<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, 1996
------------------
OR
Transition Report Pursuant to Section 13 or 15(d) of
[ ] the Securities Exchange Act of 1934
Commission File No. 1-10669
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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.
276,594,965 shares Common Stock, $.01 par value were
outstanding on November 13, 1996.
<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 Operations
PART II
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
XCL Ltd. and Subsidiaries
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
September 30 December 31
Assets 1996 1995
------ ------------ -----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 74 $ 1,610
Accounts receivable, net 175 340
Amounts receivable from sale of assets -- 4,151
Subscriptions receivable -- 483
Prepaid expenses 207 205
Assets held for sale -- 4,376
------- -------
Total current assets 456 11,165
------- -------
Property and equipment:
Oil and gas (full cost method):
Unproved and unevaluated foreign
properties: 33,172 27,315
Land, at cost 135 135
Other 2,999 3,017
------- -------
36,306 30,467
Accumulated depreciation, depletion
and amortization (1,936) (1,845)
------- -------
34,370 28,622
------- -------
Investments (Note 4) 2,766 5,369
Assets held for sale (Note 4) 24,866 25,395
Deferred charges and other assets 1,554 1,785
------- -------
Total assets $ 64,012 $ 72,336
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued costs $ 7,848 $ 3,884
Royalty and production taxes payable 19 218
Dividends payable 928 928
Current maturities of limited
recourse debt 4,772 5,229
Collateralized credit facility 17,279 25,115
Current maturities of subordinated debt 15,000 --
Other current maturities 649 30
------- -------
Total current liabilities 46,495 35,404
------- -------
Long-term debt, net of current maturities -- 15,644
Other non-current liabilities 2,731 4,388
Commitments and contingencies (Note 7)
Shareholders' equity (Note 6):
Preferred stock-$1.00 par value;
authorized 2,400,000 at September 30,
1996 and 1,200,000 shares at December
31, 1996; issued shares of 669,411 at
September 30, 1996 and 680,570 at
December 31, 1995-liquidation preference
of $54.3 million at September 30, 1996 669 681
Preferred stock subscribed -- 4
Common stock-$.01 par value; authorized
500 million shares at September 30, 1996
and 350 million shares at December 31,
1995; issued shares of 272,533,740 at
September 30, 1996 and 256,157,224 at
December 31, 1995 2,725 2,561
Common stock held in treasury-$.01 par
value; 1,042,065 shares at September 30,
1996 and 2,514,238 shares at
December 31, 1995 (10) (25)
Additional paid-in capital 225,083 220,364
Accumulated deficit (213,681) (206,685)
------- -------
Total shareholders' equity 14,786 16,900
------- -------
Total liabilities and share-
holders' equity $ 64,012 $ 72,336
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands of Dollars, Except Per Share Amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
1996 1995 1996 1995
----- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Oil and gas revenues $ 94 $ 604 $ 1,031 $ 2,006
------ ------ ------ ------
Oil and gas operating expenses:
Operating (including marketing) 43 231 280 795
Depreciation, depletion and
amortization 18 535 119 1,831
Depletion - oil and gas assets
held for sale 27 -- 409 --
Provision for impairment of oil
and gas properties -- 5,800 -- 16,500
Writedown/loss on sale of other
assets and investments 750 2,740 2,000 2,740
General and administrative 760 1,452 2,667 3,562
Taxes, other than income 102 208 189 558
------ ------- ------ -------
1,700 10,966 5,664 25,986
------ ------- ------ -------
Operating loss (1,606) (10,362) (4,633) (23,980)
------ ------- ------ -------
Other income (expenses):
Interest expense, net of amounts
capitalized (558) (797) (1,765) (2,186)
Gain (loss) on sale of investments -- 613 (661) 613
Other, net 431 50 623 182
------ ------ ------ ------
(127) (134) (1,803) (1,391)
------ ------ ------ ------
Net loss (1,733) (10,496) (6,436) (25,371)
Preferred stock dividends (113) (103) (560) (2,567)
------ ------ ------ -------
Net loss attributable to common stock $ (1,846) $(10,599) $(6,996) $(27,938)
====== ======= ====== =======
Net loss per common and common
equivalent share $ (.01) $ (.04) $ (.03) $ (.11)
====== ======= ====== =======
Average number of common and common
equivalent shares outstanding 267,542 242,533 262,651 238,029
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
Nine Months Ended
-----------------
September 30
1996 1995
---- ----
(Unaudited)
Cash flows from operating activities:
Net loss $ (6,436) $ (25,371)
------ -------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 528 1,831
Provision for impairment of oil and gas
properties -- 16,500
Loss (gain) on sale of investments 661 (613)
Loss on sale of other assets -- 383
Writedown of other assets and investments 2,000 2,357
Change in assets and liabilities:
Accounts receivable 647 1,041
Prepaid expenses (2) (142)
Accounts payable and accrued expenses 2,766 (273)
Royalty and production taxes payable (199) (109)
Other, net 142 87
------ ------
Total adjustments 6,543 21,062
------ ------
Net cash provided by (used in)
operating activities 107 (4,309)
------ ------
Cash flows from investing activities:
Capital expenditures (3,867) (7,679)
Investments (474) (1,162)
Proceeds from sale of assets 9,147 2,643
Other 4 304
----- ------
Net cash provided by (used in)
investing activities 4,810 (5,894)
----- ------
Cash flows from financing activities:
Proceeds from sales of common stock 1,626 1,378
Proceeds from sales of treasury stock 264 2,364
Payment for treasury stock (141) --
Proceeds from issuance of preferred stock 282 --
Proceeds from exercise of warrants and options -- 874
Payment of long-term debt (8,348) (425)
Payment of preferred stock dividends -- (250)
Stock issuance costs and other (136) 69
------ ------
Net cash provided by (used in)
financing activities (6,453) 4,010
------- ------
Net increase (decrease) in cash and cash equivalents (1,536) (6,193)
Cash and cash equivalents at beginning of period 1,610 6,751
------- -------
Cash and cash equivalents at end of period $ 74 $ 558
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(1) General
The consolidated financial statements at September 30,
1996 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, 1995 as amended.
In the opinion of the Company, all adjustments, consisting
only of normal recurring adjustments, necessary to present
fairly the financial position of XCL Ltd. and subsidiaries
as of September 30, 1996 and December 31, 1995 and the
results of their operations for the three months and nine
months ended September 30, 1996 and 1995 and their cash
flows for the nine months ended September 30, 1996 and 1995,
have been included. 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
The Company has incurred net losses for each of its
past five fiscal years and the first nine months of the
current fiscal year and currently has a significant working
capital deficit. The Company anticipates insufficient cash
flows from operations to meet its current obligations,
including expenditures required for the development of the
Company's assets. Since 1994, the Company has been able to
meet its financial obligations by obtaining funds from sales
of equity in the Company and sales of various assets.
However as of November 11, 1996, the Company did not have
sufficient commitments in place to insure that the Company's
obligations for 1996 can be satisfied and its ability to
obtain funds from further sales of equity may become
impaired if the Company's shares of Common Stock are
delisted from the American Stock Exchange. (See Note 7 -
"Commitments, Contingencies and Subsequent Events.")
Included in such obligations are trade payables (net of
disputed amounts) of approximately $1.4 million as of
November 11, 1996, of which 60 percent are unpaid in excess
of 120 days from the invoice date. On October 23, 1996, the
contract operator for the Company's remaining producing oil
and gas property filed operator's liens against the
Company's interest in such producing property in the amount
of approximately $45,000, representing costs and expenses
incurred by such contract operator for the Company's
interest in such property. Upon notice of filing of the
liens, the purchaser of the gas attributable to the
Company's interest in such property may suspend payment to
the Company of revenues attributable to such interest until
such time as the Company satisfies the amounts due and
owing. Included in accounts payable and accrued costs are
net salaries due to officers and managers of approximately
$87,000, representing two months salary due executive
officers and one month salary due other officers and
managers. Further, in addition to such trade payables, as of
November 11, 1996, the Company has accrued liabilities to
Apache arising from their joint interest billings and cash
calls in respect of the Company's interest in the Zhao Dong
Block of approximately $5.5 million ($3.7 million as of
September 30, 1996) the entire amount of which is in
arbitration. An audit of Apache conducted by Company
personnel has called into question approximately $0.3
million of charges in one category of costs in dispute.
While the Company believes that certain of the other charges
are valid, and has fully provided for them in the
consolidated financial statements, it does not have
sufficient liquidity to make payment at this time. Unless
alternative sources of funds are obtained, substantial doubt
exists regarding the Company's ability to continue as a
going concern.
At September 30, 1996, the Company had an operating
cash balance of $74,000 and a working capital deficit of $46
million, which includes $17.3 million in bank debt, $15
million in secured subordinated debt, $4.8 million in
limited recourse debt collateralized only by the Lutcher
Moore Tract, and $0.7 million in institutional debt secured
by a first mortgage on the Company's office building.
On January 31, 1994, the Company borrowed $29.2 million
from Internationale Nederlanden (U.S.) Capital Corporation
("INCC") under a $35 million credit agreement ("INCC
Agreement"). The bank debt is collateralized by the
Company's domestic oil and gas properties and the stock of
certain subsidiaries, including the stock of XCL-China,
Ltd., through which the Company owns its interest in the
Zhao Dong Block. During 1995, the INCC Agreement was amended
to modify certain covenant requirements through September
29, 1995. These covenants were subsequently amended to
modify requirements through April 1, 1996, and again amended
through September 30, 1996. The Company did not make an
interest payment of $248,600 due the bank on October 1,
1996, resulting in an event of default under the terms of
the INCC Agreement. By letter dated October 7, 1996, the
bank acknowledged that failure to make such interest payment
constituted an event of default and advised that such past
due interest payment bears interest at the Late Payment Rate
in effect on such date. From October 1, 1996, the Late
Payment Rate has been 12.25 percent. The bank has not given
formal notice to accelerate the loan, it has however,
reserved all of its rights and remedies under the INCC
Agreement. In addition to the event of default described
above, the Company is in violation of several covenants in
the INCC Agreement. The bank has informed the Company that
it will look favorably upon waiving existing defaults,
entering into a standstill agreement and modifying other
terms and conditions of the INCC Agreement in connection
with a recapitalization of the Company satisfactory to the
bank. (See Note 5 below.)
During April 1993, the Company issued in a private
placement, $15 million of secured subordinated note units
(the "Secured Subordinated Debt"). Each of these 40 units
consisted of a $375,000 note payable, warrants to acquire
100,000 shares of the Company's Common Stock at $0.625 per
share (as amended at the time the Company entered into the
INCC Agreement), a net profits interest in certain
exploration leases, and a contractual interest in the net
revenues of XCL-China, Ltd., a wholly owned subsidiary of
the Company, under the Production Sharing Agreement related
to the Zhao Dong Block. This borrowing bears interest at 12
percent if paid in cash or 14 percent if the Company elects
to use Common Stock, with payment at 125 percent of the
interest due if paid in unregistered shares. It is
collateralized by a second mortgage on all of the Company's
producing properties and a second lien on the stock of XCL-
China, Ltd. Payment on this debt cannot be made prior to
payment on the INCC Agreement. The terms of the Secured
Subordinated Debt provide that an event of default under the
INCC Agreement which has not been waived and permits the
bank to accelerate the maturity of its indebtedness is an
event of default in the Secured Subordinated Debt. As noted
above an event of default exists in the INCC Agreement,
therefore an event of default exists with respect to the
Secured Subordinated Debt.
The Company also has $4.8 million of Limited Recourse
debt outstanding which is collateralized by the Lutcher
Moore Tract, of which $2.3 million is due on December 17,
1996. Payments of principal and interest on the remaining
$2.5 million of the Lutcher Moore limited recourse debt are
past due. No action has been taken by the holders of the
debt. Should the Company not be successful in its attempts
to sell the property or refinance the debt on the property
the holders have recourse only to the property itself, as
the Company is not liable for the debt.
The outstanding balance of the building mortgage loan
as of September 30, 1996, was approximately $0.7 million,
bearing interest at the rate of 14 percent per annum. As of
November 11, 1996, the Company has not made the October and
November scheduled loan payments. By letter dated October
29, 1996, the mortgagee has advised that if the loan default
is not satisfactorily cured, it in its sole discretion will
take action to protect its security and to enforce its loan
remedies. Payment of the building mortgage is personally
guaranteed by the Chairman of the Board.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.6 million Pounds Sterling
(U.K.) annually and currently insufficient liquidity exists
to continue to pay such amounts. The Company declared the
Series A Preferred Stock dividend payable June 30, 1995. A
portion of this dividend was paid with shares of Common
Stock and approximately $900,000 remains to be paid in cash.
As the Company was unable to pay this dividend by June 30,
1996, the holders of Series A Preferred Stock can now
require Board of Director representation. The December 31,
1995 dividend payment on the Series A Preferred Stock has
been declared payable in additional shares of Series A
Preferred Stock, however such shares cannot be issued until
the shares allocated to withholding taxes are sold for cash
and the proceeds remitted to the taxing authorities. The
Board of Directors elected not to declare the dividend
payable June 30, 1996.
During the quarter ended September 30, 1996, the
Company supplemented cash generated from the sale of
oil and gas production by the completion of the following
transactions:
o In July 1996, the Company sold 50,000 shares of Common
Stock held as Treasury Stock in a Regulation S transaction
for net proceeds after fees and discounts of $12,875. (See
Part II - Item 2(c) "Changes in Securities.")
o In July 1996, the Company received approximately
$56,000 as consideration for a pipeline right-of-way granted
on the Lutcher Moore Tract.
o In August 1996, the Company sold in two separate
Regulation S transactions, (1) 2,800,000 Units, each Unit
consisting of one share of Common Stock and one warrant to
acquire one share of Common Stock, for net proceeds of
approximately $402,000 and (2) 1,500,000 shares of Common
Stock for net proceeds of $200,000, after deduction of
commissions. An aggregate of 4,300,000 shares of Common
Stock and Warrants to acquire additional 3,380,000 shares of
Common stock were issued. (See Part II - Item 2(c) "Changes
in Securities.")
o In August 1996, the Company borrowed $225,000 from an
investor and such investor was granted 1,200,000 warrants in
connection therewith. The loan is to be satisfied by the
issuance of shares of Common Stock.
o In September 1996, the Company granted two oil and gas
leases on the Lutcher Moore tract totaling 18,400 acres, for
which it received $184,000 in gross proceeds, of which
$100,000 was applied to principal reduction of the first
mortgage on that property.
o In September 1996, the Company received $75,000 in
payment for surface damages to 50 acres of the Lutcher Moore
Tract.
During the fourth quarter of 1996, the Company projects
a total trade payable position of approximately $0.9 million
and general and administrative expenses of approximately
$0.7 million. Additionally the Company has received cash
calls from Apache of approximately $5.5 million as of
November 11, 1996, the entire amount of which is in
arbitration. The Company additionally projects fourth
quarter costs of approximately $0.2 million for the China
lubrication oil project and approximately $0.2 million for
the China coalbed methane project. During the fourth quarter
the Company projects approximately $0.7 million of interest
due to INCC. Management's plans to obtain the necessary
capital include:
o The sale of the Lutcher Moore Tract and leasing
activities thereon. The Company is in ongoing negotiations
for the sale of this property. Should a sale be completed,
$4.8 million of the proceeds would be applied to the limited
recourse debt with additional proceeds used to satisfy
working capital requirements. During October 1996, the
Company granted an oil and gas lease covering 365 acres on
the property for which it received $36,500 in gross
proceeds.
o Negotiating joint venture agreements with potential
partners to supply the cash needed to pursue various China
projects. Discussions with several potential partners are in
progress.
o Negotiating a recapitalization of the Company.
o Until July 29, 1996, the Company was engaged in
attempts to sell its remaining domestic oil and gas
properties. On that day it received service of three
lawsuits filed by lessors of the most productive remaining
lease, effectively thwarting the Company's ability to
consummate a sale by casting doubt as to the Company's
rights to certain interests in the leases and demanding
damages. While the Company believes that the charges are
without merit, it is of the opinion that the property cannot
be sold until such time as the litigation is concluded or
settled. In response to a request by the lessors' counsel,
the Company has granted the lessors an extension of time to
respond to discovery demands made by the Company and to
allow sufficient time to pursue settlement of this
litigation. (See Note 7 - "Commitments, Contingencies and
Subsequent Events" and Part II - Item 1. "Legal
Proceedings," herein.)
The Company believes that working capital can be made
available from certain of its major stockholders or other
investors, should the Company (1) contract for the sale of
the Lutcher Moore tract, (2) enter into a letter(s) of
intent with industry partners to provide funds for the
Company's China projects capital requirements, or (3)
conclude a plan to recapitalize the Company. However, no
assurance can be given that the Company's efforts in this
regard will be successful. In addition, the Company's
efforts to secure additional working capital will be
impaired if the Company's Common Stock is delisted from the
American Stock Exchange. (See Note 7 - "Commitments,
Contingencies and Subsequent Events.")
Longer term liquidity is dependent on the Company's
commencement of production in China and continued access to
capital markets, including its ability to issue additional
debt and equity securities, which in certain cases may
require the consent of INCC and holders of the Company's
Subordinated Debt and Preferred Stock. By shareholder vote
on July 30, 1996, the shareholders approved an increase of
150,000,000 authorized shares of Common Stock and 1,200,000
authorized shares of Preferred Stock.
(3) Supplemental Cash Flow Information
There were no income taxes paid during the nine month
periods ended September 30, 1996 and 1995. (See Note 7
herein).
Interest and associated capitalized costs for the three
and nine month periods ended September 30 totaled $0.6
million and $1.9 million, respectively for 1996 and $0.6
million and $2.2 million, respectively for the corresponding
periods in 1995. Interest paid during the three and nine
month periods ended September 30, 1996 and 1995 amounted to
$0.4 million and $1.5 million, and $0.7 million and $2.0
million, respectively.
During the nine months ended September 30, 1996, the
Company completed the following noncash transactions not
reported elsewhere herein:
o In March and April 1996, the Company sold Units of
Common Stock and Warrants through Rauscher Pierce & Clark,
as Placement Agent, in a Regulation S Unit Offering. As
compensation for acting as Placement Agent for such unit
offering, Rauscher Pierce & Clark was granted warrants to
acquire an aggregate of 384,000 shares of Common Stock.
o As compensation for services performed resulting in
Apache purchasing an additional interest in the Zhao Dong
Block, the Company issued 50,000 shares of Common Stock
(held in treasury) to EnCap Investments, L.C. ("EnCap") and
EnCap's existing warrant to acquire 500,000 shares of Common
Stock was amended as to exercise price, expiration date and
forced conversion feature to conform the terms of this
warrant to the terms of warrants granted to the Placement
Agent in the Regulation S Unit Offering
o As compensation for identifying Rauscher Pierce & Clark
as the Placement Agent for the Regulation S Unit Offering,
EnCap earned a four percent stock fee of the gross proceeds
of the Regulation S Unit Offering. In payment of this fee
the Company, during the first quarter, issued 267,264 shares
of Common Stock (held in treasury) in connection with the
initial closing and during the second quarter issued an
aggregate 122,880 shares of Common Stock as compensation for
the subsequent closings.
During the nine months ended September 30, 1995, the
Company issued 18,714 shares of Common Stock in payment of
interest on funds escrowed in advance of purchase of Series
D Preferred Stock.
(4) Assets Held for Sale and Investments
Assets Held for Sale
--------------------
Domestic Oil and Gas Properties
- -------------------------------
During the fourth quarter of 1995, in connection with
management's decision to concentrate the Company's resources
on the development of its China investments, a decision was
made to dispose of all of the Company's domestic properties.
Accordingly, the recorded value of the Company's domestic
properties was reduced to their estimated fair market value
and the resulting balances were transferred to assets held
for sale.
During the first quarter of 1996, the Company sold two
domestic gas fields producing net proceeds of $5.4 million
which was primarily used to pay interest and prepay
principal due on the Company's bank loan. The Company sold a
third property in a sale completed during the second quarter
of 1996 generating gross proceeds of approximately $3.0
million, of which $2.8 million was applied to payment of
interest and prepayment of principal on the bank loan.
Until July 29, 1996, the Company was engaged in
attempts to sell its remaining domestic oil and gas
properties. On that day it received service of three
lawsuits filed by lessors of the most productive remaining
lease, effectively thwarting the Company's ability to
consummate a sale by casting doubt as to the Company's
rights to certain interests in the leases and demanding
damages. While the Company believes that the charges are
without merit, it is of the opinion that the property cannot
be sold until such time as the litigation is concluded. In
response to the request by the lessors' counsel, the Company
has granted the lessors an extension of time to respond to
discovery demands made by the Company to allow sufficient
time to pursue settlement of this litigation.
Lutcher Moore Tract
- -------------------
During 1993, the Company completed the acquisition of a
group of corporations which together owned 100 percent of a
62,500-acre tract in southeastern Louisiana (the "Lutcher
Moore Tract"). Total consideration of $15.4 million
included the assumption of $9.9 million of limited recourse
debt (see Note 5 to the Consolidated Financial Statements),
$2.7 million in cash, the issuance of 3,616,667 shares of
Common Stock and warrants to purchase an additional
4,166,667 shares of Common Stock at $1.00 per share. In
connection with the purchase, the Company capitalized
acquisition related costs of $900,000. The Company is
presently negotiating for the sale of this property.
Investments
-----------
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. The Company has invested approximately $1.7 million
in the project, including a $600,000 down payment and a
$200,000 payment made in August 1996. There remains an
additional $1.6 million in payments to be made pursuant to a
renegotiated schedule of payments.
Coalbed Methane Project
- -----------------------
During 1995, the Company signed an agreement with the
China National Administration of Coal Geology, pursuant to
which the parties have commenced cooperation for the
exploration and development of coalbed methane in two areas
in China. As of September 30, 1996, the Company has invested
approximately $504,000 in the project.
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 $0.5 million reduction in
obligations owed by the Company to the purchaser. No gain
or loss was recognized on the sale.
In June 1996, the Company sold its remaining mineral
interest in the Phoenix Lake Tract. The sale price was
$417,000 in cash and the Company recorded a $661,000 loss 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, 1996 consists of the
following (000's):
Current Long-Term
Maturities Portion Total
---------- --------- -----
Collateralized credit facility $ 17,279 $ -- $ 17,279
Subordinated debt 15,000 -- 15,000
Building Mortgage 649 -- 649
------- ------- -------
Total $ 32,928 $ -- $ 32,928
======== ======= =======
Lutcher Moore Group
Limited Recourse Debt $ 4,772 $ -- $ 4,772
======== ======= =======
Substantially all of the Company's assets collateralize
certain of these borrowings. Accounts payable and accrued
costs include interest accrued at September 30, 1996, of
approximately $1.6 million.
Lutcher Moore Group Limited Recourse Debt
- ------------------------------------------
Mortgage and Seller Notes
-------------------------
At September 30, 1996, approximately $2.3 million of
Mortgage Notes (net of amounts escrowed for payment) and
$2.5 million of Seller Notes were outstanding. In January
1996, the terms of the Mortgage Notes were modified
providing that the remaining principal (which bears interest
at 9.25 percent per annum) is payable on demand, and if no
demand is made, in three monthly installments of $52,300
each, commencing February 15, 1996, plus a final payment of
all outstanding principal and interest due on May 16, 1996.
In June 1996, upon the payment by the Company of principal
and interest in the aggregate amount of $265,000 the terms
of the Mortgage Notes were again modified providing that the
remaining principal (which bears interest at 9.25 percent
per annum) is payable on demand, and if no demand is made,
in five monthly installments of interest, commencing July
17, 1996, with a final payment of all outstanding principal
and interest due on December 17, 1996. During September, the
principal of the Mortgage Notes was reduced by $100,000 from
payments received for oil and gas leases granted on the
property. The Seller Notes bear interest at 8 percent and
payments of principal and interest on the Seller Notes are
past due. No action has been taken by holders of the debt.
Should the Company not be successful in its attempts to sell
the property or refinance the debt on the property, the
holders have recourse only to the property itself, as the
Company is not liable for the debt.
Collateralized Credit Facility
- ------------------------------
The INCC Agreement provides for scheduled semiannual
borrowing base determinations by INCC based on a review of
reserve estimates and other factors, with the initial
borrowing base set at $29.2 million. Effective October 31,
1994, the borrowing base was set at $25.2 million. The net
proceeds of $4.1 million from the divestiture of the Mestena
Grande Field in January 1996, were applied to a $2 million
principal payment due January 2, 1996, a principal payment
of $1.63 million due April 1, 1996, with the remainder
applied to the balance of the outstanding indebtedness. The
net proceeds of $1.325 million from the sale of the Gonzales
Gas Unit sold in March 1996, were applied to accrued
interest through the date of closing and $1.1 million of
principal. The net proceeds of $2.79 million from the sale
of the Lopez Gas Units sold in April 1996, were applied to
accrued interest through the date of closing then to
principal of $535,556 due on July 1, 1996, principal of
$1.625 million due October 1, 1996 and the remainder against
principal due January 2, 1997. The next scheduled principal
payment is due January 2, 1997, in the amount of
approximately $1.2 million with quarterly payments of $1.63
million thereafter.
During 1995, the INCC Agreement was amended to modify
certain covenants and was further amended to modify
requirements through April 1, 1996. The INCC Agreement was
further amended in April 1996 to modify requirements through
September 30, 1996, and accordingly the full amount of such
debt has been reflected as a current liability. The Company
did not make an interest payment of $248,600 due the bank on
October 1, 1996, resulting in an event of default under the
terms of the INCC Agreement. By letter dated October 7,
1996, the bank acknowledged that failure to make such
interest payment constituted an event of default and advised
that such past due interest payment bears interest at the
Late Payment Rate in effect on such date. From October 1,
1996, the Late Payment Rate has been 12.25 percent. The bank
has not given formal notice to accelerate the loan, it has
however, reserved all of its rights and remedies under the
INCC Agreement. In addition to the event of default
described above, the Company is in violation of several
covenants in the INCC Agreement. The bank has informed the
Company that it will look favorably upon waiving existing
defaults, entering into a standstill agreement and modifying
other terms and conditions of the INCC Agreement in
connection with a recapitalization of the Company
satisfactory to the bank.
Secured Subordinated Debt
- -------------------------
During April 1993, the Company issued in a private
placement, $15 million of secured subordinated note units
(the "Secured Subordinated Debt"). Each of these 40 units
consisted of a $375,000 note payable, warrants to acquire
100,000 shares of the Company's Common Stock at $0.625 per
share (as amended at the time the Company entered into the
INCC Agreement), a net profits interest in certain
exploration leases, and a contractual interest in the net
revenues of XCL-China, Ltd., a wholly owned subsidiary of
the Company, under the Production Sharing Agreement related
to the Zhao Dong Block. This borrowing bears interest at 12
percent if paid in cash or 14 percent if the Company elects
to use Common Stock, with payment at 125 percent of the
interest due if paid in unregistered shares. It is
collateralized by a second mortgage on all of the Company's
producing properties and a second lien on the stock of XCL-
China, Ltd. Payment on this debt cannot be made prior to
payment on the INCC Agreement. The terms of the Secured
Subordinated Debt provide that an event of default under the
INCC Agreement which has not been waived and permits the
bank to accelerate the maturity of its indebtedness is an
event of default in the Secured Subordinated Debt. As noted
above an event of default exists in the INCC Agreement,
therefore an event of default exists with respect to the
Secured Subordinated Debt.
The Company issued approximately 6.5 million and 1.6
million shares of Common Stock in payment of $2.7 million
and $1.3 million of interest due on the Secured Subordinated
Debt during the nine month periods ended September 30, 1996
and 1995, respectively.
(6) Preferred Stock and Common Stock
As of September 30, 1996, the Company had the following
shares of Preferred Stock issued and outstanding:
Shares Liquidation Value
------ -----------------
Series A 577,803 $ 45,166,861(1)
Series B 44,954 4,495,400
Series E 46,654 4,665,400
__________
(1) 50 Pounds Sterling (U.K.) per share (1 Pound
Sterling U.K. = U.S. $1.5634 at September 30, 1996).
Series A Preferred Stock
------------------------
The Company's Series A Preferred Stock dividend
requirements are approximately 2.6 million Pounds Sterling
(U.K.) annually and currently insufficient liquidity exists
to continue to pay such amounts. Further, the INCC Agreement
restricts payment of cash dividends. With the approval of
its lender, the Company declared the June 30, 1995 dividend
payable in cash, with such cash to be obtained from the sale
of Common Stock. In order to reduce the cash requirement,
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. Cash dividends remaining to be paid
with respect to the June 30, 1995 dividend declaration,
aggregate approximately $900,000. As the Company was unable
to pay this dividend by June 30, 1996, the holders of Series
A Preferred Stock are entitled to representation on the
Board of Directors.
On June 11, 1996, the holder of 21,441 shares of Series
A Preferred Stock elected, pursuant to the terms of the
Series A Preferred Stock, to convert such shares into Common
Stock of the Company. In July 1996, the Company issued
450,261 shares of Common Stock in connection with this
conversion.
The December 31, 1995 dividend payment on the Series A
Preferred Stock has been declared payable in additional
shares of Series A Preferred Stock. During 1996, the terms
of the Series A Preferred Stock were amended to allow for
payment of the December 31, 1995 and subsequent dividend
payments to be made in additional shares of Series A
Preferred Stock. The Board of Directors correspondingly
approved a 250,000 share increase in the number of
authorized shares of Series A Preferred Stock. An aggregate
of 53,932 shares of Series A Preferred Stock are to be
issued for payment of the December 31, 1995 dividend and
U.S. and U.K. withholding taxes, however such shares cannot
be issued until the shares allocated to withholding taxes
are sold for cash and the proceeds remitted to the taxing
authorities. The Board of Directors elected not to declare
the dividend payable June 30, 1996.
Series B Preferred Stock
------------------------
On May 16, 1995, the Company received notice from the
Series B Preferred holder exercising its redemption rights.
The Company has elected to redeem in shares of Common Stock
("Redemption Stock") and the holder has exercised its option
to have the Company sell its shares of Redemption 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. Approximately 5,046 shares had been
redeemed at September 30, 1996, from the sale of
approximately 2.6 million shares of Redemption Stock.
Proceeds are first allocated to accrued dividends, with the
remainder applied toward redemption of shares of the Series
B Preferred Stock. During the fourth quarter 1996, an
additional 57,000 shares of Redemption Stock were sold and
the proceeds applied against accrued dividends. By letter
dated April 5, 1996, the holder has advised the Company that
it is not satisfied with the rate at which the Series B
shares are being redeemed and that unless the rate of
redemption is accelerated, the holder may no longer extend
the time in which the redemption is to be completed.
Series E Preferred Stock
------------------------
The June 30, 1996 dividend on the Series E Preferred
Stock was declared payable in additional shares of Series E
Preferred Stock. In July 1996, the Company issued 2,218
shares of Series E Preferred Stock in payment of this
dividend.
(7) Commitments, Contingencies and Subsequent Events
Other commitments, contingencies and subsequent events
include:
Commitments and Contingencies
-----------------------------
o The Company acquired the rights to the exploration,
development and production of the Zhao Dong Block by
executing a Production Sharing Agreement with CNODC in
February 1993. Under the terms of the Production Sharing
Agreement, the Company and Apache are responsible for all
exploration costs. If a commercial discovery is made, and if
CNODC exercises its option to participate in the development
of the field, all development and operating costs and
related oil and gas production will be shared up to 51
percent by CNODC and the remainder by the Company and
Apache.
In March 1994, the Company farmed out a one-third
interest in its contract rights for the Zhao Dong
Block to Apache. To further reduce the Company's
exploration capital requirements and to accelerate
the development of the Zhao Dong Block, the
Company signed an agreement on May 10, 1995, with
Apache (approved by Chinese authorities on August
10, 1995) pursuant to which Apache became
obligated to pay 100 percent of the costs to drill
and test two wildcat wells and one appraisal well
on the Zhao Dong Block, with a requirement to pay
for a third wildcat well, if Apache elected to
participate in the second phase of the Production
Sharing Agreement. In January 1996, Apache so
elected and therefore will pay the drilling and
testing costs of a third wildcat well. 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 of the
above described payments, Apache assumed
operatorship of the Zhao Dong Block and increased
its interest in the Zhao Dong Block from 33.33
percent to 50 percent of the foreign contractor's
share of the Zhao Dong Block.
The Production Sharing Agreement includes the
following additional principal terms:
The Production Sharing Agreement is basically
divided into three periods: the Exploration
period, the Development period and the Production
period. Work to be performed and expenditures to
be incurred during the Exploration period, which
consists of three phases totaling seven years from
May 1, 1993, are the exclusive responsibility of
the Contractor (the Company and Apache as a
group). The Contractor's obligations in the three
exploration phases are as follows:
1. During the first three years, the
Contractor is required to drill three wildcat
wells, perform seismic data acquisition and
processing and expend a minimum of $6 million
(The Contractor has drilled two wildcat
wells, satisfied the seismic acquisition and
minimum expenditure requirements and has
received an extension allowing the drilling
of the third wildcat well during the first
year of the second exploration phase.);
2. During the next two years, the Contractor
is required to drill two wildcat wells,
perform seismic data acquisition and
processing and expend a minimum of $4
million. (The Contractor has elected to
proceed with the second phase of the
Contract. The seismic data acquisition
requirement for the second phase has been
satisfied.);
3. During the last two years, the Contractor
is required to drill two wildcat wells and
expend a minimum of $4 million.
The Production Sharing Agreement may be terminated
by the Contractor at the end of each phase of the
Exploration period, without further obligation.
o On December 1, 1995, the Company submitted certain
accounting disputes to arbitration arising from Apache's
operations at the Zhao Dong Block. In the initial
submission, the Company disputed certain amounts charged to
the Company by Apache in the August, September and October
1995 joint interest billings and the November and December
1995 cash calls. As of November 11, 1996, the Company has
accrued liabilities of approximately $5.5 million ($3.7
million as of September 30, 1996) certain amounts of which
are in dispute with Apache arising from their joint interest
billings and cash calls. An audit of Apache conducted by
Company personnel has called into question approximately
$0.3 million of charges in one category of costs in dispute.
While the Company believes that certain charges are valid,
and has fully provided for them in the consolidated
financial statements, it does not have sufficient liquidity
to make payment at this time.
o The Company has future commitments of $1.6 million
associated with its joint venture contract to enter the
lubricating oil business in China. The Company has invested
approximately $1.7 million in the project, including a
$600,000 down payment and a $200,000 payment made in August
1996. There remains an additional $1.6 million in payments
to be made pursuant to a renegotiated schedule of payments.
o During 1992, the Company received notice, and amendment
thereto, of a proposed assessment for state income and
franchise taxes. During December 1993, the Company and two
of its wholly-owned subsidiaries, XCL-Texas, Inc. and XCL
Acquisitions, Inc. were sued in separate law suits entitled
Ralph Slaughter, Secretary of the Department of Revenue and
Taxation, State of Louisiana vs. Exploration Company of
Louisiana, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5449); Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State
of Louisiana vs. XCL-Texas, Incorporated (15th Judicial
District, Parish of Lafayette, Louisiana, Docket No. 93-
5450); and Ralph Slaughter, Secretary of the Department of
Revenue and Taxation, State of Louisiana vs. XCL
Acquisitions, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5337) by the Louisiana
Department of Revenue for Louisiana State corporate
franchise and income taxes. The claims relate to
assessments for the 1987 through 1991 fiscal years. The
aggregate amount of the assessments as of December 31, 1995,
including penalties and interest, is approximately $2.25
million. 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 it
has meritorious defenses and has instructed its counsel to
contest these claims.
o In connection with a lawsuit entitled The Elia G.
Gonzalez Mineral Trust, et al vs. Edwin L. Cox, et al which
was settled and dismissed on December 31, 1993, two groups
of non-participating royalty owners filed interventions.
The court ordered the interventions stricken. During 1994,
the first group appealed and the second group filed a new
lawsuit. The Company settled the new lawsuit filed by the
second group with its share of the settlement being $20,000.
During December 1994, the appellate court affirmed the trial
court's decision to deny the intervention to the first
group. The Company, in March 1995, was named as a third
party defendant by the original lessor who had been
previously sued by the nonparticipating royalty owners
comprising the first group. Management believes that the
outcome of the lawsuit will not have a material adverse
effect on the Company's liquidity or results of operations.
The Company intends to defend vigorously all claims asserted
by the first group in its lawsuit.
o During April 1994, the Company was sued in an action
entitled Kathy M. McIlhenny vs. The Exploration Company of
Louisiana, Inc. (15th Judicial District Court, Parish of
Lafayette, Louisiana, Docket No. 941845). Kathy McIlhenny,
former wife of a former officer and director of the Company,
has asserted a claim in the aggregate amount of
approximately $500,000 in respect of compensation for
certain services alleged to have been performed on behalf of
the Company and under an alleged verbal employment agreement
and, by amendment, asserted a claim for payments arising
from purported rights to mineral interests. The Company
believes that such claim is without merit and rejects the
existence of any such alleged agreement.
o On July 26, 1996, Mr. Frank Armstrong of Corpus
Christi, Texas, individually and on behalf of others (the
"Plaintiffs") filed three lawsuits against XCL-Texas, Inc.,
a wholly-owned subsidiary of the Company.
The first lawsuit entitled Stroman Ranch Company
Ltd., et al v. XCL-Texas, Inc. (229th Judicial
District, Jim Hogg County, Texas, Cause No. 4550)
alleges that in order to secure from Plaintiffs an
amendment to an oil and gas lease in order to
allow for the creation of a voluntary pooled unit,
the Company represented to the Plaintiffs, that it
(1) would make a series of payments totaling
$80,000 and (2) would commence drilling a well
prior to December 31, 1993, or pay $500,000 as
liquidated damages. Further, the Plaintiffs allege
that the Company has supplied false and misleading
information to them in order to deprive them of
their rightful share of an oil, gas and mineral
estate and revenue therefrom; that being a 50
percent interest in the pooled unit rather than
the 30 percent interest actually received.
Plaintiffs allege actual damages of $580,000, any
additional amounts to result from an accounting of
the amount of damages suffered by the Plaintiffs,
exemplary damages, court costs and interest. The
Company denies liability and expects not only to
enter affirmative defenses but to counter claim
for damages to the Company caused by the actions
of the Plaintiffs.
The second lawsuit entitled Frank Armstrong, et al
v. XCL-Texas, Inc. (229th Judicial District, Jim
Hogg County, Texas, Cause No. 4551) alleges that
the Company did not adequately represent the
interests of the Plaintiffs before a Texas
Railroad Commission hearing, therefore, the
Plaintiffs incurred legal and related expenses
totaling $56,473 for which they seek
reimbursement. The Company denies liability and
intends to vigorously defend itself.
The third lawsuit entitled Stroman Ranch Company
Ltd., et al v. XCL-Texas, Inc. (229th Judicial
District, Jim Hogg County, Texas, Cause No. 4552)
alleges that, with respect to a lease executed in
1938 and assigned to the Company by Edwin L. and
Berry R. Cox (the "Cox Group"), ceased producing
in paying quantities prior to November 11, 1987
and therefore should be declared terminated. In
the alternative, the Plaintiffs seek a declaratory
judgment that the Cox Group engaged in bad faith,
invalid and wrongful pooling of the 1938 lease
with another lease executed in 1985. Further, the
Plaintiffs seek damages in excess of $1 million to
effect environmental restoration arising from
damage caused by the Company's operation of the
leases in question. Finally, Plaintiffs seek an
accounting and the damages determined from such
accounting, of all oil and gas production and
revenues from the sale of the same under the 1938
lease, attorneys fees and court costs. The
Company believes the claims made in this lawsuit
are without merit and intends to vigorously defend
itself.
In response to a request by the lessors' counsel,
the Company has granted the lessors an extension
of time to respond to discovery demands made by
the Company and to allow sufficient time to pursue
settlement of this litigation.
o The Company may be 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 of the Company or results of operations
of the Company.
o The Company is subject to existing domestic federal,
state and local and Chinese laws and regulations governing
environmental quality and pollution control. Although
management believes that its 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.
Subsequent Events
-----------------
o By letter agreement dated October 7, 1996, the Company
modified its arrangement with Wolf Creek Resources, Inc.
("Wolf Creek") with respect to its interests in the Galvan
Ranch. The Company reassigned its rights to certain
overriding royalty interests and rights to after payout
participation in certain gas wells, surrendered its note
receivable from Wolf Creek, and option to purchase
additional equity in Wolf Creek and executed a general
release in favor of Wolf Creek and its principals in return
for:
(1) an immediate cash payment of $75,000;
(2) a $150,000 preferred payout from 80% of the
net revenues of Wolf Creek; and
(3) 5.44% of the Common Stock of Wolf Creek.
In recognition of the reduced value of the Galvan
Ranch, the sole property of Wolf Creek, the
Company on September 30, 1996, recorded a $750,000
writedown in the value of this investment.
o On October 8, 1996, Apache as operator of the Zhao Dong
Block, commenced drilling of the F(a) wildcat well. The
F(a) is a 4,378 meter test, scheduled to reach targeted
depth on or about December 4, 1996. Under an agreement
between the Company and Apache concluded on May 10, 1995,
this well is one of the two remaining wells which Apache is
obligated to pay 100% of the costs to drill and test.
Apache has advised the Company that on or about
November 16, 1996, it plans to commence drilling
of the D(c) well to appraise the D-1 discovery
well at the Zhao Dong Block. The Company is to
bear its share of the costs of this well and has
accrued $1.7 million of such costs billed to the
Company by Apache through November 11, 1996.
o By letter dated November 8, 1996, the American Stock
Exchange ("AMEX") has informed the Company that they are
reviewing the Company's continued listing eligibility
because:
(1) the Company has incurred net losses for each
of the past five fiscal years and the first six
months of the current fiscal year;
(2) the Company has disclosed that it does not
have sufficient cash flow from operations to meet
its obligations;
(3) the Company is in default of payment of
certain debt;
(4) the Company's independent accountants in
their report on the Company's 1995 financial
statements noted that as a consequence of the
matters discussed above, substantial doubt has
been raised as to the Company's ability to
continue as a going concern.
The Company has scheduled a meeting for December
10, 1996, with representatives of the AMEX to
present information in support of a continued
listing. Management believes that the Company's
AMEX listing will be continued after presentation
of the Company's operations and financial plans.
o Since September 30, 1996, John T. Chandler, the
President of the Company has made two advances to the
Company totaling $88,000, which remain outstanding.
<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
- -------------------------------
The Company has incurred net losses for each of
its past five fiscal years and the first nine months of the
current fiscal year and currently has a significant working
capital deficit. The Company anticipates insufficient cash
flows from operations to meet its current obligations,
including expenditures required for the development of the
Company's assets. Since 1994, the Company has been able to
meet its financial obligations by obtaining funds from sales
of equity in the Company and sales of various assets.
However as of November 11, 1996, the Company did not have
sufficient commitments in place to insure that the Company's
obligations for 1996 can be satisfied and its ability to
obtain funds from further sales of equity may become
impaired if the Company's shares of Common Stock are
delisted from the American Stock Exchange. (See Note 7 -
"Commitments, Contingencies and Subsequent Events.")
Included in such obligations are trade payables (net of
disputed amounts) of approximately $1.4 million as of
November 11, 1996, of which 60 percent are unpaid in excess
of 120 days from the invoice date. On October 23, 1996, the
contract operator for the Company's remaining producing oil
and gas property filed operator's liens against the
Company's interest in such producing property in the amount
of approximately $45,000, representing costs and expenses
incurred by such contract operator for the Company's
interest in such property. Upon notice of filing of the
liens, the purchaser of the gas attributable to the
Company's interest in such property may suspend payment to
the Company of revenues attributable to such interest until
such time as the Company satisfies the amounts due and
owing. Included in accounts payable and accrued costs are
net salaries due to officers and managers of approximately
$87,000, representing two months salary due executive
officers and one month salary due other officers and
managers. Further, in addition to such trade payables, as of
November 11, 1996, the Company has accrued liabilities to
Apache arising from their joint interest billings and cash
calls in respect of the Company's interest in the Zhao Dong
Block of approximately $5.5 million ($3.7 million as of
September 30, 1996) the entire amount of which is in
arbitration. An audit of Apache conducted by Company
personnel has called into question approximately $0.3
million of charges in one category of costs in dispute.
While the Company believes that certain of the other charges
are valid, and has fully provided for them in the
consolidated financial statements, it does not have
sufficient liquidity to make payment at this time. Unless
alternative sources of funds are obtained, substantial doubt
exists regarding the Company's ability to continue as a
going concern.
At September 30, 1996, the Company had an operating
cash balance of $74,000 and a working capital deficit of $46
million, which includes $17.3 million in bank debt, $15
million in secured subordinated debt, $4.8 million in
limited recourse debt collateralized only by the Lutcher
Moore Tract, and $0.7 million in institutional debt secured
by a first mortgage on the Company's office building.
On January 31, 1994, the Company borrowed $29.2 million
from Internationale Nederlanden (U.S.) Capital Corporation
("INCC") under a $35 million credit agreement ("INCC
Agreement"). The bank debt is collateralized by the
Company's domestic oil and gas properties and the stock of
certain subsidiaries, including the stock of XCL-China,
Ltd., through which the Company owns its interest in the
Zhao Dong Block. During 1995, the INCC Agreement was amended
to modify certain covenant requirements through September
29, 1995. These covenants were subsequently amended to
modify requirements through April 1, 1996, and again amended
through September 30, 1996. The Company did not make an
interest payment of $248,600 due the bank on October 1,
1996, resulting in an event of default under the terms of
the INCC Agreement. By letter dated October 7, 1996, the
bank acknowledged that failure to make such interest payment
constituted an event of default and advised that such past
due interest payment bears interest at the Late Payment Rate
in effect on such date. From October 1, 1996, the Late
Payment Rate has been 12.25 percent. The bank has not given
formal notice to accelerate the loan, it has however,
reserved all of its rights and remedies under the INCC
Agreement. In addition to the event of default described
above, the Company is in violation of several covenants in
the INCC Agreement. The bank has informed the Company that
it will look favorably upon waiving existing defaults,
entering into a standstill agreement and modifying other
terms and conditions of the INCC Agreement in connection
with a recapitalization of the Company satisfactory to the
bank. (See Note 5 below.)
During April 1993, the Company issued in a private
placement, $15 million of secured subordinated note units
(the "Secured Subordinated Debt"). Each of these 40 units
consisted of a $375,000 note payable, warrants to acquire
100,000 shares of the Company's Common Stock at $0.625 per
share (as amended at the time the Company entered into the
INCC Agreement), a net profits interest in certain
exploration leases, and a contractual interest in the net
revenues of XCL-China, Ltd., a wholly owned subsidiary of
the Company, under the Production Sharing Agreement related
to the Zhao Dong Block. This borrowing bears interest at 12
percent if paid in cash or 14 percent if the Company elects
to use Common Stock, with payment at 125 percent of the
interest due if paid in unregistered shares. It is
collateralized by a second mortgage on all of the Company's
producing properties and a second lien on the stock of XCL-
China, Ltd. Payment on this debt cannot be made prior to
payment on the INCC Agreement. The terms of the Secured
Subordinated Debt provide that an event of default under the
INCC Agreement which has not been waived and permits the
bank to accelerate the maturity of its indebtedness is an
event of default in the Secured Subordinated Debt. As noted
above an event of default exists in the INCC Agreement,
therefore an event of default exists with respect to the
Secured Subordinated Debt.
The Company also has $4.8 million of Limited Recourse
debt outstanding which is collateralized by the Lutcher
Moore Tract, of which $2.3 million is due on December 17,
1996. Payments of principal and interest on the remaining
$2.5 million of the Lutcher Moore limited recourse debt are
past due. No action has been taken by the holders of the
debt. Should the Company not be successful in its attempts
to sell the property or refinance the debt on the property
the holders have recourse only to the property itself, as
the Company is not liable for the debt.
The outstanding balance of the building mortgage loan
as of September 30, 1996, was approximately $0.7 million,
bearing interest at the rate of 14 percent per annum. As of
November 11, 1996, the Company has not made the October and
November scheduled loan payments. By letter dated October
29, 1996, the mortgagee has advised that if the loan default
is not satisfactorily cured, it in its sole discretion will
take action to protect its security and to enforce its loan
remedies. Payment of the building mortgage is personally
guaranteed by the Chairman of the Board.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.6 million Pounds Sterling
(U.K.) annually and currently insufficient liquidity exists
to continue to pay such amounts. The Company declared the
Series A Preferred Stock dividend payable June 30, 1995. A
portion of this dividend was paid with shares of Common
Stock and approximately $900,000 remains to be paid in cash.
As the Company was unable to pay this dividend by June 30,
1996, the holders of Series A Preferred Stock can now
require Board of Director representation. The December 31,
1995 dividend payment on the Series A Preferred Stock has
been declared payable in additional shares of Series A
Preferred Stock, however such shares cannot be issued until
the shares allocated to withholding taxes are sold for cash
and the proceeds remitted to the taxing authorities. The
Board of Directors elected not to declare the dividend
payable June 30, 1996.
During the quarter ended September 30, 1996, the
Company supplemented cash generated from the sale of
production by completion of the following transactions:
o In July 1996, the Company sold 50,000 shares of Common
Stock held as Treasury Stock in a Regulation S transaction
for net proceeds after fees and discounts of $12,875. (See
Part II - Item 2(c) "Changes in Securities.")
o In July 1996, the Company received approximately
$56,000 as consideration for a pipeline right-of-way granted
on the Lutcher Moore Tract.
o In August 1996, the Company sold in two separate
Regulation S transactions, (1) 2,800,000 Units, each Unit
consisting of one share of Common Stock and one warrant to
acquire one share of Common Stock, for net proceeds of
approximately $402,000 and (2) 1,500,000 shares of Common
Stock for net proceeds of $200,000, after deduction of
commissions. An aggregate of 4,300,000 shares of Common
Stock and Warrants to acquire additional 3,380,000 shares of
Common stock were issued. (See Part II - Item 2(c) "Changes
in Securities.")
o In August 1996, the Company borrowed $225,000 from an
investor and such investor was granted 1,200,000 warrants in
connection therewith. The loan is to be satisfied by the
issuance of shares of Common Stock.
o In September 1996, the Company granted two oil and gas
leases on the Lutcher Moore tract totaling 18,400 acres, for
which it received $184,000 in gross proceeds, of which
$100,000 was applied to principal reduction of the first
mortgage on that property.
o In September 1996, the Company received $75,000 in
payment for surface damages to 50 acres of the Lutcher Moore
Tract.
During the fourth quarter of 1996, the Company projects
a total trade payable position of approximately $0.9 million
and general and administrative expenses of approximately
$0.7 million. Additionally the Company has received cash
calls from Apache of approximately $5.5 million as of
November 11, 1996, the entire amount of which is in
arbitration. The Company additionally projects fourth
quarter costs of approximately $0.2 million for the China
lubrication oil project and approximately $0.2 million for
the China coalbed methane project. During the fourth quarter
the Company projects approximately $0.7 million of interest
due to INCC. Management's plans to obtain the necessary
capital include:
o The sale of the Lutcher Moore Tract and leasing
activities thereon. The Company is in ongoing negotiations
for the sale of this property. Should a sale be completed,
$4.8 million of the proceeds would be applied to the limited
recourse debt with additional proceeds used to satisfy
working capital requirements. During October 1996, the
Company granted an oil and gas lease covering 365 acres on
the property for which it received $36,500 in gross
proceeds.
o Negotiating joint venture agreements with potential
partners to supply the cash needed to pursue various China
projects. Discussions with several potential partners are in
progress.
o Negotiating a recapitalization of the Company.
o Until July 29, 1996, the Company was engaged in
attempts to sell its remaining domestic oil and gas
properties. On that day it received service of three
lawsuits filed by lessors of the most productive remaining
lease, effectively thwarting the Company's ability to
consummate a sale by casting doubt as to the Company's
rights to certain interests in the leases and demanding
damages. While the Company believes that the charges are
without merit, it is of the opinion that the property cannot
be sold until such time as the litigation is concluded or
settled. In response to a request by the lessors' counsel,
the Company has granted the lessors an extension of time to
respond to discovery demands made by the Company and to
allow sufficient time to pursue settlement of this
litigation. (See Note 7 - "Commitments, Contingencies and
Subsequent Events" and Part II - Item 1. "Legal
Proceedings," herein.)
The Company believes that working capital can be made
available from certain of its major stockholders or other
investors, should the Company (1) contract for the sale of
the Lutcher Moore tract, (2) enter into a letter(s) of
intent with industry partners to provide funds for the
Company's China projects capital requirements, or (3)
conclude a plan to recapitalize the Company. However, no
assurance can be given that the Company's efforts in this
regard will be successful. In addition, the Company's
efforts to secure additional working capital will be
impaired if the Company's Common Stock is delisted from the
American Stock Exchange. (See Note 7 - "Commitments,
Contingencies and Subsequent Events.")
Longer term liquidity is dependent on the Company's
commencement of production in China and continued access to
capital markets, including its ability to issue additional
debt and equity securities, which in certain cases may
require the consent of INCC and holders of the Company's
Subordinated Debt and Preferred Stock. By shareholder vote
on July 30, 1996, the shareholders approved an increase of
150,000,000 authorized shares of Common Stock and 1,200,000
authorized shares of 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 domestic federal,
state and local and Chinese laws and regulations governing
environmental quality and pollution control. Although
management believes that its 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. (See
Items 1 and 2 - "Business and Properties - Title to
Properties, Competition, Certain Risk Factors Relating to
the Company and the Oil and Gas Industry and Environmental
Matters" in the Annual Report on Form 10-K for the year
ended December 31, 1996.")
Results of Operations
- ---------------------
During the three and nine month periods ended September
30, 1996, the Company incurred net losses of $1.7 million
and $6.4 million, respectively, as compared to net losses of
$10.5 million and $25.4 million, respectively, during the
corresponding periods in 1995. The nine months results in
1996 include a $2 million writedown and $0.7 million loss on
sale of the Company's investments. The nine months results
for 1995 include a $16.5 million provision for impairment of
oil and gas properties. 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"). These writedowns were 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. The nine months results for 1995 also
reflect the effects of a $2.4 million valuation reserve for
the Company's assets held for sale.
Oil and gas revenues for the three and nine month
periods ended September 30, 1996, were $94,000 and $1
million compared to $0.6 million and $2 million during the
corresponding periods in 1995. Revenues and expenses
associated with the Company's U.S. producing properties will
continue to decline as the Company completes its announced
program of selling substantially all of its U.S. producing
properties. Net interest charges are not expected to
increase significantly throughout 1996, as the Company has
made $7.8 million in principal payments on its bank debt in
the first and second quarters of 1996.
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 on the Zhao Dong Block. The Company does not
anticipate significant increases in its oil and gas
production in the short-term and expects to incur operating
losses until such time as sufficient revenues from the China
projects are realized which exceed operating costs. At the
present time, the Company is unable to predict when revenues
from the China projects will exceed operating costs.
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>
XCL LTD. AND SUBSIDIARIES
September 30, 1996
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 its
lawsuit.
During December 1993, the Company and two of its wholly-
owned subsidiaries, XCL-Texas, Inc. and XCL Acquisitions,
Inc. were sued in separate law suits entitled Ralph
Slaughter, Secretary of the Department of Revenue and
Taxation, State of Louisiana vs. Exploration Company of
Louisiana, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5449); Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State
of Louisiana vs. XCL-Texas, Incorporated (15th Judicial
District, Parish of Lafayette, Louisiana, Docket No. 93-
5450); and Ralph Slaughter, Secretary of Department of
Revenue and Taxation, State of Louisiana vs. XCL
Acquisitions, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5337) by the Louisiana
Department of Revenue for Louisiana State corporate
franchise and income taxes. The claims relate to
assessments for the 1987 through 1991 fiscal years. The
aggregate amount of the assessments, including penalties and
interest, is approximately $2.25 million. The Company
believes that these assessments have been adequately
provided for in the consolidated financial statements. The
lawsuits are all in their initial stages. The Company
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 a former officer and director of the
Company, has asserted a claim in the aggregate amount of
approximately $0.5 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.
On December 1, 1995, the Company submitted certain
accounting disputes to arbitration arising from Apache's
operations at the Zhao Dong Block. In the initial
submission, the Company disputed certain amounts charged to
the Company by Apache in the August, September and October
1995 joint interest billings and the November and December
1995 cash calls. Amounts involved in later months joint
interest billings and cash calls were subsequently added to
the submission. As of November 11, 1996, the Company has
accrued liabilities to Apache arising from their joint
interest billings and cash calls in respect of the Company's
interest in the Zhao Dong Block of approximately $5.5
million ($3.7 million as of September 30, 1996) the entire
amount of which is in arbitration. An audit of Apache
conducted by Company personnel has called into question
approximately $0.3 million of charges in one category of
costs in dispute. While the Company believes that certain
charges are valid, and has fully provided for them in the
consolidated financial statements, it does not have
sufficient liquidity to make payment at this time.
On July 26, 1996, Mr. Frank Armstrong of Corpus
Christi, Texas, individually and on behalf of others (the
"Plaintiffs") filed three lawsuits against XCL-Texas, Inc.,
a wholly-owned subsidiary of the Company.
The first lawsuit entitled Stroman Ranch Company Ltd.,
et al v. XCL-Texas, Inc. (229th Judicial District, Jim Hogg
County, Texas, Cause No. 4550) alleges that in order to
secure from Plaintiffs an amendment to an oil and gas lease
in order to allow for the creation of a voluntary pooled
unit, the Company represented to the Plaintiffs, that it (1)
would make a series of payments totaling $80,000 and (2)
would commence drilling a well prior to December 31, 1993,
or pay $500,000 as liquidated damages. Further, the
Plaintiffs allege that the Company has supplied false and
misleading information to them in order to deprive them of
their rightful share of an oil, gas and mineral estate and
revenue therefrom; that being a 50 percent interest in the
pooled unit rather than the 30 percent interest actually
received. Plaintiffs allege actual damages of $580,000, any
additional amounts to result from an accounting of the
amount of damages suffered by the Plaintiffs, exemplary
damages, court costs and interest. The Company denies
liability and expects not only to enter affirmative defenses
but to counter claim for damages to the Company caused by
the actions of the Plaintiffs.
The second lawsuit entitled Frank Armstrong, et al v.
XCL-Texas, Inc. (229th Judicial District, Jim Hogg County,
Texas, Cause No. 4551) alleges that the Company did not
adequately represent the interests of the Plaintiffs before
a Texas Railroad Commission hearing, therefore, the
Plaintiffs incurred legal and related expenses totaling
$56,473.00 for which they seek reimbursement. The Company
denies liability and intends to vigorously defend itself.
The third lawsuit entitled Stroman Ranch Company Ltd.,
et al v. XCL-Texas, Inc. (229th Judicial District, Jim Hogg
County, Texas, Cause No. 4552) alleges that, with respect to
a lease executed in 1938 and assigned to the Company by
Edwin L. and Berry R. Cox (the "Cox Group"), ceased
producing in paying quantities prior to November 11, 1987
and therefore should be declared terminated. In the
alternative, the Plaintiffs seek a declaratory judgment that
the Cox Group engaged in bad faith, invalid and wrongful
pooling of the 1938 lease with another lease executed in
1985. Further, the Plaintiffs seek damages in excess of $1
million to effect environmental restoration arising from
damage caused by the Company's operation of the leases in
question. Finally, Plaintiffs seek an accounting and the
damages determined from such accounting, of all oil and gas
production and revenues from the sale of the same under the
1938 lease, attorneys fees and court costs. The Company
believes the claims made in this lawsuit are without merit
and intends to vigorously defend itself.
In response to a request by the lessors' counsel, the
Company has granted the lessors an extension of time to
respond to discovery demands made by the Company and to
allow sufficient time to pursue settlement of this
litigation.
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 2(c). Changes in Securities.
On July 3, 1996, the Company sold 50,000 shares of
Common Stock held as Treasury Stock to an accredited non-
U.S. institutional investor in a brokered transaction
intended to qualify for exemption from registration pursuant
to Regulation S, for net proceeds after fees and discounts
of $12,875.
On August 14, 1996, the Company sold 2,800,000 Units,
each Unit consisting of one share of Common Stock and one
warrant to acquire one share of Common Stock, and an
additional 280,000 warrants, to an accredited non-U.S.
institutional investor in a private placement transaction
intended to qualify for exemption from registration pursuant
to Regulation S, for net proceeds of approximately $402,000.
The warrants are exercisable at $0.25 per share until August
13, 2001.
On August 16, 1996, the Company sold 1,500,000 shares
of Common Stock to an accredited non-U.S. institutional
investor in a private placement transaction intended to
qualify for exemption from registration pursuant to
Regulation S, for net proceeds of $200,000, after deduction
of commissions. A Canadian corporation was granted warrants
to acquire 300,000 shares of Common Stock, exercisable at
$0.25 per share expiring December 31, 1998, as compensation,
in a private placement transaction intended to qualify for
exemption from registration pursuant to Regulation S.
Item 3. Defaults Upon Senior Securities.
(a) Debt
The Company did not make an interest payment of
$248,600 due INCC on October 1, 1996, resulting in an event
of default under the terms of the INCC Agreement. By letter
dated October 7, 1996, the bank acknowledged that failure to
make such interest payment constituted an event of default
and advised that such past due interest payment bears
interest at the Late Payment Rate in effect on such date.
From October 1, 1996, the Late Payment Rate has been 12.25
percent. The bank has not given formal notice to accelerate
the loan, however, it has reserved all of its rights and
remedies under the INCC Agreement. In addition to the event
of default described above, the Company is in violation of
several covenants in the INCC Agreement. The bank has
informed the Company that it will look favorably upon
waiving existing defaults, entering into a standstill
agreement and modifying other terms and conditions of the
INCC Agreement in connection with a recapitalization of the
Company satisfactory to the bank.
During April 1993, the Company issued in a private
placement, $15 million of secured subordinated note units
(the "Secured Subordinated Debt"). Each of these 40 units
consisted of a $375,000 note payable, warrants to acquire
100,000 shares of the Company's Common Stock at $0.625 per
share (as amended at the time the Company entered into the
INCC Agreement), a net profits interest in certain
exploration leases, and a contractual interest in the net
revenues of XCL-China, Ltd., a wholly owned subsidiary of
the Company, under the Production Sharing Agreement related
to the Zhao Dong Block. This borrowing bears interest at 12
percent if paid in cash or 14 percent if the Company elects
to use Common Stock, with payment at 125 percent of the
interest due if paid in unregistered shares. It is
collateralized by a second mortgage on all of the Company's
producing properties and a second lien on the stock of XCL-
China, Ltd. Payment on this debt cannot be made prior to
payment on the INCC Agreement. The terms of the Secured
Subordinated Debt provide that an event of default under the
INCC Agreement which has not been waived and permits the
bank to accelerate the maturity of its indebtedness is an
event of default in the Secured Subordinated Debt. As noted
above an event of default exists in the INCC Agreement,
therefore an event of default exists with respect to the
Secured Subordinated Debt.
The outstanding balance of the building mortgage loan
as of September 30, 1996, was approximately $0.7 million,
bearing interest at the rate of 14 percent per annum. As of
November 11, 1996, the Company has not made the October and
November scheduled payments. By letter dated October 29,
1996, the mortgagee has advised that if the loan default is
not satisfactorily cured, it in its sole discretion will
take action to protect its security and to enforce its loan
remedies. Payment of the building mortgage is guaranteed by
the Chairman of the Board.
(b) Preferred Stock
The Company's Series A Preferred Stock dividend
requirements are approximately 2.6 million Pound Sterling
(U.K.) annually and currently insufficient liquidity exists
to continue to pay such amounts. Further, the INCC Agreement
restricts payment of cash dividends. With the approval of
its lender, the Company declared the June 30, 1995 dividend
payable in cash, with such cash to be obtained from the sale
of Common Stock. In order to reduce the cash requirement,
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. Cash dividends remaining to be paid
with respect to the June 30, 1995 dividend declaration,
aggregate approximately $900,000. As the Company was unable
to pay this dividend by June 30, 1996, the holders of Series
A Preferred Stock can now require Board of Director
representation.
The December 31, 1995 dividend payment on the Series A
Preferred Stock has been declared payable in additional
shares of Series A Preferred Stock. During 1996, the terms
of the Series A Preferred Stock were amended to allow for
payment of the December 31, 1995 and subsequent dividend
payments to be made in additional shares of Series A
Preferred Stock. The Board of Directors correspondingly
approved a 250,000 share increase in the number of
authorized shares of Series A Preferred Stock. An aggregate
of 53,932 shares of Series A Preferred Stock are to be
issued for payment of the December 31, 1995 dividend and
U.S. and U.K. withholding taxes, however such shares cannot
be issued until the shares allocated to withholding taxes
are sold for cash and the proceeds remitted to the taxing
authorities. The Board of Directors elected not to declare
the dividend payable June 30, 1996.
Item 4. Submission of Matters to a Vote of Security-
Holders
On July 1, 1996, the Company held an Annual Meeting of
Shareholders at the Lafayette Petroleum Club, 111 Heymann
Boulevard, Lafayette, Louisiana. A quorum was present to
convene the meeting. The matters to be considered and voted
upon at the meeting were (1) election of two Class III
directors of the Company's Board of Directors, and (2)
approval of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
Common Stock and Preferred Stock.
The Company's Board of Directors is divided into three
Classes with each Class consisting of at least one executive
director and at least one non-executive director serving
three year terms. Messrs. John T. Chandler and Fred
Hofheinz were elected as Class III directors at this
meeting. A total of not fewer than 235,488,467 votes,
constituting a plurality of all of the votes cast at the
meeting by holders of shares present in person or by proxy,
were voted for each of the named persons elected as Class
III directors to the Company to serve until the Annual
Meeting of Shareholders to be held in 1999.
Class I directors are Messrs. David A. Melman, Arthur
W. Hummel, Jr., and Sir Michael Palliser, whose terms expire
at the 1997 Annual Meeting of Shareholders and Class II
directors are Messrs. Marsden W. Miller, Jr. and Francis J.
Reinhardt, Jr., whose terms expire at the 1998 Annual
Meeting of Shareholders. Mr. Edmund McIlhenny, a Class II
director, resigned effective June 26, 1996.
The affirmative vote of a majority of the issued and
outstanding shares of Common Stock and Series A and Series B
Preferred Stock was required to adopt the resolution
relating to the approval and adoption of an amendment to
Article FOURTH of the Company's Certificate of Incorporation
to increase the Company's total current authorized capital
stock from 351,200,000 shares to 502,400,000 shares,
consisting of 500,000,000 shares of Common Stock, par value
$.01 per share, and 2,400,000 shares of Preferred Stock, par
value $1.00 per share. The Company was unable to secure
sufficient proxies in time in order to approve the
resolution so the meeting was adjourned until July 30, 1996,
to allow for additional time in which to solicit the
required number of votes.
The adjourned Annual Meeting of Shareholders was held
July 30, 1996, at the Lafayette Petroleum Club, 111 Heymann
Boulevard, Lafayette, Louisiana, at which a quorum was
present, in order to consider and vote upon the approval of
an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of Common Stock
and Preferred Stock.
With respect to the resolution relating to the approval
and adoption of an amendment to Article FOURTH of the
Company's Certificate of Incorporation to increase the
Company's total current authorized capital stock from
351,200,000 shares to 502,400,000 shares, consisting of
500,000,000 shares of Common Stock, par value $.01 per
share, and 2,400,000 shares of Preferred Stock, par value
$1.00 per share, a total of 170,273,372 votes were cast to
ratify the amendment, as follows:
144,911,492 votes in favor
20,098,783 votes against
5,263,097 abstentions
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
1.0 Not applicable
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. (N)(i)
3.9 Certificate of Amendment dated July 30, 1996,
whereby Article Fourth was amended to increase the
number of shares of Common Stock and Preferred Stock. (Q)(i)
3(ii) Amended and Restated Bylaws of the Company as
currently in effect. (A)(iii)
4.0 Instruments defining rights of security holders,
including indentures:
4.1 Form of Common Stock Certificate. (A)(iv)
4.2 Certificate of Designation of Series A, Cumulative
Convertible Preferred Stock. (G)
4.3 Form of Series A, Cumulative Convertible Preferred
Stock Certificate. (B)(ii)
4.4 Certificate of Designation of Series B, Cumulative
Preferred Stock. (H)(i)
4.5 Form of Series B, Cumulative Preferred Stock
Certificate. (H)(ii)
4.6 Form of Class B Warrants issued to China Investment
& Development Co. Ltd. to purchase 2,500,000 shares of
Common Stock at $2.00 per share payable upon redemption
of the Series B, Cumulative Preferred Stock. (H)(iii)
4.7 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated August 7, 1992. (D)(ii)
4.8 Certificate of Designation of Series C, Cumulative
Convertible Preferred Stock. (E)(ii)
4.9 Copy of Amendment to Certificate of Designation of
Series C Preferred Stock dated February 18, 1994.(I)(i)
4.10 Form of Series C, Cumulative Convertible Preferred
Stock Certificate. (I)(iii)
4.11 Certificate of Designation of Series D, Cumulative
Convertible Preferred Stock. (I)(iv)
4.12 Form of Amendment to Certificate of Designation of
Series D Preferred Stock dated January 24, 1994. (I)(ii)
4.13 Form of Series D, Cumulative Convertible Preferred
Stock Certificate. (E)(v)
4.14 Form of Warrant dated January 31, 1994 to purchase
2,500,000 shares of Common Stock at an exercise price
of $1.00 per share, subject to adjustment, issued to
INCC. (I)(iii)
4.15 Form of Registrar and Stock Transfer Agency
Agreement, effective March 18, 1991, entered into
between the Company and Manufacturers Hanover Trust
Company (predecessor to Chemical Bank), whereby
Chemical Bank serves as the Company's Registrar and
U.S. Transfer Agent. (J)
4.16 Copy of Warrant Agreement and Stock Purchase
Warrant dated March 1, 1994 to purchase 500,000 shares
of Common Stock at an exercise price of $1.00 per
share, subject to adjustment, issued to EnCap
Investments, L.C. (I)(iv)
4.17 Copy of Warrant Agreement and form of Stock
Purchase Warrant dated March 1, 1994 to purchase an
aggregate 600,000 shares of Common Stock at an exercise
price of $1.00 per share, subject to adjustment, issued
to principals of San Jacinto Securities, Inc. in
connection with its financial consulting agreement with
the Company. (I)(v)
4.18 Form of Warrant Agreement and Stock Purchase
Warrant dated April 1, 1994, to purchase an aggregate
6,440,000 shares of Common Stock at an exercise price
of $1.25 per share, subject to adjustment, issued to
executives of the Company surrendering all of their
rights under their employment contracts with the
Company. (F)(ii)
4.19 Form of Warrant Agreement and Stock Purchase
Warrant dated April 1, 1994, to purchase an aggregate
878,900 shares of Common Stock at an exercise price of
$1.25 per share, subject to adjustment, issued to
executives of the Company in consideration for salary
reductions sustained under their employment contracts
with the Company. (F)(iii)
4.20 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)(iv)
4.21 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)(v)
4.22 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)(vi)
4.23 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated June 30, 1994. (F)(vii)
4.24 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 $0.75
per share, subject to adjustment, issued to Energy
Advisors, Inc. (L)(i)
4.25 Copy of Amendment to Certificate of Designation of
Series A Preferred Stock dated October 31, 1995. (N)(ii)
4.26 Copy of Certificate of Designation of Series E,
Cumulative Convertible Preferred Stock dated November
2, 1995. (N)(iii)
4.27 Form of Purchase Agreement between the Company and
each of the Purchasers of Units in the Regulation S
Unit Offering conducted by Rauscher Pierce & Clark with
closings as follows:
December 22, 1995 116 Units
March 8, 1996 34 Units
April 23, 1996 30 Units (O)(i)
4.28 Form of Warrant Agreement between the Company and
each of the Purchasers of Units in the Regulation S
Unit Offering conducted by Rauscher Pierce & Clark, as
follows:
Closing Date Warrants Exercise Price
------------ --------- --------------
December 22, 1995 6,960,000 $0.50
March 8, 1996 2,040,000 $0.35
April 23, 1996 1,800,000 $0.35 (O)(ii)
4.29 Form of Warrant Agreement between the Company and
Rauscher Pierce & Clark in consideration for acting
as placement agent in the Regulation S Units Offering,
as follows:
Closing Date Warrants Exercise Price
------------ -------- --------------
December 22, 1995 696,000 $0.50
March 8, 1996 204,000 $0.35
April 23, 1996 180,000 $0.35 (O)(iii)
4.30 Form of Amendment of Certificate of Designation of
Series A Preferred Stock dated April 11, 1996. (O)(iv)
4.31 Stock Purchase Agreement between the Company and
Janz Financial Corp. Ltd. dated August 14, 1996,
whereby clients of Janz Financial Corp. Ltd. purchased
2,800,000 units comprised of one share of Common Stock
and one warrant to purchase one share of Common Stock
in a Regulation S transaction.*
4.32 Form of a series Stock Purchase Warrants issued to
Janz Financial Corp. Ltd. dated August 14, 1996,
entitling the holders thereof to purchase up to
3,080,000 shares of Common Stock at $0.25 per share on
or before August 13, 2001.*
4.33 Stock Purchase Agreement between the Company and
Provincial Securities Ltd. dated August 16, 1996,
whereby Provincial purchased 1,500,000 shares of Common
Stock in a Regulation S transaction.*
4.34 Stock Purchase Warrant issued to Terrenex
Acquisitions Corp. dated August 16, 1996, entitled the
holder thereof to purchase up to 300,000 shares of
Common Stock at $0.25 per share on or before December
31, 1998.*
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 $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)(vi)
10.3 Copy of Subordination Agreement among the Company,
INCC and the holders of the Secured Notes dated. (I)(vii)
10.4 Form of First Amendment of Secured Subordinated
Note dated January 31, 1994. (I)(viii)
10.5 Form of First Amendment of Limited Recourse Secured
Lease Note dated January 31, 1994. (I)(ix)
10.6 Stock Pledge Agreement dated January 31, 1994,
among the Company and INCC. (I)(x)
10.7 Deed of Trust, Mortgage, Assignment, Security
Agreement and Financing Statement from XCL-Texas, Inc.
to INCC dated January 31, 1994. (I)(xi)
10.8 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)(xii)
10.9 Modification Agreement for Petroleum Contract on
Zhao Dong Block in Bohai Bay Shallow Water Sea Area of
The People's Republic of China dated March 11, 1994,
between the Company, China National Oil and Gas
Exploration and Development corporation and Apache
China Corporation LDC. (I)(xiii)
10.10 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)(vii)
10.11 Letter Agreement dated June 30, 1994 between the
Company, China Investment & Development Co. Ltd. and
China Investment and Development Corporation. (F)(ix)
10.12 Letter Agreement dated July 10, 1994 between the
Company and holders of the Lease Notes. (F)(x)
10.13 Stock Purchase Agreement between the Company and
Provincial Securities Limited dated May 17, 1994. (F)(xi)
10.14 Consulting agreement between the Company and Sir
Michael Palliser dated April 1, 1994. (K)(i)
10.15 Consulting agreement between the Company and Mr.
Arthur W. Hummel, Jr. dated April 1, 1994. (K)(ii)
10.16 Letter Agreement between the Company and Mr.
William Wang dated June 2, 1992, executed effective
February 10, 1993. (K)(iii)
10.17 First Amendment to Credit Agreement between the
Company and Internationale Nederlanden (U.S.) Capital
Corporation dated April 13, 1995. (L)(ii)
10.18 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)
10.19 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)
10.20 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)
10.21 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)
10.22 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)
10.23 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)
10.24 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)
10.25 Letter of Intent dated July 17, 1995 between
CNPC United Lube Oil Corporation and XCL Ltd. for
discussion of further projects. (M)(v)
10.26 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)
10.27 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. (N)(iv)
10.28 Copy of Second Amendment to Credit Agreement
between the Company and Internationale Nederlanden
(U.S.) Capital Corporation dated effective as of
September 29, 1995. (N)(v)
10.29 Copy of Fee Agreement dated October 26, 1995,
between the Company and EnCap Investments L.C. for past
services and proposed European equity offering. (N)(vi)
10.30 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. (N)(vii)
10.31 Memo of Understanding dated December 14, 1995,
between XCL Ltd. and China National Administration of
Coal Geology. (O)(v)
10.32 Copy of Purchase and Sale Agreement dated December
28, 1995, between XCL Ltd., XCL-Texas, Inc. and Cody
Energy Corporation, for the sale to Cody Energy of the
Mestena Grande Field located in Texas. (O)(vi)
10.33 Form of Fourth 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 January 16, 1996. (O)(vii)
10.34 Form of Third 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 January 16, 1996. (O)(viii)
10.35 Copy of Purchase and Sale Agreement dated March 8,
1996, between XCL-Texas, Inc. and Tesoro E&P Company,
L.P. for the sale of the Gonzales Gas Unit located in
south Texas. (O)(ix)
10.36 Copy of Limited Waiver between the Company
and Internationale Nederlanden (U.S.) Capital
Corporation dated April 3, 1996. (O)(x)
10.37 Copy of Purchase and Sale Agreement dated April
22, 1996, between XCL-Texas, Inc. and Dan A. Hughes
Company for the sale of the Lopez Gas Unites located in
south Texas. (P)
10.38 Form of Sale of Mineral Servitude dated June 18,
1996, whereby the Company sold its 75 percent mineral
interest in the Phoenix Lake Tract to the Stream Family
Limited Partners and Virginia Martin Carmouche Gayle. (Q)(ii)
11. Statement re computation of per share earnings *
16. Not applicable.
17. Not applicable.
20. Not applicable.
23. Not applicable.
24. Not applicable.
27. Financial Data Schedule *
99. 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; and (vii) 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
(iii) Exhibits 4.28 through 4.30, respectively; (iv)
through (viii) Exhibits 4.34 through 4.38,
respectively; and (ix) through (xi) Exhibits 10.8
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 (xii) Exhibit 10.41 through Exhibit
10.47, respectively; and (xii) 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.
(N) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995,
filed November 13, 1995, where it appears as: (i)
Exhibit 3.8; (ii) and (iii) Exhibits 4.29 and 4.30,
respectively; and (iv) through (vii) Exhibits 10.35
through 10.38, respectively.
(O) Incorporated by reference to Annual Report on Form
10-K for the year ended December 31, 1995, filed April
15, 1996, where it appears as: (i) through (iv)
Exhibits 4.28 through 4.31, respectively; and (v)
through (x) Exhibits 10.31 through 10.36, respectively.
(P) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, filed
May 15, 1996, where it appears as Exhibit 10.37.
(Q) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed
August 14, 1996, where it appears as (i) Exhibit 3.9
and (ii) Exhibit 10.38.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1996.
<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/ David A. Melman
By: __________________________
David A. Melman
Executive Vice President and
General Counsel
Date: November 14, 1996
THE SECURITIES BEING OFFERED AND SOLD HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, OR ANY OTHER DOMESTIC OR FOREIGN SECURITIES LAWS AND
THEIR OFFER AND SALE ARE SUBJECT TO CERTAIN RESTRICTIONS
HEREINAFTER SET FORTH.
PURCHASE AGREEMENT
Purchase of Common Stock
THIS PURCHASE AGREEMENT is made as of the 13th day of
August, 1996 by and between the purchaser whose name and address
are shown on the signature page to this Purchase Agreement (the
"Purchaser") and XCL LTD., a Delaware corporation, with its
principal offices at 110 Rue Jean Lafitte, Lafayette, Louisiana,
United States of America (the "Company").
WHEREAS, the Company has duly authorized the issuance, sale
and delivery of 2,800,000 Units (the "Units") each Unit
consisting of one share of common stock, par value $.01 per share
(the "Common Stock"), and a warrant to purchase, on or before
August 12, 2001, an additional share of Common Stock at $.25 per
share (the "Warrant Shares") (the Common Stock and Warrant
Shares, collectively referred to herein as the "Shares");
WHEREAS, the Shares are being offered and sold by the
Company to Purchaser in a transaction intended to qualify for the
exemption from the registration requirements of the United States
Securities Act of 1933, as amended (the "Securities Act")
afforded by Regulation S promulgated under the Securities Act
("Regulation S");
WHEREAS, the Company has delivered to Purchaser, copies of
its recent filings with the Securities and Exchange Commission,
including the Company's most recent Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, as amended, and
Forms 10-Q, Form 8-K and Proxy Statement dated May 28, 1996,
filed thereafter (the "SEC Filings"); and
WHEREAS, the Company wishes to sell to Purchaser, and
Purchaser wishes to buy from the Company, the aggregate number of
Shares set opposite Purchaser's address on the signature page to
this Purchase Agreement for delivery in accordance with this
Purchase Agreement; and
WHEREAS, the Company wishes to compensate Janz Financial
Corp. Ltd. for acting as an intermediary in introducing the
Company to Purchaser, the Company will issue to Janz Financial
Corp. Ltd. a warrant to purchase 280,000 shares of Common Stock.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Purchase Agreement, the
undersigned agree as follows:
Section 1. Agreement to Sell and Purchase the Common
Stock.
(a) On the basis of the representations, warranties and
agreements contained in this Purchase Agreement the Company
agrees to issue and sell to Purchaser, and Purchaser agrees to
buy from the Company, on August 13, 1996 (the "Closing Date"),
2,800,000 Units. The price for the Units shall be $.159375 per
Unit less a 10% sales commission, and Purchaser shall pay to the
Company the aggregate amount set out opposite Purchaser's address
on the signature page to this Purchase Agreement (the "Purchase
Price"). Payment of the Purchase Price for the Shares shall be
made on August 13, 1996 by Purchaser to the Company by wire
transfer of immediately available funds in United States dollars
to:
Amount: $367,058.94
Bank: Chase Manhattan Bank, New York
ABA #: 021000021
A/C #: 9301035763
For Further Credit to: ING Capital, Natural Resources Dept.
Re: XCL Ltd.
Amount: $34,566.06
Bank: Bank One
ABA #: 065-400137
Account Name: XCL Ltd.
Account #: 7101-362092
(b) In the event of any change in the issued and
outstanding Common Stock of the Company by reason of stock
dividends, split-up or combination of the Common Stock,
reclassification of the capital stock of the Company or
recapitalization of the Company which occurs on or before the
Closing, the number of shares of Common Stock to be delivered to
Purchaser at the Closing and the Purchase Price therefor shall be
appropriately adjusted.
(c) The obligation of the Purchaser to purchase the
Shares at the Closing shall be conditional upon the delivery by
the Company of a written opinion of David A. Melman, counsel to
the Company, in the form attached hereto as Schedule 1 dated the
Closing Date; and
(d) The obligation of the Company to issue and sell the
Units at the Closing shall be conditional upon:
(i) The receipt and acceptance by the Company of
this Purchase Agreement for all of the Shares which shall be
evidenced by execution of this Purchase Agreement by the
President or any Vice President or any Director of the
Company.
(ii) Delivery by Purchaser of immediately available
funds in United States dollars, in the full amount of the
Purchase Price, as payment in full for the purchase of the
Shares.
Section 2. Representations and Warranties of the
Company. The Company hereby represents and warrants to Purchaser
as follows:
2.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite
corporate power and authority to own and lease its properties and
to conduct its business as presently conducted and as described
in the SEC Filings. The Company is duly qualified to do business
as a foreign corporation and is in good standing in every
jurisdiction where such qualification is required by controlling
law and where the failure so to qualify would have a material
adverse effect on the Company and its subsidiaries, taken as a
whole. Each Principal Subsidiary (as defined below) is a
corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction or incorporation and has all
requisite corporate power and authority to own and lease its
properties and to conduct its business as presently conducted and
as described in the SEC Filings. Each Principal Subsidiary is
duly qualified to do business as a foreign corporation and is in
good standing in every jurisdiction where such qualification is
required by controlling law and where the failure to so qualify
would have a material adverse effect on the Company and its
subsidiaries, taken as a whole. The principal direct and indirect
subsidiaries of the Company (collectively, the "Principal
Subsidiaries") are:
XCL China Ltd., a British Virgin Islands corporation
XCL-Texas, Inc., a Texas corporation
XCL Land Ltd., a Delaware corporation
XCL-Acquisitions, Inc., a Delaware corporation
2.2. Authorized Capital Stock. The Company has
authorized Common Stock of 500,000,000 shares, and all of the
issued shares of capital stock of the Company have been duly and
validly authorized and issued and are fully paid and
nonassessable. All of the outstanding shares of capital stock of
the Principal Subsidiaries have been duly and validly authorized
and issued and are fully paid and nonassessable. All of the
outstanding shares of capital stock of the Principal Subsidiaries
are owned directly by the Company free and clear of any claim,
lien, security interest, mortgage pledge, charge of other
encumbrance of any nature whatsoever, except as disclosed in the
SEC filings. The Company does not own, directly or indirectly, a
material amount of any equity or debt securities of any other
company, corporation, partnership, joint venture or other entity,
except as disclosed in the SEC Filings or which individually or
in the aggregate do not constitute a material asset of the
Company and its subsidiaries, taken as a whole.
2.3 Due Execution, Delivery and Performance of the
Purchase Agreement. The execution, delivery and performance of
the Purchase Agreements by the Company (a) have been duly
authorized by all requisite corporate action of the Company, and
(b) will not violate (i) the Certificate of Incorporation or By-
laws of the Company or (ii) any law applicable to the Company or
any of its subsidiaries or any rule, regulation or order of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or (iii) any provision of any
material indenture, mortgage, agreement, contract or other
instrument to which the Company or any the Principal Subsidiaries
are subject, or be in material conflict with, or result in a
material breach of or constitute (upon notice or lapse of time or
both) a material default under any such material indenture,
mortgage, agreement, contract or other instrument or result in
the creation or imposition of any claim, lien, security interest,
mortgage, pledge, charge or other encumbrance of any nature
whatsoever upon any of the material properties or assets of the
Company or any of the Principal Subsidiaries (except for such
violation, breach or default described in (b)(iii) above which
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole). Upon execution and delivery by
the Company, the Purchase Agreements will constitute the legal,
valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as
the enforceability thereof may be limited by an applicable
bankruptcy, insolvency, reorganization or other similar laws,
relating to or affecting the enforcement of creditors rights
generally and by general equitable principles, regardless of
whether such enforceability is considered in a proceeding in
equity or at law.
2.4 Issuance and Delivery of the Shares.
(a) The offer, issuance, sale and delivery of the Shares
in accordance with this Purchase Agreement, have been duly
authorized by all requisite corporate action of the Company. The
shares conform in all material respects to the description of the
Common Stock contained in the SEC Filings and to the terms of the
Common Stock contained in the Company's Certificate of
Incorporation. Except as set forth immediately below, the Shares
as and when issued and sold to the Purchaser pursuant to this
Purchase Agreement, and upon receipt by the Company of the
Purchase Price therefor, will be duly and validly issued and
outstanding, fully paid and nonassessable, will not be subject to
any pre-emptive or similar right, and Purchaser will receive good
and valid record title to the Shares, free and clear of any
claim, lien, security interest, mortgage, pledge, charge or other
encumbrance of any nature whatsoever, except such as may have
been created by Purchaser.
(b) The Janz Financial Corp. Ltd. shall be issued
warrants to acquire 280,000 shares of Common Stock at $.25 per
share, expiring August 12, 2001 ("Janz Warrants"), as
compensation for arranging the transaction. The issuance and
delivery of the Janz Warrants have been duly authorized by all
requisite corporate action of the Company. The shares of Common
Stock issued upon exercise of the Janz Warrant, upon receipt of
the consideration therefore, will be deemed duly and validly
issued and outstanding, fully paid and nonassessable.
(c) The Company has approximately 229,444,126 shares of
Common Stock that are authorized but unissued, of which
156,776,857 shares have been reserved for issuance, for among
other things, the conversion of preferred securities, exercise of
warrants, sales to qualified purchasers and other legal
obligations of the Company. The Company commits to expeditiously
file a Listing Application with the American Stock Exchange to
list, among other things, and upon approval of the same, the
Shares hereby purchased and the shares of Common Stock underlying
the Janz Warrant. The restriction on re-sale period shall
commence with the delivery of the Shares upon approval of the
Listing Application by the American Stock Exchange.
2.5 SEC Filings.
(a) The documents filed with the United States
Securities and Exchange Commission (the "Commission"), complied
in all material respects with the requirements of the United
States Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission promulgated thereunder and did
not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
in order the make the statement therein, in light of the
circumstances under which they were made, not misleading.
(b) The consolidated financial statements of the Company
and its subsidiaries set forth in the SEC Filings present fairly
the consolidated financial condition of the Company and its
subsidiaries as of the respective dates thereof and the
consolidated results of operations of the Company and its
subsidiaries for the respective periods covered thereby, all in
conformity with accounting principles generally accepted in the
United States applied on a consistent basis throughout the
periods involved.
(c) To the Company's knowledge, the accountants who
certified the audited consolidated financial statements of the
Company and its subsidiaries included in the SEC Filings are
independent public accountants as required by the Securities Act
and the rules and regulations of the Commission promulgated
thereunder.
2.6 Legal Proceedings. Except as otherwise described
in the SEC Filings, there are no actions, suits, investigations
or proceedings pending to which the Company or any of the
Principal Subsidiaries is a party before or by any court or
governmental agency or body, which in the opinion of management
of the Company would result, individually or in the aggregate, in
any material adverse change in the financial condition or results
of operations of the Company and its subsidiaries, taken as a
whole, or which would materially and adversely affect the
consolidated properties or assets, thereof; if an adverse
decision is obtained, and to the best knowledge of the Company's
management, no such actions, suits, investigations or proceedings
are threatened by any person, corporation or governmental agency
or body.
2.7 No Material Change. Except as disclosed in or
contemplated by the SEC Filings, there has been no material,
adverse change in or affecting the business operations,
management, financial position, stockholders equity or results of
operations of the Company and its subsidiaries since June 30,
1996.
2.8 Properties and Assets. Each of the Company and the
Principal Subsidiaries has good and marketable title to all
properties and assets described in the SEC Filings as owned by
it, free and clear of all claims, liens, security interests,
mortgages, pledges, charges or other encumbrances of any nature
whatsoever, except as disclosed in the SEC Filings, or are not
material to the business of the Company and its subsidiaries,
taken as a whole. Except as set forth in the SEC Filings, each
of the Company and the Principal Subsidiaries has valid,
subsisting and enforceable leases for the properties described in
the SEC Filings, with such exceptions as are not material and do
not materially interfere with the use made and proposed to be
made of such properties by the Company and such Subsidiaries.
2.9 Compliance with Applicable Regulations. Except as
disclosed in the SEC Filings, each of the Company and the
Principal Subsidiaries (a) has all governmental licenses,
permits, consents, orders, approvals, qualifications and other
authorizations necessary to carry on its business as described in
the SEC Filings, (b) complies in all material respects with, and
conducts its business in substantial conformity with (except for
failures to conform which would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole),
all laws, regulations and orders applicable to it or its
business, and (c) complies in all material respects with, and
conducts its business in substantial conformity with (except for
failures to conform which would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole),
all such licenses, permits, consents, orders, approvals,
qualifications, authorizations issued by, and all agreements of
the Company and the Principal Subsidiaries with, any governmental
agency or body having jurisdiction over the Company and such
Subsidiaries.
2.10 Compliance with Regulation. The Company is a
"reporting issuer" (as defined in Regulation S). The Company,
its affiliates and any person acting on behalf of, or as agent
of, any of the foregoing, whether as principal or agent, (a) has
offered and sold the Shares only in an "offshore transaction" (as
defined in Regulation S), (b) has not engaged with respect to the
Shares in any "directed selling efforts" (as defined in
Regulation S) in respect of the Shares, (d) has not made any
offers or sales of any of the Shares or any interest therein in
the United States or to, or for the account of, any "U.S. person"
(as defined in Regulation S), and (e) has not made any sales of
any of the Shares or any interest therein to any person other
than the Purchasers.
2.11 Representations and Warranties at the Closing.
Each of the representations and warranties contained in Section 2
is true and correct in all material respects as of the date of
this Purchase Agreement. The Company will make the same
representations and warranties at the Closing and such
representations and warranties when so made will be true and
correct in all material respects as of the Closing Date.
Section 3. Certain Agreements of the Company. The
Company hereby covenants and agrees with Purchaser as follows:
(a) Prior to or contemporaneously with the delivery of
execution copies of this Purchase Agreement, the Company will
furnish to Purchaser the SEC Filings.
(b) The Company will make available to Purchaser prior
to the Closing Date the opportunity to ask questions and receive
answers concerning the terms and conditions of the purchase of
the Shares and the business and financial conditions of the
Company and to obtain any additional information that the Company
may possess or can acquire without unreasonable effort or expense
that is necessary to verify the accuracy of the information
furnished in accordance herewith.
(c) At any time after the expiration of the Restricted
Period (as hereinafter defined) the Company will deliver to
Purchaser or its nominee who is acting as custodian therefor or
any subsequent holder who has received a stock certificate
representing the Shares which bears the legend described in
Section 4.4 of this Purchase Agreement (the "Legended Stock
Certificate") , without cost to such Purchaser or subsequent
holder, upon written request therefor, a substitute stock
certificate without the restrictive legend described in Section
4.4 of this Purchase Agreement. The Company shall be required to
deliver such substitute stock certificate only upon surrender of
the Legended Stock Certificate which, in the case of any holder
subsequent to Purchaser, must be duly endorsed for transfer or
surrender and accompanied by certificates signed by the Purchaser
and such holder as provided in Section 4.3(c) hereof.
Section 4. Representations, Warranties and Covenants of
Purchaser. Purchaser hereby represents, warrants and covenants
to the Company as follows:
4.1 Compliance with United States Securities Laws.
Purchaser understands and acknowledges that (a) the Shares have
not been and will not be registered under the Securities Act, and
may not be offered or sold in the United States or to, or for the
account or benefit of, any "U.S. person" (as defined in
Regulation S, which definition is set out in Schedule 4 hereto),
unless such Shares are registered under the Securities Act and
any applicable state securities or blue sky laws or such offer or
sale is made pursuant to exemptions from the registration
requirements of such laws, (b) the Shares are being offered and
sold pursuant to the terms of Regulation S under the Securities
Act, which permits securities to be sold to non-"U.S. persons" in
"offshore transactions" (as defined in Regulation S), subject to
certain terms and conditions, (c) the Company is relying upon the
truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser
set forth herein in order to determine the availability of the
exemptions from registration under the Securities Act relied upon
by the Company and the suitability of the Purchaser to acquire
the Shares; (d) the Shares have been offered and sold to the
Purchaser in an "offshore transaction" and Purchaser has not
engaged in any "directed selling efforts", as each such term is
defined in Regulation S, and (e) in the view of the Commission,
the statutory basis for the exemption from registration claimed
for this offering would not be present if the offering of the
Shares, although in technical compliance with Regulation S, is
part of a plan or scheme to evade the registration provisions of
the Securities Act and, accordingly, the Purchaser is making the
representations and warranties in this Section 4 to evidence its
compliance with the applicable requirements of the Securities Act
and that its participation in such offering is not a part of any
such plan or scheme.
4.2 Status of Purchaser.
(a) Purchaser is purchasing the Shares for its own
account or for persons or accounts as to which it exercises
investment discretion. Neither Purchaser nor such person or
account is a "U.S. person" (as defined in Regulation S) and
neither Purchaser nor such other person or account has any
present intention to sell any of the Shares in the United States
or to a U.S. person or for the account or benefit of a U.S.
person either now or promptly after expiration of the Restricted
Period.
(b) Purchaser (and any person or account on whose behalf
Purchaser is purchasing) is knowledgeable, sophisticated and
experienced in making, and is qualified to make decisions with
respect to investments in restricted securities (such as this
Purchase Agreement and the Shares) and has requested, received,
reviewed and considered all information it deems relevant in
making a decision to execute this Purchase Agreement and purchase
the Shares. Purchaser acknowledges that it is capable of
evaluating the merits and risks of an investment in the Shares
and to make an informed decision relating thereto. In evaluating
its investment, Purchaser has consulted its own investment and/or
legal or tax advisors.
(c) Purchaser acknowledges that the Company had made
available to Purchaser the opportunity to ask questions and
receive answers concerning the terms and conditions of the
offering of the Shares and the business and financial condition
of the Company and to obtain any additional information that the
Company may possess or can acquire without unreasonable effort or
expense that is necessary to verify the accuracy of the
information furnished in accordance herewith. Purchaser and its
advisors, if any, have received complete and satisfactory answers
to all such inquiries. Purchase acknowledges that in making the
decision to purchase the Shares, it has relied solely upon the
representations and warranties of the Company contained herein
and the information contained in the SEC Filings, and other
publicly available documents, copies of which have been furnished
or made available to Purchaser, and upon the independent
investigations made by it and its representatives, if any.
(d) Purchaser has agreed to purchase the Shares for
investment purposes and not with a view to a distribution.
Purchaser is not an underwriter of, or dealer in, the Shares and
is not participating, pursuant to a contractual arrangement, in
the distribution of the Shares. To the extent that the Shares
are registered in the name of Purchaser's nominee, Purchaser
confirms that such nominee is acting merely as custodian for the
Purchaser of such securities.
(e) Purchaser understands that no U.S. Federal or state
or any foreign governmental authority or agency has made or will
make any finding or determination relating to the fairness for
public investment in the Shares, or has passed upon or made, or
will pass upon or make, any recommendation or endorsement of the
Shares.
(f) If Purchaser is a partnership, corporation, trust or
other entity, the individual executing this Purchase Agreement on
its behalf represents and warrants that:
(i) He or she has made due inquiry to determine the
truthfulness of the representations and warranties made by
the Purchaser in this Purchase Agreement; and
(ii) He or she is duly authorized under the
corporation's charter and by all requisite corporate action
(and if the Purchaser is a partnership, trust or other
unincorporated entity, by the agreements, deeds, indentures
or other instruments pursuant to which such entity was
organized and all requisite action to be taken by such
entity) to make this investment and to enter into, execute
and deliver this Purchase Agreement on behalf of such
entity.
4.3 Restrictions on Re-Sale.
(a) For a period of forty (40 days) following the date
of delivery of the Shares (the "Restricted Period"), Purchaser
shall not engage in any activity for the purpose of, or which may
reasonable be expected to have the effect of, conditioning the
market in the United States for the Shares, or directly or
indirectly offer, sell, transfer, pledge or otherwise dispose of
the Shares, or any interest therein, in the United States or to,
or for the account or benefit of, a "U.S. person" (as defined in
Regulation S). Purchaser hereby also agrees that it shall not,
either directly or indirectly, sell short the Company's shares of
Common Stock on the American Stock Exchange or on any other
exchange or in the over-the-counter market or otherwise in the
United States during the Restricted Period and it has not made
any such sale in anticipation of participating in the offering
and purchasing of the Shares.
(b) Purchaser understands that the Shares or any
interest therein are only transferable on the books and records
of the Transfer Agents and Registrar of the Common Stock of the
Company. Purchaser further understands that the Transfer Agents
and Registrar will not register any transfer of the Shares or any
interest therein which the Company in good faith believes
violates the restrictions set forth herein.
(c) Unless registered under the Securities Act, any
proposed offer, sale, transfer, pledge or other disposition
during the Restricted Period of any of the Shares or any interest
therein, shall be subject to the condition that Purchasers must
deliver to the Company (i) a written certification that neither
record nor beneficial ownership of the Shares or any interest
therein, has been offered or sold in the United States or to, or
for the account or benefit of, any "U.S. person" (as defined in
Regulation S), (ii) a written certification of the proposed
transferee that such transferee (or any account for which such
transferee is acquiring such Shares or any interest therein) is
not a "U.S. person" (as defined in Regulation S), that such
transferee is acquiring such Shares or such interest therein, for
such transferee's own account (or an account over which it has
investment discretion) and for investment and not with a view to
a distribution, and that such transferee is knowledgeable of and
agrees to be bound by the restrictions on re-sale set forth in
this section and Regulation S during the Restricted Period, and
(iii) a written opinion of United States counsel, in form and
substance satisfactory to the Company, the effect that the offer,
sale, transfer, pledge or other disposition of the Shares, or any
interest therein, are exempt from registration under the
Securities Act and any applicable state securities or blue sky
laws.
(d) Purchaser will not, directly or indirectly,
voluntarily offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offerings to buy, purchase or otherwise acquire
or take a pledge of ) its rights under this Purchase Agreement,
the Shares, any interest therein, or otherwise than in compliance
with the Securities Act, any applicable state securities or blue
sky laws and any applicable securities laws or jurisdictions
outside the United States, and the rules and regulations
promulgated thereunder.
4.4 Legend. Purchaser agrees that, unless and until
removed as contemplated by Section 3(c) hereof, the stock
certificates representing the Shares shall bear the legend set
forth below:
"The shares of Common Stock represented by this
certificate have not been registered under the United
States Securities Act of 1933, as amended (the "Act"),
or any other securities laws, and have been issued in
reliance upon the exemption from registration under the
Act contained in Regulation S under the Act. Prior to
the later of _______________, 199__, no offer, sale,
transfer, pledge or other disposition (collectively, a
"Disposal") of the shares of Common Stock represented
by this certificate may be made: (a) in the United
States or to, or for the account or benefit of, any
"U.S. person" (as defined in Regulation S) unless (i)
registered under the Act and any applicable state
securities or blue sky laws or (ii) exemptions from the
registration requirements of such laws are available
and XCL Ltd. (the "Company") receives a written opinion
of United States legal counsel in form and substance
satisfactory to it to the effect that such Disposal is
exempt from such registration requirements; and (b)
outside of the United States or to, of for the account
or benefit of a person who is not a "U.S. person" (as
defined in Regulation S) unless (i) the beneficial
owner of such shares and the proposed transferee submit
certain certifications to the Company and (ii) the
Company receives a written opinion of United States
legal counsel in form and substance satisfactory to it
to the effect that such Disposal is exempt from the
registration requirements of the Act."
4.5 Due Execution, Delivery and Performance of the
Purchase Agreement and Other Obligations. Purchaser has full
right, power, authority and capacity to enter into this Purchase
Agreement and to consummate the transactions contemplated hereby.
Upon the execution and delivery of this Purchase Agreement by
Purchaser, this Purchase Agreement shall constitute the legal,
valid and binding obligation of Purchaser, except as the
enforceability thereof may be limited by any applicable
bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting the enforcement of creditors rights
generally and by general equitable principles, regardless of
whether such enforceability is considered in a proceeding of
equity or at law.
4.6 Representations and Warranties at the Closing. Each
of the representations and warranties contained in this Section 4
is true and correct as of the date of this Purchase Agreement.
Purchaser will make the same representations and warranties on
the Closing Date and the Delivery Date and such representations
and warranties when so made will be true and correct as of the
Closing Date, and the Delivery Date, respectively.
Section 5. Survival of Representations, Warranties and
Agreements. Notwithstanding any investigation made by either
party to this Purchase Agreement, all covenants, agreements,
representations and warranties made by the Company and Purchaser
herein shall survive the execution of this Purchase Agreement,
the delivery to Purchaser of the Shares and the receipt by the
Company of payment for the Shares.
Section 6. Notices. All notices, demands, consents or
other communications under this Purchase Agreement shall be given
or made in writing and shall be delivered personally, or sent by
registered or international recorded airmail, postage prepaid, or
sent by facsimile transmission with a confirmation copy sent by
mail as aforesaid, and shall be deemed given when so personally
delivered, or if mailed as aforesaid, ten (10) business days
after the same shall have been posted or if sent by facsimile
transmission, at the earlier of (i) as soon as written or
telephonic communication is received from the party to whom it
was sent that the message has been received or (ii) ten (10) days
after the confirmation is posted:
(a) if to the Company, at its address as set out at the
head of this Purchase Agreement, or at such address or addresses
as may have been furnished to Purchaser in writing by the
Company;
(b) if to, Purchaser, at its address as set out
following Purchaser's signature on the signature page to his
Purchase Agreement, or at such other address or addresses as may
have been furnished to the Company in writing by Purchaser; or
(c) if to any transferee or transferees of Purchaser, at
such address or addresses as shall have been furnished to the
Company at the time of the transfer or transfers or at such other
address or addresses as may have been furnished by such
transferee or transferees to the Company in writing.
Section 7. Amendments. No amendment, interpretation or
waiver of the provisions of this Purchase Agreement shall be
effective unless made in writing and signed by the parties to
this Purchase Agreement.
Section 8. Headings. The headings of the sections and
sub-sections of this Purchase Agreement are used for convenience
only and shall not affect the meaning or interpretation of the
contents of this Purchase Agreement.
Section 9. Enforcement. The failure to enforce or to
require the performance at any time of any of the provisions of
this Purchase Agreement shall in no way be construed to be a
waiver of such provisions, and shall not affect either the
validity of this Purchase Agreement or any part hereof or the
right of any party thereafter to enforce each and every provision
in accordance with the terms of this Purchase Agreement.
Section 10. Governing Law; Submission to Jurisdiction.
This Purchase Agreement and the relationships of the parties in
connection with the subject matter of this Purchase Agreement
shall be governed by and determined in accordance with the
substantive laws of the State of Delaware, in the United States
of America, applicable to agreements made and to be performed
entirely therein. Purchaser hereby irrevocable and
unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Purchase Agreement to which
it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the Courts of the United
States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now
or hereafter have to the venue of any such action or proceedings
as brought in an inconvenient forum and agrees not to plead or
claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by respectively delivering or mailing
a copy thereof by personal delivery or by registered or certified
mail (or any substantially similar form of mail), postage
prepaid, to the Purchaser at the address set forth on the
signature page hereof as at such other address of which the
Company shall have been notified in accordance with the
provisions of Section 6 hereof; and
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
Section 11. Severability. If any provision of this
Purchase Agreement is held to be invalid or unenforceable by any
judgment of a tribunal of competent jurisdiction, the remainder
of this Purchase Agreement shall not be affected by such
judgment, and the Purchase Agreement shall be carried out as
nearly as possible according to its original terms and intent.
Section 12. Counterparts. This Purchase Agreement may
be executed in counterparts, all of which shall constitute one
agreement, and each such counterpart shall be deemed to have been
made, executed and delivered on the date set out at the head of
this Purchase Agreement without regard to the dates or times when
such counterparts may actually have been made, executed or
delivered.
IN WITNESS WHEREOF, the parties hereto have caused this
Purchase Agreement to be executed by their duly authorized
representatives as of the day and year first above written.
XCL LTD. PURCHASER'S NAME:
By: /s/ Marsden W. Miller, Jr. Janz Financial Corp. Ltd.
Name: Marsden W. Miller Trafalgar Place
Title: Chairman P.O. Box 31496 SMB
Grand Cayman Islands
Duly executed by:
/s/ Abe Janz
-----------------------
Title: President
Aggregate number of Shares: PURCHASER'S ADDRESS:
2,800,000 Trafalgar Place
P.O. Box 31496 SMB
Grand Cayman Islands
B.W.I.
Total purchase price:
$401,625
Stock certificate registration instructions:
Name of Holder: Janz Financial Corp. Ltd.
Address of Holder for delivery: Trafalgar Place, P.O. Box 31496
SMB, Grand Cayman Islands, B.W.I.
Contact name and telephone number: Abe Janz
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE THEREOF HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY OTHER FEDERAL OR STATE
SECURITIES OR BLUE SKY LAWS, AND HAVE BEEN ISSUED IN A
MANNER INTENDED TO COMPLY WITH THE CONDITIONS CONTAINED IN
REGULATION S UNDER THE ACT. PRIOR TO AUGUST 14, 1996, NO
OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY
THIS CERTIFICATE MAY BE MADE (A) IN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, ANY "U.S. PERSON" (AS
DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE ACT
AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii)
XCL LTD. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED
STATES LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT
TO THE EFFECT THAT SUCH DISPOSAL IS EXEMPT FROM SUCH
REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE UNITED STATES
TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS
NOT A "U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE
BENEFICIAL OWNER OF SUCH SHARES AND THE PROPOSED TRANSFEREE
SUBMIT CERTAIN CERTIFICATIONS TO THE COMPANY (FORMS OF WHICH
ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE
OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION
DESCRIBED IN (A)(ii) ABOVE.
No. JFC -
WARRANTS TO PURCHASE
COMMON STOCK OF XCL LTD.
Initial Issuance on August 14, 1996
Void after 5:00 p.m. New York Time, August 13, 2001
THIS CERTIFIES THAT, for value received,
JANZ FINANCIAL CORP. LTD. or registered assigns (the "Holder")
is the registered holder of warrants (the "Warrants") to
purchase from XCL Ltd., a Delaware corporation (the
"Company"), at any time or from time to time beginning on
August 14, 1996 and until 5:00 p.m., New York time, on
August 13, 2001 (the "Expiration Date"), subject to the
conditions set forth herein, at the initial exer cise price
of $0.25 per share (the "Initial Exercise Price"), subject to
adjustment as set forth herein (the "Exercise Price"), up to an
aggregate of ____________________________ (___,___) (the
"Shares") fully paid and non-assessable common shares, par
value $0.01 per share (the "Common Stock"), of the
Company upon surrender of this certificate (the "Certificate")
and payment of the Exercise Price multiplied by the number of
Shares in respect of which Warrants are then being exercised
(the "Purchase Price") at the principal office of the Company
presently located at 110 Rue Jean Lafitte, Lafayette, LA
70508, United States.
1. Exercise of Warrants.
(a) The exercise of any Warrants represented by this
Certificate is subject to the conditions set forth below in
Section 4, "Compliance with U.S. Securities Laws."
(b) Subject to compliance with all of the conditions
set forth herein, the Holder shall have the right to purchase from
the Company the number of Shares which the Holder may at the
time be entitled to purchase pursuant hereto, upon surrender
of this Certificate to the Company at its principal office,
together with the form of election to purchase attached
hereto duly completed and signed, and upon payment to the
Company of the Purchase
Price; provided, that if the date of such purchase is not a
day on which banking institutions in New York City are
authorized or obligated to do business (a "Business Day"),
then such purchase shall take place before 5:00pm New
York time on the next following Business Day.
(c) No Warrant may be exercised after 5:00
p.m., New York time, on the Expiration Date, at which time all
Warrants evidenced hereby, unless exercised prior thereto, shall
thereafter be null and void and all further rights in
respect thereof under this Certificate shall thereupon cease.
(d) Payment of the Purchase Price shall be made in
United States dollars in cash, by wire transfer or by certified
check or banker's draft payable to the order of the Company, or
any combination of the foregoing.
(e) The Warrants represented by this Certificate are
exercisable at the option of the Holder, in whole or in part (but
not as to fractional Shares). Upon the exercise of less than all of
the Warrants evidenced by this Certificate, the Company shall forthwith
issue to the Holder a new certificate of like tenor representing the
number of unexercised Warrants.
(f) Subject to compliance with all of the conditions set
forth herein, upon surrender of this Certificate to the Company
at its principal office, together with the form of election
to purchase attached hereto duly completed and signed, and
upon payment of the Purchase Price, the Company shall cause
to be delivered promptly to or upon the written order of the
Holder and in such name or names as the Holder may designate,
a certificate or certificates for the number of whole Shares
purchased upon the exercise of the Warrants. Such certificate
or certificates shall be free of any restrictive legend. The
Company shall ensure that no "stop transfer" or similar
instruction or order with respect to the Shares purchased upon
exercise of the Warrants shall be in effect at Chase Mellon
Shareholder Services or Independent Registrars Group
Limited, the Company's U.S. and U.K. transfer agents and
registrars, respectively, for the Common Stock,
respectively, or any successor transfer agents thereto
(the "Transfer Agents"); provided, however, that the
Holder understands and agrees that the Company and the Transfer
Agents will not register any transfer of the Warrants or the
Shares of Common Stock issuable upon exercise of the
Warrants or any interest therein which the Company in
good faith believes violates the restrictions set forth in
this Certificate.
2. Elimination of Fractional Interests. The
Company shall not be required to issue certificates representing
fractions of Shares and shall not be required to issue scrip in
lieu of fractional interests. Instead of any fractional Shares that
would otherwise be issuable to such Holder, the Company shall pay
to such Holder a cash adjustment in respect of such fractional
interest in an amount equal to such fractional interest of the
then-current Market Price per share (as defined in Section 7(f)
hereof).
3. Payment of Taxes. The Company will pay all
documentary stamp taxes, if any, attributable to the issuance and
delivery of the Shares upon the exercise of the Warrants;
provided, however, that the Company shall not be required to pay any
taxes which may be payable in respect of any transfer involved in
the issuance or delivery of any Warrant or any Shares in any name other
than that of the Holder, which transfer taxes shall be paid by the
Holder, and until payment of such taxes, if any, the Company shall not
be required to issue such Shares.
4. Compliance with U.S. Securities Laws. The
Warrants and the Shares issuable upon the exercise of the Warrants have
not been and will not be registered under the United States
Secur ities Act of 1933, as amended (the "Securities Act") or
under any state or foreign securities or blue sky laws. Prior
to September 23, 1996, no offer, sale, transfer, pledge or
other disposition (collectively, a "Disposal") of the Warrants
represented by this Certificate may be made (a) in the United
States or to, or for the account or benefit of, any "U.S.
Person" (as defined in Regulation S under the Securities
Act) unless (i) registered under the Act and any applicable
State securities or blue sky laws or (ii) the Company
receives a written opinion of United States legal counsel in
form and substance satisfactory to it to the effect that
such Disposal is exempt from such registration requirements
or (b) outside the United States to, or for the account or
benefit of, any person who is not a U.S. Person unless prior
to such Disposal (i) the beneficial owner of such Shares and
the proposed transferee submit certain certifications to the
Company (forms of which are available from the Company at
its principal executive offices) and (ii) the Company
receives the legal opinion described in (a)(ii) above. The
Warrants may not be exercised within the United States or by,
or on behalf of, any U.S. Person unless the Warrants and
the Shares have been registered under the Securities Act and
any applicable state and foreign securities or blue sky
laws or exemptions from the registration requirements
under the Securities Act and any applicable state and
foreign securities or blue sky laws are available.
Accordingly, (i) the Warrants may not be exercised within
the United States and any Shares issuable upon the
exercise thereof may not be delivered within the United
States except in circumstances constituting an "offshore
transaction" (as defined in Regulation S) and otherwise
complying with Regulation S, or unless such Shares have been
registered under the Securities Act and any applicable
state and foreign securities or blue sky laws or exemptions from
the registration requirements under the Securities Act and any
applicable state and foreign securities or blue sky laws are
available, and (ii) it is a condition to the exercise of the
Warrants that the exer cising Holder must deliver to the
Company (A) a written certification that such Holder is not
a U.S. Person and that the Warrants are not being exercised on
behalf of, or for the account or benefit of, a U.S. Person or
(B) a written opinion of United States counsel, in form
and substance satisfactory to the Company, to the effect
that such Holder's Warrants and the Shares issuable upon the
exercise of such Warrants have been registered under the
Securities Act and any applicable state and foreign
securities or blue sky laws or the exercise of such Warrants
and delivery of such Shares are exempt from the registration
require ments under the Securities Act and any applicable
state and foreign securities or blue sky laws.
5. Transfer of Warrants.
(a) The Warrants shall be transferable
only on the books of the Company maintained at the Company's
principal office upon delivery of this Certificate with
the form of assignment attached hereto duly completed and
signed by the Holder or by its duly authorized attorney or
representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. The
Company may, in its discretion, require, as a condition to
any transfer of Warrants, a signature guarantee by a
commercial bank or trust company, by a broker or dealer which
is a member of the National Association of
Securities Dealers, Inc., or by a member of a national
securities exchange, The Securities and Futures Authority
Limited in the United Kingdom, or the London Stock Exchange
Limited in London, England. Upon any registration of transfer,
the Company shall deliver a new certificate or certificates of
like tenor and evidencing in the aggregate a like number of
Warrants to the person entitled thereto in exchange for this
Certificate, subject to the limitations provided herein,
without any charge except for any tax or other governmental
charge imposed in connection therewith.
(b) Notwithstanding anything in this Certi ficate
to the contrary, neither any of the Warrants nor any of the
Shares issuable upon exercise of any of the Warrants shall be
transferable, except upon compliance by the Holder with (i)
the representations, warranties and covenants of the initial
Holder of this Certificate (the "Purchaser") in the Purchase
Agreement, between the Company and the Purchaser, concerning
such transfer as if the Holder were the Purchaser, and (ii)
any applicable provisions of the Securities Act and any
applicable state and foreign securities or blue sky laws.
Any transfer not made in such compliance shall be null and
void, and given no effect hereunder.
6. Exchange and Replacement of Warrant
Certificates; Loss or Mutilation of
Warrant Certificates.
(a) This Certificate is exchangeable without cost, upon the
surrender hereof by the Holder at the principal office of the
Company, for new certificates of like tenor and date representing in
the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder at the time of such
surrender.
(b) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation
of this Certificate and, in case of such loss, theft or
destruction, of indemnity and security reasonably satisfactory to it,
and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Certificate, if
mutilated, the Company will make and deliver a new certificate of like
tenor, in lieu thereof.
7. Initial Exercise Price; Adjustment of Exercise Price
and Number of Shares.
(a) The Warrants initially are exercisable at the Initial
Exercise Price per Share, subject to adjustment from time
to time as provided herein. No adjustments will be made for
cash dividends, if any, paid to shares of record prior to the
date on which the Warrants are exercised.
(b) In case the Company shall at any time after
the date of this Certificate (1) declare a dividend on the
shares of Common Stock payable in shares of Common Stock, or
(ii) subdivide or split up the outstanding shares of Common
Stock, the amount of Shares to be delivered upon exercise of
any Warrant will be appropriately increased so that the
Holder will be entitled to receive the amount of Shares that
such Holder would have owned immediately following such
actions had such Warrant been exercised immediately prior
thereto, and the Exercise Price in effect immediately prior to
the record date for such dividend or the effective date
for such subdivision shall be
proportionately decreased, all effective immediately after
the record date for such dividend or the effective date for
such subdivision or split up. Such adjustments shall be
made successively whenever any event listed above shall occur.
(c) In case the Company shall at any time after the
date of this Certificate combine the outstanding shares of Common
Stock into a smaller number of shares the amount of Shares to
be delivered upon exercise of any Warrant will be appropriately
decreased so that the Holder will be entitled to receive the amount
of Shares that such Holder would have owned immediately following such
action had such Warrant been exercised immediately prior
thereto, and the Exercise Price in effect immediately
prior to the record date for such combination shall be
proportionately increased, effective immediately after the
record date for such combination. Such adjustment shall be
made successively whenever any such combinations shall occur.
(d) In the event that the Company shall at any time
after the date of this Certificate (i) issue or sell any shares
of Common Stock (other than the Shares) or securities convertible
or exchangeable into Common Stock without consideration or at a price
per share (or having a conversion price per share, if a security
convertible into Common Stock) less than the Market Value per share
of Common Stock (as defined in Section 7(f) hereof), or (ii) issue or
sell options, rights or warrants to subscribe for or purchase
Common Stock at a price per share less than the Market Price
per share of Common Stock (as defined in Section 7(f)
hereof), the Exercise Price to be in effect after the date
of such issuance shall be determined by multiplying the
Exercise Price in effect on the day immediately preceding the
relevant issuance or record date, as the case may be, used
in determining such Market Value or Market Price, by a
fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on such issuance or record date
plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of
Common Stock so to be issued or to be offered for
subscription or purchase (or the aggregate initial
conversion price of the convertible securities so to be
offered) would purchase at such Market Value or Market Price,
as the case may be, and the denominator of which shall be the
number of shares of Common Stock outstanding on such issuance
or record date plus the number of additional shares of
Common Stock to be issued or to be offered for subscription or
purchase (or into which the convertible securities so to be
offered are initially convertible); such adjustment shall
become effective immediately after the close of business on
such issuance or record date; provided, however, that no such
adjustment shall be made for the issuance of (s) options to
purchase shares of Common Stock granted pursuant to the
Company's employee stock option plans approved by
shareholders of the Company (and the shares of Common Stock
issuable upon exercise of such options) (provided that option
exercise prices shall not be less than the Market Value of
the Common Stock (as defined in Section 7(f) hereof) on the
date of the grant of such options), (t) the Company's
warrants to purchase shares of Common Stock (and the shares
of Common Stock issuable upon exercise of such warrants),
outstanding on the date hereof, (u) the Company's shares
of Series A, Cumulative Convertible Preferred Stock (and the
shares of Common Stock issuable upon conversion of such
Preferred Stock), outstanding on the date hereof, (v) the
Company's shares of Series B, Cumulative Preferred Stock (and
the shares of Common Stock issuable in lieu of dividend
and redemption payments thereunder), outstanding on the date
hereof, (w) the Company's shares of Series E, Cumulative
Convertible Preferred Stock (and the shares of such
Preferred Stock issued in lieu of dividend payments
thereunder and shares of Common Stock issuable upon
conversion of such Preferred Stock) or (x) the Company's
$15 million in principal of Secured Subordinated Debt Notes
(and the shares of Common Stock issuable in lieu of interest payments
thereunder), outstanding on the date hereof. In case
such subscription price may be paid in a consideration, part or
all of which shall be in a form other than cash, the value
of such consideration shall be as determined reasonably and in
good faith by the Board of Directors of the Company. Shares of
Common Stock owned by or held for the account of the Company
or any whollyowned subsidiary shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be
made successively whenever the date of such issuance is fixed
(which date of issuance shall be the record date for such
issuance if a record date therefor is fixed); and, in the
event that such shares or options, rights or warrants are
not so issued, the Exercise Price shall again be adjusted
to be the Exercise Price which would then be in effect if
the date of such issuance had not been fixed.
(e) In case the Company shall make a
distribution to all holders of Common Stock (including any
such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) of
evidences of its indebtedness, securities other than Common Stock
or assets (other than cash dividends or cash distributions
payable out of consolidated earnings or earned surplus or dividends
payable in Common Stock), the Exercise Price to be in effect after such
date of distribution shall be determined by multiplying the
Exercise Price in effect on the date immediately preceding the
record date for the determination of the shareholders
entitled to receive such distribution by a fraction, the
numerator of which shall be the Market Price per share of Common Stock
(as defined in Section 7(f) hereof) on such date, less the then-fair
market value (as determined reasonably and in good faith by the Board
of Directors of the Company of the portion of the assets,
securities or evidences of indebtedness so to be distributed applicable
to one share of Common Stock and the denominator of which shall be
such Market Price per share of Common Stock, such adjustment to be
effective immediately after the distribution resulting in
such adjustment. Such adjustment shall be made successively
whenever a date for such distribution is fixed (which date of
distribution shall be the record date for such distribution if
a record date therefor is fixed); and, if such distribution is
not so made, the Exercise Price shall again be adjusted to be
the Exercise Price which would then be in effect if such
date of distribution had not been fixed.
(f) For the purposes of any computation under this Section 7,
the "Market Price per share" of Common Stock on any date shall be
deemed to be the average of the closing bid price for the 20 consecutive
trading days ending on the record date for the determination of the
shareholders entitled to receive any rights, dividends or distributions
described in this Section 7, and the "Market Value per share" of Common
Stock on any date shall be deemed to be the closing bid price on the
date of the issuance of the securities for which such computation is
being made, as reported on the principal United States securities exchange
on which the Common Stock is listed or admitted to trading or if the
Common Stock is not then listed on any United States stock exchange, the
average of the closing sales price on each such day during such 20 day
period, in the case of the Market Price computation, or on such date
of issuance, in the case of the Market Value computation, in the over-
the-counter market as reported by the National Association
of Securities Dealers' Automated Quotation System ("NASDAQ"), or, if not
so reported, the average of the closing bid and asked prices on
each such day during such 20 day period in the case of the
Market Price computation, or on such date of issuance, in the case of
the Market Value computation, as reported in the "pink sheets"
published by the National Quotation Bureau, Inc. or any
successor thereof, or, if not so quoted, the average of the
middle market quotations for such 20 day period in the case of
the Market Price computation, or on such date of issuance, in
the case of the Market Value computation, as reported on the
daily official list of the prices of stock listed on the
London Stock Exchange Limited ("The Stock Exchange Daily
Official List"). "Trading day" means any day on which the
Common Stock is available for trading on the applicable securities
exchange or in the applicable securities market. In the case of
Market Price or Market Value computations based on The Stock
Exchange Daily Official List, the Market Price or Market Value
shall be converted into United States dollars at the then
spot market exchange rate of pounds sterling (UK) into United
States dollars as quoted by Chemical Bank or any successor
bank thereto on the date of determination. If a quotation of
such exchange rate is not so available, the exchange rate
shall be the exchange rate of pounds sterling in United States
dollars as quoted in The Wall Street Journal on the date of
determination.
(g) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least $.02 in such price; provided that
any adjustments which by reason of this Section 7(g) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment; provided, further that
such adjustment shall be made in all events (regardless of
whether or not the amount thereof or the cumulative amount
thereof amounts to $.02 (or more) upon the happening of
one or more of the events specified in Sections 7(b), (c)
or (i). All calculations under this Section 7 shall be made
to the nearest cent.
(h) If at any time, as a result of an
adjustment made pursuant to Section 7(b) or (c) hereof,
the Holder of any Warrant thereafter exercised shall become
entitled to receive any shares of the Company other than
shares of Common Stock, thereafter the number of such other
shares so receivable upon exercise of any Warrant shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Shares contained in this Section 7, and
the provisions of this Certificate with respect to the Shares
shall apply on like terms to such other shares.
(i) In the case of (l) any capital
reorganization of the Company, or of (2) any reclassification
of the shares of Common Stock (other than a subdivision or
combination of outstanding shares of Common Stock), or (3)
any consolidation or merger of the Company, or (4) the sale,
lease or other transfer of all or substantially all of the
properties and assets of the Company as, or substantially as,
an entirety to any other person or entity, each Warrant shall
after such capital reorganization, reclassification of the
shares of Common Stock, consolidation, or sale be
exercisable, upon the terms and conditions specified in
this Certificate, for the number of shares of stock or
other securities or assets to which a holder of the number
of Shares purchasable (immediately prior to the effectiveness
of such capital reorganization, reclassification of shares of
Common Stock, consolidation, or sale) upon exercise of a
Warrant would have been entitled upon such capital
reorganization, reclassification of shares of Common
Stock, consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this Section 7
with respect to the rights thereafter of the Holder shall be
appropriately adjusted (as determined reasonably and in
good faith by the Board of Directors of the Company) so as to be
applicable, as nearly as may reasonably be, to any shares
of stock or other securities or assets thereafter deliverable
on the exercise of a Warrant. The Company shall not effect
any such consolidation or sale, unless prior to or
simultaneously with the consummation thereof, the successor
corporation, partnership or other entity (if other than the
Company) resulting from such consolidation or the
corporation, partnership or other entity purchasing such
assets or the appropriate entity shall assume, by written
instrument, the obligation to deliver to the Holder of each
Warrant the shares of stock, securities or assets to which, in
accordance with the foregoing provisions, such Holder may be
entitled and all other obligations of the Company under
this Certificate. For purposes of this Section 7(i) a merger
to which the Company is a party but in which the Common Stock
outstanding immediately prior thereto is changed into
securities of another corporation shall be deemed a
consolidation with such other corporation being the
successor and resulting corporation.
(j) Irrespective of any adjustments in the
Exercise Price or the number or kind of shares purchasable
upon the exercise of the Warrant, Warrant Certificates
theretofore or thereafter issued may continue to express the
same Exercise Price per share and number and kind of Shares
as are stated on the Warrant Certificates initially issuable
pursuant to this Warrant.
8. Required Notices to Warrant Holders. Nothing
contained in this Certificate shall be construed as conferring
upon the Holder the right to vote or to consent or to receive
notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter,
or as having any rights whatsoever as a shareholder of the
Company. If, however, at any time prior to the expiration of the
Warrants or their exercise, any of the following events shall occur:
(i) the Company shall issue any rights to
subscribe for shares of Common Stock or any other securities of
the Company to all of the shareholders of the Company; or
(ii) a dissolution, liquidation or winding-up of the Company (other
than in connection with a consolidation, merger or statutory
share exchange) or a sale of all or substantially all of its
property, assets and business as an entirety shall be approved
by the Company's Board of Directors; or
(iii) there shall be any re-classification or a change in the kind of
the outstanding shares of Common Stock into different securities
(other than a change in the number of outstanding shares or a
change in par value to no par value, or from no par value to par
value) or consolidation, merger or statutory share exchange of
the Company with another entity;
then, in any one or more of said events, the Company shall give
written notice of such event on or before the date the Company
gives notice to its shareholders of such event. Such notice shall
specify the applicable record date or the date of closing the
transfer books, as the case may be, if any. Failure to give such
notice or any defect therein shall not affect the validity of any
action taken in connection with the event.
9. Redemption by the Company. At any time after
December 21, 1997, the Company may redeem all, but not part, of
the Warrants upon not less than thirty-five (35) days
notice (given in the manner described in Section 14) to the
Holders (the "Redemption Notice"), at the redemption price of
one cent ($0.01) per Warrant, if the Market Price per share of the Common
Stock for the thirty consecutive trading days ending within
thirty Business Days of the date of such Redemption Notice
equals or exceeds one dollar and twenty-five cents ($1.25).
The Redemption Notice shall specify the date on which the
Warrants are to be redeemed (the "Redemption Date"). If the
Warrants are called for redemption, they may be exercised at
any time prior to 5:00 p.m. New York time on the business day
immediately preceding the date fixed for redemption in the
Redemption Notice. After the Redemption Date, no Warrant
may be exercised and all outstanding Warrant Certificates must
be surrendered by the Holders thereof to the Company and
the Holders shall have no further rights except to receive,
upon surrender of the Certificates evidencing the redeemed
Warrants, the redemption price for such Warrants.
10. Reservation and Listing of Securities.
(a) The Company covenants and agrees that at
all times during the period the Warrants are exercisable, the Company
shall reserve and keep available, free from preemptive rights, out
of its authorized and unissued shares of Common Stock or out
of its authorized and issued shares of Common Stock held
in its treasury, solely for the purpose of issuance upon
exercise of the Warrants, such number of Shares as shall be
issuable upon the exercise of the Warrants.
(b) The Company covenants and agrees that, upon
exercise of the Warrants in accordance with their terms and payment of
the Purchase Price, all Shares issued or sold upon such
exercise shall not be subject to the preemptive rights of any
shareholder and when issued and delivered in accordance with
the terms of the Warrants shall be duly and validly issued,
fully paid and nonassessable, and the Holder shall receive
good and valid record title to such Shares free and clear
from any adverse claim (as defined in the applicable Uniform
Commercial Code), except such as have been created by the
Holder.
(c) As long as the Warrants shall be
outstanding, the Company shall use its reasonable efforts to cause
all Shares issuable upon the exercise of the Warrants to be quoted by
or listed on any national securities exchange or other
securities listing service on which the shares of Common
Stock of the Company are then listed.
11. Survival. All agreements,
covenants, representa tions and warranties herein shall
survive the execution and delivery of this Certificate and
any investigation at any time made by or on behalf of any party
hereto and the exercise, sale and purchase of the Warrants and
the Shares (and any other securities or properties) issuable on
exercise hereof.
12. Remedies. The Company agrees that the
remedies at law of the Holder, in the event of any default or
threatened default by the Company in the performance of or compliance
with any of the terms hereof, may not be adequate and such
terms may, in addition to and not in lieu of any other
remedy, be specifically enforced by a decree of specific
performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or
otherwise.
13. Registered Holder. The Company may
deem and treat the registered Holder hereof as the absolute
owner of this Certificate and the Warrants represented hereby
(notwithstanding any notation of ownership or other writing
hereon made by anyone), for the purpose of any exercise of the
Warrants, of any notice, and of any distribution to the Holder
hereof, and for all other purposes, and the Company shall not be
affected by any notice to the contrary.
14. Manner of Notices. All notices and
other communications from the Company to the Holders of the
Warrants represented by this Certificate shall be in writing and
shall be deemed to have been duly given if and when personally
delivered, two (2) business days after sent by overnight courier
or ten (10) days after mailed by certified, registered or
international recorded mail, postage prepaid and return receipt
requested, or when transmitted by telefax, telex or telegraph
and confirmed by sending a similar mailed writing, if to the
Holder, to the last address of such Holder as it shall appear
on the books of the Company maintained at the Company's
principal office or to such other address as the Holder may have
specified to the Company in writing.
15. Headings. The headings contained herein are
for convenience of reference only and are not part of this
Certificate.
16. Governing Law. This Certificate shall be
deemed to be a contract made under the laws of the State of Delaware and
for all purposes shall be governed by, and construed in
accord ance with, the laws of said state, without regard to the
conflict of laws provisions thereof.
IN WITNESS WHEREOF, the Company has
caused this Certificate to be duly executed by its duly
authorized officers under its corporate seal.
Dated: August 14, 1996
XCL LTD.
By:
Name:
Title:
Attest:
Assistant Secretary
XCL LTD.
FORM OF ELECTION TO PURCHASE
(To be executed by the registered Holder
if such Holder desires to exercise Warrants)
The undersigned registered Holder hereby
irrevocably elects to exercise the right of purchase represented
by this Warrant Certificate for, and to purchase, Shares hereunder,
and herewith tenders in payment for such Shares cash, a wire transfer,
a certified check or a banker's draft payable to the order of XCL Ltd.
in the amount of ---------------, all in accordance with the terms
hereof. The undersigned requests that a certificate for such Shares be
registered in the name of and delivered to:
(Please Print Name and Address)
and, if said number of Shares shall not be all the Shares
purchasable hereunder, that a new Warrant Certificate for the
balance remaining of the Shares purchasable hereunder be
registered in the name of the undersigned Warrant Holder or his
Assignee as below indicated and delivered to the address stated
below.
DATED:
Name of Warrant Holder:--------------------------------------
(Please Print)
Address:------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Signature: ----------------------------------------------------
Note: The above signature must correspond in all
respects
with the name of the Holder as specified on the face
of this Warrant Certificate, without alteration
or enlargement or any change whatsoever, unless
the Warrants represented by this Warrant Certificate
have been assigned.
IN CONNECTION WITH THIS ELECTION TO PURCHASE, THE WARRANT HOLDER
MUST DELIVER TO THE COMPANY (i) A WRITTEN CERTIFICATION THAT SUCH
HOLDER IS NOT A "U.S. PERSON" AS DEFINED IN REGULATION S UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THAT THE WARRANTS ARE NOT BEING EXERCISED
ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON,
OR (ii) A WRITTEN OPINION OF UNITED STATES LEGAL COUNSEL, IN
FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
THE WARRANTS AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THE WARRANTS HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE AND FOREIGN
SECURITIES LAWS OR ARE EXEMPT FROM THE REGISTRATION
REQUIREMENTS UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE AND FOREIGN SECURITIES LAWS.
XCL LTD.
FORM OF ASSIGNMENT
(To be executed by the registered Holder if such Holder
desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED, the undersigned
hereby sells, assigns and transfers to:
(Please Print Name and Address of Transferee)
Warrants to purchase up to ____________ Shares represented by
this Warrant Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute
and appoint __________________, Attorney, to transfer such
Warrants on the books of the Company, with full power of
substitution in the premises. The undersigned requests that if
said number of Shares shall not be all of the Shares purchasable
under this Warrant Certificate that a new Warrant Certificate
for the balance remaining of the Shares purchasable under
this Warrant Certificate be registered in the name
of the undersigned Warrant Holder and delivered to the
registered address of said Warrant Holder.
DATED:_______________________
Signature of registered Holder:________________________________________
Note: The above signature must correspond in all respects
with the name of the Holder as specified on the face
of this Warrant Certificate, without alteration or
enlargement or any change whatsoever. The
above signature of the registered Holder must be
guaranteed by a commercial bank or trust company, by
a broker or dealer which is a member of the National
Association of Securities Dealers, Inc. or by a
member of a national securities exchange, The
Securities and Futures Authority Limited in
the United Kingdom or The London Stock Exchange in
London, England.
Notarized or witnessed signatures are not acceptable
as guaranteed signatures.
Signature Guaranteed:_____________________________
Authorized Officer
Name of Institution
THE SECURITIES BEING OFFERED AND SOLD HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, OR ANY OTHER DOMESTIC OR FOREIGN SECURITIES LAWS AND
THEIR OFFER AND SALE ARE SUBJECT TO CERTAIN RESTRICTIONS
HEREINAFTER SET FORTH.
PURCHASE AGREEMENT
Purchase of Common Stock
THIS PURCHASE AGREEMENT is made as of the 16th day of
August, 1996 by and between the purchaser whose name and address
are shown on the signature page to this Purchase Agreement (the
"Purchaser") and XCL LTD., a Delaware corporation, with its
principal offices at 110 Rue Jean Lafitte, Lafayette, Louisiana,
United States of America (the "Company").
WHEREAS, the Company has duly authorized the issuance, sale
and delivery of up to 1,500,000 shares (the "Shares") of its
common stock, par value $.01 per share (the "Common Stock"), at a
purchase price of $.146667 per share;
WHEREAS, the Shares are being offered and sold by the
Company to Purchaser in a transaction intended to qualify for the
exemption from the registration requirements of the Unites States
Securities Act of 1933, as amended (the "Securities Act")
afforded by Regulation S promulgated under the Securities Act
("Regulation S");
WHEREAS, the Company has delivered to Purchaser, copies of
its recent filings with the Securities and Exchange Commission,
including the Company's most recent Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, as amended, and
Forms 10-Q and 8-K filed thereafter (the "SEC Filings"); and
WHEREAS, the Company wishes to sell to Purchaser, and
Purchaser wishes to buy from the Company, the aggregate number of
Shares set opposite Purchaser's address on the signature page to
this Purchase Agreement for delivery in accordance with this
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Purchase Agreement, the
undersigned agree as follows:
Section 1. Agreement to Sell and Purchase the Common
Stock.
(a) On the basis of the representations, warranties and
agreements contained in this Purchase Agreement but subject to
the terms and conditions set forth in this Purchase Agreement the
Company agrees to issue and sell to Purchaser, and Purchaser
agrees to buy from the Company, on August 16, 1996, or on such
other date as shall be mutually agreed upon by the Company and
Purchaser (the "Closing Date"), the aggregate number of Shares
set out opposite Purchaser's address on the signature page of
this Purchase Agreement. The price for the Shares shall be
$.146667 per share and Purchaser shall pay to the Company the
aggregate amount set out opposite Purchaser's address on the
signature page to this Purchase Agreement (the "Purchase Price").
Payment of $200,000 of the Purchase Price for the Shares shall be
made on the Closing Date by Purchaser to the Company by wire
transfer of immediately available funds in United States dollars
to:
Bank: Chase Manhattan Bank, N.A., New York
CH 320293
Account: The Industrial and Commercial Bank of China,
Hebei Province BR
Account No.: 001-1-165750
P/O Langfang Developing Zone Branch
Langfang United XCL Lube Oil Co., Ltd.
Acct. No.: 1310901-14-242025
Payment of $20,000 of the Purchase Price for the Shares shall be
made by check or wire transfer of immediately available funds in
United States dollars to:
Terrenex Acquisitions Corp.
407 2nd Street S.W.
Suite 1710
Calgary, Alberta T2P 2Y3
Canada
(b) In the event of any change in the issued and
outstanding Common Stock of the Company by reason of stock
dividends, split-up or combination of the Common Stock,
reclassification of the capital stock of the Company or
recapitalization of the Company which occurs on or before the
Closing, the number of shares of Common Stock to be delivered to
Purchaser at the Closing and the Purchase Price therefor shall be
appropriately adjusted. In addition, in the event that any cash
dividends on the Common Stock of the Company shall be payable to
shareholders of record as of a record date that falls on any date
within the period on and from the time of execution of this
Purchase Agreement to and including the Closing Date, the price
per share of Common Stock payable by Purchaser shall be reduced
by the amount of such cash dividend per share of Common Stock.
(c) The obligation of the Company to issue and sell the
Shares at the Closing shall be conditional upon:
(i) The receipt and acceptance by the Company of
this Purchase Agreement for all of the Shares which shall be
evidenced by execution of this Purchase Agreement by the
President or any Vice President or any Director of the
Company.
(ii) Delivery into the closing depository
identified in Section 1(a) hereby by Purchaser of
immediately available funds in United States dollars, in the
full amount of the Purchase Price, as payment in full for
the purchase of the Shares.
Section 2. Representations and Warranties of the
Company. The Company hereby represents and warrants to Purchaser
as follows:
2.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite
corporate power and authority to own and lease its properties and
to conduct its business as presently conducted and as described
in the SEC Filings. The Company is duly qualified to do business
as a foreign corporation and is in good standing in every
jurisdiction where such qualification is required by controlling
law and where the failure so to qualify would have a material
adverse effect on the Company and its subsidiaries, taken as a
whole. Each Principal Subsidiary (as defined below) is a
corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction or incorporation and has all
requisite corporate power and authority to own and lease its
properties and to conduct its business as presently conducted and
as described in the SEC Filings. Each Principal Subsidiary is
duly qualified to do business as a foreign corporation and is in
good standing in every jurisdiction where such qualification is
required by controlling law and where the failure to so qualify
would have a material adverse effect on the Company and its
subsidiaries, taken as a whole. The principal direct and indirect
subsidiaries of the Company (collectively, the "Principal
Subsidiaries") are:
XCL China Ltd., a British Virgin Islands corporation
XCL-Texas, Inc., a Texas corporation
XCL Land Ltd., a Delaware corporation
XCL-Acquisitions, Inc., a Delaware corporation
2.2. Authorized Capital Stock. The authorized and
outstanding capital stock of the Company is as set out in the SEC
Filings, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are
fully paid and nonassessable. All of the outstanding shares of
capital stock of the Principal Subsidiaries have been duly and
validly authorized and issued and are fully paid and
nonassessable. All of the outstanding shares of capital stock of
the Principal Subsidiaries are owned directly by the Company free
and clear of any claim, lien, security interest, mortgage pledge,
charge of other encumbrance of any nature whatsoever, except as
disclosed in the SEC filings. The Company does not own, directly
or indirectly, a material amount of any equity or debt securities
of any other company, corporation, partnership, joint venture or
other entity, except as disclosed in the SEC Filings or which
individually or in the aggregate do not constitute a material
asset of the Company and its subsidiaries, taken as a whole.
2.3 Due Execution, Delivery and Performance of the
Purchase Agreement. The execution, delivery and performance of
the Purchase Agreements by the Company (a) have been duly
authorized by all requisite corporate action of the Company, and
(b) will not violate (i) the Certificate of Incorporation or By-
laws of the Company or (ii) any law applicable to the Company or
any of its subsidiaries or any rule, regulation or order of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or (iii) any provision of any
material indenture, mortgage, agreement, contract or other
instrument to which the Company or any the Principal Subsidiaries
are subject, or be in material conflict with, or result in a
material breach of or constitute (upon notice or lapse of time or
both) a material default under any such material indenture,
mortgage, agreement, contract or other instrument or result in
the creation or imposition of any claim, lien, security interest,
mortgage, pledge, charge or other encumbrance of any nature
whatsoever upon any of the material properties or assets of the
Company or any of the Principal Subsidiaries (except for such
violation, breach or default described in (b)(iii) above which
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole). Upon execution and delivery by
the Company, the Purchase Agreements will constitute the legal,
valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as
the enforceability thereof may be limited by an applicable
bankruptcy, insolvency, reorganization or other similar laws,
relating to or affecting the enforcement of creditors rights
generally and by general equitable principles, regardless of
whether such enforceability is considered in a proceeding in
equity or at law.
2.4 Issuance and Delivery of the Shares.
(a) The offer, issuance, sale and delivery of the Shares
in accordance with the Purchase Agreements, have been duly
authorized by all requisite corporate action of the Company. The
shares conform in all material respects to the description of the
Common Stock contained in the SEC Filings and to the terms of the
Common Stock contained in the Company's Certificate of
Incorporation. The Shares as and when issued and sold to the
Purchaser pursuant to this Purchase Agreement, and upon receipt
by the Company of the Purchase Price therefor, will be duly and
validly issued and outstanding, fully paid and nonassessable,
will not be subject to any pre-emptive or similar right, and
Purchaser will receive good and valid record title to the Shares,
free and clear of any claim, lien, security interest, mortgage,
pledge, charge or other encumbrance of any nature whatsoever,
except such as may have been created by Purchaser.
(b) Terrenex Acquisitions Corp. shall be issued warrants
to acquire 300,000 shares of Common Stock at $.25 per share,
expiring December 31, 1998 ("Terrenex Warrants"), as compensation
for arranging the transaction. The issuance and delivery of the
Terrenex Warrants have been duly authorized by all requisite
corporate action of the Company. The shares of Common Stock
issued upon exercise of the Terrenex Warrant, upon receipt of the
consideration therefore, will be deemed duly and validly issued
and outstanding, fully paid and nonassessable.
(c) The Company has approximately 229,444,126 shares of
Common Stock that are authorized but unissued, of which
156,776,857 shares have been reserved for issuance, for among
other things, the conversion of preferred securities, exercise of
warrants, sales to qualified purchasers and other legal
obligations of the Company. The Company commits to expeditiously
file a Listing Application with the American Stock Exchange to
list, among other things, and upon approval of the same, the
Shares hereby purchased. The restriction on re-sale period shall
commence with the delivery of the Shares upon approval of the
Listing Application by the American Stock Exchange.
2.5 SEC Filings.
(a) The documents filed with the United States
Securities and Exchange Commission (the "Commission"), complied
in all material respects with the requirements of the United
States Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission promulgated thereunder and did
not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
in order the make the statement therein, in light of the
circumstances under which they were made, not misleading.
(b) The consolidated financial statements of the Company
and its subsidiaries set forth in the SEC Filings present fairly
the consolidated financial condition of the Company and its
subsidiaries as of the respective dates thereof and the
consolidated results of operations of the Company and its
subsidiaries for the respective periods covered thereby, all in
conformity with accounting principles generally accepted in the
United States applied on a consistent basis throughout the
periods involved.
(c) To the Company's knowledge, the accountants who
certified the audited consolidated financial statements of the
Company and its subsidiaries included in the SEC Filings are
independent public accountants as required by the Securities Act
and the rules and regulations of the Commission promulgated
thereunder.
2.6 Legal Proceedings. Except as otherwise described
in the SEC Filings, there are no actions, suits, investigations
or proceedings pending to which the Company or any of the
Principal Subsidiaries is a party before or by any court or
governmental agency or body, which in the opinion of management
of the Company would result, individually or in the aggregate, in
any material adverse change in the financial condition or results
of operations of the Company and its subsidiaries, taken as a
whole, or which would materially and adversely affect the
consolidated properties or assets, thereof; if an adverse
decision is obtained, and to the best knowledge of the Company's
management, no such actions, suits, investigations or proceedings
are threatened by any person, corporation or governmental agency
or body.
2.7 No Material Change. Except as disclosed in or
contemplated by the SEC Filings, there has been no material,
adverse change in or affecting the business operations,
management, financial position, stockholders equity or results of
operations of the Company and its subsidiaries since June 30,
1996.
2.8 Properties and Assets. Each of the Company and the
Principal Subsidiaries has good and marketable title to all
properties and assets described in the SEC Filings as owned by
it, free and clear of all claims, liens, security interests,
mortgages, pledges, charges or other encumbrances of any nature
whatsoever, except as disclosed in the SEC Filings, or are not
material to the business of the Company and its subsidiaries,
taken as a whole. Except as set forth in the SEC Filings, each
of the Company and the Principal Subsidiaries has valid,
subsisting and enforceable leases for the properties described in
the SEC Filings, with such exceptions as are not material and do
not materially interfere with the use made and proposed to be
made of such properties by the Company and such Subsidiaries.
2.9 Compliance with Applicable Regulations. Except as
disclosed in the SEC Filings, each of the Company and the
Principal Subsidiaries (a) has all governmental licenses,
permits, consents, orders, approvals, qualifications and other
authorizations necessary to carry on its business as described in
the SEC Filings, (b) complies in all material respects with, and
conducts its business in substantial conformity with (except for
failures to conform which would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole),
all laws, regulations and orders applicable to it or its
business, and (c) complies in all material respects with, and
conducts its business in substantial conformity with (except for
failures to conform which would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole),
all such licenses, permits, consents, orders, approvals,
qualifications, authorizations issued by, and all agreements of
the Company and the Principal Subsidiaries with, any governmental
agency or body having jurisdiction over the Company and such
Subsidiaries.
2.10 Investment Company Act of 1940. The Company is not
an `investment company" or an "affiliated person" of, or
"promoter" or "principal" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940, as
amended.
2.11 Compliance with Regulation. The Company is a
"reporting issuer" (as defined in Regulation S). The Company,
its affiliates and any person acting on behalf of, or as agent
of, any of the foregoing, whether as principal or agent, (a) has
offered and sold the Shares only in an "offshore transaction" (as
defined in Regulation S), (b) has not engaged with respect to the
Shares in any "directed selling efforts" (as defined in
Regulation S) in respect of the Shares, (d) has not made any
offers or sales of any of the Shares or any interest therein in
the United States or to, or for the account of, any "U.S. person"
(as defined in Regulation S), and (e) has not made any sales of
any of the Shares or any interest therein to any person other
than the Purchaser; provided, however, that insofar as this
representation and warranty involves any broker-dealer
participating in the offering, any affiliate of such broker-
dealer or any officer, director, employee or agent of such broker-
dealer, to the extent such broker-dealer or other person is
acting as placement agent for the offering of the Shares, such
representation and warranty is made by the Company solely on the
basis of and in reliance upon the representations and warranties
of such broker-dealer or other person.
2.12 Representations and Warranties at the Closing.
Each of the representations and warranties contained in Section 2
is true and correct in all material respects as of the date of
this Purchase Agreement. The Company will make the same
representations and warranties at the Closing and such
representations and warranties when so made will be true and
correct in all material respects as of the Closing Date.
Section 3. Certain Agreements of the Company. The
Company hereby covenants and agrees with Purchaser as follows:
(a) Prior to or contemporaneously with the delivery of
execution copies of this Purchase Agreement, the Company will
furnish to Purchaser the SEC Filings.
(b) The Company will make available to Purchaser prior
to the Closing Date the opportunity to ask questions and receive
answers concerning the terms and conditions of the purchase of
the Shares and the business and financial conditions of the
Company and to obtain any additional information that the Company
may possess or can acquire without unreasonable effort or expense
that is necessary to verify the accuracy of the information
furnished in accordance herewith.
(c) At any time after the expiration of the Restricted
Period (as hereinafter defined) the Company will deliver to
Purchaser or its nominee who is acting as custodian therefor or
any subsequent holder who has received a stock certificate
representing the Shares which bears the legend described in
Section 4.4 of this Purchase Agreement (the "Legended Stock
Certificate") , without cost to such Purchaser or subsequent
holder, upon written request therefor, a substitute stock
certificate without the restrictive legend described in Section
4.4 of this Purchase Agreement. The Company shall be required to
deliver such substitute stock certificate only upon surrender of
the Legended Stock Certificate which, in the case of any holder
subsequent to Purchaser, must be duly endorsed for transfer or
surrender and accompanied by certificates signed by the Purchaser
and such holder as provided in Section 4.3(c) hereof.
Section 4. Representations, Warranties and Covenants of
Purchaser. Purchaser hereby represents, warrants and covenants
to the Company as follows:
4.1 Compliance with United States Securities Laws.
Purchaser understands and acknowledges that (a) the Shares have
not been and will not be registered under the Securities Act, and
may not be offered or sold in the United States or to, or for the
account or benefit of, any "U.S. person" (as defined in
Regulation S, which definition is set out in Schedule 4 hereto),
unless such Shares are registered under the Securities Act and
any applicable state securities or blue sky laws or such offer or
sale is made pursuant to exemptions from the registration
requirements of such laws, (b) the Shares are being offered and
sold pursuant to the terms of Regulation S under the Securities
Act, which permits securities to be sold to non-"U.S. persons" in
"offshore transactions" (as defined in Regulation S), subject to
certain terms and conditions, (c) the Company is relying upon the
truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser
set forth herein in order to determine the availability of the
exemptions from registration under the Securities Act relied upon
by the Company and the suitability of the Purchaser to acquire
the Shares; (d) the Shares have been offered and sold to the
Purchaser in an "offshore transaction" and Purchaser has not
engaged in any "directed selling efforts", as each such term is
defined in Regulation S, and (e) in the view of the Commission,
the statutory basis for the exemption from registration claimed
for this offering would not be present if the offering of the
Shares, although in technical compliance with Regulation S, is
part of a plan or scheme to evade the registration provisions of
the Securities Act and, accordingly, the Purchaser is making the
representations and warranties in this Section 4 to evidence its
compliance with the applicable requirements of the Securities Act
and that its participation in such offering is not a part of any
such plan or scheme.
4.2 Status of Purchaser.
(a) Purchaser is purchasing the Shares for its own
account or for persons or accounts as to which it exercises
investment discretion. Neither Purchaser nor such person or
account is a "U.S. person" (as defined in Regulation S) and
neither Purchaser nor such other person or account has any
present intention to sell any of the Shares in the United States
or to a U.S. person or for the account or benefit of a U.S.
person either now or promptly after expiration of the Restricted
Period.
(b) Purchaser (and any person or account on whose behalf
Purchaser is purchasing) is knowledgeable, sophisticated and
experienced in making, and is qualified to make decisions with
respect to investments in restricted securities (such as this
Purchase Agreement and the Shares) and has requested, received,
reviewed and considered all information it deems relevant in
making a decision to execute this Purchase Agreement and purchase
the Shares. Purchaser acknowledges that it is capable of
evaluating the merits and risks of an investment in the Shares
and to make an informed decision relating thereto. In evaluating
its investment, Purchaser has consulted its own investment and/or
legal or tax advisors.
(c) Purchaser acknowledges that the Company had made
available to Purchaser the opportunity to ask questions and
receive answers concerning the terms and conditions of the
offering of the Shares and the business and financial condition
of the Company and to obtain any additional information that the
Company may possess or can acquire without unreasonable effort or
expense that is necessary to verify the accuracy of the
information furnished in accordance herewith. Purchaser and its
advisors, if any, have received complete and satisfactory answers
to all such inquiries. Purchase acknowledges that in making the
decision to purchase the Shares, it has relied solely upon the
representations and warranties of the Company contained herein
and the information contained in the SEC Filings, and other
publicly available documents, copies of which have been furnished
or made available to Purchaser, and upon the independent
investigations made by it and its representatives, if any.
(d) Purchaser has agreed to purchase the Shares for
investment purposes and not with a view to a distribution.
Purchaser is not an underwriter of, or dealer in, the Shares and
is not participating, pursuant to a contractual arrangement, in
the distribution of the Shares. To the extent that the Shares
are registered in the name of Purchaser's nominee, Purchaser
confirms that such nominee is acting merely as custodian for the
Purchaser of such securities.
(e) Purchaser understands that no U.S. Federal or state
or any foreign governmental authority or agency has made or will
make any finding or determination relating to the fairness for
public investment in the Shares, or has passed upon or made, or
will pass upon or make, any recommendation or endorsement of the
Shares.
(f) If Purchaser is a partnership, corporation, trust or
other entity, the individual executing this Purchase Agreement on
its behalf represents and warrants that:
(i) He or she has made due inquiry to determine the
truthfulness of the representations and warranties made by
the Purchaser in this Purchase Agreement; and
(ii) He or she is duly authorized under the
corporation's charter and by all requisite corporate action
(and if the Purchaser is a partnership, trust or other
unincorporated entity, by the agreements, deeds, indentures
or other instruments pursuant to which such entity was
organized and all requisite action to be taken by such
entity) to make this investment and to enter into, execute
and deliver this Purchase Agreement on behalf of such
entity.
4.3 Restrictions on Re-Sale.
(a) For a period of forty (40 days) following the
Closing Date, or if the Shares come to be issued on more than one
day, the latest Closing Date ( the "Restricted Period"),
Purchaser shall not engage in any activity for the purpose of, or
which may reasonable be expected to have the effect of,
conditioning the market in the United States for the Shares, or
directly or indirectly offer, sell, transfer, pledge or otherwise
dispose of the Shares, or any interest therein, in the United
States or to, or for the account or benefit of, a "U.S. person"
(as defined in Regulation S). Purchaser hereby also agrees that
it shall not, either directly or indirectly, sell short the
Company's shares of Common Stock on the American Stock Exchange
or on any other exchange or in the over-the-counter market or
otherwise in the United States during the Restricted Period and
it has not made any such sale in anticipation of participating in
the offering and purchasing of the Shares.
(b) Purchaser understands that the Shares or any
interest therein are only transferable on the books and records
of the Transfer Agents and Registrar of the Common Stock of the
Company. Purchaser further understands that the Transfer Agents
and Registrar will not register any transfer of the Shares or any
interest therein which the Company in good faith believes
violates the restrictions set forth herein.
(c) Unless registered under the Securities Act, any
proposed offer, sale, transfer, pledge or other disposition
during the Restricted Period of any of the Shares or any interest
therein, shall be subject to the condition that Purchasers must
deliver to the Company (i) a written certification that neither
record nor beneficial ownership of the Shares or any interest
therein, has been offered or sold in the United States or to, or
for the account or benefit of, any "U.S. person" (as defined in
Regulation S), (ii) a written certification of the proposed
transferee that such transferee (or any account for which such
transferee is acquiring such Shares or any interest therein) is
not a "U.S. person" (as defined in Regulation S), that such
transferee is acquiring such Shares or such interest therein, for
such transferee's own account (or an account over which it has
investment discretion) and for investment and not with a view to
a distribution, and that such transferee is knowledgeable of and
agrees to be bound by the restrictions on re-sale set forth in
this section and Regulation S during the Restricted Period, and
(iii) a written opinion of United States counsel, in form and
substance satisfactory to the Company, the effect that the offer,
sale, transfer, pledge or other disposition of the Shares, or any
interest therein, are exempt from registration under the
Securities Act and any applicable state securities or blue sky
laws.
(d) Purchaser will not, directly or indirectly,
voluntarily offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offerings to buy, purchase or otherwise acquire
or take a pledge of ) its rights under this Purchase Agreement,
the Shares, any interest therein, or otherwise than in compliance
with the Securities Act, any applicable state securities or blue
sky laws and any applicable securities laws or jurisdictions
outside the United States, and the rules and regulations
promulgated thereunder.
4.4 Legend. Purchaser agrees that, unless and until
removed as contemplated by Section 3(c) hereof, the stock
certificates representing the Shares shall bear the legend set
forth below:
"The shares of Common Stock represented by this
certificate have not been registered under the United
States Securities Act of 1933, as amended (the "Act"),
or any other securities laws, and have been issued in
reliance upon the exemption from registration under the
Act contained in Regulation S under the Act. Prior to
the later of _______________, 199__, no offer, sale,
transfer, pledge or other disposition (collectively, a
"Disposal") of the shares of Common Stock represented
by this certificate may be made: (a) in the United
States or to, or for the account or benefit of, any
"U.S. person" (as defined in Regulation S) unless (i)
registered under the Act and any applicable state
securities or blue sky laws or (ii) exemptions from the
registration requirements of such laws are available
and XCL Ltd. (the "Company") receives a written opinion
of United States legal counsel in form and substance
satisfactory to it to the effect that such Disposal is
exempt from such registration requirements; and (b)
outside of the United States or to, of for the account
or benefit of a person who is not a "U.S. person" (as
defined in Regulation S) unless (i) the beneficial
owner of such shares and the proposed transferee submit
certain certifications to the Company and (ii) the
Company receives a written opinion of United States
legal counsel in form and substance satisfactory to it
to the effect that such Disposal is exempt from the
registration requirements of the Act."
4.5 Re-Offers by Purchaser in the United States. If
Purchaser publicly re-offers all or any part of the Shares in the
United States, Purchaser (and/or certain persons who participate
in any such re-offer) may be deemed, under certain circumstances,
to be an "underwriter" as defined in section 2(11) of the
Securities Act. If Purchaser plans to make any such re-offer, it
will consult with United States legal counsel prior to any such
re-offer in order to determine its liabilities and obligations
under this Purchase Agreement, the Securities Act and any
applicable state securities or blue sky laws.
4.6 Due Execution, Delivery and Performance of the
Purchase Agreement and Other Obligations. Purchaser has full
right, power, authority and capacity to enter into this Purchase
Agreement and to consummate the transactions contemplated hereby.
Upon the execution and delivery of this Purchase Agreement by
Purchaser, this Purchase Agreement shall constitute the legal,
valid and binding obligation of Purchaser, except as the
enforceability thereof may be limited by any applicable
bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting the enforcement of creditors rights
generally and by general equitable principles, regardless of
whether such enforceability is considered in a proceeding of
equity or at law.
4.7 Representations and Warranties at the Closing. Each
of the representations and warranties contained in this Section 4
is true and correct as of the date of this Purchase Agreement.
Purchaser will make the same representations and warranties on
the Closing Date and the Delivery Date and such representations
and warranties when so made will be true and correct as of the
Closing Date, and the Delivery Date, respectively.
Section 5. Survival of Representations, Warranties and
Agreements. Notwithstanding any investigation made by either
party to this Purchase Agreement, all covenants, agreements,
representations and warranties made by the Company and Purchaser
herein shall survive the execution of this Purchase Agreement,
the delivery to Purchaser of the Shares and the receipt by the
Company of payment for the Shares.
Section 6. Notices. All notices, demands, consents or
other communications under this Purchase Agreement shall be given
or made in writing and shall be delivered personally, or sent by
registered or international recorded airmail, postage prepaid, or
sent by facsimile transmission with a confirmation copy sent by
mail as aforesaid, and shall be deemed given when so personally
delivered, or if mailed as aforesaid, ten (10) business days
after the same shall have been posted or if sent by facsimile
transmission, at the earlier of (i) as soon as written or
telephonic communication is received from the party to whom it
was sent that the message has been received or (ii) ten (10) days
after the confirmation is posted:
(a) if to the Company, at its address as set out at the
head of this Purchase Agreement, or at such address or addresses
as may have been furnished to Purchaser in writing by the
Company;
(b) if to, Purchaser, at its address as set out
following Purchaser's signature on the signature page to his
Purchase Agreement, or at such other address or addresses as may
have been furnished to the Company in writing by Purchaser; or
(c) if to any transferee or transferees of Purchaser, at
such address or addresses as shall have been furnished to the
Company at the time of the transfer or transfers or at such other
address or addresses as may have been furnished by such
transferee or transferees to the Company in writing.
Section 7. Amendments. No amendment, interpretation or
waiver of the provisions of this Purchase Agreement shall be
effective unless made in writing and signed by the parties to
this Purchase Agreement.
Section 8. Headings. The headings of the sections and
sub-sections of this Purchase Agreement are used for convenience
only and shall not affect the meaning or interpretation of the
contents of this Purchase Agreement.
Section 9. Enforcement. The failure to enforce or to
require the performance at any time of any of the provisions of
this Purchase Agreement shall in no way be construed to be a
waiver of such provisions, and shall not affect either the
validity of this Purchase Agreement or any part hereof or the
right of any party thereafter to enforce each and every provision
in accordance with the terms of this Purchase Agreement.
Section 10. Governing Law; Submission to Jurisdiction.
This Purchase Agreement and the relationships of the parties in
connection with the subject matter of this Purchase Agreement
shall be governed by and determined in accordance with the
substantive laws of the State of Delaware, in the United States
of America, applicable to agreements made and to be performed
entirely therein. Purchaser hereby irrevocable and
unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Purchase Agreement to which
it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the Courts of the United
States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now
or hereafter have to the venue of any such action or proceedings
as brought in an inconvenient forum and agrees not to plead or
claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by respectively delivering or mailing
a copy thereof by personal delivery or by registered or certified
mail (or any substantially similar form of mail), postage
prepaid, to the Purchaser at the address set forth on the
signature page hereof as at such other address of which the
Company shall have been notified in accordance with the
provisions of Section 6 hereof; and
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
Section 11. Severability. If any provision of this
Purchase Agreement is held to be invalid or unenforceable by any
judgment of a tribunal of competent jurisdiction, the remainder
of this Purchase Agreement shall not be affected by such
judgment, and the Purchase Agreement shall be carried out as
nearly as possible according to its original terms and intent.
Section 12. Counterparts. This Purchase Agreement may
be executed in counterparts, all of which shall constitute one
agreement, and each such counterpart shall be deemed to have been
made, executed and delivered on the date set out at the head of
this Purchase Agreement without regard to the dates or times when
such counterparts may actually have been made, executed or
delivered.
IN WITNESS WHEREOF, the parties hereto have caused this
Purchase Agreement to be executed by their duly authorized
representatives as of the day and year first above written.
XCL LTD. PURCHASER'S NAME:
By: /s/ David A. Melman Provincial Securities Ltd.
Name: David A. Melman
Title: Executive Vice President
Duly executed by:
/s/ R. Hammond
----------------------
Title:___________________
Aggregate number of Shares: PURCHASER'S ADDRESS:
1,500,000 57 Rue Grimaldi
MC 98000
Total purchase price: Monaco
$220,000.00
Stock certificate registration instructions:
Name of Holder: Provincial Securities
Address of Holder for delivery: 607 Gilbert House, Barbican,
London EC2Y 8BD
Contact name and telephone number: R. Hammond
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of August 16, 1996, between
XCL LTD., a Delaware corporation ("XCL"), and TERRENEX
ACQUISITIONS CORP. ("Terrenex").
W I T N E S S E T H :
WHEREAS, by letter agreement dated August 16, 1996,
Terrenex arranged for the sale of XCL Common Stock to a non-North
American Person, in a transaction pursuant to Regulation S; and
WHEREAS, the form of partial compensation agreed to
between the parties was the issuance of warrants herein
described.
NOW, THEREFORE, in consideration of the premises the
parties hereto agree as follows:
Section 1. Definitions. (a) Terms used in this
Warrant Agreement shall have the following meanings, unless the
context otherwise requires:
"Commission" shall mean the Securities and
Exchange Commission or any entity succeeding to any or
all of its functions under the Securities Act.
"Common Stock" shall mean the common stock of XCL
as the same shall be in existence from time to time.
"Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, or any successor federal
statute.
"Exercise Price" shall mean the exercise price of
a Warrant, which shall be the lesser of $.25 per share
of Common Stock.
"Expiration Date" shall mean December 31, 1998.
"Person" shall mean an individual or firm,
corporation, partnership, trust, association or other
entity.
"Securities Act" shall mean the Securities Act of
1933, as amended, or any successor federal statute.
"The Stock Exchange Daily Official List" shall
mean the daily official list of the prices of stock
listed on the International Stock Exchange of the
United Kingdom of Great Britain and Northern Ireland
and the Republic of Ireland Limited.
"Warrant" shall mean a warrant issued pursuant to
this Agreement entitling the record holder thereof to
purchase from XCL at the Warrant Office one share of
Common Stock (subject to adjustment as provided in
Section 11) at the Exercise Price at any time on or
before 5:00 P.M., local time, at the Warrant Office, on
the Expiration Date. Where the context requires, the
term "Warrant" as used herein denotes one or more
Warrants evidenced by a single Warrant Certificate.
"Warrant Certificate" shall mean a certificate
evidencing one or more Warrants, substantially in the
form of Exhibit A hereto, with such changes therein as
may be required to reflect any adjustments made
pursuant to Section 11.
"Warrantholder" shall mean, initially the Persons
party to this Warrant Agreement and thereafter the
Persons named in the Warrant Register as the holders of
the Warrants.
"Warrant Office" shall mean the office or agency
of XCL at which the Warrant Register shall be
maintained and where the Warrants may be presented for
exercise, exchange, substitution and transfer, which
office or agency on the date of this Agreement is the
office of XCL at 110 Rue Jean Lafitte, Lafayette,
Louisiana 70508, which office or agency may be changed
by XCL upon five (5) business days prior notice in
writing to the Warrantholders.
"Warrant Register" shall mean the register,
substantially in the form of Exhibit B hereto,
maintained by XCL at the Warrant Office.
"Warrant Stock" shall mean the number of shares of
Common Stock issuable upon exercise of the Warrants.
(b) Other Rules of Construction. References in this
Agreement to Sections, Paragraphs and Exhibits are to
Sections and Paragraphs of and Exhibits to this Agreement
unless otherwise indicated. The words "hereof", "herein",
"hereunder" and comparable terms refer to the entirety of
this Agreement and not to any particular Section or other
subdivision hereof or attachment hereto. Words in the
singular include the plural and in the plural include the
singular. Words in the neuter gender shall include the
masculine and feminine and vice versa. The word "or" is not
exclusive. The word "including" shall be deemed to mean
"including, without limitation". The Section headings
contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 2. Representations and Warranties. XCL hereby
represents and warrants as follows:
(a) XCL is a corporation duly organized and validly
existing under the laws of the State of Delaware, has the
power and authority to execute and deliver this Agreement
and the Warrant Certificates, to issue the Warrants and to
perform its obligations under this Agreement and the Warrant
Certificates.
(b) The execution, delivery and performance by XCL of
this Agreement and the Warrant Certificates, the issuance of
the Warrants and the issuance of the Warrant Stock upon
exercise of the Warrants have been duly authorized by all
necessary corporate action, and do not and will not violate,
or result in a breach of, or constitute a default under, or
require any consent under, or result in the creation of any
lien upon the assets of XCL pursuant to, any requirement of
law or any material contractual obligation binding upon XCL.
(c) This Agreement has been duly executed and
delivered by XCL and constitutes a legal, valid, binding and
enforceable obligation of XCL. When the Warrants and
Warrant Certificates have been issued as contemplated hereby
(i) the Warrants and the Warrant Certificates will
constitute legal, valid, binding and enforceable obligations
of XCL and (ii) the Warrant Stock, when issued upon exercise
of the Warrants in accordance with the terms hereof, will be
duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock with no personal
liability attaching to the ownership thereof (other than for
the statutory liability prescribed by Delaware law).
Section 3. Issuance of Warrants. XCL hereby agrees to
issue and deliver to Warranthholder one or more Warrant
Certificates evidencing Warrants to purchase 300,000 shares of
Common Stock at any time on or before 5:00 P.M., local time at
the Warrant Office, on the Expiration Date. Each Warrant shall
entitle the holder thereof to purchase one fully paid and
nonassessable share of Warrant Stock upon the exercise thereof at
a price per share equal to the Exercise Price as adjusted as
provided in Section 11. Each Warrant Certificate shall be
executed on behalf of XCL by the manual or facsimile signature of
the President or any executive officer of XCL, under its
corporate seal, affixed or in facsimile, attested by the manual
or facsimile signature of the Secretary or Assistant Secretary of
XCL. Warrants shall be dated as of August 16 1996.
Section 4. Exercise of Warrants. (a) Warrants may be
exercised at any time in whole or in part on any business day on
or before 5:00 p.m., local time, at the Warrant Office on the
Expiration Date by presentation and surrender of the Warrant
Certificate evidencing such Warrants, with the Form of Election
to Purchase (the "Election Form") annexed to the Warrant
Certificate and payment of the Exercise Price, multiplied by the
number of shares of Warrant Stock issuable upon exercise of such
Warrants. Upon surrender of such Warrant Certificate by the
Warrantholder thereof and payment of the Exercise Price by
certified or official bank check payable to the order of XCL of
the aggregate Exercise Price for the number of shares of Warrant
Stock in respect of which such Warrant is being exercised in
lawful money of the United States of America, XCL shall issue and
cause to be delivered with all reasonable dispatch to or upon the
written notice of such Warrantholder or upon the written order of
such Warrantholder and in such name or names as such
Warrantholder may designate, a certificate or certificates for
the Warrant Stock, together with cash in respect of any fraction
of a share of Warrant Stock issuable upon such surrender pursuant
to Section 7 hereof. The Warrantholders shall be deemed to have
been holders of record of the number of shares of Warrant Stock
specified in the Election Form as of the date of such exercise of
such Warrants.
(b) In the event that Warrants constituting less
than all of the Warrants evidenced by a Warrant Certificate
are exercised at any time prior to the Expiration Date, a
new Warrant Certificate, duly executed by XCL and dated the
same date as the Warrant Certificate being replaced, will be
issued for the remaining number of Warrants evidenced by the
Warrant Certificate so surrendered bearing the legend set
forth in Section 13(b). Warrantholders shall not be entitled
to receive fractional Warrants.
(c) XCL will, in accordance with applicable Delaware
law, take any action which may be necessary in order that
XCL may validly and legally issue fully paid and non-
assessable Warrant Stock at the Exercise Price, including
taking any corporate action that may, in the opinion of its
counsel, be necessary therefor prior to taking any action
that would cause a reduction of the Exercise Price, pursuant
to the provisions of Section 11 hereof, to an amount below
the then-par value of the Warrant Stock.
(d) XCL hereby agrees that at all times there shall be
reserved, for issuance and delivery upon exercise of the
Warrants, the Warrant Stock issuable from time to time upon
exercise of such Warrants. XCL covenants that all Warrant
Stock will, upon issuance in accordance with the terms of
this Agreement, be validly issued, fully paid and non-
assessable and free from all taxes with respect to the
issuance thereof and from all liens, charges, security
interests and other encumbrances or restrictions on sale
(other than restrictions on sales under applicable
securities laws) and free and clear of all adverse or
preemptive rights.
Section 5. Registration, Transfer and Exchange of
Certificates. (a) XCL shall maintain at the Warrant Office
the Warrant Register for registration of the Warrants and
Warrant Certificates and transfers thereof. XCL may deem and
treat the registered holder of any Warrant Certificate as
the absolute owner of the Warrants represented thereby
(notwithstanding any notation of ownership or other writing
on a Warrant Certificate made by anyone) for the purpose of
any exercise thereof or any distribution to the holder(s)
thereof, and for all other purposes, and XCL shall not be
affected by any notice to the contrary.
(b) Warrants may be exchanged or transferred at the
option of the holder thereof, subject to compliance with the
provisions of Section 13 hereof. XCL shall register the
transfer of the outstanding Warrants in the Warrant Register
upon surrender of the Warrant Certificates evidencing such
Warrants to XCL at the Warrant Office, accompanied (if so
required by it) by a written instrument or instruments of
transfer in form reasonably satisfactory to it, duly
executed by the registered holder or holders thereof or by
the duly appointed legal representative thereof. Upon any
such registration of transfer, one or more new duly executed
Warrant Certificates evidencing such transferred Warrants
shall be issued to the transferees and the surrendered
Warrant Certificates shall be canceled. If less than all
the Warrants evidenced by a Warrant Certificate(s)
surrendered for transfer are to be transferred, new duly
executed Warrant Certificate(s) shall be issued to the
Warrantholder surrendering such Warrant Certificate(s)
evidencing such remaining number of Warrants.
(c) Each Warrant Certificate may be exchanged at the
option of the holder thereof, when surrendered to XCL at the
Warrant Office, for another Warrant Certificate of like
tenor, or for other Warrant Certificates, representing an
equivalent number of Warrants. Any Warrant Certificate
surrendered for exchange shall be canceled. Subject thereto,
a Warrant Certificate may be divided or combined with other
Warrant Certificates evidencing the same rights of such
Warrant Certificate being divided or combined, upon
presentation of such Warrant Certificate being divided or
combined at the Warrant Office, together with written notice
specifying the names and denominations in which new Warrant
Certificates are to be issued and signed by the
Warrantholder of the Warrants evidenced by the Warrant
Certificate being so divided or combined.
(d) Except as provided in Sections 13(c) and 13(d),
each Warrant Certificate issued upon transfer or exchange
shall bear the legend set forth in Section 13(b) if the
Warrant Certificate presented for transfer or exchange bore
such legend.
(e) Any transfer, exchange or assignment of
Warrants (including any new Warrants issued pursuant to
Section 6 hereof) shall be without charge to the
Warrantholder (other than as set forth in Section 8 hereof
or any income tax withholding requirements) and any new
Warrant or Warrants issued pursuant to this Section 5 shall
be dated the date hereof.
Section 6. Mutilated or Missing Warrant Certificate. If
any Warrant Certificate shall be mutilated, lost, stolen or
destroyed, XCL shall issue, in exchange and substitution for and
upon cancellation of the mutilated Warrant Certificate, or in
lieu of and substitution for the Warrant Certificate lost, stolen
or destroyed, a new Warrant Certificate, in form and substance
identical to the form of such mutilated, lost, stolen or
destroyed Warrant Certificate of like tenor and representing an
equivalent number of Warrants as were evidenced by such
mutilated, lost, stolen or destroyed Warrant Certificate, but
only upon receipt of evidence satisfactory to XCL of such loss,
theft or destruction of such Warrant Certificate and, if
requested, indemnity reasonably satisfactory to it. Any such new
Warrant Certificate shall constitute an original contractual
obligation of XCL, whether or not the allegedly mutilated, lost,
stolen or destroyed Warrant Certificate shall be at any time
enforceable by any person. No service charge shall be made for
any such substitution, but all expenses and reasonable charges
associated with procuring such indemnity and all stamp, tax and
other governmental duties that may be imposed in relation thereto
shall be borne by the holder of such Warrant Certificate. Each
Warrant Certificate issued in any such substitution shall bear
the legend set forth in Section 13(b) if the Warrant Certificate
for which such substitution was made bore such legend.
Section 7. No Fractional Stock. XCL shall not be required
to issue fractional shares of Common Stock upon exercise of any
Warrants by a Warrantholder. Instead of any fractional shares of
Warrant Stock that would otherwise be issuable to such
Warrantholder, XCL shall pay to such Warrantholder a cash
adjustment in respect of such fractional interest in an amount
equal to such fractional interest of the then-current Market
Price per share (as defined in Section 11 hereof) of Warrant
Stock.
Section 8. Payment of Taxes. XCL will pay any and all
documentary, stamp, transfer or other taxes attributable to the
initial issuance or delivery of Warrant Stock; provided that XCL
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue of any Warrant
Certificate or any certificate for Warrant Stock in a name other
than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and XCL shall not be
required to issue or deliver such certificates unless or until
the person or persons requesting the issuance thereof shall have
paid to XCL the amount of such tax or shall have established to
the reasonable satisfaction of XCL that such tax has been paid.
Section 9. No Stockholder Rights. Unless and until
exercise of any Warrant shall have occurred, nothing contained in
this Agreement or in any of the Warrant Certificate evidencing
such Warrant shall be construed as conferring upon the holders
thereof the right to vote or to receive dividends or subscription
rights, or to consent or to receive notice as a stockholder in
respect of the meetings of the stockholders or the election of
directors of XCL or any other matter, or any rights whatsoever as
a stockholder of XCL. No provisions of any Warrant or of this
Warrant Agreement, in the absence of affirmative action by the
Warrantholder to exercise such Warrant, and no mere enumeration
herein of the rights or privileges of such Warrantholder, shall
give rise to any liability of such Warrantholder for the Exercise
Price or as a stockholder of XCL, whether such liability is
asserted by XCL or its creditors.
Section 10. Obtaining of Governmental Approvals and Stock
Exchange Listings. XCL will, at its own expense, from time to
time take all action which may be necessary to obtain and keep
effective any and all permits, consents and approvals of
governmental agencies and authorities which may be or become
requisite in connection with the issuance, sale, transfer and
delivery of the Warrant Certificates and the exercise of the
Warrants and the issuance, sale, transfer and delivery of the
Warrant Stock and all action which may be necessary so that such
Warrant Stock, immediately upon their issuance upon the exercise
of Warrants, or at such later time as shall be otherwise provided
herein, will be listed on each securities exchange, if any, on
which the Common Stock is then listed; provided, however, except
as set forth in Section 13A hereof, nothing herein provided shall
require XCL to register the Warrants or the Warrant Stock under
the Securities Act.
Section 11. Adjustment of Number of Shares of Warrant Stock
Purchasable. Prior to the Expiration Date, the Exercise Price is
subject to adjustment from time to time as follows:
(a) In case XCL shall at any time after the date of
this Agreement (i) declare a dividend on the shares of
Common Stock payable in shares of Common Stock, or (ii)
subdivide or split up the outstanding shares of Common Stock
the amount of Warrant Stock to be delivered upon exercise of
any Warrant will be appropriately increased so that the
Warrantholder will be entitled to receive the amount of
Warrant Stock that such Warrantholder would have owned
immediately following such actions had such Warrant been
exercised immediately prior thereto, and the Exercise Price
in effect immediately prior to the record date for such
dividend or the effective date for such subdivision shall be
proportionately decreased, all effective immediately after
the record date for such dividend or the effective date for
such subdivision or split up. Such adjustments shall be
made successively whenever any event listed above shall
occur.
(b) In case XCL shall at any time after the date of
this Agreement combine the outstanding shares of Common
Stock into a smaller number of units, the Exercise Price in
effect immediately prior to the record date for such
combination shall be proportionately increased, effective
immediately after the record date for such combination.
Such adjustment shall be made successively whenever any such
combinations shall occur.
(c) In the event that XCL shall at any time after the
date of this Agreement (i) issue or sell any shares of
Common Stock (other than Warrant Stock) (or securities
convertible or exchangeable into Common Stock) without
consideration or at a price per share (or having a
conversion price per share, if a security convertible into
Common Stock) less than the Market Value per share of Common
Stock (as defined in Section 11(e) hereof), or (ii) issue or
sell options, rights or warrants to subscribe for or
purchase Common Stock at a price per share less than the
Market Price per share of Common Stock (as defined in
Section 11(e) hereof), the Exercise Price to be in effect
after the date of such issuance shall be determined by
multiplying the Exercise Price in effect on the day
immediately preceding the relevant issuance or record date,
as the case may be, used in determining such Market Value or
Market Price, by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding on such
issuance or record date plus the number of shares of Common
Stock which the aggregate offering price of the total number
of shares of Common Stock so to be issued or to be offered
for subscription or purchase (or the aggregate initial
conversion price of the convertible securities so to be
offered) would purchase at such Market Value or Market
Price, as the case may be, and the denominator of which
shall be the number of shares of Common Stock outstanding on
such issuance or record date plus the number of additional
shares of Common Stock to be issued or to be offered for
subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); such
adjustment shall become effective immediately after the
close of business on such issuance or record date; provided,
however, that no such adjustment shall be made for the
issuance of (s) options to purchase shares of Common Stock
granted pursuant to XCL's employee stock option plans
approved by shareholders of XCL (and the shares of Common
Stock issuable upon exercise of such options) (provided that
option exercise prices shall not be less than the Market
Value of the Common Stock (as defined in Section 11(e)
hereof) on the date of the grant of such options), (t) XCL's
warrants to purchase shares of Common Stock (and the shares
of Common Stock issuable upon exercise of such warrants),
outstanding on the date hereof, (u) XCL's shares of Series
A, Cumulative Convertible Preferred Stock (and the shares of
Common Stock issuable upon conversion of such preferred
stock), (v) XCL's shares of Series B, Cumulative Preferred
Stock (and the shares of Common Stock issuable in lieu of
dividend and redemption payments thereunder), (w) XCL's $15
million in principal of Secured Subordinated Debt Notes (and
the shares of Common Stock issuable in lieu of interest
payments thereunder) and (x) XCL's shares of Series E,
Cumulative Convertible Preferred Stock (and shares of Common
Stock issuable upon conversion of such preferred stock). In
case such subscription price may be paid in a consideration
part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined
reasonably and in good faith by the Board of Directors of
XCL and reviewed and approved by the independent auditors of
XCL. Shares of Common Stock owned by or held for the
account of XCL or any wholly-owned subsidiary shall not be
deemed outstanding for the purpose of any such computation.
Such adjustment shall be made successively whenever the date
of such issuance is fixed (which date of issuance shall be
the record date for such issuance if a record date therefor
is fixed); and, in the event that such shares or options,
rights or warrants are not so issued, the Exercise Price
shall again be adjusted to be the Exercise Price which would
then be in effect if the date of such issuance had not been
fixed.
(d) In case XCL shall make a distribution to all
holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which
XCL is the continuing corporation) of evidences of its
indebtedness, securities other than Common Stock or assets
(other than cash dividends or cash distributions payable out
of consolidated earnings or earned surplus or dividends
payable in Common Stock), the Exercise Price to be in effect
after such date of distribution shall be determined by
multiplying the Exercise Price in effect on the date
immediately preceding the record date for the determination
of the stockholders entitled to receive such distribution by
a fraction, the numerator of which shall be the Market Price
per share of Common Stock (as defined in Section 11(e)
hereof) on such date, less the then-fair market value (as
determined reasonably and in good faith by the Board of
Directors of XCL and reviewed and approved by the
independent auditors of XCL) of the portion of the assets,
securities or evidences of indebtedness so to be distributed
applicable to one share of Common Stock and the denominator
of which shall be such Market Price per share of Common
Stock, such adjustment to be effective immediately after the
distribution resulting in such adjustment. Such adjustment
shall be made successively whenever a date for such
distribution is fixed (which date of distribution shall be
the record date for such distribution if a record date
therefor is fixed); and, if such distribution is not so
made, the Exercise Price shall again be adjusted to be the
Exercise Price which would then be in effect if such date of
distribution had not been fixed.
(e) For the purposes of any computation under this
Section 11, the "Market Price per share" of Common Stock on
any date shall be deemed to be the average of the closing
sales price for the 20 consecutive trading days ending on
the record date for the determination of the shareholders
entitled to receive any rights, dividends or distributions
described in this Section 11, and the "Market Value per
share" of Common Stock on any date shall be deemed to be the
closing sales price on the date of the issuance of the
securities for which such computation is being made, as
reported on the principal United States securities exchange
on which the Common Stock is listed or admitted to trading
or if the Common Stock is not then listed on any United
States stock exchange, the average of the closing sales
price on each such day during such 20 day period, in the
case of the Market Price computation, or on such date of
issuance, in the case of the Market Value computation, in
the over-the-counter market as reported by the National
Association of Securities Dealers' Automated Quotation
System ("NASDAQ"), or, if not so reported, the average of
the closing bid and asked prices on each such day during
such 20 day period in the case of the Market Price
computation, or on such date of issuance, in the case of the
Market Value computation, as reported in the "pink sheets"
published by the National Quotation Bureau, Inc. or any
successor thereof, or, if not so quoted, the average of the
middle market quotations for such 20 day period in the case
of the Market Price computation, or on such date of
issuance, in the case of the Market Value computation, as
reported on The Stock Exchange Daily Official List. In the
case of Market Price or Market Value computations based on
The Stock Exchange Daily Official List, the Market Price or
Market Value shall be converted into United States dollars
at the then spot market exchange rate of pounds sterling
(UK) into United States dollars as quoted by Chemical Bank
or any successor bank thereto on the date of determination.
If a quotation of such exchange rate is not so available,
the exchange rate shall be the exchange rate of pounds
sterling in United States dollars as quoted in The Wall
Street Journal on the date of determination.
(f) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided that any
adjustments which by reason of this Section 11(f) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment; provided, further that
such adjustment shall be made in all events (regardless of
whether or not the amount thereof or the cumulative amount
thereof amounts to 1% or more) upon the happening of one or
more of the events specified in Sections 11(a), (b) or (h).
All calculations under this Section 11 shall be made to the
nearest cent.
(g) If at any time, as a result of an adjustment made
pursuant to Section 11(a) or (b) hereof, the holder of any
Warrant thereafter exercised shall become entitled to
receive any shares of XCL other than shares of Common Stock,
thereafter the number of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to
the Warrant Stock contained in this Section 11, and the
provisions of this Agreement with respect to the Warrant
Stock shall apply on like terms to such other shares.
(h) In the case of (1) any capital reorganization of
XCL, or of (2) any reclassification of the shares of Common
Stock (other than a subdivision or combination of
outstanding shares of Common Stock), or (3) any
consolidation or merger of XCL or (4) the sale, lease or
other transfer of all or substantially all of the properties
and assets of XCL as, or substantially as, an entirety to
any other person or entity, each Warrant shall after such
capital reorganization, reclassification of the shares of
Common Stock, consolidation, or sale be exercisable, upon
the terms and conditions specified in this Agreement, for
the number of shares of stock or other securities or assets
to which a holder of the number of shares of Warrant Stock
purchasable (immediately prior to the effectiveness of such
capital reorganization, reclassification of shares of Common
Stock, consolidation, or sale) upon exercise of a Warrant
would have been entitled upon such capital reorganization,
reclassification of shares of Common Stock, consolidation,
merger or sale; and in any such case, if necessary, the
provisions set forth in this Section 11 with respect to the
rights thereafter of a Warrantholder shall be appropriately
adjusted (as determined reasonably and in good faith by the
Board of Directors of XCL and reviewed and approved by the
independent auditors of XCL) so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other
securities or assets thereafter deliverable on the exercise
of a Warrant. XCL shall not effect any such consolidation
or sale, unless prior to or simultaneously with the
consummation thereof, the successor corporation, partnership
or other entity (if other than XCL) resulting from such
consolidation or the corporation, partnership or other
entity purchasing such assets or the appropriate entity
shall assume, by written instrument, the obligation to
deliver to the holder of each Warrant the shares of stock,
securities or assets to which, in accordance with the
foregoing provisions, such holder may be entitled and all
other obligations of XCL under this Agreement. For purposes
of this paragraph (h) a merger to which XCL is a party but
in which the Common Stock outstanding immediately prior
thereto is changed into securities of another corporation
shall be deemed a consolidation with such other corporation
being the successor and resulting corporation.
(i) Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the
exercise of the Warrant, Warrant Certificates theretofore or
thereafter issued may continue to express the same Exercise
Price per share and number and kind of shares as are stated
on the Warrant Certificates initially issuable pursuant to
this Agreement.
Section 12. Notices to Warrantholders. Upon any
adjustment pursuant to Section 11, XCL shall promptly, but in any
event within 20 days thereafter, cause to be given to each of the
registered holders of the Warrants, at its address appearing on
the Warrant Register, by first-class mail, postage prepaid, a
certificate signed by its Chairman of the Board, its President,
or any Vice President, and its Treasurer, Secretary or any
Assistant Secretary setting forth the Exercise Price as so
revised and the number of shares of Common Stock issuable upon
the exercise of each Warrant as so adjusted and describing in
reasonable detail the facts accounting for such adjustments and
the method of calculation used. Where appropriate, such
certificate may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this
Section 12.
In case:
(a) XCL shall authorize the issuance to all holders of
shares of Common Stock of options, rights or warrants to
subscribe for or purchase Common Stock of XCL or of any
other subscription rights or warrants; or
(b) XCL shall authorize the distribution to all
holders of shares of Common Stock of evidences of its
indebtedness or assets (other than cash dividends or cash
distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock); or
(c) of any consolidation or merger to which XCL is a
party, or of the conveyance or transfer of all or
substantially all of the properties and assets of XCL
substantially as an entirety, or of any capital
reorganization or reclassification or change of the shares
of Common Stock; or
(d) of the voluntary or involuntary dissolution,
liquidation, bankruptcy, assignment for the benefit of
creditors or winding up of XCL; or
(e) XCL proposes to take any other action or any other
event occurs which would require an adjustment of the
Exercise Price pursuant to Section 11;
then XCL shall cause to be given to each of the registered
holders of the Warrants at its address appearing on the Warrant
Register, at least 20 calendar days prior to the applicable
record date or effective date, as the case may be, hereinafter
specified, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such rights,
warrants or distribution are to be determined, or (ii) the date
on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders
of record of shares of Common Stock shall be entitled to exchange
their units for securities or other property, if any, deliverable
upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up.
Section 13. Restrictions on Transfer. (a) Each
Warrantholder represents that it is acquiring the Warrants, and
upon the exercise thereof the Warrant Stock, for its own account,
for
investment and not with a view to any distribution or public
offering within the meaning of the Securities Act. Each
Warrantholder acknowledges that the Warrants and the Warrant
Stock issuable upon exercise thereof have not been registered
under the Securities Act or any state securities laws and agrees
that it will not sell or otherwise transfer its Warrants or
Warrant Stock except in compliance with the Securities Act and
applicable state laws and upon the terms and conditions specified
herein and that it will cause any transferee thereof to agree to
take and hold the same subject to the terms and conditions
specified herein.
(b) Except as provided in Sections 13(c) and 13(d)
hereof, each Warrant Certificate and each certificate for
the Warrant Stock shall include a legend appropriately
conformed and in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OR BLUE SKY LAWS OF ANY OTHER
DOMESTIC OR FOREIGN JURISDICTION. SUCH SECURITIES MAY NOT
BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED EXCEPT
IN COMPLIANCE WITH SUCH LAWS AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER. SUCH SECURITIES ARE ALSO SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN THE WARRANT
AGREEMENT DATED AS OF AUGUST 16, 1996, BETWEEN THE ISSUER
AND THE INITIAL HOLDER OF THE WARRANTS NAMED THEREIN. A
COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE
SECRETARY OF THE ISSUER, AND THE HOLDER OF THE SECURITIES
AGREES TO BE BOUND THEREBY.
(c) Prior to any proposed transfer of the Warrant
or any Warrant Stock the holder thereof shall give
prior written notice to XCL of such holder's intention
to effect such transfer. Each such notice shall be
accompanied by a written opinion of such holder's
counsel which counsel and which opinion shall be
reasonably satisfactory to XCL to the effect that the
proposed transfer may be effected without registration
under the Securities Act or applicable state laws. The
Warrant Certificate and each certificate evidencing the
Warrant Stock transferred pursuant to this Section
13(c) shall bear the legend set forth in Section 13(b);
provided, however, that such legend shall not be
required if such transfer is being made in connection
with a sale which is exempt from registration pursuant
to Rule 144 under the Securities Act or if the opinion
of counsel referred to above is to the further effect
that neither such legend nor the restrictions on
transfer in this Section 13 are required in order to
ensure compliance with the Securities Act and such
applicable state laws.
(d) The restrictions set forth in this Section 13
shall terminate and cease to be effective with respect
to any Warrant Stock registered under the Securities
Act or as to which the proviso to the last sentence of
Section 13(c) is applicable. Whenever such
restrictions shall so terminate XCL will rescind any
transfer restrictions relating thereto and the holder
of such Warrant and/or Warrant Stock shall be entitled
to receive from XCL, without expense (other than
transfer taxes, if any), a Warrant Certificate or
certificates for such Warrant Stock not bearing the
legend set forth in Section 13(b).
Section 13A. Registration Rights.
(A) Subject to the provisions of subparagraph
(C)(ii) below, if, at any time after the date hereof, XCL
proposes to register any shares of its Common Stock (or
securities convertible into its Common Stock) under the
Securities Act (other than on Form S-4 or Form S-8 or other
comparable form as may be in effect), it will at each such time
give written notice to all holders of the Warrants and Warrant
Stock of its intention to do so and, upon the written request of
any holder thereof given within 20 days after XCL's giving of
such notice (which request shall state the intended method of
disposition thereof by the prospective sellers), XCL will use its
best efforts to effect the registration of the Warrant Stock
which it shall have been so requested to register by including
the same in such registration statement, all to the extent
requisite to permit the sale or other disposition thereof in
accordance with the intended method of sale or other disposition
given in each such request. In the event that any registration
pursuant to this Section 13(A) shall be in connection with an
underwritten offering of equity securities of XCL, and the
managing underwriter determines in good faith and advises in
writing that the number of shares of Common Stock which XCL
proposes to offer under such registration statement, together
with the number of shares of Warrant Stock and other shares of
Common Stock requested to be included in such registration
statement by the holders of securities having registration rights
similar to those of this Section 13(A), exceeds the number of
shares of Common Stock it is advisable to offer and sell at such
time, then the number of shares of Common Stock to be sold by
XCL, such holders and such other shareholders after such
reduction shall be allocated between XCL, such holders and such
other shareholders, such that XCL shall have the right to have
offered no less than 75% of the original number of shares
proposed or requested by XCL to be registered and the balance
shall be allocated among the holders and such other shareholders
pro rata with respect to the number of shares of Common Stock or
Warrant Stock, as the case may be, owned by each such holder and
such other shareholders on the date of the notice provided by XCL
pursuant to this Section 13(A). Notwithstanding the foregoing
provisions, XCL may withdraw any registration statement referred
to in this Section 13(A) without thereby incurring any liability
to the holders of Warrant Stock.
(B) As a condition to the inclusion of shares of
Warrant Stock in any registration statement, each holder of
Warrant Stock requesting registration thereof will furnish to XCL
such information with respect to them and their plan of
distribution of such shares as is required to be disclosed in the
registration statement (and the prospectus and all amendments
thereto included therein) by the applicable rules, regulations
and guidelines of the Securities and Exchange Commission
("Commission").
(C) If and whenever the Company is required to use its
best efforts to effect the registration of shares of Warrant
Stock under the Securities Act, XCL shall:
(i) prepare and file with the Commission a
registration statement on the appropriate form with respect
to such Warrant Stock and use its best efforts to cause such
registration statement to become effective as soon as
practicable after the date of any request given by a holder
of Warrant Stock pursuant to this Section 13A.
(ii) prepare and file with the Commission such
amendments and supplements (including post-effective
amendments and supplements) to the registration statement
covering such Warrant Stock and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective and to comply with any
applicable provisions of the Securities Act with respect to
the disposition of all such Warrant Stock covered by such
registration statement until such time, as all of such
Warrant Stock registered thereunder has been disposed of in
accordance with the intended method of disposition of the
holders set forth therein or until such Warrant Stock can be
freely sold under the Securities Act or the Warrants are no
longer outstanding or the Warrants shall have expired in
accordance with their respective terms without having been
exercised;
(iii) furnish to each holder such number of copies
of a prospectus and preliminary prospectus in conformity
with the requirements of the Securities Act, and such other
documents as the holders may reasonably request, in order to
facilitate the public sale or other disposition of such
Warrant Stock;
(iv) notify each holder if, at any time when a
prospectus relating to such Warrant Stock is required to be
delivered under the Securities Act, any event shall have
occurred as a result of which the prospectus then in use
with respect to such Warrant Stock includes an untrue
statement of a material fact or omits to state a material
fact necessary to make the statements made therein, in light
of the circumstances under which they were made, not
misleading, or for any other reason it shall be necessary to
amend or supplement such prospectus in order to comply with
the Securities Act, and prepare and furnish to the holders a
reasonable number of copies of a supplement to or an
amendment of such prospectus which will correct such
statement or omission or effect such compliance;
(v) use its best efforts to register or qualify such
Warrant Stock under such other securities or blue sky laws
of such jurisdictions as the holders shall reasonably
request and do any and all other acts and things which may
be necessary or desirable to enable the holders to
consummate the public sale or other disposition in each such
jurisdiction of such Warrant Stock owned by them; provided,
however, that XCL shall not be required to consent to the
general service of process or to qualify to do business in
any jurisdiction where it is not then qualified;
(vi) use its best efforts, promptly after receipt of
such information, to notify the holders of the following:
(A) when such registration statement or any post-effective
amendment or supplement thereto becomes effective or is
approved; (B) the issuance by any competent authority of any
stop order suspending the effectiveness or qualification of
such registration statement or the prospectus then in use or
the initiation or threat of any proceeding for that purpose;
and (C) the suspension of the qualification of any such
Warrant Stock included in such registration statement for
sale in any jurisdiction;
(viii) pay all costs and expenses incident to the
performance and compliance by XCL of its obligations under
this Section 13A including, without limitation, (1) all
registration and filing fees; (2) all printing expenses; (3)
all fees and disbursements of counsel and independent public
accountants for XCL; (4) all blue sky fees and expenses
(including fees and expenses of counsel for XCL in
connection with blue sky surveys); and (5) the entire
expense of any special audits required by the rules and
regulations of the Commission; provided, however, that XCL
shall have no obligation to pay or otherwise bear any
portion of the fees and disbursements of counsel and
accountants for the holders and the underwriters' fees, out-
of-pocket costs, commissions or discounts attributable to
the Warrant Stock being offered and sold by the holders, all
of which shall be paid or otherwise borne by the holders.
(D) In connection with a registration pursuant to this
Section 13A covering an underwritten public offering, XCL and
the holders agree to enter into a written agreement with the
managing underwriter in such form and containing such provisions
as are customary in the securities business for such an
arrangement between such underwriter and companies of XCL's size
and investment stature.
(E) (i) XCL will indemnify and hold harmless the holders,
their officers and directors and any "underwriter" (as defined in
the Securities Act) for the holders and each other person, if any
who controls the holders within the meaning of the Securities Act
from and against any and all losses, claims, damages, liabilities
and legal and other expenses (including costs of investigation,
defense and good-faith settlement) caused by any untrue statement
or alleged untrue statement of a material fact contained in any
registration statement under which the Warrant Stock was
registered under the Securities Act, any prospectus or
preliminary prospectus contained therein or any amendment or
supplement thereto, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light
of the circumstances then existing, except insofar as such
losses, claims, damages, liabilities or expenses are caused by
any such untrue statement or omission or alleged untrue statement
or omission based upon information relating to the holders and
furnished to XCL in writing by the holders expressly for use
therein.
(ii) It shall be a condition to the obligation of XCL
to effect a registration of the Warrant Stock of any holder
under the Securities Act pursuant hereto, that such holder
indemnifies and holds harmless XCL and, in connection with
an underwritten public offering, each underwriter and each
person, if any, who controls XCL or the underwriter, within
the meaning of the Securities Act, to the same extent as the
indemnity from XCL in the foregoing paragraph, but only with
reference to information relating to such holder furnished
to XCL or the underwriter in writing by such holder
expressly for use in the registration statement, any
prospectus or preliminary prospectus contained therein or
any amendment or supplement thereto.
(iii) In case any claim shall be made or any
proceeding (including any governmental investigation) shall
be instituted involving any indemnified party in respect of
which indemnity may be sought pursuant to this Section 13A,
such indemnified party shall promptly notify the
indemnifying party in writing of the same; provided that
failure to notify the indemnifying party shall not relieve
it from any liability it may have to an indemnified party
otherwise than under this Section 13A. The indemnifying
party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to
represent the indemnified party in such proceeding and shall
pay the fees and disbursements of such counsel. In any such
proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and disbursements of
such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party shall have failed to
retain counsel for the indemnified party as aforesaid, (ii)
the indemnifying party and such indemnified party shall have
mutually agreed to the retention of such counsel or (iii)
representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such
indemnified party and any other party represented by such
counsel in such proceeding; provided that XCL shall not be
liable for the fees and disbursements of more than one
additional counsel for all indemnified parties. The
indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. XCL
shall not, except with the approval of each indemnified
party (which approval shall not be unreasonably withheld)
under this Section 13A, consent to entry of any judgment or
enter into any settlement that does not include as an
unconditional term thereof the release by all interested
claimants and plaintiffs of the indemnified parties from all
liability in respect of such claim or litigation.
Section 13B. Reservation of Shares. XCL shall at all times
have authorized, and reserve and keep available and free from
preemptive rights or other restrictions (except as required by
law), for the purpose of enabling it to satisfy any obligation to
issue Warrant Stock upon the exercise of the Warrants, the number
of shares of Common Stock deliverable upon exercise of all
outstanding Warrants.
Section 14. Amendments and Waivers. Any provision of
this Agreement may be amended, supplemented, waived, discharged
or terminated by a written instrument signed by XCL and the
holders of not less than a majority of the outstanding Warrants;
provided that the Exercise Price may not be increased and the
amount of Warrant Stock issuable upon exercise of the Warrants
may not be reduced (except pursuant to Section 11 hereof), the
Expiration Date may not be changed to an earlier date and this
Section may not be amended except with the consent of the holders
of all outstanding Warrants and/or Warrant Stock.
Section 15. Specific Performance. The holders of the
Warrants shall have the right to specific performance by XCL of
the provisions of this Warrant Agreement. XCL hereby irrevocably
waives, to the extent that it may do so under applicable law, any
defense based on the adequacy of a remedy at law which may be
asserted as a bar to the remedy of specific performance in any
action brought against XCL for specific performance of this
Warrant Agreement by the holders of the Warrants.
Section 16. Notices. Any notice or demand to be given
or made by the holders to or on XCL pursuant to the Agreement
shall be sufficiently given or made if sent by mail, first-class
or registered, postage prepaid, addressed to XCL as follows (or
to such other address as may hereafter be designated by XCL in
writing to such registered holder):
XCL Ltd.
110 Rue Jean Lafitte
Lafayette, Louisiana 70508
Attention: Secretary
Any notice to be given by XCL to any of the holders of
the Warrants or the Warrant Stock shall be sufficiently given if
sent by first-class mail, postage prepaid, addressed to such
holder as such holder's name and address shall appear on the
Warrant Register or the Common Stock registry of XCL, as the case
may be.
Section 17. Binding Effect. This Agreement shall be
binding upon and inure to the sole and exclusive benefit of XCL,
its successors and assigns, the other parties hereto and the
registered holders from time to time of the Warrants and the
Warrant Stock, and their respective successors, assigns and
heirs.
Section 18. Termination. This Agreement shall
terminate and be of no further force and effect at the close of
business on the Expiration Date or the date on which none of the
Warrants shall be outstanding, except that the provisions of
Section 13(d) shall continue in full force and effect after such
termination.
Section 19. Counterparts. This Agreement may be
executed in one or more separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and
the same instrument.
Section 20. DELAWARE LAW. THIS AGREEMENT AND EACH
WARRANT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
Section 21. Benefits of This Agreement. Nothing in
this Agreement shall be construed to give to any Person other
than XCL and the registered holders of the Warrants and the
Warrant Stock any legal or equitable right, remedy or claim under
this Agreement.
Section 22. Availability of Information. XCL shall
comply with all applicable public information reporting
requirements to which it may be subject from time to time,
including, without limitation, Rule 144 under the Securities Act
as it relates to the availability of an exemption from the
Securities Act for the sale of restricted securities. The
Company also shall cooperate with each Warrantholder and with
each holder of any Warrant Stock in supplying such information as
may be necessary for any such holder to compete and file any
information reporting forms presently or hereafter required by
the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of restricted securities.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date and
year first above written.
XCL LTD.
/s/ David A. Melman
______________________
By: David A. Melman
Title: Executive Vice President
__________________________________________
[Signature of Warrant Owner if individual]
__________________________________________
[Signature of Warrant Owners if Joint Tenant,
Tenant in Common or Tenant by the Entirety]
Terrenex Acquisition Corp.
__________________________________________
[Print Name of Corporation,
Partnership, Trust or Other Entity
/s/ Michael Binnion
___________________________________
[Signature of Authorized Signatory
signing on behalf of the
Corporation, Partnership, Trust or
Other Entity]
Michael Binnion
___________________________________
[Print Name of Signatory]
EXHIBIT A
to Warrant
Agreement
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OR BLUE SKY LAWS OF ANY OTHER
DOMESTIC OR FOREIGN JURISDICTION. SUCH SECURITIES MAY NOT
BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED EXCEPT
IN COMPLIANCE WITH SUCH LAWS AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER. SUCH SECURITIES ARE ALSO SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN THE WARRANT
AGREEMENT, DATED AS OF AUGUST 16, 1996, BETWEEN THE ISSUER
AND THE INITIAL HOLDER OF THE WARRANTS NAMED THEREIN. A
COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE
SECRETARY OF THE ISSUER AND THE HOLDER OF THE SECURITIES
AGREES TO BE BOUND THEREBY.
EXERCISABLE ONLY IN ACCORDANCE WITH WARRANT AGREEMENT
No. TAC-1 300,000 Warrants
WARRANT CERTIFICATE
XCL LTD.
This Warrant Certificate certifies that, for value
received, Terrenex Acquisitions Corp. is the registered holder
of 300,000 Warrants (the "Warrants") to purchase 300,000 shares
of common stock, par value $.01 per share ("Common Stock") of XCL
Ltd. ("XCL"). Each Warrant entitles the holder, subject to the
conditions set forth herein and in the Warrant Agreement dated
as of August 16, 1996, between XCL and the other parties thereto
(the "Warrant Agreement"), to purchase from XCL on or before 5:00
p.m., local time at the Warrant Office, on the Expiration Date
(as such term is defined in the Warrant Agreement) one fully paid
and nonassessable share of Common Stock of XCL (the "Warrant
Stock") at the Exercise Price (as such term is defined in the
Warrant Agreement) of Warrant Stock payable by certified or
official bank check payable to the order of XCL in lawful money
of the United States of America, upon surrender of this Warrant
Certificate, with the Form of Election to Purchase annexed hereto
and payment of the Exercise Price at the office of XCL at 110 Rue
Jean Lafitte, Lafayette, Louisiana 70508 or such other address as
XCL may specify upon five business days' prior notice in writing
to the registered holder of the Warrant evidenced hereby (the
"Warrant Office"). The Exercise Price is subject to adjustment
prior to the Expiration Date upon the occurrence of certain
events as set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 P.M., local time at
the Warrant Office, on the Expiration Date and all rights of the
registered holders of the Warrants shall cease after 5:00 P.M.,
local time at the Warrant Office, on the Expiration Date.
The Company may deem and treat the registered holders of the
Warrants evidenced hereby as the absolute owner thereof
(notwithstanding any notation of ownership or other writing
hereon made by anyone), for the purpose of any exercise hereof or
any distribution to the holders hereof, and for all other
purposes, and XCL shall not be affected by any notice to the
contrary.
This Warrant Certificate, when surrendered at the Warrant
Office may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate of
like tenor, or for other Warrant Certificates, evidencing an
equivalent number of Warrants.
Subject to the provisions of Section 13 of the Warrant
Agreement, upon surrender of this Warrant Certificate at the
Warrant Office, one or more new duly executed Warrant
Certificates evidencing such transferred Warrants shall be issued
to the transferee(s) and, if less than all the Warrants evidenced
hereby are to be transferred, one or more new duly executed
Warrant Certificates evidencing, in the aggregate, the remaining
number of Warrants shall be issued to the registered holder
hereof, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
This Warrant Certificate is the Warrant Certificates
referred to in the Warrant Agreement. Such Warrant Agreement is
hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities
thereunder of XCL and the holders, and in the event of any
conflict between the terms of this Warrant Certificate and the
provisions of the Warrant Agreement, the provisions of the
Warrant Agreement shall control. XCL has certain obligations to
register the Warrant Stock at the time and subject to the terms
and conditions set forth in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed
in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, XCL has caused this Warrant Certificate
to be signed by its duly authorized officers and has caused its
corporate seal to be affixed hereunto.
XCL LTD.
By:_________________________
Title:______________________
(CORPORATE SEAL)
ATTEST:
____________________________
Assistant Secretary
ANNEX to Form
Of Warrant
Certificate
[FORM OF ELECTION TO PURCHASE]
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise
the right, represented by this Warrant Certificate, to purchase
shares of Warrant Stock and herewith tenders payment for such
Warrant Stock to the order of _____________________ in the amount
of $____________ in accordance with the terms of this Warrant
Certificate and the Warrant Agreement incorporated by reference
herein. If the number of Warrants exercised is less than the
number reflected in the Warrant Certificate, a certificate for
the balance of the Warrants is requested.
Signature:_____________________________________________
______
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
Date:__________________
<TABLE>
XCL Ltd. and Subsidiaries
Exhibit 11-Computation of Earnings Per Common and Common
Equivalent Share
(Amounts in thousands except, per share amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY:
<S> <C> <C> <C> <C>
Net loss $ (1,733) $ (10,496) $ (6,436) $ (25,371)
Dividends on preferred stock (113) (103) (560) (2,567)
------ ------- ------ -------
Net loss attributable to common stock $ (1,846) $ (10,599) $ (6,996) $ (27,938)
====== ======= ====== =======
Weighted average number of shares
common stock outstanding 267,542 242,533 262,651 238,029
Common stock equivalents
(computed using treasury stock method) -- -- -- --
-------- ------- ------- -------
Average number of shares of common
stock and common stock
equivalents outstanding 267,542 242,533 262,651 238,029
-------- ------- ------- -------
Net loss per common and common
equivalent share $ (.01) $ (.04) $ (.03) $ (.11)
======= ======= ======= =======
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, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 74
<SECURITIES> 0
<RECEIVABLES> 276
<ALLOWANCES> 101
<INVENTORY> 0
<CURRENT-ASSETS> 456
<PP&E> 36,306
<DEPRECIATION> 1,936
<TOTAL-ASSETS> 64,012
<CURRENT-LIABILITIES> 46,495
<BONDS> 0
0
669
<COMMON> 2,725
<OTHER-SE> 11,392
<TOTAL-LIABILITY-AND-EQUITY> 64,012
<SALES> 1,031
<TOTAL-REVENUES> 1,031
<CGS> 5,664
<TOTAL-COSTS> 5,664
<OTHER-EXPENSES> 38
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,765
<INCOME-PRETAX> (6,436)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,436)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,436)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 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.
