person and the material terms and
conditions of any proposals of offers. The Company agrees that it will keep the
Acquiror informed, on a current basis, of the status of any such discussions or
negotiations. The Company agrees that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any Acquisition Proposal. The Company
agrees that it will take the necessary steps to inform promptly the individuals
or entities referred to in the first sentence of this Section 6.03 of the
obligations undertaken in this Section 6.03.
SECTION 6.04 Access and Information.
----------------------
(a) Each of the Company and the Acquiror shall, and shall
cause its Subsidiaries to, (i) afford to the other and its officers,
directors, employees, accountants, consultants, legal counsel, agents
and other representatives (collectively, in the case of the Company,
the "Company's Representatives" and, in the case of the Acquiror, the
"Acquiror's Representatives") access, at reasonable times upon
reasonable prior notice, to the officers, employees, agents,
properties, offices and other facilities of the other and to its books
and
AGREEMENT AND PLAN OF MERGER
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<PAGE>
records and (ii) furnish promptly to the other and its Representatives
such information concerning its business, properties, contracts,
records and personnel (including financial, operating and other data
and information) as may be reasonably requested, from time to time, by
or on behalf of the other party.
(b) Each party to this Agreement (the Acquiror Companies being
considered one party for purposes of this Section 6.04(b)) shall hold
in confidence all nonpublic information received from the other party
to this Agreement until such time as such information is otherwise
publicly available. If this Agreement is terminated for any reason
pursuant to Article IX hereof, each of the Company and the Acquiror
shall, within ten days after a request therefor from the other, return
or destroy (and provide the other party within such ten-day time period
with a certificate of an executive officer certifying such destruction)
all of the information furnished to such party and its Representatives
pursuant to the provisions of Section 6.04(a) and all internal
memoranda, analyses, evaluations and other similar material containing,
reflecting or prepared from any such information, in each case other
than information available to the general public without restriction.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Meetings of Stockholders.
------------------------
(a) The Company shall, promptly after the date of this
Agreement, take all actions necessary in accordance with the GCL and
its certificate of incorporation and bylaws to convene a special
meeting of the Company's stockholders to consider approval and adoption
of this Agreement and the Merger (the "Company Stockholders' Meeting"),
and the Company shall consult with the Acquiror in connection
therewith. Subject to the provisions of Section 6.03, the Board of
Directors shall recommend this Agreement and the Merger to the
stockholders of the Company and the Company shall use all reasonable
efforts to solicit from stockholders of the Company proxies in favor of
the approval and adoption of this Agreement and to secure the vote or
consent of stockholders required by the GCL and its certificate of
incorporation and bylaws to approve and adopt this Agreement (the
"Required Company Vote").
(b) The Acquiror shall, promptly after the date of this
Agreement, take all actions necessary in accordance with the TBCA and
its certificate of incorporation and bylaws to convene a special
meeting of the Acquiror's stockholders to consider approval and
adoption of this Agreement and the Merger (the "Acquiror Stockholders'
Meeting"), and the Acquiror shall consult with the Company in
connection therewith. The Acquiror shall use all reasonable efforts to
solicit from stockholders of the Acquiror proxies in favor of the
approval and adoption of the Share Issuance and to secure the vote or
consent of the stockholders of the Acquiror required by the rules of
the LSE and the ASE to approve and adopt the Share Issuance (the
"Required Acquiror Vote").
AGREEMENT AND PLAN OF MERGER
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<PAGE>
SECTION 7.02 Registration Statement; Proxy Statements.
----------------------------------------
(a) As promptly as practicable after the execution of this
Agreement, the Acquiror and the Company shall prepare and file with the
Commission a joint proxy statement and forms of proxy to be used in
connection with the solicitation of proxies to be voted at the Acquiror
Stockholders' Meeting with respect to the Share Issuance and in
connection with the solicitation of proxies to be voted at the Company
Stockholders' Meeting with respect to this Agreement (such joint proxy
statement, together with any amendments thereof or supplements thereto
effected on or prior to the effective date of the Registration
Statement, being the "Joint Proxy Statement"). At such time as the
Acquiror and the Company deem appropriate, the Acquiror shall prepare
and file with the Commission a registration statement on Form S-4 (such
registration statement, together with any amendments thereof or
supplements thereto, being the "Registration Statement") containing the
Joint Proxy Statement for stockholders of the Acquiror and the Company
(the Joint Proxy Statement shall also constitute a prospectus for
stockholders of the Company in connection with the registration under
the Securities Act of the offering, sale and delivery of the Acquiror
Common Stock to be issued pursuant to this Agreement in the Merger to
stockholders of the Company and, together, they shall be referred to
herein as the "Joint Proxy Statement/Prospectus"). Each of the Acquiror
Companies and the Company shall furnish all information concerning it
and the holders of its capital stock as the other may reasonably
request in connection with such actions. Each of the Acquiror Companies
and the Company will use all reasonable efforts to have or cause the
Registration Statement to become effective as promptly as practicable,
and shall take any action required to be taken under any applicable
federal or state securities Laws in connection with the issuance of
shares of the Acquiror Common Stock in the Merger. As promptly as
practicable after the Registration Statement shall have become
effective, (x) the Acquiror shall mail the Joint Proxy
Statement/Prospectus to its stockholders entitled to notice of and to
vote at the Acquiror's Stockholders' Meeting and (y) the Company shall
mail the Joint Proxy Statement/Prospectus to its stockholders entitled
to notice of and to vote at the Company Stockholders' Meeting.
(b) The information supplied by the Company for inclusion in
the Registration Statement shall not, at the time the Registration
Statement is declared effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. The information supplied by the Company for inclusion in
the Joint Proxy Statement/Prospectus shall not, at the date the Joint
Proxy Statement/Prospectus (or any supplement thereto) is first mailed
to stockholders of the Acquiror, at the date (if different) the Joint
Proxy Statement/Prospectus (or any supplement thereto) is first mailed
to stockholders of the Company, at the time of the Acquiror
Stockholders' Meeting, at the time (if different) of the Company
Stockholders' Meeting or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time prior to the Effective Time
any event or circumstance relating to the Company or any of its
Subsidiaries, or its or their respective officers or directors, should
be discovered by the Company that should be set forth in an amendment
to the Registration
AGREEMENT AND PLAN OF MERGER
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<PAGE>
Statement or a supplement to the Joint Proxy Statement/Prospectus, the Company
shall promptly inform the Acquiror. All documents that the Company is
responsible for filing with the Commission in connection with the transactions
contemplated herein shall comply as to form in all material respects with the
applicable requirements of the Securities Act and the Regulations thereunder and
the Exchange Act and the Regulations thereunder.
(c) The information supplied by the Acquiror Companies for inclusion
in the Registration Statement shall not, at the time the Registration Statement
is declared effective, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. Such information supplied by the
Acquiror for inclusion in the Joint Proxy Statement/Prospectus shall not, at the
date the Joint Proxy Statement/Prospectus (or any supplement thereto) is first
mailed to stockholders of the Acquiror, at the date (if different) the Joint
Proxy Statement/Prospectus (or any supplement thereto) is first mailed to
stockholders of the Company, at the time of the Acquiror Stockholders' Meeting,
at the time (if different) of the Company Stockholders' Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event or
circumstance relating to the Acquiror or any of its Affiliates, or to their
respective officers or directors, should be discovered by the Acquiror that
should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, the Acquiror shall promptly
inform the Company. All documents that the Acquiror Companies are responsible
for filing with the Commission in connection with the transactions contemplated
hereby shall comply as to form in all material respects with the applicable
requirements of the Securities Act and the Regulations thereunder and the
Exchange Act and the Regulations thereunder.
(d) No amendment or supplement to the Registration Statement or the
Joint Proxy Statement/Prospectus shall be made by the Acquiror or the Company
without the approval of the other party, which shall not be unreasonably
withheld or delayed. The Acquiror and the Company each will advise the other,
promptly after it receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed,
the issuance of any stop order suspending the effectiveness of the Registration
Statement or the solicitation of proxies pursuant to the Joint Proxy
Statement/Prospectus, the suspension of the qualification of the Acquiror Common
Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, any request by the staff of the Commission for amendment of the
Registration Statement or the Joint Proxy Statement/Prospectus, the receipt from
the staff of the Commission of comments thereon or any request by the staff of
the Commission for additional information with respect thereto.
AGREEMENT AND PLAN OF MERGER
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<PAGE>
SECTION 7.03 Appropriate Action; Consents; Filings.
-------------------------------------
(a) The Company and the Acquiror shall each use all reasonable efforts
(i) to take, or to cause to be taken, all actions, and to do, or to cause to be
done, all things that, in either case, are necessary, proper or advisable under
applicable Law or otherwise to consummate and make effective the transactions
contemplated by this Agreement, (ii) to obtain from any Governmental Authorities
any Authorizations or Orders required to be obtained by the Acquiror or the
Company or any of their Subsidiaries in connection with the authorization,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, including the Merger, (iii) to make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (A) the Securities Act
(in the case of the Acquiror) and the Exchange Act and the Regulations
thereunder and any other applicable federal or state securities Laws, (B) the
HSR Act and (C) any other applicable Law. The Acquiror and the Company shall
cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents to the nonfiling party and its
advisors prior to filings and, if requested, shall accept all reasonable
additions, deletions or changes suggested in connection therewith. The Company
and the Acquiror shall furnish all information required for any application or
other filing to be made pursuant to any applicable Law or any applicable
Regulations of any Governmental Authority (including all information required to
be included in the Joint Proxy Statement/Prospectus or the Registration
Statement) in connection with the transactions contemplated by this Agreement.
(b) Each of the Company and the Acquiror shall give prompt notice to
the other of (i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the Merger,
(ii) any notice or other communication from any Governmental Authority in
connection with the Merger, (iii) any actions, suits, claims, investigations or
proceedings commenced or threatened in writing against, relating to or involving
or otherwise affecting the Company, the Acquiror or their Subsidiaries that
relate to the consummation of the Merger; (iv) the occurrence of a default or
event that, with notice or lapse of time or both, will become a default under
any Material Contract of the Company or the Acquiror, respectively; and (v) any
change that is reasonably likely to have a Material Adverse Effect on the
Company or the Acquiror, respectively, or is likely to delay or impede the
ability of either the Company or the Acquiror, respectively, to consummate the
transactions contemplated by this Agreement or to fulfill their respective
obligations set forth herein.
(c) The Acquiror Companies and the Company agree to cooperate and use
all reasonable efforts vigorously to contest and resist any action, including
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any Order (whether temporary, preliminary or permanent) of any Court
or Governmental Authority that is in effect and that restricts, prevents or
prohibits the consummation of the Merger or any other transactions contemplated
by this Agreement, including the vigorous pursuit of all available avenues of
administrative and judicial appeal. Each of the Acquiror Companies and the
Company also agree to take any and all actions, including the disposition of
assets or the
AGREEMENT AND PLAN OF MERGER
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<PAGE>
withdrawal from doing business in particular jurisdictions, required by any
Court or Governmental Authority as a condition to the granting of any
Authorization or Order necessary for the consummation of the Merger or as may be
required to avoid, lift, vacate or reverse any legislative or judicial action
that would otherwise cause any condition to the Closing not to be satisfied;
provided, however, that in no event shall either party take, or be required to
take, any action that could reasonably be expected to have a Material Adverse
Effect on the Combined Companies.
(d) (i) Each of the Company and the Acquiror shall give (or
shall cause their respective Subsidiaries to give) any notices to
third Persons, and use, and cause their respective Subsidiaries to
use, all reasonable efforts to obtain any consents from third Persons
(A) necessary, proper or advisable to consummate the transactions
contemplated by this Agreement, (B) otherwise required under any
contracts, licenses, leases or other agreements in connection with the
consummation of the transactions contemplated hereby or (C) required
to prevent a Material Adverse Effect on the Company from occurring
prior to or after the Effective Time or a Material Adverse Effect on
the Acquiror from occurring after the Effective Time.
(ii) If any party shall fail to obtain any consent from a
third Person described in subsection (d)(i) above, such party shall
use all reasonable efforts, and shall take any such actions reasonably
requested by the other parties, to limit the adverse effect upon the
Company and the Acquiror, their respective Subsidiaries, and their
respective businesses resulting, or which could reasonably be expected
to result after the Effective Time, from the failure to obtain such
consent.
SECTION 7.04 Affiliates.
----------
(a) The Company shall use all reasonable efforts to obtain from any
Person who may be deemed to have become an Affiliate of the Company after
the date of this Agreement and on or prior to the Closing Date a written
agreement substantially in the form of Annex B hereto as soon as
practicable after attaining such status.
(b) The Acquiror Companies shall not be required to maintain the
effectiveness of the Registration Statement for the purpose of resale by
stockholders of the Company who may be Affiliates of the Company pursuant
to Rule 145 under the Securities Act.
SECTION 7.05 Public Announcements. The Acquiror and the Company shall
--------------------
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation.
SECTION 7.06 Stock Exchange Listings. The Acquiror shall use all
-----------------------
reasonable efforts to cause the shares of the Acquiror Common Stock to be issued
in the Merger to be approved for listing (subject to official notice of
issuance) on the LSE and to cause the Depositary Shares
AGREEMENT AND PLAN OF MERGER
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<PAGE>
representing such shares of Acquiror Common Stock to be approved for listing
(subject to official notice of issuance) on the ASE, in each case prior to the
Effective Time.
SECTION 7.07 State Takeover Statute. The Company shall take all action
----------------------
so that the execution, delivery and performance of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby will
be exempt from Section 203 of the GCL.
SECTION 7.08 Indemnification of Directors and Officers.
-----------------------------------------
(a) Until six years from the Effective Time, the certificate of
incorporation and bylaws of the Surviving Corporation as in effect
immediately after the Effective Time shall not be amended to reduce or
limit the rights of indemnity afforded to the present and former directors,
officers, employees and agents of the Company thereunder or to reduce or
limit the ability of the Company as the Surviving Corporation to indemnify
such persons or to hinder, delay or make more difficult the exercise of
such rights of indemnity or such ability to indemnify. The Surviving
Corporation will at all times exercise the powers granted to it by its
certificate of incorporation, its bylaws and applicable law to indemnify to
the fullest extent possible the present and former directors and officers
of the Company against claims made against them arising from their service
in such capacities prior to the Effective Time.
(b) If any claim or claims shall, subsequent to the Effective Time
and within six years thereafter, be made against any present or former
director, officer, employee or agent of the Company based on or arising out
of the services of such Person prior to the Effective Time in the capacity
of such Person as a director, officer, employee or agent of the Company,
the provisions of subsection (a) of this Section respecting the certificate
of incorporation and bylaws of the Surviving Corporation shall continue in
effect until the final disposition of all such claims.
(c) The Acquiror hereby agrees after the Effective Time to guarantee
the payment of the Surviving Corporation's indemnification obligations
described in subsection (a) of this Section 7.08 up to an amount determined
as of the Effective Time equal to (i) the fair market value of any assets
of the Surviving Corporation or any of its Subsidiaries distributed to the
Acquiror or any of its Subsidiaries (other than the Surviving Corporation
and its Subsidiaries), minus (ii) any liabilities of the Surviving
Corporation or any of its Subsidiaries assumed by the Acquiror or any of
its Subsidiaries (other than the Surviving Corporation and its
Subsidiaries), minus (iii) the fair market value of any assets of the
Acquiror or any of its Subsidiaries (other than the Surviving Corporation
and its Subsidiaries) contributed to the Surviving Corporation or any of
its Subsidiaries and plus (iv) any liabilities of the Acquiror or any of
its Subsidiaries (other than the Surviving Corporation and its
Subsidiaries) assumed by the Surviving Corporation or any of its
Subsidiaries.
(d) Notwithstanding subsections (a), (b) or (c) of this Section 7.10,
the Acquiror and the Surviving Corporation shall be released from the
obligations imposed by such subsections if the Acquiror shall assume the
indemnification obligations of the Surviving Corporation under its
certificate of incorporation and bylaws by operation of Law or
AGREEMENT AND PLAN OF MERGER
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<PAGE>
otherwise. Notwithstanding anything to the contrary in this Section 7.10,
neither the Acquiror nor the Surviving Corporation shall be liable for any
settlement effected without its written consent, which shall not be
unreasonably withheld.
(e) The Acquiror shall cause to be maintained in effect for the
period ending on the third anniversary of the Effective Time the current
policies of directors' and officers' liability insurance maintained by the
Company (or substitute policies providing at least the same coverage and
limits and containing terms and conditions that are not materially less
advantageous) with respect to claims arising from facts or events which
occurred before the Effective Time; provided, however, that (i) neither the
Acquiror nor the Surviving Corporation shall be required to maintain any
such policies to the extent the coverage thereunder exceeds $ 3,000,000 and
(ii) in no event shall the Acquiror or the Surviving Corporation be
required to expend more than 100 percent of the current annual premiums
paid by the Company for such insurance.
(f) The provisions of this Section 7.08 are intended to be for the
benefit of, and shall be enforceable by, each Person entitled to
indemnification hereunder and the heirs and representatives of such Person.
SECTION 7.09 Event Notices. From and after the date of this Agreement
-------------
until the Effective Time, each party hereto shall promptly notify the other
party hereto of (i) the occurrence or nonoccurrence of any event the occurrence
or nonoccurrence of which would be likely to cause any condition to the
obligations of the latter party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied and (ii) any failure of the
former party to comply with any covenant or agreement to be complied with by it
pursuant to this Agreement that would be likely to result in any condition to
the obligations of the latter party to effect the Merger and the other
transactions contemplated by this Agreement not to be satisfied. No delivery of
any notice pursuant to this Section 7.09 shall cure any breach of any
representation or warranty of the party giving such notice contained in this
Agreement or otherwise limit or affect the remedies available hereunder to the
party receiving such notice.
ARTICLE VIII
CLOSING CONDITIONS
SECTION 8.01 Conditions to Obligations of Each Party Under This
--------------------------------------------------
Agreement. The respective obligations of each party to effect the Merger and the
- ---------
other transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Closing of the following conditions, any or all of which may be
waived by the parties hereto, in whole or in part, to the extent permitted by
applicable Law:
(a) Effectiveness of the Registration Statement. The Registration
-------------------------------------------
Statement shall have been declared effective by the Commission under the
Securities Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the
AGREEMENT AND PLAN OF MERGER
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<PAGE>
Commission and no proceedings for that purpose shall have been initiated by
the Commission.
(b) Stockholder Approval. This Agreement shall have been approved and
--------------------
adopted by the requisite vote of the stockholders of the Company as
required by the GCL. The Share Issuance shall have been approved and
adopted by the requisite vote of the stockholders of the Acquiror as
required by the rules of the LSE and the ASE.
(c) No Order. No Court or Governmental Authority shall have enacted,
--------
issued, promulgated, enforced or entered any Law, Regulation or Order
(whether temporary, preliminary or permanent) that is in effect and has the
effect of making the Merger illegal or otherwise prohibiting consummation
of the Merger.
(d) Foreign Governmental Authorities. The parties hereto shall have
--------------------------------
received all Authorizations and Orders of foreign Governmental Authorities
necessary in order to consummate the Merger in accordance with applicable
Law, except for any such Authorizations and Orders the nonreceipt of which
could not reasonably be expected to have a Material Adverse Effect on the
Acquiror (including the Surviving Corporation).
(e) Listing of Depositary Shares. The Depositary Shares issued by the
----------------------------
Depositary to represent the Aviva Common Stock issued pursuant to the
Merger and deposited with the Depositary shall have been listed on the ASE,
subject to official notice of issuance.
SECTION 8.02 Additional Conditions to Obligations of the Acquiror
----------------------------------------------------
Companies. The obligations of the Acquiror Companies to effect the Merger and
- ---------
the other transactions contemplated hereby shall be subject to the satisfaction
at or prior to the Closing of the following conditions, any or all of which may
be waived by the Acquiror Companies, in whole or in part, to the extent
permitted by applicable Law:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company contained in this Agreement which is qualified as
to materiality shall be true and correct, and each of such representations
and warranties that is not so qualified shall be true and correct in all
material respects, as of the date of this Agreement and as of the Closing
Date as though made again on and as of the Closing Date, and the Acquiror
shall have received a certificate of the Chief Executive Officer and the
Chief Financial Officer of the Company, dated the Closing date, to such
effect.
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and the Acquiror shall have received a
certificate of the Chief Executive Officer and the Chief Financial Officer
of the Company, dated the Closing date, to such effect.
(c) Bank Credit Agreement. The Bank Credit Agreement shall have been
---------------------
amended and the Bank shall have made available to the Acquiror a credit of
$ 15,000,000
AGREEMENT AND PLAN OF MERGER
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<PAGE>
against which the Acquiror shall have refinanced the indebtedness
theretofore outstanding under the Bank Credit Agreement and shall have paid
and discharged the OPIC Debt.
(d) Debenture Agreement. The Debenture Agreement shall have been
-------------------
executed and delivered by the parties thereto and, concurrently with the
Closing, the transactions contemplated by the Debenture Agreement shall
have been consummated and the Acquiror shall be the beneficial owner of all
the outstanding Debentures.
(e) OPIC Debt. The aggregate obligation of the Company with respect
---------
to the principal of the OPIC Debt shall not, on the Closing Date, exceed
$ 6,000,000 (net of amounts added to the escrow account maintained for the
benefit of the holders of the OPIC Debt subsequent to April 16, 1998.
(f) Other Liabilities. The aggregate amount of consolidated current
-----------------
assets of the Company and its Subsidiaries (exclusive of any amounts held
in escrow necessary to reduce the net OPIC debt to $ 6,000,000), less the
aggregate amount of consolidated liabilities, absolute and contingent,
whether or not accrued, of the Company and its Subsidiaries, including the
Partnership (exclusive of indebtedness represented by the OPIC Debt and the
Debentures), shall not be less than $100,000.
(g) Other Consents. The Company shall have received written consents
--------------
to the Merger from OPIC and Chase Bank of Texas and from any other Person
whose failure to consent to the Merger could reasonably be expected to have
a Material Adverse Effect on the Acquiror (including the Surviving
Corporation).
(h) Change in Control Agreements. The Change in Control Agreements
----------------------------
shall have been amended to reduce the severance payments thereunder to
$65,000 in the case of Mr. Fry and $35,000 in the case of Mr. Dyes, to
limit the medical, life and disability insurance coverage requirements to
five months, five months and five months in the case of Mr. Fry and three
months, three months and three months, in the case of Mr. Dyes, and to
delete the provisions thereof relating to stock options.
(i) Stock Options. Each holder of outstanding Company Stock Options
-------------
shall have surrendered all such Company Stock Options to the Company for
cancellation.
SECTION 8.03 Additional Conditions to Obligations of the Company. The
---------------------------------------------------
obligations of the Company to effect the Merger and the other transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of the following conditions, any or all of which may be waived by the
Company, in whole or in part, to the extent permitted by applicable Law:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Acquiror contained in this Agreement which is qualified
as to materiality shall be true and correct, and each of such
representations and warranties that is not so qualified shall be true and
correct in all material respects, as of the date of this Agreement and as
of the Closing Date as though made again on and as of the Closing Date, and
the Company shall
AGREEMENT AND PLAN OF MERGER
-47-
<PAGE>
have received a certificate of the Chief Executive Officer and the Chief
Financial Officer of the Acquiror, dated the Closing Date, to such effect.
(b) Agreements and Covenants. The Acquiror Companies shall have
------------------------
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and the Company shall have received a
certificate of the Chief Executive Officer and the Chief Financial Officer
of the Acquiror, dated the Closing Date, to such effect.
(c) Other Consents. The Company shall have received written consents
--------------
to the Merger from OPIC and Chase Bank of Texas and from any other Person
whose failure to consent to the Merger could reasonably be expected to have
a Material Adverse Effect on the Acquiror (including the Surviving
Corporation).
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination. This Agreement may be terminated at any time
-----------
prior to the Effective Time, whether before or after approval of this Agreement
by the stockholders of the Company and before or after approval of the Share
Issuance by the stockholders of the Acquiror:
(a) by mutual consent of the Acquiror and the Company;
(b) by the Acquiror, upon a Material breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in
this Agreement or if any representation or warranty of the Company shall
have become untrue in any Material respect, in either case such that the
conditions set forth in Section 8.02(a) or Section 8.02(b) would not be
satisfied (a "Terminating Company Breach"); provided that, if such
Terminating Company Breach is curable by the Company through the exercise
of reasonable efforts and for so long as the Company continues to exercise
such reasonable efforts, the Acquiror may not terminate this Agreement
under this Section 9.01(b);
(c) by the Company, upon a Material breach of any representation,
warranty, covenant or agreement on the part of the Acquiror Companies set
forth in this Agreement or if any representation or warranty of the
Acquiror Companies shall have become untrue in any Material respect, in
either case such that the conditions set forth in Section 8.03(a) or
Section 8.03(b) would not be satisfied (a "Terminating Acquiror Breach");
provided that, if such Terminating Acquiror Breach is curable by the
Acquiror Companies through the exercise of their reasonable efforts and for
so long as the Acquiror Companies continue to exercise such reasonable
efforts, the Company may not terminate this Agreement under this Section
9.01(c);
AGREEMENT AND PLAN OF MERGER
-48-
<PAGE>
(d) by either the Acquiror or the Company, if there shall be any
final and nonappealable Order that prevents the consummation of the Merger,
unless the party relying on such Order has not complied with its
obligations under Section 7.03;
(e) by either the Acquiror or the Company, if the Merger shall not
have been consummated before September 30, 1998; provided, however, that
this Agreement may be extended by written notice of either the Acquiror or
the Company to a date not later than October 31, 1998, if the Merger shall
not have been consummated as a result of the Company or the Acquiror
Companies having failed by September 30, 1998 to receive all required
Authorizations and Orders with respect to the Merger or as a result of the
entering of an Order by a Court or Governmental Authority; and provided,
further, that, prior to October 31, 1998, no party shall be entitled to
terminate this Agreement pursuant to this Section 9.01(e) if such party is
in Material breach of any representation, warranty, covenant or agreement
on the part of such party set forth in this Agreement;
(f) by either the Acquiror or the Company, if this Agreement shall
fail to receive the Required Company Vote by the stockholders of the
Company at the Company Stockholders' Meeting;
(g) by either the Acquiror or the Company, if this Agreement shall
fail to receive the Required Acquiror Vote by the stockholders of the
Acquiror at the Acquiror Stockholders' Meeting;
(h) by the Company, at any time prior to receipt of the Required
Company Vote, upon two Business Days' prior written notice to the Acquiror,
if the Board of Directors of the Company shall approve a Superior Proposal;
provided, however, that (i) the Company shall have complied with Section
6.03, (ii) the Board of Directors of the Company shall have concluded in
good faith, after giving effect to all concessions that may be offered by
the Acquiror pursuant to clause (iv) below, on the advice of its financial
advisers and outside counsel, that such proposal is a Superior Proposal,
(iii) the Board of Directors of the Company shall have concluded in good
faith, after receipt of the written advice of outside counsel, that,
notwithstanding all concessions that may be offered by the Acquiror in
negotiations entered into pursuant to clause (iv) below, such action is
necessary for the Board of Directors of the Company to act in a manner
consistent with its fiduciary duties under applicable Law and (iv), prior
to such termination, the Company shall, and shall cause its respective
financial and legal advisers to, negotiate with the Acquiror to make such
adjustments in the terms and conditions of this Agreement as would enable
the Company to proceed with the transactions contemplated herein on such
adjusted terms; or
(i) by the Acquiror, upon two Business Days' prior written notice to
the Company, if the Board of Directors of the Company (A) shall withdraw or
modify in any manner adverse to the Acquiror the Board's approval or
recommendation of this Agreement and the Merger, (B) shall fail to reaffirm
such approval or recommendation upon the Acquiror's request, (C) shall
approve or recommend any Superior Proposal or (D) shall resolve to take any
of the actions specified in clause (A), (B) or (C); or
AGREEMENT AND PLAN OF MERGER
-49-
<PAGE>
(j) by the Acquiror, by written notice to the Company, if (A) a third
party acquires securities representing more than 30% of the voting power of
the outstanding voting securities of the Company or (B) individuals who as
of the date of this Agreement constitute the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of a majority of the directors of the
Company then still in office who are either directors as of the date of
this Agreement or whose election or nomination for election was previously
so approved) shall cease for any reason to constitute a majority of the
Board of Directors of the Company.
The right of any party hereto to terminate this Agreement pursuant to this
Section 9.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any Person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 9.02 Effect of Termination. Except as provided in Section 9.05
---------------------
or Section 10.01 of this Agreement, in the event of the termination of this
Agreement pursuant to Section 9.01, this Agreement shall forthwith become void,
there shall be no liability on the part of the Acquiror Companies or the Company
or any of their respective officers or directors to the other and all rights and
obligations of any party hereto shall cease, except that nothing herein shall
relieve any party from liability for any misrepresentation or breach of any
covenant or agreement under this Agreement.
SECTION 9.03 Amendment. This Agreement may be amended by the parties
---------
hereto by action authorized by their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that, after approval of this
Agreement by the stockholders of the Company, or approval of the Share Issuance
by the stockholders of the Acquiror, no amendment may be made which would reduce
the amount or change the type of consideration into which each share of Company
Common Stock shall be converted pursuant to this Agreement upon consummation of
the Merger. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 9.04 Waiver. At any time prior to the Effective Time, any
------
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance by the other
party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby. For purposes of this Section
9.04, the Acquiror Companies shall be deemed to be one party.
SECTION 9.05 Fees, Expenses and Other Payments.
---------------------------------
(a) Except as provided in Section 9.05(b) of this Agreement, all
Expenses incurred by the parties hereto shall be borne solely and entirely
by the party which has incurred such Expenses; provided, however, that all
Expenses related to printing, filing and
AGREEMENT AND PLAN OF MERGER
-50-
<PAGE>
mailing the Registration Statement and the Joint Proxy
Statement/Prospectus and all Commission and other regulatory filing
fees incurred in connection with the Registration Statement and the
Joint Proxy Statement/Prospectus shall be for the account of the
Acquiror; and provided, further, that the Acquiror may, at its option,
but subject to Section 7.04(e), pay any Expenses of the Company that
are solely and directly related to the Merger.
(b) The Company agrees that, if this Agreement is terminated
pursuant to Section 9.01(b) (breach), Section 9.01(h) (fiduciary out),
Section 9.01(i) (change of recommendation) or Section 9.01(j)
(acquisition of voting power or change of board), the Company shall
promptly (but not later than five Business Days after receipt of notice
from the Acquiror that the amount is due) pay to the Acquiror, as
liquidated damages and expense reimbursement, an amount in cash equal
to $ 50,000 (the "Termination Fee");
(c) If the Company shall fail to pay the Acquiror any fee due
hereunder, the Company shall pay the costs and expenses (including
legal fees and expenses) in connection with any action, including the
filing of any lawsuit or other legal action, taken to collect payment,
together with interest on the amount of any unpaid fee at the publicly
announced prime interest rate of CitiBank, N.A., in effect from time to
time, from the date such fee was required to be paid until payment in
full.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Effectiveness of Representations, Warranties and
------------------------------------------------
Agreements.
- -----------
(a) Except as set forth in Section 10.01(b) of this Agreement,
the representations, warranties, covenants and agreements of each party
hereto shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any other party hereto,
any Person controlling any such party or any of their officers,
directors, representatives or agents whether prior to or after the
execution of this Agreement.
(b) The representations and warranties in this Agreement shall
terminate at the Effective Time and the representations, warranties,
covenants and agreements of each of the parties hereto shall terminate
upon the termination of this Agreement pursuant to Section 9.01, except
that the covenants and agreements set forth in Sections 9.02 and 9.05
and in Article X hereof shall survive such termination of this
Agreement.
SECTION 10.02 Notices. All notices and other communications given or
-------
made pursuant hereto shall be in writing and shall be deemed to have been duly
given upon receipt, if delivered personally, mailed by registered or certified
mail (postage prepaid, return receipt requested) to the parties at the following
addresses or sent by electronic transmission to the telecopier number specified
below:
AGREEMENT AND PLAN OF MERGER
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<PAGE>
(a) If to any of the Acquiror Companies, to:
Aviva Petroleum Inc.
8235 Douglas Avenue
Suite 400
Dallas, Texas 75225
Attention: Ronald Suttill, President and Chief Executive Officer
Telecopier No.: (214) 691-6151
with a copy to:
Vinson & Elkins L.L.P.
First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: William E. Joor III
Telecopier No.: (713) 758-2346
(b) If to the Company, to:
Garnet Resources Corporation
1214 Wilmington Avenue
Suite 303
Salt Lake City, Utah 84106
Attention: Douglas Fry, President and Chief Executive Officer
Telecopier No.: (801) 463-0748
with a copy to:
Parsons Behle & Latimer
One Utah Center
201 South Main Street
Suite 1800
Salt Lake City, Utah 84145-0898
Attention: Stuart A. Fredman
Telecopier No.: (801) 536-6111
or to such other address or telecopier number as any party may, from time to
time, designate in a written notice given in a like manner. Notice given by
telecopier shall be deemed delivered on the day the sender receives telecopier
confirmation that such notice was received at the telecopier number of the
addressee. Notice given by mail as set out above shall be deemed delivered three
days after the date the same is postmarked.
AGREEMENT AND PLAN OF MERGER
-52-
<PAGE>
SECTION 10.03 Headings. The headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.04 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 10.05 Entire Agreement. This Agreement (together with the
----------------
Annexes, the Company's Disclosure Letter and the Acquiror's Disclosure Letter)
constitutes the entire agreement of the parties, and supersedes all prior
agreements and undertakings, both written and oral, among the parties, with
respect to the subject matter hereof.
SECTION 10.06 Assignment. This Agreement shall not be assigned by
----------
operation of Law or otherwise.
SECTION 10.07 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, other than Section 7.11 which is intended also to
benefit the present and former directors, officers, employees and agents of the
Company therein referenced, and their heirs and representatives, is intended to
or shall confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
SECTION 10.08 Failure or Indulgence Not Waiver; Remedies Cumulative.
-----------------------------------------------------
No failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, nor shall any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative with, and not exclusive
of, any rights or remedies otherwise available.
SECTION 10.09 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the Laws of the State of Texas, regardless of the
Laws that might otherwise govern under applicable principles of conflicts of
law; provided, however, that any matter involving the internal corporate affairs
of the Company or Newco shall be governed by the provisions of the GCL.
SECTION 10.10 Specific Performance. The parties hereby acknowledge and
--------------------
agree that the failure of any party to this Agreement to perform its agreements
and covenants hereunder, including its failure to take all actions as are
necessary on its part to the consummation of the Merger, will cause irreparable
injury to the other parties to this Agreement for which damages, even
AGREEMENT AND PLAN OF MERGER
-53-
<PAGE>
if available, will not be an adequate remedy. Accordingly, each of the parties
hereto hereby consents to the granting of equitable relief (including specific
performance and injunctive relief) by any court of competent jurisdiction to
enforce any party's obligations hereunder. The parties further agree to waive
any requirement for the securing or posting of any bond in connection with the
obtaining of any such equitable relief and that this Section is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
SECTION 10.11 Counterparts. This Agreement may be executed in multiple
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
AGREEMENT AND PLAN OF MERGER
-54-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
AVIVA PETROLEUM INC.
By: /s/ R. Suttill
----------------------------
Name: R. Suttill
Title: President
AVIVA MERGER INC.
By: /s/ R. Suttill
----------------------------
Name: R. Suttill
Title: President
GARNET RESOURCES CORPORATION
By: /s/ Douglas W. Fry
----------------------------
Name: Douglas W. Fry
Title: President
AGREEMENT AND PLAN OF MERGER
-55-
<PAGE>
ANNEX A
SCHEDULE OF DEFINED TERMS
The following terms when used in the Agreement shall have the meanings
set forth below unless the context shall otherwise require:
"Acquiror" shall mean Aviva Petroleum Inc., a Texas corporation, and
its successors from time to time.
"Acquiror Annual Report" shall mean the Annual Report on Form 10-K of
the Acquiror for the year ended December 31, 1997 filed with the Commission.
"Acquiror Benefit Plans" shall mean Benefit Plans with respect to the
Acquiror and its Subsidiaries.
"Acquiror Common Stock" shall mean the common stock, without par value,
of the Acquiror.
"Acquiror Companies" shall have the meaning ascribed to such term in
the first paragraph of this Agreement.
"Acquiror Representatives" shall have the meaning ascribed to such term
in Section 6.04.
"Acquiror Stock Options" shall mean stock options granted pursuant to
the Acquiror Stock Plans.
"Acquiror Stock Plans" shall mean the Aviva Petroleum Inc. 1995 Stock
Option Plan, as amended, and the Incentive Plan and Non-Statutory Stock Option
Plan.
"Acquiror Stockholders' Meeting" shall have the meaning ascribed to
such term in Section 7.01(b).
"Acquiror's Audited Consolidated Financial Statements" shall mean the
consolidated balance sheets of the Acquiror and its Subsidiaries as of December
31, 1996 and December 31, 1997 and the related consolidated statements of
operations and cash flows for the fiscal years ended December 31, 1995, 1996 and
1997, together with the notes thereto, all as audited by KPMG Peat Marwick LLP,
independent accountants, under their report with respect thereto dated February
27, 1998 and included in the Acquiror's Annual Report on Form 10-K for the year
ended December 31, 1997 filed with the Commission.
"Acquiror's Consolidated Balance Sheet" shall mean the consolidated
balance sheet of the Acquiror as of December 31, 1997 included in the Acquiror's
Audited Consolidated Financial Statements.
"Acquiror's Consolidated Financial Statements" shall mean the
Acquiror's Audited Consolidated Financial Statements and the Acquiror's
Unaudited Consolidated Financial Statements.
AGREEMENT AND PLAN OF MERGER
ANNEX A-1
<PAGE>
"Acquiror's Disclosure Letter" shall mean a letter of even date
herewith delivered by the Acquiror to the Company with the execution of the
Agreement, which, among other things, shall identify exceptions to the
Acquiror's representations and warranties contained in Article V by specific
section and subsection references.
"Acquiror's Unaudited Consolidated Financial Statements" shall mean the
unaudited consolidated balance sheet of the Acquiror and its Subsidiaries as of
March 31, 1998 and the related consolidated statements of operations and cash
flows for the fiscal quarters ended March 31, 1997 and March 31, 1998, together
with the notes thereto, included in the Acquiror's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 filed with the Commission.
"Acquisition Proposal" shall mean any proposal or offer with respect to
a merger, consolidation, share exchange, business combination, reorganization,
recapitalization, liquidation, dissolution or similar transaction involving, or
any purchase or sale of all or any significant portion of the assets or 10% or
more of the Equity Securities of, the Company or any of its Subsidiaries that,
in any case, could be reasonably expected to interfere with the consummation of
the Merger or the other transactions contemplated by this Agreement.
"Affiliate" shall, with respect to any Person, mean any other Person
that controls, is controlled by or is under common control with the former.
"Agreement" shall mean the Agreement and Plan of Merger made and
entered into as of June 24, 1998 among the Acquiror, Newco and the Company,
including any amendments thereto and each Annex (including this Annex A) and
Schedule thereto (including the Acquiror's Disclosure Letter and the Company's
Disclosure Letter).
"ASE" shall mean the American Stock Exchange.
"Authorization" shall mean any and all permits, licenses,
authorizations, orders, certificates, registrations or other approvals granted
by any Governmental Authority.
"Benefit Plans" shall mean, with respect to a specified Person, any
employee pension benefit plan (whether or not insured), as defined in Section
3(2) of ERISA, any employee welfare benefit plan (whether or not insured) as
defined in Section 3(1) of ERISA, any plans that would be employee pension
benefit plans or employee welfare benefit plans if they were subject to ERISA,
such as foreign plans and plans for directors, any stock bonus, stock ownership,
stock option, stock purchase, stock appreciation rights, phantom stock,
severance, employment, change-in-control, deferred compensation and any bonus or
incentive compensation plan, agreement, program or policy (whether qualified or
nonqualified, written or oral) sponsored, maintained, or contributed to by the
specified Person or any of its Subsidiaries for the benefit of any of the
present or former directors, officers, employees, agents, consultants or other
similar representatives providing services to or for the specified Person or any
of its Subsidiaries in connection with such services or any such plans which
have been so sponsored, maintained or contributed to within six years prior to
the date of this Agreement; provided, however, that such term shall not include
(a) routine employment policies and procedures developed and applied in the
ordinary course of business and consistent with past
AGREEMENT AND PLAN OF MERGER
ANNEX A-2
<PAGE>
practice, including wage, vacation, holiday and sick or other leave policies,
(b) workers compensation insurance and (c) directors and officers liability
insurance.
"Business Day" means any day other than a day on which banks in the State
of Texas are authorized or obligated to be closed;
"Certificate of Merger" shall have the meaning ascribed to such term in
Section 2.04.
"Change in Control Agreements" shall mean those certain agreements
dated April 11, 1997 between the Company and Douglas W. Fry and Edgar L. Dyes,
as amended.
"Closing" shall mean a meeting, which shall be held in accordance with
Section 3.03, of representatives of the parties to the Agreement at which, among
other things, all documents deemed necessary by the parties to the Agreement to
evidence the fulfillment or waiver of all conditions precedent to the
consummation of the transactions contemplated by the Agreement are executed and
delivered.
"Closing Date" shall mean the date of the Closing as determined
pursuant to Section 3.03.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"Combined Companies" shall mean the Acquiror, the Surviving Corporation
and their Subsidiaries after giving effect to the Merger.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock Exchange Ratio" shall mean the ratio of conversion of
Company Common Stock into Acquiror Common Stock pursuant to the Merger as
provided in Section 3.01(a).
"Company" shall mean Garnet Resources Corporation, a Delaware
corporation, and its successors from time to time.
"Company Annual Report" shall mean the Annual Report on Form 10-K of
the Company for the year ended December 31, 1997 filed with the Commission.
"Company Benefit Plans" shall mean Benefit Plans with respect to the
Company and its Subsidiaries.
"Company Common Stock" shall mean the common stock, par value $0.01 per
share, of the Company.
"Company Option Plans" shall mean the Company's 1987 Stock Option Plan,
1990 Stock Option Plan, as amended, and 1997 Directors' Stock Option Plan.
AGREEMENT AND PLAN OF MERGER
ANNEX A-3
<PAGE>
"Company Representatives" shall have the meaning ascribed to such term
in Section 6.04.
"Company Stock Options" shall mean stock options granted pursuant to
the Company Option Plans.
"Company Stockholders' Meeting" shall have the meaning ascribed to such
term in Section 7.01(a).
"Company's Audited Consolidated Financial Statements" shall mean the
consolidated balance sheets of the Company and its Subsidiaries as of December
31, 1996 and 1997 and the related consolidated and combined statements of
operations and cash flows for the fiscal years ended December 31, 1995, 1996 and
1997, together with the notes thereto, all as audited by Arthur Andersen LLP,
independent accountants, under their report with respect thereto dated March 20,
1998 and included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 filed with the Commission.
"Company's Consolidated Balance Sheet" shall mean the consolidated
balance sheet of the Company as of December 31, 1997 included in the Company's
Audited Consolidated Financial Statements.
"Company's Consolidated Financial Statements" shall mean the Company's
Audited Consolidated Financial Statements and the Company's Unaudited
Consolidated Financial Statements.
"Company's Disclosure Letter" shall mean a letter of even date herewith
delivered by the Company to the Acquiror Companies concurrently with the
execution of the Agreement, which, among other things, shall identify exceptions
to the Company's representations and warranties contained in Article IV by
specific section and subsection references.
"Company's Unaudited Consolidated Financial Statements" shall mean the
unaudited consolidated balance sheet of the Company and its Subsidiaries as of
March 31, 1997 and 1998 and the related consolidated statements of operations
and cash flows for the three month periods ended March 31, 1997 and 1998,
together with the notes thereto, included in the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 filed with the Commission.
"Competing Transaction" shall mean any merger, consolidation, share
exchange, business combination or similar transaction involving the Company or
any of its Subsidiaries or the acquisition in any manner, directly or
indirectly, of a Material equity interest in any voting securities of, or a
substantial portion of the assets of, the Company or any of its Significant
Subsidiaries, other than the transactions contemplated by this Agreement.
"Constituent Corporations" shall mean the Company and Newco.
"control" (including the terms "controlled," "controlled by" and "under
common control with") means (except where another definition is expressly
indicated) the possession, directly or
AGREEMENT AND PLAN OF MERGER
ANNEX A-4
<PAGE>
indirectly or as trustee or executor, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of stock or as trustee or executor, by contract or credit arrangement
or otherwise.
"Court" shall mean any court or arbitration tribunal of the United
States, any foreign country or any domestic or foreign state, and any political
subdivision thereof, and shall include the European Court of Justice.
"Current Acquiror Benefit Plans" shall mean Benefit Plans that are
sponsored, maintained or contributed to by the Acquiror or any of its
Subsidiaries as of the date of this Agreement.
"Current Company Benefit Plans" shall mean Benefit Plans that are
sponsored, maintained or contributed to by the Company or any of its
Subsidiaries as of the date of this Agreement.
"Debenture" or "Debentures" shall mean $15,000,000 in aggregate
principal amount of the Company's outstanding 9-1/2% Convertible Subordinated
Debentures due December 21, 1998.
"Debenture Agreement" shall mean a definitive and binding agreement by
and among the Company and each of the holders of the outstanding Debentures
pursuant to which such holders agree (i) to consent to the transactions
contemplated by this Agreement and (ii) to sell to the Acquiror the Debentures
in exchange for 12,887,771 shares of Acquiror Common Stock.
"Deposit Agreement" shall mean that certain Deposit Agreement dated as
of September 15, 1994 between the Acquiror and the Depositary relating to the
issuance of Depositary Shares in exchange for shares of Acquiror Common Stock.
"Depositary" shall mean ChaseMellon Shareholder Services Group, L.L.C.,
as Depositary under the Deposit Agreement.
"Depositary Receipts" shall mean the depositary receipts issued by the
Depositary pursuant to the Deposit Agreement to evidence the Depositary Shares.
"Depositary Shares" shall mean the Depositary Shares issued by the
Depositary pursuant to the Deposit Agreement to holders of Acquiror Common Stock
in exchange for the deposit of shares of Acquiror Common Stock with the
Depositary on the basis of five shares of Acquiror Common Stock for one
Depositary Share.
"Ecopetrol" shall mean Empresa de Colombiana, the national oil company
of Colombia.
"Effective Time" shall mean the date and time of the completion of the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with Section 2.02.
"Environmental Law or Laws" shall mean any and all laws, statutes,
ordinances, rules, regulations, or orders of any Governmental Authority
pertaining to health or the environment
AGREEMENT AND PLAN OF MERGER
ANNEX A-5
<PAGE>
currently in effect and applicable to a specified Person and its Subsidiaries,
including the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Hazardous & Solid Waste Amendments Act
of 1984, as amended, the Superfund Amendments and Reauthorization Act of 1986,
as amended, the Hazardous Materials Transportation Act, as amended, the Oil
Pollution Act of 1990, as amended ("OPA"), any state or local Laws implementing
the foregoing federal Laws, and all other environmental conservation or
protection Laws. For purposes of the Agreement, the terms "hazardous substance"
and "release" have the meanings specified in CERCLA; provided, however, that, to
the extent the Laws of the state or locality in which the property is located
establish a meaning for "hazardous substance" or "release" that is broader than
that specified in either CERCLA, such broader meaning shall apply, and the term
"hazardous substance" shall include all dehydration and treating wastes, waste
(or spilled) oil, and waste (or spilled) petroleum products, and (to the extent
in excess of background levels) radioactive material, even if such are
specifically exempt from classification as hazardous substances pursuant to
CERCLA or RCRA or the analogous statutes of any jurisdiction applicable to the
specified Person or its Subsidiaries or any of their respective properties or
assets.
"Equity Securities" shall mean, with respect to a specified Person, any
shares of capital stock of, or other equity interests in, or any securities that
are convertible into or exchangeable for any shares of capital stock of, or
other equity interests in, or any outstanding options, warrants or rights of any
kind to acquire any shares of capital stock of, or other equity interests in,
such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the Regulations promulgated thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall mean ChaseMellon Shareholder Services Group,
L.L.C.
"Exchange Fund" shall mean the fund of Acquiror Common Stock, cash in
lieu of fractional share interests and dividends and distributions, if any, with
respect to such shares of Acquiror Common Stock established at the Exchange
Agent pursuant to Section 3.02(a).
"Expenses" shall mean all reasonable out-of-pocket expenses (including
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its Affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Registration Statement, the Joint Proxy
Statement, the Acquiror Proxy Statement and the Company Proxy Statement, the
solicitation of stockholder approvals and all other matters related to the
consummation of the transactions contemplated hereby.
"GAAP" shall mean accounting principles generally accepted in the
United States as in effect from time to time consistently applied by a specified
Person.
AGREEMENT AND PLAN OF MERGER
ANNEX A-6
<PAGE>
"GCL" shall mean the General Corporation Law of the State of Delaware,
as in effect on the date of this Agreement and from time to time thereafter
during the pendency hereof.
"Governmental Authority" shall mean any governmental agency or
authority (other than a Court) of the United States, any foreign country, or any
domestic or foreign state, and any political subdivision thereof, and shall
include any multinational authority having governmental or quasi-governmental
powers.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
"Joint Proxy Statement/Prospectus" shall have the meaning ascribed to
such term in Section 7.02(a).
"Knowledge" shall mean, with respect to either the Company or the
Acquiror, the knowledge of any executive officer of such party after reasonable
inquiry.
"Law" shall mean all laws, statutes and ordinances of the United
States, any state of the United States, any foreign country, any foreign state
and any political subdivision thereof, including all decisions of Courts having
the effect of law in each such jurisdiction.
"Lien" shall mean any mortgage, pledge, security interest, adverse
claim, encumbrance, lien or charge of any kind (including any agreement to give
any of the foregoing), any conditional sale or other title retention agreement,
any lease in the nature thereof or the filing of or agreement to give any
financing statement under the Laws of any jurisdiction.
"LSE" shall mean the London Stock Exchange Limited.
"Marketable Title" shall mean, as to the oil and gas properties of a
party, such title or contractual right that, subject to and except for the
Permitted Encumbrances: (i) entitles such party to receive not less than the
"Net Revenue Interest", set forth in Section 3.10(a) of the Company's Disclosure
Letter or the Acquiror's Disclosure Letter, as the case may be, of all oil, gas
and associated liquid and gaseous hydrocarbons produced, saved and marketed from
the presently producing formations in the presently producing wells located on
such oil and gas properties; (ii) obligates such party to bear costs and
expenses relating to the maintenance, development and operation of the presently
producing wells located on such oil and gas properties in an amount not greater
than the "Working Interest" set forth in Section 3.10(a) of the Company's
Disclosure Letter or the Acquiror's Disclosure Letter, as the case may be; and
(iii) is free and clear of any encumbrances, liens or other defects.
"Material" shall mean material to the (a) consolidated business,
condition (financial and other), results of operations, properties or prospects
of a specified Person and its Subsidiaries, if any, taken as a whole or (b) to
the specified Person's ability to perform its obligations under this
AGREEMENT AND PLAN OF MERGER
ANNEX A-7
<PAGE>
Agreement or fulfill the conditions to Closing; provided, however, that, as used
in this definition the word "material" shall have the meaning accorded thereto
pursuant to Section 11 of the Securities Act.
"Material Adverse Effect" shall mean any change or effect that would be
material and adverse (a) to the consolidated business, condition (financial or
otherwise), results of operations, properties or prospects of a specified Person
and its Subsidiaries, if any, taken as a whole or (b) to the specified Person's
ability to perform its obligations under this Agreement or fulfill the
conditions to Closing; provided, however, that, as used in this definition the
word "material" shall have the meaning accorded thereto pursuant to Section 11
of the Securities Act.
"Material Contract" shall mean each contract, lease, indenture,
agreement, arrangement or understanding to which a specified Person or any of
its Subsidiaries is a party or to which any of the assets or operations of such
specified Person or any of its Subsidiaries is subject that is of a type that
would be required to be included as an exhibit to a registration statement on
Form S-1 pursuant to Paragraph (2), (4) or (10) of Item 601(b) of Regulation S-K
under the Securities Act if such a registration statement were to be filed by
such Person under the Securities Act on the date of determination.
Notwithstanding the foregoing, such term shall, in the case of the Company,
include any of the following contracts, agreements or commitments, whether oral
or written:
(1) Any collective bargaining agreement or other agreement
with any labor union;
(2) any agreement, contract or commitment with any other
Person, other than any agency or representation agreement relating to
operations of the Company or any of its Subsidiaries in any foreign
nation or state entered into in the ordinary course of business,
containing any covenant limiting the freedom of such specified Person
or any of its Subsidiaries to engage in any line of business or to
compete with any other Person;
(3) any partnership, joint venture or profit sharing agreement
with any Person;
(4) any employment or consulting agreement, contract or
commitment between the Company or any of its Subsidiaries and any
employee, officer or director thereof (i) having more than one year to
run from the date hereof, (ii) providing for an obligation to pay or
accrue compensation of $ 25,000 or more per annum or (iii) providing
for the payment or accrual of any additional compensation upon a change
in control of such Person or any of its Subsidiaries or upon any
termination of such employment or consulting relationship following a
change in control of such Person or any of its Subsidiaries;
(5) any agency or representation agreement relating to
operations of the Company or any of its Subsidiaries in any foreign
nation or state with any Person that is not terminable by the Company
or one of its Subsidiaries without penalty upon not more than one
year's notice; and
(6) any confidentiality agreement, development agreement or
license agreement relating to the products of the Company or any of its
Subsidiaries.
AGREEMENT AND PLAN OF MERGER
ANNEX A-8
<PAGE>
"Merger" shall mean the merger of Newco with and into the Company as
provided in Article II of this Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Newco" shall mean Aviva Merger Inc., a Delaware corporation and a
wholly owned, indirect Subsidiary of the Acquiror.
"Oil and Gas Properties" shall mean the oil and gas properties of
subsidiaries of the Acquiror listed in Section 3.10(a) of the Acquiror's
Disclosure Letter Schedule.
"OPIC" shall mean Overseas Private Investment Corporation, an agency of
the United States Government.
"OPIC Debt" shall mean the indebtedness of Argosy Energy International,
a wholly owned Subsidiary of the Company, under that certain Finance Agreement
dated May 2, 1994 between Argosy Energy International and OPIC, as amended.
"Order" shall mean any judgment, order or decree of any Court or
Governmental Authority, federal, foreign, state or local.
"Partnership" shall mean Argosy Energy International, L.P., a Utah
limited partnership.
"Partnership Properties" shall mean the oil and gas properties of the
Partnership listed in Section 3.10(a) of the Company's Disclosure Letter
Schedule.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" shall mean the following:
(1) liens for taxes, assessments and other governmental
charges not delinquent or which are currently being contested in good
faith by appropriate proceedings; provided that, in the latter case,
the specified Person or one of its Subsidiaries shall have set aside on
its books adequate reserves with respect thereto;
(2) mechanics' and materialmen's liens not filed of record and
similar charges not delinquent or which are filed of record but are
being contested in good faith by appropriate proceedings; provided
that, in the latter case, the specified Person or one of its
Subsidiaries shall have set aside on its books adequate reserves with
respect thereto;
(3) liens in respect of judgments or awards with respect to
which the specified Person or one of its Subsidiaries shall in good
faith currently be prosecuting an appeal or other proceeding for review
and with respect to which such Person or such Subsidiary shall have
secured a stay of execution pending such appeal or such proceeding for
review;
AGREEMENT AND PLAN OF MERGER
ANNEX A-9
<PAGE>
provided that such Person or such Subsidiary shall have set aside on
its books adequate reserves with respect thereto;
(4) easements, leases, reservations or other rights of others
in, or minor defects and irregularities in title to, property or assets
of a specified Person or any of its Subsidiaries; provided that such
easements, leases, reservations, rights, defects or irregularities do
not materially impair the use of such property or assets for the
purposes for which they are held;
(5) any lien or privilege vested in any lessor, licensor or
permittor for rent or other obligations of a specified Person or any of
its Subsidiaries thereunder so long as the payment of such rent or the
performance of such obligations is not delinquent;
(6) lessors' royalties, overriding royalties and division
orders and sales contracts covering oil, gas or associated liquid or
gaseous hydrocarbons, reversionary interests and similar burdens if the
net cumulative effect of such burdens does not operate to reduce the
net revenue interest of any of the oil and gas properties of the
Company or the Acquiror to less than the net revenue interest relating
thereto disclosed to the other party hereto set forth in the Disclosure
Letter of such party;
(7) preferential rights to purchase and required third party
consents to assignments and similar agreements with respect to oil and
gas properties of a party hereto and as to which (i) waivers or
consents have been obtained from the appropriate Persons, (ii) the
appropriate time period for asserting such rights has expired without
an exercise of such rights or (iii) with respect to consents, such
consent need not be obtained prior to an assignment or the failure to
obtain such consent will not adversely effect the value of the
producing oil and gas properties to such party;
(8) liens for taxes or assessments not yet due or not yet
delinquent;
(9) all rights to consent by, required notices to, filings
with, or other actions by governmental or tribal entities in connection
with the sale or conveyance of oil and gas leases or interests therein
if the same are customarily obtained subsequent to such sale or
conveyance;
(10) rights of reassignment;
(11) easements, rights-of-way, servitudes, permits, surface
leases and other rights in respect of surface operations, pipelines,
grazing, logging, canals, ditches, reservoirs or the like; conditions,
covenants or other restrictions; and easements for streets, alleys,
highways, pipelines, telephone lines, power lines, railways and other
easements and rights-of-way, on, over or in respect of any of the oil
and gas properties of a party hereto;
(12) all other liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects and irregularities
affecting the oil and gas properties of a party hereto (including liens
of operators relating to obligations not yet due or pursuant to which
such
AGREEMENT AND PLAN OF MERGER
ANNEX A-10
<PAGE>
party is not in default) that are not such as to adversely interfere
with the operation, value or use of such properties;
(13) the terms and conditions of all leases and all
agreements, orders, instruments, documents and other matters affecting
the oil and gas properties of a party hereto (including production
sales contracts, division orders, contracts for sale, purchase,
exchange, refining, or processing of hydrocarbons, unitization and
pooling designations, declarations, orders and agreements, operating
agreements, agreements of development, area of mutual interest
agreements, gas balancing or deferred production agreements, processing
agreements, plant agreements, pipeline, gathering and transporting
agreements, injection, repressuring and recycling agreements, carbon
dioxide purchase or sale agreements, salt water or other disposal
agreements, seismic or geophysical permits or agreements) that are
customary in the oil, gas and other mineral exploration, development or
extraction business or in the business of processing of gas and gas
condensate production for the extraction of products therefrom, if the
net cumulative effect of such burdens does not operate to reduce the
net revenue interest of any of the oil and gas properties of the
Company or the Acquiror to less than the net revenue interest relating
thereto disclosed to the other party hereto set forth in the Disclosure
Letter of such party (unless, in the case of an increased Working
Interest, the Partnership's Net Revenue Interest is proportionately
increased); and
(14) rights reserved to or vested in any municipality or
governmental, tribal, statutory or public authority to control or
regulate any of the oil and gas properties of a party hereto in any
manner, and all applicable laws, rules and orders of governmental and
tribal authority.
"Person" shall mean an individual, partnership, limited liability
company, corporation, joint stock company, trust, estate, joint venture,
association or unincorporated organization, or any other form of business or
professional entity, but shall not include a Court or Governmental Authority.
"Registration Statement" shall have the meaning ascribed to such term
in Section 7.02(a).
"Regulation" shall mean any rule or regulation of any Governmental
Authority having the effect of Law or of any rule or regulation of any
self-regulatory organization, such as the LSE or the ASE.
"Reports" shall mean, with respect to a specified Person, all reports,
registrations, filings and other documents and instruments required to be filed
by the specified Person or any of its Subsidiaries with any Governmental
Authority (other than the Commission).
"Representatives" shall mean, collectively, the Company's
Representatives and the Acquiror's Representatives.
"Required Acquiror Vote" shall have the meaning ascribed to such term
in Section 7.01(b).
"Required Company Vote" shall have the meaning ascribed to such term in
Section 7.01(a).
AGREEMENT AND PLAN OF MERGER
ANNEX A-11
<PAGE>
"SEC Reports" shall mean (1) all Annual Reports on Form 10-K, (2) all
Quarterly Reports on Form 10-Q, (3) all proxy statements relating to meetings of
stockholders (whether annual or special), (4) all Current Reports on Form 8-K
and (5) all other reports, schedules, registration statements or other documents
required to be filed during a specified period by a specified Person with the
Commission pursuant to the Securities Act or the Exchange Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share Issuance" shall mean the issuance of shares of Acquiror Common
Stock to be issued in the Merger.
"Significant Subsidiary" means any Subsidiary of the Company or the
Acquiror, as the case may be, that constitutes a significant subsidiary of such
party as such term is defined in Rule 1-02 of Regulation S-X of the Commission.
A "Subsidiary" of a specified Person shall be any corporation,
partnership, limited liability company, joint venture or other legal entity of
which the specified Person (either alone or through or together with any other
Subsidiary) owns, directly or indirectly, 50% or more of the stock or other
equity or partnership interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity or of which the specified Person controls the
management.
"Superior Proposal" means a bona fide Acquisition Proposal that the
Board of Directors of the Company determines in its good faith judgment (after
consultation with its financial advisers and legal counsel), taking into account
all legal, financial, regulatory and other aspects of the proposal or offer and
the Person making the proposal or offer, (i) would, if consummated, result in a
transaction that is more favorable to the Company's stockholders, from a
strategic and financial point of view, than the transactions contemplated by
this Agreement and (ii) is reasonably capable of being completed; provided,
however, that, for the purposes of this definition, the term "Acquisition
Proposal" shall have the meaning ascribed to it herein except that the reference
therein to 10% shall be deemed to be a reference to 50% and the proposal or
offer therein described shall be deemed only to refer to a transaction involving
the Company or the assets of the Company (including the shares of the
Subsidiaries of the Company), taken as a whole, rather than any transaction
relating to any of the Subsidiaries of the Company alone.
"Surviving Corporation" shall mean the Company as the corporation
surviving the Merger.
"Tax Returns" shall have the meaning ascribed to such term in Section
4.14(a) of the Agreement.
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes, ad valorem
taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with
respect to gross receipts, premiums, real property, personal property, windfall
profits, sales, use, transfers, licensing, employment, payroll and franchises
imposed by or under any Law; and such terms shall include any interest, fines,
penalties, assessments
AGREEMENT AND PLAN OF MERGER
ANNEX A-12
<PAGE>
or additions to tax resulting from, attributable to or incurred in connection
with any such tax or any contest or dispute thereof.
"TBCA" shall mean the Texas Business Corporation Act, as in effect on
the date of this Agreement and from time to time thereafter during the pendency
hereof.
"Terminated Acquiror Benefit Plans" shall mean Benefit Plans that were
sponsored, maintained, or contributed to by the Acquiror or any of its
Subsidiaries within six years prior to the date of this Agreement but which have
been terminated prior to the date of this Agreement.
"Terminated Company Benefit Plans" shall mean Benefit Plans that were
sponsored, maintained or contributed to by the Company or any of its
Subsidiaries within six years prior to the date of this Agreement but which have
been terminated prior to the date of this Agreement.
"Terminating Acquiror Breach" shall have the meaning ascribed to such
term in Section 9.10(c)of the Agreement.
"Terminating Company Breach" shall have the meaning ascribed to such
term in Section 9.01(b) of the Agreement.
"Termination Fee" shall have the meaning ascribed to such term in
Section 9.05(b).
"Title Defect" shall mean any encumbrance, encroachment, irregularity,
defect in or objection to a party's title to or contractual right in the oil and
gas properties of such party (expressly excluding Permitted Encumbrances), that
alone or in combination with other defects renders such party's title to any of
such oil and gas properties less than Marketable Title. In evaluating whether an
encumbrance, encroachment, irregularity, defect in or objection to title or
contractual right exists, due consideration shall be given to the length of time
that the leases have been producing hydrocarbon substances, whether such oil and
gas properties are in "pay status" and whether such defect is of the type
expected to be encountered in the area involved and is customarily acceptable to
prudent operators and interest owners. (As used herein, "pay status" shall mean
payment is being made by a third party for the production from such oil and gas
properties without indemnity from such party except such indemnities as are
customarily included in division orders, transfer orders, product purchase
agreements and similar instruments commonly used in connection with the payment
of proceeds from production.) Such usual and customary defects include defects
that have been cured by possession under applicable statutes of limitation,
defects in the early chain of title such as failure to recite marital status in
documents, omission of heirship or succession proceedings, lack of survey and
failure to record releases of liens, production payments or mortgages that have
expired of their own terms to the extent such defects represent matters that are
not reasonably expected to result in claims that will adversely affect such
party's title to such oil and gas properties. Materialmen's, mechanics',
repairmen's, employees', contractors', operators' or other similar liens or
charges arising in the ordinary course of business incidental to construction,
maintenance or operation of such oil and gas properties shall not constitute a
Title Defect (i) if they have not been filed pursuant to Law, (ii) if filed,
they have not yet become due and payable or payment is being
AGREEMENT AND PLAN OF MERGER
ANNEX A-13
<PAGE>
withheld as provided by Law or (iii) if their validity is being contested in
good faith by appropriate action.
AGREEMENT AND PLAN OF MERGER
ANNEX A-14
<PAGE>
ANNEX B
Garnet Resources Corporation Affiliates
AFFILIATE'S AGREEMENT
[Date]
Aviva Petroleum Inc.
8235 Douglas Avenue
Suite 400
Dallas, Texas 75225
Ladies and Gentlemen:
The undersigned has been advised that, as of the date hereof, the
undersigned may be deemed to be an "affiliate" of Garnet Resources Corporation,
a Delaware corporation (the "Company"), as that term is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the Regulations of the Commission under
the Securities Act.
Pursuant to the terms and subject to the conditions of that certain
Agreement and Plan of Merger by and among Aviva Petroleum Inc., a Texas
corporation (the "Acquiror"), Aviva Merger Inc., a newly formed Delaware
corporation and a wholly owned, indirect Subsidiary of the Acquiror ("Newco"),
and the Company dated as of June 24, 1998 (the "Merger Agreement"), providing
for, among other things, the merger of Newco with and into the Company (the
"Merger"), the undersigned will be entitled to receive shares of Acquiror Common
Stock in exchange for shares of Company Common Stock owned by the undersigned at
the Effective Time of the Merger as determined pursuant to the Merger Agreement.
Capitalized terms used but not defined herein are defined in Annex A to the
Merger Agreement and are used herein with the same meanings as ascribed to them
therein.
In consideration of the agreements contained herein, the Acquiror's
reliance on this letter in connection with the consummation of the Merger and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the undersigned hereby represents, warrants and agrees
that the undersigned will not make any sale, transfer or other disposition of
the Acquiror Common Stock received by the undersigned pursuant to the Merger in
violation of the Securities Act or the applicable Regulations thereunder. The
undersigned has been advised that the offering, sale and delivery of the shares
of Acquiror Common Stock pursuant to the Merger will have been registered with
the Commission under the Securities Act on a Registration Statement on Form S-4.
The undersigned has also been advised, however, that, since the undersigned may
be deemed to be an Affiliate of the Company at the time the Merger is submitted
for a vote of the
AGREEMENT AND PLAN OF MERGER
ANNEX A-15
<PAGE>
stockholders of the Company, the Acquiror Common Stock received by the
undersigned pursuant to the Merger can be sold by the undersigned only (i)
pursuant to an effective registration statement under the Securities Act, (ii)
in conformity with the volume and other limitations of Rule 145 promulgated by
the Commission under the Securities Act or (iii) in reliance upon an exemption
from registration that is available under the Securities Act.
The undersigned also understands that instructions will be given to the
transfer agent for the Acquiror Common Stock with respect to the Acquiror Common
Stock to be received by the undersigned pursuant to the Merger and that there
will be placed on the certificates representing such shares of Acquiror Common
Stock, or any substitutions therefor, a legend stating in substance as follows:
"These shares were issued in a transaction to which Rule 145
promulgated under the Securities Act of 1933, as amended, applies.
These shares may only be transferred in accordance with the terms of
such Rule and an Affiliate's Agreement between the original holder of
such shares and Aviva Petroleum Inc., a copy of which agreement is on
file at the principal offices of Aviva Petroleum, Inc."
It is understood and agreed that the legend set forth above shall be removed
upon surrender of certificates bearing such legend by delivery of substitute
certificates without such legend if the undersigned shall have delivered to the
Acquiror an opinion of counsel, in form and substance reasonably satisfactory to
the Acquiror, to the effect that (i) the sale or disposition of the shares
represented by the surrendered certificates may be effected without registration
of the offering, sale and delivery of such shares under the Securities Act and
(ii) the shares to be so transferred may be publicly offered, sold and delivered
by the transferee thereof without compliance with the registration provisions of
the Securities Act.
By its execution hereof, the Acquiror agrees that it will, as long as
the undersigned owns any shares of Acquiror Common Stock to be received by the
undersigned pursuant to the Merger that are subject to the restrictions on sale,
transfer or other disposition herein set forth, take all reasonable efforts to
make timely filings with the Commission of all reports required to be filed by
it pursuant to the Exchange Act and will promptly furnish upon written request
of the undersigned a written statement confirming that such reports have been so
timely filed.
If you are in agreement with the foregoing, please so indicate by
signing below and returning a copy of this letter to the undersigned, at which
time this letter shall become a binding agreement between us.
Very truly yours,
By:
---------------------------------------
Name:
Title:
Date:
Address:
AGREEMENT AND PLAN OF MERGER
ANNEX A-16
<PAGE>
ACCEPTED this ___ day
of __________, 1998
AVIVA PETROLEUM INC.
By:
------------------------------------
Name:
Title:
AGREEMENT AND PLAN OF MERGER
ANNEX A-17
<PAGE>
EXHIBIT 2.02
FORM OF DEBENTURE PURCHASE AGREEMENT
THIS DEBENTURE PURCHASE AGREEMENT (this "Agreement") made and entered into
as of June 24, 1998 by and among AVIVA PETROLEUM INC., a Texas corporation (the
"Acquiror"), and each of the holders of the Debentures (as hereinafter defined)
of Garnet Resources Corporation, a Delaware corporation (the "Company") whose
name is set forth on the signature page hereto (individually, a "Seller", and,
collectively, the "Sellers").
RECITALS:
In December 1993, the Company issued $15,000,000 in aggregate principal
amount of its 9 1/2% Convertible Subordinated Debentures due December 21, 1998
(the "Debentures").
The Sellers own of record and beneficially all of the outstanding
Debentures, and such Debentures are owned of record and beneficially by the
Sellers in the respective amounts set forth on Appendix I attached hereto.
The Acquiror and the Company have entered into an Agreement and Plan of
Merger (the "Merger Agreement") of even date herewith providing for the merger
of a wholly owned subsidiary of the Acquiror with and into the Company (the
"Merger") pursuant to which the outstanding common stock of the Company will be
converted into shares of common stock of the Acquiror and the Company will
become a wholly owned subsidiary of the Acquiror.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby are conditions precedent to the obligation of
the Acquiror to consummate the Merger.
The Sellers desire to sell, and the Acquiror desires to purchase, all of
the outstanding Debentures in exchange for common stock of the Acquiror on the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, the parties hereto, for and in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, do hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. Certain capitalized and other terms used in
this Agreement are defined in Annex A hereto and are used herein with the
meanings ascribed to them therein.
SECTION 1.2 Rules of Construction. Unless the context otherwise requires,
as used in this Agreement: (a) a term has the meaning ascribed to it; (b) an
accounting term not otherwise defined has the meaning ascribed to it in
accordance with GAAP; (c) "or" is not exclusive; (d) "including"
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means "including without limitation;" (e) words in the singular include the
plural; (e) words in the plural include the singular; (f) words applicable to
one gender shall be construed to apply to each gender; (g) the terms "hereof,"
"herein," "hereby," "hereto" and derivative or similar words refer to this
entire Agreement; (h) the terms "Article" or "Section" shall refer to the
specified Article or Section of this Agreement; and (i) the phrase "oil and gas
properties of [the Company or the Acquiror]" or any variant thereof shall
include the oil and gas properties of a Subsidiary of such Person.
ARTICLE II
SALE OF DEBENTURES IN EXCHANGE FOR COMMON STOCK
SECTION 2.1 Purchase and Exchange.
(a) At the Closing, each of the Sellers will sell, transfer,
convey and deliver to the Acquiror, and the Acquiror will purchase, the
principal amount of the outstanding Debentures set forth opposite such
Seller's name on Appendix I hereto, as evidenced by the delivery of a
certificate or certificates evidencing such Debentures, accompanied by duly
executed bond or debenture powers. In exchange therefor, the Acquiror will
issue and convey such number of shares of Acquiror Common Stock as shall be
set forth opposite the name of such Seller on Appendix I hereto.
(b) The shares of Acquiror Common Stock to be delivered by the
Acquiror at the Closing will, to the extent that the aggregate number of
such shares of Acquiror Common Stock to be delivered to an individual
Seller is evenly divisible by five (5), be represented by Depositary
Receipts. Prior to the Closing Date and subject to consummation of the
Closing, the Acquiror shall deposit with the Depositary, for the account of
each individual Seller, the number of shares of Acquiror Common Stock set
forth on Appendix I hereto opposite such Seller's name that is evenly
divisible by five (5), shall obtain in exchange therefor Depositary
Receipts registered in the name of such individual Seller evidencing
Depositary Shares on the basis of one (1) Depositary Share for each five
(5) shares of Acquiror Common Stock so deposited and shall deliver such
Depositary Receipts at the Closing. To the extent that the number of shares
of Acquiror Common Stock set forth opposite the name of any Seller on
Appendix I is not evenly divisible by five (5), the Acquiror shall at the
Closing deliver a certificate, registered in the name of such Seller, for
the remaining number of shares of Acquiror Common Stock. The delivery of
such Depositary Receipts and, if applicable, the certificate for the
remaining shares of Acquiror Common Stock at the Closing shall constitute
delivery of the Acquiror Common Stock to which each such Seller shall be
entitled pursuant to the provisions of subsection (a) of this Section 2.1.
SECTION 2.2 Interest on Debentures. The parties hereto acknowledge that
the Company has paid no interest on the Debentures since December 31, 1997 and
that they do not anticipate that the Company will pay any such interest prior to
the Closing hereunder. The parties hereto further acknowledge and agree that
the purchase and sale of the Debentures pursuant to this Agreement shall include
all rights of the holders of the Debentures to accrued but unpaid interest on
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the Debentures and that, from and after the Closing, the current holders shall
have no claim against the Company for any such accrued but unpaid interest.
SECTION 2.3 Sole Obligation is Purchase of All Debentures. The Acquiror
shall have no obligation hereunder to purchase any Debentures unless all the
Debentures are tendered for purchase by the Acquiror at the Closing hereunder.
SECTION 2.4 Closing. The Closing of the sale and purchase of the
Debentures and the issuance of Acquiror Common Stock in exchange therefor shall
take place at the offices of Vinson & Elkins L.L.P., Trammel Crow Center, 2001
Ross Avenue, Suite 4000, Dallas, Texas, at 10:00 a.m. on the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF EACH SELLER
Each of the Sellers, severally and not jointly, represents and warrants to
the Acquiror as follows with respect only to such Seller:
SECTION 3.1 Authorization of Agreement. Such Seller has all requisite
individual or organizational power and authority, as the case may be, to execute
and deliver this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing, to perform such Seller's obligations
hereunder and thereunder and to consummate the transactions contemplated hereby.
The execution and delivery by such Seller of this Agreement and each instrument
required hereby to be executed and delivered by such Seller at the Closing and
the performance of such Seller's obligations hereunder and thereunder have been
duly and validly authorized by any required organizational action on the part of
such Seller. This Agreement has been duly executed and delivered by such Seller
and (assuming due authorization, execution and delivery hereof by the Acquiror)
constitutes a legal, valid and binding obligation of such Seller, enforceable
against such Seller in accordance with its terms, except as the same may be
limited by legal principles of general applicability governing the application
and availability of equitable remedies.
SECTION 3.2 Approvals. Except for the applicable requirements, if any,
of (a) the Securities Act, (b) the Exchange Act, (c) state securities or blue
sky laws and (d) those Laws, Regulations and Orders noncompliance with which
could not reasonably be expected to have a material adverse effect on the
ability of such Seller to perform such Seller's obligations hereunder or a
Material Adverse Effect on the Company, no filing or registration with, no
waiting period imposed by and no Authorization of, any Governmental Authority is
required under any Law, Regulation or Order applicable to such Seller to permit
such Seller to execute, deliver or perform this Agreement or any instrument
required hereby to be executed and delivered by such Seller at the Closing.
SECTION 3.3 No Violation. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Authorizations of Governmental Authorities
indicated as required in Section 3.2, neither the execution and delivery by such
Seller of this Agreement or any instrument required hereby to be executed and
delivered by such Seller at the Closing nor the performance by such Seller of
such
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Seller's obligations hereunder or thereunder will (a) violate or breach the
terms of or cause a default under any Law, Regulation or Order applicable to
such Seller, any organizational document applicable to such Seller or any
contract or agreement to which such Seller is a party or by which such Seller is
bound or (b), with the passage of time, the giving of notice or the taking of
any action by a third Person, have any of the effects set forth in clause (a) of
this Section, except in any such case for any matters described in this Section
that could not reasonably be expected to have a material adverse effect on the
ability of such Seller to perform such Seller's obligations hereunder or a
Material Adverse Effect on the Company.
SECTION 3.4 Title to Debentures. Such Seller has good title to the
principal amount of Debentures set forth opposite such Seller's name on Appendix
I hereto, free and clear of any Lien, and, upon transfer thereof to the Acquiror
at the Closing pursuant to the terms of this Agreement, the Acquiror will
acquire good title to such principal amount of Debentures, free and clear of any
Lien. The aggregate principal amount of the Debentures set forth on Appendix I
hereto constitutes the entire principal amount of Debentures outstanding.
SECTION 3.5 Brokerage Agreements. Such Seller has not entered (directly
or indirectly) into any agreement under which the Acquiror or the Company could
be liable with any person, firm or corporation providing for the payment of any
commission, brokerage or "finder's fee" in connection with the transactions
contemplated herein.
SECTION 3.6 No Distribution. Each Seller hereby acknowledges that, in
making the offering, sale and delivery of the Acquiror Common Stock pursuant to
this Agreement, the Acquiror is relying on the exemption from the registration
provisions of the Securities Act contained in Section 4(2) thereof, and, to that
end, each Seller represents and warrants that such Seller is a "qualified
investor" within the meaning of that term as defined in Regulation D under the
Securities Act and that such Seller is acquiring the Acquiror Common Stock
without a view to the distribution thereof within the meaning of that term as
used in the Securities Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE ACQUIROR
SECTION 4.1 Organization and Qualification. The Acquiror is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas, has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than any matters, including the failure to be so qualified and in good standing,
that could not reasonably be expected to have a Material Adverse Effect on the
Acquiror.
SECTION 4.2 Authorization of Agreement. The Acquiror has all requisite
corporate power and authority to execute and deliver this Agreement and, subject
to approval of this Agreement by the majority of the stockholders of the
Acquiror as required by the applicable provisions of the LSE and the ASE, each
instrument required hereby to be executed and delivered by it at the Closing, to
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perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby. The execution and delivery by the Acquiror of
this Agreement and each instrument required hereby to be executed and delivered
by each of them at the Closing and the performance of its obligations hereunder
and thereunder have been duly and validly authorized by all requisite corporate
action on the part of the Acquiror (other than the approval and adoption of this
Agreement by the holders of a majority of the outstanding shares of Acquiror
Common Stock in accordance with the applicable provisions of the LSE and the
ASE). This Agreement has been duly executed and delivered by the Acquiror and
(assuming due authorization, execution and delivery hereof by the other parties
hereto) constitutes a legal, valid and binding obligation of the Acquiror,
enforceable against the Acquiror in accordance with its terms, except as the
same may be limited by legal principles of general applicability governing the
application and availability of equitable remedies.
SECTION 4.3 Approvals. Except for the applicable requirements, if any,
of (a) the Securities Act, (b) the Exchange Act, (c) state securities or blue
sky laws, (d) the HSR Act, (e) the LSE, (f) the ASE and (g) those Laws,
Regulations and Orders noncompliance with which could not reasonably be expected
to have a material adverse effect on the ability of the Acquiror to perform its
obligations hereunder or a Material Adverse Effect on the Acquiror, no filing or
registration with, no waiting period imposed by and no Authorization of, any
Governmental Authority is required under any Law, Regulation or Order applicable
to the Acquiror to permit the Acquiror to execute, deliver or perform this
Agreement or any instrument required hereby to be executed and delivered by it
at the Closing. To the Knowledge of the Acquiror and assuming approval of this
Agreement and the transactions contemplated hereby by the holders of a majority
of outstanding Acquiror Common Stock as required by the LSE and the ASE, there
are no facts or circumstances that could reasonably be expected to preclude the
Acquiror Common Stock to be issued in the Merger from being approved for listing
on the LSE or Depositary Shares representing such Acquiror Common Stock from
being approved for listing on the ASE.
SECTION 4.4 No Violation. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by, and receipt of all Authorizations of, Governmental Authorities
indicated as required in Section 3.3, neither the execution and delivery by the
Acquiror of this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing nor the performance by the Acquiror of its
obligations hereunder or thereunder will (a) violate or breach the terms of or
cause a default under any Law, Regulation or Order applicable to the Acquiror,
the certificate of incorporation or bylaws of the Acquiror or any contract or
agreement to which the Acquiror or any of its Subsidiaries is a party or by
which it or any of its properties or assets is bound, or (b), with the passage
of time, the giving of notice or the taking of any action by a third Person,
have any of the effects set forth in clause (a) of this Section, except in any
such case for any matters described in this Section that could not reasonably be
expected to have a material adverse effect on the ability of the Acquiror to
perform its obligations hereunder or a Material Adverse Effect on the Acquiror.
SECTION 4.5 Brokerage Agreements. The Acquiror has not entered (directly
or indirectly) into any agreement under which any Seller could be liable with
any person, firm or corporation providing for the payment of any commission,
brokerage or "finder's fee" in connection with the transactions contemplated
herein.
DEBENTURE PURCHASE AGREEMENT
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ARTICLE V
COVENANTS OF THE SELLERS
Each of the Sellers further agrees, severally and not jointly, except as
set forth in or contemplated by this Agreement or as otherwise approved by the
Acquiror in writing, that from the date hereof through the Closing Date:
SECTION 5.1 Obtaining Consents. Each of the Sellers will use all
reasonable efforts to obtain all consents to the transactions contemplated by
this Agreement required to be obtained from third Persons by the provisions of
any material contracts, franchises, commitments and agreements to which any of
the Sellers is a party or by which such Seller is bound.
SECTION 5.2 Confidentiality. Such Seller will not disclose or use any
information obtained in the course of the negotiation of this Agreement or
otherwise or set forth in any schedule hereto, except (a) in connection with the
performance of this Agreement, (b) as required by any Law, Regulation or Order,
(c) as may be necessary to the prosecution or defense of any claim or suit
brought to enforce rights under this Agreement or (d) to the extent that the
same may become public other than through the action of such Seller. If the
transactions contemplated hereby are not consummated and this Agreement shall
terminate, such Seller will promptly return all copies of documents, contracts
or records and other properties furnished by the Acquiror or its affiliates
pursuant to this Agreement.
SECTION 5.3 Exclusive Agreement. Except to the extent otherwise expressly
contemplated by this Agreement, unless this Agreement is terminated prior to
Closing, such Seller will not directly or indirectly (a) encourage, solicit or
engage in discussions or any negotiations with, or provide any information to,
any Person (other than the Acquiror or affiliates of the Acquiror) concerning
any possible disposition of the Company, any Subsidiary of the Company or any
significant asset of the Company or any of its Subsidiaries (unless and to the
extent that the disposition would be expressly permitted by the Merger
Agreement) or (b) do anything or enter into any agreement or take any action
that by its terms or effect could reasonably be expected to adversely affect the
ability of the parties to consummate the transactions contemplated by this
Agreement or the Merger Agreement on the terms and conditions set forth herein
and therein or that would be contrary to or breach any of the terms or
provisions of this Agreement or the Merger Agreement or that would cause any of
the representations or warranties contained herein or therein to be or become
untrue in any material respect.
SECTION 5.4 Satisfaction of Closing Conditions. Such Seller shall use all
reasonable efforts to satisfy the conditions to Closing set forth in Article VII
relating to such Seller in an expeditious manner.
DEBENTURE PURCHASE AGREEMENT
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SECTION 5.5 Delivery of Documents at Closing. At the Closing, subject to
satisfaction of the conditions set forth in Article VII, such Seller will
execute and deliver to the Acquiror all documents required to be delivered
pursuant to Section 2.1.
ARTICLE VI
COVENANTS OF THE ACQUIROR
The Acquiror further agrees, except as set forth in or contemplated by this
Agreement or as otherwise approved by the Sellers in writing, that from the date
hereof through the Closing Date:
SECTION 6.1 Obtaining Consents. The Acquiror will use all reasonable
efforts to obtain all consents to the transactions contemplated by this
Agreement required to be obtained from third Persons by the provisions of any
material contracts, franchises, commitments and agreements to which the Acquiror
is a party or by which the Acquiror is bound.
SECTION 6.2 Confidentiality. The Acquiror will not disclose or use any
information obtained in the course of the negotiation of this Agreement or
otherwise or set forth in any schedule hereto, except (a) in connection with the
performance of this Agreement, (b) as required by any Law, Regulation or Order,
(c) as may be necessary to the prosecution or defense of any claim or suit
brought to enforce rights under this Agreement or (d) to the extent that the
same may become public other than through the action of the Acquiror. If the
transactions contemplated hereby are not consummated and this Agreement shall
terminate, the Acquiror will promptly return all copies of documents, contracts
or records and other properties furnished by the Sellers pursuant to this
Agreement.
SECTION 6.3 Satisfaction of Closing Conditions. The Acquiror shall use
all reasonable efforts to satisfy the conditions to Closing set forth in Article
VII relating to the Acquiror in an expeditious manner.
SECTION 6.4 Delivery of Documents at Closing. At the Closing, subject to
satisfaction of the conditions set forth in Article VII, the Acquiror will
execute and deliver to the Sellers all documents required to be delivered
pursuant to Section 2.1.
ARTICLE VII
CONDITIONS TO THE CLOSING
SECTION 7.1 Conditions to Obligations of Each Party. The obligations of
the Acquiror and of each Seller to effect the transactions contemplated by this
Agreement are subject to the satisfaction (or waiver in writing by the party
entitled to the benefit thereof) of each of the following conditions:
(a) Third Party Consents. The Acquiror and each of the Sellers shall
have obtained all consents to the transactions contemplated by this
Agreement required to be obtained from third Persons by the provisions of
any contracts, franchises, commitments and agreements to which the Acquiror
or any of the Sellers is a party or by which the Acquiror
DEBENTURE PURCHASE AGREEMENT
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or any such Seller is bound if the failure to obtain such consent could
reasonably be expected to have, in the case of the Acquiror, a Material
Adverse Effect on the Acquiror or, in the case of any Seller, a Material
Adverse Effect on such Seller.
(b) Statutory Requirements. All statutory requirements for the valid
consummation of the transactions contemplated herein shall have been
fulfilled and all necessary Authorizations from Governmental Authorities
shall have been obtained.
(c) No Order. No Court or Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any Law, Regulation or Order
(whether temporary, preliminary or permanent) that is in effect and has the
effect of making the transactions contemplated hereby illegal or otherwise
prohibiting consummation of the transactions contemplated hereby.
SECTION 7.2 Conditions to Obligation of the Acquiror. The obligation of
the Acquiror to effect the transactions contemplated by this Agreement is
subject to the satisfaction (or waiver in writing by the Acquiror) of each of
the following conditions:
(a) Accuracy of Representations and Warranties of the Sellers. The
representations and warranties of the Sellers hereunder shall be made again
at the Closing and shall, except to the extent expressly contemplated by
this Agreement, be true and correct as of the Closing, (ii) the Sellers
shall have performed all covenants required to be performed by them under
this Agreement as of the Closing and (iii) the Sellers shall have furnished
the Acquiror at the Closing with a certificate of the Sellers to such
effect, as well as to the effect that all of the conditions contemplated by
this Section 7.2 have been satisfied as of the Closing Date.
(b) Certificates. Each of Sellers shall have delivered to the
Acquiror at the Closing one or more certificates evidencing the Debentures
to be delivered by such Seller at the Closing, such certificates being in
good delivery form and accompanied by duly executed debenture or bond
powers; such certificates shall, in the aggregate, evidence all the
outstanding Debentures.
(c) Merger Agreement. All the conditions precedent to consummation of
the Merger set forth in the Merger Agreement shall have been fulfilled or
waived.
SECTION 7.3 Conditions to Obligations of the Sellers. The obligations of
each of the Sellers to effect the transactions contemplated by this Agreement
shall be subject to the satisfaction (or waiver in writing by each of the
Sellers) of each of the following conditions:
(a) Representations and Warranties of the Acquiror to Be True. (i) The
representations and warranties of the Acquiror hereunder shall be made
again at the Closing and shall be true and correct as of the Closing,
except to the extent expressly contemplated by this Agreement, (ii) the
Acquiror shall have performed all covenants required to be performed by it
under this Agreement as of the Closing and (iii) the Acquiror shall have
furnished the Sellers at the Closing with a certificate of an executive
officer of the Acquiror
DEBENTURE PURCHASE AGREEMENT
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to such effect, as well as to the effect that all of the conditions
contemplated by this Section 7.3 have been satisfied as of the Closing
Date.
(b) Issuance of Acquiror Common Stock. The Acquiror shall have
delivered the certificates evidencing the Acquiror Common Stock to be
issued by it pursuant to Section 2.1 herein in exchange for the Debentures
registered in the names of the Sellers, in each case in the respective
amounts set forth on Appendix I.
ARTICLE VIII
SECTION 8.1 Termination of Agreement. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated herein may be
terminated at any time before the Closing as follows:
(a) By the mutual consent of the Acquiror and a Majority of the
Sellers.
(b) by the Acquiror, upon a Material breach of any representation,
warranty, covenant or agreement on the part of any of the Sellers set forth
in this Agreement or if any representation or warranty of any of the
Sellers shall have become untrue in any Material respect, in either case
such that the conditions set forth in Section 7.2(a) would not be satisfied
(a "Terminating Seller Breach"); provided that, if such Terminating Company
Breach is curable by the affected Seller or Sellers through the exercise of
reasonable efforts and for so long as the Seller or Sellers continue to
exercise such reasonable efforts, the Acquiror may not terminate this
Agreement under this Section 8.1(b);
(c) by a Majority of the Sellers, upon a Material breach of any
representation, warranty, covenant or agreement on the part of the Acquiror
set forth in this Agreement or if any representation or warranty of the
Acquiror shall have become untrue in any Material respect, in either case
such that the conditions set forth in Section 7.3(a) would not be satisfied
(a "Terminating Acquiror Breach"); provided that, if such Terminating
Acquiror Breach is curable by the Acquiror through the exercise of its
reasonable efforts and for so long as the Acquiror continues to exercise
such reasonable efforts, the Sellers may not terminate this Agreement under
this Section 8.1(c);
(d) by either the Acquiror or a Majority of the Sellers, if there
shall be any final and nonappealable Order that prevents the consummation
of the Merger or the transactions contemplated by this Agreement;
(e) by a Majority of the Sellers or by the Acquiror if the
transactions contemplated hereby shall not have been consummated before
September 30, 1998; provided, however, that this Agreement may be extended
by written notice of the Acquiror to a date not later than October 31,
1998, if the Merger Agreement shall have been extended to that date
pursuant to the provisions of Section 9.01(e) thereof; provided, however,
that no party hereto can terminate this Agreement pursuant to this
subsection 8.1(e) if at such time such party is in violation of or has
breached any provision of this Agreement.
DEBENTURE PURCHASE AGREEMENT
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(f) by either the Acquiror or a Majority of the Sellers, if the Merger
Agreement shall fail to receive the Required Company Vote by the
stockholders of the Company at the Company Stockholders' Meeting;
(g) by either the Acquiror or a Majority of the Sellers, if the Merger
Agreement or this Agreement shall fail to receive the Required Acquiror
Vote by the stockholders of the Acquiror at the Acquiror Stockholders'
Meeting;
(h) by either the Acquiror or a Majority of the Sellers, if the Merger
Agreement is terminated in accordance with its terms.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any Person
controlling any such party or any of its respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 8.2 Effect of Termination. Except as provided in Section 9.1 of
this Agreement, in the event of the termination of this Agreement pursuant to
Section 8.1, this Agreement shall forthwith become void, there shall be no
liability on the part of the Acquiror or any of the Sellers or any of its
officers or directors to the other and all rights and obligations of any party
hereto shall cease, except that nothing herein shall relieve any party from
liability for any misrepresentation or breach of any covenant or agreement under
this Agreement.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Effectiveness of Representations, Warranties and Agreements.
-----------------------------------------------------------
(a) Except as set forth in Section 9.1(b) of this Agreement, the
representations, warranties, covenants and agreements of each party hereto
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any Person
controlling any such party or any of their officers, directors,
representatives or agents whether prior to or after the execution of this
Agreement.
(b) The representations and warranties in this Agreement shall
terminate at the Closing and the representations, warranties, covenants and
agreements of each of the parties hereto shall terminate upon the
termination of this Agreement pursuant to Section 8.1, except that the
covenants and agreements set forth in Section 8.2 and in this Article IX
hereof shall survive such termination of this Agreement.
SECTION 9.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses or sent by electronic transmission to the telecopier number specified
below:
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(a) If to the Acquiror, to:
Aviva Petroleum Inc.
8235 Douglas Avenue
Suite 400
Dallas, Texas 75225
Attention: Ronald Suttill, President and Chief Executive Officer
Telecopier No.: (214) 691-6151
with a copy to:
Vinson & Elkins L.L.P.
First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: William E. Joor III
Telecopier No.: (713) 758-2346
(b) If to any Seller, to the address or telecopier number set forth
beneath such Seller's name on Appendix I.
or to such other address or telecopier number as any party may, from time to
time, designate in a written notice given in a like manner. Notice given by
telecopier shall be deemed delivered on the day the sender receives telecopier
confirmation that such notice was received at the telecopier number of the
addressee. Notice given by mail as set out above shall be deemed delivered
three days after the date the same is postmarked.
SECTION 9.3 Mutual Releases.
(a) Subject to the consummation of the transaction contemplated
hereby, each of the Sellers, for himself and anyone or any entity claiming by,
through or under him, hereby fully and irrevocably releases and forever
discharges the Company, Argosy Energy Incorporated, a Delaware corporation
("Argosy"), Argosy Energy International, Ltd., a Utah limited partnership (the
"Partnership") and their past, present and future officers, directors,
employees, agents, shareholders, partners, principals and other affiliates from
any and all past, present and future debts, claims, demands, obligations,
liabilities, damages, actions, and causes of action of every kind whatsoever (a
"Claim"), whether now known or not, and whether now accrued or not, and in
whatever legal theory or form, based in whole or in part upon any conduct, act
and/or omission that has occurred or is alleged to have occurred at any time
prior to the date hereof, arising out of or relating to the Debentures, the
Merger, the Merger Agreement, any of the transactions contemplated thereby, or
the business or affairs of the Acquiror or the Company.
(b) Subject to the consummation of the transaction contemplated hereby
and the Merger, the Acquiror hereby agrees to cause the Company, Argosy and the
Partnership, for itself and anyone or any entity claiming by, through or under
it, to release fully and irrevocably and to discharge forever each of the
Sellers from any and all Claims, whether now known or not, and whether now
accrued or not, and in whatever legal theory or form, based in whole or in part
upon
DEBENTURE PURCHASE AGREEMENT
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<PAGE>
any conduct, act and/or omission that has occurred or is alleged to have
occurred at any time prior to the date hereof, arising out of or relating to the
Debentures, the Merger, the Merger Agreement, any of the transactions
contemplated thereby, or the business or affairs of the Acquiror or the Company.
(c) The mutual releases contained in this Agreement shall not be
construed to release any party from a Claim that such party has breached its
obligations under this Agreement.
SECTION 9.4 Expenses. Each party hereto shall bear its own legal,
accounting and other costs and expenses incident to the negotiation of this
Agreement and the performance of the transactions contemplated herein.
SECTION 9.5 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.6 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.7 Entire Agreement. This Agreement (together with Annex A,
Appendix I, the Company's Disclosure Letter and the Acquiror's Disclosure
Letter) constitutes the entire agreement of the parties, and supersedes all
prior agreements and undertakings, both written and oral, among the parties,
with respect to the subject matter hereof.
SECTION 9.8 Assignment. This Agreement shall not be assigned by the
Acquiror or any of the Sellers, except, in the case of any of the Sellers,
without the prior written consent of the Acquiror.
SECTION 9.9 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and their successors,
heirs and representatives, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, nor shall any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights
and remedies existing under this Agreement are cumulative with, and not
exclusive of, any rights or remedies otherwise available.
SECTION 9.11 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Texas, regardless of the
Laws that might otherwise govern
DEBENTURE PURCHASE AGREEMENT
12
<PAGE>
under applicable principles of conflicts of law; provided, however, that any
matter involving the internal corporate affairs of the Company or Newco shall be
governed by the provisions of the GCL.
SECTION 9.12 Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to this Agreement to perform its agreements
and covenants hereunder, including its failure to take all actions as are
necessary on its part to the consummation of the Merger, will cause irreparable
injury to the other parties to this Agreement for which damages, even if
available, will not be an adequate remedy. Accordingly, each of the parties
hereto hereby consents to the granting of equitable relief (including specific
performance and injunctive relief) by any court of competent jurisdiction to
enforce any party's obligations hereunder. The parties further agree to waive
any requirement for the securing or posting of any bond in connection with the
obtaining of any such equitable relief and that this Section is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
SECTION 9.13 Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 9.14 Arbitration. Any dispute hereunder between the Acquiror, on
the one hand, and the Sellers, on the other, shall be resolved by binding
arbitration under the Commercial Arbitration Rules (the "AAA Rules") of the
American Arbitration Association (the "AAA"). This arbitration provision is
expressly made pursuant to and shall be governed by the Federal Arbitration Act,
9 U.S.C. Sections 1-14. The parties hereto agree that, pursuant to Section 9 of
the Federal Arbitration Act, a judgment of a United States District Court of
competent jurisdiction shall be entered upon the award made pursuant to the
arbitration. Three arbitrators, who shall have the authority to allocate the
costs of any arbitration initiated under this paragraph, shall be selected
according to the AAA Rules or, if such AAA Rules do not so provide, then in
accordance with the following sentence within ten (10) days of the submission to
the AAA of the response to the statement of claim or the date on which any such
response is due, whichever is earlier. The alternative selection shall be made
as follows: one by a Majority of the Sellers, one by the Acquiror and one by the
two so selected. The arbitrators shall conduct the arbitration in accordance
with the Federal Rules of Evidence. The arbitrators shall decide the amount and
extent of pre-hearing discovery which is appropriate. The arbitrators shall
have the power to enter any award of monetary or injunctive relief (including
the power to issue permanent injunctive relief and also the power to reconsider
any prior request for immediate injunctive relief by either of the parties and
any order as to immediate injunctive relief previously granted or denied by a
court in response to a request therefor by either of the parties), including the
power to render an award as provided in Rule 43 of the AAA Rules; provided,
however, that the arbitrators shall not have the power to award punitive damages
under any circumstances (whether styled as punitive, exemplary, or treble
damages, or any penalty or punitive type of damages) regardless of whether such
damages may be available under applicable law, the parties hereby waiving their
rights, if any, to recover any such damages, whether in arbitration or
litigation. The arbitrators shall award the prevailing party its costs and
reasonable attorney's fees, and the losing party shall bear the entire cost of
the arbitration, including the arbitrators' fees. The arbitration award may be
enforced in any court having jurisdiction over the parties and the subject
matter of the arbitration. The arbitration shall be held in Dallas, Texas.
DEBENTURE PURCHASE AGREEMENT
13
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first above written.
AVIVA PETROLEUM INC.
By:
--------------------------------------------
Name:
Title:
SELLER:
------------------------------------------------
[Insert Name]
------------------------------------------------
[Insert Reference # from Appendix I]
By:
--------------------------------------------
Its:
--------------------------------------------
DEBENTURE PURCHASE AGREEMENT
14
<PAGE>
APPENDICES, EXHIBITS AND SCHEDULES
Annex A Definitions
Appendix I Ownership of Debentures; Acquiror Common Stock Issuable
DEBENTURE PURCHASE AGREEMENT
<PAGE>
ANNEX A
SCHEDULE OF DEFINED TERMS
The following terms when used in the Agreement shall have the meanings set
forth below unless the context shall otherwise require:
"Acquiror" shall mean Aviva Petroleum Inc., a Texas corporation, and its
successors from time to time.
"Acquiror Common Stock" shall mean the common stock, without par value, of
the Acquiror.
"Affiliate" shall, with respect to any Person, mean any other Person that
controls, is controlled by or is under common control with the former.
"ASE" shall mean the American Stock Exchange.
"Business Day" means any day other than a day on which banks in the State
of Texas are authorized or obligated to be closed;
"Closing" shall mean a meeting, which shall be held in accordance with
Section 2.4, of representatives of the parties to the Agreement at which, among
other things, all documents deemed necessary by the parties to the Agreement to
evidence the fulfillment or waiver of all conditions precedent to the
consummation of the transactions contemplated by the Agreement are executed and
delivered.
"Closing Date" shall mean the same date as the Closing Date under the
Merger Agreement.
"Company" shall mean Garnet Resources Corporation, a Delaware corporation,
and its successors from time to time.
"Company Common Stock" shall mean the common stock, par value $0.01 per
share, of the Company.
"control" (including the terms "controlled," "controlled by" and "under
common control with") means (except where another definition is expressly
indicated) the possession, directly or indirectly or as trustee or executor, of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of stock or as trustee or executor, by
contract or credit arrangement or otherwise.
"Court" shall mean any court or arbitration tribunal of the United States,
any foreign country or any domestic or foreign state, and any political
subdivision thereof, and shall include the European Court of Justice.
DEBENTURE PURCHASE AGREEMENT
<PAGE>
"Debenture" or "Debentures" shall mean $15,000,000 in aggregate principal
amount of the Company's outstanding 9-1/2% Convertible Subordinated Debentures
due December 21, 1998.
"Deposit Agreement" shall mean that certain Deposit Agreement dated as of
September 15, 1994 between the Acquiror and the Depositary relating to the
issuance of Depositary Shares in exchange for shares of Acquiror Common Stock.
"Depositary" shall mean ChaseMellon Shareholder Services Group, L.L.C., as
Depositary under the Deposit Agreement.
"Depositary Receipts" shall mean the depositary receipts issued by the
Depositary pursuant to the Deposit Agreement to evidence the Depositary Shares.
"Depositary Shares" shall mean the Depositary Shares issued by the
Depositary pursuant to the Deposit Agreement to holders of Acquiror Common
Stock in exchange for the deposit of shares of Acquiror Common Stock with the
Depositary on the basis of five shares of Acquiror Common Stock for one
Depositary Share.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"GAAP" shall mean accounting principles generally accepted in the United
States as in effect from time to time consistently applied by a specified
Person.
"GCL" shall mean the General Corporation Law of the State of Delaware, as
in effect on the date of this Agreement and from time to time thereafter during
the pendency hereof.
"IRS" shall mean the Internal Revenue Service.
"LSE" shall mean the London Stock Exchange Limited.
"Majority of the Sellers" shall mean those Sellers who own a majority in
principal amount of the Debentures.
"Merger" shall mean the merger of Newco with and into the Company as
provided in Article II of this Agreement.
"Merger Agreement" shall mean the Agreement and Plan of Merger made and
entered into as of June 24, 1998 among the Acquiror, Newco and the Company,
including any amendments thereto and each Annex (including Annex A) and Schedule
thereto (including the Acquiror's Disclosure Letter and the Company's Disclosure
Letter).
"Newco" shall mean Aviva Merger Inc., a Delaware corporation and an
indirect, wholly owned Subsidiary of the Acquiror.
"Partnership" shall mean Argosy Energy International, L.P., a Utah limited
partnership.
DEBENTURE PURCHASE AGREEMENT
<PAGE>
"Person" shall mean an individual, partnership, limited liability company,
corporation, joint stock company, trust, estate, joint venture, association or
unincorporated organization, or any other form of business or professional
entity, but shall not include a Court or Governmental Authority.
"Securities Act" shall mean the Securities Act of 1933, as amended.
A "Subsidiary" of a specified Person shall be any corporation, partnership,
limited liability company, joint venture or other legal entity of which the
specified Person (either alone or through or together with any other Subsidiary)
owns, directly or indirectly, 50% or more of the stock or other equity or
partnership interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity or of which the specified Person controls the
management.
"TBCA" shall mean the Texas Business Corporation Act, as in effect on the
date of this Agreement and from time to time thereafter during the pendency
hereof.
"Terminating Acquiror Breach" shall have the meaning ascribed to such term
in Section 9.10(c) of the Agreement.
"Terminating Seller Breach" shall have the meaning ascribed to such term in
Section 8.1(b) of the Agreement.
DEBENTURE PURCHASE AGREEMENT
<PAGE>
APPENDIX I
- --------------------------------------------------------------------------------
GARNET RESOURCES CORPORATION
9.5% CONVERTIBLE SUBORDINATED DEBENTURE HOLDERS
- --------------------------------------------------------------------------------
BENEFICIAL HOLDER REF# AMOUNT SHARES
- --------------------------------------------------------------------------------
DELAWARE STATE EMPLOYEES
RETIREMENT FUND R1 4,000,000 3,436,739
ICI AMERICAN HOLDINGS INC. R4 1,200,000 1,031,022
ZENECA HOLDINGS, INC. R9 800,000 687,348
- --------------------------------------------------------------------------------
NOTICE ADDRESS:
Mr. Bob Cresci
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
Tel: (212) 332-1330
Fax: (212) 332-1334
- --------------------------------------------------------------------------------
SUB-TOTAL 6,000,000 5,155,108
- --------------------------------------------------------------------------------
MASSACHUSETTS MUTUAL LIFE
INSURANCE CO. R5 750,000 644,389
MASSMUTUAL CORPORATE
INVESTORS R6 500,000 429,592
MASSACHUSETTS MUTUAL
CORPORATE SEGMENT R7 750,000 644,389
- --------------------------------------------------------------------------------
NOTICE ADDRESS:
Mr. Cliff Noreen
Massachusetts Mutual Insurance Co.
1295 State Street
Springfield, MA 01111
Tel: (413) 744-6087
Fax: (413) 744-8798
- --------------------------------------------------------------------------------
SUB-TOTAL 2,000,000 1,718,369
- --------------------------------------------------------------------------------
CORNING INC. PENSION PLAN R11 200,000 171,837
- --------------------------------------------------------------------------------
NOTICE ADDRESS:
Mr. Bob Grassi
MP HQ EZ DD 23
Corning Incorporated
Corning, NY 14831
Tel: (607) 974-8735
Fax: (607) 974-6853
- --------------------------------------------------------------------------------
SUB-TOTAL 670,000 575,654
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C> <C> <C>
|---------------------------------------------------------------|----------------|------------------|----------------|
|KIMBERLY CLARK RETIREMENT TRUST a/c 308316 | R12 | 300,000 | 257,755 |
|---------------------------------------------------------------|----------------|------------------|----------------|
|NOTICE ADDRESS: | | | |
| | | | |
|Mr. Robert Frazier | | | |
|Kimberly-Clark Corp. | | | |
|351 Phelps Drive | | | |
|Irving, TX 75038 | | | |
|Tel.: (972) 281-1390 Fax: (972)281-1209 | | | |
|---------------------------------------------------------------|----------------|------------------|----------------|
|LAFAYETTE UNIVERSITY | R13 | 170,000 | 146,061 |
|---------------------------------------------------------------|----------------|------------------|----------------|
|NOTICE ADDRESS: | | | |
| | | | |
|Mr. Keen Cederberg | | | |
|Institutional Capital Corp. | | | |
|225 West Wacker Drive, #2400 | | | |
|Chicago, IL 60606 | | | |
|Tel.: (312) 424-9152 Fax: (312) 236-7318 | | | |
|---------------------------------------------------------------|----------------|------------------|----------------|
| SUB-TOTAL | | 670,000 | 575,654 |
|---------------------------------------------------------------|----------------|------------------|----------------|
| | | | |
|WEXFORD SPECIAL SITUATIONS 1996 L.P. | R21 | 1,007,100 | 865,285 |
|WEXFORD SPECIAL SITUATIONS 1996 INSTITUTIONAL L.P. | R22 | 184,800 | 158,777 |
|WEXFORD EURIS SPECIAL SITUATIONS 1996 1 | R23 | 257,550 | 221,283 |
|WEXFORD SPECIAL SITUATIONS 1996 LTD | R24 | 50,550 | 43,432 |
|WEXFORD SPECIAL SITUATIONS 1996 L.P. | R25 | 3,242,862 | 2,786,218 |
|WEXFORD SPECIAL SITUATIONS 1996 INSTITUTIONAL L.P. | R26 | 595,056 | 511,263 |
|WEXFORD EURIS SPECIAL SITUATIONS 1996 L.P. | R27 | 829,311 | 712,531 |
|WEXFORD SPECIAL SITUATIONS 1996 LTD | R28 | 162,771 | 139,850 |
| | | | |
| | | | |
|---------------------------------------------------------------|----------------|------------------|----------------|
|NOTICE ADDRESS: | | | |
| | | | |
|Mr. Todd Strechler | | | |
|Wexford Management, L.L.C. | | | |
|411 W. Putnam Avenue | | | |
|Greenwich, CT 06830 | | | |
|Tel.: (203) 862-7082 Fax: (203) 862-7451 | | | |
|---------------------------------------------------------------|----------------|------------------|----------------|
| SUB-TOTAL | | 6,330,000 | 5,438,639 |
|---------------------------------------------------------------|----------------|------------------|----------------|
| TOTAL | | 15,000,000 | 12,887,771 |
|---------------------------------------------------------------|----------------|------------------|----------------|
</TABLE>
DEBENTURE PURCHASE AGREEMENT
<PAGE>
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Aviva Petroleum Inc.
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
June 26, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 20, 1998 on
the audited consolidated financial statements of Garnet Resources Corporation
and subsidiaries included in Garnet Resources Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997 and to all references to our Firm
included in this registration statement.
/s/ Arthur Andersen LLP
Houston, Texas
June 26, 1998
<PAGE>
EXHIBIT 99.2
PROXY
AVIVA PETROLEUM INC.
PROXY FOR 1998 SPECIAL MEETING, IN LIEU OF ANNUAL MEETING
OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Ronald Suttill and James L. Busby, and either
of them, proxies or proxy with full power of substitution and revocation as to
each of them, to represent the undersigned and to act and vote, with all powers
which the undersigned would possess if personally present, at the Special
Meeting of Stockholders of Aviva Petroleum Inc. to be held at
________________________, Dallas, Texas, at ___:00 a.m. on ____________, 1998,
on the following matters and in their discretion on any other matters which may
come before the meeting or any adjournments thereof. Receipt of Notice-Joint
Proxy Statement/Prospectus dated ____________, 1998, is acknowledged.
(Continued and to be signed on reverse side)
FOLD AND DETACH HERE
<PAGE>
Please mark
your vote as [X]
indicated in
this example
To vote in accordance with the Board of Directors' recommendations just sign
below; no boxes need to be checked.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
Item 1--Proposal to issue shares of Common Stock pursuant to the Agreement and
Plan of Merger among the Company, a wholly owned subsidiary of the Company and
Garnet Resources Corporation.
FOR AGAINST ABSTAIN
[_] [_] [_]
Item 2--Election of Directors
FOR ALL NOMINEES WITHHOLD AUTHORITY Nominees:
LISTED TO THE RIGHT TO VOTE FOR ALL NOMINEES Ronald Suttill and
(EXCEPT AS MARKED LISTED TO THE RIGHT Eugene C. Fiedorek.
TO THE CONTRARY)
[_] [_]
(Instruction: To withhold authority to vote for an individual nominee write
that nominee's name on the space provided below.)
- -----------------------
Item 3--Proposal for ratification of selection of independent public accountants
for the Company for 1998.
FOR AGAINST ABSTAIN
[_] [_] [_]
Item 4--in Their discretion, upon such other business incident to the conduct of
the meeting as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED.
IN THE ABSENCE OF SUCH DIRECTION THE PROXY WILL BE VOTED FOR THE NOMINEES LISTED
IN ITEM 2 AND FOR THE PROPOSALS SET FORTH IN ITEMS 1 AND 3.
I PLAN TO ATTEND THE MEETING [_]
Signature____________________ Signature_______________________ Date_____________
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH.
FOLD AND DETACH HERE
<PAGE>
EXHIBIT 99.3
PROXY
GARNET RESOURCES CORPORATION
PROXY FOR 1998 SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Douglas Fry and Edgar L. Dyes, and either of
them, proxies or proxy with full power of substitution and revocation as to each
of them, to represent the undersigned and to act and vote, with all powers which
the undersigned would possess if personally present, at the Special Meeting of
Stockholders of Garnet Resources Corporation to be held at 201 South Main, Suite
1800, Salt Lake City, Utah at 10:00 a.m. ____________, 1998, on the following
matter and in their discretion on any other matters incident to the conduct of
the meeting which may come before the meeting or any adjournments thereof.
(Continued and to be signed on the reverse side)
FOLD AND DETACH HERE
<PAGE>
Please mark
your vote as [X]
indicated in
this example
To vote in accordance with the Board of Directors' recommendations just sign
below; no boxes need to be checked.
The Board of Directors Recommends a Vote FOR item 1.
Item 1--Proposal to adopt the Agreement and Plan of Merger, dated as of June 24,
1998, among the Company, Aviva Petroleum Inc. and a wholly owned subsidiary of
Aviva Petroleum Inc.
FOR AGAINST ABSTAIN
[_] [_] [_]
Item 2--in their discretion, upon such other business incident to the conduct of
the meeting as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED.
IN THE ABSENCE OF SUCH DIRECTION THE PROXY WILL BE VOTED FOR THE PROPOSAL SET
FORTH IN ITEM 1.
Signature____________________ Signature_______________________ Date_____________
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH.
FOLD AND DETACH HERE
