-----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, V0m+v0lqvyojC7kRyMvSq+YzUOlDCIhxZ/dr2/tcJhb0vbqZQLWEK2ke6jKmqXBA D+tdzYDcAqEtQWM1FT2ftg== 0000930661-96-000371.txt : 19960617 0000930661-96-000371.hdr.sgml : 19960617 ACCESSION NUMBER: 0000930661-96-000371 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960509 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIVA PETROLEUM INC /TX/ CENTRAL INDEX KEY: 0000910659 STANDARD INDUSTRIAL CLASSIFICATION: 1382 IRS NUMBER: 751432205 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13440 FILM NUMBER: 96558354 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 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 MARCH 31, 1996 ----------------------------------- 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 March 31, 1996, was 31,482,716 of which 12,136,200 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)
March 31, December 31, 1996 1995 ---------- ------------ ASSETS Current assets: Cash and cash equivalents $ 4,667 $ 4,200 Accounts receivable 2,977 2,756 Inventories 831 809 Prepaid expenses and other 436 667 ------- ------- Total current assets 8,911 8,432 ------- ------- Property and equipment, at cost (note 2): Oil and gas properties and equipment (full cost method) 82,211 80,544 Other 611 626 ------- ------- 82,822 81,170 Less accumulated depreciation, depletion and amortization (47,395) (45,663) ------- ------- 35,427 35,507 Other assets 1,615 1,521 ------- ------- $45,953 $45,460 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long term debt (note 3) $ 2,957 $ 2,397 Accounts payable 3,283 2,783 Accrued liabilities 813 217 ------- ------- Total current liabilities 7,053 5,397 ------- ------- Long term debt, excluding current portion (note 3) 10,070 10,670 Gas balancing obligations and other 1,763 1,729 Deferred foreign income taxes 351 497 Stockholders' equity (note 4): Common stock, no par value, authorized 348,500,000 shares; issued 31,482,716 shares 1,574 1,574 Additional paid-in capital 33,376 33,376 Accumulated deficit* (8,234) (7,783) ------- ------- Total stockholders' equity 26,716 27,167 Commitments and contingencies (note 6) ------- ------- $45,953 $45,460 ======= =======
*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 March 31, 1996 1995 -------- ------- Oil and gas sales $ 3,533 $ 2,370 ------- ------- Expense: Production 1,230 1,232 Depreciation, depletion and amortization 1,784 1,078 General and administrative 528 611 Severance (note 5) 172 - ------- ------- Total expense 3,714 2,921 ------- ------- Other income (expense): Interest and other income (expense), net 72 29 Interest expense (204) (89) Debt refinancing expense (note 3) (100) - ------- ------- Total other income (expense) (232) (60) ------- ------- Loss before income taxes (413) (611) Income taxes (benefits) 38 (37) ------- ------- Net loss $ (451) $ (574) ======= ======= Weighted average common shares outstanding 31,483 31,483 ======= ======= Net loss per common share $ (0.01) $ (0.02) ======= =======
See accompanying notes to condensed consolidated financial statements. 3 AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows (in thousands) (unaudited)
Three Months Ended March 31, 1996 1995 -------- -------- Net loss $ (451) $ (574) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization 1,784 1,078 Deferred foreign income taxes (146) (147) Changes in working capital and other 1,021 (505) ------ ------ Net cash provided by (used in) operating activities 2,208 (148) ------ ------ Cash flows from investing activities: Property and equipment expenditures (1,669) (2,345) ------ ------ Net cash used in investing activities (1,669) (2,345) ------ ------ Cash flows from financing activities: Proceeds from long term debt - 1,800 Principal payments on long term debt (40) (13) ------ ------ Net cash provided by (used in) financing activities (40) 1,787 ------ ------ Effect of exchange rate changes on cash and cash equivalents (32) (37) ------ ------ Net increase (decrease) in cash and cash equivalents 467 (743) Cash and cash equivalents at beginning of the period 4,200 1,982 ------ ------ Cash and cash equivalents at end of the period $4,667 $1,239 ====== ======
See accompanying notes to condensed consolidated financial statements. 4 AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders' Equity (in thousands, except number of shares) (unaudited)
Common Stock --------------------- Additional Total Number Paid-in Accumulated Stockholders' of Shares Amount Capital Deficit Equity ---------- ------ ------- ----------- ------------- Balances at December 31, 1995 31,482,716 $1,574 $33,376 $(7,783) $27,167 Net loss - - - (451) (451) ---------- ------ ------- ------- ------- Balances at March 31, 1996 31,482,716 $1,574 $33,376 $(8,234) $26,716 ========== ====== ======= ======= =======
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") 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 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. 2. 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 $30,000 for the three months ended March 31, 1996 and $40,000 for the three months ended March 31, 1995. Unevaluated oil and gas properties totaling $1,956,000 and $3,012,000 at March 31, 1996 and December 31, 1995, respectively, have been excluded from costs subject to depletion. The Company capitalized interest costs of $76,000 and $77,000 for the three-month periods ended March 31, 1996 and 1995, respectively, on these properties. 3. Long Term Debt On August 6, 1993, the Company entered into a credit agreement with Internationale Nederlanden (U.S.) Capital Corporation ("ING Capital"), secured by a mortgage on substantially all U.S. oil and gas assets, a pledge of Colombian assets and the stock of three subsidiaries, pursuant to which ING Capital agreed to loan to the Company up to $25 million, subject to an annually redetermined borrowing base which is predicated on the Company's U.S. and Colombian reserves. Pursuant to the borrowing base existing prior to certain modifications discussed below, $13,000,000 was outstanding under the loan at March 31, 1996, of which $2,930,000 was classified as current. The outstanding loan balance bears interest at the ING Capital prime rate (8.25% at March 31, 1996) plus 1% or, at the option of the Company, a fixed rate, based on the London Interbank Offered Rate, for a portion or portions of the outstanding debt from time to time. Commitment fees of .5% on the unused credit were payable quarterly until December 31, 1995, at which time the credit facility converted from a revolving credit facility to a term loan. The terms of the loan, among other things, prohibit the Company from merging with another company or paying dividends, limit additional indebtedness, general and administrative expense, sales of assets and investments and require the maintenance of certain minimum financial ratios. The agreement also requires the Company to maintain a minimum consolidated tangible net worth of $22,000,000. 6 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) In March 1996, the Company entered into an agreement with ING Capital pursuant to which the borrowing base was reduced to $11,750,000, the outstanding loan balance was paid down to $11,750,000 from $13,000,000 on April 1, 1996, and the repayment schedule was extended by six months. The latter, as rescheduled, requires monthly payments of $120,000 for the remainder of 1996, $200,000 for the first six months of 1997, $526,000 for the last six months of 1997, and $526,167 for each month in 1998. In consideration for this refinancing, the Company paid a fee of $100,000 to ING Capital. 4. Stockholders' Equity The following is a summary of the activities under the Company's stock option plans since December 31, 1995:
Number of Shares Covered by Options Price --------------- ------------------ Outstanding at December 31, 1995 716,000 $0.78-(Pounds)6.00 Granted pursuant to the 1995 Stock Option Plan 20,000 $0.74 --------------- ------------------ Outstanding at March 31, 1996 736,000 $0.74-(Pounds)6.00 =============== ==================
As of March 31, 1996, approximately 467,000 shares were represented by options which were exercisable under the plans. 5. Severance Expense The Board of Directors has charged a committee of the Board with the task of reviewing the Company's general and administrative expenses and making recommendations as to the reduction of such expenses. On March 18, 1996, the Board, acting on one of such committee's recommendations, determined to terminate the employment of the Executive Vice President and Chief Operating Officer of the Company (the "Officer") effective on June 1, 1996. In connection with the severance arrangements between the Company and the Officer, the Company accrued $172,000 as of March 31, 1996. 6. Commitments and Contingencies The Company anticipates that it will drill one development well in the U.S. at Main Pass Block 41 during 1996. This well will also test two low risk exploratory targets below the lowest productive sands. As of March 31, 1996, future costs are estimated at approximately $1.5 million, net to the Company's interest, for the drilling of this well. The Company, along with its co-owner (referred to collectively as the "Co-owners"), is also engaged in an ongoing development and exploration program on concessions in Colombia. The contract obligations of the Santana concession have been met. The Co-owners, however, currently anticipate drilling certain development wells on the Santana concession in addition to completing certain production facilities. As of March 31, 1996, future development costs are estimated at approximately $4.3 million, net to the Company's interest, for these expenditures. 7 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) The Co-owners drilled an exploratory well, the Palmera #1, on the Santana concession during the first quarter of 1996 which was non-productive and which will be plugged and abandoned. The Co-owners currently plan to perform a 3D seismic program on the Santana concession during the last half of 1996. Additionally, 2D seismic programs are anticipated for the Fragua and Yuruyaco concessions during 1996. As of March 31, 1996, these future exploratory expenditures aggregated approximately $.9 million. The Co-owners have completed their seismic obligations for the first two years of the La Fragua concession. The deadline for the acquisition of seismic data in the third year was March 31, 1996. Due to delays in obtaining the requisite environmental approvals, the Co-owners have requested an extension of the deadline from Ecopetrol. The Co-owners expect that Ecopetrol will grant the request for extension. Failure to receive the extension would result in the Co-owner's forfeiture of the concession, but in all prior situations of this nature, Ecopetrol has granted requested extensions. Assuming the receipt of the above mentioned extension, the Co-owners intend to acquire the additional seismic data and, based on such data, then to determine whether to proceed into the fourth contract year. If the Co-owners decide to proceed into the fourth year, the drilling of a test well would be required. The Co-owners have the option of dropping the concession in lieu of drilling the test well. Unevaluated costs at March 31, 1996 include approximately $1.2 million relating to the La Fragua concession. Failure to fund certain of these capital expenditures could, under either the concession agreements or joint operating agreements with the Company's co-owner, or both, result in the forfeiture of all or part of the Company's interest in these Colombian concessions. The aggregate remaining estimated exploratory and development expenditures for 1996 and 1997 were $6.7 million at March 31, 1996. Any substantial increases in the amounts of the above referenced expenditures could adversely affect the Company's ability to meet these obligations. The Company plans to fund these obligations using cash provided from operations and working capital ($1.9 million at March 31, 1996). Risks that could adversely affect funding of the Company's obligations include, among others, a decrease in the Company's borrowing base, delays in obtaining the required environmental approvals and permits, cost overruns, failure to produce the reserves as projected or a decline in the sales price of oil. Depending on the results of the exploration and development activities, substantial expenditures which have not been included in the Company's cash flow projections may be required. Although the ultimate outcome of these matters cannot be projected with certainty, management believes that its existing capital resources are adequate to fund its present obligations or that sufficient capital can be obtained by means of sales of assets. Under the terms of the contracts with Ecopetrol, 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. Like other crude oil and natural gas producers, the Company's operations are subject to extensive and rapidly changing federal, state and foreign environmental laws and regulations governing emissions into the atmosphere, waste water discharges, solid and hazardous waste 8 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) management activities and site restoration and abandonment activities. The Company's policy is to accrue environmental and restoration related costs once it is probable that a liability has been incurred and the amount can be reasonably estimated. Management is not currently aware of any environmental matters that will have a material adverse effect on the Company's results of operations or financial condition. In August 1990, the U.S. Congress enacted the Oil Pollution Act of 1990 ("OPA '90"), which, among other things, requires responsible parties to establish and maintain evidence of financial responsibility for oil spills in waters of the United States. OPA '90 calls for an increase from $35,000,000 to $150,000,000 in the amount of financial responsibility for pollution cleanup for offshore oil and gas lessees or permittees. The Company currently maintains the prescribed $35,000,000 of insurance coverage for its offshore operations. In August 1993, the U.S. Minerals Management Service ("MMS"), which has been charged with implementing certain segments of OPA '90, issued its advanced notice of proposed rulemaking that would increase financial responsibility requirements for offshore lessees and permittees to $150,000,000 as required by OPA '90. Due to OPA '90s' broad definition of "offshore facility," the Company could become subject to the financial responsibility rule if it is proposed and adopted; to date, however, the MMS has not formally proposed the financial responsibility regulations. On May 9, 1995, the U.S. House of Representatives passed a bill that would lower the financial responsibility requirements applicable under OPA '90 to offshore facilities to $35 million and that would limit the definition of "offshore facility" to include only Territorial Seas and Outer Continental Shelf production, transportation, and storage facilities. The House bill allows the limit to be increased to $150 million if a formal risk assessment indicates the increase to be warranted. In November of 1995, the U.S. Senate adopted similar but slightly different legislation that must be reconciled with the House of Representatives bill before either bill can be submitted to President Clinton for approval. Like the House bill, the Senate bill would reduce the level of financial responsibility required under OPA '90 to $35 million, but unlike the House bill would limit the definition of "offshore facility" to not only Territorial Sea and Outer Continental Shelf production, transportation, and storage facilities but also inland waters such as coastal bays, estuaries or perhaps even rivers. The Senate bill allows the financial responsibility limit to be increased to $150 million if the increase is justified by the relative operational, environmental, human health and other risks posed by the quantity or quality of oil that is explored for, drilled for, produced, stored, handled, transferred, processed or transported. The Company cannot predict the final form of any financial responsibility rule that may be imposed under OPA '90, but any rule that requires the Company to establish $150 million in financial responsibility for oil spills has the potential to make it financially impossible for operators the size of the Company to comply. The Clinton Administration has indicated support for changes to the OPA '90 financial responsibility requirements. Whether these legislative efforts will reduce the OPA '90 financial responsibility requirements applicable to the Company cannot be determined at this time. Two of the Company's properties, Main Pass Block 41 field, a federal lease on the outer continental shelf offshore Louisiana, and Breton Sound Block 31 field, on state leases offshore Louisiana, would be subject to OPA '90. Failure to comply with the regulations as currently proposed would, in the case of Main Pass Block 41, require the Company to resign as operator in favor of a qualified party (two of the Company's working interest partners at Main Pass Block 41 would likely be qualified parties), sell or abandon the property. In the case of Breton Sound Block 31, where none of the Company's co-owners would likely qualify, the Company would be required to sell or abandon the property. Nevertheless, the impact of any rule regarding financial responsibility requirements is not expected to be any more burdensome to 9 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) the Company than it will be to other similarly situated companies involved in oil and gas exploration and production in the Gulf of Mexico. Main Pass Block 41 and Breton Sound Block 31 have in the past provided substantial cash flow and together, at December 31, 1995, represented more than half of the Company's U.S. oil and gas reserves, having pre-tax 10% discounted future net cash flows, determined by independent engineers, of $3.6 million and $.7 million, respectively (unaudited). The Company does not have the benefit of a report with respect to its oil and gas reserves by independent petroleum engineers as of March 31, 1996. The Company estimates, however, that the pre-tax 10% discounted future net cash flows attributable to Main Pass Block 41 and Breton Sound Block 31 at March 31, 1996, after giving effect to production subsequent to December 31, 1995 and to changes in production rates and oil and gas prices, were approximately $4.1 million and $.8 million, respectively. The after-tax 10% discounted future net cash flow attributable to each property approximates the pre-tax amount. OPA '90 also imposes other requirements, such as the preparation of oil spill contingency plans. The Company has such plans in place. Failure to comply with ongoing requirements or inadequate cooperation during a spill event may subject a responsible party to civil or even criminal enforcement actions. Finally, OPA '90 created a liability scheme for response costs, natural resource damages, property damages, economic losses, and other damages caused by oil spills for which the Company is a designated responsible party under the statute. Although in some instances there are limits on the total amount of liability under OPA '90 for an oil spill, those liability limits are inapplicable if the spill was caused by gross negligence or willful misconduct or the violation of federal safety, construction or operating requirements or if the responsible party fails to report the spill and cooperate with the cleanup. In addition, the responsible party for an offshore facility, which is the offshore lessee or permittee (or holder of a right of use and easement), is responsible for the entire costs of oil spill removal plus $75,000,000. Few defenses exist to the liability for oil spills imposed by OPA '90. Management is currently unaware of any oil spills for which the Company has been designated as a potentially responsible party under OPA '90 and that will have a material adverse impact on the Company or its operations. In addition, 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 result in any material adverse effect on the Company's financial condition or results of operations. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Three Months Ended March 31, 1996 compared to Three Months Ended March 31, 1995
United States Colombia Oil Gas Oil Total ----- ----- ------ ------ (Thousands) Revenue - 1995 $449 $567 $1,354 $2,370 Volume variance (42) (1) 770 727 Price variance 50 88 269 407 Other - 29 - 29 ---- ----- ------ ------ Revenue - 1996 $457 $683 $2,393 $3,533 ==== ===== ====== ======
Colombian oil volumes were 134,000 barrels in the first quarter of 1996, an increase of 48,000 barrels as compared to the first quarter of 1995. Of such increase, approximately 24,000 barrels resulted from production from two wells in the Mary field that did not begin producing until April 1995 and approximately 32,000 barrels from the fracture stimulation program that involved a total of eight wells. These increases were partially offset by an 8,000 barrel decline that resulted from the Aporte Putumayo concession being shut in effective March 31, 1995 pending abandonment operations. U.S. oil volumes were 25,000 barrels in 1996, a decrease of 2,000 barrels from 1995. This decrease, which resulted primarily from normal production declines, was more than offset by the increase in the U.S. oil price to $18.61 per barrel in 1996 from $16.57 per barrel in the first quarter of 1995. U.S. gas volumes before gas balancing adjustments were 311,000 thousand cubic feet (MCF) in 1996, virtually unchanged from 1995. U.S. gas prices increased to $1.93 per MCF in 1996 from $1.70 per MCF in the first quarter of 1995. Colombian oil prices averaged $17.83 per barrel during the first quarter of 1996. The average price for the same period of 1995 was $15.82 per barrel. In 1996 prices have been higher due to a general increase in world oil prices. In addition to the above-mentioned variances, U.S. gas revenue increased approximately $29,000 as a result of gas balancing adjustments. Operating costs remained constant while depreciation, depletion and amortization increased by 65%, or $706,000, primarily due to higher Colombian volumes and a higher Colombian DD&A rate per barrel. Colombian DD&A expenses increased on a per barrel basis to $10.48 in 1996 from $8.15 in the first quarter of 1995 as a result of a downward revision in Colombian reserve volumes and an increase in costs subject to amortization. General and administrative ("G&A") expenses declined $83,000 due mainly to decreases in fees paid for professional services. The Company has accrued $172,000 of severance expense as of March 31, 1996 relating to the termination of the Executive Vice President and Chief Operating Officer of the Company. For more 11 information regarding such termination see Note 5 of Notes to Condensed Consolidated Financial Statements. Interest expense was $115,000 higher in 1996, primarily as a result of higher average balances outstanding. Debt refinancing expense of $100,000 in the first quarter of 1996 represents a fee paid to ING Capital in consideration for certain modifications to the Company's credit agreement. See Note 3 of Notes to Condensed Consolidated Financial Statements. Income taxes were $75,000 higher in 1996 as a result of an increase in Colombian taxable income and due to the threshold for "commercial income" being reached in Colombia resulting in the 12% remittance tax thereon. In 1995 the Company did not achieve the commercial income threshold in Colombia. Liquidity and Capital Resources Since December 31, 1995, costs incurred in oil and gas property acquisition, exploration and development activities by the Company totaled approximately $1.7 million, almost all of which was incurred in Colombia. These activities were funded by available working capital and cash provided by operating activities. As described in Note 6 of Notes to Condensed Consolidated Financial Statements, the Company has aggregate remaining estimated exploratory and development expenditures for 1996 and 1997 of $6.7 million at March 31, 1996. The Company plans to fund these obligations through cash provided from operations and working capital. Any substantial decreases in the borrowing base as hereinafter defined or increases in the amounts of these required expenditures could adversely affect the Company's ability to meet the obligations. Delays in obtaining the required environmental approvals and permits on a timely basis and construction delays could both, through the impact of inflation, increase the required expenditures. Cost overruns resulting from factors other than inflation could also increase the required expenditures. Historically, the inflation rate of the Colombian peso has been in the range of 20-30% per year. Devaluation of the peso against the U.S. dollar has historically been slightly less than the inflation rate in Colombia. The Company has historically funded capital expenditures in Colombia by converting U.S. dollars to pesos at such time as the expenditures have been made. As a result of the interaction between peso inflation and devaluation of the peso against the U.S. dollar, inflation, from the Company's perspective, has not been a significant factor. During 1994 and the first half of 1995, however, devaluation of the peso was substantially lower than the rate of inflation of the peso, resulting in an effective inflation rate in excess of that of the U.S. dollar. There can be no assurance that this condition will not occur again or that, in such event, there will not be substantial increases in future capital expenditures as a result. Due to Colombian exchange controls and restrictions and the lack of an effective market, it is not feasible to hedge against the risk of net peso inflation against the U.S. dollar and the Company has not done so. The Company is a party to a credit agreement with Internationale Nederlanden (U.S.) Capital Corporation ("ING Capital") pursuant to which the borrower thereunder may borrow up to $25 million, subject to a borrowing base the determination of which is predicated on the Company's U.S. and Colombian reserves and which is redetermined annually. On April 1, 1996, a principal payment of $1,250,000 was made reducing the outstanding balance to the $11,750,000 borrowing base redetermined in March 1996. Borrowings under the credit agreement bear interest at the prime commercial rate of the lender in effect from time to time for its most creditworthy customers plus 1% per annum or, at the Company's option, a fixed rate based on the London Interbank Offered Rate for a portion or portions of the outstanding indebtedness. The borrower under the credit agreement is Neo Energy, Inc., a wholly owned subsidiary of the Company and the owner of the Company's interests in the Colombian concessions. The indebtedness under the credit agreement is guaranteed by the parent company and certain other subsidiaries, including the wholly owned subsidiary that is the owner of substantially all the Company's domestic oil and gas properties. The loan prohibits the 12 payment of dividends by the Company and requires the maintenance of certain financial ratios. The repayment schedule requires monthly payments of $120,000 for the remainder of 1996, $200,000 for the first six months of 1997, $526,000 for the last six months of 1997 and $526,167 for each month in 1998. The Company's internal projections of its consolidated cash flow through December 31, 1998 indicate that the Company's consolidated cash flow and working capital will be adequate to fund both the estimated exploratory and development expenditures for 1996 and 1997 and the debt service relating to the ING Capital credit agreement as rescheduled through the end of calendar year 1998. These internal cash flow projections assume (i) crude oil sales prices of $18.08 per barrel for Colombian production and $18.12 per barrel for United States production and natural gas sales prices of $2.05 per MCF for United States production, (ii) successful completion of one development well at Main Pass Block 41 and five development wells on the Santana Concession in Colombia, (iii) production decline curves commensurate with those assumed by the Company's independent petroleum engineers, (iv) certain reductions in general and administrative costs and (v) interest rates and operating costs at current levels. Any significant inaccuracy in any of these assumptions, as well as interruptions of production, increases in required expenditures as a result of inflation or cost overruns or delays in the Company's development program, may adversely affect the Company's ability to fund such exploratory and development expenditures or to meet its existing debt service obligations. Depending on the results of the Company's exploration and development activities, substantial expenditures which have not been included in such cash flow projections may be required. For information regarding the risks relating to the Company's business, including the potential adverse effect of OPA '90 on certain of the Company's domestic offshore properties and with respect to the cash flow from these properties, see Note 6 of Notes to Condensed Consolidated Financial Statements. At December 31, 1995, the Colombian cost center approximated the ceiling test limitation. During the quarter ended March 31, 1996, costs incurred of approximately $1.6 million were added to the Colombian cost center, in addition to approximately $1.1 million of unevaluated costs that were transferred into the amortization base as a result of an exploratory well, the Palmera #1, being evaluated as non-productive. No ceiling test write-down was recorded at March 31, 1996, however, since an increase of $2.54 per barrel in the Colombian oil price sufficiently raised the ceiling test limitation. A future decrease in price received for oil or downward reserve adjustments could result in a ceiling test write-down. During late 1995, the Company engaged in discussions with Garnet Resources Corporation, the parent of the co-owner of the Company's Colombian Concessions, regarding a possible merger of the Company and Garnet Resources Corporation. In December 1995, these discussions were terminated as a result of the inability of the parties to reach agreement on terms and conditions of the proposed merger. At that time, the Board of Directors of the Company empowered a committee of directors to investigate and evaluate other strategic alternatives for the Company. That committee, which has engaged Dillon, Read & Co. Inc. to assist it, is continuing its undertaking. With the exception of historical information, the matters discussed in this quarterly report to shareholders 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 such expectations will be realized. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include the timing and extent of changes in commodity prices for oil and gas, the extent of the Company's success in discovering, developing and producing reserves, political conditions in Colombia and conditions of the capital markets and equity markets during the periods covered by the forward-looking statements, as well as other factors. 13 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits 10.1 Amendment to ING Capital Credit Agreement dated March 29, 1996. 10.2 Aviva Petroleum Inc. Severance Benefit Plan. 27.1 Financial Data Schedule. b) Reports on Form 8-K The Company filed the following Form 8-K, Current Reports during and subsequent to the end of the first quarter: Date of 8-K Description of 8-K - - ----------- ------------------ February 5, 1996 Submitted a copy of the Company's Press Release dated February 5, 1996, announcing that drilling had commenced on the Palmera #1 exploratory well. March 29, 1996 Submitted a copy of the Company's Press Release dated March 29, 1996 reporting on Colombian activities. May 1, 1996 Submitted a copy of the Company's Press Release dated May 1, 1996 reporting on U.S. Gulf Coast offshore activity. 14 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: May 9, 1996 /s/ Ronald Suttill ------------------------------------- Ronald Suttill President and Chief Executive Officer /s/ James L. Busby ------------------------------------- James L. Busby Treasurer 15 INDEX TO EXHIBITS Sequentially Exhibit Numbered Number Description of Exhibit Page - - ------- ---------------------- ------------ **10.1 Amendment to ING Capital Credit Agreement dated March 29, 1996. **10.2 Aviva Petroleum Inc. Severance Benefit Plan. **27.1 Financial Data Schedule. - - ---------- *Previously Filed **Filed Herewith 16 EX-10.1 2 5TH AMENDMENT TO CREDIT AGMNT & PROMISSORY NOTE EXHIBIT 10.1 FIFTH AMENDMENT TO CREDIT AGREEMENT AND PROMISSORY NOTE THIS FIFTH AMENDMENT TO CREDIT AGREEMENT AND PROMISSORY NOTE (herein called this "Amendment") is made as of the 29th day of March, 1996 by and between Neo Energy, Inc., a Texas corporation ("Borrower"), Aviva Petroleum Inc., a Texas corporation ("Aviva Petroleum"), Aviva America, Inc., a Delaware corporation ("Aviva America"), and Internationale Nederlanden (U.S.) Capital Corporation, a Delaware corporation ("Lender"). RECITALS: 1. Borrower, Aviva Petroleum, Aviva America and Internationale Nederlanden Bank N.V., New York Branch (the "Bank") entered into that certain Credit Agreement dated as of August 6, 1993. 2. Pursuant to such Credit Agreement, Borrower executed and delivered to Bank that certain Promissory Note dated as of August 6, 1993 made payable to the order of Bank in the stated principal amount of $25,000,000 (as heretofore amended by the First Amendment to Credit Agreement and Promissory Note referenced to below, the "Original Note"). 3. Pursuant to that certain Assignment and Assumption dated as of September 8, 1993, between Lender and Bank, Bank assigned to Lender all of Bank's rights, interests and obligations in and to such Credit Agreement, the Original Note and the other Loan Documents (as such term is defined in such Credit Agreement). 4. Such Credit Agreement has been amended by (a) that certain First Amendment to Credit Agreement and Promissory Note dated March 31, 1994; (b) a letter amendment concerning Permitted Investments dated December 31, 1994; (c) a letter amendment concerning Consolidated Tangible Net Worth dated March 7, 1995; and (d) that certain Fourth Amendment to Credit Agreement and Promissory Note dated June 9, 1995. (As so amended, such Credit Agreement is herein called the "Original Agreement".) 5. Borrower, Aviva Petroleum, Aviva America and Lender desire to further amend the Original Agreement as set forth herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: -1- ARTICLE I. Definitions and References -------------------------- Section 1.1 Terms Defined in the Original Agreement. Unless the --------------------------------------- context otherwise requires or unless otherwise expressly defined herein, the terms defined in the Original Agreement shall have the same meanings whenever used in this Amendment. Section 1.2. Other Defined Terms. Unless the context otherwise ------------------- requires, the following terms when used in this Amendment shall have the meanings assigned to them in this Section 1.2. "Amendment" means this Fifth Amendment to Credit Agreement and --------- Promissory Note. "Credit Agreement" means the Original Agreement as heretofore amended ---------------- and as amended hereby. "Note" means the Original Note as heretofore amended and as amended ---- hereby. ARTICLE II. Amendments to Original Agreement -------------------------------- Section 2.1. Regular Payments. Section 2.8 of the Original ---------------- Agreement is hereby amended in its entirety to read as follows: "Section 2.8 Regular Payments. Beginning March 29, 1996 and on the ---------------- last Business Day of each calendar month thereafter, Borrower will, in addition to paying any interest then due on the Loan, repay the principal balance of the Loan in accordance with the following schedule:
Payment Dates Monthly Principal Payment ------------- ------------------------- March, 1996 $1,250,000 April, 1996 120,000 May, 1996 120,000 June, 1996 120,000 July, 1996 120,000 August, 1996 120,000 September, 1996 120,000 October, 1996 120,000 November, 1996 120,000 December, 1996 120,000 January, 1997 $ 200,000 February, 1997 200,000 March, 1997 200,000 April, 1997 200,000 May, 1997 200,000
-2- June, 1997 200,000 July, 1997 526,000 August, 1997 526,000 September, 1997 526,000 October, 1997 526,000 November, 1997 526,000 December, 1997 526,000 January, 1998 $ 526,167 February, 1998 526,167 March, 1998 526,167 April, 1998 526,167 May, 1998 526,167 June, 1998 526,167 July, 1998 526,167 August, 1998 526,167 September, 1998 526,167 October, 1998 526,167 November, 1998 526,167 December, 1998 526,167"
Section 2.2. Tangible Net Worth. The first sentence of Section ------------------ 5.2(m) of the Original Agreement is hereby amended to read as follows and such amendment shall be effective as of the effective date of this Agreement: "Aviva Petroleum's Consolidated Tangible Net Worth will never be less than $22,000,000." Section 2.3. Borrowing Base Designation. Agent hereby designates a -------------------------- Borrowing Base of $11,750,000 for the period beginning as of the date of this Amendment and continuing until but not including the next date when the Borrowing Base is redetermined as set forth in Section 2.11 of the Credit Agreement. Section 2.4. Amendments to Original Note. (a) The sixth paragraph of the --------------------------- Original Note is hereby amended in its entirety to read as follows: "On December 31, 1998 the unpaid principal balance of this Note and all interest accrued hereon shall be due and payable in full." (b) The definition of "Base Rate Payment Date" in the Original Note is hereby amended to read as follows: "`Base Rate Payment Date' means (i) the last Business Day of each calendar month, beginning March 29, 1996, and (ii) any day on which past due interest or principal is owed hereunder and is unpaid. If the terms hereof or of the Credit Agreement provide that payments of interest or principal hereon shall be deferred from one Base Rate -3- Payment Date to another day, such other day shall also be a Base Rate Payment Date." ARTICLE III. Representations and Warranties ------------------------------ Section 3.1. Representations and Warranties of Borrower. In order to ------------------------------------------ induce Lender to enter into this Amendment, each Obligor represents and warrants to Lender that: (a) The representations and warranties contained in Section 4.1 of the Original Agreement are true and correct at and as of the time of the effectiveness hereof. (b) Each Obligor is duly authorized to execute and deliver this Amendment and Borrower is and will continue to be duly authorized to borrow and to perform its obligations under the Credit Agreement. Each Obligor has duly taken all corporate action necessary to authorize the execution and delivery of this Amendment and to authorize the performance of the obligations of Borrower hereunder. (c) The execution and delivery by each Obligor of this Amendment, the performance by each Obligor of its obligations hereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of the articles or certificate, as appropriate, of incorporation and bylaws of each Obligor, or of any material agreement, judgment, license, order or permit applicable to or binding upon each Obligor, or result in the creation of any lien, charge or encumbrance upon any assets or properties of any Obligor. Except for those which have been duly obtained, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by each Obligor of this Amendment or to consummate the transactions contemplated hereby. (d) When duly executed and delivered, each of this Amendment, the Note and the Credit Agreement will be a legal and binding instrument and agreement of each Obligor, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency and similar laws applying to creditors' rights generally and by principles of equity applying to creditors' rights generally. (e) The audited annual Consolidated financial statements of Aviva Petroleum dated as of December 31, 1995 fairly present its Consolidated financial position at such date and its Consolidated results of operations and -4- Consolidated cash flows for the period ending on such date. Since December 31, 1995, no material adverse change has occurred in the financial condition or businesses or in the Consolidated financial condition or businesses of the Obligors. ARTICLE IV. Miscellaneous ------------- Section 4.1. Effective Date. This Amendment shall become effective as -------------- of the date first above written when and only when Lender shall have received, at Lender's office, (i) a counterpart of this Amendment executed and delivered by Borrower and (ii) a modification fee of $100,000. Section 4.2. Ratification of Agreements. The Original Agreement and the -------------------------- Original Note as hereby amended are hereby ratified and confirmed in all respects. The Loan Documents, as they may be amended or affected by this Amendment, are hereby ratified and confirmed in all respects. Any reference to the Credit Agreement in any Loan Document shall be deemed to refer to this Amendment also, and any reference in any Loan Document to the Note and any other document or instrument amended, renewed, extended or otherwise affected by this Amendment shall also refer to such document as amended hereby. Any reference to the Note in any other Loan Document shall be deemed to be a reference to the Original Note as amended by this Amendment. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Lender under the Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Credit Agreement or any other Loan Document. Section 4.3. Ratification of Security Documents. Each of the Obligors ---------------------------------- hereby consents to the provisions of this Amendment and the transactions contemplated herein (including without limitation the amendment to the Original Note), and hereby ratifies and confirms each Loan Document executed and delivered by it to and for the benefit of Lender, and each hereby agrees that its respective obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. Section 4.4. Survival of Agreements. All representations, warranties, ---------------------- covenants and agreements of each Obligor herein shall survive the execution and delivery of this Amendment and the performance hereof, including without limitation the making or granting of the Loan, and shall further survive until all of the Obligations are paid in full. All statements and agreements contained in any certificate or instrument delivered by any Obligor hereunder or under the Credit Agreement to Lender shall be deemed to constitute representations and warranties by, or -5- agreements and covenants of, such Obligor under this Amendment and under the Credit Agreement. Section 4.5. Loan Documents. This Amendment is a Loan Document, and all -------------- provisions in the Credit Agreement pertaining to Loan Documents apply hereto. Section 4.6. Governing Law. This Amendment shall be governed by and ------------- construed in accordance with the laws of the State of New York and any applicable laws of the United States of America in all respects, including construction, validity and performance. Section 4.7. Counterparts. This Amendment may be separately executed in ------------ counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. IN WITNESS WHEREOF, this Amendment is executed as of the date first above written. AVIVA PETROLEUM INC. NEO ENERGY, INC. AVIVA AMERICA, INC. By: /s/ James L. Busby -------------------------------- James L. Busby Treasurer INTERNATIONALE NEDERLANDEN (U.S) CAPITAL CORPORATION By: /s/ Nancy S. Frohman -------------------------------- Nancy S. Frohman Vice President -6- CONSENT AND AGREEMENT --------------------- Aviva Operating Company, a Nevada corporation, hereby consents to (i) the provisions of that certain Fifth Amendment to Credit Agreement and Promissory Note (the "Amendment") made as of the 29th day of March, 1996 by and between Neo Energy, Inc., a Texas corporation, Aviva Petroleum Inc., a Texas corporation, Aviva America, Inc., a Delaware corporation, and Internationale Nederlanden (U.S.) Capital Corporation, a Delaware corporation ("Lender") and (ii) the transactions contemplated in the Amendment (including without limitation the amendment to the Original Note), and hereby ratifies and confirms the Guaranty (the "Guaranty") dated as of August 6, 1993 made by it for the benefit of Internationale Nederlanden Bank N.V., New York Branch (which has since assigned all its rights, interests, and obligations under the Guaranty to Lender), and agrees that its obligations and covenants under the Guaranty are unimpaired by the Amendment and shall remain in full force and effect. AVIVA OPERATING COMPANY By: /s/ James L. Busby --------------------------------- James L. Busby Treasurer -7- EX-10.2 3 SEVERANCE BENEFIT PLAN EXHIBIT 10.2 AVIVA PETROLEUM INC. SEVERANCE BENEFIT PLAN EFFECTIVE AS OF NOVEMBER 1, 1995 AVIVA PETROLEUM INC. SEVERANCE BENEFIT PLAN WITNESSETH: WHEREAS, the Board of Directors of Aviva Petroleum Inc. has authorized and directed the officers of Aviva Petroleum Inc. to execute the Aviva Petroleum Inc. Severance Benefit Plan; NOW, THEREFORE, the Aviva Petroleum Inc. Severance Benefit Plan is hereby adopted effective as of November 1, 1995, to read as follows: ARTICLE I DEFINITIONS ----------- 1.1. "CAUSE" means, in the context of an Employee's termination or separation from employment with the Company, an Employee's (i) neglect, refusal or failure (other than by reason of illness, accident or other physical or mental incapacity), in any material respect, to attend to his duties as assigned by the Company; (ii) failure in any material respect to comply with any of his terms of employment; (iii) failure to follow the established, reasonable and material policies, standards, and regulations of the Company; (iv) willful engagement in gross misconduct injurious to the Company or to any of its subsidiaries or affiliates; or (v) conviction in a court of law of, or pleading of guilty or nolo contendere to, any crime that constitutes a felony in the jurisdiction involved. 1.2. "CHANGE OF CONTROL" means an event which shall be deemed to have occurred when either (i) any "person" (as that term is used in sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes a "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act) directly or indirectly of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities, (ii) individuals who, as of the effective date of the Plan, constitute the Directors cease for any reason to constitute at least a majority of the Directors, unless such cessation is approved by a majority vote of the Directors in office immediately prior to such cessation, or (iii) the Company is merged into a previously unrelated entity. 1.3. "CODE" means the Internal Revenue Code of 1986, as amended. 1.4. "COMPANY" means Aviva Petroleum Inc. 1 1.5. "DIRECTORS" means the Board of Directors of the Company. 1.6. "ELIGIBLE EMPLOYEE" means each Employee other than (a) an Employee whose terms and conditions of employment are governed by a collective bargaining agreement, unless such agreement provides for his coverage under the Plan, (b) a nonresident alien who has no United States source income, (c) an Employee who is a party to a separate severance agreement with the Company, or (d) an Employee who is a party to an individual employment agreement with the Company providing for severance benefits. 1.7. "EMPLOYEE" means any individual who is employed full-time by the Company (or any of its wholly-owned subsidiaries), and who is not a temporary employee. Full-time employees are those employees who, on average, work at least 35 hours per week for the Company. Temporary employees are those employees whose anticipated duration of employment at the time of hire is no more than six months. 1.8. "PLAN" means the Aviva Petroleum Inc. Severance Benefit Plan, as amended from time to time. 1.9. "PLAN ADMINISTRATOR" means the Company. 1.10. "PLAN YEAR" means the twelve-consecutive-month period commencing January 1 of each year. ARTICLE II GENERAL SEVERANCE BENEFIT ------------------------- 2.1. SEVERANCE BENEFIT. The Company shall provide severance benefits as set forth in Article III to Eligible Employees, pursuant to the terms, conditions and limitations set forth in the Plan. No benefits shall be provided to an Eligible Employee unless such Eligible Employee executes documents required by the Plan Administrator relieving the Company from any employment- related liability. ARTICLE III SEVERANCE BENEFITS ------------------ 3.1. SEVERANCE BENEFITS. Each Eligible Employee shall be entitled to severance benefits under the Plan if, within two (2) years after a Change of Control, the Company (or any of its wholly-owned subsidiaries) terminates his employment, reduces his salary or transfers the Eligible Employee to a location that is at least 50 miles from his current employment location, or in any 2 other circumstances in which the Plan Administrator within its discretion deems severance benefits appropriate. The amount of an Eligible Employee's severance benefits shall be determined by the Plan Administrator as follows: Each Eligible Employee shall receive the greater of (A) three (3) months' of his base salary or (B) one-half (1/2) month of his base salary times his years of employment with the Company (or a predecessor entity), plus one month's base salary multiplied by his annual base salary divided by $10,000. For purposes of this calculation, years of employment shall be calculated to the nearest month. Notwithstanding the immediately preceding two sentences, the severance benefits for an Eligible Employee who is an officer of the Company shall be one year's base salary. In addition to eligibility to receive benefits following a Change of Control, each Eligible Employee whose employment is terminated as a result of the recommendations of the Transaction Committee of the Directors, in connection with a reduction of Company general and administrative expenses, shall be eligible to receive the benefits provided under the first paragraph of this Section 3.1. 3.2. VOLUNTARY TERMINATION. An Eligible Employee who voluntarily terminates employment with the Company shall receive no severance benefits under the Plan, unless the Plan Administrator deems severance benefits appropriate pursuant to Section 3.1. 3.3. TERMINATION FOR CAUSE. Notwithstanding any other provision in the Plan to the contrary, an Eligible Employee who is terminated for Cause shall receive no severance benefits under the Plan. 3.4. MAXIMUM BENEFIT. The maximum benefit under the Plan for any Eligible Employee shall be one-half (1/2) of the Eligible Employee's annual base salary, except for officers of the Company. 3.5. FORM OF BENEFIT. Benefits shall be paid in a lump sum. 3.6. MEDICAL BENEFITS. If an Eligible Employee becomes entitled to severance benefits under Section 3.1, the Company shall also pay premiums for medical insurance coverage for such Eligible Employee for a number of months equal to the number of months of base salary the Eligible Employee receives as severance benefits under Section 3.1, up to a maximum of three (3) months, provided the Company is able to provide such medical insurance coverage under the terms of its medical insurance policy. The medical benefits provided under such medical insurance coverage shall be substantially identical to the medical benefits provided under the medical plan in effect on the date of the Change of Control or, in the case of a termination in connection with a general reduction of Company general and administrative costs, on the date of the termination of employment. If the Company is unable to provide such coverage under its medical insurance policy, the Company shall pay the Eligible Employee the net dollar amount that the Company had been paying toward the medical insurance premiums for the Eligible Employee prior to the termination of employment. Nothing in the Plan shall be construed to limit the right 3 of any Eligible Employee to any benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). ARTICLE IV GENERAL PROVISIONS ------------------ 4.1. FUNDING AND COST OF PLAN. The benefits provided herein shall be unfunded and shall be provided from the Company's general assets. 4.2. NAMED FIDUCIARY. The Plan Administrator shall be the named fiduciary for purposes of the Employee Retirement Income Security Act of 1974, as amended. 4.3. ADMINISTRATION. The Plan Administrator shall be responsible for the management and control of the operation and the administration of the Plan, including without limitation interpretation of the Plan, decisions pertaining to eligibility to participate in the Plan, computation of Plan benefits, granting or denial of benefit claims, and review of claims denials. The Plan Administrator has absolute discretion in the exercise of its powers and responsibilities. The Company may, by action of its President, delegate any or all of its powers and responsibilities as Plan Administrator to an individual, a committee, or both. To the extent the Company delegates its responsibilities and powers as Plan Administrator, the Company shall indemnify and hold harmless each such delegate (and any other individual acting on such delegate's behalf) against any and all expenses and liabilities arising out of such person's administrative functions or fiduciary responsibilities, excepting only expenses and liabilities arising out of the person's own willful misconduct; expenses against which such person shall be indemnified hereunder include without limitation the amounts of any settlement, judgment, attorneys' fees, costs of court, and any other related charges reasonably incurred in connection with a claim, proceeding, settlement, or other action under the Plan. 4.4. AMENDMENT AND TERMINATION. The Directors have the authority to amend or terminate the Plan at any time, by means of a written instrument executed by either the Directors or a duly authorized officer of the Company. Notwithstanding the previous sentence, if the Company terminates an Eligible Employee's employment prior to December 31, 1997, no such amendment or termination shall reduce the benefits to which the Eligible Employee would otherwise be entitled, unless the Eligible Employee consents in writing to the amendment or termination. 4.5. CLAIMS PROCEDURE AND REVIEW. Claims for benefits under the Plan shall be made in writing to the Plan Administrator. If a claim for benefits is wholly or partially denied, the Plan Administrator shall, within a reasonable period of time but no later than ninety days after receipt of the claim (or 180 days after receipt of the claim if special circumstances require an extension of time for processing the claim), notify the claimant of the denial. Such notice shall (i) be in 4 writing, (ii) be written in a manner calculated to be understood by the claimant, (iii) contain the specific reason or reasons for denial of the claim, (iv) refer specifically to the pertinent Plan provisions upon which the denial is based, (v) describe any additional material or information necessary for the claimant to perfect the claim (and explain why such material or information is necessary), and (vi) explain the Plan's claim review procedure. Within sixty days of the receipt by the claimant of this notice, the claimant may file a written appeal with the Plan Administrator. In connection with the appeal, the claimant may review pertinent documents and may submit written issues and comments. The Plan Administrator shall deliver to the claimant a written decision on the appeal promptly, but not later than sixty days after the receipt of the claimant's appeal (or 120 days after receipt of the claimant's appeal if there are special circumstances which require an extension of time for processing). Such decision shall (i) be written in a manner calculated to be understood by the claimant, (ii) include specific reasons for the decision, and (iii) refer specifically to the Plan provisions upon which the decision is based. If special circumstances require an extension, up to 180 or 120 days, whichever applies, the Plan Administrator shall send written notice of the extension. This notice shall indicate the special circumstances requiring the extension and state when the Plan Administrator expects to render the decision. 4.6. NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of the Plan shall not be deemed to be a contract of employment between the Company and any person, to be consideration for the employment of any person, or to have any effect whatsoever on the at-will employment relationship. Nothing in the Plan shall be deemed to give any person the right to be retained in the employ of the Company or to restrict the right of the Company to discharge any person at any time. Nothing in the Plan shall be deemed to give the Company the right to require any person to remain in the employ of such Company or to restrict any person's right to terminate his employment at any time. 4.7. GOVERNING LAW. This Plan shall be interpreted under the laws of the State of Texas except to the extent preempted by federal law. 4.8. GENDER; NUMBER. Wherever appropriate herein, the masculine, neuter, and feminine genders shall be deemed to include each other, and the plural shall be deemed to include the singular and vice versa. 4.9. NO BENEFITS. Notwithstanding any Plan provisions to the contrary, in connection with the disposition of substantial stock or assets of the Company or any affiliate, if the Eligible Employee commences employment with the entity or any affiliate that acquired such stock or assets, no termination will be deemed to have occurred and no benefits will be payable under the Plan. 4.10. INDEPENDENT CONTRACTORS. Notwithstanding any provision of the Plan to the contrary, no individual who is designated, compensated, or otherwise classified as an independent contractor shall be eligible for benefits under the Plan. 5 4.11. HEADINGS. The headings of the Articles and Sections are included solely for convenience. If the headings and the text of the Plan conflict, the text shall control. All references to Articles and Sections are to the Plan unless otherwise indicated. 4.12. SEVERABILITY. If any provision of the Plan is held to be illegal or invalid for any reason, that holding shall not affect the remaining provisions of the Plan. Instead, the Plan shall be construed and enforced as if such illegal or invalid provision had not been contained herein. 4.13. SUCCESSORS AND ASSIGNS. The provisions of this Plan shall be binding on any successors to or assigns of the Company. IN WITNESS WHEREOF, Aviva Petroleum Inc., executed the Aviva Petroleum Inc. Severance Benefit Plan, effective as of November 1, 1995, this 3rd day of May 1996. AVIVA PETROLEUM INC. By: /s/ R. Suttill ---------------------------------------- Title: President and CEO ------------------------------------- WITNESS: By: /s/ Deena Pluto ------------------------------- Title: Assistant Secretary ---------------------------- 6 EX-27 4 ARTICLE 5 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 March 31, 1996 and the related condensed consolidated statement of operations for the three month period ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 4,667 0 2,977 0 831 8,911 82,822 47,395 45,953 7,053 10,070 0 0 1,574 25,142 45,953 3,533 3,533 3,014 3,014 0 0 204 (413) 38 (451) 0 0 0 (451) (0.01) 0
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