UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 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.
237,545,990 shares Common Stock, $.01 par value were
outstanding on May 15, 1995.
XCL LTD.
TABLE OF CONTENTS
Page
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.
XCL Ltd. and Subsidiaries
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
March 31 December 31
Assets 1995 1994
------- -------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,469 $ 6,751
Accounts receivable, net 534 1,720
Prepaid expenses 148 153
------- -------
Total current assets 3,151 8,624
------- -------
Property and equipment:
Oil and gas (full cost method):
Proved and evaluated properties 159,631 158,634
Unproved and unevaluated properties:
Domestic 38,882 37,856
Foreign 19,763 17,696
-------- -------
58,645 55,552
Land, at cost 135 135
Other 3,021 3,018
-------- -------
221,432 217,339
Accumulated depreciation, depletion and
amortization (100,736) (100,079)
-------- -------
120,696 117,260
-------- -------
Investments and assets held for sale 21,707 20,948
Deferred charges and other assets 3,672 2,971
-------- -------
Total assets $ 149,226 $ 149,803
======== =======
Liabilities and Shareholders' Equity
-------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 2,872 $ 3,640
Royalty and production taxes payable 204 286
Dividends payable 715 965
Current maturities of limited recourse debt 5,652 5,267
Other current maturities 2,030 29
-------- -------
Total current liabilities 11,473 10,187
-------- -------
Long-term debt, net of current maturities 39,153 41,607
Other non-current liabilities 3,327 2,809
Commitments and contingencies (Note 7)
Shareholders' equity:
Preferred stock-$1.00 par value; authorized
1,200,000 shares; issued shares of 649,244
at March 31, 1995 and December 31, 1994-
liquidation preference of $52.9 million
at March 31, 1995 649 649
Common stock-$.01 par value; authorized 325
million shares; issued shares of
237,350,886 at March 31, 1995 and
237,184,410 at December 31, 1994 2,374 2,372
Common stock held in treasury -
$.01 par value; 1,258,900 shares at
March 31, 1995 and 3,500,000 at
December 31, 1994 (13) (35)
Additional paid-in capital 207,902 206,241
Accumulated deficit (115,639) (114,027)
-------- -------
Total shareholders' equity 95,273 95,200
-------- -------
Total liabilities and shareholders'
equity $ 149,226 $ 149,803
======== ========
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands of Dollars, Except Per Share Amounts)
Three Months Ended
March 31
1995 1994
----- ----
(Unaudited)
Oil and gas revenues $ 678 $ 1,338
------- -------
Oil and gas operating expenses:
Operating (including marketing) 281 286
Depreciation, depletion and amortization 658 900
General and administrative 882 1,017
Taxes, other than income 126 297
------- -------
1,947 2,500
------- -------
Operating loss (1,269) (1,162)
------- -------
Other income (expense):
Interest expense,
net of amounts capitalized (356) (455)
Other, net 13 25
------- -------
(343) (430)
------- -------
Loss before extraordinary item (1,612) (1,592)
Extraordinary charge for early
extinguishment of debt - (1,742)
------- -------
Net loss (1,612) (3,334)
Preferred stock dividends - -
------- -------
Net loss attributable to common stock $ (1,612) $ (3,334)
======= =======
Loss per common and common equivalent share:
Net loss before extraordinary item $ (.01) $ (0.01)
Extraordinary item - (0.01)
------- -------
Net loss per common and common equivalent share $ (.01) $ (0.02)
======= =======
Average number of common and common
equivalent shares outstanding 234,499 168,028
======= =======
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
Three Months Ended
March 31
1995 1994
---- ----
(Unaudited)
Cash flows from operating activities:
Net loss $ (1,612) $ (3,334)
------- -------
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 658 900
Extraordinary charge for early extinguishment
of debt - 1,742
Change in assets and liabilities:
Accounts receivable 1,186 170
Prepaid expenses 5 (5)
Accounts payable and accrued expenses (768) (2,267)
Royalty and production taxes payable (82) (209)
Other, net 518 100
------- -------
Total adjustments 1,517 431
------- -------
Net cash used in operating activities (95) (2,903)
------ -------
Cash flows from investing activities:
Capital expenditures (4,095) (4,638)
Investments (759) -
Other (517) 181
------ ------
Net cash used in investing activities (5,371) (4,457)
------ ------
Cash flows from financing activities:
Proceeds from sales of common stock 48 25,000
Proceeds from sales of treasury stock 1,603 -
Proceeds from issuance of preferred stock - 1,600
Loan proceeds - 29,200
Proceeds from exercise of warrants and options 69 -
Payment of long-term debt (181) (29,398)
Payment of preferred stock dividends (250) -
Stock issuance costs and other (105) (2,068)
------- -------
Net cash provided by financing activities 1,184 24,334
------- -------
Net increase (decrease) in cash and cash equivalents (4,282) 16,974
Cash and cash equivalents at beginning of period 6,751 1,646
------- -------
Cash and cash equivalents at end of period $ 2,469 $ 18,620
======= =======
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(1) General
The consolidated financial statements at March 31, 1995, and
for the three 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. and subsidiaries as of March 31, 1995, and December
31, 1994, and the results of their operations for the three
months ended March 31, 1995, have been included. Certain
reclassifications have been made to prior period financial
statements to conform to current period presentation, including
reclassifying accrued interest on the subordinated debt to be
paid in Common Stock and the reserve for franchise tax to long-
term liabilities. 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 March 31, 1995, the Company had an operating cash balance
of $2.5 million. The working capital deficit of $8.3 million
included approximately $5.7 million of limited recourse debt
associated with the Lutcher Moore Tract and $2 million of
principal on the Company's bank debt due on January 1, 1996. To
provide for additional near term liquidity, the Company has
executed a contract to sell the Phoenix Lake Tract for
approximately $2.4 million, consisting of $1.8 million in cash and
a $.6 million reduction in obligations owed by the Company to the
purchaser. This transaction is scheduled to close before May 31, 1995.
The Company has also negotiated the terms of a proposed sale
of the Lutcher Moore Tract, which upon closing would result in
net cash proceeds of $8.6 million after retirement of the limited
recourse debt. The sale is subject to the execution of
definitive agreements, the purchaser securing financing and other
customary conditions to closing. Management is negotiating an
extension of the maturity dates of the limited recourse debt in
the event the purchaser cannot consummate the transaction.
In order to accelerate exploration and development of the
Zhao Dong Block, the Company on May 10, 1995, executed a letter
agreement with Apache Corporation ("Apache"), which, upon
approval by Chinese authorities, would result in the following:
(i) Apache will pay 100 percent of the costs to drill,
test and complete the next two wildcat wells on the
Zhao Dong Block. If Apache elects to drill a third
wildcat well it will also pay 100 percent of the costs
of that third exploration well.
(ii) Apache will pay 100 percent of the costs to drill,
test and complete the C-3 appraisal well in the "C"
Field;
(iii) Apache will 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; and
(iv) Apache will assume operatorship of the Zhao Dong
Block and, in consideration for the above identified
wells to be drilled at Apache's sole cost for the
Company, acquire from the Company an additional 16.67
percent interest in the remainder of the block outside
the "C" Field.
The Company farmed out a one-third interest in the Zhao Dong
Block to Apache in 1994. As a result of the May 10, 1995
agreement, the Company and Apache will each have a 50 percent
interest in the Zhao Dong Block. Future expenditures beyond
those described above will be borne 50 percent by the Company and
Apache, respectively. The Company estimates that the Apache
transaction will pay for all but approximately $5 million to $6
million of its exploration expenditures related to the Zhao Dong
Block for the next twelve months.
To fund development of the "C" area initial discovery on the
Zhao Dong Block, the Company is in discussions with a major
banking group with experience in debt financing in China, 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.
As discussed in the Annual Report on Form 10-K for the year
ended December 31, 1994, the Company signed a letter of intent
with CNPC United Lube Oil Corporation subject to satisfaction of
certain conditions, to form a joint venture for the manufacture
and sale of lubricating oil in China and southeast Asian markets.
The joint venture, which is expected to have a 30 year life,
requires a total investment estimated at $12 million of which 40
percent shall be the capital of the venture, (shared 51 percent
to the China interest; 49 percent to the Company's interest) and
the remainder is expected to be project financed as venture
borrowings. The joint venture is to assume ownership of an
existing lubricating oil blending plant located in LangFang,
China and is to evaluate constructing a second plant. As of
March 31, 1995, the Company has invested $.8 million in this venture.
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 the
$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 developed producing domestic oil
and gas reserves, which decline with production, but can be
increased by additional successful development drilling. If
development drilling is either materially delayed or is less
successful than expected, the lender could reduce the borrowing
base and thus require earlier principal reductions. The next
borrowing base determination is scheduled for September 30, 1995.
Domestic development drilling and general corporate expenditures
for the next year are estimated at $10 million to $13 million.
In light of the Company's decision to focus its activities in China,
management is considering the sale or exchange of the Cox Field 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 renegotiate the terms of its bank debt
to reflect an improved cash flow profile.
The standardized measure of discounted net cash flows reflects a
tight gas severance tax exemption as provided for in Texas Railroad
Commission Statewide Rule 105. This exemption results in approximately
$5 million of net present worth discounted at 10 percent. The tight gas
severance tax exemption is a temporary exemption which expires on
August 31, 2001. There are no circumstances that must be met to keep the
exemption in place. Pricing for a significant portion of the Company's
gas reserves is subject to a price floor established by a long-term gas
purchase 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.
The Company's reserve estimates indicate that with sufficient development
the minimum volumes will be achieved for the contract year ending
April 30, 1996.
Management has historically had the ability to generate
funds through the sale of assets or securities, and 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
continuing 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.
(3) Supplemental Cash Flow Information
There were no income taxes paid during the three month
periods ended March 31, 1995 and 1994. (See Note 7 herein).
Interest and associated capitalized costs for the three
month period ended March 31 totaled $1.0 million and $1.6
million, respectively for 1995 and 1994. Interest paid during
the three month periods ended March 31, 1995 and 1994 amounted to
$.6 and $.7 million, respectively.
During the three months ended March 31, 1995, the Company
issued 18,714 shares of Common Stock in payment of interest on
funds escrowed in advance of purchase of Series D Preferred
Stock.
During the three months ended March 31, 1994, the Company
completed the following noncash transactions:
o Shareholders of 7,671 shares of Series C Preferred Stock elected
to exercise their conversion rights and accordingly 1,871,660
shares of the Common Stock of the Company were issued pursuant to
the terms of the Series C Preferred Stock. All of the Series C
Preferred Stock was subsequently converted to Common Stock.
o 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 December 31, 1993 and
June 30, 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.
(4) Investments and Assets Held for Sale
Lube Oil Investment
--------------------
As discussed in Note 2, the Company signed a letter of intent
with CNPC United Lube Oil Corporation subject to satisfaction of
certain conditions, to form a joint venture for the manufacture
and sale of lubricating oil in China and southeast Asian markets.
As of March 31, 1995, the Company has invested $.8 million in this venture.
Phoenix Lake Tract
-------------------
The Company owns a 77.78 percent fee interest in 11,700
acres comprising the Phoenix Lake Tract in southwestern
Louisiana. On May 10, 1995, the Company executed a contract to
sell the Phoenix Lake Tract for approximately $2.4 million,
retaining 75 percent of its mineral interest, with a closing
scheduled prior to May 31, 1995. The purchase price is to be
comprised of approximately $1.8 million in cash and a $.6 million
reduction in obligations owed by the Company to the purchaser.
No gain or loss is expected to be recognized.
(5) Debt
Long-term debt at March 31, 1995 consists of the following
(000's):
Current Long-Term
Maturities Portion Total
---------- ----------- --------
Collateralized credit facility $ 2,000 $23,115 $25,115
Subordinated debt (due April 5 ,2000) - 15,000 15,000
Building Mortgage 30 669 699
------ ------ ------
Total $ 2,030 $38,784 $40,814
====== ====== ======
Lutcher Moore Group
Limited Recourse Debt $ 5,652 $ 369 $ 6,021
====== ====== ======
Substantially all of the Company's assets collateralize
certain of these borrowings. Accounts payable and accrued
expenses include interest accrued at March 31, 1995, of
approximately $.6 million.
Lutcher Moore Group Limited Recourse Debt :
- -------------------------------------------
Mortgage and Seller Notes.
- -------------------------
At March 31, 1995, approximately $2.8 million of Mortgage Notes
(net of amounts escrowed for payment) and $3.2 million of Seller
Notes were outstanding. Mortgage Notes bear interest of 9
percent and mature in June 1995. Seller Notes bear interest of 8
percent and mature June 1996. The Company is negotiating an
extension of the maturity dates of the Mortgage and Seller Notes.
Collateralized Credit Facility
- ------------------------------
Under the INCC Agreement, the Company is required to
maintain minimum levels of tangible net worth, working capital
and fixed charge coverage, and expend a minimum amount on
domestic development drilling. Further, the INCC Agreement
contains certain restrictions pertaining to debt, mergers,
issuances of securities, investments, sales of property, cash
dividends and redemptions and payments related to subordinated
debt. During the first quarter of 1995, the INCC Agreement was
amended to modify certain covenant requirements.
(6) Preferred Stock and Common Stock
As of March 31, 1995, the Company had the following shares
of Preferred Stock outstanding:
Shares Liquidation Value
------- -----------------
Series A 599,244 $47,939,520 *
Series B 50,000 5,000,000
* 50 pounds sterling (U.K.) per share (1 U.K. pound sterling =
U.S. $1.60 at March 31, 1995).
At March 31, 1995, the Company had reserved approximately .9
million shares of Common Stock to be issued as dividends on
Preferred Stock. On November 30, 1994, the Company declared
cash dividend payments on Series A and Series B Preferred Stocks
of approximately $2.6 million for the six month period ended
December 31, 1994. The Company is required to sell shares of its
Common Stock to fund these dividends and as of March 31, 1995,
$715,000 of the dividends remained to be paid.
(7) Commitments and Contingencies and Subsequent Events
Other commitments, contingencies and subsequent events
include:
o In order to accelerate exploration and development of the Zhao
Dong Block, the Company on May 10, 1995, executed a letter
agreement with Apache Corporation ("Apache"), which, upon
approval by Chinese authorities, would result in the following:
(i) Apache will pay 100 percent of the costs to
drill, test and complete the next two wildcat wells
on the Zhao Dong Block. If Apache elects to drill
a third wildcat well it will also pay 100 percent
of the costs of that third exploration well.
(ii) Apache will pay 100 percent of the costs to
drill, test and complete the C-3 appraisal well in
the "C" Field;
(iii) Apache will 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; and
(iv) Apache will assume operatorship of the Zhao
Dong Block and, in consideration for the above
identified wells to be drilled at Apache's sole
cost for the Company, acquire from the Company an
additional 16.67 percent interest in the remainder
of the block outside the "C" Field.
The Company will retain a 50 percent interest in the Zhao
Dong Block. Under the Production Sharing Agreement effective May
1993, pursuant to which the Company acquired exploration,
development and production rights to the Zhao Dong Block, the
Company remains obligated to drill two additional exploratory
wells by May 1996. The cost of these two wells will be paid by
Apache, as described in (i) above.
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.
XCL LTD. AND SUBSIDIARIES
March 31, 1995
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the first quarter of 1995, the Company's operating
activities used $.1 million in cash, due to the decline in
revenues at the Cox Field caused by the lack of development
activities. This sum, plus investing activities totaling
approximately $5.4 million, primarily attributable to
expenditures on the Company's investments in China, were funded
by $4.3 million in operating cash and $1.6 million in proceeds
from the sale of treasury stock.
At March 31, 1995, the Company had an operating cash balance
of $2.5 million. The working capital deficit of $8.3 million
included approximately $5.7 million of limited recourse debt
associated with the Lutcher Moore Tract and $2 million of
principal on the Company's bank debt due on January 1, 1996. To
provide for additional near term liquidity, the Company has
executed a contract to sell the Phoenix Lake Tract for approximately
$2.4 million, consisting of $1.8 million in cash and a $.6
million reduction in obligations owed by the Company to the purchaser.
This transaction is scheduled to close before May 31, 1995.
The Company has also negotiated the terms of a proposed sale
of the Lutcher Moore Tract, which upon closing would result in
net cash proceeds of $8.6 million after retirement of the limited
recourse debt. The sale is subject to the execution of
definitive agreements, the purchaser securing financing and other
customary conditions to closing. Management is negotiating an
extension of the maturity dates of the limited recourse debt in
the event the purchaser cannot consummate the transaction.
In order to accelerate exploration and development of the
Zhao Dong Block, the Company on May 10, 1995, executed a letter
agreement with Apache Corporation ("Apache"), which, upon
approval by Chinese authorities, would result in the following:
(i) Apache will pay 100 percent of the costs to drill,
test and complete the next two wildcat wells on the
Zhao Dong Block. If Apache elects to drill a third
wildcat well it will also pay 100 percent of the costs
of that third exploration well.
(ii) Apache will pay 100 percent of the costs to drill,
test and complete the C-3 appraisal well in the "C"
Field;
(iii) Apache will 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; and
(iv) Apache will assume operatorship of the Zhao Dong
Block and, in consideration for the above identified
wells to be drilled at Apache's sole cost for the
Company, acquire from the Company an additional 16.67
percent interest in the remainder of the block outside
the "C" Field.
The Company farmed out a one-third interest in the Zhao Dong
Block to Apache in 1994. As a result of the May 10, 1995
agreement, the Company and Apache will each have a 50 percent
interest in the Zhao Dong Block. Future expenditures beyond
those described above will be borne 50 percent by the Company and
Apache, respectively. The Company estimates that the Apache
transaction will pay for all but approximately $5 million to $6
million of its exploration expenditures related to the Zhao Dong
Block for the next twelve months.
To fund development of the "C" area initial discovery on the
Zhao Dong Block, the Company is in discussions with a major
banking group with experience in debt financing in China, 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.
As discussed in Note 2, the Company signed a letter of intent
with CNPC United Lube Oil Corporation subject to satisfaction of
certain conditions, to form a joint venture for the manufacture
and sale of lubricating oil in China and southeast Asian markets.
The joint venture requires a total investment estimated at
$12 million of which 40 percent shall be the capital of the venture,
(shared 51 percent to the China interest; 49 percent to the Company's
interest) and the remainder is expected to be project financed as venture
borrowings. As of March 31, 1995, The Company has invested $.8 million
in this venture.
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 the
$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 developed producing domestic oil
and gas reserves, which decline with production, but can be
increased by additional successful development drilling. If
development drilling is either materially delayed or is less
successful than expected, the lender could reduce the borrowing
base and thus require earlier principal reductions. The next
borrowing base determination is scheduled for September 30, 1995.
Domestic development drilling and general corporate expenditures
for the next year are estimated at $10 million to $13 million.
In light of the Company's decision to focus its activities in China,
management is considering the sale or exchange of the Cox Field 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 renegotiate the terms of its bank debt
to reflect an improved cash flow profile.
Management has historically had the ability to generate
funds through the sale of assets or securities, and 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
continuing 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 Series A and
Series B Preferred Stocks of approximately $2.6 million for
December 31, 1994. The Company is required to sell shares of its
Common Stock to fund these dividends and as of March 31, 1995,
$715,000 of dividends remained to be paid.
The Company's cumulative preferred stock dividend
requirements amount to approximately $2.3 million semiannually.
The Company's credit agreement restricts the payment of cash
dividends and currently, insufficient liquidity exists to pay
such amounts. Management intends to pay future preferred stock
dividends by selling additional shares of the Company's Common
Stock.
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 month period ended March 31, 1995, the
Company incurred a net loss of $1.6 million as compared to a net
loss of $3.3 million during the corresponding period in 1994. The
three months results for 1994 additionally 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 month period ended March
31, 1995, were $.7 million compared to $1.3 million during the
corresponding period in 1994. Revenues continue to decline due
to reduced production volumes, decreases in gas prices and
limited drilling in the Cox Field. Operating costs as a percent
of revenues increased as a result of fixed costs remaining
constant and declining revenues. As the Company has not concluded
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 operating losses for the year.
The Company realized an average gas price of $1.23 per Mcf for the
three month period ended March 31, 1995, as compared to an average
of $1.93 per Mcf for the three 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 an other China
related projects, future oil and gas revenues will initially be
directly related to the degree of drilling success experienced in
the Zhao Dong Block.
Net capitalized costs for the Company's domestic oil and gas
properties at March 31, 1995, approximate the "ceiling-test"
limitation as prescribed by the Securities and Exchange
Commission guidelines. Remaining unproved and unevaluated
properties at March 31, 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.
The standardized measure of discounted net cash flows reflects
a tight gas severance tax exemption as provided for in Texas Railroad
Commission Statewide Rule 105. This exemption results in approximately
$5 million of net present worth discounted at 10 percent. The tight gas
severance tax exemption is a temporary exemption which expires on
August 21, 2001. There are no circumstances that must be met to keep
the exemption in place. Pricing for a significant portion of the Company's
gas reserves is subject to a price floor established by a long-term gas
purchase 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.
The Company's reserve estimates indicate that with sufficient development
the minimum volumes will be achieved for the current year ending
April 30, 1996.
Effects on revenues are summarized on the following table:
Three Months
Ended
March 31
------------
Oil and Gas Revenues - 1994 $ 1.3
Effect of changes in volume of
gas production and sales .2
Effect of changes in gas prices .4
----
Oil and Gas Revenues - 1995 $ .7
The depreciation, depletion and amortization rate for the
three month period in 1995 and 1994 amounted to $1.25 per Mcf.
Incremental cost savings are expected in the future because
certain production has been exempted from production taxes by
state taxing authorities as a result of a "tight sands"
classification by regulatory authorities. The tight gas severance
tax exemption is a temporary exemption which expires on
August 31, 2001. This exemption and lower production volumes
resulted in the decline in "Taxes, other than income," in the first
quarter of 1995 as compared to the same period in 1994. There are
no circumstances that must be met to keep the exemption in place.
Interest expense is expected to increase in the second quarter as
the Company will not capitalize interest on the debt direcly associated
with the Cox Field because it is considering the sale or exchange of
this property.
XCL LTD. AND SUBSIDIARIES
March 31, 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 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 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 its 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 has filed answers to each of these
suits and intends to defend them vigorously.
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
No matters were submitted to a vote of security holders
during the period covered by this report.
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, 1994 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. *
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 Chine 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. *
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. *
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. *
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. *
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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered
by this report.
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: May 15 , 1995
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of January 31, 1995, between
XCL LTD., a Delaware corporation ("XCL"), and ENERGY ADVISORS,
INC. ("Consultant").
W I T N E S S E T H :
WHEREAS, Consultant has expertise in corporate
development and investor relations; and
WHEREAS, XCL desires to retain Consultant as advisor
and consultant; and
WHEREAS, XCL wishes to compensate Consultant for such
services by issuance of stock purchase warrants.
NOW, THEREFORE, in consideration of the premises the
parties hereto agree as follows:
Section 1. Definitions. (a) Terms used in this
Warrant Agreement shall have the following meanings, unless the
context otherwise requires:
"Commission" shall mean the Securities and
Exchange Commission or any entity succeeding to any or
all of its functions under the Securities Act.
"Common Stock" shall mean the common stock of XCL
as the same shall be in existence from time to time.
"Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, or any successor federal
statute.
"Exercise Price" shall mean the exercise price of
a Warrant, which shall be $.75 per share of Common
Stock, subject to adjustment as provided in Section 11.
"Expiration Date" shall mean January 31, 1998.
"Person" shall mean an individual or firm,
corporation, partnership, trust, association or other
entity.
"Securities Act" shall mean the Securities Act of
1933, as amended, or any successor federal statute.
"The Stock Exchange Daily Official List" shall
mean the daily official list of the prices of stock
listed on the International Stock Exchange of the
United Kingdom of Great Britain and Northern Ireland
and the Republic of Ireland Limited.
"Warrant" shall mean a warrant issued pursuant to
this Agreement entitling the record holder thereof to
purchase from XCL at the Warrant Office one share of
Common Stock (subject to adjustment as provided in
Section 11) at the Exercise Price at any time on or
before 5:00 P.M., local time, at the Warrant Office, on
the Expiration Date. Where the context requires, the
term "Warrant" as used herein denotes one or more
Warrants evidenced by a single Warrant Certificate.
"Warrant Certificate" shall mean a certificate
evidencing one or more Warrants, substantially in the
form of Exhibit A hereto, with such changes therein as
may be required to reflect any adjustments made
pursuant to Section 11.
"Warrantholder" shall mean, initially the Persons
party to this Warrant Agreement and thereafter the
Persons named in the Warrant Register as the holders of
the Warrants.
"Warrant Office" shall mean the office or agency
of XCL at which the Warrant Register shall be
maintained and where the Warrants may be presented for
exercise, exchange, substitution and transfer, which
office or agency on the date of this Agreement is the
office of XCL at 110 Rue Jean Lafitte, Lafayette,
Louisiana 70508, which office or agency may be changed
by XCL upon five (5) business days prior notice in
writing to the Warrantholders.
"Warrant Register" shall mean the register,
substantially in the form of Exhibit B hereto,
maintained by XCL at the Warrant Office.
"Warrant Stock" shall mean the number of shares of
Common Stock issuable upon exercise of the Warrants.
(b) Other Rules of Construction. References in this
Agreement to Sections, Paragraphs and Exhibits are to
Sections and Paragraphs of and Exhibits to this Agreement
unless otherwise indicated. The words "hereof", "herein",
"hereunder" and comparable terms refer to the entirety of
this Agreement and not to any particular Section or other
subdivision hereof or attachment hereto. Words in the
singular include the plural and in the plural include the
singular. Words in the neuter gender shall include the
masculine and feminine and vice versa. The word "or" is not
exclusive. The word "including" shall be deemed to mean
"including, without limitation". The Section headings
contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 2. Representations and Warranties. XCL hereby
represents and warrants as follows:
(a) XCL is a corporation duly organized and validly
existing under the laws of the State of Delaware, has the
power and authority to execute and deliver this Agreement
and the Warrant Certificates, to issue the Warrants and to
perform its obligations under this Agreement and the Warrant
Certificates.
(b) The execution, delivery and performance by XCL of
this Agreement and the Warrant Certificates, the issuance of
the Warrants and the issuance of the Warrant Stock upon
exercise of the Warrants have been duly authorized by all
necessary corporate action, and do not and will not violate,
or result in a breach of, or constitute a default under, or
require any consent under, or result in the creation of any
lien upon the assets of XCL pursuant to, any requirement of
law or any material contractual obligation binding upon XCL.
(c) This Agreement has been duly executed and
delivered by XCL and constitutes a legal, valid, binding and
enforceable obligation of XCL. When the Warrants and
Warrant Certificates have been issued as contemplated hereby
(i) the Warrants and the Warrant Certificates will
constitute legal, valid, binding and enforceable obligations
of XCL and (ii) the Warrant Stock, when issued upon exercise
of the Warrants in accordance with the terms hereof, will be
duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock with no personal
liability attaching to the ownership thereof (other than for
the statutory liability prescribed by Delaware law).
Section 3. Issuance of Warrants. XCL hereby agrees to
issue and deliver to Rye one or more Warrant Certificates
evidencing Warrants to purchase 100,000 shares of Common Stock at
any time on or before 5:00 P.M., local time at the Warrant
Office, on the Expiration Date. Each Warrant shall entitle the
holder thereof to purchase one fully paid and nonassessable share
of Warrant Stock upon the exercise thereof at a price per share
equal to the Exercise Price as adjusted as provided in Section
11. Each Warrant Certificate shall be executed on behalf of XCL
by the manual or facsimile signature of the President or any
executive officer of XCL, under its corporate seal, affixed or in
facsimile, attested by the manual or facsimile signature of the
Secretary of XCL. Warrants shall be dated as of January 31,
1995.
Section 4. Exercise of Warrants. (a) Warrants may be
exercised at any time in whole or in part on any business day on
or before 5:00 p.m., local time, at the Warrant Office on the
Expiration Date by presentation and surrender of the Warrant
Certificate evidencing such Warrants, with the Form of Election
to Purchase (the "Election Form") annexed to the Warrant
Certificate and payment of the Exercise Price, multiplied by the
number of shares of Warrant Stock issuable upon exercise of such
Warrants. Upon surrender of such Warrant Certificate by the
Warrantholder thereof and payment of the Exercise Price by
certified or official bank check payable to the order of XCL of
the aggregate Exercise Price for the number of shares of Warrant
Stock in respect of which such Warrant is being exercised in
lawful money of the United States of America, XCL shall issue and
cause to be delivered with all reasonable dispatch to or upon the
written notice of such Warrantholder or upon the written order of
such Warrantholder and in such name or names as such
Warrantholder may designate, a certificate or certificates for
the Warrant Stock, together with cash in respect of any fraction
of a share of Warrant Stock issuable upon such surrender pursuant
to Section 7 hereof. The Warrantholders shall be deemed to have
been holders of record of the number of shares of Warrant Stock
specified in the Election Form as of the date of such exercise of
such Warrants.
(b) In the event that Warrants constituting less
than all of the Warrants evidenced by a Warrant Certificate
are exercised at any time prior to the Expiration Date, a
new Warrant Certificate, duly executed by XCL and dated the
same date as the Warrant Certificate being replaced, will be
issued for the remaining number of Warrants evidenced by the
Warrant Certificate so surrendered bearing the legend set
forth in Section 13(b). Warrantholders shall not be entitled
to receive fractional Warrants.
(c) XCL will, in accordance with applicable Delaware
law, take any action which may be necessary in order that
XCL may validly and legally issue fully paid and non-
assessable Warrant Stock at the Exercise Price, including
taking any corporate action that may, in the opinion of its
counsel, be necessary therefor prior to taking any action
that would cause a reduction of the Exercise Price, pursuant
to the provisions of Section 11 hereof, to an amount below
the then-par value of the Warrant Stock.
(d) XCL hereby agrees that at all times there shall be
reserved, for issuance and delivery upon exercise of the
Warrants, the Warrant Stock issuable from time to time upon
exercise of such Warrants. XCL covenants that all Warrant
Stock will, upon issuance in accordance with the terms of
this Agreement, be validly issued, fully paid and non-
assessable and free from all taxes with respect to the
issuance thereof and from all liens, charges, security
interests and other encumbrances or restrictions on sale
(other than restrictions on sales under applicable
securities laws) and free and clear of all adverse or
preemptive rights.
Section 5. Registration, Transfer and Exchange of
Certificates. (a) XCL shall maintain at the Warrant Office
the Warrant Register for registration of the Warrants and
Warrant Certificates and transfers thereof. XCL may deem and
treat the registered holder of any Warrant Certificate as
the absolute owner of the Warrants represented thereby
(notwithstanding any notation of ownership or other writing
on a Warrant Certificate made by anyone) for the purpose of
any exercise thereof or any distribution to the holder(s)
thereof, and for all other purposes, and XCL shall not be
affected by any notice to the contrary.
(b) Warrants may be exchanged or transferred at the
option of the holder thereof, subject to compliance with the
provisions of Section 13 hereof. XCL shall register the
transfer of the outstanding Warrants in the Warrant Register
upon surrender of the Warrant Certificates evidencing such
Warrants to XCL at the Warrant Office, accompanied (if so
required by it) by a written instrument or instruments of
transfer in form reasonably satisfactory to it, duly
executed by the registered holder or holders thereof or by
the duly appointed legal representative thereof. Upon any
such registration of transfer, one or more new duly executed
Warrant Certificates evidencing such transferred Warrants
shall be issued to the transferees and the surrendered
Warrant Certificates shall be canceled. If less than all
the Warrants evidenced by a Warrant Certificate(s)
surrendered for transfer are to be transferred, new duly
executed Warrant Certificate(s) shall be issued to the
Warrantholder surrendering such Warrant Certificate(s)
evidencing such remaining number of Warrants.
(c) Each Warrant Certificate may be exchanged at the
option of the holder thereof, when surrendered to XCL at the
Warrant Office, for another Warrant Certificate of like
tenor, or for other Warrant Certificates, representing an
equivalent number of Warrants. Any Warrant Certificate
surrendered for exchange shall be canceled. Subject thereto,
a Warrant Certificate may be divided or combined with other
Warrant Certificates evidencing the same rights of such
Warrant Certificate being divided or combined, upon
presentation of such Warrant Certificate being divided or
combined at the Warrant Office, together with written notice
specifying the names and denominations in which new Warrant
Certificates are to be issued and signed by the
Warrantholder of the Warrants evidenced by the Warrant
Certificate being so divided or combined.
(d) Except as provided in Sections 13(c) and 13(d),
each Warrant Certificate issued upon transfer or exchange
shall bear the legend set forth in Section 13(b) if the
Warrant Certificate presented for transfer or exchange bore
such legend.
(e) Any transfer, exchange or assignment of
Warrants (including any new Warrants issued pursuant to
Section 6 hereof) shall be without charge to the
Warrantholder (other than as set forth in Section 8 hereof
or any income tax withholding requirements) and any new
Warrant or Warrants issued pursuant to this Section 5 shall
be dated the date hereof.
Section 6. Mutilated or Missing Warrant Certificate. If
any Warrant Certificate shall be mutilated, lost, stolen or
destroyed, XCL shall issue, in exchange and substitution for and
upon cancellation of the mutilated Warrant Certificate, or in
lieu of and substitution for the Warrant Certificate lost, stolen
or destroyed, a new Warrant Certificate, in form and substance
identical to the form of such mutilated, lost, stolen or
destroyed Warrant Certificate of like tenor and representing an
equivalent number of Warrants as were evidenced by such
mutilated, lost, stolen or destroyed Warrant Certificate, but
only upon receipt of evidence satisfactory to XCL of such loss,
theft or destruction of such Warrant Certificate and, if
requested, indemnity reasonably satisfactory to it. Any such new
Warrant Certificate shall constitute an original contractual
obligation of XCL, whether or not the allegedly mutilated, lost,
stolen or destroyed Warrant Certificate shall be at any time
enforceable by any person. No service charge shall be made for
any such substitution, but all expenses and reasonable charges
associated with procuring such indemnity and all stamp, tax and
other governmental duties that may be imposed in relation thereto
shall be borne by the holder of such Warrant Certificate. Each
Warrant Certificate issued in any such substitution shall bear
the legend set forth in Section 13(b) if the Warrant Certificate
for which such substitution was made bore such legend.
Section 7. No Fractional Stock. XCL shall not be required
to issue fractional shares of Common Stock upon exercise of any
Warrants by a Warrantholder. Instead of any fractional shares of
Warrant Stock that would otherwise be issuable to such
Warrantholder, XCL shall pay to such Warrantholder a cash
adjustment in respect of such fractional interest in an amount
equal to such fractional interest of the then-current Market
Price per share (as defined in Section 11 hereof) of Warrant
Stock.
Section 8. Payment of Taxes. XCL will pay any and all
documentary, stamp, transfer or other taxes attributable to the
initial issuance or delivery of Warrant Stock; provided that XCL
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue of any Warrant
Certificate or any certificate for Warrant Stock in a name other
than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and XCL shall not be
required to issue or deliver such certificates unless or until
the person or persons requesting the issuance thereof shall have
paid to XCL the amount of such tax or shall have established to
the reasonable satisfaction of XCL that such tax has been paid.
Section 9. No Stockholder Rights. Unless and until
exercise of any Warrant shall have occurred, nothing contained in
this Agreement or in any of the Warrant Certificate evidencing
such Warrant shall be construed as conferring upon the holders
thereof the right to vote or to receive dividends or subscription
rights, or to consent or to receive notice as a stockholder in
respect of the meetings of the stockholders or the election of
directors of XCL or any other matter, or any rights whatsoever as
a stockholder of XCL. No provisions of any Warrant or of this
Warrant Agreement, in the absence of affirmative action by the
Warrantholder to exercise such Warrant, and no mere enumeration
herein of the rights or privileges of such Warrantholder, shall
give rise to any liability of such Warrantholder for the Exercise
Price or as a stockholder of XCL, whether such liability is
asserted by XCL or its creditors.
Section 10. Obtaining of Governmental Approvals and Stock
Exchange Listings. XCL will, at its own expense, from time to
time take all action which may be necessary to obtain and keep
effective any and all permits, consents and approvals of
governmental agencies and authorities which may be or become
requisite in connection with the issuance, sale, transfer and
delivery of the Warrant Certificates and the exercise of the
Warrants and the issuance, sale, transfer and delivery of the
Warrant Stock and all action which may be necessary so that such
Warrant Stock, immediately upon their issuance upon the exercise
of Warrants, or at such later time as shall be otherwise provided
herein, will be listed on each securities exchange, if any, on
which the Common Stock is then listed; provided, however, except
as set forth in Section 13A hereof, nothing herein provided shall
require XCL to register the Warrants or the Warrant Stock under
the Securities Act.
Section 11. Adjustment of Number of Shares of Warrant Stock
Purchasable. Prior to the Expiration Date, the Exercise Price is
subject to adjustment from time to time as follows:
(a) In case XCL shall at any time after the date of
this Agreement (i) declare a dividend on the shares of
Common Stock payable in shares of Common Stock, or (ii)
subdivide or split up the outstanding shares of Common Stock
the amount of Warrant Stock to be delivered upon exercise of
any Warrant will be appropriately increased so that the
Warrantholder will be entitled to receive the amount of
Warrant Stock that such Warrantholder would have owned
immediately following such actions had such Warrant been
exercised immediately prior thereto, and the Exercise Price
in effect immediately prior to the record date for such
dividend or the effective date for such subdivision shall be
proportionately decreased, all effective immediately after
the record date for such dividend or the effective date for
such subdivision or split up. Such adjustments shall be
made successively whenever any event listed above shall
occur.
(b) In case XCL shall at any time after the date of
this Agreement combine the outstanding shares of Common
Stock into a smaller number of units, the Exercise Price in
effect immediately prior to the record date for such
combination shall be proportionately increased, effective
immediately after the record date for such combination.
Such adjustment shall be made successively whenever any such
combinations shall occur.
(c) In the event that XCL shall at any time after the
date of this Agreement (i) issue or sell any shares of
Common Stock (other than Warrant Stock) (or securities
convertible or exchangeable into Common Stock) without
consideration or at a price per share (or having a
conversion price per share, if a security convertible into
Common Stock) less than the Market Value per share of Common
Stock (as defined in Section 11(e) hereof), or (ii) issue or
sell options, rights or warrants to subscribe for or
purchase Common Stock at a price per share less than the
Market Price per share of Common Stock (as defined in
Section 11(e) hereof), the Exercise Price to be in effect
after the date of such issuance shall be determined by
multiplying the Exercise Price in effect on the day
immediately preceding the relevant issuance or record date,
as the case may be, used in determining such Market Value or
Market Price, by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding on such
issuance or record date plus the number of shares of Common
Stock which the aggregate offering price of the total number
of shares of Common Stock so to be issued or to be offered
for subscription or purchase (or the aggregate initial
conversion price of the convertible securities so to be
offered) would purchase at such Market Value or Market
Price, as the case may be, and the denominator of which
shall be the number of shares of Common Stock outstanding on
such issuance or record date plus the number of additional
shares of Common Stock to be issued or to be offered for
subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); such
adjustment shall become effective immediately after the
close of business on such issuance or record date; provided,
however, that no such adjustment shall be made for the
issuance of (s) options to purchase shares of Common Stock
granted pursuant to XCL's employee stock option plans
approved by shareholders of XCL (and the shares of Common
Stock issuable upon exercise of such options) (provided that
option exercise prices shall not be less than the Market
Value of the Common Stock (as defined in Section 11(e)
hereof) on the date of the grant of such options), (t) XCL's
warrants to purchase shares of Common Stock (and the shares
of Common Stock issuable upon exercise of such warrants),
outstanding on the date hereof, (u) XCL's shares of Series
A, Cumulative Convertible Preferred Stock (and the shares of
Common Stock issuable upon conversion of such preferred
stock), (v) XCL's shares of Series B, Cumulative Preferred
Stock (and the shares of Common Stock issuable in lieu of
dividend and redemption payments thereunder). In case such
subscription price may be paid in a consideration part or
all of which shall be in a form other than cash, the value
of such consideration shall be as determined reasonably and
in good faith by the Board of Directors of XCL and reviewed
and approved by the independent auditors of XCL. Shares of
Common Stock owned by or held for the account of XCL or any
wholly-owned subsidiary shall not be deemed outstanding for
the purpose of any such computation. Such adjustment shall
be made successively whenever the date of such issuance is
fixed (which date of issuance shall be the record date for
such issuance if a record date therefor is fixed); and, in
the event that such shares or options, rights or warrants
are not so issued, the Exercise Price shall again be
adjusted to be the Exercise Price which would then be in
effect if the date of such issuance had not been fixed.
(d) In case XCL shall make a distribution to all
holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which
XCL is the continuing corporation) of evidences of its
indebtedness, securities other than Common Stock or assets
(other than cash dividends or cash distributions payable out
of consolidated earnings or earned surplus or dividends
payable in Common Stock), the Exercise Price to be in effect
after such date of distribution shall be determined by
multiplying the Exercise Price in effect on the date
immediately preceding the record date for the determination
of the stockholders entitled to receive such distribution by
a fraction, the numerator of which shall be the Market Price
per share of Common Stock (as defined in Section 11(e)
hereof) on such date, less the then-fair market value (as
determined reasonably and in good faith by the Board of
Directors of XCL and reviewed and approved by the
independent auditors of XCL) of the portion of the assets,
securities or evidences of indebtedness so to be distributed
applicable to one share of Common Stock and the denominator
of which shall be such Market Price per share of Common
Stock, such adjustment to be effective immediately after the
distribution resulting in such adjustment. Such adjustment
shall be made successively whenever a date for such
distribution is fixed (which date of distribution shall be
the record date for such distribution if a record date
therefor is fixed); and, if such distribution is not so
made, the Exercise Price shall again be adjusted to be the
Exercise Price which would then be in effect if such date of
distribution had not been fixed.
(e) For the purposes of any computation under this
Section 11, the "Market Price per share" of Common Stock on
any date shall be deemed to be the average of the closing
sales price for the 20 consecutive trading days ending on
the record date for the determination of the shareholders
entitled to receive any rights, dividends or distributions
described in this Section 11, and the "Market Value per
share" of Common Stock on any date shall be deemed to be the
closing sales price on the date of the issuance of the
securities for which such computation is being made, as
reported on the principal United States securities exchange
on which the Common Stock is listed or admitted to trading
or if the Common Stock is not then listed on any United
States stock exchange, the average of the closing sales
price on each such day during such 20 day period, in the
case of the Market Price computation, or on such date of
issuance, in the case of the Market Value computation, in
the over-the-counter market as reported by the National
Association of Securities Dealers' Automated Quotation
System ("NASDAQ"), or, if not so reported, the average of
the closing bid and asked prices on each such day during
such 20 day period in the case of the Market Price
computation, or on such date of issuance, in the case of the
Market Value computation, as reported in the "pink sheets"
published by the National Quotation Bureau, Inc. or any
successor thereof, or, if not so quoted, the average of the
middle market quotations for such 20 day period in the case
of the Market Price computation, or on such date of
issuance, in the case of the Market Value computation, as
reported on The Stock Exchange Daily Official List. In the
case of Market Price or Market Value computations based on
The Stock Exchange Daily Official List, the Market Price or
Market Value shall be converted into United States dollars
at the then spot market exchange rate of pounds sterling
(UK) into United States dollars as quoted by Chemical Bank
or any successor bank thereto on the date of determination.
If a quotation of such exchange rate is not so available,
the exchange rate shall be the exchange rate of pounds
sterling in United States dollars as quoted in The Wall
Street Journal on the date of determination.
(f) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided that any
adjustments which by reason of this Section 11(f) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment; provided, further that
such adjustment shall be made in all events (regardless of
whether or not the amount thereof or the cumulative amount
thereof amounts to 1% or more) upon the happening of one or
more of the events specified in Sections 11(a), (b) or (h).
All calculations under this Section 11 shall be made to the
nearest cent.
(g) If at any time, as a result of an adjustment made
pursuant to Section 11(a) or (b) hereof, the holder of any
Warrant thereafter exercised shall become entitled to
receive any shares of XCL other than shares of Common Stock,
thereafter the number of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to
the Warrant Stock contained in this Section 11, and the
provisions of this Agreement with respect to the Warrant
Stock shall apply on like terms to such other shares.
(h) In the case of (1) any capital reorganization of
XCL, or of (2) any reclassification of the shares of Common
Stock (other than a subdivision or combination of
outstanding shares of Common Stock), or (3) any
consolidation or merger of XCL or (4) the sale, lease or
other transfer of all or substantially all of the properties
and assets of XCL as, or substantially as, an entirety to
any other person or entity, each Warrant shall after such
capital reorganization, reclassification of the shares of
Common Stock, consolidation, or sale be exercisable, upon
the terms and conditions specified in this Agreement, for
the number of shares of stock or other securities or assets
to which a holder of the number of shares of Warrant Stock
purchasable (immediately prior to the effectiveness of such
capital reorganization, reclassification of shares of Common
Stock, consolidation, or sale) upon exercise of a Warrant
would have been entitled upon such capital reorganization,
reclassification of shares of Common Stock, consolidation,
merger or sale; and in any such case, if necessary, the
provisions set forth in this Section 11 with respect to the
rights thereafter of a Warrantholder shall be appropriately
adjusted (as determined reasonably and in good faith by the
Board of Directors of XCL and reviewed and approved by the
independent auditors of XCL) so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other
securities or assets thereafter deliverable on the exercise
of a Warrant. XCL shall not effect any such consolidation
or sale, unless prior to or simultaneously with the
consummation thereof, the successor corporation, partnership
or other entity (if other than XCL) resulting from such
consolidation or the corporation, partnership or other
entity purchasing such assets or the appropriate entity
shall assume, by written instrument, the obligation to
deliver to the holder of each Warrant the shares of stock,
securities or assets to which, in accordance with the
foregoing provisions, such holder may be entitled and all
other obligations of XCL under this Agreement. For purposes
of this paragraph (h) a merger to which XCL is a party but
in which the Common Stock outstanding immediately prior
thereto is changed into securities of another corporation
shall be deemed a consolidation with such other corporation
being the successor and resulting corporation.
(i) Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the
exercise of the Warrant, Warrant Certificates theretofore or
thereafter issued may continue to express the same Exercise
Price per share and number and kind of shares as are stated
on the Warrant Certificates initially issuable pursuant to
this Agreement.
Section 12. Notices to Warrantholders. Upon any
adjustment pursuant to Section 11, XCL shall promptly, but in any
event within 20 days thereafter, cause to be given to each of the
registered holders of the Warrants, at its address appearing on
the Warrant Register, by first-class mail, postage prepaid, a
certificate signed by its Chairman of the Board, its President,
or any Vice President, and its Treasurer, Secretary or any
Assistant Secretary setting forth the Exercise Price as so
revised and the number of shares of Common Stock issuable upon
the exercise of each Warrant as so adjusted and describing in
reasonable detail the facts accounting for such adjustments and
the method of calculation used. Where appropriate, such
certificate may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this
Section 12.
In case:
(a) XCL shall authorize the issuance to all holders of
shares of Common Stock of options, rights or warrants to
subscribe for or purchase Common Stock of XCL or of any
other subscription rights or warrants; or
(b) XCL shall authorize the distribution to all
holders of shares of Common Stock of evidences of its
indebtedness or assets (other than cash dividends or cash
distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock); or
(c) of any consolidation or merger to which XCL is a
party, or of the conveyance or transfer of all or
substantially all of the properties and assets of XCL
substantially as an entirety, or of any capital
reorganization or reclassification or change of the shares
of Common Stock; or
(d) of the voluntary or involuntary dissolution,
liquidation, bankruptcy, assignment for the benefit of
creditors or winding up of XCL; or
(e) XCL proposes to take any other action or any other
event occurs which would require an adjustment of the
Exercise Price pursuant to Section 11;
then XCL shall cause to be given to each of the registered
holders of the Warrants at its address appearing on the Warrant
Register, at least 20 calendar days prior to the applicable
record date or effective date, as the case may be, hereinafter
specified, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such rights,
warrants or distribution are to be determined, or (ii) the date
on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders
of record of shares of Common Stock shall be entitled to exchange
their units for securities or other property, if any, deliverable
upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up.
Section 13. Restrictions on Transfer. (a) Each
Warrantholder represents that it is acquiring the Warrants, and
upon the exercise thereof the Warrant Stock, for its own account,
for investment and not with a view to any distribution or public
offering within the meaning of the Securities Act. Each
Warrantholder acknowledges that the Warrants and the Warrant
Stock issuable upon exercise thereof have not been registered
under the Securities Act or any state securities laws and agrees
that it will not sell or otherwise transfer its Warrants or
Warrant Stock except in compliance with the Securities Act and
applicable state laws and upon the terms and conditions specified
herein and that it will cause any transferee thereof to agree to
take and hold the same subject to the terms and conditions
specified herein.
(b) Except as provided in Sections 13(c) and 13(d)
hereof, each Warrant Certificate and each certificate for
the Warrant Stock shall include a legend appropriately
conformed and in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OR BLUE SKY LAWS OF ANY OTHER
DOMESTIC OR FOREIGN JURISDICTION. SUCH SECURITIES MAY NOT
BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED EXCEPT
IN COMPLIANCE WITH SUCH LAWS AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER. SUCH SECURITIES ARE ALSO SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN THE WARRANT
AGREEMENT DATED AS OF JANUARY 31, 1995, BETWEEN THE ISSUER
AND THE INITIAL HOLDER OF THE WARRANTS NAMED THEREIN. A
COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE
SECRETARY OF THE ISSUER, AND THE HOLDER OF THE SECURITIES
AGREES TO BE BOUND THEREBY.
(c) Prior to any proposed transfer of the Warrant
or any Warrant Stock the holder thereof shall give
prior written notice to XCL of such holder's intention
to effect such transfer. Each such notice shall be
accompanied by a written opinion of such holder's
counsel which counsel and which opinion shall be
reasonably satisfactory to XCL to the effect that the
proposed transfer may be effected without registration
under the Securities Act or applicable state laws. The
Warrant Certificate and each certificate evidencing the
Warrant Stock transferred pursuant to this Section
13(c) shall bear the legend set forth in Section 13(b);
provided, however, that such legend shall not be
required if such transfer is being made in connection
with a sale which is exempt from registration pursuant
to Rule 144 under the Securities Act or if the opinion
of counsel referred to above is to the further effect
that neither such legend nor the restrictions on
transfer in this Section 13 are required in order to
ensure compliance with the Securities Act and such
applicable state laws.
(d) The restrictions set forth in this Section 13
shall terminate and cease to be effective with respect
to any Warrant Stock registered under the Securities
Act or as to which the proviso to the last sentence of
Section 13(c) is applicable. Whenever such
restrictions shall so terminate XCL will rescind any
transfer restrictions relating thereto and the holder
of such Warrant and/or Warrant Stock shall be entitled
to receive from XCL, without expense (other than
transfer taxes, if any), a Warrant Certificate or
certificates for such Warrant Stock not bearing the
legend set forth in Section 13(b).
Section 13A. Registration Rights.
(A) Subject to the provisions of subparagraph
(C)(ii) below, if, at any time after the date hereof, XCL
proposes to register any shares of its Common Stock (or
securities convertible into its Common Stock) under the
Securities Act (other than on Form S-4 or Form S-8 or other
comparable form as may be in effect), it will at each such time
give written notice to all holders of the Warrants and Warrant
Stock of its intention to do so and, upon the written request of
any holder thereof given within 20 days after XCL's giving of
such notice (which request shall state the intended method of
disposition thereof by the prospective sellers), XCL will use its
best efforts to effect the registration of the Warrant Stock
which it shall have been so requested to register by including
the same in such registration statement, all to the extent
requisite to permit the sale or other disposition thereof in
accordance with the intended method of sale or other disposition
given in each such request. In the event that any registration
pursuant to this Section 13(A) shall be in connection with an
underwritten offering of equity securities of XCL, and the
managing underwriter determines in good faith and advises in
writing that the number of shares of Common Stock which XCL
proposes to offer under such registration statement, together
with the number of shares of Warrant Stock and other shares of
Common Stock requested to be included in such registration
statement by the holders of securities having registration rights
similar to those of this Section 13(A), exceeds the number of
shares of Common Stock it is advisable to offer and sell at such
time, then the number of shares of Common Stock to be sold by
XCL, such holders and such other shareholders after such
reduction shall be allocated between XCL, such holders and such
other shareholders, such that XCL shall have the right to have
offered no less than 75% of the original number of shares
proposed or requested by XCL to be registered and the balance
shall be allocated among the holders and such other shareholders
pro rata with respect to the number of shares of Common Stock or
Warrant Stock, as the case may be, owned by each such holder and
such other shareholders on the date of the notice provided by XCL
pursuant to this Section 13(A). Notwithstanding the foregoing
provisions, XCL may withdraw any registration statement referred
to in this Section 13(A) without thereby incurring any liability
to the holders of Warrant Stock.
(B) As a condition to the inclusion of shares of
Warrant Stock in any registration statement, each holder of
Warrant Stock requesting registration thereof will furnish to XCL
such information with respect to them and their plan of
distribution of such shares as is required to be disclosed in the
registration statement (and the prospectus and all amendments
thereto included therein) by the applicable rules, regulations
and guidelines of the Securities and Exchange Commission
("Commission").
(C) If and whenever the Company is required to use its
best efforts to effect the registration of shares of Warrant
Stock under the Securities Act, XCL shall:
(i) prepare and file with the Commission a
registration statement on the appropriate form with respect
to such Warrant Stock and use its best efforts to cause such
registration statement to become effective as soon as
practicable after the date of any request given by a holder
of Warrant Stock pursuant to this Section 13A.
(ii) prepare and file with the Commission such
amendments and supplements (including post-effective
amendments and supplements) to the registration statement
covering such Warrant Stock and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective and to comply with any
applicable provisions of the Securities Act with respect to
the disposition of all such Warrant Stock covered by such
registration statement until such time, as all of such
Warrant Stock registered thereunder has been disposed of in
accordance with the intended method of disposition of the
holders set forth therein or until such Warrant Stock can be
freely sold under the Securities Act or the Warrants are no
longer outstanding or the Warrants shall have expired in
accordance with their respective terms without having been
exercised;
(iii) furnish to each holder such number of copies
of a prospectus and preliminary prospectus in conformity
with the requirements of the Securities Act, and such other
documents as the holders may reasonably request, in order to
facilitate the public sale or other disposition of such
Warrant Stock;
(iv) notify each holder if, at any time when a
prospectus relating to such Warrant Stock is required to be
delivered under the Securities Act, any event shall have
occurred as a result of which the prospectus then in use
with respect to such Warrant Stock includes an untrue
statement of a material fact or omits to state a material
fact necessary to make the statements made therein, in light
of the circumstances under which they were made, not
misleading, or for any other reason it shall be necessary to
amend or supplement such prospectus in order to comply with
the Securities Act, and prepare and furnish to the holders a
reasonable number of copies of a supplement to or an
amendment of such prospectus which will correct such
statement or omission or effect such compliance;
(v) use its best efforts to register or qualify such
Warrant Stock under such other securities or blue sky laws
of such jurisdictions as the holders shall reasonably
request and do any and all other acts and things which may
be necessary or desirable to enable the holders to
consummate the public sale or other disposition in each such
jurisdiction of such Warrant Stock owned by them; provided,
however, that XCL shall not be required to consent to the
general service of process or to qualify to do business in
any jurisdiction where it is not then qualified;
(vi) use its best efforts, promptly after receipt of
such information, to notify the holders of the following:
(A) when such registration statement or any post-effective
amendment or supplement thereto becomes effective or is
approved; (B) the issuance by any competent authority of any
stop order suspending the effectiveness or qualification of
such registration statement or the prospectus then in use or
the initiation or threat of any proceeding for that purpose;
and (C) the suspension of the qualification of any such
Warrant Stock included in such registration statement for
sale in any jurisdiction;
(viii) pay all costs and expenses incident to the
performance and compliance by XCL of its obligations under
this Section 13A including, without limitation, (1) all
registration and filing fees; (2) all printing expenses; (3)
all fees and disbursements of counsel and independent public
accountants for XCL; (4) all blue sky fees and expenses
(including fees and expenses of counsel for XCL in
connection with blue sky surveys); and (5) the entire
expense of any special audits required by the rules and
regulations of the Commission; provided, however, that XCL
shall have no obligation to pay or otherwise bear any
portion of the fees and disbursements of counsel and
accountants for the holders and the underwriters' fees, out-
of-pocket costs, commissions or discounts attributable to
the Warrant Stock being offered and sold by the holders, all
of which shall be paid or otherwise borne by the holders.
(D) In connection with a registration pursuant to this
Section 13A covering an underwritten public offering, XCL and
the holders agree to enter into a written agreement with the
managing underwriter in such form and containing such provisions
as are customary in the securities business for such an
arrangement between such underwriter and companies of XCL's size
and investment stature.
(E) (i) XCL will indemnify and hold harmless the holders,
their officers and directors and any "underwriter" (as
defined in the Securities Act) for the holders and each
other person, if any who controls the holders within the
meaning of the Securities Act from and against any and all
losses, claims, damages, liabilities and legal and other
expenses (including costs of investigation, defense and good-
faith settlement) caused by any untrue statement or alleged
untrue statement of a material fact contained in any
registration statement under which the Warrant Stock was
registered under the Securities Act, any prospectus or
preliminary prospectus contained therein or any amendment or
supplement thereto, or caused by any omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, in light of the circumstances then existing,
except insofar as such losses, claims, damages, liabilities
or expenses are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon
information relating to the holders and furnished to XCL in
writing by the holders expressly for use therein.
(ii) It shall be a condition to the obligation of XCL
to effect a registration of the Warrant Stock of any holder
under the Securities Act pursuant hereto, that such holder
indemnifies and holds harmless XCL and, in connection with
an underwritten public offering, each underwriter and each
person, if any, who controls XCL or the underwriter, within
the meaning of the Securities Act, to the same extent as the
indemnity from XCL in the foregoing paragraph, but only with
reference to information relating to such holder furnished
to XCL or the underwriter in writing by such holder
expressly for use in the registration statement, any
prospectus or preliminary prospectus contained therein or
any amendment or supplement thereto.
(iii) In case any claim shall be made or any
proceeding (including any governmental investigation) shall
be instituted involving any indemnified party in respect of
which indemnity may be sought pursuant to this Section 13A,
such indemnified party shall promptly notify the
indemnifying party in writing of the same; provided that
failure to notify the indemnifying party shall not relieve
it from any liability it may have to an indemnified party
otherwise than under this Section 13A. The indemnifying
party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to
represent the indemnified party in such proceeding and shall
pay the fees and disbursements of such counsel. In any such
proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and disbursements of
such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party shall have failed to
retain counsel for the indemnified party as aforesaid, (ii)
the indemnifying party and such indemnified party shall have
mutually agreed to the retention of such counsel or (iii)
representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such
indemnified party and any other party represented by such
counsel in such proceeding; provided that XCL shall not be
liable for the fees and disbursements of more than one
additional counsel for all indemnified parties. The
indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. XCL
shall not, except with the approval of each indemnified
party (which approval shall not be unreasonably withheld)
under this Section 13A, consent to entry of any judgment or
enter into any settlement that does not include as an
unconditional term thereof the release by all interested
claimants and plaintiffs of the indemnified parties from all
liability in respect of such claim or litigation.
Section 13B. Reservation of Shares. XCL shall at all times
have authorized, and reserve and keep available and free from
preemptive rights or other restrictions (except as required by
law), for the purpose of enabling it to satisfy any obligation to
issue Warrant Stock upon the exercise of the Warrants, the number
of shares of Common Stock deliverable upon exercise of all
outstanding Warrants.
Section 14. Amendments and Waivers. Any provision of
this Agreement may be amended, supplemented, waived, discharged
or terminated by a written instrument signed by XCL and the
holders of not less than a majority of the outstanding Warrants;
provided that the Exercise Price may not be increased and the
amount of Warrant Stock issuable upon exercise of the Warrants
may not be reduced (except pursuant to Section 11 hereof), the
Expiration Date may not be changed to an earlier date and this
Section may not be amended except with the consent of the holders
of all outstanding Warrants and/or Warrant Stock.
Section 15. Specific Performance. The holders of the
Warrants shall have the right to specific performance by XCL of
the provisions of this Warrant Agreement. XCL hereby irrevocably
waives, to the extent that it may do so under applicable law, any
defense based on the adequacy of a remedy at law which may be
asserted as a bar to the remedy of specific performance in any
action brought against XCL for specific performance of this
Warrant Agreement by the holders of the Warrants.
Section 16. Notices. Any notice or demand to be given
or made by the holders to or on XCL pursuant to the Agreement
shall be sufficiently given or made if sent by mail, first-class
or registered, postage prepaid, addressed to XCL as follows (or
to such other address as may hereafter be designated by XCL in
writing to such registered holder):
XCL Ltd.
110 Rue Jean Lafitte
Lafayette, Louisiana 70508
Attention: Secretary
Any notice to be given by XCL to any of the holders of
the Warrants or the Warrant Stock shall be sufficiently given if
sent by first-class mail, postage prepaid, addressed to such
holder as such holder's name and address shall appear on the
Warrant Register or the Common Stock registry of XCL, as the case
may be.
Section 17. Binding Effect. This Agreement shall be
binding upon and inure to the sole and exclusive benefit of XCL,
its successors and assigns, the other parties hereto and the
registered holders from time to time of the Warrants and the
Warrant Stock, and their respective successors, assigns and
heirs.
Section 18. Termination. This Agreement shall
terminate and be of no further force and effect at the close of
business on the Expiration Date or the date on which none of the
Warrants shall be outstanding, except that the provisions of
Section 13(d) shall continue in full force and effect after such
termination.
Section 19. Counterparts. This Agreement may be
executed in one or more separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and
the same instrument.
Section 20. DELAWARE LAW. THIS AGREEMENT AND EACH
WARRANT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
Section 21. Benefits of This Agreement. Nothing in
this Agreement shall be construed to give to any Person other
than XCL and the registered holders of the Warrants and the
Warrant Stock any legal or equitable right, remedy or claim under
this Agreement.
Section 22. Availability of Information. XCL shall
comply with all applicable public information reporting
requirements to which it may be subject from time to time,
including, without limitation, Rule 144 under the Securities Act
as it relates to the availability of an exemption from the
Securities Act for the sale of restricted securities. The
Company also shall cooperate with each Warrantholder and with
each holder of any Warrant Stock in supplying such information as
may be necessary for any such holder to compete and file any
information reporting forms presently or hereafter required by
the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of restricted securities.
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.
/s/David A. Melman
-----------------------------
By: David A. Melman
Title: Executive Vice President
------------------------------
[Signature of Warrant Owner if
individual]
-------------------------------
[Signature of Warrant Owners if
Joint Tenant,
Tenant in Common or Tenant by the
Entirety]
Energy Associates Inc.
---------------------------------
[Print Name of Corporation,
Partnership, Trust or Other Entity
/s/ Michael P. McInerney
----------------------------------
[Signature of Authorized Signatory
signing on behalf of the
Corporation, Partnership, Trust or
Other Entity]
Michael P. McInerney
---------------------------------
[Print Name of Signatory]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OR BLUE SKY LAWS OF ANY OTHER
DOMESTIC OR FOREIGN JURISDICTION. SUCH SECURITIES MAY NOT
BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED EXCEPT
IN COMPLIANCE WITH SUCH LAWS AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER. SUCH SECURITIES ARE ALSO SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN THE WARRANT
AGREEMENT, DATED AS OF JANUARY 31, 1995, BETWEEN THE ISSUER
AND THE INITIAL HOLDER OF THE WARRANTS NAMED THEREIN. A
COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE
SECRETARY OF THE ISSUER AND THE HOLDER OF THE SECURITIES
AGREES TO BE BOUND THEREBY.
EXERCISABLE ONLY IN ACCORDANCE WITH WARRANT AGREEMENT
No. EAI-1 100,000 Warrants
WARRANT CERTIFICATE
XCL LTD.
This Warrant Certificate certifies that, for value
received, Energy Advisors, Inc., is the registered holder of
100,000 Warrants (the "Warrants") to purchase 100,000 shares of
common stock, par value $.01 per share ("Common Stock") of XCL
Ltd. ("XCL"). Each Warrant entitles the holder, subject to the
conditions set forth herein and in the Warrant Agreement dated
as of January 31, 1995, between XCL and the other parties thereto (the
"Warrant Agreement"), to purchase from XCL on or before 5:00
p.m., local time at the Warrant Office, on the Expiration Date
(as such term is defined in the Warrant Agreement) one fully paid
and nonassessable share of Common Stock of XCL (the "Warrant
Stock") at a price (the "Exercise Price") of $.75 per share of
Warrant Stock payable by certified or official bank check payable
to the order of XCL in lawful money of the United States of
America, upon surrender of this Warrant Certificate, with the
Form of Election to Purchase annexed hereto and payment of the
Exercise Price at the office of XCL at 110 Rue Jean Lafitte,
Lafayette, Louisiana 70508 or such other address as XCL may
specify upon five business days' prior notice in writing to the
registered holder of the Warrant evidenced hereby (the "Warrant
Office"). The Exercise Price is subject to adjustment prior to
the Expiration Date upon the occurrence of certain events as set
forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 P.M., local time at
the Warrant Office, on the Expiration Date and all rights of the
registered holders of the Warrants shall cease after 5:00 P.M.,
local time at the Warrant Office, on the Expiration Date.
The Company may deem and treat the registered holders of the
Warrants evidenced hereby as the absolute owner thereof
(notwithstanding any notation of ownership or other writing
hereon made by anyone), for the purpose of any exercise hereof or
any distribution to the holders hereof, and for all other
purposes, and XCL shall not be affected by any notice to the
contrary.
This Warrant Certificate, when surrendered at the Warrant
Office may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate of
like tenor, or for other Warrant Certificates, evidencing an
equivalent number of Warrants.
Subject to the provisions of Section 13 of the Warrant
Agreement, upon surrender of this Warrant Certificate at the
Warrant Office, one or more new duly executed Warrant
Certificates evidencing such transferred Warrants shall be issued
to the transferee(s) and, if less than all the Warrants evidenced
hereby are to be transferred, one or more new duly executed
Warrant Certificates evidencing, in the aggregate, the remaining
number of Warrants shall be issued to the registered holder
hereof, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
This Warrant Certificate is the Warrant Certificates
referred to in the Warrant Agreement. Such Warrant Agreement is
hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities
thereunder of XCL and the holders, and in the event of any
conflict between the terms of this Warrant Certificate and the
provisions of the Warrant Agreement, the provisions of the
Warrant Agreement shall control. XCL has certain obligations to
register the Warrant Stock at the time and subject to the terms
and conditions set forth in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed
in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, XCL has caused this Warrant Certificate
to be signed by its duly authorized officers and has caused its
corporate seal to be affixed hereunto.
XCL LTD.
/s/ David A. Melman
-------------------------------
By: David A. Melman
Title: Executive Vice President
(CORPORATE SEAL)
ATTEST:
/s/ Lisha C. Falk
- -----------------------
Assistant Secretary
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (herein called this
"Amendment") is made as of the 13th day of April, 1995, by and
among XCL-Texas, Inc., a Texas corporation ("Borrower"), The
Exploration Company of Louisiana, Inc., a Delaware corporation
("Parent"), Internationale Nederlanden (U.S.) Capital
Corporation, a Delaware corporation, as Agent ("Agent") , and
lenders as such term is defined in the Original Agreement
("Lenders"),
W I T N E S S E T H:
WHEREAS, Borrower, Parent, Agent and Lenders have entered
into that certain Credit Agreement dated as of January 31, 1994)
(the "Original Agreement") for the purposes and consideration
therein expressed, whereby Lenders became obligated to make loans
to Borrower as therein provided; and
WHEREAS, Borrower, Parent, Agent and Lenders desire to amend
the Original Agreement as expressly set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the
Original Agreement and in consideration of the loans which may
hereafter be made by Lenders to Borrower, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as
follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement.
Unless the context otherwise requires or unless otherwise
expressly defined herein, the terms defined in the Original
Agreement shall have the same meanings whenever used in this
Amendment.
Section 1.2. Other Defined Terms. Unless the context
otherwise requires, the following terms when used in this
Amendment shall have the meanings assigned to them in this
Section 1.2.
"Amendment" shall mean this First Amendment to Credit
Agreement.
"Credit Agreement" shall mean the Original Agreement as
amended hereby.
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Defined Terms. The definition of "Commitment
Period" in Section 1.1 of the Original Agreement is hereby
amended in its entirety to read as follows:
"Commitment Period" means the period from and including
the date of this Amendment until and including December 31,
1995 (or, if earlier, the day on which the Notes first
become due and payable in full).
Section 2.2. Amendment to Section 2.8. Section 2.8 of the
Original Agreement is hereby amended in its entirety to read as
follows:
Section 2.8. Regular Payments. Beginning January 1,
1996 and on the first day of each Fiscal Quarter thereafter,
Borrower will, in addition to paying any interest then due
on the Loans, make a mandatory payment of principal on the
Loans in accordance with the following schedule:
Payment Dates Aggregate Quarterly Payments
---------------- ----------------------------
January 1, 1996 $2,000,000
April 1, 1996 $1,625,000
July 1, 1996 $1,625,000
October 1, 1996 $1,625,000
January 1, 1997 $1,625,000
April 1, 1997 $1,625,000
July 1, 1997 $1,625,000
October 1, 1997 $1,625,000
January 1, 1998 $1,625,000
April 1, 1998 $1,625,000
July 1, 1998 $1,625,000
October 1, 1998 $1,625,000
January 1, 1999 $1,625,000
April 1, 1999 $1,125,000
July 1, 1999 $1,125,000
October 1, 1999 $1,125,000
January 1, 2000 full remaining balance
Section 2.3. Borrowing Base. During the period from the
date of this Amendment to the next Determination Date the
Borrowing Base shall be $25,200,000.
Section 2.4. Engineering Reports. Section 5.1(b)(v) of the
Original Agreement is hereby modified to provide that the
engineering report to be prepared by Netherland, Sewell &
Associates, Inc. as of December 31, 1994 and to be delivered by
March 31, 1995, shall instead be prepared as of June 30, 1995 and
delivered by September 30, 1995. Section 5.1(b)(vi) of the
Original Agreement is hereby modified to provide that the
engineering report to be prepared by Borrower's in-house
engineering staff as of June 30, 1995 and to be delivered by
September 30, 1995, shall instead be prepared as of December 31,
1994 and delivered by April 12, 1995. Lender hereby acknowledges
that it has received such engineering report by Borrower's in-
house engineering staff in a form acceptable to bender. Except
as expressly provided above with respect to engineering reports
to be delivered in 1995, Section 5.1 of the Original Agreement
remains in full force and effect.
Section 2.5. Drilling and Recompletions. The first
sentence of Section 5.1(q) of the Original Agreement is hereby
amended to read as follows:
Borrower will spend at least $7,000,000 after the date
hereof, and before March 31, 1995, to drill, complete or
recomplete or workover oil or gas wells in the Cox Field or
the Mestene Grande Field which constitute Collateral.
Section 2.6. Additional Permitted Investment.
Notwithstanding the restrictions on investments set out in
Section 5.2(g) of the Original Agreement, the Related Persons may
collectively invest up to $600,000 in a lubrication oil refining
facility for production from the Danang Field, Bohai Bay, China.
This investment may be in any form, including the purchase of an
interest in the facility or of shares, joint venture interests,
or other equity interests in a Chinese entity which will own the
facility.
Section 2.7. Current Ratio. The first sentence of Section
5.2(1) of the Original Agreement is hereby amended to read as
follows:
The ratio of Parent's Consolidated current assets to
Parent's Consolidated current liabilities:
(i) will never be less than 1.0 to 1.0 during the
period from the date hereof to and including December
31, 1994;
(ii) may be at any ratio during the period from
and including January 1, 1995 to and including
September 29, 1995; and
(iii) will never be less than 1.0 to 1.0 during
the period from and after September 30, 1995.
Section 2.8. Tangible Net Worth. The first sentence of
Section 5.2(m) of the Original Agreement is hereby amended to
read as follows:
Parent's Consolidated Tangible Net Worth will never be less
than:
(i) $80,000,000 at December 31, 1993;
(ii) $90,000,000 during the period from and
including February 15, 1994 to and including December
31, 1994; and
(iii) $80,000,000 during the period from and
after January 1, 1995.
Section 2.9. Cash Flow Coverage. The first sentence of
Section 5.2(o) of the Original Agreement is hereby amended to
read as follows:
Parent's Consolidated Cash Flow Coverage Ratio:
(i) will never be less than 1.15 to 1.0 for any
period of four consecutive Fiscal Quarters ending on
March 31, 1994, June 30, 1994, September 30, 1994 or
December 31, 1994;
(ii) may be at any ratio for any period of four
consecutive Fiscal Quarters ending on March 31, 1995 or
June 30, 1995; and
(iii) will never be less than 1.15 to 1.0 for any
period of four consecutive Fiscal Quarters ending on
September 30, 1995 or on any date thereafter.
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become
effective as of the date first above written when, and only when,
Agent shall have received, at Agent's office in New York, New
York:
(a) a counterpart of this Amendment executed and
delivered by Borrower, Parent and each Lender, with each
Consent and Agreement attached hereto similarly executed and
delivered by the Related Person named therein,
(b) payment to Agent of a $50,000 amendment fee,
and
(c) an Officer's Certificate of even date herewith,
in the form of Exhibit A hereto, duly authorized, executed
and delivered by an officer of each of Borrower and Parent.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower and
Parent. In order to induce Agent and Lenders to enter into this
Amendment, each of Borrower and Parent represents and warrants to
Agent and Lenders that:
(a) The representations and warranties contained in
Section 4.1 of the Original Agreement are true and correct
at and as of the time of the effectiveness hereof.
(b) Borrower and Parent are duly authorized to
execute and deliver this Amendment and each Related Person
is duly authorized to perform its obligations under the
Credit Agreement. Borrower is and will continue to be duly
authorized to borrow monies under the Credit Agreement and
each Related Person has duly taken all corporate action
necessary to authorize the execution and delivery of this
Amendment and to authorize the performance of the
obligations of each Related Person hereunder.
(c) The execution and delivery by Borrower and
Parent of this Amendment, the performance by each Related
Person of its obligations hereunder and the consummation of
the transactions contemplated hereby do not and will not
conflict with any provision of law, statute, rule or
regulation or of the articles or certificate of
incorporation and bylaws of any Related Person, or of any
material agreement, judgment, license, order or permit
applicable to or binding upon any Related Person, or result
in the creation of any lien, charge or encumbrance upon any
assets or properties of any Related Person. Except for
those which have been obtained, no consent, approval,
authorization or order of any court or governmental
authority or third party is required in connection with the
execution and delivery by Borrower and Parent of this
Amendment or to consummate the transactions contemplated
hereby.
(d) When duly executed and delivered, each of this
Amendment and the Credit Agreement will be a legal and
binding obligation of each of Borrower and Parent,
enforceable in accordance with its terms, except as limited
by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights
and by equitable principles of general application.
ARTICLE V.
Miscellaneous
Section 5.1. Ratification of Agreements, The Original
Agreement as hereby amended is hereby ratified and confirmed in
all respects. Any reference to the Credit Agreement in any Loan
Document shall be deemed to be a reference to the Original
Agreement as hereby amended. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or
remedy of Agent or Lenders under the Credit Agreement, the Notes,
or any other Loan Document nor constitute a waiver of any
provision of the Credit Agreement, the Notes or any other Loan
Document. Each of Borrower and Parent hereby ratifies and
confirms each Loan Document which it has previously delivered,
including without limitation the Security Documents listed on
Schedule 3 to the Original Agreement.
Section 5.2. Survival of Agreements. All representations,
warranties, covenants and agreements of Borrower and Parent
herein shall survive the execution and delivery of this Amendment
and the performance hereof, including without limitation the
making or granting of the Loans, and shall further survive until
all of the Obligations are paid in full. All statements and
agreements contained in any certificate or instrument delivered
by Borrower or any Related Person hereunder or under the Credit
Agreement to Agent or any bender shall be deemed to constitute
representations and warranties by, and/or agreements and
covenants of, each of Borrower and Parent under this Amendment
and under the Credit Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan
Document, and all provisions in the Credit Agreement pertaining
to Loan Documents apply hereto.
Section 5.4. Governing Law. This Amendment shall be
governed by and construed in accordance the laws of the State of
New York and any applicable laws of the United States of America
in all respects, including construction, validity and
performance.
Section 5.5. Counterparts. This Amendment may be
separately executed in counterparts and by the different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to constitute one and the same Amendment.
IN WITNESS WHEREOF, this Amendment is executed as of the
date first above written.
XCL-TEXAS, INC.
/s/ David A. Melman
By:__________________________
Name: David A. Melman
Title: Vice President
XCL LTD.
/s/ Pam Shanks
By:___________________________
Name: Pamela G. Shanks
Title: Chief Financial Officer
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION,
Agent and Lender
/s/ Trond O. Rokholt
By:____________________________
Name: Trond 0. Rokholt
Title: Vice President
AGREEMENT
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 basis of equality and mutual benefit,
have extended further discussions on the basis of the Letter of
Intent between them; dated July 25, 1994, and through friendly
consultation, have agreed to set up a joint venture between them
as follows:
1. The Joint Venture will be for the manufacture and
sale of lubricating oil and correlative products and research and
development of new products. Emphasis will be on high quality
products, and state of the art technology and management,
including the implementation of ISO 9000 standards.
2. The Joint Venture shall (a) have its Headquarters
registered in the Tianjin Economic Zone that provides the
greatest benefits to the Joint Venture and the factory site to be
located in the Nanjiang Petro Chemical Harbor, Tianjin Harbor,
People's Republic of China; (b) design, construct and operate a
lube oil plant that shall have a total capacity of 100,000 MT/yr.
with the design capacity of 40,000 MT/yr; (c) develop a market
and sell lube oil and correlative products; and (d) agree to
expand cooperation in the People's Republic of China as may be
mutually beneficial.
3. The Joint Venture will be a limited liability
company. The parties will share the profit, loss, and risk based
on the investment percentage in the registered capital. The
parties will be paid their share of profits annually.
4. Side A has provided a preliminary feasibility study
for the lube oil plant. The parties shall mutually work to
develop a final feasibility study. To that end, Side A has
engaged CNPC Planning and Designing Institution to finish that
study. Without the consent of Side B the total cost of the
feasibility study shall not exceed 200,000 yuan RMB. After the
Joint Venture is formed this expense shall be borne by the
parties in accordance with their original percentage of
investment, or, if the Joint Venture is not formed, this expense
shall be borne by Side A. Side B will have the right to audit
the feasibility study and will immediately engage an engineering
firm to advise the Joint Venture on the plans and engineering for
the lube oil plant; this expense at any event shall not be
charged to the joint account of the Joint Venture. The parties
may amend the feasibility study to perfect the final
version of the report.
5. Both sides will start immediately to market
naphthenic based products on overseas markets, after the
agreement has been signed. Side A will provide guarantees of the
quantity and quality of the naphthenic based products and
reasonable international market price for the naphthenic based
products. Side B will provide the specifications for the
products being exported with a goal to gradually reach exports of
20,000 to 25,000 MT/YR.
6. The Joint Venture will use its own brand name to
begin to market its products. The Joint Venture will engage
internationally recognized firms to test and certify the quality
of the products manufactured and marketed by the Joint Venture.
If the parties mutually agree that it would be proper to obtain a
reputable company to provide supervision of the products
manufactured by the Joint Venture in the future, Side B shall
engage a company to do so on terms that are mutually agreeable to
the parties.
7. The Joint Venture will be an legal entity organized
under the laws of China. All agreements will be negotiated and
drafted in both Chinese and English, and both versions shall
govern. The total investment of the Joint Venture will be
approximately $12,000,000 U.S. The registered capital shall be
40% of the total investment. Side A shall contribute 51% of the
registered capital (which may be made in yuan RMB at the exchange
rate announced by the China Currency Management Bureau at the day
of payment); Side B shall contribute 49% at the registered
capital. The remaining capital (60% of the total investment)
will be borrowed by the Joint Venture. Side B shall locate the
necessary borrowed capital for the Joint Venture. Both sides
agree to sign the loan agreement and to jointly meet the
requirements of the financing terms.
8. The parties agree that in the event Side A has
difficulty raising its share of the funds for this project as
described in paragraph 7 in a timely fashion, upon the written
request of Side A, Side B will use its best efforts to obtain a
loan to Side A for the needed capital. The parties will use
their best efforts to meet the terms of the financing.
9 The Joint Venture shall be governed by a Board of
Directors, with an equal number of directors appointed by each
side. The director of the board will be designated by Side A,
the deputy director will be designated by Side B.
10. Under the supervision of the Board of Directors, a
person who shall be President of the Joint Venture shall be
recommended by Side A; a person who shall be Vice President shall
be recommended by Side B.
11. The parties will cooperate in the purchase of all
raw materials and equipment for the construction of the plant,
which shall in all cases conform to international standards.
Side A shall be responsible for obtaining the necessary approvals
and procedure for the project, including contact with SAEC to
obtain the preferential treatment which is available for the
Joint Venture, in order to facilitate the investment to the Joint
Venture by parties, and the arrangements of foreign currency due
to Side B under this agreement. Specifically, access to foreign
exchange markets must be available to allow foreign loans to be
repaid in foreign currency and Side B's share of profits to be
paid in foreign currency.
12. Prior to the formation of the Joint Venture, Side A
shall assist in obtaining at least a 30 year land using right on
the plant site for the Joint Venture. If the parties think it is
necessary to extend the period of the land using right then the
Joint Venture can give the request to the land administration
office. Side B agrees to loan $600,000 US to Side A to be used
to make partial payments necessary for Side A to retain the
rights to the site for the lube oil plant. This loan will be
made on the written request of Side A after this agreement is
signed by the parties hereto. The parties will sign a loan
agreement with interest free attached, and the repayment of the
loan to Side B shall be guaranteed by the China National
Petroleum Trading Corp. by a separate guarantee agreement. This
loan will be repaid to Side B if the parties fail to enter into
the Joint Venture agreement. Side A agrees that it will not
negotiate with any other party concerning the establishment of a
lube oil Joint Venture unless it has refunded the $600,000 US to
Side B. If the parties reach the Joint Venture agreement, Side A
will repay the loan to Side B as part of Side B's registered
capital. In the meantime, the investment incurred by Side A to
obtain the land using right, shall be borne by the Joint Venture.
If Side A notifies Side B that additional funds are needed to pay
for land costs on the plant site for the Joint Venture prior to
the formation of the Joint Venture, Side B will use its best
efforts to obtain such funds and the parties will negotiate
appropriate agreements on these funds.
13. The parties agree Side B will invest approximately
$1,000,000 US to conduct the technical retexture work of the
current blending plant facility which belong to Side A in
LangFang Hebei Provience. Prior to the investment from Side B,
the parties shall jointly conduct the asset reevaluation of the
plant belonging to Side A. The share distribution after the
investment from Side B will be based on the result of the asset
reevaluation of the LangFang plant of Side A and to be finally
determined by the parties. The parties will utilize the facility
after the retexture work to conduct the production and operation
of the presale activity, to further assure the early realization
of profit for the capital investment to the Tianjin Joint Venture
plant. The construction time table of the Tianjin plant will be
determined by the result of the presale activity and to be
finally decided by the parties.
14. The parties agree to enter into a formal Joint
Venture contract that incorporates the provisions of this
agreement, as well as such other terms and conditions that the
parties mutually agree are not inconsistent with this agreement.
The final Joint Venture Contract should be prepared and executed
by the parties no later than 90 days after the feasibility study
has been accepted by the parties.
15. After this agreement has been approved by the
necessary authorities for Side A and the Board of Directors of
Side B, the parties shall establish an implementation committee
to ensure completion of the final feasibility study, discuss the
Joint Venture agreement and the charter to organize the sales and
marketing activity for the lubricating oil for the domestic and
International market, and obtain final approval of the Joint
Venture agreement.
16. Those expenses incurred during the approval
procedure, such as the industry and commerce registration
recording fee, the capital inspection fee, and other related
expenses which were agreed upon by the Joint Venture, shall be
borne by the Joint Venture. All other expenses incurred for
the purpose of implementation of Item 15 of this agreement by
the implementation committee shall be borne by the party that
incurred the expense; at any event, these expenses shall not
charge to the joint account in the Joint Venture. If the Joint
Venture is not formed, the expenses designated as expenses to be
borne by the Joint Venture shall be borne by the parties in
accordance to their original percentage of investment.
17. 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.
18. The operation term of the Joint Venture shall be
tentatively set for 30 years. It can be extended to further
periods as mutually agreeable to the parties.
19. The validity, interpretation, and implementation of
the agreement shall be governed by the laws of the People's
Republic of China.
20. 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.
Any dispute that has not been settled through such consultation,
shall be referred to arbitration conducted by the China
International Economic and Trade Arbitration Commission (CIETAC)
in accordance with the provisional arbitration proceeding
rules thereof. Any award of arbitration shall be final and
binding upon the parties.
This agreement is signed by the representative of Side A
Mr. Ge Tinggen in Beijing and of Side B Mr. Marsden W. Miller,
Jr. in Beijing.
CNPC United Lube Oil Corporation XCL LTD
/s/ Ge Tinggen /s/ Marsden W. Miller, Jr.
BY:________________________ BY:__________________________
GE TINGGEN MARSDEN W. MILLER, JR.
Date: January 14, 1995 Date: January 14, 1995
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement") is
executed this 10th day of May, 1995 by and between the parties
listed below:
XCL LAND, LTD., which is a corporation
formed under the laws of the State of
Delaware and whose mailing address is 110 Rue
Jean Lafitte, Lafayette, Louisiana, 70508,
herein represented by its duly elected
Executive Vice President, Secretary and
General Counsel David A. Melman ("Seller");
and
THE SUCCESSION OF EDWARD M. CARMOUCHE, a
succession that has opened a probate
proceeding in Calcasieu Parish, Louisiana,
under Docket No. 28141, MATILDA GRAY STREAM,
HAROLD H. STREAM, III, THE OPAL GRAY TRUST,
a trust formed under the laws of Louisiana,
which Trust Agreement is dated October 1,
1973 and recorded in the public records of
St. John the Baptist Parish, Louisiana on
June 20, 1990, in Conveyance Book 266 at
Folio 415 under Entry No. 132288, Ascension
Parish, Entry No. 280205, and St. James
Parish, Louisiana on June 14, 1990, in
Conveyance Book 305 under Entry No. 80679,
herein represented by Harold Newton and
Bruce N. Kirkpatrick, its trustees, acting
with full authority of the trust, MATILDA
GEDDINGS GRAY TRUST FOR HAROLD H. STREAM,
III, a trust formed under Louisiana law,
herein represented by Harold Newton and Bruce
N. Kirkpatrick, its trustees, MATILDA
GEDDINGS GRAY TRUST FOR WILLIAM GRAY STREAM,
a trust formed under Louisiana law, herein
represented by Harold Newton and Bruce N.
Kirkpatrick, its trustees, MATILDA GEDDINGS
GRAY TRUST FOR SANDRA GRAY STREAM, a trust
formed under Louisiana law, herein
represented by Harold Newton and Bruce N.
Kirkpatrick, its trustees, M. G. STREAM TRUST
FOR HAROLD H. STREAM, III, a trust formed
under Louisiana law, herein represented by
Harold Newton and Bruce N. Kirkpatrick, its
trustees, M. G. STREAM TRUST FOR WILLIAM GRAY
STREAM, a trust formed under Louisiana law,
herein represented by Harold Newton and Bruce
N. Kirkpatrick, its trustees, M. G. STREAM
TRUST FOR SANDRA GRAY STREAM, a trust formed
under Louisiana law, herein represented by
Harold Newton and Bruce N. Kirkpatrick, its
trustees, (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 shall be referred to
collectively as the "Stream Group", and
together with Seller, a "Party" or the
"Parties");
RECITALS
WHEREAS, the Stream Group desires to purchase and Seller
desires to sell the fee lands and related rights on the terms and
conditions provided in this Agreement;
NOW, THEREFORE, in mutual consideration of the covenants
agreed to herein, the Parties hereby agree as follows:
1. Sale. Subject to terms of this Agreement, the Stream
Group shall purchase and pay for in the proportions set forth in
that certain Assignment and Sale (the "Assignment") which
Assignment is attached hereto as Exhibit 1), and the Seller shall
sell all of its undivided 7/9ths interest in and to the property
described on Exhibit A to the Assignment. (The property described
on Exhibit A to the Assignment shall hereinafter been referred to
as the "Phoenix Lake Tract.") The Closing (as hereinafter
defined) on the sale of the Phoenix Lake Tract shall occur within
thirty-five days of the execution date of this Agreement (the
"Closing Date") unless extended by mutual consent of the parties.
Seller specifically reserves for itself and excepts from the sale
hereunder the immovable property described on page 3 of Exhibit A
to the Assignment under the heading "LESS AND EXCEPT" (the
"Excepted Property").
2. Consideration For Sale of Phoenix Lake Tract. The
Stream Group shall pay to Seller as consideration for the sale of
the Phoenix Lake Tract the sum of $2,275,000 (the "Purchase
Price") to be paid in immediately available funds at Closing.
The Purchase Price is based upon a price of $250.00 per acre for
a 7/9ths interest in 11,700 acres constituting the Phoenix Lake
Tract. In the event that Seller's undivided interest in and to
any portion of the Phoenix Lake Tract is other than that stated,
or in the event that the total acreage of the Phoenix Lake Tract
is more or less than 11,700 acres, the Seller and the Stream
Group agree to adjust the price accordingly, provided that the
Parties mutually agree to any and all adjustments to Seller's
undivided interest and to the total acreage of the Phoenix Lake
Tract. In the event that the Parties do not agree to any
proposed adjustments to Seller's undivided interest or to the
total acreage of the Phoenix Lake Tract, then this Agreement
shall terminate, and notwithstanding anything contained herein to
the contrary neither Party shall be liable to the other for any
damages whatsoever on account of the termination of this
Agreement.
3. Title Matters.
1. Warranty. The sale of the Phoenix Lake Tract shall be
with a covenant of special warranty by, through and under Seller
and no further, but with full substitution and subrogation in and
to all rights of warranty that Seller may have against all
previous owners or vendors except that the existence of any of
the following items shall be excluded from the warranty (the
"Permitted Exceptions"):
(a) All water bottoms, riparian rights, filled-in
channels and batture.
(b) All canals located within the Phoenix Lake Tract
and the rights, if any, of third parties to use such canals.
(c) All rights of way, easements, predial servitudes,
personal servitudes and rights of use that affect the Phoenix
Lake Tract including, without limitation, that certain Pipeline
Right-of-Way Agreement by and between Shell Western E & P, Inc.
as lessee and L. Texas Petroleum as lessor dated October 26, 1990
and that certain Pipeline Right-of-Way and Valve Site Agreement
by and between Enron Products Pipeline, Inc. as lessee and L.
Texas Petroleum as lessor dated November 30, 1990.
(d) All Hunting, Trapping, Fishing and Grazing Surface
Lease Agreements, Waterfowl and Deer Hunting Leases and Surface
Leases granted by Seller or any predecessor in title with respect
to the Phoenix Lake Tract prior to April 1, 1995 (the "Hunting
Leases") and the material contracts listed on Exhibits 16.11,
16.12 and 16.13.
(e) That certain oil, gas and mineral lease entered
into by and between Seller, as lessor, and Phoenix Lake
Corporation, as lessee, dated October 20, 1994, recorded in the
public records of Calcasieu Parish, Louisiana, in conveyance book
2444, at page 459 under entry number 2229269.
(f) The U.S.D.A. Water Bank Program Easement Contract
No. CAL-WBP #12 dated August 12, 1992.
(g) All rights or claims arising due to parties in
possession of all or part of the Phoenix Lake Tract and not shown
by the public records.
(h) Encroachments, overlaps, boundary line disputes or
the matters which would be disclosed by an accurate survey and
inspection of the Phoenix Lake Tract.
(i) The ability to gain ingress to and egress from the
Phoenix Lake Tract or any portion thereof.
Except as otherwise set forth hereinabove, the Phoenix Lake Tract
shall be sold without any warranty whatsoever.
Seller agrees to convey all of its interest in the Permitted
Exceptions and the material contracts listed on Exhibits 16.11,
16.12 and 16.13, LESS AND EXCEPT the Excepted Property, to the
Stream Group and to prorate any annual payments due to Seller for
calendar year 1995 as consideration for the exercise of rights
granted under the Permitted Exceptions beyond the Closing Date.
Notwithstanding the foregoing, Buyer shall not be entitled to any
portion of the consideration for the exercise of rights granted
under the Permitted Exceptions if such consideration was paid in
a lump sum to cover the entire period of use (in contrast, for
example, to annual rental payments).
2. Title Defects. A title defect ("Title Defect") shall
exist if any one or more of the following statements is true:
(a) Seller does not own the Phoenix Lake Tract;
(b) At Closing, the Phoenix Lake Tract is not free of
all liens, pledges, mortgages, security interests and other
burdens;
(c) There exists a condition or circumstance in
connection with the Phoenix Lake Tract that is not in material
compliance with any law, regulation, order, or judgment of or
agreement with any federal, state or local agency or court
relating to the environment or that, such law, regulation, order,
judgment or agreement requires the owner or operator of the
Phoenix Lake Tract to undertake any cleanup, remediation or other
expense with respect to any portion of the Phoenix Lake Tract (an
"Environmental Defect");
(d) The title of Seller, or the title of Seller's
predecessors, is in any instance not evidenced by instruments
filed of record in accordance with the conveyancing and recording
laws of applicable jurisdictions or is not sufficient against
competing claims of bona fide purchasers for value without notice
or other persons entitled to the protection of applicable
recording laws, or is not held by a third party whose record
title is so perfected and who recognized Seller's claim of
ownership; or
(e) The interest of Seller in any of the Phoenix Lake
Tract is subject to a preferential right to purchase that has not
been waived or a consent to assignment necessary in the Stream
Group's sole judgment to convey merchantable title that has not
been obtained;
(f) The title of Seller is not sufficient to entitle
Seller to all of its 7/9ths interest in the Phoenix Lake Tract;
(g) The Phoenix Lake Tract is subject to contracts,
agreements or commitments, other than material contracts listed
on Exhibits 16.11, 16.12 and 16.13, which have a material adverse
affect on the value of the Phoenix Lake Tract; or
(h) There exists any pending or threatened action,
suit, claim or proceeding that would affect a material portion of
the Phoenix Lake Tract.
3. Material Title Defect. A material title defect is
any Title Defect that is not a Permitted Exception (a "Material
Title Defect") (except that instruments of record not
specifically identified on one of Exhibits 16.11, 16.12 or 16.13
shall be excluded from the definition of Permitted Exceptions for
the sole purpose of defining a Material Title Defect).
4. Notice of Material Title Defect. The Stream Group
shall notify Seller in writing, as soon as reasonably practical
after the Stream Group has knowledge thereof and in any event no
later than the Closing Date, of any Material Title Defect
discovered by the Stream Group. The notice shall describe the
exact nature of any such defect. Any Material Title Defect not
raised by the Stream Group on or before the Closing Date and any
Title Defect that is not a Material Title Defect shall be deemed
to be waived by the Stream Group.
5. Remedies for Material Title Defect. Seller shall have
the right, but not the obligation, to attempt to cure through the
Closing Date any Material Title Defect to which the Stream Group
has made timely objection. With respect to any Material Title
Defect that Seller fails to cure prior to Closing, the Purchase
Price may be reduced by (a) $250 per net acre if a Material Title
Defect is a complete failure in title with respect to any portion
of the Phoenix Lake Tract or (b) an amount agreed to by the
Parties if a Material Title Defect is something other than a
complete failure in title. If the Parties are not able to agree
to the appropriate adjustment to the Purchase Price, then this
Agreement shall terminate, and notwithstanding anything contained
herein to the contrary, neither Party shall be liable to the
other for any damages whatsoever on account of the termination of
this Agreement. Notwithstanding the foregoing, the Stream Group
may, in its sole discretion, waive any Material Title Defect at
any time prior to or at Closing, in which case Seller shall be
obligated to close the transactions contemplated herein, provided
that each of the conditions to Seller's closing contained in
Section 9 have been satisfied or waived by Seller.
6. Seller agrees to furnish the Stream Group with an
Owner's Title Insurance Policy issued in the amount of the
purchase price through a title insurance company and agent
selected by the Stream Group subject only to permitted
encumbrances and the exceptions hereinafter set forth. Seller
agrees to pay for one-half of the cost, up to a maximum of
$12,500, of obtaining title insurance and examination of title,
which fees may be deducted from the sales proceeds at Closing.
The following exceptions shall be permitted in the title
policy:
(a) Ownership of all water bottoms, riparian rights,
filled-in lands and batture;
(b) Any easements, measurements variations in area or
content, boundary line disputes, overlays, walls, or other facts
which would be disclosed by an accurate survey and inspection of
the Phoenix Lake Tract;
(c) Predial servitudes, personal servitudes and rights
of use;
(d) Any inchoate liens for ad valorem taxes that have
accrued in 1995;
(e) Any hunting or trapping leases expiring within one
year of the Closing;
(f) Any lien, or right to lien, for services, labor or
materials furnished, imposed by law and not shown on the public
records;
(g) Any rights, easements or claims of parties in
possession not shown by the public records;
(h) The ownership of any canals located within the
Phoenix Lake Tract and the rights, if any, of third parties to
use such canals; and
(i) Any claim or attack on title brought in connection
with a federal bankruptcy proceeding or any similar law
insolvency or creditor's rights proceeding based on the ground
that the transfer of any part of the Phoenix Lake Tract to the
Stream Group was a fraudulent conveyance.
4. Representations of Seller. As a principal cause and
material inducement to the Stream Group's execution of this
Agreement and to the Stream Group's consummation of the
transactions contemplated hereby, and with the acknowledgment by
Seller of the Stream Group's reliance hereon, Seller represents
to the Stream Group that as of the date hereof and as of the
Closing Date:
1. Existence. Seller is a corporation duly organized
and validly existing under the laws of the State of Delaware.
2. Power. Seller has the requisite power to enter into
and perform this Agreement and the transactions contemplated
hereby. The execution, delivery and performance of this
Agreement by Seller, and the transactions contemplated hereby,
will not violate (i) any provision of the bylaws or articles of
incorporation of Seller, (ii) any material agreement or
instrument to which Seller is a party or by which Seller is
bound, (iii) any judgment, order, ruling, or decree applicable to
Seller as a party in interest, or (iv) any law, rule or
regulation applicable to Seller.
3. Authorization. The execution, delivery and
performance of this Agreement and the transactions contemplated
hereby will be duly and validly authorized by all requisite
action on the part of Seller at Closing. This Agreement has been
duly executed and delivered on behalf of Seller, and at the
Closing all documents and instruments required hereunder to be
executed and delivered by Seller shall have been duly executed
and delivered. This Agreement does, and such documents and
instruments shall, constitute legal, valid and binding
obligations of Seller enforceable in accordance with their terms,
subject, however, to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in
effect relating to the rights and remedies of creditors.
4. Material Contracts. Each material contract,
agreement or commitment to which the Phoenix Lake Tract is
subject is listed on Exhibits 16.11, 16.12 and 16.13 attached to
this Agreement. Seller represents that it is in full compliance
with each material contract and with all permitted encumbrances
to which it is a party, that such contracts are not in default,
and Seller has not collected the consideration owed under any
such material contract in advance of the due date.
5. Environmental Disclosures. To the best of Seller's
knowledge, no Environmental Defects exist on the Phoenix Lake
Tract.
6. No Bankruptcy. There are no bankruptcy,
reorganization or rearrangement proceedings pending, being
contemplated by or to the knowledge of Seller threatened against
Seller, and no condition exists which would constitute or be
deemed to be an act of bankruptcy or insolvency on the part of
Seller.
7. Complete Data. All of the written data furnished by
Seller to the Stream Group in conjunction with the Stream Group's
evaluation of the Phoenix Lake Tract was complete to the best of
Seller's knowledge, and information furnished with respect to the
Phoenix Lake Tract was not materially false to the best of
Seller's opinion, and if any changes have taken place from the
date furnished to the Closing Date, updated information will be
provided to the Stream Group.
8. No Employment Liability. The Stream Group will have
no liability for the employment of any employee of Seller, and
the Stream Group will have no liability for any of Seller's
employee benefit plans, pension plans, thrift or investment
plans, profit sharing or savings plans (including any unfunded
liability under ERISA) or for any of Seller's employment
contracts, salary or bonus obligations or any other employee
related obligations between Seller and any of its officers,
directors, employees, servants, agents or representatives.
9. No Broker's Fees. Seller has not incurred liability,
contingent or otherwise, for broker's or finder's fees related to
the transactions contemplated hereby.
10. No Additional Phoenix Lake Tract Property. No
affiliate of Seller owns any property that, if owned by Seller,
would constitute part of the Phoenix Lake Tract.
5. Representations of the Stream Group. As a principal
cause and material inducement to Seller's execution of this
Agreement and to Seller's consummation of the transactions
contemplated hereby, and with the acknowledgment by the Stream
Group of Seller's reliance hereon, the Stream Group represents
jointly, severally and in solido to Seller that as of the date
hereof and as of the Closing Date:
1. Power. Each party to the Stream Group has all
requisite power, authority, and legal right and all licenses,
permits, qualifications and other documentation necessary or
appropriate to carry on its business as presently conducted, to
enter into this Agreement, and, at Closing will have obtained all
necessary consents, approvals and authorizations, to perform its
obligations hereunder and to consummate the transactions
contemplated hereby.
2. Authorization. The execution, delivery and
performance of this Agreement and the transactions contemplated
hereby will not conflict with or violate any provision of the
charter, articles of partnership, or other governing documents of
any party to the Stream Group and said transactions will be duly
and validly authorized by all requisite actions on the part of
the Stream Group at Closing. This Agreement has been duly
executed and delivered on behalf of the Stream Group, and at the
Closing all documents and instruments required hereunder to be
executed and delivered by the Stream Group shall have been duly
executed and delivered. This Agreement does, and such documents
and instruments shall, constitute legal, valid and binding
obligations of the Stream Group enforceable in accordance with
their terms, subject, however, to the effect of bankruptcy,
insolvency, reorganization, moratorium and similar laws from time
to time in effect relating to the rights and remedies of
creditors.
3. No Bankruptcy. There are no bankruptcy,
reorganization or rearrangement proceedings pending, being
contemplated by or to the knowledge of any member of the Stream
Group threatened against any member of the Stream Group, and no
condition exists which would constitute or be deemed to be an act
of bankruptcy or insolvency on the part of Seller.
4. No Broker's Fees. The Stream Group has not incurred
liability, contingent or otherwise, for broker's or finder's fees
related to the transactions contemplated hereby.
6. In connection with this sale, conveyance, transfer,
assignment, and delivery of the Phoenix Lake Tract to the Stream
Group, it is understood and agreed that the Stream Group shall
not assume or be obligated to pay or satisfy any mortgage
obligation, judgment, redemption right, stock claim, debt,
liability, claim, demand or obligation of Seller or any other
owner arising from any commitment, contract, act or omission
whatsoever of Seller, or for which Seller is vicariously liable,
other than the Permitted Exceptions and the material contracts,
agreements or commitments listed on Exhibits 16.11, 16.12 and
16.13, whether prior to, on, or after the Closing Date.
7. Access to Data, Property and Information.
1. The Stream Group's Access to Information. Seller
shall provide the Stream Group with complete access at all
reasonable times to all (a) land, engineering, mineral record,
lease and other files that relate to the Phoenix Lake Tract; and
(b) geological and geophysical information relating to the
Phoenix Lake Tract. In addition, Seller shall permit the Stream
Group to have physical access to the Phoenix Lake Tract according
to the terms of the Stream Management contract listed on Exhibit
16.12. Seller shall deliver to the Stream Group upon Closing,
all information in its possession with respect to the Phoenix
Lake Tract.
2. Confidentiality. The Stream Group shall cause the
information and data furnished by Seller or by Seller's
representatives to the Stream Group and its employees and
representatives in connection with this Agreement to be
maintained in strict confidence and not to be used for any
purpose other than in connection with this Agreement; provided,
however, that the foregoing obligation shall terminate on the
earlier to occur of (a) the Closing, (b) such time as the
information or data in question is disclosed to the Stream Group
by a third party that is not obligated to Seller to maintain same
in confidence, or (c) such time as the information or data in
question becomes generally available to the oil and gas industry
other than through the breach of the foregoing obligation. The
obligations of the Stream Group under this Section 7.2 shall be
in addition to, and not in lieu of, the Stream Group's
obligations under any confidentiality agreement between Seller
and the Stream Group relating to the Phoenix Lake Tract otherwise
executed by the Stream Group.
3. Seller's Continuing Access to Data. So long as the
Stream Group is the owner of that portion of the Phoenix Lake
Tract for which data may be requested, the Stream Group shall
provide Seller with complete access at all such times that are
necessary in Seller's sole opinion to all land, engineering,
mineral record, lease and other files that relate to the Phoenix
Lake Tract. Seller shall have the right to copy and reproduce
such information. The Stream Group's obligation to allow Seller
such access shall survive the Closing Date (a) with respect to
information pertaining to mineral rights or minerals underlying
the Phoenix Lake Tract, for a period the longer of 10 years or
such time as any claim or litigation relating to the Phoenix Lake
Tract of which Buyer has written notice remains unresolved or (b)
with respect to information not pertaining to mineral rights or
minerals underlying the Phoenix Lake Tract (for example, hunting
leases), for a period the longer of three years or such time as
any claim or litigation relating to the Phoenix Lake Tract of
which Buyer has written notice remains unresolved. The Stream
Group shall provide for such access by and through its assigns as
a condition of its transfer of the Phoenix Lake Tract.
4. Return of Data. The Stream Group agrees that if this
Agreement is terminated for any reason whatsoever, the Stream
Group shall, at Seller's request, promptly return to Seller all
information and data furnished to the Stream Group, its employees
and representatives in connection with this Agreement or the
Stream Group's investigation of the Phoenix Lake Tract, and the
Stream Group agrees not to retain any copies of any such
information or data.
8. Taxes.
1. Apportionment of Ad Valorem and Property Taxes. All
ad valorem taxes, real property taxes, personal property taxes,
and similar obligations ("Property Taxes") relating to the
Phoenix Lake Tract with respect to tax year 1995 shall be
apportioned as of the Closing Date between Seller and the Stream
Group. The Stream Group shall be entitled to a credit against
the Purchase Price for that portion of the Property Taxes that
are apportioned to Seller for the tax year 1995. The Stream
Group shall file or cause to be filed all required reports and
returns incident to the Property Taxes and shall pay or cause to
be paid to the taxing authorities all Property Taxes relating to
tax year 1995.
9. Seller's Obligations Pending Closing.
1. Affirmative Obligations. From and after the effective
date until the Closing, except as otherwise consented to by the
Stream Group in writing, Seller shall:
(a) Own and operate the Phoenix Lake Tract only in the
ordinary course of business, in accordance with its present
method of ownership and operation and pay all costs and expenses
associated therewith, if, as, and when due;
(b) Exercise all reasonable due diligence in
safeguarding and maintaining secure all engineering, geological
and geophysical data, reports and maps, and information in
Seller's possession relating to the Phoenix Lake Tract until
Closing and preserve all such data and information for delivery
to the Stream Group at Closing;
(c) Permit the Stream Group and its representatives to
have reasonable access according to the Stream Management
contract listed on Exhibit 16.12;
(d) Obtain all necessary waivers of preferential
rights to purchase and consents to assignment necessary to convey
the Phoenix Lake Tract to the Stream Group;
(e) Notify the Stream Group of any material change
about which Seller has knowledge or becomes aware in any matter
reflected in any of the data, production records, computer
printouts and other such data, whether similar or dissimilar,
furnished by Seller to the Stream Group in conjunction with the
Stream Group's evaluation of the Phoenix Lake Tract immediately
upon learning or becoming aware of such material change; and
(f) Discharge all liens (except liens for taxes and
assessments not yet delinquent and liens reserved in oil and gas
leases for bonuses or rentals and for compliance with the terms
of the lease), mortgages and encumbrances which are attached to
or otherwise burden any of the Phoenix Lake Tract except for
Permitted Exceptions and those specifically assumed by the Stream
Group and set forth in this Agreement.
2. Negative Obligations. From the date of this Agreement
and until the Closing, except with the written consent of the
Stream Group, Seller shall not:
(a) Enter into any agreement or arrangement granting
any right to purchase any of the Phoenix Lake Tract or requiring
the consent of any person to the transfer and assignment of any
of the Phoenix Lake Tract hereunder, except in connection with
the performance by Seller of an obligation or agreement existing
on the date hereof;
(b) Enter into any new agreements or commitments with
respect to the Phoenix Lake Tract, other than gas sales contracts
with an expiration of thirty days or less and hunting and
trapping leases expiring within one year of the Closing Date that
do not interfere with the exploration, development or production
of hydrocarbons, and will not modify or terminate any of the
agreements relating to the Phoenix Lake Tract, other than the
Stream Management contract, listed at Exhibit 16.12, and will not
encumber (except for liens arising by operation of law), sell or
otherwise dispose of any of the Phoenix Lake Tract;
(c) Incur, or agree to incur, any material contractual
obligation or liability (absolute or contingent) with respect to
the Phoenix Lake Tract, except current liabilities incurred or
obligations under agreements entered into in the ordinary course
of business or under agreements or instruments entered into prior
to the date hereof or liabilities incurred in connection with the
consummation of the transactions contemplated in this Agreement;
or
(d) Knowingly waive any right which would otherwise
accrue to the Stream Group upon the transfer of the Phoenix Lake
Tract hereunder.
10. Seller's Closing Conditions. Seller's obligation to
consummate the transactions provided for herein is subject to the
satisfaction or waiver by Seller, prior to or at the Closing, of
each of the following conditions:
1. Representations. The representations and warranties
of the Stream Group contained in Section 5 shall be true and
correct in all material respects.
2. Pending Matters. Seller shall not be restrained,
enjoined or otherwise prohibited by the order, judgment or other
decree of any court or governmental authority from consummating
any of the transactions contemplated by this Agreement.
3. Title Defects. The Stream Group shall not have
identified in a timely manner any Material Title Defect that has
not been remedied, waived by the Stream Group, or for which an
adjustment to the Purchase Price in an amount agreed to by Seller
and the Stream Group has not been made.
4. Performance. The Stream Group shall have performed in
all material respects the obligations, covenants and agreements
hereunder to be performed by it at or prior to the Closing.
5. Consents, Authorization and Approvals. The Stream
Group shall have obtained all necessary consents, authorizations
and approvals of third parties to the consummation of the
transactions contemplated by this Agreement.
6. The Stream Group's Certificate. The Stream Group
shall have delivered a certificate executed by a representative
of each party to the Stream Group, dated as of the Closing,
certifying on behalf of the party to the Stream Group that to the
best of the party's knowledge the conditions set forth in
Sections 10.1 and 10.4 have been fulfilled and are true and
correct at Closing.
7. Simultaneous Execution. Simultaneous with the
consummation of the transactions provided for herein, the
Succession of Edward M. Carmouche, Matilda Gray Stream, Harold H.
Stream, III and the Opal Gray Trust shall have consummated that
certain Assignment of Purchase Notes and that certain Loan
Participation Agreement (both of which are attached to this
Agreement as Exhibit 10.7) with XCL-Acquisitions, Inc.
8. The Stream Group's Opinion Letter. Seller shall have
received from counsel for the Stream Group an opinion of counsel
stating that, with respect to each member of the Stream Group,
other than natural persons:
(a) The individual member of the Stream Group was duly
organized and is validly existing under the appropriate laws of
the state of its organization or creation; and
(b) The individual member of the Stream Group has all
requisite power and authority under Louisiana law to carry on its
business as presently conducted, to enter into the Agreement, to
perform its obligations thereunder, to consummate the
transactions contemplated thereby, and to enter into all
documents referred to in the Agreement.
11. The Stream Group's Closing Conditions. The Stream
Group's obligation to consummate the transactions provided for
herein is subject to the satisfaction or waiver by the Stream
Group, prior to or at the Closing, of each of the following
conditions:
1. Representations. The representations of Seller
contained in Section 4 shall be true and correct in all material
respects.
2. Pending Matters. The Stream Group shall not be
restrained, enjoined or otherwise prohibited by the order,
judgment or other decree of any court or governmental authority
from consummating any of the transactions contemplated by this
Agreement.
3. Title Defects. The Stream Group shall not have
identified in a timely manner any Material Title Defect that has
not been remedied, waived by the Stream Group, or for which an
adjustment to the Purchase Price in an amount agreed to by the
Stream Group has not been made.
4. Performance. Seller shall have performed in all
material respects the obligations, covenants and agreements
hereunder to be performed by it at or prior to the Closing.
5. Consents, Authorizations and Approvals. Seller shall
have obtained all necessary consents, authorizations and
approvals of third parties to the consummation of the
transactions contemplated by the Agreement.
6. Seller's Certificate. Seller shall have delivered to
the Stream Group a certificate executed by an officer of Seller,
dated the date of Closing, certifying on behalf of Seller, that
to the best of Seller's knowledge the conditions set forth in
Sections 11.1 and 11.4 have been fulfilled and are true and
correct at Closing.
7. Simultaneous Execution. Simultaneous with the
consummation of the transactions provided for herein, the
Succession of Edward M. Carmouche, Matilda Gray Stream, Harold H.
Stream, III and the Opal Gray Trust shall have consummated that
certain Assignment of Purchase Notes and that certain Loan
Participation Agreement (both of which are attached to this
Agreement as Exhibit 10.7) with XCL-Acquisitions, Inc.
8. Seller's Opinion Letter. The Stream Group shall have
received from counsel for Seller an opinion of counsel stating
that:
(a) Seller was duly organized and is validly existing
under the corporate laws of the State of Delaware; and
(b) Seller has all requisite power and authority under
Louisiana law to carry on its business as presently conducted, to
enter into the Agreement, to perform its obligations thereunder,
to consummate the transaction as contemplated thereby, and to
enter into all documents referred to in the Agreement.
12. Seller's Disclaimer. Except as otherwise provided in
this Agreement, the Stream Group acknowledges that Seller has not
made, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY
REPRESENTATION OR WARRANTY, EXPRESSED, IMPLIED, AT COMMON LAW, BY
STATUTE, OR OTHERWISE RELATING TO (a) THE CONDITION OF THE
PHOENIX LAKE TRACT (INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR
EXPRESSED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, OR
OF ENVIRONMENTAL CONDITION), (b) ANY INFRINGEMENT BY SELLER OF
ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY, AND (c) ANY
INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED
TO THE STREAM GROUP BY OR ON BEHALF OF SELLER (INCLUDING, WITHOUT
LIMITATION, IN RESPECT OF GEOLOGICAL, GEOPHYSICAL AND SEISMIC
DATA, THE EXISTENCE OR EXTENT OF OIL, GAS OR OTHER MINERAL
RESERVES, THE RECOVERABILITY OF OR THE COST OF RECOVERING ANY
SUCH RESERVES, THE VALUE OF SUCH RESERVES, ANY PRODUCT PRICING
ASSUMPTIONS, AND THE ABILITY TO SELL OIL OR GAS PRODUCTION AFTER
CLOSING).
13. Closing.
1. Time and Place of Closing. If the conditions to
Closing have been satisfied or waived, the consummation of the
transactions contemplated hereby (the "Closing") shall be held at
the offices of Seller's attorneys, Gordon, Arata, McCollam &
Duplantis, 625 E. Kaliste Saloom Road, Suite 301, Lafayette,
Louisiana on or before the 35th day after the date of this
Agreement (unless extended in accordance with Section 1 and then
on a day to which the Closing has been extended) at 11:00 o'clock
a.m., Central Standard Time (the "Closing Date").
2. Closing Obligations. At the Closing:
(a) Seller shall execute, acknowledge and deliver to
the Stream Group the Assignment.
(b) Seller shall deliver to the Stream Group originals
of all records, as required by this Agreement, pertaining to the
Phoenix Lake Tract;
(c) Seller shall execute such other instruments and
take such other action as may be necessary to carry out its
obligations under this Agreement;
(d) The Stream Group shall pay to Seller the sum of
$2,275,000.00 in immediate available funds and in currency of the
United States of America.
14. Environmental Liabilities. The Stream Group agrees to
indemnify, defend and hold Seller harmless from and against any
and all claims, liabilities, losses, costs and expenses arising
from or related to any Environmental Defect that comes into
existence on or after the Closing Date and during the time that
the Stream Group owns an interest in the Phoenix Lake Tract,
where the Environmental Defect is found. Seller agrees to
indemnify, defend and hold the Stream Group harmless from and
against any and all claims, liabilities, losses, costs and
expenses arising from or related to any Environmental Defect that
came into existence prior to the Closing Date and during the
period of time that Seller owned the Phoenix Lake Tract. The
indemnities provided for in this Section 14 shall expire five (5)
years from the date of the Closing unless the indemnified party
has provided the indemnifying party with written notice of the
specific claim asserted to be covered by this indemnity prior
thereto. For purposes of this Agreement, an Environmental Defect
is a condition or circumstance with respect to the Phoenix Lake
Tract or the operation thereof that is not in compliance with any
law, regulation, order or judgment of or agreement with any
federal, state or local agency or court relating to the
environment or that, under such law, regulation order, judgment
or agreement, requires the owners or operator of the Phoenix Lake
Tract to undertake cleanup, remediation or other expense.
15. Stipulation on Leasing Excepted Property. If Seller
enters into an Oil, Gas and Mineral Lease covering contiguous
acreage in the Phoenix Lake Tract that provides for a lease bonus
and delayed rentals of $300.00 per acre, a royalty interest of
not less than twenty-five percent, a primary term not greater
than three years, a 120 day continuous drilling requirement
following the primary term, and a pugh clause, then the Stream
Group shall lease to the third party under such terms and
conditions. Likewise, the same applies to Seller, mutatis
mutandis, if the Stream Group, or an affiliated entity, or a
nonaffiliated third party agrees to enter into an Oil, Gas and
Mineral Lease covering contiguous acreage in the Phoenix Lake
Tract with like provisions.
16. Miscellaneous.
1. Governing Law. This Agreement and all instruments
executed in accordance with it shall be governed by and
interpreted in accordance with the laws of the State of
Louisiana, without regard to conflict of law rules that would
direct application of the laws of another jurisdiction.
2. Entire Agreement. This Agreement, including all
exhibits attached hereto and made a part hereof, constitute the
entire agreement between the Parties and supersede all prior
agreements, understandings, negotiations and discussions, whether
oral or written, of the Parties. No supplement, amendment,
alteration, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the Parties,
whether such supplement, amendment, alteration, modification,
waiver or termination of this Agreement is made antecedent to,
contemporaneous with or following the execution of this
Agreement.
3. Captions. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect
the construction or interpretation of any provision of this
Agreement.
4. Notices. Any notice provided or permitted to be given
under this Agreement shall be in writing, and may be served by
personal delivery or by depositing same in the mail, addressed to
the party to be notified, postage prepaid, and registered or
certified with a return receipt requested. Notice deposited in
the mail in the manner hereinabove described shall be deemed to
have been given and received on the date of the delivery as shown
on the return receipt. Notice served in any other manner shall
be deemed to have been given and received only if and when
actually received by the addressee. For purposes of notice, the
addresses of the parties shall be as follows:
Seller's Mailing Address:
XCL LAND, LTD.
110 Rue Jean Lafitte
Lafayette, Louisiana 70508
Attention: Mr. David A. Melman
The Stream Group's Mailing Addresses:
SUCCESSION OF EDWARD M. CARMOUCHE
Post Office Box 2001
Lake Charles, Louisiana 70602
MATILDA GRAY STREAM
c/o Bruce N. Kirkpatrick
Post Office Box 40
Lake Charles, Louisiana 70602
HAROLD H. STREAM, III
Post Office Box 40
Lake Charles, Louisiana 70602
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
M. G. STREAM TRUST FOR SANDRA GRAY STREAM
c/o Bruce N. Kirkpatrick
Post Office Box 40
Lake Charles, Louisiana 70602
Each Party shall have the right, upon giving ten (10) days prior
notice to the other Parties in the manner hereinabove provided,
to change its address for purposes of notice.
5. Expenses. Except as otherwise provided herein, each
Party shall be solely responsible for all expenses incurred by it
in connection with this transaction (including, without
limitation, fees and expenses of its own counsel and
accountants).
6. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced
under any rule of law, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions
contemplated hereby is not affected in a materially adverse
manner with respect to either Party.
7. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
8. Attorneys' Fees. If suit or action is filed by any
Party to enforce this Agreement, the prevailing Party shall be
entitled to recover reasonable attorneys' fees incurred in
investigation or related matters and in preparation for and
prosecution or defense of such suit or action as fixed by the
trial court, and, if any appeal is taken from the decision of the
trial court, reasonable attorneys' fees as fixed by the appellate
court or, if appropriate, by the trial court.
9. Further Assurances. After the execution of the
Agreement, the Parties will execute, acknowledge, and deliver to
each other such further instruments, and take such other action,
as may be reasonably requested in order to more effectively
assure to the Parties all of the respective properties, rights,
titles, interests, estates, remedies, powers, and privileges
intended to be assigned and delivered in connection with the
transactions contemplated hereby.
10. References to Currency. All references to the payment
of money made in this Agreement are meant to be references to
currency of the United States of America. All sums due pursuant
to this Agreement are due and payable in currency of the United
States of America
11. Mineral Leases. To the extent of the interest
conveyed to the Stream Group in and to the oil, gas and other
minerals, the Stream Group hereby agrees to assume at Closing all
liabilities of Seller under and to honor all terms and conditions
of the mineral leases listed on Exhibit 16.11.
12. Stream Management Contract. At Closing the Stream
Group shall cause the Stream Management contract listed on
Exhibit 16.12 to be cancelled with Seller responsible for the
monthly retainer fee only through the day of the Closing.
13. Other Material Contracts. The Stream Group hereby
agrees to assume at Closing all liabilities of Seller under and
to honor all terms and conditions of the contracts listed on
Exhibit 16.13.
14. Survival of Representations. Seller and the Stream
Group acknowledge that the representations made by Seller and the
Stream Group in Sections 4 and 5 hereof respectively shall
survive the Closing Date for a period of five years only and
shall not be deemed to be merged, extinguished or extended by any
document, conveyance or other agreement.
In witness whereof, the Parties have executed this Agreement
as of the day and year first set forth above.
SELLER:
XCL LAND, LTD.
/s/ David A. Melman
By:___________________________________________
David A. Melman
Executive Vice President,
Secretary and General
Counsel
THE STREAM GROUP:
THE SUCCESSION OF EDWARD M.
CARMOUCHE
/s/ Virginia M. Carmouche
By:________________________________________
Virginia M. Carmouche
Its Executrix
/s/ Matilda Gray Stream
__________________________________________
MATILDA GRAY STREAM
/s/ Harold H. Stream, III
___________________________________________
HAROLD H. STREAM, III
THE OPAL GRAY TRUST
/s/ Harold Newton
By:________________________________________
HAROLD NEWTON
Its Trustee
/s/ Bruce N. Kirkpatrick
By:________________________________________
BRUCE N. KIRKPATRICK
Its Trustee
MATILDA GEDDINGS GRAY TRUST FOR
HAROLD H. STREAM, III
/s/ Harold Newton
By:________________________________________
HAROLD NEWTON
Its Trustee
/s/ Bruce N. Kirkpatrick
By:________________________________________
BRUCE N. KIRKPATRICK
Its Trustee
MATILDA GEDDINGS GRAY TRUST FOR
WILLIAM GRAY STREAM
/s/ Harold Newton
By:________________________________________
HAROLD NEWTON
Its Trustee
/s/ Bruce N. Kirpatrick
By:________________________________________
BRUCE N. KIRKPATRICK
Its Trustee
MATILDA GEDDINGS GRAY TRUST FOR
SANDRA GRAY STREAM
/s/ Harold Newton
By:________________________________________
HAROLD NEWTON
Its Trustee
/s/ Bruce N. Kirkpatrick
By:________________________________________
BRUCE N. KIRKPATRICK
Its Trustee
M. G. STREAM TRUST FOR
HAROLD H. STREAM, III
/s/ Harold Newton
By:________________________________________
HAROLD NEWTON
Its Trustee
/s/ Bruce N. Kirkpatrick
By:________________________________________
BRUCE N. KIRKPATRICK
Its Trustee
M. G. STREAM TRUST FOR
WILLIAM GRAY STREAM
/s/ Harold Newton
By:________________________________________
HAROLD NEWTON
Its Trustee
/s/ Bruce N. Kirkpatrick
By:________________________________________
BRUCE N. KIRKPATRICK
Its Trustee
M. G. STREAM TRUST FOR SANDRA
GRAY STREAM
/s/ Harold Newton
By:________________________________________
HAROLD NEWTON
Its Trustee
/s/ Bruce N. Kirpatrick
By:________________________________________
BRUCE N. KIRKPATRICK
Its Trustee
AGREEMENT
ZHAO DONG BLOCK, OFFSHORE PEOPLE'S REPUBLIC OF CHINA
This Agreement is entered into between APACHE CHINA
CORPORATION LDC, a Cayman Islands corporation, having its
principal office at 2000 Post Oak Boulevard, Houston, Texas 77056
("Apache"), XCL-CHINA LTD., a company organized under the laws of
the British Virgin Islands, having its principal office at 110
Rue Jean Lafitte, Lafayette, Louisiana 70508 ("XCL-China") and
XCL LTD. , a Delaware corporation, having its principal office
at 110 Rue Jean Lafitte, Lafayette, Louisiana 70508 ("XCL") as
parent of XCL-China.
Apache, XCL-China and XCL are sometimes referred to below as
Party or Parties.
WITNESSETH
WHEREAS, XCL-China, as Foreign Contractor, entered into a
Contract for Petroleum Exploration, Development and Production on
February 10, 1993 on the Zhao Dong Block offshore the People's
Republic of China (the "Contract");
WHEREAS, XCL-China, XCL and Apache entered into a
Participation Agreement dated March 11, 1994 (the "Participation
Agreement") wherein Apache acquired thirty-three and one-third
percent (33.333%) of XCL-China's participating interest under the
Contract with the approval of MOFTEC and CNODC.
WHEREAS, XCL-China and Apache entered into an Operating
Agreement dated June 2, 1994 (the "Operating Agreement") wherein
the Parties defined their respective rights and obligations with
regard to their operations under the Contract;
WHEREAS, Apache is desirous of increasing its participation
with XCL-China in the exploration and development of the Contract
Area by providing a disproportionate share of the funds and
technical and managerial expertise in order to achieve the
objectives of the Contract; and
WHEREAS, Apache's additional participation with XCL-China as
provided herein is subject to and contingent upon CNODC's
approval and to the non-exercise by CNODC of its rights of first
refusal under the Contract;
IN CONSIDERATION of the mutual promises made herein, the
Parties agree as follows:
1. DEFINITIONS
Any terms used in this Agreement which are defined in the
Contract shall have the meanings given them in the Contract. All
sums of money referred to in this Agreement are in US dollars,
and "days" shall mean working days in the State of Texas. In
addition, as used in this Agreement,
"Acquired Interest" means a Participating Interest of
sixteen and two-thirds percent (16.667%) in and to all the rights
and obligations of XCL-China under the Contract.
"Approval Date" means the date on which written approval of
Apache's acquisition of the Acquired Interest and designation as
Operator in accordance with the Contract and the laws of the
People's Republic of China is given by both CNODC and the
Ministry of Foreign Trade and Economic Cooperation of the
People's Republic of China ("MOFTEC"), subsequent to the non-
exercise by CNODC of its right of first refusal.
"C Field" means the geological area with the depth
limitation described in Exhibit 3.
"Joint Account" shall have the meaning given it in the
Operating Agreement.
"Participating Interest" means the undivided percentage
interest of each Party in the Foreign Contractor's rights, title
and interest under the Contract from time to time.
"Producing Unit" means a fully developed facility of one or
more wells producing from a single platform that is part of a
development plan approved as specified under the Contract.
2. CONVEYANCE OF ACQUIRED INTEREST
2.1 Subject to the consent of both CNODC and MOFTEC and
in consideration of Apache's assumption of the obligations
described in Article 3, XCL-China shall sell, transfer and
assign to Apache the Acquired Interest on the Approval Date, free
of all liens, claims and security interests. Effective as of the
Approval Date, the Participating Interests of the Parties under
the Contract and the Operating Agreement shall be:
XCL-China 50.0%
Apache 50.0%
-------
100.0%
=======
2.2 Subject to the above consents and any other
governmental approvals required by the Contract, Apache shall be
designated Operator under the Operating Agreement with effect
from the Approval Date.
3. TERMS OF PARTICIPATION
3.1 In consideration of XCL-China's conveyance of the
Acquired Interest and of Apache's being designated as Operator,
and subject to Article 6, Apache agrees to the following
obligations:
(a) to assume or reimburse as provided in Section 3.3 below
with effect from May 1, 1995 XCL-China's share of the
cost of drilling, logging and initial testing of:
(i) the next Appraisal well to be drilled at the C-3
location during the first phase of the exploration
period of the Contract in the C Field but only
through the base of the Minghuazhen sands as
encountered in the C-2 well. Drilling,
completion and testing costs in such well shall
thereafter be borne by the Parties equally or as
otherwise provided in the Operating Agreement.
(ii) the next two Wildcat wells to be drilled during
the first phase of the exploration period outside
the geographic boundaries of the C Field, one of
which is the D-1 well currently drilling; and
(iii)either (a) a third Wildcat, if one is drilled for
the Joint Account in the first phase; or (b) if no
third Wildcat is drilled in the first phase and
Apache elects to participate in the second phase
of the exploration period as defined in Section
6.2.2 of the Contract, the first Wildcat well to
be drilled during the second phase of the
exploration period.
(b) to assume or reimburse as provided in Section 3.3 below
with effect from May 1, 1995 fifty percent (50%) of all
costs, including costs of seismic and bonus, to be
incurred under the Contract.
(c) to pay XCL-China sixteen and two thirds percent
(16.667%) of the value of Foreign Contractor's share of
the recoverable proved reserves in the Producing
Unit(s) located in the C Field through the Minghuazhen
(as described in Exhibit 3), according to the valuation
procedure set out in Exhibit 1 hereto. If recoverable
proved reserves in the Guantao are established as a
result of the Parties' having deepened the C-3 Well
referred to in Section 3.1(a)(i) on a basis in which
XCL pays at least one-half of the costs of deepening,
sixteen and two-thirds percent (16.667%) of Foreign
Contractor's Share of such Guantao reserves shall be
included in the computation of reserve value as set out
in Exhibit 1.
3.2 XCL and XCL-China covenant and agree to bear two-
thirds of the expenditures made and to be made pursuant to the
Contract and the Operating Agreement through the Approval Date,
and after performance by Apache of its obligations under Article
3.1(a) to continue to bear and pay one-half of the ongoing
expenditures incurred by the Foreign Contractor pursuant to the
Contract and the Operating Agreement.
3.3 Reimbursement of expenditures made by XCL-China
relating to the period prior to the Approval Date which have
become the responsibility of Apache pursuant to Sections 3.1(a)
or 3.1(b) hereof shall be made by Apache within ten (10) days of
the Approval Date. Apache shall be entitled to audit such
reimbursable sums and the inventory costs referred to in Section
3.7 below, but any objection thereto must be made within ninety
(90) days of the Approval Date.
3.4 For the purposes of Section 3.1(c) above, the
determination of reserves shall be made within sixty (60) days
of the first sale of oil from a Producing Unit.
The engineering staff of Apache and XCL-China shall
reasonably attempt jointly to determine the reserve estimates of
proved reserves applicable to the Producing Unit(s). In the
event the engineering staff of Apache and XCL-China cannot
mutually agree to the reserve estimates for a particular
Producing Unit within the time specified above, Apache and XCL-
China shall accept reserve estimates determined in accordance
with Exhibit 1 by the independent engineering firm of DeGolyer
and McNaughton, and the cost of the independent determination
shall be shared equally by the Parties hereto.
Payment of the share of the value of the reserves in
each Producing Unit, as described in Section 3.1(c), shall be
made by Apache within thirty (30) days of its receipt of the
mutually agreed reserve report or the report of DeGolyer and
McNaughton, as the case may be; provided, however, that if
following the last Producing Unit being placed on production an
adjustment in value of prior Producing Units is due by either
Party to the other pursuant to clause (vi) of Exhibit 1, the
adjustment shall be made in and to the payment due from Apache to
XCL-China in respect of the last Producing Unit. If unpaid after
thirty (30) days as set forth above, the balance shall be a debt
due and shall at the election of the debtor Party either be
payable from the shares of production accruing to the debtor
Party or be secured by the guarantee of the parent of the debtor
Party.
3.5 Pursuant to Section 2.1(a) of the Participation
Agreement, Apache shall pay XCL-China the sum of $196,000 on
execution of this Agreement. Effective upon the Approval Date,
this sum shall be deemed full and final settlement of all issues
between Apache and XCL-China relating to costs incurred by XCL-
China under the said Section 2.1(a) of the Participation
Agreement, and XCL-China hereby agrees to accept such sum as
full settlement. If this Agreement terminates prior to the
Approval Date, the said sum of $196,000 shall be deemed to be on
account of any sums due by Apache to XCL-China pursuant to the
said Section 2.1 (a) of the Participation Agreement and not in
settlement thereof. The settlement set forth above shall be
without prejudice to either Party's rights under Section 2.1(b)
of the Participation Agreement including Apache's right to pursue
issues arising from its prior audit.
3.6 If a sum of $310,000 becomes due and payable
pursuant to Section 2.1(c) of the Participation Agreement in
respect of a well prior to the Approval Date, the said sum shall
be paid by Apache into the Joint Account and shall be used by XCL-
China solely to defray the drilling costs of the D-1 well and
subsequent Wildcats. Following the Approval Date, the said sum
or sums of $310,000 paid as provided in the prior sentence shall
be a reduction of the reimbursement due by Apache to XCL-China
pursuant to Section 3.3 of this Agreement. If the Approval Date
occurs before any sum becomes due and payable pursuant to Section
2.1(c) of the Participation Agreement, then notwithstanding the
terms of the Participation Agreement, no such sum shall be paid.
3.7 For the purpose of implementing the farmout
provisions of Section 3.1 hereof, within seven (7) days of the
date of execution of this Agreement, and subject to subsequent
audit as referred to in Section 3.3 above, Apache shall purchase
XCL-China's two-third's share of the inventory acquired for the
Joint Account for the purpose of drilling the wells described in
Section 3.1 (a), according to the following procedure:
(a) within the above seven (7) days, Apache will verify the
existence of usable inventory belonging to the Joint
Account which XCL-China represents has an approximate
cost basis of $1,500,000.
(b) following verification, Apache will pay XCL-China a sum
of approximately $1,000,000 representing two-thirds of
the cost of such inventory and XCL-China will deliver
to Apache a valid bill of sale for such inventory
containing the representations and warranties in
Section 5.1(f) below, with a mutually acceptable
inventory list attached.
(c) the above payment of $1,000,000 will be deposited in
the Joint Account and shall be used by XCL-China solely
towards defraying drilling costs of the D-1 Well.
(d) Inventory which has become the sole property of Apache
pursuant to subsection (b) above shall be solely used
to the extent reasonable and necessary, in the drilling
of the D-1 well on the same cost basis as was used for
the purpose of subsection (b) above. Apache shall be
deemed to have contributed one-third (in terms of cost)
of such inventory as and when used, and two-thirds of
such cost shall be debited to XCL-China.
(e) following the Approval Date, Apache's reimbursement due
to XCL-China for two-thirds of the cost of the D-1 well
pursuant to Section 3.1(a) above shall be reduced by
two-thirds of the cost of the inventory used in such
well up to the Approval Date.
(f) if a second well covered by Section 3.1(a) above is
spudded prior to the Approval Date, the procedure as
set out in subsections (d) and (e) above shall apply to
the second well until all usable inventory has been
exhausted.
(g) If this Agreement terminates, XCL-China shall re-
purchase from Apache at cost a two-thirds interest in
the balance of the inventory not theretofore used in
wells, and shall reimburse Apache at cost for two-
thirds of the inventory used.
(h) XCL-China has been advised that no Chinese value added
tax is payable in respect of the inventory transaction
contemplated by this Section; however, if value added
tax is payable, it shall be the responsibility of XCL-
China and Apache will reasonably cooperate with XCL-
China to promptly and properly resolve any value added
tax questions.
4. APPROVALS AND EFFECTIVENESS
4.1 XCL-China and Apache shall exercise their best
efforts promptly to secure the approvals referred to in the
definition of "Approval Date" and to obtain execution by the
requisite Chinese authorities of a document substantially in the
form attached as Exhibit 2.
4.2 Prior to the Approval Date, XCL-China will
reasonably include Apache and its personnel in operating
activities, including particularly the management of inventory,
and will facilitate the changeover of operatorship to Apache on
the Approval Date, subject to Section 7.1 below. Following
Apache's designation as Operator, XCL-China shall continue to
assist Apache in the latter's capacity as Operator to the extent
Apache may reasonably request. The Parties will begin work
immediately to facilitate the changeover of operatorship to
Apache on the Approval Date.
4.3 If at the end of six (6) months from the date of
this Agreement, the approvals listed in the definition of
Approval Date have not been obtained, any Party may require a
further three (3) month period in which to continue to seek the
required approvals, by written notice to that effect to the other
Parties given at least twenty (20) days prior to the end of the
six (6) month period. If prior to the end of such six (6) month
period, any Party is officially informed that CNODC's right of
first refusal will be exercised or that approval will not be
granted, or if at the end of six (6) or nine (9) months as the
case may be, the required approvals have not been obtained, this
Agreement may at any time thereafter be terminated by any Party
on twenty (20) days written notice to the other Parties.
4.4 Apache shall provide XCL-China written notice of
Apache's election whether or not to participate in the second
phase of the exploration period of the Contract on or before
January 31, 1996, and Apache and XCL-China will cooperate
together to seek an extension of one year of the relinquishment
obligations relating to one exploration block normally arising at
the end of the first exploration phase of the Contract. If
Apache does not elect to participate in the second phase, it
shall be deemed to have satisfied its obligations under Section
3.1(a) hereof at the end of the first exploration phase and shall
retain its fifty percent (50%) Participating Interest in any
Development or Production Areas granted or applied for pursuant
to the Contract, but shall withdraw pursuant to the Operating
Agreement from the rest of the Contract Area. In that event,
Apache will remain as Operator of the said Development and
Production Areas.
5. REPRESENTATIONS AND WARRANTIES
5.1 As of the date of this Agreement and the Approval
Date, XCL and XCL-China represent and warrant that:
(a) the copy of the Contract delivered to Apache on or
about December 9, 1993 is the full and complete
agreement between CNODC and the Foreign Contractor
named therein; there have been no amendments thereof
except the Modification Agreement dated March 11, 1994
to which Apache is a party, and there are no side
agreements, letter agreements or memoranda which modify
the effect of the Contract as disclosed or represented
to Apache;
(b) to the best of their knowledge and belief no act has
been done in connection with the execution or
performance of the Contract which is a breach of the
Foreign Corrupt Practices Act of the United States;
(c) all the conditions of the Contract have been duly
satisfied and the Contract is in full force and effect
in accordance with its terms;
(d) the Foreign Contractor is not in default in the due and
punctual performance of its obligations under the
Contract, or to CNODC or MOFTEC;
(e) save for royalties or taxes potentially payable to the
PRC Government pursuant to the Contract, and except as
set forth in the Contract, the interest of Foreign
Contractor under the Contract, including the Acquired
Interest, is free from any overriding royalty
interests, mortgages, charges, pledges, bills of sale,
liens and other interests or encumbrances;
(f) no approvals to the transactions contemplated by this
Agreement are required from holders of security
interests in the stock of XCL-China or its assets; and
the inventory referred to in Section 3.7 hereof is free
and clear of all charges, pledges, bills of sale, liens
and encumbrances;
(g) subject to the provisions of the Contract, XCL-China
legally and beneficially owns the Acquired Interest and
has the absolute right to assign and transfer the same
to Apache;
(h) save the right of first refusal in favor of CNODC in
Section 23.2 of the Contract and rights created by the
Participation Agreement and the Operating Agreement,
there do not exist any rights of first offer or first
refusal, pre-emptive rights or similar rights in favor
of third parties which could inhibit XCL-China's
ability to assign all or any part of the interest of
Foreign Contractor to Apache;
(i) there are no actions, suits or other proceedings
pending or threatened against XCL-China or XCL in or by
any court or other tribunal which might call into
question the title of XCL-China to the Acquired
Interest or its ability to assign the same in
accordance with this Agreement;
(j) subject to the approvals required by the Contract, XCL-
China has full power and authority to enter into this
Agreement, to transfer title to the inventory referred
to in Section 3.7 hereof, and to assign the Acquired
Interest and all required corporate acts have been or
will prior to the Approval Date be done to enable it to
perform its obligations under this Agreement; and
(k) operations under the Operating Agreement have been
conducted in accordance therewith and with the
Contract, and there have been no delinquencies in
payment or satisfaction of Joint Account obligations,
and no obligations or commitments have been entered
into by XCL-China as Operator except those contracted
in the ordinary course of business and pursuant to
Approved Work Programs and Budgets.
5.2 As of the date of this Agreement and as of the
Approval Date, Apache represents and warrants that:
(a) Apache has full power and authority to enter into this
Agreement and to acquire the Acquired Interest, and all
required corporate acts have been or will be done prior
to the Approval Date to enable Apache to perform its
obligations under this Agreement;
(b) There are no actions, suits or other proceedings
pending or threatened against it in or by any court or
other tribunal which would prevent Apache from
performing its obligations hereunder or acquiring the
Acquired Interest.
5.3 As of the Approval Date, Apache shall also represent
and warrant that it has met the registration and licensing
requirements of the PRC to enable it to carry on business as
contemplated by this Agreement.
6. TERMINATION
6.1 Notwithstanding approval of this Agreement by CNODC
and MOFTEC, if any of the representations and warranties made by
one Party to another are not true on May 1, 1995 or on the
Approval Date, and such deficiency is material to the
transaction contemplated by this Agreement, the Party adversely
affected may give notice thereof to the other Parties at latest
within five (5) days of the Approval Date. If the deficiency is
capable of cure, Apache, XCL or XCL-China as the case may be
shall use their best efforts to cure as promptly as possible. If
the deficiency has not been cured within five (5) days after
notice, the affected Party may at its election waive the
deficiency by notice in writing or, in Apache's case, by making
the payment referred to in Section 3.3 above; or may terminate
this Agreement by written notice to the other Parties with the
effect set out in Section 6.2.
6.2 In the event this Agreement is terminated as
provided above, it shall become void and of no effect upon the
giving of the last notice referred to in Section 6.1 above. In
that event, XCL-China will use its best efforts to withdraw and
cancel the request for permission to assign to Apache and will
inform CNODC of the termination of this Agreement in a way that
does not reflect adversely on any Party, and Apache will return
management of any part operations already being managed by it to
XCL-China pursuant to the Operating Agreement.
7. OTHER COVENANTS
7.1 By May 31, 1995 XCL and XCL-China will furnish to
Apache all the records, data and information required to be
furnished to a successor Operator pursuant to the Operating
Agreement and such other information pertaining to operations and
to the Acquired Interest as Apache may reasonably request in
writing at least five (5) days prior to May 31, 1995. However,
Apache will not hold itself out or act towards Chinese
authorities as Operator, until the Approval Date. In its
capacity as Operator, Apache shall not charge XCL-China for
general and administrative expenses of its Houston office; the
"indirect charge" permitted by the Contract and the Operating
Agreement may continue to be charged as from time to time agreed.
Notwithstanding Apache's having become Operator pursuant to this
Agreement, XCL-China will file or cause to be filed all reports
or other filings required by the Contract in respect of the
periods through the Approval Date.
7.2 Following the Approval Date, Apache shall designate
three (3) representatives to the JMC, one of whom shall be the
Contractor's chief representative.
7.3 XCL-China and Apache agree upon the sharing of
exploration and appraisal cost recovery oil (as described in
Article 13.2.2.2 of the Contract) according to Exhibit 4 hereto.
7.4 The locations, drilling plans, AFEs and TDs of any
wells which are or are to become the responsibility of Apache
pursuant to Section 3.1(a) above shall be mutually agreed between
XCL-China and Apache before commitments to drill are made.
Following the Approval Date, Apache shall be entitled to exercise
XCL-China's voting rights under the Operating Agreement in regard
to decisions affecting such wells, to the extent Apache is
responsible for XCL-China's share of such costs.
8. ARBITRATION
8.1 Except for issues or disputes relating to the value
of XCL-China's percentage of participation interest in estimated
recoverable proved reserves to be produced from the C Field, any
dispute relating to the application or interpretation of this
Agreement, which the Parties are unable to resolve amicably,
shall be settled by arbitration as provided below. XCL and XCL-
China shall be treated as a single Party for the purposes of this
Article.
8.2 The Party who considers that a dispute exists shall
inform the other Party in writing of the nature of the dispute
and shall nominate, as an arbitrator, a non-affiliated person
having expertise in the international oil business. If the other
Party does not object to the nominated person, the nominated
person shall serve as the agreed arbitrator.
8.3 If the second Party does not accept the nominated
person within thirty (30) days of receiving notification, the
second Party shall nominate a second arbitrator and the two
arbitrators shall designate a third. If the second Party does
not name its arbitrator within sixty (60) days after the first
appointment, or if the two arbitrators once appointed fail to
appoint a third within sixty (60) days of the second appointment,
the required appointment(s) may be made by the American
Arbitration Association.
8.4 The place of arbitration shall be Houston, Texas,
and the tribunal shall conduct the arbitration in accordance with
the rules of the American Arbitration Association.
9. MISCELLANEOUS
9.1 Unless required by applicable laws or regulations,
no Party shall make a public announcement concerning this
Agreement without the prior approval of the other Party as to the
content, timing and dissemination of the public announcement.
9.2 XCL-China and XCL on the one hand and Apache on the
other agree to indemnify and hold each other harmless against any
demands from brokers, intermediaries or agents for commission,
finder's fees or similar claims in connection with this
transaction.
9.3 The Parties shall execute such other and further
instruments and do and perform such further acts as may be
reasonably required to complete the transaction contemplated by
this Agreement.
9.4 For the purpose of notices, the Parties' addresses
shall be those given in the preamble to this Agreement or the
telefacsimile numbers noted immediately below; any Party may
change its address notices at any time on written notice to the
Parties given by hand, by mail or by telefacsimile as provided
below:
To XCL: Facsimile No. (318) 261-0168
To XCL-China: Facsimile No. (318) 261-0168
To Apache: Facsimile No. (713) 296-6450
Notices shall be deemed given on actual receipt; or if by
telefacsimile, on confirmation of transmission.
9.5 Subject to the limitations on transfer contained in
the Contract, this Agreement shall inure to the benefit and be
binding on the successors of the Parties.
9.6 This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
IN WITNESS whereof each Party has caused its duly authorized
representative to sign this Agreement on the 10th day of May,
1995 but effective the 1st day of May, 1995.
APACHE CHINA CORPORATION LDC
/s/ G. Steven Farris
By:________________________________
XCL-CHINA LTD.
/s/ Marsden W. Miller, Jr.
By:________________________________
XCL LIMITED
/s/ Marsden W. Miller, Jr.
By:________________________________
XCL Ltd. and Subsidiaries
Exhibit 11-Computation of Earnings Per Common and Common
Equivalent Share
(Amounts in thousands except, per share amounts)
Three Months Ended
March 31
1995 1994
---- ----
PRIMARY:
Loss before extraordinary item $ (1,612) $ (1,592)
Extraordinary charge for early extinguishment of debt - (1,742)
------- -------
Net loss (1,612) (3,334)
Dividends on preferred stock - -
------- -------
Net loss attributable to common stock $ (1,612) $ (3,334)
======= =======
Weighted average number of shares common stock
outstanding 234,499 168,028
Common stock equivalents (computed using treasury
stock method) - -
------- -------
Average number of shares of common stock and
common stock equivalents outstanding 234,499 210,485
======== =======
Net loss per common and common equivalent share:
Net loss before extraordinary item $ (.01) $ (.01)
Extraordinary item - (.01)
------ -------
Net loss per common and common equivalent share $ (.01) $ (.02)
====== ======
FULLY DILUTED:
Fully diluted net loss per common and common
equivalent share (1) (1)
(1) All amounts are anti-dilutive or immaterial and
therefore not presented in the financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from teh
consolidated financial statements of XCL Ltd. and Subsdiaries for the three
month period ended March 31, 1995, and the three and twelve month periods ended
March 31 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> 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1994
<PERIOD-END> MAR-31-1995 MAR-31-1994 DEC-31-1994
<CASH> 2,469 18,620 6,751
<SECURITIES> 0 0 0
<RECEIVABLES> 647 1,347 1,833
<ALLOWANCES> 113 0 113
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 3,151 20,051 8,624
<PP&E> 221,432 203,883 217,339
<DEPRECIATION> 100,736 71,809 100,079
<TOTAL-ASSETS> 149,226 175,602 149,803
<CURRENT-LIABILITIES> 11,473 12,832 10,187
<BONDS> 0 0 0
<COMMON> 2,374 1,904 2,372
0 0 0
649 649 649
<OTHER-SE> 92,250 93,397 92,179
<TOTAL-LIABILITY-AND-EQUITY> 149,226 175,602 149,803
<SALES> 678 1,338 4,336
<TOTAL-REVENUES> 678 1,338 4,336
<CGS> 1,947 2,500 38,211
<TOTAL-COSTS> 1,947 2,500 38,211
<OTHER-EXPENSES> (13) (25) (826)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 356 455 1,831
<INCOME-PRETAX> (1,612) (1,592) (34,880)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (1,612) (1,592) (34,880)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 (1,742) (1,742)
<CHANGES> 0 0 0
<NET-INCOME> (1,612) (3,334) (36,622)
<EPS-PRIMARY> (.01) (.02) (.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.
