NEWS RELEASE on GARN
News article received Monday, May 18, 1998 4:12:39 pm EST
GARNET REPORTS ON EARNINGS, DEBT STATUS AND UPDATE OF PROPOSED MERGER
NACOGDOCHES, Texas, May 18 /PRNewswire/ -- Garnet Resources Corporation (OTC Bulletin Board: GARN) today reported results for the three months ended March 31, 1998, on the status of its debt and on its proposed merger with Aviva Petroleum Inc. (Amex: AVV; LSE: AVP).
First Quarter Results Revenues for the first quarter of 1998 were
$1, 181,732 while cash provided by operations amounted to $1,374,735. For the comparable period in 1997, the Company reported revenues of $3,113, 760 and cash flow of $1,696,322.
Garnet's oil sales decreased to 1,016 barrels per day in the 1998 first quarter, from an average of 1,662 barrels per day in the first quarter of 1997. The effect of the decrease in production was compounded by lower oil prices, which decreased to an average of $12.29 per barrel in the current period from $20.35 in 1997. Corporate general and administrative expenses decreased 12% compared to the same period in 1997 due to personnel reductions and austerity measures instituted in the last quarter of 1997. Net general and administrative expenses increased due to reduced overhead recoveries from joint venture partners. A $3,482,000 write down of oil and gas properties under full cost accounting rules, partially attributed to the Company's increased net loss for the most recent period of $4,375,634 ($.38 per share) from $3,892,271 ($.34 per share) for the first quarter of 1997.
Liquidity and Status of Company Debt As of March 31, 1998, Garnet was not in compliance with the minimum net worth required under the covenants of its 9 1/2% convertible subordinated debentures (the "Debentures") and did not pay the quarterly interest payment due on March 31, 1998. Additionally, working capital and cash flow from operations will not be sufficient to pay the interest payment due on June 30, 1998 or to repay the principal amount of the Debentures at maturity. Therefore the Company must consummate a restructuring transaction prior to the December 21, 1998 maturity date of the Debentures in order to avoid additional non-compliance with its obligations relative to the Debentures. If no
restructuring transaction is consummated the Company will be required
to renegotiate the terms of the debentures or seek other alternatives. The Company is no longer in compliance with certain covenants required by the finance agreement governing its loan (the "OPIC Loan") with Chase Bank of Texas ("Chase"), which is guaranteed by U.S. Overseas Private Investment Corporation ("OPIC"). In the absence of a waiver of such covenants, OPIC and Chase have the right to call a default under the OPIC Loan, accelerate payment of all outstanding amounts due thereunder and take possession of the collateral securing the OPIC Loan. As a result of the conditions discussed above, management believes there is substantial doubt about the Company's ability to continue as a going concern. In the absence of a business transaction or a restructuring of the Company's indebtedness, the Company may seek protection from its creditors under the Federal Bankruptcy Code.
Update on Proposed Merger with Aviva
On April 16, 1998, the Company signed a letter of intent with
Aviva Petroleum Inc. ("Aviva"). Under the terms of the letter of
intent, the Company will become a wholly owned subsidiary of Aviva.
The proposed arrangements include Aviva refinancing Garnet's
outstanding debt to Chase, issuing approximately 1.1 million, 12.9
million and 0.1 million new Aviva common shares to Garnet shareholders, holders of Garnet's Debentures and the minority limited partners of Argosy Energy International, a subsidiary of the Company through which it conducts its Colombian operations, respectively. Upon completion of this transaction, the Debentures will be canceled. The two companies are finalizing documentation of the merger, including completion of the negotiations, execution and delivery of the definitive Agreement and Plan of Merger, Debenture Purchase Agreement, Limited Partnership Purchase Agreement and the proposed new credit facility with ING Capital, Aviva's lender. Additionally, approvals are needed from Garnet and Aviva shareholders, Chase and OPIC to consummate the merger and a Joint Proxy Statement will have to be filed with the Securities and Exchange Commission. While it is expected that the merger will be completed substantially as planned, there are no assurances that this will be the case. Aviva's Depositary Receipts are traded on the American Stock Exchange
under the symbol "AVV" and its common shares are quoted on the London
Stock Exchange under the symbol "AVP". One Aviva Depositary Receipt
equals five common shares. |
