-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQ7C+tF/QECFkum7GlrbOEO5Ea+ZzkR35tR3u/LDHRwpt1rEkJHGT03m6WpLSP6V 7g8shdyH5Bo4m2nSKcmGXA== 0000930661-98-001473.txt : 19980701 0000930661-98-001473.hdr.sgml : 19980701 ACCESSION NUMBER: 0000930661-98-001473 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980630 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIVA PETROLEUM INC /TX/ CENTRAL INDEX KEY: 0000910659 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 751432205 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-58061 FILM NUMBER: 98657444 BUSINESS ADDRESS: STREET 1: 8235 DOUGLAS AVE STREET 2: STE 400 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2146913464 MAIL ADDRESS: STREET 1: 8235 DOUGLAS AVE STREET 2: STE 400 CITY: DALLAS STATE: TX ZIP: 75225 S-4 1 FORM S-4 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)
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
___________________ 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
====================================================================================================== 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 - ------------------------------------------------------------------------------------------------------ Common Stock, without par value 1,149,216 $0.31 $356,257 $105.10 (3) ======================================================================================================
(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. ================================================================================ 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 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 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 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 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +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. 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- 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 -3- 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. -4- 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. -5- TABLE OF CONTENTS
Page 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
-6- 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
-7- 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
-8- 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
-9- 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). -10- 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. -11- 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 -12- 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 -13- 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. -14- 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 -15- 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- 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- 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.
Aviva Garnet -------------- ------------ High Low High Low ------ ------ ----- ----- 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
__________________________ * 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.
Pounds Dollars ------------------ ------------- High Low High Low ---- ---- ----- ------ 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
-18-
Pounds Dollars ------------------ ------------ High Low High Low ---- ---- ----- ----- 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
_______________ 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- 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.
FOR THE YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ----------------------------------------------------- --------------------- 1997 1996 1995 1994 1993 1998 1997 --------- -------- -------- -------- -------- --------- --------- (in thousands, except per share data) 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
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- 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- 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.
FOR THE YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1998 1997 --------- -------- -------- -------- -------- --------- --------- (in thousands, except per share data) 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
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- 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.
Year Ended Three Months Ended December 31, 1997 March 31, 1998 ------------------ ------------------- (In thousands, except per share data) 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
-23- 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.
Three Months Year Ended Ended March 31, December 31, 1997 1998 ----------------- --------------- 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
-24- 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- 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- 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 -27- 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 -28- 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. -29- 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 -30- 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 -31- 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 -32- 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 -33- 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 -34- $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." -35- 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 -36- $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. -37- 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 -38- 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 -39- 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 -40- 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 -41- 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. -42- 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- 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. -44- 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- 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)
Aviva Garnet Historical Historical Pro Forma Pro Forma Amounts Amounts Adjustments Adjusted Amounts ---------- ---------- -------------- ------------------- 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) ========= ========
See accompanying notes to pro forma condensed financial statements -46- AVIVA PETROLEUM INC. Unaudited Pro Forma Condensed Statement of Operations Three Months Ended March 31, 1998 (in thousands, except per share amounts) (unaudited)
Aviva Garnet Historical Historical Pro Forma Pro Forma Amounts Amounts Adjustments Adjusted Amounts ---------- ---------- ----------- ---------------- 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) ======== ========
See accompanying notes to pro forma condensed financial statements -47- AVIVA PETROLEUM INC. Unaudited Pro Forma Condensed Balance Sheet March 31, 1998 (in thousands, except number of shares) (unaudited)
Aviva Garnet Pro Forma Historical Historical Pro Forma Adjusted Amounts Amounts Adjustments Amounts ---------------- ---------------- ---------------- ---------------- 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 ========= ======== ======== ========
See accompanying notes to pro forma condensed financial statements -48- 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. -49- 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.
COMMON SHARES BENEFICIALLY PERCENT NAME OF BENEFICIAL OWNER (1) OWNED OF CLASS (2) - ------------------------------------------------------------- --------- ------------ 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)
_______________ * 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 -50- 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. -51- 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. -52- 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 -53- 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 -54- 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 -55- 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. -56- 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. -57- 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. -58- 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 -59- 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. -60-
NAME AGE POSITIONS DIRECTOR ---- --- --------- -------- 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
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.
NAME AND AGE POSITIONS - ------------ --------- 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.
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. -61- 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 --------------------------
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($) -------- ---- --------- -------- --------- --- ------- --- ------- 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
/(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"). -62- DIRECTORS' FEES Messrs. Fiedorek, Lee, Roosevelt and Tracey each receive $20,000 per year for their services as directors and are reimbursed for travel and lodging expenses. Mr. Suttill receives no compensation as a director but is reimbursed for travel and lodging expenses incurred to attend meetings. OPTION GRANTS DURING 1997 There were no options granted to the Named Executive Officer during 1997. No stock appreciation rights have been issued by Aviva. OPTION EXERCISES DURING 1997 AND YEAR END OPTION VALUES The following table provides information related to options exercised by the Named Executive Officers during 1997 and the number and value of options held at year-end. No stock appreciation rights have been issued by Aviva.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SHARES ACQUIRED VALUE OPTIONS AT FY-END (#) AT FY-END($)(1) NAME ON EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- --------------- ---------- ----------- ------------- ----------- ------------- Ronald Suttill None None 270,000 -- -- --
/(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 -63- 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
FISCAL YEAR ENDING - --------------------------------------------------------------------------------- COMPANY 1992 1993 1994 1995 1996 1997 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
-64- 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.
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF BENEFICIAL OWNER OR GROUP OWNERSHIP /(1)/ PERCENT OF CLASS /(2)/ - ------------------------------ ------------------------------- ---------------------- 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
(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. -65- 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:
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF BENEFICIAL OWNER OWNERSHIP /(1)/ PERCENT OF CLASS /(2)/ - ------------------------------------- ------------------------------- ---------------------- 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)
/(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./ -66- 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. -67- 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 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 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 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. EX-2.1 2 AGREEMENT AND PLAN OF MERGER 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 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- 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- 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- 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- ANNEXES ------- Annex A Schedule of Defined Terms Annex B Affiliate's Agreement (Garnet Resources Corporation Affiliates) AGREEMENT AND PLAN OF MERGER -vi- 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 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- 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- 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- 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- 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- 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 -7- 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- 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- 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- 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 -11- 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 -12- (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 -13- (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 -14- (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- 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- 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 -17- 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 -18- 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 -19- (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 -20- 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 -21- (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 -22- 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 -23- (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 -24- 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 -25- (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 -26- 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 -27- 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 -28- 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 -29- 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. AGREEMENT AND PLAN OF MERGER -30- 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 -31- 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 -32- 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 -33- 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 -34- (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 -35- (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 -36- 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 -37- 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 -38- 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 -39- 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 -40- 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 -41- 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 -42- 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 -43- 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 -44- 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 -45- 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 -46- 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- 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- (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- (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- 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 -51- (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- 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- 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- 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- 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 "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 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 "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 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 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 "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 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 "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 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 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 "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 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 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 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 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 ACCEPTED this ___ day of __________, 1998 AVIVA PETROLEUM INC. By: ------------------------------------ Name: Title: AGREEMENT AND PLAN OF MERGER ANNEX A-17 EX-2.2 3 DEBENTURE PURCHASE AGREEMENT 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" 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 DEBENTURE PURCHASE AGREEMENT 2 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 DEBENTURE PURCHASE AGREEMENT 3 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 DEBENTURE PURCHASE AGREEMENT 4 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 5 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 6 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 7 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 8 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 9 (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: DEBENTURE PURCHASE AGREEMENT 10 (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 11 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 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 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 APPENDICES, EXHIBITS AND SCHEDULES Annex A Definitions Appendix I Ownership of Debentures; Acquiror Common Stock Issuable DEBENTURE PURCHASE AGREEMENT 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 "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 "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 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 - -------------------------------------------------------------------------------- |---------------------------------------------------------------|----------------|------------------|----------------| |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 | |---------------------------------------------------------------|----------------|------------------|----------------|
DEBENTURE PURCHASE AGREEMENT EX-23.2 4 CONSENT OF KPMG PEAT MARWICK LLP 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 EX-23.3 5 CONSENT OF ARTHUR ANDERSEN LLP 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 EX-99.2 6 FORM OF AVIVA PROXY 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 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 EX-99.3 7 FORM OF GARNET PROXY 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 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 -----END PRIVACY-ENHANCED MESSAGE-----