-----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, OwCSFkDxfdmn4weTdguWe8vBNao+Z/tTuPwDfOxAW5mVnObxKATXpappo3mWFaWd Y/TTbeHTsgbMADUB1W2zHQ== /in/edgar/work/20000814/0000930661-00-002030/0000930661-00-002030.txt : 20000921 0000930661-00-002030.hdr.sgml : 20000921 ACCESSION NUMBER: 0000930661-00-002030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIVA PETROLEUM INC /TX/ CENTRAL INDEX KEY: 0000910659 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 751432205 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13440 FILM NUMBER: 697299 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 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 2000 ---------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission File Number 0-22258 AVIVA PETROLEUM INC. (Exact name of registrant as specified in its charter) Texas 75-1432205 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 8235 Douglas Avenue, 75225 Suite 400, Dallas, Texas (Zip Code) (Address of principal executive offices) (214) 691-3464 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Number of shares of Common Stock, no par value, outstanding at June 30, 2000, was 46,900,132 of which 25,486,690 shares of Common Stock were represented by Depositary Shares. Each Depositary Share represents five shares of Common Stock held by a Depositary. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. - ----------------------------- AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheet (in thousands, except number of shares) (unaudited)
June 30, December 31, 2000 1999 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 525 $ 846 Restricted cash -- 4 Accounts receivable 872 1,650 Inventories 159 724 Prepaid expenses and other 77 236 ------------ ------------ Total current assets 1,633 3,460 ------------ ------------ Property and equipment, at cost (note 3): Oil and gas properties and equipment (full cost method) 25,843 68,462 Other 582 584 ------------ ------------ 26,425 69,046 Less accumulated depreciation, depletion and amortization (25,848) (65,081) ------------ ------------ 577 3,965 Other assets 1,575 1,561 ------------ ------------ $ 3,785 $ 8,986 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of long term debt (note 4) $ -- $ 14,495 Accounts payable 1,505 3,081 Accrued liabilities 150 1,024 ------------ ------------ Total current liabilities 1,655 18,600 ------------ ------------ Long term debt, excluding current portion (note 4) 2,750 -- Gas balancing obligations and other 1,563 1,869 Stockholders' deficit: Common stock, no par value, authorized 348,500,000 shares; issued 46,900,132 shares 2,345 2,345 Additional paid-in capital 34,855 34,855 Accumulated deficit/*/ (39,383) (48,683) ------------ ------------ Total stockholders' deficit (2,183) (11,483) Commitments and contingencies (notes 6 and 8) ------------ ------------ $ 3,785 $ 8,986 ============ ============ /*/ Accumulated deficit of $70,057 was eliminated at December 31, 1992 in connection with a quasi-reorganization.
See accompanying notes to condensed consolidated financial statements. 2 AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Statement of Operations (in thousands, except per share data) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------- ------- ------- ------- Revenue: Oil and gas sales $ 1,772 $ 1,575 $ 4,313 $ 2,759 Services fee (note 2) 55 -- 55 -- ------- ------- ------- ------- Total revenue 1,827 1,575 4,368 2,759 ------- ------- ------- ------- Expense: Production 744 879 1,554 1,779 Depreciation, depletion and amortization 162 284 397 620 General and administrative 283 320 584 679 Provision for (recovery of) losses on accounts receivable (58) 13 (110) (92) Severance -- 62 -- 62 ------- ------- ------- ------- Total expense 1,131 1,558 2,425 3,048 ------- ------- ------- ------- Other income (expense): Gain on transfer of partnership interests (note 2) 3,452 -- 3,452 -- Interest and other income (expense), net (note 5) 102 248 102 177 Interest expense (289) (283) (684) (574) ------- ------- ------- ------- Total other income (expense) 3,265 (35) 2,870 (397) ------- ------- ------- ------- Earnings (loss) before income taxes and extraordinary item 3,961 (18) 4,813 (686) Income taxes 74 64 193 127 ------- ------- ------- ------- Earnings (loss) before extraordinary item 3,887 (82) 4,620 (813) Extraordinary item - gain on extinguishment of debt (note 2) 4,680 - 4,680 - ------- ------- ------- ------- Net earnings (loss) $ 8,567 $ (82) $ 9,300 $ (813) ======= ======= ======= ======= Weighted average common shares outstanding - basic and diluted 46,900 46,748 46,900 46,724 ======= ======= ======= ======= Basic and diluted earnings (loss) per common share: Before extraordinary item $ .08 $ (.00) $ .10 $ (.02) Extraordinary item .10 - .10 - ------- ------- ------- ------- Net earnings (loss) $ .18 $ (.00) $ .20 $ (.02) ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements. 3 AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows (in thousands) (unaudited)
Six Months Ended June 30, 2000 1999 -------- -------- Net earnings (loss) $ 9,300 $ (813) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 397 620 Gain on transfer of partnership interests (3,452) -- Gain on debt extinguishment (4,680) -- Changes in working capital and other, net of effects of transfer of partnership interest (252) (1,000) -------- -------- Net cash provided by (used in) operating activities 1,313 (1,193) -------- -------- Cash flows from investing activities: Cash balances surrendered in transfer of partnership interests (1,386) -- Property and equipment expenditures (269) (111) Other -- 32 -------- -------- Net cash used in investing activities (1,655) (79) -------- -------- Cash flows from financing activities - Principal payments on long term debt -- (300) -------- -------- Effect of exchange rate changes on cash and cash equivalents 21 113 -------- -------- Net decrease in cash and cash equivalents (321) (1,459) Cash and cash equivalents at beginning of the period 846 1,712 -------- -------- Cash and cash equivalents at end of the period $ 525 $ 253 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders' Deficit (in thousands, except number of shares) (unaudited)
Common Stock ------------------ Additional Total Number Paid-in Accumulated Stockholders' of Shares Amount Capital Deficit Deficit ---------- ------ ---------- ------------ -------------- Balances at December 31, 1999 46,900,132 $2,345 $34,855 $(48,683) $(11,483) Net earnings - - - 9,300 9,300 ---------- ------ ---------- -------- -------- Balances at June 30, 2000 46,900,132 $2,345 $34,855 $(39,383) $ (2,183) ========== ====== ========== ======== ========
See accompanying notes to condensed consolidated financial statements. 5 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) 1. General The condensed consolidated financial statements of Aviva Petroleum Inc. and subsidiaries (the "Company" or "Aviva") included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company's prior audited yearly financial statements and the notes thereto, included in the Company's latest annual report on Form 10-K. In the opinion of the Company, all adjustments, consisting of normal recurring accruals, necessary to present fairly the information in the accompanying financial statements have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The Company's condensed consolidated financial statements have been presented on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As discussed in note 8 below, a significant subsidiary of the Company has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should this subsidiary, and the Company, be unable to continue as a going concern. 2. Debt Restructuring and Transfer of Partnership Interests On June 8, 2000, the Company entered into agreements with the Company's senior secured lender, Crosby Capital, LLC ("Crosby"), in order to restructure the Company's senior debt which, including unpaid interest, aggregated $16,103,064 as of May 31, 2000. Crosby acquired the debt from ING Capital and OPIC on May 1, 2000 (see note 4). Pursuant to the agreements, Crosby canceled $13,353,064 of such debt and transferred to the Company warrants for 1,500,000 shares of the Company's common stock in exchange for the general partner rights and an initial 77.5% partnership interest in Argosy Energy International ("Argosy"), a Utah limited partnership, which holds the Company's Colombian properties. Following the transaction, Aviva Overseas Inc. ("Aviva Overseas"), a wholly owned subsidiary of the Company, owns a 22.1196% limited partnership interest in Argosy. An additional 7.5% limited partnership interest will be transferred from Crosby to Aviva Overseas when Crosby has received in distributions from Argosy an amount equal to $3,500,000 plus interest at the prime rate plus 1% on the outstanding balance thereof. In order to assist Crosby in maximizing the value of its interest in Argosy, Crosby entered into a Service Agreement with Aviva Overseas pursuant to which Aviva Overseas will provide certain services in administering the Colombian assets in exchange for a monthly fee. The fee is $71,000 per month for the period June 1, 2000 through March 31, 2001, $46,000 per month for the period April 1, 2001 through March 31, 2002, and $21,000 per month thereafter as long as the contract 6 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) is in effect. The Service Agreement provides for a term of 22 months and will continue thereafter from month to month unless terminated by 30-day written notice by either party. Crosby retains its interest as senior secured lender in respect of the Company's remaining debt of $2,750,000, which continues to be guaranteed by the Company and its subsidiaries, including Aviva America, Inc., a wholly owned subsidiary, which owns working interests in oil and gas properties at Main Pass Block 41 and Breton Sound Block 31 fields, offshore Louisiana. Such remaining debt accrues interest at 10% per annum, compounded annually, and is due and payable on December 31, 2001. The remaining debt, however, may be converted by the Company, under certain circumstances, into a 15% net profits interest payable to Crosby in any new production at Breton Sound Block 31 field. The Company recognized a gain of $3,452,000 on the transfer of the partnership interests to Crosby, representing the excess of the fair value over the book value of the interests transferred. The Company recognized an extraordinary gain of $4,680,000 on the extinguishment of the debt. In connection with the above-referenced transaction, 1,000,000 shares of the Company's common stock which were held by Crosby prior to the transaction, were transferred to members of management and the Board of Directors of the Company, effective June 8, 2000. As of such date, the aggregate market value of the common stock transferred to members of management and the Board of Directors was approximately $25,000 based on the last sale price on the OTC Bulletin Board of a depositary share representing five shares of the Company's common stock. Additionally, 200,000 shares of the Company's common stock which were held by Crosby prior to the transaction were transferred to a consultant of the Company effective as of the same date. 3. Property and Equipment Internal general and administrative costs directly associated with oil and gas property acquisition, exploration and development activities have been capitalized in accordance with the accounting policies of the Company. Such costs totaled $29,000 for the six months ended June 30, 2000 and $18,000 for the six months ended June 30, 1999. Unevaluated oil and gas properties totaling $268,000 and $553,000 at June 30, 2000 and December 31, 1999, respectively, have been excluded from costs subject to depletion. The Company capitalized interest costs of $30,000 and $24,000 for the six-month periods ended June 30, 2000 and 1999, respectively, on these properties. 4. Long Term Debt On October 28, 1998, concurrently with the consummation of the merger with Garnet Resources Corporation ("Garnet Merger"), Neo Energy, Inc., an indirect subsidiary of the Company, and the Company entered into a Restated Credit Agreement with ING (U.S.) Capital Corporation ("ING Capital"). ING Capital, Chase Bank of Texas, N.A. ("Chase") and the U.S. Overseas Private Investment Corporation ("OPIC") also entered into a Joint Finance and Intercreditor Agreement (the "Intercreditor Agreement") with the Company. ING Capital agreed to loan Neo Energy, Inc. an additional $800,000, bringing the total outstanding balance due ING Capital to $9,000,000. The outstanding balance due to Chase was paid down to $6,000,000 from the $6,350,000 balance owed by Garnet prior to the merger. 7 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) The Chase loan was unconditionally guaranteed by OPIC. On September 1, 1999, the Chase loan was assigned and transferred to OPIC pursuant to this guarantee. The ING Capital loan and the OPIC loan (the "Bank Credit Facilities") were guaranteed by the Company and its material domestic subsidiaries. Both loans were also secured by the Company's consolidated interest in the Santana contract and related assets in Colombia, a first mortgage on the United States oil and gas properties of the Company and its subsidiaries, a lien on accounts receivable of the Company and its subsidiaries, and a pledge of the capital stock of the Company's subsidiaries. Borrowings under the ING Capital loan were subject to interest at the prime rate (as defined in the Restated Credit Agreement) plus 3% per annum. Borrowings under the OPIC loan were subject to interest at 10.27% per annum. Borrowings under the Bank Credit Facilities were payable as follows: $5,700,000 in April 1999, and thereafter $281,250 per month until final maturity on December 31, 2001. The terms of the Bank Credit Facilities, among other things, prohibited the Company from merging with another company or paying dividends, limited additional indebtedness, general and administrative expense, sales of assets and investments and required the maintenance of certain minimum financial ratios. The Company was also required to maintain an escrow account pursuant to the Bank Credit Facilities. As of March 31, 1999 and thereafter, the escrow account was to contain the total of the following for the next succeeding three-month period: (i) the amount of the minimum monthly principal payments (as defined in the loan documents), plus (ii) the interest payments due on the combined loans, plus (iii) the amount of all fees due under the loan documents and under the Intercreditor Agreement. On May 1, 2000, ING Capital and OPIC sold their entire interests in the Bank Credit Facilities to Crosby Capital LLC. As more fully described in note 2, this debt was restructured on June 8, 2000. The remaining balance of $2,750,000 is due on December 31, 2001, and accrues interest at 10% per annum, compounded annually. The remaining debt, however, may be converted by the Company, under certain circumstances, into a 15% net profits interest payable to Crosby in any new production at Breton Sound Block 31 field. 5. Interest and Other Income (Expense) A summary of interest and other income (expense) follows (in thousands): Six Months Ended June 30, 2000 1999 ----- ----- Interest income $ 54 $ 48 Foreign currency exchange gain (loss) 10 118 Other, net 38 11 ----- ----- $ 102 $ 177 ===== ===== 8 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) 6. Commitments and Contingencies The Company is engaged in ongoing operations on the Santana contract in Colombia. The contract obligations have been met; however, the Company plans to recomplete certain existing wells and engage in various other projects. The Company's share of the estimated future costs of these activities is approximately $100,000 at June 30, 2000. The Company expects to fund these activities using existing cash and cash provided from operations. Risks that could adversely affect funding of such activities include, among others, cost overruns, failure to produce the reserves as projected or a decline in the sales price of oil. Depending on the results of future exploration and development activities, substantial expenditures which have not been included in the Company's cash flow projections may be required. On August 3, 1998, leftist Colombian guerrillas inflicted significant damage on the Company's oil processing and storage facilities at the Mary field, and to a lesser extent, at the Linda facilities. Since that time the Company has been subject to lesser attacks on its pipelines and equipment resulting in only minor interruptions of oil sales. The Colombian army guards the Company's operations; however, there can be no assurance that the Company's operations will not be the target of additional guerrilla attacks in the future. The damages resulting from the above referenced attacks were covered by insurance. There can be no assurance that such coverage will remain available or affordable. Under the terms of the contracts with Ecopetrol, a minimum of 25% of all revenues from oil sold to Ecopetrol is paid in Colombian pesos which may only be utilized in Colombia. To date, the Company has experienced no difficulty in repatriating the remaining 75% of such payments, which are payable in U.S. dollars. Activities of the Company with respect to the exploration, development and production of oil and natural gas are subject to stringent foreign, federal, state and local environmental laws and regulations, including but not limited to the Oil Pollution Act of 1990, the Outer Continental Shelf Lands Act, the Federal Water Pollution Control Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act. Such laws and regulations have increased the cost of planning, designing, drilling, operating and abandoning wells. In most instances, the statutory and regulatory requirements relate to air and water pollution control procedures and the handling and disposal of drilling and production wastes. Although the Company believes that compliance with environmental laws and regulations will not have a material adverse effect on the Company's future operations or earnings, risks of substantial costs and liabilities are inherent in oil and gas operations and there can be no assurance that significant costs and liabilities, including civil or criminal penalties for violations of environmental laws and regulations, will not be incurred. Moreover, it is possible that other developments, such as stricter environmental laws and regulations or claims for damages to property or persons resulting from the Company's operations, could result in substantial costs and liabilities. For additional discussions on the applicability of environmental laws and regulations and other risks that may affect the Company's operations, see the Company's latest annual report on Form 10-K. 9 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) The Company is involved in certain litigation involving its oil and gas activities, but unrelated to environmental contamination issues. Management of the Company believes that these litigation matters will not have any material adverse effect on the Company's financial condition or results of operations. 7. Segment Information The following is a summary of segment information of the Company as of and for the six-month periods ended June 30, 2000 and 1999 (in thousands): United States Colombia Total ------- --------- ------- 2000 ---- Revenue: Oil and gas sales $ 793 $3,520 $4,313 Services fee 55 -- 55 ------ ------ ------ 848 3,520 4,368 ------ ------ ------ Expense: Production 542 1,012 1,554 Depreciation, depletion and amortization 63 334 397 General and administrative 549 35 584 Recovery of losses on accounts receivable (110) -- (110) ------ ------ ------ 1,044 1,381 2,425 ------ ------ ------ Gain on transfer of partnership interests -- 3,452 3,452 Interest and other income (expense), net (13) 115 102 Interest expense (190) (494) (684) ------ ------ ------ Earnings (loss) before income taxes and extraordinary item (399) 5,212 4,813 Income taxes -- 193 193 ------ ------ ------ Earnings (loss) before extraordinary item (399) 5,019 4,620 Extraordinary item - gain on extinguishment of debt -- 4,680 4,680 ------ ------ ------ Net earnings (loss) $ (399) $9,699 $9,300 ====== ====== ====== Total assets $2,188 $1,597 $3,785 ====== ====== ====== 10 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) United States Colombia Total ------- --------- --------- 1999 ---- Oil and gas sales $ 427 $2,332 $2,759 ------ ------ ------ Expense: Production 603 1,176 1,779 Depreciation, depletion and amortization 73 547 620 General and administrative 638 41 679 Recovery of losses on accounts receivable (92) -- (92) Severance -- 62 62 ------ ------ ------ 1,222 1,826 3,048 ------ ------ ------ Interest and other income (expense), net 117 60 177 Interest expense (158) (416) (574) ------ ------ ------ Earnings (loss) before income taxes (836) 150 (686) Income taxes -- 127 127 ------ ------ ------ Net earnings (loss) $ (836) $ 23 $ (813) ====== ====== ====== Total assets $1,497 $7,066 $8,563 ====== ====== ====== 8. Subsequent Event On July 21, 2000, Aviva America, Inc. ("AAI"), a wholly-owned subsidiary of the Company, filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. AAI is a Delaware corporation which holds the Company's interests in oil and gas properties located offshore Louisiana. The filing, in the Northern District of Texas, was initiated in order to achieve a comprehensive restructuring of AAI's debts. The Company cannot predict with any degree of certainty the amount, if any, of recorded liabilities that may be reduced or dismissed in connection with this proceeding. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations. - -------------- Results of Operations - --------------------- Three Months Ended June 30, 2000 compared to Three Months Ended June 30, 1999 - ----------------------------------------------------------------------------- United States Colombia Oil Gas Oil Total ----- ----- ---------- ------- (Thousands) Revenue - 1999 $167 $ 23 $1,385 $1,575 Volume variance 38 (11) (597) (570) Price variance 166 15 588 769 Other -- (2) -- (2) ---- ---- ------ ------ Revenue - 2000 $371 $ 25 $1,376 $1,772 ==== ==== ====== ====== Colombian oil volumes were 54,000 barrels in the second quarter of 2000, a decrease of 41,000 barrels as compared to the second quarter of 1999. Such decrease is due to an 18,000 barrel decrease resulting from the transfer of partnership interests to Crosby and a 23,000 barrel decrease resulting from normal production declines. U.S. oil volumes were 13,000 barrels in 2000, up approximately 2,000 barrels from 1999. U.S. gas volumes before gas balancing adjustments were 6,000 thousand cubic feet (MCF) in 2000, slightly lower than 1999. Colombian oil prices averaged $25.42 per barrel during the second quarter of 2000. The average price for the same period of 1999 was $14.56 per barrel. The Company's average U.S. oil price increased to $27.49 per barrel in 2000, up from $15.19 per barrel in 1999. In 2000 prices have been higher than in the second quarter of 1999 due to a dramatic increase in world oil prices. U.S. gas prices averaged $3.56 per MCF in 2000 compared to $2.41 per MCF in 1999. A services fee of $55,000 for administering the Colombian assets was received for the first month of the Service Agreement (see note 2 of the condensed consolidated financial statements included elsewhere herein). This amount is net of Aviva Overseas' 22.1196% share of the fee. Operating costs decreased approximately 15%, or $135,000, primarily due to lower Colombian pipeline transportation costs resulting from lower volumes of oil produced. Depreciation, depletion and amortization ("DD&A") decreased by 43%, or $122,000, primarily due to a decrease in the volume of Colombian oil produced. General and administrative ("G&A") expense decreased $37,000 mainly as a result of lower public ownership costs relating to the London Stock Exchange and lower fees paid to consultants. In connection with the restructuring of the Company's long term debt, the Company realized a $3,452,000 gain on the transfer of partnership interests in Argosy Energy International and a $4,680,000 extraordinary gain on the extinguishment of a portion of the debt. For a more detailed 12 explanation of the transaction, see note 2 of the condensed consolidated financial statements included elsewhere herein. The Company incurred severance expense of $62,000 during the second quarter of 1999 relating to cost cutting measures in Colombia following the merger with Garnet Resources Corporation. No such expenses were incurred during 2000. Interest and other income decreased $146,000 primarily due to a foreign currency exchange gain of $107,000 in 1999. During the second quarter of 2000, the foreign currency exchange gain was only $8,000. Six Months Ended June 30, 2000 compared to Six Months Ended June 30, 1999 - ------------------------------------------------------------------------- United States Colombia Oil Gas Oil Total ----- ----- ---------- ------- (Thousands) Revenue - 1999 $ 335 $ 92 $2,332 $ 2,759 Volume variance 2 (66) (799) (863) Price variance 412 21 1,987 2,420 Other -- (3) -- (3) ----- ----- ------ ------- Revenue - 2000 $ 749 $ 44 $3,520 $ 4,313 ===== ===== ====== ======= Colombian oil volumes were 130,000 barrels in the first half of 2000, a decrease of 68,000 barrels as compared to the first half of 1999. Such decrease is due to an 18,000 barrel decrease resulting from the transfer of partnership interests to Crosby and a 50,000 barrel decrease resulting from production declines. U.S. oil volumes were 27,000 barrels in 2000, approximately the same as 1999. U.S. gas volumes before gas balancing adjustments were 13,000 MCF in 2000, down 29,000 MCF from 1999. Such decrease is due to a significant decline in production from the Main Pass 41 field which may be approaching the end of its economic life. Colombian oil prices averaged $27.00 per barrel during the first half of 2000. The average price for the same period of 1999 was $11.76 per barrel. The Company's average U.S. oil price increased to $27.56 per barrel in 2000, up from $12.40 per barrel in 1999. U.S. gas prices averaged $3.07 per MCF in 2000 compared to $1.86 per MCF in 1999. A services fee of $55,000 for administering the Colombian assets was received for the first month of the Service Agreement (see note 2 of the condensed consolidated financial statements included elsewhere herein). This amount is net of Aviva Overseas' 22.1196% share of the fee. Operating costs decreased approximately 13%, or $225,000, primarily due to lower Colombian pipeline transportation costs resulting from lower volumes of oil produced. DD&A decreased by 36%, or $223,000, primarily due to a decrease in the volume of Colombian oil produced. 13 G&A expense decreased $95,000 mainly as a result of lower public ownership costs relating to the London Stock Exchange, lower fees paid to consultants and a decrease in legal and accounting expenses. In connection with the restructuring of the Company's long term debt, the Company realized a $3,452,000 gain on the transfer of partnership interests in Argosy Energy International and a $4,680,000 extraordinary gain on the extinguishment of a portion of the debt. For a more detailed explanation of the transaction, see note 2 of the condensed consolidated financial statements included elsewhere herein. The Company incurred severance expense of $62,000 during the first half of 1999 related to cost cutting measures in Colombia following the merger with Garnet Resources Corporation. No such expenses were incurred during 2000. Interest and other income decreased $75,000 primarily due to a foreign currency exchange gain of $118,000 in 1999. During the first half of 2000, the foreign currency exchange gain was only $10,000. Interest expense increased $110,000 in the first half of 2000, primarily as a result of higher interest rates on long term debt. Income taxes were $66,000 higher in 2000 principally as a result of higher Colombian earnings. New Accounting Pronouncements - ----------------------------- The Company is assessing the reporting and disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments and hedging activities and will require the Company to recognize all derivatives on its balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against the change in fair value of the hedged item through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company expects to adopt SFAS No. 133, as amended, in the first quarter of fiscal 2001 and does not anticipate that the adoption will have a material effect on the Company's results of operations or financial position. Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents totaled $525,000 and $846,000 at June 30, 2000, and December 31, 1999, respectively. The decrease in cash and cash equivalents resulted primarily from the surrender of $1,386,000 of cash balances in the transfer of partnership interests in Argosy to Crosby, as described in note 2 of the condensed consolidated financial statements and property additions of $269,000. Such decreases were partially offset by net cash provided by operating activities. Net cash provided by operating activities was $1,313,000 for the six months ended June 30, 2000, compared to $(1,193,000) net cash used in operating activities for the same period in 1999. This improvement resulted primarily from significantly higher oil prices during the 2000 period. Although the Company surrendered significant partnership interests in Argosy in connection with the aforementioned transaction with Crosby, the Company was able to restructure its long term debt. As a result of the transaction, the Company's long term debt and accrued interest, which aggregated $16,103,064 at May 31, 2000, was reduced to $2,750,000. This remaining balance, due 14 December 31, 2001, is convertible by the Company, under certain circumstances, into a 15% net profits interest payable to Crosby in any new production at Breton Sound Block 31 field. The Company's financial condition has improved as a result of the transaction with Crosby, however, the Company's liabilities continue to exceed the carrying amount of its consolidated assets. This is also the case for Aviva America, Inc. ("AAI"), a wholly owned subsidiary which holds the Company's interests in oil and gas properties located offshore Louisiana. Accordingly, on July 21, 2000, AAI filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filing, in the Northern District of Texas, was initiated in order to achieve a comprehensive restructuring of AAI's debts. Management believes that a successful reorganization of AAI's debts will improve the liquidity of AAI and the Company through the reduction or dismissal of certain of AAI's debts. Management, however, cannot predict with any degree of certainty the amount, if any, of recorded liabilities that may be reduced or dismissed in connection with this proceeding or the overall impact that it may have on the Company. With the exception of historical information, the matters discussed in this quarterly report contain forward-looking statements that involve risks and uncertainties. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein 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, as well as other factors described in the Company's annual report on Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------- The Company is exposed to market risk from changes in interest rates on debt and changes in commodity prices. The Company produces and sells crude oil and natural gas. These commodities are sold based on market prices established with the buyers. The Company does not use financial instruments to hedge commodity prices. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a) Exhibits - ------------ *2.1 Loan, Settlement and Acquisition Agreement dated effective May 31, 2000, by and among Crosby Capital, LLC, Aviva Petroleum Inc., Aviva America, Inc., Aviva Operating Company, Aviva Overseas, Inc., Neo Energy, Inc., Garnet Resources Corporation, Argosy Energy, Inc., and Argosy Energy International (filed as exhibit 2.1 to the Company's Form 8-K dated June 8, 2000, File No. 0-22258, and incorporated herein by reference). **10.1 Service Agreement between Argosy Energy International and Aviva Overseas, Inc. dated as of June 1, 2000. **10.2 Letter Agreement dated June 8, 2000 between Crosby Capital, LLC and Aviva America, Inc. 15 **10.3 Guaranty dated May 31, 2000 made by Aviva Overseas, Inc. in favor of Crosby Capital, LLC. **10.4 Assignment and Assumption Agreement dated June 1, 2000, between Crosby Capital, LLC and Neo Energy, Inc. **10.5 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Acquisition LLC and Argosy Energy, Inc. **10.6 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Garnet Resources Corp. **10.7 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Aviva Overseas, Inc. **10.8 Assignment and Assumption Agreement dated June 1, 2000 between Argosy Energy, Incorporated and Crosby Acquisition, LLC. **10.9 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Aviva Overseas, Inc. **10.10 Pledge Agreement dated May 31, 2000 executed by Aviva Overseas, Inc. (Debtor) in favor of Crosby Capital, LLC (Secured Party). **10.11 Third Amendment to Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated May 31, 2000. **10.12 Fourth Amendment to Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated June 1, 2000. **10.13 Assignment of Stock Warrant Rights dated May 31, 2000 executed by Crosby Capital, LLC in favor of Aviva Petroleum Inc. **27.1 Financial Data Schedule. - ----------------------------------------- * Previously filed ** Filed herewith b) Reports on Form 8-K - ----------------------- The Company filed the following Current Reports on Form 8-K during and subsequent to the end of the second quarter: Date of 8-K Description of 8-K - ----------- ------------------ June 8, 2000 The registrant filed a report concerning the restructuring of its long term debt and the transfer of partnership interests in Argosy Energy International to the senior secured lender. 16 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AVIVA PETROLEUM INC. Date: August 11, 2000 /s/ RONALD SUTTILL ------------------ Ronald Suttill President and Chief Executive Officer /s/ JAMES L. BUSBY ------------------- James L. Busby Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 17 INDEX TO EXHIBITS Exhibit Number Description of Exhibit - ------ ---------------------- *2.1 Loan, Settlement and Acquisition Agreement dated effective May 31, 2000, by and among Crosby Capital, LLC, Aviva Petroleum Inc., Aviva America, Inc., Aviva Operating Company, Aviva Overseas, Inc., Neo Energy, Inc., Garnet Resources Corporation, Argosy Energy, Inc., and Argosy Energy International (filed as exhibit 2.1 to the Company's Form 8-K dated June 8, 2000, File No. 0-22258, and incorporated herein by reference). **10.1 Service Agreement between Argosy Energy International and Aviva Overseas, Inc. dated as of June 1, 2000. **10.2 Letter Agreement dated June 8, 2000 between Crosby Capital, LLC and Aviva America, Inc. **10.3 Guaranty dated May 31, 2000 made by Aviva Overseas, Inc. in favor of Crosby Capital, LLC. **10.4 Assignment and Assumption Agreement dated June 1, 2000, between Crosby Capital, LLC and Neo Energy, Inc. **10.5 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Acquisition LLC and Argosy Energy, Inc. **10.6 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Garnet Resources Corp. **10.7 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Aviva Overseas, Inc. **10.8 Assignment and Assumption Agreement dated June 1, 2000 between Argosy Energy, Incorporated and Crosby Acquisition, LLC. **10.9 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Aviva Overseas, Inc. **10.10 Pledge Agreement dated May 31, 2000 executed by Aviva Overseas, Inc. (Debtor) in favor of Crosby Capital, LLC (Secured Party). **10.11 Third Amendment to Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated May 31, 2000. **10.12 Fourth Amendment to Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated June 1, 2000. **10.13 Assignment of Stock Warrant Rights dated May 31, 2000 executed by Crosby Capital, LLC in favor of Aviva Petroleum Inc. **27.1 Financial Data Schedule. - ----------------------------------------- * Previously filed ** Filed herewith 18 EX-10.1 2 0002.txt SERVICE AGREEMENT EXHIBIT 10.1 SERVICE AGREEMENT by and between ARGOSY ENERGY INTERNATIONAL and AVIVA OVERSEAS, INC. Dated as of June 1, 2000 Table of Contents ARTICLE I TERM OF AGREEMENT......................................................2 Section 1.1....................................................................2 ARTICLE II RENDITION OF SERVICES BY CONTRACTOR TO CLIENT..........................3 Section 2.1....................................................................3 Section 2.2....................................................................3 Section 2.3....................................................................4 ARTICLE III LIMITATION OF AUTHORITY OF CONTRACTOR..................................4 Section 3.1....................................................................4 Section 3.2....................................................................5 Section 3.3....................................................................5 ARTICLE IV SPECIAL PROVISIONS.....................................................5 Section 4.1 Non-Compete.....................................................5 Section 4.2 Colombia Opportunities..........................................6 Section 4.3 Service Priorities..............................................7 Section 4.4 Drafting........................................................7 ARTICLE V COMPENSATION OF CONTRACTOR BY CLIENT...................................7 Section 5.1....................................................................7 Section 5.2....................................................................7 ARTICLE VI CONTROL OF INFORMATION.................................................8 ARTICLE VII NOTICES................................................................8 ARTICLE VIII RECISSION OF PRIOR AGREEMENT; MERGER; NO MODIFICATION EXCEPT IN WRITING......................................9 Section 8.1....................................................................9 Section 8.2....................................................................9 ARTICLE IX GOVERNING LAW.........................................................10 Section 9.1...................................................................10 ARTICLE X NO ASSIGNMENT.........................................................10 Section 10.1..................................................................10 ARTICLE XI ARBITRATION...........................................................10 Section 11.1 Agreement to Arbitrate......................................10 Section 11.2 Notice of Arbitration.......................................11 Section 11.3 Selection of Arbitrator.....................................12 Section 11.4 Award Final.................................................12 Section 11.5 Availability of Injunctive Relief...........................12 ARTICLE XII SUBMISSION TO JURISDICTION; AGENT FOR SERVICE.........................12
i SERVICE AGREEMENT SERVICE AGREEMENT ("Agreement"), dated the /1/st day of June, 2000, between Argosy Energy International, a Utah LP, with address at c/o Crosby Capital LLC, 712 Main Street, Suite 1700, Houston, Texas 77002 (hereinafter referred to as "Client"), and Aviva Overseas, Inc., a Delaware corporation, with address at 8235 Douglas Avenue, Suite 400, Dallas, Texas 75225 (hereinafter referred to as "Contractor.") WHEREAS, Client holds certain oil and gas interests situated in the Republic of Colombia, S.A. ("Colombia"); and WHEREAS, Client desires to engage Contractor to render services; and IN CONSIDERATION of the covenants, agreements, terms and conditions herein contained, Client and Contractor hereby agree as follows: ARTICLE I TERM OF AGREEMENT ----------------- Section 1.1 Except as otherwise provided in this Article I, this Agreement shall remain in full force and effect for a term of twenty-two (22) months from the date first above written, and shall continue thereafter from month to month, unless terminated by either party hereto by written notice given to the other at least thirty (30) days prior to the expiration of the term then in effect; provided, however, that Contractor shall continue to be bound by the obligations of Section 4.1 and Article VI hereof subsequent to termination of this Agreement for any reason whatsoever. (a) If either party hereto shall be in default in any material respect of any of the terms, covenants, or conditions herein contained, the other party hereto may give to the defaulting party written notice of its default, and if the defaulting party fails to cure such default within fifteen (15) days after such notice, this Agreement may be terminated upon notice by the other party hereto. 2 (b) In the event of the institution of any action or proceeding under any bankruptcy or insolvency law or any law for the relief of creditors against either party hereto, or in the event of the appointment of a receiver or trustee for the benefit of creditors of either party hereto, the other party may, by notice, immediately terminate this Agreement. (c) Client shall have the option to terminate this Agreement upon notice in the event (i) either Ronald Suttill or Jay Busby is no longer a full time employee of Aviva Petroleum, Inc., a Texas corporation, and an officer of Contractor, or (ii) either of such individuals becomes incapacitated and is unable to perform the responsibilities of a full time employee. ARTICLE II RENDITION OF SERVICES BY CONTRACTOR TO CLIENT --------------------------------------------- Section 2.1 Throughout the term hereof or any continuation thereof, Contractor shall cause to be rendered to Client the following services, to the extent and in the manner, form and frequency required by Client: A. Accounting/Finance B. General Administration C. Special Projects D. Colombia On-site Requirements The foregoing service, denominated "A" through "D", inclusive, shall hereinafter be referred to, collectively, as "Services." Section 2.2 Contractor shall devote sufficient time to the duties and responsibilities to perform its obligations; and will at all times faithfully, industriously, and to the best of its ability, experience and talents, perform all such duties and responsibilities in a good and workmanlike manner. Contractor shall cause to be furnished all personnel (including professional, executive, technical, administrative and clerical), equipment, systems and materials reasonably necessary to provide the Services to Client. 3 Section 2.3 A. Accounting/Finance services shall consist of maintenance of accounting books and records for Client in conformity with generally accepted accounting principles in the jurisdiction in which Client is located, including maintenance of the general ledger, accounts receivable and payable records, monthly preparation of statements, plan comparisons to actual budget reporting, cash accounting and bookkeeping. Furthermore, Accounting/Finance services shall consist of Contractor providing operational advice concerning policy and controls for (i) treasury functions, including but not limited to, money management, bank relations and borrowings, and (ii) insurance and tax matters. B. General Administration services shall consist of providing executive guidance, creating and maintaining project logs, preparation of general business plans, proposing control of administrative business efficiency and organizational structure, regular status reporting and providing recommendations regarding personnel hiring, placement, promotion and compensation, and sundry other general office services. C. Special Project Services shall include assistance in the preparation of year-end reserve engineering report and annual audited financial statements for the Client. D. Colombia On-Site Requirements shall include quarterly meetings in Bogota with Client staff by Ron Suttill and one annual field trip by Ron Suttill to the Client production facilities. To the extent deemed necessary by Client, Jay Busby shall attend one annual meeting a year in Bogota. ARTICLE III LIMITATION OF AUTHORITY OF CONTRACTOR ------------------------------------- Section 3.1 Contractor is not authorized or empowered by this Agreement to act as Client's agent and except as herein above provided, Contractor shall have no power or authority to and shall not negotiate or conclude any contract, agreement, bond or other instrument or legal undertaking whatsoever on behalf of or in the name of Client, nor shall Contractor acknowledge, deliver, cancel, revoke, vary, amend or otherwise effect any contract, agreement, bond or other instrument or legal undertaking whatsoever on behalf or in the name of Client. Contractor agrees that neither it nor any of its employees or representatives will hold himself out or represent to potential venture parties or Ecopetrol or to the trade that they have authority to make contracts or commitments on behalf of or in the name of 4 Client. Contractor, its employees and officers shall have no authority to (i) execute any checks or negotiable instruments on behalf of Client or (ii) initiate wire transfers or other bank transfers on behalf of Client. Section 3.2 In its performance of Services hereunder Contractor will at all times act in the capacity of an independent contractor with respect to Client. Nothing in this Agreement shall constitute or be construed as constituting or tending to establish a joint venture, partnership or agency relationship between Contractor and Client for any purpose whatsoever. Except as required for the full and faithful performance of this Agreement, neither party shall be bound by or be liable for any act or omission of the other party or for any purpose, warranty, representation, obligation or debt incurred by the other. Section 3.3 In certain circumstances, Client may delegate specific authority to Contractor to negotiate on behalf of Client or take other actions on behalf of Client. In such circumstances, a written delegation must be signed by Client prior to such delegation. Therefore in all other cases, contractor shall be deemed an advisor to Client. ARTICLE IV SPECIAL PROVISIONS ------------------ Section 4.1 Non-Compete (a) Non Compete. Contractor, Aviva Petroleum, Inc., any employee ----------- of Aviva Petroleum, Inc., any officer or director of Contractor or Aviva Petroleum, Inc., and any affiliate of Contractor or Aviva Petroleum, Inc. will not, during the term of this Agreement and the two years following termination of this Agreement, directly or indirectly, for any reason, for its own account or on behalf of or together with any other Person: (i) own, finance, control, or participate in the ownership or control of, or become a principal, agent, or other representative of any Person engaged in a business competitive with Client in Colombia; (ii) accept employment with a Person that is engaged in a business competitive with Client in Colombia; 5 (iii) permit its name to be used by or in connection with a business competitive with Client in Colombia; (iv) solicit, divert, recruit or employ any employee of Client, or induce any employee thereof to terminate his or her employment; (v) call on, solicit, perform services for any Person that is or has been a venture partner of Client or any prospective venture partner that had received or, to the knowledge of the Client, was about to receive a business proposal therefrom, for the purpose of soliciting or selling any product or service in competition Client in Colombia; (vi) advise or suggest to any Person that such Person curtail, cancel or withdraw its business from Client; or (vii) call on any Entity which has been called on by Client in connection with a possible acquisition by Client, with the knowledge of that Entity's status as such an acquisition candidate, for the purpose of acquiring that Entity or arranging the acquisition of that Entity by any Person other than Client: or (viii) participate in any business activities in Colombia in the oil & gas exploration, production, transportation and service industries. Section 4.2 Colombia Opportunities Contractor shall advise Client of any and all potentially viable opportunities in Colombia. Such opportunities shall be limited to the oil & gas exploration, production, transportation, and service industries. If Contractor advises Client of a potentially viable opportunity in Colombia and Client elects not to pursue that opportunity, but the general partner of Client, either directly or through an affiliated entity, elects to pursue that opportunity at any time within one (1) year of the date it has been presented by Contractor to Client, then the general partner of Client agrees, by its execution of this Agreement, to offer Contractor the opportunity to participate, on a "heads-up" basis, in said opportunity, based upon its percentage interest in the Client. 6 Section 4.3 Service Priorities Client shall set the monthly priorities for Contractor. To the extent Client requires no services in such month, Contractor shall be so advised and relieved of its obligation to perform such services. However, such action by Client shall not relieve Client of obligation to pay for such monthly services. Section 4.4 Drafting Neither this Agreement nor any provision contained in this Agreement shall be interpreted in favor of or against any party hereto because such party or its legal counsel drafted this Agreement or such provision. ARTICLE V COMPENSATION OF CONTRACTOR BY CLIENT ------------------------------------ Section 5.1 For and in consideration of the Services to be furnished by Contractor, to Client hereunder, Client shall pay at the end of each month a fee to be computed and paid in the manner set forth herein below: (a) The monthly fee for the period June 1, 2000, through March 31, 2001, shall be $71,000. (b) The monthly fee for the period April 1, 2001, through March, 2002, shall be $46,000. (c) The monthly fee after March 2002 shall be $21,000. Section 5.2 The Contractor shall bear all of its own out-of-pocket expenses including, but not limited to, travel expenses. Additionally, the Contractor shall pay or reimburse Client for any and all third-party fees related to (i) annual reserve engineer reports and (ii) the year-end audits to the extent such fees arise from audit activities in the United States. All other third party fees incurred by Contractor (other than general administrative overhead costs) in performance of its duties under this Agreement pursuant to written authorization or instruction from Client shall be paid or reimbursed by Client. 7 ARTICLE VI CONTROL OF INFORMATION ---------------------- Contractor shall promptly return all information, whether of a promotional, administrative, operational or economic nature, in tangible form furnished to it in the course of the performance of its Services hereunder together with all copies made therefrom, upon the request of Client and/or the party who furnished such information, or shall destroy or otherwise dispose of the same as directed by Client. Contractor shall not disclose any of Client's information to any other person, firm or corporation without Client's express consent. The obligations of Contractor provided in this Article VI shall survive termination of this Agreement for any reason whatsoever, but shall not extend to promotional material disseminated by Client to the public. Additionally, nothing in this Article VI shall prevent Contractor, in its capacity as limited partner of Client, from obtaining, retaining, and using any information about Client or its business as may be permitted by the terms and provisions of the Limited Partnership Agreement of Client. ARTICLE VII NOTICES ------- All notices, requests, demands and other communications called for or contemplated hereunder shall be in writing and shall be deemed to have been duly given when sent to the party to whom addressed by registered or certified mail, return receipt requested, postage prepaid, by overnight courier, with the fees therefore prepaid or billed to the sender, or by telecopy, telegram, telex or wire (if promptly confirmed by mail or overnight courier as provided above) to the parties, their successors in interest, or their assignees at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: If to Client: Argosy Energy International c/o Bunker Hill Associates, Inc. 712 Main Street, Suite 1700 Houston, Texas 77002 Attn: Jay A. Chaffee Facsimile No. (713) 223-5379 with copies to: Gibson, Dunn & Crutcher LLP 2100 McKinney, Suite 1100 Dallas, Texas 75201 Attn: Michael A. Rosenthal Facsimile No. (214) 698-3400 8 If to Contractor: Aviva Overseas, Inc. 8235 Douglas Avenue Suite 400 Dallas, Texas 75225 Attn: Ronald Suttill Facsimile No. (214) 691-6151 With copies to: Jenkens & Gilchrist, a Professional Corporation 1445 Ross Avenue Suite 3200 Dallas, Texas 75202 Attn: Barry F. Cannaday Facsimile No. (214) 969-7196 ARTICLE VIII RESCISSION OF PRIOR AGREEMENT; MERGER; NO MODIFICATION EXCEPT IN WRITING ------------------------------------------------------------------------ Section 8.1 This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. All prior understandings and agreements between the parties relating to the subject matter hereof are hereby rescinded and terminated, and are hereby superceded by this Agreement. Neither party is relying upon any statement, representation or warranty, either express or implied, made by or on behalf of the other, not expressly set forth herein. Section 8.2 Except as otherwise provided, this Agreement may not be modified, waived, discharged or terminated, except by a writing signed by the party against whom same is sought to be enforced. ARTICLE IX GOVERNING LAW ------------- Section 9.1 The validity, construction and performance of this Agreement shall be governed by the law of Texas. 9 ARTICLE X NO ASSIGNMENT ------------- Section 10.1 Neither party hereto may assign this Agreement, `nor any rights or obligations hereunder. Any attempted or actual assignment hereof shall be null and void. ARTICLE XI ARBITRATION ----------- Section 11.1 Agreement to Arbitrate Except as expressly provided herein, all disputes between Contractor and the Client arising out of or in connection with the execution, interpretation and performance of this Agreement (including the validity, scope and enforceability of this Article 11) shall, to the fullest extent permitted by ---------- law, be solely and finally settled by a sole arbitrator, as set forth below (the "Arbitrator"). THE ARBITRATION PROCEEDINGS SHALL BE HELD IN DALLAS COUNTY, TEXAS, AND EXCEPT AS OTHERWISE MAY BE PROVIDED IN THIS ARTICLE 11, THE ---------- ARBITRATION PROCEEDINGS SHALL BE CONDUCTED PURSUANT TO AND IN ACCORDANCE WITH THE TEXAS GENERAL ARBITRATION ACT, TEX. CIV. PRAC. & REM. CODE (S) 171.000 ET SEQ. (VERNON 1996) ("TGAA") AND THE COMMERCIAL ARBITRATION RULES (THE "AAA --- RULES") OF THE AMERICAN ARBITRATION ASSOCIATION (THE "AAA"), TO THE EXTENT THE - ----- --- AAA RULES ARE NOT INCONSISTENT WITH THE TGAA (THE TGAA AND THE AAA RULES ARE COLLECTIVELY REFERRED TO AS THE "ARBITRATION RULES"). Section 11.2 Notice of Arbitration If Contractor, on the one hand, or the Client, on the other hand, determines to submit a dispute to arbitration pursuant to this Article 11 such ---------- party shall furnish the AAA and the other party(s) with a dated, written statement indicating (i) such party's intent to commence arbitration proceedings pursuant to this Article 11, (ii) the name and address of such party and a ---------- designated officer or agent thereof, (iii) the nature, with reasonable detail, of the dispute, (iv) the remedy such party will seek and (v) any other information required under the Arbitration Rules. 10 Section 11.3 Selection of Arbitrator The Arbitrator, who shall be selected in accordance with the procedures of the AAA, shall be a retired or former state district court judge for the State of Texas or a retired or former judge of any Federal court appointed under Article III of the United States Constitution who presided in a court located in the State in which the arbitration is conducted. Section 11.4 Award Final To the extent permissible under applicable law, the parties hereto agree that the award of the Arbitrators shall be final and shall not be subject to judicial review, except as permitted by Texas law. Judgment on the arbitration award may be entered and enforced in any court having jurisdiction over the parties or their assets. It is the intent of the parties that the arbitration provisions hereof be enforced to the fullest extent permitted by applicable law. Section 11.5 Availability of Injunctive Relief Any party hereto may request a court of competent jurisdiction, as set forth in Article 12 hereof, to grant provisional injunctive relief to such party ---------- solely for the purpose of maintaining the status quo until an arbitrator can render an award on the matter in question and such award can be confirmed by a court having jurisdiction thereof. ARTICLE XII SUBMISSION TO JURISDICTION; AGENT FOR SERVICE --------------------------------------------- EACH OF THE PARTIES HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF DALLAS, STATE OF TEXAS, AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT OR ANY AGREEMENT OR INSTRUMENT EXECUTED HEREUNDER, OTHER THAN ANY ACTION OR PROCEEDING REQUIRED BY ARTICLE 11 TO BE SUBMITTED TO ARBITRATION, SHALL BE LITIGATED IN ---------- SUCH COURTS, AND EACH OF THE PARTIES WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY SUCH ACTION OR 11 PROCEEDING IN ANY SUCH COURT AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS TO ALL SUCH SERVICE OF PROCESS MADE IN THE MANNER SET FORTH IN ARTICLE VII. Nothing contained in this Article 12 shall affect the ----------- ---------- right of any party to serve legal process on any other party in any other manner permitted by law. Nothing contained in this Article 12 shall affect the ---------- obligations of the parties with respect to the arbitration of disputes under Article 11. - ---------- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the date first above written. ARGOSY ENERGY INTERNATIONAL AVIVA OVERSEAS, INC. - --------------------------- ------------------- By: CROSBY ACQUISITION, LLC, General Partner By: Crosby Capital, LLC, as sole member By: /s/ R. Suttill -------------------- Ronald Suttill President By: /s/ Jay A. Chaffee -------------------------- Jay A. Chaffee President 12 EX-10.2 3 0003.txt LETTER AGREEMENT EXHIBIT 10.2 Crosby Capital, LLC c/o Bunker Hill Associates, Inc. 712 Main Street Suite 1700 Houston, Texas 77002 June 8, 2000 Mr. Ronald Suttill, President Aviva America, Inc. 8235 Douglas Avenue Suite 400 Dallas, Texas 75225 Re: Requested Consent and Waiver Under Loan Documents Dear Mr. Suttill: As you are aware, Crosby Capital, LLC ("Crosby") acquired as of May 1, 2000 from ING (U.S.) Capital, LLC, that certain Promissory Note dated October 28, 1998 made by Neo Energy, Inc. in the original principal amount of $9,000,000 (the "ING Note"). Crosby also acquired as of May 1, 2000 from the Overseas Private Investment Corporation, an agency of the United Stated ("OPIC"), that certain Stage I Promissory Note made by Argosy Energy International dated August 12, 1994 in the original principal amount of $4,400,000 and that certain Stage II Promissory Note made by Argosy Energy International dated October 25, 1995 in the original principal amount of $4,800,000 together with all related security documents, loan documents, pledge agreements, and related rights for each (collectively, the "Loan Documents"). Under the terms of the Loan Documents, Crosby currently has a perfected lien and security interest in, among other properties, the oil, gas and mineral interests owned by Aviva America, Inc. ("Aviva America") in the State of Louisiana, including, but not limited to Aviva America's oil and gas properties in the Breton Sound 31 field, offshore Louisiana (the "Breton Sound Properties"). Aviva America has advised Crosby that it has negotiated a Farmout Agreement with Savon Nouvelle Petroleum, Inc. ("Savon") under which Aviva America has agreed to farmout its deep rights in and to the Breton Sound Properties to Savon. A copy of the form of Farmout Agreement that has been negotiated by Aviva America with Savon is attached hereto as Exhibit A (the "Savon Farmout Agreement"). One of the conditions set out in the Savon Farmout Agreement is that Aviva America obtain a release and/or subordination of Crosby's liens and security interest in and to the Breton Sound Properties insofar as they burden the interest to be farmed out to Savon under the terms of the Savon Farmout Agreement. Crosby, subject to the terms and provisions hereinafter set out, has agreed to provide a subordination of its liens and security interest in the Breton Sound Properties to the rights to be earned by Savon under the terms of the Savon Farmout Agreement. Specifically, Crosby consents to Aviva America's entry into the Savon Farmout Agreement and agrees to subordinate its liens and security interest to the interest to be earned by Savon under the terms of the Savon Farmout Agreement subject to the following terms and conditions: 1. A Farmout Agreement in substantially the form of the Savon Farmout Agreement must be executed by Aviva America and Savon no later than August 1, 2000. 2. Upon Savon's execution of a farmout agreement in substantially the form attached hereto as Exhibit A on or before August 1, 2000, Crosby agrees to execute and deliver to Savon its commitment to subordinate its liens and security interest to the rights to be earned by Savon under the terms of the Savon Farmout Agreement, said agreement to be in substantially the form of the letter agreement attached hereto as Exhibit B. 3. To the extent that Aviva America's entry into the Savon Farmout Agreement in accordance with the terms and provisions of this consent violates any of the covenants or agreements of Aviva America or any of its affiliates under any of the Loan Documents, Crosby hereby waives such violations for the sole purpose of authorizing Aviva America to enter into the Savon Farmout Agreement and the execution of any documentation necessary to effect that transaction. Except as set forth in the immediately preceding sentence, Aviva America hereby agrees, on its own behalf and on behalf of its affiliates, that such waiver does not constitute a waiver of, or a consent to, any present or future violation of or noncompliance with any provision of the Loan Documents or a waiver of Crosby to insist upon future compliance with each term, covenant, condition and provision of the Loan Documents. This consent and waiver may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one in the same instrument. Please indicate in the appropriate space provided below your agreement to the terms and conditions of this consent and waiver. This consent and waiver shall not be of any force and effect until such time as Crosby has received your written agreement thereto in the space provided below. Very truly yours, CROSBY CAPITAL, LLC By: /s/ Jay A. Chaffee ------------------ Name: Jay A. Chaffee -------------- Title: President ------------- AGREED TO AND ACCEPTED THIS 8th day of June, 2000. --- AVIVA AMERICA INC. By: /s/ R. Suttill --------------------------------- Ronald Suttill, President EX-10.3 4 0004.txt GUARANTY EXHIBIT 10.3 GUARANTY -------- (Aviva Overseas, Inc.) THIS GUARANTY is made as of May 31, 2000, by Aviva Overseas, Inc., a Delaware corporation ("Guarantor"), in favor of Crosby Capital, LLC (the "Lender"). RECITALS: 1. Aviva Petroleum Inc., a Texas corporation ("Parent"), Aviva America, Inc., a Delaware corporation, ("Aviva America"), Guarantor, Aviva Operating, Inc., a Nevada corporation ("Aviva Operating"), Argosy Energy Incorporated ("Argosy Energy"), Neo Energy, Inc., a Texas corporation ("Neo" or "Borrower"), Garnet Resources Corporation, a Delaware corporation ("Garnet") and Lender are parties to a Loan, Settlement and Acquisition Agreement (the "Loan Agreement") of even date herewith, pursuant to which Lender has agreed to renew and extend credit to Neo. 2. Neo has executed in favor of Lender that certain promissory note of even date herewith, payable to the order of Lender in the principal amount of $2,750,000 (such promissory note, as from time to time amended, and all promissory notes given in substitution, renewal or extension therefor or thereof, in whole or in part, being herein collectively called the "Amended and Restated Neo Note"). 3. Aviva Operating, Garnet, Argosy Energy, Garnet PNG Corporation, a Delaware corporation ("Garnet PNG"), Aviva America, Aviva Delaware Inc., a Delaware corporation, Argosy Energy International, a Utah limited partnership ("Argosy International"), Neo, Parent, ING (U.S.) Capital Corporation, a Delaware corporation ("ING"), Chase Bank of Texas, National Association ("Chase"), the Overseas Private Investment Corporation, an agency of the United States of America ("OPIC") and ING, as Lender for the creditors ("Collateral Agent") are parties to a Joint Finance and Intercreditor Agreement (herein, as from time to time amended, supplemented or restated, called the "Intercreditor Agreement"), pursuant to which ING has agreed to act as Collateral Agent for the benefit of creditors. 4. Pursuant to the Loan Agreement, Guarantor has agreed to execute and deliver to Lender a satisfactory guaranty of all of the indebtedness of Neo under the Amended and Restated Neo Note and the Loan Documents (as defined in the Intercreditor Agreement). 5. Parent owns directly, or indirectly through one or more subsidiaries, one-hundred percent (100%) of the outstanding shares of common stock of Guarantor and one-hundred percent (100%) of the outstanding shares of common stock of Neo. 6. Parent, Neo, Guarantor, and the other direct and indirect subsidiaries of Parent are mutually dependent on each other in the conduct of their respective businesses under a holding company structure, with the credit needed from time to time by each often being provided by another or by means of financing obtained by one such affiliate with the support of the others for their mutual benefit and the ability of each to obtain such financing being dependent on the successful operations of the others. 7. The board of directors of Guarantor has determined that Guarantor's execution, delivery and performance of this Guaranty may reasonably be expected to benefit Guarantor, directly or indirectly, is in the best interests of Guarantor and is necessary or convenient to the conduct, promotion or attainment of the business of Guarantor. NOW, THEREFORE, in consideration of the premises, of the benefits which will inure to Guarantor from Lender's advances of funds to Neo, and other good and valuable consideration, the receipt and sufficiency of all of which are hereby acknowledged, and in order to induce Lender to enter the Loan Agreement, Guarantor hereby agrees with Lender as follows: AGREEMENTS Section 1. Definitions. Reference is hereby made to the Loan Agreement and ----------- the Intercreditor Agreement for all purposes. All terms used in this Guaranty which are defined in the Loan Agreement and the Intercreditor Agreement and not otherwise defined herein shall have the same meanings when used herein. All references herein to any Loan Document or other document or instrument refer to the same as from time to time amended, supplemented or restated. As used herein the following terms shall have the following meanings: "Borrower" means Neo. -------- "Lender" means Crosby Capital, LLC, its successors and any respective ------ assignees under any of the Loan Documents. "Note" means the Amended and Restated Neo Note. ---- "Obligations" means collectively all of the indebtedness, obligations, and ----------- undertakings which are guaranteed by Guarantor and described in subsections (a), (b) and (c) of Section 2, subject to Section 2(g). "Obligors" means Borrower, Guarantor and any other endorsers, guarantors or -------- obligors, primary or secondary, of any or all of the Obligations. "Security" means any rights, properties, or interests of Lender, under the -------- Security Documents or otherwise, which provide recourse or other benefits to Lender in connection with the Obligations or the non-payment or non-performance thereof, including Collateral (whether real or personal, tangible or intangible) in which Lender have rights under or pursuant to any Loan Documents, guarantees of the payment or performance of any Obligation, bonds, surety agreements, keep- well agreements, letters of credit, rights of subrogation, rights of offset, and rights pursuant to which other claims are subordinated to the Obligations. Section 2. Guaranty. -------- (a) Guarantor hereby irrevocably, absolutely, and unconditionally guarantees Lender the prompt, complete, and full payment when due, and no matter how the same shall become due, of: 2 (i) the Amended and Restated Neo Note, including all principal, all interest thereon and all other sums payable thereunder; and (ii) All other sums payable under the other Loan Documents, whether for principal, interest, reimbursements for drawings under Letters of Credit, fees (whether commitment fees, letter of credit fees, or otherwise), or otherwise. Without limiting the generality of the foregoing, Guarantor's liability hereunder shall extend to and include all post-petition interest, expenses, and other duties and liabilities described above in this subsection (a), or below in the following subsection (b), which would be owed but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization, or similar proceeding. (b) Guarantor hereby irrevocably, absolutely, and unconditionally guarantees to Lender the prompt, complete and full performance, when due, and no matter how the same shall become due, of all obligations and undertakings of any Aviva Party under, by reason of, or pursuant to any of the Loan Documents. (c) Guarantor hereby irrevocably, absolutely and unconditionally guarantees to Lender the prompt, complete and full performance, when due, and no matter how the same shall become due, of all obligations and undertakings of any Aviva Party under, by reason of, or pursuant to the Loan Agreement. (d) If Borrower or any Obligors shall for any reason fail to pay any Obligation, as and when such Obligation shall become due and payable, whether at its stated maturity, as a result of the exercise of any power to accelerate, or otherwise, Guarantor will, forthwith upon demand by Lender, pay such Obligation in full to the Lender for the benefit of the Lender to whom such Obligation is owed. If Borrower or Obligors shall for any reason fail to perform promptly any Obligation, Guarantor will, forthwith upon demand by Lender, cause such Obligation to be performed or, if specified by Lender, provide sufficient funds, in such amount and manner as Lender shall in good faith determine, for the prompt, full and faithful performance of such Obligation by Lender or such other Person as Lender shall designate. (e) If any of Borrower, Obligors or Guarantor fail to pay or perform any Obligation as described in the immediately preceding subsections (a), (b), or (c) Guarantor will incur the additional obligation to pay to Lender, and Guarantor will forthwith upon demand by Lender pay to Lender, the amount of any and all expenses, including reasonable fees and disbursements of Lender's counsel and of any experts or agents retained by Lender, which Lender may incur as a result of such failure. (f) As between Guarantor and Lender, Guarantor shall be primarily liable hereunder for the payment and performance of the Obligations. (g) Upon transfer and assignment of the Amended and Restated Neo Note to Parent in accordance with the Loan Agreement, the obligations set forth in Sections 2(a) and (b) hereof shall no longer constitute Obligations guaranteed hereunder. Section 3. Unconditional Guaranty. ---------------------- 3 (a) To the fullest extent permitted by applicable law, no action which Lender may take or omit to take in connection with any of the Loan Documents, any of the Obligations (or any other indebtedness owing by Borrower to Lender), or any Security, and no course of dealing of Lender with any Obligor or any other Person, shall release or diminish Guarantor's obligations, liabilities, agreements or duties hereunder, affect this Guaranty in any way, or afford Guarantor any recourse against Lender, regardless of whether any such action or inaction may increase any risks to or liabilities of Lender or any Obligor or increase any risk to or diminish any safeguard of any Security. Without limiting the foregoing, Guarantor hereby expressly agrees that Lender may, from time to time, without notice to or the consent of Guarantor, do any or all of the following, to the fullest extent permitted by applicable law: (i) Amend, change or modify, in whole or in part, any one or more of the Loan Documents and give or refuse to give any waivers or other indulgences with respect thereto. (ii) Neglect, delay, fail, or refuse to take or prosecute any action for the collection or enforcement of any of the Obligations, to foreclose or take or prosecute any action in connection with any Security or Loan Document, to bring suit against any Obligor or any other Person, or to take any other action concerning the Obligations or the Loan Documents. (iii) Accelerate, change, rearrange, extend, or renew the time, rate, terms, or manner for payment or performance of any one or more of the Obligations (whether for principal, interest, fees, expenses, indemnifications, affirmative or negative covenants, or otherwise). (iv) Compromise or settle any unpaid or unperformed Obligation or any other obligation or amount due or owing, or claimed to be due or owing, under any one or more of the Loan Documents. (v) Take, exchange, amend, eliminate, surrender, release, or subordinate any or all Security for any or all of the Obligations, accept additional or substituted Security therefor, and perfect or fail to perfect Lender's rights in any or all Security. (vi) Discharge, release, substitute or add Obligors. (vii) Apply all monies received from Obligors or others, or from any Security for any of the Obligations, to payment of the Obligations as Lender may determine to be in its best interest, without in any way being required to marshall Security or assets or to apply all or any part of such monies upon any particular Obligations. (b) No action or inaction of any Obligor or any other Person, and no change of law or circumstances, shall release or diminish Guarantor's obligations, liabilities, agreements, or duties hereunder, affect this Guaranty in any way, or afford Guarantor any recourse against Lender. Without limiting the foregoing, the obligations, liabilities, agreements, and duties of Guarantor under this Guaranty shall not be released, diminished, impaired, reduced, or affected by the occurrence of any or all of the following from time to time, even if occurring without notice to or without the consent of Guarantor: 4 (i) Any voluntary or involuntary liquidation, dissolution, sale of all or substantially all assets, marshalling of assets or liabilities, receivership, conservatorship, assignment for the benefit of creditors, insolvency, bankruptcy, reorganization, arrangement, or composition of any Obligor or any other proceedings involving any Obligor or any of the assets of any Obligor under laws for the protection of debtors, or stay of actions or lien enforcement proceedings against, any Obligor, any properties of any Obligor, or the estate in bankruptcy of any Obligor in the course of or resulting from any such proceedings. (ii) The failure by Lender to file or enforce a claim in any proceeding described in the immediately preceding subsection (i) or to take any other action in any proceeding to which any Obligor is a party. (iii) The release by operation of law of any Obligor from any of the Obligations or any other obligations to Lender. (iv) The invalidity, deficiency, illegality, or unenforceability of any of the Obligations or the Loan Documents, in whole or in part, any bar by any statute of limitations or other law of recovery on any of the Obligations, or any defense or excuse for failure to perform on account of force majeure, act of God, casualty, impossibility, impracticability, or other defense or excuse whatsoever. (v) The failure of any Obligor or any other Person to sign any guaranty or other instrument or agreement within the contemplation of any Obligor or Lender. (vi) The fact that Guarantor may have incurred directly part of the Obligations or is otherwise primarily liable therefor. (vii) Without limiting any of the foregoing, any fact or event (whether or not similar to any of the foregoing) which in the absence of this provision would or might constitute or afford a legal or equitable discharge or release of or defense to a guarantor or surety other than the actual payment and performance by Guarantor under this Guaranty. (c) Lender may invoke the benefits of this Guaranty before pursuing any remedies against any Obligor or any other Person and before proceeding against any Security now or hereafter existing for the payment or performance of any of the Obligations. Lender may maintain an action against Guarantor on this Guaranty without joining any other Obligor therein and without bringing separate action against any other Obligor. (d) If any payment to Lender by any Obligor is held to constitute a preference or avoidable transfer under applicable state or federal laws, or if for any reason Lender is required to refund such payment to the payor thereof or to pay the amount thereof to any other Person, such payment to Lender shall not constitute a release of Guarantor from any liability hereunder, and Guarantor agrees to pay such amount to Lender on demand and agrees and acknowledges that this Guaranty shall continue to be effective or shall be reinstated, as the case may be, to the extent of any such payment or payments. Any transfer by subrogation which is made as contemplated in Section 6 prior to any such payment or payments shall (regardless of the terms 5 of such transfer) be automatically voided upon the making of any such payment or payments, and all rights so transferred shall thereupon revert to and be vested in the Lender. (e) This is a continuing guaranty and shall apply to and cover all Obligations and renewals and extensions thereof and substitutions therefor from time to time. Section 4. Waiver. Guarantor hereby waives, with respect to the ------ Obligations, this Guaranty, and the other Loan Documents: (a) notice of the incurrence of any Obligation by Borrower, and notice of any kind concerning the assets, liabilities, financial condition, creditworthiness, businesses, prospects, or other affairs of Borrower (it being understood and agreed that (i) Guarantor shall take full responsibility for informing itself of such matters, (ii) Lender shall not have responsibility of any kind to inform Guarantor of such matters, and (iii) Lender is hereby authorized to assume that Guarantor, by virtue of its relationships with Borrower which are independent of this Guaranty, has full and complete knowledge of such matters at each time when Lender extends credit to Borrower or takes any other action which may change or increase Guarantor's liabilities or losses hereunder). (b) notice that Lender, any Obligor, or any other Person has taken or omitted to take any action under any Loan Document or any other agreement or instrument relating thereto or relating to any Obligation. (c) notice of acceptance of this Guaranty and all rights of Guarantor under ss.34.02 of the Texas Business and Commerce Code or any law of similar import in the state of New York. (d) demand, presentment for payment, and notice of demand, dishonor, nonpayment, or nonperformance. (e) notice of intention to accelerate, notice of acceleration, protest, notice of protest, notice of any exercise of remedies (as described in the following Section 5 or otherwise), and all other notices of any kind whatsoever. Section 5. Exercise of Remedies. Lender shall have the right to -------------------- enforce, from time to time, in any order and at such Lender's sole discretion, any rights, powers and remedies which Lender may have under the Loan Documents or otherwise, including judicial foreclosure, the exercise of rights of power of sale, the taking of a deed or assignment in lieu of foreclosure, the appointment of a receiver to collect rents, issues and profits, the exercise of remedies against personal property, or the enforcement of any assignment of leases, rentals, oil or gas production, or other properties or rights, whether real or personal, tangible or intangible; and Guarantor shall be liable to Lender hereunder for any deficiency resulting from the exercise by Lender of any such right or remedy even though any rights which Guarantor may have against Borrower or others may be destroyed or diminished by exercise of any such right or remedy. No failure on the part of Lender to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right preclude any other or further exercise thereof or the exercise of any other right. The rights, powers and remedies of Lender provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any other rights, powers or remedies provided by law 6 or in equity. The rights of Lender hereunder are not conditional or contingent on any attempt by Lender to exercise any of its rights under any other Loan Document against any Obligor or any other Person. Section 6. No Subrogation. No payment or distribution to Lender pursuant to -------------- the provisions of this Guaranty shall entitle Guarantor to exercise any rights of subrogation in respect thereof. Section 7. Successors and Assigns. Guarantor's rights or obligations ---------------------- hereunder may not be assigned or delegated, but this Guaranty and such obligations shall pass to and be fully binding upon the successors of Guarantor, as well as Guarantor. This Guaranty shall apply to and inure to the benefit of Lender and their successors or assigns. Without limiting the generality of the immediately preceding sentence, Lender may assign, grant a participation in, or otherwise transfer any Obligation held by it or any portion thereof, and Lender may assign or otherwise transfer its rights or any portion thereof under any Loan Document, to any other Person, and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to Lender hereunder unless otherwise expressly provided by Lender in connection with such assignment or transfer. Section 8. Subordination and Offset. Other than as expressly provided in ------------------------ the Subordination Agreement, Guarantor hereby grants to Lender a right of offset to secure the payment of the Obligations and Guarantor's obligations and liabilities hereunder, which right of offset shall be upon any and all monies, securities and other property (and the proceeds therefrom) of Guarantor now or hereafter held or received by or in transit to Lender from or for the account of Guarantor, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and also upon any and all deposits (general or special), credits and claims of Guarantor at any time existing against Lender. Upon the occurrence of any Default or Event of Default Lender is hereby authorized at any time and from time to time, without notice to Guarantor, to offset, appropriate and apply any and all items herein above referred to against the Obligations and Guarantor's obligations and liabilities hereunder irrespective of whether or not Lender shall have made any demand under this Guaranty and although such obligations and liabilities may be contingent or unmatured. Lender agrees to promptly notify Guarantor after any such offset and application made by Lender, provided that the failure to give such notice shall not affect the validity of such offset and application. The rights of Lender under this section are in addition to, and shall not be limited by, any other rights and remedies (including other rights of offset) which lender may have. Section 9. Representations and Warranties. Guarantor hereby represents and ------------------------------ warrants to Lender as follows: (a) The Recitals at the beginning of this Guaranty are true and correct in all respects. (b) All representations and warranties made in the Intercreditor Agreement and the Loan Agreement are true and correct in all respects. (c) Guarantor is a corporation, organized, existing and in good standing under the laws of its state of organization, having all corporate powers required to carry on its business and 7 enter into and carry out the obligations contemplated hereby. Guarantor is duly qualified, in good standing, and authorized to do business in all other jurisdictions within the United States wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such qualification necessary or required by law. (d) Guarantor has duly taken all corporate action necessary to authorize the execution and delivery by it of this Agreement and to authorize the consummation of the transactions contemplated thereby and the performance of its obligations hereunder. (e) The execution and delivery by Guarantor of this Agreement, the performance by each of its obligations hereunder, and the consummation of the transactions contemplated hereby, do not and will not (i) conflict with any provision of (l) any domestic or foreign law, statute, rule or regulation, (2) the articles or certificate of incorporation, bylaws, or charter of Guarantor, (3) any material agreement, judgment, license, order or permit applicable to or binding upon Guarantor, (ii) result in the acceleration of any Debt owed by Guarantor, or (iii) result in or require the creation of any Lien upon any assets or properties of Guarantor except as expressly contemplated herein or in the Loan Documents. No consent, approval, authorization or order of, and no notice to or filing with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by Guarantor hereunder or to consummate any transactions contemplated hereby. (f) The direct or indirect value of the consideration received and to be received by Guarantor in connection herewith is reasonably worth at least as much as the liability and obligations of Guarantor hereunder, and the incurrence of such liability and obligations in return for such consideration may reasonably be expected to benefit Guarantor, directly or indirectly. (g) Guarantor is not "insolvent" on the date hereof (that is, the sum of Guarantor's absolute and contingent liabilities, including the Obligations, does not exceed the fair market value of Guarantor's assets). Guarantor's capital is adequate for the businesses in which Guarantor is engaged and intends to be engaged. Guarantor has not hereby incurred, nor does Guarantor intend to incur or believe that it will incur, debts which will be beyond its ability to pay as such debts mature. Section 10. No Oral Change. No amendment of any provision of this Guaranty -------------- shall be effective unless it is in writing and signed by Guarantor and Lender, and no waiver of any provision of this Guaranty, and no consent to any departure by Guarantor therefrom, shall be effective unless it is in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 11. Invalidity of Particular Provisions. If any term or provision ----------------------------------- of this Guaranty shall be determined to be illegal or unenforceable all other terms and provisions hereof shall nevertheless remain effective and shall be enforced to the fullest extent permitted by applicable law. Section 12. Headings and References. The headings used herein are for ----------------------- purposes of convenience only and shall not be used in construing the provisions hereof. The words "this Guaranty," "this instrument," "herein," "hereof," "hereby" and words of similar import refer to 8 this Guaranty as a whole and not to any particular subdivision unless expressly so limited. The phrases "this section" and "this subsection" and similar phrases refer only to the subdivisions hereof in which such phrases occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation". Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. Section 13. Term. This Guaranty shall be irrevocable until all of the ---- Obligations have been completely and finally paid and performed, and Lender shall not have any obligation to make any loans or other advances to Borrower, and all obligations and undertakings of Borrower under, by reason of, or pursuant to the Loan Documents have been completely performed, and this Guaranty is thereafter subject to reinstatement as provided in Section 3(d). All extensions of credit and financial accommodations heretofore or hereafter made to Borrower shall be conclusively presumed to have been made in acceptance hereof and in reliance hereon. Section 14. Notices. Any notice or communication required or permitted ------- hereunder shall be given as provided in the Loan Agreement. Section 15. Limitation on Interest. Lender and Guarantor intend to contract ---------------------- in strict compliance with applicable usury law from time to time in effect, and the provisions of the Intercreditor Agreement limiting the interest for which Guarantor is obligated are expressly incorporated herein by reference. Section 16. Not a Loan Document. This Guaranty does not constitute a Loan ------------------- Document, as defined in the Intercreditor Agreement. Section 17. Counterparts. This Guaranty may be executed in any number of ------------ counterparts, each of which when so executed shall be deemed to constitute one and the same Guaranty. SECTION 18. GOVERNING LAW; SUBMISSION TO PROCESS. THIS GUARANTY SHALL ------------------------------------ BE DEEMED A CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. GUARANTOR HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST IT WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR (TO THE EXTENT THEY HAVE SUBJECT MATTER JURISDICTION) OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF TEXAS AS LENDER MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF, GUARANTOR ACCEPTS AND CONSENTS FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, TO THE JURISDICTION OF THE AFORESAID COURTS AND AGREES THAT SUCH JURISDICTION SHALL BE EXCLUSIVE, UNLESS WAIVED BY LENDER IN WRITING, WITH RESPECT TO ANY ACTION OR PROCEEDING BROUGHT BY IT AGAINST LENDER AND ANY QUESTIONS RELATING TO USURY. GUARANTOR 9 WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST ANY OBLIGOR IN THE COURTS OF ANY OTHER JURISDICTION. IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of the date first written above. AVIVA OVERSEAS, INC. By: /s/ R. Suttill -------------- Name: Ron Suttill Title: President 10 EX-10.4 5 0005.txt ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT 10.4 ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement (this "Agreement") is made effective as of 7:00 a.m., June 1, 2000, by and among Crosby Capital LLC, a Texas limited liability company ("Lender"), and Neo Energy, Inc., a Texas corporation ("Neo"). R E C I T A L WHEREAS, pursuant to that certain Loan, Settlement and Acquisition Agreement dated as of May 31, 2000 (the "Purchase Agreement"), by and among Lender, and Aviva Petroleum, Inc., a Texas corporation ("Parent"), Aviva America, Inc., a Delaware corporation ("Aviva America"), Aviva Operating, Inc., a Delaware corporation ("Aviva Operating"), Aviva Overseas, Inc., a Delaware corporation ("Aviva Overseas"), Neo, Garnet Resources Corp., a Delaware corporation ("Garnet"), Argosy Energy , Inc., a Delaware corporation ("Argosy Energy"), and Argosy Energy International, a Utah limited partnership ("Argosy International") (Parent, Aviva America, Aviva Operating, Aviva Overseas, Neo, Garnet, Argosy Energy and Argosy International are referred to collectively herein as the "Aviva Parties"), Neo has agreed to sell, grant, convey, transfer, assign and deliver to Lender all its right, title and interest in the Partnership Interests in Argosy International. A G R E E M E N T NOW, THEREFORE, in consideration of the promises herein and in the Purchase Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Neo and Lender hereby agree as follows: 1. Transfer of Partnership Interest. Neo hereby conveys, transfers, -------------------------------- assigns, grants, sells and delivers, to Lender, and Lender acquires, accepts and purchases, all of Neo's right, title and interest in the Partnership Interests, which the parties acknowledge is a 49.9054% limited partnership interest (the "Neo Partnership Interest"). 2. Assumption. Lender hereby assumes and accepts the Neo Partnership ---------- Interest. 3. Further Assurances. Neo shall execute and deliver to Lender such ------------------ further documents and instruments, and take such other action, that may be reasonably requested by Lender to evidence this conveyance, transfer and assignment of the Neo Partnership Interest. 4. Definitions. All capitalized terms not otherwise defined herein ----------- shall have the meaning ascribed to them in the Purchase Agreement. 5. Inurement. The conveyance, assignment and transfer herein shall --------- be effective as of the date hereof, and shall inure to the benefit of and be binding upon the parties hereto and their successors or permitted assigns. However, nothing in this Agreement, express or implied, shall give any other person any benefit or any legal or equitable right or remedy with respect hereto. 6. Conveyance Subject to the Purchase Agreement. This conveyance is -------------------------------------------- made pursuant to the Purchase Agreement and is subject to the terms thereof. 7. Counterparts. This Agreement may be separately executed in ------------ counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. Such execution and delivery may be accomplished by facsimile transmission. 8. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of Texas, without regard to principles of conflicts of law thereof. [SIGNATURES ON NEXT PAGE] 2 IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed as of the day and year first written above. NEO ENERGY, INC. By:/s/ R. Suttill -------------- President CROSBY CAPITAL, LLC By:/s/ Jay A. Chaffee ------------------ Jay A. Chaffee President 3 EX-10.5 6 0006.txt ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT 10.5 ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement (this "Agreement") is made effective as of 7:00 a.m., June 1, 2000, by and among Crosby Acquisition LLC, a Delaware limited liability company ("Crosby"), and Argosy Energy, Inc., a Delaware corporation ("Argosy Energy"). R E C I T A L WHEREAS, pursuant to that certain Loan, Settlement and Acquisition Agreement dated as of May 31, 2000 (the "Purchase Agreement"), by and among Lender, and Aviva Petroleum, Inc., a Texas corporation ("Parent"), Aviva America, Inc., a Delaware corporation ("Aviva America"), Aviva Operating, Inc., a Delaware corporation ("Aviva Operating"), Aviva Overseas, Inc., a Delaware corporation ("Aviva Overseas"), Neo Energy, Inc., a Texas corporation ("Neo"), Garnet Resources Corp., a Delaware corporation ("Garnet"), Argosy Energy, and Argosy Energy International, a Utah limited partnership ("Argosy International") (Parent, Aviva America, Aviva Operating, Aviva Overseas, Neo, Garnet, Argosy Energy and Argosy International are referred to collectively herein as the "Aviva Parties"), Argosy Energy has agreed to sell, grant, convey, transfer, assign and deliver to Lender all its right, title and interest in the Partnership Interests in Argosy International. A G R E E M E N T NOW, THEREFORE, in consideration of the promises herein and in the Purchase Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Argosy Energy and Crosby hereby agree as follows: 1. Transfer of Partnership Interest. Argosy Energy hereby conveys, -------------------------------- transfers, assigns, grants, sells and delivers, to Crosby, and Crosby acquires, accepts and purchases, all of Argosy Energy's right, title and interest in the Partnership Interests, which the parties acknowledge is a 44.6403% general partnership interest (the "General Partnership Interest"). 2. Assumption. Crosby hereby assumes and accepts the General ---------- Partnership Interest. 3. Further Assurances. Argosy Energy shall execute and deliver to ------------------ Crosby such further documents and instruments, and take such other action, that may be reasonably requested by Crosby to evidence this conveyance, transfer and assignment of the General Partnership Interest. 4. Definitions. All capitalized terms not otherwise defined herein ----------- shall have the meaning ascribed to them in the Purchase Agreement. 5. Inurement. The conveyance, assignment and transfer herein shall be --------- effective as of the date hereof, and shall inure to the benefit of and be binding upon the parties hereto and their successors or permitted assigns. However, nothing in this Agreement, express or implied, shall give any other person any benefit or any legal or equitable right or remedy with respect hereto. 6. Conveyance Subject to the Purchase Agreement. This conveyance is -------------------------------------------- made pursuant to the Purchase Agreement and is subject to the terms thereof. 7. Counterparts. This Agreement may be separately executed in ------------ counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. Such execution and delivery may be accomplished by facsimile transmission. 8. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Texas, without regard to principles of conflicts of law thereof. [SIGNATURES ON NEXT PAGE] 2 IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed as of the day and year first written above. ARGOSY ENERGY, INC. By: /s/ R. Suttil ------------- President CROSBY ACQUISITION, LLC By: CROSBY CAPITAL, LLC, as sole member By: /s/ Jay A. Chaffee ------------------ Jay A. Chaffee President 3 EX-10.6 7 0007.txt ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT 10.6 ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement (this "Agreement") is made effective as of 7:00 a.m., June 1, 2000, by and among Crosby Capital LLC, a Texas limited liability company ("Lender"), and Garnet Resources Corp., a Delaware corporation ("Garnet"). R E C I T A L WHEREAS, pursuant to that certain Loan, Settlement and Acquisition Agreement dated as of May 31, 2000 (the "Purchase Agreement"), by and among Lender, and Aviva Petroleum, Inc., a Texas corporation ("Parent"), Aviva America, Inc., a Delaware corporation ("Aviva America"), Aviva Operating, Inc., a Delaware corporation ("Aviva Operating"), Aviva Overseas, Inc., a Delaware corporation ("Aviva Overseas"), Neo Energy, Inc., a Texas corporation ("Neo"), Garnet, Argosy Energy, Inc. a Delaware corporation ("Argosy Energy"), and Argosy Energy International, a Utah limited partnership ("Argosy International") (Parent, Aviva America, Aviva Operating, Aviva Overseas, Neo, Garnet, Argosy Energy and Argosy International are referred to collectively herein as the "Aviva Parties"), Garnet has agreed to sell, grant, convey, transfer, assign and deliver to Lender all its right, title and interest in the Partnership Interests in Argosy International. A G R E E M E N T NOW, THEREFORE, in consideration of the promises herein and in the Purchase Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Garnet and Lender hereby agree as follows: 1. Transfer of Partnership Interest. Garnet hereby conveys, transfers, -------------------------------- assigns, grants, sells and delivers, to Lender, and Lender acquires, accepts and purchases, all of Garnet's right, title and interest in the Partnership Interests, which the parties acknowledge is a 5.0738% limited partnership interest (the "Garnet Partnership Interest"). 2. Assumption. Lender hereby assumes and accepts the Garnet Partnership ---------- Interest. 3. Further Assurances. Garnet shall execute and deliver to Lender such ------------------ further documents and instruments, and take such other action, that may be reasonably requested by Lender to evidence this conveyance, transfer and assignment of the Garnet Partnership Interest. 4. Definitions. All capitalized terms not otherwise defined herein shall ----------- have the meaning ascribed to them in the Purchase Agreement. 5. Inurement. The conveyance, assignment and transfer herein shall be --------- effective as of the date hereof, and shall inure to the benefit of and be binding upon the parties hereto and their successors or permitted assigns. However, nothing in this Agreement, express or implied, shall give any other person any benefit or any legal or equitable right or remedy with respect hereto. 6. Conveyance Subject to the Purchase Agreement. This conveyance is made -------------------------------------------- pursuant to the Purchase Agreement and is subject to the terms thereof. 7. Counterparts. This Agreement may be separately executed in ------------ counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. Such execution and delivery may be accomplished by facsimile transmission. 8. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Texas, without regard to principles of conflicts of law thereof. [SIGNATURES ON NEXT PAGE] 2 IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed as of the day and year first written above. GARNET RESOURCES CORP. By: /s/ R. Suttill -------------- President CROSBY ACQUISITION, LLC By: CROSBY CAPITAL, LLC, as sole member By: /s/ Jay A. Chaffee ------------------- Jay A. Chaffee President 3 EX-10.7 8 0008.txt ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT 10.7 ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement (this "Agreement") is made effective as of 7:30 a.m., June 1, 2000, by and among Crosby Capital, LLC, a Texas limited liability company ("Lender") and Aviva Overseas, Inc., a Delaware corporation ("Aviva Overseas"). R E C I T A L WHEREAS, pursuant to that certain Loan, Settlement and Acquisition Agreement dated as of May 31, 2000 (the "Purchase Agreement"), by and among Lender, and Aviva Petroleum, Inc., a Texas corporation ("Parent"), Aviva America, Inc., a Delaware corporation ("Aviva America"), Aviva Operating, Inc., a Delaware corporation ("Aviva Operating"), Aviva Overseas, Neo Energy, Inc., a Texas corporation ("Neo"), Garnet Resources Corp., a Delaware corporation ("Garnet"), Argosy Energy , Inc., a Delaware corporation ("Argosy Energy"), and Argosy Energy International, a Utah limited partnership ("Argosy International") (Parent, Aviva America, Aviva Operating, Aviva Overseas, Neo, Garnet, Argosy Energy and Argosy International are referred to collectively herein as the "Aviva Parties"), Lender has agreed to sell, grant, convey, transfer, assign and deliver to Aviva Overseas all its right, title and interest in a 22.1196% limited partnership interest in Argosy International (the "LP Interest"). A G R E E M E N T NOW, THEREFORE, in consideration of the promises herein and in the Purchase Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Aviva Overseas and Lender hereby agree as follows: 1. Transfer of Partnership Interest. Lender hereby conveys, transfers, -------------------------------- assigns, grants, sells and delivers, to Aviva Overseas, and Aviva Overseas acquires, accepts and purchases, all of Lender's right, title and interest in the LP Interest. 2. Assumption. Aviva Overseas hereby assumes and accepts the LP Interest. ---------- 3. Further Assurances. Lender shall execute and deliver to Aviva Overseas ------------------ such further documents and instruments, and take such other action, that may be reasonably requested by Aviva Overseas to evidence this conveyance, transfer and assignment of the LP Interest. 4. Definitions. All capitalized terms not otherwise defined herein shall ----------- have the meaning ascribed to them in the Purchase Agreement. 5. Inurement. The conveyance, assignment and transfer herein shall be --------- effective as of the date hereof, and shall inure to the benefit of and be binding upon the parties hereto and their successors or permitted assigns. However, nothing in this Agreement, express or implied, shall give any other person any benefit or any legal or equitable right or remedy with respect hereto. 6. Conveyance Subject to the Purchase Agreement. This conveyance is made -------------------------------------------- pursuant to the Purchase Agreement and is subject to the terms thereof. 7. Counterparts. This Agreement may be separately executed in ------------ counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. Such execution and delivery may be accomplished by facsimile transmission. 8. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Texas, without regard to principles of conflicts of law thereof. [SIGNATURES ON NEXT PAGE] IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed as of the day and year first written above. AVIVA OVERSEAS, INC. By: /s/ R. Suttill --------------------- President CROSBY CAPITAL, LLC By: /s/ Jay A. Chaffee --------------------- Jay A. Chaffee President EX-10.8 9 0009.txt ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT 10.8 ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement (this "Agreement") is made effective as of 9:00 a.m., June 1, 2000, by and among Argosy Energy, Incorporated, a Delaware corporation ("Argosy Energy") and Crosby Acquisition, LLC, a Delaware limited liability company ("Crosby"). R E C I T A L WHEREAS, pursuant to that certain Fourth Amendment to Second Amended and Restated Limited Partnership Agreement of Argosy Energy International (the "Fourth Amendment") made as of 8:00 a.m. of even date herewith, Argosy Energy desires to transfer its remaining 0.0001% general partnership interest (the "GP Interest") in Argosy Energy International, a Utah limited partnership ("Argosy Energy") to Crosby. A G R E E M E N T NOW, THEREFORE, in consideration of the promises herein and in the Fourth Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Argosy Energy and Crosby hereby agree as follows: 1. Transfer of Partnership Interest. Argosy Energy hereby conveys, -------------------------------- transfers, assigns, grants, sells and delivers, to Crosby, and Crosby acquires, accepts and purchases, all of Argosy Energy's right, title and interest in the GP Interest. 2. Assumption. Crosby hereby assumes and accepts the GP Interest. ---------- 3. Further Assurances. Argosy Energy shall execute and deliver to ------------------ Crosby such further documents and instruments, and take such other action, that may be reasonably requested by Crosby to evidence this conveyance, transfer and assignment of the GP Interest. 4. Inurement. The conveyance, assignment and transfer herein shall --------- be effective as of the date hereof, and shall inure to the benefit of and be binding upon the parties hereto and their successors or permitted assigns. However, nothing in this Agreement, express or implied, shall give any other person any benefit or any legal or equitable right or remedy with respect hereto. 5. Counterparts. This Agreement may be separately executed in ------------ counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. Such execution and delivery may be accomplished by facsimile transmission. 6. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of Texas, without regard to principles of conflicts of law thereof. IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed as of the day and year first written above. CROSBY ACQUISITION, LLC By: CROSBY CAPITAL, LLC, as sole member By: /s/ Jay A. Chaffee ----------------- Jay A. Chaffee President Argosy Energy Incorporated By: /s/ R. Suttill -------------- President 2 EX-10.9 10 0010.txt ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT 10.9 ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement (this "Agreement") is made to be effective June 1, 2000, by and among Crosby Capital, LLC, a Texas limited liability company ("Partnership Holder") and Aviva Overseas, Inc., a Delaware corporation ("Aviva Overseas"). R E C I T A L WHEREAS, pursuant to Section 2.01 of that certain Loan, Settlement and Acquisition Agreement dated as of May 31, 2000 (the "Purchase Agreement"), by and among Partnership Holder, and Aviva Petroleum, Inc., a Texas corporation ("Parent"), Aviva America, Inc., a Delaware corporation ("Aviva America"), Aviva Operating, Inc., a Delaware corporation ("Aviva Operating"), Aviva Overseas, Neo Energy Inc., a Texas corporation ("Neo"), Garnet Resources Corp., a Delaware corporation ("Garnet"), Argosy Energy, Inc., a Delaware corporation ("Argosy Energy"), and Argosy Energy International, a Utah limited partnership ("Argosy International"), Neo, Garnet, and Argosy Energy (collectively, the "Aviva Partnership Holders") agreed to convey to Partnership Holder all of their right, title, and interest in and to their Partnership Interests in Argosy International; and WHEREAS, the Aviva Partnership Holders have conveyed to Partnership Holder by that certain Assignment and Assumption Agreement of even date herewith by and between the Aviva Partnership Holders and Partnership Holder all of their right, title and interest in and to their Partnership Interests in Argosy International; and WHEREAS, pursuant to Section 4.02 of the Purchase Agreement, Partnership Holder has agreed to sell, grant, convey, transfer, assign and deliver to Aviva Overseas all right, title and interest of Partnership Holder to 22.1196% of the Partnership Interests in Argosy International. A G R E E M E N T NOW, THEREFORE, in consideration of the promises herein and in the Purchase Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Partnership Holder and Aviva Overseas hereby agree as follows: 1. Transfer of Partnership Interest. Partnership Holder hereby -------------------------------- conveys, transfers, assigns, grants, sells and delivers, to Aviva Overseas, and Aviva Overseas acquires, accepts and purchases, all of Partnership Holder's right, title and interest in 22.1196% of the Partnership Interests. 2. Assumption. Aviva Overseas hereby assumes and accepts the ---------- Partnership Interests. 3. Effective Date. The transfer of Partnership Interest contemplated -------------- herein, and the assignment and assumption thereof, shall be effective as of June 1, 2000. 4. Further Assurances. Partnership Holder shall execute and deliver ------------------ to Aviva Overseas such further documents and instruments, and take such other action, that may be reasonably requested by Aviva Overseas to evidence this conveyance, transfer and assignment of 22.1196% of the Partnership Interests. 5. Definitions. All capitalized terms not otherwise defined herein ----------- shall have the meaning ascribed to them in the Purchase Agreement. 6. Inurement. The conveyance, assignment and transfer herein shall --------- be effective as of the date hereof, and shall inure to the benefit of and be binding upon the parties hereto and their successors or permitted assigns. However, nothing in this Agreement, express or implied, shall give any other person any benefit or any legal or equitable right or remedy with respect hereto. 7. Conveyance Subject to the Purchase Agreement. This conveyance is -------------------------------------------- made pursuant to the Purchase Agreement and is subject to the terms thereof. 8. Counterparts. This Agreement may be separately executed in ------------ counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. Such execution and delivery may be accomplished by facsimile transmission. 9. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of Texas, without regard to principles of conflicts of law thereof. [SIGNATURES ON NEXT PAGE] 2 IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed as of the day and year first written above. AVIVA OVERSEAS, INC. By: /s/ R. Suttill -------------- President CROSBY CAPITAL, LLC By: /s/ Jay A. Chaffee ------------------ Jay A. Chaffee President 3 EX-10.10 11 0011.txt PLEDGE AGREEMENT EXHIBIT 10.10 PLEDGE AGREEMENT ("Aviva Overseas, Inc.") THIS PLEDGE AGREEMENT (this "Agreement") is made as of May 31, 2000, by Aviva Overseas, Inc., a Delaware corporation (herein called "Debtor"), in favor of Crosby Capital, LLC, a Texas limited liability company ("Secured Party"). RECITALS: 1. Aviva Petroleum Inc., a Texas corporation ("Parent"), Aviva America, Inc., a Delaware corporation, ("Aviva America"), Aviva Operating Company, a Nevada Corporation ("Aviva Operating"), Argosy Energy Incorporated ("Argosy Energy"), Neo Energy, Inc., a Texas corporation ("Neo" or "Borrower"), Garnet Resources Corporation, a Delaware corporation ("Garnet") and Secured Party are parties to a Loan, Settlement and Acquisition Agreement (the "Loan Agreement") of even date herewith, pursuant to which Secured Party has agreed to renew and extend credit to Neo. 2. Neo has executed in favor of Secured Party that certain promissory note of even date herewith, payable to the order of Secured Party in the principal amount of $2,750,000 (such promissory note, as from time to time amended, and all promissory notes given in substitution, renewal or extension therefor or thereof, in whole or in part, being herein collectively called the "Amended and Restated Neo Note"). 3. Aviva Operating, Garnet, Argosy Energy, Garnet PNG Corporation, a Delaware corporation ("Garnet PNG"), Aviva America, Aviva Delaware Inc., a Delaware corporation, Argosy Energy International, a Utah limited partnership ("Argosy International"), Neo, Parent, ING (U.S.) Capital Corporation, a Delaware corporation ("ING"), Chase Bank of Texas, National Association ("Chase"), the Overseas Private Investment Corporation, an agency of the United States of America ("OPIC") and ING, as Secured Party for the creditors ("Collateral Agent") are parties to a Joint Finance and Intercreditor Agreement (herein, as from time to time amended, supplemented or restated, called the "Intercreditor Agreement"), pursuant to which ING has agreed to act as Collateral Agent for the benefit of creditors. 4. Parent owns directly, or indirectly through one or more subsidiaries, one-hundred percent (100%) of the outstanding shares of common stock of Debtor and one-hundred percent (100%) of the outstanding shares of common stock of Neo. 5. Parent, Neo, Debtor, and the other direct and indirect subsidiaries of Parent are mutually dependent on each other in the conduct of their respective businesses under a holding company structure, with the credit needed from time to time by each often being provided by another or by means of financing obtained by one such affiliate with the support of the others for their mutual benefit and the ability of each to obtain such financing being dependent on the successful operations of the others. 6. To induce Secured Party to renew and extend credit to Neo and accept from Neo the Amended and Restated Neo Note, Debtor has agreed to execute and deliver to Secured Party this Pledge Agreement. 7. The board of directors of Debtor has determined that Debtor's execution, delivery and performance of this Pledge Agreement may reasonably be expected to benefit Debtor, directly or indirectly, is in the best interests of Debtor and is necessary or convenient to the conduct, promotion or attainment of the business of Debtor. NOW, THEREFORE, in consideration of the premises, of the benefits which will inure to Debtor from the Secured Party's extension of credit under the Loan Agreement, and of other good and valuable consideration, the receipt and sufficiency of all of which are hereby acknowledged, Debtor hereby agrees with the Secured Party as follows: ARTICLE I - Definitions and References -------------------------------------- Section 1.1. General Definitions. As used herein, the terms defined above ------------------- shall have the meanings indicated above, and the following terms shall have the following meanings: "Borrowers" means Neo Energy, Inc. --------- "Collateral" means all property, of whatever type, which is described in ---------- Section 2. 1 as being at any time subject to a security interest granted hereunder to Secured Party. "Commitment" means any agreement or commitment by Secured Party to make ---------- loans or otherwise extend credit to Debtor under any Loan Document, and any other agreement, commitment, statement of terms or other document contemplating the making of loans or advances or other extension of credit by Secured Party to or for the account of Debtor which is now or at any time hereafter intended to be secured by the Collateral under this Agreement. "Creditor" means Secured Party in its capacity as a Lender, its successors -------- and any permitted assignees. "Other Liable Party" means any Person, other than Debtor, but including ------------------ Borrower, who may now or may at any time hereafter be primarily or secondarily liable for any of the Secured Obligations or who may now or may at any time hereafter have granted to Secured Party a Lien upon any property as security for the Secured Obligations. "Pledged Partnership Interest" has the meaning given it in Section 2.1(a). ---------------------------- "Secured Obligations" shall have the meaning given it in Section 2.2. ------------------- "UCC" means the Uniform Commercial Code currently in effect in the State of --- Texas as of the date hereof. Section 1.2. Incorporation of Other Definitions. Reference is hereby made ---------------------------------- to the Loan Agreement for a statement of the terms thereof All capitalized terms used in this Agreement which are defined in the Loan Agreement and not otherwise defined herein shall have the same meanings herein as set forth therein. All terms used in this Agreement which are defined in the UCC and not otherwise defined herein or in the Loan Agreement shall have the same meanings herein as set forth therein, except where the context otherwise requires. 2 Section 1.3. Attachments. All exhibits or schedules which may be attached ----------- to this Agreement are a part hereof for all purposes. Section 1.4. Amendment of Defined Instruments. Unless the context otherwise -------------------------------- requires or unless otherwise provided herein, references in this Agreement to a particular agreement, instrument or document (including, but not limited to, references in Section 2.1) also refer to and include all renewals, extensions, amendments, modifications, supplements or restatements of any such agreement, instrument or document, provided that nothing contained in this Section shall be construed to authorize any Person to execute or enter into any such renewal, extension, amendment, modification, supplement or restatement. Section 1.5. References and Titles. All references in this Agreement to --------------------- Exhibits, Articles, Sections, subsections, and other subdivisions refer to the Exhibits, Articles, Sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any subdivision are for convenience only and do not constitute any part of any such subdivision and shall be disregarded in construing the language contained in this Agreement. The words "this Agreement", "herein", "hereof", "hereby", "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The phrases "this Section" and "this subsection" and similar phrases refer only to the Sections or subsections hereof in which the phrase occurs. The word "or" is not exclusive, and the word "including" (in all of its forms) means "including without limitation". Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa unless the context otherwise requires. ARTICLE II -- Security Interest ------------------------------- Section 2.1. Grant of Security Interest. As collateral security for all of -------------------------- the Secured Obligations, Debtor hereby pledges and assigns to Secured Party and grants to Secured Party a continuing security interest in and to all right, title and interest of the following: (a) Pledged Partnership Interest. All of the following, whether now or ---------------------------- hereafter existing, which are owned by Debtor or in which Debtor otherwise has any rights: Debtor's interest in Argosy International (the "Partnership Interest") and any distribution of cash or other type of property with respect to the Partnership Interest. (b) All proceeds of any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof) or under any indemnity, warranty or guaranty by reason of loss to or otherwise with respect to any of the foregoing Collateral. In each case, the foregoing shall be covered by this Agreement, whether Debtor's ownership or other rights therein are presently held or hereafter acquired and however Debtor's interests therein may arise or appear (whether by ownership, security interest, claim or otherwise). 3 Section 2.2. Secured Obligations Secured. The security interest created --------------------------- hereby in the Collateral constitutes continuing collateral security for all of the following obligations, indebtedness and liabilities, whether now existing or hereafter incurred or arising: (a) Loan Agreement Indebtedness. (i) The payment, as and when due and --------------------------- payable, of all amounts from time to time owing under or in respect of the Amended and Restated Neo Note, and (ii) the due performance of all other obligations of any Aviva Party under or in respect of the Loan Agreement or the various Loan Documents, including the Guaranty dated of even date herewith made by Debtor in favor of the Secured Party; provided, however, that the obligations described in subsection (i) hereof or any Loan Documents shall no longer constitute Secured Obligations upon transfer of the Amended and Restated Neo Note to Parent. (b) Renewals. All renewals, extensions, amendments, modifications, -------- supplements, or restatements of or substitutions for any of the foregoing. As used herein, the term "Secured Obligations" refers to all present and ------------------- future indebtedness, obligations, and liabilities of whatever type which are described above in this section, including any interest which accrues after the commencement of any case, proceeding, or other action relating to the bankruptcy, insolvency, or reorganization of the Debtor. ARTICLE III -- Representations, Warranties and Covenants -------------------------------------------------------- Section 3.1. Representations and Warranties. Debtor represents and warrants ------------------------------ to Secured Party as follows: (a) Ownership Free of Liens. Debtor has good and marketable title to the ----------------------- Collateral free and clear of all Liens, encumbrances or adverse claims, except for the security interest created by this Agreement and the security interests and other encumbrances expressly permitted by the Loan Agreement and Intercreditor Agreement. No dispute, right of setoff, counterclaim or defense exists with respect to all or any part of the Collateral, except as provided for in the Loan Agreement and the Intercreditor Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office except any which have been filed or assigned in favor of Secured Party relating to this Agreement, or under the Loan Agreement or the Intercreditor Agreement. (b) No Conflicts or Consents. Neither the ownership or the intended use of ------------------------ the Collateral by Debtor, nor the grant of the security interest by Debtor to Secured Party herein, nor the exercise by Secured Party of its rights or remedies hereunder, will (i) conflict with any provision of (a) any domestic or foreign law, statute, rule or regulation, (b) the articles or certificate of incorporation, charter or bylaws of Debtor, (c) any agreement, judgment, license, order or permit applicable to or binding upon Debtor or Argosy International, or (ii) result in or require the creation of any Lien, charge or encumbrance upon any assets or properties of Debtor or of Argosy International or Related Person except as expressly contemplated in the Loan Documents. Except as expressly contemplated in the Loan Documents, no consent, approval, authorization or order of and no notice to or filing with, any court, governmental authority, Issuer or third party is required in connection with the grant by Debtor of the security interest herein, or the exercise by Secured Party of its rights and remedies hereunder. 4 (c) Security Interest. Debtor has and will have at all times full right, ----------------- power and authority to grant a security interest in the Collateral to Secured Party as provided herein, free and clear of any Lien, adverse claim, or encumbrance, except as provided for in the Loan Agreement and the Intercreditor Agreement. This Agreement creates a valid and binding security interest in favor of Secured Party in the Collateral, which security interest secures all of the Secured Obligations. The taking possession by Secured Party of all certificates, instruments and cash Collateral from time to time and the filing of the financing statements delivered concurrently herewith by Debtor to Secured Party will perfect and establish Secured Party's security interest hereunder in the Collateral securing the Secured Obligations. No further or subsequent filing, recording, registration, other public notice or other action is necessary or desirable to perfect or otherwise continue, preserve or protect such security interest except for continuation statements or filings described in Section 3.3(d). (d) Location of Debtor and Records. As of the date hereof Debtor's chief ------------------------------ executive office and principal place of business and the office where the records concerning the Collateral are kept is located at its address set forth below. Section 3.2. Affirmative Covenants. Unless each Secured Party shall --------------------- otherwise consent in writing, Debtor will at all times comply with the covenants contained in this Section 3.2 from the date hereof and so long as any part of the Secured Obligations or any commitment of Secured Party to make loans is outstanding. (a) Ownership and Liens. Debtor will maintain good and marketable title to ------------------- all Collateral free and clear of all Liens, encumbrances or adverse claims, except for the security interest created by this Agreement and the security interests and other encumbrances expressly permitted by the Intercreditor Agreement and Loan Agreement. Debtor will not permit any dispute, right of setoff, counterclaim or defense to exist with respect to all or any part of the Collateral. Debtor will cause to be terminated any financing statement or other registration or instrument similar in effect covering all or any part of the Collateral, except those filed under the Intercreditor Agreement and the Loan Agreement, and any which have been filed in favor of, or assigned to, Secured Party relating to this Agreement. Debtor will defend Secured Party's right, title and special property and security interest in and to the Collateral against the claims of any Person. (b) Further Assurances. Debtor will, at its expense and at any time and ------------------ from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be reasonably necessary or desirable or that Secured Party may reasonably request in order (i) to perfect and protect the security interest created or purported to be created hereby; (ii) to enable Secured Party to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) to otherwise effect the purposes of this Agreement, including but not limited to: (A) executing and filing such financing or continuation statements, or amendments thereto, as may be reasonably necessary or desirable or that Secured Party may reasonably request in order to perfect and preserve the security interest created or purported to be created hereby (B) delivering to Secured Party (upon request, to the extent not otherwise required hereunder to be delivered without request) all originals of chattel paper, documents or instruments which are from time to time included in the Collateral; and (C) furnishing to Secured Party from time to time statements and schedules further identifying and describing the 5 Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail. (c) Inspection and Information. Debtor will keep adequate records -------------------------- concerning the Collateral and will permit Secured Party and all representatives appointed by Secured Party, including independent accountants, agents, attorneys, appraisers and any other persons, to inspect any of the Collateral and the books and records of or relating to the Collateral at any time during normal business hours, and to make photocopies and photographs thereof and to write down and record any information as such representatives shall obtain. Debtor will furnish to Secured Party any information which Secured Party may from time to time request concerning any covenant, provision or representation contained herein or any other matter in connection with the Collateral or Debtor's business, properties, or financial condition. (d) Proceeds of Pledged Partnership Interest. If Debtor shall receive, by ---------------------------------------- virtue of its being or having been an owner of Pledged Partnership Interest, any (i) stock certificate (including any certificate representing a stock dividend or distribution in connection with any increase or reduction of capital, reorganization, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spinoff or split-off), promissory note or other instrument or writing; (ii) option or right, whether as an addition to, substitution for, or in exchange for, any Pledged Partnership Interest, or otherwise; (iii) dividends payable in securities or other property, or (iv) dividends or other distributions in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, Debtor shall receive the same in trust for the benefit of Secured Party, shall segregate it from Debtor's other property, and shall promptly deliver it to Secured Party in the exact form received, with any necessary endorsement or appropriate stock powers duly executed in blank, to be held by Secured Party as Collateral. Section 3.3. Negative Covenants. Unless Secured Party shall otherwise ------------------ consent in writing, Debtor will at all times comply with the covenants contained in this Section 3.3 from the date hereof and so long as any part of the Secured Obligations or any commitment of Secured Party to make loans is outstanding. (a) Transfer or Encumbrance. Debtor will not sell, assign (by operation of ----------------------- law or otherwise), transfer, exchange or otherwise dispose of any of the Collateral, nor will Debtor grant a lien upon, except for the security interest created by this Agreement and the security interests and other encumbrances expressly permitted by the Intercreditor Agreement and Loan Agreement, or execute, file or record any financing statement or other registration with respect to the Collateral, nor will Debtor allow any such Lien, financing statement, or other registration to exist or deliver actual or constructive possession of the Collateral to any other Person, other than Liens in favor of Secured Party or expressly permitted by the Intercreditor Agreement and Loan Agreement. (b) Impairment of Security Interest. Debtor will not take or fail to take ------------------------------- any action which would in any manner impair the value or enforceability of Secured Party's equal and ratable first priority security interest in any Collateral. 6 (c) Compromise of Collateral. Debtor will not adjust, settle, compromise, ------------------------ amend or modify any of its rights in the Collateral. (d) Financing Statement Filings. Debtor recognizes that financing --------------------------- statements pertaining to the Collateral have been or may be filed where Debtor maintains any Collateral, has its records concerning any Collateral or has its chief executive office or chief place of business. Without limitation of any other covenant herein, Debtor will not cause or permit any change to be made in its name, identity or corporate structure, or any change to be made to a jurisdiction other than as represented in Section 3.1 hereof in (i) the location of any records concerning any Collateral or (ii) in the location of its chief executive office or chief place of business, unless Debtor shall have notified Secured Party of such change at least thirty (30) days prior to the effective date of such change, and shall have first taken all action required by Secured Party for the purpose of further perfecting or protecting the security interest in favor of Secured Party in the Collateral. In any notice furnished pursuant to this subsection, Debtor will expressly state that the notice is required by this Agreement and contains facts that may require additional filings of financing statements or other notices for the purposes of continuing perfection of Secured Party's security interest in the Collateral. (e) Restrictions on Pledged Partnership Interests. Debtor will not enter --------------------------------------------- into any agreement creating, or otherwise permit to exist, any restriction or condition upon the transfer, voting or control of the Pledged Partnership Interest, except for those restrictions and conditions existing as of the date of this Agreement. ARTICLE IV -- Remedies. Powers and Authorizations ------------------------------------------------- Section 4.1. Provisions Concerning the Collateral. ------------------------------------ (a) Additional Filings. Debtor hereby authorizes Secured Party to file, ------------------ without the signature of Debtor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral. Debtor further agrees that a carbon, photographic or other reproduction of this Security Agreement or of any financing statement describing any Collateral is sufficient as a financing statement and may be filed in any jurisdiction Secured Party may deem appropriate. (b) Power of Attorney. Debtor hereby irrevocably appoints Secured Party as ----------------- Debtor's attorney-in-fact and proxy, with full authority in the place and stead of Debtor and in the name of Debtor or otherwise, from time to time in Secured Party's discretion, to take any action, and to execute or endorse any instrument, certificate or notice, which Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement including any action or instrument: (ii) to otherwise give notification to any issuer, registrar, transfer agent, financial intermediary, or other Person of Secured Party's security interests hereunder, (iii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (iv) to receive, endorse and collect any drafts or other instruments or documents; (v) to enforce any obligations included among the Collateral; and (vi) to file any claims or take any action or institute any proceedings which Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce, perfect, or establish the priority of the rights of Secured 7 Party with respect to any of the Collateral: Debtor hereby acknowledges that such power of attorney and proxy are coupled with an interest, and are irrevocable. (c) Performance by Secured Party. If Debtor fails to perform any agreement ---------------------------- or obligation contained herein, Secured Party may itself perform, or cause performance of such agreement or obligation, and the expenses of Secured Party incurred in connection therewith shall be payable by Debtor under Section 4.5. (d) Collection Rights. Secured Party shall have the right at any time, ----------------- upon the occurrence and during the continuance of an Event of Default, to notify (or require Debtor to notify) any or all Persons (including Argosy International) obligated to make payments which are included among the Collateral (whether accounts, general intangibles, dividends, or otherwise) of the assignment thereof to Secured Party under this Agreement and to direct such obligors to make payment of all amounts due or to become due to Debtor thereunder directly to Secured Party and, upon such notification and at the expense of Debtor and to the extent permitted by law, to enforce collection thereof and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Debtor could have done. After Debtor receives notice that Secured Party has given (and after Secured Party has required Debtor to give) any notice referred to above in this subsection: (i) all amounts and proceeds (including instruments and writings) received by Debtor in respect of such rights to payments, accounts, or general intangibles shall be received in trust for the benefit of Secured Party hereunder, shall be segregated from other funds of Debtor and shall be forthwith paid over to Secured Party in the same form as so received (with any necessary endorsement) to be, at Secured Party's discretion, either (A) held as cash collateral and released to Debtor upon the remedy of all Defaults or Events of Default then existing, or (B) if any Event of Default shall have occurred and be continuing, applied as specified in Section 4.3, and (ii) Debtor will not adjust, settle or compromise the amount or payment of any such account or general intangible or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon. Section 4.2. Event of Default Remedies. When an Event of Default shall have ------------------------- occurred and be continuing, Secured Party may from time to time in their discretion, without limitation and without notice except as expressly provided below or as required by applicable law: (a) exercise in respect of the Collateral, in addition to any other rights and remedies provided for herein, under the other Loan Documents or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral); (b) require Debtor to, and Debtor hereby agrees that it will at its expense and upon request of Secured Party, promptly assemble all or part of the Collateral as directed by Secured Party and make it (together with all books, records and information of Debtor relating thereto) 8 available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties; (c) reduce its claim to judgment or foreclose or otherwise enforce, in whole or in part, the security interest created hereby by any available judicial procedure; (d) dispose of, at its office, on the premises of Debtor or elsewhere, all or any part of the Collateral, as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale of any part of the Collateral shall not exhaust Secured Party's power of sale, but sales may be made from time to time, and at any time, until all of the Collateral has been sold or until the Secured Obligations have been paid and performed in full), and at any such sale it shall not be necessary to exhibit any of the Collateral; (e) buy the Collateral, or any part thereof; at any public sale; (f) buy the Collateral, or any part thereof; at any private sale if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations; (g) apply by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and Debtor hereby consents to any such appointment; and (h) at its discretion, retain the Collateral in satisfaction of the Secured Obligations whenever the circumstances are such that Secured Party is entitled to do so under the UCC or otherwise (provided that Secured Party shall in no circumstances be deemed to have retained the Collateral in satisfaction of the Secured Obligations in the absence of an express notice by Secured Party to Debtor that Secured Party has either done so or intends to do so). Debtor agrees that, to the extent notice of sale shall be required by law, at least seven (7) days' notice to Debtor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. A Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Section 4.3. Application of Proceeds. If any Event of Default shall have ----------------------- occurred and be continuing, Secured Party may in its discretion apply any cash held by Secured Party as Collateral, and any cash proceeds received by Secured Party in respect of any sale of; collection from, or other realization upon all or any part of the Collateral, to any or all of the following in such order as Secured Party may elect: (a) To the repayment of all costs and expenses, including reasonable attorneys' fees and legal expenses, incurred by Secured Party in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of; or the sale of; collection from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure of Debtor to perform or observe any of the provisions hereof; 9 (b) To the payment or other satisfaction of any Liens, encumbrances, or adverse claims upon or against any of the Collateral; (c) To the reimbursement of Secured Party for the amount of any obligations of Debtor or any Other Liable Party paid or discharged by Secured Party pursuant to the provisions of this Agreement or the other Loan Documents, and of any expenses of Secured Party payable by Debtor hereunder or under the other Loan Documents; (d) To the satisfaction of any other Secured Obligations; (e) By holding the same as Collateral; (f) To the payment of any other amounts required by applicable law (including any provision of the UCC); and (g) By delivery to Debtor or to whomever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct. Section 4.4. Deficiency. In the event that the proceeds of any sale, ---------- collection or realization of or upon Collateral by Secured Party are insufficient to pay all Secured Obligations and any other amounts to which Secured Party is legally entitled, Debtor shall be liable for the deficiency, together with interest thereon as provided in the governing Loan Documents or (if no interest is so provided) at such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees of any attorneys employed by Secured Party to collect such deficiency. Section 4.5. Indemnity and Expenses. In addition to, but not in ---------------------- qualification or limitation of; any similar obligations under other Loan Documents: (a) Debtor will indemnify Secured Party from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including enforcement of this Agreement), WHETHER OR NOT SUCH CLAIMS, LOSSES AND LIABILITIES ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED BY OR ARISING OUT OF SUCH INDEMNIFIED PARTY'S OWN NEGLIGENCE, except to the extent such claims, losses or liabilities are proximately caused by Secured Party's individual gross negligence or willful misconduct. (b) Debtor will upon demand pay to Secured Party the amount of any and all costs and expenses, including the reasonable fees and disbursements of Secured Party's counsel and of any experts and agents, which Secured Party may incur in connection with (i) the administration of this Agreement; (ii) the custody, preservation, use or operation of; or the sale of; collection from, or other realization upon, any Collateral; (iii) the exercise or enforcement of any of the rights of Secured Party hereunder; or (iv) the failure by Debtor to perform or observe any of the provisions hereof; except costs and expenses resulting from Secured Party's gross negligence or willful misconduct. 10 Section 4.6. Non-Judicial Remedies. In granting to Secured Party the power --------------------- to enforce its rights hereunder without prior judicial process or judicial hearing, Debtor expressly waives, renounces and knowingly relinquishes any legal right which might otherwise require Secured Party to enforce their rights by judicial process. In so providing for non-judicial remedies, Debtor recognizes and concedes that such remedies are consistent with the usage of trade, are responsive to commercial necessity, and are the result of a bargain at arm's length. Nothing herein is intended, however, to prevent Secured Party or Debtor from resorting to judicial process at its option. Section 4.7. Other Recourse. Debtor waives any right to require Secured -------------- Party to proceed against any other Person, to exhaust any Collateral or other security for the Secured Obligations, or to have any Other Liable Party joined with Debtor in any suit arising out of the Secured Obligations or this Agreement, or pursue any other remedy in Secured Party's power. Debtor further waives any and all notice of acceptance of this Agreement and of the creation, modification, rearrangement, renewal or extension for any period of any of the Secured Obligations of any Other Liable Party from time to time. Debtor further waives any defense arising by reason of any disability or other defense of any Other Liable Party or by reason of the cessation from any cause whatsoever of the liability of any Other Liable Party. This Agreement shall continue irrespective of the fact that the liability of any Other Liable Party may have ceased and irrespective of the validity or enforceability of any other Loan Document to which Debtor or any Other Liable Party may be a party, and notwithstanding any death, incapacity, reorganization, or bankruptcy of any Other Liable Party or any other event or proceeding affecting any Other Liable Party. Until all of the Secured Obligations shall have been paid in full, Debtor shall have no right to subrogation and Debtor waives the right to enforce any remedy which Secured Party has or may hereafter have against any Other Liable Party, and waives any benefit of and any right to participate in any other security whatsoever now or hereafter held by Secured Party. Debtor authorizes Secured Party, without notice or demand, without any reservation of rights against Debtor, and without in any way affecting Debtor's liability hereunder or on the Secured Obligations, from time to time to (a) take or hold any other property of any type from any other Person as security for the Secured Obligations, and exchange, enforce, waive and release any or all of such other property, (b) apply the Collateral or such other property and direct the order or manner of sale thereof as Secured Party may in its discretion determine, (c) renew, extend for any period, accelerate, modify, compromise, settle or release any of the obligations of any Other Liable Party in respect to any or all of the Secured Obligations or other security for the Secured Obligations, (d) waive, enforce, modify, amend, restate or supplement any of the provisions of any Loan Document with any Person other than Debtor, and (e) release or substitute any Other Liable Party. (a) So long as no Default or Event of Default shall have occurred and be continuing Debtor may receive and retain any and all proceeds paid in respect of the Pledged Partnership Interest; provided, however, that any and all -------- ------- (i) Proceeds paid or payable other than in cash in respect of; and instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Partnership Interest, and 11 (ii) Proceeds paid or payable in cash in respect of any Pledged Partnership Interest in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, shall be, and shall forthwith be delivered to Secured Party to hold as, Pledged Partnership Interest and shall, if received by Debtor, be received in trust for the benefit of Secured Party, be segregated from the other property or funds of Debtor, and be forthwith delivered to Secured Party in the exact form received with any necessary endorsement duly executed in blank, to be held by Secured Party as Collateral. (b) Upon the occurrence and during the continuance of a Default or an Event of Default: (i) all rights of Debtor to receive and retain payments in connection with the Partnership Interest which it would otherwise be authorized to receive and retain pursuant to subsection (a) of this section shall automatically cease, and all such rights shall thereupon become vested in Secured Party which shall thereupon have the sole right to receive and hold as Pledged Partnership Interest such payments; (ii) without limiting the generality of the foregoing, Secured Party may at its option exercise any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to the Pledged Partnership Interest as if it were the absolute owner thereof; including, without limitation, the right to exchange, in its discretion, any and all of the Pledged Partnership Interest upon the merger, consolidation, reorganization, recapitalization or other adjustment of any Issuer, or upon the exercise by any Issuer of any right, privilege or option pertaining to any Pledged Partnership Interest and, in connection therewith, to deposit and deliver any and all of the Pledged Partnership Interest with any committee, depository, transfer, agent, registrar or other designated agent upon such terms and conditions as it may determine; and (iii) all dividends and interest payments which are received by Debtor contrary to the provisions of subsection (b)(l) of this section shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Debtor, and shall be forthwith paid over to Secured Party as Pledged Partnership Interest in the exact form received, to be held by Secured Party as Collateral. Anything herein to the contrary notwithstanding, Debtor may at all times exercise any and all voting rights pertaining to the Pledged Partnership Interest or any part thereof for any purpose not inconsistent with the terms of this Agreement or any other Loan Document; provided, however, that Debtor will -------- ------- not exercise or refrain from exercising any such right, as the case may be, if Secured Party gives it notice that, in Secured Party's judgment, such action would have a material adverse effect on the value of the Pledged Partnership Interest or the benefits to Secured Party of its security interest hereunder. Section 4.9. Private Sale of Pledged Partnership Interest. Debtor -------------------------------------------- recognizes that Secured Party may deem it impracticable to effect a public sale of all or any part of the Pledged Partnership Interest and that Secured Party may, therefore, determine to make one or more 12 private sales of any such securities to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof Debtor acknowledges that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the foregoing, agrees that such private sales shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to delay sale of any such securities for the period of time necessary to permit the Issuer of such securities to register such securities for public sale under the Securities Act of 1933, as amended. Debtor further acknowledges and agrees that any offer to sell such securities which has been (a) publicly advertised on a bona fide basis in a newspaper or other publication of general circulation in --------- the financial community of New York, New York (to the extent that such an offer may be so advertised without prior registration under the Securities Act), or (b) made privately in the manner described above to not less than fifteen (15) bona fide offerees shall be deemed to involve a "public sale" for the purposes - --------- of Section 9-504(3) of the UCC (or any successor or similar, applicable statutory provision) as then in effect in the State of Texas, notwithstanding that such sale may not constitute a "public offering" under the Securities Act of 1933, as amended, and that Secured Party may, in such event, bid for the purchase of such securities. ARTICLE V -- Miscellaneous -------------------------- Section 5.1. Notices. Any notice or communication required or permitted ------- hereunder shall be given as provided in the Intercreditor Agreement and Loan Agreement. Section 5.2. Amendments. No amendment of any provision of this Agreement ---------- shall be effective unless it is in writing and signed by Debtor and Secured Party, and no waiver of any provision of this Agreement, and no consent to any departure by Debtor therefrom, shall be effective unless it is in writing and signed by Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given and to the extent specified in such writing. Section 5.3. Preservation of Rights. No failure on the part of Secured ---------------------- Party to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. Neither the execution nor the delivery of this Agreement shall in any manner impair or affect any other security for the Secured Obligations. The rights and remedies of Secured Party provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of; any rights or remedies provided by law. The rights of Secured Party under any Loan Document against any party thereto are not conditional or contingent on any attempt by Secured Party to exercise any of its rights under any other Loan Document against such party or against any other Person. Section 5.4. Unenforceability. Any provision of this Agreement which is ---------------- prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. 13 Section 5.5. Survival of Agreements. All representations and warranties of ---------------------- Debtor herein, and all covenants and agreements herein shall survive the execution and delivery of this Agreement, the execution and delivery of any other Loan Documents and the creation of the Secured Obligations. Section 5.6. Other Liable Party. Neither this Agreement nor the exercise by ------------------ Secured Party or the failure of Secured Party to exercise any right, power or remedy conferred herein or by law shall be construed as relieving any Other Liable Party from liability on the Secured Obligations or any deficiency thereon. This Agreement shall continue irrespective of the fact that the liability of any Other Liable Party may have ceased or irrespective of the validity or enforceability of any other Loan Document to which Debtor or any Other Liable Party may be a party, and notwithstanding the reorganization, death, incapacity or bankruptcy of any Other Liable Party, and notwithstanding the reorganization or bankruptcy or other event or proceeding affecting any Other Liable Party. Section 5.7. Binding Effect and Assignment. This Agreement creates a ----------------------------- continuing security interest in the Collateral and (a) shall be binding on Debtor and its successors and permitted assigns and (b) shall inure, together with all rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing, Secured Party may (except as otherwise provided in the Intercreditor Agreement and Loan Agreement) pledge, assign or otherwise transfer any or all of its rights under any or all of the Loan Documents to any other Person, and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to Secured Party, herein or otherwise. None of the rights or duties of Debtor hereunder may be assigned or otherwise transferred without the prior written consent of Secured Party. Section 5.8. Termination. It is contemplated by the parties hereto that ----------- there may be times when no Secured Obligations are outstanding, but notwithstanding such occurrences, this Agreement shall remain valid and shall be in full force and effect as to subsequent outstanding Secured Obligations. Upon the satisfaction in full of the Secured Obligations, upon the termination or expiration of the Intercreditor Agreement and Loan Agreement and any other commitment of Creditors to extend credit to Debtor, and upon written request for the termination hereof delivered by Debtor to Secured Party, this Agreement and the security interest created hereby shall terminate and all rights to the Collateral shall revert to Debtor. Secured Party will, upon Debtor's request and at Debtor's expense, (a) return to Debtor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof; and (b) execute and deliver to Debtor such documents as Debtor shall reasonably request to evidence such termination. Section 5.9. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Texas applicable to contracts made and to be performed entirely within such State, except as required by mandatory provisions of law and except to the extent that the perfection and the effect of perfection or non-perfection of the security interest created hereunder, in respect of any particular collateral, are governed by the laws of a jurisdiction other than such State. 14 Section 5.10. Counterparts. This Agreement may be separately executed in ------------ any number of counterparts, all of which when so executed shall be deemed to constitute one and the same Agreement. IN WITNESS WHEREOF, Debtor has caused this Agreement to be executed and delivered this Agreement by its officer thereunto duly authorized, as of the date first above written. AVIVA OVERSEAS INC. By: /s/ R. Suttill --------------------- Name: Ron Suttill Title: President 15 EX-10.11 12 0012.txt 3RD AMD TO 2ND AMDED AND RSTD LMTD PART AGR EXHIBIT 10.11 THIRD AMENDMENT TO SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF ARGOSY ENERGY INTERNATIONAL THIS THIRD AMENDMENT TO THE SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF ARGOSY ENERGY INTERNATIONAL, AS PREVIOUSLY AMENDED (this "Amendment") is made and entered into to be effective as of the 31st day of May, --------- 2000, by and among the partners (collectively the "Partners") of Argosy Energy -------- International, a Utah limited partnership (the "Partnership"). ----------- RECITALS WHEREAS, Argosy Energy Incorporated, a Delaware Corporation (the "General ------- Partner"), Parkside Investments, a Utah corporation ("Parkside"), P-5, Ltd., a - ------- -------- Utah limited partnership ("P-5"), Go Deo, Inc., a Utah corporation ("Go Deo"), --- ------ Dale E. Armstrong ("Armstrong"), William Gaskin ("Gaskin"), Richard Shane --------- ------ McKnight ("McKnight") and Garnet Resource Corporation, a Delaware corporation -------- ("Garnet") entered into that certain Second Amended and Restated Limited ------ Partnership Agreement of Argosy Energy International dated January __, 1991, as amended by the Amendment to the Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated January 13, 1994 and the Second Amendment to the Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated July 1, 1994 (as amended, the "Original -------- Partnership Agreement"); - --------------------- WHEREAS, on March 16, 1995, Garnet acquired though multiple conveyances all of the limited partnership interests in and to the Partnership previously owned by Parkside, P-5 and Go Geo; WHEREAS, on February 12, 1996, Gaskin assigned all of his limited partnership interests in and to the Partnership to the General Partner, Garnet, Armstrong and McKnight; WHEREAS, effective January 1, 1999, Neo Energy, Inc. ("Neo") acquired by --- contribution of property to the Partnership a 49.9054% limited partnership interest in and to the Partnership, which resulted in a corresponding decrease in the percentage interests of Garnet, Armstrong and McKnight; WHEREAS, pursuant to Section 13.1 of the Original Partnership Agreement, the undersigned Partners, which comprise the requisite percent of Partners needed to amend the Original Partnership Agreement, desire to amend the Original Partnership Agreement pursuant to the terms of this Amendment; and WHEREAS, the Partners intend that all provisions of the Original Partnership Agreement not otherwise amended pursuant to the terms of this Amendment shall remain in full force and effect. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt of which is hereby acknowledged, the Partners hereby agree as follows: 1. Article I Amendments. Article I of the Original Partnership Agreement is --------------------- hereby amended by deleting Article I in its entirety and replacing it with the following Article I, which shall read in its entirety as follows: I THE LIMITED PARTNERSHIP 1.1 Formation. The Partnership was previously formed, as memorialized by that certain Certificate of Limited Partnership ("Certificate"), which was filed in the ----------- appropriate governmental office in Salt Lake City, Salt Lake County, Utah, in order to maintain and perfect the Partnership's existence as a limited partnership under Utah law. The Partners shall make any and all necessary or appropriate amendments to the Certificate which are required as a result of the execution of this Agreement. 1.2 Name of Partnership. The name of the Partnership is ARGOSY ENERGY INTERNATIONAL. 1.3 Term. The Partnership shall continue in existence until the close of business on December 31, 2025, unless earlier terminated in accordance with the terms of this Agreement. 1.4 Purposes of Partnership. The purposes of the Partnership are as follows: (a) To invest in, explore for, produce, treat, transport, market and sell oil and gas, or products derived therefrom, on and from the property described on Exhibit "A" hereto (the "Property"), which by -------- this reference is made a part hereof, located within the Republic of Colombia, S.A. and to engage directly or indirectly in any other business activity that lawfully may be conducted by a limited partnership organized under the laws of the State of Utah. (b) In furtherance of said business, the Partnership shall acquire any and all assets and engage in and carry out any business whatsoever that the General Partner shall deem proper or convenient in connection with any of the foregoing purposes, or which it deems necessary or appropriate to improve or assist in the business of the Partnership, to exercise all powers conferred by the laws of the State of Utah on limited partnerships formed under the laws of that 2 state, as such laws are now in effect or may at any time hereafter be amended, and to do any and all things herein above set forth to the same extent and as fully as natural persons might or could do, either alone or in connection with other persons, firms, partnerships, associations, or corporations. 1.5 Place of Business. The principal place of business of the Partnership shall be located at, and the address of the Partnership shall be, 8235 Douglas Avenue, Suite 400, Dallas, Texas 75225, or such other or additional place or places as shall be designated from time to time by the General Partner. 1.6 Names and Addresses of Partners. The names and addresses of the General Partner and the Limited Partners (collectively, the "Partners") are as set forth on Exhibit "B" -------- hereto which by this reference is made a part hereof. A Partner may change his or its address by giving written notification to the General Partner as provided herein. 1.7 Definitions. For purposes hereof, the following terms shall have the following meanings: (a) "Adjusted Capital Account Deficit" means, with respect to any -------------------------------- Partner for any taxable year, the deficit balance, if any, in such Partner's Capital Account as of the end of such taxable year, as the same is specially computed to reflect the adjustments required or permitted to be taken into account in applying Treasury Regulations Section 1.704- 1(b)(2)(ii)(d) (including adjustments for Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain). (b) "Affiliate" means, when used with reference to a specified --------- individual or entity, any individual or entity that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the specified individual or entity; provided, however, that no individual or any entity who controls, is controlled by, or is under common control with such individual shall be deemed an Affiliate of another entity solely by reason of such individual's status as a director, officer or employee of such entity. As used in this definition of Affiliate, the term "control" means the possession, directly or indirectly, ------- of the power to direct or cause the direction of the management and policies of an individual or entity, whether through ownership of voting securities, by contract or otherwise. (c) "Book Basis" means, with respect to any asset, the asset's ---------- adjusted basis for federal income tax purposes; provided, however, (a) if property is contributed to the Partnership, the initial Book Basis of such Property will equal its fair market value on the date of contribution, and (b) if the Capital Accounts of the Partnership are adjusted pursuant to Treasury Regulation Section 1.704-1(b) to reflect the fair market value of any Partnership assets, the Book Basis of such assets will be adjusted to equal its respective fair market value as of the time of such adjustment in accordance with such Treasury 3 Regulation. The Book Basis of all assets of the Partnership shall be adjusted thereafter by depreciation or amortization as provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(g). (d) "Code" means the Internal Revenue Code of 1986, as amended from ---- time to time. (e) "Dollar Revenues" means the revenues received by the Partnership --------------- for the sale of production and any other revenues received by the Partnership that are paid in U.S. Dollars. (f) "General Partner" means Argosy Energy Incorporated and its --------------- permitted successors and assigns. (g) "Limited Partner" means those Partners listed as limited partners --------------- on Exhibit B, and their permitted successors and assigns. (h) "Net Profit" and "Net Loss" mean for each taxable year or other ---------- -------- period the excess of items of Profit over items of Loss for such period, or the items of Loss over the items of Profit for such period, as appropriate. The terms Net Profit and Net Loss shall not include items of Profit and Loss allocated pursuant to Section 7.2. (i) "Partners" mean the General Partner and Limited Partners. -------- (j) "Partnership Minimum Gain" has the meaning set forth in Treasury ------------------------ Regulation Section 1.704-2(b)(2). (k) "Partner Minimum Gain" has the meaning set forth in Treasury -------------------- Regulation Section 1.704-2(i)(2). (l) "Partner Nonrecourse Debt" has the meaning set forth in Treasury ------------------------ Regulation Section 1.704-2(b)(4). (m) "Pesos Revenues" means the revenues received by the Partnership -------------- for the sale of production and any other revenues received by the Partnership that are paid in Colombian Pesos. (n) "Profits" and "Losses" mean, for each taxable year or other ------- ------ period, an amount equal to the Partnership's taxable income or loss for the year or other period, determined in accordance with Section 703(a) of the Code (including all items of income, gain, loss or deduction required to be stated separately under Section 703(a)(1) of the Code), with the following adjustments: (i) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses will be added to taxable income or loss; 4 (ii) Any expenditures of the Partnership described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures under Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses, will be subtracted from taxable income or loss; (iii) Gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes will be computed by reference to the Book Basis of the property, notwithstanding that the adjusted tax basis of the property differs from its Book Basis; (iv) Any depreciation, amortization and other cost recovery deductions shall be subject to the rules set forth in Treasury Regulation Section 1.704-1(b)(2)(iv)(g); and (v) Profits or Losses of the Partnership shall be computed without regard to the amount of any items of gross income, gain, loss or deduction that are specially allocated under Section 2 hereunder. (o) "Stated Rate" means the prime rate of interest as published from ----------- time to time in the Wall Street Journal plus 1%. 2. Article II Amendments. Article II of the Original Partnership Agreement is --------------------- hereby amended as follows: A. Sections 2.1(a), (b), (c), (e) of the Original Partnership Agreement are hereby deleted in their entirety and replaced with the following Sections 2.1(a), (b), and (c), respectively, which each shall read in its entirety as follows: (a) Enter into, make, perform and amend existing and future contracts, joint venture agreements, undertakings, commitments, leases and agreements, including, without limitation, any such contracts with Empresa Colombiana de Petroleos ("Ecopetrol"), and do such other acts as it may --------- deem necessary or advisable, or as may be incidental to, or necessary for, the conduct of the business of the Partnership and the ownership, management, development and sale of the property of the Partnership, whether owned directly or with any other person, firm, corporation, or other entity having any business, financial, or other relationship with the General Partner; (b) Open, maintain and close bank accounts and draw checks and other orders for the payment of money thereupon; (c) Borrow or loan money and make, issue, accept, endorse and execute promissory notes, drafts, bills of exchange, and other instruments and evidences of indebtedness for amounts not to exceed six million six hundred-thousand dollars ($6,600,000); and pay or repay with respect thereto, and secure the payment thereof by mortgage, security deed, pledge, or assignment of, or security in, all or any part of any property then owned or thereafter acquired by the Partnership, whether directly or 5 indirectly, and prepay, refinance, increase, modify, consolidate or extend any mortgage, security deed, or other encumbrance or security device; B. Section 2.1(d) of the Original Partnership Agreement is hereby deleted in its entirety. C. Sections 2.1(f), (g), (h), (i), (j), and (k) of the Original Partnership Agreement are hereby re-lettered as (e), (f), (g), (h) and (i) respectively. D. Section 2.2 of the Original Partnership Agreement is hereby deleted in its entirety and replaced with the following Section 2.2 which shall read in its entirety as follows: 2.2 Restrictions on the General Partner. (a) Notwithstanding anything to the contrary contained elsewhere in this Agreement, the General Partner shall not have authority to do any of the following in its name or in the name or on behalf of the Partnership, without the written consent or ratification of the specific act by all of the Limited Partners: (i) Any act in contravention of this Agreement; (ii) Any act that would make it impossible to carry on the ordinary business of the partnership ; (iii) Confess a judgment against the Partnership; or (iv) Possess Partnership assets, or assign rights in specific Partnership assets, for purposes other than a Partnership purpose; (b) Notwithstanding anything to the contrary contained elsewhere in this Agreement, the General Partner shall not have the authority to do any of the following in the name or on behalf of the Partnership, without the written consent or ratification of the specific act by Partners owning at least eighty percent (80%) of the Percentage Interests in the Partnership: (i) any sale, exchange, lease, or disposal of any of the Partnership's assets having a value of more than $2,000,000 in a single transaction or a series of related transactions; (ii) any merger or consolidation of the Partnership with any Affiliate entity of the General Partner; (iii) any purchase, exchange or other acquisition of any assets having a value of more than $2,000,000 in single transaction or a series of related transactions; (iv) any agreement to any indebtedness, encumbrance or liability in excess of $6,600,000; 6 (v) the issuance of any additional Partnership interests in the Partnership without first providing the existing Partners the right to acquire such additional Partnership interests on the same terms and conditions in proportion to their existing Percentage Interests; (vi) any quitclaim, surrender, release or abandonment of any Partnership property or interests therein except in the ordinary course of business; (vii) the guarantee of the payment of money or the performance of any contract or obligation by any person on behalf of the Partnership; (viii) the loan of money to a Partner or any third party; provided, however, that the consent of the Limited Partners to any such loan at the request of another Partner or Partners shall not be unreasonably withheld; (ix) the bringing of suit in the name of or in behalf of the Partnership or the settlement, waiver or compromise of any suit brought by or on behalf of or against the Partnership where the amount in controversy is in excess of $500,000; (x) the confession of a judgment against the Partnership; (xi) the submission of a Partnership claim or liability to arbitration or reference where the amount in controversy is in excess of $500,000; and (xii) any alterations to the apportionment, between United States dollars and Colombian pesos, of payments under the operating agreement for the Santana concession, whose ratio currently stands at 75% dollars and 25% pesos. E. Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.8 and 2.9 of the Original Partnership Agreement are deleted in their entirety and replaced with the following Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.8 and 2.9 respectively, which shall read each in its entirety as follows: 2.3 Compensation of General Partner. The General Partner shall be reimbursed by the Partnership for the direct out-of-pocket expenses reasonably incurred by it on behalf of the Partnership under the authority granted in this Agreement. All claimed reimbursable expenses shall be supported by vouchers, checks or other documentation. The Partners hereby authorize the General Partner to enter into a services agreement for general administrative services of the Partnership not to exceed seventy-five thousand dollars ($75,000) per month, but otherwise upon the terms and conditions determined by the General Partner in its sole discretion. 2.4 Liability of General Partner. The General Partner, its members, managers, officers, agents and employees shall not be liable, responsible or accountable, in damages or otherwise, to the Partnership or to the Limited Partners for any action taken or failure to act on behalf of the Partnership 7 within the scope of the authority conferred upon the General Partner by this Agreement or by law, unless such action or omission was performed or omitted fraudulently or constituted gross negligence. 2.5 Indemnification of General Partner. The Partnership shall and hereby does indemnify and hold harmless the General Partner and its members, managers, officers, directors, agents, attorneys and employees from and against any losses, expenses, or liabilities attributable to their acts or damages or other omissions or alleged acts or omissions occurring in the course of their activities on behalf of the Partnership or in furtherance of the business of the Partnership, including, but not limited to, any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in the defense of any actual or threatened action, proceeding or claim; provided that the acts or omissions or alleged acts or omissions, upon which the actual or threatened action, proceeding or claim is based, occurred in good faith and were not performed or omitted fraudulently or did not constitute gross negligence. To the extent such acts or omissions occurred in bad faith, were fraudulent or constituted gross negligence, the indemnity provided under this Section 2.5 shall be reduced by the General Partner's share of such bad faith, fraudulent or grossly negligent action, but shall otherwise not be eliminated. 2.6 No Exclusive Duty to Partnership. Neither the General Partner nor any affiliate of the General Partner shall be required to devote its full time, resources, or attention to the affairs and business of the Partnership, but shall devote such part of their time, effort and skill as they shall reasonably deem necessary to further conduct the Partnership's business in accordance with this Agreement and in accordance with the terms and provisions of the agreements governing the Partnership's ownership and operation of the Property. The General Partner and all other Partners may, notwithstanding the existence of this Agreement, engage in whatever other business activities outside the Republic of Colombia, South America, as they may choose, whether the same be competitive with the Partnership or otherwise, without having or incurring any obligation to offer any interest in such other activities to the Partnership or to the other Partners. It is expressly agreed that any Partner who engages in other business activities outside the Republic of Colombia, South America, shall not be considered to have breached any fiduciary or other duty that such Partner may have to the Partnership or to the other Partners. 2.7 Partnership Opportunities. Any and all business opportunities within the Intendancy of Putumayo, or the Department of Cauca, of the Republic of Colombia, South America, which come to the attention of any Partner shall be deemed an opportunity of the Partnership (a "Partnership Opportunity") and shall be immediately ----------------------- presented to the Partnership. If Partners owning at least 80% of the Percentage Interests vote in favor of pursuing a Partnership Opportunity, no individual Partner may pursue such Partnership Opportunity. In the event that Partners owning at least 80% of the Percentage Interests do not vote in 8 favor of pursuing a Partnership Opportunity, any individual Partner (including the General Partner) may pursue such opportunity in his or its own right, unless otherwise prohibited pursuant to the terms of another agreement. 2.8 Conversion of General Partner. In the event that the General Partner shall fail or refuse to carry out its duties hereunder or become incapable of carrying out its duties hereunder, the General Partner may be converted to a limited partner upon the vote of Partners (other than the General Partner) owning 80% of the Percentage Interests (as defined in Section 5.1) in the Partnership (exclusive of the General Partner's Percentage Interest in the Partnership), provided, however, that no such conversion shall affect the Capital Account, Percentage Interests or distribution rights of such General Partner or any other Partner. Upon removal, as provided for by this Section 2.8, the General Partner so removed shall become and shall continue as a Limited Partner of the Partnership. 2.9 Withdrawal of General Partner. The General Partner may withdraw as General Partner and convert its interest to a Limited Partner at any time upon ninety (90) days' prior written notice to each of the Partners. Such notice shall set forth the effective date of such withdrawal and conversion and shall contain the General Partner's recommendation as to its successor, if any. The General Partner shall use its best efforts to find a successor, if requested to do so by the Partnership, who has indicated a willingness to serve as the General Partner under the terms of this Agreement. The withdrawal and conversion by the General Partner shall in no way affect the Capital Account, Percentage Interests or distribution rights of the General Partner, and the General Partner shall become and shall remain a Limited Partner of the Partnership. 3. Article III Amendments. Article III of the Original Partnership Agreement ---------------------- is hereby amended by deleting Sections 3.1, 3.2, 3.3 and 3.4 in their entirety and replacing them with the following Sections 3.1, 3.2, 3.3 and 3.4, which shall read each in its entirety as follows: 3.1 Liability and Control. Except as provided in Section 3.3, the liability of each Limited Partner shall be limited to his or its contribution to the capital of the Partnership and he or it shall have no other liability. Except as permitted by Utah law and this Agreement, the Limited Partners shall take no part whatsoever in the control, management, direction or operation of the affairs of the Partnership and shall have no power to bind the Partnership. At all times, the sole control and management of the Partnership shall rest with the General Partner unless this Agreement or Utah law requires the Limited Partners to participate in or consent to a particular decision. 3.2 Representation of Limited Partner. Each Limited Partner, by executing this Agreement and becoming a party hereto, represents that his or its interest in the Partnership was acquired for his or its own 9 account, for investment purposes only and not with a view to, or for sale in connection with, any distribution of any part or portion thereof. Each Limited Partner acknowledges and agrees that the sale or transfer of his or its interest in the Partnership is severely restricted by the terms of this Agreement. 3.3 Liability for Repayment of Distributions. To the extent required by Utah law, a Limited Partner shall be liable and hereby agrees to repay to the Partnership the amount of any distribution made to such Limited Partner hereunder in the event that such repayment becomes necessary in order for the Partnership to discharge its liabilities to creditors who extended credit to the Partnership, or whose claims arose before such distribution. 3.4 No Priority in Return of Capital. Except as may be otherwise set forth in Articles VII and VIII hereof, no Limited Partner shall have priority over another Limited Partner, either as to contributions to capital or as to sharing in the profits or losses of the Partnership. No Limited Partner shall have the right to receive property other than cash in return for his or its contribution to the capital of the Partnership. 4. Article IV Amendments. Article IV of the Original Partnership Agreement is --------------------- hereby amended by deleting Sections 4.1, 4.2, and 4.3 in their entirety and replacing them with the following Sections 4.1, 4.2, and 4.3, respectively, which shall read each in its entirety as follows: 4.1 Books. Complete and accurate books of account shall be kept at the principal place of business of the Partnership and shall be open to inspection by any Partner or his or its authorized representative at any time during ordinary business hours. The Partnership books shall be kept on an accrual method of accounting as long as such method of accounting is in compliance with Code. 4.2 Financial Statements. (a) Within sixty (60) days after the end of each calendar year, the General Partner shall use its reasonable efforts to cause the Partnership to have prepared audited financial statements for the Partnership in accordance with generally accepted accounting principles. (b) Within one hundred twenty (120) days after the end of each calendar year, the General Partner shall use its best efforts to have the Partnership caused to be prepared and mailed to each Partner a report for such year including: (i) A statement setting forth the assets and liabilities of the Partnership as of the beginning and the end of such calendar year; (ii) Each Partner's Capital Account as of such dates; 10 (iii) A statement of operations, setting forth each allocable item of income and loss; and (iv) Any other information, including appropriate tax reporting information, which the General Partner shall deem necessary or appropriate. 4.3 Distribution of Property. In the case of a distribution of property by the Partnership, which is made in the manner provided in Section 734 of the Code or in the case of a transfer of a Partnership interest, as permitted by this Agreement, which is made in the manner provided in Section 743 of the Code, the General Partner may, in its discretion, file an election under Section 754 of the Code in accordance with the procedures set forth in the then applicable Treasury Regulations. If such an election is filed, neither the Partnership nor the General Partner shall be required to provide the Partners with any extraordinary accounting or tax information (other than as required by the Code or the Treasury Regulations thereunder) with respect to the resulting adjustments to Partnership basis. 5. Article V Amendments. Article V of the Original Partnership Agreement is -------------------- hereby deleted in its entirety and replaced with the following Article V which shall read in its entirety as follows: V PERCENTAGE INTERESTS, CAPITAL ACCOUNTS AND CAPITAL CONTRIBUTIONS 5.1 Percentage Interests in Partnership. Subject to Section 5.7, the Partners' respective interests in the Partnership's profits and losses ("Percentage Interests") are as follows: -------------------- Name of Partner Percentage Interest --------------- ------------------- Argosy Energy, Inc. 44.6404% Neo Energy, Inc. 49.9054% Garnet Resources Corp. 5.0738% Dale E. Armstrong 0.2901% Richard Shane McKnight 0.0903% The Partners hereby acknowledge and agree that the Percentage Interest set forth above opposite the name of a Partner under the column entitled "Percentage Interest" 11 represents his or its sole interest in the profits or losses to be derived from the Partnership Property or any assets acquired by the Partnership. 5.2 Capital Accounts. The Partners have heretofore made capital contributions to the Partnership ("Capital Contributions") and/or have acquired interests in the --------------------- Partnership so that each Partner has a capital account ("Capital Account"). --------------- The Partners hereby agree that if the underlying Capital Account of each Partner as of December 31, 1999, when compared to the Capital Accounts of all Partners ("Capital Account Percentage"), is not in the same ratio as -------------------------- such Partner's Percentage Interest, the Capital Accounts of all Partners shall be restated as of January 1, 2000, to make such Capital Account Percentage of each Partner equal to its Percentage Interest. After such capital shift by the Partners, if any, the underlying negative Capital Accounts of the Partners as of January 1, 2000, shall be as follows: Argosy Energy, Inc. $(1,789,312) Neo Energy, Inc. $(2,000,349) Garnet Resources Corp. $( 203,371) Dale E. Armstrong $( 11,629) Richard Shane McKnight $( 3,620) A separate Capital Account will be maintained for each Partner in accordance with Code Section 704(b) and the Treasury Regulations thereunder, including without limitation, Treasury Regulation Section 1.704-1(b)(2)(iv). The General Partner shall have the authority to determine all questions relating to the maintenance of Partners' Capital Accounts, and the General Partner may modify the manner in which the Capital Accounts are maintained under this Section 5.2 in order to comply with the provisions of Treasury Regulation Section 1.704-1(b) and any other applicable provisions of the Code or Treasury Regulations in order to cause Partner Capital Accounts to be maintained in compliance with the provisions of the Code and Treasury Regulations. The General Partner shall determine whether any elective adjustments to Capital Accounts permitted under Treasury Regulation Section 1.704-1(b)(2)(iv) shall be made. 5.3 Return of Contributions. No Partner shall be entitled to withdraw or to demand a refund or return of any amount contributed to the Partnership as a Capital Contribution or as an Additional Capital Contribution, as hereinafter defined, nor to receive any interest thereon. 12 5.4 Additional Capital Contributions. If the General Partner reasonably determines that the Dollar Revenues and Peso Revenues from the Partnership Property are insufficient to (i) meet current or anticipated expenses of the Partnership; (ii) enable the Partnership to comply with any applicable law, rule, regulation or contractual obligation; (iii) enable the Partnership to engage in the exploration, development or production of oil and gas from the Property; and/or (iv) maintain production levels consistent with prudent operating standards and sound engineering practices (the "Cash Needs"), the General ---------- Partner shall send a written request by telephone facsimile or by certified mail, return receipt requested, to each Partner requesting each Partner to contribute its pro rata share, based upon the relative Percentage Interests of the Partners, of the Cash Needs ("Additional Capital Contributions"), -------------------------------- which request shall specify in reasonable detail the amount, purpose and justification for the proposed Additional Capital Contribution. Each Partner may, within thirty (30) days of such receipt, make its Additional Capital Contribution to the Partnership by wire transfer or cashier's check in an amount equal to that Partner's Percentage Interest of the total Additional Capital Contribution being requested by the General Partner. No Partner will have any personal liability pursuant hereto to contribute additional capital to the Partnership under this Section 5.4 at any time, and the remedies set forth in this Article V shall be the exclusive remedies of the Partnership for any Partner's failure to contribute additional capital to the Partnership. Each Partner acknowledges and agrees that although the Partner has no personal liability to contribute additional capital to the Partnership, the Partner's interest in the Partnership may be diluted and otherwise adversely affected pursuant to rights vested in the General Partner in this Article V as a consequence of such Partner's decision not to make any Additional Capital Contribution requested pursuant to this Section 5.4. 5.5 Default on Additional Capital Contribution. If any Partner ("Defaulting Partner") fails to contribute his or its ------------------ share of a required Additional Capital Contribution within thirty (30) days of receipt of the written request for such contribution by the General Partner, the General Partner shall immediately send a notice (the "Notice") ------ by telephonic facsimile, by certified mail, return receipt requested to the Defaulting Partner and to the remaining Partners who have been given a request for payment pursuant to Section 5.4 and have made such Additional Capital Contributions ("Non-Defaulting Partners"). The Notice shall specify ----------------------- the amount in default and shall specify that such amount must be paid by the Defaulting Partner by the close of business on the tenth (10th) calendar day after the date of the Notice (the "Cure Date"). If the --------- Defaulting Partner fails to make any portion of the Additional Capital Contribution requested of the Limited Partner pursuant to Section 5.4 by the Cure Date, the General Partner after accepting the other Partners' Additional Capital Contributions may exercise any or all of the following remedies, but no others, on behalf of the Partnership: (a) Setoff. Setoff the amount of the requested and unmade ------ Additional Capital Contribution against any amounts which would otherwise be payable by the Partnership to the Defaulting Partner; 13 (b) Adjust Percentage Interests. Readjust the Percentage --------------------------- Interests of the Partners as provided in Section 5.7; provided, however, this remedy shall only be available to the extent the Non- Defaulting Partners contribute the Additional Capital Contribution requested of the Defaulting Partner; or (c) Default Loan. Offer the other Partners the opportunity to ------------ make a Default Loan on the terms provided under Section 5.8 equal to the amount of the additional capital requested of the Defaulting Partner. 5.6. Borrow Funds. In addition to or in lieu of requesting Additional Capital Contributions from the Partners pursuant to Section 5.4, the General Partner, on behalf of the Partnership, shall have the right to borrow funds from third parties on such terms and conditions, including rate of interest and maturity, as the General Partner deems advisable; provided, however, that in lieu of borrowing from third parties, any one or more of the Partners may, if acceptable to the General Partner, from time to time make advances to the Partnership to meet such requirements. Any such advance made by a Partner to the Partnership shall not be considered a Capital Contribution, but shall constitute a debt of the Partnership to the advancing Partner, payable at such time and on such terms as the General Partner and advancing Partner shall agree; provided, however that if the advancing Partner is the General Partner (or a Partner that controls, is controlled by, or under common control with the General Partner), the debt shall be payable on the later of (a) six (6) months from the advance or (b) within thirty (30) days following written demand and bear interest on the unpaid principal balance thereof until paid beginning on the date of such advance at a rate equal to the Stated Rate. Payments made to an advancing Partner will be credited first to interest and then to principal. At the request of the Partner making the advance, the Partnership will execute a promissory note evidencing this debt. 5.7 Percentage Interest Adjustment. If the General Partner elects to adjust the Percentage Interests as provided in Section 5.5(c), the Percentage Interest of each Partner will be adjusted so that the Percentage Interest of each Partner will be equal to a fraction, the numerator of which will be equal to the aggregate Capital Contributions made by the Partner to date (including the contribution made under Section 5.4 and 5.5), and the denominator of which will be equal to the aggregate Capital Contributions made by all Partners to date (including the contributions made under Section 5.4 and 5.5). For purposes of the foregoing only, each Partner's aggregate Capital Contribution as of May 31, 2000, shall be deemed to equal the following amount: 14 Argosy Energy, Inc. $ 4,464,040 Neo Energy, Inc. $ 4,990,540 Garnet Resources Corp. $ 507,380 Dale E. Armstrong $ 29,010 Richard Shane McKnight $ 9,030 The Partners intend that the foregoing aggregate Capital Contribution amounts as of May 31, 2000, shall be used solely for the purposes set forth in this Section 5.6, and shall not be used for any other purposes whatsoever. Any adjustments to Percentage Interests calculated under this Section 5.6 shall be retroactively applied to the date the amount requested under Section 5.4 was due. The General Partner will promptly give each Limited Partner written notice of its Percentage Interest, as adjusted, each time an adjustment occurs. In no event, however, will the Percentage Interest of a Defaulting Partner be increased under this Section 5.7. 5.8 Default Loan. (a) The Partners, other than the Defaulting Partner, will have the option, but not the obligation, to accept an offer made by the General Partner under Section 5.4(d) to advance to the Partnership an amount of money equal to the amount requested of the Defaulting Partner under Section 5.4, which advance will be deemed to be a Capital Contribution by the Defaulting Partner and will be considered a loan (a "Default Loan") from the Partner or Partners making the ------------ advance (the "Lending Partners") to the Defaulting Partner, payable ---------------- upon demand and bearing interest at the lesser of the maximum rate permitted by applicable law or the rate of 18% per annum. If the Lending Partners make a Default Loan, upon written request by the Lending Partners, the Defaulting Partner will execute and deliver a promissory note payable to the Lending Partners as evidence of that Default Loan; provided that the failure by the Defaulting Partner to execute such a promissory note will not affect the validity of the Default Loan in question or the obligation of the Defaulting Partner to repay the Default Loan in accordance with the terms of this Agreement. If the Defaulting Partner fails upon demand to repay with interest any Default Loan made by the Lending Partners, the Partners will have the right to enforce the security interest granted to the Partners in Section 5.8(b). (b) Each of the Partners hereby grants to each of the other Partners a security interest in the Partner's interest in the Partnership to secure the Partner's obligation to repay upon demand any Default Loan made to the Partner by the Lending Partners under Section 5.8(a); provided, however, the only right granted by such security interest is that while a Default Loan is outstanding, all amounts otherwise distributable to the Defaulting Partner by the Partnership under Article VIII or Article XII shall be paid by the 15 Partnership on behalf of the Defaulting Partner to the Lending Partners in respect of accrued interest on and unpaid principal of any outstanding Default Loans made by the Lending Partners (such payments to be applied first to accrued but unpaid interest on and then to outstanding principal of such Default Loans). At such time as the Defaulting Partner's obligations to the Lending Partners under any Default Loan hereby secured are paid in full, distributions to the Defaulting Partner will resume as set forth in this Agreement. Any amounts paid on behalf of a Defaulting Partner will be deemed to have first been distributed or paid to the Defaulting Partner and then paid to the Lending Partners. Each Partner, upon failure to make an Additional Capital Contribution requested under Section 5.4, hereby irrevocably appoints the Partnership and the other Partners, and the agents, officers or employees of the Partnership and the other Partners, its attorneys-in-fact, coupled with an interest, with full power to prepare and execute any documents, instruments and agreements, including but not limited to the note permitted under 5.8(a) evidencing a Default Loan, if any, and such financing statements, continuation statements and other instruments and documents as may be appropriate to perfect, continue and enforce that security interest in favor of the other Partners. 5.9 Deficit Capital Accounts. No Partner will be required to pay to the Partnership, to any other Partner or to any third party any deficit balance which may exist from time to time in the Partner's Capital Account. 6. Article VI Amendments. Article VI of the Original Partnership Agreement is --------------------- hereby deleted in its entirety and replaced with the following Article VI which shall read in its entirety as follows: VI COSTS AND EXPENSES All costs and expenses of the Partnership shall be paid from Partnership funds and charged to the respective Partnership accounts. Such costs and expenses which are incurred in Colombia, other than those specified in subparagraph (a) below, shall be paid to the fullest extent possible out of Pesos Revenues. Such costs and expenses shall include but not be limited to: (a) All payments required to be made under any services agreement; (b) Legal, accounting (including the costs of any audited financial statements), surveying, consulting, engineering and operating expenses; (c) Taxes (except income taxes payable by the Partners), insurance premiums and interest; (d) Expenditures, if any, required for plugging and abandonment and/or other environmental clean-up costs ("Putumayo Costs") associated -------------- with the Aporte Putumayo 16 concession, which the Partnership has relinquished to the Colombian Government but pursuant to which the Partnership is still potentially liable for Putumayo Costs, if any; (e) Costs and expenses of bookkeeping, accounting and reporting services for the Partnership; (f) General Partner's reimbursable expenses called for by Section 2.3 hereof; (g) Every other cost and expense properly incurred in the Partnership business, whether like or unlike the foregoing. 7. Article VII Amendments. Article VII of the Original Partnership ---------------------- Agreement is hereby deleted in its entirety and replaced with the following Article VII which shall read in its entirety as follows: VII. PROFITS AND LOSSES Section 7.1 Allocations of Profits and Losses. After giving effect to the special allocations set forth in Section 7.2, for any taxable year of the Partnership ending on or after the date of this Amendment, all Net Profits or Net Losses for such year will be allocated to the Partners as follows: (a) Net Profits. ----------- Net Profits shall be allocated to the Partners in proportion to their respective Percentage Interests in the Partnership. (b) Net Loss. -------- Net Loss shall be allocated to the Partners in proportion to their respective Percentage Interests in the Partnership. Section 7.2 Special Allocations. (a) The following special allocations shall, except as otherwise provided, be made in the following order: (i) Minimum Gain Chargeback. Notwithstanding any other ----------------------- provision of this Agreement, if there is a net decrease in Partnership Minimum Gain or in any Partner Minimum Gain during any taxable year or other period, prior to any other allocation pursuant hereto, the Partners shall be specially allocated items of Profit for such year (and, if necessary, subsequent years) in an amount and manner required by Treasury Regulation Section 1.704-2(f) or 1.704-2(i)(4). The items to be so allocated shall be determined in accordance with Treasury Regulation Section 1.704-2. This Section 7.2(a)(i) is intended to comply with the 17 minimum gain chargeback requirements of Treasury Regulation Section 1.704-2(f) or 1.704-2(i)(4), will be interpreted consistently with the Treasury Regulations and will be subject to all exceptions provided therein. (ii) Qualified Income Offset. Any Partner who unexpectedly ----------------------- receives an adjustment, allocation or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which causes or increases an Adjusted Capital Account Deficit shall be allocated items of income or gain in an amount and manner sufficient to eliminate, to the extent required by such Treasury Regulation, the Adjusted Capital Account Deficit of the Partner as quickly as possible. This Section 7.2(a)(ii) is intended to constitute a "qualified income offset" within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(d), will be interpreted consistently with the Treasury Regulations and will be subject to all exceptions provided therein. (iii) Gross Income Allocation. Each Partner who has a ----------------------- deficit Capital Account at the end of any Partnership taxable year that is in excess of the amount the Partner is obligated to restore pursuant to any provision of this Agreement, including any amount that it is deemed to be obligated to restore under Treasury Regulation Section 1.704-2(g)(1) and Section 1.704- 2(i)(5), will be specially allocated items of Partnership income and gain in the amount of the excess as quickly as possible. (iv) Nonrecourse Deductions. Nonrecourse Deductions for any ---------------------- taxable year or other period will be specially allocated among the Partners pro rata in proportion to their respective Percentage Interests in the Partnership. (v) Partner Nonrecourse Deductions. Any Partner ------------------------------ Nonrecourse Deductions for any taxable year or other period will be allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with principles under Treasury Regulation Section 1.704-2(i). (vi) Code Section 754 Adjustments. To the extent an ---------------------------- adjustment to the adjusted tax basis of any Partnership asset under Sections 734(b) or 743(b) of the Code is required to be taken into account in determining Capital Accounts under Treasury Regulation Section 1.704-1(b)(2)(iv)(m), the amount of the adjustment to the Capital Accounts will be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis), and the gain or loss will be specially allocated to the Partners in a manner consistent with the manner in which their Capital Accounts are required to be adjusted under Treasury Regulation Section 1.704- 1(b)(2)(iv)(m). (b) Curative Allocations. The "Regulatory Allocations" consist -------------------- of allocations made to a Partner (or predecessor) under Section 7.2(a). Notwithstanding any other provision of this Article VII, other items of income, gain, loss and deduction will be allocated among the Partners so that, to the extent possible, the net amount of those 18 allocations of other items and the Regulatory Allocations to each Partner will be equal to the net amount that would have been allocated to the Partner if the Regulatory Allocations had not occurred. The Partner shall take into account future Regulatory Allocations under Section 9.3(a)(i) that, although not yet made, are likely to offset Regulatory Allocations under Sections 9.3(a)(iv) and 9.3(a)(v). 7.3 Compliance with Section 704(c). In accordance with Section 704(c) of the Code and the applicable Treasury Regulations thereunder, income, gain, loss and deduction with respect to any Partnership property for which its adjusted tax basis differs from its Book Basis will, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted tax basis of such property to the Partnership for federal income tax purposes and the Book Basis of such Property. Any elections or other decisions relating to allocations under this Section 7.3 will be made in any manner which the General Partner shall determine is consistent with Section 704(c) of the Code and the Treasury Regulations promulgated thereunder and reasonably reflects the purpose and intention of this Agreement. Allocations under this Section 7.3 are solely for purposes of federal, state and local taxes and will not affect, or in any way be taken into account in computing, any Partner's Capital Account or share of Profits, Losses or other items or distributions under any provision of this Agreement. 7.4 Intent of Allocations. The parties intend that the foregoing allocation provisions of this Article VII shall produce final Capital Account balances of the Partners that will equal their Percentage Interests such that the liquidating distributions to each Partner under Section 12.2 will equal their final positive Capital Account balance. To the extent that the allocation provisions of this Article VII would fail to produce such final Capital Account balances, (a) such provisions shall be amended by the General Partner if and to the extent necessary to produce such result, and (b) Net Profits and Net Losses of the Partnership for prior open years (or items of gross income, gain, loss and deduction of the Partnership for such years) shall be reallocated by the General Partner among the Partners to the extent it is not possible to achieve such result with allocations of items of income (including gross income and gain), deduction and loss for the current year and future years. This Section 7.4 shall control notwithstanding any other provision of this Agreement or the reallocation or adjustment of taxable income, taxable loss or items thereof by the Internal Revenue Service or any other taxing authority. 7.5 Partner Acknowledgment. The Partners agree to be bound by the provisions of this Article VII in reporting their shares of Partnership income and loss for income tax purposes. 19 8. Article VIII Amendments. Article VIII of the Original Partnership Agreement ------------------------- is hereby deleted in its entirety and replaced with the following Article VIII which shall read in its entirety as follows: VIII DISTRIBUTIONS Subject to Section 5.8, paying or making provision for the payment, when due, of obligations of the Partnership and establishing and maintaining such reserves as the General Partner reasonably determines may be required for the proper operation of the Partnership's business after taking into consideration Pesos Revenues that are or will be available to pay anticipated costs and obligations of the Partnership, the Partnership promptly on, or as soon as possible after the last day of each calendar month shall distribute to the Partners, pro rata in proportion to their respective Percentage Interests, any remaining Dollar Revenues then being held by the Partnership. Notwithstanding any other provision of this Agreement, no distributions of Peso Revenues will be made to a Partner under the provisions of this Article VIII. Each Partner consents to the distributions provided for in this Article VIII and understands that because of differences between income and cash flow, distributions to a Partner may constitute a return of capital or may be less than a Partner's distributive share of Partnership income. 9. Article IX Amendments. Article IX of the Original Partnership Agreement is --------------------- hereby deleted in its entirety and replaced with the following Article IX which shall read in its entirety as follows: IX TRANSFER OF PARTNERSHIP INTEREST 9.1 Transferee of General Partner. The General Partner may transfer all or any part of its Partnership interest without the written consent of the Limited Partners; provided, however, the transferee of all or part of the General Partner's interest shall not, except with the consent of Limited Partners holding not less than eighty percent (80%) of the Percentage Interests (after excluding the General Partners Interest), be entitled during the continuance of the Partnership to become a general partner in the Partnership or interfere in the management or administration of the Partnership business. Except with such consent, the transferee shall merely be entitled to become a limited partner in the Partnership, to receive, in accordance with the terms of the transfer, the profits or other compensation by way of income, or the return of the capital contribution to which the transferor General Partner otherwise would have been entitled and shall be bound by all terms and conditions of this Agreement, including without limitation, the obligation to make all Additional Capital Contributions in accordance with Section 5.4 hereof. Neither the provisions of this Article IX, nor the failure of the other Partners to purchase the interest of the General Partner, shall be construed as an acceptance by the Partners of any third party as a Partner. 20 9.2 Substitute Limited Partner. (a) A Limited Partner may transfer all or less than all of its Partnership interests without the consent of any Partner; provided, however, notwithstanding anything in this Agreement to the contrary, no assignee of a Limited Partner's interest in the Partnership shall have the right to become a substitute Limited Partner (an assignee who is admitted by the Partnership to all of the rights of a Limited Partner) in place of his assignor unless: (i) The fully executed acknowledged written instrument of assignment which has been filed with the Partnership sets forth the intention of the assignor that the assignee became a substitute Limited Partner in his place; (ii) The assignor and assignee execute and acknowledge such other instruments as the General Partner may deem necessary or desirable to effect such admission, including the written acceptance and adoption by the assignee of the provisions of this Agreement and his execution, acknowledgment, and delivery to the General Partner of a Power-of -Attorney, the form and content of which are more fully described in Article XI; (iii) The written consent of the General Partner to such substitution is obtained, the granting of which shall be in the sole and absolute discretion of the General Partner; (iv) The assignee shall have agreed to acquire the interest in the Partnership for his own account, for investment, and not in connection with distribution or resale; (v) The assignor delivers to the General Partner an opinion of counsel, acceptable in form and content to counsel for the General Partner, stating that the proposed transfer of the assignor's interest in the Partnership will not violate any applicable federal or state laws or regulations; (vi) An amended Certificate of Limited Partnership is recorded, in accordance with the laws of the State of Utah, listing the assignee as a Limited Partner; and (vii) The assignor and assignee pay such reasonable expenses as are charged by the Partnership to accomplish the transfer of the interests in the Partnership. (b) The failure or refusal by the General Partner to consent to an assignee becoming a substitute Limited Partner shall not affect the validity and effectiveness of any instrument, which assigns the right to receive the share of the profits or other compensation by way of income, or the return of the Capital Contribution of the assignor, provided such instrument is in form satisfactory to the General Partner and a duly acknowledged counterpart is filed with the Partnership. No consent or approval of any of the Limited Partners shall be required for the admission of a substitute Limited Partner. 21 Except for the conditions set forth in Section 9.2(a)(ii), the conditions set forth in Section 9.2(a), shall be inapplicable to a person seeking to become a substitute Limited Partner when such person has received his interest in the Partnership as the result of a foreclosure proceeding or the death of a Limited Partner. 9.3 Substitution of Assignee Failing to Satisfy Conditions. The General Partner may waive any or all requirements of this Article IX, and admit an assignee to the Partnership as a substitute Limited Partner, if it finds, in its sole discretion, that such action is in the best interest of the Partnership. 10. Article X Amendments. Article X of the Original Partnership Agreement is -------------------- hereby deleted in its entirety and replaced with the following Article X which shall read in its entirety as follows: X ADMISSION OF ADDITIONAL PARTNERS Additional Limited Partners may be admitted to the Partnership by the General Partner with the consent of Limited Partners holding eighty percent (80%) of the Percentage Interests held by all Limited Partners; provided, however, the foregoing shall not apply to additional Limited Partners admitted through the issuance of additional Partnership interests in compliance with Section 2.2(b)(v). Additional General Partners shall not be admitted to the Partnership except with the consent of Limited Partners holding eighty percent (80%) of the Percentage Interests held by all Limited Partners. 11. Article XI Amendments. Article XI of the Original Partnership Agreement is ---------------------- hereby amended by deleting the words "Upon becoming a party to this Agreement, each" from the first sentence of Section 11.1 and inserting in their place the following: "Each". Article XI is further amended by deleting the word "substituted" from the eleventh line of Section 11.2 and inserting in its place the word "substitute". 12. Article XII Amendments. Article XII of the Original Partnership Agreement ---------------------- is hereby deleted in its entirety and replaced with the following Article XII which shall read in its entirety as follows: XII DISSOLUTION AND TERMINATION OF THE PARTNERSHIP 12.1 Events Causing Dissolution. The Partnership shall be dissolved and terminated and its assets distributed pursuant to the provisions of Section 12.2 hereof and applicable law upon the first of the following event to occur: (a) December 31, 2025; 22 (b) The bankruptcy of the Partnership, which shall be the date when the Partnership obtains an order for relief under Title 11, United States Code, or an order or decree determining insolvency under any applicable state insolvency law; (c) The sale or loss of the Property and the distribution of all proceeds of such sale in accordance with this Agreement; (d) The decision of Partners holding 80% or more of the Percentage Interests as set forth in Section 5.1; or, (e) The dissolution, bankruptcy, withdrawal or insolvency of the General Partner, unless, within the ninety (90) day period immediately following such event, a majority in interest of the remaining Partners elect to continue the Partnership and elect one or more new general partners. The Partnership shall not be dissolved or terminated by reason of the death, legal incompetency, insolvency, bankruptcy, dissolution or other termination of any Limited Partner. 12.2 Termination. On dissolution of the Partnership, either by expiration of the term of the Partnership or otherwise as set forth herein, the Partnership shall immediately commence to liquidate its properties and wind up its affairs. The Partners, or their representatives, shall continue to share profits and loses during the winding up period in the same manner as before the election to terminate. The liquidation proceeds of the Partnership shall be applied and distributed in the following order: (a) To the payment and discharge of all of the Partnership's debts and liabilities to persons other than Partners; (b) To the payment and discharge of all of the loans and advances made by Partners to the Partnership; (c) To the setting up of any reasonable reserves for contingent or unforeseen liabilities or obligations of the Partnership; (d) The balance, if any, shall be allocated to the Partners in accordance with their respective Percentage Interests. 12.3 Distribution in-Kind. If the General Partner or other person acting as liquidator determines that a portion of the Partnership's assets should be distributed in-kind to the Partners, it shall obtain an independent appraisal of the fair market value of each such asset as of a date reasonably close to the date of liquidation. Any unrealized appreciation or depreciation with respect to any asset to be distributed in-kind shall be allocated among the Partners (in accordance with the provisions of Article VII and assuming that the assets were sold for the appraised value), and taken into consideration in determining the balance in the Partners' Capital Accounts as of the date of final liquidation. Distribution of any such 23 asset in-kind to a Partner shall be considered a distribution of an amount equal to the asset's fair market value for purposes of Section 12.2. 13. Additional Amendments. Articles XIII, XIV, XV, XVI, and XVII of the --------------------- Original Partnership Agreement are hereby deleted in their entirety and replaced with the following new Articles XIII, XIV, XV, XVI, and XVII, which shall read each in its entirety as follows: XIII AMENDMENTS; ARBITRATION; INSURANCE; MISCELLANEOUS 13.1 Material Amendments. Unless otherwise provided in Section 13.2, material amendments to this Agreement must be approved by the written consent of Partners holding at least eighty percent (80%) or more of the Percentage Interests. Notwithstanding the foregoing, no amendment shall change the Partnership to a general partnership, change the limited liability of Limited Partners, or change the liability of the General Partner, unless such amendment or amendments are approved by the written consent of all Partners affected by the amendment. All sections or provisions of the Agreement terminated pursuant to an amendment hereunder shall be deleted from this Agreement. 13.2 Other Amendments. Amendments to this Agreement which, in the opinion of the General Partner with the advice of counsel, are (i) of an inconsequential nature and do not affect the rights of the Partners in any material respect, or are (ii) required or contemplated by this Agreement, or are (iii) necessary to prevent the Partnership from being classified as an association taxable as a corporation under the Code, may be made by the General Partner by giving written notice thereof to the Partners, stating the terms and effective date of such amendment. As an example of an immaterial amendment permitted under this Section 13.2, the General Partner may change the name of the Partnership to avoid a conflict or more accurately to depict the properties owned by the Partnership. XIV ARBITRATION If any controversy or claim arising out of this Agreement cannot be settled by the Partners, the controversy or claim shall be settled by arbitration in Dallas, Dallas County, Texas in accordance with the rules of the American Arbitration Association then in effect, and judgment on the award may be entered in any court having jurisdiction. 24 XV INSURANCE The Partnership shall purchase from others, at the expense of the Partnership, such contracts of liability, casualty and other insurance which the General Partner deems advisable, appropriate or convenient for the protection of the assets or affairs of the Partnership and Partners or for any purpose convenient or beneficial to the Partnership. Such insurance shall be purchased in an amount determined by the General Partner. XVI ACTIONS IN VIOLATION OF UNITED STATES LAW No Partner shall do or cause to be done, on behalf of the Partnership or in connection with the Property, any act which violates the Foreign Corrupt Practices Act or the International Boycott Laws of the United States. Any Partner who violates the provisions of this Article XVI hereby agrees to indemnify and hold harmless the Partnership and the other Partners from and against any and all liabilities which shall arise by reason of said Partner's actions. XVII MISCELLANEOUS 17.1 Notices. Any notice, election or other communication provided for or required by this Agreement shall be in writing and shall be deemed to have been given when transmitted by facsimile, when delivered personally or when deposited in the United States Mail, certified mail, return receipt requested, postage prepaid, and addressed to the Partner to whom such notice is intended to be given at such Partner's address as it appears on Exhibit B hereto or on the records of the Partnership. A Partner may change the address for the giving of notices by sending a written notice to the General Partner in accordance with the provision of this Section 17.1. 17.2 Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Partners, their legal representatives, heirs, administrators, successors and assigns. 17.3 Counterpart Originals. For the convenience of the Partners, any number of counterpart originals hereof may be executed, all of which taken together shall constitute one Agreement. 25 17.4 Article and Sections Headings. The title of the Articles and Sections herein have been inserted as a matter of convenient reference only and shall not control or affect the meaning or construction of any of the terms or provisions hereof 17.5 References to Internal Revenue Code. All references herein to provisions of the Internal Revenue Code shall be deemed also to refer to any amendments or successor provisions hereafter enacted. 17.6 Governing Law. This Agreement is entered into under and shall be governed by the laws of the State of Utah. However, in the event of inconsistency between the provision of this Agreement and those of the Utah Limited Partnership Act, the provisions of this Agreement shall be controlling. 17.7 Further Action. The Partners hereby covenant and agree that they will execute such additional instruments and documents and take such other and further action as is or may become necessary or convenient, in the sole judgment of the General Partner, to effectuate and carry out the terms and conditions of this Agreement. 17.8 Severability. In the event any one or more of the provisions contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the validity of any other provision hereof and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, provided that the basic intent of this Agreement is not thereby impaired. 17.9 Construction. As used herein, all words in any gender shall be deemed to include the masculine, feminine, or neuter gender, all singular words shall include the plural, and all plural words shall include the singular. The term "person" shall include an individual, corporation, partnership, trust, estate or any other entity. 17.10 Enforcement. In the event of any breach of this Agreement, the party in default hereunder shall bear the costs of enforcing this Agreement, including reasonable attorneys' fees whether incurred with or without suit, or with or without arbitration. 26 17.11 Entire Agreement; Prior Agreements Superseded. This Agreement constitutes the entire agreement among the Partners pertaining to the subject matter contained herein. This Agreement supersedes any and all prior contemporaneous agreements, letters of intent, representations and understandings between or among the Partners, whether written or verbal, respecting the within subject matter. 17.12 Waiver of Right to Decree of Dissolution. The parties hereby agree that irreparable damage would be done to the goodwill and reputation of the Partnership if any Partner should bring an action in court to dissolve the Partnership. Each party hereby waivers and renounces his right to such a court decree of dissolution or to seek the appointment by the court of a liquidator for the Partnership. 14. Effect of Amendment. Except as expressly amended herein, the provisions of ------------------- the Original Partnership Agreement shall remain in full force and effect. 15. Successors and Assigns. This Amendment shall be binding upon, and shall ---------------------- inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. 16 Modification and Waiver. No supplement, modification, waiver or termination ----------------------- of this Amendment or any provisions hereof shall be binding unless executed in writing by the requisite number of Partners required to amend the Partnership Agreement. No waiver of any of the provisions of this Amendment shall constitute a waiver of any other provision (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 17. Severability. In the event any one or more provisions contained in this ------------ Amendment shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the validity of any other provision hereof and this Amendment shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, provided that the basic intent of this Amendment is not thereby impaired. 18. Counterparts. This Amendment may be executed, including by facsimile ------------ transmission, in one or more counterparts, all of which together shall constitute one and the same Amendment. [Signature Page to Follow] 27 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first above written. GENERAL PARTNER: ARGOSY ENERGY, INC. By /s/ R. Suttill -------------- Its President ------------- LIMITED PARTNERS: NEO ENERGY, INC. By /s/ R. Suttill -------------- Its President ------------- GARNET RESOURCES, CORP. By /s/ R. Suttill --------------- Its President ------------- 28 EX-10.12 13 0013.txt 4TH AMD TO 2ND AMDED AND RSTD LMTD PART AGR EXHIBIT 10.12 FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF ARGOSY ENERGY INTERNATIONAL THIS FOURTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF ARGOSY ENERGY INTERNATIONAL (this "Amendment") is made as --------- of 8:00 a.m., June 1, 2000, by and among the partners (collectively the "Partners") of Argosy Energy International, a Utah limited partnership (the -------- "Partnership"). ----------- RECITALS WHEREAS, Argosy Energy Incorporated, a Delaware Corporation ("Argosy ------ Energy"), Parkside Investments, a Utah corporation ("Parkside"), P-5, Ltd., a - ------ -------- Utah limited partnership ("P-5"), Go Deo, Inc., a Utah corporation ("Go Deo"), --- ------ Dale E. Armstrong ("Armstrong"), William Gaskin ("Gaskin"), Richard Shane --------- ------ McKnight ("McKnight") and Garnet Resource Corporation, a Delaware corporation -------- ("Garnet") entered into that certain Second Amended and Restated Limited ------ Partnership Agreement of Argosy Energy International dated January 11, 1991, as amended by the Amendment to the Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated January 13, 1994, the Second Amendment to the Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated July 1, 1994, and the Third Amendment to the Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated May 31, 2000 (as amended, the "Original Partnership -------------------- Agreement"); - --------- WHEREAS, on March 16, 1995, Garnet acquired though multiple conveyances all of the limited partnership interests in and to the Partnership previously owned by Parkside, P-5 and Go Geo; WHEREAS, on February 12, 1996, Gaskin assigned all of his limited partnership interests in and to the Partnership to Argosy Energy, Garnet, Armstrong and McKnight; WHEREAS, effective January 1, 1999, Neo Energy, Inc. ("Neo") acquired by --- contribution of property to the Partnership a 49.9054% limited partnership interest in and to the Partnership, which resulted in a corresponding decrease in the percentage interests of Garnet, Armstrong and McKnight; WHEREAS, pursuant to that certain Assignment and Assumption Agreement by and between Neo and Crosby Capital, LLC, a Texas limited liability company ("Crosby LP") dated effective 7:00 a.m., June 1, 2000, Neo transferred a --------- 49.9054% limited partnership interest in the Partnership to Crosby LP ("Neo --- Transfer"); - -------- WHEREAS, pursuant to that certain Assignment and Assumption Agreement by and between Argosy Energy and Crosby Acquisition, LLC, a Delaware limited liability company ("Crosby GP"), dated effective 7:00 a.m., June 1, 2000, Argosy --------- Energy transferred a 44.6403% general partnership interest in the Partnership to Crosby GP ("GP 1 Transfer"); ------------- WHEREAS, pursuant to that certain Assignment and Assumption Agreement by and between Garnet and Crosby LP dated effective 7:00 a.m., June 1, 2000, Garnet transferred a 5.0738% limited partnership interest in the Partnership to Crosby LP ("Garnet Transfer"); --------------- WHEREAS, pursuant to that certain Assignment and Assumption Agreement by and between Crosby LP and Aviva Overseas, Inc., a Delaware corporation ("Aviva"), dated effective 7:30 a.m., June 1, 2000, Crosby LP transferred a ----- 22.1196% limited partnership interest in the Partnership to Aviva ("Aviva ----- Transfer"); - -------- WHEREAS, the Partners desire to admit Crosby GP as an additional General Partner, Crosby LP as an additional Limited Partner and Aviva as an additional Limited Partner in the Partnership as of 8:00 a.m., June 1, 2000; WHEREAS, simultaneously with the execution of this Amendment, Crosby GP desires to convert its 44.6403% general partnership interest in the Partnership into a .4999% general partnership interest and a 44.1404% limited partnership interest in the Partnership ("Conversion"); ---------- WHEREAS, immediately after the execution of this Amendment, Crosby GP desires to transfer the 44.1404% limited partnership interest in the Partnership to Crosby LP pursuant to that certain Assignment and Assumption Agreement by and between Crosby GP and Crosby LP dated effective 9:00 a.m., June 1, 2000 ("Crosby ------ Transfer"); - -------- WHEREAS, immediately after the admittance of Crosby GP as an additional general partner, Argosy Energy desires to transfer its remaining .0001% general partnership interest to Crosby GP pursuant to that certain Assignment and Assumption Agreement by and between Argosy Energy and Crosby GP dated effective 9:00 a.m., June 1, 2000 ("GP 2 Transfer"); ------------- WHEREAS, Garnet, Neo and Argosy Energy desire to withdraw as Partners from the Partnership after all of the foregoing events as of 8:00 a.m., 8:00 a.m. and 9:00 a.m., June 1, 2000, respectively; WHEREAS, the undersigned Partners, which comprise the requisite percent of Partners under the Original Partnership Agreement needed to approve the foregoing transactions, desire to amend the Original Partnership Agreement to reflect their approval of the (i) Neo Transfer, (ii) GP 1 Transfer, (iii) Conversion, (iv) Crosby Transfer, (v) Garnet Transfer, (vi) GP 2 Transfer, (vii) Aviva Transfer, (viii) admission of Crosby LP as a Limited Partner effective 8:00 a.m., June 1, 2000, (ix) admission of Crosby GP as an additional General Partner effective 8:00 a.m., June 1, 2000, (x) admission of Aviva as a Limited Partner effective 8:00 a.m., June 1, 2000, (xi) the withdrawal of Garnet and Neo effective 8:00 a.m., 2 June 1, 2000, and (xii) the withdrawal of Argosy Energy effective 9:00 a.m., June 1, 2000; and WHEREAS, this Amendment is being entered into, inter alia, to effectuate certain terms agreed to by the parties under that certain Loan, Settlement and Acquisition Agreement, dated effective May 31, 2000, by and among Crosby LP, Aviva Petroleum Inc., Aviva America, Inc., Aviva Operating Co., Aviva, Neo, Garnet Argosy Energy and the Partnership. AGREEMENT NOW, THEREFORE, the Partners agree as follows: 1. The Partners hereby approve the (i) Neo Transfer, (ii) GP 1 Transfer, (iii) GP 2 Transfer, (iv) Crosby Transfer, (v) Garnet Transfer and (vi) Aviva Transfer. 2. Crosby GP's general partnership interest is hereby converted into a .4999% general partnership interest and a 44.1404% limited partnership interest effective as of 8:00 a.m. on June 1, 2000. 3. Crosby GP is hereby admitted to the Partnership as a .4999% additional General Partner effective as of 8:00 a.m. on June 1, 2000, and a .5000% General Partner effective as of 9:00 a.m. on June 1, 2000. 4. Crosby LP is hereby admitted to the Partnership as an additional Limited Partner, effective as of 8:00 a.m. on June 1, 2000. 5. Aviva is hereby admitted to the Partnership as an additional Limited Partner, effective as of 8:00 a.m. on June 1, 2000. 6. The Partners hereby approve the withdrawal of Garnet and Neo effective as of 8:00 a.m. on June 1, 2000. 7. The Partners hereby approve the withdrawal of Argosy Energy effective as of 9:00 a.m. on June 1, 2000. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 3 8. As of 9:00 a.m. on June 1, 2000, the following persons are Partners of the Partnership, shall be referred to as indicated, and shall have the percentage interests indicated: Partners Percentage Interests -------- -------------------- General Partner: - --------------- Crosby Acquisition, LLC .5000% Limited Partners: - ---------------- Crosby Capital, LLC 77.0000% Aviva Overseas, Inc. 22.1196% Dale E. Armstrong .2901% Richard Shane McKnight .0903% ----- Total 100% 9. The Partners hereby agree that, if elected by the Crosby GP in its sole discretion, the Partnership shall make a Code Section 754 election with respect to the transactions contemplated by this Amendment. 10. The Partners hereby agree that no distributions shall be made by the Partnership to any Partner between 7:00 a.m. and 9:00 a.m. on June 1, 2000. 11. Section 7.1 of the Original Partnership Agreement is hereby deleted in its entirety and replaced with the following Section 7.1, which shall read as follows: Section 7.1 Allocations of Profits and Losses. After giving effect to the special allocations set forth in Section 7.2, for any taxable year of the Partnership ending after June 1, 2000, all Net Profits or Net Losses for such year will be allocated to the Partners as follows: (a) Net Profits. ----------- (i) Loss Chargeback. First, to the Partners, pro rata, --------------- until the cumulative Net Profits allocated to each Partner under this Section 7.1(a)(i) equals the cumulative Net Loss allocated to such Partner under Section 7.1(b)(ii) for all prior periods; and (ii) Balance. The balance, if any, to the Partners in ------- proportion to their respective Percentage Interests in the Partnership. 4 (b) Net Loss. -------- (i) Gain Chargeback. First, to the Partners, pro rata, --------------- until the cumulative Net Loss allocated to each Partner under this Section 7.1(b)(i) equals the cumulative Net Profits allocated to such Partner under Section 7.1(a)(ii) for all prior periods; and (ii) Balance. The balance, if any, to the Partners in ------- proportion to their respective Percentage Interests in the Partnership. 12. Exhibit B of the Original Partnership Agreement is hereby superceded and replaced in its entirety with the attached Exhibit B. 13. In all other respects, the Original Partnership Agreement is hereby ratified and confirmed. 14. Aviva, Crosby LP and Crosby GP hereby agree to be bound by the terms of the Original Partnership Agreement, as amended by this Amendment, as of the date of their admission as a Partner of the Partnership. 15. Terms not otherwise defined herein shall have the meaning set forth in the Original Partnership Agreement. 16. In the event any one or more provisions contained in this Amendment shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the validity of any other provision hereof and this Amendment shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, provided that the basic intent of this Amendment is not thereby impaired. 17. This Amendment may be executed in any number of counterparts each of which shall be an original and all of which shall together constitute one and the same Amendment. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 5 IN WITNESS WHEREOF, the undersigned have executed this Amendment to be effective with respect to each of them as of the date and time of their admission to or withdrawal from the Partnership. GENERAL PARTNER: - --------------- CROSBY ACQUISITION, LLC, a Delaware limited liability company By: CROSBY CAPITAL, LLC as Sole Member By: /s/ Jay A. Chaffee ------------------ Name: Jay A. Chaffee -------------- Title: President --------- LIMITED PARTNERS: - ---------------- CROSBY CAPITAL, LLC a Texas limited liability company By: /s/ Jay A. Chaffee ------------------ Name: Jay A. Chaffee -------------- Title: President --------- AVIVA OVERSEAS, INC. By: /s/ R. Suttill -------------- Name: Ron Suttill ----------- Title: President --------- WITHDRAWING PARTNERS: - -------------------- ARGOSY ENERGY, INC., a Delaware corporation By: /s/ R. Suttill -------------- Name: Ron Suttill ----------- Title: President --------- 6 NEO ENERGY, INC., a Texas corporation By: /s/ R. Suttill -------------- Name: Ron Suttill ----------- Title: President --------- GARNET RESOURCES, CORP., a Delaware corporation By: /s/ R. Suttill -------------- Name: Ron Suttill ----------- Title: President --------- 7 EX-10.13 14 0014.txt ASSIGNMENT OF STOCK WARRANT RIGHTS EXHIBIT 10.13 ASSIGNMENT OF STOCK WARRANT RIGHTS This Assignment of Stock Warrant Rights (this "Assignment") is made effective as of May 31, 2000, by and among Crosby Capital LLC, a Texas limited liability company ("Warrant Rights Holder"), and Aviva Petroleum Inc., a Texas corporation ("Parent"). R E C I T A L WHEREAS, pursuant to Sections 1.03 and 5.03 of that certain Loan, Settlement and Acquisition Agreement dated as of May 31, 2000 (the "Purchase Agreement"), by and among Warrant Rights Holder, and Parent, Aviva America, Inc., a Delaware corporation ("Aviva America"), Aviva Operating, Inc., a Delaware corporation ("Aviva Operating"), Aviva Overseas, Inc., a Delaware corporation ("Aviva Overseas"), Neo Energy Inc., a Texas corporation ("Neo"), Garnet Resources Corp., a Delaware corporation ("Garnet"), Argosy Energy, Inc., a Delaware corporation ("Argosy Energy"), and Argosy Energy International, a Utah limited partnership ("Argosy International"), Warrant Rights Holder agreed to transfer and deliver to Parent Warrant Rights Holder's right to purchase 1,500,000 shares of Parent's common stock (the "Warrant Rights"). A G R E E M E N T NOW, THEREFORE, in consideration of the promises herein and in the Purchase Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Warrant Rights Holder and Parent hereby agree as follows: 1. Transfer of Warrant Rights. Warrant Rights Holder hereby conveys, -------------------------- transfers, assigns, grants, sells and delivers, to Parent, and Parent acquires, accepts and purchases, all of Warrant Rights Holder's right, title and interest in and to the Warrant Rights. 2. Assumption. Parent hereby assumes and accepts the Warrant Rights. ---------- 3. Delivery. Warrant Rights Holder is delivering to Parent simultaneously -------- herewith that certain Affidavit of Lost Stock Warrants executed by ING (U.S.) Capital LLC on April 27, 2000, and Parent hereby acknowledges receipt of same. 4. Further Assurances. Warrant Rights Holder shall execute and deliver to ------------------ Parent such further documents and instruments, and take such other action, that may be reasonably requested by Parent to evidence this conveyance, transfer and assignment of the Warrant Rights. 5. Definitions. All capitalized terms not otherwise defined herein shall ----------- have the meaning ascribed to them in the Purchase Agreement. 6. Inurement. The conveyance, assignment and transfer herein shall be --------- effective as of the date hereof, and shall inure to the benefit of and be binding upon the parties hereto and their successors or permitted assigns. However, nothing in this Assignment, express or implied, shall give any other person any benefit or any legal or equitable right or remedy with respect hereto. 7. Conveyance Subject to the Purchase Agreement. This conveyance is made -------------------------------------------- pursuant to the Purchase Agreement and is subject to the terms thereof. 8. Counterparts. This Assignment may be separately executed in ------------ counterparts, each of which when so executed shall be deemed to constitute one and the same agreement. Such execution and delivery may be accomplished by facsimile transmission. 9. Governing Law. This Assignment shall be governed by and construed in ------------- accordance with the laws of the State of Texas, without regard to principles of conflicts of law thereof. [SIGNATURES ON NEXT PAGE] 2 IN WITNESS WHEREOF, each of the undersigned has caused this Assignment to be executed as of the day and year first written above. AVIVA PETROLEUM, INC. By: /s/ R. Suttill -------------- President CROSBY CAPITAL, LLC By: /s/ Jay A. Chaffee ------------------ Jay A. Chaffee President 3 EX-27.1 15 0015.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET OF AVIVA PETROLEUM INC. AND SUBSIDIARIES AS OF JUNE 30, 2000 AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 525 0 1,001 129 159 1,633 26,425 25,848 3,785 1,655 2,750 0 0 2,345 (4,528) 3,785 4,313 4,368 1,951 1,951 0 (110) 684 4,813 193 4,620 0 4,680 0 9,300 0.20 0.20
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