The following items were the subject
of a Form 12b-25 and are included herein:
Items 1 through 14 and Exhibits
Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________
to __________________
Commission file number 1-10669
-------
XCL Ltd.
-----------
(Exact name of registrant as specified in its charter)
Delaware 51-0305643
- ------------------------------- ------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
110 Rue Jean Lafitte
Lafayette, Louisiana 70508
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)
318-237-0325
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value American Stock Exchange
- ---------------------------- -----------------------
Title of each class Name on each exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act:
None
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. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by
nonaffiliates of the registrant on April 10, 1996, was
approximately $91,848,499.
264,240,305 shares Common Stock, $.01 par value were
outstanding on April 10, 1996.
DOCUMENTS INCORPORATED BY REFERENCE - None
TABLE OF CONTENTS
PART I
Page
Item 1. and Item 2. Business and Properties 3
General 3
The Zhao Dong Block 4
United/XCL Lube Oil Joint Venture 9
Coalbed Methane Project 9
U.S. Exploration and Production Activities 9
Oil and Gas Reserves 10
Production, Sales and Cost Data 11
Oil and Gas Acreage 12
Drilling Activity 12
Well Data 13
Other Domestic Properties 13
Title to Properties 13
Markets 13
Competition. 14
Certain Risk Factors Relating to the Company
and the Oil and Gas Industry 14
Environmental Matters 16
Employees 17
Premises 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of
Security Holders 19
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 21
Item 6. Selected Financial Data. 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 23
Item 8. Financial Statements and Supplemental Data. 30
Item 9. Changes in and Disagreements on Accounting
and Financial Disclosure 67
PART III
Item 10. Directors and Executive Officers of the
Registrant 68
Item 11. Executive Compensation 74
Item 12. Security Ownership of Certain Beneficial
Owners and Management 84
Item 13. Certain Relationships and Related Transactions 88
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. 89
Other Matters 91
Signatures 93
Glossary of Terms 95
PART I
------
Item 1. and Item 2. Business and Properties.
- ----------------------------------------------
See the Glossary of Terms attached hereto for definitions of
certain commonly used industry terms. The Company operates
through several wholly owned subsidiaries. Accordingly, all
references herein to the Company or XCL include such
subsidiaries.
General
- -------
XCL Ltd. (the "Company" or "XCL") is engaged principally in
the exploration for and the development and production of crude
oil and natural gas. Based on the initial success of its first
project in The People's Republic of China ("PRC"), an exploration
and production joint venture on the Zhao Dong Block in the
shallow-water sea area of the Bohai Bay, the Company's growth
strategy is to expand its participation in the Chinese energy
industry by continuing to explore and develop the Zhao Dong Block
and by selectively entering into additional energy related joint
ventures. This strategy is the result of the Company's opinion
that China (i) has extensive undeveloped energy resources, (ii)
is experiencing and will continue for the foreseeable future to
experience high growth in demand for energy and (iii) has a
policy of encouraging foreign participation in the development of
its energy resources. The Company believes, as evidenced by its
own experience in China, that Chinese policy offers opportunity
for participation by independent oil and gas companies in the
development of the Chinese energy business. Additionally, the
Company believes, because of its early success in China, that it
has an excellent relationship with the Chinese authorities in
charge of the development of China's energy resources and that
the Company can, therefore, be competitive in China. See "The
Zhao Dong Block" commencing at page 4 for a description in
greater detail of the Company's business and its interest in the
Zhao Dong Block.
As part of the Company's objective of expanding its
involvement in the Chinese energy business and developing its
relationships with the Chinese authorities responsible for the
development of China's energy resources, on July 17, 1995, it
signed a contract with CNPC United Lube Oil Corporation to form a
joint venture company to engage in the manufacturing,
distribution and marketing of lubricating oil in China and
southeast Asian markets. See "United/XCL Lube Oil Joint Venture"
on page 9. In order to further its objectives, the Company on
December 14, 1995, signed a Memorandum of Understanding with the
China National Administration of Coal Geology ("CNACG"), pursuant
to which the parties have commenced cooperation for the
exploration and development of coalbed methane in two areas in
China. See "Coalbed Methane Project" on page 9.
The Company has been approached by several U.S. and foreign
companies seeking joint venture arrangements with respect to the
lube oil, coalbed methane and additional future China business
opportunities. Discussions have commenced, with the Company's
objective being to obtain funding for its overhead and capital
requirements in return for providing these companies with access
to existing and future China business opportunities.
Historically, the Company operated primarily in the Gulf
Coast area of the United States. The Company has made a
strategic decision to dispose of all its domestic oil and gas
properties. The Company's producing oil and gas interests are
located onshore in the Berry R. Cox Field gas producing area,
including the Berry R. Cox, Dan A. Hughes, North Aviator's and
South Aviator's Fields (collectively, the "Cox Field") and the
Mestena Grande and West Coyote Fields (collectively, the "Mestena
Grande Field"), both in south Texas. The Company sold the
Mestena Grande Field on January 2, 1996, effective September 1,
1995. On March 28, 1996, the Company sold the Gonzales Gas Unit,
a portion of the Cox Field, to Tesoro E&P Company, L.P. The
Company anticipates continued sales of interests in the Cox Field
and its other properties.
XCL Ltd., formerly The Exploration Company of Louisiana,
Inc., is the successor to a Louisiana corporation of the same
name which was incorporated in 1981.
The Zhao Dong Block
- -------------------
Geology and Geophysics
The Zhao Dong Block extends from the shoreline of the Dagang
Oil Field on Bohai Bay to water depths of approximately 5 meters
and encompasses approximately 197 square kilometers
(approximately 48,677 gross acres). The Company believes that a
portion of the Zhao Dong Block represents the seaward extension
of the Dagang oil field complex. According to information
provided by Chinese sources, the Dagang oil field complex is one
of China's largest oil fields, with cumulative production in
excess of 650 million barrels of oil.
The geology of Bohai Bay is similar in many respects to the
U.S. Gulf Coast, with Tertiary formations contributing a major
portion of the production. The sediments in Bohai Bay are,
however, non-marine and oil prone as opposed to open marine and
gas and condensate prone sediments found in the U.S. Gulf Coast.
Interpretation of seismic and subsurface data appears to indicate
the presence of a thick, structured sedimentary section in the
contract area with the possibility of excellent source rock
indicated by its close proximity to producing fields. The
Company has reprocessed approximately 850 kilometers (528 miles)
of existing two dimensional seismic data on and adjacent to the
Zhao Dong Block and has acquired an additional 521 kilometers
(324 miles) of seismic data to assist it in determining the
location of wells to be drilled.
Drilling Results and Development Plans
In June 1994, the Company announced the successful testing
of the first exploration well in the northeastern portion of the
Zhao Dong Block. The Zhao Dong "C-1" exploration well tested on
pump at a combined total rate of 2,160 barrels of oil per day
from the perforated intervals between 1,304 and 1,360 meters
(4,277 to 4,461 feet). The Zhao Dong "C-2" appraisal well was
similarly tested in November 1994, at a rate of 3,640 barrels of
oil per day from perforated intervals between 1,301 and 1,366
meters (4,267 to 4,480 feet). In April 1995, the Company drilled
the "C-2-2" appraisal well on the Zhao Dong Block to test the
northern limit of the "C" area field. This well encountered
intervals which were productive in the "C-2" well but below the
oil/water contact. As a result, the "C-2-2" was plugged and
temporarily abandoned. In July 1995, the "D-1" exploration well
was successfully tested at 1,109 barrels of oil per day from an
interval between the depths of 1,276 and 1,282 meters (4,185 to
4,205 feet). This is the same age formation which produces in the
"C" area. In September 1995, the "C-3" appraisal well was
successfully tested at 5,830 barrels of oil per day from
intervals between 1,132 to 1,966 meters (3,713 to 6,448 feet).
Oil was produced from both zones found productive in the "C-1"
and "C-2" wells as well as from five additional zones. Tests on
several intervals were limited by equipment capacity.
Development plans for the area surrounding these four
successful wells are currently being formulated by a joint team
comprised of personnel from the Company, Apache China Corporation
LDC ("Apache") and CNODC. Development of the "C" area will
proceed with the drilling of additional wells to be followed by
the installation of production facilities. Production is
anticipated to commence during 1997.
A minimum of one exploration well and one appraisal well are
planned for 1996. One additional exploration well and one
additional appraisal well will most likely be drilled during
1996, based on drilling results. The first exploration well,
designated the "F-1," will be spudded during June 1996, and will
be located on a seismic high between the "C-3" well and the
shoreline. The well will be drilled from onshore, adjacent to
the Yang Er Zhuang Field, which will provide for production to be
transported immediately to market through existing pipelines.
The costs to drill the "F-1" well, as well as the second
exploration well, will be paid for by Apache. In June the plan
is to drill the "D-2" appraisal well, a confirmation of the
successful "D-1" exploration well. The Company's share of the
capital expenditures for the "D-2" well are estimated to be $1.5
million in drilling costs and $.6 million in testing costs. (See
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources.)
Production Sharing Agreement Summary
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
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:
o 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; and
4. Work performed and expenditures incurred in any
exploration phase in excess of the minimum
requirements for such phase will be credited
against the minimum work and expenditure
requirements for the next phase.
o The Development period for any field discovered during
the Exploration period commences on the date of
approval by the Ministry of Energy of the development
plan for an oil and/or gas field. The Production
period of any oil and/or gas field in the area covered
by the Production Sharing Agreement (the "Contract
Area") shall be a period of 15 consecutive years (each
of 12 months) commencing, for each field, on the date
of commencement of commercial production as determined
under the Agreement. Prior to the commencement of the
Production period, during the Development period, oil
and gas may be produced and sold during a long term
testing period.
o After each of the first two phases of the Exploration
period, two segments of the Contract Area (after
deducting areas in which development and production
activities are being undertaken) must be relinquished.
The first relinquishment which was to occur on May 1,
1996, has been extended for one year. Segments on which
no wildcat wells have been drilled shall be
relinquished first. At the end of the last phase of
the Exploration period, the remaining portions of the
Contract Area (except for any development and
production areas) must be relinquished.
o The Production Sharing Agreement may be terminated by
the Contractor at the end of each phase of the
Exploration period, without further obligation.
o While the Production Sharing Agreement requires the
Contractor to pay all exploration costs, CNODC has the
option to participate for up to a 51 percent interest
in the Development and Production periods, paying its
corresponding share of development and operating costs
and receiving the same percentage of oil and gas
production, subject to royalty payments, cost recovery
and other adjustments as set forth below.
o Operating costs for any given calendar year for an oil
and/or gas field shall be recovered by the parties in
kind out of production from the field during such year.
Unrecovered costs are carried forward to the next
calendar year. Exploration costs in any area in the
Contract Area shall be recovered by the Contractor, in
kind, out of production from any field in the Contract
Area and development costs for any field, plus interest
at nine percent, shall, after recoupment of exploration
costs, be recovered in kind out of the production from
such field.
o Annual gross production ("AGP") of each oil and gas
field in the Contract Area determined separately shall
be allocated in the following sequence and proportions:
1. 5 percent of AGP shall be used to pay the Chinese
taxes.
2. Determined on a field by field basis, the Chinese
government shall receive a sliding scale royalty
calculated as follows (as amended by the Ministry
of Finance and State Taxation Bureaus effective
January 1, 1995):
Metric Tons of Annual
Crude Oil Production (1) Royalty Rate
------------------------ -------------
Less than or equal to 1,000,000 Exempt
1,000,000 to 1,500,000 4%
1,500,000 to 2,000,000 6%
2,000,000 to 3,000,000 8%
3,000,000 to 4,000,000 10%
Over 4,000,000 12.5%
---------------
(1) One metric ton is roughly equivalent to seven
barrels of crude oil.
3. 60 percent of AGP shall be deemed "cost recovery
oil" and shall be used to recover costs incurred
by the parties, first for the recovery of
operating costs, and then for the recovery of
exploration and development costs, in that order.
Such cost recovery oil is not subject to the
royalty due the Chinese government.
4. The remaining amount of AGP shall be deemed
"remainder oil" and shall be further divided into
"allocable remainder oil" and "Chinese share oil."
"Allocable remainder oil" is calculated based upon
a sliding scale formula relating to the amount of
production, and is shared by the parties in
proportion to their respective interests. All oil
remaining after the above allocations are effected
is designated "Chinese share oil" and shall be
allocated to CNODC or other Chinese government
designee.
o Apache is now the operator for all operations in the
Contract Area during the Exploration period. The
Production Sharing Agreement is administered by a joint
management committee comprised of an equal number of
representatives designated by the Contractor (the
Company and Apache as a group) and CNODC. Disputes
must first be resolved through negotiation and then
through arbitration. If the parties agree, arbitration
will be conducted by the China International Economic
and Trade Commission in accordance with its provisional
rules. In the event the parties fail to agree on such
arbitration, the dispute shall be arbitrated before a
panel of three arbitrators, one each appointed by each
of the parties and the third appointed by the two
arbitrators so designated (or failing such appointment,
by the Arbitration Institute of the Stockholm Chamber
of Commerce, Sweden). The arbitration panel shall
conduct the arbitration in accordance with the rules of
the United Nations Commission on International Trade
Law of 1976 (subject to the rules expressly provided in
the Contract). Any award shall be final and binding on
the parties.
o The Production Sharing Agreement is governed by Chinese
law.
United/XCL Lube Oil Joint Venture
- ---------------------------------
On July 17, 1995, the Company signed a contract with CNPC
United Lube Oil Corporation to form a joint venture company to
engage in the manufacturing, distribution and marketing of
lubricating oil in China and southeast Asian markets. The joint
venture will have a 30 year life unless extended. The registered
capital of the joint venture is $4.9 million, with the Company to
contribute $2.4 million for its 49 percent interest, of which
$600,000 has been paid. The Chinese side will contribute an
existing lubricating oil blending plant in Langfang, China, with
a China government appraised value of $2.5 million as its
investment for fifty-one percent of the stock. The registration
of the joint venture was approved by Chinese authorities on
December 20, 1995, and a business license was issued. The
Company's remaining obligation of $1.8 million will be satisfied
by a series of payments the first of which is due May 1, 1996, in
the amount of $550,000 and the balance as necessary to complete
the modernization of the plant. In a letter of intent executed
contemporaneously with the contract, the parties have agreed to
consider the feasibility of (i) constructing a second lubricating
oil blending plant at a port facility near Tianjin, China, (ii)
contributing to the joint venture a second existing plant in
southwest China and (iii) other projects, including constructing
oil terminals on the north and south coasts of China and engaging
in upgrading certain existing refineries within China. The
Company expects to fund its share of payments by bringing in a
joint venture partner.
Coalbed Methane Project
- -----------------------
On March 31, 1995, the Company signed an agreement with the
CNACG, pursuant to which the parties will commence cooperation
for the exploration and development of coalbed methane in two
areas in China. During the study period contemplated by the
agreement, the Company will evaluate the properties, after which
the parties are expected to enter into a comprehensive agreement,
which may provide the basis for coalbed methane development in
other areas of China. Costs of the project are not expected to be
significant during the next twelve months. On December 14, 1995,
the Company signed a Memo of Understanding with CNACG to develop
a contract for exploration, development and utilization of
coalbed methane in the two areas.
U.S. Exploration and Production Activities
- ------------------------------------------
The Company has decided to dispose of its U.S. oil and gas
properties to focus its activities in China. Management is
seeking a buyer(s) for its remaining U.S. producing property, the
Cox Field, or exploring the possibility of contributing the
property to a joint venture for development. Information has been
made available to several potential purchasers, and the Company
has retained Internationale Nederlanden (U.S.) Securities
Corporation to assist in evaluating offers as received. On
January 2, 1996, the Company sold its interest in the Mestena
Grande Field and on March 28, 1996, the Company sold the 526-acre
Gonzales Gas Unit at the Cox Field.
The Cox Field
The Cox Field, initially discovered in 1986, is located in
Webb, Zapata and Jim Hogg Counties, Texas. Present production is
associated with numerous deltaic sands of Wilcox age which were
expanded across a large growth fault system, resulting in a large
rollover anticline. Numerous large fields occur in similar
settings along this trend in south Texas.
On March 28, 1996, the Company sold to Tesoro E&P Company,
L.P. its 68 percent working interest in the Gonzales Gas Unit at
the northwest corner of the Cox Field, effective February 1,
1996. After giving effect to the sale of the Gonzales Gas Unit,
the Company currently participates in 12 productive wells (8.3
net wells) within the field. The Company has an average working
interest of approximately 69 percent in the 2,435-acre (which is
equivalent to 1,390 net acres) productive area, and working
interests ranging from 50 percent to 100 percent in an
additional 2,489 acres (1,517 net acres) on the flanks of the
producing field area.
Mestena Grande Field
Until it was sold on January 2, 1996, the Company had an
interest in the Mestena Grande Field, located in Jim Hogg County,
Texas, which is an elongate, north-south trending faulted
anticline which produces primarily from the Eocene Queen City
Sand interval. The Company's working interests ranged from
approximately 7 percent to 33 percent in 11,567 gross acres
(1,586 net acres) and in 27 productive wells (3.84 net wells)
within the field. The sale was effective as of September 1, 1995.
Oil and Gas Reserves
- --------------------
The Company's remaining domestic oil and gas properties are
now classified as assets held for sale. Properties with respect
to the Company's investment in China are unevaluated, accordingly
conclusive reserve estimates have not yet been determined.
Production, Sales and Cost Data
- -------------------------------
The following table sets forth certain information regarding
the production volumes, revenues, average prices received and
average production costs associated with the Company's sale of
oil and gas for the periods indicated.
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Net Production: (a)
Gas (MMcf) 1,474 2,219 4,261
Oil (MBbl) 19 32 20
Gas equivalent (MMcfe) 1,588 2,414 4,381
Oil and gas sales ($ in 000's)(b)
Gas $ 1,953 $ 3,664 $ 7,648
Oil and other 527 672 851
------ ------ -----
Total oil and gas sales $ 2,480 $ 4,336 $ 8,499
Average sales price:
Gas ($ per Mcf) 1.33 1.65 1.79
Oil ($ per Bbl) 19.58 15.76 16.73
Gas equivalent ($ per Mcfe) 1.56 1.80 1.94
Oil and gas costs ($ per Mcfe):
Production expenses and taxes 0.71 0.70 0.69
Depreciation, depletion and
amortization of oil and gas
properties 1.23 1.25 1.27
- -----------
(a) Excludes gas consumed in operations.
(b) Includes plant products recovered from treating and
processing operations.
The following table shows the 1995 production of oil and
natural gas liquids and natural gas by major fields. All of the
Company's net gas production was attributable to the Cox and
Mestena Grande Fields.
1995 Net Production
-------------------
(MBbls) (Mmcf)
------- ------
Field Oil % Gas %
- ----- --- -- --- ---
Cox Field -- -- 1,250 84.8
Mestena Grande (1) 7 36.8 224 15.2
Other 12 63.2 -- --
- ----------
(1) This field was sold on January 2, 1996, with an effective
date of September 1, 1995.
Oil and Gas Acreage
- -------------------
The oil and gas acreage in which the Company has leasehold
or other contractual interest at December 31, 1995, and which are
not classified as assets held for sale are summarized in the
following table. "Gross" acres are the total number of acres
subject to the Production Sharing Agreement. "Net" acres are
gross acres multiplied by the Company's fractional share of the
costs of production before CNODC's reversionary interest.
Undeveloped
-----------
Gross Net
----- ---
The People's Republic of China 48,677 24,338
Drilling Activity
- -----------------
The following tables set forth wells drilled by the Company
in the periods indicated.
Year Ended December 31,
-----------------------
1995 1994 1993
----------- ----------- -----------
United States Gross Net Gross Net Gross Net
- ------------- ----- --- ----- --- ----- ---
Exploratory:
Productive -- -- 2 1.0375 1 .210
Non-productive -- -- -- -- -- --
---- --- ---- ------ --- ----
Total -- -- 2 1.0375 1 .210
Development:
Productive 1 .2 4 1.0731 1 .500
Non-productive -- -- -- -- 1 .644
---- --- ---- ------ --- -----
Total 1 .2 4 1.0731 2 1.144
Year Ended December 31,
-----------------------
1995 1994 1993
----------- ----------- -----------
The People's Republic
of China Gross Net Gross Net Gross Net
- -------------- ----- --- ----- --- ----- ---
Exploratory:
Productive 2 1.0 2 1.333 -- --
Non-productive 1 .5 -- -- -- --
--- --- --- ----- ---- ----
Total 3 1.5 2 1.333 -- --
Development:
Productive -- -- -- -- -- --
Non-productive -- -- -- -- -- --
--- --- --- ----- ---- ----
Total -- -- -- -- -- --
Well Data
- ---------
At December 31, 1995, the Company had interests in 13
producing gas wells (8.44 net), which are included in assets held
for sale.
Other Domestic Properties
- -------------------------
The Company presently owns a large tract of fee land
referred to as the "Lutcher Moore Tract" totaling approximately
62,500 acres of wetlands along the Mississippi River in
Louisiana. This property is classified as an asset held for sale.
On May 18, 1995, the Company sold its 77.78 percent fee
interest in the Phoenix Lake Tract comprised of 11,600 gross
acres (6,668 net acres) of marshland in southwest Louisiana for
approximately $2.2 million. The Company retained 75 percent of
the mineral interest underlying those lands (valued at $1.1
million). The purchase price was comprised of approximately $1.7
million in cash and a $530,000 reduction in obligations owed by
the Company to the purchaser. No gain or loss was recognized on
the sale. The remaining interest is classified as an investment.
Title to Properties
- -------------------
The Company believes that title to its properties is
generally acceptable in accordance with prevailing standards in
the oil and gas industry, subject to exceptions which do not
materially detract from the value of such properties. The
Company's properties are subject to royalty, overriding royalty,
carried and other similar interests and contractual arrangements
customary in the oil and gas industry, to liens incident to
operating agreements, to liens for current taxes not yet due and
other relatively minor encumbrances.
Substantially all of the Company's producing properties, as
well as the stock of its major subsidiaries, have been pledged to
collateralize borrowings under its Credit Agreement with
Internationale Nederlanden (U.S.) Capital Corporation ("INCC").
Detailed title examinations have not been made on all of the
Company's undeveloped oil and gas leases. As is customary in the
oil and gas industry, only a perfunctory title examination is
conducted at the time undeveloped properties believed to be
suitable for drilling operations are acquired, and therefore,
undeveloped properties can be subject to various title defects.
Generally, however, prior to the commencement of domestic
drilling operations, a thorough title examination is conducted
and any significant, known defects remedied before operations are
commenced.
Markets
- -------
Substantially all of the Company's 1995 gas production from
the Cox Field was dedicated to MidCon Texas Pipeline Corp. under
contracts dated May 1, 1991, as amended effective July 1, 1993.
With respect to China, under the terms of the Production
Sharing Agreement, the Company has both the right and obligation
in each calendar quarter to take and separately dispose of its
share of oil produced at the Zhao Dong Block. However, the
Company shall not deliver its oil to prohibited destinations,
which are those that infringe on the political interests of the
PRC. During 1994, the PRC became a net importer of oil,
therefore the Company believes it can sell in China, its share of
oil produced in China, at world market prices.
Competition
- -----------
The oil and gas industry is competitive in all phases, both
domestic and internationally. In pursuing its growth strategy of
expanding its participation in the Chinese energy industry, the
Company is in competition with the "major" integrated oil
companies, national oil companies and other independent oil
companies. Although many of these competitors have financial
resources greater than those of the Company, management believes
that the Company is positioned to compete effectively.
Certain Risk Factors Relating to the Company and the Oil and Gas
- -----------------------------------------------------------------
Industry
- --------
General Industry Risks
The Company's business is affected by the general risks
associated with the oil and gas industry. The availability of a
ready market for oil and gas purchased, sold and produced by the
Company depends upon numerous factors beyond its control, the
exact effects of which cannot be accurately predicted.
Generally, these factors include, among other things, the level
of production and economic activity, the availability of oil and
gas supplies, action taken by oil-producing nations, the
availability of transportation capacity, the availability and
marketing of other competitive fuels, fluctuating and seasonal
demand for oil, gas and refined products and the extent of
governmental regulation and taxation (under both present and
future legislation) of the production, refining, transportation,
pricing, use and allocation of oil, natural gas, refined products
and substitute fuels. Accordingly, in view of the many
uncertainties affecting the supply and demand for crude oil,
natural gas and refined products, it is not possible to predict
accurately either the prices or marketability of oil and gas
produced from any property in which the Company has or may
acquire an interest.
General Exploration and Production Risks
The Company's oil and gas drilling and production activities
involve a high degree of risk. The ratio of dry holes to
commercially productive oil and gas wells is high for the
industry as a whole. Hazards, such as formations with unusual
pressures, or other unforeseen conditions are sometimes
encountered in drilling wells which could result in loss of a
well and in substantial liabilities or injuries to other persons
or property. In addition, the Company may encounter delays due
to adverse weather conditions and difficulties in securing
supplies, drilling and production equipment and access to trained
personnel. The Company seeks to minimize the risks of damage to
the environment, property and persons present in its drilling
operations and obtains insurance coverage which it believes
prudent.
Additional Financing Required
Considering the Company's working capital deficit,
outstanding indebtedness and the capital commitments associated
with its business activities in the PRC, the Company projects
that it will require substantial additional capital. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 2 to the Consolidated Financial
Statements.
Foreign Operations
The Company's activities on the Zhao Dong Block are subject
to regulation under Chinese Law by the Ministry of Foreign Trade
and Economic Cooperation ("MOFTEC") and CNODC. Such regulation
covers a wide variety of matters comparable in scope to the type
of regulations the Company faces in its domestic operations,
including, without limitation, the drilling of wells, allowable
rates of production, prevention of waste and pollution,
protection of the environment, labor regulations and worker
safety. In addition, the Company's activities may be exposed to
the political and economic risks of operating in a foreign
country including loss of revenues, property and equipment from
such hazards as expropriation, nationalization, insurrection and
other political risks; risks of increases in taxes and
governmental royalties; renegotiation of contracts with
governmental entities; as well as changes in laws and policies
governing operations of foreign based companies. Other risks
inherent in foreign operations include the possibility of
realizing economic currency exchange losses when transactions are
completed in currencies other than United States dollars and the
Company's inability to freely repatriate earnings under changes
in exchange control laws. To date, the Company's Chinese
operations have not been materially affected by these risks.
Developments in Relations between the PRC and
the United States
As has recently been reported in the press, relations
between the PRC and the Republic of China on Taiwan have
deteriorated prompting the United States government to publicly
criticize the PRC. In addition, the U.S. government has also
criticized the PRC's failure to protect intellectual property
rights, its record with respect to human rights matters and
certain exports of military technology, among other matters.
While the Company is unable to predict whether these political
developments will escalate tensions to the point that the
Company's Chinese operations may become adversely affected, the
Company maintains excellent relations with Chinese governmental
authorities in charge of the development of China's energy
resources and current indications are that neither the PRC nor
the U.S. Administration is desirous of impairing U.S.-PRC
commercial relations.
Concentration of Operations
The Company's oil and gas activities are concentrated in the
Zhao Dong Block. Because of this concentration, any event which
increases costs, limits production, or limits deliverability of
oil or natural gas would impact the Company more adversely than
if the Company were more geographically diversified.
Uncertainty of Estimates of Reserves and Future Net Revenues
There are numerous uncertainties inherent in estimating
quantities of proved oil and gas reserves, including many factors
beyond the control of the Company. Estimates of proved
undeveloped reserves are by their nature less certain. These
estimates are based on various assumptions, including those
prescribed by the Securities and Exchange Commission ("SEC").
Actual future production, oil and gas prices, revenues, taxes,
capital expenditures, operating expenses, geologic success and
quantities of recoverable oil and gas reserves may vary
substantially from those assumed in an estimate, and could
materially affect the estimated quantity and value of reserves.
In addition, the Company's reserves may be subject to downward or
upward revision based upon production history, purchases or sales
of properties, results of future development, prevailing oil and
gas prices and other factors.
Reserve Value Ceiling Test
Under the SEC's full cost accounting rules, the Company
reviews the carrying value of its oil and gas properties each
quarter on a country-by-country basis. Under such rules,
capitalized costs of oil and gas properties may not exceed the
present value of estimated future net revenues from proved
reserves, discounted at 10 percent, plus the lower of cost or
fair value of unproved properties as adjusted for related tax
effects and deferred tax reserves. Application of this rule
generally requires pricing future production at the unescalated
oil and gas prices in effect at the end of each fiscal quarter
and requires a write-down if the "ceiling" is exceeded, even if
prices declined for only a short period of time. If a write-down
is required, the charge to earnings does not impact cash flow
from operating activities. As unproved properties become
evaluated, their costs will be reclassified to proved and
evaluated properties, and any associated future revenue will be
included in the calculation of the present value of the Company's
proved reserves. Costs in excess of the present value of added
reserves, or any material reductions in the net future revenues
from oil and gas reserves resulting from such factors as lower
prices or downward revisions in estimates of reserve quantities,
causes a charge for a full cost ceiling impairment, absent
offsetting improvements.
Environmental Matters
- ---------------------
The Company is subject to existing federal, state and local
laws and regulations governing the discharge of materials into
the environment or otherwise relating to the protection of the
environment. The Company believes that its U.S. oil and gas
properties, which are held for sale, are in general compliance
with applicable environmental regulations. Environmental laws
and regulations have changed substantially and rapidly over the
last 20 years, and the Company anticipates that there will be
continuing changes. The clear trend in environmental regulation
is to place more restrictions and limitations on activities that
may impact the environment, such as emissions of pollutants,
generation and disposal of wastes and use and handling of
chemical substances. Increasingly strict environmental
restrictions and limitations have resulted in increased operating
costs throughout the United States, and it is possible that the
costs of compliance with environmental laws and regulations will
continue to increase. The Company will attempt to anticipate
future regulatory requirements that might be imposed and to plan
accordingly in order to remain in compliance with changing
environmental laws and regulations minimizing costs of such
compliance.
The Company is and will be required to comply with
environmental laws in China which at this time are significantly
less stringent than U.S. laws.
Employees
- ---------
The Company currently employs a total of 31 people
(including executive officers). None of the employees of the
Company or its affiliates have employment contracts or are
represented by collective bargaining agreements. The Company
considers its relationship with employees to be satisfactory.
Premises
- --------
The Company owns a two-story office building located at 110
Rue Jean Lafitte, Lafayette, Louisiana. The building contains
approximately 19,000 square feet of gross space and was
constructed in 1981 on approximately one acre of land. The
building is wholly occupied by employees of the Company.
The building was originally purchased in 1988 from a
partnership comprised of Messrs. Marsden W. Miller, Jr. and John
T. Chandler, officers and directors of the Company, at its
appraised value of $1.2 million through the assumption, and
payment of a portion of, the underlying mortgages in the
aggregate amount of $1.2 million. The holder of the first
mortgage refused, however, to release Mr. Miller from his
personal guarantee of the mortgage. The Company and Mr. Miller
have agreed that $178,500 of the security deposit previously paid
by the Company when it was a tenant, will remain outstanding
until the Company secures release of such guarantee. This amount
(approximately one year's rent) was reduced during 1989 to
$151,000 as a result of subsequent adjustments. From 1993 to
1995, the Company accrued interest of approximately $14,000 per
year on the outstanding amount, resulting in a balance of
$261,000 at year-end 1995. The outstanding balance of the
underlying mortgage as of December 31, 1995 was $674,000.
Item 3. 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 the defendants failed to protect the leases
against drainage from wells on adjacent tracts and failed to
properly pay royalties, and seeking an accounting of revenues and
expenses, damages and attorney's fees. The Court ordered that
the parties subject the dispute to non-binding mediation. As a
result of the mediation, the parties agreed to an amount for a
settlement payment and to the terms of a settlement agreement
dispensing with all issues and dismissing the suit. The
Company's share of the settlement payment amounted to $750,000.
The parties executed and consummated the settlement on December
31, 1993.
Two groups filed interventions in this matter on March 5,
1993 and March 15, 1993. The first group are non-participating
royalty owners claiming under the same group of leases as the
original plaintiffs. The second group sued under different
leases. The interventions were opposed by the original
plaintiffs and all defendants. After hearing arguments, the court
ordered the interventions stricken on July 14, 1993. During 1994,
the first group appealed and the second group filed a new
lawsuit. The Company settled the new lawsuit filed by the second
group with its share of the settlement being $20,000. During
December 1994, the appellate court affirmed the trial court's
decision to deny the intervention to the first group. The
Company, in March 1995, was named as a third party defendant by
the original lessor who had been previously sued by the
nonparticipating royalty owners comprising the first group.
Management believes that the outcome of the lawsuit will not have
a material adverse effect on the Company's financial position or
results of operations. The Company intends to defend diligently
all claims asserted by the first group in its lawsuit.
During December 1993, the Company and two of its wholly-
owned subsidiaries, XCL-Texas, Inc. and XCL Acquisitions, Inc.
were sued in separate law suits entitled Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State of
Louisiana vs. Exploration Company of Louisiana, Inc. (15th
Judicial District, Parish of Lafayette, Louisiana, Docket No. 93-
5449); Ralph Slaughter, Secretary of the Department of Revenue
and Taxation, State of Louisiana vs. XCL-Texas, Incorporated
(15th Judicial District, Parish of Lafayette, Louisiana, Docket
No. 93-5450); and Ralph Slaughter, Secretary of Department of
Revenue and Taxation, State of Louisiana vs. XCL Acquisitions,
Inc. (15th Judicial District, Parish of Lafayette, Louisiana,
Docket No. 93-5337) by the Louisiana Department of Revenue for
Louisiana State corporate franchise and income taxes. The claims
relate to assessments for the 1987 through 1991 fiscal years.
The aggregate amount of the assessments, including penalties and
interest, is approximately $2.25 million. The Company believes
that these assessments have been adequately provided for in the
consolidated financial statements. The lawsuits are all in their
initial stages. The Company has filed answers to each of these
suits and intends to defend them vigorously. The Company
believes that it has meritorious defenses and 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, former
wife of a 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 all such claims are 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 March 4, 1996,
the total amount in dispute and claimed by Apache to be owed by
the Company was $1.78 million. The Company believes that these
charges have been fully provided for in the consolidated
financial statements.
Other than disclosed above, there are no material pending
legal proceedings to which the Company or any of its subsidiaries
is a party or to which any of their properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
- -----------------------------------------------------------------
By a Circular dated September 8, 1995, the Company solicited
the written consent of the holders of the Company's Series A
Preferred Stock for approval to amend the terms of such preferred
stock by eliminating the provision therein prohibiting the
Company from participating in business opportunities associated
with downstream activities, such as petroleum refining and
retailing of refined products. The consent of two-thirds of the
issued and outstanding shares of Series A Preferred Stock held of
record on August 18, 1995 was required for approval. A total of
449,381 votes were cast as follows with respect to the amendment
to eliminate Paragraph 11(a)(i) from the Certificate of
Designation and to renumber the remaining paragraphs:
Consenting: 404,381
Non-Consenting: 45,000
By a Circular dated January 31, 1996, the Company solicited
the written consent of the holders of the Company's Series A
Preferred Stock for approval to an amendment to the terms
thereof, to allow the December 31, 1995, and subsequent semi-
annual dividend payments to be made in additional shares of
Series A Preferred Stock. To provide a sufficient number of
shares to make "in kind" dividend payments, the Board of
Directors authorized a 250,000 share increase in the number of
shares of preferred stock designated as Series A Preferred Stock.
The consent of two-thirds of the issued and outstanding shares of
Series A Preferred Stock held of record on December 29, 1995, was
required for approval. A total of 485,662 votes were cast as
follows with respect to the amendment:
Consenting: 485,662
Non-Consenting: --
No matters were submitted to a vote of holders of the Common
Stock during the fourth quarter of the fiscal year covered by
this report.
PART II
Item 5. Market for Registrant's Common Equity and Related
- ----------------------------------------------------------
Stockholder Matters
- -------------------
Market Price for Common Stock
- -----------------------------
The following table shows the range of closing bid prices,
as reported by the American Stock Exchange for the Company's
Common Stock for each quarter during 1994 and 1995. The Company's
Common Stock commenced trading on the American Stock Exchange
("AMEX") in December 1990, under the symbol "XCL." The Company's
Common Stock also trades on The London Stock Exchange Limited
("London Stock Exchange").
Common Stock Price Per Share
----------------------------
1995 1994
------------- -------------
High Low High Low
---- --- ---- ---
First Quarter $1.06 $0.50 $1.25 $0.44
Second Quarter $1.06 $0.50 $1.81 $1.00
Third Quarter $0.88 $0.56 $1.50 $0.88
Fourth Quarter $0.63 $0.31 $1.38 $0.63
On April 10, 1996, the closing price for the Company's
Common Stock on the AMEX was $.3125.
As of April 10, 1996, the Company had approximately 3,712
shareholders of record with respect to its Common Stock.
As of April 10, 1996, there were reserved an aggregate of
(i) 14,875,334 shares of Common Stock subject to outstanding
options; (ii) 12,584,124 shares issuable upon conversion of the
Company's outstanding Series A Preferred Stock; (iii) 34,848,229
shares issuable upon exercise of the Company's outstanding
warrants; (iv) 3,940,244 shares issuable upon redemption of the
Company's outstanding Series B Preferred Stock; and (v)
18,036,764 shares issuable in connection with contractual
obligations. Under the terms of certain outstanding securities
and warrants, which are not respectively convertible or
exercisable until after November 30, 1996, the Company is
required to reserve a sufficient number of shares of Common Stock
to enable such securities to be so converted and exercised.
Currently, the Company has an insufficient number of shares
available for reservation and the Company intends to request
approval for an increase in the number of authorized shares of
Common Stock at its Annual Meeting of Shareholders scheduled to
be held in June 1996.
The Registrar and U.S. Transfer Agent for the Common Stock
is Chemical Mellon Shareholder Services, L.L.C. with a mailing
address of Overpeck Centre, 85 Challenger Road, Ridgefield Park,
New Jersey 07660 (telephone 1-800-851-9677), and the name and
address of the Company's U.K. transfer agent is Independent
Registrars Group Limited, Bourne House, 34 Beckenham Road,
Beckenham, Kent BR3 4TU, England (telephone 181-650-4866).
Dividends on Common Stock
- -------------------------
The Company has not paid any cash dividends on its Common
Stock since inception. The payment of future cash dividends will
be dependent on the Company's earnings, financial condition,
capital requirements and other factors.
Under the terms of the Company's Credit Agreement with INCC,
the Company is restricted from paying dividends on its Common
Stock (other than with securities) without the consent of the
bank.
Item 6. Selected Financial Data.
- ---------------------------------
The consolidated financial data for the Company presented
below should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations set
forth in Item 7 and the Consolidated Financial Statements set
forth in Item 8.
(Expressed in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------
1995<F1> 1994<F2> 1993<F3> 1992<F4> 1991<F5>
------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Oil and gas revenues $ 2,480 $ 4,336 $ 8,499 $ 10,551 $ 11,217
Loss before extraordinary item $(87,837) $(34,880) $(15,197) $(23,983) $(23,859)
Net loss $(87,837) $(36,622) $(15,197) $(23,983) $(23,859)
Net loss attributable to common stock $(92,658) $(41,529) $(19,978) $(29,221) $(28,897)
Net loss per common and
common equivalent share $ (.38) $ (.21) $ (.17) $ (.28) $ (.32)
Weighted average common shares
outstanding 240,707 198,303 118,996 103,543 89,672
Balance Sheet Data:
Total assets $ 72,336 $149,803 $157,377 $148,533 $158,281
Long-term debt, net $ 15,644 $ 41,607<F6> $ 53,965<F6> $ 44,195 $ 44,952
Total shareholders' equity $ 16,900 $ 95,200 $ 84,609 $ 87,336 $ 97,846
- ------------
<FN>
<F1>
Includes provision for impairment of oil and gas properties
of $75.3 million and write-down of other assets and
investments of $4.5 million.
<F2>
Includes provision for impairment of oil and gas properties
of $25.9 million and provision for write-down of other
assets of $2.2 million and an extraordinary loss of $1.7
million.
<F3>
Includes provision for impairment of oil and gas properties
of $8 million.
<F4>
Includes gain on sale of investment of $2.2 million and
provision for impairment of oil and gas properties of $22.4
million.
<F5>
Includes gain on sale of investment of $1.3 million,
provision for writedown of investments and other assets of
$6.9 million and provision for impairment of oil and gas
properties of $14.6 million.
<F6>
Includes limited recourse debt of an aggregate $731,000 and
$3.7 million as of December 31, 1994 and 1993, respectively,
owed by the Lutcher Moore Group of subsidiaries.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
- -----------------------------------------------------------
Condition and Results of Operations.
------------------------------------
The following discussion and analysis should be read in
conjunction with the accompanying consolidated financial
statements, the notes thereto and the unaudited supplemental data
included in this Annual Report.
Liquidity and Capital Resources
- -------------------------------
The Company has incurred recurring net losses and currently
has a 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. The Company has been able to meet its
financial obligations to date by obtaining funds from sales of
equity in the Company, sales of various assets and borrowings
from the Company's primary lender. Management believes that it
will be able to continue to meet its financial obligations and
fund the development of its investments through joint ventures
with partners, continued sales of assets and continued sales of
equity instruments. However, as of April 15, 1996, the Company
did not have sufficient commitments in place to insure that all
of the Company's obligations for 1996 could be satisfied. Until
alternative sources of funds are obtained, substantial doubt
exists regarding the Company's ability to continue as a going
concern. Management is presently pursuing several financing
arrangements which it believes will provide the necessary funds
to satisfy its working capital requirements.
In 1991, the Company began shifting its focus from oil and
gas exploration in the U.S., primarily along the Louisiana and
Texas Gulf Coast, to the PRC. This action was taken because
management was of the opinion that the opportunities for the
discovery of major oil and gas fields were much greater in China
than in the United States. The Company obtained its first
exploration and production agreement in China in February 1993.
This contract was the first such contract entered into by CNPC
with a foreign entity, in northern China. This area is the
location of a significant portion of China's known oil reserves
and production. The Company's first well, drilled in the spring
of 1994, was a discovery. The Company has since drilled three
more successful wells and one dry hole. Recognizing its success
in China, in 1995 the Company decided to dispose of substantially
all of its U.S. oil and gas properties and to focus its
operations exclusively in China.
At December 31, 1995, the Company had an operating cash
balance of $1.6 million and a working capital deficit of $24.2
million, which includes $5.2 million in limited recourse debt
collateralized only by the Lutcher Moore Tract and $25.1 million
in bank debt, of which $5.2 million has been repaid through March
1996, from proceeds of property sales. The bank debt is
collateralized by the Company's domestic oil and gas properties
and the stock of certain subsidiaries. During 1995, the Company's
bank agreement was amended to modify certain covenant
requirements through September 29, 1995. These covenants were
subsequently amended to modify requirements through April 1,
1996, and again amended through September 30, 1996. Should
improvements in the Company's financial position not occur, the
Company would be in violation of its credit agreement subsequent
to October 1, 1996, giving the bank the right to accelerate
payment of the debt after applicable grace periods. Further, the
borrowing base under this credit agreement is determined, in
part, by the value of the Company's domestic proved reserves
which are applicable to properties classified in the balance
sheet as assets held for sale. The next borrowing base
determination has been rescheduled for June 30, 1996.
The Company also has $5.2 million of Limited Recourse debt
outstanding which is collateralized by the Lutcher Moore Tract
and is due in 1996. Payments of principal and interest of $2.6
million of the Lutcher Moore limited recourse debt are past due.
The Company is negotiating with the holders of this debt to defer
payments until the Lutcher Moore Tract can be sold. Should the
deferral not be obtained the holders have recourse only to the
property itself, as the Company is not liable for the debt.
The Company's Series A Preferred Stock dividend requirements
are approximately 2.7 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 aproximately $900,000
remains to be paid in cash. The Company intends to either sell
sufficient shares to pay the remaining dividend or offer shares
of Common Stock in payment of the dividend. The December 31, 1995
dividend payment on the Series A Preferred Stock has been declared
payable in additional shares of Series A Preferred Stock.
The Company's cash flow forecast (including scheduled debt
requirements) for 1996 projects that approximately $22 million
($7.5 million which was available or utilized as of March 31,
1996) of additional working capital will be required to fund
operational and development activities. Management's plans to
obtain the necessary capital include:
o The sale of domestic oil and gas properties. Two domestic oil
and gas properties have been sold through March 31, 1996,
providing proceeds of $5.4 million which was used to repay
accrued interest and $5.2 million of principal on the
Company's bank debt. The Company is currently negotiating
the sale of a third lease and expects to complete this sale
during the second quarter generating proceeds of
approximately $3.0 million which will also be used to prepay
principal on the Company's bank debt. Should this
transaction be consummated, the Company will have satisfied
all of its 1996 scheduled principal payments on its bank
debt.
o The sale of the Lutcher Moore Tract. The Company is in
ongoing negotiations for the sale of this property. Should
a sale be completed, $5.4 million of the proceeds would be
applied to the limited recourse debt with additional
proceeds used to further prepay bank debt and satisfy
working capital requirements.
o The sale of corporate securities. On March 8, 1996, the
Company sold 34 Units in an offshore transaction with each
Unit priced at $15,000. The Company received approximately
$400,000 of net proceeds, after deduction of offering costs
and expenses. An aggregate of 2,040,000 shares of Common
Stock and Warrants to acquire an additional 2,040,000 shares
of Common Stock were issued at closing. The Placement Agent
has been engaged to place up to an additional 130 Units of
Common Stock and Warrants on a best efforts basis at $15,000
per Unit. The offering is scheduled to close on or before
April 22, 1996. Upon conclusion of the sale of these Units,
the Company will have placed substantially all authorized
shares not reserved to fulfill other obligations. However,
the Company will seek approval from its shareholders for an
increase in its authorized shares of Common Stock at the
Annual Shareholders Meeting scheduled to be held in June
1996.
o Negotiating joint venture agreements with potential partners
to supply the cash needed to pursue various China-based
opportunities. Discussions with several potential partners
are in progress.
o The sale or joint venture of its remaining oil and gas
properties. The Company is attempting to sell its remaining
domestic oil and gas properties. If a satisfactory sale
transaction cannot be negotiated the Company will consider a
contribution of these properties to a joint venture for
further development in exchange for a joint venture
partner's contribution of all required monies for
development costs. The Company's share of revenues from
such a venture would be applied to reduce its bank debt.
In order to reduce the Company's capital requirements for
development of the Zhao Dong Block, in 1995, the Company entered
into an agreement with Apache, pursuant to which Apache became
obligated to pay 100 percent of the costs to drill and test three
wildcat wells and one appraisal 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 made as each segment of the field is placed on production
in order to insure that the Company will receive the full market
value of the 16.67 percent interest. In consideration for the
above described payments, Apache has assumed operatorship and
increased its interest in the Zhao Dong Block from 33.33 percent
to 50 percent. The Company estimates that Apache will pay for all
but approximately $8 million of its exploration expenditures
related to the Zhao Dong Block during the next twelve months.
Apache, as operator of the Zhao Dong Block, submitted on
April 11, 1996, an overall plan for the "C" Field development.
The Company expects to finance its share of development costs
primarily through project debt financing. Discussions have been
held with several international banks to secure such funding.
Alternatives available to the Company to obtain development funds
include joint venturing the development with another oil company
or financial group.
During 1995, the Company signed a contract with CNPC United
Lube Oil Corporation to form a joint venture company to engage in
the manufacture, distribution and marketing of lubricating oil in
China and southeast Asian markets. The Company has contributed
$600,000 and has a remaining obligation of $1.8 million which
will be satisfied by a series of payments the first of which is
due May 1, 1996, in the amount of $550,000 and the balance as
necessary to complete the modernization of the plant. Also during
1995, the Company signed an agreement with the CNACG, pursuant to
which the parties will commence cooperation for the exploration
and development of coalbed methane in two areas in China. Costs
of this project are not expected to be significant during the
next twelve months. The Company has been approached by several
U.S. and foreign companies seeking partnership arrangements with
respect to these ventures. Discussions are in the process with
several potential and capable partners to pursue the available
opportunities.
Long 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.
Other General Considerations
- ----------------------------
The Company believes that inflation has had no material
impact on the Company's sales, revenues or income during the
reporting periods. Drilling costs and costs of other related
services during the relevant periods have remained stable.
The Company is subject to existing federal, state and local
laws and regulations governing environmental quality and
pollution control. Although management believes that such
operations are in general compliance with applicable
environmental regulations, risks of substantial costs and
liabilities are inherent in oil and gas operations, and there can
be no assurance that significant costs and liabilities will not
be incurred. See "Environmental Matters."
New Accounting Pronouncement
- ----------------------------
In April 1995, the Financial Accounting Standards Board
("FASB") issued Statement No. 121 "Accounting For The Impairment
Of Long-Lived Assets And For Long-Lived Assets To Be Disposed
Of," effective for fiscal years beginning after December 15,
1995. This standard describes circumstances which may result in
assets being impaired and provides criteria for recognition and
measurement of asset impairment. The Company does not believe the
implementation of this statement will have a material impact on
the financial position, results of operations or cash flows of
the Company.
In October 1995, the FASB issued Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). This
statement is effective for transactions that are entered into in
fiscal years beginning after December 15, 1995. SFAS 123
establishes a fair value-based method of accounting for employee
stock options. This method provides for compensation cost to be
charged to results of operations at the grant date. However, the
statement allows companies to continue to follow the accounting
treatment prescribed by Accounting Principles Board Opinion No.
25. Opinion 25 generally requires compensation cost to be
recognized only for the excess of the quoted market price at the
grant date over the price that an employee must pay to acquire
the stock. Companies electing to continue with Opinion 25 must
make disclosure of net income as if SFAS 123 had been adopted.
The Company has not yet determined the method of accounting that
it will follow for stock options. However, it does not expect
that adoption of the requirements of SFAS 123 would have a
material impact on the financial position, results of operations
or cash flows.
Results of Operations
- ---------------------
1995 compared to 1994
The Company reported a net loss for 1995 of $87.8 million
before preferred dividends of $4.8 million or a total of $.38 per
share compared to a net loss for 1994 of $36.6 million before
preferred dividends of $4.9 million or $.21 per share. The net
loss for 1995 includes a $75.3 million noncash charge for the
provision of impairment of domestic oil and gas properties. The
carrying amounts of the Company's properties in Texas were
written down by $16.5 million during 1995, in order to comply
with the ceiling limitation prescribed by the Securities and
Exchange Commission ("SEC") principally due to downward revisions
in estimated reserves in the second quarter and reduced present
values of reserves attributable to delays in scheduled
development drilling in the third quarter. During the fourth
quarter, to reflect the expected results of its announced program
to divest itself of its U.S. oil and gas properties in order to
focus its activities in the PRC, the Company recorded an
additional $58.8 million noncash write-down to reduce the
recorded value of its domestic oil and gas properties to their
estimated fair market value. The loss in 1995 also reflects the
effects of a $4.5 million write-down of the Company's other
assets and investments.
The net loss for 1994 includes a $25.9 million noncash
charge for the provision for impairment of oil and gas properties
as a result of the ceiling limitation.
Earnings in 1994 also reflect the effects of a $1.7 million
valuation reserve for the Lutcher Moore Tract which is one of the
Company's assets held for sale. Additionally, the Company
incurred an extraordinary charge of $1.7 million for the write-
off of the deferred financing costs relating to a credit facility
which was retired during the year.
Earnings per common share are based on the weighted average
number of shares of common and common equivalent shares
outstanding for 1995 of 240,707,015 compared to 198,303,412 for
1994. The increase in the weighted average number of common and
common equivalent shares outstanding for 1995 primarily related
to the sale of approximately 7 million shares of Common Stock in
a Regulation S unit offering in December 1995, approximately 3
million units in a private placement concluded in September 1995,
approximately 4.3 million shares of Common Stock issued in
respect of dividends on Series A Preferred Stock and
approximately 1.6 million shares of Common Stock issued in
payment of interest on the Secured Subordinated Debt Notes, all
as set forth in the Consolidated Statements of Shareholders'
Equity. See Notes 6 and 7 to the Consolidated Financial
Statements.
Oil and gas revenues for 1995 were $2.5 million as compared
to $4.3 million in 1994. Revenues in 1995 were lower due to
significantly reduced production volumes. Operating costs as a
percentage of revenues increased as a result of fixed costs
remaining constant while gas prices declined. As the Company
decided to halt development projects on its domestic oil and gas
properties, it does not anticipate material revenues in 1996.
Average gas prices received by the Company declined slightly
between 1995 and 1994, with an average gas price of $1.33 in
1995 as compared to $1.65 in 1994. However, in the fourth quarter
of 1995 gas prices averaged $1.50 per Mcf. The depreciation,
depletion and amortization rate for 1995 amounted to $1.23 per
Mcf, compared to $1.25 per Mcf in the corresponding period of
1994.
The following table reflects an analysis of variances in the
Company's oil and gas revenues between 1995 and 1994. Revenues
from gas production during 1995 comprised over 79 percent of
total oil and gas revenues:
(In Millions)
Oil and Gas Revenues - 1994 $ 4.3
Effect of decreases in average gas prices (.6)
Effect of decreases in volume of gas
production and sales (1.2)
----
Oil and Gas Revenues - 1995 $ 2.5
====
As the Company continues to focus its resources on
exploration and development of the Zhao Dong Block and other
China related projects, future oil and gas revenues will be
directly related to the degree of success experienced on the Zhao
Dong Block.
General and administrative expenses of $4.6 million were
unchanged for the year ended December 31, 1995, as compared to
the same period in 1994. Operating costs are expected to decline
due to the disposition of domestic oil and gas properties.
General and administrative costs are expected to remain
relatively unchanged during the upcoming year.
Interest expense increased in 1995, due primarily to reduced
capitalization of interest costs as the balance of qualifying
assets continued to decline and increased interest rates in 1995.
Net interest charges are not expected to increase significantly
in 1996, in part because of the Company's interest rate cap
agreement with INCC as well as the Company's principal payments
on its bank debt in the first quarter of 1996. Interest on the
Company's subordinated debt can be paid in shares of the
Company's Common Stock.
The Company does not anticipate significant increases in its
oil and gas production in the short-term and expects to incur
annual operating losses until such time as sufficient revenues
from the China projects are realized which exceed operating
costs.
1994 compared to 1993
The Company reported a net loss for 1994 of $36.6 million
before preferred dividends of $4.9 million or a total of $.21 per
share compared to a net loss for 1993 of $15.2 million before
preferred dividends of $4.8 million or $.17 per share. The net
loss for 1994 included a $25.9 million noncash charge for the
provision for impairment of oil and gas properties reflecting
lower gas prices, the Company's decision to forego renewing
certain domestic exploration leases. During 1993, an $8 million
provision related to the impairment of oil and gas properties was
recorded. See "Certain Risk Factors Related to the Company and
the Oil and Gas Industry - Reserve Value Ceiling Test."
Earnings per common share are based on the weighted average
number of shares of common and common equivalent shares
outstanding for 1994 of 198,303,412 compared to 118,996,230 for
1993. The increase in the weighted average number of common and
common equivalent shares outstanding for 1994 primarily related
to the sale of 50 million shares of Common Stock in a January
1994 offering, approximately 25.8 million shares issued upon the
conversion of the Series C and Series D Preferred Stock and
approximately 5.4 million shares issued to repurchase the Lease
Note issue, all as set forth in the Consolidated Statements of
Shareholders' Equity. See Notes 6 and 7 to the Consolidated
Financial Statements.
Oil and gas revenues for 1994 were $4.3 million as compared
to $8.5 million in 1993. Revenues in 1994 were lower due to
significantly reduced production volumes and decreases in gas
prices. Production on existing properties continue to be affected
by limited drilling in the Cox Field.
The following table reflects an analysis of variances in the
Company's oil and gas revenues between 1994 and 1993. Revenues
from gas production during 1994 comprised over 85 percent of
total oil and gas revenues:
(In Millions)
Oil and Gas Revenues - 1993 $ 8.5
Effect of decreases in average gas prices (.6)
Effect of decreases in volume of gas
production and sales (3.4)
Effect of lower oil revenues (.2)
----
Oil and Gas Revenues - 1994 $ 4.3
====
Average gas prices received by the Company declined
slightly between 1994 and 1993, with an average gas price of
$1.65 per Mcf in 1994 as compared to $1.79 per Mcf in 1993.
However, in the fourth quarter of 1994 gas prices dropped
significantly, to $1.27 per Mcf.
Net capitalized costs for the Company's oil and gas
properties at December 31, 1994, approximated the "ceiling-test"
limitation as prescribed by the SEC guidelines. Remaining
unproved and unevaluated properties at December 31, 1994,
included primarily the costs of leases located adjacent to the
Cox Field producing properties. The depreciation, depletion and
amortization rate for 1994 amounted to $1.25 per Mcf, compared to
$1.26 per Mcf in the corresponding period of 1993. General and
administrative expenses for the year ended December 31, 1994,
increased to $4.6 million from $3.8 million for the same period
in 1993, due to increased legal, financial advisory and
shareholder relations costs, partially offset by a decrease in
payroll and benefit expenses. The 1993 operating costs included
nonrecurring charges totaling $700,000 related to severance
payments and other costs associated with a 20 percent reduction
in staff and closing of the Company's operations offices in
Houston and Laredo which reduced U.S. costs in 1994. Operating
costs and general and administrative costs remained relatively
unchanged.
Interest expense increased in 1994 due primarily to reduced
capitalization of interest costs as the balance of qualifying
assets continued to decline. Additionally, interest rates
increased in 1994, increasing interest expense slightly. Net
interest charges are not expected to increase significantly in
1995, in part because of the Company's interest rate cap
agreement with INCC. Interest on the Company's subordinated debt
can be paid in shares of the Company's Common Stock.
Item 8. Financial Statements and Supplemental Data.
- -----------------------------------------------------
The Consolidated Financial Statements of XCL Ltd. and
Subsidiaries, together with the report thereon of Coopers &
Lybrand L.L.P. dated April 11, 1996, and the supplementary
financial data specified by Item 302 of Regulation S-K are set
forth on pages 31 through 67. See Item 14 for Index.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of XCL Ltd.
We have audited the consolidated financial statements and the
financial statement schedule of XCL Ltd. and Subsidiaries listed
in Item 14(a) of this Annual Report on Form 10-K. These financial
statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of XCL Ltd. and Subsidiaries as of December
31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information
required to be included therein.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the company has incurred recurring net losses, has a
working capital deficit and anticipates insufficient cash flows
from operations to meet its current obligations. These factors
raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these
matters are described in Note 2. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
April 11, 1996
XCL Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31
-----------------
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,610 $ 6,751
Accounts receivable, net 340 1,720
Amounts receivable from sale of assets 4,151 --
Subscriptions receivable 483 --
Prepaid expenses 205 153
Assets held for sale 4,376 --
-------- --------
Total current assets 11,165 8,624
-------- --------
Property and equipment:
Oil and gas (full cost method):
Proved and evaluated properties -- 158,634
Unproved and unevaluated properties:
Domestic -- 37,856
Foreign 27,315 17,696
-------- --------
27,315 55,552
Land, at cost 135 135
Other 3,017 3,018
-------- --------
30,467 217,339
Accumulated depreciation, depletion and amortization (1,845) (100,079)
-------- --------
28,622 117,260
-------- --------
Investments 5,369 3,998
Assets held for sale 25,395 16,950
Deferred charges and other assets 1,785 2,971
-------- --------
Total assets $ 72,336 $ 149,803
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 3,884 $ 3,640
Royalty and production taxes payable 218 286
Dividends payable 928 965
Current maturities of limited recourse debt 5,229 5,267
Collateralized credit facility 25,115 --
Other current maturities 30 29
-------- -------
Total current liabilities 35,404 10,187
-------- -------
Long-term debt, net of current maturities 15,644 41,607
Other non-current liabilities 4,388 2,809
Commitments and contingencies (Notes 2 and 11)
Shareholders' equity:
Preferred stock-$1.00 par value; authorized
1,200,000 shares; issued shares of 680,570
at December 31, 1995 and 649,244 in 1994 -
liquidation preference of $54.5 million at
December 31, 1995 681 649
Preferred stock subscribed 4 --
Common stock-$.01 par value; authorized 350
million shares at December 31, 1995 and 325
million shares at December 31, 1994; issued
shares of 256,157,224 at December 31, 1995
and 237,184,410 at December 31, 1994 2,561 2,372
Common stock held in treasury - $.01 par value;
2,514,238 shares at December 31, 1995 and
3,500,000 at December 31, 1994 (25) (35)
Additional paid-in capital 220,364 206,241
Accumulated deficit (206,685) (114,027)
-------- --------
Total shareholders' equity 16,900 95,200
-------- --------
Total liabilities and shareholders'
equity $ 72,336 $ 149,803
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands of Dollars, Except Per Share Amounts)
<TABLE>
Year Ended December 31
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Oil and gas revenues $ 2,480 $ 4,336 $ 8,499
-------- -------- --------
Costs and operating expenses:
Operating 985 1,341 2,449
Depreciation, depletion and amortization 2,266 3,292 5,788
Provision for impairment of oil and gas properties 75,300 25,900 8,000
Writedown of other assets and investments 4,461 2,230 --
General and administrative costs 4,551 4,553 3,840
Taxes, other than income 590 895 940
-------- -------- --------
88,153 38,211 21,017
-------- -------- --------
Operating loss (85,673) (33,875) (12,518)
-------- -------- --------
Other income (expense):
Interest expense, net of amounts capitalized (2,998) (1,831) (1,329)
Gain on sale of investments 613 443 --
Equity in income (loss) of affiliates -- (220) (183)
Settlement of litigation -- -- (917)
Other, net 221 603 (250)
-------- -------- --------
(2,164) (1,005) (2,679)
-------- -------- --------
Loss before extraordinary item (87,837) (34,880) (15,197)
Extraordinary charge for early extinguishment of debt -- (1,742) --
-------- -------- --------
Net loss (87,837) (36,622) (15,197)
Preferred stock dividends (4,821) (4,907) (4,781)
-------- -------- --------
Net loss attributable to common stock $ (92,658) $ (41,529) $ (19,978)
======== ======== ========
Loss per common and common equivalent share:
Net loss before extraordinary item $ (.38) $ (.20) $ (.17)
Extraordinary item -- (.01) --
-------- -------- --------
Net loss per common and common equivalent share $ (.38) $ (.21) $ (.17)
======== ======== ========
Average number of common and common equivalent
shares outstanding 240,707 198,303 118,996
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Preferred stock
Balance January 1 $ 649 $ 729 $ 649
Conversion of preferred stock to common stock -- (105) --
Redemption of preferred stock (4) -- --
Preferred stock dividend -- 2 --
Issuance of preferred stock 36 23 80
-------- -------- -------
Balance December 31 681 649 729
-------- -------- -------
Preferred stock subscribed
Balance January 1 -- -- --
Subscription for purchase of preferred stock 4 -- --
-------- -------- -------
Balance December 31 4 -- --
-------- -------- -------
Common stock
Balance January 1 2,372 1,327 1,136
Preferred stock scrip dividend 49 86 38
Issuance of common stock with respect to
acquisitions/investments -- 40 12
Common stock issued/sold for settlement of
liabilities -- 23 71
Common stock issued as collateral for limited
recourse debt -- -- 70
Conversion of 8% Subordinated Convertible Notes -- 25 --
Conversion of preferred stock -- 258 --
Exercise of warrants 13 35 --
Common stock issued in equity offering 70 500 --
Common stock issued for settlement of principal and
interest on debt 17 78 --
Other 40 -- --
-------- -------- --------
Balance December 31 2,561 2,372 1,327
-------- -------- --------
Common stock held in treasury at December 31 (25) (35) (70)
-------- -------- -------
Additional paid-in capital
Balance January 1 206,241 155,121 138,071
Exercise of warrants and options 861 6,933 --
Issuance of common stock with respect to
acquisitions/investments -- 4,279 1,026
Issuance of preferred stock 3,029 1,570 7,880
Purchase treasury shares 1,095 -- --
Common stock distributed or to be distributed as
preferred stock dividends 2,934 2,948 4,456
Preferred stock distributed or to be distributed as
preferred stock dividends 2,063 -- 220
Common stock issued/sold for settlement of
liabilities 1,367 11,637 4,372
Purchase cost adjustment of the Lutcher Moore Tract -- -- (1,361)
Common stock issued in equity offering 2,018 22,495 --
Other 756 1,258 457
-------- -------- -------
Balance December 31 220,364 206,241 155,121
-------- -------- -------
Accumulated deficit
Balance January 1 (114,027) (72,498) (52,520)
Net loss (87,837) (36,622) (15,197)
Preferred stock dividends (4,821) (4,907) (4,781)
-------- -------- -------
Balance December 31 (206,685) (114,027) (72,498)
-------- -------- -------
Total shareholders' equity $ 16,900 $ 95,200 $ 84,609
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (87,837) $ (36,622) $ (15,197)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation, depletion and amortization 2,266 3,292 5,788
Provision for impairment of oil and gas properties 75,300 25,900 8,000
Extraordinary charge for early extinguishment of debt -- 1,742 --
Gain on sale of investments (613) (443) --
Writedown of other assets and investments 4,461 2,230 --
Equity in loss of affiliates -- 220 183
Change in assets and liabilities:
Accounts receivable 875 (187) 1,401
Prepaid expenses (52) (73) 157
Accounts payable and accrued expenses 369 168 431
Royalty and production taxes payable (68) (385) (817)
Other, net 855 557 32
-------- --------- --------
Total adjustments 83,393 33,021 15,175
-------- --------- --------
Net cash used in operating activities (4,444) (3,601) (22)
-------- --------- --------
Cash flows from investing activities:
Capital expenditures (9,524) (19,547) (16,302)
Investments and restricted time deposits (1,624) (1,350) (791)
(Increase) decrease in restricted cash -- -- 3,176
Proceeds from sales of assets and investments 2,655 3,759 1,046
Other 64 2,052 (43)
--------- --------- ---------
Net cash used in investing activities (8,429) (15,086) (12,914)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from sales of common stock 3,553 31,696 1,677
Proceeds from issuance of preferred stock 3,068 1,600 7,978
Proceeds from sale of treasury stock 2,487 -- --
Loan proceeds -- 29,200 18,500
Payment of long-term debt (522) (37,564) (15,238)
Proceeds from exercise of warrants and options 874 3,279 --
Payment of preferred stock dividends (250) (1,388) --
Payment for treasury stock (1,257) -- --
Stock issuance costs and other (221) (3,031) (441)
-------- -------- --------
Net cash provided by financing activities 7,732 23,792 12,476
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (5,141) 5,105 (460)
Cash and cash equivalents at beginning of year 6,751 1,646 2,106
-------- ------- --------
Cash and cash equivalents at end of year $ 1,610 $ 6,751 $ 1,646
======== ======= ========
Supplemental information:
Cash paid for interest, net of amounts capitalized $ 2,602 $ 2,610 $ 2,295
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies:
- -------------------------------------------------
Principles of Consolidation:
The consolidated financial statements include the accounts
of XCL Ltd. and its wholly owned subsidiaries ("XCL" or the
"Company") after the elimination of all significant intercompany
accounts and transactions. Investments in 20 percent to 50
percent owned affiliates are accounted for by the equity method.
Certain reclassifications have been made to prior year financial
statements to conform to current year presentation. These
reclassifications had no effect on net loss, cash flows or
shareholders' equity.
Cash and Cash Equivalents:
For purposes of the consolidated financial statements, the
Company considers deposits which can be redeemed on demand and
investments which have original maturities of less than three
months to be cash equivalents. As of December 31, 1995, the
Company's cash and cash equivalents were deposited primarily in
two financial institutions.
Fair Value of Financial Instruments:
For the purposes of disclosure requirements pursuant to
Statement of Financial Accounting Standards No. 107 "Disclosures
About Fair Market Value of Financial Instruments," fair value of
current assets and liabilities approximate carrying value, due to
the short-term nature of these items. The Company believes the
fair value of long-term debt approximates carrying value. The
fair value of the Series A Preferred Stock at December 31, 1995,
is approximately $23 million based upon share trading on the
London Stock Exchange with British Pound Sterling converted to
U.S. Dollars. Based on such valuation the estimated fair value of
Series B Preferred Stock at December 31, 1995 approximates $2
million. Fair value of such financial instruments is not
necessarily representative of the amount that could be realized
or settled.
Property and Equipment:
The Company accounts for its oil and gas exploration and
production activities using the full cost method of accounting
for oil and gas properties. Accordingly, all costs associated
with acquisition, exploration, and development of oil and gas
reserves, including appropriate related costs, are capitalized.
The Company capitalizes internal costs that can be directly
identified with its acquisition, exploration and development
activities and does not capitalize any costs related to
production, general corporate overhead or similar activities.
The capitalized costs of oil and gas properties, including
the estimated future costs to develop proved reserves, are
amortized on the unit-of-production method based on estimates of
proved oil and gas reserves. The Company's oil and gas reserves
were estimated by Company engineers in 1995 and 1994. Investments
in unproved properties and major development projects are not
amortized until proved reserves associated with the projects can
be determined or until impairment occurs. If the results of an
assessment indicate that properties are impaired, the amount of
the impairment is added to the capitalized costs to be depleted.
The Company capitalizes interest on expenditures made in
connection with exploration and development projects that are not
subject to current amortization. Interest is capitalized for the
period that activities are in progress to bring these projects to
their intended use.
The Company reviews the carrying value of its oil and gas
properties each quarter on a country-by-country basis, and limits
capitalized costs of oil and gas properties to the present value
of estimated future net revenues from proved reserves, discounted
at 10 percent, plus the lower of cost or fair value of unproved
properties as adjusted for related tax effects and deferred tax
reserves. If capitalized costs exceed this limit, the excess is
charged to DD&A expense. The Company recorded a $16.5 million
provision for impairment of oil and gas properties during 1995,
principally due to downward revisions in estimated reserves and
reduced present values of reserves attributable to delays in
scheduled development drilling.
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.
Pursuant to this strategic decision, a $58.8 million dollar write-
down was recorded. Remaining unproved and unevaluated properties
at December 31, 1995, consists of the Zhao Dong Block. As these
unproved properties become evaluated, their costs will be
reclassified to proved and evaluated properties, and any
associated future revenue will be included in the calculation of
the present value of the Company's proved reserves.
Proceeds from the sale of proved and unproved properties are
accounted for as reductions to capitalized costs with no gain or
loss recognized unless such sales would significantly alter the
relationship between capitalized costs and proved reserves of oil
and gas. Abandonments of properties are accounted for as
adjustments of capitalized costs with no loss recognized.
The Company accounts for site restoration, dismantlement and
abandonment costs in its estimated future costs of proved
reserves. Accordingly, such costs are amortized on a unit of
production basis and reflected with accumulated depreciation,
depletion and amortization. The Company identifies and estimates
such costs based upon its assessment of applicable regulatory
requirements, its operating experience and oil and gas industry
practice in the areas within which its properties are located.
To date the Company has not been required to expend any material
amounts to satisfy such obligations. The Company does not expect
that future costs will have a material adverse effect on the
Company's operations, financial condition or cash flows. As is
set forth above, the standardized measure of discounted future
net cash flows includes a deduction for any such costs.
Other Property and Equipment:
Other property and equipment primarily consists of an office
building, furniture and fixtures, equipment and software. Major
renewals and betterments are capitalized while the costs of
repairs and maintenance are charged to expense as incurred. The
costs of assets retired or otherwise disposed of and the
applicable accumulated depreciation are removed from the
accounts, and the resulting gain or loss is reflected in
operations. Other property and equipment costs are depreciated
using the straight-line method over the estimated useful lives of
the assets, which range from 3 to 30 years.
Capitalized Interest and Amortized Debt Costs:
During fiscal 1995, 1994 and 1993, interest and associated
costs of approximately $3.1 million, $5.3 million and $6.7
million, respectively were capitalized on significant investments
in unproved properties that are not being currently depreciated,
depleted, or amortized and on which exploration or development
activities are in progress. Deferred debt issue costs are
amortized on the straight-line basis over the term of the related
debt agreement.
Concentration of Credit Risk:
The Company operates exclusively in the oil and gas
industry. The Company's joint interest billings and oil and gas
sales receivable represent substantially all of the balance
included in trade accounts receivable in the accompanying balance
sheets. The trade receivables are due from several customers.
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash
equivalents/short-term investments and trade receivables.
The Company believes that no single short-term investment
exposes the Company to significant credit risk. Additionally,
creditworthiness of its counterparties, which are major financial
institutions, are monitored. The Company has substantial cash in
financial institutions in excess of the insured amounts.
Income Taxes:
The Company accounts for income taxes in compliance with
Statement of Financial Accounting Standards No. 109 (SFAS No.
109) "Accounting for Income Taxes." Requirements by this standard
include recognition of future tax benefits, measured by enacted
tax rates, attributable to: deductible temporary differences
between financial statement and income tax bases of assets and
liabilities; and, net operating loss carryforwards. Recognition
of such tax assets are limited to the extent that realization of
such benefits is able to be reasonably anticipated.
Revenue Recognition:
Oil and gas revenues are recognized using the accrual method
at the price realized as production and delivery occurs. Amounts
which are contingently receivable are not recognized until
realized.
Loss Per Common and Common Equivalent Share:
Loss per common and common equivalent share has been
computed by dividing net income (loss) attributable to common
stock by the weighted average number of common and common share
equivalents outstanding. Primary earnings per share are presented
for financial reporting purposes due to the antidilutive effect
of convertible notes, preferred stock, warrants and stock
options.
Use of Estimates in the Preparation of Financial Statements:
The preparation of XCL Ltd. and its subsidiaries' financial
statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of December
31, 1995 and 1994, and the reported amounts of revenues and
expenses during fiscal years 1995, 1994 and 1993. Adjustments to
the reported amounts of assets and liabilities may be necessary
in the future to the extent that future estimates or actual
results are different from the estimates used in 1995 financial
statements.
Foreign Operations
The Company's activities on the Zhao Dong Block are subject
to regulation under Chinese Law by the Ministry of Foreign Trade
and Economic Cooperation ("MOFTEC") and CNODC. Such regulation
covers a wide variety of matters comparable in scope to the type
of regulations the Company faces in its domestic operations,
including, without limitation, the drilling of wells, allowable
rates of production, prevention of waste and pollution,
protection of the environment, labor regulations and worker
safety. In addition, the Company's activities may be exposed to
the political and economic risks of operating in a foreign
country including loss of revenues, property and equipment from
such hazards as expropriation, nationalization, insurrection and
other political risks; risks of increases in taxes and
governmental royalties; and renegotiation of contracts with
governmental entities; as well as changes in laws and policies
governing operations of foreign based companies. Other risks
inherent in foreign operations include the possibility of
realizing economic currency exchange losses when transactions are
completed in currencies other than United States dollars and the
Company's inability to freely repatriate earnings under changes
in exchange control laws. To date, the Company's Chinese
operations have not been materially affected by these risks.
New Accounting Pronouncement
In April 1995, the Financial Accounting Standards Board
issued Statement No. 121 "Accounting For The Impairment Of Long-
Lived Assets And For Long-Lived Assets To Be Disposed Of,"
effective for fiscal years beginning after December 15, 1995.
This standard describes circumstances which may result in assets
being impaired and provides criteria for recognition and
measurement of asset impairment. The Company does not believe the
implementation of this statement will have a material impact on
the financial position, results of operations or cash flows of
the Company.
In October 1995, the FASB issued Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). This
statement is effective for transactions that are entered into in
fiscal years beginning after December 15, 1995. SFAS 123
establishes a fair value-based method of accounting for employee
stock options. This method provides for compensation cost to be
charged to results of operations at the grant date. However, the
statement allows companies to continue to follow the accounting
treatment currently utilized which generally requires
compensation cost to be recognized only for the excess of the
quoted market price at the grant date over the price that an
employee must pay to acquire the stock. Companies electing to
continue with this method must make disclosure of net income as
if SFAS 123 had been adopted. The Company has not yet determined
the method of accounting that it will follow for stock options.
However, it does not expect that adoption of the requirements of
SFAS 123 would have a material impact on the financial position,
results of operations or cash flows.
(2) Liquidity and Management's Plans
- --------------------------------------
The Company has incurred recurring net losses and currently
has a 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. The Company has been able to meet its
financial obligations to date by obtaining funds from sales of
equity in the Company, sales of various assets and borrowings
from the Company's primary lender. Management believes that it
will be able to continue to meet its financial obligations and
fund the development of its investments through joint ventures
with partners, continued sales of assets and continued sales of
equity instruments. However, as of April 15, 1996, the Company
did not have sufficient commitments in place to insure that all
of the Company's obligations for 1996 could be satisfied. Until
alternative sources of funds are obtained, substantial doubt
exists regarding the Company's ability to continue as a going
concern. Management is presently pursuing several financing
arrangements which it believes will provide the necessary funds
to satisfy its working capital requirements.
In 1991, the Company began shifting its focus from oil and
gas exploration in the U.S., primarily along the Louisiana and
Texas Gulf Coast, to the PRC. This action was taken because
management was of the opinion that the opportunities for the
discovery of major oil and gas fields were much greater in China
than in the United States. The Company obtained its first
exploration and production agreement in China in February 1993.
This contract was the first such contract entered into by CNPC
with a foreign entity, in northern China. This area is the
location of a significant portion of China's known oil reserves
and production. The Company's first well, drilled in the spring
of 1994, was a discovery. The Company has since drilled three
more successful wells and one dry hole. Recognizing its success
in China, in 1995 the Company decided to dispose of substantially
all of its U.S. oil and gas properties and to focus its
operations exclusively in China.
At December 31, 1995, the Company had an operating cash
balance of $1.6 million and a working capital deficit of $24.2
million, which includes $5.2 million in limited recourse debt
collateralized only by the Lutcher Moore Tract and $25.1 million
in bank debt, of which $5.2 million has been repaid through March
1996, from proceeds of property sales. The bank debt is
collateralized by the Company's domestic oil and gas properties
and the stock of certain subsidiaries. During 1995, the Company's
bank agreement was amended to modify certain covenant
requirements through September 29, 1995. These covenants were
subsequently amended to modify requirements through April 1,
1996, and again amended through September 30, 1996. Should
improvements in the Company's financial position not occur, the
Company would be in violation of its credit agreement subsequent
to October 1, 1996, giving the bank the right to accelerate
payment of the debt after applicable grace periods. Further, the
borrowing base under this credit agreement is determined, in
part, by the value of the Company's domestic proved reserves
which are applicable to properties classified in the balance
sheet as assets held for sale. The next borrowing base
determination has been rescheduled for June 30, 1996.
The Company also has $5.2 million of Limited Recourse debt
outstanding which is collateralized by the Lutcher Moore Tract
and is due in 1996. Payments of principal and interest of $2.6
million of the Lutcher Moore limited recourse debt are past due.
The Company is negotiating with the holders of this debt to defer
payments until the Lutcher Moore Tract can be sold. Should the
deferral not be obtained the holders have recourse only to the
property itself, as the Company is not liable for the debt.
The Company's Series A Preferred Stock dividend requirements
are approximately 2.7 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 $900,000 remains to be paid
in cash. The Company intends to either sell sufficient shares to
pay the remaining dividend or offer shares of Common Stock in
payment of the dividend. The December 31, 1995 dividend payment
on the Series A Preferred Stock has been declared payable in
additional shares of Series A Preferred Stock.
The Company's cash flow forecast (including scheduled debt
requirements) for 1996 projects that approximately $22 million
($7.5 million which was available or utilized as of March 31,
1996) of additional working capital will be required to fund
operational and development activities. Management's plans to
obtain the necessary capital include:
o The sale of domestic oil and gas properties. Two domestic oil
and gas properties have been sold through March 31, 1996,
providing proceeds of $5.4 million which was used to repay
accrued interest and $5.2 million of principal on the
Company's bank debt. The Company is currently negotiating
the sale of a third lease and expects to complete this sale
during the second quarter generating proceeds of
approximately $3.0 million which will also be used to prepay
principal on the Company's bank debt. Should this
transaction be consummated, the Company will have satisfied
all of its 1996 scheduled principal payments on its bank
debt.
o The sale of the Lutcher Moore Tract. The Company is in
ongoing negotiations for the sale of this property. Should
a sale be completed, $5.4 million of the proceeds would be
applied to the limited recourse debt with additional
proceeds used to further prepay bank debt and satisfy
working capital requirements.
o The sale of corporate securities. On March 8, 1996, the
Company sold 34 Units in an offshore transaction with each
Unit priced at $15,000. The Company received approximately
$400,000 of net proceeds, after deduction of offering costs
and expenses. An aggregate of 2,040,000 shares of Common
Stock and Warrants to acquire an additional 2,040,000 shares
of Common Stock were issued at closing. The Placement Agent
has been engaged to place up to an additional 130 Units of
Common Stock and Warrants on a best efforts basis at $15,000
per Unit. The offering is scheduled to close on or before
April 22, 1996. Upon conclusion of the sale of these Units,
the Company will have placed all authorized shares not
reserved to fulfill other obligations. However, the Company
will seek approval from its shareholders for an increase in
its authorized shares of Common Stock at the Annual
Shareholders Meeting scheduled to be held in June 1996.
o Negotiating joint venture agreements with potential partners
to supply the cash needed to pursue various China-based
opportunities. Discussions with several potential partners
are in progress.
o The sale or joint venture of its remaining oil and gas
properties. The Company is attempting to sell its remaining
domestic oil and gas properties. If a satisfactory sale
transaction cannot be negotiated the Company will consider a
contribution of these properties to a joint venture for
further development in exchange for a joint venture
partner's contribution of all required monies for
development costs. The Company's share of revenues from
such a venture would be applied to reduce its bank debt.
Long 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.
(3) Supplemental Cash Flow Information
- ------------------------------------------
There were no income taxes paid for the years ended December
31, 1995 and 1994.
The Company completed certain noncash transactions in 1995
and prior years in order to conserve cash for use in its core
activities and to meet other obligations while honoring
restrictions on cash use imposed by its bank agreement. Such
transactions not reported elsewhere herein are as follows:
1995
- ----
During September 1995, the Company issued 50,000 units, each
unit comprised of one share of Common Stock and a five-year
warrant to purchase one share of Common Stock, plus an additional
five-year warrant on the same terms as the unit warrant to
purchase 50,000 shares of Common Stock as compensation to an
individual who assisted the Company with a private placement of
approximately 3 million units.
1994
- ----
The Company conveyed certain land holdings (fair market
value of $320,000) in payment of a two-year consulting agreement
which expired in 1994.
1993
- ----
The Company issued 250,000 shares of Common Stock with a
fair market value of $125,000, to the shareholders of Independent
Energy Corporation ("IEC") in partial payment of the option to
acquire a 12.5 percent working interest in certain exploration
leases comprising the Black Warrior Basin.
(4) Receivables
- -----------------
The Company's trade accounts receivable at December 31,
1995, arise primarily from business transactions with entities in
the oil and gas industry, mostly located in Texas. An oil and gas
purchaser with which the Company has contractual arrangements
accounted for approximately 67 percent of oil and gas revenues in
1995, 61 percent in 1994, and 77 percent in 1993. In addition, in
1995 one other purchaser accounted for approximately 27 percent
of oil and gas revenues. Amounts receivable from the sale of
assets include approximately $4.1 million received on January 2,
1996, from the sale of the Mestena Grande Field.
(5) 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.
Subsequent to December 31, 1995, two separate parcels of
these properties were sold producing proceeds of $5.4 million
which was used to retire interest and principal due on the
Company's bank loan. Additionally, the Company has received an
offer to purchase a third parcel of property and expects to
complete a sale of this property during the second quarter of
1996. The fair market value of these three properties has been
reflected as current assets held for sale in the Company's
December 31, 1995 consolidated balance sheet.
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 6
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. This property
is being held for sale.
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. As of
December 31, 1995, the Company has invested approximately $1.4
million in the project.
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
December 31, 1995, the Company has invested approximately
$279,000 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
$500,000 reduction in obligations owed by the Company to the
purchaser. No gain or loss was recognized on the sale. The
remaining mineral acreage prescribes in 2005.
Terrenex Ventures Inc.
At December 31, 1993, the Company held an approximate 25
percent interest in Terrenex Ventures, Inc. ("Terrenex") and
warrants to purchase additional shares. In 1994, the Company
purchased an additional 1,350,000 shares of stock for
approximately $350,000 (U.S.) cash and 1.2 million shares of
Common Stock. In 1992, the Company had increased its initial
interest in Terrenex by issuing 1.36 million shares of Common
Stock with a fair market value of $1.3 million. During 1994, the
Company sold its entire shareholding in Terrenex for $3.7 million
(U.S.), resulting in a gain of approximately $440,000.
During 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 investment attributed to these warrants the Company
recorded a gain in 1995.
Sunrise Energy Services, Inc. - Jefferson Gas Systems, Inc.
In 1990, the Company acquired an approximate 42 percent
ownership in Sunrise Energy Services, Inc. ("Sunrise"). In 1992,
the Company sold this investment for $8 million, subject to
certain adjustments up to a maximum of $2 million which were to
be made with shares of Common Stock and certain shares of Sunrise
held in an escrow account. The purchase price was paid in cash
($5 million), a promissory note ($2 million due in 1993) and an
approximate 5 percent equity interest in a privately held
Delaware corporation. The Company recognized a gain on sale of
investments of $2.2 million and deferred approximately $800,000
pending resolution of the adjustments. As of December 31, 1993,
$1.2 million remained outstanding on the promissory note.
In May 1994, the Company and the purchaser of the Sunrise
shares settled and paid all remaining amounts due among and
between themselves including release to the purchaser of the
Common Stock and Sunrise shares held in escrow and payment by the
purchaser of $1.25 million to a Company account collateralizing
the Company's Lease Notes.
Wolf Creek Resources, Inc.
The Company, during 1994, executed and delivered an
agreement which satisfied an October 1992 commitment to acquire
an equity interest in Wolf Creek Resources, Inc. and certain oil
and gas interests in the Galvan Ranch, a 72,000-acre ranch in
south Texas, from an entity affiliated with a former director.
To satisfy the acquisition price of $3.7 million, the Company
paid $1.0 million in cash and on October 17, 1994, issued 2.75
million shares of Common Stock for the balance.
(6) Debt
- ------------
Long-term debt consists of the following (000's):
December 31
----------------
1995 1994
---- ----
Collateralized credit facility $ 25,115 $ 25,200
Subordinated debt 15,000 15,000
Office building mortgage loan 674 705
------- -------
40,789 40,905
Lutcher Moore Group Limited Recourse Debt 5,229 5,998
------- -------
46,018 46,903
Less current maturities:
Lutcher Moore Group Limited Recourse Debt (5,229) (5,267)
Collateralized credit facility (25,115) --
Other current maturities (30) (29)
------- ------
$ 15,644 $ 41,607
======= =======
Substantially all of the Company's assets collateralize
these borrowings. Accounts payable and accrued expenses include
interest accrued at December 31, 1995 and 1994 of $536,000 and
$482,000, respectively.
As of December 31, 1995, scheduled maturities of long-term
debt are as follows (000's):
Due Amount
---- ------
1996 $ 30,374
1997 644
1998 --
1999 --
2000 15,000
Thereafter --
-------
$ 46,018
=======
Collateralized Credit Facility
XCL-Texas, Inc. ("Borrower"), a wholly owned subsidiary of
the Company, borrowed $29.2 million from Internationale
Nederlanden (U.S.) Capital Corporation ("INCC") under a $35
million credit agreement dated January 31, 1994 (the "INCC
Agreement"). The proceeds of the borrowing were used to retire
the loan balance of a prior bank credit facility. The Company
recognized a charge for early extinguishment of debt in the
approximate amount of $1.7 million as a result of this
refinancing in 1994.
Loans under the INCC agreement are guaranteed by the
Company, parent of XCL-Texas, Inc., and certain other
subsidiaries of the Company and bear interest at a rate
approximating INCC's prime rate plus one percent or an
alternative market adjusted rate based upon LIBOR plus 2.75
percent, at the Borrower's option. The Company pays a commitment
fee equal to 0.5 percent per annum calculated on the daily amount
of the unused portion of the facility availability, payable
quarterly. Substantially all of the Company's oil and gas
properties located in Texas, and the stock of certain
subsidiaries of the Company collateralize this credit facility.
Additionally, INCC received warrants to purchase 2.5 million
shares of Common Stock with an exercise price of $1.00, subject
to adjustment, expiring in January 2004. The value of such
warrants was not material.
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 $500,000 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 next scheduled principal payment is due
July 1, 1996, in the amount of $540,000 with quarterly payments
of $1.63 million thereafter.
Under the INCC Agreement, the Company is required to
maintain minimum levels of tangible net worth, working capital
and cash flow coverage, and expend a minimum amount on domestic
development drilling. Additionally, the Borrower must maintain a
minimum net worth. Further, the INCC Agreement contains certain
restrictions pertaining to debt, mergers, issuances of
securities, investments, sales of property, cash dividends and
redemptions and payments related to subordinated debt. The
Borrower may not advance funds to its parent, or any other
subsidiary of its parent, without INCC's prior approval. The
Company may use for its general corporate purposes the net
proceeds from the sales of equity plus any cash realized by XCL-
China Ltd. and proceeds from the sale of other assets.
During 1995, the INCC Agreement was amended to modify
certain covenants and was further amended to modify requirements
through April 1, 1996. The credit 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. Absent these modifications, the Company
would have been in violation of several covenants and should
improvements in the Company's financial position not occur, the
Company would be in violation of its credit agreement subsequent
to September 30, 1996, giving the bank the right to accelerate
payment of the debt after applicable grace periods. The Company
would need to pursue the sale of other assets, a joint-venture or
the issuance of additional equity securities to fund any such
accelerated payments. Further, the borrowing base under this
credit agreement is determined, in part, by the value of the
Company's proved reserves. The next borrowing base determination,
which will be based on reserves related to properties reflected
as assets held for sale, has been rescheduled for June 30, 1996.
During 1994, the Company entered into two Master Interest
Rate and Currency Exchange Agreements (the Agreements) with INCC
which expire in 1996. The Company paid $151,946 to limit the
maximum interest rate for up to approximately two-thirds of its
maximum outstanding INCC debt to 9-3/4 percent per annum from
April, 1995 to January, 1996 and to 10-3/4 percent per annum from
January 1996 to July, 1996. The Company is amortizing the
payment over the life of the Agreements. During 1995 and 1994,
the Company incurred approximately $2.3 million and $1.85 million
of interest costs related to this debt, respectively.
Secured Subordinated Debt
During April 1993, the Company issued in a private
placement, $15 million of Secured Subordinated Note Units (the
"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 $.90 per share (which were previously
issued to a group of banks in a prior credit facility), 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 ("XCL-China"), under the Production
Sharing Agreement relating to the Zhao Dong Block, which was not
material. This borrowing bears interest at 12 percent, if paid
with 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 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 debt. The proceeds were used to
retire $13.2 million of the bank indebtedness, with the remainder
available for working capital and the payment of issuance
expenses.
Concurrently with the closing of the INCC Agreement,
maturities of the Company's Subordinated Debt were rescheduled to
April 2000; the expiration date of the related warrants was
extended to April 2000; the exercise price of related warrants
was reduced to $.625 per share (fair market value of the Common
Stock at that date); and a subordinated lien was granted on
certain assets of the Company.
The Company issued approximately 1.6 million and 1.9 million
shares of Common Stock in payment of $1.1 million and $2.1
million of interest due on the Subordinated Debt in 1995 and
1994, respectively. During the first quarter of 1996, the
Company issued an additional 2.1 million shares of Common Stock
in payment of $1.4 million of interest due on the subordinated
debt in 1995.
Other Long-Term Debt
Building Mortgage Loan
----------------------
The outstanding balance of the building mortgage loan as of
December 31, 1995, is $674,000, bearing interest at the rate of
14 percent per annum. During 1995 and 1994, the Company incurred
approximately $97,000 and $101,000 in interest costs related to
this debt, respectively. Payment of the building mortgage loan is
guaranteed by the Chairman of the Board.
Lease Notes Payable
-------------------
On June 30, 1992, the Company issued, through a private
placement offering, 70 Lease Note Units for gross proceeds of
approximately $7 million. Each Unit consists of: a $100,000
limited recourse collateralized promissory note due July 1, 1997
(the "Lease Note") with interest at 10 percent; warrants to
purchase 14,286 shares of the Company's Common Stock at $1.00 per
share which were to expire July 1, 1994; and a .02857 percent net
profits overriding royalty interest in certain of the Company's
exploration prospects, which was not material. In June 1994, the
Company repurchased the Lease Notes at face value plus accrued
interest (approximately $6.4 million) for approximately 5.4
million shares of Common Stock and extended the maturity of the
warrants to June 30, 1995. All of these warrants were exercised
during 1995, generating cash proceeds of $650,013.
Lutcher Moore Group Limited Recourse Debt
As of December 31, 1995 and 1994, Lutcher Moore Group
Limited Recourse Debt consisted of the following:
1995 1994
---- ----
Mortgage and Seller Notes $ 5,229 $ 5,998
Less Current Maturities (5,229) (5,267)
------ ------
$ -- $ 731
====== ======
Mortgage and Seller Notes
-------------------------
At December 31, 1995 and 1994, approximately $2.7 million
and $2.8 million of Mortgage Notes (net of amounts escrowed for
payment) and $2.6 million and $3.2 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 10 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. The
Seller Notes bear interest at 8 percent and have a final maturity
of June 1996. During 1995 and 1994, the Company incurred
approximately $501,000 and $660,000 in interest costs related to
these notes, respectively. Payments of principal and interest on
the Seller Notes are past due. The Company is negotiating an
extension of the maturity dates of the Mortgage and Seller Notes
however, should the Company be unsuccessful in negotiating
further extension, the holders have recourse only to the property
itself, as the Company is not liable for the debt. In May 1994,
in consideration for certain amendments to the terms of the
Seller Notes, the Company issued to the holders of the Seller
Notes warrants to acquire up to 250,000 shares of Common Stock at
$1.25 per share exercisable for a period up to 90 days after the
full repayment of the Seller Notes. No material value was
ascribed to such warrants. Additionally, the Company issued
approximately 1.1 million shares of Common Stock to pay
approximately $900,000 in principal and interest on the Seller
Notes in 1994.
(7) Shareholders' Equity
- ----------------------------
Preferred Stock
As of December 31, 1995 and 1994, the Company had the
following shares of Preferred Stock issued and outstanding:
Preference in
Shares Liquidation at
1995 1994 December 31, 1995
---- ---- -----------------
Series A 599,244 599,244 $ 46,367,000 (1)
Series B 45,679 50,000 4,567,900
Series E 35,647 -- 3,564,700
- ------------
(1) 50 pounds sterling (U.K.) per share (1 pound sterling (U.K.)
= U.S. $1.5475 at December 31, 1995).
Series A Preferred Stock
------------------------
During 1990, the Company completed a rights offering of
600,000 units at 50 pounds sterling (U.K.) per "unit," each unit
consisting of 1 share of Series A, Cumulative Convertible
Preferred Stock, par value $1.00 per share ("Series A Preferred
Stock") and 10 Warrants to purchase Common Stock which expired
unexercised pursuant to their terms.
The Series A Preferred Stock is listed on The London Stock
Exchange, and: ranks senior to Common Stock and pari passu with
the Company's Series B and Series E Preferred Stocks (as
hereinafter defined) with respect to the payment of dividends and
distributions on liquidation; has a liquidation preference of 50
pounds sterling (U.K.) per share plus accrued and unpaid
dividends; is not redeemable except in certain limited
circumstances; is nonvoting as a class, except in certain
circumstances, including the right to cast 21 votes for each
share of Series A Preferred Stock held, on all resolutions
proposed at a meeting of shareholders if at the date of notice
convening a meeting of shareholders the dividend on the Series A
Preferred Stock is six months or more in arrears. Whenever
dividends on the Series A Preferred Stock shall be in arrears for
in excess of 365 days, the holders of the Series A Preferred
Stock will be entitled to vote for the election of two additional
directors until all past dividends accumulated on the Series A
Preferred Stock shall have been paid in full. The Series A
Preferred Stock is convertible, at the holder's option, on the
basis of 21 shares of Common Stock for every one share of Series
A Preferred Stock, subject to adjustment; and bears a cumulative
dividend fixed at an annual rate of 4.50 pounds sterling (U.K.)
per share, payable semiannually in cash, or, at the Company's
election, through the semiannual dividend payment due June 30,
1994, in shares of Common Stock.
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 shares of authorized Series A Preferred Stock
authorized. An aggregate of approximately 53,932 shares of Series
A Preferred Stock are to be issued during 1996 for payment of the
December 31, 1995 dividend and withholding taxes.
Series B Preferred Stock
------------------------
In May 1991, the Company sold 50,000 shares Series B,
Cumulative Preferred Stock, par value $1.00 per share ("Series B
Preferred Stock"), with warrants expiring at various times to
purchase 5 million shares of Common Stock at prices ranging from
$2.00 per share to $2.75 per share.
The Series B Preferred Stock bears a cumulative fixed
dividend at an annual rate of $10 per share, payable
semiannually, and is entitled to 50 votes per share on all
matters on which Common Stockholders are entitled to vote and
separately as a class on certain matters; ranks senior to the
Common Stock and pari passu with the Series A and Series E
Preferred Stocks of the Company with respect to the payment of
dividends and distributions on liquidation; and has a liquidation
preference of $100 per share plus accumulated dividends.
The Company had the option through May 1994, to pay the
dividend in shares of Common Stock, in which case the annual
dividend rate was $12 per share, with the holder being entitled
to require the Company to use its best efforts to sell such
shares on their behalf and to reimburse such holder for the
difference, if any, between such net proceeds and $11 per share
per annum. The Company is currently entitled to pay the
redemption price of the Series B Preferred Stock in shares of
Common Stock.
Effective June 30, 1994, the terms of the Series B Preferred
Stock were amended to permit the Company to issue shares of
Common Stock in lieu of cash dividends for so long as the Series
B Preferred Stock remains outstanding. In consideration for this
amendment, the Series B Preferred Stock was further amended: (i)
to reduce the exercise price of the remaining 2.5 million
warrants outstanding from $2.00 to $1.50 per share and to
increase the number of shares of Common Stock covered by such
warrants to 3.325 million shares and (ii) to extend the option of
the holders to redeem their shares of Series B Preferred Stock,
which were only redeemable on the third, fourth and fifth
anniversaries of the dates of their issuance and automatically
upon exercise of the remaining warrants, upon ninety days notice
to the Company, at any time and from time to time, after August
31, 1994, with the Company retaining the right to pay the
redemption price in Common Stock.
On May 16, 1995, the Company received notice from the Series
B Preferred holder exercising its redemption rights. The Company
has elected to redeem in shares of Common Stock and the holder
has exercised its option to have the Company sell its shares of
Common Stock. The aggregate redemption price is $5 million, plus
accrued dividends from January 1, 1995 to the date of redemption.
The Company has registered 5.3 million shares for sale and has
reserved additional shares should the sale of the registered
shares not be sufficient to fulfill the redemption obligation.
Approximately 4,321 shares had been redeemed at December 31,
1995, from the sale of 919,900 shares of Common Stock. An
additional 725 shares have been redeemed during the first quarter
of 1996 from the sale of 700,000 shares of Common Stock.
Proceeds are first allocated to accrued dividends, with the
remainder applied toward redemption of shares of the Series B
Preferred Stock. 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 C Preferred Stock
------------------------
In September 1993, the Company completed a private placement
of an aggregate of 64,780 shares of Series C, Cumulative
Convertible Preferred Stock, par value $1.00 per share ("Series C
Preferred Stock") resulting in aggregate proceeds of $6.5 million
before expenses of the offering.
In June 1994, the Company issued a redemption notice to the
holders of the Series C Preferred Stock pursuant to which the
Company would redeem their shares for $110 per share plus accrued
dividends, in cash and all such holders elected to convert their
shares of Series C Preferred Stock into Common Stock at a
conversion price of $.463 per share. The Company issued
16,793,153 shares of Common Stock in respect of such conversion
during 1994.
Series D Preferred Stock
------------------------
In December 1993, the Company completed a private placement
of an aggregate of 15 Series D Preferred Stock Units, each unit
comprised of 1,000 shares of Series D, Cumulative Convertible
Preferred Stock, par value $1.00 per share ("Series D Preferred
Stock") and a .015 percent contractual interest in XCL-China's
net revenues under the Production Sharing Agreement relating to
the Zhao Dong Block, which was not material. The Company
realized aggregate proceeds of $1.5 million before expenses of
the offering.
In February 1994, an additional 32 Series D Preferred Stock
Units were issued, each unit comprised of 500 shares of Series D
Preferred Stock and a .0075 percent contractual interest in XCL-
China's net revenues under the Production Sharing Agreement
relating to the Zhao Dong Block which was not material, resulting
in net proceeds of $1.6 million before expenses of the offering.
In July 1994, the Company notified the holders of the Series
D Preferred Stock of its intention to redeem the stock on August
1, 1994, for $110 per share plus accrued dividends, in cash and
all such holders elected to convert their shares of Series D
Preferred Stock into Common Stock at a conversion price of $.463
per share. The Company issued 9,007,162 shares of Common Stock
in respect of such conversion during the third quarter of 1994.
Series E Preferred Stock
------------------------
During the third quarter of 1995 and first quarter of 1996,
the Company completed a private placement of up to an aggregate
of 50,000 shares of a new series of Preferred Stock designated
the Series E, Cumulative Convertible Preferred Stock, $1.00 par
value per share ("Series E Preferred Stock"). As of March 31,
1996, the Company has placed 43,821 shares of Series E Preferred
Stock for which it received approximately $1.9 million in cash
and 2.8 million shares of its unregistered Common Stock valued at
$1.4 million in consideration. The acquisition of the
aforementioned shares of Common Stock is recorded under the par
value method of accounting for treasury stock. The Series E
Preferred Stock is nonvoting, except in certain circumstances,
including the right to elect two directors in the event the
Company fails to pay two consecutive semiannual dividends; bears
a fixed cumulative dividend at the annual rate of $10 per share,
payable semiannually in cash, or, at the Company's election, in
additional shares of Series E Preferred Stock, subject to an
increase to $12 per share in the event the Company fails to
register the underlying Common Stock under the Act by December
31, 1996 ("Conversion Commencement Date") and a further increase
in the event the Company fails to declare and pay a dividend on a
regularly scheduled dividend payment date; is redeemable for cash
by the Company in whole or in part at any time, at a price (the
"Redemption Price") equal to (i) $125 per share if redeemed prior
to March 31, 1996 and (ii) thereafter $120 per share, decreasing
ratably over the succeeding five quarters to $100 per share, in
each case plus accrued and unpaid dividends to the redemption
date; is convertible, at the holder's option, at any time in
whole or in part after the earlier of the ("Conversion
Commencement Date") or the date of any redemption notice into
that number of shares of Common Stock as shall equal the quotient
of the $100 per share divided by $.50, in each case subject to
adjustment; and a liquidation preference of $100 per share, plus
all accrued and unpaid dividends. Currently the Company has an
insufficient number of shares of Common Stock to enable such
securities to be converted and the Company intends to request
approval of an increase in the number of authorized shares of
Common Stock at its Annual Meeting of Shareholders scheduled to
be held in June 1996. The Series E Preferred Stock ranks senior
to the Common Stock and pari passu with the Series A and Series B
Preferred Stock with respect to the payment of dividends and
distributions upon the liquidation of the Company. On December
29, 1995, the Board of Directors declared the semiannual dividend
payable on December 31, 1995, be paid in additional shares of
Series E Preferred Stock. During the first quarter of 1996, an
aggregate 307 shares of Series E Preferred Stock were issued in
respect of this dividend.
Dividends
The Company's Series A Preferred Stock dividend requirements
are approximately 2.7 million pounds sterling (U.K.) annually and
currently insufficient liquidity exists to continue to pay such
amounts. Further, the Company's credit agreement restricts
payment of cash dividends. With the approval of its lender, the
Company intends to pay the June 30, 1995 dividend in cash to be
obtained from the sale of Common Stock. The Company declared
cash dividend payments on its Series A and Series B Preferred
Stocks of $2.6 million and $2.5 million for the six months ended
December 31, 1994 and June 30, 1995, respectively. 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. The Company issued 4.3 million
shares during the third quarter of 1995 under these agreements.
The Company has agreed to register these shares of Common Stock.
Cash dividends remaining to be paid with respect to the June 30,
1995 dividend declaration, aggregate approximately $900,000. The
cash dividend portion is currently ten months in arrears. The
Company, upon obtaining an increase in the number of shares of
Common Stock authorized, intends to either sell sufficient shares
to pay the remaining dividend or offer such shares of Common
Stock in payment of such dividend. The Company issued 5,843,028
and 3,597,436 shares of Common Stock in payment of dividends on
its Series A Preferred Stock in 1994 and 1993. The Company issued
1,538,390 and 210,000 shares of Common Stock in payment of
dividends on its Series B Preferred Stock in 1994 and 1993.
Dividends during 1995 on the Series B Preferred Stock were paid
from proceeds of sales of redemption stock, which were applied
first to accrued dividend then the redemption of shares of Series
B Preferred Stock. During 1994, the Company issued 2,119 shares
of Series C Preferred Stock in payment of Series C Preferred
Stock dividend for December 1993 and June 1994. During 1994, the
Company issued 20 shares of Series D Preferred Stock in payment
of the Series D dividend. During the first quarter of 1996, the
Company issued 307 shares of Series E Preferred Stock in payment
of the dividend payable December 31, 1995 on the Series E
Preferred Stock.
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 shares of authorized Series A Preferred Stock
authorized. An aggregate of approximately 53,932 shares of Series
A Preferred Stock are to be issued during 1996, in payment of the
December 31, 1995 dividend and withholding taxes.
The Company's ability to pay future cash dividends is
restricted by the INCC Agreement.
Common Stock
The Company issued 18,972,814, 104,503,217 and 19,112,611
shares of Common Stock during 1995, 1994 and 1993, respectively.
The Company had 253,642,986, 237,184,410 and 132,681,193 shares
of Common Stock issued and outstanding at December 31, 1995, 1994
and 1993, respectively.
Included in the shares issued during 1995 are approximately
7 million shares of Common Stock sold in an overseas offering
during December 1995. Included in the shares issued during 1994,
are 50 million shares of Common Stock sold at $.50 per share in a
registered public offering during January 1994.
Common Stock Warrants
As of December 31, 1995, outstanding warrants to purchase
the Company's Common Stock are as follows:
<TABLE>
<CAPTION>
Common Stock
Issuable Upon Warrant Exercise Proceeds if
Exercise Price Exercised
------------ ---------------- -------------
<S> <C> <C> <C>
Total Warrants Expiring in 1996 3,675,000 $1.00 to $1.50 $ 4,443,750
Total Warrants Expiring after 1997 <F1> 30,174,903 $0.31 to $1.50 25,881,887
---------- -----------
Total Warrants 33,849,903 $ 30,325,637
========== ===========
- -------------
<FN>
<F1>
Under the terms of certain outstanding warrants, which are
not exercisable until after November 30, 1996, the Company is
required to reserve a sufficient number of shares of Common
Stock to enable such securities to be so converted and
exercised. Currently, the Company has an insufficient number
of shares available for reservation and the Company intends to
request approval for an increase in the number of authorized
shares of Common Stock at its Annual Meeting of Shareholders
scheduled to be held in June 1996.
</FN>
</TABLE>
(8) Income Taxes
- ------------------
The Company has significant loss carryforwards which have
been recorded as deferred tax assets. Due to realization of such
amounts being deemed uncertain with respect to the provisions of
SFAS No. 109, a valuation allowance has been recorded for the
entire amount.
The significant components of the net deferred tax expense
(benefit) for 1995 and 1994, were as follows (000's):
1995 1994
---- ----
Current year tax net operating loss $ (6,243) $ (6,529)
Tax/book depreciation, depletion and
amortization difference (24,936) (6,005)
Oil and gas property expenditures treated
as expense for income tax purposes 2,010 2,740
Other accruals (1,792) (2,763)
Reserve for investments (1,318) (601)
Increase (decrease) in valuation allowance 32,279 13,158
------- -------
$ -- $ --
======= =======
The components of the Company's deferred tax assets and
liabilities as of December 31, 1995 and 1994, were as follows (in
000's):
1995 1994
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 54,329 $ 48,128
Other liabilities and reserves 1,960 1,051
Property and equipment, net 17,454 (7,715)
Valuation allowance (73,743) (41,464)
------- -------
Total deferred tax assets $ -- $ --
======= =======
At December 31, 1995, the Company had net operating loss
carryforwards for tax purposes in the approximate amount of $146
million which are scheduled to expire by the year 2010.
Additionally, the Company has available acquired net operating
loss carryforwards in the approximate amount of $9 million which
are scheduled to expire by the year 2000, and which are available
to offset taxable income of an acquired subsidiary.
At December 31, 1995, the Company had alternative minimum
tax carryforwards in the approximate amount of $91 million which
are scheduled to expire by the year 2010. Additionally, the
Company has acquired alternative minimum tax loss carryforwards
in the approximate amount of $12 million which are scheduled to
expire by the year 2000, and which are available for use by an
acquired subsidiary. The Company also has $1 million of general
business credit carryforwards which are available until the year
2000 to offset future tax liabilities of an acquired subsidiary.
(9) Stock Option Plans
- ------------------------
The Company's stock option plans provide for the issuance of
incentive and nonqualified stock options. Under these plans the
Company is authorized to grant options to selected employees,
directors and consultants to purchase shares of the Company's
Common Stock at an exercise price (for the Company's incentive
stock options) of not less than the market value at the time such
options are granted. In June 1992, the shareholders of the
Company approved the adoption of the Company's Long-Term Stock
Incentive Plan ("LTSIP") under which the Company is authorized to
issue an aggregate of 16.5 million shares of Common Stock
pursuant to future awards granted thereunder. The Company's prior
stock option plans will be consolidated into the LTSIP by
replacing options granted under the existing stock option plans
with comparable options granted under the LTSIP for an equivalent
number of shares.
A summary of the stock option plans activity for the years
ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Non-
Incentive Qualified
Total Options Options
----- --------- ---------
<S> <C> <C> <C>
Balance outstanding at December 31, 1992 9,454,290 3,879,295 5,574,995
Options granted in 1993 at prices ranging
from $0.9375 to $1.25 per share 600,000 100,000 500,000
Options canceled during year (1,145,600) (887,822) (257,778)
--------- --------- ---------
Balance outstanding at December 31, 1993 8,908,690 3,091,473 5,817,217
Options granted in 1994 at $1.25 4,896,683 2,077,500 2,819,183
Options canceled during year (1,200,200) (1,100,200) (100,000)
Options exercised during year (140,000) -- (140,000)
---------- --------- ---------
Balance outstanding at December 31, 1994 12,465,173 4,068,773 8,396,400
Options granted in 1995 at $1.25 per share 680,000 200,000 480,000
Options canceled during year (1,455,500) (1,055,358) (400,142)
---------- --------- ---------
Balance outstanding at December 31, 1995 11,689,673 3,213,415 8,476,258
========== ========= =========
Shares exercisable at December 31, 1993 8,422,022 2,805,413 5,616,609
========== ========= =========
Shares exercisable at December 31, 1994 9,586,828 3,153,765 6,433,063
========== ========= =========
Shares exercisable at December 31, 1995 10,258,327 2,987,072 7,271,255
========== ========= =========
Shares available for future grant under
the plans at December 31, 1995 4,810,327
==========
</TABLE>
(10) Employee Benefit and Incentive Compensation Plans
- --------------------------------------------------------
In 1989, the Company adopted an employee benefit plan under
Section 401(k) of the Internal Revenue Code, for the benefit of
employees meeting certain eligibility requirements. The Company
has received a favorable determination letter from the Internal
Revenue Service regarding the tax favored status of the 401(k)
plan. Employees can contribute up to 10 percent of their
compensation. The Company, at its discretion and subject to
certain limitations, may contribute up to 75 percent of the
amount contributed by each participant. There were no Company
contributions in 1995, 1994 or 1993.
(11) Other Commitments and Contingencies
- ------------------------------------------
Other commitments, contingencies and subsequent events
include:
o Under the Production Sharing Agreement effective May 1993,
pursuant to which the Company acquired exploration,
development and production rights to the Zhao Dong Block,
the Company remains obligated to drill two additional
exploratory wells by May 1996. In 1994, the Company farmed
out one-third of its interest in the concession, accordingly
the costs of the remaining exploratory wells will be shared
two-thirds by the Company and one-third by the partner. In
May 1995, the Company and its partner entered into an
agreement, approved by Chinese authorities in August 1995,
whereby the partner would:
(i) pay 100 percent of the costs to drill and
test three wildcat wells on the Zhao Dong Block.
(ii) pay 100 percent of the costs to drill and test
the C-3 appraisal well in the "C" Field.
(iii) purchase from the Company a 16.67 percent
interest in the oil and gas reserves of the "C" Field.
Payment for this purchase will be computed and made to
the Company from time to time as the field is being
developed in order to insure that the Company will
receive the full market value of the 16.67 percent
interest; and
(iv) assume operatorship of the Zhao Dong Block
and, in consideration of the above identified wells to
be drilled at Apache China Corporation LDC's ("Apache")
sole cost for the Company, acquire from the Company an
additional 16.67 percent interest in the remainder of
the block outside the "C" Field.
Pursuant to the above agreements, the Company will
retain a 50 percent interest in its original ownership
in the Zhao Dong Block. Under the Production Sharing
Agreement the Company remains obligated to drill one
additional exploratory well by May 1997. The cost of
the D-1 well and the remaining exploratory well will be
paid by Apache, as described in (i) above.
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.
Amounts involved in later months joint interest billings and
cash calls were subsequently added to the submission. As of
March 4, 1996, the total amount in dispute and claimed by
Apache to be owed by the Company was $1.78 million. The
Company believes that these charges have been fully provided
for in the consolidated financial statements.
o The Company has future commitments of $1.8 million associated
with its joint venture contract to enter the lubricating oil
business in China.
o During 1992, the Company received notice, and amendment
thereto, of a proposed assessment for state income and
franchise taxes. During December 1993, the Company and two
of its wholly-owned subsidiaries, XCL-Texas, Inc. and XCL
Acquisitions, Inc. were sued in separate law suits entitled
Ralph Slaughter, Secretary of the Department of Revenue and
Taxation, State of Louisiana vs. Exploration Company of
Louisiana, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5449); Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State
of Louisiana vs. XCL-Texas, Incorporated (15th Judicial
District, Parish of Lafayette, Louisiana, Docket No. 93-
5450); and Ralph Slaughter, Secretary of the Department of
Revenue and Taxation, State of Louisiana vs. XCL
Acquisitions, Inc. (15th Judicial District, Parish of
Lafayette, Louisiana, Docket No. 93-5337) by the Louisiana
Department of Revenue for Louisiana State corporate
franchise and income taxes. The claims relate to
assessments for the 1987 through 1991 fiscal years. The
aggregate amount of the assessments, including penalties and
interest, is approximately $2.25 million as of the original
due date excluding extensions for filing of the respective
returns. The Company believes that this contingency has
been adequately provided for in the consolidated financial
statements. The law suits are all in their initial stages.
The Company has filed answers to each of these suits and
intends to defend them vigorously. The Company believes 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 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 The Company is subject to other legal proceedings which arise
in the ordinary course of its business. In the opinion of
Management, the amount of ultimate liability with respect to
these actions will not materially affect the financial
position of the Company or results of operations of the
Company.
o The Company is subject to existing federal, state and local
laws and regulations governing environmental quality and
pollution control. Although management believes that such
operations are in general compliance with applicable
environmental regulations, risks of substantial costs and
liabilities are inherent in oil and gas operations, and
there can be no assurance that significant costs and
liabilities will not be incurred.
(12) Other Related Party Transactions
- ---------------------------------------
The Company had transactions with certain officers and
affiliates not disclosed elsewhere, as follows:
o In connection with the scrip dividend payments on the
Company's Series A Preferred Stock (see Note 7 to the
Consolidated Financial Statements) and certain financings,
an entity in which a former director of the Company is
employed received approximately $13,475 in 1994 in advisory
fees and administrative services. The parent company of the
entity, acted as an escrow agent in the Company's registered
public offering completed in January 1994 and received
$45,000 in payment for such service. This entity also owns
$2.25 million in principal amount of the Company's Secured
Subordinated Notes due April 5, 2000 and in 1994 received
292,335 shares of Common Stock in respect of interest due
thereon. In connection with the Net Revenue Interest
acquired as a result of the Subordinated Debt investment,
this entity received $733. During 1994, another affiliated
entity, from time to time, acted on behalf of the Company as
a placing agent for sales of the Company's securities in the
United Kingdom and provided financial consulting services
for the Company for which it received an aggregate of
$1,169,925 in such capacities. Additionally, this entity
was issued 417,566 shares of Common Stock with a fair market
value of $417,566 in lieu of a cash payment for services
rendered and to be rendered in connection with an
introduction of the Company to the Hong Kong Stock Exchange
and other corporate advisory services related to the
Company's activities in the Far East.
o During 1995, a director of the Company who was also a holder
of one Lease Note unit received 14,286 shares of Common
Stock upon exercise of a warrant comprising a portion of the
Lease Note Unit and has received cash payments aggregating
$273 under net revenue interests held. During 1994, he
received 77,231 shares of Common Stock upon tender of his
Lease Note ($91,712 principal and accrued interest).
Additionally in 1994, such director received cash payments
totaling $690 under net revenue interests held on certain of
the Company's domestic producing properties. Such net
revenue interests were assigned as a portion of the Lease
Note unit.
o In 1994, the Company purchased from a company affiliated with
a former director an interest in a 72,000-acre ranch in
south Texas by issuance of Common Stock (see Note 5 to the
Consolidated Financial Statements).
o In 1988, the Chairman of the Company received a deposit of
approximately $200,000 in consideration of his continuing
guaranty of the Company's building mortgage loan. This
deposit is to be repaid upon the satisfaction of the
mortgage.
(13) Oil and Gas Producing Activities
- ---------------------------------------
The following supplementary information is presented in
accordance with the requirements of Statement of Financial
Accounting Standards No. 69 - "Disclosures About Oil and Gas
Producing Activities."
Results of Operations from Oil and Gas Producing Activities
-----------------------------------------------------------
The results of operations from oil and gas producing
activities for the three years ended December 31, 1995 are as
follows (000's):
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1995 1994 1993
---- ----- ----
<S> <C> <C> <C>
Revenues from oil and gas producing activities:
Sales to unaffiliated parties $ 2,480 $ 4,336 $ 8,499
------- ------- -------
Production (lifting) costs:
Operating costs (including marketing) 985 1,341 2,449
State production taxes and other 51 356 573
------- ------- -------
Production costs 1,036 1,697 3,022
Depletion and amortization 1,989 3,059 5,562
Provision for impairment of oil and gas properties 75,300 25,900 8,000
------- ------- ------
Total expenses 78,325 30,656 16,584
------- ------- -------
Pre-tax loss from producing activities (75,845) (26,320) (8,085)
Income tax expense -- -- --
------- ------- -------
Results of oil and gas producing activities (excluding
corporate overhead and interest costs) $(75,845) $(26,320) $ (8,085)
======= ======= =======
</TABLE>
The depreciation, depletion and amortization (DD&A) rate
averaged $1.23, $1.25 and $1.27 per equivalent Mcf in 1995, 1994
and 1993, respectively.
Capitalized Costs
Capitalized costs and accumulated depreciation, depletion
and amortization relating to the Company's proved and unproved
oil and gas properties, are as follows (000's):
December 31
----------------
1995 1994
---- ----
Proved properties $ -- $158,634
Domestic unproved properties -- 37,856
Foreign unproved properties 27,315 17,696
------- -------
Total 27,315 214,186
Accumulated depreciation, depletion and
amortization, and valuation allowances -- (98,388)
------- -------
Total net capitalized costs $ 27,315 $115,798
======= =======
The capitalized costs for the foreign properties represent
cumulative expenditures related to the Zhao Dong Block Production
Sharing Agreement.
The Company's investment in oil and gas properties as of
December 31, 1995, consists of unevaluated properties which have
been excluded from amortization. Such costs will be evaluated in
future periods based on management's assessment of exploration
activities, expiration dates of licenses, permits and
concessions, changes in economic conditions and other factors. As
these properties become evaluated, their cost and related
estimated future revenue will be included in the calculation of
the DD&A rate. Such costs were incurred as follows:
Costs for unproved properties were incurred as follows
(000's):
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
Total 1995 1994 1993 1992 and Prior
----- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
Property acquisition costs $ 22,185 $ 7,023 $ 8,978 $ 4,787 $ 1,397
Capitalized interest costs 5,130 2,596 1,792 742 --
------- ------ ------ ------ ------
Total unproved properties $ 27,315 $ 9,619 $10,770 $ 5,529 $ 1,397
====== ====== ======= ====== ======
</TABLE>
Capitalized Costs Incurred
Total capitalized costs incurred by the Company with respect
to its oil and gas producing activities including those held for
sale were as follows (000's):
Year Ended December 31
-------------------------
1995(a) 1994(a) 1993(a)
------- ------- -------
Costs incurred:
Unproved properties acquired $ 7,209 $ 9,458 $ 6,329
Capitalized internal costs 135 660 1,246
Capitalized interest and
amortized debt costs 3,075 5,239 6,171
Exploration -- 2,181 2,256
Development 1,590 3,798 2,395
Total costs incurred $12,009 $21,336 $ 18,397
- -----------
(a) Includes Zhao Dong Block expenditures net of partner
reimbursements of $7,023, $8,978 and $4,787 in 1995, 1994
and 1993, respectively for property acquisition costs and
capitalized interest of $2,596, $1,792 and $742 in 1995,
1994 and 1993, respectively.
Proved Oil and Gas Reserves (Unaudited)
---------------------------------------
The following table sets forth estimates of the Company's
net interests in proved and proved developed reserves of oil and
gas and changes in estimates of proved reserves. The Company's
net interests are located in the United States.
Crude Oil (Mbbls)
-------------------
1995 1994 1993
---- ---- ----
Beginning of year 294 395 402
Revisions of previous estimates 24 (66) 20
Extensions and discoveries -- -- --
Production (19) (31) (38)
Purchases (sales) of minerals in place (241) (4) 11
Transfer of property to assets
held for sale (58) -- --
---- --- ---
End of year -- 294 395
==== === ===
Proved developed reserves -
Beginning of year 126 153 153
==== === ===
End of year -- 126 153
==== === ===
Natural Gas (Mmcf)
------------------
1995 1994 1993
---- ---- ----
Beginning of year 74,208 77,886 92,431
Revisions of previous estimates (9,003) (9,547) (9,942)
Extensions and discoveries -- 8,227 2,616
Production (1,474) (2,218) (4,397)
Purchases (sales) of minerals
in place (6,274) (140) (2,822)
Transfer of property to assets
held for sale (57,457) -- --
------- ------ ------
End of year -- 74,208 77,886
======= ====== ======
Proved developed reserves -
Beginning of year 34,792 38,161 50,185
======= ====== ======
End of year -- 34,792 38,161
======= ====== ======
The revisions in the Company's estimated quantities of gas
and oil are attributable to revised estimates by Company
engineers in 1995 and 1994 and independent petroleum engineers in
fiscal 1993. For fiscal 1993, 1994 and 1995 significant downward
revisions were attributed to the Company's interest in the Cox
Field in Texas due largely to performance of producing wells.
Supplementary Information (Unaudited)
-------------------------------------
The supplementary information set forth below presents
estimates of discounted future net cash flows from proved oil and
gas reserves and changes in such estimates. This information has
been prepared in accordance with requirements prescribed by the
Financial Accounting Standards Board (FASB). Inherent in the
underlying calculations of such data are many variables and
assumptions, the most significant of which are briefly described
below:
Future cash flows from proved oil and gas reserves were
computed on the basis of (a) contractual prices for oil and gas -
including escalations for gas - in effect at year-end, or (b) in
the case of properties being commercially developed but not
covered by contracts, the estimated market price for gas and the
posted price for oil in effect at year-end. Probable and
possible reserves - a portion of which, experience has indicated,
generally become proved once further development work has been
conducted - are not considered. Additionally, estimated future
cash flows are dependent upon the assumed quantities of oil and
gas delivered and purchased from the Company. Such deliverability
estimates are highly complex and are not only based on the
physical characteristics of a property but also include
assumptions relative to purchaser demand. Future prices actually
received may differ from the estimates in the standardized
measure.
Future net cash flows have been reduced by applicable
estimated operating costs, production taxes and future
development costs, all of which are based on current costs.
Future net cash flows are further reduced by future income
taxes which are calculated by applying the statutory federal
income tax rate to pre-tax future net cash flows after
utilization of available tax carryforwards.
To reflect the estimated timing of future net cash flows,
such amounts have been discounted by the FASB prescribed annual
rate of 10 percent.
In view of the uncertainties inherent in developing this
supplementary information, it is emphasized that the information
represents approximate amounts which may be imprecise and extreme
caution should accompany its use and interpretation.
Standardized Measure of Discounted Future Net Cash Flows Related
- ----------------------------------------------------------------
to Proved Oil and Gas Reserves (Unaudited)
------------------------------------------
The standardized measure of discounted future net cash flows
from proved oil and gas reserves, determined in accordance with
rules prescribed by the FASB, is summarized as follows:
Year Ended December 31
------------------------
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
Future cash inflows $103,048 $159,666 $181,684
Future costs:
Production, including taxes (20,937) (30,455) (33,012)
Development (35,276) (34,534) (33,850)
------- ------- -------
Future net inflows before
income taxes 46,835 94,677 114,822
------- ------- -------
Future income taxes -- -- --
------- ------- -------
Future net cash flows 46,835 94,677 114,822
10% discount factor (20,795) (34,429) (49,634)
Transfer of properties to assets
held for sale (26,040) -- --
------- ------- -------
Standardized measure of
discounted net cash flows $ -- $ 60,248 $ 65,188
======= ======= =======
The standardized measure of discounted net cash flows
included a tight gas severance tax exemption as provided for in
Texas Railroad Commission Statewide Rule 105. This exemption
results in approximately $2.7 million of net present value
discounted at 10 percent. The tight gas severance tax exemption
is a temporary exemption which expires on August 31, 2001. There
are no circumstances that must be met to keep the exemption in
place.
Changes in Standardized Measure of Discounted Future Net Cash
-------------------------------------------------------------
Flow From Proven Reserve Quantities (Unaudited)
-----------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- -----
(Thousands of Dollars)
<S> <C> <C> <C>
Standardized measure-beginning of year $ 60,248 $ 65,188 $ 71,246
Increases (decreases):
Sales and transfers, net of production costs (1,347) (2,639) (5,477)
Net change in sales and transfer prices, net of
production costs (15,095) (3,458) 5,384
Extensions, discoveries and improved recovery, net of
future costs -- 8,664 1,245
Changes in estimated future development costs (2,886) (526) 1,657
Development costs incurred during the period that
reduced future development costs 1,117 -- --
Revisions of quantity estimates (8,003) (14,695) (10,572)
Accretion of discount 6,024 6,519 7,125
Net change in income tax -- -- --
Purchase (sales) of reserves in place (4,654) (157) (3,071)
Changes in production rates (timing) and other (9,364) 1,352 (2,349)
Reclassification of reserves to assets held for sale (26,040) -- --
------- ------- -------
Standardized measure-end of year $ -- $ 60,248 $ 65,188
======= ======= =======
</TABLE>
(14) Supplemental Financial Information (Unaudited)
- -------------------------------------------------------
Quarterly Results of Operations
-------------------------------
<TABLE>
<CAPTION>
Quarter Year
------------------------------------------- -----
First Second Third Fourth
----- ------ ----- ------
(Thousands of Dollars, Except Per Share Amounts)
1995
- ----
<S> <C> <C> <C> <C> <C>
Oil and gas revenues $ 678 $ 724 $ 604 $ 474 $ 2,480
Loss from operations <F1> (1,269) (12,349) (10,362) (61,693) (85,673)
Net loss <F1> (1,612) (13,263) (10,496) (62,466) (87,837)
Net loss per share <F1> (.01) (.07) (.04) (.26) (.38)
1994
- ----
Oil and gas revenues $ 1,338 $ 1,209 $ 1,118 $ 671 $ 4,336
Loss from operations <F1> (1,162) (11,009) (8,791) (12,913) (33,875)
Loss before extraordinary Item (1,592) (11,415) (9,720) (12,153) (34,880)
Net loss <F1> (3,334) (11,415) (9,720) (12,153) (36,622)
Net loss per share <F1> (.02) (.07) (.05) (.06) (.21)
- -----------
<FN>
<F1>
1995 and 1994 results include a provision for impairment of
oil and gas properties of $75,300 and $25,900, respectively.
</FN>
</TABLE>
Item 9. Changes in and Disagreements on Accounting and
- --------------------------------------------------------
Financial Disclosure.
--------------------
There have been no changes in and there are no disagreements
with the Company's accountants on accounting and financial
disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- --------------------------------------------------------------
Officers of the Company and its wholly owned subsidiaries
serve at the pleasure of the Board of Directors and are appointed
annually at the meeting of the Board of Directors immediately
following the annual meeting of shareholders. The following
individuals were officers and directors of the Company and its
subsidiaries during 1995.
<TABLE>
<CAPTION>
Officer Director
Name Position Age Since Since
------ ----------- --- ------- --------
<C> <C> <C> <C> <C>
Marsden W. Miller, Jr. Chairman of the Board and Chief
Executive Officer <F1> 54 1981 1981
John T. Chandler President and Director, Chairman and
Chief Executive
Officer of XCL-China Ltd. <F1><F7> 63 1982 1983
David A. Melman Executive Vice President, General
Counsel, Secretary
and Director <F1> 53 1983 1987
Edmund McIlhenny, Jr. Director of the Company, President of
XCL Land, Ltd. <F4> 50 1991 1990
Fred Hofheinz Director of the Company, Attorney at
Law <F2><F3> 58 -- 1991
Arthur W. Hummel, Jr. Director of the Company, Independent
Consultant <F2><F3><F5> 75 -- 1994
Sir Michael Palliser Director of the Company, Independent
Consultant <F2><F3><F5> 73 -- 1994
Francis J. Reinhardt, Jr. Director of the Company, Partner in
Carl H. Pforzheimer & Co. <F2><F3> 66 -- 1992
Danny M. Dobbs Executive Vice President and Chief
Operations Officer <F6> 50 1991 --
Herb Hamilton Executive Vice President Operations,
XCL-China, Ltd. <F7><F8> 60 1995 --
Pamela G. Shanks Vice President-Finance, Chief
Financial Officer
and Treasurer <F9> 43 1992 --
R. Thomas Fetters, Jr. President, XCL-China, Ltd. <F7><F10> 56 1990 --
Roy F.C. Chase Vice President and General Manager,
XCL-China, Ltd. <F7><F11> 70 1993 --
R. Carter Cline Vice President-Land 47 1990 --
Perry L. Dragon Vice President-Engineering <F12> 46 1989 --
John H. Haslam Treasurer <F13> 54 1996 --
- ----------------
<FN>
<F1>
Member of the Executive Committee. The Committee met four
times during 1995 and, subject to certain statutory
limitations on its authority, has all of the powers of the
Board of Directors while the Board is not in session, except
the power to declare dividends, make and alter Bylaws, fill
vacancies on the Board or the Executive Committee, or change
the membership of the Executive Committee.
<F2>
Member of the Compensation Committee. The Committee met once
in 1995. It is charged with the responsibility of
administering and interpreting the Company's stock option
plans; it also recommends to the Board the compensation of
employee-directors, approves the compensation of other
executives and recommends policies dealing with compensation
and personnel engagements.
<F3>
Member of the Audit Committee. The Committee met once in
1995. It reviews with the independent auditors the general
scope of audit coverage. Such review includes consideration
of the Company's accounting practices, procedures and system
of internal accounting controls. The Committee also
recommends to the Board the appointment of the Company's
independent auditors, and at least annually, the Committee
reviews the services performed and the fees charged by the
independent auditors engaged by the Company.
<F4>
XCL Land, Ltd. is a wholly owned subsidiary of the Company
through which the Company holds title to and manages its fee
properties. Effective February 1, 1996, Mr. McIlhenny
resigned as an officer of XCL Land, Ltd.
<F5>
Effective March 1, 1996, Mr. Palliser retired from Samuel
Montagu & Co. Limited
<F6>
Effective March 17, 1994, Mr. Dobbs was appointed to the
position of Executive Vice President and Chief Operations
Officer of the Company.
<F7>
XCL-China, Ltd. is a wholly owned subsidiary of the Company
which manages the Company's oil and gas operations in the
PRC.
<F8>
Mr. Hamilton commenced employment with the Company on April
24, 1995.
<F9>
Effective February 1, 1996, Ms. Shanks resigned as an
officer of the Company.
<F10>
Mr. Fetters resigned as an officer of the Company effective
September 15, 1995. Mr. Chase resigned as an officer of XCL-
China, Ltd. effective May 1, 1995.
<F11>
Mr. Chase served as a consultant to the Company from May 1,
1995 to August 10, 1995.
<F12>
On September 19, 1995, Mr. Dragon resigned as an officer of
the Company.
<F13>
Mr. Haslam was appointed Treasurer on March 21, 1996.
</FN>
</TABLE>
Under the Certificate of Incorporation and Bylaws of the
Company, the Board of Directors is divided into three classes of
directors serving staggered three-year terms, with one class of
directors to be elected at each annual meeting of shareholders
and to hold office until the end of their term and until their
successors have been elected and qualified. The current Class III
directors, whose terms of office expire at the 1996 annual
meeting of shareholders, are Messrs. John T. Chandler and Fred
Hofheinz; and the current Class I directors, whose terms of
office expire at the 1997 annual meeting of shareholders, are
Messrs. David A. Melman, Arthur W. Hummel, Jr. and Michael
Palliser, and the current Class II directors, whose term of
office expire at the 1998 annual meeting of shareholders, are
Messrs. Marsden W. Miller, Jr., Francis J. Reinhardt, Jr. and
Edmund McIlhenny, Jr.
The Board held four meetings in 1995. The average attendance
by directors at these meetings was 86 percent, and all directors
attended 95 percent of the Board and Committee meetings they were
scheduled to attend.
Under Delaware law and the Bylaws, incumbent directors have
the power to fill any vacancies on the Board of Directors,
however occurring, whether by an increase in the number of
directors, death, resignation, retirement, disqualification,
removal from office or otherwise. Any director elected by the
Board to fill a vacancy would hold office for the unexpired term
of the director whose place has been filled; except that a
director elected to fill a newly created directorship resulting
from an increase in the number of directors, whether elected by
the Board or shareholders, would hold office for the remainder of
the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until his
successor is elected and qualified. If the size of the Board is
increased, the additional directors would be apportioned among
the three classes to make all classes as nearly equal as
possible.
Pursuant to the terms of an agreement dated April 17, 1992
between the Company and China Investment & Development Co., Ltd.
("CIDC"), the Company granted to CIDC the right to appoint a
nonvoting observer to the Company's Board of Directors so long as
CIDC owns at least 16,667 shares of Series B Preferred Stock or
their equivalent in Common Stock on an as converted basis.
There are no arrangements or understandings with any
directors pursuant to which he has been elected a director nor
are there any family relationships among any directors or
executive officers.
Biographical Information
- ------------------------
MARSDEN W. MILLER, JR., is the Chairman and Chief Executive
Officer of the Company, as well as a director, and has held the
positions of Chief Executive Officer and director since its
incorporation. Prior to 1981, from 1964, Mr. Miller engaged in
the oil business as an independent, was an officer in various oil
companies, principally Westrans Industries, Inc. from 1970 to
1973, Meridian Minerals, Inc. from 1973 to 1976, and Miller Coal
Services, Inc. and its subsidiaries from 1979 to 1981, and
practiced law.
JOHN T. CHANDLER, is President of the Company and Chairman
and Chief Executive Officer of XCL-China Ltd., a wholly owned
subsidiary of the Company responsible for the Company's
operations in the PRC. He joined the Company in June 1982,
becoming a director in May 1983. From 1976 until he joined the
Company, he was the Managing Partner of the Oil and Gas Group of
GSA Equity, Inc., New York and director of Executive Monetary
Management, Inc., the parent company of GSA Equity, Inc. From
1972 to 1976, he was director and Vice President of Exploration
and Production of Westrans Petroleum, Inc. and a director of a
number of its subsidiaries. During 1971 and 1972, he was a
petroleum consultant and manager of the oil department of Den
Norske Creditbank in Oslo, Norway. Mr. Chandler was Vice
President and Manager of the Petroleum Department of the Deposit
Guaranty National Bank in Jackson, Mississippi from 1969 to
August 1971 and, from 1967 to February 1969, was a petroleum
engineer first for First National City Bank and then The Bank of
New York. From March 1963 to July 1967, he was employed by
Ashland Oil and Refining Company as a petroleum engineer. From
1959 to 1963, he held the same position with United Producing
Company, Inc., which was acquired by Ashland Oil.
Mr. Chandler graduated from the Colorado School of Mines
with a Professional degree in petroleum engineering and is a
Registered Professional Engineer in the States of Colorado and
Texas, a member of the Society of Petroleum Evaluation Engineers
and a member of AIME.
DAVID A. MELMAN, is Executive Vice President, General
Counsel and Secretary of the Company and, since September 14,
1987, a director of the Company. Prior to joining the Company in
December of 1983, he held senior management positions with an oil
and gas venture capital partnership sponsored by Citibank N.A.
(since May 1981) and with Energy Assets International Corporation
from September 1978 to May 1981. His professional experience
includes the practice of law with Burke & Burke (1969-1971) and
of accountancy with Coopers & Lybrand (1968-1969). He is a member
of the New York State Bar and is a director of Sheffield
Exploration Company, Inc., an American Stock Exchange listed
company. Mr. Melman holds a B.S. degree in economics and J.D.
and LL.M (taxation) law degrees.
EDMUND McILHENNY, JR., joined the Company in August 1991, as
President of XCL Land, Ltd., a wholly owned subsidiary of the
Company. From 1972 to 1974, he was involved in the practice of
law in New Orleans, Louisiana. From 1975, Mr. McIlhenny held
various administrative positions with E. McIlhenny's Son
Corporation, and subsidiaries, involved primarily in the
manufacture of TABASCO, including Vice President, Secretary and a
director, as well as a member of its Executive Committee. From
1984 to the present, he has been a director, member of the
Executive Committee and Land Management Committee, and in 1988
was elected Vice President and Secretary, of Vermilion
Corporation, a land holding company located in Abbeville,
Louisiana. Mr. McIlhenny is a graduate of the University of North
Carolina at Chapel Hill with a B.A. degree and the Tulane
University School of Law with a J.D. degree. Mr. McIlhenny was
elected a director in June 1990. Effective February 1, 1996, Mr.
McIlhenny resigned as President of XCL Land, Ltd.
FRED HOFHEINZ, is an attorney at law in Houston, Texas. From
1984 to 1987, he served as President of Energy Assets
International Corporation, a fund management company, now a
subsidiary of Torch Energy Advisors, then served as a consultant
to Torch Energy Advisors until 1989. Mr. Hofheinz also served as
the Mayor of Houston, Texas from 1974 to 1978. He, along with his
family, developed the Astrodome in Houston, and owned the Houston
Astros baseball team until 1974. He is founder and director of
United Kiev Resources, Inc., an oil and gas production company
operating in the Republic of the Ukraine in the name of its
wholly owned subsidiary, Carpatsky Petroleum Company. Mr.
Hofheinz earned a Ph.D. degree in Economics from the University
of Texas and his law degree from the University of Houston. He
was appointed as a director by the Board at a meeting held March
21, 1991.
ARTHUR W. HUMMEL, JR., a director since April 1994, has been
active in consulting with firms doing business in East Asia, and
participating in academic and scholarly conferences in the U.S.
and in the East Asia region since his retirement, after thirty
five years of service, from the State Department in 1985. He is a
member and trustee of many academic, business, and philanthropic
organizations involved in international affairs.
Mr. Hummel was born in China. After education in the U.S.
he returned to China prior to Pearl Harbor. After internment by
the Japanese he escaped and fought with Chinese guerrillas behind
the Japanese lines in north China until the end of the war.
He obtained an M.A. (Phi Beta Kappa) in Chinese studies from
the University of Chicago in 1949, and joined the State
Department in 1950. His early foreign assignments include Hong
Kong, Japan and Burma. He was Deputy Director of the Voice of
America in 1961-1963; Deputy Chief of Mission of the American
Embassy in Taiwan, 1965-1968; Ambassador to Burma, 1968-1970;
Ambassador to Ethiopia, 1975-1976; Ambassador to Pakistan, 1977-
1981; and Ambassador to the People's Republic of China, 1981-
1985. He was Assistant Secretary of State for East Asia 1976-
1977. He has received numerous professional awards from within
and outside the Government.
SIR MICHAEL PALLISER, a director since April 1994, was until
his retirement in March 1996, Vice Chairman of Samuel Montagu &
Co. Limited, the merchant bank which was owned by Midland Bank,
of which he was Deputy Chairman from 1987 to 1991, and which is
now part of the Hong Kong & Shanghai Banking Corporation. He was
Chairman of Samuel Montagu from 1984 to 1993. In 1947, he joined
the British Diplomatic Service and served in a variety of
overseas and Foreign Office posts before becoming head of the
Planning Staff in 1964-1966, Private Secretary to the Prime
Minister, 1966-1969, Minister in the British Embassy in Paris,
1969-1971, and the British Ambassador and Permanent
Representative to the European Communities in Brussels from 1971-
1975. He was, from 1975 until his retirement in 1982, Permanent
Under-Secretary of State in the Foreign and Commonwealth Office,
and Head of the Diplomatic Service. From April to July 1982, he
was a special adviser to the Prime Minister in the Cabinet Office
during the Falklands War. He was appointed a Member of the Privy
Council in 1983. Effective December 31, 1995, Mr. Palliser
resigned as President of the China-Britain Trade Group and a
director of the UK-Japan 2000 Group, and effective February 29,
1996, he resigned as Deputy Chairman of British Invisibles. Mr.
Palliser currently is a member of the Trilateral Commission, a
director of the Royal National Theatre, and Chairman of the Major
Projects Association, designed to assist in and for the handling
of major industrial projects. He is a former Director of BAT
Industries, Bookers, Eagle Star, Shell and United Biscuits.
Sir Michael Palliser was educated at Wellington College and
Merton College, Oxford. He saw wartime service in the British
Army with the Coldstream Guards.
FRANCIS J. REINHARDT, JR., is a partner in the New York
investment banking firm of Carl H. Pforzheimer & Co. Mr.
Reinhardt has been a partner in the firm for 30 years and has
held various positions, specializing in independent oil and gas
securities, mergers and acquisitions, placements participation
and institutional sales since 1956. Mr. Reinhardt holds a B.S.
degree from Seton Hall University and received his M.B.A. from
New York University. Mr. Reinhardt is a member of the New York
Society of Security Analysts, is a member of and has previously
served as president of the Oil Analysts Group of New York, is a
member and past president of the National Association of
Petroleum Investment Analysts and is a member of the Petroleum
Exploration Society of New York. Mr. Reinhardt also serves as a
director of Mallon Resources Corporation, a NASDAQ traded
petroleum and mining company, as well as several privately held
companies. Mr. Reinhardt was appointed as a director of the
Company by the Board at a meeting held December 11, 1992.
DANNY M. DOBBS, is the Executive Vice President and Chief
Operating Officer of the Company effective March 1994. Mr. Dobbs
previously served as Vice President-Exploration of XCL
Exploration & Production, Inc., a wholly owned subsidiary of the
Company, having joined the Company in 1985 as Senior Exploration
Geologist. From 1981 to 1985 Mr. Dobbs was a consulting
geologist. From 1976 to 1981, he held the position of Exploration
Geologist in the South Louisiana District for Edwin L. Cox in
Lafayette, Louisiana. He served in various geologic positions
with Texaco, Inc. from 1971 to 1976 where his experience
encompassed management, structural and stratigraphic mapping,
coordination of seismic programs and budget evaluation and
preparation. Mr. Dobbs holds B.S. and M.S. degrees in geology
from the University of Alabama, Tuscaloosa, Alabama.
HERB HAMILTON is Vice President Operations of XCL-China
Ltd., having joined the Company in 1995. Mr. Hamilton has more
than 30 years of experience in the fields of engineering,
construction, construction management and consulting on heavy
civil works, offshore platforms, submarine pipelines and
construction equipment in over 35 countries. From 1990 to 1993,
Mr. Hamilton served as Senior Project Manager for Earl and Wright
in Houston, Texas. From 1993 to 1994, he served as President and
a consultant to Planterra, Inc. in Houston, Texas and from 1994
until joining the Company, he was an independent consultant. Mr.
Hamilton is a Registered Professional Engineer and holds a B.S.
in Architectural Engineering from the University of Texas at
Austin.
R. CARTER CLINE is Vice President-Land, having joined the
Company in October 1990. He has over 20 years of exploration and
management experience. From 1982, until joining the Company, he
was employed by Pacific Enterprises Oil Company (USA), successor
by merger to Sabine Corporation, as East Gulf Coast Regional Land
Manager in Houston, Texas. From 1979 to 1982, he served as Vice
President-Land for Dynamic Exploration, Inc. in Lafayette,
Louisiana. From 1974 to 1979, he served as Region Landman in
Dallas and Division Land Manager in Houston, Texas, for Sabine
Corporation, and from 1971 to 1974 was employed by Getty Oil
Company in Houston, Texas and New Orleans, Louisiana. Mr. Cline
holds a B.B.A. degree in Petroleum Land Management from the
University of Texas, Austin and is a Certified Petroleum Landman.
JOHN H. HASLAM is Treasurer, having joined the Company in
1990. He has over 33 years of business experience, including 25
years in Internal Audit with Getty Oil, ENSTAR Corporation and
TransAmerican Natural Gas Corporation. Most recently Mr. Haslam
served in Internal Audit and Treasury with United Gas Pipeline.
Mr. Haslam holds a B.B.A. degree in Marketing and Finance from
Baylor University.
Compliance with Section 16(a) Filing Requirements
- -------------------------------------------------
To the Company's knowledge, instances of failure to file
reports with respect to reportable transactions during the year
ended December 31, 1995, as required by Section 16(a) of the
Exchange Act are as follows:
Known
Reports Number of Failure to Number of
Reporting Person Filed Late Transactions File Form Transactions
----------------- ---------- ------------ --------- ------------
R. Thomas Fetters, Jr. Form 4 1 Form 4 1 (b)
E. McIlhenny, Jr - - Form 4 1 (b)
Pamela G. Shanks (a) - - Form 4 1 (b)
Roy Chase - - Form 4 1 (b)
M. W. Miller, Jr. Form 4 1 - -
- ----------------
(a) A former officer of the Company and wife of Edmund
McIlhenny, Jr., a director of the Company.
(b) Did not file upon resignation as an officer of the Company.
All other reporting persons who are officers or directors of
the Company have provided the Company with written
representations that no Form 5 filing was required in that all
reportable transactions were timely filed on the appropriate
forms.
Item 11. Executive Compensation.
- ----------------------------------
The following table sets forth information regarding the
total compensation of the Chief Executive Officer and each of the
four most highly compensated executive officers of the Company at
the end of 1995, as well as the total compensation paid to each
such individual for the Company's two previous fiscal years.
Each of the named individuals has held his/her respective office
throughout the entire fiscal year.
Summary Compensation Table
---------------------------
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
------------------- --------------- ----------------
(1) (2) (3) (4) (5) (6)
Other Restricted
Name and Annual Stock Options/ LTIP All Other
Principal Salary Bonus Compen- Awards SARs Payout Compen-
Position Year ($) ($) sation($) (#) ($) ($) sation ($)
-------- ---- ------ ----- --------- --------- -------- ------- ----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Marsden W. Miller, Jr. 1995 150,000 -- -- -- -- -- --
Chairman and
Chief Executive Officer 1994 150,000 -- -- -- 1,625,000 -- --
1,875,000
525,000
1993 168,750 -- -- -- -- -- --
John T. Chandler (7)(8) 1995 150,000 -- -- -- 120,000 -- --
President; Chairman and
Chief Executive Officer
of XCL-China, Ltd. 1994 150,000 -- -- -- 470,000 -- --
1,025,000
100,000
1993 168,750 -- -- -- -- -- --
David A. Melman (9) 1995 150,000 -- -- -- 300,000 -- --
Executive Vice President,
General Counsel and
Secretary 1994 150,000 -- -- -- 470,000 -- --
1,025,000
100,000
1993 168,750 -- -- -- -- -- --
Pamela G. Shanks (10) 1995 128,600 -- -- -- -- -- --
Vice President-Finance,
Chief Financial Officer
and Treasurer 1994 128,600 -- -- -- -- -- --
500,000
21,400
1993 144,050 -- -- -- -- -- --
Danny M. Dobbs 1995 116,250 -- -- -- -- -- --
Executive Vice President 1994 110,000 -- -- -- 148,000 -- --
and Chief Operations
Officer 1993 106,083 -- -- -- -- -- --
</TABLE>
- ------------
(1) Prior to April 1, 1994, each executive was employed under an
agreement with the Company which provided that if his/her
employment was terminated prior to the agreement's
termination under certain circumstances he/she would receive
compensation for thirty months. Such employment agreements
were surrendered, effective April 1, 1994, in exchange for
stock purchase warrants (see "Employment Agreements" below).
(2) Effective March 30, 1994, the Management Incentive Plan was
terminated.
(3) Excludes the cost to the Company of other compensation that,
with respect to any above named individual, does not exceed
the lesser of $50,000 or 10 percent of such individual's
salary and bonus.
(4) Although the Company's Long Term Stock Incentive Plan
permits grants of restricted stock and stock appreciation
rights, no grants of those incentive awards have been made.
(5) The first amount represents awards of stock options granted
under the Company's Long Term Stock Incentive Plan. The
second amount represents the number of five-year stock
purchase warrants, received upon surrender of an employment
agreement with the Company, determined based upon a formula
whereby each of the individuals were to be offered a
warrant, based upon the length of time of employment with
the Company, for a maximum of two shares of Common Stock for
each dollar of compensation remaining to be paid to such
individual under his or her agreement (based upon the
product of his or her highest monthly base salary and the
number of months remaining under his or her contract), at an
exercise price of $1.25 per share. The third number
represents five-year stock purchase warrants, received for
each dollar of salary reduction for the fifteen-month period
commencing January 1, 1993 through March 31, 1994,
determined based on the same formula and at the same
exercise price used in the granting of warrants upon
surrender of the employment agreements. (See "Employment
Agreements" below.)
(6) No payments have been made in respect of the Company's
Shareholder Value Performance Plan. The measurement period
for compensation under such plan ended on December 31, 1993,
and the Plan was terminated pursuant to its terms.
(7) XCL-China Ltd. is a wholly owned subsidiary of the Company
which manages the Company's operations in the PRC.
(8) Mr. Chandler was granted 120,000 options to replace options
granted in 1984 which expired unexercised in December 1994.
(9) Mr. Melman was granted 120,000 options to replace options
granted in 1984 which expired unexercised in December 1994,
and 180,000 options to replace options granted in 1985 which
expired unexercised in March 1995.
(10) Ms. Shanks commenced employment on October 8, 1992. As
part of her employment package she was awarded 360,000
options. Effective February 1, 1996, Ms. Shanks resigned as
an officer of the Company.
Stock Options
- -------------
The Company currently maintains seven stock option plans
which were adopted by shareholders at various times commencing in
1985. All of the plans are administered by the Compensation
Committee and provide for the granting of options to purchase
shares of Common Stock to key employees and directors of the
Company, and certain other persons who are not employees of the
Company but who from time to time provide substantial advice or
other assistance or services to the Company.
The most recent stock option plan was adopted on June 2,
1992, by shareholders who approved the Long Term Stock Incentive
Plan ("LTSIP"). The LTSIP was adopted with the view of conforming
the Company's plans to certain regulatory changes adopted by the
SEC and affording holders of previously granted options the
opportunity to exchange their options for equivalent options
under the LTSIP.
The LTSIP authorizes the Compensation Committee to grant
stock options intended to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986 as amended
("ISOs"), options which do not qualify under such tax provision
("NSOs"), "ROs" (i.e., the granting of additional options, where
an employee exercises an option with previously owned stock,
covering the number of shares tendered as part of the exercise
price), "RSAs" (i.e., stock awarded to an employee that is
subject to forfeiture in the event of a premature termination of
employment, failure of the Company to meet certain performance
objectives or other conditions), "PUs" (i.e., share-denominated
units credited to the employee's account for delivery or cash-out
at some future date based upon performance criteria to be
determined by the Compensation Committee) and "tax withholding"
(i.e., where the employee has the option of having the Company
withhold shares on exercise of an award to satisfy tax
withholding requirements).
The LTSIP also formally incorporates resolutions previously
adopted by the Board regarding one-time grants of NSOs covering
100,000 shares to each new non-employee director upon his taking
office.
The Compensation Committee develops administration
guidelines from time to time which define specific eligibility
criteria, the types of awards to be employed, and the value of
such awards. Specific terms of each award, including minimum
performance criteria which must be met to receive payment, are
provided in individual award agreements granted each award
recipient. Key employees and other individuals who the Committee
deems may provide a valuable contribution to the success of the
Company and its affiliates will be eligible to participate under
the Plan. Award agreements generally contain change-in-control
provisions.
Under the LTSIP, the Compensation Committee determines the
option price of all NSOs and ISOs; provided, however, in the case
of ISOs, the option price shall not be less than the fair market
value of the Common Stock on the date of grant. Such "fair
market value" is the average of the high and low prices of a
share of Common Stock traded on the relevant date, as reported on
the American Stock Exchange, or other national securities
exchange or an automated quotation system.
On July 1, 1994, the shareholders approved amendments to the
LTSIP to increase the number of shares reserved for issuance
under the Plan by an additional 1,500,000 shares to an aggregate
of 16.5 million and corresponding amendment to the Plan
increasing the limitation on the total number of shares subject
to options that can be granted to directors to 13,200,000 of
which 3,300,000 shares may be granted to non-employee directors.
At the same time, shareholders ratified the conditional grant of
options to acquire 3,076,500 shares, made by the Board of
Directors on March 30, 1994, to various executive officers and
directors. In 1994, additional options totaling 1,820,183 were
awarded to non-executive officers, employees and consultants of
the Company.
The closing price of the Company's Common Stock on the
American Stock Exchange on April 10, 1996 was $.3125 per share.
The following tables set forth, for those persons named in
the "Summary Compensation Table" information on stock options
granted during 1995 and all stock options outstanding as of
December 31, 1995.
Option/SAR Grants in Last Fiscal Year
-------------------------------------
<TABLE>
<CAPTION>
Potentional Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
(a) (b) (c) (d) (e) (f) (g)
% of Total
Options/
SARs
Granted to
Options/ Employees in Exercise or
SARs Fiscal Base Price Expiration
Name Granted (#) Year (3) ($/Share) Date 0%($) 5%($) 10%($)
------ ------------ ------------ ----------- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Marsden W. Miller, Jr. -- 0% -- -- -- -- --
John T. Chandler 120,000 (1) 18% 1.25 03/31/99 (52,500) 8,817 936,324
David A. Melman 120,000 (2) 44% 1.25 03/31/99 (52,500) 8,817 936,324
180,000 (2) 1.25 06/13/05 (157,500) (115,050) (49,922)
Pamela G. Shanks (4) -- 0% -- -- -- -- --
Danny M. Dobbs -- 0% -- -- -- --
</TABLE>
- ------------------
(1) Mr. Chandler was granted 120,000 options to replace options
granted in 1984 which expired unexercised in December 1994.
(2) Mr. Melman was granted 120,000 options to replace options
granted in 1984 which expired unexercised in December 1994,
and 180,000 options to replace options granted in 1985 which
expired unexercised in March 1995.
(3) Represents the percentage of all options and warrants
granted to employees in the fiscal year.
(4) Effective February 1, 1996, Ms. Shanks resigned as an
officer of the Company.
Aggregated Option/SAR Exercises In Last Fiscal Year
----------------------------------------------------
and Fiscal Year-End Option/SAR Values
--------------------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the-Money
Acquired Options/SARs at Options/SARs at
on Value Fiscal Year-End(#) Fiscal Year-End (#)
Exercise Realized ---------------------------- ---------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<C> <C> <C> <C> <C> <C> <C>
Marsden W. Miller, Jr. -- -- 4,483,333 (1) 541,667 -- --
-- -- 2,400,000 (2) -- -- --
John T. Chandler -- -- 973,333 (1) 156,667 -- --
-- -- 1,125,000 (2) -- -- --
David A. Melman -- -- 973,333 (1) -- -- --
-- -- 1,125,000 (2) -- -- --
Pamela G. Shanks (4) -- -- 360,000 (1) -- -- --
-- -- 521,400 (2) -- -- --
Danny M. Dobbs -- -- 261,666 (1) 49,334 -- --
-- -- 582,000 (2) -- -- --
</TABLE>
___________
(1) Represents options exercisable under the Company's Long Term
Stock Incentive Plan at December 31, 1995.
(2) Represents the aggregate number of five-year stock purchase
warrants, received (a) upon surrender of an employment
agreement with the Company, determined based upon a formula
whereby each of the individuals were to be offered a
warrant, based upon the length of time of employment the
Company, for a maximum of two shares of Common Stock for
each dollar of compensation remaining to be paid to such
individual under his or her agreement (based upon the
product of his or her highest monthly base salary and the
number of months remaining under his or her contract), at an
exercise price of $1.25 per share, and (b) for each dollar
of salary reduction for the fifteen-month period commencing
January 1, 1993 through March 31, 1994, determined based on
the same formula and at the same exercise price used in the
granting of warrants upon surrender of the employment
agreements. (See "Employment Agreements" below.)
(3) At December 31, 1995, the Company's Common Stock price was
lower than the option exercise prices.
(4) Effective February 1, 1996, Ms. Shanks resigned as an
officer of the Company.
These options were all awarded under the Company's Stock
Option Plans described above.
Section 401(k) Plan
- -------------------
In 1989, the Company adopted an employee benefit plan under
Section 401(k) of the Internal Revenue Code for the benefit of
employees meeting certain eligibility requirements. The Company
has obtained a favorable determination from the Internal Revenue
Service regarding the tax favored status of the 401(k) plan.
Employees can contribute up to 10 percent of their compensation.
The Company, at its discretion and subject to certain
limitations, may contribute up to 75 percent of the contributions
of each participant.
Compensation of Directors and Other Arrangements
- ------------------------------------------------
The Company reimburses its directors for their travel and
lodging expenses incurred in attending meetings of the Board of
Directors. Effective January 1, 1990, directors (other than
Messrs. Hummel and Palliser and those directors who are officers
of the Company) were paid an annual retainer of $18,000 plus a
fee of $1,000 for each Board meeting attended. In addition, such
directors were paid a fee of $1,000 for each committee meeting
attended.
In April 1994, the Company entered into separate consulting
agreements with two directors of the Company, upon their becoming
directors. Each of the agreements is terminable by each of the
parties thereto upon written notice and provides that the
individuals will render consulting services to the Company in
their respective areas of expertise. Pursuant to the terms of
the agreements, each of the directors will be entitled to receive
compensation at the rate of $50,000 per annum, which includes the
compensation they would otherwise be entitled to receive as
directors and for attending meetings of the Board. In addition,
pursuant to the terms of the LTSIP, each were granted stock
options for 100,000 shares of Common Stock exercisable at $1.25
per share.
During 1995 all regular employees were provided health
insurance, a portion of the premium for which is paid by the
Company, and life and disability insurance based upon a factor of
the employee's base salary.
Employment Agreements; Termination of Employment and
- ----------------------------------------------------
Change-in-Control Arrangements
- ------------------------------
Effective April 1, 1994, Messrs. M.W. Miller, Jr., J.T.
Chandler, D.A. Melman, D.M. Dobbs, R.T. Fetters, Jr., R.C. Cline,
P.L. Dragon, and Ms. P.G. Shanks, in their capacities as
executive and administrative officers of the Company and its
various subsidiaries agreed to surrender their employment
agreements in consideration of the issuance of five year warrants
to purchase Common Stock at an exercise price of $1.25 per share,
subject to customary anti-dilution adjustments. The number of
warrants issued to such individuals was determined based upon a
formula whereby each of the individuals was offered a warrant to
purchase, based upon the length of time of employment with the
Company, a maximum of two shares of Common Stock for each dollar
of compensation remaining to be paid to such individual under his
or her agreement (based upon the product of his or her highest
monthly base salary and the number of months remaining under his
or her agreement). Accordingly, Mr. Miller received warrants to
purchase 1,875,000 shares; Mr. Chandler, 1,025,000 shares; Mr.
Melman, 1,025,000 shares; Mr. Fetters, 875,000 shares; Mr. Dobbs,
575,000 shares; Mr. Dragon, 315,000 shares; Mr. Cline, 250,000
shares; and Ms. Shanks, 500,000 shares.
Effective January 1, 1989, the Company adopted a policy
addressing severance upon separation from the Company. Under
this policy benefits due upon a "change-in-control" as therein
defined, range from three months salary for employees with less
than one year of service to twenty-four months salary for
employees with more than ten years of service.
Report on Repricing of Options/SARs
- -----------------------------------
During the fiscal year ended December 31, 1995, there were
no repricings of stock options awarded to any of the named
executive officers.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
For the year ended December 31, 1995, the following
nonexecutive directors of the Company, served as members of the
Compensation Committee of the Board of Directors: Messrs. M.
Palliser (Chairman), A.W. Hummel, Jr., F. Hofheinz and F.J.
Reinhardt, Jr. None of the members of the Compensation Committee
were formerly, nor are any members currently, officers or
employees of the Company or any of its subsidiaries.
Compensation Committee Report on Executive Compensation
-------------------------------------------------------
The Compensation Committee of the Board of Directors
("Committee") establishes the general compensation policies of
the Company, establishes the compensation plans and specific
compensation levels for executive officers and certain other
managers, and administers the Stock Option Plans and Long Term
Stock Incentive Plan. The Committee currently consists of four
independent, non-employee directors: Messrs. M. Palliser, who
serves as Chairman, Fred Hofheinz, Arthur W. Hummel, Jr. and
Francis J. Reinhardt, Jr.
Compensation Policies and Philosophy
- ------------------------------------
The Committee has determined that the compensation program
of the Company should not only be adequate to attract, motivate
and retain executives, key employees and other individuals who
the Company believes may make significant contribution to the
Company's results, but should also be linked to the value
delivered to shareholders as reflected in the price of the
Company's Common Stock.
The Committee believes that the cash compensation of
executive officers, as well as other key employees, should be
competitive with other similarly situated companies while, within
the Company, being fair and discriminating on the basis of
personal performance. In general, in establishing total cash
compensation for its executives, the Committee has taken into
account the median cash compensation of executives employed by
competitors including some of the companies reflected in the peer
group identified in the Performance Graph found on page 84, which
the Committee believes represent the Company's most direct
competition for executive talent. The Committee receives
recommendations from management as to executive compensation and,
in light of the Company's performance and the economic conditions
facing the Company, determines appropriate compensation levels
for recommendation to the Board of Directors. The Committee does
not assign relative weights to individual factors and criteria
used in determining executive compensation and does not use
quantifiable targets in determining compensation. For 1995, the
Company did not retain the services of a compensation consulting
firm.
Awards of stock options are intended both to retain
executives, key employees and other individuals who the Company
believes may make significant contributions to the Company's
results and to motivate them to improve long-term stock market
performance. Options are granted at or above the prevailing
market price and will have value only if the price of the
Company's Common Stock increases. Generally, options have a term
of ten years and vest one-third six months after grant, one-third
one year after grant and the remaining one-third two years after
grant.
Effective January 1, 1994, Section 162(m) of the Internal
Revenue Code of 1986 (the "Code") generally denies a tax
deduction to any publicly-held corporation for compensation that
exceeds $1 million paid to certain senior executives in a taxable
year, subject to an exception for "performance-based
compensation" as defined in the Code and subject to certain
transition provisions. Gains on the exercise of non-qualified
stock options granted through December 31, 1994, will be tax
deductible under the transition rules. Restricted stock awards
by definition granted after February 17, 1993, are not
deductible. At present the Committee does not intend to recommend
amendment to the Stock Option Plans to meet the restrictive
requirements of the Code.
The Committee believes that annual incentive awards should
be commensurate with performance. It further believes that in
order to meet this objective it needs to have the ability to
exercise its judgment or discretion to evaluate performance
against qualitative criteria. It is the Committee's opinion that
the benefits to the Company of the use of a qualitative approach
to the compensation of senior executives such as the Chairman
outweigh the non-material loss of a portion of the deductions
associated with that compensation.
On March 21, 1996, the Committee reviewed the Company's 1995
financial results and 1995 non-financial goals. The Committee
acknowledged that while financial goals were negatively impacted
by U.S. property write-downs, the non-financial goals,
(consisting of development of the Zhao Dong Block by drilling two
successful wells and positioning the Company to expand its
participation in the Chinese energy industry resulting from the
July 17, 1995 agreement to participate in a lubricating oil joint
venture and the December 14, 1995 letter agreement to participate
in a coal-bed methane joint venture) had been met and exceeded.
Company Performance and Chief Executive Officer Compensation
- ------------------------------------------------------------
The Committee, in connection with determining the
appropriate compensation for Marsden W. Miller, Jr. as Chief
Executive Officer ("CEO"), took into account the financial
condition of the Company, including its liquidity requirements.
It determined that the CEO had been instrumental in causing the
Company to secure the lube oil joint venture and initial
agreements with the Coal Ministry to create the coalbed methane
joint venture. Taking into consideration the current cash
position and near-term requirements, the Committee determined
that cash was unavailable for either salary increase or bonus.
Compensation of Other Executive Officers
- ----------------------------------------
The Committee, in consultation with the CEO, applied the
information and other factors outlined above in reviewing and
approving the compensation of the Company's other executive
officers.
March 21, 1996 COMPENSATION COMMITTEE
Michael Palliser, Chairman
Arthur W. Hummel
Fred Hofheinz
Francis J. Reinhardt, Jr.
Shareholder Return Performance Presentation
- -------------------------------------------
Set forth below is a line graph comparing the percentage
change in the cumulative total shareholder return on the
Company's Common Stock against the AMEX Market Value Index for
the years 1991 through 1995, with a peer group selected by the
Company for the past five fiscal years. The peer group consists
of the same independent oil and gas exploration and production
companies used in last year's comparison, with the exception of
DeKalb Energy Company which was acquired by Apache Corporation,
namely: Alta Energy Corporation; Amerac Energy Corporation
(formerly Wolverine Exploration Company); American Exploration
Company; Bellwether Exploration Company; Brock Exploration
Corporation; Tom Brown, Inc.; Caspen Oil, Inc.; Cobb Resources
Corporation; Coda Energy, Inc.; Comstock Resources, Inc.; Crystal
Oil Company; Edisto Resources Company; Energen Corporation; First
Mississippi Corporation; Forest Oil Corporation; Geodyne
Resources, Inc.; Global Natural Resources, Inc.; Goodrich
Petroleum Corporation (formerly Patrick Petroleum Company);
Hallador Pete Company; Hondo Oil & Gas Company; Kelley Oil & Gas
Partners; Magellan Petroleum Corporation; Maynard Oil Company;
McFarland Energy, Inc.; MSR Exploration Limited; Numac Energy,
Inc.; Pacific Enterprises; Penn Virginia Corporation; Plains
Resources, Inc.; Presidio Oil; Wainoco Oil Corporation; Wichita
River Oil; and Wiser Oil Company. The relevant information with
respect to the peer group was furnished by Standard & Poors
Compustat Service. The graph assumes that the value of the
investment in the Company's Common Stock and the peer group
stocks were $100 on January 1, 1990 and that all dividends were
reinvested.
[SHAREHOLDER RETURN PERFORMANCE GRAPH]
1991 1992 1993 1994 1995
Return Return Return Return Return
------ ------ ------ ------ ------
XCL 34.62 69.23 34.62 50.00 25.00
Peer Group 79.34 63.77 77.72 77.47 97.86
NASDAQ/AMEX 128.21 129.57 154.86 140.83 178.45
Item 12. Security Ownership of Certain Beneficial Owners and
- -------------------------------------------------------------
Management.
-----------
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
The following table sets forth as of March 30, 1996, the
individuals or entities known to the Company to own more
than 3 percent of the Company's outstanding shares of voting
securities. As of that date there were 264,240,305 shares of
Common Stock issued and outstanding. Except as otherwise
indicated, all shares are owned both of record and
beneficially.
<TABLE>
<CAPTION>
Series A Series B
Common Stock (1) Preferred Stock(2) Preferred Stock (3)
-------------------- --------------------- ---------------------
Name and Address Number of Percent Number of Percent Number of Percent
of Beneficial Owner Shares of Class Shares of Class Shares of Class
-------------------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
China Investment & Development
Co., Ltd.
16th Floor, No. 563
Chung Hsiao E. Road, Sec. 4
Taipei, Taiwan 11,130,344 (4) 4.0 -- -- 44,954 100
Brown Brothers & Harriman & Co.
59 Wall Street
New York, New York 10005-2818 985,411 (5) 0.37 21,200 3.54 -- --
Barclays Nominees Gracechurch
Limited A/C 6275B
P.O. Box 1043
Willow Grove House
Windsor Road
Trowbridge, Wilts BA14 0YT
United Kingdom 514,500 (6) 0.19 24,500 4.09 -- --
Broca Nominees M&G Group Ltd.
New London Bridge House
25 London Bridge Street
London SET 9SG
United Kingdom 391,671 (6) 0.15 18,651 3.11 -- --
Cumberland Associates
1114 Avenue of the Americas
New York, New York 10036 5,049,043 (7) 1.89 120,691 20.14 -- --
Egger & Co.
c/o The Chase Manhattan Bank N.A.
P.O. Box 1508
Church Street Station
New York, New York 10008 603,771 (6) 0.23 28,751 4.80 -- --
Hanover Nominees Limited A/C U64
1 Gerry Raffles Square
Stratford
London E15 1XG
United Kingdom 420,000 (6) 0.16 20,000 3.34 -- --
Kayne Anderson Investment
Management, Inc.
1800 Avenue of the Stars, Suite 1425
Los Angeles, CA 90067 5,755,246 (8) 2.14 124,093 20.71 -- --
Marsden W. Miller, Jr.
110 Rue Jean Lafitte
Lafayette, Louisiana 70508 10,107,132 (9) 3.73 -- -- -- --
Phildrew Nominees Limited
Triton Court
14 Finsbury Square
London EC2A 1PD
United Kingdom 686,469 (6) 0.26 32,689 5.46 -- --
Royal Bank of Scotland Edinburgh
Nominees Limited
31 St. Andrews Square
Edinburgh EH2 2PS
Scotland 972,636 (6) 0.37 47,457 7.92 -- --
Sigler & Co.
c/o Chemical Bank
P.O. Box 50000
Newark, New Jersey 07101 513,261 (6) 0.19 24,441 4.08 -- --
T. Rowe Price & Associates, Inc.
100 East Pratt Street, 9th Floor
Baltimore, Maryland 21202 1,499,543 (10) 0.57 45,000 7.51 -- --
</TABLE>
- --------------
(1) This table includes shares of Common Stock issuable upon
conversion of the shares of Series A Preferred Stock. Each
share of Series A Preferred Stock is convertible into
approximately 21 shares of Common Stock.
(2) In light of the fact that the Company is ten months in
arrears with respect to the dividend payable June 30, 1995
on the Series A Preferred Stock, the holders thereof are
eligible to cast 21 votes for each share of Series A
Preferred Stock held at any meeting of shareholders called
until the arrearage is paid.
(3) Each share of Series B Preferred Stock is entitled to 50
votes per share.
(4) Includes 3,325,000 shares of Common Stock which are issuable
upon exercise of outstanding Class B Warrants, 3,910,100
shares issued and held by a broker for sale pursuant to a
notice of redemption and 3,940,244 shares reserved for
redemption, which may be issued to or sold on behalf of the
holder.
(5) Includes 445,200 shares issuable upon conversion of Series A
Preferred Stock.
(6) Represents shares issuable upon conversion of Series A
Preferred Stock.
(7) Includes 2,534,511 shares issuable upon conversion of Series
A Preferred Stock and 533,333 shares issuable upon exercise
of stock purchase warrants exercisable within 60 days.
(8) Includes 2,605,953 shares issuable upon conversion of Series
A Preferred Stock and 1,933,332 shares issuable upon
exercise of stock purchase warrants exercisable within 60
days. These shares are held by four limited partnerships, of
which Kayne Anderson Investment Management is General
Partner.
(9) Includes 200,000 shares which are subject to an option
granted under agreement dated October 1, 1985 in favor of
John T. Chandler. Includes 4,483,333 shares issuable upon
exercise of options and 2,400,000 shares issuable upon
exercise of stock purchase warrants exercisable within 60
days.
(10) Includes 945,000 shares issuable upon conversion of Series
A Preferred Stock.
Security Ownership of Management
- --------------------------------
The following table sets forth information concerning the
shares of the Company's Common Stock owned beneficially by each
director and nominee for director of the Company and all
directors and officers as a group as of March 30, 1996. As of
that date there were 264,240,305 shares of Common Stock issued
and outstanding. The mailing address for all such individuals is
XCL Ltd., 110 Rue Jean Lafitte, Lafayette, Louisiana 70508.
Common Stock (1)
----------------------------
Number Percent
Name of Beneficial Owner of Shares of Class
- ------------------------ --------- --------
Marsden W. Miller, Jr. 10,107,132 (2)(3)(4) 3.73
John T. Chandler 3,167,510 (2)(3)(4) 1.19
David A. Melman 2,221,075 (3)(4) 0.83
Edmund McIlhenny, Jr. 1,335,707 (3)(5) 0.50
Fred Hofheinz 100,000 (3) 0.04
Arthur W. Hummel, Jr. 100,000 (3) 0.04
Sir Michael Palliser 100,000 (3) 0.04
Francis J. Reinhardt, Jr. 652,017 (3)(6) 0.25
All directors and officers of
the Company as a group
(11 persons) 19,165,047 (2)(3)(4) 6.88
(1) This table includes shares of Common Stock issuable upon
conversion of the shares of Series A, Cumulative Convertible
Preferred Stock ("Series A Preferred Stock"). Each share of
Series A Preferred Stock is convertible into approximately
21 shares of Common Stock, subject to adjustment. The Series
A Preferred Stock is not entitled to any voting privileges,
except in certain limited circumstances.
(2) Includes 200,000 shares which are subject to an option
granted under agreement dated October 1, 1985 in favor of
John T. Chandler. Such shares are also included in Mr.
Chandler's holding inasmuch as the option is presently
exercisable. For purposes of the total holdings of the
group, the shares are included solely in Mr. Miller's share
holdings.
(3) Includes shares of Common Stock which may be acquired
pursuant to options which are exercisable within 60 days.
(4) Includes shares of Common Stock which may be acquired
pursuant to stock purchase warrants exercisable within 60
days.
(5) Includes options to acquire 360,000 shares of Common Stock
and warrants to acquire 521,400 shares of Common Stock owned
by Pamela McIlhenny, wife of Edmund McIlhenny, Jr. Mr.
McIlhenny disclaims beneficial ownership of such shares.
(6) Includes 100,000 shares of Common Stock owned by Carl H.
Pforzheimer & Co. of which Mr. Reinhardt is a general
partner and 200,000 shares owned by Petroleum and Trading
Corporation of which Mr. Reinhardt is an officer and
director. Mr. Reinhardt disclaims beneficial ownership of
the shares owned by Petroleum and Trading Corporation.
Item 13. Certain Relationships and Related Transactions.
- ----------------------------------------------------------
During 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 director of
the Company, has asserted a claim in the aggregate amount of
approximately $.5 million in respect of compensation for certain
services alleged to have been performed on behalf of the Company
and under an alleged verbal employment agreement and, by
amendment, asserted a claim for payments arising from purported
rights to mineral interests. The Company believes that such
claim is without merit and rejects the existence of any such
alleged agreement.
As a matter of policy the Company approves all transactions
involving insiders through the majority vote of disinterested
directors.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -----------------------------------------------------------------
Form 8-K.
---------
(a) The following documents are filed as a part of this report.
Financial Statements
- --------------------
The following documents are included in Part II, Item 8 of
this report:
Page
----
Report of Independent
Accountants...............................................31
Consolidated Balance Sheet as of
December 31, 1995 and December 31, 1994..................32
Consolidated Statement of Operations for
each of the three years in the period
ended December 31, 1995..................................33
Consolidated Statement of Shareholders' Equity for
each of the three years in the period ended
December 31, 1995........................................34
Consolidated Statement of
Cash Flows for each of the three
years in the period ended December 31, 1995..............35
Notes to Consolidated Financial
Statements...............................................36
Financial Statement Schedules
- -----------------------------
Certain financial statement schedules are omitted because of
the absence of the conditions under which they are required.
Schedule VIII-Valuation and Qualifying Accounts...........92
Executive Compensation Plans and Arrangements
- ---------------------------------------------
Form of Indemnification Agreement by and between the Company and
various officers and directors - See Appendix II to Proxy
Statement dated November 13, 1987.
Stock Option Agreement by and between the Company and Marsden W.
Miller, Jr. dated July 11, 1987 - See Appendix VIII to Proxy
Statement dated November 13, 1987.
Amended and Restated 1985 Incentive Stock Option and Stock Option
Plans - See Exhibit 2 to Current Report on Form 8-K filed
February 10, 1989.
Amended and Restated 1986 Incentive Stock Option and Stock Option
Plans - See Exhibit 3 to Current Report on Form 8-K filed
February 10, 1989.
Amended and Restated 1987 Incentive Stock Option and Stock Option
Plans - See Exhibit 4 to Current Report on Form 8-K filed
February 10, 1989.
Long Term Stock Incentive Plan between the Company and certain
employees - See Exhibit A to Proxy Statement dated May 11, 1992.
Consulting Agreement by and between the Company and Sir Michael
Palliser dated May 1, 1994. - See Exhibit 10.22 hereto.
Consulting Agreement by and between the Company and Mr. Arthur W.
Hummel. Jr. dated May l, 1994. - See Exhibit 10.23 hereto.
(b) Reports on Form 8-K
A current report on Form 8-K was filed on December 15, 1995,
to report that the Company had reached agreement with Cody
Energy, Inc. for the sale of its interest in the Mestena Grande
Field.
A current report on Form 8-K was filed on January 8, 1996,
to report that it had completed the sale of its interests in the
Mestena Grande Field to Cody Energy, Inc.
A current report on Form 8-K was filed on January 17, 1996,
to report that the Company had sold in an unregistered offering
in compliance with Regulation S of the Securities Act of 1933, as
amended, an aggregate of 116 Units, each Unit comprised of
60,000 shares of Common Stock and a warrant to purchase 60,000
shares of Common Stock.
A current report on Form 8-K was filed on March 18, 1996, to
report that the Company had recorded a $58.8 million fourth
quarter noncash write-down for impairment of domestic oil and gas
properties and that the Company had reached agreement with Tesoro
E&P Company, L.P. for the sale of its interest in the Gonzales
Gas Unit located in the Cox Field.
A current report on Form 8-K was filed on April 1, 1996, to
report that the Company had completed the sale of the Gonzales
Gas Unit to Tesoro E&P Company, L.P.
(c) Exhibits required by Item 601 of Regulation S-K
A list of the exhibits required by Item 601 of Regulation S-
K and filed as part of this report is set forth in the Index to
Exhibits on sequentially numbered page 95, which immediately
precedes such exhibits.
OTHER MATTERS
--------------
For purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities
Act of 1933, the undersigned registrant hereby undertakes as
follows, which undertaking shall be incorporated by reference
into registrant's Registration Statement on Form S-8 No. 33-21891
(filed May 13, 1988):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
XCL Ltd. and Subsidiaries
Schedule VIII-Valuation and Qualifying Accounts
For the Years Ended December 31, 1995, 1994 and 1993
(thousands of dollars)
<TABLE>
<CAPTION>
Additions
Balance at Charged Charges Balance at
Beginning of to costs to other End of
Description Year and expenses accounts Deduction Year
- ----------- ----------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1995:
- ----
Allowance for doubtful trade accounts
receivable $ 113 $ -- $ -- $ 10 $ 103
======== ======== ======= ========= =========
Deferred tax valuation allowance $ 41,464 $ 32,279 $ -- $ -- $ 73,743
======== ======== ======= ========= =========
1994:
- ----
Allowance for doubtful trade accounts
receivable $ 163 $ -- $ -- $ 50 $ 113
======== ======== ======= ========= =========
Deferred tax valuation allowance $ 28,306 $ 13,158 $ -- $ -- $ 41,464
======== ======== ======= ========= =========
1993:
- ----
Allowance for doubtful trade accounts
receivable $ 63 $ 100 $ -- $ -- $ 163
======== ======== ======= ======== =========
Deferred tax valuation allowance $ 32,085 $ -- $ -- $ 3,779 $ 28,306
======== ======== ======= ======== =========
</TABLE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
XCL LTD.
/s/ Marsden W. Miller, Jr.
April 12, 1996 By:----------------------------
Marsden W. Miller, Jr.
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
- -------------------------- ----------------- --------
/s/ Marsden W. Miller, Jr.
- --------------------------- Chairman of the Board April 12, 1996
Marsden W. Miller, Jr. Chief Executive Officer and
Principal Financial Officer
/s/ Margery M. LeBlanc
- ----------------------- Assistant Controller- April 12, 1996
Margery M. LeBlanc Financial Reporting
Principal Accounting Officer
/s/ John T. Chandler
- -------------------- Director April 12, 1996
John T. Chandler
/s/ David A. Melman
- ------------------- Director April 12, 1996
David A. Melman
/s/ Edmund McIlhenny, Jr.
- ------------------------- Director April 12, 1996
Edmund McIlhenny, Jr.
/s/ Fred Hofheinz
- ----------------- Director April 11, 1996
Fred Hofheinz
/s/ Arthur W. Hummel, Jr.
- ------------------------- Director April 12, 1996
Arthur W. Hummel, Jr.
/s/ Michael Palliser
- --------------------- Director April 12, 1996
Michael Palliser
/s/ Francis J. Reinhardt, Jr.
- ----------------------------- Director April 11, 1996
Francis J. Reinhardt, Jr.
XCL LTD.
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
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(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
July 1, 1994, to purchase 100,000 shares of Common Stock at
an exercise price of $1.50 per share, subject to adjustment,
issued to Joe T. Rye. (F)(vii)
4.25 Form of Warrant Agreement and Stock Purchase Warrant dated
January 31, 1995, to purchase 100,000 shares of Common Stock
at an exercise price of $.75 per share, subject to
adjustment, issued to Energy Advisors, Inc. (L)(i)
4.26 Copy of Amendment to Certificate of Designation of Series
A Preferred Stock dated October 31, 1995. (N)(ii)
4.27 Copy of Certificate of Designation of Series E,
Cumulative Convertible Preferred Stock dated November 2,
1995. (N)(iii)
4.28 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 *
4.29 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 $.50
March 8, 1996 2,040,000 $.35 *
4.30 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 $.50
March 8, 1996 204,000 $.35 *
4.31 Form of Amendment of Certificate of Designation of
Series A Preferred Stock dated April 11, 1996. *
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, Inc. $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. *
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. *
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. *
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. *
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.
*
10.36 Copy of Limited Waiver between the Company and
Internationale Nederlanden (U.S.) Capital Corporation dated
April 3, 1996. *
11. Statement re computation of per share earnings *
12. Not applicable.
16. Not applicable.
18. Not applicable.
21. Subsidiaries of the Registrant *
22. Not applicable.
23. Consent of Coopers & Lybrand LLP *
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.
THE SECURITIES BEING SOLD HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR
ANY OTHER UNITED STATES FEDERAL OR STATE SECURITIES LAWS OR
FOREIGN SECURITIES LAWS AND THEIR OFFER AND SALE ARE SUBJECT
TO CERTAIN RESTRICTIONS HEREINAFTER SET FORTH.
PURCHASE AGREEMENT
------------------
Purchase of Units
THIS PURCHASE AGREEMENT is made as of the ___ day of
December, 1995 by and between the purchaser whose name and
address are shown on the signature page to this Purchase Agree
ment (the "Purchaser") and XCL Ltd., a Delaware corporation,
with its principal offices at 110 Rue Jean Lafitte, Lafayette,
Louisiana, 70508, United States of America (the "Company").
WHEREAS, the Company has duly authorized the issuance,
sale and delivery of up to 280 units (the "Units"), each Unit
consisting of sixty thousand (60,000) shares (the "Shares") of
its common shares, par value $0.01 per share (the "Common
Stock"), and one (1) warrant (the "Warrants") to purchase
sixty thousand (60,000) shares of Common Stock at an initial
exercise price of fifty cents ($.50) per share of Common
Stock, subject to adjustment in certain events (the Shares,
the Warrants and the shares of Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares") are
hereinafter referred to collectively as the "Securities");
WHEREAS, the Units are being offered and sold by the
Company to the Purchaser in reliance upon and in conformity
with the requirements of Regulation S ("Regulation S") under
the United States Securities Act of 1933, as amended (the
"Securities Act");
WHEREAS, the placement of the Units (the "Placement") has
been arranged by Rauscher Pierce & Clark, Inc. and its wholly-
owned subsidiary Rauscher Pierce & Clark Limited (together,
the "Placement Agent"), as placement agent, pursuant to a
letter agreement dated November 9, 1995 ("Placement Agent
Agreement") between the Company and the Placement Agent;
WHEREAS, the Company has prepared and the Purchaser has
received a confidential preliminary offering memorandum dated
November 15, 1995, and any supplements and amendments thereto
describing, among other things, the Securities and providing
material information about the Company and the terms of the
Placement (the "Preliminary Offering Memorandum");
WHEREAS, the Company has prepared and furnished to the
Purchaser, in accordance with Section 3(a) hereof, a confi
dential final offering memorandum dated December 12, 1995, and
any supplements and amendments thereto (the "Final Offering
Memorandum"). The Preliminary Offering Memorandum, the Final
Offering Memorandum and all amendments thereof and supplements
thereto are collectively referred to herein as the "Offering
Memorandum"; and
WHEREAS, the Company wishes to offer and sell to the
Purchaser, and the Purchaser wishes to buy from the Company,
the aggregate number of Units set forth opposite the
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, and
intending to be legally bound, the undersigned agree as fol
lows:
Section 1. Agreement to Sell and Purchase the Units.
(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 Pur
chaser agrees to buy from the Company, on December 21, 1995 or
on such other date as shall be mutually agreed upon by the
Company and Purchaser (the "Closing Date"), the aggregate
number of Units set forth opposite the Purchaser's address on
the signature page of this Purchase Agreement (the "Designated
Units"). The price for the Designated Units shall be eighteen
thousand United States dollars ($18,000.00) per Designated
Unit and the Purchaser shall pay to the Company the aggregate
amount set out opposite the Purchaser's address on the
signature page to this Purchase Agreement (the "Purchase
Price").
(b) Payment of the Purchase Price for the Designated
Units shall be made before the Closing Date by wire transfer
of immediately available funds in United States dollars to:
NationsBank of Texas - Dallas
901 Main Street
Dallas, Texas
Swift Code: NABKU544DAL
ABA Number: 111000025
For Credit Account: Bracewell & Patterson, L.L.P.
IOLTA Account No. 3313102571
PURCHASERS SHOULD INSTRUCT THEIR RESPECTIVE PAYING BANK TO
WIRE FUNDS FOR SAME DAY VALUE ON OR BEFORE WEDNESDAY, DECEMBER
20, 1995, IN ORDER TO HAVE THEIR FUNDS TRANSFERRED TO THE
ABOVE ACCOUNT PRIOR TO THE CLOSING.
(c) On the Closing Date Bracewell & Patterson,
L.L.P., counsel to the Placement Agent, on behalf of the Pur
chaser, shall make payment of the Purchase Price for the Desig
nated Units by wire transfer of immediately available funds in
United States dollars to the account of the Company specified
prior to the Closing Date.
(d) The Company intends to offer and sell other units
of shares of its Common Stock and Warrants to other investors
(together with Purchaser, the "Purchasers") pursuant to
separate substantially identical purchase agreements (together
with this Purchase Agreement, the "Purchase Agreements").
(e) The completion of the sale and purchase of the
Units (the "Closing") shall take place at the offices of the
Placement Agent, 56 Green Street, London W1Y 3RH at 4:00 p.m.
local time on the Closing Date. At the Closing, the Company
shall deliver to the Placement Agent, for the account of the
Purchaser, one or more stock certificates representing the
Shares and one or more certificates representing the Warrants
comprised in the Designated Units, each registered in the name
of the Purchaser or its nominee, against payment of the
Purchase Price for such Designated Units in immediately
available funds to the account of the Company designated
pursuant to section 1(c) of this Purchase Agreement.
(f) 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 within the period
on or after the latest date of the Final Offering Memorandum
(which includes amendments and supplements thereto) and before
the Closing, the number of shares of Common Stock and the
number of shares of Common Stock subject to each Warrant in
the Units to be delivered to the 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 or after the latest date of the Final Offering
Memorandum (which includes amendments and supplements thereto)
and before the Closing Date, the Purchase Price per Designated
Unit payable by the Purchaser shall be reduced in proportion
to the amount that such cash dividend bears to the market
price per share of Common Stock on the day immediately
preceding the date of the Final Offering Memorandum.
(g) The obligation of the Purchaser to purchase the
Designated Units at the Closing shall be conditional upon the
delivery by the Company to the Placement Agent, on behalf of
all the Purchasers, of:
(i) a written opinion of David A. Melman Esq.,
General Counsel to the Company, substan
tially in the form attached hereto as
Schedule 1 dated the Closing Date; and
(ii) a certificate of an officer of the Company
as to the correctness in all material
respects of the representations and war
ranties of the Company contained in Section
2 of this Purchase Agreement as of the
Closing Date, in the form attached hereto as
Schedule 2 dated the Closing Date.
(h) The obligation of the Company to deliver the
Designated Units at the Closing shall be conditional upon the
delivery by the Purchaser to the Company of a certificate of
the Purchaser as to the correctness in all material respects
of the representations and warranties of the Purchaser
contained in Section 4 of this Purchase Agreement as of the
Closing Date, in the form attached to this Purchase Agreement
as Schedule 3 dated the Closing Date.
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 Offering Memorandum. The Company is
duly qualified to do business as a foreign corporation and is
in good standing in every jurisdiction where such quali
fication is required by controlling law and where the failure
to so qualify would have a material adverse effect on the
Company.
2.2. Authorized Capital Stock. The authorized and
outstanding capital stock of the Company is as set out in the
Offering Memorandum, 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 non-assessable. Except as dis
closed in the Offering Memorandum, the Company does not own,
directly or indirectly, any equity or debt securities of any
other company, corporation, partnership, joint venture or
other entity which are material to the business or operations
of the Company.
2.3. Due Execution, Delivery and Performance of the
Purchase Agreement. The execution, delivery and performance
of this Purchase Agreement by the Company (a) have been duly
authorized by all requisite corporate action of the Company,
and (b) will not (i) violate the Certificate of Incorporation,
as amended, or the Amended and Restated By-laws of the Company
as in effect on the date of the Offering Memorandum or (ii)
violate any law applicable to the Company or any rule,
regulation or order of any court or governmental agency or
body having jurisdiction over the Company, as in effect on
the date of the Offering Memorandum or (iii) cause a breach of
any provision of any indenture, mortgage, agreement, contract
or other instrument to which the Company is a party or by
which the Company is bound or to which any of the properties
or assets of the Company are subject, or constitute (upon
notice or lapse of time or both) a default under any such
indenture, mortgage, agreement, contract or other instrument
or result in the creation or imposition of any claim
(including any adverse claim as defined in the Uniform
Commercial Code), lien, security interest, pledge, charge or
other encumbrance of any nature whatsoever (each a "Lien" and,
collectively, "Liens") upon any of the properties or assets of
the Company and its subsidiaries taken as a whole (except for
such violations, conflicts, breaches, defaults or Liens which
would not have a material adverse effect on the Company).
Upon execution and delivery by the Company and the Purchaser,
this Purchase Agreement will constitute the legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as the
enforceability thereof may be limited by (i) any applicable
bankruptcy, insolvency, fraudulent conveyance, moratorium,
reorganization or other similar laws now or hereafter in
effect relating to or affecting the enforcement of creditors'
rights generally, and (ii) general equitable principles, now
or hereafter in effect, regardless of whether such
enforceability is considered in an action at law or a
proceeding in equity.
2.4. Issuance and Delivery of the Units and the Warrant
Shares. The offer, issuance, sale and delivery of the Units
in accordance with this Purchase Agreement, have been duly
authorized by all requisite corporate action of the Company.
The Shares and the Warrant Shares conform to the description
of the Common Stock contained in or incorporated by reference
in the Offering Memorandum and conform to the terms of the
Common Stock contained in the Company's Certificate of
Incorporation, as amended. The Warrants conform to the
description thereof contained in the Offering Memorandum. The
Shares included in the Designated Units, 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 non-assessable, will not be subject to any pre-
emptive or similar right except for certain anti-dilution
adjustments, and the Purchaser will receive good and valid
record title to the Shares, free and clear of any Lien, except
such as may have been created by the Purchaser. At the
Closing, the Warrants included in the Designated Units will be
duly and validly executed and delivered by the Company and
will constitute the valid and legally binding obligations of
the Company, enforceable against the Company in accordance
with their respective terms, except as the enforceability
thereof may be limited by (i) any applicable bankruptcy,
insolvency, fraudulent conveyance, moratorium, reorganization
or other similar laws now or hereafter in effect relating to
or affecting the enforcement of creditors' rights generally,
and (ii) general equitable principles, now or hereafter in
effect, regardless of whether such enforceability is con
sidered in an action at law or a proceeding in equity. No
consent or approval by the shareholders of the Company or of
any other person is required to be obtained by the Company for
the consummation of the issuance, sale and delivery of the
Designated Units to the Purchaser pursuant to this Purchase
Agreement or the Warrant Shares pursuant to the terms of the
Warrants, subject to applicable securities and blue sky laws.
The Warrant Shares have been duly and validly authorized and
reserved for issuance. The Warrant Shares, as and when issued
and delivered in accordance with the terms of the Warrants,
and upon receipt by the Company of the exercise price
therefor, will be duly and validly issued and outstanding,
fully paid and non-assessable, will not be subject to any pre-
emptive or similar right (except for certain anti-dilution
adjustments), and Purchaser will receive good and valid record
title to the Warrant Shares, free and clear of any Lien,
except such as may have been created by the Purchaser. As and
from the expiration of the Restricted Period (as defined in
Section 4.3 of this Purchase Agreement), (i) each stock
certificate representing any of the Shares or Warrant Shares
issued upon exercise of a Warrant shall be free of any type of
restrictive legend, including but not limited to, the legend
set out in Section 4.5(a) of this Purchase Agreement, and (ii)
subject to the provisions of Section 4 of this Purchase Agree
ment, the Shares or Warrant Shares issued upon exercise of any
Warrant represented by each such stock certificate shall not
be subject to any "stop transfer" or similar order at Chemical
Mellon Shareholder Services or Barclays Registrars Limited,
the U.S. and U.K. transfer agents for the Common Stock,
respectively, or any successor transfer agents thereto
(together, the "Transfer Agents").
2.5. Offering Memorandum.
(a) The Preliminary Offering Memorandum, as of its date
did not, and the Final Offering Memorandum, as of its date and
at the Closing Date, did not and will not as of such dates
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or neces
sary to make the statements therein, in light of the circum
stances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply
to any statement or omission relating to matters of foreign
law or made in reliance upon and in conformity with
information furnished in writing to the Company by the
Placement Agent expressly for use in the Offering Memorandum;
and provided, however, that this representation and warranty
shall not apply to any statement contained in the Preliminary
Offering Memorandum to the extent that a statement contained
in the Final Offering Memorandum or any document filed by the
Company under the United States Securities Exchange Act of
1934, as amended (the "Exchange Act"), with the United States
Securities and Exchange Commission (the "Commission") after
the date of the Preliminary Offering Memorandum which also is
incorporated by reference in the Offering Memorandum modifies,
amends or supersedes such statement.
(b) The documents incorporated by reference in the Final
Offering Memorandum, at the time they were filed (or, if any
amendment with respect thereto was filed, when such amendment
was filed) with the Commission, complied in all material
respects with the applicable requirements of the Exchange Act,
and the rules and regulations of the Commission thereunder,
and, when filed with the Commission (or in the case of an
amendment thereto, when such amendment was filed), 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 to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) Except as otherwise disclosed in or incorporated by
reference in or contemplated by the Preliminary Offering
Memorandum or the Final Offering Memorandum, the financial
statements of the Company for the nine months ended September
30, 1995, and for the full fiscal years included or incorpor
ated by reference in the Preliminary Offering Memorandum or
the Final Offering Memorandum present fairly the financial
condition of the Company as of the respective dates thereof
and the results of operations of the Company 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 entire periods
involved.
2.6. Legal Proceedings. Except as otherwise
described in or incorporated by reference or contemplated by
in the Offering Memorandum, there are no actions, suits,
investigations or proceedings pending to which the Company is
a party before or by any court or governmental agency or body,
which in the opinion of the Company's officers 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 properties or assets
thereof; and, except as otherwise described in or by
incorporation by reference in or contemplated by the Offering
Memorandum, to the actual knowledge of the Company's officers,
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
incorporated by reference in or contemplated by the Offering
Memorandum, there has been no material adverse change or, to
the actual knowledge of the Company's officers, any
development which will result in a material adverse change, in
or affecting the business, operations, management, financial
condition, shareholders' equity or results of operations of
the Company since December 31, 1994.
2.8. Properties and Assets. The Company has good and
marketable title to all properties and assets described in the
Offering Memorandum as owned by it, free and clear of all
Liens except as disclosed in or incorporated by reference in
or contemplated by the Offering Memorandum or are not material
to the business of the Company. The Company has a valid,
subsisting and enforceable lease for the real property
described in or incorporated by reference in the Offering
Memorandum as leased by it, with such exceptions as are not
material and do not materially interfere with the use made and
proposed to be made of such property by the Company. Except
as otherwise disclosed in or incorporated by reference in or
contemplated by the Offering Memorandum, the Company owns or
possesses or is the valid licensee of all patents, trademarks,
service marks and trade names necessary to carry on its
business as described in the Offering Memorandum, and the
Company has not received any notice of infringement of or
conflict with asserted rights of others with respect to any of
the foregoing which, if the subject of an unfavorable
decision, ruling or finding, would result, individually or in
the aggregate, in any material adverse change in the business,
operations or financial condition of the Company.
2.9. Compliance with Applicable Regulations. Except as
disclosed in or incorporated by reference in or contemplated
by the Offering Memorandum, the Company (a) has all govern
mental licenses, permits, consents, orders, approvals and
other authorizations necessary to carry on its business as
described in the Offering Memorandum (collectively,
"Licenses"), (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), 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), all such licenses, permits, consents, orders,
approvals, authorizations issued by, and all agreements of the
Company with, any governmental agency or body having jurisdic
tion over the Company.
2.10. Investment Company Act of 1940. The Company is
not an "investment company" or an "affiliated person" of an
"investment company," as such terms are defined in the Invest
ment Company Act of 1940, as amended.
2.11. Compliance with Regulation S. 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, (a) have offered and sold the Units
to the Purchasers only in an "offshore transaction" (as
defined in Regulation S), (b) have not made with respect to
the Securities any "directed selling efforts" (as defined in
Regulation S) in the United States, (c) have implemented all
"offering restrictions" (as defined in Regulation S) in
respect of the Securities, (d) to its knowledge, have not
delivered the Preliminary Offering Memorandum, the Final
Offering Memorandum or any revision or amendment thereof or
supplement thereto to any "U.S. person" (as defined in
Regulation S) (other than directors, officers, employees and
agents of the Company, affiliates of Placement Agent and their
directors, officers employees and agents, and professional
advisers), (e) have not made any offers or sales of any of the
Units or any interest therein in the United States or, to its
knowledge, to, or for the account or benefit of, any "U.S.
person" (as defined in Regulation S), and (f) have not made
any sales of any of the Units, the Shares or the Warrants
comprising the Units or any interest therein in connection
with the offering of the Units to any person other than the
Purchasers; provided, however, that insofar as this
representation and warranty involves any "distributor" (as
defined in Regulation S), any broker-dealer participating in
the offering, any affiliate of such broker-dealer or any
officer, director, employee or agent of such distributor or
broker-dealer, to the extent such broker-dealer or distributor
is acting as placement agent for the offering of the Units,
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 distributor (including,
without limitation, the Placement Agent) and such broker-
dealer or distributor (including, without limitation, the
Placement Agent) complying with Regulation S with respect to
offers and sales of Units.
2.12. Representations and Warranties at the Closing.
Each of the representations and warranties contained in this
Section 2 is true and correct in all material respects as of
the date of this Purchase Agreement and will be true and
correct in all material respects as of the Closing Date,
except to the extent that such representations and warranties
expressly relate to an earlier date.
Section 3. Certain Agreements of the Company. The
Company hereby covenants and agrees with the Purchaser as fol
lows:
(a) Not later than five (5) days prior to the Closing
Date, the Company will prepare and furnish to the Purchaser
the Final Offering Memorandum.
(b) The Company will make available to the Purchaser
prior to the Closing Date the opportunity to ask questions and
receive answers concerning the terms and conditions of the
offering of the Units and to obtain any additional information
that the Company possesses or can acquire without unreasonable
effort or expense that is necessary to verify the accuracy of
the information furnished in accordance herewith.
(c) Within seven (7) business days after the Restricted
Period (as hereinafter defined) or at any time thereafter, the
Company will deliver to the 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 4.5(a) of this Purchase
Agreement (the "Legended Stock Certificate"), without cost to
such Purchaser or subsequent holder at its request, a
substitute stock certificate without the restrictive legend
described in section 4.5(a) 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 the
Purchaser, must be duly endorsed for transfer or surrender.
(d) Within seven (7) business days after the Restricted
Period or at any time thereafter, the Company will deliver
upon request to the Purchaser or its nominee who is acting as
custodian therefor or any subsequent holder who has received a
stock certificate representing the Warrant Shares which bears
the legend described in section 4.5(a) of this Purchase
Agreement (the "Legended Warrant Share Certificate"), without
cost to such Purchaser or subsequent holder, a substitute
stock certificate without the restrictive legend described in
section 4.5(a) of this Purchase Agreement. The Company shall
be required to deliver such substitute stock certificate only
upon surrender of the Legended Warrant Share Certificate
which, in the case of any holder subsequent to the Purchaser,
must be duly endorsed for transfer or surrender.
Section 4. Representations, Warranties and Covenants of
the Purchaser. The Purchaser hereby represents, warrants and
covenants to the Company as follows:
4.1. Compliance with United States Securities Laws.
The Purchaser understands, acknowledges and agrees that (a)
the Shares, the Warrants and the Warrant Shares have not been
and will not be registered under the Securities Act or under
any state or foreign securities or blue sky laws, and may not
be offered, sold, transferred, pledged or otherwise disposed
of 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, a "U.S. person"),
unless such securities are registered under the Securities Act
and any applicable state or foreign securities on blue sky
laws, or such offer or sale is made pursuant to an exemption
from the registration requirements of the Securities Act and
any applicable state or foreign securities or blue sky laws,
(b) the Warrants may not be exercised in the United States or
by or on behalf of a U.S. person unless the Warrants and the
Warrant Shares are registered under the Securities Act and any
applicable state or foreign securities or blue sky laws or
exemptions from all such registration requirements are
available, and (c) the Units are being offered and sold
pursuant to the terms of Regulation S under the Securities
Act, which permits securities to be sold to persons who are
not U.S. persons in "offshore transactions" (as defined in
Regulation S), subject to certain terms and conditions.
4.2. Status of Purchaser.
(a) The Purchaser is purchasing the Designated Units (i)
for its own account or for persons or accounts as to which it
exercises investment discretion; and (ii) for investment
purposes only, not for any trading or arbitrage purposes and
not with a view to, or for sale in connection with, any
distribution of the Common Stock, the Warrants comprising the
Designated Units or the Warrant Shares which will be issued
upon exercise of such Warrants (such securities being referred
to collectively as the "Designated Securities"). Neither the
Purchaser nor such person or any person owning such account
(i) is a U.S. person, or (ii) is acquiring the Designated
Units or will acquire any Warrant Shares for the account or
benefit of any U.S. person, or (iii) if any entity, is
organized under the laws of the "United States" (as defined in
Regulation S; a copy of which definition is set forth in the
attached Schedule 4), or (iv) if an entity, was organized for
the purpose of acquiring the Designated Units, or (v) is
registered under the Exchange Act, or (vi) is part of an
identifiable group of U.S. citizens abroad, such as a member
of the U.S. armed forces serving overseas, or (vii) is
purchasing the Units in any transaction or series of
transactions that, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the
registration provisions of the Securities Act. Purchaser's
purchase of the Designated Units was not pre-arranged with the
Purchaser in the United States. The Purchaser has executed
this Purchase Agreement outside the United States, and at the
time the buy order for the Designated Units was originated,
the Purchaser was outside the United States. All offers to
the Purchaser regarding the Designated Units and the sale of
the Designated Units have occurred outside the United States.
(b) The Purchaser (and any person or account on behalf
of which the Purchaser is purchasing) is knowledgeable,
sophisticated and experienced in financial and business
matters and in making, and is qualified to make, decisions
with respect to investments in restricted securities (such as
the Designated Securities) and has requested, received,
reviewed and considered all information it deems relevant, and
it has relied solely upon its review of the Offering
Memorandum, this Purchase Agreement and its own independent
investigations in making a decision to execute this Purchase
Agreement and to purchase the Designated Units. The Purchaser
acknowledges receipt of the Preliminary Offering Memorandum
and the Final Offering Memorandum, including all of the
Exhibits to the Offering Memorandum, at least 48 hours before
Purchaser executed this Agreement. The Purchaser has read and
understands the Offering Memorandum, including, without
limitation, the section entitled "Investment Considerations",
all of the Exhibits to the Offering Memorandum, this Purchase
Agreement, the Warrants and any other information and
documents about the Company or the offering of the Units and
the Warrant Shares or both requested by the Purchaser. The
Purchaser represents, warrants and acknowledges that an
investment in the Designated Units is a speculative investment
and that it is capable of evaluating the merits and risks of
its investment in the Designated Units. To the extent that
any certificate representing the Shares or Warrants comprising
part of the Designated Units is registered in the name of the
Purchaser's nominee, the Purchaser confirms that such nominee
is acting solely as its custodian.
(c) The Purchaser acknowledges that, at all times
following its initial contact with the Company or its agents
pertaining to this offering of Units and the Warrant Shares,
the Company has made available to the Purchaser the
opportunity to ask questions and receive answers concerning
the Company and the terms and conditions of the offering of
the Units and the Warrant Shares and to obtain any additional
information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to verify the
accuracy of the information furnished to the Purchaser and
that the Company has responded to all such questions and
requests for information to the full satisfaction of the Pur
chaser. The Purchaser acknowledges that the Offering
Memorandum has been delivered to it, and that it has not and
will not distribute the Offering Memorandum to anyone other
than such Purchaser's professional advisors for the purpose of
evaluating the proposed purchase of the Designated Units.
4.3. Restrictions on Re-Sale.
(a) For a period of forty (40) days following the
Closing Date or, if the Units shall be issued on more than one
day, the latest Closing Date (the "Restricted Period"), the
Purchaser shall not (i) engage in any activity for the purpose
of, or which may reasonably be expected to have the effect of,
conditioning the market in the United States for the Units,
the Shares, Warrants comprising the Units, or the Warrant
Shares deliverable upon exercise of the Warrants, or (ii)
offer, sell, pledge, or otherwise dispose of or transfer the
Shares or the Warrants comprising the Designated Units, any
interest therein or, upon exercise of the Warrants, the War
rant Shares in the United States or to, or for the account or
benefit of, a U.S. person.
(b) The Purchaser understands that the Shares and the
Warrant Shares or any interest therein are only transferable
on the books and records of the Transfer Agents of the Common
Stock and the Warrants or any interest therein are only
transferable in the books and records of the Company. The
Purchaser further understands that the Transfer Agents will
not register any transfer of the Shares, the Warrant Shares or
any interest therein and that the Company will not register
any transfer of the Warrants or any interest therein which the
Company in good faith believes violates the restrictions set
forth herein or in Regulation S.
(c) Unless registered under the Securities Act, any
proposed offer, sale or transfer during the Restricted Period
of any of the Shares or Warrants comprising the Designated
Units or any interest therein or, upon exercise of the
Warrants, any Warrant Shares or any interest therein shall be
subject to the condition that the Purchaser must deliver to
the Company (i) a written certification that neither record
nor beneficial ownership of the Shares, the Warrants, the
Warrant Shares or any interest therein, as the case may be,
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, Warrants, Warrant Shares
or any interest therein, as the case may be) is not a "U.S.
person" (as defined in Regulation S) and that such transferee
is not purchasing the Shares, Warrants, Warrant Shares or any
interest therein, as the case may be, for the account or
benefit of a U.S. person, that such transferee is acquiring
such securities or such interest therein, as the case may be,
for such transferee's own account (or an account over which it
has investment discretion) for investment purposes only, not
for any trading or arbitrage purposes and not with a view to,
or for sale in connection with, any distribution of any of the
securities, that such transferee did not receive any other
offer relating to the Shares, the Warrants, the Warrant Shares
or any interest therein, as the case may be, in the United
States, that at the time the buy order was originated, such
transferee was outside the United States, that such transferee
is not a U.S. citizen that is part of an identifiable group of
U.S. citizens abroad, that such transferee is knowledgeable of
and agrees to be bound by the restrictions set forth in this
Purchase Agreement and Regulation S during the Restricted
Period, and that such transferee agrees that until the
expiration of the Restricted Period, it will not, directly or
indirectly, execute or effect or cause to be executed or
effected any short sale, option or equity swap transactions in
or relating to the Common Stock or any other derivative
security transactions the purpose or effect of which is to
hedge or transfer to a third party all or any part of the risk
of loss associated with the ownership of the Units, including
the Shares, Warrants or Warrant Shares to be acquired from the
proposed transferor, and (iii) a written opinion of United
States legal counsel, in form and substance satisfactory to
the Company, to the effect that the offer, sale and transfer
of such Shares, Warrants, Warrant Shares, or any interest
therein, as the case may be, are exempt from registration
under the Securities Act and any applicable state and foreign
securities or blue sky laws.
(d) The Purchaser will not, directly or indirectly,
voluntarily offer, sell, pledge, transfer or otherwise dispose
of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) its rights under this Purchase
Agreement, the Shares and Warrants comprising the Designated
Units, any interest therein or the Warrant Shares otherwise
than in compliance with the Securities Act, any applicable
state and foreign securities or blue sky laws and any
applicable securities laws of jurisdictions outside the United
States, and the rules and regulations promulgated thereunder.
4.4. Exercise of the Warrants. The Purchaser
understands that the Warrants may not be exercised in the
United States or by or on behalf of any U.S. person unless the
Warrants and the Warrant Shares issuable upon exercise thereof
are registered under the Securities Act and any applicable
state and foreign securities and blue sky laws or exemptions
from such registration requirements are available and the
Company receives a written opinion from United States counsel,
in form and substance satisfactory to the Company, to the
effect that the offer, sale and transfer of such Warrants and
Warrant Shares or any interest therein are exempt from
registration under the Securities Act and any applicable state
and foreign securities or blue sky laws. Accordingly, the
Purchaser understands that it is a condition to the exercise
of the Warrants that (a) the Warrants are not exercised and
the Warrant Shares will not be delivered within the United
States except in circumstances constituting an "offshore
transaction" (as defined in Regulation S) or unless such
Warrant Shares have been registered under the Securities Act
and any applicable state and foreign securities or blue sky
laws or exemptions from such registration requirements are
available and the Company receives a written opinion from
United States counsel, in form and substance satisfactory to
the Company, to the effect that the offer, sale and transfer
of such Warrants and Warrant Shares or any interest therein
are exempt from registration under the Securities Act and any
applicable state and foreign securities or blue sky laws, and
(b) the holder exercising the Warrants must deliver to the
Company (i) a written certification that such holder is not a
"U.S. person" (as defined in Regulation S) and that the
Warrants are not being exercised on behalf of, or for the
account or benefit of, a "U.S. person" (as defined in
Regulation S) 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 Warrant Shares have been
registered under the Securities Act and any applicable state
and foreign securities or blue sky laws or are exempt from
registration under the Securities Act and any applicable state
and foreign securities or blue sky laws.
4.5. Legends. (a) The Purchaser agrees that for the
duration of the Restricted Period and until removed pursuant
to Sections 3(c) and (d) of this Purchase Agreement, the stock
certificates representing the Shares included in the
Designated Units and the stock certificates representing the
Warrant Shares issuable upon exercise of the Warrants included
in the Designated Units shall bear the legend set forth below:
"The Common Shares represented by this certifi
cate have not been and will not be 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 such registration requirements
contained in Regulation S under the Act. Neither
the Common Shares represented by this stock
certificate nor any interest therein may be
offered, sold, transferred, pledged or otherwise
disposed of, in the United States or to, or for
the account or benefit of, any "U.S. person" (as
defined in Regulation S under the Act) prior to
the later January __, 1996 or 40 days following
the date of the Closing of the last sale of units
sold pursuant to the Offering Memorandum dated
December 12, 1995, unless registered under the
Act and any applicable state and foreign secur
ities or blue sky laws or XCL Ltd. receives a
written opinion of United States legal counsel in
form and substance satisfactory to it to the
effect that the offer, sale, transfer, pledge or
other disposal of such shares or any interest
therein is exempt from the registration require
ments of such laws."
(b) The Purchaser agrees that the certificates represent
ing the Warrants included in the Designated Units purchased
pursuant hereto shall bear the legend set forth below:
The Warrants represented by this Certificate and
the Shares of Common Stock issuable upon the
exercise thereof have not been and will not be
registered under the United States Securities Act
of 1933, as amended (the "Act") or under 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 January __,
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.
4.6. Prohibition of Certain Trading Transactions. During
the period from the date of the Preliminary Offering
Memorandum to the date of this Purchase Agreement, the
Purchaser did not, and from such date and through the
expiration of the Restricted Period (as defined in Section 4.3
of this Purchase Agreement) the Purchaser will not, execute or
effect or cause to be executed or effected, directly or
indirectly, any short sale, option, or equity swap transaction
in or with respect to the Common Stock of the Company or any
other derivative security transaction for its own account, if
it is purchasing for its own account, or, if it is purchasing
the Units for the account of another person or entity, for
such account, the purpose or effect of which is to hedge or
transfer to a third party all or any part of the risk of loss
associated with the ownership of the Units, including the
Shares, the Warrants or the Warrant Shares, by the Purchaser.
4.7. Sales by the Purchaser in the United States. If
the Purchaser sells all or any part of the Shares or Warrants
comprising the Designated Units or, upon exercise of the War
rants, all or any part of the Warrant Shares or any interest
therein in the United States, the Purchaser (and/or certain
persons who participate in any such sale) may be deemed, under
certain circumstances, to be an "underwriter" as defined in
Section 2(11) of the Securities Act. Prior to offering or
selling all or any part of the Shares, Warrants or Warrant
Shares in the United States, whether during or subsequent to
the Restricted Period, the Purchaser shall (a) consult with
United States legal counsel to determine its liabilities and
obligations under this Purchase Agreement, the Securities Act
and any applicable state and foreign securities or blue sky
laws, and (b) comply with the provisions of this Purchase
Agreement and all applicable federal, state and foreign
securities or blue sky laws, including the Securities Act.
The Purchaser acknowledges that the Company has no present
intention of registering the Shares, the Warrants or the
Warrant Shares under the Securities Act or any other
securities laws, and agrees that the Shares, the Warrants and
the Warrant Shares may not be resold unless they are
subsequently registered under United States federal and state
statutes or unless exemptions from all such applicable
registration requirements are available.
4.8. Due Execution, Delivery and Performance of the
Purchase Agreement and Other Obligations. The Purchaser has
full right, power, authority and capacity to enter into this
Purchase Agreement and to consummate the transactions
contemplated hereby. If the Purchaser is a company or
corporation or other entity, the execution, delivery and
performance of this Purchase Agreement by the Purchaser have
been duly authorized by all requisite corporate or other
required action of the Purchaser. This Purchase Agreement has
been validly executed and delivered by or on behalf of the
Purchaser. Upon the execution and delivery of this Purchase
Agreement by the Company, this Purchase Agreement shall
constitute the legal, valid and binding obligation of the Pur
chaser, enforceable in accordance with its terms, except as
the enforceability thereof may be limited by (i) any
applicable bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization or other similar laws now or
hereafter in effect relating to or affecting the enforcement
of creditors' rights generally, and (ii) general equitable
principles, now or hereafter in effect, regardless of whether
such enforceability is considered in an action at law or a
proceeding in equity.
4.9. Organization: Lack of Conflict. If the Purchaser
is an entity, the Purchaser is duly organized, validly
existing and in good standing under the laws of the
jurisdiction of its incorporation. The execution, delivery
and performance of this Purchase Agreement by the Purchaser
will not violate (i) the organizational documents of the
Purchaser, if the Purchaser is an entity, (ii) any law
applicable to the Purchaser or any rule, regulation or order
of any court or governmental agency or body having
jurisdiction over the Purchaser or (iii) any provision of any
indenture, mortgage, agreement, contract or other instrument
to which the Purchaser is a party or by which the Purchaser is
bound or to which any of the properties or assets of the Pur
chaser are subject, or result in a breach of or constitute
(upon notice or lapse of time or both) a default under any
such 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
properties or assets of the Purchaser (except for any
violation, breach or default described in this sentence which
would not have a material adverse effect on the Purchaser's
performance of its obligations under this Purchase Agreement).
4.10. Governmental Consents. The Purchaser is not aware
of any authorization, approval or consent of any governmental
body which is legally required for its purchase of the
Designated Units as contemplated by this Purchase Agreement
which has not been obtained.
4.11. Acknowledgement. The Purchaser acknowledges that
the Designated Units are being offered and sold to it in
reliance on specific exemptions from the registration require
ments of the Securities Act and that the Company is relying
upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understanding of
the Purchaser set forth in this Purchase Agreement to
determine the applicability of such exemptions and the
suitability of the Purchaser to acquire the Designated Units.
Purchaser also acknowledges that no governmental agency in any
jurisdiction has passed on or made any recommendation or
endorsement of the Units, including the Shares and the
Warrants, or the Warrant Shares.
4.12. Authorization of the Placement Agent to Accept
Delivery of the Designated Units. The Purchaser hereby author
izes the Placement Agent, or its designated agent, on behalf
of the Purchaser to receive payment of the Purchase Price by
the Purchaser for the Designated Units, and to pay the
Purchase Price to the Company against delivery of the
Designated Units at the Closing, and to accept delivery at the
Closing of the Designated Units. The Purchaser may, in its
sole discretion, authorize the Placement Agent, or its
designated agent on behalf of the Purchaser to hold the
certificates representing the Shares comprising part of the
Designated Units on behalf of the Purchaser during the
Restricted Period, to surrender such certificates to the
Transfer Agent for the Common Stock upon expiration of the
Restricted Period, and to obtain from the Company within seven
(7) business days after the Restricted Period a substitute
stock certificate or certificates representing the Shares
comprising part of the Designated Units without the
restrictive legend described in section 4.5(a) of this
Purchase Agreement.
4.13. 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 and will be true and correct as of the Closing Date.
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 the
Purchaser herein and in the Designated Units delivered
pursuant hereto shall survive the execution of this Purchase
Agreement, the delivery to the Purchaser of the Designated
Units and the receipt by the Company of payment for the
Designated Units.
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 certified or registered 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) 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 confirmation 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 the Purchaser in
writing by the Company;
(b) if to the Purchaser, at its address as set out
following the Purchaser's signature on the signature page to
this Purchase Agreement, or at such other address or addresses
as may have been furnished to the Company in writing by the
Purchaser; or
(c) if to any transferee or transferees of the
Purchaser, at such address or addresses as shall have been
furnished to the Company at the time of the transfer or trans
fers, 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 any 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 conveni
ence 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. 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,
without regard to the conflict of law provisions thereof.
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 ________________________ _______________________
Name: _____________________ _______________________
Title: ____________________ _______________________
Duly executed by:
_______________________
Title:
Aggregate number of
Designated Units: PURCHASER'S ADDRESS:
___________________________ _______________________
Total Purchase Price:
___________________________ ________________________
___________________________ ________________________
Stock certificate registration instructions:
Name of Holder:___________________________________________
Address of Holder:________________________________________
__________________________________________________________
__________________________________________________________
Warrant certificate registration instructions:
Name of Holder:___________________________________________
Address of Holder:________________________________________
__________________________________________________________
__________________________________________________________
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 FEBRUARY 1, 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 DIS
POSAL (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.----------
WARRANTS TO PURCHASE
COMMON STOCK OF XCL LTD.
Initial Issuance on December 22, 1995
Void after 5:00 p.m. New York Time, December 21, 2000
THIS CERTIFIES THAT, for value received,-----------------
- --
- ----------------------- 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
December 22, 1995 and until 5:00 p.m., New York time, on
December 21, 2000 (the "Expiration Date"), subject to the
conditions set forth herein, at the initial exercise price of
$0.50 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 Chemical Mellon Shareholder Services or Barclays
Registrars 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 documen
tary 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 trans
fer 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
Securities Act of 1933, as amended (the "Securities Act") or
under any state or foreign securities or blue sky laws. Prior
to February 1, 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 registra
tion 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 exercising 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 requirements 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 signa
ture 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 International Stock
Exchange in London, England. Upon any registration of trans
fer, the Company shall deliver a new certificate or certifi
cates 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 govern
mental charge imposed in connection therewith.
(b) Notwithstanding anything in this Certificate 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 appli
cable 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 or (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), 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 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.
(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
International Stock Exchange of the United Kingdom of Great
Britain and Northern Ireland and the Republic of Ireland
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.
(k) The Company may, in its sole discretion, at any
time and from time to time before the Expiration Date, reduce
the Exercise Price to any lower amount by notice to the
Holders, in the manner provided in Section 14.
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 Redemp
tion 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 exer
cised at any time prior to 5:00 p.m. New York time on the busi
ness 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 Certi
ficates 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 non-assessable, 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 (not
withstanding any notation of ownership or other writing hereon
made by anyone), for the purpose of any exercise of the War
rants, 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 December 22, 1995
-----------------
XCL LTD.
By:------------------------
Name:------------------------
Title:------------------------
Attest:
- --------------------------
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 REGISTRA
TION 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 secur
ities exchange, The Securities and Futures
Authority Limited in the United Kingdom or The
International Stock Exchange in London, England.
Notarized or witnessed signatures are not
acceptable as guaranteed signatures.
Signature Guaranteed:
Authorized Officer
Name of Institution
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 FEBRUARY 1, 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 DIS
POSAL (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. A-23
WARRANTS TO PURCHASE
COMMON STOCK OF XCL LTD.
Initial Issuance on December 22, 1995
Void after 5:00 p.m. New York Time, December 21, 2000
THIS CERTIFIES THAT, for value received, RAUSCHER PIERCE
& CLARK LIMITED ("RPC") 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
December 22, 1996 and until 5:00 p.m., New York time, on
December 21, 2000 (the "Expiration Date"), subject to the
conditions set forth herein, at the initial exercise price of
$0.31 per share (the "Initial Exercise Price"), subject to
adjustment as set forth herein (the "Exercise Price"), up to
an aggregate of six hundred ninety-six thousand (696,000)
fully paid and non-assessable common shares, par value $0.01
per share (the "Common Stock"), of the Company (the "Shares")
upon surrender of this certificate (the "Certificate") and pay
ment 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 of America.
1. Exercise of Warrants.
(a) The exercise of any Warrants represented by this
Certificate is subject to the conditions set forth below in
paragraph 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 at any time and
from time to time after December 21, 1996 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.
(c) No Warrant may be exercised after
5:00 p.m., New York time, on the
Expiration Date, after which time all Warrants evidenced
hereby shall be void.
(d) Payment of the Purchase Price shall be made in cash,
by wire transfer of immediately available funds 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 share certificate or share certificates for
the number of whole Shares purchased upon the exercise of the
Warrants. Such share certificate or share certificates
representing the Shares 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 pur
chased upon exercise of the Warrants shall be in effect at
Chemical Mellon Shareholders Services, Barclays Registrars
Limited or any successor transfer agent for the Common Stock
of the Company (the "Transfer Agent").
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 the Holder, the
Company shall pay to the 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 documen
tary 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 trans
fer taxes shall be paid by the Holder, and until payment of
such transfer 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, except as provided in Section 8 hereof, will
not be, registered under the United States Securities Act of
1933, as amended (the "Securities Act"), or any other federal
or state securities or blue sky laws. Prior to February 1,
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 under the Securities Act) and
otherwise complying with Regulation S, or unless such Shares
have been registered under the Securities Act and any appli
cable 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 exercising Holder must
deliver to the Company (A) a written certification that such
Holder is not a "U.S. person" (as defined in Regulation S
under 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" (as defined in Regulation S under the Securities
Act), or (B) a written opinion of United States legal 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 or foreign
securities or blue sky laws or the exercise of such Warrants
and delivery of such Shares are exempt from the registration
requirements 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,
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 signa
ture guarantee, which may be provided 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 United States national securities exchange, The
Securities and Futures Authority Limited in the United
Kingdom, or The International Stock Exchange in London,
England. Upon any registration of transfer, the Company shall
deliver a new warrant certificate or warrant 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) Subject to the restriction specified on the
first page of this Certificate, the Warrants may be
transferred only to: (i) Rauscher Pierce & Clark Inc. ("RPC
Inc."); (ii) any corporation, partnership, joint venture or
other entity which is a successor by merger or consolidation
to RPC or RPC Inc.; (iii) any purchaser of substantially all
of the assets of RPC or RPC Inc.; (iv) any officer, director,
employee or agent of RPC or RPC Inc.; (v) any of the stock
holders of RPC or RPC Inc., or the stockholders or partners of
their respective transferees in the event of the liquidation,
dissolution or winding-up of RPC or RPC Inc.; or (vi) the
respective nominees of any of the foregoing parties.
(c) Notwithstanding anything in this Certificate
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 any
applicable provisions of the Securities Act and any applicable
state securities or blue sky laws.
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 warrant 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. Any
transfer not made in such compliance shall be null and void
and shall be given no effect hereunder.
(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 warrant 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 shareholders 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 or (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), 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 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.
(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
International Stock Exchange of the United Kingdom of Great
Britain and Northern Ireland and the Republic of Ireland
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.
(k) The Company may, in its sole discretion, at any
time and from time to time before the Expiration Date, reduce
the Exercise Price to any lower amount by notice to the
Holders, in the manner provided in Section 14.
8. Registration Rights.
(a) Piggyback Registration. If, at any time during the
five (5) years beginning on the initial issuance date of the
Warrants represented by this Certificate, the Company proposes
to prepare and file any new registration statement under the
Securities Act covering the public sale of Common Stock of the
Company for cash (in any case, other than in connection with
an employee benefit plan, a dividend reinvestment plan or
pursuant to a registration statement Forms S-4 or S-8 or any
successor form) (collectively, a "Registration Statement"), it
will give written notice by certified or registered mail, at
least thirty (30) days prior to the filing of each such
Registration Statement, to the Holder of its intention to do
so. If the Holder notifies the Company within fifteen (15)
days after receipt of any such notice of such Holder's desire
to include in such proposed Registration Statement any shares
of Common Stock (i) issued or issuable to the Holder upon
exercise of the Holder's Warrants, and (ii) that are owned by
the Holder (the "Registrable Shares") (which notice shall
specify the number of Registrable Shares owned by the Holder,
the number intended to be disposed of by the Holder and the
intended method of disposition of such Registrable Shares),
the Company shall use reasonable efforts to include, to the
extent possible, in such Registration Statement the number of
Registrable Shares which the Company has been so requested to
register by the Holder, at the Company's sole cost and expense
and at no cost or expense to the Holder, except that the
Holder shall pay (i) all underwriters', broker-dealers',
placement agents' and similar selling discounts, commissions
and fees relating to the Holder's Registrable Shares, (ii) all
registration and filing fees imposed under the Securities Act,
by any stock exchange or under applicable state securities or
blue sky laws based on the Holder's Registrable Shares, (iii)
all transfer, franchise, capital stock and other taxes, if
any, applicable to the Holder's Registrable Shares, and (iv)
any costs and expenses of legal counsel, accountants or other
advisors retained by the Holder (collectively, the "Holder's
Expenses"), all of which shall be paid by the Holder; pro
vided, that:
(i) anything in this Section 8 to the contrary
notwithstanding, if the Company's securities so registered
for sale are to be distributed in an underwritten offering
and the managing underwriter shall advise the Company in
writing that, in its opinion, the amount of securities to
be offered should be limited in order to assure a successful
offering, the amount of Registrable Shares to be included
in such Registration Statement shall be so limited and
shall be allocated among the persons selling such
securities in the following order of priority:
(A) first to be registered will be the securities
the Company proposes to sell, (B) next to be
registered will be the securities subject to any
demand or other piggyback registration rights
granted by the Company before the initial
issuance date of the Warrants, and (C) next to be
registered will be the Registrable Shares and any
other shares of Common Stock subject to similar
piggyback registration rights granted by the
Company as of the initial issuance date of the
Warrants in proportion, as nearly as practicable,
to the number of shares of Common Stock desired
and eligible to be sold by each holder of such
shares of Common Stock; and
(ii) anything in this Section 8 to the contrary
notwithstanding, the Company shall not be required to include
any of the Holder's Registrable Shares in a registration
statement if in the written opinion of legal counsel to the
Company the securities for which registration is requested may
be sold publicly without registration under the Securities
Act; and
(iii) if the securities or blue sky laws of any
jurisdiction in which the securities so registered are
proposed to be offered would require the Holder's payment of
greater registration expenses than those otherwise required by
this Section 8 and if the Company shall determine, in good
faith, that the offering of such securities in such
jurisdiction is necessary for the successful consummation of
the registered offering, then the Holder shall either agree to
pay the portion of the registration expenses required by the
securities or blue sky laws of such jurisdiction to be paid by
the Holder or withdraw his request for inclusion of his
Registrable Shares in such registration; and
(iv) notwithstanding the provisions of this paragraph 8(a),
the Company shall have the right at any time and for any
reason or for no reason after it shall have given written
notice pursuant to this paragraph (irrespective of whether a
written request for inclusion of any such securities shall
have been made) to elect not to file any such proposed
Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof and, thereupon,
shall be relieved from its obligation to proceed with such
registration.
If a Holder's Registrable Shares are included in a
Registration Statement, the Holder shall furnish the Company
in writing with such appropriate information in connection
with the sale of such Shares, including, without limitation,
information about the Holder, the Registrable Shares, other
securities of the Company owned by the Holder, and the plan of
distribution, as the Company shall reasonably request or as
shall be reasonably required in connection with any
registration, qualification or compliance referred to in this
Agreement. In addition, if the offering is underwritten, the
Company shall have the exclusive right to select the
underwriter. The Holder shall execute and deliver all docu
ments reasonably requested by such underwriter and any other
documents customary in similar offerings, including, without
limitation, underwriting agreements, custody agreements,
powers of attorney, indemnification agreements, and agreements
restricting other sales of securities.
The rights and obligations under Sections 8(a) and (b)
shall terminate at the earlier of (i) five (5) years after the
initial issuance date of the Warrants, or (ii) the date all of
the Holder's Registrable Shares have been transferred by the
Holder, except for transfers in accordance with Section 5(b)
above.
(b) Covenants of the Company With Respect to Registration.
The Company covenants and agrees as follows:
(i) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to
paragraph (a) above including, without limitation, the
Company's legal and accounting fees, printing expenses, filing
fees and other expenses, except that the Holder shall pay all
of the Holder's Expenses (as defined in paragraph (a)).
(ii) The Company will use its reasonable efforts to qualify
or register the Registrable Shares included in a Registration
Statement for offering and sale under the securities or blue
sky laws of such states of the United States as are reasonably
requested by the Holder; provided, however, that the Company
shall not be required to (i) qualify or register the
Registrable Shares in any jurisdiction in which the Company
would be required to qualify as a broker or dealer in
securities under the securities or blue sky laws of such
jurisdictions, (ii) qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not
already so qualified, (iii) subject itself to taxation in any
such jurisdiction, or (iv) consent to general service of pro
cess in any such jurisdiction.
(c) Indemnification.
(i) To the extent permitted by law, the Company shall
indemnify and hold harmless each Holder of the Registrable
Shares to be sold pursuant to any Registration Statement (such
Holder being hereinafter referred to as a "Distributing
Holder"), each underwriter (an "Underwriter") and each person,
if any, who controls such Distributing Holder or Underwriter
within the meaning of Section 15 of the Securities Act and
each director of such Distributing Holder and Underwriter,
against all loss, claim, damage, expense or liability (or
actions in respect thereof) to which any of them may become
subject under the Securities Act or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement
of any material fact contained in any such Registration
Statement or any preliminary prospectus or final prospectus
constituting part thereof or any amendments or supplements
thereto, or arising out of or based upon the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading, and will reimburse the Distributing Holder and
Underwriter and each such controlling person and director of
the Distributing Holder and Underwriter for any legal or other
expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage,
liability or action as such expenses are paid out-of-pocket
(including reasonable attorneys' fees); provided, however,
that (A) the Company will not be liable in any such case to
the extent that any such loss, claim, damage, expense or lia
bility arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written
information furnished to the Company by, or on behalf of, such
Distributing Holder, any other Distributing Holder or any such
Underwriter specifically for use therein, and (B) such
indemnity shall not inure to the benefit of such Distributing
Holder or Underwriter (or such controlling person or director
of the Distributing Holder or Underwriter) if any such loss,
claim, damage, expense or liability arises out of or is based
upon (i) any Distributing Holder's or the Underwriter's bad
faith or gross negligence, (ii) any Distributing Holder's or
the Underwriter's failure to deliver timely a copy of the
final prospectus (or the final prospectus as then amended,
revised or supplemented), or (iii) any such untrue statement
or omission of a material fact that was corrected in the final
prospectus (or the most recent amendment, revision or
supplement thereto) and any Distributing Holder or the
Underwriter failed to deliver it in a timely manner.
(ii) To the extent permitted by law, each Dis
tributing Holder shall, severally and jointly,
indemnify and hold harmless the Company, its
directors, officers, employees and agents, each
Underwriter and each person, if any, who controls
any of the foregoing within the meaning of
Section 15 of the Securities Act, against all
loss, claim, damage, expense or liability (or
actions in respect thereof) to which any of them
may become subject under the Securities Act or
otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of
any material fact contained in any such Registra
tion Statement or any preliminary prospectus or
final prospectus constituting part thereof or any
amendments or supplements thereto, or arising out
of or based upon the omission or alleged omission
to state therein a material fact required to be
stated therein or necessary to make the
statements therein, in light of the circumstances
under which they were made, not misleading, and
will reimburse the Company and each such
director, officer, employee, agent, Underwriter
or controlling person for any legal or other
expenses reasonably incurred by any of them in
connection with investigating or defending any
such loss, claim, damage, liability or action as
such expenses are incurred (including reasonable
attorneys' fees) in each case to the extent, but
only to the extent, that (A) such untrue state
ment or alleged untrue statement or omission or
alleged omission was made in reliance upon and in
conformity with written information furnished to
the Company by, or on behalf of, such Distrib
uting Holder or any other Distributing Holder
specifically for use therein, or (B) such loss,
claim, damage, expense or liability arises out of
or is based upon (i) any Distributing Holder's
failure to deliver in a timely manner a copy of
the final prospectus (or the final prospectus as
then amended, revised or supplemented), or (ii)
any such untrue statement or omission of a
material fact that was corrected in the final
prospectus (or the most recent amendment,
revision or supplement thereto) and any Distrib
uting Holder failed to deliver it in a timely
manner. Notwithstanding the foregoing, such
indemnity shall not inure to the benefit of such
Underwriter (or such controlling person of the
Underwriter) if any such loss, claim, damage,
expense or liability arises out of or is based
upon (i) the Underwriter's failure to deliver in
a timely manner a copy of the final prospectus
(or the final prospectus as then amended, revised
or supplemented), or (ii) any such untrue state
ment or omission of a material fact that was
corrected in the final prospectus (or, the most
recent amendment, revision or supplement thereto)
and the Underwriter failed to deliver it in a
timely manner.
(iii) Promptly after receipt by an indemnified
party under this paragraph 8(c) of notice of the
commencement of any action, such indemnified
party will, if a claim in respect thereof is to
be made against the indemnifying party under this
paragraph 8(c), notify the indemnifying party in
writing of the commencement thereof; provided,
however, that the omission so to notify the indem
nifying party will not relieve the indemnifying
party from any liability that it may have to any
indemnified party otherwise than under this para
graph 8(c) except to the extent such indemnifying
party is materially prejudiced by such lack of
notice. In case any such action is brought
against any indemnified party and it notifies the
indemnifying party of the commencement thereof,
the indemnifying party will be entitled to par
ticipate therein and, to the extent that it may
elect by written notice delivered to the indem
nified party promptly after receiving the afor
esaid notice from such indemnified party, to
assume the defense thereof and after notice from
the indemnifying party to such indemnified party
of its election so to assume the defense thereof,
the indemnifying party will not be liable to such
indemnified party under this paragraph 8(c) for
any legal or other expenses subsequently incurred
by such indemnified party in connection with the
defense thereof other than reasonable costs of
investigation requested by the indemnifying party
or required by law; provided, that if the
indemnifying party elects to assume such defense,
the indemnified party shall be entitled to
participate in such defense with its own counsel
retained at its own sole cost and expense. If
the indemnifying party does not elect to assume
the defense of any such claim, action or proceed
ing, the indemnifying party shall not be liable
for any settlement thereof which is effected
without its prior written consent. No indemnify
ing party shall, without the prior written
consent of the indemnified party, agree to the
settlement of any such claim, action or
proceeding if the effect thereof would be to find
the indemnified party has violated the Securities
Act, the United States Securities Exchange Act of
1934, as amended, or any state securities or blue
sky laws.
(iv) If recovery is not available under the
foregoing indemnification provisions of this
paragraph 8(c) for any reason other than as
specified therein, the parties entitled to
indemnification by the terms thereof shall be
entitled to contribution toward the amount paid
or payable by such indemnified party as a result
of the losses, claims, damages or liabilities
referred to in subparagraph 8(c)(i) or 8(c)(ii)
above, except that no person found to be liable
for fraudulent misrepresentation (within the
meaning of section 11(f) of the Securities Act)
shall be entitled to contribution from any person
who was not also found to be liable for such
fraudulent misrepresentation. In determining the
amount of contribution to which the respective
parties are entitled, there shall be considered
the relative benefits received by each party from
the offering of the securities, the parties'
relative knowledge and access to information con
cerning the matter with respect to which the
claim was asserted, the opportunity to correct
and prevent any untrue statement or omission, and
any other equitable considerations appropriate
under the circumstances, including, without limi
tation, the relative fault of the parties. The
amount paid by an indemnified party as a result
of the losses, claims, damages or liabilities
referred to in the first sentence of this
subparagraph 8(c)(iv) shall be deemed to include
any legal or other expenses reasonably incurred
by such indemnified party in connection with
investigating or defending any action or claim
that is the subject of this sub-paragraph
8(c)(iv) (including reasonable attorneys' fees).
9. 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 stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the exercise or expiration of
the Warrants, any of the following events shall occur:
(i) the holders of shares of the Common Stock
shall be entitled to receive a dividend or
distribution payable otherwise than in cash, or a
cash dividend or distribution payable otherwise
than out of current or retained earnings, as
indicated by the accounting treatment of such
dividend or distribution on the books of the
Company; or
(ii) the Company shall offer to all the
holders of its Common Stock any additional shares
of capital stock of the Company or securities
convertible into or exchangeable for shares of
capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(iii) a dissolution, liquidation or winding-up
of the Company (other than in connection with a
consolidation or merger) or a sale of all or sub
stantially all of its property, assets and
business as an entirety shall be approved by the
Company's Board of Directors; or
(iv) there shall be any capital
reorganization or reclassification of the capital
stock of the Company (other than a change in the
number of outstanding shares of Common Stock or a
change in the par value of the Common Stock), or
consolidation or merger of the Company with
another entity;
then, in any one or more of said events, the Company shall
give written notice of such event at least fifteen (15) days
prior to the date fixed as a record date or the date of clos
ing the transfer books for the determination of the stock
holders entitled to such dividend, distribution, convertible
or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution,
liquidation, winding-up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as
the case may be. Failure to give such notice or any defect
therein shall not affect the validity of any action taken in
connection with the declaration or payment of any such divi
dend or distribution, or the issuance of any convertible or
exchangeable securities or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding-up
or sale.
10. Reservation and Listing of Securities.
(a) Subject to the two provisos below, the Company
covenants and agrees that at all times during the period after
December 21, 1996, when the Warrants become 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; provided,
however, that as of the date hereof, the Company does not have
a sufficient number of shares of Common Stock authorized to
permit the exercise of the Warrants; provided, further, that
the Company shall use its best efforts to cause the number of
its authorized shares of Common Stock to be sufficiently
increased at the next annual meeting of the Company's
stockholders (the "AMS"), to permit the exercise of the
Warrants, but if, despite such best efforts, such sufficient
additional shares are not authorized at the next AMS or on or
prior to the first anniversary of the Closing Date, and the
Company does not otherwise have authorized but unissued shares
of Common Stock available on the first anniversary of the
Closing Date when the Warrants can first be exercised, then
the Company shall have no obligation to reserve and keep
available shares of Common Stock for issuance upon exercise of
its Warrants pursuant to this subsection (a) but instead shall
have the obligations set forth in subsection (b) in lieu
thereof.
(b) If the proposed increase in the number of
authorized shares of Common Stock is not approved at the AMS
or on or prior to the first anniversary of the Closing Date,
and the Company does not otherwise have authorized but
unissued shares of Common Stock available on the date or dates
on which the Warrants can be exercised and any Holder thereof
gives notice of such Holder's intention to exercise, then the
Company shall within five Business Days after such date, in
the event that the Company shall have received a notice from
the Holder of the Warrants of the Holder's intention to
exercise all or part of such Warrants, pay the Holder of the
Warrants in cash by wire transfer of immediately available
funds an amount equal to the difference between the then
current market price (the "Market Price") per Common Share on
the American Stock Exchange ("AMEX") or any other principal
stock exchange or other securities market in which the Common
Stock is trading on the date of such notice (provided that
such price exceeds the Exercise Price then in effect) less the
Exercise Price per Common Share, multiplied by the number of
Common Shares as to which they are being exercised, as stated
in such notice. Payment of such amount shall be made against
receipt of the exercise notice and payment in full of the
amount due shall extinguish the Warrant to the extent so
exercised by the Holder.
(c) 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 stockholder and when issued and delivered in accordance
with the terms of the Warrants shall be duly and validly
issued, fully paid and non-assessable, and the Holder shall
receive good and valid 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.
(d) 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 (not
withstanding any notation of ownership or other writing hereon
made by anyone), for the purpose of any exercise of the War
rants, 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. Notices. All notices and other communications from
the Company to the Holder 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 con
firmed 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 con
strued in accordance 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 December 22, 1995
XCL LTD.
By:----------------------------------
David A. Melman
Executive Vice President, General
Counsel and Secretary
Attest:
- ------------------------------
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 share 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 whatso
ever, 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 REGULA
TION 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" (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT), 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
SECURITIES OR BLUE SKY LAWS OR ARE EXEMPT FROM THE REGISTRA
TION REQUIREMENTS UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES OR BLUE SKY 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
purchaseable under this Warrant Certificate that a new Warrant
Certificate for the balance remaining of the Shares
purchaseable 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 secur
ities exchange, The Securities and Futures
Authority Limited in the United Kingdom or The
International Stock Exchange in London, England.
Notarized or witnessed signatures are not
acceptable as guaranteed signatures.
Signature Guaranteed:
Authorized Officer
Name of Institution
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF DESIGNATION
OF
XCL LTD.
(Pursuant to Section 242 of the General Corporation Law)
________________________________
THE UNDERSIGNED, David A. Melman and Lisha C. Falk, being
the duly elected Executive Vice President and Assistant
Secretary, respectively of XCL Ltd., a Delaware corporation (the
"Company"), for the purposes of amending the Certificate of
Incorporation pursuant to Section 242 of the General Corporation
Law of the State of Delaware, DO HEREBY CERTIFY THAT:
FIRST: On December 29, 1995, the Board of Directors of
said Company duly adopted resolutions proposing an amendment to
Paragraphs 1 and 3 of the terms of the Company's Series A,
Cumulative Convertible Preferred Stock, par value $1.00 per share
(the "Series A Preferred Stock"), as such terms are set forth in
that Certificate of Designation of Series A Preferred Stock,
filed on July 6, 1990 with the Secretary of the State of the
State of Delaware pursuant to Section 151 of the General
Corporation Law of the State of Delaware (the "Certificate of
Designation"), declaring such amendment's advisability and
proposing the solicitation of the written consent to the
amendment to the holders of the Series A Preferred Stock. The
proposed amendment (the "Amendment") as summarized in said
resolutions and submitted in summary form to such stockholders
for approval is as follows:
1. Paragraph 1 of the Certificate of Designation is
hereby amended to read as follows:
"The shares of this series of Preferred Stock shall be
designated as Series A, Cumulative Convertible
Preferred Stock, par value of $1.00 per share
("Preferred Stock"), and the number of shares
constituting such series shall be 850,000."
2. Paragraph 3 of the Certificate of Designation is
hereby amended to add thereto a new sub-paragraph (b)
to read in its entirety as follows:
"(b) The Company may, at is option exercised by
written notice to the holders of the Preferred Stock
given at least ten (10) Business Days prior to the semi-
annual date on which dividends are due to be paid (a
"Dividend Payment Date"), elect to pay any dividend due
and payable hereunder, in kind in additional shares of
Preferred Stock in lieu of a dividend payment in cash
(such shares being hereinafter referred to as "Dividend
Stock"). The amount of shares of Dividend Stock
issuable to each holder of Preferred Stock pursuant to
this sub-paragraph 3(b) on each such Dividend Payment
date shall be calculated by dividing the amount of the
dividend by the average of the closing mid-market price
derived from the London Stock Exchange Daily Official
List for the 20 trading days ending on the record date
for such future semi-annual dividend payments (the
"Trading Period") for each share of Preferred Stock
registered in the name of each such holder of the
Preferred Stock on the record date for the payment of
the dividend. In the event that the Preferred Stock is
not then listed on the Stock Exchange, the price used
in calculating the number of shares of Dividend Stock
to be so issued in respect of such dividend (the
"Market Price") will be the average of the closing
prices for the Trading Period as reported on the
principal US securities exchange on which the Preferred
Stock is then listed, or if not so listed on any such
exchange, then the average of the closing prices for
the Trading Period as reported in the National
Association of Securities Dealers' Automated Quotation
("NASDAQ") National Market System ("NMS") or, if not so
listed in the NMS, then the average of the closing bid
and asked prices for the Trading Period as reported in
NASDAQ, or, if not so quoted in NASDAQ, the average of
the reported closing bid and asked prices on each
trading day during the Trading Period as reported in
the "pink sheets" published by National Quotation
Bureau, Inc. or its successor, or, if not so quoted in
the "pink sheets," the average of the closing bid and
asked prices for each such trading day during the
Trading Period as furnished by any brokerage firm
regularly making a market in the Preferred Stock
selected for such purpose by the Board of Directors.
Where appropriate, such Market Price shall be converted
into pounds sterling at the then spot market exchange
rate of US dollars into pounds sterling as quoted by
the Chase Manhattan Bank or any successor bank thereto
on the date of determination. If a quotation of such
exchange rate is not available, the exchange rate of US
dollars into pounds sterling as quoted in the Wall
Street Journal on the date of determination shall be
taken to be the exchange rate for these purposes. A
"trading day" shall mean a day on which the relevant
securities exchange on which the Preferred Stock is
listed or admitted to trading is open for business or,
if the Preferred Stock is not so listed or admitted to
trading, a Business Day. Fractional shares of
Preferred Stock arising in respect of the payment of
any dividend in shares of Dividend Stock shall not be
issued to the holders of Preferred Stock, otherwise
entitled thereto, but such fractions shall be
aggregated and the Company shall have the right to
elect either (i) to purchase such fractions from such
holders based upon the Market Price per share used to
determine the number of shares of Dividend Stock to be
issued to holders or (ii) to arrange for the
disposition of such fractional shares by those entitled
thereto, and distributing the proceeds of such purchase
or sale pro rata among such holders entitled thereto,
unless, in respect of any holding of the relevant
shares of Preferred Stock the aggregate amount to be
distributed would be less than 2.50 pounds sterling
(U.K.) in which case such amount shall not be distri-
buted but shall be retained for the benefit of the
Company. For the purpose of implementing the provisions
of this subparagraph (b), the Board of Directors may
appoint an individual, corporation, firm or other
business entity to make all arrangements which appear
to the Board necessary or appropriate for the settle-
ment, purchase or disposal of fractional entitlements.
Nothing in this sub-paragraph (b) shall require the
Company to adjust the conversion rate of the Preferred
Stock in respect of any payment of a dividend with
shares of Dividend Stock or to register the Preferred
Stock or any shares of Dividend Stock under the U.S.
Securities Act of 1933, as amended, or the U.S. Securi-
ties Exchange Act of 1934, as amended."
3. The remaining sub-paragraphs 3(b), 3(c) and 3(d) are,
accordingly, redesignated 3(c), 3(d) and 3(e),
respectively.
3. The remaining terms and provisions of the Series A
Preferred Stock shall remain in full force and effect.
SECOND: In lieu of a meeting and vote of holders of the
Series A Preferred Stock, the holders of record on the record
date, December 29, 1995, of an aggregate of 485,662 shares of the
Series A Preferred Stock, and exceeding the two-thirds vote
required to approve the Amendment, representing approximately
81.05% of the issued and outstanding shares of Series A Preferred
Stock, gave their written consent to said Amendment in accordance
with the provisions of Section 228 of the General Corporation Law
of the State of Delaware and the provisions of Paragraph 9 of the
Certificate of Designation, which written consents have been
filed with the Company as required under said Section 228.
THIRD: The remaining terms and provisions of the Series A
Preferred Stock remain in full force and effect without
amendment.
FOURTH: Written notice of the approval of the Amendment
has been given to holders of the Series A Preferred Stock who
have not so consented in writing.
IN WITNESS WHEREOF, the said Corporation has caused this
Certificate of Amendment to be signed and attested by its
officers thereunto duly authorized and its corporate seal to be
affixed this 11th day of April, 1996.
/s/ David A. Melman
_____________________________
David A. Melman
Executive Vice President
ATTEST:
/s/ Lisha C. Falk
_______________________________
Lisha C. Falk
Assistant Secretary
STATE OF LOUISIANA )
:ss:
PARISH OF LAFAYETTE )
BE IT REMEMBERED that on this 11th day of April, 1996,
personally came before me, a Notary Public in and for the State
and Parish aforesaid, David A. Melman and Lisha C. Falk, the
Executive Vice President and the Assistant Secretary,
respectively, of XCL Ltd., the corporation described in the
foregoing instrument and known to me personally to be such, and
acknowledged the said instrument to be their own act and deed ad
the act and deed of said corporation; that the signatures are in
their own handwriting , and that the facts stated in said
instrument are true.
/s/ Suzanne Marse Bourque
________________________________
Notary Public
My commission expires: At Death
MEMO OF UNDERSTANDING
Major contract term; for exploration, development, and
utilization of coalbed methane resources in the Hancheng & Tiafa
mining areas (AREAS).
A. Parties:
Chinese Party: China National Administration of Coal
Geology (CNACG)
Foreign Party: XCL Ltd. (XCL).
B. Purpose:
Cooperation Area; Tiafa/Hancheng mining areas.
Cooperation Content: Exploration, evaluation,
development, and utilization of the coalbed
methane resource on the AREAS.
C. Working Stage:
Stage 1: Data Analysis Stage:
Parties will jointly review, select, and
summarize all available data on the AREAS
Stage 2: Exploration/Evaluation Stage:
Establish an exploration program, perform pre-
drilling exploration activities, commence
exploration drilling operations, establish and
perform an appraisal program, and complete
appraisal report; establish and confirm
commercial status of the AREAS, based on the
appraisal report; and obtain the related
government authority's approval for entering into
development stage if the commerciality is
confirmed.
Stage 3: Development and Utilization Feasibility Study
Stage:
Jointly establish a development and utilization
program, conduct a feasibility study and
negotiate a contract for utilization of
production for each individual project.
Stage 4: Development Production and Utilization
Stage:
1. Jointly develop a development program,
establish a development contract with
mining area authority, and implement a
utilization program for production
2. Operate the production from the AREAS, and
operate the utilization program for
production.
D. Organizations formed in each stage.
Stage 1: Joint Working Group.
Stage 2: Joint Management Committee.
Stage 3: Joint Venture Cooperation.
Stage 4: Joint Venture Cooperation.
E. Responsibility of each party:
Chinese Party:
1. Provide professional experts.
2. Arrange working group to work in China and
the U.S.A.
3. Arrange engineering facility, equipment
and service to assist in the acquisition of
supplies, materials and services in China at
the most competitive cost level
4. Arrange approval for entry into AREAS.
5. Provide and deliver to foreign party all
required permits.
6. Responsible for its shares of investment
in development, utilization and operations.
Foreign Party:
1. Provide professional experts.
2. Provide financial support for acquiring
data; create working group meetings;
transportation and accommodation
arrangements for the working group.
3. Chairmanship of Joint Working Group (JWG)
and Joint Management Committee (JMC).
4. Perform as operator at the stages in which
the predevelopment costs have not been
recovered in the project.
5. Responsible for all of the costs for risk
exploration in the exploration stage.
6. Determination of commerciality of
coalbed methane resource.
7. Responsible for its share of investment in
development, utilization and operations.
F. Principle of participation in cost and production sharing:
1. Recovery of predevelopment costs from
production
2. Joint Venture established with Foreign
Party owning a 49% participation and,
Chinese Party and related mining
authority owning a 51% participation (to be
adjusted with related government authority
approval).
If a party elects not to participate
in its full share the other party shall have
the right to the excess percentage
Each party's share of production
products shall be based on the same
percentage as their investment percentage
of the development investment.
G. Arbitration and regulated law: Based on the laws and
related regulations in P.R.C.
Parties will develop a contract for exploration. development and
utilization based on the basic principles of this memorandum.
/s/ /s/ Marsden W. Miller, Jr.
_____________________________ __________________________
CHINA NATIONAL ADMINISTRATION XCL LTD.
OF COAL GEOLOGY (CNACG)
12-14-95 December 14, 1995
_____________________________ __________________________
DATE DATE
PURCHASE AND SALE AGREEMENT
by and among
XCL, LTD. ("Guarantor"),
XCL-TEXAS, INC. ("Seller")
and
CODY ENERGY, INC. ("Buyer")
dated
December 28, 1995
Mestena Grande Field
Jim Hogg County, Texas
TABLE OF CONTENTS
Page
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ARTICLE I Definitions 1
1.1 Allocated Value(s) 1
1.2 Basic Documents 1
1.3 Closing 2
1.4 Closing Date 2
1.5 Effective Date 2
1.6 Environmental Laws 2
1.7 Lease or Leases 2
1.8 Marketable Title 2
1.9 Permitted Encumbrances 2
1.10 Property or Properties 3
1.11 Records 4
1.12 Special Limited Title Warranty 4
1.13 Termination Date 4
1.14 Title Defect 4
1.15 Wells 4
ARTICLE II Purchase and Sale 5
2.1 Purchase and Sale 5
2.2 Transfer of Ownership 5
ARTICLE III Purchase Price 5
3.1 Purchase Price 5
3.2 Allocation of the Purchase Price 5
3.3 Manner of Payment of Purchase Price 5
3.4 Adjustments to Preliminary Purchase
Price 5
ARTICLE IV Inspection and Title Examinations 7
4.1 Inspection of Files 7
4.2 Defect Adjustments 8
4.3 Casualty Loss 9
4.4 Identification of Additional
Defective Interests 9
ARTICLE V Assumption of Obligations;
Indemnities 10
5.1 Buyer 10
5.2 Seller 10
5.3 Environmental Indemnity 10
5.4 Retention of Certain Claims and
Litigation 11
ARTICLE VI Seller's and Guarantor's
Representations and Warranties 11
6.1 Seller 11
6.2 Guarantor 14
ARTICLE VII Buyer's Representations
and Warranties 15
7.1 Buyer 15
ARTICLE VIII Third Party Approvals Prior
to Closing 16
8.1 Third Party Approvals 16
ARTICLE IX Additional Agreements of the
Parties 16
9.1 Assignment 16
9.2 Settlement Statement 16
9.3 Review 16
9.4 Compliance With Conditions 16
9.5 Confidentiality 16
9.6 Inconsistent Activities 17
9.7 Section 754 Election 17
9.8 Warranty Disclaimer 17
ARTICLE X Buyer's Conditions Precedent to
Obligations 18
10.1 Conditions Precedent to
Obligations of Buyer 18
ARTICLE XI Seller's Conditions Precedent
to Obligations 19
11.1 Conditions Precedent to Obligations
of Seller 19
ARTICLE XII Right of Termination and
Abandonment 20
12.1 Termination 20
12.2 Liabilities Upon Termination 20
ARTICLE XIII Transactions at and after
Closing; Procedure 20
13.1 Closing Date Procedure 20
13.2 Closing Documents 21
13.3 Time of Closing 21
13.4 Place of Closing 21
13.5 Closing Obligations 21
13.6 Further Assurances 22
13.7 Post-Closing Adjustments 22
ARTICLE XIV Miscellaneous 22
14.1 Notices 22
14.2 Binding Effect 23
14.3 Counterparts 23
14.4 Expenses 23
14.5 Section Headings 23
14.6 Entire Agreement 23
14.7 Governing Law 24
14.8 Survival of Representations and
Warranties 24
14.9 Assignment 24
14.10 Public Announcements 24
14.11 Notices After Closing 24
14.12 Guaranty 24
EXHIBITS
A Leases
B Wells
C Allocated Values
D Retained Liabilities
E Tax Partnerships
F Form of Assignment
G Seller's Form of Officer's Certificate
H Seller's Form of Opinion of Counsel
I Guarantor's Form of Opinion of Counsel
J Buyer's Form of Officer's Certificate
K Buyer's Form of Opinion of Counsel
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is made
and entered into this 28th day of December, 1995, by and among
XCL, LTD., a Delaware corporation ("Guarantor"), XCL-TEXAS, INC.,
a Texas corporation ("XCL" or "Seller"), both with offices at 110
Rue Jean Lafitte, Lafayette, Louisiana 70508, and CODY ENERGY,
INC., a Delaware corporation with an office at 7555 East Hampden
Avenue, Suite 600, Denver, Colorado 80231 ("Cody" or "Buyer").
Recitals
--------
A. Seller owns certain interests in oil and gas
properties located in Mestena Grande Field, Jim Hogg County,
Texas, as more fully described in Section 1.10 below (the
"Properties");
B. Seller desires to sell and assign to Buyer and Buyer
desires to purchase from Seller all of Seller's interest in and
to the Properties upon the terms and conditions and for the
consideration set forth in this Agreement.
Agreement
---------
In consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Seller and Buyer agree as follows:
ARTICLE I
Definitions
-----------
For purposes of this Agreement, the following terms, in
addition to the other capitalized terms used in this Agreement
which are defined elsewhere herein, shall have the meanings set
forth below:
1.1 Allocated Value(s) - Those values allocated to the
Properties pursuant to Section 3.2 and described on Exhibit "C."
1.2 Basic Documents - The contractually binding arrange
ments to which the Properties may be subject and that will be
binding on the Properties or on Buyer after the Closing,
including, without limitation, all Leases comprising the
Properties, assignments of interests or overriding royalties or
similar interests; division orders; operating agreements; oil,
gas, liquids, casinghead gas and condensate purchases, sales,
processing, gathering, treatment, compression, brokerage, and
transportation agreements; farmout or farmin agreements; joint
venture, dry hole, bottom hole, acreage contribution, purchase
and acquisition agreements and options; area of mutual interest
agreements; salt water disposal agreements; servicing equipment
or materials contracts; unitization, unit operating,
communitization or pooling agreements, declarations or orders;
easements, rights-of-way, surface leases, permits, licenses,
servitudes or other interests that will be binding on the
Properties or Buyer after the Closing.
1.3 Closing - The consummation of the purchase and sale
transaction contemplated by this Agreement.
1.4 Closing Date - The Closing Date shall be date on which
the Closing occurs.
1.5 Effective Date - The Effective Date of this
transaction shall be on September 1, 1995, 7 a.m. local time
where the Properties are located.
1.6 Environmental Laws - All federal, state or local laws,
rules, orders, directives or regulations, whether now existing or
as same may be hereafter amended or enacted from time to time,
pertaining to health or the environment, including without
limitation the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986, and the
Resources Conservation and Recovery Act of 1976, as amended by
the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
Amendments of 1980, and the Hazardous and Solid Waste Amendments
of 1984.
1.7 Lease or Leases - Those oil, gas and mineral leases
described on Exhibit "A" and the lands covered thereby and all
extensions, renewals, replacements, substitutions, protective or
other leases covering or purporting to cover the interests
covered or purported to be covered by the described leases.
1.8 Marketable Title - Such record title that:
(a) entitles Seller to receive not less than the "Net Revenue
Interest" set forth on Exhibit "B" of all oil, gas, sulfur and
associated liquid and gaseous hydrocarbons and other associated
gases produced, saved and marketed from the formations located on
the Properties for the productive life of such Properties;
(b) obligates Seller to bear costs and expenses relating to the
maintenance, development and operation of the Properties in an
amount not greater than the "Working Interest" set forth on
Exhibit "B"; and (c) is free and clear of any and all
encumbrances, liens and Title Defects, subject only to the
Permitted Encumbrances.
1.9 Permitted Encumbrances
(a) Lessor's royalties, overriding royalties, net
profit interests, carried interests, reversionary interests and
other similar burdens existing of record on the Effective Date,
and all agreements having to do with operating the Properties and
marketing hydrocarbons therefrom if the net cumulative effect of
such burdens or agreements does not operate to (x) reduce the net
revenue interest of any Property to less than the "Net Revenue
Interest" set forth on Exhibit "B" or (y) increase the leasehold
working interest of any Property to more than the "Working
Interest" set forth on Exhibit "B" without a proportionate
increase in the Net Revenue Interest;
(b) preferential rights to purchase and required
third-party consents to assignments and similar agreements with
respect to which prior to the Closing Date (i) written waivers or
consents are obtained from the appropriate parties or (ii) the
appropriate time period for asserting such rights has expired
without an exercise of such rights;
(c) liens for taxes or assessments not yet due or not
yet delinquent or, if delinquent, that are being contested by
Seller in good faith in the normal course of business;
(d) easements, rights-of-way, servitudes, permits,
surface leases, conditions, covenants or other restrictions and
easements for surface operations, streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other
easements and rights-of-way, on, over or in respect of any of the
Properties, provided that such rights shall not have a material
adverse effect on the ownership, use, operation or value of the
Properties; and
(e) liens of operators relating to obligations not
yet due or pursuant to which Seller is not in default that are
not such as will interfere materially with the ownership,
operation, value or use of the Properties.
1.10 Property or Properties - All of Seller's undivided
right, title and interest in the Mestena Grande Field, Jim Hogg
County, Texas, including, without limitation, the Leases,
Seller's working interests, overriding royalty interests,
reversionary interests, net profits interests, net revenue
interests and any other similar or dissimilar interests, and the
underlying oil, gas and mineral leasehold estates associated
therewith, including Seller's right, title and interest in, to,
under and derived from:
(a) petroleum, hydrocarbons and associated gases
stored upon or produced from the Leases, or attributable to them
in any unit of which the Leases are a part;
(b) the Leases, including rights to the undivided
interests described on Exhibit "B" in and to the leasehold
estates and mineral rights created by the Leases, licenses,
permits and other agreements and the undivided mineral fee
interests and the overriding royalty interests in the Leases, and
such rights and interests that cover and relate to the land
covered by the Leases (herein called the "Lands"), together with
each and every kind and character of right, title, claim or
interest which Seller has in and to the Leases or the Lands;
(c) Basic Documents;
(d) Records;
(e) the right to use the surface of any of the Lands
or other properties of Seller for access to the Leases;
(f) presently existing and valid pooling,
communitization and unitization agreements and the properties
covered and/or the units created thereby affecting the Leases,
Wells or other Properties;
(g) proprietary seismic data covering the Lands which
is or can be made assignable to Buyer;
(h) the Wells; and
(i) the other equipment and other personal and real
and personal property, improvements, structures, buildings,
pipelines, related facilities, inventories, easements, rights-of-
way, permits, licenses, servitudes, surface leases, water leases
and any other estates in land situated in or upon, or presently
used or held for future use in connection with the exploration,
development and production of oil, gas and other minerals,
sulphur, associated liquid and gaseous hydrocarbons, and other
associated gas from any of the Properties or the treatment,
storage or transportation of such substances therefrom, water
lines, gas lines, buildings, fixtures, machinery, gas gathering
or processing systems or pipelines, power lines, telephone and
telegraph lines, roads and all other fixtures and improvements as
of the Effective Date appurtenant to the Leases, but with all
additions thereto and deletions therefrom occurring in the
ordinary course of the conduct of business from the Effective
Date through Closing.
1.11 Records - With the exception of all of Seller's
corporate, financial and general tax records, computer programs
and proprietary seismic or other data, such term shall include
copies of all non-proprietary seismic data files (except for
those with respect to which Seller is prohibited from
transferring by agreements with third parties), lease files, land
files, well files, contract files including gas and oil sales
contract files, gas processing files, division order files,
abstracts, title opinions, and all other books, files and
records, information and data (including engineering and
geological data, interpretation and analysis), and all rights
thereto, of Seller, insofar as the same are related to any of the
Properties.
1.12 Special Limited Title Warranty - A limited title
warranty as to the Properties against the claims of persons
claiming by, through or under Seller, but not otherwise.
1.13 Termination Date - The Termination Date shall be
January 5, 1996, or such other date as the parties hereto may
agree on.
1.14 Title Defect - Any encumbrance, lien, encroachment,
claim, irregularity, defect in or objection to Seller's title to
any portion of the Properties, expressly excluding Permitted
Encumbrances, that alone or in combination with other defects
does or may render Seller's title to any portion of the
Properties less than Marketable Title.
1.15 Wells - The personal property, fixtures and
improvements, as of the Effective Date but with all additions
thereto and deletions therefrom occurring in the ordinary course
of the conduct of business from the Effective Date through
Closing, located upon the Lands, appurtenant thereto, or used and
charged to the Leases for the production, treatment, sale,
disposal or injection of hydrocarbons, water or brine produced
therefrom or attributable thereto, including, without limitation:
(a) all equipment, casing, tubing, pumps, lines, separators,
wellhead and in-hole equipment, pipes, tanks, motors, pipelines,
meters, regulators, gathering lines, fixtures, buildings,
structures and all other oilfield equipment and material,
installed and in inventory, used or useful in the operation of
the Properties; and (b) crude oil, condensate and products in
storage and in pipelines, all as further described in Exhibit "B"
(the "Wells").
ARTICLE II
Purchase and Sale
-----------------
2.1 Purchase and Sale. Subject to the terms and
conditions of this Agreement, Seller agrees to sell, convey,
transfer, assign, set over and deliver the Properties or cause to
be sold, conveyed, transferred, assigned, set over and delivered
on the Closing Date, but effective as of the Effective Date, and
Buyer agrees to purchase the Properties on the Closing Date, but
effective as of the Effective Date as provided in this Agreement.
2.2 Transfer of Ownership. On the Closing Date, ownership
of all production attributable to the Properties conveyed to
Buyer shall pass as of the Effective Date and all other
attributes of ownership shall pass as of the Closing Date. All
costs and expenses incurred by Seller in accordance with the
terms of this Agreement for normal and necessary operation of the
Properties after the Effective Date, including (a) taxes on or
measured by production, (b) reasonable and customary fixed rate
overhead charges prescribed by applicable operating agreements
or, in the absence of operating agreements, reasonable and
customary overhead charges in lieu thereof (and, in each case,
excluding any allocable general and administrative expenses), and
(c) all costs or expenses incurred by Seller at the express
written request or with the express written permission of Buyer
in accordance with the terms of this Agreement, shall be borne by
Buyer. All such costs incurred prior to the Effective Date shall
be borne by Seller.
ARTICLE III
Purchase Price
--------------
3.1 Purchase Price. The purchase price payable by Buyer
to Seller for the Properties shall be $4,300,000.00 U.S. (the
"Preliminary Purchase Price").
3.2 Allocation of the Purchase Price. The Preliminary
Purchase Price shall be allocated to the Properties in the manner
set forth on Exhibit "C" hereto.
3.3 Manner of Payment of Purchase Price. The Preliminary
Purchase Price, as adjusted pursuant to Section 3.4, shall be
paid at the Closing by Buyer to Seller by wire transfer of
immediately available funds or by such other method as may be
agreed to by the parties hereto.
3.4 Adjustments to Preliminary Purchase Price. The
Preliminary Purchase Price shall be adjusted at the Closing Date
and at the Final Settlement Date (as hereinafter defined) as
follows:
(a) The Preliminary Purchase Price shall be adjusted
upward by the following:
(1) the value of all merchantable allowable oil
in storage owned by Seller above the pipeline connection at the
Effective Date, and not previously sold by Seller, that is
credited to its interest in the Properties, such value to be the
actual price received on the Effective Date (if this price cannot
be determined, then contract price, or if no contract is in
effect, the market price in effect as of the Effective Date),
less taxes or gravity adjustments deducted by the purchaser of
such oil;
(2) the amount of all expenditures relating to
the Properties made in compliance with this Agreement (including
royalties, rentals and other charges and expenses billed under
applicable operating agreements, or in the absence of an
operating agreement, expenses of the sort customarily billed
under such agreements, but excluding Seller's general and
administrative overhead expenses) with respect to the Properties
which relate to the period after the Effective Date and are paid
by or on behalf of Seller in connection with the operation and
development of the Properties from the Effective Date to the
Closing Date;
(3) an amount equal to the current market value
of any gas which Seller may be entitled to take in excess of its
fractional interest in the Leases and Wells as a result of
underproduction by Seller under the terms of applicable gas
balancing provisions contained in the Basic Documents; and
(4) an amount equal to all prepaid expenses
made in compliance with this Agreement attributable to the
Properties that are paid by or on behalf of Seller after the date
hereof and prior to the Closing Date and that are, in accordance
with generally accepted accounting principles, attributable to
the period after the Effective Date including, without
limitation, prepaid utility charges, prepaid ad valorem,
property, production, severance and similar taxes (but not
including income taxes) based upon or measured by the ownership
of property or the production of hydrocarbons or the receipt of
proceeds therefrom.
(b) The Preliminary Purchase Price shall be adjusted
downward by the following:
(1) proceeds actually received or accrued by
or on behalf of Seller, prior to the Closing Date (net of
royalties, production, severance and sales taxes not reimbursed
to Seller by the purchase of production), attributable to the
Properties and that are attributable to the period of time after
the Effective Date;
(2) an amount equal to the value (computed on
the basis of the price received by Seller) of the volumes of gas
which Seller is obligated, by virtue of "take or pay" agreements
with respect to any of the Properties, to deliver after the
Effective Date to other parties without then or thereafter
receiving full payment therefor;
(3) an amount equal to the value (computed on
the basis of the current contract price or market price,
whichever is applicable) of the volumes of gas with respect to
which Seller is overproduced, and which other parties may be
entitled to recover in excess of their working interest share in
accordance with applicable gas balancing agreements;
(4) an amount equal to all unpaid ad valorem,
property, production, severance and similar taxes and assessments
based upon or measured by the ownership of the property or
production of hydrocarbons or the receipt of proceeds therefrom
accruing to the Properties in accordance with generally accepted
accounting principles prior to the Effective Date (it being
agreed that any tax measured on the basis of production shall be
deemed to be a tax assessed for the period during which such
production occurred regardless of the actual year of assessment),
which amount shall, to the extent not actually assessed, be
computed based upon such taxes and assessments for the preceding
calendar year, or, if such taxes or assessments are assessed on
other than a calendar year basis, for the tax related year last
ended (and such adjustment at Closing on the Final Settlement
Date shall be final settlement of such taxes between Seller and
Buyer); and
(5) an amount equal to the sum of all
adjustments pursuant to Section 4.2 (including adjustments made
under Section 4.2 for the matters covered by Sections 4.3 and
4.4).
ARTICLE IV
Inspection and Title Examinations
---------------------------------
4.1 Inspection of Files. Between the date hereof and the
Closing Date, Seller shall make or cause to be made available at
Seller's offices for examination and reproduction by Buyer's
authorized representatives all documents (including, but not
limited to, all Basic Documents and Records) of every kind and
character in Seller's possession or to which Seller has access
relating or in any way pertaining to the Properties. To the
extent the following items currently exist and are in Seller's
possession or can be readily obtained from others, Seller shall
provide to Buyer basic title evidence establishing Seller's
Marketable Title including (a) copies of the Leases,
(b) attorneys' title opinions certifying Marketable Title to the
Properties in Seller or Seller's predecessors and (c) copies of
recorded or filed documents showing a chain of title to the
Properties from such predecessors of Seller into Seller. Seller
will cooperate with Buyer in Buyer's efforts to obtain, at
Buyer's expense, such additional information relating to the
Properties as Buyer may reasonably desire, to the extent in each
case that Seller may do so without violating legal constraints or
obligations of confidence or other contractual commitments to a
third party. Seller shall cause its personnel to assist Buyer in
making such investigation and shall cause the counsel,
accountants, independent petroleum consultants and engineers,
employees and other representatives of Seller to be reasonably
available to Buyer for such purposes. During such investigation,
Buyer shall have the right to make copies of such records, files
and other materials as Buyer may reasonably deem advisable.
4.2 Defect Adjustments.
(a) "Defective Interest(s)" shall mean that portion
of the Properties affected by a Title Defect or that Buyer is
otherwise entitled to under Section 4.3 or 4.4 to treat as a
Defective Interest, and of which Seller has been given notice by
Buyer. Buyer shall give notice of a Defective Interest on or
before February 2, 1996 ("Title Defect Notice"). Prior to such
date, Seller shall have the right, but not the obligation, to
attempt to cure any Title Defect. If Buyer desires to cure any
Title Defect, Seller agrees to cooperate with Buyer in
endeavoring to cure any such Title Defect (which shall not
include the obligation to pay money or undertake any legal
obligation). Buyer's failure to give a notice of a Title Defect
shall not impair Buyer's rights under any express or implied
warranty made by Seller under this Agreement.
(b) The Preliminary Purchase Price shall be reduced
by the "Value of Defect" for any Defective Interest. The Value
of Defect shall be determined by the parties in good faith taking
into account all relevant factors, including, but not limited to,
the following:
(1) the Allocated Value of the Properties (set
forth on Exhibit "C") which are affected by the Defective
Interest;
(2) the potential or actual reduction in the
warranted Net Revenue Interest of the Defective Interest, or the
amount by which the cost sharing percentage for such property is
greater than the warranted Working Interest;
(3) the productive or prospective status of
the Defective Interest (i.e., proved, developed, producing, etc.)
and the present value of the future income expected to be
produced therefrom;
(4) if the Title Defect represents only a
possibility of title failure, the probability that such failure
will occur;
(5) no Title Defect will be deemed to exist on
a given Property until the aggregate of the Value of Defects on
such Property exceeds $5000, but such threshold shall not be
considered a deductible and the Value of Defects for such
Property shall be charged from first dollar.
If the parties cannot agree upon the Value of Defect for any
Defective Interest prior to Closing, the total amount of Buyer's
estimate of the Value of Defects for such Defective Interests,
not to exceed the Allocated Value of such Property affected by
such Defective Interests (which amount Buyer shall notify Seller
of prior to Closing), shall be deducted from the Preliminary
Purchase Price paid by Buyer at Closing if and to the extent the
Preliminary Purchase Price is not adjusted at Closing (and the
payment required to be made by Buyer to Seller at Closing shall
be reduced by the Value of Defects determined pursuant to this
Section 4.2). Seller and Buyer shall endeavor in good faith to
agree upon the Value of Defects with respect to Defective
Interests within 30 days after Seller's receipt of Buyer's Title
Defect Notice, but if no agreement is reached, the Value of
Defects shall be determined by the engineering firm of Ryder
Scott Co., employing such independent attorneys as such firm
deems necessary. The engineering firm shall determine the Value
of Defects within 90 days from Closing. The costs incurred in
employing such engineering firm shall be borne equally by Seller
and Buyer. Upon determination of the amount of the total of the
Value of Defects for which no purchase price adjustment was made
at Closing, the remaining portion of the Preliminary Purchase
Price payable to Seller, after adjustment for the Value of
Defects as determined by Ryder Scott Co., shall be accounted for
on the Final Settlement Statement.
4.3 Casualty Loss. If, prior to the Closing, all or any
material portion of the Properties are destroyed by fire or other
casualty, Buyer shall purchase the Properties notwithstanding any
such destruction (without adjustment to the Preliminary Purchase
Price therefor), in which case Seller shall, at the Closing, pay
to Buyer all sums paid to Seller by third parties and assign to
Buyer all sums to which Seller is entitled, as the case may be,
by reason of the destruction of Wells or the underlying
Properties assigned to Buyer and Seller shall assign, transfer
and set over unto Buyer all of the right, title and interest of
Seller in and to any unpaid awards or other payments from third
parties, including insurance proceeds, arising out of the
destruction of such Wells and the Properties assigned to Buyer.
Prior to the Closing, Seller shall not voluntarily compromise,
settle or adjust any amounts payable by reason of any destruction
of such Wells and the underlying Properties without first
obtaining the written consent of Buyer.
4.4 Identification of Additional Defective Interests.
(a) If, prior to the Closing Date, there has been
substantial non-compliance with the laws, rules, regulations,
ordinances or orders of any governmental or tribal agency or
authority having jurisdiction over any portion of the Properties
so as to have a material adverse effect on the value of the
Properties, when taken as a whole, then Buyer may elect to treat
such affected Properties affected by such non-compliance as
Defective Interests by giving Seller notice thereof in accordance
with Section 4.2(a).
(b) If any preferential right to purchase is
exercised, Buyer may elect to treat that portion of the
Properties affected by such preferential right as Defective
Interests by giving Seller notice thereof in accordance with
Section 4.2(a) except that such notice may be given at any time
prior to Closing.
(c) If, prior to the Closing Date, Buyer becomes
aware of any suit, action or other proceeding before any court or
government agency that would result in substantial loss or
impairment of Seller's title to any material portion of the
Properties, or a material portion of the value thereof, Buyer may
elect to treat that portion of the Properties substantially and
materially affected thereby as Defective Interests by giving
Seller notice thereof in accordance with Section 4.2(a).
(d) If with respect to any preferential rights to
purchase and required third party consents to assignment and
similar agreements, Seller has not, prior to the Closing,
received written waivers or consents from the appropriate
parties, or the appropriate time period has not expired without
exercise of such rights, Buyer may elect to defer the Closing
Date until such time that the required waiver or consent is
obtained, or until the appropriate time period has expired in
which the third party may exercise any rights which could prevent
the contemplated assignment of the Properties.
ARTICLE V
Assumption of Obligations; Indemnities
--------------------------------------
5.1 Buyer. Buyer, as owner of the Properties acquired
effective as of the Effective Date, shall, by the consummation of
the transactions contemplated by this Agreement, obligate itself
to assume and timely discharge all duties and obligations of the
owner of the Properties which accrue or arise from operations
conducted from and after the Effective Date or relating to taxes
for periods prior to the Effective Date but due and payable after
such date as to which Buyer has received a reduction in the
Purchase Price pursuant to Section 3.4(b), except (i) those
obligations accruing or arising from a breach by Seller of any
representation, warranty, covenant or agreement contained herein
and (ii) the obligation to plug, abandon or restore the wellbore,
wellsite and flowlines associated with the Mestina Oil and Gas E-
4 Well located approximately 1650 feet FNL, 3350 feet FWL "Palo
Blanco" Antonio Pena Survey A-246, Jim Hogg County Texas (which
obligations Seller expressly retains). Buyer does hereby agree
to defend, save harmless and indemnify Seller, its officers,
directors and stockholders, from all loss, cost, expense
(including attorneys' fees and expenses), penalties and
liabilities (a) arising out of any actions, suits, claims or
demands incurred as a result of or arising from failure of Buyer
to discharge such duties and obligations or (b) resulting from or
related to any representation or warranty, agreement or covenant
of Buyer contained herein being breached.
5.2 Seller. Seller shall defend, save harmless and
indemnify Buyer, and Buyer's partners, joint venturers, and
successors and such parties' directors, officers and
stockholders, as appropriate, from all loss, cost, expense
(including attorneys' fees and expenses), penalties and
liabilities (a) arising out of any actions, suits, claims or
demands incurred or arising from acts or omissions of Seller as
owner of the Properties prior to the Effective Date except for
(i) amounts resulting from Defective Interests for which
adjustments are made pursuant to Section 4.2 and amounts covered
by insurance to the extent paid or reimbursed to Buyer, and (ii)
any matter with respect to which Buyer has agreed to indemnify
Seller pursuant to Section 5.3, (b) resulting from or relating to
any representation or warranty of Seller contained herein being
untrue or any warranty, agreement or covenant of Seller contained
herein being breached or (c) relating to the plugging, abandoning
or restoration of any well or pipeline not listed on Exhibit "B"
hereto; provided, however, that Seller's liability for any breach
of the Special Limited Title Warranty shall be limited to the
Allocated Value of the affected Properties, as set forth in
Exhibit "C."
5.3 Environmental Indemnity. Notwithstanding anything in
this Agreement to the contrary and unless on or before the second
anniversary of the Closing Date Buyer provides Seller with
written notice of a specific condition relating to the physical
condition of the Properties that came into existence prior to the
Effective Date, commencing after the second anniversary of the
Closing Date Buyer shall indemnify and hold Seller, its
directors, officers, employees and agents, harmless from and
against any and all claims, actions, liabilities, obligations,
losses, damages, costs or expenses (including court costs and
attorneys' fees) of any kind or character arising out of or
otherwise relating to the physical condition (including without
limitation the environmental condition) of the Properties on,
before or after the Effective Date, regardless of whether such
condition or the events giving rise to such condition arose on,
before or after the Effective Date, and the foregoing shall
specifically cover and include, without limitation, all
obligations to (i) properly repair, maintain, plug and/or abandon
wells located on the Properties or on the units in which such
Properties participate, (ii) restore the surface of the
Properties, and (iii) comply with, and/or bring the Properties
into compliance with, all Environmental Laws. THE FOREGOING
INDEMNITY AND HOLD HARMLESS PROVISIONS SHALL SURVIVE CLOSING AND
SHALL APPLY REGARDLESS OF WHETHER SELLER OR ANY OF ITS DIRECTORS,
OFFICERS, EMPLOYEES OR AGENTS, WERE WHOLLY OR PARTIALLY NEGLIGENT
OR OTHERWISE STRICTLY LIABLE OR AT FAULT, and the indemnification
and hold harmless obligations undertaken by Buyer in this Section
5.3 shall expressly cover and include such matters. To the
extent that Buyer provides the requisite notice to Seller, Buyer
shall not provide indemnity to Seller with respect to the
condition specifically described in the notice provided that the
condition described in the notice did in fact come into existence
prior to the Effective Date, and Seller expressly retains all
liability for such conditions and indemnifies Buyer from same.
5.4 Retention of Certain Claims and Litigation. Seller
expressly retains all rights, liabilities, obligations, risks,
costs and expenses relating to or arising from the matters,
claims and litigation set forth on Exhibit "D" (the "Retained
Litigation"); provided, however, that with respect to the
litigation set forth on Exhibit "D," Seller expressly retains
only Seller's proportionate working interest share, as set forth
on Exhibit "B," of such rights, liabilities, obligations, risks,
costs and expenses for such litigation. Buyer agrees to promptly
forward all notices, invoices, pleadings, correspondence and
other materials received by it with respect to the Retained
Liabilities, and to generally cooperate with Seller in Seller's
defense of the Retained Liabilities. Seller will pay all
invoices arising from the Retained Liabilities on a timely basis
following Seller's receipt of the same. Seller hereby
indemnifies and holds harmless Buyer from and against any and all
costs, expenses, risks and liabilities (if any) associated with
or arising from the Retained Liabilities for which Buyer is or
may become liable as a result of its acquisition of the
Properties; provided, however, that such indemnification shall be
limited to the Allocated Value of the affected Properties, as set
forth on Exhibit "C."
ARTICLE VI
Seller's and Guarantor's Representations and Warranties
-------------------------------------------------------
6.1 Seller. Seller represents and warrants to Buyer as of
the date hereof and by the terms hereof will so represent and
warrant to Buyer on the Closing Date that, except as expressly
provided to the contrary in this Agreement, the following
statements are true and complete:
(a) Seller is a duly organized, validly existing
corporation in good standing under the law of the State of Texas.
Seller has all requisite power and authority to execute and
deliver this Agreement and to perform its obligations hereunder,
including the conveyance of the Properties to Buyer in accordance
with this Agreement, free and clear of any rights or claims
whatsoever and free and clear of any joint venture or similar
relationship, other than the operating agreements listed on
Exhibit "A."
(b) The execution and delivery of this Agreement, the
execution and delivery of all certificates, documents and
instruments required to be executed and delivered by Seller at
the Closing, and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Seller.
(c) This Agreement constitutes the valid, legal and
binding obligation of Seller and is enforceable against it in
accordance with its terms. All instruments required hereunder to
be executed and delivered by Seller at the Closing will
constitute valid, legal and binding obligations of Seller
enforceable against Seller in accordance with their terms.
(d) Seller's execution, delivery and performance of
this Agreement does not and will not conflict with, violate or
result in any liability to Seller or Buyer under any agreement
governing Seller's business or affairs, any agreements or
instruments to which Seller may be a party or by which Seller or
any of Seller's properties are bound, any Basic Document, or any
law, administrative regulation or rule or court order, judgment
or decree applicable to Seller or to the Properties.
(e) There are no bankruptcy, reorganization, or
arrangement proceedings pending, being contemplated by or, to the
best knowledge of Seller based upon reasonable inquiry and
investigation, threatened against Seller.
(f) There is neither any claim, dispute, suit,
action, investigation or other proceeding pending before any
court or governmental agency nor, to the best knowledge of Seller
based upon reasonable inquiry and investigation, threatened,
against Seller or any affiliate of Seller or any of the
Properties which has or might result in the impairment or loss of
Seller's title to any of the Properties or the value thereof or
impede the operation of the Properties, except as set forth on
Exhibit "D."
(g) To the best of Seller's knowledge based upon
reasonable inquiry and investigation, there exists no unrecorded
document or agreement which may result in impairment or loss of
Seller's ability to convey the Properties.
(h) Seller warrants title to the Properties in
accordance with the Special Limited Title Warranty; provided,
however, Seller shall subrogate Buyer to any warranty claim which
Seller may have against any third party, prior owner, vendor or
assignor.
(i) Seller has Marketable Title to the Properties as
of the Effective Date, has Marketable Title to the Properties as
of the date hereof, and will have Marketable Title to the
Properties as of the Closing Date.
(j) Seller shall not directly or indirectly create,
reserve or retain any recorded or unrecorded executory rights,
overriding royalty interests, net profits interests or production
payments in any of the Wells and the underlying Properties.
(k) Seller has not received any written notice,
demand or claim relating to unpaid ad valorem, property,
production, excise, severance, windfall profit or similar taxes
and assessments based on or measured by the ownership of property
or the production or removal of hydrocarbons for the receipt of
proceeds therefrom on the Properties, and due and payable as of
the Effective Date.
(l) Seller has not nor will Seller be obligated by
virtue of any prepayment made under any production sales contract
or any other contract containing a "take or pay" clause, or under
any similar arrangement, to deliver oil, gas or other minerals
produced from or allocated to any of the Properties at some
future time without receiving full payment therefor at the time
of delivery. Seller has conducted all sales of gas which is
subject to the balancing rights of third parties in accordance
with the operating agreement and gas balancing agreement covering
the specific Property.
(m) Seller has not in any respect collected, nor will
Seller in any respect collect any proceeds from the sale of
hydrocarbons produced from the Properties which are subject to
refund.
(n) Proceeds from the sale of oil, condensate and gas
from the Properties are being received in all respects by Seller
in a timely manner and are not being held in suspense for any
reason.
(o) With respect to the Basic Documents in all
material respects:
(i) all are in full force and effect and are
the valid and legally binding obligations of the parties thereto
and are enforceable in accordance with their respective terms;
(ii) Seller is not and Seller has not been in
breach or default with respect to any of its obligations under
any Basic Document or any regulations incorporated therein or
governing same;
(iii) all payments (including, without
limitation, royalties, delay rentals, shut-in royalties, and
joint interest or other billings under unit or operating
agreements) due thereunder have been made or caused to be made by
Seller;
(iv) Seller has not given or threatened to
give notice of any action to terminate, cancel, rescind or
procure a judicial reformation of any Basic Document or any
provision thereof;
(v) the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby will not result in a breach of, constitute a default
under, or result in a violation of the provisions of any Basic
Document and none of the Basic Documents will require, after the
Effective Date, that any advance payments be made to any party;
(vi) there are no limitations as to the depths
covered or substances to which such interests purport to apply,
except as set forth on Exhibit "A."
(p) Seller is not aware of any physical change in the
Wells and the Properties (other than operations and production in
the ordinary course) which would have a material adverse effect
on the value, use or operation of the Wells and the Properties
(other than declines due to normal depletion).
(q) Seller has not incurred any liability, contingent
or otherwise, for brokers' or finders' fees in respect of this
transaction for which Buyer shall have any responsibility
whatsoever.
(r) Exhibit "E" contains a schedule of all
partnerships, that is, all entities and arrangements for which
partnership returns are, will or are required to be filed for
federal income tax purposes, in which Seller is a direct or
indirect participant.
6.2 Guarantor. Guarantor represents and warrants to Buyer
as of the date hereof and by the terms hereof will so represent
and warrant to Buyer on the Closing Date that, except as
expressly provided to the contrary in this Agreement, the
following statements are true and complete:
(a) Guarantor is a duly organized, validly existing
corporation in good standing under the law of the State of
Delaware and is duly qualified or registered and in good standing
in each jurisdiction necessary in order to accomplish the terms
of this Agreement. Guarantor has all requisite power and
authority to execute and deliver this Agreement and to perform
its obligations hereunder.
(b) The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate
action on the part of Guarantor.
(c) This Agreement constitutes the valid, legal and
binding obligation of Guarantor and is enforceable against it in
accordance with its terms.
(d) Guarantor's execution, delivery and performance
of this Agreement does not and will not conflict with, violate or
result in any liability to Guarantor or Buyer under any agreement
governing Guarantor's business or affairs, any agreements or
instruments to which Guarantor may be a party or by which
Guarantor or any of Guarantor's properties are bound, any Basic
Document, or any law, administrative regulation or rule or court
order, judgment or decree applicable to Guarantor or to the
Properties.
(e) There are no bankruptcy, reorganization, or
arrangement proceedings pending, being contemplated by or, to the
best knowledge of Guarantor based upon reasonable inquiry and
investigation, threatened against Guarantor.
(f) There is neither any claim, dispute, suit,
action, investigation or other proceeding pending before any
court or governmental agency nor, to the best knowledge of
Guarantor based upon reasonable inquiry and investigation,
threatened, against Guarantor or any affiliate of Guarantor or
any of the Properties which has or might result in the impairment
or loss of Seller's title to any of the Properties or the value
thereof or impede the operation of the Properties, except as set
forth on Exhibit "D."
(g) Guarantor shall maintain its corporate existence
for a period of 24 months following the Closing Date; provided
however, Guarantor may enter into a merger, consolidation,
reorganization or other corporate transaction, whether or not
Guarantor is the surviving corporation, so long as Guarantor's
obligations under this Agreement are assumed by the surviving
entity.
ARTICLE VII
Buyer's Representations and Warranties
--------------------------------------
7.1 Buyer. Buyer represents and warrants to Seller as
follows:
(a) Buyer is a corporation duly organized and
existing under the laws of the State of Delaware.
(b) The execution and delivery of this Agreement, the
execution and delivery of all certificates, documents and
instruments required to be executed and delivered by Buyer at the
Closing, and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary
action on the part of Buyer.
(c) This Agreement constitutes the valid and binding
agreement of Buyer enforceable against Buyer in accordance with
its terms, and at the Closing, all instruments required hereunder
to be executed and delivered by Buyer at the Closing will, when
executed and delivered, constitute valid and binding agreements
of Buyer enforceable against it in accordance with their
respective terms.
(d) Buyer's execution, delivery and performance of
this Agreement does not and will not conflict with or violate or
result in any liability to Buyer or Seller under any material
agreement governing Buyer's organization, management, business or
affairs, including Buyer's Certificate of Incorporation or, in
any material respect, any agreement or instrument to which Buyer
may be a party or by which Buyer is bound, or any material law,
administrative regulation or rule or court order, judgment or
decree applicable to Buyer.
(e) Buyer has incurred no liability, contingent or
otherwise, for brokers' or finders' fees in respect of this
transaction for which Seller shall have any responsibility
whatsoever.
ARTICLE VIII
Third Party Approvals Prior to Closing
--------------------------------------
8.1 Third Party Approvals. From the date hereof until the
Closing Date, Seller and Buyer jointly shall identify and Seller
shall diligently endeavor to obtain any and all necessary
consents, waivers (including waiver of preferential purchaser
rights), permissions and approvals of third parties or
governmental authorities in connection with the sale and transfer
of the Properties.
ARTICLE IX
Additional Agreements of the Parties
------------------------------------
9.1 Assignment. Not less than 5 days prior to Closing,
Buyer shall prepare and submit to Seller for review a draft
assignment of the Properties substantially in the form of
Exhibit "F."
9.2 Settlement Statement. Not less than 5 business days
prior to Closing, Buyer shall prepare and submit to Seller for
review a draft settlement statement and all necessary
documentation reasonably required to confirm the information on
the draft settlement statement. Seller will endeavor to confirm
such information prior to Closing. Buyer will provide such
additional information relating to the draft settlement statement
as is reasonably requested by Seller.
9.3 Review. The provisions of this Agreement and the
various documents and agreements to be executed and delivered
pursuant hereto relating to representations, warranties,
indemnities and agreements of a party hereto shall not be altered
or modified by the Closing or by the other party's knowledge of
any event or review of any documents or other matters. However,
each party agrees that it will use reasonable efforts to notify
the other party of any material breach of any of the other
party's warranties, representations, indemnities and agreements
of which the first party has actual knowledge.
9.4 Compliance With Conditions. Each party will proceed
diligently to cause all the conditions to the other party's
obligations to the Closing to be satisfied.
9.5 Confidentiality. Buyer acknowledges that, pursuant to
its right of access to books and records, Buyer will become privy
to confidential information concerning Seller and that
communication of such confidential information to third parties
(unless such communication of information is authorized prior to
disclosure thereof in writing by Seller) could irreparably injure
Seller in the event that the sale and purchase contemplated
hereby is not consummated. If the Closing should not occur for
any reason, all confidential information concerning Seller
obtained by Buyer pursuant to or in anticipation of executing
this Agreement shall be kept confidential; provided that such
obligation shall not apply to information (a) required to be
disclosed by any law, order, rule, regulation or proceeding,
(b) that is or becomes public knowledge, other than as a result
of a default by Buyer of this Agreement and (c) that Buyer
obtains from third parties where such transfer by the third party
does not violate any obligation of such third party to Seller.
If the Closing should occur, the foregoing confidentiality
restrictions on Buyer shall terminate, but Seller shall keep
confidential all information regarding the Properties for the
benefit of Buyer subject to the same exceptions as apply to Buyer
above.
9.6 Inconsistent Activities. Unless and until this
Agreement has been terminated pursuant to Article XII, Seller
shall not without prior written consent of Buyer (a) directly or
indirectly solicit, entertain, or cause any other person to
solicit or entertain, any offer to acquire the Properties,
(b) provide information to another concerning the Properties
(except in the ordinary course of the operation of the
Properties) or (c) enter into any negotiations for or enter into
any agreement that provides, or under certain circumstances would
provide, for the acquisition of the Properties by a person other
than Buyer, except as required to comply with preferential
purchase right obligations.
9.7 Section 754 Election. For each partnership, joint
venture or tax partnership to which any of the Properties are
subject, Seller shall, at Buyer's election, (a) cause such
partnership, joint venture or tax partnership to elect under
Section 754 of the Internal Revenue Code of 1986 (the "Code") to
adjust the basis of its assets with respect to the transfer of a
partnership interest, effective for the taxable year of the
transfer, or (b) cause the relevant Property to be conveyed free
of such partnership, joint venture or tax partnership. With
respect to each such partnership, joint venture or tax
partnership of Seller, Seller shall exercise its reasonable
efforts in making available to Buyer all financial and tax data
necessary or helpful to determine whether a Section 754 election
would be advantageous to Buyer for the taxable year of the
Closing.
9.8 Warranty Disclaimer. SUBJECT TO BUYER'S RIGHTS TO
ASSERT TITLE DEFECTS AFTER CLOSING PURSUANT TO THE TERMS OF THIS
AGREEMENT AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SELLER'S
SPECIAL LIMITED TITLE WARRANTY, ANY REPRESENTATIONS OR WARRANTIES
OF TITLE, WHETHER IMPLIED, STATUTORY OR OTHERWISE, ARE HEREBY
DISCLAIMED. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER
CONTAINED IN THIS AGREEMENT OR IN ANY CONVEYANCE EXECUTED
PURSUANT HERETO ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE. WITHOUT LIMITATION OF THE FOREGOING, THE PERSONAL
PROPERTY AND EQUIPMENT ASSOCIATED WITH THE PROPERTIES SHALL BE
CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR REPRESENTATION,
WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING TO THE
CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE,
CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR
MERCHANTABILITY OF ANY OF THE EQUIPMENT OR ITS FITNESS FOR ANY
PURPOSE, AND WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR
OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE
INSPECTED OR WAIVED ITS RIGHT TO INSPECT WITHIN THE TIME FRAMES
SET FORTH IN THIS AGREEMENT THE PROPERTIES FOR ALL PURPOSES AND
SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL
CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED
TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR
DISPOSAL OF POLLUTANTS, HAZARDOUS SUBSTANCES, SOLID WASTES OR
NATURALLY OCCURRING RADIO-ACTIVE MATERIALS ("NORM"). SUBJECT TO
BUYER'S RIGHT TO GIVE WRITTEN NOTICE OF ENVIRONMENTAL DEFECTS AS
SET FORTH IN SECTION 5.3, BUYER IS RELYING SOLELY UPON ITS OWN
INSPECTION OF THE PROPERTIES, AND BUYER ACCEPTS ALL OF THE SAME
IN THEIR "AS IS, WHERE IS" CONDITION. IN ADDITION, SELLER MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA,
REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW,
HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN
CONNECTION WITH THE AGREEMENT INCLUDING, WITHOUT LIMITATION,
RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF
HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR
THE ABILITY OR POTENTIAL OF THE INTERESTS TO PRODUCE HYDROCARBONS
OR THE ENVIRONMENTAL OR PHYSICAL CONDITION OF THE PROPERTIES OR
ANY OTHER MATTERS CONTAINED IN THE DATA OR MATERIALS FURNISHED OR
MADE AVAILABLE TO BUYER BY SELLER OR BY SELLER'S AGENTS OR
REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS, REPORTS,
PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL)
FURNISHED BY SELLER OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO
BUYER ARE PROVIDED BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR
GIVE RISE TO ANY LIABILITY OF OR AGAINST SELLER, ANY RELIANCE ON
OR USE OF THE SAME SHALL BE AT BUYER'S SOLE RISK TO THE MAXIMUM
EXTENT PERMITTED BY LAW AND EXCEPT AS PROVIDED OTHERWISE HEREIN.
ARTICLE X
Buyer's Conditions Precedent to Obligations
-------------------------------------------
10.1 Conditions Precedent to Obligations of Buyer. Unless
otherwise specifically provided herein, the obligations of Buyer
hereunder at the Closing shall be subject, at its option, to the
following conditions:
(a) all representations and warranties and other
statements of Seller herein are at the date hereof and, as of the
Closing Date, true and correct with the same force and effect as
if they had been made on the Closing Date, it being agreed that
any warranty or representation made only to the best knowledge of
Seller shall in fact be true as a condition to the obligation of
Buyer to close regardless of Seller's knowledge of such fact;
(b) Seller shall deliver to Buyer an officer's
certificate at Closing in form attached hereto as Exhibit "G";
(c) Seller shall have performed all of its
obligations hereunder to be performed at or prior to the Closing;
(d) the aggregate of all adjustments to the
Preliminary Purchase Price for Defective Interests shall not
exceed 10% of the Preliminary Purchase Price;
(e) no suit, action or other proceeding shall be
pending or threatened before any court or governmental agency
seeking to restrain or prohibit the Closing or seeking damages
against Seller or Buyer as a result of the consummation of this
Agreement;
(f) Buyer and Seller shall have received all
material consents, permissions, novations and approvals by third
parties in connection with the sale and transfer of the
Properties, and all necessary waivers of any preferential and
similar rights of third parties to purchase any part of the
Properties, except certain governmental consents customarily
generated and received in the ordinary course of business at a
post-closing date;
(g) any liens or encumbrances are released at Closing
in sufficient counterparts to release and terminate such liens in
all applicable public records;
(h) Seller provides to Buyer an opinion of counsel,
in the form attached hereto as Exhibit "H"; and
(i) Guarantor provides to Buyer an opinion of
counsel, in the form attached hereto as Exhibit "I."
ARTICLE XI
Seller's Conditions Precedent to Obligations
--------------------------------------------
11.1 Conditions Precedent to Obligations of Seller. The
obligations of Seller hereunder at the Closing shall be subject,
at its option, to the following conditions:
(a) all representations and warranties of Buyer
herein are, at and as of the Closing Date, true and correct with
the same force and effect as if they had been made on the date
thereof, and Buyer shall deliver an officer's certificate at
Closing, in form attached hereto as Exhibit "J";
(b) Buyer performs all of its obligations hereunder
to be performed at or prior to the Closing Date;
(c) Buyer provides to Seller an opinion of counsel,
in the form attached hereto as Exhibit "K";
(d) the aggregate of all adjustments to the
Preliminary Purchase Price for Defective Interests shall not
exceed 10% of the Preliminary Purchase Price;
(e) no suit, action or other proceeding brought by
an unaffiliated third party shall be pending or threatened before
any court or governmental agency seeking to restrain or prohibit
the Closing or seeking damages against Seller or Buyer as a
result of the consummation of this Agreement; and
(f) Buyer and Seller shall have received all
material consents, permissions, novations and approvals by third
parties in connection with the sale and transfer of the
Properties, and all necessary waivers of any preferential and
similar rights of third parties to purchase any part of the
Properties, except certain governmental consents customarily
generated and received in the ordinary course of business at a
post-Closing date.
ARTICLE XII
Right of Termination and Abandonment
------------------------------------
12.1 Termination. This Agreement and the transactions
contemplated hereby may be terminated in the following instances:
(a) by Seller if the conditions set forth in Article XI are not
satisfied or waived as of the Termination Date; (b) by Buyer if
the conditions set forth in Article X are not satisfied or waived
as of the Termination Date; or (c) at any time by the mutual
written agreement of Buyer and Seller.
12.2 Liabilities Upon Termination. If this Agreement is
terminated for any reason set forth in Section 12.1, the parties
shall have no further liability or obligation to any other party
hereto.
(a) Notwithstanding the foregoing, if all
conditions precedent to the obligations of Buyer set forth in
Article X have been met and the transactions contemplated by this
Agreement are not consummated on or before the Termination Date
because of the failure of Buyer to perform its obligations
hereunder, then in such event, Seller shall have the option to
terminate this Agreement. Seller hereby agrees that said
termination shall be its sole and exclusive remedy. Seller
expressly waives any and all other remedies, legal and equitable,
that it may otherwise have for Buyer's failure to close.
(b) Notwithstanding the foregoing, if all
conditions precedent to the obligations of Seller set forth in
Article XI have been met and the transactions contemplated by
this Agreement are not consummated on or before the Termination
Date because of the failure of Seller to perform its obligations
hereunder, then in such event, Buyer shall have the option to
terminate this Agreement. Buyer hereby agrees that said
termination shall be its sole and exclusive remedy. Buyer
expressly waives any and all other remedies, legal and equitable,
that it may otherwise have for Seller's failure to close.
ARTICLE XIII
Transactions at and after Closing; Procedure
--------------------------------------------
13.1 Closing Date Procedure. On or immediately prior to
the Closing Date, the parties shall exchange the documents set
forth in Section 13.5 pursuant to the terms of this Agreement and
shall cause to be executed, acknowledged, delivered, filed and
recorded all instruments, and shall cause all other acts to be
done as shall be reasonably required to make the sale of the
Properties effective under applicable laws.
13.2 Closing Documents. On or before the Closing Date,
each party shall deliver to the other such instruments and
documents as are reasonably necessary or desirable in order to
carry out the purposes of this Agreement, such instruments and
documents to be in form and substance reasonably satisfactory to
counsel of the other party.
13.3 Time of Closing. Subject to the conditions stated in
this Agreement, the Closing shall be held at 10 a.m., local time,
on January 2, 1996.
13.4 Place of Closing. The Closing shall be held at the
offices of Buyer.
13.5 Closing Obligations. Seller and Buyer covenant and
hereby obligate themselves that at the Closing, the following
events will occur, each being a condition precedent to the
others, and each being deemed to have occurred simultaneous with
the others:
(a) Seller shall execute, acknowledge and deliver to
Buyer an assignment, substantially in the form of Exhibit "F,"
conveying the Properties (other than properties excluded under
Section 4.2), effective as of the Effective Date to Buyer;
(b) Seller and Buyer shall execute and deliver a
settlement statement showing the Preliminary Purchase Price,
adjusted in accordance with this Agreement (the "Closing
Amount");
(c) Buyer shall deliver to Seller the Closing Amount
by wire transfer in immediately available funds;
(d) Seller shall deliver to Buyer exclusive
possession of the Properties (other than the Properties excluded
under Section 4.2);
(e) Seller and Buyer shall execute, acknowledge and
deliver transfer orders or letters in lieu of transfer orders
directing all purchasers of production to make payment to Buyer
of proceeds attributable to production from the Properties (other
than the Properties excluded under Section 4.2);
(f) Seller shall deliver the officer's certificate
referred to in Article X. Buyer shall deliver the officer's
certificate referred to in Article XI;
(g) Seller shall furnish Buyer evidence of the
release or termination statements, in form and substance
satisfactory to Buyer and its counsel, of all liens and security
interests securing indebtedness for borrowed money and covering
any of the Properties;
(h) Seller shall deliver to Buyer (x) Seller's
counsel's opinion and (y) Guarantor's counsel's opinion;
(i) Buyer shall deliver to Seller Buyer's counsel's
opinion; and
(j) Seller shall deliver to Buyer releases of all
mortgages, liens, financing statements and other encumbrances
burdening the Properties with respect to Seller.
13.6 Further Assurances.
(a) From time to time after Closing, Seller and Buyer
shall execute, acknowledge and deliver to the other such further
instruments, and take such other action, as may be reasonably
requested, in order more effectively to assure to said party all
of the respective properties, rights, titles, interests and
estates intended to be assigned and delivered in consummation of
the transactions contemplated by this Agreement.
(b) From and after Closing, promptly after their
receipt thereof, but only to the extent that such proceeds shall
not have been the subject of an adjustment to the Preliminary
Purchase Price, (i) Seller agrees to pay promptly to Buyer any
and all proceeds received by Seller that are attributable to the
production of hydrocarbons from the Properties on or after the
Effective Date and (ii) Buyer agrees to pay to Seller any and all
proceeds that are attributable to the production of hydrocarbons
from the Properties prior to the Effective Date. All such
payments to be made to Buyer shall include the royalty or mineral
owners' share of production which may be received by Seller and
which is not distributed to the royalty or mineral owner because
of title defect or other similar reasons.
13.7 Post-Closing Adjustments. Within 60 days after the
Closing, Buyer shall prepare and deliver to Seller, in accordance
with generally accepted accounting principles, a statement (the
"Final Settlement Statement") setting forth each adjustment or
payment that was not finally determined as of the Closing and
showing the calculation of such adjustments and the resulting
final purchase price (the "Final Purchase Price"). Within 10
days after receipt of the Final Settlement Statement, Seller
shall deliver to Buyer a written report containing any changes
that Seller proposes to be made to the preliminary Final
Settlement Statement. The parties undertake to agree with
respect to the amounts due pursuant to such Post-Closing
adjustments no later than 90 days after the Closing Date. The
date upon which such agreement is reached, or upon which the
Final Purchase Price is established, shall be herein called the
"Final Settlement Date." In the event that (a) the Final
Purchase Price is more than the Closing Amount, Buyer shall pay
to Seller the amount of such difference, or (b) the Final
Purchase Price is less than the Closing Amount, Seller shall pay
to Buyer the amount of such difference, in either event by wire
transfer in immediately available funds.
ARTICLE XIV
Miscellaneous
-------------
14.1 Notices. All communications required or permitted
under this Agreement shall be in writing, and any communication
or delivery hereunder shall be deemed to have been duly made when
delivered to the address below, or when telefax transmission is
completed to the telefax number shown below, in either case
showing the proper party to whose attention the notice is
directed. Any party may, by written notice so delivered or
transmitted to the other, change the address or telefax number to
which delivery shall thereafter be made. Notices to Seller and
Buyer shall be made at the addresses set forth below:
(a) If to Seller, to:
XCL-TEXAS, INC.
110 Rue Jean LaFitte
Lafayette, Louisiana, 70508
TELEFAX No.: (318) 237-3316
ATTENTION: David A. Mellman
Executive Vice President
(b) If to Guarantor, to:
XCL, LTD.
110 Rue Jean LaFitte
Lafayette, Louisiana, 70508
TELEFAX No.: (318) 237-3316
ATTENTION: David A. Mellman
Executive Vice President
(c) If to Buyer, to:
CODY ENERGY, INC.
7555 E. Hampden Avenue, Suite 600
Denver, Colorado 80231
TELEFAX No.: (303) 695-3650
ATTENTION: Richard E. Westerberg
Executive Vice President
14.2 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
14.3 Counterparts. This Agreement may be executed in any
number of counterparts, which taken together shall constitute one
and the same instrument and each of which shall be considered an
original for all purposes.
14.4 Expenses. Each party hereto will bear and pay its
own expenses of negotiating and consummating the transactions
contemplated hereby.
14.5 Section Headings. The section headings contained in
this Agreement are for convenient reference only and shall not in
any way affect the meaning and interpretation of this Agreement.
14.6 Entire Agreement. This Agreement, the documents to
be executed hereunder, and the Exhibits attached hereto
constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether
oral or written, of the parties pertaining to the subject matter
hereof, and there are no warranties, representations or other
agreements between the parties in connection with the subject
matter hereof except as specifically set forth herein or in
documents delivered pursuant hereto. No supplement, amendment,
alteration, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the parties
hereto. All of the Exhibits referred to in this Agreement are
hereby incorporated in this Agreement by reference and constitute
a part of this Agreement.
14.7 Governing Law. The validity of the various
conveyances affecting the title to real property shall be
governed by and construed in accordance with the law of the
jurisdiction in which such property is situated. This Agreement,
the other documents delivered pursuant hereto and the legal
relations among the parties hereto shall be governed by and
construed in accordance with the law of the State of Colorado and
the parties hereby submit their grievances to the exclusive
jurisdiction of the courts of the State of Colorado for the
resolution of any dispute hereunder.
14.8 Survival of Representations and Warranties. Except
as expressly provided herein, the respective representations,
warranties, covenants and agreements set forth in this Agreement
shall survive the Closing and shall not be merged with any
instrument or agreement hereafter executed or delivered;
provided, however, that Seller's representation in Section 6.1(i)
shall not survive past February 2, 1996, except for Title Defect
Notices validly given on or before February 2, 1996.
14.9 Assignment. Buyer may assign all or any portion of
its respective rights or delegate any portion of its respective
duties hereunder, so long as Buyer remains liable for the
performance of its obligations hereunder.
14.10 Public Announcements. The parties hereto agree
that, prior to making any public announcement or statement with
respect to the transactions contemplated by this Agreement, the
party desiring to make such public announcement or statement
shall consult with the other parties hereto.
14.11 Notices After Closing. Buyer and Seller hereby
agree that each party shall notify the other of its receipt,
after the Closing Date, of any instrument, notification or other
document affecting the Properties while owned by such other
party.
14.12 Guaranty. Guarantor does hereby guaranty the
representations and warranties of Seller and the performance of
Seller's covenants and obligations under this Agreement (the
"Guaranty"). In addition to all other remedies available to
Buyer under this Agreement, Buyer shall have the right to
specific performance by Guarantor of the Guaranty.
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the day and year first above
written.
GUARANTOR:
XCL, LTD.
By: /s/ David A. Melman
-------------------------
Name: David A. Melman
Title: Executive Vice President
SELLER:
XCL-TEXAS, INC.
By: /s/ David A. Melman
--------------------------
Name: David A. Melman
Title: Vice President
BUYER:
CODY ENERGY, INC.
By: /s/ Richard E. Westerberg
-----------------------------
Name: Richard E. Westerberg
Title: Executive Vice President
FOURTH AMENDMENT TO CREDIT AGREEMENT
Dated as of January 16, 1996
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this
"Amendment") is being entered into by and among LUTCHER-MOORE
DEVELOPMENT CORPORATION, a Louisiana corporation ("Development
Corporation"), LUTCHER & MOORE CYPRESS LUMBER COMPANY, a
Louisiana partnership in commendam ("Lumber Company")
(Development Corporation and Lumber Company, collectively, the
"Borrowers"), and THE FIRST NATIONAL BANK OF LAKE CHARLES, a
national banking association (the "Lender"), with MARY ELIZABETH
MECOM, THE ESTATE OF JOHN W. MECOM, THE MARY ELIZABETH MECOM
IRREVOCABLE TRUST, MATILDA GRAY STREAM, THE OPAL GRAY TRUST,
HAROLD H. STREAM, III, THE SUCCESSION OF EDWARD CARMOUCHE, and
VIRGINIA MARTIN CARMOUCHE (collectively, the "Guarantors"), as
intervenors, and with L. M. HOLDING ASSOCIATES, L. P., A
LOUISIANA PARTNERSHIP IN COMMENDAM ("Holding"), also as
intervenor.
WITNESSETH:
THAT,
WHEREAS, the Borrowers and the Lender have heretofore
entered into that certain Credit Agreement dated as of November
16, 1987, as heretofore amended by that certain First Amendment
to Credit Agreement dated as of May 29, 1991, between the
Borrowers and the Lender, by that certain Second Amendment to
Credit Agreement dated as of May 26, 1994, among the Borrowers,
Lender, Guarantors and Holding, and by that certain Third
Amendment to Credit Agreement dated as of June 15, 1995, among
the Borrowers, Lender, Guarantors and Holding (said Credit
Agreement, as so amended, the "Original Credit Agreement"); and,
WHEREAS, pursuant to the Original Credit Agreement, the
Borrowers executed and delivered to the Lender a promissory note
made by the Borrowers dated June 15, 1995, payable to the order
of the Lender in the principal sum of $2,883,717.84 (the
"Existing Note"); and,
WHEREAS, the Existing Note has an existing principal balance
of $2,713,056.03, which amount is due and payable in full under
the terms of the Existing Note; and,
WHEREAS, the Borrowers, the Guarantors, and Holding have all
requested the Lender to renew, extend and modify the terms of
repayment of the debt currently evidenced by the Existing Note,
and the Lender has agreed to do so, subject to the terms and
conditions of this Amendment.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Original Credit Agreement
(a) Section 1.1.4 of the original Credit Agreement is
hereby amended to read in its entirety as follows:
"Commitment" shall mean the obligation of the Lender to
renew, extend and modify $2,713,056.03 of the indebtedness of
the Borrowers to the Lender heretofore evidenced by the Existing
Note under the terms and conditions set forth herein.
(b) Section 1.1.20 of the Original Credit Agreement is
hereby amended to read in its entirety as follows:
"Maturity Date" means the earlier to occur of (i) May
16, 1996, or (ii) the earlier date of the Lender's
acceleration of the Obligations pursuant to Section 8.1 hereof.
(c) Section 1.1.21 of the Original Credit Agreement is
hereby amended to read in its entirety as follows:
"Existing Note" means that certain promissory note made
by the Borrowers dated June 15, 1995, payable to the order of the
Lender in the principal sum of $2,883,717.84.
(d) Section 2.1 of the Original Credit Agreement is hereby
amended to read in its entirety as follows:
The Commitment. The Lender agrees, subject to the
terms and conditions hereof, to renew and extend $2,713,056.03 of
the indebtedness of the Borrowers heretofore evidenced by the
Existing Note from the date hereof until the Maturity Date.
(e) Section 2.2 of the Original Credit Agreement is hereby
amended to read in its entirety as follows:
The Note. The $2,713,056.03 in indebtedness
heretofore evidenced by the Existing Note being renewed and
extended (but not novated) pursuant to the terms hereof shall be
evidenced by a promissory note made by both Borrowers in solido
dated January 16, 1996, payable to the order of the Lender in the
principal sum of $2,713,056.03, bearing interest at the rate of
9.25% per annum, payable on demand, or if no demand is made, in
three (3) installments of $52,300.00 each, commencing February
16, 1996, and continuing on the same day of each month
thereafter, plus a final payment of all outstanding principal and
accrued interest due on the Maturity Date (the "Note")
In addition, all references in the original Credit Agreement to
the term "Note" are hereby amended to refer the Note, as defined
herein.
(f) Article IV of the Original Credit Agreement is hereby
deleted in its entirety and replaced with the following:
ARTICLE IV
CONDITIONS PRECEDENT AND CONDITIONS SUBSEQUENT
----------------------------------------------
4.1 The obligation of Lender to honor the Commitment is
subject to the following conditions precedent:
(a) The representations and warranties of Borrowers
set forth herein, or in any other document furnished to Lender in
connection herewith, shall be true and correct, when made and on
and as of the date of the renewal of the Obligations pursuant
hereto, as if restated in full on and as of such date;
(b) Lender shall have received specific corporate
resolutions of Development Corporation and Holdings and proof of
authority for the person or persons signing this Amendment, the
Note or any of the Collateral Documents on behalf of Lumber
Company or any Guarantor which is a trust or estate, all of which
must be satisfactory in form and substance to Lender;
(c) Lender shall have received, in form and substance
satisfactory to Lender, fully executed counterparts of this
Amendment, the Note, and the modification to the Lumber Company
Note;
(d) No Default or Event of Default exists hereunder or
shall result from the transactions contemplated hereby (except as
may have been waived by Lender in writing);
(e) Lender shall have received opinions of counsel
for Borrowers, Guarantors, and Holding, in form and substance
satisfactory to Lender;
(f) Lender shall have received a deposit of
$100,000.00 in the deposit account affected by the Holding
Assignment of Deposit Account; and,
(g) Lender shall have received a fully executed
counterpart of an amendment to the Servicing Agreement, in form
and substance satisfactory to it.
4.2 Conditions Subsequent. Lender's obligations to allow
the Obligations to remain outstanding shall be subject to
the satisfaction of the following conditions subsequent:
(a) To the extent the opinion of counsel to Borrowers
cannot state that no court orders are required in connection with
the transactions contemplated hereby from the Success ion of
Edward Carmouche and the Estate of John W. Mecom, such court
orders shall be obtained to Lender's satisfaction on or prior to
March 16, 1995;
(b) Lender shall receive, on or before March 16,
1996, an endorsement to the title policy insuring the Mortgage
pursuant to which the title shall be brought current through the
date of this Amendment, which shall evidence no liens against the
Lands and Leases covered by the Mortgage other than the Mortgage
and other mortgages or liens which have been consented to in
writing by the Lender; and,
(c) Holding shall continue to deposit a minimum of
$13,000.00 per month (commencing February 16, 1996), exclusive
of the $100,000.00 deposit required pursuant to Section 4.1(f)
hereof, in the deposit account affected by the Holding
Assignment of Deposit Account.
(g) Section 8.1 of the original Credit Agreement is hereby
amended to revise subparagraph (i) thereof to read in its
entirety as follows:
(i) Failure of the Borrowers to deliver to the Lender
the title insurance endorsement required pursuant to section
4.2(b) hereof on or prior to March 16, 1995, or the failure of
the Borrowers to timely obtain and deliver to Lender the court
orders, if any, required pursuant to Section 4.2(a) hereof;
SECTION 2. No Defaults; Representations True. The
Borrowers, the Guarantors, and Holding hereby represent and
warrant that, to the best of their knowledge, no Event of Default
or potential Event of Default has occurred and is continuing as
of the date hereof under the Original Credit Agreement, as
amended hereby, and that, to the best of their knowledge, all of
the representations, warranties, and covenants made in the Note
and in Original Credit Agreement, and in all other documents
pertaining or relating to the Original Credit Agreement, as
amended hereby, are, as of the date hereof, true and correct in
all material aspects.
SECTION 3. No Defenses. The Borrowers represent and
warrant that there is no defense, offset, compensation,
counterclaim or reconventional demand with respect to amounts due
under, or performance of, the terms of the Note; and to the
extent any such defense, offset, compensation, counterclaim or
reconventional demand or other causes of action might exist,
whether known or unknown, such items are hereby waived by the
Borrowers.
SECTION 4. Modification of Lumber Company Note. The Lender
agrees to allow the Borrowers to enter into a modification of the
Lumber Company Note, as defined in the Original Credit Agreement,
which the Lender currently holds in pledge pursuant to the Lumber
Company Note Pledge, as defined in the Original Credit Agreement,
to provide that its payment terms are the same as the payment
terms of the Note.
SECTION 5. Conditions Precedent. This Amendment is
expressly subject to the prior satisfaction of the conditions
precedent set forth in Articles 4.1 of the Original Credit
Agreement, as amended hereby.
SECTION 6. No Novation. Nothing in this Agreement shall
constitute the satisfaction or extinguishment of the amounts owed
under the Existing Note, nor shall it be a novation of the
amounts owed under the Existing Note. Nothing contained in this
Agreement shall be deemed to imply any obligation of the Lender
to renew the Note beyond its final maturity date of May 16, 1996,
or beyond the date of the Lender's earlier acceleration thereof
pursuant to Section 8.1 of the Original Credit Agreement, as
amended hereby.
SECTION 7. Ratification and Confirmation. Except as
expressly modified herein, all terms and provisions of the
Original Credit Agreement, and all terms and provisions of all
other documents securing or evidencing the obligations of the
Borrowers under the Original Credit Agreement, as amended hereby
(including without limitation those Collateral Documents
described in Section 3.2 of the Original Credit Agreement) are
hereby ratified and confirmed, and shall be and shall remain in
full force and effect, enforceable in accordance with their
terms. The Borrowers hereby confirm and ratify all Collateral
Documents to which they are a party, and agree that such
instruments shall continue to apply to and secure payment of,
without limitation, the indebtedness of the Borrowers to the
Lender arising pursuant to the Original Credit Agreement (as
amended hereby) and the Note. The Borrowers and the Lender hereby
acknowledge that the Collateral Note (as defined in the Original
Credit Agreement) has been constantly held by the Lender since
November 16, 1987, pursuant to the terms of the Pledge (as
defined in the original Credit Agreement), and that the Lender
shall continue to hold the Collateral Note in pledge pursuant to
the terms and provisions of the Pledge (as defined in the
Original Credit Agreement), as confirmed and ratified hereby.
SECTION 8. Intervention by Guarantors. Now to these
presents intervene the Guarantors (including without limitation,
the undersigned representative of the succession of Edward M.
Carmouche, who acknowledges, confirms and ratifies the Guaranty
of Edward M. Carmouche and the prior pledge of his partnership
interest in Lumber Company pursuant to the partnership Pledge),
who hereby agree to the terms of this Agreement, who further
confirm and ratify (i) their respective Guaranties, as defined in
the original Credit Agreement, guaranteeing payment of the
indebtedness of the Borrowers to the Lender, and (ii) the
partnership pledge, as defined in the original Credit Agreement,
and who agree that such Guaranties and partnership Pledge shall
continue to apply to and secure payment of, without limitation,
the indebtedness of the Borrowers to the Lender arising pursuant
to the original Credit Agreement (as amended hereby) and the
Note.
SECTION 9. Intervention by Holding. Now to these presents
intervenes Holding, who hereby agrees to the terms of this
Amendment. Holding does hereby further confirm and ratify the
Holding security Agreement, the Holding Collateral Assignment,
the Lumber Company Note (as modified), the vendor's lien and
mortgage securing the Lumber Company Note, and the Lumber Company
Note Pledge (subject to the terms of the modification of the
Lumber Company Note as anticipated herein), and the Holding
Assignment of Deposit Account, and agrees that such instruments
shall continue to apply to and secure payment of, without
limitation, the indebtedness of the Borrowers to the Lender
arising pursuant to the original Credit Agreement (as amended
hereby) and the Note. Lumber Company, Holding and the Lender
hereby acknowledge that the Lumber Company Note has been
constantly held by the Lender since May 29, 1991, pursuant to the
terms of the Lumber Company Note Pledge, and that the Lender
shall continue to hold the Lumber Company Note (as modified with
the consent of Lender pursuant to the provisions of Sect ion 4
hereof) in pledge pursuant to the terms and provisions of the
Lumber Company Note Pledge, as confirmed and ratified hereby.
SECTION 10. Fees and Expenses. Holding hereby agrees to
pay all fees, taxes, costs and expenses of the Lender in
connection with the preparation, negotiation, execution, and
delivery of this Amendment and of all Collateral Documents (or
modifications or confirmations thereof) executed in connection
with the transactions contemplated hereby, including without
limitation the disbursements and reasonable fees of counsel to
the Lender and the costs of the endorsement to the title policy
required hereunder, and the Borrowers and Holding hereby agree to
bound in solido to the Bank for the payment of all costs and
expenses of the Lender in connection with the enforcement of the
original Credit Agreement, as amended hereby, the Note or the
other Collateral Documents, including reasonable attorney's fees
and disbursements incurred in connection therewith.
SECTION 11. Further Assurances. The Borrowers, Guarantors,
and Holding agree to do, execute, acknowledge and deliver, all
and every such further acts and instruments as the Lender may
reasonably require for the better assuring and confirming unto
the Lender all and singular the rights granted or intended to be
granted hereby or hereunder.
SECTION 12. Capitalized Terms. All capitalized terms used
herein and not otherwise defined herein shall have the meanings
ascribed to them in the Original credit Agreement.
SECTION 13. Counterparts. This Amendment may be executed
by the parties hereto in any number of separate counterparts,
each of which when so executed and delivered shall be deemed to
be an original and all of which when taken together shall
constitute but one and the same instrument.
SECTION 14. Governing Law; binding Effect. This Amendment
shall be governed by and construed in accordance with the laws of
the State of Louisiana and shall be binding upon the parties
hereto and their respective successors and assigns.
SECTION 15. Headings. Section headings in this Amendment
are included herein for the convenience of reference only and
shall not constitute part of this Amendment for any other
purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by themselves or their duly
authorized representatives as of January 16, 1996.
WITNESSES: THE BORROWERS:
- ----------------------- LUTCHER-MOORE DEVELOPMENT
CORPORATION
- ----------------------- By:-----------------------------
John W. Mecom, III, President
LUTCHER & MOORE CYPRESS LUMBER
COMPANY, A Louisiana partnership
in Commendam
- ----------------------- By: The Mary Elizabeth Mecom
Irrevocable Trust, its
General Partner
- ----------------------- By:----------------------------
Mary Elizabeth Mecom,
its Trustee
- ----------------------- By:-----------------------------
Matilda Gray Stream, Its
General Partner
- -----------------------
THE LENDER:
- ------------------------ THE FIRST NATIONAL BANK OF
LAKE CHARLES
- ------------------------ By:---------------------------
Wayne B. Gabbert,
Executive Vice President
THE INTERVENORS:
- -------------------------
------------------------------
- ------------------------- MARY ELIZABETH MECOM
ESTATE OF JOHN W. MECOM
- -------------------------
By:----------------------------
- ------------------------- Mary Elizabeth Mecom,
Independent Co-Executrix
- -------------------------
By:----------------------------
- ------------------------- John W. Mecom, III,
Independent Co-Executor
THE MARY ELIZABETH MECOM
IRREVOCABLE TRUST
- -------------------------
By:----------------------------
- ------------------------- Mary Elizabeth Mecom,
its Trustee
- -------------------------
--------------------------------
- ------------------------- MATILDA GRAY STREAM
OPAL GRAY TRUST
- -------------------------
By:-----------------------------
- ------------------------- Harold Newton, its Co-Trustee
- -------------------------
By:-----------------------------
- ------------------------- Bruce N. Kirkpatrick,
its Co-Trustee
- -------------------------
--------------------------------
- ------------------------- HAROLD H. STREAM, III
SUCCESSION OF EDWARD M.
CARMOUCHE
- ------------------------- By:----------------------------
Virginia Martin Carmouche,
- ------------------------- Executrix
- --------------------------
-------------------------------
- -------------------------- VIRGINIA MARTIN CARMOUCHE
L.M. HOLDING ASSOCIATES, L.P.,
A Louisiana Partnership in
Commendam
By: XCL LAND LTD.
- -------------------------- General Partner
By:----------------------------
- --------------------------
Title:-------------------------
THIRD AMENDMENT TO APPOINTMENT OF AGENT FOR
COLLECTION AND AGREEMENT ON APPLICATION OF FUNDS
Dated as of January 16, 1996
THIS THIRD AMENDMENT TO APPOINTMENT OF AGENT FOR
COLLECTION AND AGREEMENT ON APPLICATION OF FUNDS (this
"Amendment") is being entered into by and among LUTCHER-MOORE
DEVELOPMENT CORPORATION, a Louisiana corporation ("Development"),
LUTCHER & MOORE CYPRESS LUMBER COMPANY, A LOUISIANA PARTNERSHIP
IN COMMENDAM ("Cypress") (Development and Cypress, collectively,
the "Borrowers"), and L. M. HOLDING ASSOCIATES, L. P., A
LOUISIANA PARTNERSHIP IN COMMENDAM ("Holding"), with THE FIRST
NATIONAL BANK OF LANE CHARLES, a national banking association
(the "Bank"), as intervenor -
WITNESSETH:
THAT,
WHEREAS, the Borrowers and Holding, with the Bank as
intervenor, have heretofore entered into that certain Appointment
of Agent for Collection and Agreement on Application of Funds
dated effective as of May 29, 1991, as heretofore amended by that
certain First Amendment thereto dated as of May 26, 1994, and by
that certain Second Amendment thereto dated as of June 15, 1995
(as so amended, the "Servicing Agreement"); and,
WHEREAS, pursuant to the Servicing Agreement, the parties
thereto agreed that payments on the Bank Renewal Note (as defined
therein) would also act as payments on the Modified Purchase Note
(as defined therein), and agreed that in the event of the sale of
the Maurepas Acreage (as defined therein), all proceeds thereof
would be be credited as a payment and credit on both the Bank
Renewal Note and the Modified Purchase Note, and that until the
Bank Renewal Note was paid in full, all payments or credits made
by Holding to the Bank on the Modified Purchase Note would also
be applied as a payment and credit against the Bank Renewal Note;
and,
WHEREAS, pursuant to the Servicing Agreement, Holding
instructed Bank to receive payments from Holding toward payment
of the Modified Purchase Note, and Cypress instructed Bank to act
as agent for Cypress in receiving payments from Holding on the
Modified Purchase Note, and to apply such funds towards further
payment of the Bank Renewal Note, and the Bank agreed to the
appointment by Cypress and Holding in collecting and applying
payments on the Bank Renewal Note and the Modified Purchase Note
in the manner requested; and,
WHEREAS, the Bank Renewal Note has been further renewed and
extended pursuant to the execution by Borrowers of that certain
promissory note dated January 16, 1996, made by Borrowers payable
to the order of the Bank in the principal sum of $2,713,056.03
(said promissory note, as the same may hereafter be modified,
amended or extended, shall hereafter be referred to as the "Bank
Renewal Note"), which Bank Renewal Note was given in renewal and
extension (but not as a novation) of the indebtedness previously
evidenced by the promissory note of the Borrowers dated June 15,
1995, made Borrowers payable to the order of Bank in the
principal sum of $2,883,717.84, which note has heretofore been
defined as the Bank Renewal Note in the Servicing Agreement, and,
WHEREAS, the Modified Purchase Note has been further
modified and paraphed for identification with that certain
Modification of Non-Negotiable Promissory Note and Waiver
Agreement between Cypress and Holding dated as of January 16,
1996 (the Modified Purchase Note, as so modified, and as the same
may hereafter be further modified, extended or renewed with the
consent of the Bank, shall continue to be referred to as the
"Modified Purchase Note").
NOW, THEREFORE, the parties hereto, desiring to amend the
Servicing Agreement to evidence the execution of the Bank Renewal
Note on January 16, 1996, and the further modifications to the
Modified Purchase Note, and to otherwise confirm that the terms
of the Servicing Agreement shall continue to apply thereto, agree
as follows:
SECTION 1. Amendments to the Servicing Agreement. The
parties hereto do hereby amend the servicing Agreement so that
all references therein to the Bank Note or to the Bank Renewal
Note shall hereafter refer to the Bank Renewal Note of Borrowers
dated January 16, 1996, payable to the order of Bank in the
principal sum of $2,713,056.03, as the same may from time to time
be further modified, extended or renewed, and do hereby further
amend the Servicing Agreement so that all references therein to
the Purchase Note or to the Modified Purchase Note shall continue
to refer to the Modified Purchase Note, as further modified by
that certain Modification of Non-Negotiable Promissory Note and
Waiver Agreement between Cypress and Holding dated as of January
16, 1996, as the same may from time to time be further modified,
extended or renewed with the consent of the Bank.
SECTION 2. Ratification and Confirmation. Except as expressly
modified herein, all terms and provisions of the Servicing
Agreement are hereby ratified and confirmed, and shall be and
shall remain in full force and effect, enforceable in accordance
with its terms. Cypress, Holding and the Bank hereby acknowledge
that the Modified Purchase Note has been constantly held by the
Bank since May 29, 1991, pursuant to the terms of that certain
Collateral Pledge Agreement & Receipt (Possessory Collateral
Security Agreement) by Cypress in favor of the Bank dated May 29,
1991.
SECTION 3. Capitalized Terms. All capitalized terms
used herein and not otherwise defined herein shall have the
meanings ascribed to them in the Servicing Agreement.
SECTION 4. Counterparts. This Amendment may be
executed by the parties hereto in any number of separate
counterparts, each of which when so executed and delivered shall
be deemed to be an original and all of which when taken together
shall constitute but one and the same instrument.
SECTION 5. Governing Law; Binding Effect. This
Amendment shall be governed by and construed in accordance with
the laws of the State of Louisiana and shall be binding upon the
parties hereto and their respective successors and assigns.
SECTION 6. Headings. Section headings in this
Amendment are included herein for the convenience of reference
only and shall not constitute part of this Amendment for any
other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by themselves or their duly
authorized representatives as of January 16, 1996.
WITNESSES:
________________________ LUTCHER-MOORE DEVELOPMENT
CORPORATION
_______________________ By:______________________________ John
W. Mecom, III, President
LUTCHER & MOORE CYPRESS LUMBER
COMPANY, A LOUISIANA PARTNERSHIP IN
COMMENDAM
_______________________ By: The Mary Elizabeth Mecom
Irrevocable Trust, its
General Partner
_______________________ By:__________________________
Mary Elizabeth Mecom,
its Trustee
By:____________________
Matilda Gray Stream its
General Partner
L.M. HOLDING ASSOCIATES, L.P., A
LOUISIANA PARTNERSHIP IN
COMMENDAM
By: XCL LAND LTD.
General Partner
By:____________________________
Title:___________________________
THE FIRST NATIONAL BANK OF LAKE
CHARLES
____________________ BY:_____________________________
Wayne B. Gabbert,
Executive Vice President
PURCHASE AND SALE AGREEMENT
This Agreement ("Agreement") dated this 8th day of March,
1996 is by and between XCL-Texas, Inc., a Texas corporation whose
address is 110 Rue Jean Lafitte, Lafayette, Louisiana 77508
("Seller") and Tesoro E&P Company, L. P., by and through its
general partner Tesoro Exploration and Production Company, a
Texas limited partnership, whose address is 8700 Tesoro Drive,
San Antonio, Texas 78217 ("Buyer").
In consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
1. Description of Properties Seller agrees to convey, and
Buyer agrees to purchase the following assets ("Assets"):
(a) All right, title and interest of Seller in and to the
oil, gas and mineral leasehold estates (including all working
interests, net revenue interests, farmout and farmin rights,
royalty or other non-working or carried interests, operating
rights and other mineral rights of every nature) described in
Exhibit A-1 attached hereto ( "Subject Properties");
(b) All rights, title and interest of Seller in and to:
(i) all oil and gas wells and all other real or tangible personal
property and fixtures, which are located on the Subject
Properties, but excluding all surface equipment and facilities
(other than oil and gas wells and associated equipment) located
on the surface of the ground described in the Roadway and Amine
Plant Lease Agreement described in Exhibit B ("Amine Plant
Lease") attached hereto and all vehicles and other personal
property temporarily located on the Subject Properties; (ii) all
oil, gas and minerals produced from the Subject Properties on or
after the Effective Date; (iii) all rights to all orders,
contracts, abstracts of title, leases, deeds, unitization
agreements, pooling agreements, operating agreements, division of
interest statements, participation agreements, and all other
agreements and instruments; (iv) all easements, rights of way,
licenses and permits and all other rights, privileges, benefits
and powers conferred upon the owner and holder of interests in
the Subject Properties excluding all rights under the Amine Plant
Lease; and
(c) All rights to tax refunds, credits and exemptions,
including, but not limited to, state severance tax exemptions and
federal tax credits earned pursuant to Section 29 of the Internal
Revenue Code of 1986, as amended attributable to the Subject
Properties for all periods after the Effective Date.
2. Purchase Price The purchase price as of the Effective Date
shall be $1,400,000.00 ("Purchase Price"), to be adjusted as set
forth herein.
3. Allocation of Purchase Price The Purchase Price shall be
allocated ("Allocated Value") among the Subject Properties as set
forth in Exhibit A-2.
4. Effective Date The effective date of the purchase and sale
contemplated hereby shall be 7:00 a.m. Central Time, February 1,
1996 (the "Effective Date"). Seller shall be entitled to all of
the rights and incidents of ownership generated from or
attributable to the Assets prior to the Effective Date. Buyer
shall be entitled to all of the rights and incidents of ownership
generated from or attributable to the Assets after the Effective
Date.
5. Closing The closing of the transaction contemplated by
this Agreement ("Closing") shall be held on or before March 29,
1996 at the offices of the Seller or at such other time and place
as the parties may agree in writing. At Closing, the following
events shall occur, each being a condition precedent to the
others and each being deemed to have occurred simultaneously with
the others:
a. Manner of Payment Buyer shall pay Seller the Adjusted
Purchase Price by wire transfer of immediately available funds in
accordance with Seller's written instructions. Seller shall
deliver said instructions to Buyer three (3) business days before
Closing.
b. Assignment Seller shall execute, acknowledge and
deliver to Buyer an Assignment, Bill of Sale and Conveyance, in
the form attached as Exhibit C, effective as of the Effective
Date conveying the Assets with no representations or warranties,
express, implied or statutory, except as to parties claiming by,
through and under Seller, but not otherwise. All personal
property and fixtures are conveyed "AS IS, WHERE IS." In
addition, Seller shall deliver to Buyer such other assignments,
bills of sale, or deeds necessary to transfer the Assets to
Buyer, including any conveyances on official forms and related
documentation necessary to transfer the Assets to Buyer in
accordance with the requirements of governmental regulations.
c. Letters in Lieu Seller and Buyer shall execute and
deliver letters in lieu or other transfer orders directing all
purchasers of production to pay Buyer the proceeds attributable
to production from the Assets from and after the Effective Date.
d. Reports Seller will deliver or cause to be delivered
to Buyer at the offices of Buyer all original lease files, land
files, well files, oil and gas sales contracts files, gas
processing files, division order files, title files and
materials, and all other books, files, maps, logs and records,
other than corporate financial tax and legal records of Seller,
subject to the rights of third parties and copies of all title
opinions.
6. Representations of Seller Seller represents that:
a. Seller has independently evaluated the Assets and
determined that the consideration to be received from Buyer for
the Assets is fair and reasonable and comports with Seller's
evaluation of the value of the Assets.
b. Subject to the special warranty of title by Seller to
be contained in the Assignment, Bill of Sale and Conveyance,
Exhibit C, to be delivered by Seller to Buyer at Closing, Seller
represents that as of Closing Seller owns the Subject Properties
asset forth on Exhibit A-l free and clear of any Title Defects
other than those identified pursuant to Section 12.
c. To the best of Seller's knowledge, there are no
actions, suits, charges, investigations or proceedings, pending
or threatened, before any court or agency that would result In a
loss or impairment of Seller's title to any of the Subject
Properties, obstruct the operation of the Subject Properties, or
significantly reduce the value of the Subject Properties other
than Cause No. C-94-431-DQ, Antonio Benavides. Jr., Trustee of
the Rufino and Joseta M. DeLopez Mineral Trust vs. Edwin L Cox et
al in the District Court, 111th District, Webb County, Texas
("DeLopez Lawsuit") and claims by any mineral or royalty interest
owner that assert any or all of the same causes of action with
respect to the Subject Properties that are being asserted in the
DeLopez Lawsuit.
d. To the best of Seller's knowledge, the Subject
Properties are being operated in compliance with all applicable
federal, state or local laws, and the rules and regulations of
any agency or authority having jurisdiction.
e. To the best of Seller's knowledge, Seller is not in
default or violation of any tax obligations, loan obligations,
legal requirements or any oil and gas leases comprising a part or
all of the Subject Properties or any contracts or agreements
relating thereto, and the same are in full force and effect.
f. To the best of Seller's knowledge, there has been no
release of reportable quantities of hazardous substances on or
from any of the Subject Properties, nor is there any
environmental condition on or affecting any of the Subject
Properties that currently requires remediation under any existing
law or regulation, nor have any of the Subject Properties been
used as storage or disposal facilities for any hazardous or
industrial wastes.
g. There are no outstanding AFE's, non-consent
elections, cash calls or similar proposals for operations
affecting any of the Subject Properties.
h. Seller's interests are not subject to any existing
non-consent penalties or farmouts that would reduce Buyer's right
to receive proceeds attributable to its interests below those set
forth on Exhibit A-2 to this Agreement.
i. Seller is duly authorized and has hill authority to
enter into this Agreement, and to perform its obligations at
Closing.
j. There are no preferential rights to purchase or
required consents to assignments that pertain to Buyer's
acquisition of the Subject Properties, or if they exist, will be
satisfied or released prior to Closing.
k. To the best of Seller's knowledge, there are no
contracts or agreements affecting the Subject Properties other
than those listed on Exhibit A-3.
l. This Agreement has been duly executed and delivered
by Seller and constitutes the valid and binding obligation of
Seller, enforceable against it in accordance with its terms
except as such enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the enforcement
of creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
7. Representations of Buyer Buyer represents that:
a. Buyer has all requisite corporate power and authority
to execute and deliver this Agreement, to con sum mate the
transactions contemplated hereby and to perform all the terms and
conditions hereof to be performed by it.
b. This Agreement has been duly executed and delivered
by Buyer and constitutes the valid and binding obligation of
Buyer, enforceable against it in accordance with its terms except
as such enforceability may be limited by bankruptcy, insolvency
or other laws relating to or affecting the enforcement of
creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
c. Buyer has or will have prior to the date of Closing,
sufficient cash, available lines of credit or other sources of
immediately available hinds to enable it to make its portion of
the payment of the Purchase Price at the Closing.
8. Adjusted Purchase Price Pursuant to the provisions as
described below, the Purchase Price for the Assets will be
subject to certain adjustments at the Closing ("Adjusted Purchase
Price").
a. As of the Effective Date, the Purchase Price shall be
increased by the following amounts:
1. An amount equal to the direct operating costs
and expenses that are attributable to the Subject Properties for
the period from and after the Effective Date to the date of
Closing which were paid by Seller.
2. An amount equal to the market value of all
unsold oil or gas attributable to the interest of Seller produced
from the Subject Properties before the Effective Date and in
storage on the Effective Date, net of all applicable taxes and
royalties.
3. An amount equal to all prepaid expenses
attributable to the Subject Properties that are paid by Seller
prior to the date of Closing that inure to the benefit of Buyer,
attributable to the period after the Effective Date, including
without limitation, prepaid ad valorem, property, production,
severance and similar taxes (but not including income taxes).
b. The Purchase Price will be decreased by the following
amounts:
1. An amount equal to the proceeds received by
the Seller for the sale of oil or gas produced from the Subject
Properties after the Effective Date, net of all applicable taxes
and royalties.
2. By the actual amount of all costs and expenses
for which Seller is responsible under this Agreement which have
been or will be paid by Buyer including but not limited to unpaid
ad valorem taxes, property, production, severance and other
similar taxes and assessments which are attributable and prorated
to the period before the Effective Date.
3. By the allocated value of the property or
properties which are deleted from the sale as a result of Title
Defects as provided by Section 13.
4. By the amount of decrease in value determined
pursuant to Section 13 occasioned by an error in the ownership
interest shown on Exhibit A-2 to this Agreement.
5. By the amount attributable to any reduction
pursuant to a Casualty Loss which occurs between the Effective
Date and the date of Closing as provided by Section 10.
9. Accounting
a. Closing Statement Seller will deliver to Buyer three
(3) days prior to the date of Closing, a statement ("Closing
Statement"), together with relevant supporting information
setting forth the adjustments to the Purchase Price which Closing
Statement shall be approved by Buyer to arrive at the Adjusted
Purchase Price. Within ninety (90) days after the date of
Closing, a "Final Closing Statement" will be prepared by the
Seller and delivered to Buyer together with relevant supporting
information setting forth actual income and expense which Final
Closing Statement shall be approved by Buyer to determine the
"Final Adjusted Purchase Price."
b. Final Closing. Within thirty (30) days after Buyer's
receipt of the Final Closing Statement, and subject to review and
verification of the Final Closing Statement, Buyer will either
deliver to or receive from the Seller, as the case may be a cash
payment to balance the Final Adjusted Purchase Price.
10. Loss For the purpose of this Agreement, "Casualty loss"
means a material adverse change to the Subject Properties
resulting from fire, lightning, storm or other such casualty.
Risk of loss for a Casualty Loss subsequent to the Effective Date
and prior to Closing is on the Seller. If, subsequent to the
Effective Date and prior to Closing, a Casualty Loss occurs,
Buyer may elect to terminate this Agreement. If Buyer does not
elect to terminate this Agreement notwithstanding such Casualty
Loss, Buyer shall retain the property affected by such Casualty
Loss and Seller shall pay to Buyer all sums paid to Seller by
reason of such Casualty Loss, provided however, that the Purchase
Price shall not be adjusted by reason of such Casualty Loss or
payment and Seller shall assign to Buyer all of its right, title
and interest in and to such property.
11. Title Defect For the purpose of this Agreement, a "Title
Defect" shall mean any liens, charges, contracts, agreements,
obligations, encumbrances, defects or irregularities of title
with respect to the Subject Properties which result in a breach
of any warranty or representation made by Seller hereunder or
would result in Buyer receiving less than the net revenue
interests set forth in Exhibit A-2 or would require Buyer to
share coats and expenses with respect to the operation of the
Subject Properties in amounts greater than the working interests
set forth in Exhibit A-2. Title Defects shall include, but not
limited to, the following:
a. The title of Seller, as to one or more of the Subject
Properties, other than surface land interests, is subject loan
outstanding mortgage, deed of trust, lien or encumbrance or other
adverse claim for which a release in recordable form that is
satisfactory to Buyer is not available to Buyer on or before
Closing;
b. That portion of the Subject Properties affected by
any suit, action or other proceeding before any court or
government agency that would result in substantial loss or
impairment of Seller's title to any material portion of the
Subject Properties, or a material portion of the value thereof
other than those described in Section 32.
c. That portion of the Subject Properties with respect
to which Seller has the obligation under a take-or-pay contract
to deliver gas without receiving hill payment at the time of
delivery, or with respect to which Seller has produced more than
its share of gas thereby creating an imbalance unless Buyer and
Seller can agree to an appropriate adjustment to the Purchase
Price.
d. That portion of the Subject Properties destroyed by
fire or other casualty, or with respect to which there is a
taking or threatened taking in condemnation or under the right of
eminent domain.
e. A material default of Seller exists under some
material provision of a lease, agreement or other contract
affecting the Subject Properties which will not be cured prior to
or at the Closing; or
f. The rights and interests of Seller are subject to
being reduced by virtue of the exercise by a third patty of a
reversionary, back-in, preferential right to purchase or similar
right not reflected or provided for in Exhibit A-1.
12. Notice of Title Defect or Title Increase Upon discovery
of a Title Defect, Buyer shall immediately notify Seller in
writing of the nature of the Title Defect and furnish therewith
Buyer's basis for the assertion of such Title Defect the
allocated value of the Title Defect and date in support thereof
Seller shall have the right to cure said Title Defect to Buyer's
satisfaction up to the date of Closing. Any claim for a price
adjustment for a Title Defect of which Seller is not notified in
writing by Buyer at least five (5) business days prior to the
Closing, whether known or unknown, shall be forever waived by
Buyer.
Upon discovery that the net revenue interest actually being
conveyed to Buyer by Seller is greater than that shown on Exhibit
A-2 or working interest actually being conveyed to Buyer by
Seller is less than that shown on Exhibit A-2 (a "Title
Increase") Seller shall immediately notify Buyer in writing of
the nature of the Title Increase and furnish therewith Seller's
basis for the assertion of such Title Increase the allocated
value of the Title Increase and data in support thereof. Any
claim for a price adjustment for a Title Increase of which Buyer
is not notified in writing by Seller at least five (5) business
days prior to the Closing, whether known or unknown, shall he
forever waived by Seller.
13. Remedies for Title Defects and Title Increases Upon
timely delivery of notice, either by Buyer of a Title Defect or
by Seller of a Title Increase, Buyer and Seller shall meet and
use their best efforts to agree on the validity of the claim end
the amount of any required adjustment to the Purchase Price- If
the Buyer and Seller cannot agree on the amount of such a
Purchase Price adjustment the property affected or portion
thereof shall be excluded from the Assets conveyed to Buyer and
the Purchase Price shall be reduced by an amount equal to the
Allocated Value thereof as set forth in Exhibit A-2.
14. Environmental Review and Claims Buyer may test, evaluate,
and otherwise conduct an environmental investigation
("Environmental Review") of any or all of the Subject Properties
for actual and potential environmental damage or liability, if
any. If the Environmental Review by Buyer reflects actual or
potential environmental damages or liabilities which could cause
a material reduction in the value of any of the Subject
Properties, Buyer shall have the option to either terminate this
Agreement without penalty or waive the requirement or condition
which caused such termination right to exist. Any actual or
potential environmental damage, or liability effecting this right
of termination shall he of such nature, extent or consequence,
that under current statutes or regulations regarding such
matters, a reasonable, prudent person would regard it as a
material potential environmental damage or liability. Buyer may
exercise such option to terminate, if applicable, at or before
Closing.
NOTWITHSTANDING ANYTHING TO THE CONTRARY, SELLER SHALL
INDEMNIFY, DEFEND AND HOLD BUYER HARMLESS FROM ALL CLAIMS,
DEMANDS, OBLIGATIONS OR EXPENSES OF ANY KIND WHATSOEVER
OCCURRING, ARISING OUT OF OR RELATING TO THE SUBJECT PROPERTIES
PRIOR TO THE EFFECTIVE DATE THAT ARE RELATED TO THE OBLIGATION TO
PLUG AND ABANDON OIL AND GAS WELLS OR ARISING OUT OF THE
VIOLATION OF OR FAILURE TO COMPLY WITH ALL APPLICABLE FEDERAL,
STATE AND LOCAL LAWS, RULES, REGULATIONS AND ORDERS PERTAINING TO
(A) THE USE, GENERATION, MIGRATION, STORAGE, REMOVAL, TREATMENT,
REMEDY, DISCHARGE, RELEASE, TRANSPORTATION, DISPOSAL, OR CLEAN UP
OF POLLUTANTS, CONTAMINATION, HAZARDOUS WASTES, HAZARDOUS
SUBSTANCES, HAZARDOUS MATERIALS, TOXIC SUBSTANCES OR TOXIC
POLLUTANTS OR (B) THE SOIL, SURFACE WATERS, GROUND WATERS, LAND,
STREAM SEDIMENTS, SURFACE OR SUBSURFACE STRATA, AMBIENT AIR AND
ANY OTHER ENVIRONMENTAL MEDIUM ON OR OFF ANY PROPERTY.
15. Buyer's Conditions of Closing The obligations of Buyer to
purchase the Assets pursuant to this Agreement is subject to the
satisfaction, at or before the Closing of the following
conditions:
a. Representations The representations and warranties of
Seller contained In Section 6 shall be true and correct in all
material respects on the date of Closing as though made on and as
of that date.
b. Performance Seller shall have performed in all
material respects the obligations, covenants and agreements
hereunder to be performed by it at or prior to the Closing.
c. Officer's Certificate Seller shall have delivered to
Buyer a certificate of an executive officer, dated the date of
Closing, certifying on behalf of Seller that the conditions set
forth in Section 6 have been fulfilled.
d. Pending Matters No suit, action or other proceeding
by a third patty or a governmental authority shall be pending or
threatened which seeks damages from Buyer in connection with, or
seeks to restrain, enjoin or otherwise prohibit, the consummation
of the transactions contemplated by this Agreement.
e. Preferential Rights and Consents to Assign All
Preferential Rights or Consents to Assign shall have been
exercised, waived or obtained, as the case may be, or Seller and
Buyer shall have adjusted the Purchase Price in accordance with
the provisions of Section 8.
f. No Orders The Closing hereunder shall not violate any
order or decree of any governmental authority having competent
jurisdiction over the transaction contemplated by this Agreement.
g. Casualty Loss There shall not have been a Casualty
Loss as set forth in Section 10.
h. Third Party Governmental Consents Seller shall have
obtained all third patty and governmental consents or waivers
necessary to consummate the transactions contemplated by this
Agreement.
i. Gas Purchase Contract The Subject Properties shall
have been released from the obligations of the Gas Purchase
Contract No. 1133 dated April 12, 1991, between United Texas
Transmission Company (Buyer) and XCL-Texas, Inc. et al. (Seller),
as amended. In addition, Buyer will have negotiated and entered
into a separate Gas Purchase Contract with United Texas
Transmission Company covering the Subject Properties.
j. Confidentiality Agreement Except with respect to the
cross-hatched tracts depicted on Exhibit E, Seller shall have
released Buyer from all obligations imposed by the
Confidentiality Agreement dated September 26, 1995 between XCL,
Ltd. and Tesoro Exploration and Production Company. As modified
by the preceding sentence the Confidentiality Agreement is hereby
confirmed and Buyer and Seller agree that the terms of the
Confidentiality Agreement (as herein modified) shall survive
Closing.
k. Liens and Mortgages Seller shall have secured release
of all liens and mortgages listed on Exhibit D and provided Buyer
evidence of the same.
l. Dehydration and Compression Agreement Seller and
Buyer shall enter in a mutually acceptable Dehydration and
Compression Agreement.
m. Contract Well Operating Agreement The Contract Well
Operating agreement dated effective as of the 1st day of October,
1993, between Columbus Energy Corp. (Contractor), and XCL-Texas,
Inc. (Operator), as amended, shall terminate with respect to the
Subject Properties on or prior to the Closing Date.
16. Seller's Conditions of Closing Seller's obligation to
consummate the transactions provided for herein is subject only
to the satisfaction or waiver by Seller on or before the Closing
of the following conditions:
a. Representations The representations and warranties of
Buyer contained in Section 7 shall be true and correct In all
material respects on the date of Closing as though made on and as
of that date.
b. Officer's Certificate Buyer shall have delivered to
Seller a certificate of an executive officer of its general
partner, dated the date of Closing, certifying on behalf of Buyer
that the representations set forth in Section 7 have been
fulfilled.
c. Pending Matters No suit, action or other proceeding by
a third patty or a governmental authority shall be pending or
threatened which seeks damages from Seller in connection with, or
seeks to restrain, enjoin or otherwise prohibit, the consummation
of the transactions contemplated by this Agreement.
d. No Orders The Closing hereunder shall not violate any
order or decree of any governmental authority having competent
jurisdiction over the transaction contemplated by this Agreement.
17. Prohibited Actions Prior to the Closing, Seller shall
not:
a. dispose of or make any changes to the Subject
Properties, other than sales of production in the ordinary course
of business, or enter into contracts which affect the Subject
Properties that extend beyond Closing; or
b. incur any liabilities, encumbrances or liens with
respect to the Subject Properties which are not in the ordinary
course of business or operations, without the prior written
consent of Buyer;
c. approve or reject any AFE's or other similar
proposals for operations affecting the Subject Properties without
advising the Buyer;
d. waive, release or abandon any material rights or
interests concerning the Subject Properties.
18. Termination of Agreement This Agreement and the
transactions contemplated hereby may be terminated in the
following instances:
a. By Seller if the conditions set forth in Sections 7
and 16 are not satisfied in all material respects or waived prior
to the Closing.
b. By Buyer if the conditions set forth in Sections 6
and 15 are not satisfied in all material respects or waived prior
to the Closing.
c. By Seller or Buyer if the adjustments pursuant to
Sections 8b(3), 8b(4) and 8b($) exceed 30% of the Purchase Price.
d. At any time by the mutual written agreement of Buyer
and Seller.
19. Liabilities Upon Termination If Closing does not occur
due to Seller's violation of the terms of this Agreement, then
Buyer may seek such legal or equitable remedies as Buyer may
desire, including, without limitation, damages for the breach or
failure of any representation, warranty, covenant or agreement
contained herein and the right to enforce specific performance of
this Agreement. If Closing does not occur due to Buyer's
violation of the terms of this Agreement, then Seller may seek
such legal or equitable remedies as Seller may desire, including,
without limitation, damages for the breach or failure of any
representation, warranty, covenant or agreement contained herein
and the right to enforce specific performance of this Agreement.
MISCELLANEOUS
20. Governing Law This Agreement and all instruments executed
in accordance herewith shall be governed by and interpreted in
accordance with the laws of the State of Texas, without regard to
conflict of law rules that would direct application of the laws
of another jurisdiction. In the event of any litigation or other
proceeding in connection with this Agreement, the prevailing
party shall be entitled to recover its reasonable attorney's fees
and costs incurred therein from the other patty, in addition to
any damages awarded.
21. Entire Agreement This Agreement and the Exhibits hereto
constitute the entire agreement between the parties in regard to
the purchase and sale of the Assets and supersede all prior
agreements, understandings, negotiations, discussions and
representations, whether oral or written, of the parties in
regard to the purchase of the Assets. No reference to any exhibit
herein is intended to ratify or revive any agreements or
contracts described therein.
22. Waiver No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar).
23. Captions The captions in the Agreement are for
convenience only and shall not be considered a part of or affect
the construction or interpretation of any provision of this
Agreement.
24. Assignability Neither patty hereto shall assign this
Agreement or any of its rights or obligations hereunder without
the prior written consent of the other party, which consent may
be withheld for any or no reason. Any assignment of this
Agreement made without such consent shall be void. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
25. Notices Any notice provided or permitted to be given
under this Agreement shall be in writing, and may be served by
facsimile, personal delivery or by registered or certified U.S.
mail, addressed to the party to be notified, postage prepaid,
return receipt requested. Notice deposited in the mail in the
manner hereinabove described shall be deemed to have been given
and received on the date of the delivery as shown on the return
receipt. Notice by facsimile shall be confirmed by certified or
registered mail and shall be deemed given and received on the
date sent unless sent after 5:00 p.m. in which case notice will
be deemed given and received on the next business day. Notice
served in any other manner shall be deemed to have been given and
received only if and when actually received by the addressee. For
purposes of notice, the addresses of the parties shall be as
follows:
SELLER: BUYER:
XCL-Texas, Inc. Tesoro E&P Company, L.P.
Attn: David A. Melman, Attn: Robert W. Oliver,
Vice President President
110 Rue Jean Lafitte 8700 Tesoro Drive
Lafayette, Louisiana 77508 San Antonio, Texas 78217
Tel: 318/237-0325 Tel: 210/828-8484
Fax: 318/237-3316 Fax: 210/283-2064
26. DTPA Waiver To the extent applicable to the Buyer of the
Assets or any portion thereof, Buyer hereby waives the provisions
of the Texas Deceptive Trade Practices Act, Chapter 17,
Subchapter E, Section 17.41 through 17.63, inclusive (other than
Section 17.555, which is not waived), Tex. Bus. & Com. Code. In
order to evidence its ability to grant such waiver, Buyer hereby
represents and warrants to Seller that Buyer (i) is in the
business of seeking or acquiring, by purchase or lease, goods or
services for commercial or business use; (ii ) has assets of $5
million or more according to its most recent financial statement
prepared in accordance with generally accepted accounting
principles; (iii) has knowledge and experience in financial and
business matters that enable it to evaluate the merits and risks
of the transactions contemplated hereby; (iv) is not in a
significantly disparate bargaining position; and (v) that this
waiver is a material and integral part of this Agreement and the
consideration thereof.
27. Expenses Each party shall be solely responsible for all
expenses incurred by it in connection with the transaction
(including, without limitation, fees and expenses of its own
legal counsel and accountants).
28. Severability If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced
under any rule of law, all other conditions and provisions of
this Agreement shall nevertheless remain in lull force and effect
so long as the economic or legal substance of the transactions
contemplated hereby is not affected in a materially adverse
manner with respect to either party.
29. Damages The parties waive any rights to punitive and
incidental or consequential damages resulting from a breach of
this Agreement including, without limitation, loss of profits.
30. No Third Party Beneficiary This Agreement is not intended
to create, nor shall it be construed to create, any rights in any
third patty under doctrines concerning third patty beneficiaries.
31. Survival The representations and warranties of the
parties under this Agreement shall not survive Closing.
32. Lawsuits and Claims NOT WITHSTANDING ANYTHING HEREIN TO
THE CONTRARY, SELLER AGREES TO INDEMNIFY, DEFEND AND HOLD BUYER
HARMLESS FROM ALL JUDGMENTS AWARDED, DAMAGES ASSESSED AND ALL
COSTS (INCLUDING COURT COSTS AND ATTORNEYS FEES) FROM AND IN
CONNECTION WITH ALL CLAIMS. DEMANDS AND LAWSUITS ("CLAIMS") OF
WHATEVER NATURE WHETHER KNOWN OR UNKNOWN, PAST, PRESENT OR
FUTURE, ARISING FROM OR IN CONNECTION WITH SELLER'S USE,
OWNERSHIP, OPERATORSHIP OR MAINTENANCE OF THE SUBJECT PROPERTIES
PRIOR TO THE EFFECTIVE DATE IF SUCH CLAIMS ARE RAISED AND SELLER
IS NOTIFIED BY BUYER IN WRITING OF SUCH CLAIMS ON OR BEFORE THE
DATE TWO (2) YEARS AFTER CLOSING, PROVIDED HOWEVER, SELLER AGREES
TO INDEMNIFY, DEFEND AND HOLD BUYER HARMLESS FROM ALL JUDGMENTS
AWARDED, DAMAGES ASSESSED AND ALL COSTS (INCLUDING COURT COST AND
ATTORNEYS FEES) RESULTING FROM AND IN CONNECTION WITH THE DELOPEZ
LAWSUIT REFERENCED IN SECTION 6(C) AND ANY AND ALL CLAIMS,
DEMANDS AND LAWSUITS BROUGHT BY ANY MINERAL OR ROYALTY INTEREST
OWNER THAT ASSERTS ANY OR ALL OF THE SAME CAUSES OF ACTION WITH
RESPECT TO THE SUBJECT PROPERTIES THAT ARE BEING ASSERTED BY THE
DELOPEZ MINERAL TRUST IN THE DELOPEZ LAWSUIT.
33. Counterparts This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and she same
instrument.
34. Construction of Ambiguity In the event of any ambiguity
in any of the terms or conditions of this Agreement, including
any exhibits hereto and whether or not placed of record, such
ambiguity shall not be construed for or against any parry hereto
on the basis that such patty did or did not author the same.
35. Waiver of Jury Trial Seller and Buyer do hereby
irrevocably waive, to the fullest extent permitted by law, any
and all right to a trial by jury in any action, suit or other
legal proceeding based upon, arising out of or relating to this
Agreement or the transactions contemplated hereby.
DATED AND EXECUTED as of the date first above written.
SELLER: BUYER:
XCL-TEXAS, INC. TESORO E&P COMPANY, L.P.
By Tesoro Exploration and Production
Company, its general partner
By:/s/ David A. Melman By:/s/ Robert W. Oliver
-------------------- --------------------
David A. Melman Robert W. Oliver
Vice President President
LIMITED WAIVER
RECITALS:
Reference is made to that certain Credit Agreement dated as
of January 31, 1994, as amended by that certain First Amendment
to Credit Agreement dated as of April 13, 1995, and that certain
Second Amendment to Credit Agreement dated as of September 29,
1995 (as so amended, the"Agreement"), among XCL - Texas, Inc., a
Texas corporation ("Borrower"), XCL, Ltd., a Delaware corporation
("Parent") and Internationale Nederlanden (U.S.) Capital
Corporation, a Delaware corporation, as Agent and a Lender
("Agent"). Terms used and not defined herein shall have the
meanings given them in the Agreement.
Borrower and Parent have notified Agent of their failure to
comply with Sections 5.1(b), 5.1(g), 5.2(g), 5.2(h), 5.2(l),
5.2(n) and 52(o) of the Agreement.
Borrower and Parent have requested that Agent and Lenders
waive the violations of the Sections of the Agreement listed
above and that Agent and Lenders waive any Default or Event of
Default occurring as a result thereof.
NOW THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the
Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby agree as follows:
1. Books, Financial Statements and Reports.
(a) Lenders and Agent hereby waive Parent's non-
compliance with Section 5.1(b)(v) of the Agreement
resulting from Parent's failure to deliver by February 28,
1996, an engineering report prepared by Netherland, Sewell
& Associates, Inc. as of December 31, 1995, and waive any
Default or Event of Default occurring as a result thereof.
By April 16, 1996, Parent shall deliver an internally
prepared engineering report in form and substance
satisfactory to Agent and containing information and
analysis comparable in scope to that contained in the
Initial Engineering Report. By June 30, 1996, Parent shall
deliver an engineering report prepared by Netherland,
Sewell & Associates, Inc. as of December 31, 1995, which
report shall be in the form described in Section 5.1(b)(v)
of the Agreement.
(b) Parent is concurrently herewith delivering an
environmental compliance certificate in accordance with
Section 5.1(b)(viii) and Lenders and Agent hereby waive
Parent's non-compliance with Section 5.1(b)(viii) of the
Agreement resulting from Parent's failure to deliver such
certificate within 30 days after the Fiscal Year 1995, and
waive any Default or Event of Default occurring as a result
thereof.
(c) Parent is concurrently herewith delivering an
internally generated operating plan of the Related Persons
for Fiscal Year 1996 in accordance with Section 5.1(b)(x) of
the Agreement and Agent and Lenders hereby waive Parent's
non-compliance with Section 5.1(b)(x) of the Agreement
resulting from Parent's failure to deliver such operating
plan by January 31, 1996, and waive any Default or Event of
Default occurring as a result thereof.
2. Payment of Taxes.
(a) Lenders and Agent hereby waive Parent's non-
compliance with Section 5.1(g) of the Agreement resulting
from Parent's failure to timely file its franchise tax for
the Fiscal Year 1995, and waive any Default or Event of
Default occurring as a result thereof.
(b) Lenders and Agent hereby waive the Related
Persons' noncompliance with Section 5.1(g) of the Agreement
resulting from the Related Persons' failure prior to the
date hereof to pay all trade payables within 120 days after
the original invoice or billing date thereof, and hereby
waive any Default or Event of Default occurring as a result
thereof. Lenders and Agent hereby agree that,
notwithstanding Section 5.1(g) of the Agreement, the
Related Persons may have trade payables over 120 days past
the original invoice or billing date in an aggregate
outstanding amount not to exceed $650,000, provided that
the Related Persons shall deliver biweekly payable reports
to Agent beginning on April 12, 1996 and continuing
regularly thereafter, and shall pay all such delinquent
trade payables in full within 30 days after the closing of
the sale of the Series E Preferred Stock of Parent (the
"Series E Preferred Stock").
3. Limitation on Issuance of Securities.
Notwithstanding the limitation on issuance of securities in
Section 5.2(g) of the Agreement, Agent and Lenders hereby consent
to the issuance of the Series E Preferred Stock.
4. Limitations on Investments. Lenders and Agent hereby
waive the Related Persons' non-compliance with Section 5.2(g) of
the Agreement resulting from the Related Persons' investment
heretofore made in a lubrication oil refining facility for
production from the Danang Field, Bohai Bay, China permitted for
such investments, and waive any Default or Event of Default
occurring as a result thereof. The Related Persons hereby
covenant and agree that they shall not make any additional
investment from the date hereof in the lubrication oil refining
facility for production from the Danang Field, Bohai Bay, China
except from the proceeds of an equity issuance by an Affiliate of
Borrower or from the proceeds of a sale of the joint venture
portion of, or a working interest in, the lubrication oil
refining facility.
5. Limitation on Credit Extensions. Lenders and Agent
hereby waive the Related Persons' non-compliance with Section
5.2(h) of the Agreement resulting from the extensions of credit
made by the Related Persons to officers of Parent prior to
December 31, 1995, and waive any Default or Events of Default
occurring as a result thereof.
6 Current Ratio. Lender and Agent hereby waive Parent's
non-compliance with Section 5.2(l) until September 30, 1996, and
waive any Default or Events of Default occurring as a result
thereof.
7. Tangible Net Worth. The first sentence of Section
5.2(m) of the Agreement is hereby amended to read as follows:
"Parent's Consolidated Tangible Net Worth will never be
less than $15,000,000 on or after April 3, 1996 and any
time thereafter."
6. Borrower's Net Worth. Lender and Agent hereby waive
Borrower's non-compliance with Section 5.2(n), so long as the
aggregate SEC value of Borrower's properties, including the
Galvan Ranch property, is in excess of the outstanding principal
amount of the Loan.
9, Cash Flow Coverage. Lenders and Agent hereby waive
Parent's non-compliance with Section 5.2(o) until September 30,
1996, and waive any Default or Events of Default occurring as a
result thereof.
LIMITATIONS AND CONDITIONS;
1. Borrower and Parent hereby represent and warrant to
Lenders and Agent that immediately after giving effect to this
Limited Waiver there shall exist no Default or Event of Default
and immediately after giving effect to this Limited Waiver all
representations and warranties contained herein, in the Agreement
or otherwise made in writing by Borrower or Parent in connection
herewith or therewith shall be true and correct in all material
respects with the same force and effect as if those
representations and warranties had been made on and as of the
date hereof, except to the extent such representations and
warranties by their terms speak as of an earlier date.
2. Except as expressly waived or agreed herein, all
covenants, obligations and agreements of Borrower or Parent
contained in the Agreement shall remain in full force and effect
in accordance with their terms. Without limitation of the
foregoing, the consents, waivers and agreements set forth herein
are limited precisely to the extent set forth herein and shall
not be deemed to (a) be a consent or agreement to, or waiver or
modification of, any other term or condition of the Agreement or
any of the documents referred to therein. or (b) except as
expressly set forth herein, prejudice any right or rights which
any Lender or Agent may now have or may have in the future under
or in connection with the Agreement or any of the documents
referred to therein. Except as expressly modified hereby. the
terms and provisions of the Agreement and any other documents or
instruments executed in connection with any of the foregoing, are
and shall remain in full force and effect, and the same are
hereby ratified and confirmed by Borrower and Parent in all
respects.
3. Borrower and Parent agrees to reimburse and save
Lenders and Agent harmless from and against liabilities for the
payment of all out-of-pocket costs and expenses arising in
connection with the preparation, execution, delivery, amendment,
modification, waiver and enforcement of, or the preservation of
any rights under, this Limited Waiver, including, without
limitation, the reasonable fees and expenses of legal counsel to
Lender which may be payable in respect of, or in respect of any
modification of, this Limited Waiver. As conditions to the
effectiveness of this Limited Waiver: (i) Borrower and Parent
must send $10,255.96 to Agent's counsel, Thompson & Knight, P.C.,
and (ii) XCL-Acquisitions shall have transferred all of its
right, title and interest in and to the Galvan Ranch to Borrower.
4, This Limited Waiver and the rights and obligations
of the parties hereunder shall be construed in accordance with
and be governed by the laws of the State of New York.
5. This Limited Waiver and the documents referred to
herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and
contemporaneous oral and written agreements of the parties hereto
with respect to the subject matter hereof. This Limited Waiver is
a "Loan Document" as defined and described in the Agreement and
all of the terms and provisions of the Agreement relating to Loan
Documents shall apply hereto.
6. This Limited Waiver may be separately executed in
counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to
constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned parties have executed
this Limited Waiver as of the 3rd day of April, 1996.
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
as Agent and Lender
/s/ Nancy Frohman
--------------------------
By: Nancy Frohman
Vice President
XCL - TEXAS INC.
/s/ David A. Melman
By:--------------------
Name: David A. Melman
Title: Vice President
XCL, LTD.
/s/ David A. Melman
By:------------------------
Name: David A. Melman
Title: Executive Vice President
Each of The Exploration Company of Louisiana, Inc., XCL-
Louisiana, Inc., XCL-Acquisition, Inc. and XCL Exploration &
Production, Inc. hereby (a) consents to the provisions of the
foregoing Limited Waiver and the transactions contemplated
therein, (b) hereby ratifies and confirms its respective Guaranty
dated as of January 31, 1994, made by it for the benefit of
Agent, and all other Loan Documents heretofore made by it for the
benefit of Agent, and (c) agrees that its obligations and
covenants under such Guaranty and Loan Documents are unimpaired
by such Waiver and Consent and are and shall remain in full force
and effect.
XCL LTD.
/s/ David A. Melman
By:---------------------------
Name: David A. Melman
Title: Executive Vice President
XCL-LOUlSlANA, INC.
/s/ David A. Melman
By:-----------------------------
Name: David A. Melman
Title: Vice President
XCL-ACQUlSlTlONS, INC.
/s/ David A. Melman
By:--------------------------
Name: David A. Melman
Title: Vice President
The Exploration Company of
Louisiana, Inc.
/s/ David A. Melman
By:---------------------------
Name: David A. Melman
Title: Vice President
XCL Ltd. and Subsidiaries
Exhibit 11-Computation of Earnings Per Common and Common Equivalent Share
(Amounts in thousands except, per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31 December 31
---------------- -----------------
1995 1994 1995 1994
---- ---- ----- ----
<S> <C> <C> <C> <C>
PRIMARY:
Loss before extraordinary item $ (62,466) $ (12,153) $ (87,837) $ (34,880)
Extraordinary charge for early
extinguishment of debt -- -- -- (1,742)
------- ------- ------- -------
Net loss (62,466) (12,153) (87,837) (36,622)
Dividends on preferred stock (2,254) (2,353) (4,821) (4,907)
------- ------- ------- -------
Net loss attributable to
common stock $ (64,720) $ (14,506) $ (92,658) $ (41,529)
======= ======= ======= =======
Weighted average number of shares
common stock outstanding 284,654 231,201 240,707 198,303
Common stock equivalents
(computed using treasury
stock method) -- -- -- --
------- ------- ------- -------
Average number of shares of common
stock and common stock equivalents
outstanding 284,654 231,201 240,707 198,303
======= ======== ======= =======
Net loss per common and
common equivalent share:
Net loss before extraordinary
item $ (.26) $ (.06) $ (.38) $ (.20)
Extraordinary item -- -- -- (.01)
------- ------- ------- -------
Net loss per common and common
equivalent share $ (.26) $ (.06) $ (.38) $ (.21)
======== ======= ======= =======
FULLY DILUTED:
Fully diluted net loss per
common and common equivalent share (1) (1) (1) (1)
</TABLE>
(1) All amounts are anti-dilutive or immaterial and therefore not
presented in the financial statements.
EXHIBIT 21
XCL Ltd.
SUBSIDIARIES
All of the subsidiaries of the Company are included in the
Company's consolidated financial statements. XCL-Texas, Inc.,
formerly L. Texas Petroleum, Inc. (incorporated in Texas); The
Exploration Company of Louisiana, Inc., formerly XCL Exploration
& Production, Inc. (incorporated in Louisiana); XCL-Acquisitions,
inc. (incorporated in Delaware); XCL Land, Ltd. (incorporated in
Delaware); and XCL-China Ltd. (incorporated in the British Virgin
Islands) are the largest subsidiaries of the Company. All other
subsidiaries, considered in the aggregate as a single subsidiary,
would not consitute a significant subsidiary.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the
registration statements of XCL Ltd. on Form S-3 (File Nos.
33-41458 and 33-83122) and on Form S-8 (File No. 33-62956)
of our report, which includes an explanatory paragraph
regarding the Company's ability to continue as a going
concern, dated April 11, 1996, on our audits of the
consolidated financial statements and financial statement
schedule of XCL Ltd. as of December 31, 1995 and 1994, and
for each of the three years in the period ended December 31,
1995, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
April 11, 1996
<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 fiscal
year ended December 31, 1995, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,610
<SECURITIES> 0
<RECEIVABLES> 4,594
<ALLOWANCES> 103
<INVENTORY> 0
<CURRENT-ASSETS> 11,165
<PP&E> 30,467
<DEPRECIATION> 1,845
<TOTAL-ASSETS> 72,336
<CURRENT-LIABILITIES> 35,404
<BONDS> 0
0
681
<COMMON> 2,561
<OTHER-SE> 13,658
<TOTAL-LIABILITY-AND-EQUITY> 72,336
<SALES> 2,480
<TOTAL-REVENUES> 2,480
<CGS> 88,153
<TOTAL-COSTS> 88,153
<OTHER-EXPENSES> (834)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,998
<INCOME-PRETAX> (87,837)
<INCOME-TAX> 0
<INCOME-CONTINUING> (87,837)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87,837)
<EPS-PRIMARY> (.38)
<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.
