<PAGE>
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.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(in thousands, except number of shares)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
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
======= =======
</TABLE>
*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
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
-------- -------
<S> <C> <C>
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)
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
-------- --------
<S> <C> <C>
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
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity
(in thousands, except number of shares)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
---------- ------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
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
========== ====== ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Number of
Shares Covered
by Options Price
--------------- ------------------
<S> <C> <C>
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
=============== ==================
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
United States Colombia
Oil Gas Oil Total
----- ----- ------ ------
<S> <C> <C> <C> <C>
(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
==== ===== ====== ======
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Payment Dates Monthly Principal Payment
------------- -------------------------
<S> <C>
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
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
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"
</TABLE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
EXHIBIT 10.2
AVIVA PETROLEUM INC.
SEVERANCE BENEFIT PLAN
EFFECTIVE AS OF NOVEMBER 1, 1995
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,667
<SECURITIES> 0
<RECEIVABLES> 2,977
<ALLOWANCES> 0
<INVENTORY> 831
<CURRENT-ASSETS> 8,911
<PP&E> 82,822
<DEPRECIATION> 47,395
<TOTAL-ASSETS> 45,953
<CURRENT-LIABILITIES> 7,053
<BONDS> 10,070
0
0
<COMMON> 1,574
<OTHER-SE> 25,142
<TOTAL-LIABILITY-AND-EQUITY> 45,953
<SALES> 3,533
<TOTAL-REVENUES> 3,533
<CGS> 3,014
<TOTAL-COSTS> 3,014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> (413)
<INCOME-TAX> 38
<INCOME-CONTINUING> (451)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (451)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
