<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 SEPTEMBER 30, 1997
---------------------------
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 September 30,
1997, was 31,482,716 of which 10,336,835 shares of Common Stock were represented
by Depositary Shares. Each Depositary Share represents five shares of Common
Stock held by a Depositary.
1
<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>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 642 $ 2,041
Accounts receivable 1,865 3,750
Inventories 596 721
Prepaid expenses and other 239 282
-------- --------
Total current assets 3,342 6,794
-------- --------
Property and equipment, at cost (note 2):
Oil and gas properties and equipment
(full cost method) 60,661 58,324
Other 610 613
-------- --------
61,271 58,937
Less accumulated depreciation, depletion
and amortization (41,941) (23,991)
-------- --------
19,330 34,946
Other assets 1,499 1,204
-------- --------
$ 24,171 $ 42,944
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt (note 3) $ 5,800 $ 2,780
Accounts payable 3,188 6,271
Accrued liabilities 379 357
-------- --------
Total current liabilities 9,367 9,408
-------- --------
Long term debt, excluding current portion
(note 3) 1,965 5,210
Gas balancing obligations and other 1,451 1,404
Deferred foreign income taxes - 692
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 * (23,562) (8,720)
-------- --------
Total stockholders' equity 11,388 26,230
Commitments and contingencies (note 6) -------- --------
$ 24,171 $ 42,944
======== ========
</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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
Oil and gas sales $ 2,249 $ 3,103 $ 7,802 $10,512
------- ------- -------- -------
Expense:
Production 1,027 1,149 3,225 3,663
Depreciation, depletion and amortization 1,370 1,538 4,655 5,117
Write-down of oil and gas properties (note 2) - - 13,399 -
General and administrative 311 261 1,063 1,276
Severance (note 5) - 24 - 196
------- ------- -------- -------
Total expense 2,708 2,972 22,342 10,252
------- ------- -------- -------
Other income (expense):
Interest and other income (expense), net (53) 107 38 245
Interest expense (170) (196) (498) (602)
Debt refinancing expense (note 3) - - - (100)
------- ------- -------- -------
Total other income (expense) (223) (89) (460) (457)
------- ------- -------- -------
Earnings (loss) before income taxes (682) 42 (15,000) (197)
Income taxes (benefits) 124 123 (158) 339
------- ------- -------- -------
Net loss $ (806) $ (81) $(14,842) $ (536)
======= ======= ======== =======
Weighted average common shares outstanding 31,483 31,483 31,483 31,483
======= ======= ======== =======
Net loss per common share $ (.03) $ - $ (.47) $ (.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>
Nine Months Ended
September 30,
1997 1996
---------- --------
<S> <C> <C>
Net loss $(14,842) $ (536)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization 4,655 5,117
Write-down of oil and gas properties 13,399 -
Deferred foreign income tax benefits (692) (137)
Changes in working capital and other (1,291) 3,647
-------- -------
Net cash provided by operating activities 1,229 8,091
-------- -------
Cash flows from investing activities:
Property and equipment expenditures (2,381) (6,097)
Proceeds from sale of assets 19 28
Other - (30)
-------- -------
Net cash used in investing activities (2,362) (6,099)
-------- -------
Cash flows from financing activities -
principal payments on long term debt (225) (2,037)
-------- -------
Effect of exchange rate changes on cash and
cash equivalents (41) (28)
-------- -------
Net decrease in cash and cash equivalents (1,399) (73)
Cash and cash equivalents at beginning of the period 2,041 4,200
-------- -------
Cash and cash equivalents at end of the period $ 642 $ 4,127
======== =======
</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, 1996 31,482,716 $1,574 $33,376 $ (8,720) $ 26,230
Net loss - - - (14,842) (14,842)
---------- ------ ---------- -------- --------
Balances at September 30, 1997 31,482,716 $1,574 $33,376 $(23,562) $ 11,388
========== ====== ========== ======== ========
</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 $94,000 for the nine months ended September 30, 1997 and $68,000
for the nine months ended September 30, 1996.
Unevaluated oil and gas properties totaling $719,000 and $1,066,000 at
September 30, 1997 and December 31, 1996, respectively, have been excluded
from costs subject to depletion. The Company capitalized interest costs of
$55,000 and $171,000 for the nine-month periods ended September 30, 1997 and
1996, respectively, on these properties.
During 1997 the Company wrote down the carrying amount of its oil and gas
properties as a result of ceiling limitations on capitalized costs as follows
(in thousands):
<TABLE>
<CAPTION>
United
States Colombia Total
------- -------- -------
<S> <C> <C> <C>
March 31 $ 1,986 $ - $ 1,986
June 30 - 11,413 11,413
September 30 - - -
------- -------- -------
$ 1,986 $ 11,413 $13,399
======= ======== =======
</TABLE>
The U.S. write-down at March 31, 1997 was primarily due to lower oil and gas
prices, whereas the Colombian write-down at June 30, 1997 was mainly due to a
downward revision (523,000 barrels) of the Company's Colombian proved oil
reserves and lower prices. A future decrease in the prices the Company
receives for its oil and gas production or downward reserve adjustments could,
for either the U.S. or Colombian cost centers, result in a ceiling test write-
down that is significant to the Company's operating results.
6
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
3. LONG TERM DEBT
On August 6, 1993, the Company entered into a credit agreement with ING (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. As of
September 30, 1997, the borrowing base permitted and the outstanding loan
balance was, $7,765,000. The outstanding loan balance bears interest at the
ING Capital prime rate (8.5% at September 30, 1997) 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.
Since June 30, 1997, the Company has not been in compliance with the above-
referenced tangible net worth covenant. ING Capital has, however, waived
compliance with this covenant pending realization of the Company's
restructuring plan (see note 7). In addition, ING has reduced the principal
payments required for the four months ending November 30, 1997 to $25,000 per
month and rescheduled repayment of the remaining principal as follows:
$575,000 per month for the ten months ending September 30, 1998 and $1,965,000
on October 31, 1998. At such time as the Company fails to pursue the
restructuring plan actively, any prior breach of the minimum consolidated
tangible net worth covenant will be reinstated and monthly payments of
principal of $575,000 will be required thereafter until maturity of the credit
on October 31, 1998. ING Capital has reserved to itself the right to consent
to the actual terms of the restructuring plan. See Item 2 (Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources).
In March 1996, the Company paid a fee of $100,000 to ING Capital in
consideration for certain modifications to the Company's credit agreement.
4. STOCKHOLDERS' EQUITY
At the Annual Meeting of Shareholders held on June 10, 1997, the Company's
shareholders approved the amendment of the Aviva Petroleum Inc. 1995 Stock
Option Plan (the "Plan"). The amendment increased the 200,000 shares reserved
for options to be awarded to non-employee directors to 400,000 shares. In
addition, the amendment provides for the grant, on July 1, 1997 and on each
subsequent July 1, to each non-employee director who has served in such
capacity for at least the entire preceding calendar year of an option to
purchase 5,000 shares of the Company's common stock (the "Annual Option
Awards"), exercisable as to 2,500 shares on the first anniversary of the date
of grant and as to the remaining shares on the second anniversary thereof.
Except for the vesting provisions relating to the Annual Option Awards, the
provisions of the Plan relating to vesting of such options, the determination
of the exercise prices thereof and other terms of such options remain
unchanged.
7
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
The following is a summary of the activities under the Company's stock option
plans since December 31, 1996:
<TABLE>
<CAPTION>
Number of
Shares Covered
by Options Price
-------------- ------------------
<S> <C> <C>
Outstanding at December 31, 1996 529,500 $ 0.74 - $9.71
Granted 45,000 0.51 - 0.52
Expired or cancelled (20,000) 5.93
------- ------------------
Outstanding at September 30, 1997 554,500 $ 0.51 - $9.71
------- ------------------
</TABLE>
As of September 30, 1997, approximately 445,000 shares were represented by
options which were exercisable under the plans.
5. SEVERANCE EXPENSE
The Board of Directors had 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 incurred costs of $172,000.
On July 25, 1996, the above mentioned committee was dissolved and its function
was assumed by the entire Board of Directors. In the third quarter of 1996,
the Company incurred an additional $24,000 of severance expense relating to the
termination of certain employees affected by the cost reduction program.
6. COMMITMENTS AND CONTINGENCIES
The Company, along with its co-owner (referred to collectively as the "Co-
owners"), is 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 have, however, completed one development well in 1997 and anticipate
drilling one additional development well and recompleting certain existing
wells on the Santana concession during 1998. As of September 30, 1997, future
development costs are estimated at approximately $1.2 million, net to the
Company's interest, for these expenditures.
The Co-owners have completed a 3-D seismic survey over the Mary and Miraflor
fields in the Santana concession and such data continues to be interpreted.
The preliminary results confirm the presence of several prospects and leads
previously identified from 2-D seismic data. Depending on the results of the
final seismic interpretation, the Co-owners may decide to drill an exploratory
well in 1998 on the Santana concession. The Company has not, at this time,
committed itself to drill such a well.
8
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
The Co-owners have completed their seismic obligations for the first two years
of the La Fragua concession and were obligated to acquire additional seismic
data for the third year. The Co-owners determined, however, that it was not
technically justified to explore this concession further and, accordingly,
requested and received from Ecopetrol a change of commitment that would allow
the Co-owners to substitute certain exploratory expenditures within the Santana
concession for the remaining seismic commitment on the La Fragua concession.
The indigenous people of the new commitment area, however, objected to the
proposed exploratory work and the Co-owners were not able to comply with the
new commitment. The Co-owners requested and Ecopetrol has agreed to allow the
Co-owners to surrender the concession without further expenditure. All
unevaluated costs relating to the La Fragua concession have been transferred
into the Colombian amortization base.
Seismic obligations for the first two years of the Yuruyaco concession have
also been satisfied with the completion of a 2-D seismic program in January
1997. The interpretation of this seismic data has failed to establish any
significant prospects and, accordingly, the Co-Owners intend to surrender the
concession rather than proceeding into the third contract year. All
unevaluated costs relating to the Yuruyaco concession have been transferred
into the Colombian amortization base.
The Company's aggregate estimated future expenditures for 1997 and 1998,
including the above referenced development costs and certain other
miscellaneous projects, were $1.8 million at September 30, 1997. The Company's
ability to fund these expenditures is dependent upon the success of the
Restructuring Plan described in note 7 and the continued deferral of current
payments under the Company's debt repayment schedule with ING Capital.
Moreover, any substantial increases in the amounts of the above referenced
expenditures could adversely affect the Company's ability to fund these
activities.
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 Company plans to fund these exploration and development activities using
cash provided from operations and proceeds from the issuance of common stock
and additional long-term debt which is part of the Company's Restructuring Plan
as described in note 7. Risks that could adversely affect the Company's plans
include, among others, failure to accomplish the Restructuring Plan, delays in
obtaining the required environmental approvals and permits, increases in
required expenditures as a result of inflation or cost overruns, interruptions
of production, failure to produce the reserves as projected, or a decline in
the sales prices of oil and gas. Depending on the results of the exploration
and development activities, substantial expenditures which have not been
included in the Company's plan may be required. The outcome of these matters
cannot be projected with certainty. See note 7.
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.
9
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
Activities of the Company with respect to the exploration, development and
production of oil and natural gas are subject to stringent federal, state and
local environmental laws and regulations including but not limited to the Oil
Pollution Act of 1990 ("OPA 90"), the Outer Continental Shelf Lands Act, the
Federal Water Pollution Control Act, the Resource Conservation and Recovery
Act, and the Comprehensive Environmental Response, Compensation, and Liability
Act. Such laws and regulations have increased the cost of planning, designing,
drilling, operating and abandoning wells. In most instances, the statutory and
regulatory requirements relate to air and water pollution control procedures
and the handling and disposal of drilling and production wastes. Although the
Company believes that compliance with environmental laws and regulations will
not have a material adverse effect on the Company's operations or earnings,
risks of substantial costs and liabilities are inherent in oil and gas
operations and there can be no assurance that significant costs and
liabilities, including civil or criminal penalties for violations of
environmental laws and regulations, will not be incurred. Moreover, it is
possible that other developments, such as stricter environmental laws and
regulations or claims for damages to property or persons resulting from the
Company's operations, could result in substantial costs and liabilities. For
additional discussions on the applicability of environmental laws and
regulations on the Company's operations, see the Company's prior audited yearly
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-K.
On March 25, 1997, the United States Department of the Interior Minerals
Management Service ("MMS") promulgated a proposed rule that would implement the
recently amended OPA 90 financial responsibility requirements. For offshore
facilities that have a worst case oil spill potential of more than 1,000
barrels, the OPA 90 amendments provide that the amounts of financial
responsibility that must be demonstrated by most facilities range from $10
million to $35 million, with higher amounts, up to $150 million, in certain
limited instances where the MMS believes such a level is justified by the risks
posed by the quantity or quality of oil that is handled by the facility. The
proposed rule would implement the financial responsibility criteria set forth
in amended OPA 90 based on a "worst case" oil spill discharge volume calculated
for the facility. The Company cannot predict whether these financial
responsibility requirements under the OPA 90 amendments or proposed rule will
result in the imposition of substantial additional annual costs to the Company
in the future or otherwise materially adversely effect the Company, but the
impact is not expected to be any more burdensome to the Company than it will be
to other similarly situated companies involved in oil and gas exploration and
production in the Gulf of Mexico.
In July 1997, the Company received a response from the Louisiana Department of
Environmental Quality ("LDEQ") regarding the Company's request to extend the
date by which it must comply with the state-wide prohibition against discharges
of produced waters to coastal waters offshore Louisiana. A state-wide
prohibition against such discharges went into effect on July 1, 1997. In
accordance with the LDEQ's response, the Company has installed a LDEQ-approved
diffuser system designed to minimize the potential for exceeding water quality
standards resulting from the discharge of produced water. Additionally, the
LDEQ instructed the Company to adhere to an approved produced water discharge
termination schedule which includes the submission of quarterly reports and
scheduling the commencement of produced water injection into underground
formations by December 1, 1997.
10
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
On October 17, 1997, the Company submitted to the LDEQ a revised produced
water discharge termination schedule that would extend the deadline to cease
discharges of produced water from December 1, 1997, to September 1, 1998. The
Company is currently awaiting the LDEQ's response. In the event that this
extension is not granted by the LDEQ, then effective December 1, 1997, the
Company will be required to curtail or even cease production from its Breton
Sound leases until such time as the produced water can be reinjected into
suitable underground formations. Management does not expect that compliance
with the LDEQ's directive to reinject the produced water will have a material
adverse effect on the Company or its operations.
The Company is involved in certain litigation involving its oil and gas
activities, but unrelated to environmental contamination issues. Management of
the Company believes that these litigation matters will not have any material
adverse effect on the Company's financial condition or results of operations.
7. RESTRUCTURING PLAN
On July 8, 1997, the Company engaged Merrick Capital Corporation ("Merrick")
to act as its financial advisor in order to identify and accomplish certain
strategic corporate objectives (the "Restructuring Plan"). Such objectives
currently include the private placement of ten million new shares of the
Company's common stock for $5 million in cash, the procurement of $15 million
of mezzanine financing and the negotiation of a $25 million oil and gas
reserve based credit facility.
The Company, together with Merrick, is currently engaged in negotiations with
various parties relating to transactions designed to accomplish the foregoing
objectives.
ING Capital has agreed to waive compliance with the Company's minimum
consolidated tangible net worth requirement of $22 million and to defer the
predominant portion of each monthly payment through November 1997 under the
Company's debt repayment schedule while the Company is pursuing the
Restructuring Plan (see note 3). Also, see Item 2 (Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources).
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS.
- --------------
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
- ------------------------------------------------------------------------------
30, 1996
- --------
<TABLE>
<CAPTION>
United States Colombia
Oil Gas Oil Total
------- ------- --------- -------
<S> <C> <C> <C> <C>
(Thousands)
Revenue - 1996 $456 $ 606 $2,041 $3,103
Volume variance (77) (457) 84 (450)
Price variance (50) 43 (406) (413)
Other - 9 - 9
---- ----- ------ ------
Revenue - 1997 $329 $ 201 $1,719 $2,249
==== ===== ====== ======
</TABLE>
Colombian oil volumes were 106,000 barrels in the third quarter of 1997, an
increase of 4,000 barrels as compared to the third quarter of 1996. Such
increase is the result of a 42,000 barrel increase primarily due to the
completion of two development wells in the latter part of 1996 and one
development well completed in June 1997 partially offset by a 38,000 barrel
decrease resulting from normal production declines.
U.S. oil volumes were 18,000 barrels in 1997, down approximately 4,000 barrels
from 1996. This decrease resulted primarily from the sale of the Company's
U.S. onshore properties on December 23, 1996. U.S. gas volumes before gas
balancing adjustments were 65,000 thousand cubic feet (MCF) in 1997, down
222,000 MCF from 1996. Such decrease is the result of a 232,000 MCF decrease
resulting from the U.S. onshore property sale, partially offset by new
production from a development well completed at Main Pass 41 during October
1996.
Colombian oil prices averaged $16.19 per barrel during the third quarter of
1997. The average price for the same period of 1996 was $20.01 per barrel. The
Company's average U.S. oil price decreased to $18.02 per barrel in 1997, down
from $20.73 per barrel in 1996. In 1997 prices have been lower than in the
third quarter of 1996 due to a general decrease in world oil prices. U.S. gas
prices averaged $2.24 per MCF in 1997 compared to $1.97 per MCF in 1996.
In addition to the above-mentioned variances, U.S. gas revenue increased
approximately $9,000 as a result of gas balancing adjustments.
Operating costs decreased approximately 11%, or $122,000. Of such decrease,
approximately $223,000 resulted from the sale of the U.S. onshore properties
offset by a $78,000 increase for the Colombia properties and a $23,000 increase
for the U.S. offshore properties. Depreciation, depletion and amortization
("DD&A") decreased by 11%, or $168,000 primarily as a result of lower levels of
production.
General and administrative ("G&A") expenses increased $50,000 during the third
quarter of 1997 as a result of lower drilling overhead charged to operations in
the current quarter compared with the third quarter of 1996.
12
<PAGE>
Interest expense decreased $26,000 in the third quarter of 1997, primarily as a
result of lower average outstanding balances of long term debt.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
1996
- ----
<TABLE>
<CAPTION>
United States Colombia
Oil Gas Oil Total
-------- -------- --------- --------
<S> <C> <C> <C> <C>
(Thousands)
Revenue - 1996 $1,446 $ 1,896 $7,170 $10,512
Volume variance (261) (1,426) (632) (2,319)
Price variance (21) 132 (521) (410)
Other - 19 - 19
------ ------- ------ -------
Revenue - 1997 $1,164 $ 621 $6,017 $ 7,802
====== ======= ====== =======
</TABLE>
Colombian oil volumes were 337,000 barrels in the first nine months of 1997, a
decrease of 33,000 barrels as compared to the first nine months of 1996. Such
decrease is the result of a 68,000 barrel decrease due to the Company's net
revenue interest declining from 18% to 12.6% in June 1996 when cumulative
production from the Santana concession reached the 7 million barrel threshold
specified in the risk-sharing contract, and a 81,000 barrel decrease resulting
from normal production declines, partially offset by a 116,000 barrel increase
primarily due to the completion of two development wells in the latter part of
1996 and one development well completed in June 1997.
U.S. oil volumes were 60,000 barrels in 1997, down approximately 13,000 barrels
from 1996. Such decrease was mainly due to the U.S. onshore property sale.
U.S. gas volumes before gas balancing adjustments were 205,000 MCF in 1997, down
676,000 MCF from 1996. Of such decrease, approximately 705,000 MCF was due to
the U.S. onshore property sale, partially offset by new production from a
development well completed at Main Pass 41 during October 1996.
Colombian oil prices averaged $17.83 per barrel during the first nine months of
1997. The average price for the same period during 1996 was $19.37 per barrel.
The Company's average U.S. oil price decreased to $19.38 per barrel in 1997,
down from $19.74 per barrel in 1996. U.S. gas prices averaged $2.24 per MCF in
1997 compared to $2.00 per MCF in 1996.
In addition to the above-mentioned variances, U.S. gas revenue increased
approximately $19,000 as a result of gas balancing adjustments.
Operating costs decreased approximately 12%, or $438,000. Of such decrease,
approximately $676,000 resulted from the sale of the U.S. onshore properties,
offset by a $144,000 increase for the U.S. offshore properties and a $94,000
increase for the Colombian properties. DD&A decreased by 9%, or $462,000,
primarily due to lower levels of production.
The Company recorded write-downs to the carrying amounts of its U.S. and
Colombian oil and gas properties of $1,986,000 and $11,413,000 at March 31, 1997
and June 30, 1997, respectively. The U.S. write-down at March 31 was primarily
due to lower oil and gas prices, whereas the Colombian write-down at June 30 was
mainly due to a downward revision (523,000 barrels) of the Company's Colombian
proved oil reserves and lower prices.
13
<PAGE>
G&A expenses declined $213,000 as a result of a cost reduction program
implemented by the Company during the first quarter of 1996. This program has
targeted all categories of G&A. The largest decreases, however, have resulted
from reductions in the number of employees, officers and directors of the
Company.
The Company incurred $196,000 of severance expense in the first nine months of
1996 relating to the termination of the Executive Vice President and Chief
Operating Officer of the Company and certain other employees. For more
information regarding such terminations see Note 5 of Notes to Condensed
Consolidated Financial Statements. The Company has not incurred any such
severance expense in 1997.
Interest expense was $104,000 lower, primarily as a result of lower average
balances outstanding in 1997.
Debt refinancing expense of $100,000 in 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 $497,000 lower in 1997 primarily due to Colombian deferred tax
benefits resulting from the write-down of the carrying amount of the Company's
Colombian oil and gas properties. See Note 2 of Notes to Condensed Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Since December 31, 1996, costs incurred in oil and gas property acquisition,
exploration and development activities by the Company totaled approximately $2.4
million, almost all of which was incurred in Colombia. These activities were
funded by cash provided by operating activities.
As described in Note 6 of Notes to Condensed Consolidated Financial Statements,
the Company has aggregate remaining estimated capital expenditures for 1997 and
1998 of $1.8 million at September 30, 1997. 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, the first half of 1995, and 1996,
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 ING (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.
As of September 30, 1997, the borrowing base permitted and the outstanding loan
balance was $7,765,000. Borrowings under the credit agreement bear interest at
the ING Capital prime rate (8.5% at September 30, 1997) 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 Company and
certain other subsidiaries, including the wholly owned subsidiary that is the
owner of substantially
14
<PAGE>
all of the Company's domestic oil and gas properties. The loan, among other
things, prohibits the payment of dividends by the Company and requires the
maintenance of certain financial ratios. In addition, the Company is required by
the terms of the credit agreement to maintain a minimum consolidated tangible
net worth of $22,000,000.
As a result of the write-downs of the capitalized costs of the Company's oil and
gas properties and equipment reflected in the accompanying Condensed
Consolidated Financial Statements, the Company has not been in compliance with
its minimum consolidated tangible net worth covenant since June 30, 1997.
Moreover, the Company's estimates of its cash flow through December 31, 1997
indicated that it would be unable to meet its then existing principal repayments
scheduled for the five months ending December 31, 1997.
Accordingly, on July 8, 1997, the Company engaged Merrick Capital Corporation
("Merrick") to act as its financial advisor in order to effect the Restructuring
Plan described in Note 7 to the Condensed Consolidated Financial Statements.
Pending effectuation of the Restructuring Plan, ING Capital has waived
compliance by the Company with its minimum consolidated tangible net worth
covenant and has reduced the principal payments required for the four months
ending November 30, 1997 to $25,000 per month and rescheduled repayment of the
remaining principal as follows: $575,000 per month for the ten months ending
September 30, 1998 and $1,965,000 on October 31, 1998. At such time as the
Company fails to pursue the Restructuring Plan actively, any prior breach of the
minimum consolidated tangible net worth covenant will be reinstated and monthly
payments of principal of $575,000 will be required thereafter until maturity of
the credit on October 31, 1998. The Company, together with Merrick, is currently
engaged in negotiations with various parties relating to transactions designed
to accomplish the objectives of the Restructuring Plan. ING Capital has
reserved to itself the right to consent to the actual terms of the Restructuring
Plan.
If the Restructuring Plan is not effected, management of the Company will
endeavor to obtain additional capital by means of equity issues or sales of
assets. Only additional equity issues will, however, assist the Company in
meeting the existing minimum consolidated tangible net worth covenant if then
reinstated. There is no assurance that ING Capital would, under such
circumstances, waive prior defaults under the Company's minimum consolidated
tangible net worth covenant even if management were able to secure additional
capital through the issuance of equity. The Company is not currently exploring
alternative sources of equity capital.
Other risks that could adversely affect the Company's plans include, among
others, delays in obtaining the required environmental approvals and permits,
increases in required expenditures as a result of inflation or cost overruns,
interruptions of production, failure to produce the reserves as projected, or a
further decline in the sales prices of oil and gas. Depending on the results of
the exploration and development activities, substantial expenditures which have
not been included in the Company's plan may be required. The outcome of these
matters cannot be projected with certainty. For information regarding the risks
relating to the Company's business, see Note 6 of Notes to Condensed
Consolidated Financial Statements and the Company's Annual Report on Form 10-K.
With the exception of historical information, the matters discussed in this
quarterly report contain forward-looking statements that involve risks and
uncertainties. Although the Company believes that its expectations are based on
reasonable assumptions, it can give no assurance that 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, conditions of the capital markets and equity
markets during the periods covered by the forward-looking statements and its
ability to effect the Restructuring Plan, as well as other factors.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a) Exhibits
- -----------
10.1 Aviva Petroleum Inc. 1995 Stock Option Plan, as amended (filed as Appendix
A to the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders dated June 10, 1997, and incorporated herein by reference).
10.2 Amendment to the ING Capital Credit Agreement dated August 12, 1997 (filed
as exhibit 10.2 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1997, File No. 0-22258 and incorporated herein by
reference).
10.3 Amended and Restated Aviva Petroleum Inc. Severance Benefit Plan dated
September 30, 1997.
27.1 Financial Data Schedule.
b) Reports on Form 8-K
- ----------------------
The Company filed the following Current Reports on Form 8-K during and
subsequent to the end of the third quarter:
Date of 8-K Description of 8-K
- ----------- ------------------
July 10, 1997 Submitted a copy of the Company's Press Release dated July
10, 1997, reporting on the Company's Colombian activities.
16
<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: November 12, 1997 /s/ Ronald Suttill
-------------------------------------
Ronald Suttill
President and Chief Executive Officer
/s/ James L. Busby
-------------------------------------
James L. Busby
Treasurer and Secretary
(Chief Accounting Officer)
17
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------ ----------------------
*10.1 Aviva Petroleum Inc. 1995 Stock Option Plan, as amended (filed as
Appendix A to the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders dated June 10, 1997, and incorporated herein
by reference).
*10.2 Amendment to the ING Capital Credit Agreement dated August 12, 1997
(filed as exhibit 10.2 to the Company's quarterly report on Form 10-Q
for the quarter ended June 30, 1997, File No. 0-22258 and incorporated
herin by reference).
**10.3 Amended and Restated Aviva Petroleum Inc. Severance Benefit Plan dated
September 30, 1997.
**27.1 Financial Data Schedule.
- -------------
* Previously Filed
** Filed Herewith
18
<PAGE>
EXHIBIT 10.3
AVIVA PETROLEUM INC.
SEVERANCE BENEFIT PLAN
AMENDED AND RESTATED
EFFECTIVE AS OF SEPTEMBER 1, 1997
<PAGE>
AVIVA PETROLEUM INC.
SEVERANCE BENEFIT PLAN
WITNESSETH:
WHEREAS, Aviva Petroleum Inc. previously adopted the Aviva Petroleum Inc.
Severance Benefit Plan and now desires to amend and restate the Plan;
NOW, THEREFORE, the Aviva Petroleum Inc. Severance Benefit Plan is hereby
amended and restated effective as of September 1, 1997, 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, (iii) the Company is merged into
a previously unrelated entity, or (iv) a transaction is consummated pursuant to
that certain proposal and letter agreement dated July 10, 1997 (as may be
modified), between Merrick Capital Corporation and the Company.
1.3. "CODE" means the Internal Revenue Code of 1986, as amended.
1
<PAGE>
1.4. "COMPANY" means Aviva Petroleum Inc.
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
2
<PAGE>
wholly-owned subsidiaries) terminates his employment, reduces his salary,
removes him as an officer of the Company or transfers the Eligible Employee to a
location that is at least 50 miles from his current employment location, or in
any 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 management or 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
3
<PAGE>
prior to the termination of employment. Nothing in the Plan shall be construed
to limit the right 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, reduces his salary, removes him as an officer of the
Company, or transfers him to a location that is at least 50 miles from his
current employment location prior to December 31, 1999, 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
4
<PAGE>
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 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.
5
<PAGE>
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.
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 this amended and
restated Aviva Petroleum Inc. Severance Benefit Plan, effective as of September
1, 1997, this 30th day of September 1997.
AVIVA PETROLEUM INC.
By: /s/ RONALD SUTTILL
-----------------------------------------
Title: CEO and President
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 SEPTEMBER 30, 1997 AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 642
<SECURITIES> 0
<RECEIVABLES> 1,865
<ALLOWANCES> 0
<INVENTORY> 596
<CURRENT-ASSETS> 3,342
<PP&E> 61,271
<DEPRECIATION> 41,941
<TOTAL-ASSETS> 24,171
<CURRENT-LIABILITIES> 9,367
<BONDS> 1,965
0
0
<COMMON> 1,574
<OTHER-SE> 9,814
<TOTAL-LIABILITY-AND-EQUITY> 24,171
<SALES> 7,802
<TOTAL-REVENUES> 7,802
<CGS> 7,880
<TOTAL-COSTS> 7,880
<OTHER-EXPENSES> 13,399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 498
<INCOME-PRETAX> (15,000)
<INCOME-TAX> (158)
<INCOME-CONTINUING> (14,842)
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<NET-INCOME> (14,842)
<EPS-PRIMARY> (0.47)
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</TABLE>
