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, 1996 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 Identification No.)
incorporation or organization)
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 14, 1997, was
approximately $51,635,346.19.
293,633,340 shares Common Stock, $.01 par value were
outstanding on April 14, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
None
- -----------------------------------------------------------------
TABLE OF CONTENTS
PART I
Page
Item 1. and Item 2. Business and Properties
General
The Zhao Dong Block
United/XCL Lube Oil Joint Venture
Coalbed Methane Project
U.S. Exploration and Production Activities
Oil and Gas Reserves
Production, Sales and Cost Data
Oil and Gas Acreage
Drilling Activity
Well Data
Other Domestic Properties
Title to Properties
Markets
Competition.
Certain Risk Factors Relating to the Company and the Oil and Gas
Industry
Environmental Matters
Employees
Premises
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Item 8. Financial Statements and Supplemental Data.
Item 9. Changes in and Disagreements on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
Other Matters
Signatures
Glossary of Terms
PART I
This Annual Report includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
All statements other than statements of historical facts included
in this Annual Report, including, without limitation, those
regarding the Company's financial position, business strategy,
budgets, reserve estimates, development and exploitation
opportunities and projects, behind-pipe zones, classification of
reserves, projected financial, operating and reserve data and
plans and objectives of management for future operations, are
forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed in "Certain
Risk Factors Relating to the Company and the Oil and Gas
Industry," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Annual
Report including, without limitation, in conjunction with the
forward-looking statements included in this Annual Report. All
subsequent written and oral forward-looking statements
attributable to the Company, or persons acting on behalf of the
Company, are expressly qualified in their entirety by the
Cautionary Statements.
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. (together with its consolidated subsidiaries, 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 ("China"), an exploration and production joint
venture with China National Oil and Gas Exploration and
Development Corporation, a Chinese governmental agency ("CNODC")
on the Zhao Dong Block in the shallow-water sea area of the Bohai
Bay effective May 1, 1993, 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. In March
1994, the Company farmed out a one-third interest in the Foreign
Contractor's (as defined) interest, subsequently increased to
50%, to Apache Corporation ("Apache"). 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.
In furtherance 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, the
Company signed a contract with CNPC United Lube Oil Corporation
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 12. Also, 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 12.
Before 1993, the Company operated primarily in the Gulf
Coast area of the United States. 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 700 million barrels of oil and, based on information
furnished by Chinese authorities which the Company believes is
reasonable, has an estimated ultimate recovery of more than one
billion 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 proximity to producing fields.
Historical Seismic
------------------
Shallow water and transition zone seismic crews acquired
seismic data in and around the Zhao Dong Block between 1986-1988.
The Company's initial evaluation of the Zhao Dong Block involved
the reprocessing of approximately 721 kilometers (448 miles) of
this seismic data. While the original processing was fair in
reflection and continuity it was dramatically improved by the
Company's reprocessing for use in both structural and
stratigraphic interpretation. To date a total of 390 kilometers
(242 miles) of new seismic data has been shot over the Zhao Dong
Block and 721 kilometers (448 miles) reprocessed for a total of
1,111 kilometers (690 miles).
The following is an overview of the seismic programs by
year:
1993 Seismic
------------
Seismic acquisition initiated by the Company in late 1993
was shot for the Company by Dagang Geophysical, a Chinese
seismic acquisition company, to delineate the structural
styles mapped on the original seismic data. The Company had
already reprocessed 721 kilometers of historic data covering
the Zhao Dong Block. To fulfill part of the initial seismic
acquisition requirements, the Company acquired 9 lines (120
kilometers) of new seismic data. This data was used to
extend existing lines, check navigation accuracy, provide
additional structural and stratigraphic data, and tie-in
existing well control.
1994 Seismic
------------
Beginning in early 1994, the Company acquired 102 kilometers
of new data which fulfilled the initial seismic acquisition
requirements under the Company's agreement with CNODC. The
purpose of this shooting was to infill the existing seismic
base already shot and further delineate leads. This
acquisition was also shot by Dagang Geophysical.
1995 Seismic
------------
Beginning in early 1995, the Company and Apache acquired and
processed twelve 30-fold stock seismic lines (168
kilometers) of new seismic also shot by Dagang Geophysical.
Four lines were for additional dip information, three lines
were to extend appraisal and wildcat well data, and the
remaining lines to delineate the "E" segment and shallow
water near shore area of the "F" segment.
Drilling Results
----------------
Mapping of seismic events on shallow, medium and deep
reflectors delineated lead areas with possible prospect
potential. Wildcat drilling on the Zhao Dong Block from this
seismic analysis has resulted in two successful discoveries along
the Zhao Bei fault system. Appraisal tests have delineated the
downthrown "C" closure and have partially delineated the aerial
extent of the upthrown "D" closure. Geological formations found
to contain hydrocarbons are the Lower Minghuazhen Formation, the
Guantao Formation and Shahejie Formation.
The following is an overview of the drilling programs by
year:
1994 Drilling
-------------
Zhao Dong C-1. The Zhao Dong C-1 was spudded in April
1994, and was drilled to a depth of 9,843 feet. The C-1 was
the first of three planned Phase I wildcat wells drilled on
the Zhao Dong Block. Oil was tested in two Pliocene sands
(Lower Minghuazhen Formation) from perforations shot between
4,278 feet and 4,462 feet. Results yielded a combined test
rate of 2,160 barrels of oil per day with no water. Total
net pay for the zones tested was 97 feet.
Zhao Dong C-2. The Zhao Dong C-2 appraisal well was
spudded and drilled to a total depth of 7,134 feet in
October 1994 and tested four intervals. The combined rate
of individual tests from three of these zones was 3,640
barrels of oil per day with no water from perforations
between 4,267 feet and 4,481 feet. Total net pay for the
zones tested was 47 feet. This appraisal well was
successful in confirming the Zhao Dong C-1 discovery.
1995 Drilling
-------------
Zhao Dong C-2-2. The C-2-2 appraisal well was drilled
directionally to a total measured depth of 5,625 feet (5,034
feet true vertical depth) in April 1995. The prospective
sands in the Minghuazhen were shaled out and the well as
plugged back and sidetracked as the C-2-2A.
Zhao Dong C-2-2A. Upon plugging and abandoning the
bottom section of the C-2-2 well, the C-2-2A sidetracked
well was drilled structurally updip of the original
wellbore. This sidetrack was drilled to a total measured
depth of 5,084 feet (4,956 feet true vertical depth).
Although the Minghuazhen prospective section was present and
not shaled out, the objective sands were wet and the well
was plugged and abandoned.
Zhao Dong D-1. Exploration drilling continued in 1995
with the spudding of the D-1 wildcat well designed to test
for Buried Hill potential in the Ordovician carbonates. The
well reached a total depth of 8,784 feet in June 1995. This
wildcat was unsuccessful in finding hydrocarbon potential in
the Ordovician carbonates; however, it was successful in
discovering oil in the Lower Minghuazhen Formation proving
this shallower section to be productive upthrown to the Zhao
Bei fault system. Drill-stem testing confirmed the presence
of hydrocarbons with an initial test rate of 1,109 barrels
of oil per day from perforations 4,185 feet to 4,205 feet.
The net pay for this zone was 20 feet.
In addition to this productive sand, another 15 sands
ranging from Pliocene Minghuazhen to Permian in age (3,523
feet to 6,268 feet) were found to have hydrocarbon shows in
mudlogs and/or sidewall cores. One Permian sand tested
water with a trace of 30 degree gravity oil and one
Minghuazhen sand tested water with 2 percent oil. As
stated, the D-1 well was designed primarily to test deeper
Paleozoic objectives. It was not located at a structurally
optimum position for the shallower sands where the
hydrocarbons occurred, but rather on the eastern edge of the
C-D structural complex. The fact that this well tested
1,109 barrels of oil per day from one sand, tested water
with smaller amounts of oil from two other sands, and had
shows in numerous additional sands suggests its proximity to
the limits of a significant oil accumulation. The D-2 well
(discussed below) was designed to appraise the D-1 discovery
at a position interpreted to be structurally higher. An
analogy is observed in the northern area of the C wells
where the structural advantage of the C-3 well found seven
sands productive as opposed to three and two sands
productive in the structurally lower C-2 and C-1 wells,
respectively. The C-1 and C-2 wells did, however, have oil
shows in several sands which were found productive in the C-
3.
Zhao Dong C-3. The Zhao Dong C-3 appraisal well was
drilled in July 1995, reaching a total depth of 6,773 feet.
The original proposed depth of the C-3 was 5,004 feet.
Analysis of geological information during drilling showed
the well to be high structurally to both the C-1 and C-2
wells, thus drilling continued to test the Shahejie
Formation until the Zhao Bei fault was crossed at
approximately 6,595 feet. Eight different sands had drill-
stem tests taken in the C-3 appraisal well. Cumulative rate
potential was 5,830 barrels of oil per day and 460 Mcfd from
seven sands. One Shahejie sand tested oil at a rate of
1,356 barrels of oil per day until water production began.
Initial analysis of this test data indicates water was coned
due to pressure draw down during testing. This well
illustrated that the Shahejie Formation sands are oil
productive with significant appraisal and exploration
potential both in the C-D Field and over much of the
undrilled portion of the Zhao Dong Block. Total net pay for
the zones tested was 143 feet. Initial seismic
stratigraphic analysis indicates additional lacustrine fan
systems could be present downdip.
1996 Drilling
-------------
Zhao Dong D-2. The Zhao Dong D-2 appraisal well was
spudded in November 1996 and drilled to a total depth of
7,501 feet (6,180 feet true vertical depth). This well was
drilled on an upthrown fault closure approximately 1.5
kilometers west of the D-1 discovery well. It was designed
to test the Minghuazhen (Pliocene) and Guantao (Miocene)
sands upthrown to the Zhao Bei fault system and structurally
high to the D-1 well which had one productive sand (1,109
barrels of oil per day) and numerous sands with shows in
this interval. In addition, the well was planned to test
the Shahejie (Oligocene) formation downthrown to a
bifurcated fault of the same Zhao Bei fault system. The D-2
well tested five intervals (six drill stem tests) in the
Minhuazhen and Guantao formations at a combined rate of
11,571 barrels of oil per day from perforations 3,285 feet
(3,277 feet true vertical depth) to 5,445 feet (4,950 feet
true vertical depth). The well confirmed the lateral
productivity of several sands previously seen productive and
also established production in several new sands in the
Guantao formation. The Guantao is one of the primary
producing formations in the more than 1 billion barrel
onshore Dagang Field. This well also demonstrated much
higher initial flow rates without the need for artificial
lift. One zone flowed 4,370 barrels of oil per day with 774
Mcf of gas and a second zone flowed 2,472 barrels of oil per
day with 168 Mcf of gas. The sands seen productive in the D-
2 well appear to be present over the entire area and add
significantly to the overall potential of the C-D Field as
well as the rest of the Zhao Dong Block.
Current Drilling
----------------
Zhao Dong F-1. The F-1 wildcat well is currently being
drilled with the intention of testing approximately 1,800
feet of Shahejie section at an optimum location for regional
deposition of the Shahejie deep water lacustrine sand
systems and on an excellent structural closure. The well is
being directionally drilled from a drill pad constructed at
the shoreline and was spudded in October 1996. Primary
objective intervals for the well are the Shahejie Formation
at 8,200 feet (true vertical depth) and the Pre-Tertiary
Formation at 10,168 feet (true vertical depth).
Exploration Potential
---------------------
According to H.J. Gruy and Associates, Inc., independent
engineers, in addition to the C-D Field, 26 other prospective
areas with exploratory potential have been identified by
reconnaissance seismic surveys on the Zhao Dong Block. The
seismic data over the prospective areas have been analyzed and
the potential reserves of each prospect have been determined.
Future Drilling Plans. The Company, Apache and CNODC have
discussed and preliminarily approved the drilling of four
exploration wells during the 1997 drilling season and the
undertaking of a 3-D seismic program. One of these wells is an
appraisal well to be drilled in the D segment and three have been
approved as wildcat wells, one in the D segment and two in the C
segment.
3-D Seismic Program. A 3-D seismic program is planned
during 1997-1998. The program is being designed to cover
most of the Zhao Dong Block for purpose of delineating
development well locations in the C-D Field and better
defining the exploration prospects on the remainder of the
Block. The 3-D seismic program is estimated to cost
approximately $7 million, of which the Company's share is
$3.5 million.
Zhao Dong D Segment (Appraisal Well). This location will be
drilled north of the 1995 D-1 discovery well and east of the
recently completed D-2 well which tested five intervals at
11,571 barrels of oil per day. The new well will be
designed to test all sands seen productive in the D-2 well
and to appraise the extent and continuity of those
reservoirs. The proposed total depth is estimated to be
5,900 feet.
Zhao Dong D Segment (Wildcat #1). This wildcat well will be
located approximately 1.5 kilometers south of the D-1
discovery and will test a four-way dip structural closure.
The well is prospective for all sands which have been seen
productive in previous wells plus additional sands, many of
which had oil shows in the D-1 and D-2 wells. The proposed
total depth is 6,560 feet.
Zhao Dong C Segment (Wildcat #2). This wildcat well will be
located approximately 2 kilometers northeast of the C-1
well, XCL's initial Zhao Dong Block discovery. This well
will test on a faulted four-way dip structure all sands
previously found productive on the Block plus it will be
drilled deeper to test the Ordovician Carbonate section
("Buried Hills"). This is the section found productive in
1996 by Kerr-McGee north of the Zhao Dong Block and is one
of the primary producing zones in northeastern China. The
total depth of this well will be approximately 8,860 feet.
Zhao Dong C Segment (Wildcat #3). This wildcat well will be
located along the Zhao Bei Fault approximately 3 kilometers
southwest of the recently successful D-2 well. It will be
prospective in both four-way dip and fault closures for all
sands seen productive in the D-2 well plus other sands which
had oil shows in the D-1, D-2, D-3 and C-3 wells. In
addition, the well will be designed to test the deeper
Shahejie sands downthrown to the main Zhao Bei Fault. The
Shahejie is a major producing interval onshore and was
productive in the C-3 well at a high flow rate from one
sand. The proposed total depth will be approximately 7,200
feet.
Development Plans
-----------------
A development program for the C-D Field (the "Development
Program") has been designed by an independent engineering
consultant for XCL to provide for oil to be produced from several
production platforms, from each of which as many as eighteen
production and water injection wells will be drilled. Reservoir
pressure maintenance through water injection will be utilized
from the beginning of production. It is planned that oil
production will be transported to the nearby Chinese port of
Tanggu, from which it will be exported or sold to purchasers
within China. All sales will be based on world prices and paid
for in U.S. dollars or other fully convertible currency.
Assuming that CNPC exercises its right to participate in the
C-D Field, development costs will be paid 51% by CNPC and 24.5%
by each of XCL and Apache. (See "Apache Farmout" below.) CNPC has
indicated that it intends to participate to the full extent of
its 51% share of such costs, although it does not have to
contractually commit itself to do so until 30 days after the
Foreign Contractor (XCL and Apache as a group working through a
participation agreement) has declared the C-D Field commercial.
It is anticipated that the C-D Field will be declared commercial
upon final submission of a development plan for approval by the
Chinese government. Such submission is anticipated for summer
1997.
The Development Program has been designed, and costs have
been estimated for XCL by a third party engineering firm, based
on bids from contractors and equipment suppliers. Platforms and
drilling equipment are planned to be constructed in either the
U.S. Gulf Coast area or in China pursuant to, in most cases,
fixed cost contracts and subject to United States construction
standards and quality control.
The initial phase of the Development Program is designed to
produce the oil reserves presently classified as proved by the
Company's independent engineers (45 million barrels). The
Company believes the C-D Field contains significant additional
reserves. The Development Program includes expansion plans to
produce any such additional reserves.
The estimated gross cost of constructing an initial
production platform and drilling eight producing wells and two
water injection wells, including the cost of the platform,
pipelines, barges, barge loading facilities and drilling and
completing the wells, is $65 million. (Such activities are
hereinafter referred to collectively as "Phase I of the
Development Program.") XCL's share of the costs of Phase I of
the Development Program is projected at $16 million. As soon as
the Phase I platform is placed on production, the Development
Program will proceed to Phase II.
Phase II of the Development Program for the existing proved
oil reserves will involve constructing and installing additional
production platforms, and the drilling of additional production
and water injection wells and related equipment. Phase II is
estimated to cost a total of $100 million, of which XCL's share
of the costs will be $24.5 million.
XCL presently projects that Phase I of the Development
Program will be completed to allow for the commencement of
production in the fourth quarter of 1998, with estimated peak
production of approximately 22,000 barrels of oil per day being
achieved from existing proved reserves in the year 2000 after
Phase II of the Development Program is completed.
The F-1 exploratory well is presently being drilled from an
onshore drilling pad. If successful, production from the well
could commence in 1997 because offshore facilities will not be
required. Although Apache is paying XCL's share of the costs of
the F-1 well, because of cost sharing provisions in both the
Production Sharing Agreement with CNODC and the Apache
participation agreement, XCL expects to initially receive
approximately 45% of the production from the well until XCL has
received approximately $20 million.
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, effective May 1, 1993
(the "Contract"). The Contract obligates the Foreign Contractor
to pay for all exploration costs. Under the Contract, 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 Foreign
Contractor.
The Contract includes the following additional principal
terms:
The Contract may not continue beyond 30 consecutive contract
years and 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 contract years from May 1, 1993, are the
exclusive responsibility of the Foreign Contractor. The Foreign
Contractor's obligations in the three Exploration phases are as
follows:
1. During the first three years, the Foreign
Contractor is required to drill three wildcat
wells, perform seismic data acquisition and
processing and expend a minimum of $6 million (The
Foreign Contractor has drilled two wildcat wells,
satisfied the seismic acquisition and processing
and the 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. Upon completion of
drilling, logging and, if applicable, testing of
the F-1 well, the first phase commitments will
have been met.)
2. During the next two years that began May 1, 1996,
the Foreign Contractor is required to drill two
wildcat wells, perform seismic data acquisition
and processing and expend a minimum of $4 million.
(The Foreign Contractor has elected to proceed
with the second phase of the Contract. The
seismic data acquisition and processing
requirement for the second phase has been
satisfied the minimum expenditure requirement
(including a carryover from the first phase.)
3. During the two years beginning May 1, 1998, the
Foreign Contractor is required to drill two
wildcat wells and expend a minimum of $4 million.
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.
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 Contract ("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 Contract. 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.
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.
The Contract may be terminated by the Foreign Contractor at
the end of each phase of the Exploration period, without further
obligation. Such a termination would require the concurrence of
XCL.
While the Contract requires the Foreign 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.
Operating costs incurred after the date of commencement of
commercial production for any given calendar year for an oil
field shall be recovered by the parties, in kind, out of 60
percent of the oil production from the field during such year.
Unrecovered costs are carried forward to the next calendar year.
Exploration costs in the Contract Area shall be recovered by the
Foreign Contractor, in kind, out of 60 percent of the oil
production from the Contract Area remaining after the recovery of
operating costs and development costs for any field, plus deemed
interest at 9 percent, shall, after recoupment of exploration
costs, be recovered in kind out of the production remaining in
its 60 percent of the production from such field. Natural gas
shall be allocated in conformity with the general principles for
crude oil, but the percentages of the allocation shall be
adjusted in light of actual conditions so the Foreign Contractor
shall obtain a reasonable economic benefit.
Annual gross production ("AGP") of each oil and gas field in
the Contract Area determined separately shall be allocated in
kind in the following sequence and proportions:
1. Five percent (5%) 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 (including
deemed interest), in that order. Such cost
recovery oil is not subject to the royalty due the
Chinese government.
4. The remaining amount of AGP after recovery of
operating costs, exploration costs and development
costs (including deemed interest) shall be deemed
"remainder oil" and shall be further divided into
"allocable remainder oil" and "Chinese share oil."
"Allocable remainder oil" is calculated for each
field based upon a sliding scale formula relating
to the amount of production for a year from such
oil field, 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.
The Contract is administered by a Joint Management Committee
comprised of an equal number of representatives designated by the
Foreign Contractor and CNODC. Disputes must first be resolved
through negotiation and then through arbitration (although CNODC
may have the right to seek resolution of the dispute in Chinese
courts). It should also be noted that there is no waiver of
sovereign immunity by CNODC in any proceedings commenced in
China. 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 may 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.
The Production Sharing Agreement is governed by Chinese law.
Apache Farmout
--------------
In March 1994, by means of a participation agreement (the
"Participation Agreement"), the Company farmed out a one-third
interest in the Foreign Contractor's interest in the Zhao Dong
Block to Apache in exchange for certain cash payments and
Apache's agreement to assume its pro rata share of expenditures
and liabilities with respect to the exploration and development
of the Zhao Dong Block. As required by the Participation
Agreement, in June 1994, Apache and the Company entered into a
Joint Operating Agreement (the "Operating Agreement") relative to
the operations on the Zhao Dong Block. To further reduce the
Company's exploration capital requirements and accelerate the
development of the Zhao Dong Block, the Company and Apache
entered into an agreement on May 10, 1995 (the "Second
Participation Agreement") pursuant to which Apache increased its
interest in the Contract to 50 percent of the Foreign
Contractor's interest, obligated itself to pay 100 percent of the
costs to drill and test four exploration wells (the "Carried
Wells") and assumed operatorship of the Zhao Dong Block. The
drilling and testing of the C-3, D-1, D-2 and F-1 wells will
satisfy the four Carried Wells. All of these wells have been
drilled and tested with exception of the F-1 well which is
presently drilling under a turnkey contract. Also the Company
waived certain payments due it under the Participation Agreement.
The amounts advanced by Apache for the Company's share of the
Carried Wells are recoverable from a portion of the Company's
share of cost recovery revenues from Zhao Dong Block. In
addition, Apache obligated itself to pay the Company 16.667
percent of the value of the recoverable proved reserves
attributable to the portion of the Zhao Dong Block delineated by
the drilling of the C-1 and C-2 and C-3 wells, the combined area
designated in the agreement as the "C Field," all as agreed to by
the Company and Apache in the Second Participation Agreement.
Payment for this purchase will be computed in accordance with
evaluation methodology as set forth in the Second Participation
Agreement 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 16.667
percent interest.
All future exploration expenditures in excess of the Carried
Wells will be borne 50 percent by each the Company and Apache.
Under the Operating Agreement, approval of a successor operator
requires the vote of not less than 55 percent of the Foreign
Contractor's interest; if the operator reduces its participating
interest to less than 25 percent, the Operating Committee shall
vote on whether a successor operator should be named. The
appointment of a successor or replacement operator requires
government approval. CNODC had the right to become operator of
production operations in certain circumstances described in the
Contract.
All work under the Contract must be pursuant to a work
program and budget approved by the Joint Management Committee.
Each year, the Operating Committee must submit a proposed work
program and budget to the Joint Management Committee. Operating
Committee approval of this work program and budget requires the
vote of not less than 55 percent of the Foreign Contractor's
interest. If 55 percent of the Foreign Contractor's interest
does not vote in favor of a proposed work program and budget, the
operator must submit the minimum work program and budget
necessary to meet the contractual obligations of the Foreign
Contractor under the Contract.
Under the Participation Agreement and the Operating
Agreement, Apache and the Company each has a right of first
refusal with respect to any sale or transfer of interest in the
Foreign Contractor's share of the Contract. In addition, under
the Participation Agreement, Apache and the Company each has a
right of first refusal with respect to the sale of 50 percent or
more of outstanding voting capital stock of their respective
subsidiaries party to the Contract and the Participation
Agreement. In addition, each party has the option to purchase the
other party's interest in the Contract upon the occurrence of
certain "option events." Option events include the failure of
more than twice in one year to pay sums due under the Operating
Agreement, after receiving written notice of default and failing
to cure within any applicable cure period provided by the
Operating Agreement (if nonpayment is the subject of dispute and
arbitration under the Operating Agreement, it does not constitute
a "failure to pay" until an arbitral decision is rendered against
the nonpayor), the inability of a party to pay its debts as they
fall due or a final unappealable order by a court of competent
jurisdiction liquidating the party or appointing a receiver to
take possession of all of the party's assets, the transfer of
more than 49 percent of the voting shares of Apache or XCL-China
by the respective parents, or certain other defaults under the
Operating Agreement or the Contract. The consideration to be
paid on the exercise of the option to purchase is the fair market
value of the interest assigned. If the parties cannot agree on
the fair market value of the interest, it is to be determined by
arbitration. This option runs only to the benefit of Apache and
XCL-China and may not be transferred by either of them to any
third party.
On April 10, 1997, the Company paid to Apache $3,114,700
representing all amounts that the company believes are due Apache
for charges under the Joint Operating Agreement. Apache invoices
total $979,790 greater than the amount paid. The Company has
disputed the additional amounts and has submitted the dispute to
arbitration as provided for in the Joint Operating Agreement.
The Company is of the opinion, based upon discussions with senior
Apache personnel, that the dispute will be resolved to the mutual
satisfaction of both parties without resorting to formal
arbitration procedures.
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 has 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
$900,000 has been paid. The Chinese side contributed an existing
lubricating oil blending plant in Langfang, China, with a China
government appraised value of $2.5 million as its investment for
51 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 $1.5 million will be satisfied by a series of payments the
next of which is currently due and the last of which is due June
30, 1997. In a letter of intent executed contemporaneously with
the contract, the parties have agreed to consider the feasibility
of (i) contributing to the joint venture a second existing plant
in southwest China and (ii) other projects, including
constructing oil terminals on the north and south coasts of China
and engaging in upgrading certain existing refineries within
China.
The Langfang plant is located 50 kilometers southeast of
Beijing. The facility is built on a 10-acre site and has been
appraised on the basis of U.S. Gulf Coast costs at a replacement
value of $7.0 million without taking into account the land value.
The plant currently produces and markets approximately 2,200
metric tons of lube oil per year. Approximately $1.5 million of
the Company's investment is to be allocated to the physical
upgrading of the facility including the installation of automated
filling lines and packaging systems. Upon completion of the
upgrading, the plant's production capacity will be approximately
20,000 metric tons per year, assuming one eight hour shift, five
days per week. Additional capacity will be available by adding
work shifts and expanding the work week. Further capital
improvements estimated to cost $15 million could increase
capacity to approximately 100,000 metric tons per year. It is
the Company's opinion that an essential element to the success of
the lube oil business in China will be the ability to distribute
the product. In order to assure adequate distribution of the
joint venture's products, the Company has entered into a
memorandum of understanding with the Coal Ministry in China which
will eventually be reduced to a formal distribution contract.
The Coal Ministry operates 125 major integrated distribution
centers throughout China and the Company expects to market the
joint venture's products through this system.
Coalbed Methane Project
- -----------------------
On March 31, 1995, the Company signed an agreement with the
China National Administration of Coal Geology ("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, as to the
specifically designated areas and, which may provide the basis
for coalbed methane development in other areas of China. 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. The March 31,
1995 agreement expired by its terms on December 31, 1996;
however, the Company has been informally advised that CNAGC will
extend the term of the agreement upon payment of approximately
$67,000 currently due for services performed and expenses
incurred by CNAGC in connection with this project.
Domestic Properties
- -------------------
U.S. Exploration and Production Activities
------------------------------------------
The Company has sold substantially all of its U.S. producing
properties except for an interest in the Berry R. Cox Field ("Cox
Field") in South Texas and is seeking to sell or joint venture
its interest.
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. The Company holds a 60% to 100% working
interest in 1,265 acres in this field on which there are four
producing wells (2.43 net wells). The Company's 1996 annual net
sales of natural gas from the Company's interest in these wells
was 119,000 Mcf. The December 1996 price for gas sold from such
properties was $3.15 per Mcf. The Company will divest itself of
these properties upon the resolution of certain litigation
affecting such properties. See "Item 3. Legal Proceedings"
below.
Lutcher Moore Tract
-------------------
The Company holds a 62,500 acre undeveloped tract of
Louisiana fee property located in Ascension, St. James and St.
John the Baptist Parishes (the "Lutcher Moore Tract").
Expressions of interest to purchase the property have been
received from several parties and the Company is presently
evaluating such proposals with the intent to sell the property.
Oil and Gas Reserves
- --------------------
Proved reserves attributable to the Company's interest for
the Zhao Dong Block have been estimated as of January 1, 1997, to
be 10,579,000 barrels of oil and no natural gas. All of these
reserves are classified as undeveloped in accordance with
definitions promulgated by the Securities and Exchange Commission
(the "Commission"). The Company's remaining domestic oil and gas
properties are now classified as assets held for sale. See
"Certain Risk Factors Related to the Company and the Oil and Gas
Industry - Reliance on Estimates of Proved Reserves and Future
Net Revenues."
Production, Sales and Cost Data
- -------------------------------
The following table sets forth certain information regarding
the production volumes, revenues, average prices received and
average production costs associated with the Company's sale of
oil and gas from properties held for sale for the periods
indicated.
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Net Production: (a)
Gas (MMcf)................... 467 1,474 2,219
Oil (MBbl)................... 9 19 32
Gas equivalent (MMcfe)....... 522 1,588 2,414
Oil and gas sales ($ in 000's)(b)
Gas.......................... $ 955 $ 1,953 $ 3,664
Oil and other................ 181 527 672
------ ------ ------
Total oil and gas sales.... $1,136 $ 2,480 $ 4,336
===== ====== ======
Average sales price:
Gas ($ per Mcf).............. 1.84 1.33 1.65
Oil ($ per Bbl).............. 19.80 19.58 15.76
Gas equivalent ($ per Mcfe).. 2.18 1.56 1.80
Oil and gas costs ($ per Mcfe):
Production expenses and taxes 0.74 0.71 0.70
Depreciation, depletion and
amortization of oil and gas
properties.................... 0.96 1.23 1.25
------------
(a) Excludes gas consumed in operations.
(b) Includes plant products recovered from treating and
processing operations.
The following table shows the 1996 production of oil and
natural gas liquids and natural gas by major fields. All of the
Company's net production was attributable to the Cox Field and
the Frenier Field (on the Lutcher Moore Tract).
1996 Net Production
-------------------
(MBbls) (MMcf)
----- ----
Field Oil % Gas %
- ----- --- -- --- --
Cox Field..................... - - 467 100
Frenier Field................. 9 100 - -
Oil and Gas Acreage
- -------------------
The oil and gas acreage in which the Company has leasehold
or other contractual interest at December 31, 1996, 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,
-----------------------
1996 1995 1994
----------- ----------- -----------
United States Gross Net Gross Net Gross Net
- ------------- ----- --- ----- --- ----- ---
Exploratory:
Productive................ - - - - 2 1.0375
Nonproductive............. - - - - - -
--- --- --- --- --- ------
Total................ - - - - 2 1.0375
Development:
Productive................. - - 1 .2 4 1.0731
Nonproductive.............. - - - - - -
--- --- --- --- --- ------
Total................. - - 1 .2 4 1.0731
Year Ended December 31,
-----------------------
1996 1995 (a) 1994
----------- ----------- -----------
The People's Republic of China Gross Net Gross Net Gross Net
- ------------------------------ ----- --- ----- --- ----- ----
Exploratory:
Productive................ 1 .5 2 1.0 2 1.333
Nonproductive............. - - 1 .5 - -
--- --- --- --- --- -----
Total................ 1 .5 3 1.5 2 1.333
Development:
Productive................. - - - - - -
Nonproductive.............. - - - - - -
--- --- --- --- --- -----
Total................. - - - - - -
- -------------
(a) Pursuant to the Second Participation Agreement dated May
10, 1995, between XCL and Apache, Apache's interest in the
Zhao Dong Block was increased from 33% to 50% of the Foreign
Contractor's interest.
Producing Well Data
- -------------------
At December 31, 1996, the Company had interests in 4
producing gas wells (3.45 net) in the Cox Field, which are
included in assets held for sale.
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")
and, on a second mortgage basis, to the holders of the Company's
Secured Subordinated Debt Notes due April 5, 2000 ("Secured
Subordinated Debt").
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 1996 gas production from
the Cox Field was dedicated to MidCon Texas Pipeline Corp. under
contracts dated May 1, 1991, as amended.
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
China. During 1994, China became a net importer of oil,
therefore the Company believes it can sell 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
based upon its accomplishments to date that the Company is
positioned to continue 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 China, 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 future operations and earnings will depend
upon the results of the Company's operations in China. There can
be no assurance that the Company will be able to successfully
conduct such operations, and a failure to do so would have a
material adverse effect on the Company's financial position,
results of operations and cash flows. Also, the success of the
Company's operations will be subject to numerous contingencies,
some of which are beyond management's control. These
contingencies include general and regional economic conditions,
prices for crude oil and natural gas, competition and changes in
regulation. Since the Company is dependent on international
operations, specifically those in China, the Company will be
subject to various additional political, economic and other
uncertainties. Among other risks, the Company's operations will
be subject to the risks of restrictions on transfer of funds;
export duties, quotas and embargoes; domestic and international
customs and tariffs; and changing taxation policies, foreign
exchange restrictions, political conditions and governmental
regulations.
Developments in Relations between China and the United States
- --------------------------------------------------------------
Relations between China and the Republic of China on Taiwan
have been strained on prior occasions prompting the United States
government to publicly criticize China. In addition, the U.S.
government has also criticized China'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
Chinese nor the U.S. government is desirous of impairing U.S.-
Chinese 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.
Reliance on Estimates of Proved Reserves and Future Net Revenues
- ----------------------------------------------------------------
There are numerous uncertainties inherent in estimating
quantities of proved reserves and in projecting future rates of
production and the timing of development expenditures, including
many factors beyond the control of the Company. The historical
and projected reserve data included in this Annual Report
represent only estimates. In addition, the historical and
projected estimates of future net revenue from proved reserves
and the present value thereof are based upon certain assumptions
about future production levels, prices and costs that may not
prove to be correct over time. In particular, estimates of crude
oil and natural gas reserves, future net revenue from provided
reserves and the discounted present value thereof for the crude
oil and natural gas properties described in this Annual Report
are based on the assumption that the Zhao Dong is developed in
accordance with the Company's scheduled Development Program and
that future crude oil prices remain the same as crude oil prices
at December 31, 1996, with respect to production attributable to
the Company's existing interest in the Zhao Dong Block. The
Development Program as proposed by the Company has not yet been
approved by CNODC or Apache and is subject to refinement and
revision. Accordingly, the costs and timing of development could
vary from the Development Program that the Company has proposed.
However, based on its discussions with Apache and their
engineering consultants, as well as the history of Chinese
approval of recommendations by Apache and the Company, the
Company believes that its current proposed Development Program is
a reasonable basis for its projections. The average sales price
as of such dates used for purposes of such estimate were $21.06
per Bbl of crude oil with respect to the Company's interests in
the Zhao Dong Block. Also assumed is the Company's making future
capital expenditures of approximately $41 million in the
aggregate, necessary to develop and realize the value of proved
undeveloped reserves on the Zhao Dong Block. Any significant
variance in these assumptions could materially affect the
estimated quantity and value of reserves set forth herein.
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 23 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
- --------
On March 31, 1997, the Company sold its office building
located at 110 Rue Jean Lafitte, Lafayette, Louisiana, for
$900,000. The Company on the same day, entered into a lease with
the purchaser for one floor of the two story building for a term
of 22 months with an option to extend for an additional eight
month period. The outstanding balance of the underlying mortgage
as of December 31, 1996 was $652,000, which was repaid in full
upon the sale of the building.
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 nonparticipating
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 $2.5 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 former 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. Recently concluded
negotiations have resulted in a settlement of all claims which
will result in an exchange of mutual releases.
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. On April 10, 1997,
the Company paid to Apache $3,114,700 representing all amounts
that the Company believes are due Apache for charges under the
Joint Operating Agreement. Apache invoices total $979,790
greater than the amount paid and the Company has disputed the
additional amounts and such amounts are the subject of the above-
referenced arbitration. The Company is of the opinion, based
upon discussions with senior Apache personnel, that the dispute
will be resolved to the mutual satisfaction of both parties
without resorting to formal arbitration procedures.
On July 26, 1996, Mr. Frank Armstrong of Corpus Christi,
Texas, individually and on behalf of others (the "Plaintiffs")
filed three lawsuits against XCL-Texas, Inc., a wholly-owned
subsidiary of the Company.
The first lawsuit entitled Stroman Ranch Company Ltd., et al
v. XCL-Texas, Inc. (229th Judicial District, Jim Hogg County,
Texas, Cause No. 4550) alleges that in order to secure from
Plaintiffs an amendment to an oil and gas lease in order to allow
for the creation of a voluntary pooled unit, the Company
represented to the Plaintiffs, that it (1) would make a series of
payments totaling $80,000 and (2) would commence drilling a well
prior to December 31, 1993, or pay $500,000 as liquidated
damages. Further, the Plaintiffs allege that the Company has
supplied false and misleading information to them in order to
deprive them of their rightful share of an oil, gas and mineral
estate and revenue therefrom; that being a 50 percent interest in
the pooled unit rather than the 30 percent interest actually
received. Plaintiffs allege actual damages of $580,000, any
additional amounts to result from an accounting of the amount of
damages suffered by the Plaintiffs, exemplary damages, court
costs and interest. The Company denies liability and expects not
only to enter affirmative defenses but to counter claim for
damages to the Company caused by the actions of the Plaintiffs.
The second lawsuit entitled Frank Armstrong, et al v. XCL-
Texas, Inc. (229th Judicial District, Jim Hogg County, Texas,
Cause No. 4551) alleges that the Company did not adequately
represent the interests of the Plaintiffs before a Texas Railroad
Commission hearing, therefore, the Plaintiffs incurred legal and
related expenses totaling $56,473 for which they seek
reimbursement. The Company denies liability and intends to
vigorously defend itself.
The third lawsuit entitled Stroman Ranch Company Ltd., et al
v. XCL-Texas, Inc. (229th Judicial District, Jim Hogg County,
Texas, Cause No. 4552) alleges that, with respect to a lease
executed in 1938 and assigned to the Company by Edwin L. and
Berry R. Cox (the "Cox Group"), ceased producing in paying
quantities prior to November 11, 1987 and therefore should be
declared terminated. In the alternative, the Plaintiffs seek a
declaratory judgment that the Cox Group engaged in bad faith,
invalid and wrongful pooling of the 1938 lease with another lease
executed in 1985. Further, the Plaintiffs seek damages in excess
of $1 million to effect environmental restoration arising from
damage caused by the Company's operation of the leases in
question. Finally, Plaintiffs seek an accounting and the damages
determined from such accounting, of all oil and gas production
and revenues from the sale of the same under the 1938 lease,
attorneys fees and court costs. The Company believes the claims
made in this lawsuit are without merit and intends to vigorously
defend itself.
In response to the request by the lessors' counsel, the
Company has granted the lessors an extension of time to respond
to discovery demands made by the Company to allow sufficient time
to pursue settlement of this litigation. The Company believes
that any such settlement will not have a material adverse effect
on the Company.
Other than disclosed above, there are no material pending
legal proceedings to which the Company or any of its subsidiaries
is a party or to which any of their properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
- --------------------------------------------------------------
No matters were submitted to a vote of 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 1995 and 1996. 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
----------------------------
1996 1995
---- ----
High Low High Low
---- --- ---- ---
First Quarter......... $0.44 $0.19 $1.06 $0.50
Second Quarter........ $0.50 $0.19 $1.06 $0.50
Third Quarter......... $0.38 $0.13 $0.88 $0.56
Fourth Quarter........ $0.25 $0.13 $0.63 $0.31
On March 31, 1997, the closing price for the Company's
Common Stock on the AMEX was $0.25.
As of March 31, 1997, the Company had approximately 4,000
shareholders of record with respect to its Common Stock.
As of March 31, 1997, there were reserved an aggregate of
(i) 14,875,334 shares of Common Stock subject to outstanding
options; (ii) 17,383,044 shares issuable upon conversion of the
Company's outstanding Series A Preferred Stock; (iii) 41,202,263
shares issuable upon exercise of the Company's outstanding
warrants; (iv) 14,940,244 shares issuable upon redemption of the
Company's outstanding Series B Preferred Stock; (v) 16,000,000
shares issuable upon conversion of the Company's outstanding
Series E Preferred Stock; (vi) 16,000,000 shares issuable upon
conversion of the Company's outstanding Series F Preferred Stock;
(vii) 23,200,000 shares reserved for sale to fund working capital
for the Company's China projects; (viii) 9,164,640 reserved for
sale to fund general working capital requirements of the Company;
and (ix) 12,341,546 shares issuable in connection with
contractual obligations.
The Registrar and U.S. Transfer Agent for the Common Stock
is ChaseMellon 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, Balfour House, 390/398 High Road,
Ilford, Essex IG1 1NQ, England (telephone 181-478-8241).
Recent Sales of Unregistered Securities
- ---------------------------------------
The following sets forth all sales of unregistered
securities for the past three years. All of the following were
private transactions intended to qualify for the exemption from
registration afforded by Section 4(2) of the Securities Act
between the Company and individuals and/or entities who certified
to the Company that they were "accredited investors" as defined
under the Securities Act.
1997
----
o On April 10, 1997, in connection with obtaining a loan for
XCL-China Ltd. of $2.9 million, the Company granted an aggregate
of 9,441,743 warrants to a group of four limited partnerships
managed by Kayne Anderson Investment Management, Inc. ("KAIM")
(6,186,020); J. Edgar Monroe Foundation (325,580); Estate of J.
Edgar Monroe (976,740); Boland Machine & Mfg. Co., Inc.
(325,580); and Construction Specialists, Inc. d/b/a Con-Spec,
Inc. (1,627,900), entitling such lenders the right to acquire
9,441,743 shares of Common Stock at $0.01 per share, exercisable
on or before April 9, 2002. The warrant agreements include a
provision that should the Company not have a sufficient number of
shares of Common Stock reserved at the time of exercise of the
warrants, the warrants are exercisable into a new series of
preferred stock which will be created by May 10, 1997, and the
shares of which will be reserved for exercise of such warrants.
All proceeds of this financing were applied to reduce the
Company's indebtedness to Apache incurred in connection with Zhao
Dong Block operations.
o On January 9, 1997, the Company accepted subscriptions for
an aggregate of 21,057 shares of Series F Preferred Stock, issued
in February to Mitch Leigh (18,448 shares); Abby Leigh (1,731
shares) and Arthur Rosenbloom (878 shares) at $65.00/share, in
exchange for $225,000 in cash, cancellation of a consulting
agreement between the Company and Mitch Leigh, surrender by Mitch
Leigh of Common Stock and Warrants issued in connection with the
consulting agreement, surrender by Mitch Leigh and Abby Leigh of
rights to acquire units of registered Common Stock and Warrants,
surrender of certain registration rights covering 3,000,000
shares; and surrender by Arthur Rosenbloom of certain shares of
Common Stock and Warrants issued in connection with compensation
for past fundraising activities, surrender of rights to acquire
units of registered Common Stock and Warrants and certain
registration rights covering 75,000 shares.
o On January 2, 1997, the Company issued 2,328 shares of
Series E Preferred Stock to the holders thereof in lieu of a cash
dividend totaling $232,002 payable December 31, 1996, calculated
pursuant to the terms of the Series E Preferred Stock. The
Series E Preferred Stock has a face value of $100/share.
1996
----
o On November 12, the Company issued 5,330,594 shares of
Common Stock to four limited partnerships and four insurance
companies whose investments are managed by KAIM; Cumberland
Associates; Mr. Terry Dornbush (collectively hereinafter referred
to as the "U.S. holders of the Secured Subordinated Debt") in
lieu of a cash interest payment due October 1, 1996 and penalty
interest through November 12, 1996 totaling approximately
$905,000 at $0.2117/share pursuant to the terms of the Notes.
o On October 30, the Company issued 1,500,000 warrants to
purchase Common Stock to Arthur Rosenbloom in lieu of $15,000 in
cash compensation for past fundraising activities. The warrant
is exercisable at $0.25 per share on or before July 30, 2001.
o On October 30, the Company issued 33,125 shares of Common
Stock and warrants to purchase an additional 33, 125 shares of
Common Stock to Mr. A. Rosenbloom issued in lieu of $14,326 cash
compensation. The shares of Common Stock and the warrants were
subsequently returned to the Company by the receipient for
personal business reasons.
o On October 30, the Company issued 1,325,000 shares of Common
Stock and warrants to purchase an additional 2,466,875 shares of
Common Stock to Mr. Mitch Leigh in lieu of approximately $580,000
in cash compensation under a consulting agreement dated July 10,
1996. In February 1997, effective October 1996 Mr. Leigh
canceled the consulting agreement and returned the above
referenced shares of Common Stock and warrants to the Company.
o On July 24, the Company issued 2,218 shares of Series E
Preferred Stock to the holders thereof in lieu of a cash dividend
totaling $222,180 payable June 30, 1996, calculated pursuant to
the terms of the Series E Preferred Stock. The Series E
Preferred Stock has a face value of $100/share.
o On May 16, the Company issued 3,776,285 shares of Common
Stock to the U.S. holders of the Secured Subordinated Debt in
lieu of cash interest payment due April 1, 1996 and penalty
interest through May 5, 1996 totaling approximately $901,000 at
$0.2979/share pursuant to the terms of the Secured Subordinated
Debt.
o On May 16 and February 9, the Company issued 72,880 shares
and 317,264 shares, respectively, of Common Stock to EnCap
Investments L.C. representing fees of 4% ($22,775 and $99,145,
respectively) earned in connection with a Regulation S unit
offering conducted through Rauscher Pierce & Clark. The fee was
based on the offering price of $0.3125/share.
o On February 9, the Company issued 50,000 shares of Common
Stock to EnCap Investments L.C. in payment of a fee earned in
connection with the acquisition by Apache for an increased
interest in the Zhao Dong Block.
o On February 9, the Company sold from Treasury Stock 416,667
units, each unit consisting of one share of Common Stock and one
warrant to purchase Common Stock, to Longhorn Partners, at a unit
price of $0.30/unit. The warrants are exercisable on or before
December 28, 2000 at an exercise price of $0.50 per share.
o On January 9, the Company issued 307 shares of Series E
Preferred Stock in lieu of cash dividends of approximately
$31,000 payable December 31, 1996. The Series E Preferred Stock
has a face value of $100/share.
o On January 5, the Company issued 1,754,133 shares of Common
Stock to the U.S. holders of the Secured Subordinated Debt in
lieu of a cash interest payment due October 1, 1995, and penalty
interest through January 5, 1996 totaling approximately $928,000
at $0.6563/share, pursuant to the terms of the Secured Notes.
o On January 3, the Company sold 4,334 shares of Series E
Preferred Stock to several Kayne Anderson Investment Management,
Inc. managed accounts, for $65/share of which one-half of the
purchase price was paid in cash and one-half in Common Stock of
the Company. The Company received cash payments totaling $140,831
and 281,758 shares of unregistered Common Stock.
1995
----
o On December 29, the Company sold 7,774 shares of Series E
Preferred Stock to the J. Edgar Monroe Foundation for a cash
payment of $505,343.
o On December 29, the Company sold 2,080 shares of Series E
Preferred Stock to two clients of Constitution Management for
cash totaling $96,250 and 171,500 shares of Common Stock. One
client paid for 1,780 shares of Series E Preferred Stock with one-
half cash and one-half Common Stock while the second client paid
for 120 shares in cash.
o On December 18, the Company sold 11,741 shares of Series E
Preferred Stock to several Kayne Anderson managed accounts, for
$65/share of which one-half of the purchase price was paid in
cash and one-half in Common Stock of the Company. The Company
received cash payments totaling $400,834 and 724,703 shares of
Common Stock.
o On December 6, the Company sold to John Chandler, from
shares of Common Stock reserved for payment to Mr. William Wang,
186,896 shares of Common Stock at $0.35/share. The proceeds of
$65,414 were applied in reduction of a receivable due the
Company from Mr. Wang.
o During November 1 to 14, the Company sold 18,200 shares of
Series E Preferred Stock to several Kayne Anderson managed
accounts, for $65/share of which one-half of the purchase price
was paid in cash and one-half in Common Stock of the Company.
The Company received cash payments totaling $767,625 and
1,618,035 shares of unregistered Common Stock.
o On September 21, the Company issued 50,000 shares of Common
Stock and 100,000 warrants to purchase Common Stock to Arthur
Rosenbloom in lieu of $22,125 of cash compensation for placing
3,000,000 units (described below). In February 1997, Mr.
Rosenbloom returned these securities with the value of such
securities applied to Mr. Rosenbloom's subscription for Series F
Preferred Stock issued in February 1997.
o On September 21, the Company sold 75,000 units, each unit
comprised of one share of Common Stock and warrants to purchase
Common Stock to Arthur Rosenbloom for a purchase price of $32,438
at $0.4325/unit. Mr. Rosenbloom exchanged these securities with
the value of such securities applied to Mr. Rosenbloom's
subscription for Series F Preferred Stock issued in February
1997.
o On September 21, the Company sold 3,000,000 units, each unit
comprised of one share of Common Stock and warrants to purchase
Common Stock to Mitch Leigh for a purchase price of $1,297,500 at
$0.4325/unit. Mr. Leigh exchanged these securities with the
value of such securities applied to Mr. Leigh's subscription for
Series F Preferred Stock issued in February 1997.
o On August 18, by agreement dated June 26, 1995 with the
three largest U.S. holders of the Series A Preferred Stock
(limited partnerships and insurance companies whose investments
are managed by Kayne Anderson Investment Management; Cumberland
Associates managed accounts; and T. Rowe Price & Associates) the
Company issued an aggregate of 1,720,677 shares of Common Stock
in lieu of cash dividends totaling $1,301,355 ($0.7563/share)
payable June 31, 1995, and an aggregate of 2,546,184 shares of
Common Stock in lieu of cash dividends totaling $1,273,098
($0.50/share) payable December 31, 1994
o On June 16, the Company issued to the U.S. holders of the
Secured Subordinated Debt an aggregate of 1,394,511 shares of
Common Stock in lieu of cash interest due April 1, 1995 and
penalty interest through June 20, 1996 totaling approximately
$913,282 at $0.8146/share, calculated pursuant to the terms of
the Secured Notes.
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 following table sets forth selected financial data of
the Company for and at the end of each of the five years ended
December 31, 1996. The following table should also be read in
conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company set
forth in Item 7 and the Company's consolidated financial
statements and notes set forth in Item 8.
(Expressed in Thousands Except Per Share Amounts)
<TABLE>
Year Ended December 31
-----------------------------------------------------
1996(a) 1995(b) 1994(c) 1993 (d) 1992(e)
------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Oil and gas revenues.................... $ 1,136 $ 2,480 $ 4,336 $ 8,499 $ 10,551
Loss before extraordinary item.......... $(12,074) $(87,837) $(34,880) $(15,197) $(23,983)
Net loss ............................... $(12,074) $(87,837) $(36,622) $(15,197) $(23,983)
Net loss attributable to common stock... $(17,430) $(92,658) $(41,529) $(19,978) $(29,221)
Net loss per common and
common equivalent share.............. $ (.07) $ (.38) $ (.21) $ (.17) $ (.28)
Weighted average common shares
outstanding........................... 265,573 240,707 198,303 118,996 103,543
Balance Sheet Data:
Total assets............................ $ 60,864 $ 72,336 $149,803 $157,377 $148,533
Long-term debt, net..................... $ - (g) $ 15,644 $ 41,607(f) $ 53,965(f) $ 44,195
Total shareholders' equity.............. $ 11,041 $ 16,900 $ 95,200 $ 84,609 $ 87,336
</TABLE>
- -------------
(a) Includes provision for impairment of oil and gas properties
held for sale of $3.85 million and a $2.4 million writedown
and a $0.7 million loss on the sale of the Company's
investments.
(b) Includes provision for impairment of oil and gas properties
of $75.3 million and writedown of other assets and
investments of $4.5 million.
(c) 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.
(d) Includes provision for impairment of oil and gas properties
of $8 million.
(e) Includes gain on sale of investment of $2.2 million and
provision for impairment of oil and gas properties of $22.4
million.
(f) Includes limited recourse debt of an aggregate $0.7 million
and $3.7 million as of December 31, 1994 and 1993,
respectively, owed by the Lutcher Moore Group of
subsidiaries.
(g) All of the Company's debt ($38.02 million) has been
classified as currently due at December 31, 1996.
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 supplemental data included
in this Annual Report.
General
- -------
Outlook
-------
Cautionary Statement Pursuant to Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995.
This report contains "forward-looking statements" within the
meaning of the federal securities laws. These forward-looking
statements include, among others, statements concerning the
Company's outlook for 1997 and beyond, the Company's expectations
as to funding its capital expenditures and other statements of
expectations, beliefs, future plans and strategies, anticipated
events or trends, and similar expressions concerning matters that
are not historical facts. The forward-looking statements in this
report are subject to risks and uncertainties that could cause
actual results to differ materially from those expressed in or
implied by the statements.
Liquidity and Management's Plans
- --------------------------------
At December 31, 1996, the Company had an operating cash
balance of $113,000 and a working capital deficit of $46.7
million, which includes $17.3 million in bank debt, $15.0 million
of Subordinated Debt, $5.1 million in limited recourse debt
collateralized only by the Lutcher Moore Tract and $0.7 million
in institutional debt secured by a first mortgage on the
Company's office building. The office building was sold on March
31, 1997 and the mortgage repaid in full.
The Company has incurred losses in each of its last five
fiscal years and anticipates it will continue to do so in fiscal
1997 and 1998 because production from the Zhao Dong Block will
not commence until late 1998. As of April 15, 1997 the Company
is in the process of offering for sale Units of Senior Secured
Discount Notes due 2007 (face amount $70 million, net $56
million) and Common Stock Purchase Warrants (the "Offering").
Concurrently with the Offering, the Company is offering $25
million of units comprised of preferred stock and warrants to
acquire Common Stock. Closing of both the offerings are
contingent on each other. The successful completion of the
Offering, subsequent release of such funds from a cash collateral
account, and the sale of domestic properties will enable the
Company to meet all of its obligations including (1) certain
exploration costs and the Phase I Development Program costs of
the Zhao Dong Block, (2) repayment of outstanding debt and (3)
payment of all other current liabilities. In the event such
Offering is not successful the Company believes other means of
obtaining working capital are available based on the estimated
future nondiscounted net cash flow of $143 million ($80 million
discounted) from proved China reserves, as reported in the
independent engineering report of H.J. Gruy and Associates, Inc.
The form and timing of these alternatives are not determinable at
this time and there can be no assurance they will occur and, if
they do occur, would not significantly reduce the future
potential revenue from the Company's share of oil revenues. In
addition, the Company's efforts to secure additional working
capital will be impaired if its Common Stock is delisted from
the AMEX. See Note 11.
Longer term liquidity is dependent on the Company's
commencement of production in China and continued access to
capital markets, including its ability to issue additional debt
and equity securities, which in certain cases may require the
consent of the Noteholders and holders of the Preferred Stock
should the Offering be successfully completed, or the consent of
INCC, the holders of the Company's Secured Subordinated Debt and
the holders of Preferred Stock should it not. By shareholder
vote on July 30, 1996, the shareholders approved an increase of
150,000,000 authorized shares of Common Stock and 1,200,000
authorized shares of Preferred Stock.
The Company's Series A Preferred Stock dividend requirements
are approximately 2.6 million pounds sterling (U.K.) ($4.45
million) annually and currently insufficient liquidity exists to
continue to pay such amounts. The Company declared the Series A
Preferred Stock dividend payable June 30, 1995. A portion of this
dividend was paid with shares of Common Stock and approximately
$900,000 remains to be paid in cash. As the Company was unable to
pay this dividend by June 30, 1996, the holders of the Series A
Preferred Stock can now demand Board of Director representation.
The December 31, 1995 dividend payment on the Series A Preferred
Stock was declared payable in additional shares of Series A
Preferred Stock and in March 1997, 63,595 shares of Series A
Preferred Stock were issued. The Board of Directors elected not
to declare the dividends payable June 30, 1996 and December 31,
1996.
The Company was, to April 10, 1997, in default under terms
of its Credit Facility with INCC and its Secured Subordinated
Debt. On April 10, 1997, INCC agreed to forebear taking any
action pending the completion of the Offering and release of such
funds from a cash collateral account. The proceeds from the
Offering are expected to be used to repay such debt. Forbearance
has been granted until May 31, 1997 when the Offering is expected
to be completed. The Offering proceeds are then to be placed in a
cash collateral account and the Forbearance Agreement extended
until September 30, 1997. The date of September 30, 1997 was
selected because this is the anticipated date when the Joint
Management Committee of the Zhao Dong Block is expected to
approve the development plan for the C-D Field of the Zhao Dong
Block. Because both the INCC Credit Facility and Secured
Subordinated Debt are to be repaid from the Offering, each has
been classified as currently due.
By agreement with Apache effective December 13, 1996, the D-
2 well which the Company spudded in November 1996, has been
substituted for Apache's obligation to carry the Company on a
fourth exploration well. On April 10, 1997, the amount due
Apache was further reduced by a payment of $3.1 million leaving a
balance due of approximately $979,790, which amount is in dispute
and is presently in arbitration. The Company raised the $3.1
million through the placement of promissory notes of XCL-China Ltd.
and warrants to acquire Common Stock of the Company with a group
of institutional and accredited investors who are currently major
shareholders in the Company.
In addition to capital commitments to fund the Zhao Dong
Block development (estimated to be $63,589,000 to fully develop
the C-D Field), the Company has capital requirements for its
lubricating oil and coalbed methane projects.
As a result of the substantial capital requirements
described above, the report of the Company's independent
accountants contains an explanatory paragraph regarding the
ability of the Company to continue as a going concern.
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."
Results of Operations
- ---------------------
1996 compared to 1995
---------------------
The Company reported a net loss for 1996 of $12.1 million
before preferred dividends of $5.4 million or a total of $0.07
per share compared to a net loss for 1995 of $87.8 million before
preferred dividends of $4.8 million or $.38 per share. The net
loss for 1996 includes a $3.85 million noncash charge for the
provision of impairment of domestic oil and gas properties,
classified as assets held for sale. The loss in 1996 also
reflects a $2.4 million writedown and $0.7 million loss on the
sale of the Company's investments.
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 China, 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.
Earnings per common share are based on the weighted average
number of shares of common and common equivalent shares
outstanding for 1996 of 265,573,020 compared to 240,707,015 for
1995. The increase in the weighted average number of common and
common equivalent shares outstanding for 1996 primarily related
to the sale of approximately 3.8 million shares of Common Stock
in Regulation S unit offerings in March and April 1996,
approximately 2.8 million units in a private placement concluded
in September 1996, approximately 1.5 million shares of Common
Stock issued in a private placement concluded in October 1996,
approximately 1.4 million shares of Common Stock issued as
consideration for a consulting agreement, approximately 5.5
million shares of Common Stock issued in respect of warrants
exercised in November and December 1996 and approximately 12.8
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 from properties held for sale in 1996
were $1.1 million as compared to $2.5 million in 1995 primarily
due to continued reduction in volumes sold. The Company does not
anticipate material revenues until late in 1998 when production
in China is expected to commence.
General and administrative expenses for 1996 were $3.5
million as compared to $4.6 million in 1995. General and
administrative costs are expected to remain relatively unchanged
during the upcoming year. Operating costs are expected to decline
due to the further disposition of domestic oil and gas
properties.
Interest expense decreased in 1996, due primarily to the
Company's principal payments on its bank debt in the first
quarter of 1996.
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.
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 China, 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, 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
====
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.
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.
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 10, 1997, and the supplementary
financial data specified by Item 302 of Regulation S-K are set
forth on pages 32 through 61. 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
consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
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, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1996, 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 consolidated financial statements taken
as a whole, presents 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 10, 1997
XCL Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
December 31
-----------------
A S S E T S 1996 1995
----------- ---- ----
Current assets:
Cash and cash equivalents................. $ 113 $ 1,610
Accounts receivable, net.................. 23 340
Amounts receivable from sale of assets.... - 4,151
Subscriptions receivable.................. - 483
Prepaid expenses.......................... 212 205
Assets held for sale...................... - 4,376
------ -------
Total current assets..... 348 11,165
------ -------
Property and equipment:
Oil and gas (full cost method):
Proved and unproved properties under
development not being amortized..... 34,305 27,315
------- -------
34,305 27,315
Land, at cost............................. 135 135
Other........................................... 2,492 3,017
------- -------
36,932 30,467
Accumulated depreciation, depletion and
amortization............................ (1,491) (1,845)
------- -------
35,441 28,622
------- -------
Investments..................................... 2,383 5,369
Assets held for sale............................ 21,058 25,395
Deferred charges and other assets............... 1,634 1,785
------- -------
Total assets............. $ 60,864 $ 72,336
======= =======
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
-------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued costs........ $ 3,880 $ 2,435
Accounts payable and accrued costs due
to joint venture partner................. 4,202 1,449
Royalty and production taxes payable...... 21 218
Dividends payable......................... 928 928
Current maturities of limited recourse debt 5,091 5,229
Collateralized credit facility............ 17,279 25,115
Current maturities of subordinated debt... 15,000 -
Other current maturities.................. 652 30
------- -------
Total current liabilities............ 47,053 35,404
------- -------
Long-term debt, net of current maturities....... - 15,644
Other non-current liabilities................... 2,770 4,388
Commitments and contingencies (Notes 2 and 11)
Shareholders' equity:
Preferred stock-$1.00 par value; authorized
2,400,000 shares at December 31, 1996 and
1,200,000 at December 31, 1995; issued
shares of 669,411 at December 31, 1996 and
680,570 in 1995 - liquidation preference of
$63.3 million at December 31, 1996....... 669 681
Preferred stock subscribed................ - 4
Common stock-$.01 par value; authorized
500 million shares at December 31, 1996 and
350 million shares at December 31, 1995;
issued shares of 285,754,151 at December 31,
1996 and 256,157,224 at December 31, 1995. 2,858 2,561
Common stock held in treasury - $.01 par
value; 1,042,065 shares at December 31,
1996 and 2,514,238 shares at December 31,
1995...................................... (10) (25)
Additional paid-in capital.................. 226,956 220,364
Accumulated deficit......................... (219,432) (206,685)
------- -------
Total shareholders' equity............. 11,041 16,900
------- -------
Total liabilities and
shareholders' equity......$ 60,864 $ 72,336
======= =======
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
-------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Oil and gas revenues from properties held for sale..... $ 1,136 $ 2,480 $ 4,336
------ ------ ------
Costs and operating expenses:
Operating (including marketing).................. 342 985 1,341
Depreciation, depletion and amortization......... 579 2,266 3,292
Provision for impairment of oil and gas
properties...................................... 3,850 75,300 25,900
Writedown of other assets and investments........ 2,444 4,461 2,230
General and administrative costs....................... 3,487 4,551 4,553
Taxes, other than income......................... 227 590 895
------ ------ ------
10,929 88,153 38,211
------ ------ ------
Operating loss......................................... (9,793) (85,673) (33,875)
------ ------ ------
Other income (expense):
Interest expense, net of amounts capitalized..... (2,415) (2,998) (1,831)
Gain (loss) on sale of investments............... (661) 613 443
Equity in loss of affiliates..................... - - (220)
Other, net....................................... 795 221 603
------ ------ ------
(2,281) (2,164) (1,005)
------ ------ ------
Loss before extraordinary item......................... (12,074) (87,837) (34,880)
Extraordinary charge for early extinguishment of debt.. - - (1,742)
------ ------ ------
Net loss............................................... (12,074) (87,837) (36,622)
Preferred stock dividends.............................. (5,356) (4,821) (4,907)
------- ------ ------
Net loss attributable to common stock..................$ (17,430) $(92,658) $(41,529)
======= ====== ======
Loss per common and common equivalent share:
Net loss before extraordinary item.................$ (.07) $ (.38) $ (.20)
Extraordinary item................................. - - (.01)
------- ------ ------
Net loss per common and common equivalent share........$ (.07) $ (.38) $ (.21)
======= ====== ======
Average number of common and common equivalent
shares outstanding.................................. 265,573 240,707 198,303
======= ======= =======
</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>
Preferred Total
Preferred Stock Common Treasury Paid-In Accumulated Shareholders
Stock Subscribed Stock Stock Capital Deficit Equity
----- ---------- ----- ----- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 729 $ - $ 1,327 $ (70) $155,121 $ (72,498) $ 84,609
Net loss - - - - - (36,622) (36,622)
Dividends - - - - - (4,907) (4,907)
Preferred shares issued 25 - - - 1,570 - 1,595
Preferred shares converted
to common shares (105) - 258 - - - 153
Common shares issued - - 787 - 49,550 - 50,337
Treasury shares issued - - - 35 - - 35
----- ---- ------ ---- ------- ------- -------
Balance, December 31, 1994 649 - 2,372 (35) 206,241 (114,027) 95,200
Net loss - - - - - (87,837) (87,837)
Dividends - - - - - (4,821) (4,821)
Preferred shares issued 32 4 - - 5,092 - 5,128
Common shares issued - - 189 - 7,936 - 8,125
Treasury shares purchased - - - (25) (1,232) - (1,257)
Treasury shares issued - - - 35 2,327 - 2,362
----- ---- ------ ---- ------- ------- ------
Balance, December 31, 1995 681 4 2,561 (25) 220,364 (206,685) 16,900
Net loss - - - - - (12,074) (12,074)
Dividends - - - - - (673) (673)
Preferred shares issued 10 (4) - - 128 - 134
Preferred shares converted
to common shares (22) - 5 - 17 - -
Common shares issued - - 292 - 6,339 - 6,631
Treasury shares purchased - - - (3) (138) - (141)
Treasury shares issued - - - 18 246 - 264
------ ---- ------ ---- ------- ------- ------
Balance, December 31, 1996 $ 669 $ - $ 2,858 $ (10) $226,956 $(219,432) $11,041
====== ==== ====== ===== ======= ======= ======
</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>
Year Ended December 31
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(12,074) $(87,837) $(36,622)
------- ------- -------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation, depletion and amortization.......... 579 2,266 3,292
Provision for impairment of oil and gas properties 3,850 75,300 25,900
Extraordinary charge for early extinguishment of debt - - 1,742
(Gain) loss on sale of investments................ 661 (613) (443)
Writedown of other assets and investments......... 2,444 4,461 2,230
Equity in loss of affiliates...................... - - 220
Change in assets and liabilities:
Accounts receivable.......................... 799 875 (187)
Prepaid expenses............................. (7) (52) (73)
Accounts payable and accrued costs........... 772 (697) 168
Royalty and production taxes payable......... (197) (68) (385)
Other, net................................... 19 855 557
-------- ------- -------
Total adjustments....................... 8,920 82,327 33,021
-------- ------- -------
Net cash used in operating activities... (3,154) (5,510) (3,601)
-------- ------- -------
Cash flows from investing activities:
Capital expenditures.................................. (1,489) (8,458) (19,547)
Investments and restricted time deposits.............. (491) (1,624) (1,350)
Proceeds from sales of assets and investments......... 9,210 2,655 3,759
Other..................................................... 4 64 2,052
------- ------- -------
Net cash provided by (used in) investing
activities............................ 7,234 (7,363) (15,086)
------- ------- -------
Cash flows from financing activities:
Proceeds from sales of common stock................... 1,766 3,553 31,696
Proceeds from issuance of preferred stock............. 144 3,068 1,600
Proceeds from sale of treasury stock.................. 264 2,487 -
Loan proceeds......................................... 315 - 29,200
Payment of long-term debt............................. (8,344) (522) (37,564)
Proceeds from exercise of warrants and options........ 691 874 3,279
Payment of preferred stock dividends.................. - (250) (1,388)
Payment for treasury stock............................ (141) (1,257) -
Stock issuance costs and other........................ (272) (221) (3,031)
------- ------- -------
Net cash provided by (used in) financing
activities............................. (5,577) 7,732 23,792
------- ------- -------
Net increase (decrease) in cash and cash equivalents...... (1,497) (5,141) 5,105
Cash and cash equivalents at beginning of year............ 1,610 6,751 1,646
------- ------- -------
Cash and cash equivalents at end of year.................. $ 113 $ 1,610 $ 6,751
======= ======= =======
Supplemental information:
Cash paid for interest, net of amounts capitalized.... $ 1,591 $ 2,602 $ 2,610
======= ======= =======
</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.
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, 1996, 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, 1996,
is approximately $5.9 million based upon share trading on the
London Stock Exchange with British Pound Sterling converted to
U.S. Dollars. The estimated fair value of Series B Preferred
Stock at December 31, 1996 approximates $1.4 million. The
estimated fair value of the Series E Preferred Stock at December
31, 1996 approximates $2.9 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 including those assets held for sale 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 domestic oil and gas
reserves were estimated by Company engineers in 1996 and 1995,
and foreign reserves in 1996 by independent petroleum engineers.
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.
During the fourth quarter of 1995, the Company decided to
concentrate on the development of its China investments, and
decided to dispose of the 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.
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 depreciation and depletion expense ("DD&A").
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. 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 1996, 1995 and 1994, interest and associated
costs of approximately $2.8 million, $3.1 million and $5.3
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
and receivables are due from other producers who may be affected
by economic conditions in the industry. The Company has not
experienced any material credit losses.
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. As of December 31, 1996, the Company
did not have 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 the Company's 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, 1996 and
1995, and the reported amounts of revenues and expenses during
fiscal years 1996, 1995 and 1994. 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 the financial statements.
Foreign Operations
------------------
The Company's future operations and earnings will depend
upon the results of the Company's operations in China. There can
be no assurance that the Company will be able to successfully
conduct such operations, and a failure to do so would have a
material adverse effect on the Company's financial position,
results of operations and cash flows. Also, the success of the
Company's operations will be subject to numerous contingencies,
some of which are beyond management's control. These
contingencies include general and regional economic conditions,
prices for crude oil and natural gas, competition and changes in
regulation. Since the Company is dependent on international
operations, specifically those in China, the Company will be
subject to various additional political, economic and other
uncertainties. Among other risks, the Company's operations will
be subject to the risks of restrictions on transfer of funds;
export duties, quotas and embargoes; domestic and international
customs and tariffs; and changing taxation policies, foreign
exchange restrictions, political conditions and governmental
regulations.
(2) Liquidity and Management's Plans
At December 31, 1996, the Company had an operating cash
balance of $113,000 and a working capital deficit of $46.7
million, which includes $17.3 million in bank debt, $15.0 million
of Subordinated Debt, $5.1 million in limited recourse debt
collateralized only by the Lutcher Moore Tract and $0.7 million
in institutional debt secured by a first mortgage on the
Company's office building. The office building was sold on March
31, 1997 and the mortgage repaid in full.
The Company has incurred losses in each of its last five
fiscal years and anticipates it will continue to do so in fiscal
1997 and 1998 because production from the Zhao Dong Block will
not commence until late 1998. As of April 15, 1997 the Company
is in the process of offering for sale Units of Senior Secured
Discount Notes due 2007 (face amount $70 million, net $56
million) and Common Stock Purchase Warrants (the "Offering").
Concurrently with the Offering, the Company is offering $25
million of units comprised of preferred stock and warrants to
acquire Common Stock. Closing of both the offerings are
contingent on each other. The successful completion of the
Offering, subsequent release of such funds from a cash collateral
account, and the sale of domestic properties will enable the
Company to meet all of its obligations including (1) certain
exploration costs and the Phase I Development Program costs of
the Zhao Dong Block, (2) repayment of outstanding debt and (3)
payment of all other current liabilities. In the event such
Offering is not successful the Company believes other means of
obtaining working capital are available based on the estimated
future nondiscounted net cash flow of $143 million ($80 million
discounted) from proved China reserves, as reported in the
independent engineering report of H.J. Gruy and Associates, Inc.
The form and timing of these alternatives are not determinable at
this time and there can be no assurance they will occur and, if
they do occur, would not significantly reduce the future
potential revenue from the Company's share of oil revenues. In
addition, the Company's efforts to secure additional working
capital will be impaired if its Common Stock is delisted from
the AMEX. See Note 11.
Longer term liquidity is dependent on the Company's
commencement of production in China and continued access to
capital markets, including its ability to issue additional debt
and equity securities, which in certain cases may require the
consent of the Noteholders and holders of the Preferred Stock
should the Offering be successfully completed, or the consent of
INCC, the holders of the Company's Secured Subordinated Debt and
the holders of Preferred Stock should it not. By shareholder
vote on July 30, 1996, the shareholders approved an increase of
150,000,000 authorized shares of Common Stock and 1,200,000
authorized shares of Preferred Stock.
The Company's Series A Preferred Stock dividend requirements
are approximately 2.6 million pounds sterling (U.K.) ($4.45
million) annually and currently insufficient liquidity exists to
continue to pay such amounts. The Company declared the Series A
Preferred Stock dividend payable June 30, 1995. A portion of this
dividend was paid with shares of Common Stock and approximately
$900,000 remains to be paid in cash. As the Company was unable to
pay this dividend by June 30, 1996, the holders of the Series A
Preferred Stock can now demand Board of Director representation.
The December 31, 1995 dividend payment on the Series A Preferred
Stock was declared payable in additional shares of Series A
Preferred Stock and in March 1997, 63,595 shares of Series A
Preferred Stock were issued. The Board of Directors elected not
to declare the dividends payable June 30, 1996 and December 31,
1996.
The Company was, to April 10, 1997, in default under terms
of its Credit Facility with INCC and its Secured Subordinated
Debt. On April 10, 1997, INCC agreed to forebear taking any
action pending the completion of the Offering and release of such
funds from a cash collateral account. The proceeds from the
Offering are expected to be used to repay such debt. Forbearance
has been granted until May 31, 1997 when the Offering is expected
to be completed. The Offering proceeds are then to be placed in a
cash collateral account and the Forbearance Agreement extended
until September 30, 1997. The date of September 30, 1997 was
selected because this is the anticipated date when the Joint
Management Committee of the Zhao Dong Block is expected to
approve the development plan for the C-D Field of the Zhao Dong
Block. Because both the INCC Credit Facility and Secured
Subordinated Debt are to be repaid from the Offering, each has
been classified as currently due.
By agreement with Apache effective December 13, 1996, the D-
2 well which the Company spudded in November 1996, has been
substituted for Apache's obligation to carry the Company on a
fourth exploration well. On April 10, 1997, the amount due
Apache was further reduced by a payment of $3.1 million leaving a
balance due of approximately $979,790, which amount is in dispute
and is presently in arbitration. The Company raised the $3.1
million through the placement of promissory notes of XCL-China Ltd.
and warrants to acquire Common Stock of the Company with a group
of institutional and accredited investors who are currently major
shareholders in the Company.
In addition to capital commitments to fund the Zhao Dong
Block development (estimated to be $63,589,000 to fully develop
the C-D Field), the Company has capital requirements for its
lubricating oil and coalbed methane projects.
As a result of the substantial capital requirements described
above, the report of the Company's independent accountants contains
an explanatory paragraph regarding the ability of the Company to
continue as a going concern.
(3) Supplemental Cash Flow Information
There were no income taxes paid for the years ended December
31, 1996, 1995 and 1994.
The Company completed the following noncash transactions in
1996 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:
1996
----
In March and April 1996, the Company sold units of Common
Stock and Warrants through Rauscher Pierce & Clark, as Placement
Agent, in a Regulation S unit offering. As compensation for
acting as Placement Agent for such unit offering, Rauscher Pierce
& Clark was granted warrants to acquire an aggregate of 384,000
shares of Common Stock.
As compensation for services performed resulting in Apache
Corp. purchasing an additional interest in the Zhao Dong Block,
during the first quarter the Company issued 50,000 shares of
Common Stock to EnCap Investments, L.C. ("EnCap") and EnCap's
existing warrant to acquire 500,000 shares of Common Stock as to
exercise price, expiration date and forced conversion feature to
conform the terms of such warrant to the terms of warrants
granted to the Placement Agent in the Regulation S unit offering
noted above.
As compensation for identifying the Placement Agent for the
Regulation S unit offering, EnCap earned a four percent stock fee
of the gross proceeds of the offering. In payment of this fee,
the Company during the first quarter, issued 267,264 shares of
Common Stock in connection with the initial closing and during
the second quarter issued an aggregate 122,880 shares of Common
Stock as compensation for the subsequent closings.
Effective March 1, 1996, the terms of warrants issued to San
Jacinto Securities, Inc. were amended as partial consideration
for introducing to the Company the purchaser of the Gonzalez Gas
Unit, comprising a portion of the Berry R. Cox Field. The
warrant exercise price was reduced from $1.00 to $.50 and the
term of the warrant was extended for three years to March 1,1999.
During August 1996, the Company issued to Janz Financial
Corp. Ltd. 280,000 warrants to purchase 280,000 shares of Common
Stock, as compensation for the placement with their clients of
2.8 million units, comprised of shares of Common Stock and
warrants to purchase Common Stock.
During October 1996, the Company issued approximately 1.4
million shares of Common Stock plus warrants to acquire 2.5
million shares of Common Stock, as compensation to an individual
in consideration for a consulting arrangement, whereby the
Consultant would introduce persons interested in investing in
China through the Company. During February 1997, the Consultant
canceled the Consultant Agreement and returned to the Company the
shares and warrants issued in connection therewith.
During October 1996, the Company issued 1.5 million warrants
to acquire 1.5 million shares of Common Stock, as compensation to
an individual for past fund raising services.
1995
----
During the first quarter of 1995, the Company issued 18,714
shares of Common Stock in payment of interest on funds escrowed
in advance of purchase of Series D Preferred Stock.
During 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.
(4) Receivables
The Company's trade accounts receivable at December 31,
1996, 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 76 percent of oil and gas revenues in
1996, 67 percent in 1995 and 61 percent in 1994.
(5) Assets Held for Sale and Investments
Assets Held for Sale
--------------------
Domestic Oil and Gas Properties
-------------------------------
During the fourth quarter of 1995, management decided to
concentrate its resources on the development of its China
investments, and a decision was made to dispose of all domestic
properties. Accordingly, the recorded value of the domestic
properties was reduced to their estimated fair market value and
the resulting balances were transferred to assets held for sale.
During the first quarter of 1996, two domestic gas fields
were sold for $5.4 million which was primarily used to pay bank
loan interest and principal. The Company sold a third producing
property in a sale completed during the second quarter of 1996
generating gross proceeds of approximately $3 million, of which
$2.8 million was applied to payment of interest and prepayment of
principal on the bank loan.
Until July 29, 1996, the Company was engaged in attempts to
sell its remaining domestic oil and gas properties. On that day
it received service of three lawsuits filed by lessors of the
most productive remaining leases, effectively thwarting the
Company's ability to consummate a sale by casting doubt as to the
Company's rights to certain interests in the leases and demanding
damages. While the Company believes that the charges are without
merit, it is of the opinion that the property cannot be sold
until such time as the litigation is concluded or settled. In
response to a request by the lessors' counsel, the Company has
granted the lessors an extension of time to respond to discovery
demands made by the Company and to allow sufficient time to
pursue settlement of this litigation (see Note 11). As a result
of these lawsuits the Company has taken an additional writedown
of these properties aggregating $3.85 million.
Lutcher Moore Tract
-------------------
During 1993, the Company completed the acquisition of a
group of corporations which together owned 100 percent of an
unevaluated 62,500-acre tract in southeastern Louisiana (the
"Lutcher Moore Tract"). 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, 1996, the Company has invested approximately $1.7
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, 1996, the Company has invested approximately $0.5
million 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 and 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.
In June 1996, the Company sold its remaining mineral
interest in the Phoenix Lake Tract. The sale price was $417,000
in cash and the Company recorded a $661,000 loss on the sale.
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. ("Wolf Creek")
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.
By letter agreement dated October 7, 1996, the Company
modified its arrangement with Wolf Creek with respect to its
interests in the Galvan Ranch. The Company reassigned its rights
to certain overriding royalty interests and rights to after
payout participation in certain gas wells, surrendered its note
receivable from Wolf Creek, and option to purchase additional
equity in Wolf Creek and executed a general release in favor of
Wolf Creek in return for:
(a) an immediate cash payment of $75,000;
(b) a $150,000 preferred payout from 80% of the net
revenues of Wolf Creek; and
(c) 5.44% of the Common Stock of Wolf Creek.
In recognition of the reduced value of the Galvan Ranch, the sole
property of Wolf Creek, the Company recorded a $2.4 million
writedown in the value of this investment during 1996.
(6) Debt
Long-term debt consists of the following (000's):
December 31
-----------
1996 1995
---- ----
Collateralized credit facility................. $ 17,279 $ 25,115
Subordinated debt.............................. 15,000 15,000
Office building mortgage loan.................. 652 674
------ ------
32,931 40,789
Lutcher Moore Group Limited Recourse Debt...... 5,091 5,229
------ ------
38,022 46,018
Less current maturities:
Lutcher Moore Group Limited Recourse Debt.. (5,091) (5,229)
Collateralized credit facility............. (17,279) (25,115)
Subordinated Debt.......................... (15,000) -
Other current maturities................... (652) (30)
------ ------
$ - $ 15,644
====== ======
Substantially all of the Company's assets collateralize
these borrowings. Accounts payable and accrued costs include
accrued interest at December 31, 1996 and 1995 of $1.5 million
and $0.5 million, respectively.
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 INCC's prime
rate plus one percent. 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.
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. As of
December 31, 1996, the Company was in violation of certain of
these covenants.
The INCC Agreement provides for scheduled semiannual
borrowing base determinations by INCC based on a review of
reserve estimates and other factors, with the initial borrowing
base set at $29.2 million. Effective October 31, 1994, the
borrowing base was set at $25.2 million. The net proceeds of $4.1
million from the divestiture of the Mestena Grande Field in
January 1996, were applied to a $2 million principal payment due
January 2, 1996, a principal payment of $1.63 million due April
1, 1996, with the remainder applied to the balance of the
outstanding indebtedness. The net proceeds of $1.325 million from
the sale of the Gonzales Gas Unit sold in March 1996, were
applied to accrued interest through the date of closing and $1.1
million of principal. The net proceeds of $2.79 million from the
sale of the Lopez Gas Units sold in April 1996, were applied to
accrued interest through the date of closing then to principal of
$535,556 due on July 1, 1996, principal of $1.625 million due
October 1, 1996 and the remainder against principal due January
2, 1997.
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. The Company did not make interest
payments of $248,000 due on October 1, 1996, and $413,000 due on
January 2, 1997 and a principal payment of $664,000 due on
January 2, 1997, resulting in events of default under the terms
of the INCC Agreement. By letters dated October 7, 1996 and
January 9, 1997, the bank acknowledged that failure to make such
interest and principal payments constituted an event of default
and advised that such past due interest and principal payments
bear interest at the Late Payment Rate of 12.25 percent in effect
on such dates. The Company was, to April 10, 1997, in default
under terms of its Credit Facility with INCC and its Secured
Subordinated Debt. On April 10, 1997, INCC agreed to forebear
taking any action pending the completion of the Offering and
release of such funds from a cash collateral account. The
proceeds from the Offering are expected to be used to repay such
debt. Forbearance has been granted until May 31, 1997 when the
Offering is expected to be completed. The Offering proceeds are
then to be placed in a cash collateral account and the
Forbearance Agreement extended until September 30, 1997. The date
of September 30, 1997 was selected because this is the
anticipated date when the Joint Management Committee of the Zhao
Dong Block is expected to approve the development plan for the C-
D Field of the Zhao Dong Block. Because both the INCC Credit
Facility and Secured Subordinated Debt are to be repaid from the
Offering, each has been classified as currently due.
During 1994, the Company entered into two Master Interest
Rate and Currency Exchange Agreements (the Agreements) with INCC
which expired 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 1996, 1995 and
1994, the Company incurred approximately $1.6 million, $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 terms of the Secured
Subordinated Debt provide that an event of default under the INCC
Agreement which has not been waived and permits the bank to
accelerate the maturity of its indebtedness is an event of
default in the Secured Subordinated Debt. As noted above, an
event of default exists in the INCC Agreement, therefore an event
of default exists with respect to the Secured Subordinated Debt.
In April 1994, maturities of the Company's Secured
Subordinated Debt were rescheduled to April 2000; the expiration
date of the related warrants extended to the same date; 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.
In November 1996, the Company offered the holders of the
Secured Subordinated Debt warrants a reduction in the exercise
price of such warrants in exchange for their immediate exercise.
The exercise price was reduced from $0.625 per share to $0.125
per share, with a majority of the holders accepting the offer.
An aggregate of 3,399,998 shares of Common Stock were issued and
the Company received an aggregate of approximately $400,000 in
net cash proceeds.
The Company issued approximately 12.8 million and 1.6
million shares of Common Stock in payment of $4.0 million and
$1.1 million of interest due on the Subordinated Debt in 1996 and
1995, respectively.
Building Mortgage Loan
----------------------
The outstanding balance of the building mortgage loan as of
December 31, 1996, is $652,000 and bears interest at the rate of
14 percent per annum. During 1996 and 1995, the Company incurred
approximately $93,000 and $97,000 in interest costs related to
this debt, respectively. Effective March 31,1997, the Company
sold its office building and the mortgage debt was repaid in full
(see Note 11).
Lutcher Moore Group Limited Recourse Debt
-----------------------------------------
As of December 31, 1996 and 1995, Lutcher Moore Group
Limited Recourse Debt consisted of the following:
1996 1995
---- ----
Mortgage and Seller Notes............ $ 5,091 $ 5,229
Less Current Maturities.............. (5,091) (5,229)
------- ------
$ - $ -
======= ======
Mortgage and Seller Notes
-------------------------
At December 31, 1996 and 1995, approximately $2.3 million
and $2.7 million of Mortgage Notes (net of amounts escrowed for
payment) and $2.8 million and $2.6 million of Seller Notes were
outstanding. In January 1996, the terms of the Mortgage Notes
were modified providing that the remaining principal (which bears
interest at 9.25 percent per annum) is payable on demand, and if
no demand is made, in three monthly installments of $52,300 each,
commencing February 15, 1996, plus a final payment of all
outstanding principal and interest due on May 16, 1996. In June
1996, upon the payment by the Company of principal and interest
in the aggregate amount of $265,000 the terms of the Mortgage
Notes were again modified providing that the remaining principal
(which bears interest at 9.25 percent per annum) is payable on
demand, and if not demand is made, in five monthly installments
of interest, commencing July 17, 1996, with a final payment of
all outstanding principal and interest due on December 17, 1996.
During the third quarter of 1996, the principal of the Mortgage
Notes was reduced by $100,000 from payments received for oil and
gas leases granted on the property. In January 1997, the terms
of the Mortgage Notes were modified providing for an extension of
the final payment of all outstanding principal and interest due
until March 17, 1997. The Seller Notes bear interest at 8 percent
and payments of principal and interest on the Seller Notes are
past due. No action has been taken by holders of the debt. 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. The book value of this property is $12.2
million, therefore, should the mortgagees repossess the property
for nonpayment of the mortgage debt, the Company would incur a
substantial loss. During 1996 and 1995, the Company incurred
approximately $499,000 and $501,000 in interest costs related to
these notes, respectively. 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.
During November 1996, the Company sold a 58.911% interest in
a 50% interest in the Seller Notes held by one of its wholly
owned subsidiaries ($314,500 in principal) for $250,000 net after
discount, in cash and the issuance of 2,665,665 stock purchase
warrants exercisable at $0.125 per share, expiring on December
31, 1999.
During February 1997, the Company sold its remaining
interest (41.089%) in the Seller Notes ($217,961 in principal)
for $193,916 net after discount, in cash and the issuance of
1,874,467 stock purchase warrants exercisable at $0.25 per share,
expiring on December 31, 1999.
(7) Shareholders' Equity
Preferred Stock
---------------
As of December 31, 1996 and 1995, the Company had the
following shares of Preferred Stock issued and outstanding:
<TABLE>
1996 Dividends
Shares Preference in ----------------------------
-------------- Liquidation at (In Thousands)
1996 1995 December 31, 1996 Declared In Arrears Total
---- ---- ----------------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Series A................. 577,803 599,244 $53,892,603 (1) $ - $ 4,450 $ 4,450
Series B................. 44,954 45,679 4,495,400 450 - 450
Series E................. 46,654 35,647 4,889,400 222 234 456
----- ------ ------
$ 672 $ 4,684 $ 5,356
===== ====== ======
</TABLE>
- -------------
(1) 50 pounds sterling (U.K.) per share (U.K. pound
sterling = U.S. $1.7114 at December 31, 1996 including
dividend arrearages).
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, Series E and Series F 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 Series A Preferred Stock dividend requirements are
approximately 2.6 million pounds sterling (U.K.) annually
(approximately $4.45 million) and currently insufficient
liquidity exists to continue to pay such amounts. Further, the
INCC Agreement restricts payment of cash dividends. With the
approval of its lender, the Company declared the June 30, 1995
dividend payable in cash, with such cash to be obtained from the
sale of Common Stock. In order to reduce the cash requirement,
effective June 26, 1995, the Company entered into agreements with
three U.S. holders of Series A Preferred Stock representing
approximately 59 percent of the class, pursuant to which they
elected to receive their dividends in Common Stock of the
Company. Cash dividends remaining to be paid with respect to the
June 30, 1995 dividend declaration, aggregate approximately
$900,000. As the Company was unable to pay this dividend by June
30, 1996, the holders of the Series A Preferred Stock are
entitled to representation on the Board of Directors.
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. In March 1997, the Company issued 63,595 shares of
Series A Preferred Stock in payment of the December 31, 1995
dividend. The Board of Directors elected not to declare the
dividends payable June 30, 1996 and December 31, 1996. During the
second quarter of 1996, the Company issued 450,261 shares of
Common Stock upon conversion of 21,441 shares of Series A
Preferred Stock, pursuant to the terms thereof. During March
1997 an additional 39 shares of Series A Preferred Stock were
converted into 819 shares of Common Stock.
Series B Preferred Stock
------------------------
The Series B, Cumulative Convertible Preferred Stock, par
value $1.00 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 5,046 shares had been redeemed at December 31,
1996, from the sale of approximately 2.7 million 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. During the first quarter of 1997, an
additional 1 million shares of Redemption Stock were sold and the
proceeds applied against accrued dividends.
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"). The Company placed
44,129 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. The
Company has reserved shares of Common Stock for conversion of the
Series E Preferred Stock. 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. The
Company issued 2,525 shares of Series E Preferred Stock in
payment of the December 31, 1995 and June 30, 1996 dividends. In
January 1997, the Company issued 2,328 shares of Series E
Preferred Stock in payment of the December 31, 1996 dividend. In
January 1997, the Company issued 2,328 shares of Series E
Preferred Stock in payment of the December 31, 1996 dividend.
Series F Preferred Stock
------------------------
In December 1996, XCL authorized the issuance of up to
50,000 shares of a new series of Preferred Stock designated the
Series F, Cumulative Convertible Preferred Stock, $1.00 par value
per share ("Series F Preferred Stock") to two existing
stockholders of XCL. The first individual was issued 20,179
shares of Series F Preferred Stock in consideration for: (i) the
cancellation of a consulting agreement between the Company and
such individual entered into on July 10, 1996, and the release of
the Company from all obligations thereunder; (ii) the surrender
of 1,325,000 shares of unregistered Common Stock and 2,466,875
warrants issued in connection with such consulting agreement;
(iii) the surrender and cancellation by such individual of rights
to acquire 1,158,000 units comprised of 1,158,000 shares of
registered Common Stock and 1,158,000 warrants to purchase Common
Stock originally acquired pursuant to an agreement dated August
1, 1996, (iv) the surrender of registration rights with respect
to 3,000,000 shares of Common Stock and 3,000,000 warrants
originally issued in a unit offering dated September 18, 1995,
and (v) the payment of $219,125. The second individual was
issued 878 shares of Series F Preferred Stock in consideration
for: (i) the surrender of 83,125 shares of unregistered Common
Stock and 133,125 warrants issued as compensation for past
fundraising activities; (ii) the surrender and cancellation of
rights to acquire 42,000 units comprised of 42,000 shares of
registered Common Stock and 42,000 warrants to purchase Common
Stock originally acquired pursuant to an agreement dated August
1, 1996; (iii) the surrender of registration rights with respect
to 75,000 shares of Common Stock and 75,000 warrants originally
issued in an unit offering dated September 18, 1995; and (iv) the
payment of $7,875.
The Series F Preferred Stock is nonvoting except in certain
circumstances, including the right to elect, together with
holders of Preferred Stock with similar voting rights, two
directors in the event XCL fails to pay two consecutive semi-
annual dividends; bears a fixed cumulative dividend at the annual
rate of $12 per share, payable semi-annually in cash, or, at the
XCL's election, in additional shares of Series F Preferred Stock,
subject to an increase in the event XCL fails to pay any
regularly scheduled dividend; is redeemable in whole or in part
at the election of XCL at any time, at a redemptive price of $100
per share, plus accrued and unpaid dividends to the redemption
date; is convertible, at the holder's option, at any time six
months after the date of issuance, in whole or in part, into that
number of shares of Common Stock as shall equal the quotient of
$100 per share divided by $0.25, subject to adjustment and XCL
shall have the right to force conversion of the shares at the
applicable conversion rate at any time after the shares of Common
stock have traded at or in excess of $0.50 per share for 30
consecutive trading days; and a liquidation preference of $100
per share, plus all accrued and unpaid dividends. The Series F
Preferred Stock ranks senior to the Common Stock and pari passu
with the Series A, Series B and Series E Preferred Stock with
respect to the payment of dividends and distributions upon the
liquidation of XCL.
Dividends
---------
The Series A Preferred Stock dividend requirements are
approximately 2.6 million pounds sterling (U.K.) annually
(approximately $4.45 million) and currently insufficient
liquidity exists to continue to pay such amounts. Further, the
INCC Agreement restricts payment of cash dividends. With the
approval of its lender, the Company declared the June 30, 1995
dividend payable in cash, with such cash to be obtained from the
sale of Common Stock. In order to reduce the cash requirement,
effective June 26, 1995, the Company entered into agreements with
three U.S. holders of Series A Preferred Stock representing
approximately 59 percent of the class, pursuant to which they
elected to receive their dividends in Common Stock of the
Company. 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 Company
intends to either sell sufficient shares to pay the remaining
dividend or offer such shares of Common Stock in payment of such
dividend. As the Company was unable to pay this dividend by June
30, 1996, the holders of the Series A Preferred Stock are
entitled to representation on the Board of Directors. 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. In
March 1997, the Company issued 63,595 shares of Series A
Preferred Stock in payment of the December 31, 1995 dividend. The
Board of Directors elected not to declare the dividends payable
June 30, 1996 and December 31, 1996 on the Series A Preferred
Stock.
Dividends during 1996 and 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 1996, the Company
issued 2,525 shares of Series E Preferred Stock in payment of the
December 1995 and June 1996 dividends payable on the Series E
Preferred Stock.
The Company's ability to pay future cash dividends is
restricted by the INCC Agreement.
Common Stock
------------
The Company issued 28,326,927, 18,972,814 and 104,503,217
shares of Common Stock during 1996, 1995 and 1994, respectively.
The Company had 284,712,086, 253,642,986 and 237,184,410 shares
of Common Stock outstanding at December 31, 1996, 1995 and 1994,
respectively.
Common Stock Warrants
---------------------
As of December 31, 1996, outstanding warrants to purchase
the Company's Common Stock are as follows:
<TABLE>
Common Stock
Issuable Upon Warrant Exercise Proceeds if
Exercise Price Exercised
------- ----- ---------
<S> <C> <C> <C>
Total Warrants Expiring in 1997...... - - $ -
Total Warrants Expiring after 1997 .. 43,778,896 $0.125 to $1.50 27,532,923
---------- ----------
Total Warrants............... 43,778,896 $ 27,532,923
========== ==========
</TABLE>
During November 1996, the Company offered a holder of (i)
2,040,00 warrants exercisable at $0.35 per share and (ii)
2,128,000 warrants exercisable at $0.25 per share, a reduction in
the exercise price of such warrants to $0.125 in exchange for the
immediate exercise of such warrants and the issuance of a like
number of new warrants. During December 1996, a total of
2,128,000 shares of Common Stock were issued as a result of the
exercise of such warrants and 2,128,000 new warrants were issued,
exercisable at $0.125 per share. The Company received $266,000
upon exercise of these warrants. In January 1997, 2,040,000
shares of Common Stock were issued upon the exercise of the
remaining warrants and 2,040,000 new warrants were issued,
exercisable at $0.125 per share. The Company received $255,000
upon exercise of these warrants.
During February 1997, the Company offered to reduce the
exercise price on a total of 5.52 million warrants issued in
connection with the Regulation S offerings conducted by Rauscher
Pierce & Clark, as Placement Agent, in December 1995 and March
1996, in exchange for their immediate exercise. The offer was
made to reduce the warrant price from $0.25 to $0.22 per share.
One holder of 2.64 million warrants accepted the offer and as of
March 31, 1997 had exercised 1,703,100 warrants for which the
Company received net proceeds of $357,651. The Placement Agent
agreed to accept $0.01 per share rather than 8% of the exercise
price as required under the Placement Agent Agreement.
(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 1996 and 1995, were as follows (000's):
1996 1995
---- ----
Current year tax net operating loss............. $ (5,216) $ (6,243)
Tax/book depreciation, depletion and
amortization difference....................... 3,046 (24,936)
Oil and gas property expenditures treated as
expense for income tax purposes............... 41 2,010
Other accruals.................................. (1,348) (1,792)
Reserve for investments......................... (855) (1,318)
Increase (decrease) in valuation allowance...... 4,332 32,279
------- -------
$ - $ -
======= =======
The components of the Company's deferred tax assets and
liabilities as of December 31, 1996 and 1995, were as follows (in
000's):
1996 1995
---- ----
Deferred tax assets:
Net operating loss carryforwards....... $ 59,518 $ 54,329
Other liabilities and reserves......... 2,815 1,960
Property and equipment, net............ 15,742 17,454
Valuation allowance.................... (78,075) (73,743)
------- -------
Total deferred tax assets.................. $ - $ -
======= =======
At December 31, 1996, the Company had net operating loss
carryforwards for tax purposes in the approximate amount of $160
million which are scheduled to expire by the year 2011.
Additionally, the Company has available acquired net operating
loss carryforwards in the approximate amount of $9.0 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, 1996, the Company had alternative minimum
tax net operating loss carryforwards in the approximate amount of
$100.0 million which are scheduled to expire by the year 2011.
Additionally, the Company has acquired alternative minimum tax
net operating loss carryforwards in the approximate amount of
$12.0 million which are scheduled to expire by the year 2000, and
which are available for use by an acquired subsidiary. The
Company also has $1.0 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.
The Company accounts for stock option plans in accordance
with Accounting Principles Board Opinion No. 25, under which no
compensation expense has been recognized. If compensation
expense for these plans had been recognized based on the fair
value of awards at the grant dates consistent with Financial
Accounting Standards Board Statement No. 123, the impact on the
Company's net loss and loss per share would not have been
material.
A summary of the stock option plans activity for the years
ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
Non-
Incentive Qualified
Total Options Options
----- ------- -------
<S> <C> <C> <C>
Balance outstanding at December 31, 1993..... 9,008,690 3,091,473 5,917,217
Options granted in 1994 at $1.25............. 4,896,683 2,077,500 2,819,183
Options canceled during year................. (1,300,200) (620,200) (680,000)
Options exercised during year................ (140,000) - (140,000)
---------- --------- ---------
Balance outstanding at December 31, 1994..... 12,465,173 4,548,773 7,916,400
Options granted in 1995 at $1.25 per share... 680,000 200,000 480,000
Options canceled during year................. (1,562,500) (1,162,358) (400,142)
---------- --------- ---------
Balance outstanding at December 31, 1995..... 11,582,673 3,586,415 7,996,258
Options granted in 1996 at $1.25 per share... 242,000 140,333 101,667
Options canceled during year................. (1,522,000) (501,149) (1,020,851)
---------- --------- ---------
Balance outstanding at December 31, 1996..... 10,302,673 3,225,599 7,077,074
========== ========= =========
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 exercisable at December 31, 1996...... 10,141,339 3,064,265 7,077,074
========== ========= =========
Shares available for future grant under
the plans at December 31, 1996............. 4,572,661
==========
</TABLE>
As of December 31, 1996, the 10,302,673 stock options
outstanding have exercise prices ranging from $1.25 to $2.125
with a weighted average price of $1.29 per share. The fair value
of each option is estimated on the date of grant using an option-
pricing model with the following assumptions used for grants in
1996 and 1995, respectively: dividend yield of .0 percent and .0
percent, volatility of 100 percent and 100 percent, risk free
interest rate of 6.68 percent and 7.78 percent and expected
period outstanding for 10 years for both years. The weighted
average fair value of options granted in 1996 and 1995 was $.28
and $.69, respectively.
(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 1996, 1995 or 1994.
(11) Other Commitments, Contingencies and Subsequent Events
Other commitments, contingencies and subsequent events
include:
o The Company acquired the rights to the exploration,
development and production of the Zhao Dong Block by executing a
Production Sharing Agreement with CNODC in February 1993. Under
the terms of the Production Sharing Agreement, the Company and
its partner 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 its partner.
The Production Sharing Agreement includes the following
additional principal terms:
The Production Sharing Agreement is basically divided
into three periods: the Exploration period, the
Development period and the Production period. Work to
be performed and expenditures to be incurred during the
Exploration period, which consists of three phases
totaling seven years from May 1, 1993, are the
exclusive responsibility of the Contractor (the Company
and its partner 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. Upon
completion of drilling, logging and, if
applicable, testing of the F-1 well now drilling,
the first phase commitments will have been met.);
2. During the next two years, the Contractor is
required to drill two wildcat wells, perform
seismic data acquisition and processing and expend
a minimum of $4 million (The Contractor has
elected to proceed with the second phase of the
Contract. The seismic data acquisition
requirement for the second phase has been
satisfied.);
3. During the last two years, the Contractor is
required to drill two wildcat wells and expend a
minimum of $4 million.
The Production Sharing Agreement may be terminated by
the Contractor at the end of each phase of the
Exploration period, without further obligation.
o On December 1, 1995, the Company submitted certain
accounting disputes to arbitration arising from Apache's
operations at the Zhao Dong Block. In the initial submission,
the Company disputed certain amounts charged to the Company by
Apache in the August, September and October 1995 joint interest
billings and the November and December 1995 cash calls. Amounts
involved in later months' joint interest billings and cash calls
were subsequently added to the submission. On April 10, 1997,
the Company paid to Apache $3,114,700 representing all amounts
that the Company believes are due Apache for charges under the
Joint Operating Agreement. Apache invoices total $979,790
greater than the amount paid and the Company has disputed the
additional amounts and such amounts are the subject of the above-
referenced arbitration. The Company is of the opinion, based
upon discussions with senior Apache personnel, that the dispute
will be resolved to the mutual satisfaction of both parties
without resorting to formal arbitration procedures.
o By letter dated November 8, 1996, the AMEX has informed the
Company that they are reviewing the Company's continued listing
eligibility because:
(1) the Company has incurred net losses for each of
the past five fiscal years and the first six
months of the current fiscal year;
(2) the Company has disclosed that it does not have
sufficient cash flow from operations to meet its
obligations;
(3) the Company is in default of payment of certain
debt;
(4) the Company's independent accountants in their
report on the Company's 1995 financial statements
noted that as a consequence of the matters
discussed above, substantial doubt has been raised
as to the Company's ability to continue as a going
concern.
On December 16, 1996, the Company met with
representatives of the AMEX to present information in
support of a continued listing. By letter dated
January 16, 1997, the AMEX notified the Company that it
has determined to defer further consideration of the
Company's continued listing eligibility until it has
reviewed the Company's 1996 Form 10-K, and the further
review of the Company's favorable progress in satisfying
guidelines for continued listing.
o During February 1997, the Company sold its remaining
interest (41.089%) in the Seller Notes securing the Lutcher Moore
Tract ($217,961 in principal) for $193,916 net after discount.
In connection with the sale, the Company issued stock purchase
warrants pursuant to which the purchasers can acquire 1,874,467
shares of Common Stock at an exercise price of $0.25 per share,
expiring December 31, 1999.
o During February 1997, the Company sold 13,458 shares of
Series A Preferred Stock for $157,240. The proceeds were used to
pay the withholding taxes and fractional interests with respect
to the December 31, 1995 dividend payment. In March 1997, the
Company issued an additional 50,137 shares of Series A Preferred
Stock in payment of this dividend, therefore fulfilling its
obligation for such dividend period.
o During February 1997, the Company offered to reduce the
exercise price on a total of 5.52 million warrants issued in
connection with the Regulation S offerings conducted by Rauscher
Pierce & Clark, as Placement Agent, in December 1995 and March
1996, in exchange for their immediate exercise of such warrants.
The exercise price was reduced from $0.25 to $0.22 per share.
One holder of 2.64 million warrants accepted the offer and at
March 31, 1997, had exercised 1,703,100 warrants. The Placement
Agent agreed to accept $0.01 per share commission rather than
$0.02 as provided for in the Placement Agency Agreement resulting
in the Company receiving $0.21 per share net.
o During February 1997, the Company issued a total of 21,057
shares of Series F Preferred Stock in consideration of $225,000,
assignment of 1,408,125 shares of Common Stock and 2,600,000
warrants to purchase Common Stock and the release by the
purchasers of certain claims against the Company arising from the
Company's inability to perform under the terms of existing
agreements. Each share of Series F Preferred Stock is
convertible, at the holder's option, into 400 shares of Common
Stock.
o On March 31, 1997, the Company sold its office building at
110 Rue Jean Lafitte, Lafayette, Louisiana for $900,000. The
Company on the same day, entered into a lease with the purchasers
for one floor of the two story building for a term of 22 months with
an option to extend for an additional eight month period. The
outstanding balance of the underlying mortgage as of December 31,
1996 was $652,000, which has been repaid in full upon the sale of
the building.
o On April 10, 1997, a wholly owned subsidiary of the Company
sold $3.1 million of notes and 10.1 million warrants to purchase
a like number of shares of Common Stock of the Company at $0.01
per share. These notes are expected to be repaid from proceeds
of the Offering. The proceeds from these notes were immediately
paid to Apache for unpaid cash calls.
o The Company has future commitments of $1.5 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 $2.5 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 former 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. Recently concluded
negotiations have resulted in a settlement of all claims which
will result in an exchange of mutual releases.
o On July 26, 1996, Mr. Frank Armstrong of Corpus Christi,
Texas, individually and on behalf of others (the "Plaintiffs")
filed three lawsuits against XCL-Texas, Inc., a wholly-owned
subsidiary of the Company.
The first lawsuit entitled Stroman Ranch Company Ltd.,
et al v. XCL-Texas, Inc. (229th Judicial District, Jim
Hogg County, Texas, Cause No. 4550) alleges that in
order to secure from Plaintiffs an amendment to an oil
and gas lease in order to allow for the creation of a
voluntary pooled unit, the Company represented to the
Plaintiffs, that it (1) would make a series of payments
totaling $80,000 and (2) would commence drilling a well
prior to December 31, 1993, or pay $500,000 as
liquidated damages. Further, the Plaintiffs allege that
the Company has supplied false and misleading
information to them in order to deprive them of their
rightful share of an oil, gas and mineral estate and
revenue therefrom; that being a 50 percent interest in
the pooled unit rather than the 30 percent interest
actually received. Plaintiffs allege actual damages of
$580,000, any additional amounts to result from an
accounting of the amount of damages suffered by the
Plaintiffs, exemplary damages, court costs and
interest. The Company denies liability and expects not
only to enter affirmative defenses but to counter claim
for damages to the Company caused by the actions of the
Plaintiffs.
The second lawsuit entitled Frank Armstrong, et al v.
XCL-Texas, Inc. (229th Judicial District, Jim Hogg
County, Texas, Cause No. 4551) alleges that the Company
did not adequately represent the interests of the
Plaintiffs before a Texas Railroad Commission hearing,
therefore, the Plaintiffs incurred legal and related
expenses totaling $56,473 for which they seek
reimbursement. The Company denies liability and
intends to vigorously defend itself.
The third lawsuit entitled Stroman Ranch Company Ltd.,
et al v. XCL-Texas, Inc. (229th Judicial District, Jim
Hogg County, Texas, Cause No. 4552) alleges that, with
respect to a lease executed in 1938 and assigned to the
Company by Edwin L. and Berry R. Cox (the "Cox Group"),
ceased producing in paying quantities prior to November
11, 1987 and therefore should be declared terminated.
In the alternative, the Plaintiffs seek a declaratory
judgment that the Cox Group engaged in bad faith,
invalid and wrongful pooling of the 1938 lease with
another lease executed in 1985. Further, the Plaintiffs
seek damages in excess of $1 million to effect
environmental restoration arising from damage caused by
the Company's operation of the leases in question.
Finally, Plaintiffs seek an accounting and the damages
determined from such accounting, of all oil and gas
production and revenues from the sale of the same under
the 1938 lease, attorneys fees and court costs. The
Company believes the claims made in this lawsuit are
without merit and intends to vigorously defend itself.
In response to the request by the lessors' counsel, the
Company has granted the lessors an extension of time to
respond to discovery demands made by the Company to
allow sufficient time to pursue settlement of this
litigation. The Company believes that any such
settlement will not have a material adverse effect on
the Company.
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, 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).
(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 U.S. Oil and Gas Producing
-----------------------------------------------------
Activities
----------
The results of operations from oil and gas producing
activities for the three years ended December 31, 1996 are as
follows (000's):
<TABLE>
Year Ended December 31
-------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues from oil and gas producing activities:
Sales to unaffiliated parties................. $ 1,136 $ 2,480 $ 4,336
------- ------- -------
Production (lifting) costs:
Operating costs (including marketing)......... 342 985 1,341
State production taxes and other.............. 28 51 356
------- ------- -------
Production costs....................... 370 1,036 1,697
Depletion and amortization.......................... 437 1,989 3,059
Provision for impairment of oil and gas properties.. 3,850 75,300 25,900
------- ------- -------
Total expenses........................ 4,657 78,325 30,656
------- ------- -------
Pretax loss from producing activities............... (3,521) (75,845) (26,320)
Income tax expense.................................. - - -
------- ------- -------
Results of oil and gas producing activities
(excluding corporate overhead and interest costs). $ (3,521) $(75,845) $ (26,320)
======= ======= =======
</TABLE>
The depreciation, depletion and amortization (DD&A) rate
averaged $0.96, $1.23 and $1.25 per equivalent Mcf in 1996, 1995
and 1994, 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):
<TABLE>
December 31
--------------
1996 1995
---- ----
<S> <C> <C>
Foreign proved and unproved properties under development..... $ 34,305 $ 27,315
Accumulated depreciation, depletion and amortization,
and valuation allowances................................... - -
------- -------
Total net capitalized costs............................ $ 34,305 $ 27,315
======= =======
</TABLE>
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, 1996, 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 or developed, 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 foreign proved and unproved properties under
development were incurred as follows (000's):
<TABLE>
Year Ended December 31
--------------------------------------
1993
Total 1996 1995 1994 and Prior
----- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
Property acquisition costs........... $ 26,408 $ 4,223 $ 7,023 $ 8,978 $ 6,184
Capitalized interest costs........... 7,897 2,767 2,596 1,792 742
------ ------ ------ ------- -------
Total foreign proved and
unproved properties
under development............ $ 34,305 $ 6,990 $ 9,619 $ 10,770 $ 6,926
====== ====== ====== ======= =======
</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):
<TABLE>
Year Ended December 31
-------------------------------
1996 (a) 1995 (a) 1994 (a)
-------- -------- --------
<S> <C> <C> <C>
Costs incurred:
Unproved properties acquired..................... $ 4,223 $ 7,209 $ 9,458
Capitalized internal costs....................... - 135 660
Capitalized interest and amortized debt costs.... 2,767 3,075 5,239
Exploration.......................................... - - 2,181
Development.......................................... 4 1,590 3,798
------- ------- -------
Total costs incurred............... $ 6,994 $ 12,009 $ 21,336
======= ======= =======
</TABLE>
-----------
(a) Includes Zhao Dong Block expenditures net of partner
reimbursements of $4,223, $7023 and $8,978 in 1996,
1995 and 1994, respectively for property acquisition
costs and capitalized interest of $2,767, $2,596 and
$1,792 in 1996, 1995 and 1994, respectively.
Proved Oil and Gas Reserves
---------------------------
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 in 1996 are located in China and in 1995 and 1994
were located in the United States.
<TABLE>
Crude Oil (MBbls)
-----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning of year................................... - 294 395
Discoveries..................................... 10,579 - -
Revisions of previous estimates................. - 24 (66)
Production...................................... - (19) (31)
Purchases (sales) of minerals in place.......... - (241) (4)
Transfer of property to assets held for sale.... - (58) -
------ ----- -----
End of year......................................... 10,579 - 294
====== ===== =====
Proved developed reserves -
Beginning of year............................... - 126 153
====== ===== =====
End of year..................................... - - 126
====== ===== =====
</TABLE>
<TABLE>
Natural Gas (MMcf)
------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning of year................................... - 74,208 77,886
Revisions of previous estimates................. - (9,003) (9,547)
Extensions and discoveries...................... - - 8,227
Production.......................................... - (1,474) (2,218)
Purchases (sales) of minerals in place.......... - (6,274) (140)
Transfer of property to assets held for sale.... - (57,457) -
----- ------- ------
End of year......................................... - - 74,208
===== ======= ======
Proved developed reserves -
Beginning of year............................... - 34,792 38,161
===== ======= ======
End of year..................................... - - 34,792
===== ======= ======
</TABLE>
The Company's estimated quantities of oil and gas as of
December 31, 1996 were prepared by H.J. Gruy and Associates,
Inc., independent engineers.
The revisions in the Company's estimated quantities of gas
and oil are attributable to revised estimates by Company
engineers in 1995 and 1994. For fiscal 1995 and 1994 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
-------------------------
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 pretax 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
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:
<TABLE>
Year Ended December 31
---------------------------------
1996 (a) 1995 (a) 1994 (a)
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Future cash inflows................................. $222,797 $103,048 $159,666
Future costs:
Production, including taxes..................... (39,033) (20,937) (30,455)
Development..................................... (40,904) (35,276) (34,534)
------- ------- -------
Future net inflows before income taxes.............. 142,860 46,835 94,677
Future income taxes (b)............................. - - -
------- ------- -------
Future net cash flows............................... 142,860 46,835 94,677
10% discount factor................................. (63,798) (20,795) (34,429)
Transfer of properties to assets held for sale...... - (26,040) -
------- ------- -------
Standardized measure of discounted net cash flows... $ 79,062 $ - $ 60,248
======= ======= =======
</TABLE>
- -------------
(a) 1996 represents China properties only. 1995 and 1994
represents U.S. properties only.
(b) No taxes have been reflected because of utilization of net
operating loss carryforwards.
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
-----------------------------------
<TABLE>
Year Ended December 31
-------------------------------
1996 (a) 1995 (a) 1994 (a)
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Standardized measure-beginning of year................ $ - $ 60,248 $ 65,188
Increases (decreases):
Sales and transfers, net of production costs...... - (1,347) (2,639)
Net change in sales and transfer prices, net of
production costs............................... - (15,095) (3,458)
Extensions, discoveries and improved recovery,
net of future costs............................. 79,062 - 8,664
Changes in estimated future development costs..... - (2,886) (526)
Development costs incurred during the period that
reduced future development costs............... - 1,117 -
Revisions of quantity estimates................... - (8,003) (14,695)
Accretion of discount............................. - 6,024 6,519
Net change in income tax.......................... - - -
Purchase (sales) of reserves in place............. - (4,654) (157)
Changes in production rates (timing) and other.... - (9,364) 1,352
Reclassification of reserves to assets held
for sale........................................ - (26,040) -
------ ------- -------
Standardized measure-end of year...................... $79,062 $ - $ 60,248
====== ======= =======
</TABLE>
- ------------
(a) 1996 represents China properties only. 1995 and 1994
represents U.S. properties only.
(14) Supplemental Financial Information
Quarterly Results of Operations
-------------------------------
<TABLE>
Quarter Year
----------------------------------------- ----
First Second Third Fourth
----- ------ ----- ------
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1996
- ----
Oil and gas revenues......... $ 576 $ 361 $ 94 $ 105 $ 1,136
Loss from operations (a)..... (1,057) (1,970) (1,606) (5,160) (9,793)
Net loss (a)................. (1,641) (3,062) (1,733) (5,638) (12,074)
Net loss per share (a)....... (.01) (.02) (.01) (.03) (.07)
1995
- ----
Oil and gas revenues......... $ 678 $ 724 $ 604 $ 474 $ 2,480
Loss from operations (b)..... (1,269) (12,349) (10,362) (61,693) (85,673)
Net loss (b)................. (1,612) (13,263) (10,496) (62,466) (87,837)
Net loss per share (b)....... (.01) (.07) (.04) (.26) (.38)
</TABLE>
- --------------
(a) 1996 results include a provision for impairment of oil and
gas properties held for sale of $3,850.
(b) 1995 results include a provision for impairment of oil and
gas properties held for sale of $75,300.
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 1996.
<TABLE>
Officer Director
Name Position Age Since Since
---- -------- --- ----- -----
<C> <C> <C> <C> <C>
Marsden W. Miller, Jr. ....... Chairman of the Board
and Chief Executive Officer (1) 55 1981 1981
John T. Chandler.............. President and Director,
Chairman and Chief Executive
Officer of XCL-China Ltd. (1)(6) 64 1982 1983
David A. Melman............... Executive Vice President, General
Counsel, Secretary and Director (1) 54 1983 1987
Edmund McIlhenny, Jr. ........ Director of the Company, President
of XCL Land, Ltd. (4) 51 1991 1990
Fred Hofheinz................. Director of the Company, Attorney
at Law (2)(3) 59 - 1991
Arthur W. Hummel, Jr. ........ Director of the Company,
Independent Consultant (2)(3) 76 - 1994
Sir Michael Palliser.......... Director of the Company,
Independent Consultant (2)(3) 74 - 1994
Francis J. Reinhardt, Jr. .... Director of the Company, Partner
in Carl H. Pforzheimer & Co. (2)(3) 67 - 1992
Danny M. Dobbs................ Executive Vice President and
Chief Operations Officer (5) 51 1991 -
Herb Hamilton................. Executive Vice President Operations,
XCL-China, Ltd. (6) 61 1995 -
Pamela G. Shanks.............. Vice President-Finance, Chief
Financial Officer and Treasurer (7) 44 1992 -
R. Carter Cline............... Vice President-Land 48 1990 -
John H. Haslam................ Treasurer (8) 55 1996 -
- ---------------
</TABLE>
(1) Member of the Executive Committee. The Committee met twice
during 1996 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.
(2) Member of the Compensation Committee. The Committee met once
in 1996. 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.
(3) Member of the Audit Committee. The Committee met once in
1996. 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.
(4) 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. and effective June
26, 1996, Mr. McIlhenny resigned as a director of the
Company.
(5) Effective March 17, 1994, Mr. Dobbs was appointed to the
position of Executive Vice President and Chief Operations
Officer of the Company.
(6) XCL-China, Ltd. is a wholly owned subsidiary of the Company
which manages the Company's oil and gas operations in China.
(7) Effective February 1, 1996, Ms. Shanks resigned as an
officer of the Company.
(8) Mr. Haslam was appointed Treasurer on March 21, 1996.
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 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. and Francis
J. Reinhardt, Jr.; and the current Class III directors, whose
terms of office expire at the 1999 annual meeting of
shareholders, are Messrs. John T. Chandler and Fred Hofheinz.
Mr. Edmund McIlhenny, a Class II director, resigned effective
June 26, 1996.
The Board held five meetings in 1996. The average attendance
by directors at these meetings was 97 percent, and all directors
attended 98 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. As a
result of certain dividend payment defaults, the holders of the
Company's Series A Preferred Stock are entitled to elect (voting
as a class with all other shares of parity stock) two additional
directors until all past accumulated dividends have been paid in
full. In addition, as a result of such dividend payment
defaults, the holders of the Company's Series A Preferred Stock
are entitled to cast 21 votes for each share of such Stock voting
together with the Common Stockholders on all matters subject to
Common Stockholder vote.
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 China. 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. Mr. Melman holds a B.S. degree in
economics and J.D. and LL.M (taxation) law degrees.
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 35 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.
HERBERT F. 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. From 1988 until joining the Company, he was employed by
United Gas Pipeline as Credit Manager. From 1986 to 1988, he
served as Director of Internal Audit for TransAmerican Natural
Gas Corporation. From 1981 to 1986 he was the Audit Manager for
ENSTAR Corporation. He was with Getty Oil from 1963 until 1981,
as Audit Manager of Joint Venture Operations and various other
accounting positions. Mr. Haslam holds a B.B.A. degree in
Marketing 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, 1996, as required by Section 16(a) of the
Exchange Act are as follows:
Reports Number of Known Failure Number of
Reporting Person Filed Late Transactions to File Form Transactions
- ---------------- ---------- ------------ ------------ ------------
M. W. Miller, Jr. Form 4 7 - -
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 1996, 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>
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
---------------------- -------------------- -----------------
(1) (2) (3) (4) (5)
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. 1996 150,000 - - - - - -
Chairman and 1995 150,000 - - - - - -
Chief Executive Officer 1994 150,000 - - - 1,625,000
1,875,000
525,000 - -
John T. Chandler (6)(7) 1996 150,000 - - - - - -
President; Chairman and 1995 150,000 - - - 120,000 - -
Chief Executive Officer 1994 150,000 - - - 470,000
of XCL-China Ltd. 1,025,000
100,000 - -
David A. Melman (8) 1996 150,000 - - - - - -
Executive Vice President, 1995 150,000 - - - 300,000 - -
General Counsel and 1994 150,000 - - - 470,000
Secretary 1,025,000
100,000 - -
Danny M. Dobbs (9) 1996 135,000 - - - 97,000 - -
Executive Vice President 1995 116,250 - - - - - -
and Chief Operations 1994 110,000 - - - 148,000 - -
Officer
Herbert F. Hamilton (10) 1996 144,000 - - - - - -
Executive Vice President 1995 98,800 - - - 200,000 - -
Operations, XCL-China 1994 - - - - - - -
</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 30 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 15-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) XCL-China Ltd. is a wholly owned subsidiary of the Company
which manages the Company's operations in China.
(7) Mr. Chandler was granted 120,000 options to replace options
granted in 1984 which expired unexercised in December 1994.
(8) 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.
(9) Mr. Dobbs was granted 97,000 options to replace options
granted in 1985 which expired unexercised in December 1995.
(10) Mr. Hamilton commenced employment with the Company on April
24, 1995. As part of his employment package he was awarded
200,000 options.
Stock Options
- -------------
The Company currently maintains three 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 nonemployee 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 nonemployee 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 nonexecutive officers, employees and consultants of
the Company.
The closing price of the Company's Common Stock on the
American Stock Exchange on March 31, 1997 was $0.25 per share.
The following tables set forth, for those persons named in
the "Summary Compensation Table" information on stock options
granted during 1996 and all stock options outstanding as of
December 31, 1996.
Option/SAR Grants in Last Fiscal Year
-------------------------------------
<TABLE>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
(a) (b) (c) (d) (e) (f) (g )
% of Total
Options/
SARs
Granted to
Options/ Employees in Exercise or
SARs Fiscal Base Price Expiration
Name Granted (#) Year (3) ($/Share) Date 0% ($) 5% ($) 10% ($)
------ ----------- ------------ ----------- ---------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
M.W. Miller, Jr. - 0% - - - - -
J.T. Chandler - 0% - - - - -
D.A. Melman - 0% - - - - -
D.M. Dobbs 97,000 (1) 40% $1.25 April 10, (90,937.50) (71,874.13) (42,627.18)
2000
H.F. Hamilton - 0% - - - - -
</TABLE>
- ---------------
(1) Mr. Dobbs was granted 97,000 options to replace options
granted in 1985 which expired unexercised in December 1995.
Aggregated Option/SAR Exercises In Last Fiscal Year
---------------------------------------------------
and Fiscal Year-End Option/SAR Values
-------------------------------------
<TABLE>
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the-Money
Acquired Options/SARs at Options/SARs at
on Value Fiscal Year-End (#) Fiscal Year-End ($)(3)
Exercise Realized --------------------------- ---------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------- -------- -------- ----------- ------------- ----------- -------------
<C> <C> <C> <C> <C> <C> <C>
Marsden W. Miller, Jr. - - 5,025,000 (1) - - -
- - 2,400,000 (2) - - -
John T. Chandler - - 1,130,000 (1) - - -
- - 1,125,000 (2) - - -
David A. Melman - - 1,130,000 (1) - - -
- - 1,125,000 (2) - - -
Danny M. Dobbs - - 336,333 (1) 64,667 - -
- - 582,000 (2) - - -
Herbert F. Hamilton - - 133,333 (1) 66,667 - -
</TABLE>
- -------------
(1) Represents options exercisable under the Company's Stock
Option Plans at December 31, 1996.
(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 15-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, 1996, the Company's Common Stock price was
lower than the option exercise prices.
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) are being 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, both directors are 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 1996 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,
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. 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 24 months salary for employees with
more than 10 years
of service.
Report on Repricing of Options/SARs
- -----------------------------------
During the fiscal year ended December 31, 1996, 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, 1996, 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, nonemployee 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 74, 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 1997, 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 10 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 nonqualified
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 nonmaterial loss of a portion of the deductions
associated with that compensation.
On March 20, 1997, the Committee reviewed the Company's 1996
financial results and 1996 nonfinancial goals and determined to
await further developments in the Company's intended financing
program prior to assessing management's accomplishments.
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 successful in disposing of
assets and raising capital throughout the year. However, 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 20, 1997 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 1992 through 1996, 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;
Chemfirst Inc. (formerly 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, 1991 and
that all dividends were reinvested.
[SHAREHOLDER RETURN PERFORMANCE GRAPH]
1992 Return 1993 Return 1994 Return 1995 Return 1996 Return
----------- ----------- ----------- ----------- -----------
XCL 200.00 100.00 144.44 66.67 33.33
Peer Group 80.38 97.96 97.65 123.35 147.19
AMEX 101.06 120.78 109.84 138.77 147.65
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
The following table sets forth as of February 28, 1997, the
individuals or entities known to the Company to own more
than 5 percent of the Company's outstanding shares of voting
securities. As of that date there were 290,083,521 shares of
Common Stock issued and outstanding. Except as otherwise
indicated, all shares are owned both of record and
beneficially.
<TABLE>
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 & 19,905,344 (4) 6.46 - - 44,954 100
Development Co., Ltd.
16th Floor, No. 563
Chung Hsiao E. Road, Sec. 4
Taipei, Taiwan
Cumberland Associates 7,243,172 (5) 2.47 157,148 26.58 - -
1114 Avenue of the Americas
New York, New York 10036
Kayne Anderson Investment 19,679,287 (6) 6.66 159,051 26.90 - -
Management, Inc.
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90026
Mitch Leigh 25,456,952 (7) 8.67 - - - -
29 West 57th Street
New York, New York 10019
Phildrew Nominees Limited 686,469 (8) 0.24 32,689 5.53 - -
Triton Court
14 Finsbury Square
London EC2A 1PD
United Kingdom
T. Rowe Price & Assoc., Inc. 1,499,543 (9) 0.52 45,000 7.61 - -
100 East Pratt Street, 9th Floor
Baltimore, Maryland 21202
</TABLE>
_______________
(1) This table includes shares of Common Stock issuable upon
conversion of the shares of Series A Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock. Each share
of Series A Preferred Stock is convertible into
approximately 21 shares of Common Stock. Each share of
Series E Preferred Stock is convertible into approximately
200 shares of Common Stock. Each share of Series F
Preferred Stock is convertible into approximately 400 shares
of Common Stock. The Series E and Series F Preferred Stocks
are non-voting except in certain limited circumstances.
(2) In light of the fact that the Company is 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 which are issuable upon exercise
of outstanding Class B Warrants, 1,640,100 shares issued and
held by a broker for sale pursuant to a notice of redemption
and 14,940,244 shares reserved for redemption, which may be
issued to or sold on behalf of the holder.
(5) Includes 3,340,108 shares issuable upon conversion of Series
A Preferred Stock.
(6) Includes 7,379,200 shares issuable upon conversion of Series
A Preferred Stock, 6,602,000 shares issuable upon conversion
of Series E Preferred Stock, and 1,933,332 shares issuable
upon the exercise of outstanding stock purchase warrants.
(7) Includes 7,379,200 shares issuable upon conversion of Series
F Preferred Stock; 3,000,000 shares issuable upon the
exercise of outstanding stock purchase warrants; 692,400
shares issuable upon conversion of Series F Preferred Stock
owned by Mr. Leigh's wife; 1,028,026 shares held in
custodial and trust accounts for Mr. Leigh's minor children;
and 432,526 shares issuable upon exercise of outstanding
stock purchase warrants held in trust for Mr. Leigh's minor
children. Mr. Leigh disclaims beneficial ownership of all
shares held by his wife and minor children.
(8) Represents shares issuable upon conversion of Series A
Preferred Stock.
(9) 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 February 28, 1997. As of
that date there were 290,083,521 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
--------------------------------
Number Percent
Name of Beneficial Owner of Shares of Class
- ------------------------ --------------------- ---------
Marsden W. Miller, Jr. 10,476,284 (1)(2)(3) 3.52
John T. Chandler 3,124,177 (1)(2)(3) 1.07
David A. Melman 2,377,742 (2)(3) 0.81
Fred Hofheinz 100,000 (2) 0.03
Arthur W. Hummel, Jr. 100,000 (2) 0.03
Sir Michael Palliser 100,000 (2) 0.03
Francis J. Reinhardt, Jr. 652,017 (2)(4) 0.22
All directors and officers
of the Company as a group
(9 persons).............. 18,244,827 (2)(3) 6.29
- -----------------
(1) 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.
(2) Includes shares of Common Stock which may be acquired
pursuant to options which are exercisable within 60 days.
(3) Includes shares of Common Stock which may be acquired
pursuant to stock purchase warrants exercisable within 60
days.
(4) 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.
----------------------------------------------
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, 1996
and December 31, 1995.............................. 32
Consolidated Statement of Operations for each of
the three years in the period ended
December 31, 1996.................................. 33
Consolidated Statement of Shareholders' Equity
for each of the three years in the period
ended December 31, 1996............................ 34
Consolidated Statement of Cash Flows for each of
the three years in the period ended
December 31, 1996.................................. 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 II-Valuation and Qualifying Accounts
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 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 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.
A current report on Form 8-K was filed on January 10, 1997,
to report the sale of 4,168,000 shares of Common Stock pursuant
to Regulation S of the Securities Act of 1933, as amended,
through the exercise of stock purchase warrants.
A current report on Form 8-K was filed on February 19, 1997,
to report the sale of 1,340,200 shares of Common Stock pursuant
to Regulation S of the Securities Act of 1933, as amended,
through the exercise of stock purchase warrants.
A current report on Form 8-K was filed on March 6, 1997, to
report the sale of 289,900 shares of Common Stock pursuant to
Regulation S of the Securities Act of 1933, as amended, through
the exercise of stock purchase warrants.
(c) Exhibits required by Item 601 of Regulation S-K
1.0 Not applicable
2.0 Not applicable
3(i) Articles of incorporation
3.1 Certificate of Incorporation of the Company dated December
28, 1987. (A)(i)
3.2 Certificate of Amendment to the Certificate of Incorporation
of the Company dated March 30, 1988. (A)(ii)
3.3 Certificate of Amendment to the Certificate of Incorporation
of the Company dated June 22, 1990. (B)(i)
3.4 Certificate of Amendment to the Certificate of Incorporation
of the Company dated June 12, 1993. (C)
3.5 Certificate of Amendment to the Certificate of Incorporation
of the Company dated June 8, 1992, whereby Article Fourth
was amended to increase the number of shares of Common Stock
authorized. (D)(i)
3.6 Certificate of Amendment to the Certificate of Incorporation
of the Company dated September 29, 1993, whereby Article
Fourth was amended to increase the number of shares of
Common Stock authorized. (E)(i)
3.7 Certificate of Amendment dated July 1, 1994, whereby Article
Fourth was amended to increase the number of shares of
Common Stock and the name of the Company was changed. (F)(i)
3.8 Certificate of Amendment dated June 19, 1995, whereby
Article Fourth was amended to increase the number of shares
of Common Stock. (N)(i)
3.9 Certificate of Amendment dated July 30, 1996, whereby
Article Fourth was amended to increase the number of shares
of Common Stock and Preferred Stock. (Q)(i)
3(ii) Amended and Restated Bylaws of the Company as currently
in effect. (A)(iii)
4.0 Instruments defining rights of security holders, including
indentures:
4.1 Form of Common Stock Certificate. (A)(iv)
4.2 Certificate of Designation of Series A, Cumulative
Convertible Preferred Stock. (G)
4.3 Form of Series A, Cumulative Convertible Preferred Stock
Certificate. (B)(ii)
4.4 Certificate of Designation of Series B, Cumulative Preferred
Stock. (H)(i)
4.5 Form of Series B, Cumulative Preferred Stock Certificate.
(H)(ii)
4.6 Form of Class B Warrants issued to China Investment &
Development Co. Ltd. to purchase 2,500,000 shares of Common
Stock at $2.00 per share payable upon redemption of the
Series B, Cumulative Preferred Stock. (H)(iii)
4.7 Form of Amendment to Certificate of Designation of Series B
Preferred Stock dated August 7, 1992. (D)(ii)
4.8 Certificate of Designation of Series C, Cumulative
Convertible Preferred Stock. (E)(ii)
4.9 Copy of Amendment to Certificate of Designation of Series C
Preferred Stock dated February 18, 1994.(I)(i)
4.10 Form of Series C, Cumulative Convertible Preferred Stock
Certificate. (I)(iii)
4.11 Certificate of Designation of Series D, Cumulative
Convertible Preferred Stock. (I)(iv)
4.12 Form of Amendment to Certificate of Designation of Series D
Preferred Stock dated January 24, 1994. (I)(ii)
4.13 Form of Series D, Cumulative Convertible Preferred Stock
Certificate. (E)(v)
4.14 Form of Warrant dated January 31, 1994 to purchase 2,500,000
shares of Common Stock at an exercise price of $1.00 per
share, subject to adjustment, issued to INCC. (I)(iii)
4.15 Form of Registrar and Stock Transfer Agency Agreement,
effective March 18, 1991, entered into between the
Company and Manufacturers Hanover Trust Company (predecessor
to Chemical Bank), whereby Chemical Bank serves as the
Company's Registrar and U.S. Transfer Agent. (J)
4.16 Copy of Warrant Agreement and Stock Purchase Warrant dated
March 1, 1994 to purchase 500,000 shares of Common Stock at
an exercise price of $1.00 per share, subject to adjustment,
issued to EnCap Investments, L.C. (I)(iv)
4.17 Copy of Warrant Agreement and form of Stock Purchase Warrant
dated March 1, 1994 to purchase an aggregate 600,000 shares
of Common Stock at an exercise price of $1.00 per share,
subject to adjustment, issued to principals of San Jacinto
Securities, Inc. in connection with its financial consulting
agreement with the Company. (I)(v)
4.18 Form of Warrant Agreement and Stock Purchase Warrant dated
April 1, 1994, to purchase an aggregate 6,440,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to executives of the Company
surrendering all of their rights under their employment
contracts with the Company. (F)(ii)
4.19 Form of Warrant Agreement and Stock Purchase Warrant dated
April 1, 1994, to purchase an aggregate 878,900 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to executives of the Company
in consideration for salary reductions sustained under their
employment contracts with the Company. (F)(iii)
4.20 Form of Warrant Agreement and Stock Purchase Warrant dated
April 1, 1994, to purchase 200,000 shares of Common Stock at
an exercise price of $1.25 per share, subject to adjustment,
issued to Thomas H. Hudson. (F)(iv)
4.21 Form of Warrant Agreement and Stock Purchase Warrant dated
May 25, 1994, to purchase an aggregate 100,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to the holders of Purchase
Notes B, in consideration of amendment to payment terms of
such Notes. (F)(v)
4.22 Form of Warrant Agreement and Stock Purchase Warrant dated
May 25, 1994, to purchase an aggregate 100,000 shares of
Common Stock at an exercise price of $1.25 per share,
subject to adjustment, issued to the holders of Purchase
Notes B, in consideration for the granting of an option to
further extend payment terms of such Notes. (F)(vi)
4.23 Form of Amendment to Certificate of Designation of Series B
Preferred Stock dated June 30, 1994. (F)(vii)
4.24 Form of Warrant Agreement and Stock Purchase Warrant dated
January 31, 1995, to purchase 100,000 shares of Common Stock
at an exercise price of $.75 per share, subject to
adjustment, issued to Energy Advisors, Inc. (L)(i)
4.25 Copy of Amendment to Certificate of Designation of Series A
Preferred Stock dated October 31, 1995. (N)(ii)
4.26 Copy of Certificate of Designation of Series E, Cumulative
Convertible Preferred Stock dated November 2, 1995. (N)(iii)
4.27 Form of Purchase Agreement between the Company and each of
the Purchasers of Units in the Regulation S Unit Offering
conducted by Rauscher Pierce & Clark with closings as
follows:
December 22, 1995 116 Units
March 8, 1996 34 Units
April 23, 1996 30 Units (O)(i)
4.28 Form of Warrant Agreement between the Company and each of
the Purchasers of Units in the Regulation S Unit Offering
conducted by Rauscher Pierce & Clark, as follows:
Closing Date Warrants Exercise Price
------------ -------- --------------
December 22, 1995 6,960,000 $.50
March 8, 1996 2,040,000 $.35
April 23, 1996 1,800,000 $.35 (O)(ii)
4.29 Form of Warrant Agreement between the Company and Rauscher
Pierce & Clark in consideration for acting as placement
agent in the Regulation S Units Offering, as follows:
Closing Date Warrants Exercise Price
------------ -------- --------------
December 22, 1995 696,000 $.50
March 8, 1996 204,000 $.35
April 23, 1996 180,000 $.35 (O)(iii)
4.30 Form of Amendment of Certificate of Designation of Series A
Preferred Stock dated April 11, 1996. (O)(iv)
4.31 Stock Purchase Agreement between the Company and Janz
Financial Corp. Ltd. dated August 14, 1996, whereby clients
of Janz Financial Corp. Ltd. purchased 2,800,000 units
comprised of one shares of Common Stock and one warrant to
purchase one share of Common Stock in a Regulation S
transaction. (P)(i)
4.32 Form of a series of Stock Purchase Warrants issued to Janz
Financial Corp. Ltd. dated August 14, 1996, entitling the
holders thereof to purchase up to 3,080,000 shares of Common
Stock at $0.25 per share on or before August 13, 2001.
(P)(ii)
4.33 Stock Purchase Agreement between the Company and Provincial
Securities Ltd. dated August 16, 1996, whereby Provincial
purchased 1,500,000 shares of Common Stock in a Regulation S
transaction. (P)(iii)
4.34 Stock Purchase Warrant issued to Terrenex Acquisitions Corp.
dated August 16, 1996, entitling the holder thereof to
purchase up to 3,000,000 shares of Common Stock at $0.25 per
share on or before December 31, 1998. (P)(iv)
4.35 Form of a series of Stock Purchase Warrants dated November
26, 1996, entitling the following holders thereto to
purchase up to 2,666,666 shares of Common Stock at $0.125
per share on or before December 31, 1999:
Warrant Holder Warrants
-------------- --------
Opportunity Associates, L.P. 133,333
Kayne Anderson Non-Traditional Investments, L.P. 666,666
Arbco Associates, L.P. 800,000
Offense Group Associates, L.P. 333,333
Foremost Insurance Company 266,667
Nobel Insurance Company 133,333
Evanston Insurance Company 133,333
Topa Insurance Company 200,000 *
4.36 Form of a series of Stock Purchase Warrants dated December
31, 1996 (2,128,000 warrants) and January 8, 1997 (2,040,000
warrants) to purchase up to an aggregate of 4,168,000 shares
of Common Stock at $0.125 per share on or before August 13,
2001. *
4.37 Form of Stock Purchase Warrants dated February 6, 1997,
entitling the following holders to purchase an aggregate of
1,874,467 shares of Common Stock at $0.25 per share on or
before December 31, 1999:
Warrant Holder Warrants
-------------- ---------
Donald A. and Joanne R. Westerberg 241,660
T. Jerald Hanchey 1,632,807 *
4.38 Certificate of Designation of Series F, Cumulative
Convertible Preferred Stock, par value $1.00 per share *
4.39 Form of Subscription Agreement for Series F, Cumulative
Convertible Preferred Stock with respect to the following
purchases:
Subscriber Shares
---------- ------
Mitch Leigh 18,448
Abby Leigh 1,731
Arthur Rosenbloom 878 *
4.40 Form of a series of Stock Purchase Warrants dated April 10,
1997, issued as a part of a unit offered with Unsecured
Notes of XCL-China Ltd., exercisable at $0.01 per share on
or before April 9, 2002, entitling the following holders to
purchase up to an aggregate of 10,092,980 shares of Common
Stock:
Warrant Holder Warrants
-------------- --------
Kayne Anderson Offshore L.P. 651,160
Offense Group Associates, L.P. 1,627,900
Kayne Anderson Non-Traditional Investments, L.P. 1,627,900
Opportunity Associates, L.P. 1,302,320
Arbco Associates, L.P. 1,627,900
J. Edgar Monroe Foundation 325,580
Estate of J. Edgar Monroe 976,740
Boland Machine & Mfg. Co., Inc. 325,580
Construction Specialists, Inc. d/b/a Con-Spec, Inc. 1,627,900 *
10.0 - Material Contracts
10.1 Contract for Petroleum Exploration, Development and
Production on Zhao Dong Block in Bohai Bay Shallow Water Sea
Area of The People's Republic of China between China
National Oil and Gas Exploration and Development Corporation
and XCL - China, Ltd., dated February 10, 1993. (E)(vi)
10.2 $35,000,000 Credit Agreement dated as of January 31, 1994
between the Company and Internationale Nederlanden (U.S.)
Capital Corporation ("INCC"), as Agent. (I)(vi)
10.3 Copy of Subordination Agreement among the Company, INCC and
the holders of the Secured Notes dated. (I)(vii)
10.4 Form of First Amendment of Secured Subordinated Note dated
January 31, 1994. (I)(viii)
10.5 Form of First Amendment of Limited Recourse Secured Lease
Note dated January 31, 1994. (I)(ix)
10.6 Stock Pledge Agreement dated January 31, 1994, among the
Company and INCC. (I)(x)
10.7 Deed of Trust, Mortgage, Assignment, Security Agreement and
Financing Statement from XCL-Texas, Inc. to INCC dated
January 31, 1994. (I)(xi)
10.8 Form of Net Revenue Interest Assignment dated February 23,
1994, between the Company and the purchasers of the
Company's Series D, Cumulative Convertible Preferred Stock.
(I)(xii)
10.9 Modification Agreement for Petroleum Contract on Zhao Dong
Block in Bohai Bay Shallow Water Sea Area of The People's
Republic of China dated March 11, 1994, between the Company,
China National Oil and Gas Exploration and Development
corporation and Apache China Corporation LDC. (I)(xiii)
10.10 Letter Agreement dated May 25, 1994 between the
Company, L.M. Holdings Associates, L.P. and vendors holding
Purchase Note B with respect to the Lutcher Moore Tract.
(E)(vii)
10.11 Letter Agreement dated June 30, 1994 between the
Company, China Investment & Development Co. Ltd. and China
Investment and Development Corporation. (F)(ix)
10.12 Letter Agreement dated July 10, 1994 between the
Company and holders of the Lease Notes. (F)(x)
10.13 Stock Purchase Agreement between the Company and
Provincial Securities Limited dated May 17, 1994. (F)(xi)
10.14 Consulting agreement between the Company and Sir
Michael Palliser dated April 1, 1994. (K)(i)
10.15 Consulting agreement between the Company and Mr. Arthur
W. Hummel, Jr. dated April 1, 1994. (K)(ii)
10.16 Letter Agreement between the Company and Mr. William
Wang dated June 2, 1992, executed effective February 10,
1993. (K)(iii)
10.17 First Amendment to Credit Agreement between the Company
and Internationale Nederlanden (U.S.) Capital Corporation
dated April 13, 1995. (L)(ii)
10.18 Letter of Intent between the Company and CNPC United
Lube Oil Corporation for a joint venture for the manufacture
and sale of lubricating oil dated January 14, 1995. (L)(iii)
10.19 Purchase and Sale Agreement dated May 10, 1995, between
XCL Land, Ltd., a wholly owned subsidiary of the Company
("Seller") and The Succession of Edward M. Carmouche,
Matilda Gray Stream, Harold H. Stream, III, The Opal Gray
Trust, Matilda Geddings Gray Trust for Harold H. Stream,
III, Matilda Geddings Gray Trust for William Gray Stream,
Matilda Geddings Gray Trust for Sandra Gray Stream, M.G.
Stream Trust for Harold H. Stream, III, M.G. Stream Trust
for William Gray Stream, and M.G. Stream Trust for Sandra
Gray Stream ("Purchasers") whereby the Purchasers will
acquire Seller's fee interest in and to a parcel of
southwestern Louisiana land known as the Phoenix Lake
Tract. (L)(iv)
10.20 Farmout Agreement dated May 10, 1995, between XCL China
Ltd., a wholly owned subsidiary of the Company and Apache
Corporation whereby Apache will acquire an additional
interest in the Zhao Dong Block, Offshore People's Republic
of China. (L)(v)
10.21 Modification Agreement of Non-Negotiable Promissory
Note and Waiver Agreement between Lutcher & Moore
Cypress Lumber Company and L.M. Holding Associates, L.P.
dated June 15, 1995. (M)(i)
10.22 Third Amendment to Credit Agreement between Lutcher-
Moore Development Corp., Lutcher & Moore Cypress Lumber
Company, The First National Bank of Lake Charles, Mary
Elizabeth Mecom, The Estate of John W. Mecom, The Mary
Elizabeth Mecom Irrevocable Trust, Matilda Gray Stream, The
Opal Gray Trust, Harold H. Stream III, The
Succession of Edward M. Carmouche, Virginia Martin
Carmouche and L.M. Holding Associates, L.P. dated June 15,
1995. (M)(ii)
10.23 Second Amendment to Appointment of Agent for
Collection and Agreement to Application of Funds between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, L.M. Holding Associates, L.P. and The
First National Bank of Lake Charles, dated June 15,
1995. (M)(iii)
10.24 Contract of Chinese Foreign Joint Venture dated July
17, 1995, between United Lube Oil Corporation and XCL
China Ltd. for the manufacturing and selling of
lubricating oil and related products. (M)(iv)
10.25 Letter of Intent dated July 17, 1995 between CNPC
United Lube Oil Corporation and XCL Ltd. for discussion of
further projects. (M)(v)
10.26 Form of Letter Agreement dated June 26, 1995
between the Company and three of its U.S. holders of
Series A Preferred Stock, whereby the following such
holders have agreed to accept Common Stock in respect of
dividends payable December 31, 1994 and June 30, 1995 in the
amounts set forth:
12/31/94 6/30/95
Holder Dividend Dividend Shares
------ -------- -------- ------
Kayne Anderson
Investment Management $627,788.12 $689,238.87 2,225,024
Cumberland Associates $429,056.51 $445,838.59 1,487,294
T. Rowe Price &
Associates, Inc. $159,975.00 $166,232.25 554,543 (M)(vi)
10.27 Copy of Letter Agreement dated March 31, 1995, between
the Company and China National Administration of Coal
Geology for the exploration and development of coal bed
methane in Liao Ling Tiefa and Shanxi Hanchang Mining
Areas. (N)(iv)
10.28 Copy of Second Amendment to Credit Agreement between
the Company and Internationale Nederlanden (U.S.) Capital
Corporation dated effective as of September 29, 1995. (N)(v)
10.29 Copy of Fee Agreement dated October 26, 1995, between
the Company and EnCap Investments L.C. for past services and
proposed European equity offering. (N)(vi)
10.30 Copy of Engagement Letter dated November 9, 1995,
between the Company and Rauscher Pierce & Clark for a
proposed Unit offering to be conducted in Europe. (N)(vii)
10.31 Memo of Understanding dated December 14, 1995, between
XCL Ltd. and China National Administration of Coal Geology. (O)(v)
10.32 Copy of Purchase and Sale Agreement dated December 28,
1995, between XCL Ltd., XCL-Texas, Inc. and Cody Energy
Corporation, for the sale to Cody Energy of the Mestena
Grande Field located in Texas. (O)(vi)
10.33 Form of Fourth Amendment to Credit Agreement between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, The First National Bank of Lake Charles,
Mary Elizabeth Mecom, The Estate of John W. Mecom, The
Mary Elizabeth Mecom Irrevocable Trust, Matilda Gray
Stream, The Opal Gray Trust, Harold H. Stream III, The
Succession of Edward M. Carmouche, Virginia Martin
Carmouche and L.M. Holding Associates, L.P. dated January
16, 1996. (O)(vii)
10.34 Form of Third Amendment to Appointment of Agent for
Collection and Agreement to application of Funds between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, L.M. Holding Associates, L.P. and The
First National Bank of Lake Charles, dated January 16,
1996. (O)(viii)
10.35 Copy of Purchase and Sale Agreement dated March 8,
1996, between XCL-Texas, Inc. and Tesoro E&P Company, L.P.
for the sale of the Gonzales Gas Unit located in south
Texas. (O)(ix)
10.36 Copy of Limited Waiver between the Company and
Internationale Nederlanden (U.S.) Capital Corporation
dated April 3, 1996. (O)(x)
10.37 Copy of Purchase and Sale Agreement dated April 22,
1996, between XCL-Texas, Inc. and Dan A. Hughes Company
for the sale of the Lopez Gas Units located in south Texas. (P)
10.38 Form of Sale of Mineral Servitude dated June 18, 1996,
whereby the Company sold its 75 percent mineral interest in
the Phoenix Lake Tract to the Stream Family Limited Partners
and Virginia Martin Carmouche Gayle. (Q)(ii)
10.39 Form of Fifth 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 August
8, 1996. *
10.40 Form of Assignment and Sale between XCL Acquisitions,
Inc. and purchasers of an interest in certain promissory
notes held by XCL Acquisitions, Inc. as follows:
Principal Purchase
Date Purchaser Amount Price
------ --------- ------ -------
November 19, 1996 Opportunity Associates, L.P. $15,627.39 $12,499.98
November 19, 1996 Kayne Anderson Non-Traditional
Investments, L.P. $78,126.36 $62,499.98
November 19, 1996 Offense Group Associates, L.P. $39,063.18 $31,249.99
November 19, 1996 Arbco Associates, L.P. $93,743.14 $75,000.04
November 19, 1996 Nobel Insurance Company $15,627.39 $12,499.98
November 19, 1996 Evanston Insurance Company $15,627.39 $12,499.98
November 19, 1996 Topa Insurance Company $23,435.79 $18,750.01
November 19, 1996 Foremost Insurance Company $31,249.48 $25,000.04
February 10, 1997 Donald A. and Joanne R.
Westerberg $25,000.00 $28,100.00
February 10, 1997 T. Jerald Hanchey $168,915.74 $189,861.29 *
10.41 Form of Sixth Amendment to Credit Agreement between
Lutcher-Moore Development Corp., Lutcher & Moore Cypress
Lumber Company, The First National Bank of Lake Charles, The
Estate of 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 28, 1997. *
10.42 Form of Act of Sale between the Company and The
Schumacher Group of Louisiana, Inc. dated March 31, 1997,
where in the Company sold its office building. *
10.43 Amendment No. 1 to the May 1, 1995 Agreement with
Apache Corp. dated April 3, 1997, effective December 13, 1996. *
10.44 Form of Guaranty dated April 9, 1997 by XCL-China Ltd.
in favor of ING (U.S.) Capital Corporation executed in
connection with the sale of certain Unsecured Notes issued
by XCL-China Ltd. *
10.45 Form of First Amendment to Stock Pledge Agreement dated
April 9, 1997, between the Company and ING (U.S.) Capital
Corporation adding XCL Land Ltd. to the Stock Pledge
Agreement dated as of January 31, 1994. *
10.46 Form of Agreement dated April 9, 1997, between ING
(U.S.) Capital Corporation, XCL-China and holders of the
Senior Unsecured Notes, subordinating the Guaranty granted
by XCL-China in favor of ING to the Unsecured Notes. *
10.47 Form of Forbearance Agreement dated April 9, 1997
between the Company and ING (U.S.) Capital Corporation. *
10.48 Form of a series of Unsecured Notes dated April 10,
1997, between the Company and the following entities:
Note Holder Principal Amount
----------- ----------------
Kayne Anderson Offshore, L.P. $200,000
Offense Group Associates, L.P. $500,000
Kayne Anderson Non-Traditional Investments, L.P. $500,000
Opportunity Associates, L.P. $400,000
Arbco Associates, L.P. $500,000
J. Edgar Monroe Foundation $100,000
Estate of J. Edgar Monroe $300,000
Boland Machine & Mfg. Co., Inc. $100,000
Construction Specialists, Inc. d/b/a Con-Spec, Inc. $500,000 *
10.49 Form of Subscription Agreement dated April 10, 1997, by
and between XCL-China, Ltd., the Company and the subscribers
of Units, each unit comprised of $100,000 in Unsecured Notes
and 325,580 warrants. *
10.50 Form of Intercompany Subordination Agreement dated
April 10, 1997, between the Company, XCL-Texas, Ltd., XCL
Land Ltd., The Exploration Company of Louisiana, Inc., XCL-
Acquisitions, Inc., XCL-China Coal Methane Ltd., XCL-China
LubeOil Ltd., XCL-China Ltd., and holders of the Unsecured
Notes. *
11. Statement re computation of per share earnings *
18. Not applicable.
20. Not applicable.
21. Subsidiaries *
22. Not applicable.
23.1 Consent of Coopers & Lybrand LLP*
23.2 Consent of H.J. Gruy and Associates, Inc.*
24. Not applicable.
27. Financial Data Schedule *
99.1 Reserve Report prepared by H.J. Gruy and Associates, Inc. *
99.2 Glossary of Terms *
______________
* Filed herewith.
(A) Incorporated by reference to the Registration Statement on
Form 8-B filed on July 28, 1988, where it appears as: (i)
through (iii) as Exhibits 3(a) through 3(c), respectively;
and (iv) as Exhibit 4.1.
(B) Incorporated by reference to a Quarterly Report on Form 10-Q
filed on August 14, 1990, where it appears as: (i) Exhibit 3
and (ii) Exhibit 4.4.
(C) Incorporated by reference to an Annual Report on Form 10-K
filed on March 30, 1992, where it appears as Exhibit (3)(g).
(D) Incorporated by reference to a Quarterly Report on Form 10-Q
filed August 14, 1992, where it appears as: (i) Exhibit
4.25 and (ii) Exhibit 4.28.
(E) Incorporated by reference to a Registration Statement on
Form S-3 (File No. 33-68552) where it appears as: (i)
Exhibit 4.27; (ii) Exhibit 4.14; (iii) Exhibit 4.16; (iv)
Exhibit 4.17; (v) Exhibit 4.19; (vi) Exhibit 10.1; and (vii)
Exhibit 10.6.
(F) Incorporated by reference to Post-Effective Amendment No. 2
to Registration Statement on Form S-3 (File No. 33-68552)
where it appears as: (i) through (iii) Exhibits 4.28 through
4.30, respectively; (iv) through (viii) Exhibits 4.34
through 4.38, respectively; and (ix) through (xi) Exhibits
10.8 through 10.10, respectively.
(G) Incorporated by reference to a Current Report on Form 8-K
filed on August 13, 1990, where it appears as Exhibit 4.
(H) Incorporated by reference to Quarterly Report on Form 10Q
filed May 15, 1991, where it appears as: (i) Exhibit 4.1;
(ii) Exhibit 4.2; and (iii) Exhibit 4.5.
(I) Incorporated by reference to Amendment No. 1 to Annual
Report on Form 10-K filed April 15, 1994, where it appears
as: (i) Exhibit 4.35; (ii) Exhibit 4.31; (iii) Exhibit
4.32; (iv) Exhibit 4.36; (v) Exhibit 4.37; (vi) through
(xii) Exhibit 10.41 through Exhibit 10.47, respectively; and
(xii) Exhibit 10.49.
(J) Incorporated by reference to an Annual Report on Form 10K
for the fiscal year ended December 31, 1990, filed April 1,
1991, where it appears as Exhibit 10.27.
(K) Incorporated by reference to Amendment No. 1 to an Annual
Report on Form 10-K/A No. 1 for the fiscal year ended
December 31, 1994, filed April 17, 1995, where it appears
as: (i) through (iii) Exhibits 10.22 through 10.24,
respectively.
(L) Incorporated by reference to Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995, filed May 15,
1995, where it appears as: (i) Exhibit 4.28; and (ii)
through (v) Exhibits 10.25 through 10.28, respectively.
(M) Incorporated by reference to Quarterly Report on Form 10-
Q for the quarter ended June 30, 1995, filed August 14,
1995, where it appears as: (i) through (vi) Exhibits 10.29
through 10.34, respectively.
(N) Incorporated by reference to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995, filed November
13, 1995, where it appears as: (i) Exhibit 3.8; (ii)
and (iii) Exhibits 4.29 and 4.30, respectively; and (iv)
through (vii) Exhibits 10.35 through 10.38, respectively.
(O) Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1995, filed April 15, 1996,
where it appears as: (i) through (iv) Exhibits 4.28
through 4.31, respectively; and (v) through (x)
Exhibits 10.31 through 10.36, respectively.
(P) Incorporated by reference to Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, filed May 15, 1996,
where it appears as Exhibit 10.37.
(Q) Incorporated by reference to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, filed August 14, 1996,
where it appears as (i) Exhibit 3.9 and (ii) Exhibit 10.38.
(P) Incorporated by reference to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, filed November 14,
1996, where it appears as (i) through (iv) Exhibits 4.31
through 4.34.
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 II-Valuation and Qualifying Accounts
For the Years Ended December 31, 1996, 1995 and 1994
(thousands of dollars)
<TABLE>
Additions
------------------------
Balance at Charged Charges Balance at
Beginning of to costs to other End of
Description Year and expenses accounts Deduction Year
----------- ------------ ------------ --------- --------- --------
1996:
- ----
<S> <C> <C> <C> <C> <C>
Allowance for doubtful trade
accounts receivable $ 103 $ - $ - $ 2 $ 101
======= ======= ====== ===== =======
Deferred tax valuation allowance $ 73,743 $ 4,332 $ - $ - $ 78,075
======= ======= ====== ===== =======
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
======= ======= ====== ===== =======
</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 11, 1997 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
/a/ Marsden W. Miller, Jr.
__________________________ Chairman of the Board April 11, 1997
Marsden W. Miller, Jr. Chief Executive Officer and
Principal Financial Officer
/s/ Angel Barron
______________________ Principal Accounting Officer April 11, 1997
Angel Barron
/s/ John T. Chandler
______________________ Director April 11, 1997
John T. Chandler
/s/ David A. Melman
______________________ Director April 11, 1997
David A. Melman
/s/ Fred Hofheinz
______________________ Director April 11, 1997
Fred Hofheinz
/s/ Arthur W. Hummel, Jr.
________________________ Director April 11, 1997
Arthur W. Hummel, Jr.
/s/ Michael Palliser
_____________________ Director April 11, 1997
Michael Palliser
/s/ Francis J. Reinhardt, Jr.
____________________________ Director April 11, 1997
Francis J. Reinhardt, Jr.
XCL LTD.
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE
WARRANTS ("SHARES") 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 OF ANY OTHER DOMESTIC OR FOREIGN JURISDICTION.
NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER
DISPOSITION (COLLECTIVELY, A "DISPOSAL") OF THE
WARRANTS REPRESENTED BY THIS CERTIFICATE, AND UPON EXERCISE,
THE SHARES, MAY BE MADE 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.
No. NB-1
WARRANTS TO PURCHASE
COMMON STOCK OF XCL LTD.
Initial Issuance on November 26, 1996
Void after 5:00 p.m. New York Time, December 31, 1999
THIS CERTIFIES THAT, for value received,
Opportunity Associates, L.P. 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 November 26, 1996 and until 5:00 p.m.,
New York time, on December 31, 1999 (the "Expiration
Date"), subject to the conditions set forth herein, at
the initial exercise price of $0.125 per share (the "Initial
Exercise Price"), subject to adjustment as set forth herein
(the "Exercise Price"), up to an aggregate of ONE HUNDRED
THIRTY-THREE THOUSAND THREE HUNDRED THIRTY-THREE
(133,333) fully paid and nonassessable common shares, par
value $0.01 per share (the "Common Stock"), of the Company
(the "Shares"), subject to adjustement as set forth herein,
upon surrender of this amended and restated warrant
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 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 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 at any time and from time to time after November
26, 1996 to pur chase 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 Com pany, 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 bear a restrictive legend in
substantially the form of Exhibit A attahced hereto and
made a part hereof. The Company shall also issue a "stop
transfer" or similar instruction or order with respect to
the Shares purchased upon exercise of the Warrants that
shall be in effect at Chase Mellon Shareholders Services,
Independent Registrars Group 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
8(f) hereof).
3. Payment of Taxes. The Company will pay all
documentary stamp taxes, if any, attributable to the issuance
and delivery of the Shares upon the exercise of the
Warrants; provided, however, that the Company shall not be
required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any Warrant
or any Shares in any name other than that of the Holder,
which transfer taxes shall be paid by the Holder, and
until payment of such 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 have not been, and 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, except pursuant to the
requirements of Section 5 hereof. No offer, sale, transfer,
pledge or other disposition (collectively, a "Disposal") of the
Warrants represented by this Certificate or the Shares may be made
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.
5. Piggyback Registration. If, at any time
after 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 on 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 issued or
issuable to the Holder upon exercise of the Holder's
Warrants (the "Registrable Shares") (which notice shall
specify the number of Registrable Shares owned by the
Holder and the number intended to be disposed of by the
Holder), 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' brokerdealers', 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; provided that;
(a) anything in this Section 5 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
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 registration
rights granted by the Company, (C) next to be registered
will be securities subject to any piggyback registration
rights granted by the Company before the initial issuance
date of the Warrants, and (D) 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 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,
provided, however, in no event shall the securities the
Company proposes to sell constitute less than 75% of the
total amount of securities so to be offered; and
(b) anything in this Section 5 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
(c) 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 5 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 its request for inclusion of its Registrable
Shares in such registration; and
(d) notwithstanding the provisions of this
Section 5, 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; and
(e) the Holder, as a condition to the inclusion
of any of his Registrable Shares in any such registered
offering, shall execute all such customry selling
shareholders agreements as the Company may request,
including, without limitation, any underwriting agreement
which may be applicable to any such registered offering.
6. 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 signature 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 London Stock Exchange Limited 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) 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.
7. 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 and date, in lieu thereof.
8. 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 (i) declare a dividend on
all issued and outstanding 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 8(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 8(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 8(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 8(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 8, 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 8, and the "Market Value
per share" of Common Stock on any date shall be deemed to be the
closing bid price on the date of the issuance of the securities for
which such computation is being made, as reported on the
principal United States securities exchange on which the Common Stock is
listed or admitted to trading or if the Common Stock is not
then listed on any United States stock exchange, the average of the
closing sales price on each such day during such 20 day
period, in the case of the Market Price computation, or on such date of
issuance, in the case of the Market Value computation, in the
over-the-counter market as reported by the National
Association of Securities Dealers' Automated Quotation System
("NASDAQ"), or, if not so reported, the average of the
closing bid and asked prices on each such day during such
20 day period in the case of the Market Price computation, or on
such date of issuance, in the case of the Market Value computation,
as reported in the "pink sheets" published by the National Quotation
Bureau, Inc. or any successor thereof, or, if not so quoted,
the average of the middle market quotations for such 20 day period
in the case of the Market Price computation, or on such date of issuance,
in the case of the Market Value computation, as reported on
the daily official list of the prices of stock listed on The
London Stock Exchange Limited ("The Stock Exchange Daily
Official List"). "Trading day" means any day on which the Common
Stock is available for trading on the applicable securities exchange
or in the applicable securities market. In the case of
Market Price or Market Value computations based on The Stock
Exchange Daily Official List, the Market Price or Market Value shall be
converted into United States dollars at the then spot
market exchange rate of pounds sterling (UK) into United
States dollars as quoted by Chase Manhattan Bank, N.A., 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
8(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 8(b), (c) or (i). All
calculations under this Section 8 shall be made to the
nearest cent and the nearest whole share.
(h) If at any time, as a result of an
adjustment made pursuant to Section 8(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 8,
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 8 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 8(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.
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:
(a) 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
(b) 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
(c) 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
(d) 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
closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution,
convertible or exchangeable secur ities 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 dividend 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) The Company covenants and agrees that at
all times during the period after November 26, 1996, 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 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.
(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,
representations and warranties herein shall survive the execution
and delivery of this Certificate and any investigation at
any time made by or on behalf of any party hereto and the
exercise, sale and purchase of the Warrants and the
Shares (and any other securities or properties) issuable on
exercise hereof.
12. Remedies. The Company agrees that the
remedies at law of the Holder, in the event of any default
or threatened default by the Company in the performance of
or compliance with any of the terms hereof, may not be adequate
and such terms may, in addition to and not in lieu of any
other remedy, be specifically enforced by a decree of
specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof
or otherwise.
13. Registered Holder. The Company may deem
and treat the registered Holder hereof as the absolute owner of
this Certificate and the Warrants represented hereby
(notwithstanding any notation of ownership or other
writing hereon made by anyone), for the purpose of any exercise of
the Warrants, of any notice, and of any distribution to the Holder hereof,
and for all other purposes, and the Company shall not be
affected by any notice to the contrary.
14. 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 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 accordance with, the laws of said state, without
regard to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certifi cate to be duly executed by its duly authorized
officers under its corporate seal.
Dated: November 26, 1996
XCL LTD.
By:_______________________________
David A. Melman
Executive Vice President,
General Counsel and
Secretary
Attest:
____________________________
Assistant Secretary
Agreed to and accepted
as of November 26, 1996 by
Opportunity Associates, L.P.
By:___________________________
Name:______________________
Title:_____________________
XCL LTD.
EXHIBIT A
RESTRICTIVE LEGEND
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, OR ANY OTHER FEDERAL OR STATE SECURITIES
LAWS OF THE UNITED STATES OF AMERICA. THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED,
APPLICABLE STATE SECURITIES LAWS AND THE RULES AND
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION, AND
MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH SUCH LAWS.
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
purchas able 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.
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 securities exchange,
The Securities and Futures Authority Limited in the United
Kingdom or The London Stock Exchange Limited 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 18, 1997, 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 CERTI
FICATIONS TO THE COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES) AND (ii) THE COMPANY
RECEIVES THE LEGAL OPINION DESCRIBED IN (A)(ii) ABOVE.
No. JFC-15
WARRANTS TO PURCHASE
COMMON STOCK OF XCL LTD.
Initial Issuance on January 9, 1997
Void after 5:00 p.m. New York Time, August 13, 2001
THIS CERTIFIES THAT, for value received, PROVIDENCE CAPITAL
LTD. or registered assigns (the "Holder") is the registered
holder of warrants (the "Warrants") to purchase from XCL Ltd., a
Delaware corporation (the "Company"), at any time or from time to
time beginning on January 9, 1997 and until 5:00 p.m., New York
time, on August 13, 2001 (the "Expiration Date"), subject to the
conditions set forth herein, at the initial exercise price of
$0.125 per share (the "Initial Exercise Price"), subject to
adjustment as set forth herein (the "Exercise Price"), up to an
aggregate of FIVE HUNDRED TEN THOUSAND (510,000) (the "Shares")
fully paid and non-assessable common shares, par value $0.01 per
share (the "Common Stock"), of the Company upon surrender of this
certificate (the "Certificate") and payment of the Exercise Price
multiplied by the number of Shares in respect of which Warrants
are then being exercised (the "Purchase Price") at the principal
office of the Company presently located at 110 Rue Jean Lafitte,
Lafayette, LA 70508, United States.
1. Exercise of Warrants.
--------------------
(a) The exercise of any Warrants represented by this
Certificate is subject to the conditions set forth below in
Section 4, "Compliance with U.S. Securities Laws."
(b) Subject to compliance with all of the conditions set
forth herein, the Holder shall have the right to purchase from
the Company the number of Shares which the Holder may at the time
be entitled to purchase pursuant hereto, upon surrender of this
Certificate to the Company at its principal office, together with
the form of election to purchase attached hereto duly completed
and signed, and upon payment to the Company of the Purchase
Price; provided, that if the date of such purchase is not a day
on which banking institutions in New York City are authorized or
obligated to do business (a "Business Day"), then such purchase
shall take place before 5:00pm New York time on the next
following Business Day.
(c) No Warrant may be exercised after 5:00 p.m., New York
time, on the Expiration Date, at which time all Warrants
evidenced hereby, unless exercised prior thereto, shall
thereafter be null and void and all further rights in respect
thereof under this Certificate shall thereupon cease.
(d) Payment of the Purchase Price shall be made in United
States dollars in cash, by wire transfer or by certified check or
banker's draft payable to the order of the Company, or any
combination of the foregoing.
(e) The Warrants represented by this Certificate are
exercisable at the option of the Holder, in whole or in part (but
not as to fractional Shares). Upon the exercise of less than all
of the Warrants evidenced by this Certificate, the Company shall
forthwith issue to the Holder a new certificate of like tenor
representing the number of unexercised Warrants.
(f) Subject to compliance with all of the conditions set
forth herein, upon surrender of this Certificate to the Company
at its principal office, together with the form of election to
purchase attached hereto duly completed and signed, and upon
payment of the Purchase Price, the Company shall cause to be
delivered promptly to or upon the written order of the Holder and
in such name or names as the Holder may designate, a certificate
or certificates for the number of whole Shares purchased upon the
exercise of the Warrants. Such certificate or certificates shall
be free of any restrictive legend. The Company shall ensure that
no "stop transfer" or similar instruction or order with respect
to the Shares purchased upon exercise of the Warrants shall be in
effect at Chase Mellon Shareholder Services or Independent
Registrars Group Limited, the Company's U.S. and U.K. transfer
agents and registrars, respectively, for the Common Stock,
respectively, or any successor transfer agents thereto (the
"Transfer Agents"); provided, however, that the Holder
understands and agrees that the Company and the Transfer Agents
will not register any transfer of the Warrants or the Shares of
Common Stock issuable upon exercise of the Warrants or any
interest therein which the Company in good faith believes
violates the restrictions set forth in this Certificate.
2. Elimination of Fractional Interests. The Company shall
not be required to issue certificates representing fractions of
Shares and shall not be required to issue scrip in lieu of
fractional interests. Instead of any fractional Shares that
would otherwise be issuable to such Holder, the Company shall pay
to such Holder a cash adjustment in respect of such fractional
interest in an amount equal to such fractional interest of the
then-current Market Price per share (as defined in Section 7(f)
hereof).
3. Payment of Taxes. The Company will pay all documentary
stamp taxes, if any, attributable to the issuance and delivery of
the Shares upon the exercise of the Warrants; provided, however,
that the Company shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or
delivery of any Warrant or any Shares in any name other than that
of the Holder, which transfer taxes shall be paid by the Holder,
and until payment of such taxes, if any, the Company shall not be
required to issue such Shares.
4. Compliance with U.S. Securities Laws. The Warrants and
the Shares issuable upon the exercise of the Warrants have not
been and will not be registered under the United States Secur
ities Act of 1933, as amended (the "Securities Act") or under any
state or foreign securities or blue sky laws. Prior to February
18, 1997, no offer, sale, transfer, pledge or other disposition
(collectively, a "Disposal") of the Warrants represented by this
Certificate may be made (a) in the United States or to, or for
the account or benefit of, any "U.S. Person" (as defined in
Regulation S under the Securities Act) unless (i) registered
under the Act and any applicable State securities or blue sky
laws or (ii) the Company receives a written opinion of United
States legal counsel in form and substance satisfactory to it to
the effect that such Disposal is exempt from such registration
requirements or (b) outside the United States to, or for the
account or benefit of, any person who is not a U.S. Person unless
prior to such Disposal (i) the beneficial owner of such Shares
and the proposed transferee submit certain certifications to the
Company (forms of which are available from the Company at its
principal executive offices) and (ii) the Company receives the
legal opinion described in (a)(ii) above. The Warrants may not
be exercised within the United States or by, or on behalf of, any
U.S. Person unless the Warrants and the Shares have been
registered under the Securities Act and any applicable state and
foreign securities or blue sky laws or exemptions from the
registration requirements under the Securities Act and any
applicable state and foreign securities or blue sky laws are
available. Accordingly, (i) the Warrants may not be exercised
within the United States and any Shares issuable upon the
exercise thereof may not be delivered within the United States
except in circumstances constituting an "offshore transaction"
(as defined in Regulation S) and otherwise complying with
Regulation S, or unless such Shares have been registered under
the Securities Act and any applicable state and foreign
securities or blue sky laws or exemptions from the registration
requirements under the Securities Act and any applicable state
and foreign securities or blue sky laws are available, and (ii)
it is a condition to the exercise of the Warrants that the exer
cising Holder must deliver to the Company (A) a written
certification that such Holder is not a U.S. Person and that the
Warrants are not being exercised on behalf of, or for the account
or benefit of, a U.S. Person or (B) a written opinion of United
States counsel, in form and substance satisfactory to the
Company, to the effect that such Holder's Warrants and the Shares
issuable upon the exercise of such Warrants have been registered
under the Securities Act and any applicable state and foreign
securities or blue sky laws or the exercise of such Warrants and
delivery of such Shares are exempt from the registration require
ments under the Securities Act and any applicable state and
foreign securities or blue sky laws.
5. Transfer of Warrants.
--------------------
(a) The Warrants shall be transferable only on the
books of the Company maintained at the Company's principal office
upon delivery of this Certificate with the form of assignment
attached hereto duly completed and signed by the Holder or by its
duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment or authority to
transfer. The Company may, in its discretion, require, as a
condition to any transfer of Warrants, a signature guarantee by a
commercial bank or trust company, by a broker or dealer which is
a member of the National Association of Securities Dealers, Inc.,
or by a member of a national securities exchange, The Securities
and Futures Authority Limited in the United Kingdom, or The
International Stock Exchange in London, England. Upon any
registration of transfer, the Company shall deliver a new
certificate or certificates of like tenor and evidencing in the
aggregate a like number of Warrants to the person entitled
thereto in exchange for this Certificate, subject to the
limitations provided herein, without any charge except for any
tax or other governmental charge imposed in connection therewith.
(b) Notwithstanding anything in this 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 applicable state and
foreign securities or blue sky laws. Any transfer not made in
such compliance shall be null and void, and given no effect
hereunder.
6. Exchange and Replacement of Warrant
-----------------------------------
Certificates; Loss or Mutilation of
-----------------------------------
Warrant Certificates.
--------------------
(a) This Certificate is exchangeable without cost, upon the
surrender hereof by the Holder at the principal office of the
Company, for new certificates of like tenor and date representing
in the aggregate the right to purchase the same number of Shares
in such denominations as shall be designated by the Holder at the
time of such surrender.
(b) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation
of this Certificate and, in case of such loss, theft or
destruction, of indemnity and security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this
Certificate, if mutilated, the Company will make and deliver a
new certificate of like tenor, in lieu thereof.
7. Initial Exercise Price; Adjustment of Exercise Price and
--------------------------------------------------------
Number of Shares.
----------------
(a) The Warrants initially are exercisable at the Initial
Exercise Price per Share, subject to adjustment from time to time
as provided herein. No adjustments will be made for cash
dividends, if any, paid to shares of record prior to the date on
which the Warrants are exercised.
(b) In case the Company shall at any time after the
date of this Certificate (1) declare a dividend on the shares of
Common Stock payable in shares of Common Stock, or (ii) subdivide
or split up the outstanding shares of Common Stock, the amount of
Shares to be delivered upon exercise of any Warrant will be
appropriately increased so that the Holder will be entitled to
receive the amount of Shares that such Holder would have owned
immediately following such actions had such Warrant been
exercised immediately prior thereto, and the Exercise Price in
effect immediately prior to the record date for such dividend or
the effective date for such subdivision shall be proportionately
decreased, all effective immediately after the record date for
such dividend or the effective date for such subdivision or split
up. Such adjustments shall be made successively whenever any
event listed above shall occur.
(c) In case the Company shall at any time after the
date of this Certificate combine the outstanding shares of Common
Stock into a smaller number of shares the amount of Shares to be
delivered upon exercise of any Warrant will be appropriately
decreased so that the Holder will be entitled to receive the
amount of Shares that such Holder would have owned immediately
following such action had such Warrant been exercised immediately
prior thereto, and the Exercise Price in effect immediately prior
to the record date for such combination shall be proportionately
increased, effective immediately after the record date for such
combination. Such adjustment shall be made successively whenever
any such combinations shall occur.
(d) In the event that the Company shall at any time
after the date of this Certificate (i) issue or sell any shares
of Common Stock (other than the Shares) or securities convertible
or exchangeable into Common Stock without consideration or at a
price per share (or having a conversion price per share, if a
security convertible into Common Stock) less than the Market
Value per share of Common Stock (as defined in Section 7(f)
hereof), or (ii) issue or sell options, rights or warrants to
subscribe for or purchase Common Stock at a price per share less
than the Market Price per share of Common Stock (as defined in
Section 7(f) hereof), the Exercise Price to be in effect after
the date of such issuance shall be determined by multiplying the
Exercise Price in effect on the day immediately preceding the
relevant issuance or record date, as the case may be, used in
determining such Market Value or Market Price, by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on such issuance or record date plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so to be issued or to be
offered for subscription or purchase (or the aggregate initial
conversion price of the convertible securities so to be offered)
would purchase at such Market Value or Market Price, as the case
may be, and the denominator of which shall be the number of
shares of Common Stock outstanding on such issuance or record
date plus the number of additional shares of Common Stock to be
issued or to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially
convertible); such adjustment shall become effective immediately
after the close of business on such issuance or record date;
provided, however, that no such adjustment shall be made for the
issuance of (s) options to purchase shares of Common Stock
granted pursuant to the Company's employee stock option plans
approved by shareholders of the Company (and the shares of Common
Stock issuable upon exercise of such options) (provided that
option exercise prices shall not be less than the Market Value of
the Common Stock (as defined in Section 7(f) hereof) on the date
of the grant of such options), (t) the Company's warrants to
purchase shares of Common Stock (and the shares of Common Stock
issuable upon exercise of such warrants), outstanding on the date
hereof, (u) the Company's shares of Series A, Cumulative
Convertible Preferred Stock (and the shares of Common Stock
issuable upon conversion of such Preferred Stock), outstanding on
the date hereof, (v) the Company's shares of Series B, Cumulative
Preferred Stock (and the shares of Common Stock issuable in lieu
of dividend and redemption payments thereunder), outstanding on
the date hereof, (w) the Company's shares of Series E, Cumulative
Convertible Preferred Stock (and the shares of such Preferred
Stock issued in lieu of dividend payments thereunder and shares
of Common Stock issuable upon conversion of such Preferred Stock)
or (x) the Company's $15 million in principal of Secured
Subordinated Debt Notes (and the shares of Common Stock issuable
in lieu of interest payments thereunder), outstanding on the date
hereof. In case such subscription price may be paid in a
consideration, part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined
reasonably and in good faith by the Board of Directors of the
Company. Shares of Common Stock owned by or held for the account
of the Company or any 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 London Stock Exchange
Limited ("The Stock Exchange Daily Official List"). "Trading
day" means any day on which the Common Stock is available for
trading on the applicable securities exchange or in the
applicable securities market. In the case of Market Price or
Market Value computations based on The Stock Exchange Daily
Official List, the Market Price or Market Value shall be
converted into United States dollars at the then spot market
exchange rate of pounds sterling (UK) into United States dollars
as quoted by Chemical Bank or any successor bank thereto on the
date of determination. If a quotation of such exchange rate is
not so available, the exchange rate shall be the exchange rate of
pounds sterling in United States dollars as quoted in The Wall
Street Journal on the date of determination.
(g) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least $.02 in such price; provided that any
adjustments which by reason of this Section 7(g) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment; provided, further that such adjustment
shall be made in all events (regardless of whether or not the
amount thereof or the cumulative amount thereof amounts to $.02
(or more) upon the happening of one or more of the events
specified in Sections 7(b), (c) or (i). All calculations under
this Section 7 shall be made to the nearest cent.
(h) If at any time, as a result of an adjustment
made pursuant to Section 7(b) or (c) hereof, the Holder of any
Warrant thereafter exercised shall become entitled to receive any
shares of the Company other than shares of Common Stock,
thereafter the number of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares
contained in this Section 7, and the provisions of this
Certificate with respect to the Shares shall apply on like terms
to such other shares.
(i) In the case of (l) any capital reorganization
of the Company, or of (2) any reclassification of the shares of
Common Stock (other than a subdivision or combination of
outstanding shares of Common Stock), or (3) any consolidation or
merger of the Company, or (4) the sale, lease or other transfer
of all or substantially all of the properties and assets of the
Company as, or substantially as, an entirety to any other person
or entity, each Warrant shall after such capital reorganization,
reclassification of the shares of Common Stock, consolidation, or
sale be exercisable, upon the terms and conditions specified in
this Certificate, for the number of shares of stock or other
securities or assets to which a holder of the number of Shares
purchasable (immediately prior to the effectiveness of such
capital reorganization, reclassification of shares of Common
Stock, consolidation, or sale) upon exercise of a Warrant would
have been entitled upon such capital reorganization,
reclassification of shares of Common Stock, consolidation, merger
or sale; and in any such case, if necessary, the provisions set
forth in this Section 7 with respect to the rights thereafter of
the Holder shall be appropriately adjusted (as determined
reasonably and in good faith by the Board of Directors of the
Company) so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities or assets thereafter
deliverable on the exercise of a Warrant. The Company shall not
effect any such consolidation or sale, unless prior to or
simultaneously with the consummation thereof, the successor
corporation, partnership or other entity (if other than the
Company) resulting from such consolidation or the corporation,
partnership or other entity purchasing such assets or the
appropriate entity shall assume, by written instrument, the
obligation to deliver to the Holder of each Warrant the shares of
stock, securities or assets to which, in accordance with the
foregoing provisions, such Holder may be entitled and all other
obligations of the Company under this Certificate. For purposes
of this Section 7(i) a merger to which the Company is a party but
in which the Common Stock outstanding immediately prior thereto
is changed into securities of another corporation shall be deemed
a consolidation with such other corporation being the successor
and resulting corporation.
(j) Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the
exercise of the Warrant, Warrant Certificates theretofore or
thereafter issued may continue to express the same Exercise Price
per share and number and kind of Shares as are stated on the
Warrant Certificates initially issuable pursuant to this Warrant.
(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 exer
cise, 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 January
9, 1998, the Company may redeem all, but not part, of the
Warrants upon not less than thirty-five (35) days notice (given
in the manner described in Section 14) to the Holders (the
"Redemption Notice"), at the redemption price of one cent ($0.01)
per Warrant, if the Market Price per share of the Common Stock
for the thirty consecutive trading days ending within thirty
Business Days of the date of such Redemption Notice equals or
exceeds one dollar and twenty-five cents ($1.25). The Redemption
Notice shall specify the date on which the Warrants are to be
redeemed (the "Redemption Date"). If the Warrants are called for
redemption, they may be exercised at any time prior to 5:00 p.m.
New York time on the business day immediately preceding the date
fixed for redemption in the Redemption Notice. After the
Redemption Date, no Warrant may be exercised and all outstanding
Warrant Certificates must be surrendered by the Holders thereof
to the Company and the Holders shall have no further rights
except to receive, upon surrender of the Certificates evidencing
the redeemed Warrants, the redemption price for such Warrants.
10. Reservation and Listing of Securities.
-------------------------------------
(a) The Company covenants and agrees that at all times
during the period the Warrants are exercisable, the Company shall
reserve and keep available, free from preemptive rights, out of
its authorized and unissued shares of Common Stock or out of its
authorized and issued shares of Common Stock held in its
treasury, solely for the purpose of issuance upon exercise of the
Warrants, such number of Shares as shall be issuable upon the
exercise of the Warrants.
(b) The Company covenants and agrees that, upon exercise of
the Warrants in accordance with their terms and payment of the
Purchase Price, all Shares issued or sold upon such exercise
shall not be subject to the preemptive rights of any shareholder
and when issued and delivered in accordance with the terms of the
Warrants shall be duly and validly issued, fully paid and 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, representations
and warranties herein shall survive the execution and delivery of
this Certificate and any investigation at any time made by or on
behalf of any party hereto and the exercise, sale and purchase of
the Warrants and the Shares (and any other securities or
properties) issuable on exercise hereof.
12. Remedies. The Company agrees that the remedies at law
of the Holder, in the event of any default or threatened default
by the Company in the performance of or compliance with any of
the terms hereof, may not be adequate and such terms may, in
addition to and not in lieu of any other remedy, be specifically
enforced by a decree of specific performance of any agreement
contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
13. Registered Holder. The Company may deem and treat the
registered Holder hereof as the absolute owner of this
Certificate and the Warrants represented hereby (notwithstanding
any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise of the Warrants, of any
notice, and of any distribution to the Holder hereof, and for all
other purposes, and the Company shall not be affected by any
notice to the contrary.
14. Manner of Notices. All notices and other
communications from the Company to the Holders of the Warrants
represented by this Certificate shall be in writing and shall be
deemed to have been duly given if and when personally delivered,
two (2) business days after sent by overnight courier or ten (10)
days after mailed by certified, registered or international
recorded mail, postage prepaid and return receipt requested, or
when transmitted by telefax, telex or telegraph and confirmed by
sending a similar mailed writing, if to the Holder, to the last
address of such Holder as it shall appear on the books of the
Company maintained at the Company's principal office or to such
other address as the Holder may have specified to the Company in
writing.
15. Headings. The headings contained herein are for
convenience of reference only and are not part of this
Certificate.
16. Governing Law. This Certificate shall be deemed to be
a contract made under the laws of the State of Delaware and for
all purposes shall be governed by, and construed in 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: January 8, 1997
XCL LTD.
By:___________________________________
Name: David A. Melman
Title: Executive Vice President
and General Counsel
Attest:
_______________________________
Assistant Secretary
XCL LTD.
FORM OF ELECTION TO PURCHASE
(To be executed by the registered Holder
if such Holder desires to exercise Warrants)
The undersigned registered Holder hereby irrevocably elects to
exercise the right of purchase represented by this Warrant Certifi-
cate for, and to purchase,___________ Shares hereunder, and herewith
tenders in payment for such Shares cash, a wire transfer, a certified
check or a banker's draft payable to the order of XCL Ltd. in the
amount of _____________________, all in accordance with the terms
hereof. The undersigned requests that a certificate for such Shares
be registered in the name of and delivered to:
____________________________________________________________________
(Please Print Name and Address)
____________________________________________________________________
____________________________________________________________________
and, if said number of Shares shall not be all the Shares purchasable
hereunder, that a new Warrant Certificate for the balance remaining
of the Shares purchasable hereunder be registered in the name of the
undersigned Warrant Holder or his Assignee as below indicated and
delivered to the address stated below.
DATED:_______________________________________________________________
Name of Warrant Holder:______________________________________________
(Please Print)
Address:_____________________________________________________________
_____________________________________________________________________
Signature:___________________________________________________________
Note: The above signature must correspond in all respects with
the name of the Holder as specified on the face of this
Warrant Certificate, without alteration or enlargement
or any change whatsoever, unless the Warrants
represented by this Warrant Certificate have been
assigned.
IN CONNECTION WITH THIS ELECTION TO PURCHASE, THE WARRANT HOLDER MUST
DELIVER TO THE COMPANY (i) A WRITTEN CERTIFICATION THAT SUCH HOLDER
IS NOT A "U.S. PERSON" AS DEFINED IN REGULATION S UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
THAT THE WARRANTS ARE NOT BEING EXERCISED ON BEHALF OF, OR FOR THE
ACCOUNT OR BENEFIT OF, A U.S. PERSON, OR (ii) A WRITTEN OPINION OF
UNITED STATES LEGAL COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY, TO THE EFFECT THAT THE WARRANTS AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE AND FOREIGN
SECURITIES LAWS OR ARE EXEMPT FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE AND FOREIGN
SECURITIES LAWS.
XCL LTD.
FORM OF ASSIGNMENT
(To be executed by the registered Holder if such Holder
desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers to:
_____________________________________________________________________
(Please Print Name and Address of Transferee)
_____________________________________________________________________
_____________________________________________________________________
Warrants to purchase up to ___________ Shares represented by this
Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
__________________, Attorney, to transfer such Warrants on the books
of the Company, with full power of substitution in the premises. The
undersigned requests that if said number of Shares shall not be all
of the Shares purchasable under this Warrant Certificate that a new
Warrant Certificate for the balance remaining of the Shares
purchasable under this Warrant Certificate be registered in the name
of the undersigned Warrant Holder and delivered to the registered
address of said Warrant Holder.
DATED:______________________________________________________________
Signature of registered Holder:_____________________________________
Note: The above signature must correspond in all respects with
the name of the Holder as specified on the face of this
Warrant Certificate, without alteration or enlargement
or any change whatsoever. The above signature of the
registered Holder must be guaranteed by a commercial
bank or trust company, by a broker or dealer which is a
member of the National Association of Securities
Dealers, Inc. or by a member of a national securities
exchange, The Securities and Futures Authority Limited
in the United Kingdom or The International Stock
Exchange in London, England. Notarized or witnessed
signatures are not acceptable as guaranteed signatures.
Signature Guaranteed:
_______________________________
Authorized Officer
_______________________________
Name of Institution
XCL LTD.
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE
WARRANTS ("SHARES") 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 OF ANY OTHER DOMESTIC OR FOREIGN JURISDICTION.
NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER
DISPOSITION (COLLECTIVELY, A "DISPOSAL") OF THE
WARRANTS REPRESENTED BY THIS CERTIFICATE, AND UPON
EXERCISE, THE SHARES, MAY BE MADE 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.
No. NB-9
WARRANTS TO PURCHASE
COMMON STOCK OF XCL LTD.
Initial Issuance on February 6, 1997
Void after 5:00 p.m. New York Time, December 31, 1999
THIS CERTIFIES THAT, for value received, Donald A.
& Joanne R. Westerberg 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 February 6, 1997 and until 5:00 p.m.,
New York time, on December 31, 1999 (the "Expiration
Date"), subject to the conditions set forth herein, at
the initial exercise price of $0.25 per share (the "Initial
Exercise Price"), subject to adjustment as set forth herein
(the "Exercise Price"), up to an aggregate of TWO HUNDRED
FORTY-ONE THOUSAND SIX HUNDRED SIXTY (241,660) fully paid
and non-assessable common shares, par value $0.01 per
share (the "Common Stock"), of the Company (the
"Shares"), subject to adjustement as set forth herein,
upon surrender of this amended and restated warrant
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 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 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 at any time and from time to time after February 6,
1997 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 com pleted 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 bear a
restrictive legend in substantially the form of Exhibit A
attahced hereto and made a part hereof. The Company shall
also issue a "stop transfer" or similar instruction or
order with respect to the Shares purchased upon exercise of
the Warrants that shall be in effect at Chase Mellon
Shareholders Services, Independent Registrars Group 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 8(f) hereof).
3. Payment of Taxes. The Company will pay all
documentary stamp taxes, if any, attributable to the issuance
and delivery of the Shares upon the exercise of the
Warrants; provided, however, that the Company shall not be
required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any
Warrant or any Shares in any name other than that of the
Holder, which transfer taxes shall be paid by the Holder,
and until payment of such 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 have not been, and 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, except
pursuant to the requirements of Section 5 hereof. No offer,
sale, transfer, pledge or other disposition (collectively,
a "Disposal") of the Warrants represented by this
Certificate or the Shares may be made 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.
5. Piggyback Registration. If, at
any time after 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 on 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 issued or
issuable to the Holder upon exercise of the Holder's
Warrants (the "Registrable Shares") (which notice shall
specify the number of Registrable Shares owned by the Holder
and the number intended to be disposed of by the Holder), 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; provided that;
(a) anything in this Section 5 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 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 registration
rights granted by the Company, (C) next to be registered will
be securities subject to any piggyback registration rights
granted by the Company before the initial issuance date of
the Warrants, and (D) 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 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, provided,
however, in no event shall the securities the Company proposes
to sell constitute less than 75% of the total amount of
securities so to be offered; and
(b) anything in this Section 5 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
(c) 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 5 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 its request for inclusion of its Registrable
Shares in such registration; and
(d) notwithstanding the provisions of this
Section 5, 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; and
(e) the Holder, as a condition to the
inclusion of any of his Registrable Shares in any such
registered offering, shall execute all such customry selling
shareholders agreements as the Company may request,
including, without limitation, any underwriting agreement
which may be applicable to any such registered offering.
6. 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 signature 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
London Stock Exchange Limited 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) 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.
7. 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 and date, in lieu thereof.
8. 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 (i) declare a dividend on
all issued and outstanding 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 8(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
8(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
8(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 8(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 8, 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
8, and the "Market Value per share" of Common Stock on any
date shall be deemed to be the closing bid price on the
date of the issuance of the securities for which such
computation is being made, as reported on the principal
United States securities exchange on which the Common Stock
is listed or admitted to trading or if the Common Stock is not
then listed on any United States stock exchange, the average
of the closing sales price on each such day during such 20
day period, in the case of the Market Price computation, or
on such date of issuance, in the case of the Market Value
computation, in the over-the-counter market as reported by
the National Association of Securities Dealers' Automated
Quotation System ("NASDAQ"), or, if not so reported, the
average of the closing bid and asked prices on each such day
during such 20 day period in the case of the Market Price
computation, or on such date of issuance, in the case of the
Market Value computation, as reported in the "pink sheets"
published by the National Quotation Bureau, Inc. or any
successor thereof, or, if not so quoted, the average of
the middle market quotations for such 20 day period in the
case of the Market Price computation, or on such date of
issuance, in the case of the Market Value computation, as
reported on the daily official list of the prices of stock
listed on The London Stock Exchange Limited ("The Stock
Exchange Daily Official List"). "Trading day" means any
day on which the Common Stock is available for trading on
the applicable securities exchange or in the applicable
securities market. In the case of Market Price or Market
Value computations based on The Stock Exchange Daily
Official List, the Market Price or Market Value shall
be converted into United States dollars at the then spot
market exchange rate of pounds sterling (UK) into United States
dollars as quoted by Chase Manhattan Bank, N.A., 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 8(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 8(b), (c) or (i). All
calculations under this Section 8 shall be made to the
nearest cent and the nearest whole share.
(h) If at any time, as a result of an
adjustment made pursuant to Section 8(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 8,
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 8
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 8(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.
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:
(a) 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
(b) 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
(c) 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
(d) 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
closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution,
convertible or exchangeable secur ities 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 dividend 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) The Company covenants and agrees that at all
times during the period after February 6, 1997, 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 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.
(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,
representations 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 Warrants, of any notice, and of any distribution to the
Holder hereof, and for all other purposes, and the Company shall
not be affected by any notice to the contrary.
14. 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 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 Warrant
Certifi cate to be duly executed by its duly authorized
officers under its corporate seal.
Dated: February 6, 1997
XCL LTD.
By:________________________________
David A. Melman
Executive Vice President,
General Counsel and Secretary
Attest:
________________________________
Assistant Secretary
Agreed to and accepted
as of February 6, 1997 by
________________________________
Donald A. Westerberg
___________________________
Joanne R. Westerberg
XCL LTD.
EXHIBIT A
RESTRICTIVE LEGEND
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, OR ANY OTHER FEDERAL OR STATE SECURITIES
LAWS OF THE UNITED STATES OF AMERICA. THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE
STATE SECURITIES LAWS AND THE RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION, AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN COMPLIANCE WITH SUCH LAWS.
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
purchas able 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.
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 securities exchange,
The Securities and Futures Authority Limited
in the United Kingdom or The London Stock
Exchange Limited in London, England. Notarized
or witnessed signatures are not acceptable
as guaranteed signatures.
Signature Guaranteed:
__________________________________
Authorized Officer
__________________________________
Name of Institution
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE
CERTIFICATE OF DESIGNATION OF "XCL LTD.", FILED IN THIS OFFICE ON
THE TWENTY-FIRST DAY OF FEBRUARY, A.D. 1997, AT 10 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE
NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[GREAT SEAL OF THE STATE OF DELAWARE]
/s/ Edward J. Freel
---------------------------
[SEAL OF SECRETARY'S OFFICE] Edward J. Freel,
Secretary of State
AUTHENTICATION:
2147839 8100 8341367
DATE:
971057807 02-21-97
CERTIFICATE OF DESIGNATION
OF
SERIES F, CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
XCL LTD.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
XCL LTD., a corporation organized and existing under the
laws of the State of Delaware (the "Company" or "XCL"), HEREBY
CERTIFIES that the resolutions set forth below were duly adopted
by the Board of Directors of the Company pursuant to authority
conferred upon the Board of Directors by the provisions of the
Certificate of Incorporation of the Company, which authorizes the
issuance of up to 2,400,000 shares of Preferred Stock par value
$1.00 per share, to be designated in one or more series, and in
accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, respectively:
RESOLVED: That the Company establish a new series of
Preferred Stock, par value $1.00 per share, to be designated
as Series F, Cumulative Convertible Preferred Stock ("Series
F Preferred Stock"); and it was
RESOLVED FURTHER: That the powers, preferences and
relative, participating optional or other special rights,
and the qualifications, limitations and restrictions
thereof; of the Series F Preferred Stock in addition to
those stated in Article FOURTH of the Certificate of
Incorporation which are applicable to all series of
Preferred Stock, are hereby established substantially as set
forth in the attached Exhibit A; and it was
RESOLVED FURTHER: That the Company be, and it hereby is
authorized to issue, from time to time, up to 50,000 shares
of Series F Preferred Stock.
IN WITNESS WHEREOF, the Company has caused its corporate
seal to be hereunto affixed and this Certificate to be signed by
David A. Melman, its Executive Vice President, and attested by
Lisha C. Falk, its Assistant Secretary, this 20th day of
February, 1997.
XCL LTD.
/s/ David A. Melman
------------------------
David A. Melman
Executive Vice President
[Corporate Seal]
ATTEST:
/s/ Lisha C. Falk
- -------------------------
Lisha C. Falk
Assistant Secretary
STATE OF LOUISIANA )
:ss:
PARISH OF LAFAYETTE )
BE IT REMEMBERED that on this 20th day of February, 1997,
personally came before me, a Notary Public in and for the State
and Parish aforesaid, David A. Melman and Lisha C. Falk, the
Executive Vice President and the Assistant Secretary,
respectively, of XCL Ltd., the corporation described in the
foregoing instrument and known to me personally to be such, and
acknowledged the said instrument to be their own act and deed and
the act and deed of said corporation; that the signatures are in
their own handwriting, and that the facts stated in said
instrument are true.
/s/ Suzanne Morse Bourque
----------------------------
Notary Public
My commission expires:
At Death
EXHIBIT "A"
DESIGNATION OF THE
SERIES F, CUMULATIVE CONVERTIBLE
PREFERRED STOCK
Paragraph 1. Designation and Amount. The shares of
this series of Preferred Stock, par value $1.00 per share
("Preferred Stock"), shall be designated as Series F, Cumulative
Convertible Preferred Stock, par value of $1.00 per share
("Series F Preferred Stock"), and the number of shares
constituting such series shall be 50,000.
Paragraph 2. Definitions and Rules of Construction.
(a) The following terms, not defined elsewhere herein,
shall have the following meanings:
"The American Stock Exchange" means the American Stock
Exchange, Inc.
"Board of Directors" means the Board of Directors of
the Company as may be constituted from time to time.
"Business Day" means any day (other than a Saturday,
Sunday or public holiday in the Borough of Manhattan, City of New
York, New York) on which banking institutions in New York City
are not authorized or obligated by law or executive order to
close.
"Closing Price" of a security on any day means the last
sales price, regular way, per share of such security on such day
as reported in the principal consolidated reporting system with
respect to such security listed on the principal US stock
exchange on which such security was listed for trading or, if the
shares of such security are not listed or admitted to trading on
a US stock exchange, the middle market quotations for the shares
of such security (derived from The London Stock Exchange Daily
Official List) listed or admitted to trading on The London Stock
Exchange Limited, or if the shares of such security are not
listed or admitted to trading on The London Stock Exchange, the
last sales price as reported, in the National Market System
("NMS") of the National Association of Securities Dealers Inc.
Automated Quotation System ("NASDAQ"), or if the shares of such
security are not listed or admitted to trading in NMS, the
average of the high bid and low asked prices in the over-the-
counter market as reported by NASDAQ, or if the bid and asked
prices on each such day shall not have been reported through
NASDAQ, the average of the bid and asked prices for such day as
furnished by any American Stock Exchange member firm regularly
making a market in such security selected for such purpose by the
Board of Directors or a committee thereof on each Trading Day. In
any of such alternate cases when such security is not traded in
prices expressed in Dollars, such Closing Price shall be
converted into Dollars at the then spot market exchange rate of
pounds sterling (UK) into Dollars as quoted by Chase Manhattan
Bank, N.A. on the date of determination.
"Common Stock" means the shares of common stock, par
value $.01 per share, of the Company.
"Company" means XCL Ltd., a Delaware corporation.
"Conversion Commencement Date" means six months after
the initial Issuance Date.
"Conversion Stock" means the shares of Common Stock
issuable upon conversion of the Series F Preferred Stock in
accordance with Paragraph 6.
"Directors" means the directors of the Company.
"Dividend Stock" means the shares of Series F
Preferred Stock paid to holders of Series F Preferred Stock in
lieu of a cash dividend.
"$" means Dollars.
"Dollars" means the freely transferable currency of
the USA.
"Forced Conversion Date" means that date on which the
shares of Common Stock have traded at or in excess of $0.50 per
share for 30 consecutive Trading Days.
"Parity Stock" means all other series of preference
stock ranking on a parity with the Series F Preferred Stock as to
the right to receive any dividends and any payment or
distribution of assets upon dissolution, liquidation or winding
up of the Company. The Series A, Series B and Series E Preferred
Stock shall be deemed Parity Stock for all purposes herein.
"Securities Act" means the Securities Act of 1933, as
amended.
"Series A Preferred Stock" means the shares of the
Company's Series A, Cumulative Convertible Preferred Stock, par
value $1.00 per share.
"Series B Preferred Stock" means the shares of the
Company's Series B, Cumulative Preferred Stock, par value $1.00
per share.
"Series E Preferred Stock" means the shares of the
Company's Series E, Cumulative Convertible Preferred Stock, par
value $1.00 per share.
"Shareholders" means the holders of the Common Stock.
"Stock Option Plans" means the employee stock option
plans adopted by the Company and approved by Shareholders, in
effect from time to time, for employees and certain other
individuals rendering services to the Company.
"The London Stock Exchange" means The London Stock
Exchange Limited.
"Trading Day" shall mean a day on which the market
used for calculating the Closing Price is open for the
transaction of business or, if the shares of such security are
not so listed or admitted to trading, a Business Day.
"Transfer Agent" means the transfer agent for the
Series F Preferred Stock from time to time obtaining.
"UK" and "United Kingdom" mean the United Kingdom of
Great Britain and Northern Ireland.
"USA" and "US" means the United States of America.
"Warrants" means an aggregate of 45,491,863 issued and
outstanding and to be issued warrants to purchase Common Stock.
(b) References herein to Paragraphs and
subparagraphs are to paragraphs and subparagraphs of this
Designation of the Series F Preferred Stock ("Designation")
unless otherwise indicated. The words "hereof", "herein",
"hereunder" and comparable terms refer to the entirety of this
Designation and not to any particular Paragraph or other
subdivision hereof. Words in the singular include the plural and
in the plural include the singular. Words in the neuter gender
shall include the masculine and feminine and vice versa. The word
"or" is not exclusive. The word "including" shall be deemed to
mean "including, without limitation." The Paragraph headings
contained in this Designation are for reference purposes only and
shall not affect in any way the meaning or interpretation of this
Designation.
Paragraph 3. Dividends and Distributions.
(a) Each share of Series F Preferred Stock shall
entitle the record holder to receive, out of funds legally
available therefor, when, as and if declared by the Board of
Directors, dividends in cash at the annual rate of $12.00 per
share, which shall be payable in arrears in equal semi-annual
installments on June 30th and December 31st, or in the event any
such date is a Saturday, Sunday or public holiday in the Borough
of Manhattan, in the City of New York, New York, on the first
Business Day following such date (hereinafter a "Dividend Payment
Date") in each year, provided, however, that the dividend payable
on the first such Dividend Payment Date shall be equal to the
product obtained by multiplying $6.00 by a fraction, the
denominator of which shall be 182 and the numerator of which
shall be the number of days expired in the period between the
date of issuance of the share of Series F Preferred Stock (the
"Issuance Date") and such first Dividend Payment Date (inclusive
of both such dates).
(b) The Company may, at its option exercised by
written notice to the holders of the Series F Preferred Stock
given at least ten (10) Business Days prior to the Dividend
Payment Date, elect to pay any dividend due and payable
hereunder, in kind in additional shares of Series F Preferred
Stock in lieu of a dividend payment in cash. The amount of shares
of Dividend Stock issuable to each holder of Series F Preferred
Stock pursuant to this subparagraph 3(b) on each such Dividend
Payment Date shall equal .06 share of Series F Preferred Stock
for each share of Series F Preferred Stock registered in the name
of each such holder of the Series F Preferred Stock on the record
date for the payment of the dividend. Fractional shares of Series
F Preferred Stock arising in respect of the payment of any
dividend in shares of Dividend Stock shall not be issued to the
holders of Series F Preferred Stock.
(c) Dividends shall be cumulative, whether or not
earned and whether or not surplus shall be available therefor and
shall commence to accrue and accumulate from day to day from the
Issuance Date. Such accumulation shall include, if not paid, the
dividend payable on each Dividend Payment. Accrued but unpaid
dividends shall not bear interest. Such dividends shall be
declared and set apart or paid before any dividends (other than
dividends payable in Common Stock or any other series or class of
the Company's stock hereafter issued which ranks junior as to
dividends and as to distributions upon the dissolution,
liquidation or winding up of the Company to the Series F
Preferred Stock, such junior securities being hereinafter
referred to as "Junior Securities") shall be paid on the Common
Stock or such other series or class of Junior Securities. No cash
dividend shall be paid upon or set apart for shares of any other
class of stock of the Company (other than shares of preference
stock ranking pari passu with the Series F Preferred Stock in
respect of the payment of dividends) until all dividend arrears
on the Series F Preferred Stock shall be fully paid. The shares
of Series F Preferred Stock shall rank pari passu with the shares
of the Series A Preferred Stock, Series B Preferred Stock and
Series E Preferred Stock with respect to the payment of
dividends.
(d) Dividends paid on the shares of Series F
Preferred stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro-rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of Series F
Preferred Stock entitled to receive payment of a dividend
declared thereon, which record date shall be no more than sixty
days prior to the date fixed for payment thereof.
(e) In the event the Company fails to declare and
pay any dividend on a Dividend Payment Date (the "Defaulted
Date"), the dividend rate on the outstanding shares of Series F
Preferred Stock in effect on the Defaulted Date shall be
increased effective such Date so that the aggregate dividend
payable on the next succeeding Dividend Payment Date shall equal
the dividend that would have been paid on all then outstanding
shares of Series F Preferred Stock had the Company declared and
paid the dividend on the Defaulted Date in Dividend Stock. Upon
payment of all such dividend arrearages in cash or with shares of
Dividend Stock (or some combination of both), the dividend rate
shall revert to the dividend rate in effect on the initial
Defaulted Date. The Company shall notify all holders of Series
F Preferred Stock in writing at least fifteen (15) days prior to
the payment by the Company of any dividend arrearages in cash, in
which case such holders may elect to receive such dividend
arrearage payment in shares of Dividend Stock (computed based
upon the annual cash dividend rate then applicable divided by
100) in lieu of such cash payment by notice in writing delivered
to the Company within five (5) days after receipt of the
Company's dividend payment notice, provided that such notice is
received by the Company from the holders of at least a majority
of the outstanding shares of Series F Preferred Stock.
Paragraph 4. Dissolution. Liquidation or Winding Up.
In the event of any dissolution, liquidation or
winding up of the affairs of the Company, after payment or
provision for payment of the debts and other liabilities of the
Company, the registered holders of Series F Preferred Stock shall
be entitled to share on a pro rata basis with the holders of
shares of Series A Preferred Stock, Series B Preferred Stock and
Series E Preferred Stock and all other series of the Company's
preference stock ranking on a parity with the Series F Preferred
Stock in respect of distributions upon dissolution, liquidation
or winding up of the Company and to receive, out of the net
assets of the Company, $100.00 per share, plus an amount equal to
all the dividend arrears on each such share up to the date fixed
for distribution and no more, before distribution shall be made
to the holders of the Common Stock or any Junior Securities.
Neither the merger or consolidation of the Company, nor the sale,
lease or conveyance of all or a part of its assets, shall be
deemed to be a dissolution, liquidation or winding up of the
affairs of the Company within the meaning of this Paragraph 4.
Paragraph 5. Redemption.
(a) The Series F Preferred Stock shall be
redeemable at the election of the Company, in whole or in part at
any time and from time to time, at a redemption price
("Redemption Price") of $100.00 per share, in each case plus all
accrued and unpaid dividends to and including the redemption
date. The Company shall notify each holder of record of shares
of Series F Preferred Stock in writing (the "Redemption Notice")
mailed by first class mail, postage prepaid, at least twenty (20)
days and not more than sixty (60) days prior to the date fixed by
the Company for redemption, mailed to his address as the same
shall appear on the books of the Company. The Redemption Notice
shall state the redemption date, the Redemption Price and the
place and manner of payment thereof. If less than all of the
outstanding shares of Series F Preferred Stock are to be
redeemed, the Company shall select those shares to be redeemed
pro rata or by lot or in such other manner as the Board of
Directors may determine.
(b) The Company may deposit the aggregate
Redemption Price in trust with a bank or trust company (in good
standing, organized under the laws of the United States of
America or of the State of New York, doing business in the
Borough of Manhattan, in the City of New York, New York, and
having capital surplus and undivided profits aggregating at least
$25,000,000) as "Redemption Agent", for payment to the holders of
the shares so to be redeemed, upon surrender (and endorsement, if
required by the Board of Directors) of the certificates for such
shares. At the close of business on a redemption date (unless the
Company shall fail to make payment or deposit of the Redemption
Price as above set forth), dividends shall cease to accrue on the
shares of Series F Preferred Stock called for redemption (except
on any such shares of Series F Preferred Stock in respect of
which, upon due presentation of the certificate(s) relating
thereto, payment of the money due at such redemption shall be
refused in which case the dividend shall be deemed to have
continued and shall continue to accrue from the relevant date of
redemption to the date of payment); each holder of the shares of
Series F Preferred Stock so to be redeemed shall cease to be a
shareholder with respect to such shares and shall have no
interest in, or claim against, the Company and shall have no
voting or other rights with respect to such shares, except the
right to receive the moneys payable upon such redemption from
such bank or trust company, or from the Company, without interest
thereon, upon surrender (and endorsement if required by the Board
of Directors) of the certificates; and the shares represented
thereby shall no longer be deemed to be outstanding. In the case
of a call for redemption by the Company pursuant to subparagraph
5(a) above, the right of conversion shall cease and terminate as
to the shares designated for redemption on the close of business
on the third Business Day preceding the redemption date unless
default shall be made in the payment of the Redemption Price. In
the event the holder of any shares of Series F Preferred Stock
shall not, within six years after such deposit, claim the amount
deposited as above stated for the redemption thereof, the
depositary shall, upon demand, pay over to the Company such
unclaimed amount so deposited, and the depositary shall thereupon
be relieved of all responsibility therefor to such holder.
(c) So long as any shares of Series F Preferred
Stock are outstanding, the Company shall not redeem, purchase or
otherwise acquire, or permit any subsidiary to purchase or
otherwise acquire, any shares of Common Stock or any Junior
Securities if at the time of making such redemption, purchase or
acquisition the Company shall be in default with respect to any
dividend payable on, or any obligation to purchase shares of,
Series F Preferred Stock; provided, however, that,
notwithstanding the foregoing the Company may at any time redeem,
purchase or otherwise acquire shares of Common Stock or any
Junior Securities in exchange for, or out of the net cash
proceeds from the sale of, Common Stock or other shares of Junior
Securities. If in any case the amounts payable with respect to
the Company's obligation to retire shares of Preferred Stock are
not paid in full in the case of all series with respect to which
such obligations exist, the number of shares of the various
series to be retired shall be in proportion to the respective
amounts which would be payable on account of such obligations if
all amounts payable were discharged in full. Any dividend arrears
on the Series F Preferred Stock tendered to the Company shall be
payable in full to the respective last holders of record of the
shares of Series F Preferred Stock so tendered to the Company pro
rata with payment of corresponding dividend arrears on the Series
F Preferred Stock remaining outstanding.
Paragraph 6. Conversion.
(a) Subject as hereinafter provided. at any time
after the Conversion Commencement Date at the option of the
record holder of the Series F Preferred Stock, the Series F
Preferred Stock shall be convertible, in whole or in part, at the
office of the Transfer Agent into fully paid and nonassessable
shares of Common Stock at a rate (the "Conversion Rate") per
share of Series F Preferred Stock equal to that number of shares
of Common Stock as shall equal the quotient of $100 divided by
$.25 (the "Conversion Price") (subject in any case to adjustment
as hereinafter provided in Paragraph 7), provided that if a
Conversion Notice (as hereinafter defined in subparagraph 6(c)
below) is given in respect of only a part of a holding of Series
F Preferred Stock so that there would remain following conversion
three or fewer such shares in that holding, all the Series F
Preferred Stock in the holding shall be converted notwithstanding
the figure inserted in the Conversion Notice.
(b) For the purposes of the provisions hereof, a
"Conversion Date" shall be the date falling 90 days after the
date of the Conversion Notice (or such sooner date as the Company
may notify the converting holder of Series F Preferred Stock in
writing) and provided always that if any Conversion Date would
otherwise fall on a day which is not a Business Day such
Conversion Date shall be the first Business Day following such
date.
(c) The right to convert shall be exercisable at any
time and from time to time after the Conversion Commencement Date
by completing the notice of conversion endorsed on the share
certificate relating to the Series F Preferred Stock to be
converted or a notice in such other form as may from time to time
be prescribed by the Board of Directors in lieu thereof (any such
notice being herein called a "Conversion Notice") and delivering
the same to the Transfer Agent together with such other evidence
(if any) as the Board of Directors may reasonably require to
prove title of the person exercising such right to convert. The
Conversion Notice shall be deemed dated as of the date of receipt
thereof by the Transfer Agent. A Conversion Notice once given may
not be withdrawn without the consent in writing of the Company.
(d) On conversion the dividend on the Series F
Preferred Stock so converted shall cease to accrue with effect
from the close of business on the date preceding the Conversion
Date. The Common Stock issued on such conversion shall entitle
the holder to all dividends and other distributions payable on
the Common Stock by reference to a record date after the
applicable Conversion Date.
(e) Any dividend arrears on the Series F Preferred
Stock surrendered for conversion shall be payable in full to the
respective last holders of record of the shares of Series F
Preferred Stock surrendered for conversion (notwithstanding any
subsequent transfer of the shares of Common Stock into which such
shares have been converted), pro rata with payment of
corresponding dividend arrears on the Series F Preferred Stock
remaining outstanding.
(f) Conversion shall be deemed to have been
effected on the Conversion Date, and the holder shall as of the
close of business on such date have the full rights of the Common
Stock resulting from such conversion.
(g) On the Conversion Date all shares of Series F
Preferred Stock in respect of which a Conversion Notice has been
delivered ("relevant shares") shall be converted into shares of
Common Stock at the Conversion Rate. Upon issuance of the Common
Stock, the relevant shares shall be retired and cancelled. Within
30 days after the Conversion Date, the Company shall, or shall
cause, the forwarding to each holder of the relevant shares, at
his own risk, free of charge, a definitive certificate for the
appropriate number of fully paid shares of Common Stock and a new
certificate for any unconverted Series F Preferred Stock
comprised in the certificate(s) surrendered by him.
(h) Fractions of Common Stock arising on
conversion shall not be issued to the holders of the relevant
shares otherwise entitled thereto but (if arrangements can be so
made) such fractions shall be aggregated and sold in the market
on behalf of such holders at the best price reasonably obtainable
and the net proceeds of sale shall be distributed pro rata among
such holders unless in respect of any holding of the relevant
shares the amount to be distributed would be less than $2.00 in
which case such amount shall not be distributed but shall be
retained for the benefit of the Company. For the purpose of
implementing the provisions of this subparagraph (h), the Board
of Directors may appoint a person to execute transfers on behalf
of persons otherwise entitled to any such fractions and generally
may make all arrangements which appear to the Board necessary or
appropriate for the settlement and disposal of fractional
entitlements.
(i) In case of the voluntary dissolution,
liquidation or winding up of the Company, all conversion rights
relating to the Series F Preferred Stock shall terminate 45 days
after the mailing of a notice of such action to all record
holders of Series F Preferred Stock; provided that such date of
termination of conversion rights shall be not more than sixty
(60) days nor less than twenty (20) days prior to the date on
which such dissolution is to become effective or such liquidation
or winding up is to commence. Any such notice shall call
attention to the date of such termination of the conversion
rights, the per share amount payable on the Common Stock, the per
share amount payable on the Series F Preferred Stock held by such
holder in connection with such action (in each case, if then
known, or a reasonable estimate if such amount is not known with
any reasonable degree of certainty), and the then current
Conversion Rate of the Series F Preferred Stock held by such
holder of record.
(j) At any time after the Forced Conversion Date,
or any time after at least seventy five percent (75%) of the
aggregate number of shares of Series F Preferred Stock originally
issued on the Issuance Date have been purchased or redeemed by
the Company or converted into Common Stock by the holders
thereof, the Company may, at its option, cause the conversion of
all the remaining issued and outstanding shares of the Series F
Preferred Stock at the Conversion Rate upon at least 45 days
written notice to all holders of record.
(k) The Company shall use its best efforts to
ensure that the shares of Conversion Stock are listed on all the
principal stock exchanges on which the Company's Common Stock is
listed for trading.
Paragraph 7. Adjustments of Conversion Rate.
The Conversion Rate for the Series F Preferred Stock
shall be subject to adjustment from time to time as follows:
(a) If the Company shall at any time or from time to
time pay a dividend or other distribution on its outstanding
shares of Common Stock in shares of Common Stock, subdivide its
outstanding shares of Common Stock into a larger number of shares
or combine its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Rate in effect immediately prior
to the record date for such dividend or the effective date for
such subdivision or combination shall be adjusted so that each
share of Series F Preferred Stock shall thereafter be convertible
into the number of shares of Common Stock which the holder of a
share of Series F Preferred Stock would have been entitled to
receive after the happening of any of the events described above
had such share been converted immediately prior to the happening
of such event. An adjustment made pursuant to this subparagraph
(a) shall become effective immediately after the close of
business on such a record date in the case of a dividend and
shall become effective on the close of business on the day
immediately prior to the effective date in the case of a
subdivision or combination.
(b) If the Company shall issue rights or warrants
to all holders of Common Stock (expiring within 45 days after the
record date for determining stockholders entitled to receive
them) for the purpose of entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than
the average of the Closing Prices per share for the 30
consecutive Trading Days ending on the record date for the
determination of the stockholders entitled to receive such rights
or warrants, then at the discretion of the Board of Directors,
either (i) the Company shall make a like issue at the same time
to each holder of the Series F Preferred Stock as if his
conversion rights had been exercisable in full on the record date
for such issue on the basis of the Conversion Rate; or (ii) the
number of shares of Common Stock into which each share of the
Series F Preferred Stock shall thereafter be convertible shall be
adjusted by multiplying the number of shares of Common Stock into
which each share of Series F Preferred Stock was convertible on
the day immediately preceding such record date by a fraction the
numerator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of
additional shares of Common Stock so offered for subscription or
purchase, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding on such record date
and the number of shares of Common Stock which the aggregate
offering price of the total number of shares so offered would
purchase at such average of the Closing Prices for such 30
Trading Days. Such adjustment shall become effective immediately
after the close of business on such record date. Notwithstanding
anything in the foregoing to the contrary, no such issue or
adjustment shall be made in respect of the shares of Common Stock
issuable upon exercise of the Warrants, any stock options granted
pursuant to the Company's Stock Option Plans approved by
Shareholders (provided that option exercise price shall not be
less than the market value of the Common Stock on the date of
grant of the options), the Series A Preferred Stock and the
shares of Common Stock issuable as dividends on or upon
conversion of the Series A Preferred Stock, the Series B
Preferred Stock and the shares of Common Stock issuable as
dividends on or upon redemption of the Series B Preferred Stock
or the Series E Preferred Stock and the shares of Series E
Preferred Stock issuable as dividends on, or the shares of Common
Stock issuable upon conversion of, the Series E Preferred Stock.
(c) If any offer or invitation by way of rights or
otherwise (not being an offer or invitation to which the
provisions of subparagraph 7(b) apply) is made to all the
Shareholders by the Company, the Company shall make or, so far as
it is able, cause that there be made a like offer at the same
time to each holder of Series F Preferred Stock as if his
conversion rights had been exercisable on and had been exercised
in full on the record date for such offer or invitation on the
basis of the Conversion Rate.
(d) If the Company shall distribute to all holders
of Common Stock any assets (other than any ordinary dividend
payable solely in cash in an amount not excessive in comparison
to its current earnings), any rights to subscribe for securities
(other than those referred to in sub-paragraph 7(b) above) or any
evidence of indebtedness or other securities (other than Common
Stock or Junior Securities), then in each such case the number of
shares of Common Stock into which each share of Series F
Preferred Stock shall thereafter be convertible shall be adjusted
by multiplying the number of shares of Common Stock into which
each share of Series F Preferred Stock was convertible on the
date immediately preceding the record date for the determination
of the stockholders entitled to receive such distribution by a
fraction the numerator of which shall be the average of the
Closing Prices per share of Common Stock for the thirty (30)
consecutive Trading Days ending on such record date and the
denominator of which shall be such average of the Closing Prices
per share less the then fair market value (as determined in a
resolution adopted by the Board and reviewed and approved by the
Company's auditors for the time being) of the portion of the
assets or evidences of indebtedness or securities so distributed
or of such subscription rights applicable to one share of Common
Stock. Such adjustment shall become effective immediately after
the close of business on such record date.
(e) Whenever the Conversion Rate is adjusted as
herein provided, the Company shall forthwith file with the
Transfer Agent a certificate stating the adjusted Conversion Rate
determined as provided in this Paragraph 7. Such certificate
shall show in detail the facts requiring such adjustment. The
calculation of such adjustment shall have been reviewed and
approved by the Company's auditors for the time being. Whenever
the Conversion Rate is adjusted, the Company will forthwith cause
a notice stating the adjustment and the resulting Conversion Rate
to be mailed to the respective holders of record of Series F
Preferred Stock.
(f) In case of any capital reorganization or any
reclassification of the capital stock of the Company or in case
of the consolidation or merger of the Company with another
corporation or in case of any sale or conveyance of all or
substantially all of the property of the Company, each share of
Series F Preferred Stock shall thereafter be convertible into the
number of shares of stock or other securities or property
receivable upon such capital reorganization, reclassification of
capital stock, consolidation, merger, sale or conveyance, as the
case may be, by a holder of the number of shares of Common Stock
into which such share of Series F Preferred Stock was convertible
immediately prior to such capital reorganization,
reclassification of capital stock, consolidation, merger, sale or
conveyance; and, in any case, appropriate adjustment (as
determined by the Board of Directors and reviewed and approved by
the Company's auditors for the time being) shall be made in the
application of the provisions herein set forth with respect to
rights and interests thereafter of the holders of the Series F
Preferred Stock, to the end that provisions set forth herein
(including the specified changes in and other adjustment of the
Conversion Rate) shall thereafter be applicable, as near as
reasonably may be, in relation to any shares of stock or other
securities or other property thereafter deliverable upon the
conversion of the Series F Preferred Stock.
(g) No adjustment shall be made hereunder unless
by reason of the happening of any one or more of the events
herein specified, the Conversion Rate then in effect would be
changed by 1 % or more, but any adjustment of less than 1% that
would otherwise be required to be made shall be carried forward
and shall be made at the time of and together with any subsequent
adjustment which, together with any adjustment or adjustments so
carried forward, amounts to 1 % or more, provided that such
adjustment shall be made in any case (regardless of whether or
not the amount thereof or the cumulative amount thereof amounts
to 1% or more) upon the happening of one or more of the events
specified in subparagraph (f) of this Paragraph 7.
Paragraph 8. Voting Rights.
Except as may be otherwise provided herein or in the
Certificate of Incorporation of the Company, as amended from time
to time with the consent of the holders of Series F Preferred
Stock, provided such consent is required to be obtained hereunder
or as required by applicable law:
(a) the Series F Preferred Stock shares shall not
entitle the holders thereof to receive notice of or attend or
vote at any meeting of stockholders except in the following
circumstances:
(i) The Series F Preferred Stock shall vote as
a separate class on any resolution proposed for
adoption by the stockholders of the Company which seeks
to amend, alter or repeal, the provisions of the
Company's Certificate of Incorporation or of the
resolutions contained in the Certificate of Designation
of the Series F Preferred Stock designating the Series
F Preferred Stock and the preferences and privileges,
relative, participating, optional or other special
rights and qualifications, limitations and restrictions
thereof, so as to adversely affect any right,
preference, privilege or voting power of the Series F
Preferred Stock or the holders thereof; provided,
however, that any increase in the amount of the issued
Series F Preferred Stock or the creation and issue of
any other series of preference stock (whether or not
denominated in Dollars, or any increase in the amount
of authorized shares of Series F Preferred Stock, in
each case either being Parity Stock or Junior
Securities and with or without similar voting rights)
will not be deemed to affect adversely such rights,
preferences, privileges or voting powers of the Series
F Preferred Stock;
(ii) Except in the event that arrangements are
or have been offered to the holders of the Series F
Preferred Stock which ensure that the rights of such
holders would not be prejudiced, the Company will
ensure that no plan of compromise or arrangement
affecting the Common Stock shall become effective
unless the holders of the Series F Preferred Stock
shall be parties to the plan and unless the plan shall
be approved by the holders of at least a majority of
the then issued and outstanding shares of Series F
Preferred Stock, voting as a class together with all
other Parity Stock;
(iii) In the case of a vote on a resolution
regarding (A) the capital reorganization, dissolution
or liquidation of the Company; or (B) any matter for
which the consent of the holders of Series F Preferred
Stock is sought in accordance with the provisions of
subparagraphs 8(a)(i) and 8(a)(ii) and Paragraphs 9 or
10; every record holder of Series F Stock who is
present at that meeting in person or by proxy shall be
entitled to cast one (1) vote for each share of Series
F Preferred Stock registered in his name (voting (1)
as a separate class with respect to the matters set
forth in subparagraph 8(a)(i) and (2) together with
all other Parity Stock with respect to the matters set
forth in subparagraphs 8(a)(ii) and 8(a)(iii)(1) and
Paragraphs 9 and 10) and the decision of at least two
thirds of the outstanding shares of Series F Preferred
Stock (as to any matters set forth in clause (A)
above) and a majority of the outstanding shares of
Series F Preferred Stock and any Parity Stock, voting
separately as a class (as to any matters set forth in
clause (B) above) shall be determinative of the matter
so long as a quorum (as defined in subparagraph 8(b)
below) is present; or
(iv) if at the date of the notice convening a
meeting of Shareholders the dividend on the Series F
Preferred Stock has not been paid in an aggregate
amount equal to at least two (2) consecutive semi-
annual dividends on such shares, the number of
Directors of the Company will be increased by two and a
majority of votes cast by the holders of the Series F
Preferred Stock together with the holders of Parity
Stock on which like voting rights have been conferred
and are exercisable, present in person or by proxy at
such meeting, will be entitled to elect such two
additional Directors to the Board of Directors, with
each holder being entitled to cast one vote for each
share of Series F Preferred Stock registered in his
name. The right to elect such Directors and the term of
office of all such Directors so elected shall terminate
when all such accrued and unpaid dividends are paid in
full or set apart for payment subject to such right
being reinstated in the case of fixture unpaid
dividends as hereinabove provided. In case any vacancy
shall occur among the Directors elected by the holders
of Series F Preferred Stock and Parity Stock as herein
provided, such vacancy may be filled for the unexpired
portion of the term by vote of the remaining Director
elected by such stockholders, or such Director's
successor in office or by the vote of such stockholders
given at a special meeting of such stockholders called
for such purpose.
(b) At each meeting of stockholders at which the
holders of the Series F Preferred Stock shall have the right to
vote as a separate class or together with any other class of
stock the presence in person or by proxy of the holders of record
of a majority of the total number of shares of stock entitled to
vote as a single class then outstanding shall be necessary and
sufficient to constitute a quorum of such class for the
transaction of business by such stockholders as a class. At any
such meeting or adjournment thereof,
(i) the absence of a quorum of the holders of the
Series F Preferred Stock shall not prevent the election
of Directors or the transaction of business other than
the transaction of business with respect to which the
holders of the Series F Preferred Stock are entitled to
vote as a separate class and the absence of a quorum of
the holders of any other class of stock for the
election of Directors or the conduct of such other
business shall not prevent the conduct of business on
which the Series F Preferred Stock is entitled to vote
as a separate class, and
(ii) in the absence of any such quorum, the
holders present in person or by proxy of the class or
classes which lack a quorum shall have the power to
adjourn (for a period of up to 30 days) the meeting for
the election of Directors which they are entitled to
elect from time to time, or for the conduct of such
business, without notice other than announcement at the
meeting, until a quorum shall be present.
(c) Any action required or permitted to be taken by
the holders of Series F Preferred Stock pursuant to this
Paragraph 8 or Paragraphs 9 or 10, voting either separately as a
class or together with all Parity Stock at any annual or special
meeting of stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by
the holders of such stock having not less than the minimum number
of votes that would be necessary to authorize such action to be
taken at a meeting at which all such shares entitled to vote
thereon were present and voted.
Paragraph 9. Further Issues; Par Value.
So long as any shares of Series F Preferred Stock
remain outstanding, the Company shall not without the affirmative
vote or consent of the holders of the Series F Preferred Stock
and any Parity Stock, in each case outstanding at the time, given
in person or by proxy, either in writing or at a meeting, (i)
authorize, create or issue, or increase the authorized or issued
amount, of any class or series of stock ranking senior to the
Series F Preferred Stock with respect to payment of dividends or
distribution of assets on dissolution, liquidation or winding up
or which may be convertible into any class of shares ranking as
regards participation in dividends or the distribution of assets
on dissolution, liquidation or winding up senior to the Series F
Preferred Stock; or (ii) increase or decrease the par value of
the Common Stock. The holders of Series F Preferred Stock shall
not be entitled to any preemptive rights with respect to any
further issuances of securities by the Company.
Paragraph 10. Other Matters.
So long as any Series F Preferred Stock remains issued
and outstanding then:
(a) except as authorized by the adoption of an
appropriate resolution by the affirmative vote or consent of the
holders of a majority of the outstanding shares of the Series F
Preferred Stock and any Parity Stock, voting or consenting
separately as a class, the Company shall not:
(i) sell, lease or convey all or substantially
all of the assets of the Company; or
(ii) approve any merger, consolidation or
compulsory share exchange to which the Company is a
party, unless (1) the terms of such merger,
consolidation or compulsory share exchange do not
provide for a change in the terms of the Series F
Preferred Stock and (2) the Series F Preferred Stock is
on a parity with or prior to (in respect of dividends
and upon liquidation, dissolution or winding up) any
other class or series of capital stock authorized by
the surviving corporation, other than any class or
series of stock of the Company ranking senior to the
Series F Preferred Stock either as to dividends or upon
liquidation, dissolution or winding up of the Company
and previously authorized with the consent of the
holders of the Series F Preferred Stock (or other than
any capital stock into which such prior stock is
converted as a result of such merger, consolidation or
compulsory share exchange).
(b) the Company shall concurrently send a copy of
every communication or other information, including annual
reports and proxy materials, sent to its Shareholders to every
holder of Series F Preferred Stock.
Paragraph 11. Reacquired Shares.
Any shares of the Series F Preferred Stock redeemed or
purchased or otherwise acquired by the Company in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Series F
Preferred Stock, and may be reissued as Series F Preferred Stock
or part of a new series of preference stock to be created by
resolution or resolutions of the Board of Directors, subject to
the conditions or restrictions on issuance set forth herein.
Paragraph 12. Miscellaneous.
(a) All notices referred to herein shall be in writing,
and all notices hereunder shall be deemed to have been given upon
the earlier of receipt thereof or three (3) Business Days after
the mailing thereof if sent by registered or certified mail
(unless first-class mail shall be specifically permitted for such
notice under the terms hereof) with postage prepaid, addressed:
(i) if to the Company, to its office as specified in its most
recent Annual Report on Form 10-K (or any successor report or
form) or to the Transfer Agent or other agent of the Company
designated as permitted hereby or (ii) if to any holder of the
Series F Preferred Stock or Common Stock, as the case may be, to
such holder at the address of such holder as listed in the stock
record books of the Company (which may include the records of any
Transfer Agent for the Series F Preferred Stock or Common Stock,
as the case may be) or (iii) to such other address as the Company
or any such holder, as the case may be, shall have designated by
notice similarly given.
(b) The Company shall pay any and all stock
transfer and documentary stamp taxes that may be payable in
respect of any original issuance or delivery of shares of Series
F Preferred Stock or shares of Common Stock or other securities
issued on account of Series F Preferred Stock pursuant hereto or
certificates representing such shares or securities. The Company
shall not, however, be required to pay any such tax which may be
payable in respect of any transfer involved in the issuance or
delivery of shares of Series F Preferred Stock or Common Stock or
other securities in a name other than that in which the shares of
Series F Preferred Stock with respect to which such shares or
other securities are issued or delivered were registered, or in
respect of any payment to any person with respect to any such
shares or securities other than a payment to the registered
holder thereof and shall not be required to make any such
issuance, delivery or payment unless and until the person
otherwise entitled to such issuance, delivery or payment has made
arrangements satisfactory to the Transfer Agent for the payment
to the Company of the amount of any such tax or has established,
to the satisfaction of the Company, that such tax has been paid
or is not payable.
(d) In the event that a holder of shares of Series
F Preferred Stock shall not by written notice designate to whom
payment upon redemption of shares of Series F Preferred Stock
should be made or the address to which such payment should be
sent, the Company shall be entitled to make such payment, in the
name of the holder of such Series F Preferred Stock as shown on
the records of the Company, and to send such payment, to the
address of such holder shown on the records of the Company.
(e) Unless otherwise provided in the Certificate
of Incorporation, as amended, of the Company, all payments in the
form of dividends, distributions on voluntary or involuntary
dissolution, liquidation or winding-up or otherwise made upon the
shares of Series F Preferred Stock and any other stock ranking on
a parity with the Series F Preferred Stock with respect to such
dividend or distribution shall be made pro rata, so that amounts
paid per share on the Series F Preferred Stock and such other
stock shall in all cases bear to each other the same ratio that
the required dividends, distributions or payments, as the case
may be, then payable per share on the shares of the Series F
Preferred Stock and such other stock bear to each other.
(f) The Company may appoint, and from time to time
discharge and change, the Transfer Agent for the Series F
Preferred Stock. Upon any such appointment or discharge of a
Transfer Agent, the Company shall send notice thereof by first-
class mail, postage prepaid, to each holder of record of Series F
Preferred Stock. The initial Transfer Agent for the Series F
Preferred Stock shall be the Company.
(g) The Company covenants that it will at all
times on and after the Conversion Commencement Date reserve and
keep available out of its authorized Common Stock and/or shares
of its Common Stock then owned or held by or for the account of
the Company, solely for the purpose of delivery upon conversion
of the Series F Preferred Stock as herein provided, such number
of shares of Common Stock as shall then be deliverable upon
conversion of all shares of Series F Preferred Stock from time to
time outstanding.
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT dated as of January 9, 1997 by and
among XCL Ltd., a Delaware corporation (the "Company"), and the
parties identified on the signature page hereof, such parties
being collectively referred to herein as the "Subscribers".
The Company and the Subscribers, each in reliance upon the
representations, warranties and covenants contained in this
Agreement, agree as follows with respect to the issuance and sale
by the Company and the purchase by the Subscribers of up to a
maximum aggregate amount of 22,000 shares ("Shares") of the
Company's unissued Series F, Cumulative Convertible Preferred
Stock, par value $1.00 per share, the designations, preferences
and rights appertaining to which are set forth in Exhibit "A"
annexed hereto (the "Series F Preferred Stock"), in the manner
provided in Section 1 hereof. Each Subscriber hereby irrevocably
subscribes for the number of Shares for the aggregate purchase
price determined in accordance with the provisions of Section 1
hereof. This Agreement is one of several counterparts being
executed by Subscribers each identical in all aspects except for
the identity of the Subscriber and amount of its subscription for
Shares. The execution, delivery and performance of this
Agreement by each Subscriber shall not create any partnership,
joint venture, agency or other similar relationship with the
Company or any other Subscriber purchasing Shares.
1. Sale and Purchase of Securities. This Agreement is
being executed and delivered in several counterparts in
connection with the offering by the Company (the "Offering") of a
maximum aggregate amount of 22,000 shares of Series F Preferred
Stock at one or more closings (each a "Closing") during the
period commencing with the date hereof and expiring on February
28, 1997, unless sooner terminated by the Company upon written
notice to Subscribers (the "Offering Period"). The Shares, the
shares of common stock, par value $.01 per share ("Common Stock")
issuable upon conversion of the Series F Preferred Stock in
accordance with its terms ("Conversion Stock") and additional
shares of Series F Preferred Stock issuable at the election of
the Company in lieu of cash dividends on the Series F Preferred
Stock ("Dividend Stock"), are sometimes hereinafter referred to
collectively as the "Securities". Subject to the terms and
conditions set forth herein, including, without limitation, the
Company's unilateral right exercisable in its sole and arbitrary
discretion to terminate the Offering at any time during the
Offering Period, upon countersigning this Agreement, the Company
agrees to sell to the Subscriber executing and delivering this
Agreement, and the Subscriber hereby irrevocably subscribes for,
the number of Shares specified on its signature page attached
hereto in exchange for the following (the "Purchase Price"):
(a) Cancellation of a Consulting Agreement between the
Company and Mitch Leigh entered into on July 10, 1996,
and release from obligations thereunder;
(b) Surrender by Mitch Leigh of 1,325,000 shares of
unregistered Common Stock and 2,466,875 warrants issued
in connection with the Consulting Agreement;
(c) Surrender by Mitch Leigh of rights to acquire
558,000 Units comprised of 558,000 shares of registered
Common Stock and 558,000 warrants pursuant to an
agreement dated August 1, 1996;
(d) Surrender by Abby Leigh of rights to acquire 600,000
Units comprised of 600,000 shares of registered Common
Stock and 600,000 warrants pursuant to an agreement
dated August 1, 1996;
(e) Surrender of registration rights with respect to
3,000,000 shares of Common Stock issued in a Unit
offering dated September 18, 1995;
(f) Cash in the amount of $106,625 tendered by Mitch
Leigh; and
(g) Cash in the amount of $112,500 tendered by Abby
Leigh.
2. Conditions. (a) The Subscribers' obligation to
purchase and pay for the Securities is subject to the
satisfaction, on or before the Closing Date, of the following
conditions, except to the extent waived by each Subscriber:
(i) Officer's Certificate. The representations and
warranties contained in Section 3 shall (except to the
extent of changes caused by transactions contemplated in or
expressly permitted by this Agreement) be true on and as of
the Closing Date with the same effect as though such
representations and warranties were originally made on and
as of such date; all agreements to be performed by the
Company hereunder on or before the Closing Date shall have
been duly performed; and the Company shall have delivered to
the Subscribers a certificate, signed by the President or a
Vice President and the Secretary or an Assistant Secretary
of the Company, dated such Closing Date, to such effect.
(ii) Proceedings and Documents. All corporate and
other proceedings taken in connection with the transactions
contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and
substance to the Subscribers and the Subscribers shall have
received copies of all documents and records which the
Subscribers may reasonably request.
(b) The Company's obligation to issue and deliver the
Shares to the Subscribers on each Closing Date is subject to the
satisfaction, on or before such Closing Date, of the following
conditions, except to the extent waived by the Company:
(i) Subscriber's Representations and Warranties.
The representations and warranties contained in Section 4
shall (except to the extent of changes caused by
transactions contemplated in or expressly permitted by this
Agreement) be true on and as of the Closing Date with the
same effect as though such representations and warranties
were originally made on and as of such date and all
agreements to be performed by the Subscribers hereunder on
or before the Closing Date, shall have been duly performed.
(ii) Proceedings and Documents. All legal and other
proceedings taken in connection with the transactions
contemplated by this Agreement, and all documents incident
thereto, including, without limitation, the certificates
evidencing the shares of Common Stock, with duly executed
stock powers attached, comprising payment of a portion of
the Purchase Price, shall be reasonably satisfactory in form
and substance to the Company and its counsel, and the
Company shall have received copies of all documents and
records, which the Company or the Company's counsel may
reasonably request.
3. Representations and Warranties by the Company. The
Company hereby represents and warrants to the Subscribers that,
except as disclosed in the SEC Filings (as hereinafter defined):
(a) Organization and Good Standing. The Company
and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the
requisite corporate power and authority to carry on its
business as now being conducted and is not required to
qualify to do business as a foreign corporation in any other
jurisdiction where the failure so to qualify would have a
material adverse effect on the Company's and its
subsidiaries' business, financial condition or results of
operations, taken as a whole.
(b) Certificate of Incorporation and Bylaws. The
Company has heretofore or at the Initial Closing made
available to the Subscribers upon request a complete and
correct copy of the Certificate of Incorporation and the
Amended and Restated Bylaws, each as amended to date, of the
Company. Such Certificate of Incorporation and Bylaws, as
so amended, are in full force and effect. The Company is not
in violation of any of the provisions of its Certificate of
Incorporation, as so amended, or Restated and Amended
Bylaws.
(c) Capitalization. As of December 31, 1996, the
Company's authorized capital stock consists of 500,000,000
shares of Common Stock, of which 276.664,260 shares were
validly issued and outstanding and are fully paid and
nonassessable, and 2,400,000 shares of preferred stock, par
value $1.00 per share ("Preferred Stock"), to be issued in
series with such rights and preferences as the Board may
designate from time to time of which 577,803 shares
designated the Series A, Cumulative Convertible Preferred
Stock ("Series A Preferred"), 44,954 shares designated the
Series B, Cumulative Preferred Stock ("Series B Preferred")
and 46,654 shares designated the Series E, Cumulative
Convertible Preferred Stock ("Series E Preferred") are
validly issued and outstanding and are fully paid and
nonassessable.
(d) Corporate Authority. The Company has full
corporate power and authority to enter into this Agreement
and to sell the Shares and issue and deliver or cause to be
issued and delivered the Shares and to incur and perform the
obligations provided for herein or pursuant to the
provisions of the Series F Preferred Stock, all of which
will have been duly authorized by all necessary corporate or
other action of the Company. The execution, delivery and
performance of this Agreement, and the sale of the Shares
and the delivery by the Company of the Shares to the
Subscribers in the manner contemplated by this Agreement
does not violate any provision of any law of the United
States, or the Certificate of Incorporation, as amended, or
the Amended and Restated Bylaws of the Company, or any
agreement or instrument by which the Company, or any of its
properties are bound and will not result in the creation of
any encumbrance or charge upon any asset of the Company.
This Agreement and the provisions of the Series F Preferred
Stock constitute valid and binding obligations of the
Company enforceable in accordance with their respective
terms, except to the extent that the indemnification
provisions hereof may be deemed void as a matter of public
policy in any proceeding commenced by the Commission (as
hereinafter defined) or otherwise.
(e) Governmental Consents. All consents,
authorizations and approvals (if any) of any governmental
agency or other regulatory body within the United States
required to be obtained by the Company for the execution and
delivery of this Agreement and the issuance and sale of the
Shares in the manner contemplated by this Agreement, and the
performance of its obligations assumed under the Shares have
been obtained and are in full force and effect.
(f) Series F Preferred Stock. An aggregate of
50,000 shares of Preferred Stock have been authorized as
"Series F Preferred Stock". The Shares, upon payment and
issue as provided for in this Agreement and the shares of
Dividend Stock, upon issuance as contemplated under the
Series F Preferred Stock, will be duly authorized, validly
issued, fully paid and nonassessable. An aggregate of 18,000
shares of Dividend Stock have been reserved for issuance as
dividends on the Shares.
(g) Common Stock. The Conversion Stock will,
following issuance in the manner provided for in the Series
F Preferred Stock, be duly authorized, validly issued, fully
paid and nonassessable. A total of 16,000,000 shares of
Common Stock have been reserved for issuance upon conversion
of the Series F Preferred Stock.
(h) Securities and Exchange Commission Filings. The
Company has filed all forms, reports and documents required
to be filed with the Securities and Exchange Commission
("Commission") since January 1, 1996 (the "SEC Filings").
The SEC Filings (i) were prepared in accordance with the
requirements of the Securities Act, or the Securities
Exchange Act, as the case may be, and (ii) did not at the
time they were filed contain any 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 the light of the circumstances under
which they were made, not misleading. None of the Company's
subsidiaries is required to file any forms, reports or other
documents with the Commission.
(i) Financial Statements. The consolidated balance
sheets of the Company and its consolidated subsidiaries as
at December 31, 1995 and September 30, 1996 and the related
consolidated statements of income and cash flows for the
fiscal periods ended on such dates, are complete and correct
in all material respects and have been prepared in
accordance with generally accepted accounting principles
consistently applied and each presents fairly the
consolidated financial position of the Company and its
consolidated subsidiaries on the dates specified or the
consolidated results of its and their operations for the
periods indicated in all material respects.
(j) Absence of Certain Material Changes and Events.
Except as disclosed in the SEC Filings and herein, since
September 30, 1996, there has been;
(i) no material adverse change in the
financial condition, assets, liabilities, results of
operations, or business of the Company and its
subsidiaries, taken as a whole, other than changes
disclosed in the SEC Filings, except that the Company
is currently suffering a significant working capital
shortage which, if not remedied, may have a material
adverse effect on the business and financial condition
of the Company;
(ii) no material damage, destruction or loss
(whether or not coveted by insurance) materially and
adversely affecting the properties or business of the
Company and its subsidiaries, taken as a whole; or
(iii) no labor trouble, or any other events or
condition of any character, materially and adversely
affecting the properties, business or prospects of the
Company and its subsidiaries, taken as a whole.
(k) Contracts. The Company is not in material
violation of or in material default under any material
contract or commitment to which it is a party or by which it
is bound.
(l) Litigation. There is no material litigation,
proceeding or investigation not fully covered by insurance
which is pending or, to the Company's knowledge, threatened
against or relating to the Company or any of its
subsidiaries or its or their properties or business, which,
if adversely decided, would have a material adverse effect
on the Company's and its subsidiaries' business or financial
condition, taken as a whole, or impair the Company's ability
to execute, deliver and perform this Agreement. Neither the
Company nor any of its subsidiaries nor any of their
properties is subject to any judgment, decree or order of
any court or any other governmental or administrative body
or agency which impairs the Company's ability to execute,
deliver and perform this Agreement in accordance with its
terms.
4. Representations, Warranties and Agreements by the
Subscribers. Each Subscriber hereby severally represents and
warrants to and agrees with the Company as follows:
(a) Authority, etc. Each Subscriber who is an
individual has the legal capacity to enter into and perform
this Agreement and each Subscriber who is a corporation,
partnership, trust, association or other entity (an "Entity
Subscriber") is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation or organization, in either case, with full
legal power and authority to execute, deliver and perform
this Agreement in accordance with its terms. The execution,
delivery and performance of this Agreement and the
transactions contemplated hereby by the Entity Subscriber
has been duly authorized by all legal action required to be
taken on the part of the Entity Subscriber. This Agreement
constitutes the valid and binding obligation of each
Subscriber enforceable in accordance with its terms, except
to the extent that the indemnification provisions may be
deemed void as a matter of public policy in any proceeding
commenced by the Commission or otherwise. The execution,
delivery and performance of this Agreement by the Subscriber
will not violate or cause a breach, with or without notice
or the passage of time or both, of each Entity Subscriber's
Charter or other documents pursuant to which it was
incorporated or organized, any provision of any law,
domestic or foreign, to which the Subscriber is subject, or
any agreement or instrument by which the Subscriber, or any
of its properties are bound, and the Subscriber is not
currently insolvent nor will the acquisition of the Shares
in the manner contemplated herein render the Subscriber
insolvent. All consents, authorizations and approvals (if
any) required to be obtained in order to enable the
Subscriber to execute, deliver and perform this Agreement
have been duly obtained or shall be obtained on or prior to
the Closing Date. So long as the Subscriber continues to
hold the Shares, it shall, at its own expense, furnish to
the Company upon receipt of the written request therefor all
information as may be required to be disclosed under
applicable law regarding its ownership of the Company's
securities, including, without limitation, any information
that may be required to be disclosed pursuant to the
Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder. Any shares of Common
Stock which may be transferred to the Company in partial
payment of the Purchase Price shall be transferred free and
clear of all liens, charges and encumbrances of any kind
whatsoever ("Adverse Claims") and upon such transfer the
Company shall be a bona fide purchaser thereof for value and
the legal and beneficial owner of such shares free and clear
of all Adverse Claims.
(b) Due Diligence Inquiry. The Subscriber, together
with its own advisors, has conducted its own due diligence
examination of the Company's and its subsidiaries' assets,
business, financial condition, results of operations, and
prospects. The Subscriber is aware of the high degree of
risk attendant to an investment in the Shares, including,
without limitation, the Company's current working capital
shortage, the Company's recent history of limited revenues,
the Company's consideration of the sale of its domestic
producing and other oil and gas properties, the delays that
may be encountered in realizing upon the Company's
investment in the Zhao Dong Block in the Bohai Bay in the
People's Republic of China, and the risks described in the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, and in the materials entitled
"Investment Considerations" previously furnished to the
Subscribers.
(c) Independent Investigation. The Subscriber has
carefully reviewed and relied solely upon the
representations and warranties of the Company contained
herein and upon the independent investigations made by it
and its representatives in making a decision to purchase the
Securities and has a full understanding and appreciation of
the risks inherent in such a highly speculative investment.
In connection with such investigation, the Subscriber and
its attorneys, accountants and other representatives and
advisers, if any, (i) have been given an opportunity to ask,
and have to the extent the Subscriber considered necessary,
asked questions of, and have received answers from, officers
of the Company concerning the terms of the Series F
Preferred Stock and the affairs of the Company and its
subsidiaries and (ii) have been given or afforded access to
all documents, records, books and additional information
which the Subscriber has requested regarding such matters.
In particular, the Subscriber has been given access to the
Certificate of Incorporation with all amendments thereto;
the Amended and Restated Bylaws of the Company; the material
contracts affecting the Company and its subsidiaries'
business; and the files and records maintained by the
Company with respect to its subsidiaries' producing
properties, undeveloped acreage, and other assets of the
Company and its subsidiaries.
(d) Unregistered Shares. The Subscriber recognizes
that the offer and sale by the Company to it of the Shares,
or the issuance of the Dividend or Conversion Stock have not
been and, except as hereinafter set forth in Section 5, will
not be registered under the Securities Act and, with the
exception of the Conversion Stock, the Exchange Act, and
have not been and will not be registered under any other
domestic or foreign securities laws (the Securities Act, the
Exchange Act and any such other applicable securities laws
are hereinafter collectively referred to herein as the
"Securities Laws") in reliance upon exemptions from the
registration requirements thereof; the Subscriber is
acquiring the Securities solely for its own account for
investment and not with a view to, or for offer or resale in
connection with, a distribution thereof in violation of any
Securities Laws. The Subscriber understands that the effect
of such representation and warranty is that the Securities
must be held indefinitely unless the sale or transfer
thereof is subsequently registered under applicable
Securities Laws or an exemption from such registration is
available at the time of the proposed sale or transfer
thereof. Except as hereinafter set forth in Section 5, the
Company is under no obligation either (i) to file a
registration statement under the Securities Act covering the
sale or transfer of the Securities or otherwise to register
the Securities for sale under applicable Securities Laws or
(ii) to register the Shares or the Dividend Stock under the
Exchange Act. The statements contained in this Section 4 are
true, correct and complete in all material respects and do
not omit any material fact necessary to make such statements
not misleading.
(1) Each of the Subscribers hereby represents
and warrants to the Company that:
(i) it has received a copy of the
Company's SEC Filings made in fiscal year 1996 and
to date in 1997;
(ii) it has such knowledge and experience
in financial and business matters as to be capable
of evaluating the merits and risks of an
investment in the Securities;
(iii) it is an "accredited investor" as
defined in Rule 501 of Regulation D under the
Securities Act; and
(iv) it understands that the Securities are
not being (and, except to the extent set forth in
Section 5 hereof, will not be) registered under
the Securities Laws; the Securities are being sold
to it in a transaction that is intended to qualify
for an exemption from the registration
requirements of the Securities Act, and, except to
the extent set forth in Section 5 hereof, will not
be registered under the Securities Laws and may
not be transferred unless the request for transfer
is accompanied by a written certification that
such Securities will not be resold in the United
States or to any U.S. person except in accordance
with applicable requirements of Rules 144 or 144A
promulgated under the Securities Act or in a
transaction which in the opinion of counsel,
reasonably satisfactory to the Company, does not
require registration under the Securities Laws;
and it also understands that the Securities may
not be transferred unless subsequently registered
under the Securities Laws, or sold in a
transaction which, in the opinion of counsel
reasonably satisfactory to the Company, does not
require registration under the Securities Laws.
(e) Transfer Conditions. Prior to any sale,
transfer or other disposition of any of the Subscriber's
Securities (so long as they have not been registered under
the Securities Act as contemplated in Section 5 hereof or
are otherwise freely transferable under the Securities
Laws), the Subscriber agrees to give at least three business
days prior written notice to the Company of its intention to
effect such transfer and to comply in all other respects
with this Section 4(e). Each such notice shall describe the
manner and circumstances of the proposed transfer in
sufficient detail to enable counsel to render the opinions
required herein, and, if requested by the Company, shall be
accompanied by an opinion of counsel acceptable to the
Company, addressed to the Company and satisfactory in form
and substance to the Company, stating that, in the opinion
of such counsel, such transfer will be a transaction exempt
from registration under the Securities Laws and that all
consents, approvals or authorizations to such transfer have
been obtained. Assuming the receipt by the Company of such
satisfactory opinion, the Subscriber shall thereupon be
entitled to transfer such shares in accordance with the
terms of the notice delivered by the Subscriber to the
Company. Each certificate or other document issued
representing the Securities shall bear an appropriate legend
suitably conformed, unless, in the opinion of the respective
counsel for the Subscriber and the Company, such legend is
not required in order to aid in assuring compliance with
applicable Securities Laws.
The Subscriber agrees that it will not sell, transfer
or otherwise dispose of any of the Securities except upon
compliance with Sections 4(d), 4(e), 4(f) and 4(g) hereof.
(f) Limit on Resales During Registration. The
Subscriber agrees not to sell any Registered Stock (as
defined in Section 5) during the period from the date it
receives notice of the filing of any registration statement
by the Company through the 180th day after the effective
date of such registration statement, to the public pursuant
to Rules 144 or 144A under the Securities Act or otherwise,
without the prior receipt of the written consent of the
Company; provided, however, that such restriction shall not
be applicable to the Subscriber unless the registration
statement relates to an underwritten public offering of the
Company's securities.
(g) Restrictive Legends and Stop Order. In
addition to any specific restrictive legends that may be
required by applicable Securities Laws or agreements to
which the Subscriber may be a party, each Subscriber agrees
to be bound by a restrictive legend which may be placed on
the certificates representing the Securities. The Subscriber
understands and agrees that the Company may place and
instruct any transfer agent for the Securities to place a
stop transfer notation in the stock records in respect of
the certificates representing the Securities, provided that
such securities may be transferred upon compliance with the
provisions of this Section 4. The Subscriber acknowledges
and agrees that the Company is and will be relying upon the
truth and accuracy of the foregoing representations and
warranties in offering and selling the Shares and issuing
the Securities to the Subscriber without first registering
them under applicable Securities Laws.
5. Registration. (a) If at any time after the Closing
the Company proposes to register any of its Common Stock under
the Securities Act for sale to the public (such sale being
hereinafter referred to as a "Public Offering"), except with
respect to registration statements on Forms S-4, S-8 or their
then equivalents, each such time it will give written notice to
the Subscribers of its intention so to do. Upon the written
request of a Subscriber, received by the Company within 30 days
after the giving of any such notice by the Company, to include in
such Public Offering any of its Conversion Stock (which request
shall state the intended method of disposition thereof), the
Company will use its best efforts to cause the Conversion Stock
to be included in the securities to be sold in such Public
Offering, all to the extent requisite to permit the sale or other
disposition by such Subscriber (in accordance with its written
request) of such Conversion Stock. If the Public Offering is an
underwritten public offering and the managing underwriter
determines in good faith and advises in writing that the number
of shares of Common Stock which the Company proposes to offer
under such registration statement, together with the number of
shares of Conversion Stock and other shares of Common Stock
requested to be included in such registration statement by the
holders of securities having registration rights similar to those
of this Section 5(a), exceeds the number of shares of equity
securities it is advisable to offer and sell at such time, then
the number of shares to be sold by the Company, the Subscribers
and such other shareholders after such reduction shall be
allocated among the Company, the Subscribers and such other
shareholders such that the Company shall have the right to have
offered no less than 75% of the original number of shares
proposed or requested by the Company to be registered.
Notwithstanding the foregoing provisions, the Company may
withdraw any registration statement referred to in this Section
5(a) without thereby incurring any liability to the Subscribers.
(b) As a condition to the inclusion of shares of
Registered Stock in any registration statement, the Subscribers
will furnish to the Company such information with respect to them
and their plan of distribution of such shares as is required to
be disclosed in the registration statement (and the prospectus
and all amendments thereto included therein) by the applicable
rules, regulations and guidelines of the Commission.
(c) The Company and the Subscribers agree to enter into
a written agreement with the managing underwriter in such form
and containing such provisions as are customary in the securities
business for such an arrangement between such underwriter and
companies of the Company's size and investment stature and their
shareholders.
(d) (i) The Company will indemnify and hold harmless the
Subscribers and each other person, if any who controls the
Subscribers within the meaning of the Securities Act or the
Exchange Act from and against any and all losses, claims,
damages, liabilities and legal and other expenses including costs
of investigation caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration
statement under which the Registered Stock was registered under
the Securities Act, any prospectus or preliminary prospectus
contained therein or any amendment, post-effective amendment or
supplement thereto, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light
of the circumstances then existing, except insofar as such
losses, claims, damages, liabilities or expenses are caused by
any such untrue statement or omission or alleged untrue statement
or omission based upon information relating to the Subscribers
and furnished to the Company in writing by the Subscribers
expressly for use therein.
(ii) It shall be a condition to the obligation of the
Company to effect a registration of the Registered Stock under
the Securities Act pursuant hereto, that the Subscribers jointly
and severally indemnify and hold harmless the Company and, in
connection with an underwritten public offering, each underwriter
and each person, if any, who controls the Company or the
underwriter, within the meaning of the Securities Act or the
Exchange Act, to the same extent as the indemnity from the
Company in the foregoing paragraph, but only with reference to
information relating to the Subscribers furnished to the Company
or the underwriter in writing by the Subscribers expressly for
use in the registration statement, any prospectus or preliminary
prospectus contained therein or any amendment, post-effective
amendment or supplement thereto.
(iii) In case any claim shall be made or any proceeding
(including any governmental investigation) shall be instituted
involving any indemnified Party in respect of which indemnity may
be sought pursuant to this Section 5(d), such indemnified party
shall promptly notify the indemnifying party in writing of the
same; provided that failure to notify the indemnifying party
shall not relieve it from any liability it may have to an
indemnified party otherwise than under this Section 5(d). The
indemnifying party, upon request of the indemnified party, shall
retain counsel reasonably satisfactory to the indemnified party
to represent the indemnified party in such proceeding and shall
pay the fees and disbursements of such counsel. In any such
proceeding, any indemnified party shall have the right to retain
its own counsel, but the fees and disbursements of such counsel
shall be at the expense of such indemnified party unless (i) the
indemnifying party shall have failed to retain counsel for the
indemnified party as aforesaid, (ii) the indemnifying party and
such indemnified party shall have mutually agreed to the
retention of such counsel or (iii) representation of such
indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to differing interests between
such indemnified party and any other party represented by such
counsel in such proceeding; provided that the Company shall not
be liable for the fees and disbursements of more than one
additional counsel for all indemnified parties. The indemnifying
party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or
judgment.
(e) The registration of the Conversion Stock as
herein provided shall be at the expense of the Company except
that Subscribers shall bear the cost of any underwriters
discounts, fees and expenses attributable to their shares of such
Stock and the fees and expenses of any legal counsel and
accountants, if any, retained by the Subscribers.
6. Survival of Representations and Warranties. The
representations and warranties of the parties hereto set forth in
this Agreement or in any certificate or other document or
instrument furnished by or on behalf of any party hereto in
connection with the transactions contemplated hereby, which shall
be deemed to be effective as of the date made, shall survive the
execution, delivery and termination of this Agreement and the
consummation of the transactions contemplated hereby and shall
terminate effective on the first anniversary of the last Closing
Date to occur hereunder.
7. Notices. Any notice, claim, request, demand or other
communication required or permitted to be given under this
Agreement shall be given in writing and shall be deemed to have
been duly given if delivered or mailed, first class postage
prepaid, or sent by facsimile (with a copy mailed promptly
thereafter by first class mail, postage prepaid), to the party
for whom intended at the following addresses:
If to the Subscribers: The addresses set forth on the
signature page hereof.
If to the Company: 110 Rue Jean Lafitte
Lafayette, Louisiana 70508
Attn.: David A. Melman, Esq.
Executive Vice President
Facsimile Number (318) 237-3316
With a copy to:
Peter A. Basilevsky, Esq.
Satterlee Stephens Burke & Burke LLP
230 Park Avenue
New York, New York 10169
Facsimile Number (212) 818-9606
or at such other address, as to any party, as such party shall
specify by like notice to the other parties.
8. Entire Agreement, etc. This Agreement together with
the Exhibit hereto sets forth the entire understanding and
agreement between the Company and the Subscribers pertaining to
the subject mailer of this Agreement and the Exhibit superseding
any and all prior agreements, proposals, understandings and
arrangements between the parties hereto, all of which shall be
deemed terminated, cancelled and of no further force and effect.
No prior or contemporaneous understanding or agreement shall
alter or constitute a waiver of any term, condition, obligation,
covenant, representation or warranty contained in this Agreement,
nor shall any assignment, waiver, understanding or agreement
purportedly assigning this Agreement or amending or waiving any
provision hereof be effective unless and until it shall be
reduced to writing and signed by the parties hereto. This
Agreement may be executed in counterparts with each counterpart
being deemed an original and all such counterparts being deemed
as one single instrument, The headings in this Agreement have
been inserted for convenience of reference only and shall not
affect the interpretation or enforcement of any provision hereof.
9. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK FOR ALL PURPOSES WITHOUT REGARD TO ITS PRINCIPLES OF
CONFLICTS OF LAW.
10. Submission to Jurisdiction. Each Subscriber
hereby irrevocably and unconditionally:
(i) submits for itself and its property in any
legal action or proceeding relating to this Agreement to
which it is a party, or for recognition and enforcement of
any judgment in respect thereof, to the non-exclusive
general jurisdiction of the Courts of the State of New York,
the courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding
may be brought in such courts and waives any objection that
it may now or hereafter have to the venue of any such action
or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
(iii) agrees that service of process in any such
action or proceeding may be effected by respectively
delivering or mailing a copy thereof by personal delivery or
by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to the Subscriber
addressed in the manner set forth in Section 7 hereof or at
such other address of which the Company shall have been
notified pursuant thereto; and
(iv) agrees that nothing herein shall affect the
right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any
other jurisdiction.
11. Termination. The Company may terminate this
Agreement by notice to the Subscribers at any time prior to
February 28, 1997. Any termination of this Agreement pursuant to
this Section 11 shall be without cost, expense or liability of
any party.
12. Special State Securities Laws Notices.
Prospective Purchasers in California must review the
following information required by the Commissioner of
Corporations and be aware of its contents:
"The sale of the securities which
are the subject of this agreement
has not been qualified with the
Commissioner of Corporations of the
State of California and the
issuance of such securities or the
payment or receipt of any part of
the consideration therefor prior to
such qualification is unlawful,
unless the sale of the securities
is exempt from the qualification by
Section 25100, 25102, or 25105 of
the California Corporations Code.
The rights of all parties to this
agreement are expressly conditioned
upon such qualification being
obtained, unless the sale is so
exempt."
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective on the 28th day of February, 1997.
XCL LTD.
By:_______________________________
Title:______________________________
The undersigned hereby subscribes for 18,448 Shares.
THE SUBSCRIBER:
______________________________
MITCH LEIGH
Tax ID No.:______________________
Phone No.:_______________________
Facsimile No.:_____________________
The undersigned hereby subscribes for 1,731 Shares.
THE SUBSCRIBER:
______________________________
ABBY LEIGH
Tax ID No.:______________________
Phone No.:_______________________
Facsimile No.:_____________________
ACKNOWLEDGMENT OF INDIVIDUAL SUBSCRIBER
On this _____ day of ____________, 1997, before me, the
undersigned authority, duly commissioned and qualified,
personally came and appeared Mitch Leigh residing at [full
address] __________________________________________, to me
personally known, who, being by me duly sworn, declared and
acknowledged before me that he/she knew the contents of the
foregoing Agreement and did execute the foregoing Agreement in
his/her capacity as a Subscriber, for the purposes therein
expressed, as his/her free act and deed.
____________________________
Appearer (signature)
_____________________________
Notary Public
Name: [print]__________________________
My commission expires:
ACKNOWLEDGMENT OF INDIVIDUAL SUBSCRIBER
On this _____ day of ____________, 1997, before me, the
undersigned authority, duly commissioned and qualified,
personally came and appeared Abby Leigh residing at [full
address] __________________________________________, to me
personally known, who, being by me duly sworn, declared and
acknowledged before me that he/she knew the contents of the
foregoing Agreement and did execute the foregoing Agreement in
his/her capacity as a Subscriber, for the purposes therein
expressed, as his/her free act and deed.
____________________________
Appearer (signature)
_____________________________
Notary Public
Name: [print]__________________________
My commission expires:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER FEDERAL OR STATE SECURITIES OR
BLUE SKY LAWS, AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
THEREFROM. NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE OR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE THEREOF MAY BE MADE UNLESS (I) REGISTERED UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY
LAWS OR (II) XCL LTD. 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.
WARRANTS TO PURCHASE
COMMON STOCK OF XCL LTD.
Initial Issuance on April 10, 1997
Void after 5:00 p.m. New York Time, April 9, 2002
No. _______
THIS CERTIFIES THAT, for value received,
_____________________________, or registered assigns (the
"Holder") (whose Tax Identification Number is N/A) 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 April 10, 1998 and until 5:00
p.m., New York time, on April 9, 2002 (the "Expiration Date"),
subject to the conditions set forth herein, at the initial
exercise price of U.S. $0.01 per share (the "Initial Exercise
Price"), subject to adjustment as set forth herein (the "Exercise
Price"), up to an aggregate of _____________________________
(_________) fully paid and non-assessable shares (the "Shares"),
par value $.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.
(If, upon exercise of any of the warrants, the Company satisfies
its obligations hereunder by issuance of preferred stock pursuant
to Section 10, below, then references to "Shares" shall include
reference to such Preferred Stock.)
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 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 5:00 p.m. 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.
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 such fractional interest
that would otherwise be issuable to such Holder, the Company
shall repurchase such fractional interest in cash in an amount
equal to such fractional interest of the closing bid price for
the Common Stock on The American Stock Exchange, Inc. or any
other principal stock exchange or in the over-the-counter market
or other securities market in which the Common Stock is then
trading on the date of determination (the "Market Price per
Share"); provided, however, the Company shall not be required to
pay any Holder any amount in respect of such fractional interest
which is less than $1.00.
3. Payment of Taxes. The Company will pay all documentary
stamp taxes, if any, attributable to the issuance and delivery of
the Shares upon the exercise of the Warrants; provided, however,
that the Company shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or
delivery of any Warrant or any Shares in any name other than that
of the Holder, which transfer taxes shall be paid by the Holder,
and until payment of such transfer taxes, if any, the Company
shall not be required to issue such Shares.
4. Compliance with Securities Laws.
(a) The issuance of the Warrants and the Shares issuable
pursuant thereto (the Warrants and such Shares being referred to
collectively as the "Securities") to the Holder has not been,
and, except as hereinafter set forth in Section 9, will not be,
registered under the Securities Act or any other domestic or
foreign securities or blue sky laws (the Securities Act and any
such other applicable securities or blue sky laws are hereinafter
collectively referred to herein as the "Securities Laws") in
reliance upon exemptions from the registration requirements
thereof; the Holder is acquiring the Securities solely for its
own account for investment and not with a view to, or for offer
or resale in connection with, a distribution thereof in violation
of any Securities Laws. The Securities shall be held by the
Holder unless the sale or transfer thereof is subsequently
registered under applicable Securities Laws or an exemption from
such registration is available at the time of the proposed sale
or transfer thereof. Except as hereinafter set forth in Section
9, the Company shall be under no obligation to file a
registration statement under the Securities Act covering the sale
or transfer of the Securities or otherwise to register the
Securities for sale under applicable Securities Laws.
(b) Prior to any sale, transfer or other disposition of any
of the Securities (so long as they have not been registered under
the Securities Act as contemplated in Section 9 hereof or are not
otherwise freely transferable under the Securities Laws), the
Holder shall give at least three business days prior written
notice to the Company of its intention to effect such sale,
transfer or other disposition and to comply in all other respects
with this Section 4(b). Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient
detail to enable counsel to render the opinions required herein,
and, if requested by the Company, shall be accompanied by an
opinion of counsel reasonably acceptable to the Company (which
shall include Holder's in-house counsel), addressed to the
Company and satisfactory in form and substance to the Company,
stating that, in the opinion of such counsel, such transfer will
be a transaction exempt from registration under the Securities
Laws and that all necessary consents, approvals or authorizations
to such transfer have been obtained. Assuming the receipt by the
Company of such satisfactory opinion, the Holder shall thereupon
be entitled to transfer such Securities in accordance with the
terms of the notice delivered by the Holder to the Company. Each
certificate or other document issued representing the Securities
shall bear an appropriate legend suitably conformed, unless, in
the opinion of the respective counsel for the Holder and the
Company, such legend is not required in order to aid in assuring
compliance with applicable Securities Laws.
(c) The Holder shall not sell any Shares included in a
Registration Statement (as defined in Section 9) filed by the
Company and declared effective by the Securities and Exchange
Commission during the period from the date it receives notice of
the filing of any such Registration Statement by the Company
through the 90th day after the effective date of such
Registration Statement, to the public pursuant to Rules 144 or
144A under the Securities Act or otherwise, without the prior
receipt of the written consent of the Company; provided, however,
that such restriction shall not be applicable to the Holder
unless the Registration Statement relates to an underwritten
public offering of the Company's securities; provided, further,
the Holder shall be bound by the terms of this paragraph in
connection with no more than one registration statement in any
six month period.
(d) In addition to any specific restrictive legends that
may be required by applicable Securities Laws or agreements to
which the Holder may be a party, the Holder shall be bound by a
restrictive legend which may be placed on the certificates
representing the Securities. The Company may place and instruct
any transfer agent for the Securities to place a stop transfer
notation in the stock records in respect of the certificates
representing the Securities, provided that such securities may be
transferred upon compliance with the provisions of this Section 4
and Section 5 below.
5. Transfer of Warrants.
(a) The Warrants shall be transferable only on the books of
the Company maintained at the Company's principal office upon
delivery of this Certificate with the form of assignment attached
hereto duly completed and signed by the Holder or by its duly
authorized attorney or representative, or accompanied by proper
evidence of succession, assignment or authority to transfer. The
Company may, in its discretion, require, as a condition to any
transfer of Warrants, a signature guarantee by a commercial bank
or trust company, by a broker or dealer which is a member of the
National Association of Securities Dealers, Inc. Upon any
registration of transfer, the Company shall deliver a new
certificate or certificates of like tenor and evidencing in the
aggregate a like number of Warrants to the person entitled
thereto in exchange for this Certificate, subject to the
limitations provided herein, without any charge except for any
tax or other governmental charge imposed in connection therewith.
(b) Notwithstanding anything in this 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
provisions of Sections 4 and 5 hereof, concerning such transfer
as if the Holder were the initial Holder, and (ii) any applicable
provisions of the Securities Act and any applicable state and
foreign securities or blue sky laws. Any transfer not made in
such compliance shall be null and void, and given no effect
hereunder.
6. Exchange and Replacement of Warrant Certificates; Loss
or Mutilation of Warrant Certificates.
(a) This Certificate is exchangeable without cost, upon the
surrender hereof by the Holder at the principal office of the
Company, for new certificates of like tenor and date representing
in the aggregate the right to purchase the same number of Shares
in such denominations as shall be designated by the Holder at the
time of such surrender.
(b) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation
of this Certificate and, in case of such loss, theft or
destruction, of indemnity and security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this
Certificate, if mutilated, the Company will make and deliver a
new certificate of like tenor, in lieu thereof.
7. Initial Exercise Price; Adjustment of 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) The number of shares of Common Stock subject hereto and
the Purchase Price per share shall be proportionately adjusted
for any increase or decrease in the number of issued shares of
the Common Stock resulting from the subdivision or consolidation
of shares, or the payment of a stock dividend after the date
hereof, or other decrease or increase in the shares of Common
Stock outstanding effected without receipt of consideration by
the Company; provided, however, that any Warrants to purchase
fractional shares resulting from such adjustments shall be
eliminated upon exercise of the Warrants as provided in Section 2
hereof.
(c) If the Company shall at any time merge or consolidate
with or into another corporation, the Holder shall thereafter
receive, upon the exercise thereof, the securities or property to
which a holder of the number of shares of Common Stock then
deliverable upon the exercise of such Warrant would have been
entitled to receive upon such merger or consolidation, and the
Company shall take such steps in connection with such merger or
consolidation as may be necessary to assure that the provisions
of this certificate shall thereafter be applicable, as nearly as
may be reasonable, in relation to any securities or property
thereafter deliverable upon the exercise of such Warrant. A sale
of all or substantially all of the assets of the Company for a
consideration (apart from the assumption of obligations)
consisting primarily of securities shall be deemed a merger or
consolidation for the foregoing purposes. In the event of the
proposed dissolution, liquidation or reorganization of the
Company, other than pursuant to a merger or consolidation as
referred to above, this Warrant shall terminate as of a date to
be fixed by the Board of Directors; provided that no less than 30
days' prior written notice of the date so fixed shall be given to
the Holder, and the Holder shall have the right, during the
period of thirty (30) days preceding such termination, to
exercise its Warrants as to all or any part of the shares covered
thereby, including shares as to which such Warrant would not
otherwise be exercisable.
(d) Irrespective of any adjustments or changes in the
number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to
issue new Warrant Certificates pursuant to Section 1(e) hereof,
continue to express the Purchase Price per share and the number
of shares purchasable thereunder as the Purchase Price per share
and the number of shares purchasable thereunder were expressed in
the Warrant Certificates when the same were originally issued.
(e) No adjustment of the Purchase Price pursuant to this
Section 7 shall be made if the amount of said adjustment shall be
less than $.05; provided, however, that in such case, any
adjustment that would otherwise be required then to be made shall
be carried forward and shall be made at the time of and together
with the next subsequent adjustment that shall amount, together
with any adjustment so carried forward, to at least $.05.
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 reclassification 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. 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 on 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 and the number intended to
be disposed of by the Holder), 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) the costs and expenses of legal counsel, accountants or
other advisors retained by the Holder in excess of $15,000
(collectively, the "Holder's Expenses"), provided that;
(i) anything in this Section 9 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 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 registration rights granted by
the Company, (C) next to be registered will be securities subject
to any piggyback registration rights granted by the Company
before the initial issuance date of the Warrants, and (D) 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 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 9 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 upon which
Holder is authorized to rely the securities for which
registration is requested may be sold publicly without limitation
or restriction 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 9 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 its
request for inclusion of its Registrable Shares in such
registration; and
(iv) notwithstanding the provisions of this Section 9(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 documents and agreements,
including, without limitation, indemnification and contribution
agreements, as well as such appropriate information in connection
with the sale of such Shares, including, without limitation,
information about the Holder, the Registrable Shares and the
Holder's plan of distribution thereof, and other securities of
the Company owned by the Holder, 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 documents reasonably
requested by the Company and/or 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 9(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.
(a) 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
appropriate to the offering; provided, however, that the Company
shall not be required to (A) 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, (B) qualify
generally to do business as a foreign corporation in any
jurisdiction wherein it is not already so qualified, (C) subject
itself to taxation in any such jurisdiction, or (D) consent to
general service of process in any such jurisdiction.
10. Reservation and Listing of Securities.
(a) Subject to the following provisos, 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; 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. If the increase of the number of authorized shares of
Common Stock available for reservation hereunder is not approved
by the shareholders of the Company and the Company does not
otherwise have sufficient authorized but unissued shares of
Common Stock available to permit exercise of some or all of the
Warrants tendered for exercise, then Warrants shall be exercised
for Common Stock to the extent that Common Stock is available
therefor, and the balance of the tendered Warrants shall be
exercised by the purchase of a new class of Preferred Stock (the
"New Preferred") of the Company with a liquidation preference of
$100 per share. The New Preferred will have the same terms and
conditions as the Company's existing Series E Preferred Stock,
except that no Common Stock shall be required to be reserved for
issuance upon conversion of the New Preferred. The New Preferred
to be purchased upon the exercise of Warrants shall be based on
the following formula:
N = (W x P) 100
where "N" equals the number of shares of New
Preferred to be issued; "W" equals the number of Warrant to be
exercised by purchase of New Preferred; and "P" equals the
closing bid price, on a per share basis, on the American Stock
Exchange for the Company's Common Stock on the day the Company
received written notice of exercise of the Warrants. Until a
sufficient number of Shares of Common Stock has been reserved for
exercise of all of the Warrants, the Company shall keep reserved
a sufficient number of shares of its New Preferred to satisfy its
obligations under this Section. Within 30 days of the date
hereof, the Company shall file a certificate of designation
creating the New Preferred and shall reserve 50,000 shares of its
New Preferred for issuance hereunder.
(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.
11. Survival. All agreements, covenants,
representations 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. Registered Holder. The Company may deem and treat
the registered Holder hereof as the absolute owner of this
Certificate and the Warrants represented hereby (notwithstanding
any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise of the Warrants, of any
notice, and of any distribution to the Holder hereof, and for all
other purposes, and the Company shall not be affected by any
notice to the contrary.
13. 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 being 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.
14. Headings. The headings contained herein are for
convenience of reference only and are not part of this
Certificate.
15. 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 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.
Dated: April 10, 1997
XCL LTD.
By:__________________________________
Name:________________________________
Title:_______________________________
Attest:
___________________________
Secretary/Assistant Secretary
FIFTH AMENDMENT To CREDIT AGREEMENT
Dated as of August 8, 1996
THIS FIFTH 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 THE ESTATE OF
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, by that certain Third Amendment
to Credit Agreement dated as of June 15, 1995, among the
Borrowers, Lender, Guarantors and Holding, and by that certain
Fourth Amendment to Credit Agreement dated as of January 16,
1996, 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 January 16, 1996, payable to the
order of the Lender in the principal sum of $2,713,056.03 (the
"Existing Note"); and,
WHEREAS, the Existing Note has an existing principal
balance of $2,393,419.88, 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 $2,393,419.88 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)
December 17, 1996, or (ii) the earlier date of the
Lenders 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 January 16, 1996,
payable to the order of the Lender in the principal
sum of $2,713,056.03.
(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
$2,393,419.88 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 $2,393,419.88 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 August 8, 1996,
payable to the order of the Lender in the principal
sum of $2,393,419.88, bearing interest at the rate of
9.25% per annum, payable on demand, or if no demand is
made, in four (4) installments of accrued interest
outstanding as of each such payment date, commencing
August 17, 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) Under 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; and,
(f) Lender shall have received a frilly executed
counterpart of an amendment to the Servicing
Agreement, in form and substance satisfactory to it.
4.2 Conditions Subsequent. Lenders obligations to
allow the Obligations to remain outstanding shall be
subject to the satisfaction of the following
conditions subsequent:
(a) To the extent the opinion of counsel to
Borrowers cannot state that no court orders are
required in connection with the transactions
contemplated hereby from the Succession of Edward
Carmouche, the Estate of John W. Mecom, and the Estate
of Mary Elizabeth Mecom, such court orders shall be
obtained to Lender's satisfaction on or prior to August
30, 1996;
(b) Lender shall receive, on or before August 30,
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
$15,000.00 per month, 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
August 30, 1996, 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 December 17,
1996, or beyond the date of the Lenders 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 Edward M. Carmouche
of his partnership interest in Lumber Company pursuant to the
Partnership Pledge, and the undersigned representative of the
Estate of Mary Elizabeth Mecom, who acknowledges, confirms and
ratifies the Guaranty of Mary Elizabeth Mecom), who hereby agree
to the terms of this Agreement, who further confirm and ratify
(i) their respective Guaranties, as defined in the Original
Credit Agreement, guaranteeing payment of the indebtedness of the
Borrowers to the Lender, and (ii) the Partnership Pledge, as
defined in the Original Credit Agreement, and who agree that such
Guaranties and Partnership Pledge shall continue to apply to and
secure payment of; without limitation, the indebtedness of the
Borrowers to the Lender arising pursuant to the Original Credit
Agreement (as amended hereby) and the Note.
SECTION 9. Intervention by Holding. Now to these presents
intervenes Holding, who hereby agrees to the terms of this
Amendment. Holding does hereby further confirm and ratify the
Holding Security Agreement, the Holding Collateral Assignment,
the Lumber Company Note (as modified), the vendor's lien and
mortgage securing the Lumber Company Note, and the Lumber Company
Note Pledge (subject to the terms of the modification of the
Lumber Company Note as anticipated herein), and the Holding
Assignment of Deposit Account, and agrees that such instruments
shall continue to apply to and secure payment of; without
limitation, the indebtedness of the Borrowers to the Lender
arising pursuant to the Original Credit Agreement (as amended
hereby) and the Note. Lumber Company, Holding and the Lender
hereby acknowledge that the Lumber Company Note has been
constantly held by the Lender since May 29, 1991, pursuant to the
terms of the Lumber Company Note Pledge, and that the Lender
shall continue to hold the Lumber Company Note (as modified with
the consent of Lender pursuant to the provisions of Section 4
hereof) in pledge pursuant to the terms and provisions of the
Lumber Company Note Pledge, as confirmed and ratified hereby.
SECTION 10. Fees and Expenses. Holding hereby agrees to pay
all fees, taxes, costs and expenses of the Lender in connection
with the preparation, negotiation, execution, and delivery of
this Amendment and of all Collateral Documents (or modifications
or confirmations thereof) executed in connection with the
transactions contemplated hereby, including without limitation
the disbursements and reasonable fees of counsel to the Lender
and the costs of the endorsement to the title policy required
hereunder, and the Borrowers and Holding hereby agree to bound in
solido to the Bank for the payment of all costs and expenses of
the Lender in connection with the enforcement of the Original
Credit Agreement, as amended hereby, the Note or the other
Collateral Documents, including reasonable attorney's fees and
disbursements incurred in connection therewith.
SECTION 11. Further Assurances. The Borrowers, Guarantors,
and Holding agree to do, execute, acknowledge and deliver, all
and every such further acts and instruments as the Lender may
reasonably require for the better assuring and confirming unto
the Lender all and singular the rights granted or intended to be
granted hereby or hereunder.
SECTION 12. Capitalized Terms. All capitalized terms used
herein and not otherwise defined herein shall have the meanings
ascribed to them in the Original Credit Agreement.
SECTION 13. Counterparts. This Amendment may be executed by the
parties hereto in any number of separate counterparts, each of
which when so executed and delivered shall be deemed to be an
original and all of which when taken together shall constitute
but one and the same instrument.
SECTION 14. Governing Law; Binding Effect. This Amendment
shall be governed by and construed in accordance with the laws of
the State of Louisiana and shall be binding upon the parties
hereto and their respective successors and assigns.
SECTION 15. Headings. Section headings in this Amendment
are included herein for the convenience of reference only and
shall not constitute part of this Amendment for any other
purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by themselves or their duly
authorized representatives as of August 8, 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:______________________
John W. Mecom, Jr.,
its Successor 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:
ESTATE OF MARY ELIZABETH MECOM
_______________________
By:_____________________________
_______________________ John W. Mecom, Jr.. Its Executor
ESTATE OF JOHN W. MECOM
________________________
By:______________________________
________________________ John W. Mecom, III,
Independent Co-Executor
THE MARY ELIZABETH MECOM IRREVOCABLE
TRUST
_______________________
By:___________________________
________________________ John W. Mecom, Jr.,
its Successor Trustee
____________________
______________________________
__________________ MATILDA GRAY STREAM
OPAL GRAY TRUST
_______________________
By:________________________
________________________ George L Paret, III,
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:___________________________________
______________________
Title:________________________________
ASSIGNMENT AND SALE
This Assignment and Sale (the "Assignment") is made
and entered into by and between XCL ACQUISITIONS, INC., a
Delaware corporation whose mailing address is 110 Rue Jean
Lafitte, Lafayette, Louisiana 70508 and whose tax identification
number is 51-0311223 ("Seller"), and the parties identified on
Schedule A (hereinafter referred to individually as a "Buyer" and
collectively as the "Buyers").
WHEREAS, Seller owns a 50% interest ("Seller's Interest")
in and to those Promissory Notes described on Schedule 13 (the
"Promissory Notes");
WHEREAS, the principal amount owed on the Promissory Notes
attributable to Seller's Interest is Five Hundred Thirty Thousand
Four Hundred Sixty One and 41/100 ($530,461.41) Dollars;
WHEREAS Buyers collectively wish to buy a 58.911% interest
in Seller's Interest which would entitled Buyers to receive
collectively in principal $312,500.12 and interest on such
principal amount from the date hereof until paid at the rate of
eight percent (8%) per annum;
NOW THEREFORE, in mutual consideration of the terms and
provisions set forth in this Assignment, the parties agree as
follows:
Section 1. Sale. Seller does hereby GRANT, CONVEY,
BARGAIN, SELL, TRANSFER, ASSIGN, SET OVER AND DELIVER, unto each
Buyer, and its successors and assigns, that portion of Seller's
Interest set forth on Schedule C opposite the name of each Buyer
under the heading "Seller's Interest" (which collectively shall
total a 58.911% interest in Seller's Interest). (The interest in
Seller's Interest sold to Buyers hereunder shall hereinafter be
referred to as "Buyers' Interest.")
This sale is made and accepted for and in
consideration of the price and sum of Two Hundred Fifty Thousand
($250,000.00) Dollars, cash in hand paid proportionately by each
Seller in the amount set forth on Schedule C opposite the name of
each Buyer under the heading "Sale Price," the receipt and
adequacy of which is hereby acknowledged by Seller.
Section 2. Warranty. Except to the extent otherwise
set forth in Section 4 of this Assignment, Seller warrants
Buyers' Interest with full warranty of title, and Seller
represents that Buyers' Interest is free of all liens, pledges,
mortgages, security interests and other burdens.
Section 3. Further Assurances. Seller agrees to execute,
acknowledge where necessary, and deliver unto Buyers all such
other and additional instruments, notices, and other
documents and to do all such other and further acts and things
necessary to frilly grant, convey, and assign Buyers' Interest to
Buyers.
Section 4. Servicing Agreement. The collection and
servicing of the Promissory Notes are governed by the provisions
of that certain Loan Participation Agreement (the "Participation
Agreement") dated May 18, 1995 by and among the Succession of
Edward M. Carmouche, Mathilda Gray Stream, Harold H. Stream III
and The Opal Gray Trust (the "Stream Group") and Seller. This
Assignment is wade subject to the Participation Agreement. Buyers
acknowledge that pursuant to the Participation Agreement the
Stream Group, as. owner of a 50% interest in and to the
Promissory Notes (the "Stream Interest'), is entitled to receive
all proceeds paid on the Promissory Notes until all principal and
interest to which the Stream Group is entitled for the Stream
Interest has been paid in full; and that Seller's Interest is
entitled to receive proceeds paid on the Promissory Notes only
after the Stream Group has received all principal and interest
attributable to the Stream Interest in the Promissory Notes.
Section 5. Governing Law. This Assignment is made
under and shall be construed in accordance with and governed by
the laws of the United States of America and the State of
Louisiana without giving any effect to principles of conflicts of
laws.
Section 6. Counterparts. This Assignment may be
executed in counterparts, all of which are identical, and all
such counterparts together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, this Assignment is executed
effective as of this 19th day of November, 1996.
XCL ACQUISITIONS, INC.
By:---------------------
Name:-------------------
Title:------------------
BUYERS:
OPPORTUNITY ASSOCIATES, L.P.
By:----------------------
Name:--------------------
Title:-------------------
KAYNE, ANDERSON NON-
TRADITIONAL INVESTMENTS, L.P.
By:----------------------
Name:--------------------
Title:-------------------
OFFENSE GROUP ASSOCIATES, L.P.
By:----------------------
Name:--------------------
Title:-------------------
ARBCO ASSOCIATES, L.P.
By:-----------------------
Name:---------------------
Title:--------------------
NOBEL INSURANCE COMPANY
By:----------------------
Name:--------------------
Title:-------------------
EVANSTON INSURANCE COMPANY
By:----------------------
Name:--------------------
Title:-------------------
TOPA INSURANCE COMPANY
By:----------------------
Name:--------------------
Title:-------------------
FOREMOST INSURANCE COMPANY
By:----------------------
Name:--------------------
Title:-------------------
AMENDMENT TO PROMISSORY Nom AND
SIXTH AMENDMENT TO CREDIT AGREEMENT
Dated as of January 28, 1997
THIS AMENDMENT TO PROMISSORY NOTE AND SIXTH 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
THE ESTATE OF 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, by that certain Third Amendment
to Credit Agreement dated as of June 15, 1995, among the
Borrowers, Lender, Guarantors and Holding, by that certain Fourth
Amendment to Credit Agreement dated as of January 16, 1996, among
the Borrowers, Lender, Guarantors and Holding, and by that
certain Fifth Amendment to Credit Agreement dated as of August 8,
1996, 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 owed and delivered to the Lender a promissory note made
by the Borrowers dated August 8, 1996, payable to the order of
the Lender in the principal sum of $2,393,419.88, bearing
interest at the rate of 9.25% per annum (the "Existing Note"),-
and,
WHEREAS, the Existing Note has an existing principal
balance of $2,293,419.88, 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 extend the maturity date of the
Existing Note, and the Lender has agreed to do so, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, the patties hereto agree as follows:
SECTION 1. Amendments to the Existing Note and 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" stall mean the obligation of the
Lender to extend the maturity date of 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 (1)
March 17, 1997, or (11) the earlier date of the
Lenders 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 August 8, 1996,
payable to the order of the Lender in the principal
sum of $2,393,419.88.
(d) Section 2.1 of the Original Credit Agreement is
hereby amended to read in its entirety as follows:
The Lender agrees, subject to the terms and conditions
hereof, to renew and extend $2,293,419.88 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 $2,293,419.88 in indebtedness heretofore
evidenced by the Existing Note shall continue to be
evidenced by the Existing Note, as amended hereby. The
Existing Note is hereby amended so that it shall
continue to be payable on demand, or if no demand is
made, in monthly installments of accrued and unpaid
interest, with such payments to be due and payable on
the 17th day of each month from the date hereof
through and until the Maturity Date, at which time all
principal and accrued interest shall be payable in
full (said note, as so amended, is herein referred to
as the "Note").
Likewise, the Existing Note is also hereby amended as provided in
the foregoing amendment to Section 2.2 of the Original Credit
Agreement by amending the payment provisions and maturity date
such that the Existing Note shall continue to be payable on
demand, or if no demand is made, in monthly installments of
accrued and unpaid interest, with such payments to be due and
payable on the 17th day of each month from the date hereof
through and until the March 17, 1997, at which time all principal
and accrued interest shall be payable in full. 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 under 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 flail 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; and,
(f) 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. Lenders 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 am
required in connection with the transactions
contemplated hereby from the Succession of Edward
Carmouche, tile Estate of John W. Mecom, and the
Estate of Mary Elizabeth Mecom, such court order shall
be obtained to Lender's satisfaction on or prior to
February 28, 1997;
(b) Lender shall reeve, on or before February 23,
1997, 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
$15,000.00 per month, 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
February 28, 1997, 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 Borrowrs,
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, as amended hereby.
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, as the same has been
amended hereby. Nothing contained in this Agreement shall he
deemed to imply any obligation of the Lender to renew the Note
beyond its extended final maturity date of March 17, 1997, 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
Existing Note and 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 Or-i
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 Edward M.
Carmouche of his partnership interest in Lumber Company pursuant
to the Partnership Pledge, and the undersigned representative of
the Estate of Mary Elizabeth Mecom, who acknowledges, confirms
and ratifies the Guaranty of Mary Elizabeth Mecom), 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, as amended hereby.
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 vendors 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 (as amended hereby). Lumber Company, Holding
and the Lender hereby acknowledge that the Lumber Company Note
has been constantly held by the Lender since May 29, 1991,
pursuant to the terms of the Lumber Company Note Pledge, and that
the Lender shall continue to hold the Lumber Company Note (as
modified with the consent of Lender pursuant to the provisions of
Section 4 hereof) in pledge pursuant to the terms and provisions
of the Lumber Company Note Pledge, as confirmed and ratified
hereby.
SECTION 10. Fees and Expenses. Holding hereby agrees to
pay all fees, taxes, costs and expenses of the Lender in
connection with the preparation, negotiation, execution, and
delivery of this Amendment and of all Collateral Documents (or
modifications or confirmations thereof) executed in connection
with the transactions contemplated hereby, including without
limitation the disbursements and reasonable fees of counsel to
the Lender and the costs of the endorsement to the title policy
required hereunder, and the Borrowers and Holding hereby agree to
bound in solido to the Bank for the payment of all costs and
expenses of the Lender in connection with the enforcement of the
Original Credit Agreement, as amended hereby, the Note or the
other Collateral Documents, including reasonable attorney's fees
and disbursements incurred in connection therewith.
SECTION 11. Further Assurances. The Borrowers, Guarantors,
and Holding agree to do, execute, acknowledge and deliver, all
and every such further acts and instruments as the Lender may
reasonably require for the better assuring and confirming unto
the Lender an 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 28, 1997.
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:____________________
John W. Mecom, Jr.,
its Successor 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:
ESTATE OF MARY ELIZABETH MECOM
_______________________
By:____________________________
John W. Mecom, Jr.,
______________________ Its Executor
ESTATE OF JOHN W. MECOM
______________________
By:_____________________________
John W. Mecom, III
______________________ Independent Co-Executor
THE MARY ELIZABETH MECOM
IRREVOCABLE TRUST
_______________________
By:___________________________
John W. Mecom, Jr.,
_______________________ its Successor Trustee
_______________________
______________________________
MATILDA GRAY STREAM
_______________________
OPAL GRAY TRUST
________________________
By:___________________________
George L. Paret, III,
________________________ 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., its
General Partner
__________________________
By:________________________
Title:_____________________
__________________________
STATE OF LOUISIANA
PARISH OF LAFAYETTE
ACT OF SALE
This Act of Sale is entered into on this ---- day of
March, 1997, by and between
XCL Ltd., a Delaware corporation, whose address
is 110 Rue Jean Lafitte, Lafayette, Louisiana
70508, Taxpayer Identification Number 51-0305643,
represented herein by its duly authorized officer
David A. Melman,
(hereinafter referred to as "Seller")
and
The Schumacher Group of Louisiana, Inc., a
Louisiana corporation, whose address is P.O.
Box 51165, Lafayette, Louisiana, 70505, Taxpayer
Identification Number 72-1278697, represented by
its duly authorized officer W. D. Crays,
(hereinafter referred to as "Purchaser").
For and in consideration of the sum of Nine Hundred
Thousand and No/100 ($900,000.00) Dollars, paid as follows (a)
Seven Hundred Fifty Thousand and No/100 ($750,000.00) Dollars
cash paid; and (b) a promissory note in the amount of One Hundred
Fifty Thousand and No/100 ($150,000.00) Dollars executed by
Purchaser, as maker in favor of Seller, dated even date hereof,
bearing interest at the rate of 9.25% and payable in twenty-two
monthly installments unless accelerated at Seller's option under
the terms thereof (the "Promissory Note"), the receipt,
sufficiency and adequacy of which are hereby acknowledged, Seller
does hereby grant, bargain, sell, convey, transfer, and deliver
unto Purchaser with full warranty the property described on
Exhibit A attached hereto (the "Property").
TO HAVE AND TO HOLD said Property unto Purchaser, its
successors and assigns, forever.
Purchaser's lender, Iberia Savings Bank (the "Bank"), as a
condition to lending Purchaser money that will he used to pay the
cash portion of the consideration, has required Seller to waive
(a) Seller's vendor's lien, which lien arises by operation of law
under La.Civ.Code art. 3249 (securing the credit portion of the
consideration evidenced by the Promissory Note); and (b) Seller's
right to sue for dissolution of this sale if Purchaser fails to
pay the credit portion of the consideration, which right arises
by operation of law under La.Civ.Code art. 2561, (Seller's lien
and other rights arising by operation of law under La.Civ.Code
arts. 3249 and 2561 shall hereinafter be referred to as "Seller's
Rights.") Seller hereby waives and disclaims Seller's Rights to
the extent that such rights arise by operation of law under
La.Civ.Code arts. 3249 and 2561. Seller intends to obtain a
mortgage from Purchaser and Purchaser intends to grant a mortgage
in favor of Seller, encumbering the Property and securing the
Promissory Note (the "XCL Mortgage"). The XCL Mortgage will be a
second lien on the Property subordinate to the mortgage granted
in favor of the Bank securing the Bank's loan to Purchaser.
Nothing contained herein is meant nor shall anything herein be
construed as a waiver or disclaimer by Seller of any rights it
may have in contract under the Promissory Note, the XCL Mortgage
or any other security agreements securing the Promissory Note.
The terms and provisions hereof shall extend to and be
binding upon the parties hereto, their heirs, designees,
successors, and assigns.
All taxes on the Property for the three years preceding
passage of this Act of Sale have been paid and the parties agree
that taxes for the current year shall be pro-rated.
All certificates required by the Louisiana Civil Code or
laws of the state are waived by the parties, who agree to hold
me, Notary harmless for the non-production thereof.
IN WITNESS WHEREOF, this instrument has been executed by
the parties hereto in the presence of the undersigned competent
witnesses on the date set forth above.
WITNESSES: SELLER:
XCL Ltd.
___________________________ ________________________________
Name:______________________ David A. Melman
Vice President, General Counsel
and Secretary
___________________________
Name:______________________
PURCHASER:
The Schumacher Group of Louisiana, Inc.
__________________________ ____________________________________
Name:_____________________ W.D. Crays
Vice President of Finance
__________________________
Name:_____________________
AMENDMENT NO. 1
TO
AGREEMENT
ZHAO DONG BLOCK, OFFSHORE PEOPLE'S REPUBLIC OF CHINA
This Amendment made effective the 13th day of December,
1996 among APACHE CHINA CORPORATION LDC, a Cayman Islands
corporation, having its principal office at 2000 Post Oak
Boulevard, Houston, Texas 77056 ("Apache"), XCL-CHlNA LTD., a
company organized under the laws of the British Virgin Islands,
having its principal office at 110 Rue Jean Lafitte, Lafayette,
Louisiana 70508 ("XCL-China") and XCL LTD., a Delaware
corporation, having its principal office at 110 Rue Jean Lafitte,
Lafayette, Louisiana 70~O$ ("XCL") as parent of XCL-China.
Apache, XCL-China and XCL are sometimes referred to below
as Party or Parties.
WITNESSETH
WHEREAS, the Parties entered into a certain Agreement
effective as of May 1, 1995 (the 'May Agreement") which provided
among other things for Apache to bear and pay XCL China's share
of the costs of drilling certain wells on the Block referred to
above; and
WHEREAS, the Parties have determined it is in their best
interests to modify the May Agreement;
IN CONSIDERATION of the mutual promises made, the Parties
agree that Section 3.1(a)(iii) of the May Agreement shall be
deleted and replaced by the following:
"3.1(a)(iii) the next Appraisal well to be drilled
following the C-3 Appraisal well, namely the D-2
currently drilling on December 13, 1996."
IN WITNESS whereof each Party has caused its duly
authorized representative to sign this Agreement on the dates set
out below but effective on the day and year first above written.
APACHE CHINA CORPORATION LUC
/s/ Steven Farris
By: ______________________________________
4/3/97
Date: ____________________________________
XCL-CHlNA LTD.
/s/ Marsden W. Miller, Jr.
By:_______________________________________
April 3, 1997
Date:_____________________________________
XCL LIMITED
/s/ Marsden W. Miller, Jr.
By:______________________________________
April 3, 1997
Date:___________________________________
GUARANTY
(Subsidiary)
THIS GUARANTY is made as of April 9, 1997, by XCL-China
Ltd., a British Virgin Island corporation ("Guarantor"), in favor
of ING (U.S.) Capital Corporation, a Delaware corporation, as
agent for Lenders, as defined in the Credit Agreement described
below (in such capacity "Agent").
RECITALS:
1. XCL-Texas, Inc., a Texas corporation ("Borrower"), The
Exploration Company of Louisiana, Inc. ("Parent"), and ING (U.S.)
Capital Corporation, as Agent and Lenders (collectively,
"Lenders") are parties to a Credit Agreement dated as of January
31, 1994 (herein, as from time to time amended, supplemented or
restated, called the "Credit Agreement").
2. Parent has, on behalf of Guarantor, requested Lenders to
enter into a Forbearance Agreement of even date herewith with
Borrower and Parent, by means of which Lenders will consent to
Guarantor's borrowing of the "China Loans" referred to in such
Forbearance Agreement, It is essential to Borrower's business
that it obtain the China Loans and thus that it obtain Lenders'
consent thereto.
3. Parent owns directly, or indirectly through one or more
subsidiaries, one hundred percent (100%) of the outstanding
shares of all classes of Guarantor's stock and one hundred
percent (100%) of the outstanding shares of all classes of
Borrower's stock.
4. Parent, Borrower, Guarantor, and the other direct and
indirect subsidiaries of Parent are mutually dependent on each
other in the conduct of their respective businesses under a
holding company structure, with the credit needed from time to
time by each often being provided by another or by means of
financing obtained by one such affiliate with the support of the
others for their mutual benefit and the ability of each to obtain
such financing being dependent on the successful operations of
the others.
5. The board of directors of Guarantor has determined that
Guarantor's execution, delivery and performance of this Guaranty
may reasonably be expected to benefit Guarantor, directly or
indirectly, and are in the best interests of Guarantor.
NOW, THEREFORE, in consideration of the premises, of the
benefits which will inure to Guarantor from Lenders' consent to
the China Loans under the Forbearance Agreement, and of Ten
Dollars and other good and valuable consideration, the receipt
and sufficiency of all of which are hereby acknowledged, and in
order to induce Lenders to enter into the Forbearance Agreement
in reliance upon this Guaranty, Guarantor hereby agrees with
Agent, for the benefit of Agent and Lenders, as follows:
AGREEMENTS
Section 1. Definitions. Reference is hereby made to the Credit
Agreement for all purposes. All terms used in this Guaranty
which are defined in the Credit Agreement and not otherwise
defined herein shall have the same meanings when used herein. As
used herein the following terms shall have the following
meanings:
"Agent" means the Person who, at the time in question, is
the "Agent" under the Credit Agreement. Whenever ING (U.S.)
Capital Corporation is the only Lender under the Credit
Agreement, "Agent" shall also refer to ING (U.S.) Capital
Corporation in such capacity as the only Lender.
"Lenders" means ING (U.S.) Capital Corporation and all other
Persons who at any time are "Lenders" under the Credit Agreement.
"Obligations" means collectively all of the indebtedness,
obligations, and undertakings which are guaranteed by Guarantor
and described in subsections (a) and (b) of Section 2.
"Obligation Documents" means this Guaranty, the Notes, the
Credit Agreement, the Forbearance Agreement, the Loan Documents,
all other documents and instruments under, by reason of which, or
pursuant to which any or all of the Obligations are evidenced,
governed, secured, or otherwise dealt with, and all other
documents, instruments, agreements, certificates, legal opinions
and other writings heretofore or hereafter delivered in
connection herewith or therewith.
"Obligors" means Borrower, Guarantor and any other
endorsers, guarantors or obligors, primary or secondary, of any
or all of the Obligations.
"Security" means any rights, properties, or interests of
Agent or Lenders, under the Obligation Documents or otherwise,
which provide recourse or other benefits to Agent or Lenders in
connection with the Obligations or the non-payment or
non-performance thereof, including collateral (whether real or
personal, tangible or intangible) in which Agent or Lenders have
rights under or pursuant to any Obligation Documents, guaranties
of the payment or performance of any Obligation, bonds, surety
agreements, keep-well agreements, letters of credit, rights of
subrogation, rights of offset, and rights pursuant to which other
claims are subordinated to the Obligations.
Section 2. Guaranty.
(a) Guarantor hereby irrevocably, absolutely, and
unconditionally guarantees to Agent and each Lender the prompt,
complete, and full payment when due, and no matter how the same
shall become due, of:
(i) the Notes, including all principal, all interest thereon
and all other sums payable thereunder; and
(ii) All other sums payable by Borrower under the other
Obligation Documents, whether for principal, interest, fees or
otherwise; and
(iii) Any and all other indebtedness or liabilities which
Borrower may at any time owe to Agent or any Lender, whether
incurred heretofore or hereafter or concurrently herewith,
voluntarily or involuntarily, whether owed alone or with others,
whether fixed, contingent, absolute, inchoate, liquidated or
unliquidated, whether such indebtedness or liability arises by
notes, discounts, overdrafts, open account indebtedness or in any
other manner whatsoever, and including interest, attorneys' fees
and collection costs as may be provided by law or in any
instrument evidencing any such indebtedness or liability.
Without limiting the generality of the foregoing, Guarantor's
liability hereunder shall extend to and include all post-petition
interest, expenses, and other duties and liabilities of Borrower
described above in this subsection (a), or below in the following
subsection (b), which would be owed by Borrower but for the fact
that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization, or similar proceeding involving
Borrower.
(b) Guarantor hereby irrevocably, absolutely, and
unconditionally guarantees to Agent and each Lender the prompt,
complete and full performance, when due, and no matter how the
same shall become due, of all obligations and undertakings of
Borrower to Agent or such Lender under, by reason of, or pursuant
to any of the Obligation Documents.
(c) If Borrower shall for any reason fail to pay any
Obligation, as and when such Obligation shall become due and
payable, whether at its stated maturity, as a result of the
exercise of any power to accelerate, or otherwise, Guarantor
will, forthwith upon demand by Agent, pay such Obligation in full
to Agent for the benefit of Agent or the Lender to whom such
Obligation is owed. If Borrower shall for any reason fail to
perform promptly any Obligation, Guarantor will, forthwith upon
demand by Agent, cause such Obligation to be performed or, if
specified by Agent, provide sufficient funds, in such amount and
manner as Agent shall in good faith determine, for the prompt,
full and faithful performance of such Obligation by Agent or such
other Person as Agent shall designate.
(d) If either Borrower or Guarantor fails to pay or perform
any Obligation as described in the immediately preceding
subsections (a), (b), or (c) Guarantor will incur the additional
obligation to pay to Agent, and Guarantor will forthwith upon
demand by Agent pay to Agent, the amount of any and all expenses,
including fees and disbursements of Agent's counsel and of any
experts or agents retained by Agent, which Agent may incur as a
result of such failure.
(e) As between Guarantor and Agent or Lenders, this Guaranty
shall be deemed a primary and liquidated liability of Guarantor.
(f) Notwithstanding the foregoing or any other provisions of
this Guaranty, it is agreed and understood that it is the
intention of Guarantor, Agent and Lenders that this Guaranty not
constitute a fraudulent transfer or conveyance for purposes of
any bankruptcy law, fraudulent conveyance or transfer law, or
other similar federal or state law to the extent any such laws
are applicable to this Guaranty. To effectuate the foregoing
intention, Guarantor, Agent and Lenders irrevocably agree that
the obligations of Guarantor under this Guaranty shall be limited
to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of Guarantor and after giving
effect to any collections from or payments made by or on behalf
of any other guarantor of the Obligations, result in the
obligations of Guarantor under this Guaranty not constituting a
fraudulent conveyance or fraudulent transfer under federal or
state.
Section 3. Unconditional Guaranty.
(a) No action which Agent or any Lender may take or omit to
take in connection with any of the Obligation Documents, any of
the Obligations (or any other indebtedness owing by Borrower to
Agent or any Lender), or any Security, and no course of dealing
of Agent or any Lender with any Obligor or any other Person,
shall release or diminish Guarantor's obligations, liabilities,
agreements or duties hereunder, affect this Guaranty in any way,
or afford Guarantor any recourse against Agent or any Lender,
regardless of whether any such action or inaction may increase
any risks to or liabilities of Agent or any Lender or any Obligor
or increase any risk to or diminish any safeguard of any
Security. Without limiting the foregoing, Guarantor hereby
expressly agrees that Agent and Lenders may, from time to time,
without notice to or the consent of Guarantor, do any or all of
the following:
(i) Amend, change or modify, in whole or in part, any one or
more of the Obligation Documents and give or refuse to give any
waivers or other indulgences with respect thereto.
(ii) Neglect, delay, fail, or refuse to take or prosecute any
action for the collection or enforcement of any of the
Obligations, to foreclose or take or prosecute any action in
connection with any Security or Obligation Document, to bring
suit against any Obligor or any other Person, or to take any
other action concerning the Obligations or the Obligation
Documents.
(iii) Accelerate, change, rearrange, extend, or renew the
time, terms, or manner for payment or performance of any one or
more of the Obligations.
(iv) Compromise or settle any unpaid or unperformed Obligation
or any other obligation or amount due or owing, or claimed to be
due or owing, under any one or more of the Obligation Documents.
(v) Take, exchange, amend, eliminate, surrender, release, or
subordinate any or all Security for any or all of the
Obligations, accept additional or substituted Security therefor,
and perfect or fail to perfect Agent's or Lenders' rights in any
or all Security.
(vi) Discharge, release, substitute or add Guarantors and other
Obligors.
(vii) Apply all monies received from Obligors or others, or
from any Security for any of the Obligations, as Agent and
Lenders may determine to be in their best interests, without in
any way being required to marshall Security or assets or to apply
all or any part of such monies upon any particular Obligations.
(b) No action or inaction of any Obligor or any other Person,
and no change of law or circumstances, shall release or diminish
Guarantor's obligations, liabilities, agreements, or duties
hereunder, affect this Guaranty in any way, or afford Guarantor
any recourse against Agent or any Lender. Without limiting the
foregoing, the obligations, liabilities, agreements, and duties
of Guarantor under this Guaranty shall not be released,
diminished, impaired, reduced, or affected by the occurrence of
any or all of the following from time to time, even if occurring
without notice to or without the consent of Guarantor:
(i) Any voluntary or involuntary liquidation, dissolution,
sale of all or substantially all assets, marshalling of assets or
liabilities, receivership, conservatorship, assignment for the
benefit of creditors, insolvency, bankruptcy, reorganization,
arrangement, or composition of any Obligor or any other
proceedings involving any Obligor or any of the assets of any
Obligor under laws for the protection of debtors, or any
discharge, impairment, modification, release, or limitation of
the liability of, or stay of actions or lien enforcement
proceedings against, any Obligor, any properties of any Obligor,
or the estate in bankruptcy of any Obligor in the course of or
resulting from any such proceedings.
(ii) The failure by Agent or any Lender to file or enforce a
claim in any proceeding described in the immediately preceding
subsection (i) or to take any other action in any proceeding to
which any Obligor is a party.
(iii) The release by operation of law of any Obligor from
any of the Obligations or any other obligations to Agent or any
Lender.
(iv) The invalidity, deficiency, illegality, or
unenforceability of any of the Obligations or the Obligation
Documents, in whole or in part, any bar by any statute of
limitations or other law of recovery on any of the Obligations,
or any defense or excuse for failure to perform on account of
force majeure, act of God, casualty, impossibility,
impracticability, or other defense or excuse whatsoever.
(v) The failure of any Obligor or any other Person to sign any
guaranty or other instrument or agreement within the
contemplation of any Obligor, Agent or any Lender.
(vi) The fact that Guarantor may have incurred directly part of
the Obligations or is otherwise primarily liable therefor.
(vii) Without limiting any of the foregoing, any fact or
event (whether or not similar to any of the foregoing) which in
the absence of this provision would or might constitute or afford
a legal or equitable discharge or release of or defense to a
guarantor or surety other than the actual payment and performance
by Guarantor under this Guaranty.
(c) Agent and Lenders may invoke the benefits of this Guaranty
before pursuing any remedies against any Obligor or any other
Person and before proceeding against any Security now or
hereafter existing for the payment or performance of any of the
Obligations. Agent and Lenders may maintain an action against
Guarantor on this Guaranty without joining any other Obligor
therein and without bringing a separate action against any other
Obligor.
(d) If any payment to Agent or any Lender by any Obligor is
held to constitute a preference or a voidable transfer under
applicable state or federal laws, or if for any other reason
Agent or any Lender is required to refund such payment to the
payor thereof or to pay the amount thereof to any other Person,
such payment to Agent or such Lender shall not constitute a
release of Guarantor from any liability hereunder, and Guarantor
agrees to pay such amount to Agent or such Lender on demand and
agrees and acknowledges that this Guaranty shall continue to be
effective or shall be reinstated, as the case may be, to the
extent of any such payment or payments.
(e) This is a continuing guaranty and shall apply to and cover
all Obligations and renewals and extensions thereof and
substitutions therefor from time to time.
Section 4. Waiver. Guarantor hereby waives, with respect to the
Obligations, this Guaranty, and the other Obligation Documents:
(a) notice of the incurrence of any Obligation by Borrower,
and notice of any kind concerning the assets, liabilities,
financial condition, creditworthiness, businesses, prospects, or
other affairs of Borrower (it being understood and agreed that:
(i) Guarantor shall take full responsibility for informing itself
of such matters, (ii) neither Agent nor any Lender shall have any
responsibility of any kind to inform Guarantor of such matters,
and (iii) Agent and Lenders are hereby authorized to assume that
Guarantor, by virtue of its relationships with Borrower which are
independent of this Guaranty, has full and complete knowledge of
such matters whenever Lenders extend credit to Borrower or take
any other action which may change or increase Guarantor's
liabilities hereunder).
(b) notice that Agent, any Lender, any Obligor, or any other
Person has taken or omitted to take any action under any
Obligation Document or any other agreement or instrument relating
thereto or relating to any Obligation.
(c) demand, presentment for payment, and notice of demand,
dishonor, nonpayment, or nonperformance.
(d) notice of intention to accelerate, notice of acceleration,
protest, notice of protest, notice of any exercise of remedies
(as described in the following Section 5 or otherwise), and all
other notices of any kind whatsoever.
Section 5. Exercise of Remedies. Agent and each Lender shall
have the right to enforce, from time to time, in any order and at
Agent's or such Lender's sole discretion, any rights, powers and
remedies which Agent or such Lender may have under the Obligation
Documents or otherwise, including judicial foreclosure, the
exercise of rights of power of sale, the taking of a deed or
assignment in lieu of foreclosure, the appointment of a receiver
to collect rents, issues and profits, the exercise of remedies
against personal property, or the enforcement of any assignment
of leases, rentals, oil or gas production, or other properties or
rights, whether real or personal, tangible or intangible; and
Guarantor shall be liable to Agent and each Lender hereunder for
any deficiency resulting from the exercise by Agent or any Lender
of any such right or remedy even though any rights which
Guarantor may have against Borrower or others may be destroyed or
diminished by exercise of any such right or remedy. No failure
on the part of Agent or any Lender to exercise, and no delay in
exercising, any right hereunder or under any other Obligation
Document shall operate as a waiver thereof; nor shall any single
or partial exercise of any right preclude any other or further
exercise thereof or the exercise of any other right. The rights,
powers and remedies of Agent and each Lender provided herein and
in the other Obligation Documents are cumulative and are in
addition to, and not exclusive of, any other rights, powers or
remedies provided by law or in equity. The rights of Agent and
each Lender hereunder are not conditional or contingent on any
attempt by Agent or any Lender to exercise any of its rights
under any other Obligation Document against any Obligor or any
other Person.
Section 6. Waiver of Subrogation. Guarantor shall have no right
to be subrogated to Agent or to contribution or reimbursement
from Borrower on account of this Guaranty, and Guarantor hereby
waives such right of subrogation or contribution or reimbursement
and any other right to enforce any remedy which Guarantor may
have against Borrower and any right to participate in any
Security on account of any such rights. If any amount shall be
paid to Guarantor on account of any purported subrogation rights
or other remedy or Security, such amount shall be held in trust
for the benefit of Agent and shall be segregated from the other
funds of Guarantor and shall forthwith be paid over to Agent to
be held by Agent as collateral for, or then or at any time
thereafter applied in whole or in part by Agent against, all or
any portion of the Obligations, whether matured or unmatured, in
such order as Agent shall elect.
Section 7. Successors and Assigns. Guarantor's rights or
obligations hereunder may not be assigned or delegated, but this
Guaranty and such obligations shall pass to and be fully binding
upon the successors of Guarantor, as well as Guarantor. This
Guaranty shall apply to and inure to the benefit of Agent and
Lenders and their successors or assigns. Without limiting the
generality of the immediately preceding sentence, Agent and each
Lender may (except as otherwise provided in the Credit Agreement)
assign, grant a participation in, or otherwise transfer any
Obligation held by it or any portion thereof, and Agent and each
Lender may assign or otherwise transfer its rights or any portion
thereof under any Obligation Document, to any other Person, and
such other Person shall thereupon become vested with all of the
benefits in respect thereof granted to Agent or such Lender
hereunder unless otherwise expressly provided by Agent or such
Lender in connection with such assignment or transfer.
Section 8. Subordination; Offset. Guarantor hereby subordinates
and makes inferior to the Obligations any and all indebtedness
now or at any time hereafter owed by Borrower to Guarantor, and
the provisions of that certain Intercompany Subordination
Agreement dated of even date herewith among Guarantor, Agent and
Borrower are expressly incorporated herein by reference.
Guarantor hereby grants to Lender a right of offset to secure the
payment of Guarantor's obligations and liabilities hereunder,
which right of offset shall be upon any and all monies,
securities and other property (and the proceeds therefrom) of
Guarantor now or hereafter held or received by or in transit to
Agent or any Lender from or for the account of Guarantor, whether
for safekeeping, custody, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general or
special), credits and claims of Guarantor at any time existing
against Agent or any Lender. Upon the occurrence of any Default
or Event of Default Agent and each Lender is hereby authorized at
any time and from time to time, without notice to Guarantor, to
offset, appropriate and apply any and all items hereinabove
referred to against Guarantor's obligations and liabilities
hereunder irrespective of whether or not Agent or such Lender
shall have made any demand under this Guaranty and although such
obligations and liabilities may be contingent or unmatured.
Agent and each Lender agrees promptly to notify Parent after any
such offset and application made by Agent or such Lender,
provided that the failure to give such notice shall not affect
the validity of such offset and application. The rights of Agent
and each Lender under this Section are in addition to, and shall
not be limited by, any other rights and remedies (including other
rights of offset) which Agent and Lenders may have.
Section 9. Representations and Warranties. Guarantor hereby
represents and warrants to Agent and each Lender as follows:
(a) The Recitals at the beginning of this Guaranty are true
and correct in all respects.
(b) Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the state of its
incorporation as set forth in the Recitals to this Guaranty; and
Guarantor has all requisite power and authority to execute,
deliver and perform this Guaranty.
(c) The execution, delivery and performance by Guarantor of
this Guaranty have been duly authorized by all necessary
corporate action and do not and will not contravene its
certificate or articles of incorporation or bylaws.
(d) The execution, delivery and performance by Guarantor of
this Guaranty do not and will not contravene any law or
governmental regulation or any contractual restriction binding on
or affecting Guarantor or any of its properties, and do not and
will not result in or require the creation of any lien, security
interest or other charge or encumbrance upon or with respect to
any of its properties.
(e) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or other
regulatory body or third party is required for the due execution,
delivery and performance by Guarantor of this Guaranty.
(f) This Guaranty is a legal, valid and binding obligation of
Guarantor, enforceable against Guarantor in accordance with its
terms except as limited by bankruptcy, insolvency or similar laws
of general application relating to the enforcement of creditors'
rights.
(g) There is no action, suit or proceeding pending or, to the
knowledge of Guarantor, threatened against or otherwise affecting
Guarantor before any court, arbitrator or governmental
department, commission, board, bureau, agency or instrumentality
which may materially and adversely affect Guarantor's financial
condition or its ability to perform its obligations hereunder.
(h) The direct or indirect value of the consideration received
and to be received by Guarantor in connection herewith is
reasonably worth at least as much as the liability and
obligations of Guarantor hereunder, and the incurrence of such
liability and obligations in return for such consideration may
reasonably be expected to benefit Guarantor, directly or
indirectly.
(i) Guarantor is not "insolvent" on the date hereof (that is,
the sum of Guarantor's absolute and contingent liabilities,
including the Obligations, does not exceed the fair market value
of Guarantor's assets). Guarantor's capital is adequate for the
businesses in which Guarantor is engaged and intends to be
engaged. Guarantor has not incurred (whether hereby or
otherwise), nor does Guarantor intend to incur or believe that it
will incur, debts which will be beyond its ability to pay as such
debts mature.
(j) All balance sheets, earning statements, financial data and
other information concerning Guarantor which have been furnished
to Agent and each Lender to induce it to accept this Guaranty (or
otherwise furnished to Agent and each Lender in connection with
the transactions contemplated hereby or associated herewith)
fairly represent the financial condition of Guarantor as of the
dates and the results of Guarantor's operations for the periods
for which the same are furnished.
Section 10. No Oral Change. No amendment of any provision of
this Guaranty, no waiver of any provision of this Guaranty, and
no consent to any departure by Guarantor therefrom, shall be
effective unless it is in writing and made in accordance with
Section 9.1(a) of the Credit Agreement, and then such waiver or
consent shall be effective only in the specific instance and for
the specific purpose for which given.
Section 11. Invalidity of Particular Provisions. If any term or
provision of this Guaranty shall be determined to be illegal or
unenforceable all other terms and provisions hereof shall
nevertheless remain effective and shall be enforced to the
fullest extent permitted by applicable law.
Section 12. Headings and References. The headings used herein
are for purposes of convenience only and shall not be used in
construing the provisions hereof. The words "this Guaranty,"
"this instrument," "herein," "hereof," "hereby" and words of
similar import refer to this Guaranty as a whole and not to any
particular subdivision unless expressly so limited. The phrases
"this section" and "this subsection" and similar phrases refer
only to the subdivisions hereof in which such phrases occur. The
word "or" is not exclusive, and the word "including" (in its
various forms) means "including without limitation". Pronouns in
masculine, feminine and neuter genders shall be construed to
include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the
context otherwise requires.
Section 13. Term. This Guaranty shall be irrevocable until all
of the Obligations have been completely and finally paid and
performed or waived, no Lender has any obligation to make any
loans or other advances to Borrower, and all obligations and
undertakings of Borrower under, by reason of, or pursuant to the
Obligation Documents have been completely performed or waived,
and this Guaranty is thereafter subject to reinstatement as
provided in Section 3(d). All extensions of credit and financial
accommodations heretofore or hereafter made by Agent or Lenders
to Borrower shall be conclusively presumed to have been made in
acceptance hereof and in reliance hereon.
Section 14. Notices. Any notice or communication required or
permitted hereunder shall be given in writing, sent by personal
delivery, by telecopy, by delivery service with proof of
delivery, or by registered or certified United States mail,
postage prepaid, addressed to the appropriate party at the
address set forth for such party on the signature page hereto, or
to such other address or to the attention of such other
individual as hereafter shall be designated in writing by the
applicable party sent in accordance herewith. Any such notice or
communication shall be deemed to have been given (a) in the case
of personal delivery or delivery service, as of the date of first
attempted delivery at the address or in the manner provided
herein, (b) in the case of telecopy, upon receipt, or (c) in the
case of registered or certified United States mail, three days
after deposit in the mail.
Section 15. Limitation on Interest. Agent, Lenders and Guarantor
intend to contract in strict compliance with applicable usury law
from time to time in effect, and this Guaranty is subject to the
provisions of Section 9.6 of the Credit Agreement.
Section 16. Loan Document. This Guaranty is a Loan Document, as
defined in the Credit Agreement, and is subject to the provisions
of the Credit Agreement governing Loan Documents.
Section 17. Counterparts. This Guaranty may be executed in any
number of counterparts, each of which when so executed shall be
deemed to constitute one and the same Guaranty.
SECTION 18. GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN
THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF SUCH STATE WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, Guarantor has executed and delivered
this Guaranty as of the date first written above.
Address: XCL-CHINA LTD.
110 Rue Jean Lafitte
Lafayette, LA 70508
By:_______________________________
Name:_____________________________
Title:____________________________
Address of Agent:
135 East 57th Street
New York, New York 10022-2101
Attn: Trond O. Rokholt
FIRST AMENDMENT TO
STOCK PLEDGE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PLEDGE AGREEMENT (herein
called this "Amendment") is made as of April 9, 1997, by XCL Ltd.
(formerly named The Exploration Company of Louisiana, Inc.), a
Delaware corporation ("Debtor") and ING (U.S.) Capital
Corporation (formerly named Internationale Nederlanden (U.S.)
Capital Corporation), a Delaware corporation, in its capacity as
agent for itself and certain other lenders from time-to-time
parties to the Credit Agreement described herein ("Secured
Party").
WITNESSETH:
1. XCL-Texas, Inc., a Texas corporation ("Borrower"),
Debtor, Secured Party, as agent and collateral agent, and certain
lenders are parties to a Credit Agreement dated as of January 31,
1994 (as from time to time amended, supplemented, or restated,
the "Credit Agreement").
2. Debtor has executed and delivered a Stock Pledge
Agreement dated as of January 31, 1994 (the "Original Agreement")
in favor of Secured Party, pursuant to which Debtor granted to
Secured Party a security interest in the Collateral as defined
therein.
3. Debtor, Borrower, Secured Party and Lenders are
entering into a Forbearance Agreement of even date herewith, and
in compliance therewith Debtor and Secured Party desire to amend
the Original Agreement for the purposes expressed herein.
NOW THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the
Original Agreement, in consideration of the loans which have been
made by Lenders to Borrower and in order to induce Agent and
Lenders to enter into such Forbearance 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. Definitions. Capitalized terms used but not
otherwise defined herein have the meanings given them in the
Original Agreement.
2. Grant of Security Interest. As collateral security
for all of the Obligations, Debtor hereby pledges and assigns to
Secured Party and grants to Secured Party a continuing security
interest in all of the following:
(a) Pledged Shares. All of the following, whether now
or hereafter existing, which are owned by Debtor or in which
Debtor otherwise has any rights: the shares of stock
described in Exhibit A-1 hereto, all certificates
representing any such shares, all options and other rights,
contractual or otherwise, at any time existing with respect
to such shares, and, except as otherwise provided in Section
4.8 of the Original Agreement, all dividends, cash,
instruments and other property now or hereafter received,
receivable or otherwise distributed in respect of or in
exchange for any or all of such shares (any and all such
shares, certificates, options, rights, dividends, cash,
instruments and other property being herein called the "New
Pledged Shares").
(b) Proceeds. All Proceeds of any and all of the
foregoing.
In each case, the foregoing shall be covered by the security
interest herein granted and by the Original Agreement as amended
hereby, whether Debtor's ownership or other rights in the
foregoing are presently held or hereafter acquired and howsoever
Debtor's interests therein may arise or appear (whether by
ownership, security interest, claim or otherwise).
2. Amendments to Original Agreement. The definition of
"Pledged Shares" in Section 2.1 of the Original Agreement is
hereby supplemented to include the New Pledged Shares as
additional "Pledged Shares". Exhibit A to the Original Agreement
is hereby amended to include Exhibit A-1 attached hereto as an
additional part of such Exhibit A.
3. Representations and Warranties. Debtor hereby
represents and warrants to Secured Party that all of the
representations and warranties set forth in Section 3.1 of the
Original Agreement are true and correct with respect to the New
Pledged Shares, this Amendment, and the transactions effected
hereby.
4. Ratification of Agreement. The Original Agreement as
hereby amended is hereby ratified and confirmed in all respects
(the Original Agreement as so amended, is herein called the
"Security Agreement"). Any reference to the Security Agreement
in any Loan Document shall be deemed to refer to this Amendment
also. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate
as a waiver of any right, power or remedy of Secured Party or any
other Lender under the Security Agreement or any other Loan
Document nor constitute a waiver of any provision of the Security
Agreement or any other Loan Document.
5. Survival of Agreements. All agreements of Debtor
herein shall survive the execution and delivery of this Amendment
and the performance hereof, and shall further survive until all
the Obligations are paid in full. This Amendment is a Loan
Document, and all provisions in the Credit Agreement pertaining
to Loan Documents apply hereto.
6. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of New
York and any applicable laws of the United States of America in
all respects, including construction, validity and performance.
7. Counterparts. This Amendment may be separately
executed in counterparts and by the different parties hereto in
separate counterparts, each of which when so executed shall be
deemed to constitute one and the same Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
XCL LTD.
By:______________________________
Name:____________________________
Title:___________________________
ING (U.S.) CAPITAL CORPORATION
in its capacity as Agent
By:_______________________________
Name:_____________________________
Title:____________________________
ING (U.S.) Capital Corporation
135 E. 57th Street
New York, New York
April 9, 1997
TO XCL-CHINA LTD. AND THE HOLDERS OF SENIOR NOTES
WHOSE SIGNATURES ARE SET OUT BELOW:
Re: XCL-China Ltd.
Gentlemen:
Reference is made to (a) the Guaranty of even date herewith
(the "Guaranty") given by XCL-China Ltd. ("Guarantor") to ING
(U.S.) Capital Corporation ("ING"), and (b) those certain
promissory notes of even date herewith made by Guarantor to each
of you in the aggregate amount of $3,100,000, in the form
attached hereto. As used in this letter, "Senior Notes" means
promissory notes in such form issued by Guarantor, on the date
hereof or subsequently, to one or more of you in an aggregate
principal amount not to exceed $6,200,000, and "Holder" means any
of you who at any time is the holder of a Senior Note.
In connection with other transactions of even date herewith
which are described in the Guaranty or the Senior Notes, the
Holders have requested that ING subordinate its claims under the
Guaranty to the Senior Notes and ING has requested that the
Holders give ING the right to purchase the Senior Notes at any
time for a price equal to the unpaid principal amount thereof
plus accrued and unpaid interest thereon. In consideration of
their mutual obligations hereunder, ING and the undersigned
Holders hereby agree as follows:
1. Guaranty is Subordinated. The indebtedness and
obligations of Guarantor to ING under the Guaranty are herein
called the "Guarantor Liabilities". To the extent and in the
manner hereinafter set forth in this letter, the Guarantor
Liabilities are hereby expressly made subordinate and subject in
right of payment to the prior payment in full of the Senior
Notes.
2. Insolvency Proceedings. Upon any distribution of
properties or assets of Guarantor or payment on behalf of
Guarantor with respect to the Guarantor Liabilities in the event
of any voluntary or involuntary liquidation, dissolution, sale of
all or substantially all assets, marshalling of assets or
liabilities, receivership, conservatorship, assignment for the
benefit of creditors, insolvency, bankruptcy, reorganization,
arrangement or composition of or with respect to Guarantor:
(i) the Holders of Senior Notes shall be entitled to
receive payment in full of such Senior Notes, or provision
must be made for such payment in full, before ING is
entitled to receive any direct or indirect payment or
distribution of any kind or character, whether in cash,
property or securities, on account of any Guarantor
Liabilities or on account of the purchase or redemption or
other acquisition of Guarantor Liabilities; and
(ii) any direct or indirect payment or distribution of
properties or assets of Guarantor of any kind or character,
whether in cash, property or securities or by set-off or
otherwise, to which ING would be entitled under the Guaranty
but for the provisions of this letter shall be paid by
Guarantor or by any liquidating trustee or agent or other
person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or
otherwise, directly to the Holders of Senior Notes or their
representative or representatives, ratably according to the
aggregate amounts remaining unpaid on account of the Senior
Notes, to the extent necessary to make payment in full of
all Senior Notes after giving effect to any concurrent
payment or distribution to the Holders of such Senior Notes;
and
(iii) in the event that, notwithstanding the foregoing
provisions of this letter, ING shall have received any
payment or distribution with respect to any Guarantor
Liability, whether in cash, property or securities or by
set-off or otherwise, before all Senior Notes are paid or
provided for in full, then and in such event such payment or
distribution shall be received and held in trust for and
shall be paid over or delivered forthwith to the Holders of
all Senior Notes remaining unpaid or their representatives,
ratably according to the aggregate amounts remaining unpaid
on account of the Senior Notes, to the extent necessary to
pay all Senior Notes in full, after giving effect to any
concurrent payment or distribution to or for the Holders of
Senior Notes.
2. Suspension of Payment When Senior Notes in Default.
(i) Upon (1) the occurrence of any failure of
Guarantor to pay punctually when due any amount (including,
without limitation, principal or interest) payable with
respect to any Senior Note (a "Payment Event of Default")
and (2) receipt by ING of written notice of such occurrence,
then no payment or distribution of any properties or assets
of Guarantor of any kind or character shall be made by
Guarantor on account of the Guarantor Liabilities or on
account of the purchase or redemption or other acquisition
of Guarantor Liabilities unless and until such Payment Event
of Default shall have been cured or waived in writing or
shall have ceased to exist or the Senior Notes shall have
been paid in full or otherwise discharged.
(ii) Upon (1) the occurrence of any other "Event of
Default" as defined in the Senior Notes (a "Non-payment
Event of Default") and (2) receipt by ING of written notice
of such occurrence, then no payment or distribution of any
properties or assets of Guarantor of any kind or character
shall be made by Guarantor on account of any Guarantor
Liabilities or on account of the purchase or redemption or
other acquisition of Guarantor Liabilities for the period
specified below (the "Payment Blockage Period"). The
Payment Blockage Period will commence upon the date of
receipt by ING of such notice (the "Payment Blockage
Notice") from one or more of the Holders of Senior Notes and
shall end on the earliest of (i) 179 days thereafter, or
(ii) the date, as set forth in a written notice from the
Holders of the Senior Notes (or their representative) to
Guarantor or ING, on which such Non-payment Event of Default
is cured, waived in writing or ceases to exist or the Senior
Notes are paid in full. Not more than one Payment Blockage
Period may be commenced during any period of 365 consecutive
days. No Non-payment Event of Default that existed or was
continuing on the date of delivery of any Payment Blockage
Notice to ING will be, or can be, made the basis for the
commencement of a subsequent Payment Blockage Period.
(iii) If, notwithstanding the foregoing, Guarantor
shall make any payment of any Guarantor Liability prohibited
by the foregoing provisions of this subsection (c), then and
in such event such payment shall be paid over and delivered
forthwith to the Holders of the Senior Notes, ratably in
accordance with the unpaid amounts thereof.
3. Subrogation to Rights of Holders of Senior Notes. After
the payment in full of all Senior Notes, ING shall be subrogated
to the rights of the Holders of Senior Notes to receive payments
and distributions of cash, property and securities applicable to
Senior Notes. For purposes of such subrogation, no payments or
distributions to the Holders of Senior Notes by or on behalf of
Guarantor or by or on behalf of ING which otherwise would have
been made to ING shall, as between Guarantor, its creditors other
than Holders of Senior Notes, and ING, be deemed to be a payment
or distribution by Guarantor to or on account of the Senior
Notes.
4. Provisions Solely to Define Relative Rights. The
provisions of this letter are, and are intended solely, for the
purpose of defining the relative rights of ING (as obligee of the
Guarantor Liabilities) on the one hand and the Holders of Senior
Notes on the other hand. Nothing contained in this letter or
elsewhere in the Guaranty is intended to or shall (i) impair, as
between Guarantor and ING, the obligation of Guarantor, which is
absolute and unconditional, to pay the Guarantor Liabilities as
and when the same shall become due and payable in accordance with
their terms; or (ii) affect the relative rights of ING with
respect to any creditors of Guarantor other than the Holders of
Senior Notes; or (iii) prevent ING from exercising all remedies
otherwise permitted by applicable law, subject to the rights, if
any, under this letter of the Holders of Senior Notes. Moreover,
nothing in this letter is intended to or shall impair the rights
of ING (1) under any documents other than the Guaranty or (2)
with respect to any of the obligations of persons other than
Guarantor which are guarantied by Guarantor under the Guaranty,
it being understood and agreed that while the Guaranty is
subordinated hereby such guarantied obligations are not
subordinated in any way.
5. No Waiver of Subordination Provisions. No right of any
present or future Holder of any Senior Notes to enforce
subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part
of Guarantor or by any delay or omission by any such Holder to
exercise its rights hereunder, or by any non-compliance by
Guarantor with the terms of the Guaranty, regardless of any
knowledge thereof which any such Holder may have or be otherwise
charged with.
6. Funding of Senior Notes. All Senior Notes will be sold
by Guarantor and purchased by the Holders at par (i.e., the loans
thereunder will equal the stated principal amount thereof). The
purchase price of all Senior Notes will be wired directly by the
Holders thereof to Apache Corporation (or one of its
subsidiaries) and used to satisfy current obligations of
Guarantor with respect to the Zhao Dong Block, Bohai Bay, China.
7. Call On Senior Notes. Each Holder hereby agrees to sell
to ING, upon written request therefor from time to time, any or
all of its Senior Notes, for a cash price equal to the unpaid
principal amount thereof plus all accrued and unpaid interest
thereon. Each such sale shall be without recourse and without
representation or warranty, express or implied, except for the
representation that such Holder is the owner of such Senior Note
free and clear of any liens, participation interests,
assignments, or other burdens or encumbrances.
8. Successors and Assigns. This letter agreement shall
inure to the benefit of, and be binding upon, each party hereto
and his or its respective heirs, legal representatives,
successors and assigns.
9. Miscellaneous. This letter agreement shall be governed
by and construed under the laws of the State of New York. This
letter agreement may be executed in multiple counterparts and by
the separate parties hereto in separate counterparts, all of
which shall constitute a single agreement. Execution
counterparts hereof may be exchanged by facsimile, courier
service, mail, or personal delivery.
Please execute one or more counterparts of this letter to
evidence your agreement to the foregoing.
Yours truly,
ING (U.S.) CAPITAL CORPORATION
By: __________________________
Peter Clinton, Senior Vice President
AGREED TO as of the date
first written above:
XCL-CHINA LTD.
By: ________________________
Name:
Title:
____________________________ as Holder of $________________ in Senior Notes
Patrick A. Tesson
____________________________ as Holder of $________________ in Senior Notes
By:________________________
Name:
Title:
____________________________ as Holder of $________________ in Senior Notes
By:________________________
Name:
Title:
____________________________ as Holder of $________________ in Senior Notes
By:________________________
Name:
Title:
____________________________ as Holder of $________________ in Senior Notes
By:________________________
Name:
Title:
____________________________ as Holder of $________________ in Senior Notes
By:________________________
Name:
Title:
____________________________ as Holder of $________________ in Senior Notes
By:________________________
Name:
Title:
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT (herein called this "Agreement")
is made as of April 9, 1997, by and among XCL-Texas, Inc., a
Texas corporation ("Borrower"), XCL Ltd., a Delaware corporation
("Parent"), and ING (U.S.) Capital Corporation ("ING").
RECITALS:
1. Borrower, Parent (then named "The Exploration Company of
Louisiana, Inc.") and ING (then named "International Nederlanden
(U.S.) Capital Corporation") have entered into a certain Credit
Agreement dated as of January 31, 1994. ING is a party to the
Credit Agreement in the dual capacities of "Agent" and "Lender"
(as defined therein) and references herein to ING refer to it in
both such capacities. (As provided below, certain terms which
are defined in the Credit Agreement have the same meanings when
used herein.)
2. Pursuant to the Credit Agreement, Borrower has given the
Note to ING. Borrower has failed to make certain payments now
due and owing under the Credit Agreement and the Note, which
failure constitutes an Event of Default under the Credit
Agreement.
3. Parent has informed ING that Parent intends to offer for
sale (the "Notes Offering") to certain qualified institutional
buyers units (the "Units") consisting of Parent's senior secured
discount notes and common stock purchase warrants, substantially
as described in Parent's Preliminary Offering Memorandum, Draft
No. 11, dated 3/20/97, and that if the Notes Offering is
successful Parent will use a portion of the proceeds thereof to
pay all outstanding Obligations under the Credit Agreement in
full. Parent has asked ING to agree, as provided herein, from
enforcing its rights under the Loan Documents for the Standstill
Period described below.
4. Parent has also asked ING to consent to XCL-China's
borrowing of the "China Loans" referred to below.
NOW, THEREFORE, in consideration of the various
acknowledgments and agreements contained herein, and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby
acknowledge and agree as follows:
Section 1. Definitions. Unless the context otherwise requires
or unless otherwise expressly defined herein, the terms defined
in the Credit Agreement shall have the same meanings whenever
used in this Agreement. As used herein:
"Standstill Period" shall mean the period from March 1, 1997
until 5:00 p.m., New York time, on May 30, 1997, provided that
the Standstill Period shall be extended to September 30, 1997 if,
by May 30, 1997, all of the following conditions have been met:
(a) Parent shall have received gross cash proceeds
before deduction of fees and expenses ("Debt Proceeds") of
$55,000,000 or more from the sale of Units pursuant to the
Notes Offering, and
(b) Parent shall have received gross cash proceeds
before deduction of fees and expenses ("Equity Proceeds")
of $15,000,000 or more from the sale of preferred stock and
warrants pursuant to an offering made concurrently with the
Notes Offering, and
(c) Either Parent shall have (i) received an
additional $10,000,000 in Equity Proceeds, or (ii) the
holders of at least $10,000,000 of Parent's subordinated
debt shall have exchanged such amount of subordinated debt
for preferred stock and warrants in Parent, and
(d) All of the Equity Proceeds received by Parent
are available to Parent for one or more of the following
purposes: to pay costs of issuance, to pay current and
future obligations of XCL-China due on or before September
30, 1997, to pay reasonable and necessary general and
administrative expenses through September 30, 1997 (not to
exceed $2,000,000), to pay the China Loans, or to pay the
Obligations, and
(e) All of the Debt Proceeds received by Parent are
either available to Parent for the same purposes or, if
required under the terms of the Offering, are set apart and
held under Approved Escrow Agreements pending approval of a
development plan by the Joint Management Committee created
pursuant to the Contract for Petroleum Exploration,
Development and Production on the Zhao Dong Block, 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.
"Approved Escrow Agreements" shall mean one or more
instruments and agreements satisfactory to Parent, ING, and the
principal underwriter of the Offering which provide (i) for some
or all of the Debt Proceeds to be segregated and held as
collateral under a senior lien securing the senior secured
discount notes included in the Units until approval of such
development plan, and (ii) for Debt Proceeds sufficient to pay
the Obligations in full to be paid directly to ING upon approval
of such development plan.
Section 2. Designated Defaults. As of March 15, 1997, the
aggregate unpaid principal balance on the Note is $17,279,008.59
and the unpaid interest which has accrued on such principal
balance through such date is $1,018,233.83. Various reimbursable
expenses of ING are also due and payable by Borrower. Borrower
has, on more than one occasion, failed to pay principal and
interest which has become due on the Note, and such failures
constitute multiple Events of Default under the Credit Agreement.
Such Events of Default, together with any further Events of
Default caused by Borrower's failure to make further payments of
principal and interest on the Note during the Standstill Period
and any present breaches or breaches by Borrower and Parent
during the Standstill Period of the following covenants under the
Credit Agreement:
Sections 5.1(g) and 5.2(b)(ii), insofar as such covenants
would be breached as a result of past-due or delinquent
Debt,
Section 5.2(d), insofar as such covenant would be breached
by the issuance of preferred stock of Parent or options or
warrants to purchase such preferred stock,
Section 5.2(f), insofar as such covenant would be breached
by the use of preferred stock of Parent to pay dividends on
Parent's common or preferred stock, and
Sections 5.2(l), (m), (n) or (o), insofar as such covenants
would be breached by any failure to comply with the terms
thereof
are herein called the "Designated Defaults".
Section 3. Standstill; Consent.
(a) In consideration of the provisions hereof,
ING hereby agrees that it will not, during the Standstill
Period, accelerate the maturity of the Note or commence any
lawsuit or any foreclosure proceedings to collect the Note.
Borrower and Parent hereby acknowledge and agree that the
execution, delivery and effectiveness of this Agreement do
not in any way operate as a waiver of any Designated
Default, that ING has not waived any right, power or remedy
under any Loan Document, and that, after the end of the
Standstill Period, ING will possess all of the rights and
remedies granted to it under any Loan Document and all of
its other legal and equitable rights.
(b) ING hereby consents to XCL-China's borrowing
of up $6,200,000 (the "China Loans") from Kayne Anderson (or
associated investors), the Estate of J. Edgar Monroe, the J.
Edgar Monroe Foundation (1976), Patrick A. Tesson or other
investors on the following terms: (i) the China Loans must
be unsecured; (ii) the China Loans must be evidenced by one
or more promissory notes which are substantially in the form
attached hereto as Exhibit B, (iii) all fundings of the
China Loans must be paid directly to Apache Corporation (or
one of its subsidiaries) to satisfy current obligations of
XCL-China relating to the Zhao Dong Block, Bohai Bay, China,
(iv) ING must be given prompt written notice of each China
Loan and a right to purchase any or all of the China Loans
upon demand, at a price equal to par plus accrued and unpaid
interest, and (v) if XCL-China makes any payment of the
China Loans with funds obtained by it from Parent or any of
its other Subsidiaries, such funds must be made available to
XCL-China in the form of an intercompany loan under a
promissory note (acceptable to ING in form and substance)
made by XCL-China to Parent and pledged by Parent to ING to
secure the Obligations. Parent hereby covenants that if any
such payment of the China Loans is made, Parent will pledge
and deliver such a promissory note to ING under documents
acceptable to ING in form and substance.
Section 4. Representations, Warranties and Agreements. Each of
Parent and Borrower hereby represents, warrants, acknowledges,
admits and agrees as follows:
(a) This Agreement, the Credit Loan Agreement and
all Loan Documents (herein, as amended, modified, restated
or supplemented from time to time, collectively called the
"Documents") are and shall continue to be legal, valid and
binding obligations of Borrower and Parent, enforceable
against Borrower and Parent in accordance with their
respective terms.
(b) All covenants, representations and warranties of
Borrower or of Parent which are made in the Documents are
hereby ratified, remade and reaffirmed in all respects
(provided that Parent and Borrower are not representing,
warranting or covenanting that no Designated Defaults now
exist or will exist during the Standstill Period).
(c) Each of Parent and Borrower has the corporate
power, and has been duly authorized by all requisite
corporate action, to execute and deliver this Agreement and
to perform its obligations hereunder. This Agreement has been
duly executed and delivered by Parent and Borrower.
(d) The execution, delivery and performance of this
Agreement by Borrower and by Parent do not and will not (i) violate
any law, rule, regulation or court order to which Borrower or
Parent is subject, (ii) conflict with or result in a breach
of their respective articles of incorporation or by-laws or
any agreement or instrument to which either of them is a
party or by which it or its properties are bound, or (iii)
result in the creation or imposition of any lien, security
interest or encumbrance on any property of Borrower or
Parent, whether not owned or hereafter acquired, other than
liens in favor of ING.
(e) Borrower has no defense, counterclaim or setoff with
respect to the Obligations or the Documents (any such
setoffs, defenses or counterclaims being hereby waived and
released by Borrower and Parent).
(f) The recitals set forth above are true and accurate and are
an operative part of this Agreement.
(g) Concurrently herewith Parent is executing and delivering
to ING a First Amendment to Stock Pledge Agreement by means of
which Parent is granting to ING a valid first priority lien and
security interest in all issued and outstanding shares of
XCLLand, Ltd. and in all proceeds thereof. ING has and will
continue to have a valid first priority lien and security
interest in all Collateral in which such any such lien or
security interest has been granted (or has purportedly been
granted) to ING, and each of Borrower and Parent expressly
reaffirms all such security interests and liens and all
Documents containing any grant thereof. In particular and
without limitation, Parent hereby ratifies and confirms its
pledge to ING of all of the issued and outstanding shares of
the following companies (all shares in each such company
being evidenced by the share certificate listed opposite
such company):
XCL-Acquisitions, Inc. Certificate #1
XCL-China Ltd. Certificate #1
XCL-Exploration & Production, Inc.
(now named The Exploration Company
of Louisiana, Inc.) Certificate #1
XCL-Texas, Inc. Certificate #1
Parent hereby confirms (i) that it has no subsidiaries other
than the four companies listed immediately above, XCL
Coalbed Methane Ltd. (a company with no material assets),
XCL China Lube Oil Ltd. (a wholly owned subsidiary of XCL
China) and XCL-Land, Ltd. and (ii) that all share
certificates issued by such four companies or by XCL-Land,
Ltd. have been delivered in pledge to ING.
(h) Borrower and/or Parent will pay all of the Obligations in
full in cash, including principal, interest, fees, expenses,
and all other Obligations, either (i) at the time of
consummation of the Notes Offering, if no Approved Escrow
Agreements are required in connection therewith, or (ii) at
the time of the first release of funds from the Approved
Escrow Agreements, if Approved Escrow Agreements are
required in connection with the Notes Offering.
(i) Borrower may, and will, use (or cause XCL-China to use)
all of the Equity Proceeds for the following purposes: first, to
pay costs of issuance and to repay the China Loans; second,
to pay current obligations of XCL-China and to establish a
reserve for such obligations (under terms reasonably
acceptable to ING) pending release of the Debt Proceeds;
third, to pay reasonable and necessary general and
administrative expenses through September 30, 1997 (not to
exceed $2,000,000); and fourth, to the extent any Equity
Proceeds remain, to pay the Obligations.
(j) Within five Business Days after the date hereof,
(i) Borrower or Parent shall deposit $35,000 with ING's
counsel (Thompson & Knight, P.C.) to be applied towards
legal fees and expenses which are reimbursable under the
Agreement (both past and future), including all fees and
expenses of ING's counsel incurred in connection with the
negotiation and preparation of this Agreement, and (ii)
Parent shall issue warrants to ING, in the same form as the
warrants issued in connection with the China Loans (with
such minor changes therein as ING shall reasonably request)
and in an amount equal to two-thirds of the warrants issued
in connection with the China Loans.
Section 5. Amendment to Credit Agreement. Section 5.2(e)(iii)
of the Credit Agreement is hereby amended in its entirety to read
as follows:
"(iii) sales of assets which are described in the
definition of "General Funds" in the first sentence of
Section 5.1(p), provided that:
(1) if Parent sells all of its direct or indirect
stockholdings in the Lutcher Moore Subsidiaries or if
the Lutcher Moore Subsidiaries sell any interests in
the Lutcher Moore Tract, the proceeds of such sales
must, to the extent thereof, promptly be used as
follows: first, to pay up to $5,200,000 (plus accrued
and unpaid interest thereon) in Restricted Debt of the
Lutcher Moore Subsidiaries secured by such tract;
second, to pay the China Loans or, if the China Loans
have been paid by the time such proceeds are received,
to establish a reserve of up to $3,100,000, under terms
reasonably acceptable to Agent, for current and future
obligations of XCL-China due on or before September 30,
1997; and third, to pay the Obligations;
(2) if XCL-China sells or farms out any of its
assets in China, the proceeds of such sales must be
made available to Borrower or Parent first used to pay
the China Loans and then used to pay the Obligations."
Section 6. Forbearance Defaults. Each of the following shall
constitute a Forbearance Default:
(a) the existence of any Event of Default (other than
a Designated Default) under the Documents or the documents
governing the China Loans;
(b) Borrower shall fail to keep or perform any of the
terms, obligations, covenants or agreements contained herein;
or
(c) any representation or warranty of Borrower herein
shall be false, misleading or incorrect in any material
respect.
Section 7. Rights and Remedies of ING. During the continuance
Upon the occurrence of a Forbearance Default, ING shall be
immediately entitled to enforce all of its rights and remedies
under the Documents, including without limitation its rights to
accelerate the principal balance of the Note.
Section 8. Waivers. Each of Borrower and Parent hereby waives
and affirmatively agrees not to allege or otherwise pursue any or
all defenses, affirmative defenses, counterclaims, claims, causes
of action, setoffs or other rights that it may have to contest
(a) any Designated Defaults; (b) any provision of the Documents
or this Agreement; (c) any lien or security interest of ING in
any property, whether real or personal, tangible or intangible,
or any right or other interest, now or hereafter arising in
connection with the Collateral; (d) the actions and inactions of
ING in administering the Documents and the financing arrangements
between Borrower and ING since the execution of the original
Credit Agreement; or (e) the rights of ING to all of the profits,
proceeds and other benefits from the Collateral.
Section 9. Release. Each of Borrower and Parent hereby
releases, remises, acquits and forever discharges ING and ING's
employees, agents, representatives, consultants, attorneys,
fiduciaries, officers, directors, partners, predecessors,
successors and assigns, subsidiary corporations, parent
corporations, and related corporate divisions (all of the
foregoing hereinafter called the "Released Parties"), from any
and all actions and causes of action, judgments, executions,
suits, debts, claims, demands, liabilities, obligations, damages
and expenses of any and every character, known or unknown, direct
and/or indirect, at law or in equity, of whatsoever kind or
nature, for or because of any matter or things done, omitted or
suffered to be done by any of the Released Parties prior to and
including the date of execution hereof, and in any way directly
or indirectly arising out of or in any way connected to this
Agreement or the Documents (all of the foregoing hereinafter
called the "Released Matters"). Each of Borrower and Parent
acknowledges that the standstill by ING pursuant to Section 3
above is in full satisfaction of all or any alleged injuries or
damages arising in connection with the Released Matters.
Section 10. Effect and Construction of Agreement. Except as
expressly provided herein, the Documents shall remain in full
force and effect in accordance with their respective terms, and
this Agreement shall not be construed to:
(a) impair the validity, perfection or priority of
any lien or security interest securing the Obligations;
(b) waive or impair any rights, powers or remedies of
ING under, or constitute a waiver of, any provision of the
Documents upon termination of the Standstill Period; or
(c) constitute an agreement by ING or require ING to
extend the Standstill Period, grant additional forbearance
periods, or extend the term of the Credit Loan Agreement or
the time for
payment of any of the Obligations.
Section 11. Conflicts. In the event of any express conflict
between the terms of this Agreement and any of the Documents,
this Agreement shall govern.
Section 12. Presumptions. Borrower acknowledges that it has
consulted with and been advised by its counsel and such other
experts and advisors as it has deemed necessary in connection
with the negotiation, execution and delivery of this agreement
and has participated in the drafting hereof. Therefore, this
Agreement shall be construed without regard to any presumption or
rule requiring that it be construed against any one party causing
this Agreement or any part hereof to be drafted.
Section 13. Conditions of Effectiveness. This Agreement shall
become effective upon satisfaction of the following conditions
precedent: (a) ING shall have received four counterparts of this
Agreement, executed by Borrower and Parent and consented and
agreed to by the persons named as signatories to the "Consent and
Agreement" paragraph following the signatures hereto of Borrower,
Parent and ING, and (b) ING shall have received four counterparts
of a Guaranty by XCL-China in the form attached as Exhibit A
hereto.
Section 14. Entire Agreement. This Agreement sets forth the
entire agreement among the parties hereto with respect to the
subject matter hereof. Neither Borrower nor Parent has received
or relied on any agreements, representations, or warranties of
ING, except as specifically set forth herein. Borrower
acknowledges that it is not relying upon oral representations or
statements inconsistent with the terms and provisions of this
Agreement.
Section 15. Loan Document. This Agreement is a Loan Document,
and all provisions in the Credit Agreement pertaining to Loan
Documents (including Section 9.10 of the Credit Agreement, which
provides for waiver of jury trial) apply hereto. This Agreement
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, this Agreement is executed as of the
date first above written.
XCL-TEXAS, INC.
By:_______________________________
Name:
Title:
XCL LTD.
By:_________________________________
Name:
Title:
ING (U.S.) CAPITAL CORPORATION
By:___________________________________
Name:
Title:
CONSENT AND AGREEMENT
Each of the undersigned hereby (a) consents to the
provisions of the foregoing Forbearance Agreement and the
transactions contemplated therein, (b) hereby ratifies and
confirms its respective Guaranty dated as of January 31, 1994
(or, in the case of XCL-China Ltd., dated of even date herewith),
made by it for the benefit of Agent, and all other Loan Documents
heretofore made by it, (c) agrees that its obligations and
covenants under such Guaranty and Loan Documents are unimpaired
by such Forbearance Agreement and are and shall remain in full
force and effect, and (d) releases, remises, acquits and forever
discharges all of the Released Parties referred to above from any
and all of the Released Matters referred to above and
acknowledges that the standstill by ING pursuant to Section 3
above is in full satisfaction of all or any alleged injuries or
damages arising in connection with the Released Matters.
XCL, LTD.
By:_____________________________
Name:
Title:
XCL-ACQUISITIONS, INC.
By:______________________________
Name:
Title:
THE EXPLORATION COMPANY OF
LOUISIANA, INC. (formerly
named XCL Exploration &
Production, Inc.)
By:______________________________
Name:
Title:
XCL-CHINA LTD.
By:______________________________
Name:
Title:
UNSECURED NOTE
$___________ Date: April ___, 1997
I. PROMISE TO PAY
For value received, the undersigned promises to pay to
the order of [NAME AND ADDRESS] ___________________________
_________________________, the principal sum of
_______________ ____________________ ($_____________)
DOLLARS, together with interest on the principal sum at the
rate of fourteen (14%) percent per annum commencing on the
date that Maker received an executed Subscription Agreement
(as hereinafter defined) from Lender. Interest shall be
calculated on the basis of actual days elapsed over a 365-
day year (366-day year in leap years).
II. DEFINITIONS
The following terms, as used in this Unsecured Note,
shall have the meanings set forth below:
1. "Acceleration" shall mean the exercise of Lender's
right to accelerate payment of all principal and interest
due on the Note after complying with the provisions of
Section IV.2.
2. "Debt" shall mean (i) indebtedness for borrowed
money, (ii) obligations evidenced by bonds, debentures,
notes or other similar instruments, (iii) obligations to pay
the deferred purchase price of property or services, (iv)
obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting
principles, recorded as capital leases, and (v) obligations
under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against
loss in respect of, indebtedness or obligations of the kinds
referred to in clauses (i) through (iv) above.
3. "Default Notice" means a notice sent by Lender to
Maker upon the occurrence and continuance of an Event of
Default giving rise to an Acceleration which specifies (i)
the nature of the Event of Default that has occurred and is
continuing and (ii) that Lender intends to make an
Acceleration in accordance with the provisions of Section
IV.2.
4. "Event of Default" shall have the meaning set forth
in Section IV.1. hereof.
5. "Financing Documents" shall mean this Note and the
other Notes.
6. "Jefferies Offering" shall mean the offering of
Units consisting of Senior Secured Discount Notes and Common
Stock Purchase Warrants of XCL Ltd. with Jefferies &
Company, Inc. as the initial purchaser currently
contemplated by XCL Ltd. to close prior to April 30, 1997.
7. "Lender" shall mean _______________________.
8. "Lien" or "Liens" shall mean any mortgage, lien,
pledge, charge, security interest or encumbrance of any
kind, including, without limitation, the rights of a vendor,
lessor or similar party under any conditional sale agreement
or other title retention agreement or lease substantially
equivalent thereto, and
the rights of the holder of any production payment, advance
payment or similar interest.
9. "Lutcher Moore Tract" shall mean that certain tract
of land located in St. James, Ascension and St. John the
Baptist Parishes, Louisiana, comprising approximately 62,000
acres, owned by XCL Ltd.
10. "Maker" shall mean XCL China Ltd., a company
organized under the laws of the British Virgin Islands, and
a wholly owned subsidiary of XCL Ltd., a Delaware
corporation.
11. "NASDAQ" shall mean the National Association of
Securities Dealers' Automated Quotation System.
12. "Note" shall mean this Unsecured Note.
13. "Subscription Agreement" shall mean the
Subscription Agreement dated as of April ____, 1997,
executed by XCL Ltd., Maker and Lender and relating to the
purchase of this Note.
III. TERMS OF PAYMENT
1. Maturity. All principal and interest accrued and
unpaid under this Note is due and payable in full on the
earliest of (a) the third business day after funding of the
Jefferies Offering, (b) sale of the Lutcher Moore Tract, or
(c) July 10, 1997. At maturity this Note may be renewed for
additional 60 day terms with the consent of Lender upon
delivery to Lender by Maker of an additional promissory note
substantially on the terms of this Note, mutatis mutandis,
in the principal amount equal to the then unpaid interest on
this Note.
IV. DEFAULT AND REMEDIES IN EVENT OF DEFAULT
1. Events of Default. The term "Event of Default"
shall mean the occurrence of any one of the following
events:
(a) The failure of Maker to pay punctually when due
any amount (including, without limitation, principal or
interest) payable with respect to the Note.
(b) Any representation or warranty made by Maker (or
any of its officers) under or in connection with the
Subscription Agreement, or by Maker or the grantor of any
lien or security interest pursuant to any agreement securing
or purporting to secure any of the obligations herein
(including, without limitation, any of the Security
Documents), shall prove to have been incorrect in any
material respect on or as of the date made.
(c) The breach of any term, covenant or agreement made
by Maker hereunder (other than under clause (a), above), or
under any other agreement between Maker and Lender, which
breach is not cured within 30 days after receipt by Maker of
notice thereof.
(d) Maker or any of its subsidiaries shall admit in
writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors; or
any case, proceeding or other action under any existing or
future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency or relief of debtors,
shall be instituted by or against Maker or any of its
subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted
against it (but not instituted by it), such proceeding shall
remain undismissed or unstayed for a period of thirty (30)
days; or Maker or any of its subsidiaries shall take any
corporate action to authorize any of the actions set forth
above in this subsection (d) of Section IV.
(e) Any judgment or order for the payment of money in
excess of $5,000,000 shall be rendered against Maker or any
of its subsidiaries and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment
or order that have not been stayed for a period of ten (10)
consecutive days and are not stayed at the time an action to
enforce this Note is commenced, or (ii) there shall be any
period of ten (10) consecutive days during which a stay of
enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
(f) Any non-monetary judgment or order shall be
rendered against Maker or any of its subsidiaries that is
reasonably likely to have a material adverse effect on (i)
the business, condition (financial or otherwise),
operations, performance, properties or prospects of Maker
and its subsidiaries, taken as a whole, (ii) the ability of
Maker and its subsidiaries, taken as a whole, to perform its
obligations under this Note or the Notes or under any
agreement securing or purporting to secure the obligations
herein to which Maker or any of its subsidiaries is a party
or (iii) the rights and remedies of Lender or its agent
under any agreement securing or purporting to secure the
obligations herein to which Maker or any of its subsidiaries
is a party, and either (x) enforcement proceedings shall
have been commenced by any person or entity upon such
judgment or order that have not been stayed for a period of
ten (10) consecutive days and are not stayed at the time an
action to enforce this Note is commenced, or (y) there shall
be any period of ten (10) consecutive days during which a
stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect.
(g) Maker shall convey, sell, lease, assign, transfer
or otherwise dispose of any of its interest in the 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., executed February 10, 1993 (the "Production Sharing
Contract").
(h) Maker shall create, insure, assume or suffer to
exist any debt other than (i) debt in respect of the Notes;
(ii) obligations under the Production Sharing Contract;
(iii) obligations to Apache China Corporation-LDC for
operations with respect to the Production Sharing Contract,
(iv) obligations to any affiliate of Maker that are
contractually subordinated to the indebtedness represented
by the Notes and (v) the guaranty by Maker of obligations
under the Credit Agreement dated as of January 31, 1994 by
and between XCL-Texas, Inc., The Exploration Company of
Louisiana, Inc. and ING (U.S.) Capital Corporation and
certain lenders, provided that such guaranty is
contractually subordinated to the indebtedness represented
by the Notes.
2. Acceleration of Maturity. Upon the occurrence of
any Event of Default arising from any condition or
circumstance other than Maker's failure to pay punctually
when due any amount under the Note, Lender may send a
Default Notice to Maker. Upon actual receipt of such Default
Notice, Maker shall have five (5) business days to either cure
such Event of Default or pay in full all principal and interest
due under the Note. If, after five (5) business days have elapsed
from actual receipt of the Default Notice by Maker, Maker has not
either (i) cured such Event of Default or (ii) paid in full all
principal and interest due under the Note, then and only
then shall Lender have the right to make an Acceleration.
Upon Acceleration, the Note, all interest thereon and all
other amounts payable thereon shall become and be forthwith
due and payable, without presentment, demand, protest or
further notice of any kind. The unpaid balance under the
Note shall bear interest as stated herein until paid in full.
V. WAIVER OF DEFENSES
Maker waives presentment for payment, protest, notice
of dishonor, demand, and notice of acceleration. Maker's
liability hereunder shall not be impaired by lack of
diligence in collecting the Note and enforcing any security
rights of Lender.
VI. MAXIMUM INTEREST RATE
In no event shall the rate charged hereunder for
interest exceed the maximum rate of interest permitted by
applicable law, and if any circumstances, including
acceleration, prepayment, or demand, would cause the rate of
interest hereunder to exceed such maximum rate, the rate of
interest hereunder automatically shall be reduced to such
maximum rate and Lender shall forgive or refund to Maker any
interest above such maximum rate collected by Lender.
VII. GOVERNING LAW
This Note shall be governed by the substantive laws of
the State of Louisiana, without any effect being given to
principles of conflicts of laws.
VIII. SECURITY
This Note is unsecured.
IX. NOTICE
Whenever this Note requires or permits any consent,
approval, notice, request or demand from one party to
another, the consent, approval, notice, request or demand
must be in writing (including telecopies, telegraphic, telex
or cable communications) and mailed (prepaid postage),
telecopied, telegraphed, telexed, cabled or delivered as
follows:
If to Maker:
XCL-China Ltd.
c/o XCL Ltd.
110 Rue Jean Lafitte
P. O. Box 53775
Lafayette, Louisiana 70505
Attn: David A. Melman
Telecopier: (318) 237-3316
If to Lender:
__________________________
__________________________
__________________________
Or, as to any party, at such other address as shall be
designated by such party in a written notice to the other
parties. Unless otherwise specified herein, all such
notices and other communications, shall, when mailed,
telecopied, telegraphed, telexed or cabled, be effective and
deemed delivered and received when deposited in the mails,
telecopied, delivered to the telegraph company, confirmed by
telex answerback or delivered to the cable company,
respectively.
X. HEADINGS
The headings used in this Note are for convenience only
and do not constitute a part of the Note.
XI. RESTRICTIONS ON TRANSFER
THE NOTE REPRESENTED BY THIS INSTRUMENT HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY
OTHER DOMESTIC OR FOREIGN JURISDICTION. SUCH NOTE MAY NOT
BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH SUCH LAWS AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER. SUCH NOTE IS ALSO SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER CONTAINED HEREIN AND IN THE
SUBSCRIPTION AGREEMENT. A COPY OF SUCH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
MAKER AND WILL BE FURNISHED WITHOUT CHARGE TO ANY HOLDER OF
THIS NOTE UPON WRITTEN REQUEST TO THE SECRETARY OF THE
MAKER, AND ALL HOLDERS OF THE NOTE AGREE TO BE BOUND BY THE
PROVISIONS OF SUCH AGREEMENT.
XII. WAIVERS AND AMENDMENTS
All amendments, supplements and modifications to
this Note shall be made only in writing signed by Maker and
Lender, and then any such amendment, supplement, or
modification shall be effective only on the specific
instance and for the specific purpose for which given. No
consent to any departure by Maker from the provisions of
this Note shall in any event be effective unless the same
shall be in writing and signed by Lender.
XCL-CHINA LTD.
By:_____________________
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT dated as of April 10, 1997 by and
between (a) XCL-China, Ltd.("XCL"), a company organized under
the laws of the British Virgin Islands and wholly owned
subsidiary of XCL, Ltd., (b) XCL Ltd., a Delaware company and
(c) the other parties to this Agreement named on the signature
page hereof (collectively, the "Subscriber").
XCL, XCL Ltd. and the Subscriber, each in reliance upon the
representations, warranties and covenants contained in this
Agreement, agree as follows with respect to the issuance and
sale by XCL and the purchase by the Subscriber of the number of
units (the "Units") which the Subscriber has inserted in Section
12 hereof at the purchase price set forth by the Subscriber in
Section 12 hereof, each Unit being comprised of (a) $100,000 in
principal amount of a promissory note of XCL ("Note"); and (b)
325,580 warrants ("Warrants") to purchase 325,580 shares of XCL
Ltd.'s common stock, par value $.01 per share ("Common Stock"),
at $.01 per share (subject to adjustment)or, under certain
limited conditions described in the Warrant Agreement, preferred
stock.
1. Sale and Purchase of Units. This Agreement is being
executed and delivered in connection with the sale and purchase
of up to an aggregate of 31 Units offered by XCL and XCL Ltd. to
a limited number of qualified investors (the "Offering"). By
executing and delivering this Agreement, the Subscriber hereby
irrevocably agrees to subscribe for the number of Units, and at
the purchase price, which the Subscriber has set forth in
Section 12 hereof, subject to the terms and conditions contained
in this Agreement. The purchase and sale of such Units shall
take place at a closing (the "Closing") commencing at 10:00
a.m., Central Daylight Time, on April 10, 1997 at the offices of
Gordon, Arata, McCollam & Duplantis, L.L.P. or on such other
date and at such other time and place as shall be mutually
agreed upon by the parties hereto. The date on which the
Closing occurs is referred to herein as the "Closing Date". The
purchase and sale of such Units shall be subject to the
following terms and conditions.
(a) At closing, the Subscriber shall wire transfer,
or shall cause to be wire transferred, immediately available
United States Funds to First Bank of Minneapolis, ABA Number:
091-000022, Account Number: 1702-25145359 for the account of
Apache China Corporation; For Deposit to Apache China Joint
Venture, in payment of the purchase price for the Units. As
used herein the term "United States Funds" shall mean the freely
transferable or external currency of the United States of
America.
(b) Payment of the purchase price of the Units shall
be deemed by XCL to constitute a confirmation by the Subscriber
of the accuracy and completeness of its representations and
warranties set forth herein as of the date such payment is made.
(c) Simultaneously with the Subscriber's subscription
payment for the Units, XCL shall issue and deliver, or cause to
be issued and delivered to the Subscriber a promissory note
substantially in the form set forth as Schedule I evidencing the
aggregate principal amount of all Notes subscribed for, and XCL
Ltd. shall issue and deliver, or cause to be issued and
delivered, a single certificate representing the Warrants, in
each case registered in the name of the Subscriber and bearing a
suitably conformed version of the legend set forth in subsection
3(e) hereof.
(d) XCL reserves the unilateral right to withdraw, cancel
or modify the Offering and to reject, in whole or in part, any
subscription for Units, which need not be accepted in the order
received. In the event the Offering is withdrawn, cancelled or
modified, prior to the issuance of the Units, XCL shall notify
the Subscriber and give it the opportunity to cancel its
subscription and shall return to the Subscriber its subscription
moneys (without interest) and the original copies of all
subscription materials.
2. Representations and Warranties by XCL and XCL Ltd. XCL
and XCL Ltd. hereby represent and warrant to the Subscriber
that, except as set forth in the draft confidential offering
memorandum (the "Memorandum") for the sale of Senior Secured
Discount Notes by XCL Ltd., a copy of which is attached as
Exhibit "A":
(i) Organization and Good Standing. XCL and XCL Ltd. each
is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization,
has corporate power and authority to carry on its business as
now being conducted and is not required to qualify to do
business as a foreign corporation in any other jurisdiction
where the failure so to qualify would have a material adverse
effect on the business or assets of XCL or XCL Ltd. and its
subsidiaries, taken as a whole.
(ii) Capitalization. XCL's authorized capital stock
consists of 500,000,000 shares of Common Stock, of which
293,357,340 shares of Common Stock were validly issued and
outstanding as of April 4, 1997 and are fully paid and non-
assessable, and 2,400,000 shares of preferred stock,
par value $1.00 per share, to be issued in series with such rights and
preferences as the Board may designate from time to time of
which 641,359 shares designated the Series A, Cumulative
Convertible Preferred Stock; 44,954 shares designated the Series
B, Cumulative Preferred Stock; 48,982 shares designated the
Series E, Cumulative convertible Preferred Stock; and 21,057
shares designated the Series F, Cumulative Convertible Preferred
Stock are validly issued and outstanding on the date of this
Agreement and are fully paid and non-assessable. The Warrants,
when executed and delivered on behalf of XCL Ltd. and issued and
sold as set forth in this Agreement and the Warrant Agreement
annexed hereto as Schedule II, will have been duly executed,
issued and delivered and will be valid and legally binding
obligations of XCL Ltd. and the shares of Common Stock or
Preferred Stock issuable upon exercise of the Warrants ("Warrant
Stock") will, following such exercise in the manner provided for
in the Warrant Agreement, be duly authorized, validly issued,
fully paid and non-assessable.
(iii) Corporate Authority. XCL and XCL Ltd. each has full
power and authority to enter into this Agreement, and, as to XCL
Ltd., the Warrant Agreement, and to issue, sell and deliver the
Warrants and Warrant Stock and to incur and perform the
obligations provided for herein and under the Warrant Agreement
and Notes, which have been or will be duly authorized by all
necessary corporate or other action of XCL and XCL Ltd. (as
applicable). The execution, delivery and performance of this
Agreement, the Warrant Agreement and the Notes and the issuance
and sale of the Warrants, Warrant Stock and Notes to the
Subscriber, in the manner contemplated by this Agreement, the
Warrant Agreement and the Notes, do not require the approval or
consent of the stockholders of XCL or XCL Ltd. or other holders
of securities or indebtedness of XCL or XCL Ltd. (other than as
has been obtained), do not violate any provision of any law of
the United States, or the Certificate of Incorporation or By-
Laws of XCL or XCL Ltd., or any material agreement or instrument by
which XCL or XCL Ltd., or any of its properties are bound and
(except as contemplated thereunder) will not result in the
creation of any encumbrance or charge upon any asset of XCL or
XCL Ltd. This Agreement, the Warrant Agreement, and the Notes
constitute valid and binding obligations of XCL or XCL Ltd. (as
appropriate) in accordance with their terms.
(iv) Governmental Consents. All consents, authorizations
and approvals (if any) of any governmental agency or other
regulatory body within the United States required by XCL or XCL
Ltd. for the execution and delivery of this Agreement, the
Warrant Agreement, and Notes and the issuance of the Warrants
and Notes in the manner contemplated in the Warrant Agreement
and this Agreement, respectively, and the performance of its
obligations hereunder and thereunder have been or, in the case
of certain state securities regulatory agencies with
jurisdiction, will be obtained.
(v) Financial Statements. Attached as Exhibits "B" and
"C" are the audited financial statements of XCL Ltd. and its
consolidated subsidiaries for the fiscal year ended December 31,
1995 and the unaudited financial statements of XCL and its
consolidated subsidiaries for the twelve-month period ended
December 31, 1996, respectively. Such financial statements
present fairly the financial position of XCL and XCL Ltd. on the
dates and for the periods specified therein in all material
respects.
(vi) Absence of Certain Material Changes and Events. Since
December 31, 1996, there has been no material adverse change in
the financial condition, assets, liabilities or business of XCL
and its subsidiaries, taken as a whole or of XCL Ltd. and its
subsidiaries, taken as a whole.
(vii) Contracts. Except as set forth in the Memorandum,
neither XCL nor XCL Ltd. is in material violation of or in
material default under any material contract to which it is a
party or by which it is bound. To the best of the knowledge of
XCL and XCL Ltd., all such contracts are valid and effective in
accordance with their terms and XCL and XCL Ltd. know of no
material default by any third party that would materially impair
its ability to perform hereunder or under the Notes.
(viii) Litigation. There is no material litigation,
proceeding or investigation of any nature pending or, to the
knowledge of XCL or XCL Ltd., threatened against or relating to
XCL or XCL Ltd. or any of its properties or business. Neither
XCL nor XCL Ltd. is subject to any judgment, decree or order of
any court or any other governmental or administrative body or
agency. There is no action pending, or, to the best of XCL's
knowledge, threatened against XCL, XCL Ltd. or any of their
respective subsidiaries which either (a) involves the
transactions contemplated by this Agreement or (b) is likely to
have a material adverse effect on the ability of XCL or XCL Ltd.
to perform their obligations under this Agreement, the Warrant
Agreement, or the Notes.
(ix) Absence of Undisclosed Liabilities. To the best
knowledge of XCL and XCL Ltd., none of XCL, XCL Ltd. or any of
their respective subsidiaries has any material liabilities or
obligations (whether accrued, absolute, contingent or otherwise)
exclusive of those (1) arising hereunder or under the Warrant
Agreement and Notes, (2) described herein or in the Schedules
hereto, (3) reflected in the financial statements referred to in
paragraph (v) of this Section 2 or the Memorandum or (4)
liabilities and obligations arising under its leases and under
contracts relating to the exploration, operations, production
and sales of hydrocarbons from those leases, which, in the
aggregate, are in general conformance with industry practice and
standards.
(x) Memorandum. The Memorandum does not contain
any untrue statement of a material fact nor does it omit to
state a material fact necessary in order to make the statements
contained therein not misleading.
(xi) Compliance with Laws. Each of XCL, XCL Ltd.
and their respective subsidiaries has all required governmental
approvals, authorizations, consents, licenses, orders,
registrations and permits necessary for the operation of its
business as presently conducted and the absence of which would
have a material adverse effect.
(xii) Labor Matters.
(a) None of XCL, XCL Ltd. or their respective subsidiaries
has entered into any collective bargaining agreement and, to the
best of the knowledge of XCL and XCL Ltd., no labor union or
similar organization or any representative thereof has made any
attempt to organize or represent employees of any of XCL, XCL
Ltd. or their respective subsidiaries.
(b) To the best knowledge of XCL and XCL Ltd., there are
no controversies pending or threatened between any of XCL, XCL
Ltd. or their respective subsidiaries, on the one hand, and its
employees or any contractor or subcontractor thereof which
reasonably would be expected to have a material adverse effect.
(xiii) Taxes Each of XCL and XCL Ltd. have filed
all tax returns required to be filed by law and has paid all
taxes shown thereon to be due, including interest and penalties.
Neither XCL or XCL Ltd. is a party to any action or proceeding
by any governmental authority for the assessment or collection
of taxes, nor has any claim for assessment or collection of
taxes been asserted against either XCL or XCL Ltd., except for a
pending Louisiana income and franchise tax case described in the
Memorandum. There is no audit pending of any tax return filed
by either XCL or XCL Ltd. or with respect to any consolidated
group of which either XCL or XCL Ltd. was a member in the
applicable year. XCL Ltd. has received notice that the State of
Louisiana intends to conduct an income and franchise tax audit
of it, but that audit has not commenced.
(xiv) Title to Property. XCL, XCL Ltd. and their
respective subsidiaries have good and valid title to all their
plants, structures and equipment and such plants, structures and
equipment are in good operating condition and repair, except
where a defect in title or the failure of such plants,
structures and equipment to be in such good operating condition
and repair would not, individually or in the aggregate, have a
material adverse effect.
(xv) Environmental Matters.
(A) For purposes of this Agreement,
(x) "Environmental Laws" shall mean any federal,
state, local or common law or any foreign law, and any rules and
regulations under any thereof, relating to (I) releases or
threatened releases of Hazardous Substances or materials
containing Hazardous Substances, (II) the manufacture, handling,
transport, import, export, use, treatment, storage or disposal
of Hazardous Substances or materials containing Hazardous
Substances or (III) otherwise relating to pollution of the
environment or the protection of human health; and
(y) "Hazardous Substances" shall mean (I) substances
which are or which contain substances defined in or regulated
under the following federal statutes and their state
counterparts, as well as any similar foreign statutes and each
such statute's implementing regulations as amended from time to
time; the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act,
and Safe Drinking Water Act, the Atomic Energy Act, the Toxic
Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the Federal Food, Drug and Cosmetics Act and
the Clean Air Act, (II) petroleum and petroleum products
including crude oil and any fractions thereof, (III) natural
gas, synthetic gas and any mixtures thereof, (IV) radon, (V) any
other contaminant and (VI) any substances with respect to which
a federal, state, local or foreign agency requires environmental
investigation, monitoring, reporting or remediation.
(B) (x) Each of XCL and XCL Ltd. have obtained or caused
to have been obtained all material permits, licenses and other
authorizations which are required under Environmental Laws
relating to the oil and gas properties and leases and other
assets of XCL and XCL Ltd. and their respective subsidiaries
(collectively, the "Environmental Assets");
(y) XCL, XCL Ltd. and their respective subsidiaries
and the Environmental Assets are in compliance in all material
respects with all Environmental Laws and all terms and
conditions of such permits, licenses and authorizations; and
(z) None of XCL, XCL Ltd. or their respective
subsidiaries has received written notice of (I) any material
claims of present or past non-compliance with Environmental
Laws, (II) any material claims for damages, fines, penalties,
environmental investigation or remediation, or administrative,
injunctive or other relief arising under Environmental Laws or
(III) any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or
plans which are reasonably likely to interfere with or prevent
continued compliance, or which are reasonably likely to give
rise to any material liability, or otherwise form the basis of
any material claim, action, suit, proceeding, hearing or
investigation arising under Environmental Laws.
3. Representations, Warranties and Agreements by the
Subscriber. The Subscriber hereby represents and warrants to
and agrees with XCL and XCL Ltd. as follows:
(a) Memorandum. The Subscriber hereby acknowledges to XCL
and XCL, Ltd. that (i) any estimates, plans, projections etc.
which are incorporated in the Memorandum or which have been
furnished to it with respect to the activities undertaken
originally or to be undertaken by XCL or XCL Ltd. are based on
certain assumptions made by XCL and XCL Ltd. regarding such
factors as estimated values of the properties, prices of oil and
gas, future revenues, proved, probable and potential reserve
values, degrees of success of disposition transactions and
exploration and development activities and other factors, (ii)
actual experience may vary from such assumptions, (iii) such
estimates, plans and projections may never be achieved, (iv) the
Subscriber has not relied upon the achievement of any such
estimates and projections in making its investment decision to
acquire the Units, (v) the Subscriber has carefully reviewed the
Memorandum and the Exhibits thereto, in particular, the "Risk
Factors" section thereof, and (vi) the Subscriber is aware of
the current conditions existing in the United States and
international oil and gas industry which affect the business of
XCL and XCL Ltd.
(b) Independent Investigation. The Subscriber has relied
solely upon the independent investigations made by it and its
representatives in making a decision to purchase the Units and
has a full understanding and appreciation of the risks inherent
in such a speculative investment. In connection with such
investigation, the Subscriber and its attorneys, accountants and
other representatives and advisers, if any, (i) have been given
an opportunity to ask, and have to the extent the Subscriber
considered necessary, asked questions of, and have received
answers from, officers of XCL and XCL Ltd. concerning the terms
of the Offering and the affairs of XCL and XCL Ltd. and its
proposed activities and (ii) have been given or afforded access
to all documents, records, books and additional information
which the Subscriber has requested regarding such matters.
(c) Unregistered Shares. The Subscriber recognizes that
the offer and sale by XCL and XCL Ltd. of the Notes and the
Warrants (and Warrant Stock) and the offer and sale of the
Units have not been and (except to the extent set forth herein
and in the Warrant Agreement) will not be registered under the
United States Securities Act of 1933, as amended (the "Act"),
and have not been and will not be registered under any other
applicable domestic or foreign securities laws (the Act and any
such other applicable securities laws are hereinafter
collectively referred to herein as the "Securities Laws") in
reliance upon exemptions from the registration requirements
thereof; the Subscriber is acquiring the Units and the Notes,
Warrants, and Warrant Stock (collectively referred to herein as
the "Securities") solely for its account for investment and not
with a view to, or for offer or resale in connection with, a
distribution thereof in violation of any Securities Laws; the
investment will not constitute more than one fifth of the
Subscriber's consolidated net worth; and the Subscriber is an
"accredited investor" as defined in Rule 501 promulgated under
the Act. The Subscriber hereby covenants and agrees that it
will not sell the Units or any of the Securities until such
time as XCL Ltd. has effectively registered such securities
under the Act or counsel reasonably acceptable to XCL Ltd.
(which shall include in-house counsel) shall have furnished an
opinion, in form and substance reasonably acceptable to XCL Ltd.
to the effect that the transaction contemplated by Subscriber
would be in compliance with the Act. The Subscriber understands
that the effect of such representation and warranty is that the
Units and Securities must be held unless the sale or transfer
thereof is subsequently registered under the Securities Laws or
an exemption from such registration is available at the time of
any proposed sale or other transfer thereof. Except to the
extent hereinafter set forth and in the Warrant Agreement
neither XCL nor XCL Ltd. is under any obligation either to file
a registration statement under the Act covering the sale or
transfer of such securities or otherwise to register such
securities for sale under the Securities Laws. The Subscriber
is familiar with, or has been advised by its counsel regarding,
(i) the applicable limitations upon the resales of the Units
and the Securities, (ii) the circumstances under which the
Subscriber is required to hold such securities and (iii) the
limitations upon the transfer or other disposition thereof. The
Subscriber acknowledges that XCL and XCL Ltd. are and will be
relying upon the truth and accuracy of the foregoing
representations and warranties in offering and selling the Units and
the Securities to the Subscriber without first registering them under the
Securities Laws.
(d) Transfer Conditions. Except as to any Securities that
(i) are then effectively registered under the Act, or (ii) are
represented by certificates that, with the consent of XCL Ltd.,
no longer bear restrictive legends and are otherwise freely
tradeable under the Act, prior to any sale, transfer or other
disposition of any of the Subscriber's Units and the Securities
the Subscriber agrees to give at least three days prior written
notice to XCL Ltd. of its intention to effect such transfer and
to comply in all other respects with this subsection 3(d). Each
such notice shall describe the identity of the transferee and
the manner and circumstances of the proposed transfer in
sufficient detail to enable counsel to render the opinions
required herein, and shall be accompanied by an opinion of
counsel acceptable to XCL Ltd., addressed to XCL Ltd. and
satisfactory in form and substance to XCL Ltd., stating that, in
the opinion of such counsel, such transfer will be a transaction
exempt from registration under the Securities Laws and that all
consents, approvals or authorizations to such transfer have been
obtained. Assuming the receipt by XCL Ltd. of such satisfactory
opinion, the Subscriber shall thereupon be entitled to transfer
such shares in accordance with the terms of the notice delivered
by the Subscriber to XCL Ltd. and this Agreement. Each
certificate or other document issued representing the Securities
shall bear the legend set forth in subsection 3(e) hereof,
suitably conformed, unless, in the opinion of the respective
counsel for the Subscriber and XCL Ltd., such legend is not
required in order to aid in assuring compliance with applicable
Securities Laws.
The Subscriber agrees that it will not sell, transfer or
otherwise dispose of any of its Units or Securities, and XCL
and XCL Ltd. will not be required to recognize any such sale,
transfer or disposition, unless such sale, transfer or
disposition complies with this subsection 3(d).
(e) Restrictive Legends and Stop Order. In addition to
any specific restrictive legends that may be required by
applicable Securities Laws or agreements to which the Subscriber
may be a party, as to any Securities that are not effectively
registered under the Act, the Subscriber agrees to be bound by a
restrictive legend in substantially the following form which may
be placed on the certificates or other documents representing
the Securities:
THE SECURITIES [NOTE] REPRESENTED BY THIS [INSTRUMENT]
[CERTIFICATE] HAVE [HAS] NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES OR BLUE SKY LAWS OF ANY OTHER DOMESTIC OR
FOREIGN JURISDICTION. SUCH SECURITIES [NOTE] MAY NOT
BE SOLD, OFFERED FOR SALE, OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH SUCH LAWS AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER. SUCH SECURITIES
[NOTE] ARE [IS] ALSO SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER CONTAINED IN THAT CERTAIN SUBSCRIPTION
AGREEMENT DATED AS OF APRIL ___, 1997 BETWEEN THE
ISSUER AND THE INITIAL HOLDER OF THE SECURITIES [NOTE]
NAMED THEREIN. A COPY OF SUCH AGREEMENT IS AVAILABLE
FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER
AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER
THEREOF UPON WRITTEN REQUEST TO THE SECRETARY OF THE
ISSUER AND THE HOLDER OF THE SECURITIES [NOTE] AGREES
TO BE BOUND THEREBY.
The Subscriber understands and agrees that XCL Ltd.
may place and instruct any transfer agent for the Securities, to
place a stop transfer notation in the records in respect of the
certificates representing such securities, provided that such
securities may be transferred upon compliance with the
provisions of this Section 3.
4. Survival of Representations and Warranties. The
representations and warranties of XCL and XCL Ltd. set forth in
this Agreement or in any certificate or other document or
instrument furnished to the Subscriber by or on behalf of XCL
and XCL Ltd. in connection with the transactions contemplated
hereby, which shall be deemed to be effective as of the date
made, and the representations and warranties of the Subscriber
set forth in Section 3 shall survive the execution, delivery and
termination of this Agreement and the consummation of the
transactions contemplated hereby.
5. Conditions Precedent to Obligations of Subscriber.
(a) Representations True at Closing; Performance. The
representations and warranties of XCL and XCL Ltd. contained in
Section 2 hereof shall be deemed to have been made again at and
as of the Closing Date, and shall then be true and correct in
all material respects, and XCL and XCL Ltd. shall have performed
and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or
complied with by it on or before the Closing Date.
(b) Legal Opinions. The Subscriber shall have
received opinion of counsel, dated the Closing Date, from David
A. Melman, Esq., General Counsel of XCL, in substantially the
form attached as Exhibit "D".
(c) Units. There shall have been delivered to the
Subscriber the following instruments and documents evidencing
the Units subscribed for by the Subscriber:
(i) a promissory note evidencing the aggregate
principal amount of all Notes so subscribed for;
(ii) a certificate representing the aggregate
number of Warrants included as a component of such Units;
and
(iii) a copy of a fully executed Intercompany
Subordination Agreement substantially in the form attached
as Exhibit "E".
(d) No Withdrawal, Cancellation or Modification. XCL
or XCL Ltd. shall not have withdrawn, canceled or modified the
Offering, and shall have taken such action as is contemplated
thereby.
(e) Minimum Subscriptions. XCL and XCL Ltd. shall
have obtained executed agreements in substantially the form
hereof constituting subscriptions for such number of Units
which, when aggregated with the Units subscribed for by the
Subscriber hereunder, equal at least 31 Units.
(f) Certificates. XCL and XCL Ltd. shall deliver
other customary closing certificates.
6. Notices. Any notice, claim, request, demand or other
communication required or permitted to be given under this
Agreement shall be given in writing and shall be deemed to have
been duly given if delivered or mailed, first class postage
prepaid, to the party for whom intended at the following
addresses:
The Subscriber The address set forth on the
signature page hereof
XCL or XCL Ltd. 110 Rue Jean Lafitte
Lafayette, LA 70508
Attn: David A. Melman, Esq.
or at such other address, as to any party, as such party shall
specify by like notice to the other parties.
7. Covenants of XCL and XCL LTD. XCL Ltd. hereby
covenants and agrees that:
(a) XCL Ltd. shall be obligated to register the Warrant
Stock at the time and on the terms and conditions set forth in
Article 9 of the Warrant Agreement.
(b) XCL and XCL Ltd. shall issue no more than 31 Units and
shall not issue any securities convertible into or exchangeable
for Units.
8. Rights of Parties to Terminate. Notwithstanding
anything to the contrary set forth herein, this Agreement and
the transactions contemplated hereby may be terminated:
(a) at any time by the written agreement of the parties
hereto; or
(b) by either XCL or the Subscriber, by written notice to
the other, if the Closing shall not have occurred prior to or on
April 10, 1997; provided, however, that such right to terminate
shall not be available to a party which has breached this
Agreement if such breach shall have prevented such Closing from
occurring prior to or on April 10, 1997.
9. Entire Agreement; etc. This Agreement together with
the Schedules hereto, the Notes, the Warrant Agreement and the
Intercompany Subordination Agreement sets forth the entire
understanding and agreement between XCL, XCL Ltd. and the
Subscriber pertaining to the subject matter hereof and thereof
superseding any and all prior agreements, proposals,
understandings and arrangements among the parties hereto, all of
which shall be deemed terminated, cancelled and of no further
force and effect. No prior or contemporaneous understanding or
agreement shall alter or constitute a waiver of any term,
condition, obligation, covenant, representation or warranty
contained in this Agreement, nor shall any waiver, understanding
or agreement purportedly amending or waiving any provision
hereof be effective unless and until it shall be reduced to
writing and signed by the parties hereto. Any other agreements
pursuant to which a limited number of qualified investors agree
to subscribe for Units shall be identical in form and content
(except as to the identity of the Subscriber and the number of
Units subscribed for) as this Agreement, and although each such
agreement (including this Agreement) may be executed in
counterparts with each counterpart being deemed an original and
all such counterparts being deemed as one single instrument,
each such agreement shall constitute an individual, several
agreement with XCL and XCL Ltd. and no partnership, joint
venture, agency or other relationship, expressed or implied,
shall be created by and among the Subscriber and other
purchasers of the Units. Further, XCL and XCL Ltd. covenant
with and warrant each Subscriber that, until such Subscriber's
Note is paid in full, if the terms of any of the Units or any
Subscriber's investment in the Units (including the Notes and
the Warrant Agreements) are amended either directly or
indirectly, then no such amendment shall be effective until and
unless each Subscriber is offered and either expressly accepts
or rejects the same amendment; and no benefit or inducement for
such amendment will be offered to any Subscriber unless the same
is offered to all Subscribers. The headings in this Agreement
have been inserted for convenience of reference only and shall
not affect the interpretation or enforcement of any provision
hereof. XCL and XCL Ltd. further covenant and agree that it is
the intent of the parties to this Agreement that the Subscriber
herein will purchase and hold the Units on the same terms and
conditions as the Kayne, Anderson investors unless said
Subscriber explicitly elects otherwise after being offered the
opportunity to so elect.
10. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE FOR ALL PURPOSES WITHOUT REGARD TO ITS PRINCIPLES OF
CONFLICTS OF LAW.
11. Special Federal and State Securities Laws Notices.
(a) The undersigned understands and acknowledges
that:
THE UNITS AND SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), WILL
BE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD, OFFERED FOR
SALE OR TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT OR AN EXEMPTION THEREFROM.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY
ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
(b) Investors in the following jurisdictions must
review the following legends required by each jurisdiction and
be aware of their contents.
CALIFORNIA SUPPLEMENT
TO THE MEMORANDUM
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF THESE SECURITIES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THESE
SECURITIES, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
FLORIDA SUPPLEMENT
TO THE MEMORANDUM
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND
ACQUIRED BY, THE HOLDER IN A TRANSACTION EXEMPT UNDER 517.061
OF THE FLORIDA SECURITIES ACT. THE SECURITIES HAVE NOT BEEN
REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA. IN ADDITION,
ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE
PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT
OF THE ISSUER, OR AN ESCROW AGENT OR WITHIN 3 DAYS AFTER THE
AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH
PURCHASER, WHICHEVER OCCURS LATER.
MARYLAND SUPPLEMENT
TO THE MEMORANDUM
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (OR OTHER
DOCUMENT) HAVE BEEN ISSUED PURSUANT TO A CLAIM OF EXEMPTION FROM
THE REGISTRATION OR QUALIFICATION PROVISIONS OF FEDERAL AND
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF
APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.
PENNSYLVANIA SUPPLEMENT
TO THE MEMORANDUM
UNDER PROVISIONS OF THE PENNSYLVANIA SECURITIES ACT OF
1972, EACH PENNSYLVANIA RESIDENT SHALL HAVE THE RIGHT TO
WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY LIABILITY TO THE
SELLER, UNDERWRITER (IF ANY), OR ANY PERSON, WITHIN TWO (2)
BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS
WRITTEN BINDING CONTRACT OF PURCHASE OR IN THE CASE OF A
TRANSACTION IN WHICH THERE IS NO WRITTEN BINDING CONTRACT OF
PURCHASE, WITHIN TWO BUSINESS DAYS AFTER HE MAKES THE INITIAL
PAYMENT FOR THE SECURITIES BEING OFFERED.
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE
SECURITIES BEING OFFERED HEREBY AGREES NOT TO SELL THESE
SECURITIES FOR A PERIOD OF TWELVE MONTHS AFTER THE DATE OF
PURCHASE. UNDER PROVISIONS OF THE PENNSYLVANIA SECURITIES ACT
OF 1972 (THE "1972 ACT"), EACH PENNSYLVANIA RESIDENT SHALL HAVE
THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY
LIABILITY TO THE SELLER, UNDERWRITER (IF ANY) OR ANY OTHER
PERSON, WITHIN TWO BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE
ISSUER OF HIS WRITTEN BINDING CONTRACT OF PURCHASE OR IN THE
CASE OF A TRANSACTION IN WHICH THERE IS NO WRITTEN BINDING
CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS AFTER HE MAKES
THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED. TO
ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LETTER
OR TELEGRAM TO THE SELLING AGENT AT THE ADDRESS SET FORTH IN THE
TEXT OF THE MEMORANDUM, INDICATING HIS OR HER INTENTION TO
WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED
PRIOR TO THE END OF THE AFOREMENTIONED SECOND BUSINESS DAY. IT
IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE
THE TIME WHEN IT WAS MAILED. IF THE REQUEST IS MADE ORALLY (IN
PERSON OR BY TELEPHONE, TO THE SELLING AGENT AT THE NUMBER
LISTED IN THE TEXT OF THE MEMORANDUM), A WRITTEN CONFIRMATION
THAT THE REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
12. Subscription. The undersigned hereby subscribes for
the following number of Units:
Number of Units
to be purchased __________
(minimum purchase one Unit)
Total Purchase Price:
U.S. $__________
(Number of Units x $100,000)
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement effective on the date
first above written. TYPE OF OWNERSHIP
(Check One)
_________ Individual (one signature required)
_________ Joint Tenants with right of survivorship (each
must sign)
_________ Tenants in Common (each must sign)
_________ Tenants by the Entirety (both husband and wife
must sign)
_________ Community Property (one signature required if
interest held in one name, i.e., managing spouse;
signatures of both spouses required if interest
is held in both names)
_________ Corporation (include resolution authorizing this
investment)
_________ Partnership (include partnership agreement)
_________ Trust (include instrument creating the trust)
_________ Estate (include certified copy of letters
testamentary or letters of administration)
__________________________________________________________________________
Please print here the exact name in which Unit(s) are to be
registered.
INTERCOMPANY SUBORDINATION AGREEMENT
This Subordination Agreement (this "Agreement") is made as of the
____ day of April, 1997, by the following persons:
XCL Ltd., a Delaware corporation (herein sometimes called "Parent"),
XCL-Texas, Inc., a Texas corporation,
XCL-Land, Ltd., a Delaware corporation,
The Exploration Company of Louisiana, Inc., a Louisiana corporation,
XCL Acquisitions, Inc., a Delaware corporation,
XCL-China Coal Methane, Ltd., a British Virgin Islands corporation,
XCL-China LubeOil, Ltd., a British Virgin Islands corporation, and
XCL-China, Ltd., a British Virgins Islands corporation (herein
sometimes called "Borrower"),
all of whom, other than Borrower, are herein collectively called the
"Related Persons".
RECITALS:
1. Borrower, Parent, and certain lenders (herein collectively called
"Lenders") have entered into Subscription Agreements of even date herewith
(the "Subscription Agreement"), pursuant to which Borrower has borrowed funds
from Lenders which debt is represented by one or more unsecured note or
unsecured notes (the "Note" or "Notes").
2. It is a condition precedent to Lenders' obligations to advance funds
pursuant to the Subscription Agreement that the Related Persons shall
subordinate all obligations owed to them by Borrower to all obligations
owed by Borrower to Senior Creditors (as defined below);
3. The board of directors of each Related Person has determined that the
execution, delivery and performance of this Agreement may reasonably be
expected to benefit such Related Person, directly or indirectly, and is in
the best interests of each Related Person.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Definitions. Reference is hereby made to the Subscription
Agreement for the meaning of certain terms which are defined therein and
which, although not defined herein, are used herein with the same meanings.
As used herein, the terms "Agreement" and "Subscription Agreement" shall
have the meanings indicated above, and the following terms shall have the
following meanings:
"Insolvency Proceeding" means, with respect to any Person, any voluntary
or involuntary liquidation, dissolution, sale of all or substantially all
assets, marshalling of assets or liabilities, receivership, conservatorship,
assignment for the benefit of creditors, insolvency, bankruptcy,
reorganization, arrangement or composition of such person or entity (whether
or not pursuant to bankruptcy, insolvency or other similar laws) and any other
proceeding under laws for the protection of debtors involving such person or
entity or any of its assets.
"Lenders" means the persons purchasing Notes under the Subscription
Agreement.
"Obligations" means, with respect to any creditor, all debts, liabilities
and obligations (of any character whatsoever) of Borrower (whether as
principal, surety, endorser, guarantor, accommodation party or otherwise)
owed to such creditor now existing or hereafter incurred or arising,
whether principal, interest, fees or expenses, direct, contingent, primary,
secondary, joint and several, joint or several, or otherwise, and irrespective
of the manner in which, or the person or persons in whose favor, such debts,
liabilities, or other obligations may at their inception have been, or may
hereafter be, created, or the manner in which such creditor may have acquired
rights with respect thereto.
"Senior Creditors" means each Lender.
"Senior Obligations" means all Obligations of Borrower owed to any Senior
Creditor, including all Obligations arising under the Subscription Agreement
and the Notes.
"Subordinated Obligations" means all Obligations of Borrower to any
Related Person, including all Obligations arising out of any cash management
activities.
"Super Majority Lenders" means Lenders holding at least 66 2/3% of the
principal amount of the Notes then outstanding.
"Termination Date" means the 91st day following the earliest date after
the date hereof on which all Senior Obligations have been paid in cash and
satisfied in full; provided, however, that this Agreement shall continue to
be effective or be reinstated, as though such payment had not been made, if
at any time any payment of any of the Senior Obligations is rescinded or
must otherwise be returned by any Senior Creditor in connection with an
Insolvency Proceeding involving Borrower.
Unless the context otherwise requires or unless otherwise provided herein,
references in this Agreement to a particular agreement, instrument or
document (including references to promissory notes, loan agreements,
guaranties and security documents) also refer to and include all renewals,
extensions, amendments, modifications, supplements or restatements of any
such agreement, instrument or document, provided that nothing contained in
this Section shall be construed to authorize any party hereto to execute or
enter into any such renewal, extension, amendment, modification, supplement
or restatement.
Section 2. Subordination of Obligations. Each Related Person expressly and
in all respects subordinates and makes junior and inferior (i) the
Subordinated Obligations owed to it and the payment and enforcement of
such Subordinated Obligations owed to it, to (ii) the Senior Obligations
and the payment and enforcement of the Senior Obligations (including post
petition interest whether or not such interest is an allowed claim enforceable
in any Insolvency Proceeding under applicable law). Prior to the Termination
Date, no Related Person to whom Subordinated Obligations are owed shall
accept, receive or collect (by set-off or other manner) any payment or
distribution on account of, or ask for, demand or accelerate, directly or
indirectly, any Subordinated Obligation, and Borrower shall not make any such
payment.
Section 3. Assets Wrongly Received. If any Related Person receives any
payment or distribution of any kind (whether in cash, securities or other
property) in contravention of this Agreement, it shall hold such payment or
distribution in trust for Senior Creditors, shall segregate the same from
other cash or assets it holds and shall immediately deliver the same to the
Senior Creditors in the form received by such Related Person (together with
any necessary endorsement) to be applied (in the case of cash) to, or held
as collateral (in the case of non-cash property or securities) for, the
payment or prepayment of the Senior Obligations.
Section 4. Specific Performance. Super Majority Lenders may demand
specific performance of this Agreement at any time when Borrower or any
Related Person shall have failed to comply with any of the provisions of
this Agreement applicable to it. Each Related Person and Borrower hereby
irrevocably waives any defense based upon the adequacy of a remedy at law
which might beasserted as a bar to such remedy of specific performance and
waives any requirement of the posting of any bond which might otherwise be
required before such remedy of specific performance
is granted.
Section 5. No Acceleration or Institution of Collection Proceedings.
Prior to the Termination Date, no Related Person shall accelerate or collect
or attempt to collect any part of the Subordinated Obligations, whether
through the commencement or joinder of an action or proceeding (judicial or
otherwise) or an Insolvency Proceeding, the enforcement of any rights against
any property of Borrower, including any such enforcement by foreclosure,
repossession or sequestration proceedings, or otherwise, except as permitted
under subsections (a) and (b) of Section 2 hereof.
Section 6. Insolvency Proceedings, etc.
(a) Upon any distribution of all or any of the assets of Borrower, the
dissolution, winding up, liquidation or reorganization of Borrower (whether
in any bankruptcy, insolvency, arrangement, reorganization or receivership
proceedings), or upon an assignment for the benefit of creditors or any other
marshalling of the assets and liabilities of Borrower, any payment or
distribution ofany kind (whether in cash, securities or other property) which
otherwise would be payable or deliverable upon or with respect to the
Subordinated Obligations shall be paid and delivered directly to Lenders for
application (in the case of cash) to or as Collateral (in the case of non-
cash property or securities) for the payment or prepayment (on a pro rata
basis) of the Senior Obligations until the Senior Obligations (including post
petition interest whether or not such interest is an allowed claim enforceable
against Borrower in an Insolvency Proceeding under applicable law) shall have
been paid in full.
(b) Each Related Person hereby agrees that upon the occurrence of an
Insolvency Proceeding it shall duly and promptly execute, deliver and file
such instruments, as may be reasonably requested from time to time by Super
Majority Lenders, to file appropriate proofs of claim in respect of the
Subordinated Obligations in any such Insolvency Proceeding and to instruct any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making any payment or distribution in any such Insolvency Proceeding to make
such payments which otherwise may be payable or deliverable in respect of
the Subordinated Obligations to the extent provided for herein.
(c) Each Related Person further agrees that Senior Creditors may file
appropriate proofs of claim in respect of the Subordinated Obligations in any
proceedings relating to an Insolvency Proceeding and may take such actions as
may be necessary to prevent the waiver or release of a claim in respect of
the Subordinated Obligations in any proceedings relating to an Insolvency
Proceeding if such a waiver or release is not consented to by Senior
Creditors.
Section 7. Assignment of Subordinated Obligations. Prior to the
Termination Date, no Related Person shall transfer, assign, pledge, encumber
or otherwise dispose of any right, claim or interest in all or any part of
the Subordinated Obligations to any person other than another Related Person
or Lenders.
Section 8. Obligations Hereunder Not Affected. No action or inaction
of any Senior Creditor or any other person, and no change of law or
circumstances, shall release or diminish the obligations, liabilities,
agreements or duties hereunder of any Related Person, affect this Agreement
in any way, or afford any person any recourse against any Senior Creditor.
Without limiting the generality of the foregoing, none of the obligations,
liabilities, agreements and duties of the Related Persons under this
Agreement shall be released, diminished, impaired, reduced or affected by
the occurrence of any of the following at any time or from time to time,
even if occurring without notice to or without the consent of any or all
Related Persons (any right of any of the Related Persons to be so notified
or to require such consent being hereby waived):
(a) the release (by operation of law or otherwise) of Borrower or any Related
Person from its duty to pay any of the Senior Obligations;
(b) any invalidity, deficiency, illegality or unenforceability of any
of the Senior Obligations or the documents and instruments evidencing,
governing or securing the Senior Obligations, in whole or in part, any
bar by any statute of limitations or other law to recovery on any of the
Senior Obligations, or any defense or excuse for failure to perform
on account of force majeure, act of God, casualty, impracticability
or other defense or excuse with respect to the Senior
Obligations whatsoever;
(c) the taking or accepting by any Senior Creditor of any additional security
for or subordination to any or all of the Senior Obligations;
(d) any release, discharge, surrender, exchange, subordination, non-perfection
impairment, modification or stay of actions or lien enforcement proceedings
against, or loss of any security at any time existing with respect to,
the Senior Obligations;
(e) the modification or amendment of, or waiver of compliance with, any terms
of the documents and instruments evidencing, governing or securing
the Senior Obligations;
(f) the insolvency, bankruptcy or disability of Borrower or any Related
Person or the filing or commencement of any Insolvency Proceeding
involving Borrower or any Related Person or other proceeding with
respect thereto;
(g) any increase or decrease in the amount of the Senior Obligations or in the
time, manner or terms in accordance with which the Senior Obligations
are to be paid, or any adjustment, indulgence, forbearance, waiver or
compromise that might be granted or given with respect to the Senior
Obligations;
(h) any neglect, delay, omission, failure or refusal of any
Senior Creditor to take or prosecute any action for the collection
of the Senior Obligations or to foreclose or take or prosecute any
action in connection with any instrument or agreement evidencing or
securing all or part of the Senior Obligations;
(i) any release of the proceeds of collateral which may come into the
possession of any Senior Creditor or its Affiliates;
(j) any judgment, order or decree by any court or governmental agency or
authority that a payment or distribution by Borrower or any Related
Person to any Senior Creditor upon the Senior Obligations is a
preference under applicable bankruptcy or similar laws for the
protection of creditors or is for any other reason required to be
refunded by such Senior Creditor or paid by such Senior Creditor to
any other Person;
(k) the release or discharge for any reason of any other party hereto from
any of its obligations under this Agreement;
(l) any modification of, or waiver of compliance with, any terms of this
Agreement with respect to any party hereto; or
(m) any neglect, delay, omission, failure or refusal of any Senior Creditor
to take or prosecute any action against any party in connection with
this Agreement.
Section 9. Waiver. Borrower and each Related Person hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Senior Obligations and this Agreement, and any requirement
that Senior Creditors exhaust any other right or take any action against
Borrower, any Related Person or any other Person or entity, or any collateral.
Section 10. No Subrogation. No payment or distribution to any Senior
Creditor pursuant to the provisions of this Agreement shall entitle any Related
Person to exercise any rights of subrogation in respect thereof. No Related
Person shall have any right of subrogation to any Senior Creditor, or any
right to receive contribution or reimbursement from any other Related Person,
on account of this Agreement or any Note.
Section 11. Representations and Warranties of Related Persons.
Borrower and each Related Person hereby represents and warrants to each Senior
Creditor that:
(a) The recitals at the beginning of this Agreement are true and correct
in all respects.
(b) Borrower and each Related Person is duly organized, validly existing
and in good standing under the laws of the state of its organization or
formation; and Borrower and each Related Person has all requisite power and
authority to execute, deliver and perform this Agreement.
(c) The execution, delivery and performance by Borrower and the Related
Persons of this Agreement do not and will not contravene any law or governmental
regulation or any contractual restriction binding on or affecting Borrower or
any Related Person or any of its properties, and do not and will not result in
or require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties.
(d) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or other regulatory body or third
party is required for the due execution, delivery and performance by Borrower
or any Related Person of this Agreement.
(e) This Agreement is a legal, valid and binding obligation of Borrower
and each Related Person, enforceable against Borrower and each Related Persons
in accordance with its terms except as limited by bankruptcy, insolvency or
other laws of general application relating to the enforcement of creditors'
rights.
(f) There is no action, suit or proceeding pending or, to the knowledge
of Borrower or Related Persons, threatened against or otherwise affecting
Borrower or any Related Person before any court, arbitrator or governmental
department, commission, board, bureau, agency or instrumentality which may
materially and adversely affect Borrower or any Related Person's financial
condition or its ability to perform its obligations hereunder.
Section 12. No Oral Change. No amendment of any provision of this
Agreement shall be effective unless it is in writing and signed by Borrower,
Related Persons and Super Majority Lenders and no waiver of any provision of
this Agreement, and no consent to any departure by Borrower or Related
Persons therefrom, shall be effective unless it is in writing and signed by
Super Majority Lenders, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
Section 13. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED A
CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF
LOUISIANA AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SUCH STATE AND THE LAWS OF THE UNITED STATES OF
AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Section 14. Invalidity of Particular Provisions. If any term or provision of
this Agreement shall be determined to be illegal or unenforceable, all other
terms and provisions hereof shall nevertheless remain effective and shall be
enforced to the fullest extent permitted by applicable law.
Section 15. Headings and References. The headings used herein are
for purposes of convenience only and shall not be used in construing the
provisions hereof. The words "this Agreement," "this instrument," "herein,"
"hereof," "hereby" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited. The
word "or" is not exclusive, and the word "including" (in its various forms)
means "including without limitation". Pronouns in masculine, feminine and
neuter genders shall be construed to include any other gender, and words in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
Section 16. Additional Documentation. Borrower and each Related
Person agrees to execute any further instruments and to take all other action
which may become necessary or appropriate to carry out fully the purposes of
this Agreement.
Section 17. Notices. All notices, requests, consents, demands and
other communications to Borrower, any Related Person or to any Senior Creditor
which are required or permitted under this Agreement shall be in writing, unless
otherwise specifically provided herein, and shall be deemed sufficiently given
or furnished if delivered by personal delivery, by telecopy, by delivery service
with proof of delivery, or by registered or certified United States mail,
postage prepaid, to Borrower or any such Related Person at the address listed
below and to each Senior Creditor at its address specified under the
Subscription Agreement (unless changed by similar notice in writing given by the
particular Person whose address is to be changed). Any such notice or
communication shall be deemed to have been given (a) in the case of personal
delivery or delivery service, as of the date of first attempted delivery at
the address and in the manner provided herein, (b) in the case of telecopy,
upon receipt, or (c) in the case of registered or certified United States
mail, three days after deposit in the mail.
Each Related Person's
Address: 110 Rue Jean Lafitte
Lafayette, Louisiana 70508
Attention: General Counsel
Section 18. Successors and Assigns. Borrower's and each Related
Person's rights or obligations hereunder may not be assigned or delegated,
but this Agreement and such obligations shall pass to and be fully binding upon
the successors of Borrower and each Related Person. This Agreement shall
apply to and inure to the benefit of each Senior Creditor and its successors or
permitted assigns. Without limiting the generality of the immediately preceding
sentence, each Senior Creditor may assign or otherwise transfer its rights under
this Agreement as provided in the Subscription Agreement.
Section 19. Counterparts. This Agreement may be separately executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
Section 20. Notes Control. If any provision of this Agreement shall
contradict or otherwise be inconsistent or conflict with any provision of the
Notes, the provision of the Notes to the extent of such contradiction,
inconsistency or conflict, shall control.
IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written.
BORROWER AND RELATED PERSONS:
XCL LTD.
By:_________________________
Name:_______________________
Title:______________________
XCL-TEXAS, INC.
By:_________________________
Name:_______________________
Title:_______________________
XCL-LAND, LTD.
By:____________________________
Name:_________________________
Title:________________________
THE EXPLORATION COMPANY OF
LOUISIANA, INC.
By:____________________________
Name:_________________________
Title:_________________________
XCL-ACQUISITIONS, INC.
By:_____________________________
Name:___________________________
Title:__________________________
XCL-CHINA COAL METHANE, LTD.
By:__________________________
Name:_______________________
Title: ________________________
XCL-CHINA LUBEOIL, LTD.
By:_____________________________
Name:___________________________
Title:__________________________
XCL-CHINA, LTD.
By:_________________________
Name:______________________
Title:
XCL Ltd. and Subsidiaries
Exhibit 11-Computation of Earnings Per Common and Common
Equivalent Share
(Amounts in thousands except, per share amounts)
1996 1995 1994
---- ---- ----
PRIMARY:
Net loss $ (12,074) $ (87,837) $ (36,622)
Dividends on preferred stock (5,356) (4,821) (4,907)
------- ------- --------
Net loss attributable to common stock $ (17,430) $ (92,658) $ 41,529
======= ======= ========
Weighted average number of shares
common stock outstanding 265,573 240,707 198,303
======= ======= =======
$ (.07) $ (.38) $ (.21)
======= ======= ======
FULLY DILUTED:
Fully diluted net loss per common
and common equivalent share (1) (1) (1)
___________
(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); XCL-China Ltd. (incorporated in the British Virgin
Islands); and XCL-China Coal Methane 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. and Subsidiaries on Form S-3 (File Nos. 33-
41458, 33-83122 and 33-68552) and on Form S-8 (File No. 33-62956
and 33-59799) of our report, which includes an explanatory
paragraph regarding the Company's ability to continue as a going
concern, dated April 10, 1997, on our audits of the consolidated
financial statements and financial statement schedule of XCL Ltd.
and Subsidiaries as of December 31, 1996 and 1995, and for each
of the three years ended December 31, 1996, which report is
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
April 14, 1997
H.J. GRUY AND ASSOCIATES, INC.
- ------------------------------------------------------------
1200 Smith Street, Suite 3040, Houston, Texas 77002 o FAX
(713) 739-6112 o (713)739-1000
APRIL 10, 1997
The Board of Directors
XCL, Ltd.
110 Rue Jean Lafitte
Lafayette LA 70508
Gentlemen:
H. J. Gruy and Associates, Inc. hereby consents to the
filing of the Annual Report of Form 10-K of XCL, Ltd. in
accordance with the requirements of the Securities Act of
1933, with the inclusion in such filing of our report dated
March 25, 1997, as an exhibit thereto, and all references to
our name in the form and context in which they appear.
Very truly yours,
/s/ James H. Hartsock
By:James H.Hartsock, PhD.,P.E.
Title:Executive Vice President
<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, 1996, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 113
<SECURITIES> 0
<RECEIVABLES> 124
<ALLOWANCES> 101
<INVENTORY> 0
<CURRENT-ASSETS> 348
<PP&E> 34,305
<DEPRECIATION> 1,491
<TOTAL-ASSETS> 60,864
<CURRENT-LIABILITIES> 47,053
<BONDS> 0
0
669
<COMMON> 2,858
<OTHER-SE> 7,514
<TOTAL-LIABILITY-AND-EQUITY> 60,864
<SALES> 1,136
<TOTAL-REVENUES> 1,136
<CGS> 10,929
<TOTAL-COSTS> 10,929
<OTHER-EXPENSES> (134)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,415
<INCOME-PRETAX> (12,074)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,074)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,074)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
H.J. GRUY AND ASSOCIATES, INC.
- ---------------------------------------------------------------
1200 Smith Street, Suite 3040, Houston, Texas 77002 o
FAX (713) 739-6112 o (713) 739-1100
March 25, 1997
XCL Ltd.
110 Rue Jean Lafitte
Lafayette, Louisiana 70508
Zhao Dong Block
Bohai Bay, China
97-202-102
Gentlemen:
At your request, we have made an estimate of the reserves and
future net revenue as of January 1, 1997, for certain interests
owned by XCL Ltd. (XCL) through a production sharing agreement
with the China National Oil & Gas Exploration and Development
Corporation. These are interests in oil properties located in
the Zhao Dong Block, Bohai Bay, China. The estimated net
reserves, future net cash flow and discounted future net cash
flow are summarized by reserve category as follows:
Estimated Estimated
Net Reserves Future Net Cash Flow
_________________ ___________________________
Oil & Discounted
Condensate at 10%
(Barrels) Nondiscounted Per Year
___________ ____________ ____________
Total Proved Undeveloped 10,579,000 $142,860,000 $79,062,000
XCL is contractually obligated to spend $16.1 million on
exploration drilling within the Zhao Dong Block, but outside the
area of proved reserves. This dollar amount has not been
included in the cash flow calculations, but has been recovered
through the cost oil provision of the agreement. The discounted
future net cash flow is not represented to be the fair market
value of these reserves, and the estimated reserves included in
this report have not been adjusted for risk.
The estimated future net cash flow is that revenue which will be
realized from the sale of the estimated net production after
deduction of royalties, direct operating costs and required
capital expenditures in accordance with the production sharing
agreement. Surface and well equipment salvage values and well
plugging and field abandonment costs have not been considered in
the cash flow projections. Future net cash flow as stated in
this report is before the deduction of federal income tax.
In the economic projections, prices, operating costs and
development costs remain constant for the projected life of each
lease, except that the operating costs have been reduced the last
two years to reflect an anticipated change in operating
practices.
Reserves have been estimated from volumetric calculations and
analogy with the performance of comparable wells. The reserves
included in this study are estimates only and should not be
construed as exact quantities. Future conditions may affect
recovery of estimated reserves and cash flow, and all categories
of reserves may be subject to revision as more data become
available. The proved reserves included in this report conform
to the applicable definitions promulgated by the Securities and
Exchange Commission. Attachment 1, following this letter, sets
forth all reserve definitions incorporated in this study.
Extent and character of ownership, oil and gas prices, production
data, direct operating costs, capital expenditure estimates and
other data provided by XCL have been accepted as represented. No
independent well tests, property inspections or audits of
operating expenses were conducted by our staff in conjunction
with this study. We did not verify or determine the extent,
character, obligations, status or liabilities, if any, arising
from any current or possible future environmental liabilities
that might be applicable.
In order to estimate reserves, costs and future cash flows shown
in this report, we have relied in part on geological, engineering
and economic data furnished by our client. Although we have made
a best efforts attempt to acquire all pertinent data and to
analyze it carefully with methods accepted by the petroleum
industry, there is no guarantee that the volumes of oil or the
cash flow projected will be realized. The reserve and cash flow
projections presented in this report may require revision as
additional data become available.
If investments or business decisions are to be made in reliance
on these estimates by anyone other than our client, such person
with the approval of our client is invited to visit our offices
at his expense so that he can evaluate the assumptions made and
the completeness and extent of the data available on which our
estimates are based.
Any distribution or publication of this report or any part
thereof must include this letter in its entirety.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
/s/ James H. Hartsock
James H. Hartsock, PhD., P.E.
Executive Vice President
JHH:rrw
Attachment
A:\XCL.LTR
ATTACHMENT I
DEFINITIONS OF PROVED OIL AND GAS RESERVES1
Proved Oil and Gas Reserves
Proved oil and gas reserves are the estimated quantities of crude
oil, natural gas, and natural gas liquid which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future
conditions.
Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation
test. The area of a reservoir considered proved includes (A)
that portion delineated by drilling and defined by gas-oil and/or
oil-water contacts, if any, and (B) the immediately adjoining
portions not yet drilled, but which can be reasonably judged as
economically productive on the basis of available geological and
engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.
Reserves which can be produced economically through application
of improved recovery techniques (such as fluid injection) are
included in the "proved" classification when successful testing
by a pilot project, or the operation of an installed program in
the reservoir, provides support for the engineering analysis on
which the project or program was based.
Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is
classified separately as "indicated additional reserves"; (B)
crude oil, natural gas, and natural gas liquids, the recovery of
which is subject to reasonable doubt because of uncertainty as to
geology, reservoir characteristics, or economic factors; (C)
crude oil, natural gas, and natural gas liquids, that may occur
in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids, that may be recovered from oil shales, coal,
gilsonite and other such sources.
Proved Developed Oil and Gas Reserves
Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing wells with existing
equipment and operating methods. Additional oil and gas expected
to be obtained through the application of fluid injection or
other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery should be included as
"proved developed reserves" only after testing by a pilot project
or after the operation of an installed program has confirmed
through production response that increased recovery will be
achieved.
Proved Undeveloped Reserves
Proved undeveloped oil and gas reserves are reserves that are
expected to be recovered from new wells on undrilled acreage, or
from existing wells where a relatively major expenditure is
required for recompletion. Reserves on undrilled acreage shall
be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved
reserves for other undrilled units can be claimed only where it
can be demonstrated with certainty that there is continuity of
production from the existing productive formation. Under no
circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated,
unless such techniques have been proved effective by actual tests
in the area and in the same reservoir.
__________________________
1 Contained in Securities and Exchange Commission Regulation
S-X, Rule 4-10 (a)
H.J. Gruy and Associates, Inc.
ATTACHMENT II
XCL CHINA, LTD.
PROJECTED CASH FLOWS
ZHAO DONG CONCESSION 45 MM BBL CASE (CASE 1: PROVED ONLY - FLAT
PRICING)
1996 1997 1998 1999
---- ---- ---- ----
OIL PRICE ($BBL) 21.06 21.06 21.06 21.06
GROSS OIL VOLUME (MBBLS) - - 234 3,736
CONS IND & COMM TAX (MBBLS) - - 12 187
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) - - 140 2,242
OPERATING EXPENSES (M$) - - 1,315 10,734
OPERATING EXPENSE VOLUME (MBBLS) - - 62 510
INVESTMENT RECOVERY OIL (MBBLS) - - 78 1,732
EXPLORATION COSTS (M$) 80,452 - - -
EXPLORATION RECOVERY (MBBLS) 3,820 - - -
EXPLORATION RECOVERY ADJUSTMENT (180) - - -
EXPLORATION RECOVERY UTILIZED - - 78 1,732
EXPLORATION COST CARRYOVER (MBBLS) 3,640 3,640 3,562 1,830
DEVELOPMENT COSTS (M$) - 1,000 55,357 93,400
DEVELOPMENT RECOVERY (MBBLS) - 47 2,629 4,435
DEVELOPMENT RECOVERY UTILIZED - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - 47 2,676 7,111
TOTAL COST RECOVERY OIL (MBBLS) - - 78 1,732
REMAINDER OIL (MBBLS) - - 82 1,308
X FACTOR - - 0.95 0.887
CHINESE SHARE OIL (MBBLS) - - 4 147
ALLOCABLE REMAINDER OIL (MBBLS) - - 78 1,160
CONTRACTOR ALLOCABLE OIL-49% (MBBLS) - - 38 569
TOTAL CONTRACTOR OIL (MBBLS) - - 147 2,550
PROJECTED CASH FLOWS (CONT'D.)
2000 2001 2002 2003
---- ---- ---- ----
OIL PRICE ($BBL) 21.06 21.06 21.06 21.06
GROSS OIL VOLUME (MBBLS) 8,062 7,804 6,800 5,220
CONS IND & COMM TAX (MBBLS) 403 390 340 261
ROYALTY (MBBLS) 42 32 - -
COST RECOVERY OIL (MBBLS) 4,837 4,682 4,080 3,132
OPERATING EXPENSES (M$) 18,015 19,416 18,020 15,824
OPERATING EXPENSE VOLUME (MBBLS) 855 922 856 751
INVESTMENT RECOVERY OIL (MBBLS) 3,982 3,760 3,224 2,381
EXPLORATION COSTS (M$) - - - -
EXPLORATION RECOVERY (MBBLS) - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - -
EXPLORATION RECOVERY UTILIZED 1,830 - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - -
DEVELOPMENT COSTS (M$) 17,200 - - -
DEVELOPMENT RECOVERY (MBBLS) 817 - - -
DEVELOPMENT RECOVERY UTILIZED 2,152 3,760 2,016 -
DEVELOPMENT COST CARRYOVER (MBBLS) 5,776 2,016 - -
TOTAL COST RECOVERY OIL (MBBLS) 3,982 3,760 2,016 -
REMAINDER OIL (MBBLS) 2,779 2,699 3,589 4,208
X FACTOR 0.830 0.883 0.845 0.868
CHINESE SHARE OIL (MBBLS) 473 452 557 554
ALLOCABLE REMAINDER OIL (MBBLS) 2,306 2,247 3,031 3,653
CONTRACTOR ALLOCABLE OIL-49% (MBBLS)1,130 1,101 1,485 1,790
TOTAL CONTRACTOR OIL (MBBLS) 4,434 3,395 2,892 2,158
PROJECTED CASH FLOWS (CONT'D.)
2004 2005 2006 2007
---- ---- ---- ----
OIL PRICE ($BBL) 21.06 21.06 21.06 21.06
GROSS OIL VOLUME (MBBLS) 3,826 2,733 1,983 1,441
CONS IND & COMM TAX (MBBLS) 191 191 137 99 72
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) 2,296 1,640 1,190 865
OPERATING EXPENSES (M$) 13,886 12,367 11,325 10,153
OPERATING EXPENSE VOLUME (MBBLS) 659 587 538 482
INVESTMENT RECOVERY OIL (MBBLS) 1,636 1,053 652 383
EXPLORATION COSTS (M$) - - - -
EXPLORATION RECOVERY (MBBLS) - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - -
EXPLORATION RECOVERY UTILIZED - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - -
DEVELOPMENT COSTS (M$) - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - -
DEVELOPMENT RECOVERY UTILIZED - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - - - -
TOTAL COST RECOVERY OIL (MBBLS) - - - -
REMAINDER OIL (MBBLS) 2,975 2,009 1,346 887
X FACTOR 0.886 0.911 0.926 0.948
CHINESE SHARE OIL (MBBLS) 340 179 99 46
ALLOCABLE REMAINDER OIL (MBBLS) 2,636 1,830 1,247 840
CONTRACTOR ALLOCABLE OIL-49%(MBBLS)1,292 897 611 412
TOTAL CONTRACTOR OIL (MBBLS) 1,615 1,185 875 648
PROJECTED CASH FLOWS (CONT'D.)
2008 2009 2010 2011
---- ---- ---- ----
OIL PRICE ($BBL) 21.06 21.06 21.06 21.06
GROSS OIL VOLUME (MBBLS) 1,048 764 556 406
CONS IND & COMM TAX (MBBLS) 52 38 28 20
ROYALTY (MBBLS) - - - -
COST RECOVERY OIL (MBBLS) 629 458 334 244
OPERATING EXPENSES (M$) 9,244 8,534 5,468 5,016
OPERATING EXPENSE VOLUME (MBBLS) 439 405 260 238
INVESTMENT RECOVERY OIL (MBBLS) 190 53 74 5
EXPLORATION COSTS (M$) - - - -
EXPLORATION RECOVERY (MBBLS) - - - -
EXPLORATION RECOVERY ADJUSTMENT - - - -
EXPLORATION RECOVERY UTILIZED - - - -
EXPLORATION COST CARRYOVER (MBBLS) - - - -
DEVELOPMENT COSTS (M$) - - - -
DEVELOPMENT RECOVERY (MBBLS) - - - -
DEVELOPMENT RECOVERY UTILIZED - - - -
DEVELOPMENT COST CARRYOVER (MBBLS) - - - -
TOTAL COST RECOVERY OIL (MBBLS) - - - -
REMAINDER OIL (MBBLS) 557 321 269 148
X FACTOR 0.95 0.95 0.95 0.95
CHINESE SHARE OIL (MBBLS) 28 16 13 7
ALLOCABLE REMAINDER OIL (MBBLS) 529 305 255 140
CONTRACTOR ALLOCABLE OIL-49% (MBBLS) 259 149 125 69
TOTAL CONTRACTOR OIL (MBBLS) 474 348 252 185
PROJECTED CASH FLOWS (CONT'D.)
2012 2013 2014 2015 TOTALS
---- ---- ---- ---- -----
OIL PRICE ($BBL) 21.06 21.06 21.06 21.06
GROSS OIL VOLUME (MBBLS) - - - - 44,613
CONS IND & COMM TAX (MBBLS) - - - - 2,231
ROYALTY (MBBLS) - - - - 75
COST RECOVERY OIL (MBBLS) - - - - 26,768
OPERATING EXPENSES (M$) - - - - 159,317
OPERATING EXPENSE VOLUME (MBBLS) - - - - 7,565
INVESTMENT RECOVERY OIL (MBBLS) - - - - 19,203
EXPLORATION COSTS (M$) - - - - 80,452
EXPLORATION RECOVERY (MBBLS) - - - - 3,820
EXPLORATION RECOVERY ADJUSTMENT - - - - (180)
EXPLORATION RECOVERY UTILIZED - - - - 3,640
EXPLORATION COST CARRYOVER (MBBLS) - - - - 9,033
DEVELOPMENT COSTS (M$) - - - - 166,957
DEVELOPMENT RECOVERY (MBBLS) - - - - 7,928
DEVELOPMENT RECOVERY UTILIZED - - - - 7,928
DEVELOPMENT COST CARRYOVER (MBBLS) - - - - 17,626
TOTAL COST RECOVERY OIL (MBBLS) - - - - 11,568
REMAINDER OIL (MBBLS) - - - - 23,175
X FACTOR 0.95 0.95 0.95 0.95 -
CHINESE SHARE OIL (MBBLS) - - - - 2,916
ALLOCABLE REMAINDER OIL (MBBLS) - - - - 20,259
CONTRACTOR ALLOCABLE OIL-49% (MBBLS) - - - - 9,927
TOTAL CONTRACTOR OIL (MBBLS) - - - - 21,158
FOREIGN CONTRACTOR CASH FLOW (M$)
1996 1997 1998 1999
---- ---- ---- ----
COST RECOVERY REVENUES - - 2,286 41,734
ALLOCABLE REVENUES - - 803 11,975
EXPLORATION EXPENSE (80,452) - - -
SUBSEQUENT DEVELOPMENT EXPENSE - (490) (27,125)(45,766)
OPERATING EXPENSE - - (644) (5,260)
------- ---- ------- ------
NET CASH FLOW (80,452) (490) (24,680) 2,683
======= ==== ======= ======
FOREIGN CONTRACTOR CASH FLOW (M$) (CONT'D.)
2000 2001 2002 2003
---- ---- ---- ----
COST RECOVERY REVENUES 69,575 48,320 29,631 7,754
ALLOCABLE REVENUES 23,801 23,190 31,282 37,701
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE (8,428) - - -
OPERATING EXPENSE (8,827)(9,514) (8,830) (7,754)
------ ------ ------ -----
NET CASH FLOW 76,121 61,995 52,082 37,701
====== ====== ====== ======
FOREIGN CONTRACTOR CASH FLOW (M$)(CONT'D.)
2004 2005 2006 2007
---- ---- ---- ----
COST RECOVERY REVENUES 6,804 6,060 5,549 4,975
ALLOCABLE REVENUES 27,199 18,887 12,870 8,673
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - -
OPERATING EXPENSE (6,804)(6,060) (5,549) (4,975)
------ ------ ------ -----
NET CASH FLOW 27,199 18,887 12,870 8,673
====== ====== ====== =====
FOREIGN CONTRACTOR CASH FLOW (M$)(CONT'D.)
2008 2009 2010 2011
---- ---- ---- ----
COST RECOVERY REVENUES 4,530 4,182 2,679 2,458
ALLOCABLE REVENUES 5,457 3,143 2,633 1,446
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - -
OPERATING EXPENSE (4,530)(4,182) (2,679) (2,458)
----- ----- ----- -----
NET CASH FLOW 5,457 3,143 2,633 1,446
===== ===== ===== =====
FOREIGN CONTRACTOR CASH FLOW (M$)(CONT'D.)
2012 2013 2014 2015 TOTALS
---- ---- ---- ---- ------
COST RECOVERY REVENUES - - - - 236,535
ALLOCABLE REVENUES - - - - 209,060
EXPLORATION EXPENSE - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - (81,809)
OPERATING EXPENSE - - - - (78,065)
---- --- ---- ---- -------
NET CASH FLOW - - - - 285,721
==== === ===== ===== =======
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST)
1996 1997 1998 1999
---- ---- ---- ----
TOTAL OIL REVENUES - - 1,545 26,854
EXPLORATION EXPENSE (40,226) - - -
SUBSEQUENT DEVELOPMENT EXPENSE - (245) (13,562)(22,883)
OPERATING EXPENSE - - (322) (2,630)
------ ---- ------ ------
NET CASH FLOW (40,226) (245) (12,340) 1,341
====== === ====== =====
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST)(CONT'D.)
2000 2001 2002 2003
---- ---- ---- ----
TOTAL OIL REVENUES 46,688 35,755 30,456 22,727
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE (4,214) - - -
OPERATING EXPENSE (4,414)(4,757) (4,415) (3,877)
------ ------ ------ ------
NET CASH FLOW 38,061 30,998 26,041 18,850
====== ====== ====== ======
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST) (CONT'D.)
2004 2005 2006 2007
---- ---- ---- ----
TOTAL OIL REVENUES 17,002 12,474 9,209 6,824
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - -
OPERATING EXPENSE (3,402)(3,030) (2,775) (2,487)
------ ----- ----- -----
NET CASH FLOW 13,600 9,444 6,435 4,337
====== ===== ===== =====
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST) (CONT'D.)
2008 2009 2010 2011
---- ---- ---- ----
TOTAL OIL REVENUES 4,993 3,662 2,656 1,952
EXPLORATION EXPENSE - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - -
OPERATING EXPENSE (2,265)(2,091) (1,340) (1,229)
----- ----- ----- -----
NET CASH FLOW 2,729 1,571 1,316 723
===== ===== ===== =====
CASH FLOW TO EACH PARTNER (M$) (50% INTEREST) (CONT'D.)
2012 2013 2014 2015 TOTALS
---- ---- ---- ---- ------
TOTAL OIL REVENUES - - - - 222,797
EXPLORATION EXPENSE - - - - -
SUBSEQUENT DEVELOPMENT EXPENSE - - - - (40,904)
OPERATING EXPENSE - - - - (39,033)
---- ---- ---- ---- --------
NET CASH FLOW - - - - 142,860
==== ==== ===== ===== =======
INTERNAL RATE OF RETURN 121%
NET PRESENT VALUES @ 10% AS OF 1-1-1997 79,062
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.
