<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 June 30, 1995
OR
[ ] Transition Report Pursuant to
Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File No. 1-10669
XCL Ltd.
(Exact name of registrant as specified in its charter)
Delaware 51-0305643
(State of Incorporation) (I.R.S. Employer
Identification Number)
110 Rue Jean Lafitte, Lafayette, LA 70508
(Address of principal executive offices) (Zip Code)
318-237-0325
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
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 [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
245,528,567 shares Common Stock, $.01 par value were
outstanding on August 14, 1995.
<PAGE>
XCL LTD. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security-Holders
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
XCL LTD. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
<TABLE>
June 30 December 31
Assets 1995 1994
------ ------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,502 $ 6,751
Accounts receivable, net 575 1,720
Amounts due from joint venture partner 3,000 --
Prepaid expenses 330 153
------- -------
Total current assets 6,407 8,624
------- -------
Property and equipment:
Oil and gas (full cost method):
Proved and evaluated properties 159,677 158,634
Unproved and unevaluated properties:
Domestic 38,661 37,856
Foreign 23,464 17,696
------- -------
62,125 55,552
Land, at cost 135 135
Other 3,022 3,018
------- -------
224,959 217,339
Accumulated depreciation, depletion
and amortization (112,074) (100,079)
------- -------
112,885 117,260
------- -------
Investments and assets held for sale 19,437 20,948
Deferred charges and other assets 2,652 2,971
------- -------
Total assets $ 141,381 $ 149,803
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 3,918 $ 3,640
Accounts payable and accrued expenses
payable by joint venture partner 3,000 --
Royalty and production taxes payable 244 286
Dividends payable 679 965
Current maturities of limited-recourse debt 5,366 5,267
Other current maturities 5,031 29
------- -------
Total current liabilities 18,238 10,187
------- -------
Long-term debt, net of current maturities 35,775 41,607
Other non-current liabilities 2,869 2,809
Dividends payable in common stock 2,579 --
Commitments and contingencies (Note 7)
Shareholders' equity (Note 6):
Preferred stock-$1.00 par value; authorized
1,200,000 shares; issued shares of 649,244
at June 30, 1995 and December 31, 1994-
liquidation preference of $52.6 million
at June 30, 1995 649 649
Common stock-$.01 par value; authorized
350 million shares; issued shares of
239,459,293 at June 30, 1995 and
237,184,410 at December 31, 1994 2,395 2,372
Common stock held in treasury -
$.01 par value; 3,500,000 shares at
December 31, 1994 -- (35)
Additional paid-in capital 210,242 206,241
Accumulated deficit (131,366) (114,027)
------- -------
Total shareholders' equity 81,920 95,200
------- -------
Total liabilities and
shareholders'equity $ 141,381 $ 149,803
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands of Dollars, Except Per Share Amounts)
<TABLE>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Oil and gas revenues $ 724 $ 1,209 $ 1,402 $ 2,547
------- ------- ------ ------
Oil and gas operating expenses:
Operating (including marketing) 283 358 564 644
Depreciation, depletion and amortization 638 861 1,296 1,761
Provision for impairment of oil and gas
properties 10,700 9,500 10,700 9,500
General and administrative 1,228 1,206 2,110 2,223
Taxes, other than income 224 293 350 590
------- ------- ------- -------
13,073 12,218 15,020 14,718
------- ------- ------- -------
Operating loss (12,349) (11,009) (13,618) (12,171)
------- ------- ------- -------
Other income (expenses):
Interest expense, net of amounts
capitalized (1,033) (424) (1,389) (879)
Other, net 119 18 132 43
------- ------ ------- -------
(914) (406) (1,257) (836)
------- ------ ------- -------
Loss before extraordinary item (13,263) (11,415) (14,875) (13,007)
Extraordinary charge for early
extinguishment of debt -- -- -- (1,742)
------- ------- ------- -------
Net loss (13,263) (11,415) (14,875) (14,749)
Preferred stock dividends (2,464) (2,554) (2,464) (2,554)
------- ------- ------- -------
Net loss attributable to common stock $ (15,727) $ (13,969) $ (17,339) $ (17,303)
======= ======= ======= =======
Loss per common and common equivalent share:
Net loss before extraordinary item $ (.07) $ (.07) $ (.07) $ (.09)
Extraordinary item -- -- -- (.01)
------ ------- ------- -------
Net loss per common and common
equivalent share $ (.07) $ (.07) $ (.07) $ (.10)
====== ======= ======= =======
Average number of common and common
equivalent shares outstanding 236,966 189,629 235,739 175,616
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
Six Months Ended June 30
------------------------
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (14,875) $ (14,749)
------- -------
Adjustments to reconcile net loss to net
cash provided by (used in)
operating activities:
Depreciation, depletion and amortization 1,296 1,761
Provision for impairment of oil and
gas properties 10,700 9,500
Extraordinary charge for extinguishment of debt -- 1,742
Change in assets and liabilities:
Accounts receivable 1,146 639
Receivable from joint venture partner (3,000) --
Prepaid expenses (177) (183)
Accounts payable and accrued expenses 336 (1,309)
Accounts payable and accrued expenses
payable by joint venture partner 3,000 --
Royalty and production taxes payable (42) (242)
Other, net 254 276
------- -------
Total adjustments 13,513 12,184
------- -------
Net cash used in operating activities (1,362) (2,565)
------- -------
Cash flows from investing activities:
Capital expenditures (6,318) (10,022)
Investments (890) (1,350)
Proceeds from sale of assets 1,709 --
Other 351 447
------- -------
Net cash used in investing activities (5,148) (10,925)
------- -------
Cash flows from financing activities:
Proceeds from sales of common stock 48 30,131
Proceeds from sales of treasury stock 2,364 --
Proceeds from issuance of preferred stock -- 1,600
Loan proceeds -- 29,200
Proceeds from exercise of warrants and options 410 3,195
Payment of long-term debt (248) (33,381)
Payment of preferred stock dividends (250) --
Stock issuance costs and other (63) (3,021)
------- -------
Net cash provided by financing activities 2,261 27,724
------- -------
Net increase (decrease) in cash and cash equivalents (4,249) 14,234
Cash and cash equivalents at beginning of period 6,751 1,646
------- -------
Cash and cash equivalents at end of period $ 2,502 $ 15,880
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
XCL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
(1) General
The consolidated financial statements at June 30,
1995, and for the three months and six months then ended
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. The Company believes that the disclosures are
adequate to make the information presented herein not
misleading. These consolidated financial statements should
be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 as amended.
In the opinion of the Company, all adjustments, consisting
only of normal recurring adjustments, necessary to present
fairly the financial position of XCL Ltd. (formerly The
Exploration Company of Louisiana, Inc.) and subsidiaries as
of June 30, 1995, and December 31, 1994, and the results of
their operations for the three months and six months ended
June 30, 1995 and 1994, and their cash flows for the six
months ended June 30, 1995 and 1994, have been included.
Certain reclassifications, including reclassifying accrued
interest on the subordinated debt to be paid in Common Stock
and the reserve for franchise tax to long-term liabilities,
have been made to prior period financial statements to
conform to current period presentation. These
reclassifications had no effect on net income or
shareholders' equity. The results of the Company's
operations for such interim periods are not necessarily
indicative of the results for the full year. The year-end
balance sheet data was derived from audited financial
statements, but all disclosures required by generally
accepted accounting principles are not included herein.
(2) Liquidity and Capital Resources
At June 30, 1995, the Company had an operating
cash balance of $2.5 million and a working capital deficit
of $11.8 million, which includes $5.4 million in limited
recourse debt associated with the Lutcher Moore Tract and
$5.0 million in bank debt. To provide for additional near
term liquidity, the Company has negotiated the terms of a
proposed sale of the Lutcher Moore Tract, which upon closing
would result in approximately $14.8 million net of selling
expenses. This amount would eliminate the working capital
deficit, with $5.4 million to be applied to retire the
Lutcher Moore limited recourse debt, $5.0 million to be
applied to prepay principal on the Company's bank debt, and
the remainder to be applied to other working capital
requirements. The sale is subject to the execution of
definitive agreements, the purchaser securing financing and
other customary conditions to closing. If this transaction
does not close timely, the Company would have to pursue the
sale of the Lutcher Moore Tract to other interested parties
or the sale of other assets or the issuance of additional
equity securities to fund required debt payments and other
near-term capital requirements.
In addition, during the third quarter of 1995, the
Company exercised its warrants to purchase 700,000 shares of
Terrenex common stock and recognized $580,000 in net
proceeds from the sale of the Terrenex stock. As there was
no remaining basis attributed to these warrants the Company
will recognize a gain in the third quarter. The Company also
received approximately $613,000 in proceeds from the
exercise of Common Stock warrants and the sale of minor
assets.
The Company currently has approximately $25.1
million in bank debt collateralized by the Company's
domestic oil and gas reserves and the stock of certain
subsidiaries. Based on an agreement with its lending bank
relating to the application of principal prepayments, no
further payments are required until a $2 million payment due
January 1, 1996. However, the borrowing base under this
credit agreement is determined, in part, by the value of the
Company's proved reserves. During the second quarter two
unsuccessful recompletions in the Cox Field caused a
downward revision in reserve quantities which may negatively
impact the next borrowing base determination scheduled for
September 30, 1995. Therefore, the Company plans to prepay
$5 million in scheduled payments, which is $1.4 million in
excess of payments required by the credit agreement.
Subsequent to year-end 1994 the Company's bank
agreement was amended to modify certain covenant
requirements through September 29, 1995. The Company
expects to request an amendment of these covenants to ensure
compliance through December 31, 1995. While management
expects the bank to grant the amendment, should this not
occur, the Company would be in violation of its credit
agreement on September 30, 1995, giving the bank the right
to accelerate payment of the debt after applicable grace
periods. The Company would have to pursue the sale of other
assets or the issuance of additional equity securities to
fund any such accelerated payments.
Pricing for a significant portion of the Company's
domestic gas reserves is subject to a price floor
established by a long-term gas contract. The continued
applicability of this price floor is dependent upon the
Company maintaining certain minimum gas production volumes
which were not achieved for the contract year ending April
30, 1995 and may not be achieved for the contract year
ending April 30, 1996 due to the downward revision in
reserve estimates at June 30, 1995. The Company's proved
reserve estimates indicate that with sufficient development
the minimum volumes will be achieved for the contract year
ending April 30, 1997.
In light of the Company's decision to focus its
activities in China, management is pursuing the sale of the
Cox Field for cash or its exchange for proved producing
reserves providing more cash flow and requiring fewer
development expenditures in the short term. In this
process, the Company would expect to retire its bank debt or
to renegotiate the terms of its bank debt to reflect an
improved cash flow profile.
On August 10, 1995 Chinese authorities approved
the agreement reached on May 10, 1995, between the Company
and Apache Corporation ("Apache") pursuant to which Apache
will pay 100 percent of the costs to drill, test and
complete two wildcat wells and one appraisal well on the
Zhao Dong Block. If Apache elects to drill a third wildcat
well, it will also pay 100 percent of those costs. To
reflect the effect of the approval by the Chinese
authorities of the May 10, 1995 agreement on the June 30,
1995 financial statements, the Company recorded a receivable
and a corresponding reduction of capital expenditures of
approximately $3 million for its exploration costs payable
by Apache. The amounts advanced by Apache are recoverable
from revenues generated from Zhao Dong Block production.
Future expenditures beyond those described above will be
borne 50 percent each by the Company and Apache. The Company
estimates that Apache will pay for all but approximately $5
million to $6 million of its exploration expenditures
related to the Zhao Dong Block during the next twelve
months.
Pursuant to this agreement Apache will also
purchase from the Company a 16.67 percent interest in the
oil and gas reserves of the "C" Field. Payment for this
purchase will be computed and made to the Company from time
to time as the field is being developed in order to insure
that the Company will receive the full market value of the
16.67 percent interest. In consideration for the above
described payments, Apache will assume operatorship of the
Zhao Dong Block and increase its interest in the Zhao Dong
Block from 33.33 percent to 50 percent.
To fund its share of development of the "C" area
initial discovery on the Zhao Dong Block, the Company is in
discussions with INCC ("Internationale Nederlanden (U.S.)
Capital Corporation") to provide project debt financing for
all development costs. The banking group has indicated
interest in providing such financing, and the Company and
the banking group are in the process of discussing the terms
of the proposed financing. Another alternative available to
the Company to obtain development funds is to joint venture
with another oil company or financial group.
On July 17, 1995, the Company signed a contract
with CNPC United Lube Oil Corporation to form a joint
venture company to engage in the manufacturing, distribution
and marketing of lubricating oil in China and southeast
Asian markets. The joint venture will have a 30 year life
unless extended. The registered capital of the joint venture
will be $4.9 million, with the Company to contribute $2.4
million for its 49 percent interest, of which $0.6 million
has been paid. The remaining $1.8 million is due pursuant to
a schedule, with the first payment due after a business
license is issued and the last payment due June 30, 1996.
The Chinese side will contribute an existing lubricating oil
blending plant in Langfang, China, with a value of $2.5
million as its investment for fifty-one percent of the
stock. The contract must be approved by Chinese authorities
before a business license can be issued and the joint
venture commences operations. Certain additional documents
must be submitted in connection with the application for the
business license. The Company expects the license to be
issued by September 30, 1995. In a letter of intent executed
contemporaneously with the contract, the parties have agreed
to consider the feasibility of (i) constructing a second
lubricating oil blending plant at a port facility near
Tianjin, China, (ii) contributing to the joint venture a
second existing plant in southwest China, and (iii) other
projects, including constructing oil terminals on the north
and south coasts of China, and engaging in upgrading certain
existing refineries within China. As of June 30, 1995, the
Company has invested $.9 million.
Management has historically had the ability to
negotiate required amendments to its credit agreement and to
generate funds through the sale of assets or securities.
Management is confident that it can timely realize
sufficient cash resources to adequately meet its obligations
and its ongoing requirements. The timing of receipts from
the various sources of funds is not entirely within the
Company's control. Thus, the scheduling of planned
activities will continue to be dependent on such cash
receipts.
Longer term liquidity is dependent on the
Company's commencement of production in China and continued
access to capital markets, including its ability to issue
additional debt and equity securities, which in certain
cases may require the consent of INCC and holders of the
Company's Subordinated Debt and Preferred Stock.
The Company declared cash dividend payments on its
Series A and Series B Preferred Stocks of $2.6 million and
$2.5 million for the six months ended December 31, 1994 and
June 30, 1995, respectively. Effective June 26, 1995, the
Company entered into agreements with three U.S. holders of
Series A Preferred Stock representing approximately 59
percent of the class pursuant to which they elected to
receive their dividends in Common Stock of the Company. The
Company will issue approximately 4.3 million shares during
the third quarter under these agreements. The Company has
agreed to register these shares of Common Stock. Cash
dividends remaining to be paid aggregate $1.2 million, of
which $0.5 million has been delivered to the Company's
registrar.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.7 million British pounds
sterling annually. The Company's credit agreement restricts
the payment of cash dividends and currently, insufficient
liquidity exists to continue pay such amounts. Management
intends to pay future preferred stock dividends by selling
additional shares of the Company's Common Stock.
On May 16, 1995, the Company received notice from
the Series B Preferred holder exercising its redemption
rights. The Company has elected to redeem in shares of
Common Stock and the holder has exercised its option to have
the Company sell its shares of Common Stock. The aggregate
redemption price is $5 million, plus accrued dividends from
January 1, 1995 to the date of redemption. The Company has
registered 5.3 million shares for sale and has reserved
additional shares should the sale of the registered shares
not be sufficient to fulfill the redemption obligation.
(3) Supplemental Cash Flow Information
There were no income taxes paid during the six
month periods ended June 30, 1995 and 1994. (See Note 7).
Interest and associated capitalized costs for the
three and six month periods ended June 30 totaled $.7
million and $1.7 million, respectively for 1995 and $1.5
million and $3.1 million, respectively for the corresponding
periods in 1994. Interest paid during the three and six
month periods ended June 30, 1995 and 1994 amounted to $.7
million and $1.3 million, and $.6 million and $1.4 million,
respectively.
During the six months ended June 30, 1995 and
1994, the Company completed the following noncash
transactions not reported elsewhere herein:
1994:
Effective June 30, 1994, the Company conveyed
certain land holdings (fair market value of $320,000) in
payment of a two-year consulting agreement which expired on
that date.
(4) Investments and Assets Held for Sale
Lube Oil Investment
-------------------
On July 17, 1995, the Company signed a contract
with CNPC United Lube Oil Corporation to form a joint
venture company to engage in the manufacturing, distribution
and marketing of lubricating oil in China and southeast
Asian markets. (See Note 2.)
Phoenix Lake Tract
------------------
On May 18, 1995, the Company sold its 77.78
percent fee interest in 11,600 gross acres comprising the
Phoenix Lake Tract retaining 75 percent of its mineral
interest underlying those lands, less and except two tracts
covering approximately 77 net acres in which XCL retained no
mineral interest. The purchase price was comprised of
approximately $1.7 million in cash and a $.5 million
reduction in obligations owed by the Company to the
purchaser. No gain or loss was recognized on the sale.
(5) Debt
Long-term debt at June 30, 1995 consists of the following
(000's):
Current Long-Term
Maturities Portion Total
---------- --------- -----
Collateralized credit facility $ 5,000 $20,115 $25,115
Subordinated debt (due April 5 ,2000) -- 15,000 15,000
Building Mortgage 31 660 691
------- ------ ------
Total $ 5,031 $35,775 $40,806
======= ====== ======
Lutcher Moore Group
Limited Recourse Debt $ 5,366 $ -- $ 5,366
======= ====== ======
Substantially all of the Company's assets
collateralize certain of these borrowings. Accounts payable
and accrued expenses include interest accrued at June 30,
1995, of approximately $.6 million.
Lutcher Moore Group Limited Recourse Debt :
------------------------------------------
Mortgage and Seller Notes.
-------------------------
At June 30, 1995, approximately $2.7 million of Mortgage
Notes (net of amounts escrowed for payment) and $2.7 million
of Seller Notes were outstanding. In June 1995, the terms
of the Mortgage Notes were modified providing that the
remaining principal (which bears interest at 10% per annum)
is payable on demand, and if no demand is made in six
monthly installments of $52,300 each, commencing July 15,
1995, plus a final payment of all outstanding principal and
interest due on January 15, 1996. Seller Notes bear interest
of 8 percent and have a final maturity in June 1996.
Collateralized Credit Facility
------------------------------
Subsequent to year end 1994, the INCC agreement
was amended to modify certain covenant requirements through
September 29, 1995. The Company expects to request a
further amendment to ensure compliance through December 31,
1995, and to prepay $5 million of this debt during 1995.
(See Note 2.)
Secured Subordinated Debt
-------------------------
Approximately 1.6 million shares of Common Stock
were issued in payment of $1.3 million of interest due on
the Subordinated debt for the six month period ended April
1, 1995.
8% Subordinated Convertible Notes
---------------------------------
Effective May 31, 1994, holders of the 8%
Subordinated Convertible Notes exercised their conversion
rights and converted the remaining $2.25 million in
principal amount into an aggregate 2.5 million shares of
Common Stock.
(6) Preferred Stock and Common Stock
As of June 30, 1995, the Company had the following
shares of Preferred Stock outstanding:
Shares Liquidation Value
Series A 599,244 $47,639,898 *
Series B 50,000 5,000,000
*50 British pounds sterling per share (1 U.K. pound sterling =
U.S. $1.59 at June 30, 1995).
On May 16, 1995, the Company received notice from
its Series B Preferred holder exercising their option to
have their shares of preferred stock redeemed. (See Note 2.)
Series C Preferred Stock
------------------------
In June, 1994, the Company issued a redemption
notice to the holders of the Series C Preferred Stock
pursuant to which the Company would redeem their shares for
$110 per share plus accrued dividends, in cash and all such
holders elected to convert their shares of Series C
preferred Stock into Common Stock at a conversion price of
$.463 per share. The Company issued 1,871,660 shares of
Common stock in respect of such conversion during the second
quarter of 1994.
Dividends
---------
The Company declared cash dividend payments on its
Series A and Series B Preferred Stocks of $2.6 million and
$2.5 million for the six months ended December 31, 1994 and
June 30, 1995, respectively. Effective June 26, 1995, the
Company entered into agreements with three U.S. holders of
Series A Preferred Stock representing approximately 59
percent of the class pursuant to which they elected to
receive their dividends in Common Stock of the Company. The
Company will issue approximately 4.3 million shares during
the third quarter under these agreements. The Company has
agreed to register these shares of Common Stock. Cash
dividends remaining to be paid aggregate $1.2 million, of
which $0.5 million has been delivered to the Company's
registrar.
During the six months ended June 30, 1994, the
Company issued approximately 4.8 million shares of Common
Stock in lieu of cash dividends on its Series A and Series B
Preferred Stock in respect of dividends due June 30, 1993
and December 31, 1993, and 2,119 and 20 shares of Series C
Preferred Stock and Series D Preferred Stock, respectively,
for in-kind dividends due December 31, 1993. On June 30,
1994, the Company declared dividends payable in Common stock
on its Series A and Series B Preferred Stock totaling
1,566,957 shares of Common Stock. Additionally, the Company
declared Series D Preferred Stock dividends payable in-kind
in shares of Series D Preferred Stock totaling 1,751 shares.
The Company issued such shares in the third quarter of 1994.
(7) Commitments and Contingencies and Subsequent Events
Other commitments, contingencies and subsequent
events include:
o The Company has future commitments of $1.8 million
associated with its joint venture contract to enter the
lubricating oil business in China (see Note 2).
o During 1992, the Company received notice, and amendment
thereto, of a proposed assessment for state income and
franchise taxes. During December 1993, the Company and two
of its wholly-owned subsidiaries, XCL-Texas, Inc. and XCL
Acquisitions, Inc. were sued in separate law suits entitled
Ralph Slaughter, Secretary of the Department of Revenue and
Taxation, State of Louisiana vs. Exploration Company of
Louisiana, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5449); Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State
of Louisiana vs. XCL-Texas, Incorporated (15th Judicial
District, Parish of Lafayette, Louisiana, Docket No. 93-
5450); and Ralph Slaughter, Secretary of the Department of
Revenue and Taxation, State of Louisiana vs. XCL
Acquisitions, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5337) by the Louisiana
Department of Revenue for Louisiana State corporate
franchise and income taxes. The claims relate to
assessments for the 1987 through 1991 fiscal years. The
aggregate amount of the assessments, including penalties and
interest, is approximately $2.25 million as of the original
due date excluding extensions for filing of the respective
returns. The Company believes that this contingency has
been adequately provided for in the consolidated financial
statements. The law suits are all in their initial stages.
The Company has filed answers to each of these suits and
intends to defend them vigorously. The Company believes
that it has meritorious defenses and it has instructed its
counsel to contest these claims.
o In connection with a lawsuit entitled The Elia G.
Gonzalez Mineral Trust, et al vs. Edwin L. Cox, et al which
was settled and dismissed on December 31, 1993, two groups
of non-participating royalty owners filed interventions.
The court ordered the interventions stricken. During 1994,
the first group appealed and the second group filed a new
lawsuit. The Company settled the new lawsuit filed by the
second group with its share of the settlement being $20,000.
During December 1994, the appellate court affirmed the trial
court's decision to deny the intervention to the first
group. The Company, in March 1995, was named as a third
party defendant by the original lessor who had been
previously sued by the nonparticipating royalty owners
comprising the first group. Management believes that the
outcome of the remaining intervention will not have a
material adverse effect on the Company's financial position
or results of operations. The Company intends to defend
vigorously all claims asserted by the first group in its
lawsuit.
o During April 1994, the Company was sued in an action
entitled Kathy M. McIlhenny vs. The Exploration Company of
Louisiana, Inc. (15th Judicial District Court, Parish of
Lafayette, Louisiana, Docket No. 941845). Kathy McIlhenny,
wife of an officer and director of the Company, has asserted
a claim in the aggregate amount of approximately $.5 million
in respect of compensation for certain services alleged to
have been performed on behalf of the Company and under an
alleged verbal employment agreement and, by amendment,
asserted a claim for payments arising from purported rights
to mineral interests. The Company believes that such claim
is without merit and rejects the existence of any such
alleged agreement.
o The Company is subject to other legal proceedings which
arise in the ordinary course of its business. In the
opinion of management, the amount of ultimate liability with
respect to these actions will not materially affect the
financial position or results of operations of the Company.
<PAGE>
XCL LTD. AND SUBSIDIARIES
June 30, 1995
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
-------------------------------
At June 30, 1995, the Company had an operating
cash balance of $2.5 million and a working capital deficit
of $11.8 million, which includes $5.4 million in limited
recourse debt associated with the Lutcher Moore Tract and
$5.0 million in bank debt. To provide for additional near
term liquidity, the Company has negotiated the terms of a
proposed sale of the Lutcher Moore Tract, which upon closing
would result in approximately $14.8 million net of selling
expenses. This amount would eliminate the working capital
deficit, with $5.4 million to be applied to retire the
Lutcher Moore limited recourse debt, $5.0 million to be
applied to prepay principal on the Company's bank debt, and
the remainder to be applied to other working capital
requirements. The sale is subject to the execution of
definitive agreements, the purchaser securing financing and
other customary conditions to closing. If this transaction
does not close timely, the Company would have to pursue the
sale of the Lutcher Moore Tract to other interested parties
or the sale of other assets or the issuance of additional
equity securities to fund required debt payments and other
near-term capital requirements.
In addition, during the third quarter of 1995, the
Company exercised its warrants to purchase 700,000 shares of
Terrenex common stock and recognized $580,000 in net
proceeds from the sale of the Terrenex stock. As there was
no remaining basis attributed to these warrants the Company
will recognize a gain in the third quarter. The Company also
received approximately $613,000 in proceeds from the
exercise of Common Stock warrants and the sale of minor
assets.
The Company currently has approximately $25.1
million in bank debt collateralized by the Company's
domestic oil and gas reserves and the stock of certain
subsidiaries. Based on an agreement with its lending bank
relating to the application of principal prepayments, no
further payments are required until a $2 million payment due
January 1, 1996. However, the borrowing base under this
credit agreement is determined, in part, by the value of the
Company's proved reserves. During the second quarter two
unsuccessful recompletions in the Cox Field caused a
downward revision in reserve quantities which may negatively
impact the next borrowing base determination scheduled for
September 30, 1995. Therefore, the Company plans to prepay
$5 million in scheduled payments, which is $1.4 million in
excess of payments required by the credit agreement.
Subsequent to year-end 1994 the Company's bank
agreement was amended to modify certain covenant
requirements through September 29, 1995. The Company
expects to request an amendment of these covenants to ensure
compliance through December 31, 1995. While management
expects the bank to grant the amendment, should this not
occur, the Company would be in violation of its credit
agreement on September 30, 1995, giving the bank the right
to accelerate payment of the debt after applicable grace
periods. The Company would have to pursue the sale of other
assets or the issuance of additional equity securities to
fund any such accelerated payments.
Pricing for a significant portion of the Company's
domestic gas reserves is subject to a price floor
established by a long-term gas contract. The continued
applicability of this price floor is dependent upon the
Company maintaining certain minimum gas production volumes
which were not achieved for the contract year ending April
30, 1995 and may not be achieved for the contract year
ending April 30, 1996 due to the downward revision in
reserve estimates at June 30, 1995. The Company's proved
reserve estimates indicate that with sufficient development
the minimum volumes will be achieved for the contract year
ending April 30, 1997.
In light of the Company's decision to focus its
activities in China, management is pursuing the sale of the
Cox Field for cash or its exchange for proved producing
reserves providing more cash flow and requiring fewer
development expenditures in the short term. In this
process, the Company would expect to retire its bank debt or
to renegotiate the terms of its bank debt to reflect an
improved cash flow profile.
On August 10, 1995 Chinese authorities approved
the agreement reached on May 10, 1995, between the Company
and Apache Corporation ("Apache") pursuant to which Apache
will pay 100 percent of the costs to drill, test and
complete two wildcat wells and one appraisal well on the
Zhao Dong Block. If Apache elects to drill a third wildcat
well, it will also pay 100 percent of those costs. To
reflect the effect of the approval by the Chinese
authorities of the May 10, 1995 agreement on the June 30,
1995 financial statements, the Company recorded a receivable
and a corresponding reduction of capital expenditures of
approximately $3 million for its exploration costs payable
by Apache. The amounts advanced by Apache are recoverable
from revenues generated from Zhao Dong Block production.
Future expenditures beyond those described above will be
borne 50 percent each by the Company and Apache. The Company
estimates that Apache will pay for all but approximately $5
million to $6 million of its exploration expenditures
related to the Zhao Dong Block during the next twelve
months.
Pursuant to this agreement Apache will also
purchase from the Company a 16.67 percent interest in the
oil and gas reserves of the "C" Field. Payment for this
purchase will be computed and made to the Company from time
to time as the field is being developed in order to insure
that the Company will receive the full market value of the
16.67 percent interest. In consideration for the above
described payments, Apache will assume operatorship of the
Zhao Dong Block and increase its interest in the Zhao Dong
Block from 33.33 percent to 50 percent.
To fund its share of development of the "C" area
initial discovery on the Zhao Dong Block, the Company is in
discussions with INCC ("Internationale Nederlanden (U.S.)
Capital Corporation") to provide project debt financing for
all development costs. The banking group has indicated
interest in providing such financing, and the Company and
the banking group are in the process of discussing the terms
of the proposed financing. Another alternative available to
the Company to obtain development funds is to joint venture
with another oil company or financial group.
On July 17, 1995, the Company signed a contract
with CNPC United Lube Oil Corporation to form a joint
venture company to engage in the manufacturing, distribution
and marketing of lubricating oil in China and southeast
Asian markets. The joint venture will have a 30 year life
unless extended. The registered capital of the joint venture
will be $4.9 million, with the Company to contribute $2.4
million for its 49 percent interest, of which $0.6 million
has been paid. The remaining $1.8 million is due pursuant to
a schedule, with the first payment due after a business
license is issued and the last payment due June 30, 1996.
The Chinese side will contribute an existing lubricating oil
blending plant in Langfang, China, with a value of $2.5
million as its investment for fifty-one percent of the
stock. The contract must be approved by Chinese authorities
before a business license can be issued and the joint
venture commences operations. Certain additional documents
must be submitted in connection with the application for the
business license. The Company expects the license to be
issued by September 30, 1995. In a letter of intent executed
contemporaneously with the contract, the parties have agreed
to consider the feasibility of (i) constructing a second
lubricating oil blending plant at a port facility near
Tianjin, China, (ii) contributing to the joint venture a
second existing plant in southwest China, and (iii) other
projects, including constructing oil terminals on the north
and south coasts of China, and engaging in upgrading certain
existing refineries within China. As of June 30, 1995, the
Company has invested $.9 million.
Management has historically had the ability to
negotiate required amendments to its credit agreement and to
generate funds through the sale of assets or securities.
Management is confident that it can timely realize
sufficient cash resources to adequately meet its obligations
and its ongoing requirements. The timing of receipts from
the various sources of funds is not entirely within the
Company's control. Thus, the scheduling of planned
activities will continue to be dependent on such cash
receipts.
Longer term liquidity is dependent on the
Company's commencement of production in China and continued
access to capital markets, including its ability to issue
additional debt and equity securities, which in certain
cases may require the consent of INCC and holders of the
Company's Subordinated Debt and Preferred Stock.
The Company declared cash dividend payments on its
Series A and Series B Preferred Stocks of $2.6 million and
$2.5 million for the six months ended December 31, 1994 and
June 30, 1995, respectively. Effective June 26, 1995, the
Company entered into agreements with three U.S. holders of
Series A Preferred Stock representing approximately 59
percent of the class pursuant to which they elected to
receive their dividends in Common Stock of the Company. The
Company will issue approximately 4.3 million shares during
the third quarter under these agreements. The Company has
agreed to register these shares of Common Stock. Cash
dividends remaining to be paid aggregate $1.2 million, of
which $0.5 million has been delivered to the Company's
registrar.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.7 million British pounds
sterling annually. The Company's credit agreement restricts
the payment of cash dividends and currently, insufficient
liquidity exists to continue pay such amounts. Management
intends to pay future preferred stock dividends by selling
additional shares of the Company's Common Stock.
On May 16, 1995, the Company received notice from
the Series B Preferred holder exercising its redemption
rights. The Company has elected to redeem in shares of
Common Stock and the holder has exercised its option to have
the Company sell its shares of Common Stock. The aggregate
redemption price is $5 million, plus accrued dividends from
January 1, 1995 to the date of redemption. The Company has
registered 5.3 million shares for sale and has reserved
additional shares should the sale of the registered shares
not be sufficient to fulfill the redemption obligation.
Other General Considerations
----------------------------
The Company believes that inflation has had no
material impact on the Company's sales, revenues or income
during such periods. Drilling costs and costs of other
related services during the relevant periods have remained
stable.
The Company is subject to existing federal, state
and local laws and regulations governing environmental
quality and pollution control. Although management believes
that such operations are in general compliance with
applicable environmental regulations, risks of substantial
costs and liabilities are inherent in oil and gas
operations, and there can be no assurance that significant
costs and liabilities will not be incurred.
New Accounting Pronouncement
----------------------------
In April 1995, the Financial Accounting Standards
Board issued Statement No. 121 "Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To
Be Disposed Of," effective for fiscal years beginning after
December 15, 1995. This standard describes circumstances
which may result in assets being impaired and provides
criteria for recognition and measurement of asset
impairment. The Company has not analyzed the impact of this
statement on the financial position and results of
operations of the Company.
Results of Operations
---------------------
During the three and six month period ended June
30, 1995, the Company incurred net losses of $13.3 million
and $14.9 million, respectively, as compared to net losses
of $11.4 million and $14.7 million, respectively, during the
corresponding periods in 1994. The six months results for
1995 include a $10.7 million provision for impairment of oil
and gas properties as compared to a $9.5 provision in 1994.
The carrying amounts of the Company's properties in Texas
were written down by $10.7 million in the second quarter of
1995 in order to comply with the ceiling limitation
prescribed by the Securities and Exchange Commission (the
"SEC") principally due to downward revisions in estimated
reserves. Poor results in two recent recompletions (the BMT
69 No. 1 and the Armstrong 258 No. 1) caused the deletion of
approximately 7.0 net BCF of gas in the Berry R. Cox Field.
The 1994 results reflect an extraordinary charge of $1.7
million for early extinguishment of debt resulting from the
refinancing of the Company's $29.2 million credit facility
in February 1994.
Oil and gas revenues for the three and six month
periods ended June 30, 1995, were $.7 million and $1.4
million compared to $1.2 million and $2.5 million during the
corresponding periods in 1994. Revenues declined due to
reduced production volumes and decreases in gas prices which
were not offset by new production resulting from additional
drilling in the Cox Field. Operating costs as a percent of
revenues increased as a result of fixed costs remaining
constant while prices declined. As the Company has not
undertaken significant development projects on its domestic
oil and gas properties, it does not anticipate a material
change in its short-term production volumes and expects
continued operating losses. The Company realized an average
gas price of $1.29 per Mcf for the six month period ended
June 30, 1995, as compared to an average of $1.85 per Mcf
for the six month period in 1994, and $1.65 per Mcf for the
year ended December 31, 1994.
As the Company continues to focus its resources on
exploration and development of the Zhao Dong Block and other
China projects, future oil and gas revenues will be directly
related to the degree of drilling success initially
experienced in the Zhao Dong Block.
Net capitalized costs for the Company's domestic
oil and gas properties at June 30, 1995, approximate the
"ceiling-test" limitation as prescribed by the "SEC"
guidelines. Remaining unproved and unevaluated properties
at June 30, 1995, include primarily the costs of leases
located adjacent to the Company's Berry R. Cox producing
properties. The Company drilled two exploration wells in
1994, and if the Cox Field is not sold, exploration
operations will continue in 1995. As these unproved
properties become evaluated, their costs are reclassified to
proved and evaluated properties, and any associated future
revenue is included in the calculation of the present value
of the Company's proved reserves. Prospectively, any such
costs in excess of the present value of added reserves, or
any material reductions in the net future revenues from oil
and gas reserves resulting from such factors as lower prices
or downward revisions in estimates of reserve quantities,
would cause a charge for a full-cost ceiling impairment,
absent offsetting improvements. Downward revisions in
estimates of reserve quantities may also adversely affect
the Company's borrowing base calculation under its credit
facility with INCC, which may then requirement prepayments
of principal.
Effects on revenues are summarized on the
following table:
Three Months Six Months
Ended Ended
June 30 June 30
------------ ----------
Oil and Gas Revenues - 1994 $ 1.2 $ 2.5
Effect of changes in volume of
gas production and sales (0.3) (0.5)
Effect of changes in gas prices (0.3) (0.7)
Effect of oil and liquid revenues, net 0.1 0.1
---- ----
Oil and Gas Revenues - 1995 $ 0.7 $ 1.4
The depreciation, depletion and amortization rate
for the six month period in 1995 averaged $1.26 per Mcf
compared to $1.23 per Mcf in the corresponding period of
1994. Interest expense will continue to increase throughout
the year as the Company will not capitalize interest on the
debt directly associated with the Cox Field because it is
considering the sale or exchange of this property.
<PAGE>
XCL LTD. AND SUBSIDIARIES
June 30, 1995
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In October 1991, lessors under two leases dated
July 20, 1982, and February 1, 1985, which were subsequently
pooled to form the R. Gonzalez No. 1 Gas Unit covering 526
acres in the Berry R. Cox Field, filed suit against the
Company and others who hold or previously held working
interests in the Gas Unit in an action entitled The Elia G.
Gonzalez Mineral Trust, et al. v. Edwin L. Cox, et al.
(341st Judicial District, Webb County, Texas, Docket No. C-
91-747-D3). The suit alleged non-performance under certain
express and implied terms of the leases, including an
allegation that defendants failed to protect the leases
against drainage from wells on adjacent tracts and failed to
properly pay royalties, and seeking an accounting of
revenues and expenses, damages and attorney's fees. The
Court ordered that the parties subject the dispute to non-
binding mediation. As a result of the mediation, the
parties agreed to an amount for a settlement payment and to
the terms of a settlement agreement dispensing with all
issues and dismissing the suit. The Company's share of the
settlement payment amounted to $750,000. The parties
executed and consummated the settlement on December 31,
1993.
Two groups filed interventions in this matter on
March 5, 1993 and March 15, 1993. The first group are non-
participating royalty owners claiming under the same group
of leases as the original plaintiffs. The second group sued
under different leases. The interventions were opposed by
the original plaintiffs and all defendants. After hearing
arguments, the court ordered the interventions stricken on
July 14, 1993. During 1994 the first group appealed and the
second filed a new lawsuit. The Company settled the new
lawsuit filed by the second group with its share of the
settlement being $20,000. During December, 1994 the
appellate court affirmed the trial court's decision to deny
the intervention to the first group. The Company in March
1995 was named as a third party defendant by the original
lessor who had been previously sued by the non-participating
royalty owners comprising the first group. Management
believes that the outcome of the lawsuit will not have a
material adverse effect on the Company's financial position
or results of operations. The Company intends to defend
diligently all claims asserted by the first group in it's
lawsuit.
During December 1993, the Company and two of its
wholly-owned subsidiaries, XCL-Texas, Inc. and XCL
Acquisitions, Inc. were sued in separate law suits entitled
Ralph Slaughter, Secretary of the Department of Revenue and
Taxation, State of Louisiana vs. Exploration Company of
Louisiana, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5449); Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State
of Louisiana vs. XCL-Texas, Incorporated (15th Judicial
District, Parish of Lafayette, Louisiana, Docket No. 93-
5450); and Ralph Slaughter, Secretary of Department of
Revenue and Taxation, State of Louisiana vs. XCL
Acquisitions, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5337) by the Louisiana
Department of Revenue for Louisiana State corporate
franchise and income taxes. The claims relate to
assessments for the 1987 through 1991 fiscal years. The
aggregate amount of the assessments, including penalties and
interest, is approximately $2.25 million. The Company
believes that these assessments have been adequately
provided for in the consolidated financial statements. The
lawsuits are all in their initial stages. The Company
believes that its has meritorious defenses and it has
instructed its counsel to contest these claims.
During April 1994, the Company was sued in an
action entitled Kathy M. McIlhenny vs. The Exploration
Company of Louisiana, Inc. (15th Judicial District Court,
Parish of Lafayette, Louisiana, Docket No. 941845). Kathy
McIlhenny, wife of an officer and director of the Company,
has asserted a claim in the aggregate amount of
approximately $.5 million in respect of compensation for
certain services alleged to have been performed on behalf of
the Company and under an alleged verbal employment agreement
and, by amendment, asserted a claim for payments arising
from purported rights to mineral interests. The Company
believes that such claim is without merit and rejects the
existence of any such alleged agreement.
Other than disclosed above, there are no material
pending legal proceedings to which the Company or any of its
subsidiaries is a party or to which any of their properties
are subject.
Item 4. Submission of Matters to a Vote of Security-Holders.
On June 14, 1995, the Company held an Annual
Meeting of Shareholders at the New York East Side Marriott
Hotel, 525 Lexington Avenue, New York, New York. A quorum
was present, and the matters put to a vote at the meeting
were (1) election of three Class II directors of the
Company's Board of Directors, and (2) approval of an
amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock.
The Company's Board of Directors is divided into
three Classes with each Class consisting of at least one
executive director and one non-executive director serving
three year terms. Messrs. Marsden W. Miller, Jr., Edmund
McIlhenny, Jr. and Francis J. Reinhardt, Jr. were elected as
Class II directors at this meeting. A total of not fewer
than 159,012,295 votes, constituting a plurality of all of
the votes cast at the meeting by holders of share present in
person or by proxy, were voted for each of the named persons
elected as Class II directors to the Company to serve until
the Annual Meeting of Shareholders to be held in 1998.
Class III directors are Messrs. John T. Chandler
and Fred Hofheinz, whose terms expire at the 1996 Annual
Meeting of Shareholders, and Class I directors are Messrs.
David A. Melman, Arthur W. Hummel, Jr., and Sir Michael
Palliser, whose terms expire at the 1997 Annual Meeting of
Shareholders..
With respect to the resolution relating to the
approval and adoption of an amendment to Article FOURTH of
the Company's Certificate of Incorporation to increase the
Company's total current authorized capital stock from
356,200,000 shares to 351,200,000 shares, consisting of
350,000,000 shares of Common Stock, par value $.01 per
share, and 1,200,000 shares of
Preferred Stock, par value $1.00 per share, a total of
159,012,295 votes were cast to ratify the amendment, as
follows:
148,762,674 votes in favor
9,447,230 votes against
802,391 abstentions
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit
Number Description
2.0 Not applicable
3(i) Articles of incorporation
3.1 Certificate of Incorporation of the Company dated
December 28, 1987. (A)(i)
3.2 Certificate of Amendment to the Certificate of
Incorporation of the Company dated March 30, 1988.
(A)(ii)
3.3 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 22, 1990.
(B)(i)
3.4 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 12, 1993.(C)
3.5 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 8, 1992,
whereby Article Fourth was amended to increase the
number of shares of Common Stock authorized. (D)(i)
3.6 Certificate of Amendment to the Certificate of
Incorporation of the Company dated September 29,
1993, whereby Article Fourth was amended to increase
the number of shares of Common Stock authorized.
(E)(i)
3.7 Certificate of Amendment dated July 1, 1994, whereby
Article Fourth was amended to increase the number of
shares of Common Stock and the name of the Company
was changed. (F)(i)
3 (ii) Amended and restated bylaws of the Company as currently
in effect. (A)(iii)
4.0 Instruments defining rights of security holders,
including indentures:
4.1 Form of Common Stock Certificate. (A)(iv)
4.2 Certificate of Designation of Series A, Cumulative
Convertible Preferred Stock. (G)
4.3 Form of Series A, Cumulative Convertible Preferred
Stock Certificate. (B)(ii)
4.4 Certificate of Designation of Series B, Cumulative
Preferred Stock. (H)(i)
4.5 Form of Series B, Cumulative Preferred Stock
Certificate. (H)(ii)
4.6 Form of Class B Warrants issued to China Investment
& Development Co. Ltd. to purchase 2,500,000 shares
of Common Stock at $2.00 per share payable upon
redemption of the Series B, Cumulative Preferred
Stock. (H)(iii)
4.7 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated August 7, 1992.
(D)(ii)
4.8 Certificate of Designation of Series C, Cumulative
Convertible Preferred Stock. (E)(ii)
4.9 Copy of Amendment to Certificate of Designation of
Series C Preferred Stock dated February 18, 1994.(I)(i)
4.10 Form of Series C, Cumulative Convertible Preferred
Stock Certificate. (I)(iii)
4.11 Certificate of Designation of Series D, Cumulative
Convertible Preferred Stock. (I)(iv)
4.12 Form of Amendment to Certificate of Designation of
Series D Preferred Stock dated January 24, 1994.
(I)(ii)
4.13 Form of Series D, Cumulative Convertible Preferred
Stock Certificate. (E)(v)
4.14 Form of Warrant dated January 31, 1994 to purchase
2,500,000 shares of Common Stock at an exercise
price of $1.00 per share, subject to adjustment,
issued to INCC. (I)(iii)
4.15 Form of Registrar and Stock Transfer Agency
Agreement,effective March 18, 1991, entered into
between the Company and Manufacturers Hanover Trust
Company (predecessor to Chemical Bank), whereby
Chemical Bank serves as the Company's Registrar and
U.S. Transfer Agent. (J)
4.16 Copy of Warrant Agreement and Stock Purchase Warrant
dated March 1, 1944 to purchase 500,000 shares of
Common Stock at an exercise price of $1.00 per share,
subject to adjustment, issued to EnCap Investments,
L.C. (I)(iv)
4.17 Copy of Warrant Agreement and form of Stock Purchase
Warrant dated March 1, 1994 to purchase an aggregate
600,000 shares of Common Stock at an exercise price
of $1.00 per share, subject to adjustment, issued to
principals of San Jacinto Securities, Inc. in
connection with its financial consulting agreement
with the Company. (I)(v)
4.18 Form of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase an aggregate
6,440,000 shares of Common Stock at an exercise price
of $1.25 per share, subject to adjustment, issued to
executives of the Company surrendering all of their
rights under their employment contracts with the
Company. (F)(ii)
4.19 Form of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase an aggregate 878,900
shares of Common Stock at an exercise price of $1.25
per share, subject to adjustment, issued to
executives of the Company in consideration for salary
reductions sustained under their employment contracts
with the Company. (F)(iii)
4.20 Copy of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 375,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Ivory & Sime
Enterprise Capital Plc. (F)(iv)
4.21 Copy of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 100,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Henry D. Owen.
(F)(v)
4.22 Copy of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 1,000,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Provincial
Securities Limited. (F)(vi)
4.23 Form of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 200,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Thomas H. Hudson.
(F)(vii)
4.24 Form of Warrant Agreement and Stock Purchase Warrant
dated May 25, 1994, to purchase an aggregate 100,000
shares of Common Stock at an exercise price of $1.25
per share, subject to adjustment, issued to the
holders of Purchase Notes B, in consideration of
amendment to payment terms of such Notes. (F)(viii)
4.25 Form of Warrant Agreement and Stock Purchase Warrant
dated May 25, 1994, to purchase an aggregate 100,000
shares of Common Stock at an exercise price of $1.25
per share, subject to adjustment, issued to the
holders of Purchase Notes B, in consideration for the
granting of an option to further extend payment terms
of such Notes. (F)(ix)
4.26 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated June 30, 1994. (F)(x)
4.27 Form of Warrant Agreement and Stock Purchase Warrant
dated July 1, 1994, to purchase 100,000 shares of
Common Stock at an exercise price of $1.50 per share,
subject to adjustment, issued to Joe T. Rye. (F)(xi)
4.28 Form of Warrant Agreement and Stock Purchase Warrant
dated January 31, 1995, to purchase 100,000 shares of
Common Stock at an exercise price of $.75 per share,
subject to adjustment, issued to Energy Advisors,
Inc. (L)(i)
10.0 - Material Contracts
10.1 Contract for Petroleum Exploration, Development and
Production on Zhao Dong Block in Bohai Bay Shallow
Water Sea Area of The People's Republic of China
between China National Oil and Gas Exploration and
Development Corporation and XCL - China, Ltd., dated
February 10, 1993. (E)(vi)
10.2 Copy of Employment Agreement dated May 1, 1993,
between a subsidiary of the Company and Roy F.C.
Chase (I)(vi)
10.3 Copy of Amendment Agreement to Second Agreement to
Substitute Collateral dated December 6, 1993, between
the Company and the holders of the Company's Lease
Notes. (I)(vii)
10.4 Copy of Net Revenue Interest Assignment dated
December 6, 1993, between the Company and the
Company's Lease Note holders. (I)(viii)
10.5 Copy of Net Profits Royalty Conveyance dated December
6, 1993, between the Company and the Company's Lease
Note Holders. (I)(ix)
10.6 Copy of Prepayment and Termination Agreement dated
January 31, 1994, between the Company, Manufacturers
Hanover Trust Company (predecessor to Chemical Bank),
as agent, and Banque Paribas, Christiania Bank and
Den norske Bank. (I)(x)
10.7 $35,000,000 Credit Agreement dated as of January 31,
1994 between the Company and Internationale
Nederlanden (U.S.) Capital Corporation ("INCC"), as
Agent. (I)(xi)
10.8 Copy of Subordination Agreement among the Company,
INCC and the holders of the Secured Notes dated.
(I)(xii)
10.9 Form of First Amendment of Secured Subordinated Note
dated January 31, 1994. (I)(xiii)
10.10 Form of First Amendment of Limited Recourse Secured
Lease Note dated January 31, 1994. (I)(xiv)
10.11 Stock Pledge Agreement dated January 31, 1994, among
the Company and INCC. (I)(v)
10.12 Deed of Trust, Mortgage, Assignment, Security
Agreement and Financing Statement from XCL-Texas,
Inc. to INCC dated January 31, 1994. (I)(xvi)
10.13 Form of Net Revenue Interest Assignment dated
February 23, 1994, between the Company and the
purchasers of the Company's Series D, Cumulative
Convertible Preferred Stock. (I)(xvii)
10.14 Copy of financial consulting agreement between the
Company and San Jacinto Securities, Inc. dated.
(I)(xviii)
10.15 Modification Agreement for Petroleum Contract on Zhao
Dong Block in Bohai Bay Shallow Water Sea Area of The
People's Republic of China dated March 11, 1994,
between the Company, China National Oil and Gas
Exploration and Development corporation and Apache
China Corporation LDC. (I)(xvix)
10.16 Amendment of Loan Agreement and Promissory Notes, and
option to Purchase Shares dated December 21, 1993
between the Company and Estate of J. Edgar Monroe, J.
Edgar Monroe Foundation and Patrick A. Tesson.
(E)(vii)
10.17 Letter Agreement dated May 25, 1994 between the
Company, L.M. Holdings Associates, L.P. and vendors
holding Purchase Note B with respect to the Lutcher
Moore Tract. (E)(viii)
10.18 Pledge of Shares, Security Agreement and Financing
Statement, dated effective April 15, 1994, between
the Company and Estate of J. Edgar Monroe, J. Edgar
Monroe Foundation and Patrick A. Tesson. (F)(xii)
10.19 Letter Agreement dated June 30, 1994 between the
Company, China Investment & Development Co. Ltd. and
China Investment and Development Corporation.
(F)(xiii)
10.20 Letter Agreement dated July 10, 1994 between the
Company and holders of the Lease Notes. (F)(xiv)
10.21 Stock Purchase Agreement between the Company and
Provincial Securities Limited dated May 17, 1994.
(F)(xv)
10.22 Consulting agreement between the Company and Sir
Michael Palliser dated April 1, 1994. (K)(i)
10.23 Consulting agreement between the Company and Mr.
Arthur W. Hummel, Jr. dated April 1, 1994. (K)(ii)
10.24 Letter Agreement between the Company and Mr. William
Wang dated June 2, 1992, executed effective February
10, 1993. (K)(iii)
10.25 First Amendment to Credit Agreement between the
Company and Internationale Nederlanden (U.S.) Capital
Corporation dated April 13, 1995. (L)(ii)
10.26 Letter of Intent between the Company and CNPC
United Lube Oil Corporation for a joint
venture for the manufacture and sale of
lubricating oil dated January 14, 1995. (L)(iii)
10.27 Purchase and Sale Agreement dated May 10, 1995,
between XCL Land, Ltd., a wholly owned subsidiary of
the Company ("Seller") and The Succession of Edward
M. Carmouche, Matilda Gray Stream, Harold H. Stream,
III, The Opal Gray Trust, Matilda Geddings Gray Trust
for Harold H. Stream, III, Matilda Geddings Gray
Trust for William Gray Stream, Matilda Geddings Gray
Trust for Sandra Gray Stream, M.G. Stream Trust for
Harold H. Stream, III, M.G. Stream Trust for William
Gray Stream, and M.G. Stream Trust for Sandra Gray
Stream ("Purchasers") whereby the Purchasers will
acquire Seller's fee interest in and to a parcel of
southwestern Louisiana land known as the Phoenix Lake
Tract. (L)(iv)
10.28 Farmout Agreement dated May 10, 1995, between XCL
China Ltd, a wholly owned subsidiary of the Company
and Apache Corporation whereby Apache will acquire an
additional interest in the Zhao Dong Block, Offshore
People's Republic of China. (L)(v)
10.29 Modification Agreement of Non-Negotiable Promissory Note
and Waiver Agreement between Lutcher & Moore Cypress Lumber
Company and L.M. Holding Associates, L.P. dated June 15,
1995. *
10.30 Third Amendment to Credit Agreement between Lutcher-Moore
Development Corp., Lutcher & Moore Cypress Lumber Company,
The First National Bank of Lake Charles, Mary Elizabeth Mecom,
The Estate of John W. Mecom, The Mary Elizabeth Mecom Irrevocable
Trust, Matilda Gray Stream, The Opal Gray Trust,
Harold H. Stream III, The Succession of Edward M. Carmouche,
Virginia Martin Carmouche and L.M. Holding Associates, L.P.
dated June 15, 1995. *
10.31 Second Amendment to Appointment of Agent for Collection and
Agreement to Application of Funds between Lutcher-Moore
Development Corp., Lutcher & Moore Cypress Lumber Company,
L.M. Holding Associates, L.P. and The First National Bank of
Lake Charles, dated June 15, 1995. *
10.32 Contract of Chinese Foreign Joint Venture dated July 17, 1995,
between United Lube Oil Corporation and XCL China Ltd. for the
manufacturing and selling of lubricating oil and related products.*
10.33 Letter of Intent dated July 17, 1995 between CNPC United Lube
Oil Corporation and XCL Ltd. for discussion of further projects. *
10.34 Form of Letter Agreement dated June 26, 1995, between the Company
and three of its U.S. holders of Series A Preferred Stock,
whereby the following such holders have agreed to accept
Common Stock in respect of dividends payable December 31, 1994
and June 30, 1995 in the amounts set forth:
12/31/94 6/30/95
Holder Dividend Dividend Shares
Kayne Anderson
Investment Management $627,788.12 $689,238.87 2,225,024
Cumberland Associates, Inc. $429,056.51 $445,838.59 1,487,294
T. Rowe Price & Associates $159,975.00 $166,232.25 554,543 *
11. Statement re computation of per share earnings*
15. Not applicable.
18. Not applicable.
19. Not applicable.
22. Not applicable.
23. Not applicable.
24. Not applicable.
27.1 Financial Data Schedule *
99.1 Glossary of Terms *
____________________________
* Filed herewith.
(A) Incorporated by reference to the Registration Statement
on Form 8-B filed on July 28, 1988, where it appears
as: (i) through (iii) as Exhibits 3(a) through 3(c),
respectively; and (iv) as Exhibit 4.1.
(B) Incorporated by reference to a Quarterly Report on Form
10-Q filed on August 14, 1990, where it appears as: (i)
Exhibit 3 and (ii) Exhibit 4.4.
(C) Incorporated by reference to an Annual Report on Form
10-K filed on March 30, 1992, where it appears as
Exhibit (3)(g).
(D) Incorporated by reference to a Quarterly Report on Form
10-Q filed August 14, 1992, where it appears as: (i)
Exhibit 4.25 and (ii) Exhibit 4.28.
(E) Incorporated by reference to a Registration Statement
on Form S-3 (File No. 33-68552) where it appears as:
(i) Exhibit 4.27; (ii) Exhibit 4.14; (iii) Exhibit
4.16; (iv) Exhibit 4.17; (v) Exhibit 4.19; (vi) Exhibit
10.1; (vii) Exhibit 10.5; and (viii) Exhibit 10.6.
(F) Incorporated by reference to Post-Effective Amendment
No. 2 to Registration Statement on Form S-3 (File No.
33-68552) where it appears as: (i) through (xi)
Exhibits 4.28 through 4.38, respectively; and (xii)
through (xv) Exhibits 10.7 through 10.10, respectively.
(G) Incorporated by reference to a Current Report on Form 8-
K filed on August 13, 1990, where it appears as Exhibit 4.
(H) Incorporated by reference to Quarterly Report on Form
10-Q filed May 15, 1991, where it appears as: (i) Exhibit 4.1;
(ii) Exhibit 4.2; and (iii) Exhibit 4.5.
(I) Incorporated by reference to Amendment No. 1 to Annual
Report on Form 10-K filed April 15, 1994, where it
appears as: (i) Exhibit 4.35; (ii) Exhibit 4.31; (iii)
Exhibit 4.32; (iv) Exhibit 4.36; (v) Exhibit 4.37; (vi)
through (xvix) Exhibit 10.36 through Exhibit 10.49.
(J) Incorporated by reference to an Annual Report on Form
10-K for the fiscal year ended December 31, 1990, filed
April 1, 1991, where it appears as Exhibit 10.27.
(K) Incorporated by reference to Amendment No. 1 to an
Annual Report on Form 10-K/A No. 1 for the fiscal year
ended December 31, 1994, filed April 17, 1995, where it
appears as: (i) through (iii) Exhibits 10.22 through
10.24, respectively.
(L) Incorporated by reference to Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, filed May 15,
1995, where it appears as: (i) Exhibit 4.28; and (ii)
through (v) Exhibits 10.25 through 10.28, respectively.
(b) Reports on Form 8-K
A current report on Form 8-K was filed on May 25,
1995, to report the sale of the Phoenix Lake Tract located
in southwestern Louisiana.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
XCL Ltd.
/s/ Pamela G. Shanks
By:__________________________
Pamela G. Shanks
Vice President-Finance and
Chief Financial Officer
Date: August 14, 1995
<PAGE>
Commission File No. 1-10669
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
EXHIBITS
to
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of
XCL LTD.
The Securities Exchange Act of 1934
June 30, 1995
XCL Ltd. and Subsidiaries
Exhibit 11-Computation of Earnings Per Common and Common Equivalent Share
(Amounts in thousands except, per share amounts)
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY:
Loss before extraordinary item $(13,263) $(11,415) $(14,875) $(13,007)
Extraordinary charge for early
extinguishment of debt -- -- -- (1,742)
------ ------ ------ ------
Net loss (13,263) (11,493) (14,797) (14,749)
Dividends on preferred stock (2,464) (2,554) (2,464) (2,554)
------ ------ ------ -------
Net loss attributable to common
stock $(15,727) $(13,969) $(17,339) $(17,303)
====== ====== ====== ======
Weighted average number of shares
common stock outstanding 236,966 189,629 235,739 175,616
Common stock equivalents
(computed using treasury stock
method) -- -- -- --
------- ------- ------- -------
Average number of shares of
common stock and common stock
equivalents outstanding 236,966 189,629 235,739 175,616
======= ======= ======= =======
Net loss per common and common
equivalent share:
Net loss before
extraordinary item $ (.07) $ (.07) $ (.07) $ (.09)
Extraordinary item -- -- -- (.01)
------- ------- ------ ------
Net loss per common and common
equivalent share $ (.07) $ (.07) $ (.07) $ (.10)
======= ======= ======= ======
FULLY DILUTED:
Fully diluted net loss per common
and common equivalent share (1) (1) (1) (1)
----------
(1) All amounts are anti-dilutive or immaterial and therefore not
presented in the financial statements.
</TABLE>
MODIFICATION OF NON-NEGOTIABLE PROMISSORY
NOTE AND WAIVER AGREEMENT
Dated as of June _______, 1995
BE IT KNOWN that on the dates and at the places hereinafter
set forth below, before us, the undersigned Notaries Public, duly
commissioned and qualified in and for our respective
jurisdictions and in the presence of the undersigned competent
witnesses,
PERSONALLY CAME AND APPEARED:
LUTCHER & MOORE CYPRESS LUMBER COMPANY, a Louisiana
partnership in commendam, ("Lumber Company"), herein
represented by its Managing General Partners, Mary Elizabeth
Mecom Irrevocable Trust, represented by its Trustee, Mary
Elizabeth Mecom, and Matilda Gray Stream; and
L. M. HOLDING ASSOCIATES, L. P., a Louisiana partnership in
commendam,("Holding"), appearing through its sole General
Partner XCL Land Ltd., a Louisiana corporation represented
by its duly authorized undersigned officer; and
who declared that:
WHEREAS, Holding has heretofore executed a promissory note
dated May 29, 1991, payable to the order of Lumber Company in the
original principal amount of $5,900,000.00, bearing interest at
the rate of eleven percent (11%) per annum, due in installments
as more fully described therein, (the "Note") a copy of which is
attached hereto and paraphed by the Notary before whom Matilda
Gray Stream, on behalf of Lumber Company has executed these
presents for identification herewith.
WHEREAS, the Note has been modified pursuant to the terms of
that certain Modification of Non-Negotiable Promissory Note and
Waiver Agreement dated as of September 1993 (herein "Mod-1") by
and among the parties hereto;
WHEREAS, the Note has been further Modified pursuant to the
terms of that certain Modification of Non-Negotiable Promissory
Note and Waiver Agreement dated April, 1994;
WHEREAS, the Note has been further Modified pursuant to the
terms of that certain Modification of Non-Negotiable Promissory
Note and Waiver Agreement dated May, 1994;
WHEREAS, Holding has requested that Lumber Company further
allow for the Modification of the Note and Lumber Company has
agreed to the same;
NOW THEREFORE, in consideration of the payments made on the
Note by Holding to Lumber Company, Holding and Lumber Company
hereby agree as follows:
1. MODIFICATION OF THE NOTE. The Note is hereby modified to
provide that the remaining principal is the sum of $2,883,717.84
and bears interest from and after June 15, 1995, at the rate of
Ten (10%) percent per annum, payable on demand, and if no demand
is made, in six (6) monthly installments of $52,300.00 each,
commencing July 15, 1995, and continuing on the same day of each
consecutive month thereafter, plus a final payment of all
outstanding principal and accrued interest due on January 13,
1996, unless sooner paid.
2. NO DEFAULTS, REPRESENTATIONS TRUE. Holding hereby
represents and warrants that no Event of Default or potential
Event of Default has occurred and is continuing as of the date
hereof under the Vendor's Lien and Mortgage, which secures the
payment of the Note, except for those which are being
specifically waived by Lumber Company herein, and that all the
representations of warranties and covenants made in the Note and
in the Vendor's Lien and Mortgage and all other documents
pertaining to or relating to the Note and the Vendor's Lien and
Mortgage are as of the date hereof true and correct in all
material respects.
3. NO DEFENSES. Holding hereby represents and warrants that
there is no defense, off-set, compensation, counter-claim or
reconventional demand with respect to the amounts due under, or
performance of, the terms of the Note; and to the extent any such
defense, off-set, compensation, counterclaim or reconventional
demand or other causes of action might exist whether known or
unknown, such items are hereby waived by Holding.
4 NO NOVATION. Nothing in this Agreement shall constitute the
satisfaction or extinguishment of the amount owed under the Note,
nor shall it be a novation of the amount owed under the Note.
5. RATIFICATION AND CONFORMATION. Except as expressly
modified herein, all terms and provisions of the Note and the
Vendor's Lien and Mortgage and all terms and provisions of all
other documents securing or evidencing the obligation of Holding
to Lumber Company under the Note and Vendor's Lien and Mortgage
are hereby ratified and confirmed, and shall be and remain in
full force and effect, enforceable in accordance with their
terms.
6. PAYMENT OF FEES AND EXPENSES. Holding agrees to pay and/or
reimburse the reasonable fees and expenses of counsel to Lumber
Company in connection with the collection of the Note, and the
negotiations and documentation of the Modification Agreements
signed in connection herewith and pay any title insurance
premiums as may be due in connection with the extension of the
Title Insurance insuring this Bank.
7. COUNTERPART ORIGINALS. This amendment may be executed by
the parties hereto in any number of separate counterparts, each
of which when so executed and delivered shall he deemed to be an
original and all of which taken together shall constitute but one
and the same instrument.
8. PARAPHED. The parties hereto authorize and direct the
Notary before whom Matilda Gray Stream executed this Agreement on
behalf of Lutcher & Moore Cypress Lumber Company, to paraph the
Note for identification with this Agreement.
THUS DONE AND SIGNED in my office at New Orleans, Louisiana,
on the _____ day of June, 1995, before the undersigned competent
witnesses, and me, Notary, after due reading of the whole.
WITNESSES: LUTCHER & MOORE CYPRESS LUMBER
COMPANY, a partnership in commendam
---------------------
BY: ------------------------------
--------------------- MATILDA GRAY STREAM, General Partner
------------------------------
NOTARY PUBLIC
My commission is for life
(SEAL)
THUS DONE AND SIGNED in my office at Houston, Texas, on the
____ day of June, 1995, before the undersigned competent
witnesses, and me, Notary, after due reading of the whole.
WITNESSES: LUTCHER & MOORE CYPRESS LUMBER
COMPANY, a partnership in commendam
------------------- BY: MARY ELIZABETH MECOM IRREVOCABLE
TRUST, (General Partner)
------------------- BY: ------------------------------
MARY ELIZABETH MECOM, its Trustee
----------------------------
NOTARY PUBLIC
My commission expires ------------------
(SEAL)
THUS DONE AND SIGNED in my office at Lafayette, Louisiana,
on the 29th day of June, 1995, before the undersigned competent
witnesses, and me, Notary, after due reading of the whole.
WITNESSES: L.M. HOLDINGS ASSOCIATES, L.P.
/s/ Clifford E. Klingler By: XCL Land Ltd.
------------------------ General Partner
/s/ John H. Haslam /s/ Pam Shanks
------------------------ By:----------------------------
Title: VP, CFO and Treasurer
/s/ Suzanne Marse Bourque
---------------------------
NOTARY PUBLIC
(SEAL)
My commission is for life.
THIRD AMENDMENT TO CREDIT AGREEMENT
Dated as of June 15, 1995
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this
"Amendment") is being entered into by and among LUTCHER-MOORE
DEVELOPMENT CORPORATION, a Louisiana corporation ("Development
Corporation"), LUTCHER & MOORE CYPRESS LUMBER COMPANY, a Louisiana
partnership in commendam ("Lumber Company") (Development
Corporation and Lumber Company, collectively, the "Borrowers"),
and THE FIRST NATIONAL BANK OF LAKE CHARLES, a national banking
association (the "Lender"), with MARY ELIZABETH MECOM, THE ESTATE
OF JOHN W. MECOM, THE MARY ELIZABETH MECOM IRREVOCABLE TRUST,
MATILDA GRAY STREAM, THE OPAL GRAY TRUST, HAROLD H. STREAM, III,
THE SUCCESSION OF EDWARD CARMOUCHE, and VIRGINIA MARTIN CARMOUCHE
(collectively, the "Guarantors"), as intervenors, and with L. M.
HOLDING ASSOCIATES, L. P., A LOUISIANA PARTNERSHIP IN COMMENDAM
("Holding"), also as intervenor.
WITNESSETH:
THAT,
WHEREAS, the Borrowers and the Lender have heretofore entered
into that certain Credit Agreement dated as of November 16, 1987,
as heretofore amended by that certain First Amendment to Credit
Agreement dated as of May 29, 1991, between the Borrowers and the
Lender, and by that certain Second Amendment to Credit Agreement
dated as of May 26, 1994, among the Borrowers, Lender, Guarantors
and Holding (said Credit Agreement, as so amended, the "Original
Credit Agreement"); and,
WHEREAS, pursuant to the Original Credit Agreement, the
Borrowers executed and delivered to the Lender a promissory note
made by the Borrowers dated May 26, 1994, payable to the order of
the Lender in the principal sum of $3,250,000.00, which promissory
note was amended by that certain Act of Correction to Promissory
Note dated June 1, 1994, by and between Lender and Borrowers (as
so amended, the "Existing Note"); and,
WHEREAS, the Existing Note has an existing principal balance
of $2,883,717.84, which amount is due and payable in full under
the terms of the Existing Note; and,
WHEREAS, the Borrowers, the Guarantors, and Holding have all
requested the Lender to renew, extend and modify the terms of
repayment of the debt currently evidenced by the Existing Note,
and the Lender has agreed to do so, subject to the terms and
conditions of this Amendment.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Original Credit Agreement.
(a) Section 1.1.4 of the Original Credit Agreement is
hereby amended to read in its entirety as follows:
"Commitment" shall mean the obligation of the Lender to
renew, extend and modify $2,883,717.84 of the
indebtedness of the Borrowers to the Lender heretofore
evidenced by the Existing Note under the terms and
conditions set forth herein.
(b) Section 1.1.20 of the Original Credit Agreement is
hereby amended to read in its entirety as follows:
"Maturity Date" means the earlier to occur of
(i) January 15, 1996, or (ii) the earlier date of the
Lender's acceleration of the Obligations pursuant to
Section 8.1 hereof.
(c) Section 1.1.21 of the Original Credit Agreement is
hereby amended to read in its entirety as follows:
"Existing Note" means that certain promissory
note made by the Borrowers dated May 26, 1994, payable
to the order of the Lender in the principal sum of
$3,250,000.00, as amended by that certain Act of
Correction to Promissory Note between Borrowers and
Lender dated June 1, 1994.
(d) Section 2.1 of the Original Credit Agreement is
hereby amended to read in its entirety as follows:
The Commitment. The Lender agrees, subject
to the terms and conditions hereof, to renew and extend
$2,883,717.84 of the indebtedness of the Borrowers
heretofore evidenced by the Existing Note from the date
hereof until the Maturity Date.
(e) Section 2.2 of the Original Credit Agreement is
hereby amended to read in its entirety as follows:
The Note. The $2,883,717.84 in indebtedness heretofore
evidenced by the Existing Note
being renewed and extended (but not novated) pursuant to
the terms hereof shall be evidenced by a promissory note
made by both Borrowers in solido dated June 15, 1995,
1995, payable to the order of the Lender in the
principal sum of $2,883,717.84, bearing interest at the
rate of 10% per annum, payable on demand, or if no
demand is made, in six (6) installments of $52,300.00
each, commencing July 15, 1995, and continuing on the
same day of each month thereafter, plus a final payment
of all outstanding principal and accrued interest due on
the Maturity Date (the "Note").
In addition, all references in the Original Credit Agreement to
the term "Note" are hereby amended to refer the Note, as defined
herein.
(f) Article IV of the Original Credit Agreement is hereby
deleted in its entirety and replaced with the following:
ARTICLE IV
CONDITIONS PRECEDENT AND CONDITIONS SUBSEQUENT
4.1 The obligation of Lender to honor the
Commitment is subject to the following conditions precedent:
(a) The representations and warranties of
Borrowers set forth herein, or in any
other document furnished to Lender in connection
herewith, shall be true and correct, when made and on
and as of the date of the renewal of the Obligations
pursuant hereto, as if restated in full on and as of
such date;
(b) Lender shall have received specific
corporate resolutions of Development Corporation and
Holdings and proof of authority for the person or
persons signing this Amendment, the Note or any of the
Collateral Documents on behalf of Lumber Company or any
Guarantor which is a trust or estate, all of which must
be satisfactory in form and substance to Lender;
(c) Lender shall have received, in form
and substance satisfactory to Lender, fully executed
counterparts of this Amendment, the Note, and the
modification to the Lumber Company Note;
(d) No Default or Event of Default exists
hereunder or shall result from the transactions
contemplated hereby (except as may have been waived by
Lender in writing);
(e) Lender shall have received opinions
of counsel for Borrowers, Guarantors, and Holding, in
form and substance satisfactory to Lender;
(f) Lender shall have received a deposit
of $283,000.00 in the deposit account affected by the
Holding Assignment of Deposit Account; and,
(g) Lender shall have received a fully
executed counterpart of an amendment to the Servicing
Agreement, in form and substance satisfactory to it.
4.2 Conditions Subsequent. Lender's obligations to allow the
Obligations to remain outstanding shall be subject to the
satisfaction of the following conditions subsequent:
(a) To the extent the opinion of counsel
to Borrowers cannot state that no court
orders are required in connection with the transactions
contemplated hereby from the Succession of Edward
Carmouche and the Estate of John W. Mecom, such court
orders shall be obtained to Lender's satisfaction within
45 days of the date hereof;
(b) Lender shall receive, on or before July 15,
1995, an endorsement to the title policy insuring
the Mortgage pursuant to which the title shall be
brought current through the date of this Amendment,
which shall evidence no liens against the Lands and
Leases covered by the Mortgage other than the
Mortgage and other mortgages or liens which have
been consented to in writing by the Lender; and,
(c) Holding shall continue to deposit a minimum of
$13,000 per month (commencing July, 1995),
exclusive of the $283,000.00 deposit required
pursuant to Section 4.1(f) hereof, in the deposit
account affected by the Holding Assignment of
Deposit Account.
(g) Section 8.1 of the Original Credit Agreement is
hereby amended to revise subparagraph (i) thereof to read
in its entirety as follows:
(i) Failure of the Borrowers to deliver to the
Lender the title insurance endorsement required pursuant to
Section 4.2(b) hereof on or prior to July 15, 1995, or the failure
of the Borrowers to timely obtain and deliver to Lender the court
orders, if any, required pursuant to Section 4.2(a) hereof;
SECTION 2. No Defaults; Representations True. The
Borrowers, the Guarantors, and Holding hereby represent and
warrant that, to the best of their knowledge, no Event of Default
or potential Event of Default has occurred and is continuing as of
the date hereof under the Original Credit Agreement, as amended
hereby, and that, to the best of their knowledge, all of the
representations, warranties, and covenants made in the Note and in
Original Credit Agreement, and in all other documents pertaining
or relating to the Original Credit Agreement, as amended hereby,
are, as of the date hereof, true and correct in all material
aspects.
SECTION 3. No Defenses. The Borrowers represent and
warrant that there is no defense, offset, compensation,
counterclaim or reconventional demand with respect to amounts due
under, or performance of, the terms of the Note; and to the extent
any such defense, offset, compensation, counterclaim or
reconventional demand or other causes of action might exist,
whether known or unknown, such items are hereby waived by the
Borrowers.
SECTION 4. Modification of Lumber Company Note. The Lender
agrees to allow the Borrowers to enter into a modification of the
Lumber Company Note, as defined in the Original Credit Agreement,
which the Lender currently holds in pledge pursuant to the Lumber
Company Note Pledge, as defined in the Original Credit Agreement,
to provide that its payment terms are the same as the payment
terms of the Note.
SECTION 5. Conditions Precedent. This Amendment is
expressly subject to the prior satisfaction of the conditions
precedent set forth in Articles 4.1 of the Original Credit
Agreement, as amended hereby.
SECTION 6. No Novation. Nothing in this Agreement shall
constitute the satisfaction or extinguishment of the amounts owed
under the Existing Note, nor shall it be a novation of the amounts
owed under the Existing Note. Nothing contained in this Agreement
shall be deemed to imply any obligation of the Lender to renew the
Note beyond its final maturity date of June 15, 1996, or beyond
the date of the Lender's earlier acceleration thereof pursuant to
Section 8.1 of the Original Credit Agreement, as amended hereby.
SECTION 7. Ratification and Confirmation. Except as
expressly modified herein, all terms and provisions of the
Original Credit Agreement, and all terms and provisions of all
other documents securing or evidencing the obligations of the
Borrowers under the Original Credit Agreement, as amended hereby
(including without limitation those Collateral Documents described
in Section 3.2 of the Original Credit Agreement) are hereby
ratified and confirmed, and shall be and shall remain in full
force and effect, enforceable in accordance with their terms.
The Borrowers hereby confirm and ratify all Collateral Documents
to which they are a party, and agree that such instruments shall
continue to apply to and secure payment of, without limitation,
the indebtedness of the Borrowers to the Lender arising pursuant
to the Original Credit Agreement (as amended hereby) and the Note.
The Borrowers and the Lender hereby acknowledge that the
Collateral Note (as defined in the Original Credit Agreement) has
been constantly held by the Lender since November 16, 1987,
pursuant to the terms of the Pledge (as defined in the Original
Credit Agreement), and that the Lender shall continue to hold the
Collateral Note in pledge pursuant to the terms and provisions of
the Pledge (as defined in the Original Credit Agreement), as
confirmed and ratified hereby.
SECTION 8. Intervention by Guarantors. Now to these
presents intervene the Guarantors (including without limitation,
the undersigned representative of the Succession of Edward M.
Carmouche, who acknowledges, confirms and ratifies the Guaranty of
Edward M. Carmouche and the prior pledge of his partnership
interest in Lumber Company pursuant to the Partnership Pledge),
who hereby agree to the terms of this Agreement, who further
confirm and ratify (i) their respective Guaranties, as defined in
the Original Credit Agreement, guaranteeing payment of the
indebtedness of the Borrowers to the Lender, and (ii) the
Partnership Pledge, as defined in the Original Credit Agreement,
and who agree that such Guaranties and Partnership Pledge shall
continue to apply to and secure payment of, without limitation,
the indebtedness of the Borrowers to the Lender arising pursuant
to the Original Credit Agreement (as amended hereby) and the Note.
SECTION 9. Intervention by Holding. Now to these presents
intervenes Holding, who hereby agrees to the terms of this
Amendment. Holding does hereby further confirm and ratify the
Holding Security Agreement, the Holding Collateral Assignment, the
Lumber Company Note (as modified), the vendor's lien and mortgage
securing the Lumber Company Note, and the Lumber Company Note
Pledge (subject to the terms of the modification of the Lumber
Company Note as anticipated herein), and the Holding Assignment of
Deposit Account, and agrees that such instruments shall continue
to apply to and secure payment of, without limitation, the
indebtedness of the Borrowers to the Lender arising pursuant to
the Original Credit Agreement (as amended hereby) and the Note.
Lumber Company, Holding and the Lender hereby acknowledge that the
Lumber Company Note has been
constantly held by the Lender since May 29, 1991, pursuant to the
terms of the Lumber Company Note Pledge, and that the Lender shall
continue to hold the Lumber Company Note (as modified with the
consent of Lender pursuant to the provisions of Section 4 hereof)
in pledge pursuant to the terms and provisions of the Lumber
Company Note Pledge, as confirmed and ratified hereby.
SECTION 10. Fees and Expenses. Holding hereby agrees to
pay all fees, taxes, costs and expenses of the Lender in
connection with the preparation, negotiation, execution, and
delivery of this Amendment and of all Collateral Documents (or
modifications or confirmations thereof) executed in connection
with the transactions contemplated hereby, including without
limitation the disbursements and reasonable fees of counsel to the
Lender and the costs of the endorsement to the title policy
required hereunder, and the Borrowers and Holding hereby agree to
bound in solido to the Bank for the payment of all costs and
expenses of the Lender in connection with the enforcement of the
Original Credit Agreement, as amended hereby, the Note or the
other Collateral Documents, including reasonable attorney's fees
and disbursements incurred in connection therewith.
SECTION 11. Further Assurances. The Borrowers, Guarantors,
and Holding agree to do, execute, acknowledge and deliver, all and
every such further acts and instruments as the Lender may
reasonably require for the better assuring and confirming unto the
Lender all and singular the rights granted or intended to be
granted hereby or hereunder.
SECTION 12. Capitalized Terms. All capitalized terms used
herein and not otherwise defined herein shall have the meanings
ascribed to them in the Original Credit Agreement.
SECTION 13. Counterparts. This Amendment may be executed by
the parties hereto in any number of separate counterparts, each of
which when so executed and delivered shall be deemed to be an
original and all of which when taken together shall constitute but
one and the same instrument.
SECTION 14. Governing Law; Binding Effect. This Amendment
shall be governed by and construed in accordance with the laws of
the State of Louisiana and shall be binding upon the parties
hereto and their respective successors and assigns.
SECTION 15. Headings. Section headings in this Amendment
are included herein for the convenience of reference only and
shall not constitute part of this Amendment for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by themselves or their duly
authorized representatives as of June 15, 1995.
WITNESSES: THE BORROWERS:
/s/ David R. McDaniel
----------------------- LUTCHER-MOORE DEVELOPMENT
CORPORATION
/s/ J. William Becknell /s/ John W. Mecom III
----------------------- By:-------------------------
John W. Mecom, III, President
LUTCHER & MOORE CYPRESS LUMBER
COMPANY, A Louisiana Partnership
in Commendam
/s/ Pearline Tate
----------------------- By:---------------------------
The Mary Elizabeth Mecom
Irrevocable Trust, its
GeneralPartner
/s/ J. William Becknell /s/ Mary Elizabeth Mecom
----------------------- By:------------------------------
Mary Elizabeth Mecom,
its Trustee
----------------------- By:------------------------------
Matilda Gray Stream, its
General Partner
------------------------ THE LENDER:
THE FIRST NATIONAL BANK OF LAKE
CHARLES
------------------------ By:------------------------------
Wayne B. Gabbert,
Executive Vice President
THE INTERVENORS:
/s/ Pearline Tate
------------------------
/s/ Mary Elizabeth Mecom
/s/ J. William Becknell -------------------------------
------------------------ MARY ELIZABETH MECOM
ESTATE OF JOHN W. MECOM
/s/ Pearline Tate
------------------------
/s/ Mary Elizabeth Mecom
/s/ J. william Becknell By:-------------------------------
------------------------ Mary Elizabeth Mecom,
Independent Co-Executrix
/s/ David R. McDaniel
------------------------
/s/ John W. Mecom III
/s/ J. William Becknell By:--------------------------------
------------------------ John W. Mecom, III,
Independent Co-Executor
THE MARY ELIZABETH MECOM
IRREVOCABLE TRUST
/s/ Pearline Tate
------------------------
/s/ Mary Elizabeth Mecom
/s/ J. William Becknell By:---------------------------------
------------------------ Mary Elizabeth Mecom, its
Trustee
------------------------
---------------------------------
------------------------ MATILDA GRAY STREAM
OPAL GRAY TRUST
------------------------
By:------------------------------
------------------------ Harold Newton, its Co-Trustee
------------------------
By:------------------------------
------------------------ Bruce N. Kirkpatrick, its
Co-Trustee
------------------------
----------------------------------
------------------------ HAROLD H. STREAM, III
SUCCESSION OF EDWARD M. CARMOUCHE
-------------------------
By:-------------------------------
------------------------- Virginia Martin Carmouche,
Executrix
--------------------------
-------------------------------
-------------------------- VIRGINIA MARTIN CARMOUCHE
L.M. HOLDING ASSOCIATES, L.P.,
A Louisiana Partnership in Commendam
By: XCL Land Ltd., General Partner
-------------------------- /s/ Pam Shanks
By:-------------------------------
-------------------------- Title:VP, CFO and Treasurer
SECOND AMENDMENT TO APPOINTMENT OF AGENT FOR
COLLECTION AND AGREEMENT ON APPLICATION OF FUNDS
Dated as of June 15, 1995
THIS SECOND AMENDMENT TO APPOINTMENT OF AGENT FOR
COLLECTION AND AGREEMENT ON APPLICATION OF FUNDS (this
"Amendment") is being entered into by and among LUTCHER-MOORE
DEVELOPMENT CORPORATION, a Louisiana corporation ("Development"),
LUTCHER & MOORE CYPRESS LUMBER COMPANY, A LOUISIANA PARTNERSHIP
IN COMMENDAM ("Cypress") (Development and Cypress, collectively,
the "Borrowers"), and L. M. HOLDING ASSOCIATES, L. P., A
LOUISIANA PARTNERSHIP IN COMMENDAM ("Holding"), with THE FIRST
NATIONAL BANK OF LAKE CHARLES, a national banking association
(the "Bank"), as intervenor.
WITNESSETH:
THAT,
WHEREAS, the Borrowers and Holding, with the Bank as
intervenor, have heretofore entered into that certain Appointment
of Agent for Collection and Agreement on Application of Funds
dated effective as of May 29, 1991, as heretofore amended by
First Amendment thereto dated as of May 26, 1994 (as so amended,
the "Servicing Agreement"); and,
WHEREAS, pursuant to Servicing Agreement, the parties
thereto agreed that payments on the Bank Renewal Note (as defined
therein) would also act as payments on the Modified Purchase Note
(as defined therein), and agreed that in the event of the sale of
the Maurepas Acreage (as defined therein), all proceeds thereof
would be be credited as a payment and credit on both the Bank
Renewal Note and the Modified Purchase Note, and that until the
Bank Renewal Note was paid in full, all payments or credits made
by Holding to the Bank on the Modified Purchase Note would also
be applied as a payment and credit against the Bank Renewal Note;
and,
WHEREAS, pursuant to the Servicing Agreement, Holding
instructed Bank to receive payments from Holding toward payment
of the Modified Purchase Note, and Cypress instructed Bank to act
as agent for Cypress in receiving payments from Holding on the
Modified Purchase Note, and to apply such funds towards further
payment of the Bank Renewal Note, and the Bank agreed to the
appointment by Cypress and Holding in collecting and applying
payments on the Bank Renewal Note and the Modified Purchase Note
in the manner requested; and,
WHEREAS, the Bank Renewal Note (as heretofore modified by
that certain Act of Correction to Promissory Note dated as of
June 1, 1994, by and between Borrowers and Bank) has been further
renewed and extended pursuant to the execution by Borrowers of
that certain promissory note dated June 15, 1995, made by
Borrowers payable to the order of the Bank in the principal sum
of $2,883,717.84 (said promissory note, as the same may hereafter
be modified, amended or extended, shall hereafter be referred to
as the "Bank Renewal Note"), which Bank Renewal Note was given in
renewal and extension (but not as a novation) of the indebtedness
previously evidenced by the promissory note of the Borrowers
dated May 26, 1994, made Borrowers payable to the order of Bank
in the principal sum of $3,250,000.00, as amended by the
aforesaid Act of Correction to Promissory Note dated as of June
1, 1994, which note has heretofore been defined as the Bank
Renewal Note in the Servicing Agreement, and,
WHEREAS, the Modified Purchase Note has been further
modified and paraphed for identification with that certain
Modification of Non-Negotiable Promissory Note and Waiver
Agreement between Cypress and Holding dated as of June 15, 1995
(the Modified Purchase Note, as so modified, and as the same may
hereafter be further modified, extended or renewed with the
consent of the Bank, shall continue to be referred to as the
"Modified Purchase Note").
NOW, THEREFORE, the parties hereto, desiring to amend the
Servicing Agreement to evidence the execution of the Bank Renewal
Note on June 15, 1995, and the further modifications to the
Modified Purchase Note, and to otherwise confirm that the terms
of the Servicing Agreement shall continue to apply thereto, agree
as follows:
SECTION 1. Amendments to the Servicing Agreement. The
parties hereto do hereby amend the Servicing Agreement so that
all references therein to the Bank Note or to the Bank Renewal
Note shall hereafter refer to the Bank Renewal Note of Borrowers
dated June 15, 1995, payable to the order of Bank in the
principal sum of $2,883,717.84, as the same may from time to time
be further modified, extended or renewed, and do hereby further
amend the Servicing Agreement so that all references therein to
the Purchase Note or to the Modified Purchase Note shall continue
to refer to the Modified Purchase Note, as further modified by
that certain Modification of Non-Negotiable Promissory Note and
Waiver Agreement between Cypress and Holding dated as of June 15,
1995, as the same may from time to time be further modified,
extended or renewed with the consent of the Bank.
SECTION 2. Ratification and Confirmation. Except as
expressly modified herein, all terms and provisions of the
Servicing Agreement are hereby ratified and confirmed, and shall
be and shall remain in full force and effect, enforceable in
accordance with its terms. Cypress, Holding and the Bank hereby
acknowledge that the Modified Purchase Note has been constantly
held by the Bank since May 29, 1991, pursuant to the terms of
that certain Collateral Pledge Agreement & Receipt (Possessory
Collateral Security Agreement) by Cypress in favor of the Bank
dated May 29, 1991.
SECTION 3. Capitalized Terms. All capitalized terms used
herein and not otherwise defined herein shall have the meanings
ascribed to them in the Servicing Agreement.
SECTION 4. Counterparts. This Amendment may be executed by
the parties hereto in any number of separate counterparts, each
of which when so executed and delivered shall be deemed to be an
original and all of which when taken together shall constitute
but one and the same instrument.
SECTION 5. Governing Law; Binding Effect. This Amendment
shall be governed by and construed in accordance with the laws of
the State of Louisiana and shall be binding upon the parties
hereto and their respective successors and assigns.
SECTION 6. Headings. Section headings in this Amendment
are included herein for the convenience of reference only and
shall not constitute part of this Amendment for any other
purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by themselves or their duly
authorized representatives as of June 15, 1995.
WITNESSES:
/s/
_________________________ LUTCHER-MOORE DEVELOPMENT
CORPORATION
/s/ J. William Becknell /s/ John W. Mecom III
_________________________ By:________________________________
John W. Mecom, III, President
LUTCHER & MOORE CYPRESS LUMBER COMPANY,
A LOUISIANA PARTNERSHIP IN COMMENDAM
/s/ Pearline Tate
_________________________ By: The Mary Elizabeth Mecom Irrevocable
Trust, its General Partner
/s/ J. William Becknell /s/ Mary Elizabeth Mecom
_________________________
By:____________________________
Mary Elizabeth Mecom,
its Trustee
_________________________ By:_______________________________
Matilda Gray Stream, its
General Partner
_________________________
L.M. HOLDING ASSOCIATES, L.P.,
A LOUISIANA PARTNERSHIP IN COMMENDAM
By: XCL Land Ltd.
________________________ General Partner
/s/ Pam Shanks
By:_____________________________
_________________________
Title: VP, CFO and Treasurer
_________________________ THE FIRST NATIONAL BANK OF LAKE CHARLES
_________________________ BY:______________________________
Wayne B. Gabbert,
Executive Vice President
CONTRACT OF CHINESE FOREIGN JOINT VENTURE
Chapter 1 General Principles
United Lube Oil Corporation, which belongs to the Chinese
Oil and Natural Gas Corporation, and XCL China Ltd., a
corporation formed under the laws of the British Virgin Islands,
and a wholly owned subsidiary of XCL Ltd., according to the "Law
of Chinese Foreign Joint Ventures of the People's Republic of
China", on the basis of equality and mutual benefit, through
friendly consultation, agree to set up a joint venture in
LangFang city, Hebei province of the People's Republic of China
and conclude this Contract.
Chapter 2 Each Side of the Joint Venture
Item 1: The sides of the Joint Venture
Side A: United Lube Oil Corporation
Registration place: LangFang, Hebei, China
Legal location: No. 1 Weishi Street, Development Area District,
LangFang City, Hebei Province, China.
Name of the legal representative: Ge Tingen
Position: General Manager
Nationality: P.R.C.
Side B: XCL China Ltd.
Registration place: Offices of Ansbacher B.V.I. Limited, P.O. Box
659, Road Town Tortola, British Virgin Islands
Legal location: 110 Rue Jean Lafitte, Lafayette, Louisiana, USA
70510
Name of the legal representative: John C. Chandler
Position: Chairman of the Board
Nationality: USA
Chapter 3 The Establishment of the Joint Venture
Item 2: According to the "Law of Chinese Foreign Joint
Ventures of the People's Republic of China" and other
corresponding laws, both sides agree to establish the joint
venture in China.
Item 3: Name of the joint venture in Chinese: You Te Lu An
Gao Ji Run Hua You You Xian Gong Si
Name in English: United XCL Lube Oil Co. Ltd.
Legal location: No. 1 Weishi Street, Development Area District,
LangFang City, Hebei Province, China
Item 4: This joint venture is a legal entity of China. All
its activities must be in accordance with Chinese laws and at the
same time be protected by the laws.
Item 5: This joint venture is a limited liability
corporation. All of its assets will be available to satisfy any
legal liability to its creditors. The liability of each side will
be limited t its agreement to pay its share of the registered
capital of the joint venture at the time, and on the terms and
conditions, set forth in this Contract. The profits, risks and
losses of the joint venture company shall be shared by the
parties in proportion to their contributions of the registered
capital.
Chapter 4 Scope and Scale of Manufacturing and Operation
Item 6: Scope of Operation. The joint venture shall engage
in the manufacturing and selling of high quality lubricating oil
and related products and in research and development of new
products. The joint venture will enhance economic cooperation and
technical exchanges, improve product quality, develop new
products, and strive for a competitive position in the world
market in quality and price by adopting advanced and appropriate
technology and scientific management methods, so as to raise
economic results and ensure satisfactory economic benefits for
both sides.
Item 7A: The scope of production of the joint venture
company will be the production and marketing of lubricating oil,
including cooperation with CNPC oil field refineries to upgrade
refinery facilities to assure quality and quantity of lubricating
oil base stocks and products for the joint venture. Initially,
the production base of the joint venture will include the
following:
1. LangFang Plant. The LangFang Plant will be the initial
production base of the joint venture in the northern part of
China. The approximate initial capacity of the existing LangFang
Plant is 15,000 metric tons per year. The joint venture will
retexture the LangFang Plant to increase capacity. After
retexturing, the capacity of the LangFang Plant will be
approximately 30,000 metric tons per year.
Item 7B: Once the retexturing of the LangFang plant is
complete, the parties agree to expand the production and
marketing of lubricating oil produced by the joint venture.
Subject to the approvals of the necessary authorities, the scope
of the cooperation of the parties would be expanded to -include
additional matters. At this time, the parties agree that the
joint venture will explore the feasibility of constructing an
additional plant to be located in Tianjin, which, after going
into operation, will have a total capacity of approximately
100,000 metric tons per year. The design capacity of the plant
will be approximately 40,000 metric tons per year (based on one
shift.)
Chapter 5 Total Investment and Registered Capital
Item 8: The total investment of the joint venture is
$12,225,000 US. The amount of the investment from both sides is
$4,900,000 US, which is forty (40%) percent of the total
investment and is the registered capital of the joint venture.
Side A shall contribute 51% of the registered capital. Side B
shall contribute 49% of the registered capital.
Item 9: Side A and Side B will contribute the following as
their investment:
(1) As its contribution to the registered capital of the
joint venture, Side A will contribute the following item:
(a) LangFang Plant with a value of $2,499,000 US, which is
51% of the registered capital.
(2) As its contribution to the registered capital of the
joint venture, Side B will contribute the following items:
(a) Cash $1,100,000 US for the retexturing of the LangFang
Plant;
(b) Its rights concerning the preformation contribution of
$600,000 US used for land use rights for the Tianjin property;
and
(c) Cash $701,000 US, at least $100,000 of which will be
used for sales training and marketing investigation and study
under the direction of Side B as approved by Side A, and the
balance will be used for working capital needs of the joint
venture.
Agreements for the contribution of the land use rights at
the LangFang Plant, and the Tianjin Nanjiang land use rights
shall be concluded separately, and shall form part of this
Contract.
Item 10: The registered capital of the joint venture company
shall be paid in installments as follows:
(1) The first instalment of the registered capital shall be paid
as soon as practicable after the license of the joint venture is
issued, but in no case later than the later of September 15,1995
or one (1) month after this license is issued, as follows:
(a) Side A shall contribute the LangFang Plant (including
the workshop and the facility) and land use rights, which
is worth $2,499,000 US.
(b) Side B shall contribute $550,000 US to be used for the
retexturing of the LangFang Plant. The $550,000 US shall be
placed in a trust account established in a mutually
acceptable bank in China, and draws shall be made on those
funds only for expenditures for the retexturing of the
LangFang Plant that have been approved by both sides, and
are in accord with the feasibility study for the
retexturing of the LangFang Plant.
(2) Side B shall pay its second installment of the registered
capital in the amount of $550,000 to be used for the retexturing
of the LangFang Plant on or before the later of October 30, 1995,
or 45 days after the payment of the first instalment of the
registered capital. The $550,000 US shall be placed in a trust
account established in a mutually acceptable bank in China, and
draws shall be made on those funds only for expenditures for the
retexturing of the LangFang Plant that have been approved by both
sides, and are in accord with the feasibility study for the
retexturing of the LangFang Plant.
(3) Side B shall pay the balance of its registered capital of the
joint venture at the times set forth below, provided that the
marketing study of the Chinese domestic market that has been
agreed to by both sides has been completed by that time.
Installment Number Payment Date Installment Amount
------------------ ------------ ------------------
Third Instalment December 30,1995 $200,000 US
Fourth Instalment February 28,1996 200,000 US
Fifth Instalment April 30,1996 200,000 US
Sixth Instalment June 30,1996 101,000 US
(4) Side B shall contribute its rights concerning the
preformation payment used to secure land use rights at Tianjin
Nanjiang, which represents $600,000 of Side B's registered
capital. If both sides agree that the joint venture should not
construct the Tianjin Nanjiang plant or make other use of the
land in the Tianjin Nanjiang harbor for the benefit of the joint
venture, Side A shall obtain the return of the $600,000 US
preformation payment to the joint venture. This $600,000 US will
then be used by the joint venture for the production and
operation needs of the joint venture. [If both sides agree to
construct the Tianjin Nanjiang- plant or make other use of the
land in the Tianjin Nanjiang harbor for the benefit of the joint
venture then the additional investment of Side A and Side B for
this work will be adjusted so that the actual investment of Side
A will continue to be 51% and the actual investment of Side B
will continue to be 49%.]
Other articles related to the additional items in the
additional investment which is agreed upon and carried out by
both parties in Item 7B will be negotiated separately.
All these investments of the registered capital should be
placed in a trust account established in a mutually acceptable
bank in China, and draws shall be made on those funds only for
expenditures for the construction and operation of the joint
venture, subject to both side's consent.
The exchange rate between American currency and Chinese
currency will be based on the rate published by the China
National Foreign Currency Administration Bureau at the date of
the payment.
Item 11: The investment from each side must be assessed by
accountants registered in China and a valuation assessment or
verification report must be issued. The joint venture will issue
the investment certificates for both sides according to the
report.
Item 12: During the operating period of the joint venture,
neither of the two (2) sides can reduce the registered capital.
Item 13: If both of the two (2) sides agree and upon a vote
of the board of directors, the joint venture may increase its
registered capital after getting approval from the original
approval authority. The increase in the registered capital will
be reported to the original registration institution, if
required.
Item 14: If either of the two (2) sides wants to transfer
all or part of its interest In the joint venture to a third
party, before the transfer can take place, it must be agreed by
the other side and approved by the original approval authority,
and reported to the original registration institution.
When either of the two (2) sides wants to transfer all or
part of its investment, the other side has the priority in buying
for thirty (30) days after the day the transferring side informs
it, and on the same terms and conditions as the proposed transfer
to the third party.
Both sides shall have the rights to assign their respective
interest(s) and(or) obligation(s) under this agreement to their
subsidiary corporation(s) which will be formed for the purpose
of this Joint Venture. Except for transfers to such
subsidiaries, all transfers that violate the above items are
invalid.
Chapter 6 Loan of the Joint Venture
Item 15: In the total amount of investment, besides the
$4,900,000 US from the two (2) sides, additional financial
resources are still needed to meet the requirements of the joint
venture company. Side B agrees to make application for a loan
from financial institutions abroad. The joint venture will sign
loan and security agreements that are required by the lender as
a condition for financing.
Repayment of the loan, together with all interest, fees,
guarantee expenses and other expenses (including the expenses of
negotiating and documenting the loan) shall be borne by the joint
venture.
Item 16: Each side of the joint venture agrees to guarantee
to the loan as required by the lender. However, if either side
pays more than its share of the guarantee based on its investment
proportion, the other side shall reimburse for the portion of the
excess.
Chapter 7 The Responsibility of Each Side
Item 17: The responsibility of Side A is:
1. Apply to the responsible authorities In China, register
and get the operating license and obtain any necessary permits;
2. Apply for and obtain the right of using the land from the
land authorities in China and go through the procedures to obtain
all necessary approvals for the transfer of land use rights to
the joint venture;
3. Participate with Side B in the design and construction
of the factory building and other installations, all in accord
with the modern standards for design and construction;
4. Supply the contributions according to the stipulation in
Item 9;
5. Assist in all the procedures for customs, transportation
and commodity inspect ion of the importing equipment and raw
materials;
6. According to Item 15, help to get loans and provide the
required guarantee and other assistance in loan application;
7. Help to purchase or rent equipment, materials, office
space and furnishings, transportation facilities and
communication apparatus;
8. Help to make sure of the use of the infrastructures such
as water, electricity, transportation and so on;
9. Help to recruit the management and technical personnel,
workers and other demanding personnel in the locality;
10. Help the foreign personnel to handle the entry and
travel formalities and get the working license;
11. Be responsible for producing the products that are up
to standard and open the Chinese market under the strategy set
by the joint venture;
12. Handle other matters entrusted by the joint venture;
13. Within the sales quantity of naphthenic products decided
by the board of directors of the joint venture, provide
guaranties of the quantity and quality of naphthenic base
products at reasonable international market prices to be sold in
the international market.
14. Cooperate with Side B to raise the management standard
of the joint venture with the objective of achieving ISO 9000
standards within five years.
15. Help negotiate cooperative ventures with CNPC owned
refineries to improve the quality of the base oil available to
the joint venture.
Item 18: The responsibility of Side B:
1. Participate with Side A in the design and construction
of the factory building and other installations, all in accord
with the modern standards for design and construction;
2. Supply the contributions of the investment according to
the stipulation in Item 9;
3. According to Item 15, help to get loans and provide
corresponding guarantee;
4. Help to purchase the machines, equipment and materials
abroad;
5. Provide technical assistance in installing and adjusting
the equipment and the technicians required for manufacturing and
checking;
6. Help to train the technicians and workers;
7. Be responsible for supplying the formula of the high
quality lubricating oil to the joint venture;
8. Based on the performance of Side A of the conditions set
forth in Item 17.13, be responsible to open the
international
market for naphthenic based lubricating oil;
9. Raise the management standard of the joint venture with
the objective of achieving ISO 9000 standards within five years
with the assistance of Side A;
10. Recommend the marketing strategy for the joint venture,
which must be approved by Side A;
11. Handle other matters entrusted by the joint venture;
12. Help negotiate cooperative ventures with CNPC owned
refineries to improve the quality of the base stock available to
the joint venture;
13. Provide the legal documents required by the Chinese
government to establish the joint venture in a timely fashion.
Chapter 8 The Board
Item 19: The board is created on the day that the joint
venture is registered.
Item 20: The board is made up of eight (8) members, of which
four (4) will be from Side A and four (4) will be from Side B.
The chairman of the board is designated by Side A and the deputy
chairman is designated by Side B. Every director has one vote
right.
Item 21: The office term of the directors is four (4) years
and they can be redesignated. If a director resigns, retires or
is removed, his successor will be designated by the side that
originally designated that director.
Item 22: The board has the highest power in deciding all the
important matters of the joint venture. On matters of general
governance, the board of directors enjoys the following rights:
(l) Decide on the operation plan and investment schedule of
the joint venture;
(2) approve the annual budget plan and final accounting
statement of the joint venture;
(3) approve the joint venture's plan of profit allocation
and loss compensation;
(4) decide on the form of the possible merger,
consolidation,or other business combination with other economic
institutions and on the plan of dissolving and liquidating the
joint venture;
(5) decide on the disposition of the organization of the
joint venture;
(6) hire and fire the president of the joint venture, hire
and fire the vice president, and financial manager according to
the president's denomination and decide on these personnel's
salary;
(7) approve the internal management structure of the joint
venture in accordance with this Contract.
On matters of general governance, the decision of the board can
be made by a vote of an absolute majority of the members of the
board of directors. If the board cannot decide because the
directors are evenly divided, then the Chairman of the Board and
the Vice Chairman of the Board shall resolve the issue through
mutual consultation.
Of the matters below, the decision can be made only if all
of the members of the board who attend the board meeting at which
a quorum is present agree:
1. The revision and modification of the articles of
association of the joint venture;
2. Ending or dissolving the joint venture;
3. The modifying of the registered capital of the joint
venture; mortgaging assets;
4. Merger, consolidation or other business combination with
other economic institutions;
5. To apply for loans or provide guaranties outside of
China
6. Transfer of part of shares or the all of its shares to
a third party.
Item 23: The chairman of the board is the legal
representative of the joint venture. When the chairman can't
perform his duty for some reason, he may vest the deputy chairman
or other director with his authority temporarily.
Item 24: The chairman of the board must call and preside
over at least two (2) meetings a year. If more than one-third
(1/3) of the directors suggest, the chairman must call a
provisional meeting. The minutes of the meeting must be preserved
on file. In order for it to be a duly constituted meeting, the
board meeting must be attended by more than two-thirds (2/3) of
the directors.
In general, the board meeting should be held at the legal
location of the joint venture or such other place as may be
approved by the board and meetings will be held semi-annually
each year.
Item 25: The wages of the directors who do not hold a
position in the joint venture are born by the designating side
The expenses of the board meeting are borne by the joint venture
up to the limits set in the budget.
Chapter 8A Auditing Committee
Item 25A: The sides shall establish the auditing committee
to begin operation on the date that the joint venture is
registered. The auditing committee shall be comprised of four (4)
members, two (2) appointed by Side A and two (2) appointed by
Side B. The Chairman of the auditing committee shall be appointed
by Side B. The auditing committee shall operate under the control
and direction of the board of directors. The auditing committee
shall implement the following obligations:
(1) to examine the finances of the joint venture;
(2) to supervise the directors, president, department
managers over their breach of laws, regulations, contracts of the
joint venture and the chapter of association of the joint venture
when they carry out their duties;
(3) when the director or the president's behaviour has
harmed the interest of the joint venture, the auditing committee
has the obligation to request that the board correct the problem;
(4) supervise all the staff to carry out their duties
conscientiously and to obey the regulations for the joint
venture;
(5) propose to have a special board meeting;
(6) if a problem is arising, the auditing committee should
submit a written report to the board setting forth the facts.
Directors, managers and financial managers of the joint venture
can not act as members of the auditing committee.
Chapter 9 Operation and Management Organization
Item 26: The joint venture should set up an organization in
charge of the daily operation and management works. This
organization should have one (1) officer who shall be the
president and chief executive officer and one (1) officer who
shall be the vice president and chief operating officer. Both are
employed by the board for three (3) years, subject to the right
of the Board to dismiss them by vote of at least three-fourths
(3/4) of the board members at a duly called meeting of the board.
The president shall be recommended by Side A and approved by a
vote of the entire Board. The vice president shall be recommended
by Side B and approved by a vote of the entire Board. After the
three-year term is over, they could be redesignated by each side
and subject to the unanimous approval of the board of directors.
The parties agree that the joint venture shall be responsive to
market needs, and the president and vice president shall each be
responsive to the needs of the marketing group of the joint
venture. In addition to the president and vice president, each
side may recommend up to three (3) officers to serve as their
designated management employees. These designated management
employees shall have the responsibility and the authority to
carry out the responsibilities of each side as set forth in
Chapter 7, above.
Item 27: The responsibilities of the president are:
(1) to carry out all the decisions of the board of
directors,organize and direct the daily operation and management
works;
(2) organize and implement the joint venture's annual
operation plan and investment schedule;
(3) draw up the scheme for the organization of the joint
venture;
(4) make the basic managing regulations of the company;
(5) make the detailed rules and regulations of the joint
venture;
(6) with the approval of the side that designates the
employee, propose to the Board that the joint venture hire or
fire the person in charge of financial, technical or marketing
functions of the joint venture;
(7) under the terms provided in this Item 27, hire and fire
the personnel other than the ones that should be hired and fired
by the board of directors;
(8) under the direction of the board, the president shall
represent the joint venture in negotiations with other
institutions and sign the documents.
The president has the right to hire and fire the people working
under him, except that designated management employees
recommended by Side A or Side B may be fired by the president
only if the side recommending the designated management employee
concurs with the firing. Before the president fires an employee
who works under the supervision of a designated management
employee (as provided for in Item 26), the president shall obtain
concurrence of that designated management employee. The president
shall also execute all other authority given to him by the board.
Based on the principles of mutual consultation, the president
shall consult with the vice president on all matters. If the
president and vice president disagree on any matter, they will
consult further to resolve their disagreement, and they may seek
the assistance of the chairman and vice chairman of the board in
this matter. Any matter can be referred to the board of directors
for final decision if it is so major that it cannot be decided
by mutual consultation.
The vice president should consult with, advise and assist
the president.
Department managers shall be designated to be in charge of
the works of each department. To the extent that the work of a
department is the primary responsibility of a particular side
under Chapter 7, the department manager may be one of the
designated management employees of that side. The department
managers shall act under the direction of, and be responsible to,
the president and vice president.
Item 28: The president and the vice president may be
dismissed at any time if they were found to engage in
malpractice, corruption or neglect their duties.
Item 29: If necessary, an office of legal adviser should be
set up to provide the legal service and protection to the joint
venture. This office will be made up of an equal number of people
from Side A and Side B.
Chapter 10 Purchase of Equipment and Material
Item 30: The natural materials, fuels, necessary
accessories, means of transportation and the office furnishings
needed by the joint venture should be preferably purchased in
China as far as possible as long as they are of the same or
better quality and available on the same or better terms and
conditions (including reliability of timeliness of deliveries)
Item 31: The purchasing of the equipment and materials in
the domestic and international markets should be participated in
by persons from both sides.
Chapter 11 Sale of the Products
Item 32: The products of the joint venture should be sold
in the national and international markets. Based on the
guarantees of Side A under Item 17.13, and the ability of the
joint venture to make timely deliveries of product, the joint
venture has set the goal that initially, at least 50% of the
naphthenic based products produced by the joint venture should
be for export, which will be initiated by Side B, and is to be
one of the sources of foreign currency payments. The sales of the
products in international markets should be participated in by
persons from both sides. In general, paraffinic based products
will be for domestic sale.
Item 33: The joint venture may set up subordinate sales
corporations to assist with the sale and distribution of its
products, subject to the approval from the relevant organization
of Chinese government.
Item 34: The trademark of the products will be decided by
the parties and necessary approvals shall obtained.
Chapter 12 Preparation and Construction
Item 35: During the period of preparation, retexturing and
construction of any joint venture plant, a preparing office
should be set up under the board. The office is made up of six
(6) persons, of which four (4) will be from side A and two (2)
will be from Side B. The director will be recommended by side A
and the deputy director will be recommended by Side B for the
preparing office. The director and the deputy director are
designated by the board.
Item 36: The responsibilities of the preparing office are:
To examine the project plant design, decide on the contracts
for the construction and retexturing of the project plants,
purchase and examine the equipment and materials, decide the
general rate of progress, draw up the financial conditions and
financial accounts, draw up management measures, safekeep and
file the organizing documents, drawings and data.
Item 37: Both sides will designate several technicians to
form a technical group under the preparing office in charge of
investigating, supervising and examining the design, quality,
material and technical matters for the project plants.
Item 38: The authorized size, wages and expenses of the
preparing office will be approved by the board and may be listed
in the budget.
Item 39: The preparing office will be dissolved by the board
after construction of the project plants and the related
transferring.
Chapter 13 Financial Accounting and Auditing
Item 40: The joint venture pays taxes according to the
"Income Tax Law of the People's Republic of China for Enterprises
with Foreign Investment and Foreign Enterprises", the Value Added
Tax Laws of the People's Republic of China as applicable to
it,and enforcement regulations of these laws, as the same may
beamended from time to time (but only if the amendment is
applicable to the joint venture).
Item 41: The joint venture draws the reserve fund,
development fund, award fund and welfare fund according to the
regulations of the "Law of Chinese Foreign Joint Ventures of the
People's Republic of China". The rate is decided by the board
considering the operating condition of the joint venture every
year.
Item 42: The financial year of the joint venture is from
January 1 to December 31. All the accounting records and bills
must be written in Chinese and English.
Item 43: The accountants registered in China should be
employed to check the accounting records and reports. If
necessary, the accounting records and reports will be audited by
an internationally recognized accounting firm acceptable to the
parties. The checking report should be submitted to the president
and the board.
After informing the president, either side may employ the
accountants and auditors either Chinese or foreigner at its own
expense to check the accounts and records of the joint venture.
Item 44: In the first three (3) months of every operating
year and within 30 days after the end of each quarter, the
president should organize to draw up the statements of assets and
liabilities, profit and loss statements and profit distributing
plan of the previous year and submit to the board.
Chapter 14 Foreign Currency Equilibrium and Profits
Distribution
Item 45: The joint venture should arrange to use the foreign
currency in the order below:
1. The essential use to maintain the daily manufacturing and
operation;
2. Repay the principle and interest of the foreign currency
loan;
3. Import the essential equipment and raw materials;
4. Share out the profits due each side;
Item 46: Both parties will use their best efforts to assist
in balancing the foreign exchange of the joint venture by any
means available to the joint venture, including that the joint
venture may apply to obtain foreign currency in the foreign
exchange market. When the Joint venture cannot maintain its
foreign currency equilibrium by itself:
1. When the joint venture cannot afford to pay both sides
all their benefit in foreign currency, it may use RMB instead to
pay Side A, but Side B must always be paid its benefit in $US or
as provided in Item 46A;
2. If the above item 45 does not work, the joint venture can
also pay RMB to Side B, unless Side B elects to be paid as
provided in Item 46A.
Item: 46A If the joint venture is unable to obtain the
necessary foreign currency to allow Side B to receive its share
of the profits of the joint venture in foreign currency, and if
Side B requests, the joint venture shall provide Side B with
sufficient lubricant oil or other products produced by the joint
venture for export to allow these obligations to be met in
foreign currency. In order to implement this plan, the following
will be done:
(1) Side B is up to choose the category of the lubricating
oil or other products within the joint venture's production
capacity.
(2) The lubricating oil or other products of the joint
venture will be delivered to Side B at a mutually agreeable port
(or, if the two sides do not agree on a port, then at a
convenient port in China designated by Side B), with all
necessary permits and licences to allow the export of the
lubricating oil or other products of the joint venture.
(3) The price of the lubricating oil or other products of
the joint venture will be based on the international export price
for production of the same quality and quantity FOB at the port
where the lubricating oil or other products of the joint venture
are delivered to Side B.
(4) Side B can arrange for the detailed time for the joint
venture to deliver the lubricating oil or other products of the
joint venture.
(5) The amount of the lubricating oil or other products of
the joint venture delivered to replace the profit allocation is:
Side B's profits due and unpaid in the last year
international export price determined under (3) , above.
(6) After the joint venture has delivered the lubricating
oil or other products at the port designated in (2), above, of
the quality and quantity specified and at the time designated by
the Side B, it will be regarded that Side B has got its due
profits.
Item 46B. After the joint venture has paid the income taxes
according to the law, the profits will be paid according to the
following order:
(1) to pay the money for compensation, breach of contract,
delay and punishment;
(2) to make up the losses of the joint venture in the last
year;
(3) to deposit some funds for working capital and for future
development of the joint venture in accordance with plans adopted
by the board of directors, and to provide funds for the workers'
reward and welfare programs adopted by the board of directors;
(4) to distribute profits according to the both parties
investment proportion.
Chapter 15 Labour Management
Item 47: The board of the joint venture should draw up a
plan about employment, training, dismissing, wages, insurance,
welfare, safety and hygiene, discipline, rewards and penalties
according to the labour management regulations of joint ventures
in China.
Item 48: The joint venture may sign up employment contracts
with individuals or groups of workers if approved by the board
of directors. After an employment contract has been concluded,
it should be submitted to the local Labour administrative
departments for filing.
Item 49: To employ the workers in China, all these aspects
should be considered: educational level, proficiency of foreign
languages, working ability and skills, health condition,
professional ethics, etc. and employ only those who are
outstanding.
Item 50: The treatment about wages, insurance, welfare,
business travel expenses, etc. of the senior management personnel
is decided by the board.
Chapter 16 Time Limit of Joint Venture
Item 51: The operating time limit of the joint venture is
thirty (30) years calculated from the day the joint venture gets
its license.
If suggested by one (1) side and agreed by both sides, the
operating time limit of the joint venture may be extended by
decision of the board. The joint venture should apply for such
extension to the original registration institution six (6) months
before the expiration.
Chapter 17 Ending and Clearance
Item 52: The joint venture should be ended if one (1) of
these circumstances occurs:
1. When the joint venture reaches its expiration;
2. Serious losses caused by force majeure stipulated in
Chapter 19 have made the joint venture unable to maintain its
ordinary operation for six (6) months;
3. One (1) side of the joint venture fails or refuses to
perform its obligations under this Contract and fails to remedy
the breach within thirty (30) days of receiving written notice
of breach of contract from the other side, but if a matter is
submitted to arbitration, the joint venture will not terminate
if the party complies with the arbitration decision in a timely
fashion;
4. The joint venture has a serious deficit for three (3)
successive years and does not have the ability to clear off its
due debts;
5. The parties agree that the joint venture has not reached
its main objectives and has no prospect of doing so;
6. If the joint venture is adjudicated to be bankrupt by a
final, nonappealable decision of a court of competent
jurisdiction and the joint venture cannot reach an agreement with
creditors.
Under the circumstances described in articles 2,4, and 5 of
this Item, the board should get a consensus and report to the
original registration institution to terminate this Contract and
the joint venture before expiration.
Under the circumstances of article 3 of this Item, the side
that abides by this Contract has the right to report to the
original registration institution to terminate this Contract and
the joint venture before expiration, and has the right to claim
indemnity from the other side.
Item 53: The board should draw up the clearing procedures
and principles, select the members of the clearing committee as
soon as the joint venture terminates and report to the
responsible authorities.
Item 54: During the clearing period, the clearing committee
should bring or answer Indictments on behalf of the joint
venture.
Item 55: The expenses of clearing and the payment of the
clearing committee members will be paid from the assets of the
joint venture after the clearance and will have first payment
priority. The remaining assets should first be paid for the
debts, and then be allotted between the two (2) sides in the
proportion of their investment. If the joint venture is
terminated before expiration, the clearing should be done on the
assets on the day the joint venture ended according to law. The
remaining assets after clearance should first be paid for the
debts and then allotted between the two (2) sides according to
their investment proportion.
Item 56: After the joint venture is terminated, both sides
have the right to continue using the patent, technical and
corresponding data. After the joint venture terminates, all the
financial records and bills will be kept by Side A, but Side B
will have the right to inspect and make copies of all financial
records and bills at its expense.
The trademark is provided by Side A and is registered in the
patent management department in China, so, the right of using
this trademark should be returned to Side A. If the joint venture
develops its own trademark, the rights' to the trademark will be
sold as part of the clearing of the assets.
Chapter 18 Responsibility of Breaking the Contract
Item 57A: If either side behaves in the following way, the
other side is entitled to determine that that side has
constituted the breach of the contract:
(1) fails to pay the investment money which is stipulated
in chapter 5 in this contract in a timely fashion;
(2) fails to carry out the obligations which are stipulated
in chapter 7 of this contract.
Item 57B: If the side who has followed the contract properly
makes sure that the other side has broken the contract, he is
entitled to take the following measures to stop the behaviour of
the breach of the contract and to reduce the unnecessary losses:
(1) to notify in written form the side who has broken the
contract to correct its behaviour of the breach of the contract
at once or in a designated time limit and to compensate for the
losses already caused by the breach of the contract;
(2) to require the side who has broken the contract to
perform the contract without any condition;
(3) to ask the side who has broken the contract to pay fee
for the breach of the contract and the compensation money
according to the stipulations in Item 57C;
(4) if the other side has completely broken the contract,
the side who has followed the contract may terminate the
contract, considering that the continuous performance of the
contract is no longer necessary according to the provisions of
part 3 of Item 52.
Item 57C: The side who has broken the contract should pay
the money for the breach of the contract and the compensation
money to the side who has followed the contract properly
according to the following principles within 30 days after the
obligation has been clarified or after the receipt of the other
side's written notice:
(1) If the breach of the contract which is mentioned in Item
57A(1) arises, from the date that proper amounts should have been
paid, the side who has broken the contract will have to pay 0.03%
of the delayed payment each day as the money for the breach of
the law. Also the losses caused by the failure to invest in the
agreed proper way should also be compensated.
(2) If the breach of the contract which is mentioned in Item
57A(2) arises, the actual losses caused by the breach of the
contract will be compensated and an additional 10% of the actual
loses will be paid as the money for the breach of the contract
together with compensation money.
Item 58: If one (1) side of the joint venture fails to
perform this Contract, it must take the responsibility. If both
sides violate the treaty of this Contract, they must take their
own responsibility respectively.
Chapter 19 Force Majeure
Item 59: When conditions of force majeure occur such as an
earthquake, typhoon, flood, war and other contingencies that will
directly interfere with the performance of this contract or the
agreed upon terms, one (1) side should inform the other side
immediately. It should also provide the details of the
contingencies and inform whether this Contract could be performed
or partly performed, whether deferment is needed, and provide
corresponding reasons and valid testimonial in fifteen (15) days.
The testimonial must be issued by the notary in the locality of
the force majeure. The two (2) sides should consult to decide
whether to terminate this Contract or to partly dissolve the
responsibilities of this Contract or to defer the performance of
this contract according to the degree of damage.
Chapter 20 Insurance
Item 60: All types of insurance of the joint venture should
be insured by an insurance company in China acceptable to the
parties. The insurance types, coverages and periods are decided
by the board according to the regulations of the People's
Insurance Company of China. Additional insurance will be carried
by the joint venture if required by any lender or if determined
to be prudent by the board.
Chapter 21 Solving of Dispute
Item 61.1: The parties shall make their best efforts to
settle amicably through consultation any dispute arising in
connection with the performance or interpretation of any
provision hereof.
Item 61.2.1: Any dispute that has not been settled through
such consultation may be referred to arbitration at the request
of and by either side. The arbitration shall be conducted in
accordance with the following provisions:
Item 61.2.2: If agreed upon by both sides in writing, such
dispute shall be referred to arbitration conducted by the Board
of Foreign Trade Arbitration of the China International Trade
Promotion Committee ("CCPIT") in Beijing and will be arbitrated
according to the procedures of CCPIT.
Item 61.2.3: If the parties fail to reach an agreement on
the arbitration arrangement mentioned in Item 61.2.2, the parties
shall establish an ad hoc arbitration tribunal to conduct
arbitration in accordance with the following provisions:
Item 61.2.3.1: The ad hoc arbitration tribunal shall consist
of three (3) arbitrators. The parties shall each appoint an
arbitrator and the two (2) arbitrators so appointed shall
designate a third arbitrator. If one (1) of the parties does not
appoint its arbitrator within sixty (60) days after the first
appointment, or if the two (2) arbitrators once appointed fail
to appoint the third within sixty (60) days after the appointment
of the second arbitrator, the relevant appointment shall be made
by the Arbitration Institute of the Stockholm Chamber of
Commerce, Sweden.
Item 61.2.3.2: The third arbitrator shall be a citizen of
a country that has formal diplomatic relations with both the
People's Republic of China and the USA, and shall not have any
economic interests (direct or indirect) or relationship with the
parties or the dispute.
Item 61.2.3.3: The place of arbitration shall be determined
by the parties through consultations or, failing an agreement of
the parties, by a majority of the arbitrators of the ad hoc
tribunal.
Item 61.2.3.4: The ad hoc arbitration tribunal shall conduct
the arbitration in accordance with the arbitration rules of
United Nations Commission on International Trade Law ("UNCITRAL")
of 1976. However, if the above-mentioned arbitration rules are
in conflict with the provisions of this Chapter 21, the
provisions of this Chapter 21 shall prevail.
Item 61.2.4: Both the Chinese and English languages shall
be official languages used in the arbitration proceedings. All
hearing materials, statements of claim or defence, award and the
reasons supporting them shall be written in both Chinese and
English.
Item 61.2.5: Any award of arbitration shall be final and
binding upon the parties.
Item 61.2.6: The right to arbitrate disputes under this
contract shall survive the termination of the joint venture.
Item 62: During the arbitration, this contract should
continue to carry out except the part in dispute and arbitration.
If the disputes are fundamental, the board is responsible for
deciding whether to cease this Contract.
Chapter 22 Applicable Law
Item 63: The conclusion, effect, interpretation, performance
and dispute solving of this Contract are all within the
jurisdiction of Chinese laws.
Chapter 23 The Writing
Item 64: This Contract is written in both Chinese and
English. Both versions will govern equally. It there are any
differences, they will be solved by mutual consultation and
arbitration.
Chapter 24 Effective Date and Other
Item 65: This Contract must be approved by the authority
department of the People's Republic of China. The effective date
will be the date of approval.
Revisions to this Contract can be made with the agreement
of both sides and approved by the original approval institution.
Item 66: Notices sent by means of telegraph or facsimile,
etc. are accepted as legal notice upon receipt. The legal
locations of the two (2) sides in this Contract are the mailing
addresses of each.
Item 67: This Contract is signed by the representative of
Side A at ______________________ in ________________________ and
by the representative of Side B at ________________________ in
Representative of Representative of
United Lube Oil Corporation XCL China Ltd.
/s/ Ge Tingen /s/ David A. Melman
---------------------- -------------------------
(signature) (signature)
95.7.17 July 17, 1995
LETTER OF INTENT
CNPC United Lube Oil Corporation (Side A) and XCL, Ltd.
(Side B), according to the Law of Joint Ventures of the
People's Republic of China, on the principles of equality and
mutual benefit, and on the foundation of an established Joint
Venture for the manufacturing and selling of high quality
lubricating oil and related products and in research and
development of new products which is located in LangFang City,
Hebei Province, China, based on additional friendly
discussions, agree as follows:
1. The existing Joint Venture shall serve as the guide
for futher discussions of the additional projects.
2. Once the the Joint Venture is established, the
parties agree to immediately explore the following matters:
A. Mianying Plant. The Mianying Plant has initial
production capacity of 20,000 metric tons per year. The
parties are conducting valuation and feasibility studies on
the Mianying Plant to increase the quality of the products
that can be produced from the plant. The parties agree that
expansion of their cooperation to include the Mianying Plant
is of the hightest priority.
B. Southern Production Base. The parties will explore the
feasibility of an additional production base for the Joint
Venture to be located in a port area on the Southeastern coast
of China.
C. Storage and terminal facilities. The Joint Venture
will explore the feasibility of storage and terminal
facilities on the Northeast and Southeast coasts of China.
D. Cooperative Ventures with Refineries. To assure the
availability of high quality lubricating oil base stocks
necessary to meet the domestic demand for high quality
lubricating oil and to meet the requirements of the
international export market, the Joint Venture with the
approval and assistance from CNPC will enter into cooperative
ventures with oil field refineries to assure quality and
quantity of base oil and products for the purposes of the
Joint Venture. The parties agree promptly to establish the
feasibility of such cooperation.
3. After this letter of intent has been approved by the
board of directors and higher authorities of Side A and the
Board of Directors of Side B, the parties shall establish an
implementation committee to negotiate and finalize the terms
of this further cooperations, discuss the joint venture
agreement, contract and charter, and to complete all the
related issues for approval of those joint venture projects.
4. The parties will share the profit, loss, and risk of
theses projects based on their investment percentage in the
registered capital of the joint venture after additional
capital required has been calculated and agreed to. The
amount of the invetsment, and the amount of additional
registered capital from each side shll be determined based on
feasibility studies to be conducted jointly by the parties.
5. The Joint Venture will be a legal entity organized
under the laws of China. All joint venture documents will be
negotiated and drafted in both Chinese and English, and both
versions shall govern.
6. Once the projects in this Letter of Intent begin to
be implemented, the cost incurred in the implementation of
this letter of inten with the consent of both parties may be
treated as part of the contribution to the registered capital
of the Joint Venture by the party who paid those costs.
This letter of intent is signed by the representatives of
both sides in Beijing, China.
CNPC United Lube Oil Corporation XCL China Ltd.
/s/ Ge Tinggen /s/ David A. Melman
By:________________________ By:______________________
Date: 95.7.17 Date: July 17, 1995
AGREEMENT
This Agreement effective this 26th day of June 1995, by
and between XCL Ltd., formerly The Exploration Company of
Louisiana, Inc., a Delaware corporation ("XCL" or the "Company")
and_______________________.
W I T N E S S E T H:
WHEREAS, _________________ on behalf of
___________________ (collectively referred to as the "Beneficial
Owners"), owns on the effective date of this Agreement, an
aggregate ________ shares of the Company's Series A, Cumulative
Convertible Preferred Stock, $1.00 par value ("Series A Preferred
Stock"); and
WHEREAS, by action of the Board of Directors taken on
Unanimous Written Consent dated November 11, 1994, the Company
declared a semiannual cash dividend of 2.25 pounds sterling (UK)
per share on the Series A Preferred Stock to shareholders
of record on December 9, 1994; and
WHEREAS, by action of the Board of Directors at a
meeting held on June 14, 1995, the Company declared a semiannual
cash dividend of 2.25 pounds sterling (UK) per share on the Series
A Preferred Stock to shareholders of record on June 30, 1995; and
WHEREAS, as of the date hereof the December 1994
dividend has not been paid and as a result thereof, there has
accrued interest (computed at the rate of 9.25%) totaling
$___________ on $__________ that being the aggregate dividend
owed to the Beneficial Owners computed from the dividend payment
date to the date hereof and the Company is desirous of satisfying
its obligation to the Beneficial Owners; and
WHEREAS, the Company is desirous of satisfying its
obligation to the Beneficial Owners of $__________ that being the
aggregate dividend to be due the Beneficial Owners on June 30,
1995, the Dividend Payment Date; and
WHEREAS, the Beneficial Owners have agreed to acquire
shares of XCL common stock, $.01 par value ("Common Stock")
paying for such shares with cash receivable by them representing
the cash dividends declared by the Company, all in accordance
with the terms set forth hereinafter; and
WHEREAS, the Company has determined that it is in its
best interest to conserve its cash position in order to fund,
among other things, its expanding operations in China.
NOW, THEREFORE, in consideration of mutual premises and
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. The Company shall cause to be listed for
issuance with the American Stock Exchange an aggregate of
_______________ shares of Common Stock in payment of the Series A
Preferred Stock Dividend hereby purchased by the Beneficial
Owners.
2a. The parties hereto agree that the number
of shares of Common Stock payable with respect to the December
1994 Stock Dividend is to be determined by the following formula:
PS x 2.25 pounds sterling = CD (pounds sterling)
Gross CD (pounds sterling) x $1.58 = $CD
Gross $CD/$.50 = CS
PS = Number of shares of Series A Preferred
Stock held
Sterling symbol = British Pounds Sterling
2.25 pounds sterling (UK) = Declared dividend rate
$ = U.S. Dollars
CD = Cash Dividend
$1.58 = The agreed to averaged U.S.
Dollar/British Pound Sterling exchange rate
$0.50 = The agreed to value of a share of
Common Stock giving effect to the
restricted stock nature of such
securities.
CS = Common Stock
2b. Interest shall be paid in shares of Common
Stock calculated pursuant to the same formula set forth
immediately above.
3. The parties hereto agree that the number of
shares of Common Stock with respect to the June 1995 dividend
payment to be issued shall be determined by formula described as:
PS x 2.25 pounds sterling = CD (pounds sterling)
CD (pounds sterling) x $1.6418 = $CD
$CD/$0.7563 = CS
PS = Number of shares of Series A Preferred
Stock held
Sterling symbol = British Pounds Sterling
2.25 pounds sterling UK = Declared dividend rate
$ = U.S. Dollars
CD = Cash Dividend
$1.6418 = The U.S. Dollar/British Pound
Sterling exchange rate as reported on
June 22, 1995
$0.7563 = The agreed share price; that being
the 20 day closing price ending
June 22, 1995, of XCL Common Stock as
traded on the American Stock
Exchange.
CS = Common Stock
4. The Beneficial Owners represent that they
are "Accredited Investors" as that term is defined in the
relevant section of the United States Securities laws and
acknowledge that the Company is relying on such representation.
5. The Beneficial Owners acknowledge that the
shares of Common Stock to be issued are "restricted securities"
as that term is defined in the relevant section of the U.S.
Securities laws.
6. Notwithstanding any other provisions in
this agreement XCL agrees to take any and all actions necessary
or required to timely file with the U.S. Securities and Exchange
Commission ("SEC") an appropriate registration statement to
register all shares of Common Stock issued by XCL pursuant to the
terms of this agreement.
7. XCL further undertakes to deliver such
additional shares of Common Stock, if any, so that the value of
consideration paid to the Beneficial Owners on that day when the
registration statement referred to in paragraph 6 above is
declared effective by the SEC is equal to the dollar amount of
the dividend payment as if paid in cash on each of the dividend
payment dates. The price of the XCL Common Stock for determining
this value shall be the closing price on the American Stock
Exchange on such effective date.
8. Should any such value deficiency exist
requiring additional shares of Common Stock to be issued, such
shares shall be issued as "restricted stock" with an agreed to
mutually acceptable value and XCL shall not be required to
register the same other than in connection with any further
registration statement, which it in its sole discretion,
determines to file.
9. The above terms reflect the entire
understanding between the parties.
10. This agreement shall be governed and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date and
year first above written.
XCL
LTD.
By:______________________________
David A. Melman
Executive Vice President
__________________________, As Investment
Managers for the Beneficial Owners
By:______________________________
Title:_____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of XCL Ltd. and Subsidiaries for the six month
period ended June 30, 1995 and the six and twelve month periods ended June 30,
1994 and December 31, 1994, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1994
<PERIOD-END> JUN-30-1995 JUN-30-1994 DEC-31-1994
<CASH> 2,502 15,880 6,751
<SECURITIES> 0 0 0
<RECEIVABLES> 3,688 1,053 1,833
<ALLOWANCES> 113 0 113
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 6,407 17,196 8,624
<PP&E> 224,959 209,953 217,339
<DEPRECIATION> 112,074 82,163 100,079
<TOTAL-ASSETS> 141,381 172,046 149,803
<CURRENT-LIABILITIES> 18,238 15,989 10,187
<BONDS> 0 0 0
<COMMON> 2,395 1,987 2,372
0 0 0
649 649 649
<OTHER-SE> 78,876 97,757 92,179
<TOTAL-LIABILITY-AND-EQUITY> 141,381 172,015 149,803
<SALES> 1,402 2,547 4,336
<TOTAL-REVENUES> 1,402 2,547 4,336
<CGS> 15,020 14,718 38,211
<TOTAL-COSTS> 15,020 14,718 38,211
<OTHER-EXPENSES> (132) (43) (826)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,389 879 1,831
<INCOME-PRETAX> (14,875) (13,007) (34,880)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (14,875) (13,007) (34,880)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 (1,742) (1,742)
<CHANGES> 0 0 0
<NET-INCOME> (14,875) (14,749) (36,622)
<EPS-PRIMARY> (.07) (.10) (.21)
<EPS-DILUTED> 0 0 0
</TABLE>
GLOSSARY OF TERMS
The following is a glossary of commonly used terms in
the oil and gas industry which is being provided for ease
of reference and convenience purposes only.
"area of mutual interest" or "AMI" - An agreement by which
parties attempt to describe a geographical area within
which they agree to share certain existing and additional
leases acquired by any of them in the future.
"APO/BPO" - After payout/before payout.
"Btu/MMBtu" - British Thermal Units, a measure of the
heating value of fuel. MMBtu stands for one million Btu.
"Bbls/MBbls" - A Bbl. or barrel is 42 U.S. gallons of
crude oil or condensate measured at 60 degrees Fahrenheit.
MBbls stands for one thousand Bbls.
"carried interest" - A fractional working interest in an
oil and gas lease, the holder of which is carried and has
no liability for a portion or all of the attirubtable
development and operating costs. The person advancing the
costs is the carrying party; the other is the carried
party.
"casing point" - The time when the operator recommends
that a completion attempt be made, or when the well is
plugged and abandoned without a completion attempt being
made.
"choke/choke size" - A pipe section having an orifice for
restricting and controlling the flow of oil and gas.
Choke size is the orifice diameter and is commonly
expressed in 64ths of an inch.
"continuous drilling" - A lease clause providing that
drilling of another well be commenced within a specified
time after completion of the preceding well. As a general
rule, if this is not done, all undeveloped acreage must be
released.
"development" - The drilling of a well within the
productive area of an oil or gas reservoir, as indicated
by reasonable interpretation of available data, with the
object of completing the well in that reservoir.
"exploration" - Operations conducted in search of
undiscovered oil, gas and/or condensate.
"farmout/farmin" - An agreement providing for assignment
of a lease. A typical characteristic of a farmout is the
obligation of the assignee to conduct drilling operations
on the assigned acreage as a pre-requisite to completion
of the assignment. The assignor will usually reserve some
type of interest in the lease. The transaction is
characterized as a farmout to the assignor and farmin to
the assignee.
"field" - An area within a lease or leases where
production of oil, gas and/or condensate has been
established and which has been so designated by the
appropriate regulatory authority.
"gathering facilities" - Pipelines and other facilities
used to collect gas from various wells and bring it by
separate and individual lines to a central point where it
is delivered into a single line.
"gathering gas" - The first taking or the first retaining
of possession of gas for transmission through a pipeline,
after the severance of such gas, and after the passage of
such gas through any separator, drip, trap or meter that
may be located at or near the well. In the case of gas
containing gasoline or liquid hydrocarbons that are
removed or extracted in commercial quantities at a plant
by scrubbing, absorption, compression, or any similar
process, the term means the first taking or the first
retaining of possession of such gas for transmission
through a pipeline after such gas has passed through the
outlet of such plant. The act of collecting gas after it
has been brought from the earth.
"gathering line" - Pipes used to transport oil or gas from
the lease to the main pipeline in the area. In the case
of oil, the lines run from the lease tanks to a central
pump station at the beginning of the main pipeline. In
the case of gas, the flow is continuous from the well head
to the ultimate consumer, since gas cannot be stored.
Gathering lines collect gas under fluctuating pressures
which are then regulated by regulating stations before the
gas is introduced into trunk or transmission lines.
"gathering system" - The gathering lines, pumps, auxiliary
tanks (in the case of oil), and other equipment used to
move oil or gas from the well site to the main pipeline
for eventual delivery to the refinery or consumer, as the
case may be. In the case of gas, the gathering system
includes the processing plant (if any) in which the gas is
prepared for the market.
"gross/net" - The term "gross" is used when reference is
made, for example, to the total acreage of a lease. The
term "net" is used when reference is made to the working
interest or net revenue interest in a lease of one
particular leaseholder. The same term may be applied to a
leaseholder's interest in reserves and/or production from
a lease.
"held by production" or "HBP" - A provision in a lease to
the effect that such lease will be kept in force as long
as there is production from the lease in paying
quantities.
"lease bonus" - A cash payment by the lessee for the
execution of an oil and gas lease by the mineral owner.
"lease" or "leasehold" - An interest for a specified term
in property allowing for the exploration for and
production of oil, gas and/or condensate.
"log" - A record of the formations penetrated by a well,
from which their depth, thickness, rock properties and (if
possible) contents may be obtained.
"Mcf/MMcf/Bcf" - Mcf stands for one thousand cubic feet of
gas, measured at 60 degrees Fahrenheit and at atmospheric
pressure of 14.7 pounds per square inch. MMcf stands for
one million cubic feet of gas. Bcf stands for one million
Mcf.
"net revenue interest" or "NRI" - The share of revenues to
which the holder of a working interest is entitled upon
fulfilling the obligations, after deduction of all
royalties, overriding royalties or similar burdens,
attributable to his working interest.
"operator" - The person or company having the operational
management responsibility for the drilling of or
production from any oil, gas and/or condensate well.
"overriding royalty" - A form of royalty, entitling the
holder to receive a percentage of oil, gas and/or
condensate produced from the wells on a specified lease,
or the revenues arising from the sale thereof, free of all
expenses arising therefrom, save for production taxes.
Generally, the rights accruing to working interest holders
are subject to the rights of overriding royalty holders
and any rights of overriding royalty holders terminate
upon cancellation or reversion of the underlying lease.
"pay" - The geological deposit in which oil, gas and/or
condensate is found in commercial quantities.
"payout" - Generally, that point in time, determined by
agreement, when a person has recouped his investment in
the drilling, development, equipping and operating of a
well or wells.
"permeability" - A measure of the resistance offered by
rock to the movement of fluids through it.
"porosity" - The volume of the pore spaces between mineral
grains as compared to the total rock volume. Porosity is
a measure of the capacity of rock to hold oil, gas and
water.
"probable reserves" - The estimated quantities of
commercially recoverable hydrocarbons associated with
known accumulations, which are based on engineering and
geological data similar to those used in the estimates of
proved reserves but, for various reasons, these data lack
the certainty required to classify the reserves as proved.
In some cases, economic or regulatory uncertainties may
dictate the probable classification. Probable reserves
are less certain to be recovered than proved reserves.
"prospect" - One lease comprising, or several leases which
together comprise, a geographical area believed to contain
commercial quantities of oil, gas and/or condensate.
"prospective" - A geographical area or structure believed
to contain commercial quantities of oil, gas and/or
condensate.
"proved reserves" - Estimated quantities of crude oil,
condensate, natural gas, and natural gas liquids that
geological and engineering data demonstrate with
reasonable certainty to be commercially recoverable in the
future from known reservoirs under existing conditions
using established operating procedures and under current
governmental regulations.
"psig" - Pounds per square inch, gauge.
"rental payment" - A sum of money payable to the lessor by
the lessee for the privilege of deferring the commencement
of drilling operations or the commencement of production
during the primary term of the lease.
"reserves" - The estimated value of oil, gas and/or
condensate which is economically recoverable. Reserves
may be categorized as proved or probable.
"reservoir" - A porous, permeable, sedimentary rock
containing commercial quantities of oil, gas and/or
condensate.
"salt dome" - A mass or plug of salt which has pushed or
domed up sedimentary beds around it; this type structure
is favorable to oil and gas accumulation.
"sand" - A sedimentary rock consisting mostly of sand
grains.
"shut-in royalty" - A payment made when a gas well,
capable of producing in paying quantities, is shut-in for
lack of a market for the gas.
"structure" - A configuration of subsurface rock
formations considered, on the basis of geological or
geographical interpretation, to be capable of containing a
reservoir.
"target depth" - The primary geological formation or depth
identified in an agreement applicable to the relevant well
or wells.
"test well" - An exploratory well.
"tight formation" - A zone of relatively low permeability
and thus low well productivity. Wells in such zones
usually require fracturing or other stimulation.
Typically, the productive capacity of a new well completed
in a tight zone declines rapidly for several months or
longer after completion.
"working interest" or "WI" - An interest in a lease
carrying the obligation to bear a proportion of drilling
and operating costs and the right to receive a proportion
of the production or gross revenues attributable thereto.
"workover" - Remedial operations on a well with the
intention of restoring or increasing production.
