<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the
[X] Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1995
OR
Transition Report Pursuant to Section 13 or 15(d) of
[ ] the Securities Exchange Act of 1934
Commission File No. 1-10669
XCL Ltd.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0305643
- ------------------------ -------------
(State of Incorporation) (I.R.S. Employer
Identification
Number)
110 Rue Jean Lafitte, Lafayette, LA 70508
- ------------------------------------ -------
(Address of principal executive offices) (Zip Code)
318-237-0325
----------------
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
249,079,623 shares Common Stock, $.01 par value were
outstanding on November 10, 1995.
The Index to Exhibits is Located at page ___.
</PAGE>
<PAGE>
XCL LTD.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
PART II
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
</PAGE.
<PAGE>
XCL Ltd. and Subsidiaries
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
September 30 December 31
------------ -----------
Assets 1995 1994
- ------ ---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 558 $ 6,751
Accounts receivable, net 656 1,720
Prepaid expenses 295 153
------- -------
Total current assets 1,509 8,624
------- -------
Property and equipment:
Oil and gas (full cost method):
Proved and evaluated properties 160,224 158,634
Unproved and unevaluated properties:
Domestic 38,663 37,856
Foreign 24,726 17,696
------- -------
63,389 55,552
Land, at cost 135 135
Other 2,908 3,018
------- -------
226,656 217,339
Accumulated depreciation, depletion
and amortization (118,289) (100,079)
------- -------
108,367 117,260
------- -------
Investments and assets held for sale 17,360 20,948
Deferred charges and other assets 1,988 2,971
------- -------
Total assets $ 129,224 $ 149,803
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 3,050 $ 3,640
Royalty and production taxes payable 177 286
Dividends payable 446 965
Current maturities of limited recourse debt 5,231 5,267
Other current maturities 5,282 29
-------- --------
Total current liabilities 14,186 10,187
-------- --------
Long-term debt, net of current maturities 35,517 41,607
Other non-current liabilities 3,461 2,809
Commitments and contingencies (Note 7)
Shareholders' equity (Note 6):
Preferred stock-$1.00 par value; authorized
1.2 million shares; issued shares of
646,747 at September 30, 1995 and 649,244 at
December 31, 1994-liquidation preference of
$52.1 million at September 30, 1995 647 649
Common stock-$.01 par value; authorized
350 million shares at September 30, 1995
and 325 million shares at December 31, 1994;
issued shares of 248,590,428 at September 30,
1995 and 237,184,410 at December 31, 1994 2,486 2,372
Common stock held in treasury - $.01 par value;
3.5 million shares at December 31, 1994 -- (35)
Additional paid-in capital 214,892 206,241
Accumulated deficit (141,965) (114,027)
------- -------
Total shareholders' equity 76,060 95,200
------- -------
Total liabilities and shareholders'
equity $ 129,224 $ 149,803
======= =======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
</PAGE>
<TABLE>
XCL Ltd. and Subsidiaries
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands of Dollars, Except Per Share Amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Oil and gas revenues $ 604 $ 1,118 $ 2,006 $ 3,665
-------- ------- -------- --------
Oil and gas operating expenses:
Operating (including marketing) 231 355 795 999
Depreciation, depletion and amortization 535 885 1,831 2,646
Provision for impairment of oil and
gas properties 5,800 7,200 16,500 16,700
Writedown/loss on sale of other assets 2,740 -- 2,740 --
General and administrative 1,452 1,139 3,562 3,362
Taxes, other than income 208 330 558 920
-------- ------ -------- --------
10,966 9,909 25,986 24,627
-------- ------ -------- --------
Operating loss (10,362) (8,791) (23,980) (20,962)
-------- ------ -------- --------
Other income (expenses):
Interest expense, net of amounts
capitalized (797) (626) (2,186) (1,505)
Gain on sale of investments 613 -- 613 --
Other, net 50 (303) 182 (260)
-------- ------ ------- --------
(134) (929) (1,391) (1,765)
-------- ------ ------- --------
Loss before extraordinary item (10,496) (9,720) (25,371) (22,727)
Extraordinary charge for early
extinguishment of debt -- -- -- (1,742)
-------- ------ ------- --------
Net loss (10,496) (9,720) (25,371) (24,469)
Preferred stock dividends (103) -- (2,567) (2,554)
-------- ------ ------- --------
Net loss attributable to common stock $ (10,599) $ (9,720) $ (27,938) $ (27,023)
======== ====== ======= =======
Loss per common and common equivalent share:
Net loss before extraordinary item $ (.04) $ (.05) $ (.11) $ (.13)
Extraordinary item -- -- -- (.01)
-------- ------ ------ ------
Net loss per common and common
equivalent share $ (.04) $ (.05) $ (.11) $ (.14)
======== ====== ====== ======
Average number of common and common
equivalent shares outstanding 242,533 210,485 238,029 187,217
======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
</PAGE>
<PAGE>
XCL Ltd. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
Nine Months Ended
-----------------
September 30
------------
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (25,371) $ (24,469)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation, depletion and amortization 1,831 2,646
Provision for impairment of oil and gas properties 16,500 16,700
Gain on sale of investments (613) --
Loss on sale of other assets 383 --
Writedown of other assets 2,357 --
Extraordinary charge for extinguishment of debt -- 1,742 Change in assets and liabilities:
Accounts receivable 1,041 341
Prepaid expenses (142) (130)
Accounts payable and accrued expenses (273) (1,145)
Royalty and production taxes payable (109) (19)
Other, net 87 1,082
-------- -------
Total adjustments 21,062 21,217
-------- -------
Net cash used in operating activities (4,309) (3,252)
-------- -------
Cash flows from investing activities:
Capital expenditures (7,679) (16,011)
Investments (1,162) (1,350)
Proceeds from sale of assets 2,643 --
Other 304 2,709
-------- -------
Net cash used in investing activities (5,894) (14,652)
-------- -------
Cash flows from financing activities:
Proceeds from sales of common stock 1,378 30,218
Proceeds from sales of treasury stock 2,364 --
Proceeds from issuance of preferred stock -- 1,600
Loan proceeds -- 29,200
Proceeds from exercise of warrants and options 874 3,209
Payment of long-term debt (425) (33,471)
Payment of preferred stock dividends (250) --
Stock issuance costs and other 69 (3,047)
------- -------
Net cash provided by financing activities 4,010 27,709
------- -------
Net increase (decrease) in cash and cash equivalents (6,193) 9,805
Cash and cash equivalents at beginning of period 6,751 1,646
------- -------
Cash and cash equivalents at end of period $ 558 $ 11,451
======= =======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
</PAGE>
<PAGE>
XCL Ltd. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(1) General
The consolidated financial statements at September 30,
1995, and for the three months and nine months then ended
have been prepared by the Company, without audit, pursuant
to the Rules and Regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such Rules and
Regulations. The Company believes that the disclosures are
adequate to make the information presented herein not
misleading. These consolidated financial statements should
be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, as amended.
In the opinion of the Company, all adjustments, consisting
only of normal recurring adjustments, necessary to present
fairly the financial position of XCL Ltd. (formerly The
Exploration Company of Louisiana, Inc.) and subsidiaries as
of September 30, 1995, and December 31, 1994, and the
results of their operations for the three months and nine
months ended September 30, 1995 and 1994 and their cash
flows for the nine months ended September 30, 1995 and 1994,
have been included. Certain reclassifications, including
reclassifying accrued interest on the subordinated debt to
be paid in Common Stock and the reserve for franchise tax to
long-term liabilities, have been made to prior period
financial statements to conform to current period
presentation. These reclassifications had no effect on net
income or shareholders' equity. The results of the
Company's operations for such interim periods are not
necessarily indicative of the results for the full year.
The year-end balance sheet data was derived from audited
financial statements, but all disclosures required by
generally accepted accounting principles are not included
herein.
(2) Liquidity and Capital Resources
At September 30, 1995, the Company had an operating
cash balance of $.6 million and a working capital deficit of
$12.7 million, which includes $5.4 million in limited
recourse debt collateralized only by the Lutcher Moore Tract
and $5.25 million in bank debt, of which $2 million is due
January 1, 1996. The Company is currently pursuing a plan
to generate funds to satisfy these working capital
requirements by the sale of its domestic assets and the sale
of corporate securities.
To provide for immediate required near-term liquidity,
the Company sold 12,982 shares of a newly designated Series
E, Cumulative Convertible Preferred Stock ("Series E
Preferred Stock") for an aggregate consideration of $548,000
in cash and 1,160,647 shares of restricted Common Stock.
The offering period will continue until December 31, 1995
unless sooner terminated by the Company. The Company
expects to realize up to an additional $4.5 million from
additional sales of this issue, which carries a 10% annual
dividend, payable semiannually in cash, or at the Company's
election, in additional shares of Series E Preferred Stock.
Further, the Company has engaged a U.K. financial
institution to place units of Common Stock and warrants in
an offshore transaction in compliance with Regulation S,
promulgated under the Securities Act of 1933, as amended
(the "Act"). Gross proceeds from the offering, which is
being done on a best efforts basis, will be not less than $2
million nor more than $7 million. The scheduled closing
date is December 22, 1995.
In order to provide additional liquidity, the Company
is currently in negotiations with several parties interested
in acquiring the Lutcher Moore Tract. Should a sale be
effected, approximately $5.4 million of the proceeds would
be applied to retire the Lutcher Moore limited recourse
debt, and $5 million would be applied to reduce the
Company's bank debt if the domestic producing properties
have not been sold. The remainder would be applied to other
working capital requirements. Payments of principal and
interest on $2.6 million of the Lutcher Moore limited
recourse debt are past due. The Company is negotiating with
the holders of this debt to defer payments until the Lutcher
Moore Tract can be sold in consideration for which the
Company would further secure the debt with preferred stock.
Should the deferral not be obtained the holders have
recourse only to the property itself, as the Company is not
liable for the debt.
Management has historically had the ability to generate
funds through the sale of assets or securities and to
negotiate required amendments to its credit agreements.
Management believes 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 Company's ability to continue
to develop its principal assets could be significantly
curtailed should the Company be unable to obtain cash as needed.
In light of the Company's decision to focus its
activities in China, management is exploring the possibility
of selling substantially all of its U.S. producing
properties (the Cox and Mestena Grande Fields in Texas) or
joint venturing the development of these fields with a
partner. Information has been made available to several
potential purchasers, and the Company has retained
Internationale Nederlanden (U.S.) Securities Corporation to
assist in obtaining and evaluating offers that it expects to
receive prior to year end 1995. Any such disposition would
result in a substantial reduction in the Company's
outstanding indebtedness, since such properties are
presently pledged to secure approximately $25.1 million in
senior bank debt and $15 million in subordinated debt. A
sale or joint venture could result in a material non-cash
loss, which management believes may be justified in order to
eliminate the requirement for additional investment in the
Company's domestic fields so that funds can instead be
invested in China.
Management is encouraged about the Company's prospects
in China because of successful drilling activities to date
at the Zhao Dong Block, where four out of the five wells
drilled have tested at significant flow rates. Further, the
Company has been offered additional investment opportunities
in China as a result of its successful performance on the
Zhao Dong Block.
Pricing for a significant portion of the Company's gas
reserves in the Cox Field is subject to a price floor
established by a long-term gas contract. The continued
applicability of this price floor is dependent upon the
Company being able to meet certain minimum gas production
volumes which were not achieved for the contract year ending
April 30, 1995, and may not be achieved for the contract
year ending April 30, 1996, due to the downward revision in
reserve estimates at June 30, 1995. The Company's proved
reserve estimates indicate that with sufficient development
the minimum volumes will be achieved for the contract year
ending April 30, 1997.
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.
During 1995 the Company's bank agreement was amended to
modify certain covenant requirements through September 29,
1995. These covenants were subsequently amended to modify
requirements through April 1, 1996. Should improvements in
the Company's financial position not occur, the Company
would be in violation of its credit agreement subsequent to
April 1, 1996, giving the bank the right to accelerate
payment of the debt after applicable grace periods. The
Company would have to pursue the sale of other assets, a
joint-venture or the issuance of additional equity
securities to fund any such accelerated payments. Further,
the borrowing base under this credit agreement is
determined, in part, by the value of the Company's proved
reserves. During the second quarter two unsuccessful
recompletions in the Cox Field caused a downward revision in
reserve quantities. This revision, coupled with an
impairment recorded in the third quarter as a result of
reduced present values of reserves attributable to delays in
scheduled development drilling, may negatively impact the
next borrowing base determination which has been rescheduled
for March 31, 1996.
The Company is currently pursuing additional
alternatives for raising capital for its planned capital
expenditures in China during the next twelve months. On
August 10, 1995, Chinese authorities approved the agreement
reached on May 10, 1995, between the Company and Apache
Corporation ("Apache") pursuant to which Apache will pay 100
percent of the costs to drill, test and complete two wildcat
wells and one appraisal well on the Zhao Dong Block. If
Apache elects to drill a third wildcat well, it will also
pay 100 percent of those costs. The amounts advanced by
Apache are recoverable from revenues generated from Zhao
Dong Block production. Future expenditures beyond those
described above will be borne 50 percent each by the Company
and Apache. Pursuant to this agreement Apache also purchased
an additional 16.67 percent interest in the foreign
contractor's share of 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 each segment of the
field is placed on production in order to insure that the
Company will receive the full market value of the 16.67
percent interest. In consideration for the above described
payments, Apache has assumed operatorship of the Zhao Dong
Block and increased its interest in the Zhao Dong Block from
33.33 percent to 50 percent. The Company estimates that
Apache will pay for all but approximately $10 million of its
exploration expenditures related to the Zhao Dong Block
during the next twelve months. The Company expects to fund
these expenditures from the sale of its domestic assets and
issuance of additional equity securities.
The Company and its partners in the Zhao Dong Block are
currently preparing the development plan for the "C" area
initial discovery. The Company plans to finance its share
of development costs primarily through project debt
financing. Alternatives available to the Company to obtain
development funds also include joint venturing the
development with another oil company or financial group.
On July 17, 1995, the Company signed a contract with
CNPC United Lube Oil Corporation to form a joint venture
company to engage in the manufacturing, distribution and
marketing of lubricating oil in China and southeast Asian
markets. The joint venture will have a 30 year life unless
extended. The registered capital of the joint venture will
be $4.9 million, with the Company to contribute $2.4 million
for its 49 percent interest, of which $0.6 million has been
paid. The remaining $1.8 million is due pursuant to a
schedule, with the first payment due after a business
license is issued and the last payment due June 30, 1996.
The Chinese side will contribute an existing lubricating oil
blending plant in Langfang, China, with a value of $2.5
million as its investment for fifty-one percent of the
stock. The contract must be approved by Chinese authorities
before a business license can be issued and the joint
venture commences operations. Certain additional documents
must be submitted in connection with the application for the
business license. The Company expects the license to be
issued by January 31, 1996. In a letter of intent executed
contemporaneously with the contract, the parties have agreed
to consider the feasibility of (i) constructing a second
lubricating oil blending plant at a port facility near
Tianjin, China, (ii) contributing to the joint venture a
second existing plant in southwest China, and (iii) other
projects, including constructing oil terminals on the north
and south coasts of China, and engaging in upgrading certain
existing refineries within China. The Company expects to
fund its share of payments by bringing in a joint venture
partner.
The Company has signed an agreement with the China
National Administration of Coal Geology, pursuant to which
the parties will commence cooperation for the exploration
and development of coal bed methane in two areas in China.
During the study period contemplated by the agreement, the
Company will evaluate the properties, after which the
parties are expected to enter into a comprehensive
agreement, which may provide the basis for coal bed methane
development in other areas of China. Costs of the project
are not expected to be significant during the next twelve
months.
The Company has been approached by several U.S. and
foreign companies seeking joint venture arrangements with
respect to the lube oil, coal bed methane, and additional
future China business opportunities. Discussions have
commenced, with the Company's objective being to obtain
funding for its overhead and capital requirements in return
for providing these companies with access to these and other
China business opportunities.
Longer term liquidity is dependent on the Company's
commencement of production in China and continued access to
capital markets, including its ability to issue additional
debt and equity securities, which in certain cases may
require the consent of Internationale Nederlanden (U.S.)
Capital Corporation ("INCC") and holders of the Company's
Subordinated Debt and Preferred Stock.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.7 million pounds sterling
(U.K.) annually. The Company declared cash dividend payments
on its Series A Preferred Stock of $2.3 million and $2.2
million for the six months ended December 31, 1994, and
June 30, 1995, respectively. Effective June 26, 1995,
the Company entered into agreements with three U.S.
holders of Series A Preferred Stock representing approximately
59 percent of the class pursuant to which they elected to
receive their dividends in Common Stock of the Company.
The Company issued 4.3 million shares during the third quarter
under these agreements. The Company has agreed to register these
shares of Common Stock. Cash dividends remaining to be paid
with respect to the June 30, 1995 dividend declaration,
aggregate $.9 million, of which $0.5 million has been
delivered to the Company's registrar. The Company's credit
agreement restricts the payment of cash dividends and
currently, insufficient liquidity exists to continue to pay
such amounts.
On May 16, 1995, the Company received notice from the
Series B Preferred holder exercising its redemption rights.
The Company has elected to redeem in shares of Common Stock
and the holder has exercised its option to have the Company
sell its shares of Common Stock. The aggregate redemption
price is $5 million, plus accrued dividends from January 1,
1995 to the date of redemption. The Company has registered
5.3 million shares for sale and has reserved additional
shares should the sale of the registered shares not be
sufficient to fulfill the redemption obligation. The
Company sold 1 million shares of Common Stock during the
third quarter with proceeds allocated first to accrued
dividends of $353,000 and the remainder towards redemption
of 2,497 shares of the Series B Preferred Stock. During the
fourth quarter the Company sold 419,900 shares of Common
Stock with $40,000 of the proceeds allocated to accrued
dividends and the remainder toward redemption of an
additional 1,824 shares of the Series B Preferred Stock.
(3) Supplemental Cash Flow Information
There were no income taxes paid during the nine month
periods ended September 30, 1995 and 1994. (See Note 7).
Interest and associated capitalized costs for the three
and nine month periods ended September 30 totaled $.6
million and $2.2 million, respectively for 1995, and $1.2
million and $4.3 million, respectively for the corresponding
periods in 1994. Interest paid during the three and nine
month periods ended September 30, 1995 and 1994, amounted to
$.7 million and $2.0 million, and $.6 million and $1.9
million, respectively.
(4) Investments and Assets Held for Sale
Lube Oil Investment
-------------------
On July 17, 1995, the Company signed a contract with
CNPC United Lube Oil Corporation to form a joint venture
company to engage in the manufacturing, distribution and
marketing of lubricating oil in China and southeast Asian
markets. (See Note 2.)
Coal Bed Methane Project
------------------------
The Company has signed an agreement with the China
National Administration of Coal Geology, pursuant to which
the parties will commence cooperation for the exploration
and development of coal bed methane in two areas in China.
(See Note 2)
Phoenix Lake Tract
------------------
On May 18, 1995, the Company sold its 77.78 percent fee
interest in 11,600 gross acres comprising the Phoenix Lake
Tract retaining 75 percent of its mineral interest
underlying those lands, less and except two tracts covering
approximately 77 net acres in which XCL retained no mineral
interest. The purchase price was comprised of approximately
$1.7 million in cash and a $.5 million reduction in
obligations owed by the Company to the purchaser. No gain
or loss was recognized on the sale.
Terrenex Warrants
-----------------
During the third quarter of 1995, the Company exercised
its warrants to purchase 700,000 shares of Terrenex common
stock and recognized $613,000 in net proceeds from the sale
of the Terrenex stock. As there was no remaining basis
attributed to these warrants, the Company recognized a gain
in the third quarter.
(5) Debt
Long-term debt at September 30, 1995 consists of the
following (000's):
<TABLE>
<CAPTION>
Current Long-Term
Maturities Portion Total
---------- ------- -----
<S> <C> <C> <C>
Collateralized credit facility $ 5,250 $19,865 $25,115
Subordinated debt (due April 5, 2000) -- 15,000 15,000
Building Mortgage 32 652 684
------ ------ ------
Total $ 5,282 $35,517 $40,799
====== ====== ======
Lutcher Moore Group
Limited Recourse Debt $ 5,231 $ -- $ 5,231
====== ====== ======
</TABLE>
Substantially all of the Company's assets collateralize
certain of these borrowings. Accounts payable and accrued
expenses include interest accrued at September 30, 1995, of
approximately $.5 million.
Lutcher Moore Group Limited Recourse Debt
-----------------------------------------
At September 30, 1995, approximately $2.7 million of
Mortgage Notes (net of amounts escrowed for payment) and
$2.6 million of Seller Notes were outstanding. In June
1995, the terms of the Mortgage Notes were modified
providing that the remaining principal (which bears interest
at 10% per annum) is payable on demand, and if no demand is
made, in six monthly installments of $52,300 each,
commencing July 15, 1995, plus a final payment of all
outstanding principal and interest due on January 15, 1996.
Seller Notes bear interest of 8 percent and have a final
maturity in June 1996. Payments of principal and interest on
the Seller Notes are past due. The Company is negotiating
with the holders of this debt to defer payments until the
Lutcher Moore Tract can be sold in consideration for which
the Company would further secure the debt with preferred
stock. Should the deferral not be obtained, the holders have
recourse only to the property itself, as the Company is not
liable for the debt.
Collateralized Credit Facility
------------------------------
During 1995, the Company's bank agreement was amended
to modify certain covenant requirements through September
29, 1995. These covenants were subsequently amended to
modify requirements through April 1, 1996. (See Note 2.)
Secured Subordinated Debt
-------------------------
Approximately 1.6 million and 1.9 million shares of
Common Stock, were issued during the nine months ended
September 30, 1995, and September 30,1994, respectively in
payment of $1.3 million of interest due on the Subordinated
Debt for the six month period ended April 1, 1995, and in
payment of $2.1 million of interest due on the Subordinated
Debt for the six month periods ended April 1, 1994 and
October 1,1994.
8% Subordinated Convertible Notes
---------------------------------
Effective May 31, 1994, holders of the 8% Subordinated
Convertible Notes exercised their conversion rights and
converted the remaining $2.25 million in principal amount
into an aggregate 2.5 million shares of Common Stock.
(6) Preferred Stock and Common Stock
As of September 30, 1995, the Company had the following
shares of Preferred Stock outstanding:
Shares Liquidation Value
------ -----------------
Series A 599,244 $47,340,276 *
Series B 47,503 4,750,300
* 50 pounds sterling (U.K.) per share (U.K. 1 pound
sterling = U.S. $1.58 at September 30, 1995).
On May 16, 1995, the Company received notice from its
Series B Preferred holder exercising their option to have
their shares of preferred stock redeemed. (See Note 2.)
Series E Preferred Stock
------------------------
On November 1, 1995 the Company completed a private
placement of the initial tranche of up to an aggregate of
50,000 shares of a new series of Preferred Stock designated
the Series E Preferred Stock. The Company received
approximately $548,000 in cash and 1,160,647 shares of its
unregistered Common Stock in consideration for the sale of
12,982 shares of Series E Preferred Stock. The reacquisition
of the aforementioned shares of Common Stock will be
recorded under the cost method of accounting for treasury
stock. The Company presently intends to effect additional
sales of Series E Preferred Stock during the offering period
which ends on December 31, 1995, unless sooner terminated by
the Company. The Series E Preferred Stock is nonvoting,
except in certain circumstances, including the right to
elect two directors in the event the Company fails to pay
two consecutive semi-annual dividends; bears a fixed
cumulative dividend at the annual rate of $10 per share,
payable semi-annually in cash, or, at the Company's
election, in additional shares of Series E Preferred Stock,
subject to an increase to $12 per share in the event the
Company fails to register the underlying Common Stock under
the Act by December 31, 1996 ("Conversion Commencement
Date") and a further increase in the event the Company fails
to declare and pay a dividend on a regularly scheduled
dividend payment date; is redeemable for cash by the Company
in whole or in part at any time, at a price (the "Redemption
Price") equal to (i) $125 per share if redeemed prior to
March 31, 1996 and (ii) thereafter $120 per share,
decreasing ratably over the succeeding five quarters to $100
per share, in each case plus accrued and unpaid dividends to
the redemption date; is convertible, at the holder's option,
at any time in whole or in part after the earlier of the
("Conversion Commencement Date") or the date of any
redemption notice into that number of shares of Common Stock
as shall equal the quotient of the $100 per share divided by
$.50, in each case subject to adjustment; and a liquidation
preference of $100 per share, plus all accrued and unpaid
dividends. The Series E Preferred Stock ranks senior to the
Common Stock and pari passu with the Series A and Series B
Preferred Stock with respect to the payment of dividends and
distributions upon the liquidation of the Company.
Dividends
---------
The Company declared cash dividend payments on its
Series A and Series B Preferred Stocks of $2.6 million and
$2.5 million for the six months ended December 31, 1994 and
June 30, 1995, respectively. Effective June 26, 1995, the
Company entered into agreements with three U.S. holders of
Series A Preferred Stock representing approximately 59
percent of the class pursuant to which they elected to
receive their dividends in Common Stock of the Company. The
Company issued 4.3 million shares during the third quarter
under these agreements. The Company has agreed to register
these shares of Common Stock. Cash dividends remaining to be
paid with respect to the June 30, 1995 dividend declaration,
aggregate $.9 million, of which $0.5 million has been
delivered to the Company's registrar.
During the nine months ended September 30, 1994, the
Company issued approximately 6 million shares of Common
Stock in lieu of cash dividends on its Series A and Series B
Preferred Stock in respect of dividends due June 30, 1993,
December 31, 1993, and June 30, 1994, 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. Additionally, the Company issued 1,751 of Series D
Preferred Stock for in-kind dividends due June 30, 1994
(7) Commitments and Contingencies and Subsequent
Events
Other commitments, contingencies and subsequent
events include:
The Company has future commitments of $1.8 million
associated with its joint venture contract to enter the
lubricating oil business in China (see Note 2).
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.
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.
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,
the former 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.
The Company is subject to other legal proceedings which
arise in the ordinary course of its business. In the
opinion of management, the amount of ultimate liability with
respect to these actions will not materially affect the
financial position or results of operations of the Company.
</PAGE>
<PAGE>
XCL LTD. AND SUBSIDIARIES
September 30, 1995
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
REVIEW OF FINANCIAL RESOURCES
- -----------------------------
Liquidity and Capital Resources
- -------------------------------
At September 30, 1995, the Company had an operating
cash balance of $.6 million and a working capital deficit of
$12.7 million, which includes $5.4 million in limited
recourse debt collateralized only by the Lutcher Moore Tract
and $5.25 million in bank debt, of which $2 million is due
January 1, 1996. The Company is currently pursuing a plan
to generate funds to satisfy these working capital
requirements by the sale of its domestic assets and the sale
of corporate securities.
To provide for immediate required near-term liquidity,
the Company sold 12,982 shares of a newly designated Series
E, Cumulative Convertible Preferred Stock ("Series E
Preferred Stock") for an aggregate consideration of $548,000
in cash and 1,160,647 shares of restricted Common Stock.
The offering period will continue until December 31, 1995
unless sooner terminated by the Company. The Company
expects to realize up to an additional $4.5 million from
additional sales of this issue, which carries a 10% annual
dividend, payable semiannually in cash, or at the Company's
election, in additional shares of Series E Preferred Stock.
Further, the Company has engaged a U.K. financial
institution to place units of Common Stock and warrants in
an offshore transaction in compliance with Regulation S,
promulgated under the Securities Act of 1933, as amended
(the "Act"). Gross proceeds from the offering, which is
being done on a best efforts basis, will be not less than $2
million nor more than $7 million. The scheduled closing
date is December 22, 1995.
In order to provide additional liquidity, the Company
is currently in negotiations with several parties interested
in acquiring the Lutcher Moore Tract. Should a sale be
effected, approximately $5.4 million of the proceeds would
be applied to retire the Lutcher Moore limited recourse
debt, and $5 million would be applied to reduce the
Company's bank debt if the domestic producing properties
have not been sold. The remainder would be applied to other
working capital requirements. Payments of principal and
interest on $2.6 million of the Lutcher Moore limited
recourse debt are past due. The Company is negotiating with
the holders of this debt to defer payments until the Lutcher
Moore Tract can be sold in consideration for which the
Company would further secure the debt with preferred stock.
Should the deferral not be obtained the holders have
recourse only to the property itself, as the Company is not
liable for the debt.
Management has historically had the ability to generate
funds through the sale of assets or securities and to
negotiate required amendments to its credit agreements.
Management believes 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 Company's ability to continue
to develop its principal assets could be substantially
curtailed should the Company be unable to obtain cash as needed.
In light of the Company's decision to focus its
activities in China, management is exploring the possibility
of selling substantially all of its U.S. producing
properties (the Cox and Mestena Grande Fields in Texas) or
joint venturing the development of these fields with a
partner. Information has been made available to several
potential purchasers, and the Company has retained
Internationale Nederlanden (U.S.) Securities Corporation to
assist in obtaining and evaluating offers that it expects to
receive prior to year end 1995. Any such disposition would
result in a substantial reduction in the Company's
outstanding indebtedness, since such properties are
presently pledged to secure approximately $25.1 million in
senior bank debt and $15 million in subordinated debt. A
sale or joint venture could result in a material non-cash
loss, which management believes may be justified in order to
eliminate the requirement for additional investment in the
Company's domestic fields so that funds can instead be
invested in China.
Management is encouraged about the Company's prospects
in China because of successful drilling activities to date
at the Zhao Dong Block, where four out of the five wells
drilled have tested at significant flow rates. Further, the
Company has been offered additional investment opportunities
in China as a result of its successful performance on the
Zhao Dong Block.
Pricing for a significant portion of the Company's gas
reserves in the Cox Field is subject to a price floor
established by a long-term gas contract. The continued
applicability of this price floor is dependent upon the
Company being able to meet certain minimum gas production
volumes which were not achieved for the contract year ending
April 30, 1995, and may not be achieved for the contract
year ending April 30, 1996, due to the downward revision in
reserve estimates at June 30, 1995. The Company's proved
reserve estimates indicate that with sufficient development
the minimum volumes will be achieved for the contract year
ending April 30, 1997.
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.
During 1995 the Company's bank agreement was amended to
modify certain covenant requirements through September 29,
1995. These covenants were subsequently amended to modify
requirements through April 1, 1996. Should improvements in
the Company's financial position not occur, the Company
would be in violation of its credit agreement subsequent to
April 1, 1996, giving the bank the right to accelerate
payment of the debt after applicable grace periods. The
Company would have to pursue the sale of other assets, a
joint-venture or the issuance of additional equity
securities to fund any such accelerated payments. Further,
the borrowing base under this credit agreement is
determined, in part, by the value of the Company's proved
reserves. During the second quarter two unsuccessful
recompletions in the Cox Field caused a downward revision in
reserve quantities. This revision, coupled with an
impairment recorded in the third quarter as a result of
reduced present values of reserves attributable to delays in
scheduled development drilling, may negatively impact the
next borrowing base determination which has been rescheduled
for March 31, 1996.
The Company is currently pursuing additional
alternatives for raising capital for its planned capital
expenditures in China during the next twelve months. On
August 10, 1995, Chinese authorities approved the agreement
reached on May 10, 1995, between the Company and Apache
Corporation ("Apache") pursuant to which Apache will pay 100
percent of the costs to drill, test and complete two wildcat
wells and one appraisal well on the Zhao Dong Block. If
Apache elects to drill a third wildcat well, it will also
pay 100 percent of those costs. The amounts advanced by
Apache are recoverable from revenues generated from Zhao
Dong Block production. Future expenditures beyond those
described above will be borne 50 percent each by the Company
and Apache. Pursuant to this agreement Apache also purchased
an additional 16.67 percent interest in the foreign
contractor's share of 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 each segment of the
field is placed on production in order to insure that the
Company will receive the full market value of the 16.67
percent interest. In consideration for the above described
payments, Apache has assumed operatorship of the Zhao Dong
Block and increased its interest in the Zhao Dong Block from
33.33 percent to 50 percent. The Company estimates that
Apache will pay for all but approximately $10 million of its
exploration expenditures related to the Zhao Dong Block
during the next twelve months. The Company expects to fund
these expenditures from the sale of its domestic assets and
issuance of additional equity securities.
The Company and its partners in the Zhao Dong Block are
currently preparing the development plan for the "C" area
initial discovery. The Company plans to finance its share
of development costs primarily through project debt
financing. Alternatives available to the Company to obtain
development funds also include joint venturing the
development with another oil company or financial group.
On July 17, 1995, the Company signed a contract with
CNPC United Lube Oil Corporation to form a joint venture
company to engage in the manufacturing, distribution and
marketing of lubricating oil in China and southeast Asian
markets. The joint venture will have a 30 year life unless
extended. The registered capital of the joint venture will
be $4.9 million, with the Company to contribute $2.4 million
for its 49 percent interest, of which $0.6 million has been
paid. The remaining $1.8 million is due pursuant to a
schedule, with the first payment due after a business
license is issued and the last payment due June 30, 1996.
The Chinese side will contribute an existing lubricating oil
blending plant in Langfang, China, with a value of $2.5
million as its investment for fifty-one percent of the
stock. The contract must be approved by Chinese authorities
before a business license can be issued and the joint
venture commences operations. Certain additional documents
must be submitted in connection with the application for the
business license. The Company expects the license to be
issued by January 31, 1996. In a letter of intent executed
contemporaneously with the contract, the parties have agreed
to consider the feasibility of (i) constructing a second
lubricating oil blending plant at a port facility near
Tianjin, China, (ii) contributing to the joint venture a
second existing plant in southwest China, and (iii) other
projects, including constructing oil terminals on the north
and south coasts of China, and engaging in upgrading certain
existing refineries within China. The Company expects to
fund its share of payments by bringing in a joint venture
partner.
The Company has signed an agreement with the China
National Administration of Coal Geology, pursuant to which
the parties will commence cooperation for the exploration
and development of coal bed methane in two areas in China.
During the study period contemplated by the agreement, the
Company will evaluate the properties, after which the
parties are expected to enter into a comprehensive
agreement, which may provide the basis for coal bed methane
development in other areas of China. Costs of the project
are not expected to be significant during the next twelve
months.
The Company has been approached by several U.S. and
foreign companies seeking joint venture arrangements with
respect to the lube oil, coal bed methane, and additional
future China business opportunities. Discussions have
commenced, with the Company's objective being to obtain
funding for its overhead and capital requirements in return
for providing these companies with access to these and other
China business opportunities.
Longer term liquidity is dependent on the Company's
commencement of production in China and continued access to
capital markets, including its ability to issue additional
debt and equity securities, which in certain cases may
require the consent of Internationale Nederlanden (U.S.)
Capital Corporation ("INCC") and holders of the Company's
Subordinated Debt and Preferred Stock.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.7 million pounds sterling
(U.K.) annually. The Company declared cash dividend payments
on its Series A Preferred Stock of $2.3 million and $2.2 million
for the six months ended December 31, 1994, and June 30, 1995,
respectively. Effective June 26, 1995, the Company entered
into agreements with three U.S. holders of Series A
Preferred Stock representing approximately 59 percent of the
class pursuant to which they elected to receive their
dividends in Common Stock of the Company. The Company
issued 4.3 million shares during the third quarter under
these agreements. The Company has agreed to register these
shares of Common Stock. Cash dividends remaining to be paid
with respect to the June 30, 1995 dividend declaration,
aggregate $.9 million, of which $0.5 million has been
delivered to the Company's registrar. The Company's credit
agreement restricts the payment of cash dividends and
currently, insufficient liquidity exists to continue to pay
such amounts.
On May 16, 1995, the Company received notice from the
Series B Preferred holder exercising its redemption rights.
The Company has elected to redeem in shares of Common Stock
and the holder has exercised its option to have the Company
sell its shares of Common Stock. The aggregate redemption
price is $5 million, plus accrued dividends from January 1,
1995 to the date of redemption. The Company has registered
5.3 million shares for sale and has reserved additional
shares should the sale of the registered shares not be
sufficient to fulfill the redemption obligation. The
Company sold 1 million shares of Common Stock during the
third quarter with proceeds allocated first to accrued
dividends of $353,000 and the remainder towards redemption
of 2,497 shares of the Series B Preferred Stock. During the
fourth quarter the Company sold 419,900 shares of Common
Stock with $40,000 of the proceeds allocated to accrued
dividends and the remainder toward redemption of an
additional 1,824 shares of the Series B Preferred 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 and nine month periods ended September
30, 1995, the Company incurred net losses of $10.5 million
and $25.4 million, respectively, as compared to net losses
of $9.7 million and $24.5 million, respectively, during the
corresponding periods in 1994. The nine months results for
1995 include a $16.5 million provision for impairment of oil
and gas properties as compared to a $16.7 provision in 1994.
The carrying amounts of the Company's properties in Texas
were written down by $10.7 million in the second quarter of
1995, and $5.8 million in the third quarter of 1995, in
order to comply with the ceiling limitation prescribed by
the Securities and Exchange Commission (the "SEC")
principally due to downward revisions in estimated reserves
in the second quarter and reduced present values of reserves
attributable to delays in scheduled development drilling in
the third quarter. Poor results in two recent recompletions
(the BMT 69 No. 1 and the Armstrong 258 No. 1) caused the
deletion of approximately 7.0 net BCF of gas in the Berry R.
Cox Field in the second quarter of 1995. The loss in 1995
also reflects the effects of a $2.4 million valuation
reserve for the Company's assets held for sale. The 1994
nine months results 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 and nine month
periods ended September 30, 1995, were $.6 million and $2.0
million compared to $1.1 million and $3.7 million during the
corresponding periods in 1994. Revenues declined due to
reduced production volumes and decreases in gas prices which
were not offset by new production resulting from additional
drilling in the Cox Field. Operating costs as a percent of
revenues increased as a result of fixed costs remaining
constant while prices declined. As the Company has not
undertaken significant development projects on its domestic
oil and gas properties, it does not anticipate a material
change in its short-term production volumes and expects
continued operating losses. The Company realized an average
gas price of $1.28 per Mcf for the nine month period ended
September 30, 1995, as compared to an average of $1.76 per
Mcf for the nine month period in 1994, and $1.65 per Mcf for
the year ended December 31, 1994.
The depreciation, depletion and amortization rate for
the nine month period in 1995 averaged $1.24 per Mcf
compared to $1.25 per Mcf in the corresponding period of
1994.
As the Company continues to focus its resources on
exploration and development of the Zhao Dong Block and other
China projects, future oil and gas revenues will be directly
related to the degree of drilling success initially
experienced in the Zhao Dong Block.
Net capitalized costs for the Company's domestic oil
and gas properties at September 30, 1995, approximate the
"ceiling-test" limitation as prescribed by the "SEC"
guidelines. Remaining unproved and unevaluated properties at
September 30, 1995, include primarily the costs of leases
located adjacent to the Company's Berry R. Cox producing
properties. The Company drilled two exploration wells in
1994, and if the Cox Field is not sold, exploration
operations will continue in 1995. As these unproved
properties become evaluated, their costs are reclassified to
proved and evaluated properties, and any associated future
revenue is included in the calculation of the present value
of the Company's proved reserves. Prospectively, any such
costs in excess of the present value of added reserves, or
any material reductions in the net future revenues from oil
and gas reserves resulting from such factors as lower prices
or downward revisions in estimates of reserve quantities,
would cause a charge for a full-cost ceiling impairment,
absent offsetting improvements. Management is exploring the
possibility of selling substantially all of its U.S.
producing properties (the Cox and Mestena Grande Fields in
Texas) or joint venturing the development of these fields
with a partner. A sale or joint venture may result in a
material loss, which management believes may be justified in
order to eliminate the requirement for additional investment
in the Company's domestic fields so that funds can instead
be invested in China. Downward revisions in estimates of
reserve quantities may also adversely affect the Company's
borrowing base calculation under its credit facility with
INCC, which may then requirement prepayments of principal.
Effects on revenues are summarized on the following
table:
Three Months Nine Months
Ended Ended
September 30 September 30
------------ ------------
Oil and Gas Revenues - 1994 $ 1.1 $ 3.7
Effect of changes in volume of
gas production and sales (0.3) (0.7)
Effect of changes in gas prices (0.2) (0.9)
Effect of oil and liquid revenues, net -- (0.1)
---- ---
Oil and Gas Revenues - 1995 $ 0.6 $ 2.0
==== ===
General and administrative expenses increased in 1995
as a result of higher corporate insurance costs, an increase
in expenses associated with the Company's ongoing
investments in the energy industry in China, as well as a
decline in capitalized costs associated with the Cox Field.
These costs were partially offset by a decline in legal fees
incurred by the Company. Interest expense will continue to
increase throughout the year as the Company will not
capitalize interest on the debt directly associated with the
Cox Field because it is considering the sale or exchange of
this property.
Net proceeds received from the exercise of warrants and
subsequent sale of shares of Terrenex common stock during
the third quarter of 1995 resulted in a gain of $613,000
which was offset by a $383,000 loss recorded from the sale
of minor assets.
</PAGE>
<PAGE>
XCL LTD. AND SUBSIDIARIES
September 30, 1995
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In October 1991, lessors under two leases dated July
20, 1982, and February 1, 1985, which were subsequently
pooled to form the R. Gonzalez No. 1 Gas Unit covering 526
acres in the Berry R. Cox Field, filed suit against the
Company and others who hold or previously held working
interests in the Gas Unit in an action entitled The Elia G.
Gonzalez Mineral Trust, et al. v. Edwin L. Cox, et al.
(341st Judicial District, Webb County, Texas, Docket No. C-
91-747-D3). The suit alleged non-performance under certain
express and implied terms of the leases, including an
allegation that defendants failed to protect the leases
against drainage from wells on adjacent tracts and failed to
properly pay royalties, and seeking an accounting of
revenues and expenses, damages and attorney's fees. The
Court ordered that the parties subject the dispute to non-
binding mediation. As a result of the mediation, the
parties agreed to an amount for a settlement payment and to
the terms of a settlement agreement dispensing with all
issues and dismissing the suit. The Company's share of the
settlement payment amounted to $750,000. The parties
executed and consummated the settlement on December 31,
1993.
Two groups filed interventions in this matter on March
5, 1993 and March 15, 1993. The first group are non-
participating royalty owners claiming under the same group
of leases as the original plaintiffs. The second group sued
under different leases. The interventions were opposed by
the original plaintiffs and all defendants. After hearing
arguments, the court ordered the interventions stricken on
July 14, 1993. During 1994 the first group appealed and the
second filed a new lawsuit. The Company settled the new
lawsuit filed by the second group with its share of the
settlement being $20,000. During December, 1994 the
appellate court affirmed the trial court's decision to deny
the intervention to the first group. The Company in March
1995 was named as a third party defendant by the original
lessor who had been previously sued by the non-participating
royalty owners comprising the first group. Management
believes that the outcome of the lawsuit will not have a
material adverse effect on the Company's financial position
or results of operations. The Company intends to defend
diligently all claims asserted by the first group in it's
lawsuit.
During December 1993, the Company and two of its wholly-
owned subsidiaries, XCL-Texas, Inc. and XCL Acquisitions,
Inc. were sued in separate law suits entitled Ralph
Slaughter, Secretary of the Department of Revenue and
Taxation, State of Louisiana vs. Exploration Company of
Louisiana, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5449); Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State
of Louisiana vs. XCL-Texas, Incorporated (15th Judicial
District, Parish of Lafayette, Louisiana, Docket No. 93-
5450); and Ralph Slaughter, Secretary of Department of
Revenue and Taxation, State of Louisiana vs. XCL
Acquisitions, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5337) by the Louisiana
Department of Revenue for Louisiana State corporate
franchise and income taxes. The claims relate to
assessments for the 1987 through 1991 fiscal years. The
aggregate amount of the assessments, including penalties and
interest, is approximately $2.25 million. The Company
believes that these assessments have been adequately
provided for in the consolidated financial statements. The
lawsuits are all in their initial stages. The Company
believes that its has meritorious defenses and it has
instructed its counsel to contest these claims.
During April 1994, the Company was sued in an action
entitled Kathy M. McIlhenny vs. The Exploration Company of
Louisiana, Inc. (15th Judicial District Court, Parish of
Lafayette, Louisiana, Docket No. 941845). Kathy McIlhenny,
the former 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
By a Circular dated September 8, 1995, the Company
solicited the written consent of the holders of the
Company's Series A Preferred Stock for approval to amend the
terms of such preferred stock by eliminating the provision
therein prohibiting the Company from participating in
business opportunities associated with downstream
activities, such as petroleum refining and retailing of
refined products. The consent of two-thirds of the issued
and outstanding shares of Series A Preferred Stock held of
record on August 18, 1995 was required for approval. A total
of 449,381 votes were cast with respect to the amendment to
eliminate Paragraph 11(a)(i) from the Certificate of
Designation and to renumber the remaining paragraphs:
Consenting: 404,381
Non-Consenting: 45,000
No matters were submitted to a vote of holders of the
Common Stock holders during the three month period ended
September 30, 1995.
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)
3.8 Certificate of Amendment dated June 19, 1995,
whereby Article Fourth was amended to increase the
number of shares of Common Stock. *
3(ii) Amended and Restated Bylaws of the Company as
currently in effect. (A)(iii)
4.0 Instruments defining rights of security holders,
including indentures:
4.1 Form of Common Stock Certificate. (A)(iv)
4.2 Certificate of Designation of Series A, Cumulative
Convertible Preferred Stock. (G)
4.3 Form of Series A, Cumulative Convertible Preferred
Stock Certificate. (B)(ii)
4.4 Certificate of Designation of Series B, Cumulative
Preferred Stock. (H)(i)
4.5 Form of Series B, Cumulative Preferred Stock
Certificate. (H)(ii)
4.6 Form of Class B Warrants issued to China Investment
& Development Co. Ltd. to purchase 2,500,000 shares of
Common Stock at $2.00 per share payable upon redemption
of the Series B, Cumulative Preferred Stock. (H)(iii)
4.7 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated August 7, 1992. (D)(ii)
4.8 Certificate of Designation of Series C, Cumulative
Convertible Preferred Stock. (E)(ii)
4.9 Copy of Amendment to Certificate of Designation of
Series C Preferred Stock dated February 18, 1994.(I)(i)
4.10 Form of Series C, Cumulative Convertible Preferred
Stock Certificate. (I)(iii)
4.11 Certificate of Designation of Series D, Cumulative
Convertible Preferred Stock. (I)(iv)
4.12 Form of Amendment to Certificate of Designation of
Series D Preferred Stock dated January 24, 1994. (I)(ii)
4.13 Form of Series D, Cumulative Convertible Preferred
Stock Certificate. (E)(v)
4.14 Form of Warrant dated January 31, 1994 to purchase
2,500,000 shares of Common Stock at an exercise price of
$1.00 per share, subject to adjustment, issued to INCC.
(I)(iii)
4.15 Form of Registrar and Stock Transfer Agency
Agreement, effective March 18, 1991, entered into
between the Company and Manufacturers Hanover Trust
Company (predecessor to Chemical Bank), whereby Chemical
Bank serves as the Company's Registrar and U.S. Transfer
Agent. (J)
4.16 Copy of Warrant Agreement and Stock Purchase Warrant
dated March 1, 1944 to purchase 500,000 shares of Common
Stock at an exercise price of $1.00 per share, subject
to adjustment, issued to EnCap Investments, L.C. (I)(iv)
4.17 Copy of Warrant Agreement and form of Stock Purchase
Warrant dated March 1, 1994 to purchase an aggregate
600,000 shares of Common Stock at an exercise price of
$1.00 per share, subject to adjustment, issued to
principals of San Jacinto Securities, Inc. in connection
with its financial consulting agreement with the
Company. (I)(v)
4.18 Form of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase an aggregate 6,440,000
shares of Common Stock at an exercise price of $1.25 per
share, subject to adjustment, issued to executives of
the Company surrendering all of their rights under their
employment contracts with the Company. (F)(ii)
4.19 Form of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase an aggregate 878,900
shares of Common Stock at an exercise price of $1.25 per
share, subject to adjustment, issued to executives of
the Company in consideration for salary reductions
sustained under their employment contracts with the
Company. (F)(iii)
4.20 Copy of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 375,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Ivory & Sime Enterprise
Capital Plc. (F)(iv)
4.21 Copy of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 100,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Henry D. Owen. (F)(v)
4.22 Copy of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 1,000,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Provincial Securities
Limited. (F)(vi)
4.23 Form of Warrant Agreement and Stock Purchase Warrant
dated April 1, 1994, to purchase 200,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to Thomas H. Hudson. (F)(vii)
4.24 Form of Warrant Agreement and Stock Purchase Warrant
dated May 25, 1994, to purchase an aggregate 100,000
shares of Common Stock at an exercise price of $1.25 per
share, subject to adjustment, issued to the holders of
Purchase Notes B, in consideration of amendment to
payment terms of such Notes. (F)(viii)
4.25 Form of Warrant Agreement and Stock Purchase Warrant
dated May 25, 1994, to purchase an aggregate 100,000
shares of Common Stock at an exercise price of $1.25 per
share, subject to adjustment, issued to the holders of
Purchase Notes B, in consideration for the granting of
an option to further extend payment terms of such Notes.
(F)(ix)
4.26 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated June 30, 1994. (F)(x)
4.27 Form of Warrant Agreement and Stock Purchase Warrant
dated July 1, 1994, to purchase 100,000 shares of Common
Stock at an exercise price of $1.50 per share, subject
to adjustment, issued to Joe T. Rye. (F)(xi)
4.28 Form of Warrant Agreement and Stock Purchase Warrant
dated January 31, 1995, to purchase 100,000 shares of
Common Stock at an exercise price of $.75 per share,
subject to adjustment, issued to Energy Advisors, Inc.
(L)(i)
4.29 Copy of Amendment to Certificate of Designation of
Series A Preferred Stock dated October 31, 1995. *
4.30 Copy of Certificate of Designation of Series E,
Cumulative Convertible Preferred Stock dated November 2,
1995. *
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. (L)(ii)
10.26 Letter of Intent between the Company and CNPC United
Lube Oil Corporation for a joint venture for the
manufacture and sale of lubricating oil dated January
14, 1995. (L)(iii)
10.27 Purchase and Sale Agreement dated May 10, 1995,
between XCL Land, Ltd., a wholly owned subsidiary of the
Company ("Seller") and The Succession of Edward M.
Carmouche, Matilda Gray Stream, Harold H. Stream, III,
The Opal Gray Trust, Matilda Geddings Gray Trust for
Harold H. Stream, III, Matilda Geddings Gray Trust for
William Gray Stream, Matilda Geddings Gray Trust for
Sandra Gray Stream, M.G. Stream Trust for Harold H.
Stream, III, M.G. Stream Trust for William Gray Stream,
and M.G. Stream Trust for Sandra Gray Stream
("Purchasers") whereby the Purchasers will acquire
Seller's fee interest in and to a parcel of southwestern
Louisiana land known as the Phoenix Lake Tract. (L)(iv)
10.28 Farmout Agreement dated May 10, 1995, between XCL
China Ltd, a wholly owned subsidiary of the Company and
Apache Corporation whereby Apache will acquire an
additional interest in the Zhao Dong Block, Offshore
People's Republic of China. (L)(v)
10.29 Modification Agreement of Non-Negotiable Promissory
Note and Waiver Agreement between Lutcher & Moore
Cypress Lumber Company and L.M. Holding Associates, L.P.
dated June 15, 1995. (M)(i)
10.30 Third Amendment to Credit Agreement between Lutcher-
Moore Development Corp., Lutcher & Moore Cypress Lumber
Company, The First National Bank of Lake Charles, Mary
Elizabeth Mecom, The Estate of John W. Mecom, The Mary
Elizabeth Mecom Irrevocable Trust, Matilda Gray Stream,
The Opal Gray Trust, Harold H. Stream III, The
Succession of Edward M. Carmouche, Virginia Martin
Carmouche and L.M. Holding Associates, L.P. dated June
15, 1995. (M)(ii)
10.31 Second Amendment to Appointment of Agent for
Collection and Agreement to Application of Funds between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, L.M. Holding Associates, L.P. and The
First National Bank of Lake Charles, dated June 15,
1995. (M)(iii)
10.32 Contract of Chinese Foreign Joint Venture dated July
17, 1995, between United Lube Oil Corporation and XCL
China Ltd. for the manufacturing and selling of
lubricating oil and related products. (M)(iv)
10.33 Letter of Intent dated July 17, 1995 between CNPC
United Lube Oil Corporation and XCL Ltd. for discussion
of further projects. (M)(v)
10.34 Form of Letter Agreement dated June 26, 1995
between the Company and three of its U.S. holders of
Series A Preferred Stock, whereby the following such
holders have agreed to accept Common Stock in respect of
dividends payable December 31, 1994 and June 30, 1995 in
the amounts set forth:
12/31/94 6/30/95
Holder Dividend Dividend Shares
Kayne Anderson
Investment Management $627,788.12 $689,238.87 2,225,024
Cumberland Associates $429,056.51 $445,838.59 1,487,294
T. Rowe Price &
Associates, Inc. $159,975.00 $166,232.25 554,543 (M)(vi)
10.35 Copy of Letter Agreement dated March 31, 1995, between
the Company and China National Administration of Coal
Geology for the exploration and development of coal bed
methane in Liao Ling Tiefa and Shanxi Hanchang Mining
Areas. *
10.36 Copy of Second Amendment to Credit Agreement
between the Company and Internationale Nederlanden
(U.S.) Capital Corporation dated effective as of
September 29, 1995. *
10.37 Copy of Fee Agreement dated October 26, 1995, between
the Company and EnCap Investments L.C. for past services
and proposed European equity offering. *
10.38 Copy of Engagement Letter dated November 9, 1995,
between the Company and Rauscher Pierce & Clark for a
proposed Unit offering to be conducted in Europe. *
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 10Q 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 10K for the fiscal year ended December 31,
1990, filed April 1, 1991, where it appears as Exhibit
10.27.
(K) Incorporated by reference to Amendment No. 1
to an Annual Report on Form 10-K/A No. 1 for the fiscal
year ended December 31, 1994, filed April 17, 1995,
where it appears as: (i) through (iii) Exhibits 10.22
through 10.24, respectively.
(L) Incorporated by reference to Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995,
filed May 15, 1995, where it appears as: (i) Exhibit
4.28; and (ii) through (v) Exhibits 10.25 through
10.28, respectively.
(M) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, filed
August 14, 1995, where it appears as: (i) through (vi)
Exhibits 10.29 through 10.34, respectively.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1995.
</PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
XCL Ltd.
/s/ Pamela G. Shanks
By: __________________________
Pamela G. Shanks
Vice President-Finance and
Chief Financial Officer
Date: November 10, 1995
</PAGE>
<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "XCL LTD.", FILED IN
THIS OFFICE ON THE NINETEENTH DAY OF JUNE, A.D. 1995, AT 10
O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED
TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
AUTHENTICATION: 7544812
2147839 8100
950135231 DATE: 06-20-95
</PAGE>
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
XCL LTD.
XCL Ltd., a Delaware corporation, in order to amend its
Certificate of Incorporation pursuant to Section 242 of the
General Corporation Law of the State of Delaware, hereby
certifies as follows,
FIRST: On March 14, 1995, the Board of Directors of
said Corporation has duly adopted a resolution proposing and
declaring advisable the following amendment to the
Certificate of Incorporation of the Corporation:
RESOLVED: That the first sentence of Article FOURTH (A) of
the Certificate of Incorporation be amended to read in full as
follows.
"The total number of shares which the Corporation shall have
authority to issue is 351,200,000 of which 350,000,000 shares
of par value $.0l per share shall be designated 'Common Stock'
and 1,200,000 shares of par value $1.00 per share shall be
designated 'Preferred Stock."'
SECOND: The proposed amendment was presented at the
annual meeting of shareholders of the Corporation which was
held on June 14, 1995, in New York, New York, pursuant to
written notice duly given required by Section 222 of the
General Corporation Law of the State of Delaware.
THIRD: As of April 28, 1995 the official record date
of the annual meeting of shareholders, there were outstanding,
237,545,990 shares of Common Stock. entitled to one vote
per share; 599,244 shares of Series A, Cumulative Convertible
Preferred Stock, entitled to no votes; and 50,000 shares of
Series B, Cumulative Convertible Preferred Stock, entitled to
50 votes per share, for an aggregate 240,045,990 votes
entitled to be cast at the meeting. A majority of the votes
entitled to be cast at the meeting constitutes a quorum for
the transaction of business. An aggregate of 159,012,295
shares of Common Stock were represented at the annual meeting
of shareholders either in person or by proxy and accordingly a
quorum was present. The aforementioned, proposed amendment to
the Certificate of Incorporation was present. The
aforementioned, proposed amendment to the Certificate of
Incorporation was voted upon, approved and adopted by
shareholders casting votes at said meeting as follows;
FOR: 148,762.674
AGAINST: 9,447,230
ABSTAIN: 802,391
FOURTH: Said amendment was, accordingly. duly adopted by
the votes of the holders of at least a majority of all the
outstanding shares entitled to vote thereon at the meeting in
accordance with Section 242 of the General Corporation Law of
the State of Delaware.
FIFTH: The capital of said Corporation shall not be
reduced under or by reason of the said amendment.
SIXTH: The foregoing amendment shall become effective on
the date of the filing of this Certificate with the office of
the Secretary of State of Delaware.
IN WITNESS WHEREOF, the said Corporation has caused this
Certificate of Amendment to be signed and attested by its
officers thereunto duly authorized and its corporate seal to
be affixed this 16th day of June, 1995.
/s/ John T. Chandler
--------------------
By: John T. Chandler
Title: President
ATTEST:
/s/ Lisha C. Falk
- ------------------
By: Lisha C. Falk
Assistant Secretary
STATE OF LOUISIANA )
:ss:
COUNTY/PARISH OF LAFAYETTE)
BE IT REMEMBERED that on this 6th day of June, 1995,
personally came before me, a Notary Public in and for the
State and Parish aforesaid, John T. Chandler and Lisha C.
Falk, the President and the Assistant Secretary, respectively,
of XCL Ltd., the corporation described in the foregoing
instrument and known to me personally to be such, and
acknowledged the said instrument to be their own act and deed
ad the act and deed of said corporation; that the signatures
are in their own handwriting, and that the facts stated in
said instrument are true.
/s/ Suzanne Marse Bourque
-------------------------
Notary Public
My commission expires: At Death
</PAGE>
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "XCL LTD.", FILED IN THIS
OFFICE ON THE THIRTY-FIRST DAY OF OCTOBER, A.D. 1995, AT 10
0'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO
THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL OF SECRETARY'S
OFFICE] /s/ Edward J. Freel
________________________________
Edward J. Freel, Secretary of State
2147839 8100 AUTHENTICATION: 7695356
9505251653 DATE: 11-01-95
</PAGE>
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
XCL LTD.
(Pursuant to Section 242 of the General Corporation Law)
________________________________
THE UNDERSIGNED, David A. Melman and Lisha C. Falk, being
the duly elected Executive Vice President and Assistant
Secretary, respectively of XCL Ltd., a Delaware corporation (the
"Company"), for the purposes of amending the Certificate of
Incorporation pursuant to Section 242 of the General Corporation
Law of the State of Delaware, DO HEREBY CERTIFY THAT:
FIRST: On June 14, 1995, the Board of Directors of said
Company duly adopted resolutions proposing an amendment to
Paragraph 11 of the terms of the Company's Series A, Cumulative
Convertible Preferred Stock, par value $1.00 per share (the
"Series A Preferred Stock"), as such terms are set forth in that
Certificate of Designation of Series A Preferred Stock, filed on
July 6, 1990 with the Secretary of the State of the State of
Delaware pursuant to Section 151 of the General Corporation Law
of the State of Delaware (the "Certificate of Designation"),
declaring such amendment's advisability and proposing the
solicitation of the written consent to the amendment to the
holders of the Series A Preferred Stock. The proposed amendment
(the "Amendment") as summarized in said resolutions and submitted
in summary form to such stockholders for approval is as follows:
1. Paragraph 11 of the Certificate of Designation is
hereby amended to eliminate sub-paragraph (a)(i), in
its entirety.
2. The remaining sub-paragraphs (a)(ii) and (a)(iii)
are, accordingly, redesignated (a)(i) and (a)(ii),
respectively.
3. The remaining terms and provisions of the Series A
Preferred Stock shall remain in full force and effect.
SECOND: In lieu of a meeting and vote of holders of the
Series A Preferred Stock, the holders of record on the record
date, August 18, 1995, of an aggregate of 404,381 shares of the
Series A Preferred Stock, and exceeding the two-thirds vote
required to approve the Amendment, representing approximately
67.48% of the issued and outstanding shares of Series A Preferred
Stock, gave their written consent to said Amendment in accordance
with the provisions of Section 228 of the General Corporation Law
of the State of Delaware and the provisions of Paragraph 9 of the
Certificate of Designation, which written consents have been
filed with the Company as required under said Section 228.
THIRD: The the remaining terms and provisions of the
Series A Preferred Stock remain in full force and effect without
amendment.
FOURTH: Written notice of the approval of the Amendment
has been given to holders of the Series A Preferred Stock who
have not so consented in writing.
IN WITNESS WHEREOF, the said Corporation has caused this
Certificate of Amendment to be signed and attested by its
officers thereunto duly authorized and its corporate seal to be
affixed this 30th day of October, 1995.
/s/ David A. Melman
_____________________________
David A. Melman
Executive Vice President
ATTEST:
/s/ Lisha C. Falk
_______________________________
Lisha C. Falk
Assistant Secretary
STATE OF LOUISIANA )
:ss:
PARISH OF LAFAYETTE )
BE IT REMEMBERED that on this 30th day of October,
1995, personally came before me, a Notary Public in and for the
State and Parish aforesaid, David A. Melman and Lisha C. Falk,
the Executive Vice President and the Assistant Secretary,
respectively, of XCL Ltd., the corporation described in the
foregoing instrument and known to me personally to be such, and
acknowledged the said instrument to be their own act and deed ad
the act and deed of said corporation; that the signatures are in
their own handwriting , and that the facts stated in said
instrument are true.
/s/ Suzanne Marse Bourque
________________________________
Notary Public
My commission expires: At Death
</PAGE>
<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE
STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE
AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF "XCL
LTD.", FILED IN THIS OFFICE ON THE SECOND DAY OF NOVEMBER,
A.D. 1995, AT 10 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS SEEN
FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR
RECORDING.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7698022
2147839 8100
950254226 DATE: 11-02-95
</PAGE>
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES E, CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
XCL LTD.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
XCL LTD., a corporation organized and existing
under the laws of the State of Delaware (the "Company" or
"XCL"), HEREBY CERTIFIES that the resolutions set forth
below were duly adopted by the Board of Directors of the
Company pursuant to authority conferred upon the Board of
Directors by the provisions of the Certificate of
Incorporation of the Company, which authorizes the issuance
of up to 1,200,000 shares of Preferred Stock, par value
$l.00 per share, to be designated in one or more series, and
in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware,
respectively:
RESOLVED: That the Company establish a new series
of Preferred Stock, par value $1.00 per share, to be
designated as Series E, Cumulative Convertible Preferred
Stock ("Series E Preferred Stock"); and it was
RESOLVED FURTHER: That the powers, preferences
and relative, participating, optional or other special
rights, and the qualifications, limitations and restrictions
thereof, of the Series E Preferred Stock, in addition to
those stated in Article FOURTH of the Certificate of
Incorporation which are applicable to all series of
Preferred Stock, are hereby established substantially as set
forth in the attached Exhibit A; and it was
RESOLVED FURTHER: That the Company be, and it hereby is
authorized to issue, from time to time, up to 80,000 shares
of Series E Preferred Stock.
IN WITNESS WHEREOF, the Company has caused its
corporate seal to be hereunto affixed and this Certificate
to be signed by David A. Melman, its Executive Vice
President, and attested by Lisha C. Falk, its Assistant
Secretary, this 1st day of November, 1995.
XCL LTD.
/s/ David A. Melman
- -------------------
David A. Melman
Executive Vice President
[Corporate Seal)
ATTEST:
/s/ Lisha C. Falk
- -----------------
Lisha C. Falk
Assistant Secretary
STATE OF LOUISIANA )
:ss:
PARISH OF LAFAYETTE )
BE IT REMEMBERED that on this 1st day of November,
1995, personally came before me, a Notary Public in and for the
State and Parish aforesaid, David A. Melman and Lisha C. Falk,
the Executive Vice President and the Assistant Secretary,
respectively, of XCL Ltd., the corporation described in the
foregoing instrument and known to me personally to be such, and
acknowledged the said instrument to be their own act and deed
and the act and deed of said corporation; that the signatures
are in their own handwriting, and that the facts stated in said
instrument are true.
/s/ Suzanne Marse Bourque
- ---------------------------
Notary Public
My commission expires: At Death
</PAGE>
<PAGE>
EXHIBIT "A"
DESIGNATION OF THE
SERIES E, CUMULATIVE CONVERTIBLE
PREFERRED STOCK
Paragraph 1. Designation and Amount. The shares of
this series of Preferred Stock, par value $1.00 per share
("Preferred Stock"), shall be designated as Series E, Cumulative
Convertible Preferred Stock, par value of $1.00 per share
("Series E Preferred Stock"), and the number of shares
constituting such series shall be 80,000.
Paragraph 2. Definitions and Rules of Construction.
(a) The following terms, not defined
elsewhere herein, shall have the following meanings:
"The American Stock Exchange" means the American Stock
Exchange, Inc.
"Board of Directors" means the Board of Directors of
the Company as may be constituted from time to time.
"Business Day" means any day (other than a Saturday,
Sunday or public holiday in the Borough of Manhattan, City of
New York, New York) on which banking institutions in New York
City are not authorized or obligated by law or executive order
to
close.
"Closing Price" of a security on any day means the
last sales price, regular way, per share of such security on
such day as reported in die principal consolidated reporting
system with respect to such security listed on the principal US
stock exchange on which such security was listed for trading or,
if the shares of such security are not listed or admitted to
trading on a US stock exchange, the middle market quotations for
the shares of such security (derived from The London Stock
Exchange Daily Official List) listed or admitted to trading on
The London Stock Exchange, or if the shares of such security are
not listed or admitted to trading on The London Stock Exchange,
the last sales price as reported, in the National Market System
("NMS") of the National Association of Securities Dealers Inc.
Automated Quotation System ("NASDAQ"), or if the shares of such
security are not listed or admitted to trading in NMS, the
average of the high bid and low asked prices in the over-the-
counter market as reported by NASDAQ, or if the bid and asked
prices on each such day shall not have been reported through
NASDAQ, the average of the bid and asked prices for such day as
furnished by any American Stock Exchange member firm regularly
making a market in such security selected for such purpose by
the Board of Directors or a committee thereof on each Trading
Day. In any of such alternate cases when such security is not
traded in prices expressed in Dollars, such Closing Price shall
be converted into Dollars at the then spot market exchange rate
of pounds sterling (UK) into Dollars as quoted by Chemical
Banking Corporation on the date of determination.
"Common Stock" means the shares of common stock, par
value $.01 per share, of the Company.
"Company" means XCL Ltd., a Delaware corporation.
"Conversion Commencement Date" means the earlier of
(i) the date of the initial Redemption Notice (as defined in
subparagraph 5(a)) issued by the Company for shares of Series E
Preferred Stock or (ii) December 31, 1996.
"Conversion Stock" means the shares of Common Stock
issuable upon conversion of the Series E Preferred Stock in
accordance with Paragraph 6.
"Directors" means the directors of the Company.
"Dividend Stock" means the shares of Series E
Preferred Stock paid to holders of Series E Preferred Stock in
lieu of a cash dividend.
"$" means Dollars.
"Dollars" means the freely transferable currency of
the USA.
"Forced Conversion Date" means that date which is the
later of the second anniversary of the initial Issuance Date (as
defined in subparagraph 3(a)) or the first anniversary of the
date on which the Conversion Stock is first registered under the
Securities Act.
"Parity Stock" means all other series of preference
stock ranking on a parity with the Series E Preferred Stock as
to the right to receive any dividends and any payment or
distribution of assets upon a liquidation or winding up of the
Company. The Series A and Series B Preferred Stock shall be
deemed Parity Stock for all purposes herein.
"Securities Act" means the Securities Act of 1933, as
amended.
"Series A Preferred Stock" means the shares of the
Company's Series A, Cumulative Convertible Preferred Stock, par
value $1.00 per share.
"Series B Preferred Stock" means the shares of the
Company's Series B, Cumulative Preferred Stock, par value $1.00
per share.
"Shareholders" means the holders of the Common Stock.
"Stock Option Plans" means the employee stock option
plans adopted by the Company and approved by Shareholders, in
effect from time to time, for employees and certain other
individuals rendering services to the Company.
"The London Stock Exchange" means The International
Stock Exchange of the United Kingdom and the Republic of Ireland
Limited.
"Trading Day" shall mean a day on which the market
used for calculating the closing Price is open for the
transaction of business or, if the shares of such security are
not so listed or admitted to trading, a Business Day.
"Transfer Agent" means the transfer agent for the
Series E Preferred Stock from time to time obtaining.
"UK" and "United Kingdom" mean the United Kingdom of
Great Britain and Northern Ireland.
"USA" and "US" mean the United States of America.
"Warrants" means an aggregate of 24,543,900 issued and
outstanding and to be issued warrants to purchase Common Stock.
(b) References herein to Paragraphs and
subparagraphs are to Paragraphs and subparagraphs of this
Designation of the Series E Preferred Stock ("Designation")
unless otherwise indicated. The words "hereof", "herein",
"hereunder" and comparable terms refer to the entirety of this
Designation and not to any particular Paragraph or other
subdivision hereof. 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 Paragraph headings
contained in this Designation are for reference purposes only
and shall not affect in any way the meaning or interpretation of
this Designation.
Paragraph 3. Dividends and Distributions.
(a) Each share of Series E Preferred Stock
shall entitle the record holder to receive, out of funds legally
available therefor, when, as and if declared by the Board of
Directors, dividends in cash at the annual rate of $10.00 per
share, which shall be payable in arrears in equal semi-annual
installments on June 30th and December 31st, or in the event any
such date is a Saturday, Sunday or public holiday in the Borough
of Manhattan, in the City of New York, New York, on the first
Business Day following such date (hereinafter a "Dividend
Payment
Date") in each year, provided, however, that the dividend
payable on the first such Dividend Payment Date shall be equal
to the product obtained by multiplying $5.00 by a fraction, the
denominator of which shall be 182 and the numerator of which
shall be the number of days expired in the period between the
date of issuance of the share of Series E Preferred Stock (the
"Issuance Date") and such first Dividend Payment Date (inclusive
of both such dates).
(b)The Company may, at its option exercised by written
notice to the holders of the Series E Preferred Stock given at
least ten (10) Business Days prior to the Dividend Payment Date,
elect to pay any dividend due and payable hereunder, in kind in
additional shares of Series E Preferred Stock in lieu of a
dividend payment in cash. The amount of shares of Dividend Stock
issuable to each holder of Series E Preferred Stock pursuant to
this subparagraph 3(b) on each such Dividend Payment Date shall
equal .05 share of Series E Preferred Stock for each share of
Series E Preferred Stock registered in the name of each such
holder of the Series E Preferred Stock on the record date for
the payment of the dividend. Fractional shares of Series E
Preferred Stock arising in respect of the payment of any
dividend in shares of Dividend Stock shall not be issued to the
holders of Series E Preferred Stock.
(c) Dividends shall be cumulative, whether or
not earned and whether or not surplus shall be available
therefor and shall commence to accrue and accumulate from day to
day from the Issuance Date. Such accumulation shall include, if
not paid, the dividend payable on each Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Such
dividends shall be declared and set apart or paid before any
dividends (other than dividends payable in Common Stock or any
other series or class of the Company's stock hereafter issued
which ranks junior as to dividends and as to distributions upon
the dissolution, liquidation or winding up of the Company to the
Series E Preferred Stock, such junior securities being
hereinafter referred to as "Junior Securities") shall be paid on
the Common Stock or such other series or class of Junior
Securities. No cash dividend shall be paid upon or set apart for
shares of any other class of stock of the Company (other than
shares of preference stock ranking pari passu with the Series E
Preferred Stock in respect of the payment of dividends) until
all dividend arrears on the Series E Preferred Stock shall be
fully paid. The shares of Series E Preferred Stock shall rank
pari passu with the shares of the Series A Preferred Stock and
Series B Preferred Stock with respect to the payment of
dividends.
(d) Dividends paid on the shares of Series E Preferred
Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be
allocated pro-rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of Series E
Preferred Stock entitled to receive payment of a dividend
declared thereon, which record date shall be no more than sixty
days prior to the date fixed for the payment thereof.
(e) In the event the Company (i) fails to register
the Conversion Stock under the Securities Act by the Conversion
Commencement Date, then the annual dividend rate on the Series E
Preferred Stock shall be increased effective on such date, to an
annual rate of $12.00 per share of Series E Preferred Stock (or
.12 share of Series E Preferred Stock if such dividend is paid
in kind) until such time as such Conversion Stock is so
registered, at which time the dividend rate will revert to the
initial
dividend rate; and (ii) fails to declare and pay any dividend on
a Dividend Payment Date (the "Defaulted Date"), the dividend
rate on the outstanding shares of Series E Preferred Stock in
effect on the Defaulted Date shall be increased effective such
Date so that the aggregate dividend payable on the next
succeeding Dividend Payment Date shall equal the dividend that
would have been paid on all then outstanding shares of Series E
Preferred Stock had the Company declared and paid the dividend
on the Defaulted Date in Dividend Stock. Upon payment of all
such dividend arrearages in cash or with shares of Dividend
Stock (or some combination of both), the dividend rate shall
revert to the dividend rate in effect on the initial Defaulted
Date. The Company shall notify all holder's of Series E
Preferred Stock in writing (1) of the date on which the
Conversion Stock has been registered under the Securities Act
and (2) at least fifteen (15) days prior to the payment by the
Company of any dividend arrearages in cash, in which case such
holders may elect to receive such dividend arrearage payment in
shares of Dividend Stock (computed based upon the annual cash
dividend rate then applicable divided by l00) in lieu of such
cash payment by notice in writing delivered to the Company
within five (5) days after receipt of the Company's dividend
payment notice, provided that such notice is received by the
Company from the holders of at least a majority of the
outstanding shares of Series E Preferred Stock.
Paragraph 4. Dissolution. Liquidation or Winding Up.
In the event of any dissolution, liquidation or
winding up of the affairs of the Company, after payment or
provision for payment of the debts and other liabilities of the
Company, the registered holders of Series E Preferred Stock
shall be entitled to share on a pro rata basis with the holders
of shares of Series A Preferred Stock and Series B Preferred
Stock and all other series of the Company's preference stock
ranking on a parity with the Series E Preferred Stock in respect
of distributions upon dissolution, liquidation or winding up of
the Company, after payment or provision for payment of the debts
and other liabilities of the Company, the registered holders of
Series E Preferred Stock shall be entitled on a pro rata basis
with the holders of shares of Series A Preferred Stock and
Series B Preferred Stock and all other series of the Company's
preference stock ranking on a parity with the series E Preferred
Stock in respect of distributions upon dissolution, liquidation
or winding up of the Company, and to receive, out of the net
assets of the Company, $100.00 per share, plus an amount equal
to all the dividend arrears on each such share up to the date
fixed for distribution and no more, before distribution shall be
made to the holders of the Common Stock or any Junior
Securities. Neither the merger or consolidation of the Company,
nor the sale, lease or conveyance of all or a part of its
assets, shall be deemed to be a dissolution, liquidation or
winding up of the affairs of the Company within the meaning of
this Paragraph 4.
Paragraph 5. Redemption.
The Series E Preferred Stock shall be redeemable at
the redemption price specified below and on the following terms
and conditions:
(a) The Series E Preferred Stock shall be redeemable
at the election of the Company, in whole or in part at any time
and from time to time, at a redemption price ("Redemption
Price") of, at any time (i) prior to March 31, 1996, $125.00 per
share, (ii) between April 1, 1996 and June 30, 1996, $120.00 per
share, (iii) between July 1, 1996 and September 30, 1996,
$116.00 per share,
(iv) between October 1, 1996 and December 31, 1996, $112.00 per
share, (v) between January 1, 1997 and March 31, 1997, $108.00
per share; (vi) between April 1, and June 29, 1997, $104.00 per
share, and (vii) on or after June 30, 1997, $100.00 per share,
in each case plus all accrued and unpaid dividends to and
including the redemption date. The Company shall notify each
holder of record of shares of Series E Preferred Stock in
writing (the "Redemption Notice") mailed by first class mail,
postage prepaid, at least twenty (20) days and not more than
sixty (60) days, prior to the date fixed by the Company for
redemption, mailed to his address as the same shall appear on
the hooks of the Company. The Redemption Notice shall state the
redemption date, the Redemption Price and the place and manner
of payment thereof. If less than all of the outstanding shares
of Series E Preferred Stock are to be redeemed, the Company
shall select those shares to be redeemed pro rata or by lot or
in such other manner as the Board of Directors may determine.
(b) The Company may deposit the aggregate Redemption
Price in trust with a bank or trust company (in good standing,
organized under the laws of the United States of America or of
the State of New York, doing business in the Borough of
Manhattan, in the City of New York, New York, and having capital
surplus and undivided profits aggregating at least $25,000,000)
as the "Redemption Agent", for payment to the holders of the
shares so to be redeemed, upon surrender (and endorsement, if
required by the Board of Directors) of the certificates for such
shares. At the close of business on a redemption date (unless
the Company shall fail to make payment or deposit of the
Redemption Price as above set forth), dividends shall cease to
accrue on the shares of Series E Preferred Stock called for
redemption (except on any such shares of Series E Preferred
Stock in respect of which, upon due presentation of the
certificate(s) relating thereto, payment of the money due at
such redemption shall be refused in which case the dividend
shall be deemed to have continued and shall continue to accrue
from the relevant date of redemption to the date of payment);
each holder of the shares of Series E Preferred Stock so to be
redeemed shall cease to be a shareholder with respect to such
shares and shall have no interest in, or claim against, the
Company and shall have no voting or other rights with respect to
such shares, except the right to receive the moneys payable upon
such redemption from such bank or trust company, or from the
Company, without interest thereon, upon surrender (and
endorsement if required by the Board of Directors) of the
certificates; and the shares represented thereby shall no longer
be deemed to be outstanding. In the case of a call for
redemption by the Company pursuant subparagraph 5(a) above, the
right of conversion shall cease and terminate as to the shares
designated for redemption on the close of business on the third
Business Day preceding the redemption date unless default shall
be made in the payment of the Redemption Price. In the event the
holder of any shares of Series E Preferred Stock shall not,
within six years after such deposit, claim the amount deposited
as above stated for the redemption thereof the depositary shall.
upon demand, pay over to the Company such unclaimed amount so
deposited, and the depositary shall thereupon be relieved of all
responsibility therefor to such holder.
(c) So long as any shares of Series E Preferred Stock
are outstanding, the Company shall not redeem, purchase or
otherwise acquire, or permit any subsidiary to purchase or
otherwise acquire, any shares of Common Stock or any Junior
Securities if at the time of making such redemption, purchase or
acquisition the Company shall be in default with respect to any
dividend payable on, or any obligation to purchase shares of,
Series E Preferred Stock; provided, however, that,
notwithstanding the foregoing the Company may at any time
redeem, purchase or otherwise acquire shares of Common Stock or
any Junior Securities in exchange for, or out of the net cash
proceeds from the sale of, Common Stock or other shares of
Junior Securities. If in any case the amounts payable with
respect to the Company's obligation to retire shares of
Preferred Stock are not paid in fall in the case of all series
with respect to which such obligations exist, the number of
shares of the various series to be retired shall be in
proportion to the respective amounts which would be payable on
account of such obligations if all amounts payable were
discharged in fail. Any dividend arrears on the Series E
Preferred Stock tendered to the Company shall be payable in fall
to the respective last holders of record of the shares of Series
E Preferred Stock so tendered to the Company pro rata with
payment of corresponding dividend arrears on the Series ES
Preferred Stock remaining outstanding.
Paragraph 6. Conversion
(a) Subject as hereinafter provided, at any
time after the Conversion Commencement Date at the option of the
record holder of the Series E Preferred Stock, the Series E
Preferred Stock shall be convertible, in whole or in part, at
the office of the Transfer Agent into fully paid and
nonassessable shares of Common Stock at a rate (the "Conversion
Rate") per share of Series E Preferred Stock equal to that
number of shares of Common Stock as shall equal the quotient of
$100 divided by $.50 (the "Conversion Price") (subject in any
case to adjustment as hereinafter provided in Paragraph 7),
provided that if a Conversion Notice (as hereinafter defined in
subparagraph 6(c) below) is given in respect of only a part of a
holding of Series E Preferred Stock so that there would remain
following conversion three or fewer such shares in that holding,
all the Series E Preferred Stock in the holding shall be
converted notwithstanding the figure inserted in the Conversion
Notice.
(b) For the purposes of the provisions hereof
a "Conversion Date" shall be the date falling 90 days after the
date of the Conversion Notice (or such sooner date as the
Company may notify the converting holder of Series E Preferred
Stock in writing) and provided always that If any Conversion
Date would otherwise fall on a day which is not a Business Day
such Conversion Date shall be the first Business Day following
such date.
(c) The right to convert shall be exercisable
at any time and from time to time after the Conversion
Commencement Date by completing the notice of conversion
endorsed on the share certificate relating to the Series E
Preferred Stock to be converted or a notice in such other form
as may from time to time be prescribed by the Board of Directors
in lieu thereof (any such notice being herein called a
"'Conversion Notice") and delivering the same to the Transfer
Agent together with such other evidence (if any) as the Board of
Directors may reasonably require to prove title of the person
exercising such right to convert. The Conversion Notice shall be
deemed dated as of the date of receipt thereof by the Transfer
Agent. A Conversion Notice once given may not be withdrawn
without the consent In writing of the Company.
(d) On conversion the dividend on the Series
E Preferred Stock so converted shall cease to accrue with effect
from the close of business on the date preceding the Conversion
Date. The Common Stock issued on such conversion shall entitled
the holder to all dividends and other distributions payable on
the Common Stock by reference to a record date after the
applicable Conversion Date.
(e) Any dividend arrears on the Series E
Preferred Stock surrendered for conversion shall be payable in
full to the respective last holders of record of the shares of
Series E Preferred Stock surrendered for conversion
(notwithstanding any subsequent transfer of the shares of Common
Stock into which such shares have been converted), pro rata with
payment of corresponding dividend arrears on the Series E
Preferred Stock remaining outstanding.
(f) Conversion shall be deemed to have been
effected on the Conversion Date, and the holder shall as of the
close of business on such date have the full rights of the
Common Stock resulting from such conversion.
(g) On the Conversion Date all shares of
Series E Preferred Stock in respect of which a Conversion Notice
has been delivered ("relevant shares") shall be converted into
shares of Common Stock at the Conversion Rate. Upon issuance of
the Common Stock, the relevant shares shall be retired and
cancelled. Within 28 days after the Conversion Date, the Company
shall, or shall cause, the forwarding to each holder of the
relevant shares, at his own risk, free of charge, a definitive
certificate for the appropriate number of fully paid shares of
Common Stock and a new certificate for any unconverted Series E
Preferred Stock comprised in the certificate(s) surrendered by
him.
(h) Fractions of Common Stock arising on
conversion shall not be issued to the holders of the relevant
shares otherwise entitled thereto but (if arrangements can be so
made) such fractions shall be aggregated and sold in the market
on behalf of such holders at the best price reasonably
obtainable and the net proceeds of sale shall be distributed pro
rata among such holders unless in respect of any holding of the
relevant shares the amount to be distributed would be less than
$2.00 in which case such amount shall not be distributed but
shall be retained for the benefit of the Company. For the
purpose of implementing the provisions of this sub-paragraph
(h), the Board of Directors may appoint a person to execute
transfers on behalf of persons otherwise entitled to any such
fractions and generally may make all arrangements which appear
to the Board necessary or appropriate for the settlement and
disposal of fractional entitlements.
(i) In case of the voluntary dissolution,
liquidation or winding up of the Company, all conversion rights
relating to the Series E Preferred Stock shall terminate 45 days
after the mailing of a notice of such action to all record
holders of Series E Preferred Stock; provided that such date of
termination of conversion rights shall be not more than sixty
(60) days nor less than twenty (20) days prior to the date on
which such dissolution is to become effective or such
liquidation or winding up is to commence. Any such notice shall
call attention to the date of such termination of the conversion
rights, the per share amount payable on the Common Stock, the
per share amount payable on the Series E Preferred Stock held by
such holder in connection with such action, (in each case, if
then known, or, a reasonable estimate if such amount is not
known with any reasonable degree of certainty), and the then
current Conversion Rate of the Series E Preferred Stock held by
such holder of record.
(j) At any time after the Forced Conversion
Date that at least seventy five percent (75%) of the aggregate
number of shares of Series E Preferred Stock originally issued
on the Issuance Date have been purchased or redeemed by the
Company or converted into Common Stock by the holders thereof,
the Company may, at its option, cause the conversion of all the
remaining issued and outstanding shares of the Series E
Preferred Stock at the then current Conversion Rate upon at
least 45 days written notice to all holders of record.
(k) The Company shall use its best efforts to
ensure that the shares of Conversion Stock are listed on all the
principal stock exchanges on which the Company's Common Stock is
listed for trading.
Paragraph 7. Adjustments of Conversion Rate.
The Conversion Rate for the Series E Preferred Stock
shall be subject to adjustment from time to time as follows:
(a) If the Company shall at any time or from
time to time pay a dividend or other distribution on its
outstanding shares of Common Stock in shares of Common Stock,
subdivide its outstanding shares of Common Stock into a larger
number of shares or combine its outstanding shares of Common
Stock into a smaller number of shares, the Conversion Rate in
effect immediately prior to the record date for such dividend or
the effective date for such subdivision or combination shall be
adjusted so that each share of Series E Preferred Stock shall
thereafter be convertible into the number of shares of Common
Stock which the holder of a share of Series E Preferred Stock
would have been entitled to receive after the happening of any
of the events described above had such share been converted
immediately prior to the happening of such event. An
adjustment made pursuant to this subparagraph (a) shall become
effective immediately after the close of business on such a
record date in the case of a dividend and shall become effective
on the close of business on the day immediately prior to the
effective date in the case of a sub-division or combination.
(b) If the Company shall issue rights or
warrants to all holders of Common Stock (expiring within 45 days
after the record date for determining stockholders entitled to
receive them) for the purpose of entitling them to subscribe for
or purchase shares of Common Stock at a price per share less
than the average of the Closing Prices per share for the 30
consecutive Trading Days ending on the record date for the
determination of the stockholders entitled to receive such
rights or warrants, then at the discretion of the Board of
Directors, either (i) the Company shall make a like issue at the
same time to each holder of the Series E Preferred Stock as if
his conversion rights had been exercisable in full on the record
date for such issue on the basis of the Conversion Rate; or (ii)
the number of shares of Common Stock into which each share of
the Series E Preferred Stock shall thereafter be convertible
shall be adjusted by multiplying the number of shares of Common
Stock into which each share of Series E Preferred Stock was
convertible on the day immediately preceding such record date by
a fraction the numerator of which shall be the sum of the number
of shares of Common Stock outstanding on such record date and
the number of additional shares of Common Stock so offered for
subscription or purchase, and the denominator of which shall be
the sum of the number of shares of Common Stock outstanding on
such record date and the number of shares of Common Stock which
the aggregate offering price of the total number of shares so
offered would purchase at such average of the Closing Prices for
such 30 Trading Days. Such adjustment shall become effective
immediately after the close of business on such record date.
Notwithstanding
anything in the foregoing to the contrary, no such issue or
adjustment shall be made in respect of the shares of Common
Stock issuable upon exercise of the Warrants, any stock options
granted pursuant to the Company's Stock Option Plans approved
by Shareholders (provided that option exercise price shall not
be less than the fair market value of the Common Stock on the
date of grant of the options), the Series A Preferred Stock and
the shares of Common Stock issuable as dividends on or upon
conversion of the Series A Preferred Stock or the Series B
Preferred Stock and the shares of Common Stock issuable as
dividends on or upon redemption of the Series B Preferred
Stock.
(c) If any offer or invitation by way of
rights or otherwise (not being an offer or invitation to which
the provisions of subparagraph 7(b) apply) is made to all the
Shareholders by the Company, the Company shall make or, so far
as it is able, cause that there be made a like offer at the
same time to each holder of Series E Preferred Stock as if his
conversion rights had been exercisable and had been exercised
in full on the record date for such offer or invitation on the
basis of the Conversion Rate.
(d) If the Company shall distribute to all
holders of Common Stock any assets (other than any ordinary
dividend payable solely in cash in an amount not excessive in
comparison to its current earnings),. any rights to subscribe
(other than those referred to in sub-paragraph 7(b) above) or
any evidence of indebtedness or other securities (other than
Common Stock or Junior Securities), then in each such case the
number of shares of Common Stock into which each share of
Series E Preferred Stock shall thereafter be convertible shall
be adjusted by multiplying the number of shares of Common Stock
into which each share of Series E Preferred Stock was
convertible 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 average of the Closing Prices per share of Common Stock for
the thirty (30) consecutive Trading Days ending on such
record date and the denominator of which shall be such average
of the Closing Prices per share less the then fair market value
(as determined in a resolution adopted by the Board and
reviewed and approved by the Company's auditors for the time
being) of the portion of the assets or evidences of
indebtedness or securities so distributed or of such
subscription rights applicable to one share of Common Stock.
Such adjustment shall become effective immediately after the
close of business on such record date.
(e) Whenever the Conversion Rate is adjusted
as herein provided, the Company shall forthwith file with the
Transfer Agent a certificate stating the adjusted Conversion
Rate determined as provided in this Paragraph 7. Such
certificate shall show in detail the facts requiring such
adjustment. The calculation of such adjustment shall have been
reviewed and approved the Company's auditors for the time
being. Whenever the Conversion Rate is adjusted, the Company
will forthwith cause a notice stating the adjustment and the
resulting Conversion Rate to be mailed to the respective
holders of record of Series E Preferred Stock.
(f) In case of any capital reorganization or
any reclassification of the capital stock of the Company or in
case of the consolidation or merger of the Company with another
corporation or in case of any sale or conveyance of all or
substantially all of the property of the Company, each share of
the Series E Preferred Stock shall thereafter be convertible
into the number of shares of stock or other securities or
property
receivable upon such capital reorganization,. reclassification
of capital stock,. consolidation, merger, sale or conveyance,
as the case may be, by a holder of the number of shares of
Common Stock into which such share of Series E Preferred Stock
was convertible immediately prior to such capital
reorganization, reclassification of capital stock,
consolidation, merger, sale or conveyance; and, in any case,
appropriate adjustment (as determined by the Board of Directors
and reviewed and approved by the Company's auditors for the
time being) shall be made in the application of the provisions
herein set forth with respect to rights and interests
thereafter of the holders of the Series E Preferred Stock
, to the end that provisions set forth herein (including the
specified changes in and other adjustments of the Conversion
Rate) shall thereafter be applicable, as near as reasonably may
be, in relation to any shares of stock or other securities or
other property thereafter deliverable upon the conversion of
the Series E Preferred Stock.
(g) No adjustment shall be made hereunder
unless by reason of the happening of any one or more of the
events herein specified, the Conversion Rate then in effect
would be changed by 1 % or more, but any adjustment of less
than 1% that would otherwise be required to be made shall be
carried forward and shall be made at the time of and together
with any subsequent adjustment which, together with any
adjustment or adjustments so carried forward, amounts to 1 % or
more, provided that such adjustment shall be made in any case
(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
subparagraph (f) of this Paragraph 7.
Paragraph 8. Voting Rights.
Except as may be otherwise provided herein or in the
Certificate of Incorporation of the Company. as amended from
time to time with the consent of the holders of Series E
Preferred Stock, provided such consent is required to be
obtained hereunder, or as required by applicable law:
(a) the Series E Preferred Stock shares
shall not entitle the holders thereof to receive notice of or
attend or vote at any meeting of stockholders except in the
following circumstances:
(i) The Series E Preferred Stock shall vote
as a separate class on any resolution proposed for adoption by
the stockholders of the Company which seeks to amend, alter or
repeal, the provisions of the Company's Certificate of
Incorporation or of the resolutions contained in the
Certificate of Designation of the Series E Preferred Stock
designating the Series E Preferred Stock and the preferences
and privileges, relative, participating, optional or other
special rights and qualifications, limitations and restrictions
thereof so as to adversely affect any right, preference,
privilege or voting power of the Series E Preferred Stock or
the holders thereof; provided, however, that any increase in
the amount of the issued Series E Preferred Stock or the
creation and issue of any other series of preference stock
(whether or not denominated in Dollars, or any increase in the
amount of authorized shares of Series E Preferred Stock, in
each case either being Parity Stock or Junior Securities and
with or without similar voting rights) will not be deemed to
affect adversely such rights. preferences, privileges or voting
powers of the Series E Preferred Stock;
(ii) Except in the event that arrangements are or
have been offered to the holders of the Series E Preferred
Stock which ensure that the rights of such holders would not be
prejudiced, the Company will ensure that no plan of compromise or
arrangement affecting the Common Stock shall become effective
unless the holders of the Series E Preferred Stock shall be
parties to the plan and unless the plan shall be approved by
the holders of at least a majority of the then issued and
outstanding shares of Series E Preferred Stock, voting as a
class together with all other Parity Stock;
(iii) In the case of a vote on a resolution regarding
(1) the capital reorganization, dissolution or liquidation of
the Company; or (2) any matter for which the consent of the
holders of Series E Preferred Stock is sought in accordance
with the provisions of subparagraphs 8(a)(i) and 8(a)(ii) and
Paragraphs 9 or 10; every record holder of Series E Preferred
Stock who is present at that meeting in person or by proxy
shall be entitled to cast one (1) vote for each share of Series
E Preferred Stock registered in his name (voting (A) as a
separate class with respect to the matters set forth in
subparagraph 8(a)(i) and (B) together with all other Parity
Stock with respect to the matters set forth in subparagraphs
8(a)(ii) and 8(a)(iii)(1) and Paragraphs 9 and 10) and the
decision of at least two thirds of the outstanding shares of
Series E Preferred Stock (as to any matters set forth in clause
(A) above) and a majority of the outstanding shares of Series E
Preferred Stock and any Parity Stock, voting separately as a
class (as to any matters set forth in clause (B) above) shall
be determinative of the matter so long as a quorum (as defined
in subparagraph 8(b) below) is present; or
(iv) if at the date of the notice convening a
meeting of Shareholders the dividend on the Series E Preferred
Stock has not been paid in an aggregate amount equal to at
least two (2) consecutive semi-annual dividends on such shares,
the number of Directors of the Company will be increased by two
and a majority of votes cast by the holders of the Series E
Preferred Stock together with the holders of Parity Stock on
which like voting rights have been conferred and are
exercisable, present in person by proxy at such meeting, will
be entitled to elect such two additional Directors to the Board
of Directors, with each holder being entitled to cast one vote
for each share of Series E Preferred Stock registered in his
name. The right to elect such Directors and the term of office
of all such Directors so elected shall terminate when all such
accrued and unpaid dividends are paid in full or set apart for
payment, subject to such right being reinstated in the case of
future unpaid dividends as hereinabove provided. In case any
vacancy shall occur among the Directors elected by the holders
of Series E Preferred Stock and Parity Stock as herein
provided, such vacancy may be filled for the unexpired portion
of the term by vote of the remaining Director elected by such
stockholders, or such Director's successor in office, or by the
vote of such stockholders given at a special meeting of such
stockholders called for such purpose.
(b) At each meeting of stockholders at which the
holders or the Series E Preferred Stock shall have the right to
vote as a separate class or together with any other class of
stock. the presence in person or by proxy of the holders of
record of a majority of the total number of shares of stock
entitled to vote as a single class then outstanding shall be
necessary and sufficient to constitute a quorum of such class
for the transaction of business by such stockholders as a
class. At any such meeting or adjournment thereof.
(i) the absence of a quorum of the holders of the
Series E Preferred Stock shall not prevent the election of
Directors or the transaction of business other than the
transaction of business with respect to which the holders of
the Series E Preferred Stock are entitled to vote as a separate
class and the absence of a quorum of the holders of any other
class of stock for the election of Directors or the conduct of
such other business shall not prevent the conduct of business
on which the Series E Preferred Stock is entitled to vote as a
separate class, and
(ii) in the absence of any such quorum, the
holders present in person or by proxy of the class or classes
which lack a quorum shall have the power to adjourn (for a
period of up to 30 days) the meeting for the election of
Directors which they are entitled to elect from time to time,
or for the conduct of such business, without notice other than
announcement at the meeting, until a quorum shall be present.
(c) Any action required or permitted to be taken by
the holders of Series E Preferred Stock pursuant to this
Paragraph 8 or Paragraphs 9 or 10, voting either separately as
a class or together with all Parity Stock at any annual or
special meeting of stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken,
shall be signed by the holders of such stock having not less
than the minimum number of votes that would be necessary to
authorize to take such action at a meeting at which all such
shares entitled to vote thereon were present and voted.
Paragraph 9. Further Issues; Par Value
So long as any shares of Series E Preferred Stock
remain outstanding, the Company shall not without the
affirmative vote or consent of the holders of the Series E
Preferred Stock and any Parity Stock, in each case outstanding
at the time, given in person or by proxy, either in writing or
at a meeting, (i) authorize, create or issue, or increase the
authorized or issued amount, of any class or series of stock
ranking senior to the Series E Preferred Stock with respect to
payment of dividends or distribution of assets on dissolution,
liquidation or winding up or which may be convertible into any
class of shares ranking as regards participation in dividends
or the distribution of assets on dissolution, liquidation or
winding up senior to the Series E Preferred Stock; or (ii)
increase or decrease the par value of the Common Stock. The
holders of Series E Preferred Stock shall not be entitled to
any preemptive rights with respect to any further issuances of
securities by the Company.
Paragraph 10. Other Matters.
So long as any Series E Preferred Stock remains
issued and outstanding then:
(a) except as authorized by the adoption of
an appropriate resolution by the affirmative vote or consent of
the holders of a majority of the outstanding shares of the
Series E Preferred Stock and any Parity Stock, voting or consenting
separately as a class, the Company shall not:
(i) sell, lease or convey all or
substantially all of the assets of the Company; or
(ii) approve any merger, consolidation or
compulsory share exchange to which the Company is a party,
unless (1) the terms of such merger, consolidation or
compulsory share exchange do not provide for a change in the
terms of the Series E Preferred Stock and (2) the Series E
Preferred Stock is on a parity with or prior to (in respect of
dividends and upon liquidation, dissolution or winding up) any
other class or series of capital stock authorized by the surviving
corporation, other than any class or series of stock of the
Company ranking senior to the Series E Preferred Stock either
as to dividends or upon liquidation, dissolution or winding up
of the Company and previously authorized with the consent of
the holders of the Series E Preferred Stock (or other than any
capital stock into which such prior stock is converted as a
result of such merger, consolidation or compulsory share
exchange).
(b) the Company shall concurrently send a
copy of every communication or other information, including
annual reports and proxy materials, sent to its Shareholders to
every holder of Series E Preferred Stock.
Paragraph 11. Reacquired Shares.
Any shares of the Series E Preferred Stock redeemed
or purchased or otherwise acquired by the Company in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Series E
Preferred Stock, and may be reissued as Series E Preferred
Stock or part of a new series of preference stock to be created
by resolution or resolutions of the Board of Directors, subject
to the conditions or restrictions on issuance set forth herein.
Paragraph 12 Miscellaneous
(a) All notices referred to herein shall be in
writing, and all notices hereunder shall be deemed to have been
given upon the earlier of receipt thereof or three (3) Business
Days after the mailing thereof if sent by registered or
certified mail (unless first-class mail shall be specifically
permitted for such notice under the terms hereof) with postage
prepaid, addressed: (i) if to the Company, to its office as
specified in its most recent Annual Report on Form l0-K (or any
successor report or form) or to the Transfer Agent or other
agent of the Company designated as permitted hereby or (ii) if
to any holder of the Series E Preferred Stock or Common Stock,
as the case may be, to such holder at the address of such
holder as listed in the stock record hooks of the Company
(which may include the records of any Transfer Agent for the
Series E Preferred Stock or Common Stock, as the case may be)
or (iii) to such other address as the Company or any such
holder. as the case may be, shall have designated by notice
similarly given.
(b) The Company shall pay any and all stock
transfer and documentary stamp taxes that may be payable in
respect of any original issuance or delivery of shares of
Series E Preferred Stock or shares of Common Stock or other
securities issued on account of Series E Preferred Stock
pursuant hereto or certificates representing such shares or
securities The Company shall not, however, be required to pay
any such tax which may be payable in respect of any transfer
involved in the issuance or delivery of shares of Series E
Preferred Stock or Common Stock or other securities in a name
other than that in which the shares of Series E Preferred Stock
with respect to which such shares or other securities are
issued or delivered were registered, or in respect of any
payment to any person with respect to any such shares or
securities other than a payment to the registered holder
thereof, and shall not be required to make any such issuance,
delivery or payment unless and until the person otherwise
entitled to such issuance, delivery or payment has made
arrangements satisfactory to the Transfer Agent for the payment
to the Company of the amount of any such tax or has
established, to the satisfaction of the Company, that such tax
has been paid or is not payable.
(d) In the event that a holder of shares of
Series E Preferred Stock shall not by written notice designate
to whom payment upon redemption of shares of Series E Preferred
Stock should be made or the address to which such payment
should be sent, the Company shall be entitled to make such
payment, in the name of the holder of such Series E Preferred
Stock as shown on the records of the Company, and to send such
payment, to the address of such holder shown on the records of
the Company.
(e) Unless otherwise provided in the
Certificate of Incorporation, as amended, of the Company, all
payments in the form of dividends, distributions on voluntary
or involuntary dissolution. liquidation or winding-up or
otherwise made upon the shares of Series E Preferred Stock and
any other stock ranking on a parity with the Series E Preferred
Stock with respect to such dividend or distribution shall be
made pro rata, so that amounts paid per share on the Series E
Preferred Stock and such other stock shall in all cases bear to
each other the same. ratio that the required dividends,
distributions or payments, as the case may be, then payable per
share on the shares of the Series E Preferred Stock and such
other stock bear to each other.
(f) The Company may appoint, and from time
to time discharge and change, the Transfer Agent for the Series
E Preferred Stock. Upon any such appointment or discharge of a
Transfer Agent, the Company shall send notice thereof by first
class mail, postage prepaid to each holder of record of Series
E Preferred Stock. The initial Transfer Agent for the Series E
Preferred Stock shall be the Company.
(g) The Company covenants that it will at
all times on and after the Conversion Commencement Date reserve
and keep available out of its authorized Common Stock and/or
shares of its Common Stock then owned or held by or for the
account of the Company, solely for the purpose of delivery upon
conversion of the Series E Preferred Stock as herein provided,
such number of shares of Common Stock as shall then be
deliverable upon conversion of all shares of Series E Preferred
Stock from time to time outstanding.
</PAGE>
COAL BED METHANE RESOURCES AGREEMENT
COOPERATION FOR EXPLORATION AND DEVELOPMENT
OF LIAO LING TIEFA
MINING AREA AND SHANXI HANCHANG MINING AREA
(TWO AREAS)
This agreement is signed on March 31, 1995 in Beijing, PRC, for
Cooperation in the exploration and development of coal bed methane in
The Two Areas, by China National Administration of Coal Geology
(Coal Geology) and XCL Ltd. (XCL).
Coal Geology has studied the exploration and development of coal
in China for 40 years. Starting in 1989 Coal Geology has devoted
study to the exploration and development of coal bed methane.
XCL has agreed based on geological results of these studies to
start cooperation with Coal Geology for the exploration and development
of coal bed methane in the Two Areas.
The parties have reached the following agreement:
1. XCL will send its experts to China within 30 days after signing
this agreement to work with Coal Geology's experts to gather all the
information and data required to plan an exploration program in the Two
Areas.
2. As soon as Coal Geology has gathered all necessary data and
information, Coal Geology will send a technical team to Louisiana,
United States, to work with XCL's experts to plan an exploration program
in the Two Areas. XCL will pay the travel and living expenses incurred by
the Coal Geology Team on the visit. The parties estimate that it will
require about 60 days for this phase of work in Louisiana.
3. At the end of the study period in Louisiana, the parties will
jointly agree on an exploration plan in the Two Areas. The parties expect
that 2 wells will be drilled in each of The Two Areas.
4. Coal Geology and XCL will jointly conduct the exploration
program, using each party's technical teams. All work will be
performed under a Joint Management Committee, with each party having
3 members. XCL shall be the operator.
5. Coal Geology will do the drilling with it's crews and equipment.
XCL will pay for the drilling and testing, with 50% of the cost being
paid after the first week of drilling and the remaining 50% to be paid
15 days after drilling and testing is completed. Actual costs of
drilling and testing will be negotiated by the parties. And the parties
will establish the budget and work plan for the JMC approval and
implementation. After the location of the exploration well have been
select, as well as well design, well completion, production test, and
operation time. During the production testing stage Coal Geology will
provide all needed assistance to coordinate and be responsible for all
work and will be responsible for all costs in excess of the cost agreed
upon by the parties prior to the start of drilling and testing. Each party
will be responsible for damage to its equipment.
6. Coal Geology will be responsible to provide all related exploration
data and information for The Two Areas. The parties will not give this
information to any other persons or parties, and will not negotiate
agree with any third parties on any matter in The Two Areas. XCL will use
the data for development of the coal bed methane resources in the Two
Areas and will return the data at the end of the contract.
7. XCL will be the operator of the exploration and development and
will be responsible for the analysis and evaluation on the data and
information on The Two Areas and will combine the result from the joint
testing program to assure and confirm the potential for exploration and
development of coal bed methane in The Two Areas. The parties will
strengthen their cooperation by taking steps to study coal bed methane
development and exploration in other areas.
8. Coal Geology will be responsible for obtaining all required permits
to operate in the Two Areas.
9. Coal Geology will be responsible to provide all geological,
engineering and other data on the Two Areas. XCL will pay Coal Geology
for total US $125,000 for the Two Areas, US $41,700 is payable after the
information has been released, and the balance is payable after signing
the formal contract. The costs incurred by each party during the
exploration and development of the Two Areas will be recovered by the
parties from the profits from the commercial development. Such costs
must be adequately documented. All accounting for the joint venture
will be done according to accounting principles which agreeable by the
parties.
10. Force' majeure conditions severally accepted in international
contracts will protect the parties from default under the agreement,
but each party shall do its best to perform under all condition.
11. If a provision of the agreement is invalid, the other provision
will still be effective as long as the commercial results of
the agreement can be realized.
12. Written modification and communication should be in Chinese with
registered letter, fax, telephone or telefax sent to the other
parties latest address notified to the other party. The communication
will be effective when the receipt is signed or 2 days after a
fax is received.
13. Both sides will resolve disputes based on mutual friendship and
negotiation.
14. The agreement will be pursuant to the laws of the PRC.
15. The agreement will be written in both Chinese and English and both
version shall be valid, with total 4 copies.
16. After the evaluation work is completed in Louisiana as provided for
in paragraph 2 of this agreement, the parties will enter into a
comprehensive agreement which will provide for a detail operation plan
profit sharing, investment, ownership, management and all other matter
required to insure that the joint venture will be incorporated profitable
for all parties. The provision of this agreement will in such final
agreement with such modification as the parties may agrees. Such final
agreement may also provide a basis and reference for coal bed methane
exploration and development in other areas.
17. This agreement will be terminated by Dec. 30, 1996, or if parties has
intention to extend the termination date as describe above, the parties
should through friendly consultation to extend the termination date.
18. The Two Areas are identified as the attached maps.
19. Both sides sign this agreement in Beijing, PRC, on March 31,1995.
CHINA NATIONAL
ADMINISTRATION XCL LTD.
OF COAL GEOLOGY
/s/ Qi Shang Xian /s/ Marsden W. Miller, Jr.
General Manager Chairman
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (herein called
this "Amendment") is made as of September 29, 1995, by and among
XCL-Texas, Inc., a Texas corporation ("Borrower"), XCL Ltd., 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"),
WITNESSETH:
WHEREAS, Borrower, Parent Agent and Lenders have entered
into that certain Credit Agreement dated as of January 31, 1994,
which has been amended by that certain First Amendment to Credit
Agreement dated as of April 13, 1995 (as so amended, the
"Original Agreement"); and
WHEREAS, Borrower, Parent, Agent and LENDERS desire to
further amend the Original Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the
Original Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
- --------------------------
I. 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.
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 Second Amendment to Credit Agreement.
"Credit Agreement" shall mean the Original Agreement as amended
hereby.
ARTICLE II.
Amendments to Original Agreement
- --------------------------------
3. Engineering Report. 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 June 30, 1995 and to be delivered by September 30, 1995, shall
instead be prepared as of December 31, 1995 and delivered by
February 28, 1996. Except as expressly provided above with
respect to such engineering report, Section 5.1 of the Original
Agreement remains in full force and effect.
4. Payment of Trade Debt. Notwithstanding the requirement of
Section 5.1(g) of the Original Agreement that trade payables must
be paid within 120 days after the original invoice or billing
date, the Related Persons may, during the period beginning on
July 1, 1995 and ending on and including December 31, 1995, defer
payment of trade payables of up to $700,000 in the aggregate.
5. 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 March 31, 1996; and
(iii) will never be less than 1.0 to 1.0 during the period
from and after April 1, 1996.
6. Tangible Net Worth. Section 5.2(m) of the Original
Agreement is hereby amended in its entirety to read as follows:
(m) Tangible Net Worth. 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) $70,000,000 during the period from and after January
1, 1995.
As used in this subsection the term "Parent's Consolidated Debt"
means all Consolidated liabilities and similar balance sheet
items of Parent together with all other Consolidated Restricted
Debt of Parent. As used in this subsection the term "Parent's
Consolidated Tangible Net Worth" means the remainder of:
(1) the sum of (A) all Consolidated assets of Parent,
other than intangible assets (including without limitation as
intangible assets such assets as patents, copyrights, licenses,
franchises, goodwill, trade names, trade secrets and leases other
than oil, gas or mineral leases or leases required to be
capitalized under GAAP), plus (B) any Consolidated loss
recognized by Parent on or after September 29, 1995 due to the
sale of all or substantially all of the Cox Field and the Mestena
Grande Fields or non-cash writedowns, not to exceed $30,000,000,
of the Cox Field, the Mestena Grande Field and the Lutcher Moore
Property, minus
(2) Parent's Consolidated Debt.
7. Cash Flow Coverage. The first sentence of Section 5.2(o)
of the Original Agreement is hereby amended to reed 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, June 30,
1995, September 30, 1995, December 31, 1995 or March 31,1996; and
(iii) will never be less than 1.15 to 1.0 for any period of
four consecutive Fiscal Quarters ending on June 30, 1996 or on
any date thereafter.
ARTICLE III.
Conditions of Effectiveness
- ---------------------------
8. 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
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.
ARTICLE IV.
Representations and Warranties
- ------------------------------
9. 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.
(h) 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
- -------------
10. 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.
11. 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 Lender 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.
12. Loan Documents. This Amendment is a Loan Document, and
all provisions in the Credit Agreement pertaining to Loan
Documents apply hereto.
13. 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.
14. 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.
By: /s/ Pamela G. Shanks
- ------------------------
Name: Pamela G. Shanks
Title: Vice President
ENCAP INVESTMENTS L.C.
1100 Louisiana Street
Suite 3150
Houston, Texas 77002
Tel: (713) 659-6100
Fax: (713) 659-6130
October 26, 1995
Mr. Marsden W. Miller, Jr.
Chairman, C.E.O.
XCL Ltd.
110 Rue Jean Lafitte
Lafayette, LA 70508
Re: Past Fee Arrangements and European Equity Offering
Dear Bill:
EnCap Investments L.C. (EnCap) has been a large supporter of
XCL and is pleased that you have selected Rauscher Pierce &
Clark to privately place $2 million to $5 million of XCL common
stock in Europe. Rauscher Pierce & Clark will have its own fee
arrangement with XCL of which EnCap will not be a party.
However, EnCap has acted as a finder for XCL in identifying
Rauscher Pierce & Clark as the broker for this transaction and
EnCap will act as XCL's financial advisor during this offering.
Additionally, XCL and EnCap have had a series of letter
agreements between the parties for past transactions including
the purchase by Apache of additional interest in Zhao Dong
Block. However, this letter will supersede all the past fee
agreements as set forth in those letters except should Apache
purchase the Berry Cox Field, XCL would owe to EnCap a fee of
one percent(1%) of the purchase price. Further, all indemnities
contained in those letters will remain in full force and
effect.
This fee arrangement will be in two parts - the first part sets
forth what EnCap has already earned and is presently due. The
second part of this agreement sets forth compensation to be
earned by EnCap in its capacity as finder and financial advisor
in the Rauscher Pierce European equity offering.
First, upon execution of this letter agreement, XCL agrees to
pay to EnCap 50,000 shares of common stock. These common shares
will be unregistered but EnCap will be entitled to free piggy-
back registration rights on those shares. Secondly, the
provisions in EnCap's existing 500,000 warrants of XCL stock
relating to the exercise price and the length of time the
warrants may be exercised will be adjusted to reflect the
comparable provisions in the Rauscher Pierce commission
warrants (anticipated to be $.50 per share and five year
warrants). These warrants will be subject to the same $ 1.25
forced conversion feature which the Rauscher Pierce warrants
will have. Should the European offering not proceed or should
it fail, EnCap will still retain the 500,000 five year warrants
at a price of $.50 per share and the $ 1.25 forced conversion
feature will be in effect. Additionally, XCL will keep 500,000
shares of its common stock registered and available to be
issued to EnCap upon exercise of the warrants.
Second, EnCap will be entitled to a cash fee of one and one
half percent (1.5%) of the proceeds raised in this contemplated
European equity offering and a stock fee of four percent (4%)
based on the proceeds raised payable in unregistered XCL common
stock. The number of shares to be paid to EnCap will be the fee
percentage multiplied by the gross proceeds raised divided by
the closing price of XCL's common stock at the close of
business on the day of the European funding. The stock will
have free piggyback rights.
Finally, XCL agrees to pay all reasonable out of pocket
expenses incurred by EnCap in this offering including travel
expenses on a European road show and a due diligence trip to
China by Gary Petersen.
In connection with the role of EnCap set forth in this letter,
XCL hereby agrees to indemnify and hold EnCap and its
shareholders, directors officers, employees, affiliates, agents
and representatives (the "indemnified Parties") harmless from
and against any and all losses, claims, damages, liabilities
including all expenses, such as without limitation, fees and
disbursements of counsel reasonable incurred by an Indemnified
Party in connection with the preparation for or investigation
or defense of any claim, action of proceeding whether or not
resulting in any liability to which any Indemnified Party may
become subject as a result of any action or claim in connection
with the services provided by EnCap hereunder; provided, that
XCL shall not be obligated to any Indemnified Party in any such
case to the extent that any such loss, claim, damage or
liability is found in a final judgement by a court of competent
jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnified Party. The terms of this
paragraph shall survive the termination of this Agreement and
shall be effective regardless of whether any definitive
agreements of other documents are executed.
If the foregoing is in accordance with our understanding,
kindly confirm your acceptance and agreement by signing and
returning the enclosed duplicate of this letter, which will
thereupon constitute a binding agreement between us.
Very truly yours,
/s/ Gary R. Petersen
- --------------------
Gary R. Petersen
Managing Director
Agreed and accepted
this 3rd day of November, 1995.
/s/ Marsden W. Miller, Jr.
- --------------------------
Marsden W. Miller, Jr.
Chairman and CEO
Rauscher Pierce & Clark
36 Green Street Tel (44) 171 491 2434
London WlY 3RH Fax (44) 171 491 9081
November 9, 1995
PRIVATE AND CONFIDENTIAL
XCL Ltd.
110 Rue Jean Lafitte
Lafayette, LA 70508
Attention: Mr. Marsden W. Miller, Jr.
Chairman & Chief Executive Officer
Gentlemen:
You have indicated that XCL Ltd. (the "Company") desires to
retain Rauscher Pierce & Clark Inc. (the "Placement Agent") to
serve as its exclusive financial advisor to the Company in
connection with a proposed private placement of equity securities
(the "Placement"). The securities to be placed in the Placement
(the "Securities") will consist of a minimum of two million
United States dollars (US $2,000,000) and a maximum of up to
seven million United States dollars (US $7,00,000) of newly
issued common shares and warrants to purchase common shares of
the Company or such other securities as may be subsequently
agreed by the Company and the Placement Agent, subject to any
increase in the amount of the Placement approved by the Company.
The Placement is currently anticipated to be an offering of Units
(the "Units"), each consisting of ten thousand (10,000) shares
(the "Shares") of the common stock, par value $0.01 per share
(the "Common Stock"), of the Company and warrants (the
"Warrants") exercisable to purchase an additional ten thousand
(10,000) shares of Common Stock. The Placement will be
structured and conducted in all respects to meet all the
requirements of Regulation S under the Securities Act of 1933, as
amended (the "Securities Act"). This agreement (the "Agreement")
sets forth (i) the services to be provided by the Placement Agent
in connection with the Placement; (ii) the professional fees and
expenses payable to the Placement Agent in exchange for its
services; and (iii) general terms and conditions of the
engagement.
In connection with the proposed Placement, the Company and
the Placement Agent hereby agree as follows:
1. (a) The Company hereby appoints the Placement Agent as
its exclusive agent to arrange the Placement, with the first two
million United States dollars (US $2,000,000) in Units being
offered on a "best efforts, all or none" basis with a closing to
be completed on or before December 22, 1995. If the minimum
amount of $2,000,000 of Units is placed but the maximum amount is
not placed by such date, the remaining five million United States
dollars (us $5,000,000) in Units shall be offered on a "best
efforts, any or all" basis, from the date hereof until and
through February 29, 1996 (the "Offering Period"), which period
may be extended by mutual written agreement of the parties
hereto. If the entire amount of Securities are not placed on or
before December 22, 1995, the Placement Agent shall attempt to
arrange the Placement of the remaining Units during the period
ending February 29, 1996. The price of the Units to be sold will
be determined separately for each closing of the Placement, as
agreed to by the Company. Subject to the terms and conditions
herein set forth, the Placement Agent accepts such appointment
and shall endeavor to identify sources for the Placement (each, a
"Source ). Such agency shall continue until the earlier to occur
of termination of the Offering Period or termination by the
Company or the Placement Agent of this Agreement upon thirty days
prior notice, except that in any event, the Placement Agent's
agency shall terminate on the date the Placement has been
completed. In the event the arrangement of the Placement is
commenced and the Agreement is terminated by any party hereto for
any reason or indications of interest for the Placement are not
received by the end of the Offering Period, the Placement Agent's
agency and this Agreement shall terminate without further
obligation of either the Placement Agent or the Company to the
other except as provided in Paragraphs 1(b) and (c), 3 and 8
below. The Company shall have the right to reject any and all
proposed Sources as well as the terms, amounts and provisions
which may be proposed for the Placement for any reason the
Company deems reasonable in the exercise of its sole and
arbitrary discretion. Neither the Company nor any of its
officers, directors, employees or agents shall make any offers or
sales of the Company's equity securities during the Offering
Period, or otherwise solicit interest therein, except for the
placement and the current offering of preferred stock in the
United States.
(b) Notwithstanding the foregoing, in the event that a
potential Source is contacted and introduced, as provided herein,
by the Placement Agent to the Company during the Offering Period
and such Source provides equity or debt financing (other than any
(i) traditional bank financing, (ii) any project financing the
proceeds of which are used to finance the Company's activities
:in China or (iii) any equity or debt financing provided by
institutional investors which are shareholders of the Company on
the date hereof) to the Company after the expiration of the
Offering Period, at any time during one (1) year from the date of
the commencement of the Offering Period, the Placement Agent
shall be entitled to a commission equal to eight percent (8%) of
the aggregate gross cash proceeds to the Company of such
financing; provided, however, that no such commission shall be so
due and payable if such Source had been previously solicited by
or on behalf of the Company in respect of any prior financings
(including, without limitation, the persons identified on
Schedule I hereto); and provided, further, that no such
commission shall be due and payable if the Placement Agent or any
of its affiliates or any other person acting on its or their
behalf (such affiliate or other person being referred to herein
as an "Associated Person") shall have breached any of the terms
of this Agreement or any other agreement to be entered into by
the Company and the Placement Agent in connection with the
Placement.
(c) If the Company elects to pursue an alternative
financial arrangement, merger or other transaction in lieu of the
Placement during the Offering Period or decides not to proceed
with the first closing or any subsequent closing for the
Placement for any other reason, other than the failure of the
Placement Agent to arrange the placement of at least two million
United States dollars (US $2,000,000) in Units pursuant to this
Agreement, then the Company shall pay the Placement Agent a
termination fee in the amount of thirty thousand United States
dollars (US $30,000).
(d) The Placement Agent acknowledges that the Company
and Henderson Crosthwaite have previously identified six
potential Hong Kong based investors (such investors are listed on
schedule I hereto) who may be interested in buying equity
securities of the Company upon terms and conditions no more
favourable than the terms and conditions of the Placement. The
Placement Agent agrees not to solicit such investors and shall
not be entitled to any sales commission or other fee or cost
reimbursement in respect of the sale of any securities to such
investors. ( With respect to any sale of securities to such
investors, the Company agrees that:
(i) offers and sales of such securities shall be conducted by
the Company and Henderson Crosthwaite in compliance with the
Securities Act and Regulation S promulgated thereunder, or any
other applicable exemption from the registration provisions of
the Securities Act, and all other applicable securities laws of
all other jurisdictions in which the Company, Henderson
Crosthwaite or any of their respective officers, directors,
employees or agents shall solid such investors or distribute
offering materials;
(ii) any offering of securities to such investors shall
limited to the investors listed on Schedule I and shall be a
separate and distinct transaction from the Placement , but shall
be upon terms and conditions no more favourable than the terms
and conditions of the Placement;
(iii) offers and sales shall be made to such investors only to
the extent that the Company has a sufficient number of shares of
its authorized common stock reserved for the issuance of common
shares upon the sale of $7,000,000 of the Units in the Placement
and the issuance of warrants to Rauscher Pierce & Clark Limited
("RPC"), a wholly-owned subsidiary of the Placement Agent,
pursuant to Paragraph 5; and
(iv) the Company shall provide the Placement Agent and its
counsel with copies of the offering documentation
evidencing offers and sales to the investors listed on Schedule
I.
2. The Placement Agent shall assist and advise the Company
through all phases of the placement process. Services to be
provided by the Placement Agent shall include, without
limitation: (i) assisting the Company and its counsel with
preparation of a placement memorandum (the "Placement
Memorandum") for the arrangement of the Placement which shall
contain such information as we may mutually determine may be
required; (ii) identification of prospective Sources; (iii)
distribution of the Placement Memorandum and other offering
documents to and contact of prospective Sources; (iv) arranging
meetings and accompanying the Company in meeting with prospective
Sources; (v) evaluating preliminary indications of interest, and
assisting Sources in conducting due diligence; (vi) assisting the
Company and its counsel through the process of negotiating and
drafting definitive documents; and (vii) assisting in the closing
of the Placement.
3. In exchange for the services set forth in Paragraph 2, the
Company agrees to reimburse the Placement Agent for all
reasonable out-of-pocket expenses incurred on this project at the
request of the Company, including all reasonable legal fees and
expenses; provided, however, that such legal fees and expenses
shall not exceed $45,000. Such expense reimbursement shall not
be contingent upon the successful completion of the transaction
contemplated hereunder, and shall be payable as incurred by the
Placement Agent and billed to the Company from time to time.
4. Upon the closing of the Placement to one or more Sources
and the receipt by the Company of the proceeds thereof, the
Company shall pay the Placement Agent:
(a) a corporate finance fee (the "Corporate Finance
Fee") equal to (i) forty thousand United States dollars (US
$40,000) if the aggregate total amount of Units placed is not
less than three million United States dollars (US $3,000,000) and
is less than four million United States dollars (US
$4,000,000); (ii) fifty thousand United States dollars (US
$50,000) if the aggregate total amount of Units placed is not
less than four million United States dollars (US $4,000,000) and
is less than five million United States dollars (US $5,000,000);
or (iii) sixty thousand United States dollars (us $60,000) if the
aggregate total dollar amount of Units placed is five million
United States dollars (US $5,000,000) or greater, such Corporate
Finance Fee to be calculated based on the aggregate gross
proceeds from the sale of Units in all of the closings for the
Placement; and
(b) a sales commission (the "Sales Commission") equal to
eight percent (8%) of the aggregate gross total proceeds of the
Units placed.
The Company and the Placement Agent acknowledge that the Company
shall pay EnCap Financial Services, Inc. ("EnCap") a fee to be
arrived at by mutual agreement between EnCap and the Company. The
Corporate Finance Fee and the Sales Commission shall be payable
in cash in United States dollars at the closing of the Placement
and upon the receipt of proceeds therefrom.
5. In addition, the Company agrees for a price of one hundred
United States dollars (US $100.00) to sell to RPC concurrently
with the successful completion and closing of the Placement,
common stock purchase warrants (the "RPC Warrants") covering a
number of shares of the Common Stock equal to ten percent (10%)
of the number of Shares sold in each closing for the Placement,
exercisable at the lower of $0.50 per share or the closing bid
price of the Common Stock on the trading day prior to each
closing date for the Placement. All shares of Common Stock
issuable upon the exercise of the RPC warrants (the "Warrant
Shares") will be issuable out of the authorized Common Stock.
The RPC warrants will have a term of five (5) years and shall be
similar in all material respects to the Warrants except for their
exercise price and that the Company shall not have the right to
force the exercise of the RPC Warrants; that they may only be
exercised as to all or any lesser number of shares of Common
Stock covered thereby, commencing from the date twelve (12)
months after the closing date of Placement; and that they will
contain piggyback registration rights in the event that a public
offering of Common Stock is registered with the Securities and
Exchange Commission by the Company. The RPC Warrants shall be
non-transferable except to (i) the Placement Agent; (ii)
successors to RPC or the Placement Agent; (iii) purchasers of
substantially all of the assets of RPC or the Placement Agent;
(iv) officers, directors, employees, or agents of RPC or the
Placement Agent; (v) shareholders of RPC or the Placement Agent
or the shareholders or partners of their respective transferees
in the event of liquidation or dissolution, or (vi) the
respective nominees of any of the foregoing parties. The RPC
Warrants and the Warrant Shares shall be issued pursuant to the
exemption from registration under the Securities Act provided by
Regulation S promulgated thereunder. RPC and any and all
transferees of the RPC Warrants and the Warrant Shares pursuant
to clauses (i) through (vi) of the second-next preceding sentence
of this Paragraph 5 shall comply, and any and all such
permitted transfers of RPC Warrants and Warrant Shares shall be
made in compliance, with the terms and provisions of the
Securities Act and Regulation S promulgated thereunder and all
other applicable securities laws of all other jurisdictions in
which the RPC Warrants and the Warrant shares are issued and
transferred, and any transfer not in such compliance shall be
null and void given no effect hereunder.
6. The Company shall pay the Placement Agent a fee equal to
eight percent (8%) of the exercise price of the Warrants, which
shall be payable by banker's draft, cashier's check or wire
transfer of immediately available funds within five business days
after notice of exercise of the Warrants and payment of the
exercise price therefor by the holders thereof is received by the
Company.
7. (a) Prior to the sale of the Securities pursuant to the
Placement to any Source, such Source and any person advising such
Source shall be furnished information by the Company pertaining
to the Company and the terms and conditions of the Placement and
shall be given the opportunity by the Company to ask questions
and receive answers concerning the Company and the terms and
conditions of the Placement.
(b) All written information provided to any Source or to
the Placement Agent and their agents by the Company (the "Written
Communications"), and all oral communications provided to any
Source or the Placement Agent and their agents by the Company,
shall not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements, in the
light in which they were made, not misleading as of the point in
time given.
(c) The Company shall promptly notify the Placement
Agent if, because of the occurrence of any event or condition,
the passing of time or otherwise, any of the Written
Communications or any oral communications of the Company and its
officers or Directors to the Placement Agent or any Source which
relate to the offer and sale of Securities pursuant to the
Placement contain any untrue statement of a material fact or omit
to state a material fact necessary to make the communications, in
light of the circumstances under which they were made, not
misleading. The Written Communications (and all attendant oral
communications) shall be amended in form and substance
satisfactory to the Placement Agent and the Company so that after
giving effect to such amendment, such Written Communications (and
all attendant oral communications to the extent that such oral
communications are not amended by means of the amended Written
Communications) shall not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements, in light of the circumstances under which they
were made, not misleading.
(d) The Company shall furnish or make available to, the
Placement Agent, its authorized representatives and its legal
counsel any and all documentation and information in the
Company's possession reasonably requested by the Placement Agent,
its authorized representatives or its legal counsel in connection
with their due diligence efforts regarding the Placement.
(e) As a primary consideration for this Agreement, the
Placement Agent shall plan, arrange for and accompany the
Company's Chairman and/or executive officers on a trip to Europe,
at such time as the Company and Placement Agent shall agree, to
meet with prospective Sources whom the Placement Agent shall
identify. The Company and the Placement Agent agree that a trip
to the Far East may be scheduled to meet with prospective sources
in January, 1996, or at such other time during the Offering
Period as the Company and the Placement Agent shall agree.
(f) The Placement Agent shall not, in fulfilling its
obligations hereunder, act as underwriter for the Securities, and
is in no way obligated, directly or indirectly, to advance its
own funds to purchase any of the. Securities. All services
provided by the Placement Agent hereunder shall be conducted by
the Placement Agent and its Associated Persons in compliance with
the Securities Act and Regulation S promulgated thereunder and
all other applicable Securities Laws of all other jurisdictions
in which the Placement Agent or any Associated Person shall
solicit Sources or distribute offering materials.
8. (a) In addition to the amounts which the Company has
herein agreed to pay to the Placement Agent, the Company shall
defend, indemnify, and hold the Placement Agent, Rauscher Pierce
& Clark Limited and their respective officers, directors, agents,
employees, and controlling persons harmless from and against any
losses, claims, damages, or liabilities (including, without
limitation, court costs and reasonable attorney's fees and
expenses) to which the Placement Agent and their respective
officers, directors, agents, employees, and controlling persons
may become subject, as described in Paragraph 1 of Schedule II to
this Agreement which is to be considered an integral part of this
Agreement.
(b) The Placement Agent, shall defend, indemnify, and
hold the Company and its officers, directors, agents, employees
and controlling persons harmless from and against any losses,
claims, damages, or liabilities (including, without limitation,
court costs and reasonable attorneys' fees and expenses) to which
the Company and its officers, directors, agents, employees, and
controlling persons may become subject, as described in Paragraph
2 of Schedule II to this Agreement.
9. The parties hereto each understands and agrees that this
Agreement is being executed by their respective representatives,
hereunto duly authorized, and is not subject to any further
approvals or ratification in order to become a binding obligation
of each of them.
10. The Company understands that RPC's engagement hereunder
may involve work in the United Kingdom which will or may be
described as "investment business" for the purposes of the UK
Financial Services Act 1986 ("FSA"). This work will be
undertaken by Rauscher Pierce & Clark Limited ("RPC"), which is a
member of The Securities and Futures Authority ("SFA"). On the
basis of the information the Company has supplied and on the
basis of the Company's experience and understanding in
relation to investments, we have categorized the Company as a
non-private customer. As a consequence of this categorization,
the Company will lose the protections afforded to private
customers under the Rules, including the right to sue RPC for
damages under Section 62 of the FSA and the right of access to
the Consumer Arbitration Scheme, of the SFA; provided, however,
that nothing in the foregoing shall act to waive any right which
the Company may have under any other applicable law or under any
agreement with the Placement Agent, including, without
limitation, this Agreement.
If the foregoing correctly sets forth our mutual
understanding, please so indicate by signing and returning to us
the enclosed copy of this Agreement.
We are delighted to have this opportunity to assist the
Company. Accordingly, we look forward to committing our
resources toward the prompt arrangement of the Placement on the
best available terms.
Very truly yours,
RAUSCHER PIERCE & CLARK INC.
By: /s/ David P. Quint
- -------------------------
Title: President
AGREED TO AND ACCEPTED THIS
9th DAY OF November, 1995
XCL LTD.
By: /s/ Marsden W. Miller, Jr.
- --------------------------------
Name: Marsden W. Miller, Jr.
Title: Chairman and Chief Executive Officer
<TABLE>
XCL Ltd. and Subsidiaries
<CAPTION>
Exhibit 11- Computation of Earnings Per Common and Common
Equivalent Share
(Amounts in thousands except, per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
PRIMARY:
<S> <C> <C> <C> <C>
Loss before extraordinary item $ (10,496) $ (9,720) $ (25,371) $ (22,727)
Extraordinary charge for early
extinguishment of debt -- -- -- (1,742)
------ ------ ------ -------
Net loss (10,496) (9,720) (25,371) (24,469)
Dividends on preferred stock (103) -- (2,567) (2,554)
------ ------ ------ -------
Net loss attributable to common stock $ (10,599) $ (9,720) $ (27,938) $ (27,023)
====== ====== ====== ======
Weighted average number of shares
common stock outstanding 242,533 210,485 238,029 187,217
Common stock equivalents (computed
using treasury stock method) -- -- -- --
------- ------- ------- -------
Average number of shares of common
stock and common stock equivalents
outstanding 242,533 210,485 238,029 187,217
======= ======= ======= =======
Net loss per common and common equivalent share:
Net loss before extraordinary item $ (.04) $ (.05) $ (.11) $ (.13)
Extraordinary item -- -- -- (.01)
-------- ------- -------- ------
Net loss per common and common
equivalent share $ (.04) $ (.05) $ (.11) $ (.14)
======== ====== ======== ======
FULLY DILUTED:
Fully diluted net loss per common
and common equivalent share (1) (1) (1) (1)
- -----------
(1) All amounts are anti-dilutive or immaterial and therefore not
presented in the financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of XCL Ltd. and Subsidiaries for the nine
month period ended September 30, 1995 and the nine and twelve month periods
ended September 30, 1994 and December 31, 1994, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1994
<PERIOD-END> SEP-30-1995 SEP-30-1994 DEC-31-1994
<CASH> 558 11,451 6,751
<SECURITIES> 0 0 0
<RECEIVABLES> 769 1,724 1,833
<ALLOWANCES> 113 113 113
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 1,509 16,495 8,624
<PP&E> 226,656 215,654 217,339
<DEPRECIATION> 118,289 90,218 100,079
<TOTAL-ASSETS> 129,224 164,477 149,803
<CURRENT-LIABILITIES> 14,186 14,357 10,187
<BONDS> 0 0 0
<COMMON> 2,486 2,303 2,372
0 0 0
647 649 649
<OTHER-SE> 72,927 105,197 92,179
<TOTAL-LIABILITY-AND-EQUITY> 129,224 164,477 149,803
<SALES> 2,006 3,665 4,336
<TOTAL-REVENUES> 2,006 3,665 4,336
<CGS> 25,986 24,627 38,211
<TOTAL-COSTS> 25,986 24,627 38,211
<OTHER-EXPENSES> (795) 260 (826)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 2,186 1,505 1,831
<INCOME-PRETAX> (25,371) (22,727) (34,880)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (25,371) (22,727) (34,880)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 (1,742) (1,742)
<CHANGES> 0 0 0
<NET-INCOME> (25,371) (24,469) (36,622)
<EPS-PRIMARY> (.11) (.14) (.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.
