_________________________________________________________________
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, 1998 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, 2nd Floor
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 common stock held by non-
affiliates of the registrant on March 31, 1999, was approximately
$32.7 million.
23,377,941 shares of the registrant's Common Stock, $.01
par value, were outstanding on April 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
None
_________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. and Item 2. Business and Properties 3
General 3
The Zhao Dong Block 4
United/XCL Lube Oil Joint Venture 12
Coalbed Methane Project 12
The Zhang Dong Block 12
Domestic Properties 16
Oil Reserves 16
Production, Sales and Cost Data 17
Oil Acreage 18
Drilling Activity 18
Producing Well Data 18
Title to Properties 18
Markets 19
Competition 19
Certain Risk Factors Relating to the Company and the
Oil and Gas Industry 19
Employees 26
Item 3. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of
Security Holders 27
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 28
Item 6. Selected Financial Data 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 32
Item 7a Quantitative and Qualitative Disclosures About
Market Risk 38
Item 8. Financial Statements and Supplemental Data 38
XCL Ltd. and Subsidiaries 39
XCL-China Ltd. 69
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 82
PART III
Item 10. Directors and Executive Officers of the
Registrant 83
Item 11. Executive Compensation 89
Item 12. Security Ownership of Certain Beneficial Owners
and Management 100
Item 13. Certain Relationships and Related Transactions 102
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 103
Other Matters 116
Signatures 117
Glossary of Terms 118
<PAGE>
<PAGE>
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
in The People's Republic of China ("China"). Its exploration and
development efforts are, at this time, focused primarily on the
Zhao Dong and Zhang Dong Blocks in the shallow-water sea area of
Bohai Bay in China. XCL's activities on the Zhao Dong Block have
been undertaken pursuant to an exploration and production joint
venture with China National Oil and Gas Exploration and
Development Corporation ("CNODC"), a subsidiary of China National
Petroleum Corporation ("CNPC"), one of the national oil companies
of China. The Zhao Dong Block Production Sharing Contract became
effective May 1, 1993. 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.
Based on the initial success of its first project in China,
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 has extensive undeveloped energy
resources, is experiencing and will continue for the foreseeable
future to experience high growth in demand for energy and 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 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 in southeast Asian markets. See
"United/XCL Lube Oil Joint Venture" on page 12. The Company's
required capital contribution to the joint venture has been made
and the Company is not obligated to expend further amounts.
However, the Company believes, based on CNPC's plans for and
strong support of the lubrication oil joint venture, that the
joint venture business will grow and that the Company will make
additional investments in the joint venture.
On December 14, 1995, the Company signed a Memorandum of
Understanding with the China National Administration of Coal
Geology ("CNACG"), pursuant to which the parties began
cooperative exploration and development of coalbed methane in two
areas in China. See "Coalbed Methane Project" below.
In August 1998 the Company, through its wholly owned
subsidiary XCL-Cathay Ltd., signed a production sharing contract
with CNODC for the 12,000-acre Zhang Dong Block that was approved
during September 1998, effective October 1, 1998. See "The Zhang
Dong Block" below for a description in greater detail of the
Company's business and its interest in the Zhang Dong Block.
Before 1993, the Company operated primarily onshore in the
Gulf Coast area of the United States. Since it decided in late
1995 to focus on operations in China, the Company has sold or is
in the process of selling its other assets. XCL Ltd., formerly
The Exploration Company of Louisiana, Inc., was incorporated in
Delaware in 1987. It is the successor to a Louisiana corporation
of the same name, which was incorporated in 1981.
The Zhao Dong Block
- -------------------
Geology
-------
The Zhao Dong Block extends from the shoreline of the Dagang
oil field complex on Bohai Bay to water depths of approximately 5
meters. It encompasses approximately 197 square km (roughly
50,000 gross acres). Geologic and geophysical data demonstrate
that the Zhao Dong Block is a seaward extension of the Dagang oil
field complex, which is one of China's largest.
Tertiary formations constitute a major portion of the Zhao
Dong Block's productive zones, its geology being in many respects
similar to the U.S. Gulf Coast. Bohai Bay sediments are non-
marine and oil prone. Seismic and subsurface data indicate a
thick, structured sedimentary section in the contract area.
Proximity to producing fields and highly productive test results
from the wells that have been drilled suggest excellent source
and reservoir rocks.
Seismic
-------
From 1986 to 1988 shallow water and transition zone seismic
crews acquired seismic data in and around the Zhao Dong Block.
While the original processing of the data was fair in reflection
continuity, the Company's initial evaluation involved
reprocessing 721 km of 2D data, resulting in dramatic improvement
for both structural and stratigraphic interpretation. This
reprocessing, plus the acquisition of 390 km of new seismic data
(outlined below), make available a current total of 1,111 km of
2D seismic data in and around the Zhao Dong Block.
From 1993 through 1995 the Company acquired an additional
390 km of 2D seismic data shot by Dagang Geophysical, a Chinese
firm, all of which assisted the Company in assessing the Zhao
Dong Block's potential.
A 1997 3-D seismic program was designed to delineate
development well locations in the C-D Field and to better define
exploration prospects on the remainder of the Zhao Dong Block.
The program covered approximately 100 square km and cost
approximately $4.7 million; the Company's share was approximately
$2.3 million. In 1998 additional 3-D seismic data designed to
better define exploration prospects was acquired over most of the
rest of the Zhao Dong Block. This 1998 program covered
approximately 110 square km and cost approximately $5.9 million;
the Company's share was approximately $3.0 million.
Drilling Results
----------------
Mapping of seismic events on shallow, medium, and deep
reflections delineated possibly productive lead areas. Subsequent
exploratory drilling resulted in three successful discoveries
along the Zhao Bei fault system. Appraisal tests have
structurally and stratigraphically delineated a portion of the
aerial extent of both the "C" and the "D" segments of the C-D
Field and the C-4 Field. Hydrocarbons have been found in the
Lower Minghuazhen (Pliocene), the Guantao (Miocene), the Shahejie
(Oligocene), the Cretaceous, the Jurassic and the Permian
formations. A total of 21 sands have been found productive, with
a total thickness of approximately 970 feet. Combined test rates
and indicated test rates (based solely on log and core analyses
on comparable zones) have a cumulative total of approximately
55,000 barrels of oil per day.
The Company's drilling programs, year by year, have been as
follows:
1994 Drilling
-------------
Zhao Dong C-1. The first of three Phase 1 exploratory
wells, C-1 was spudded in April 1994, and drilled to a depth
of 9,843 feet. Oil was tested in two Pliocene sands of the
Lower Minghuazhen Formation, from perforations shot between
4,278 and 4,462 feet, and yielded a combined test rate of
2,160 BOPD with no water. Total net pay for the zones tested
was 97 feet.
Zhao Dong C-2. Spudded and drilled in October 1994, the
C-2 appraisal well was drilled to a depth of 7,134 feet and
confirmed the C-1 discovery. Tested from four intervals,
between 4,267 and 4,481 feet, the combined rate of three of
the zones was 3,640 BOPD with no water. Total net pay for
the zones tested was 47 feet.
1995 Drilling
-------------
Zhao Dong C-2-2. Drilled directionally in April 1995 to
a measured depth of 5,625 feet (5,034 feet true vertical
depth), the C-2-2 appraisal was shaled out for prospective
sands in the Minghuazhen and then plugged back and
sidetracked as C-2-2A.
Zhao Dong C-2-2A. After plugging and abandoning the
bottom section of the C-2-2 well, the C-2-2A sidetrack well
was drilled structurally updip of the original wellbore to a
measured depth of 5,084 feet (4,956 true vertical depth).
Although Minghuazhen prospective sands were present and not
shaled out, the objective sands were water wet. Accordingly,
the well was plugged and abandoned.
Zhao Dong D-1. Designed to test the Ordovician
Carbonate section, the D-1 exploratory well reached a depth
of 8,784 feet in June 1995. Although no hydrocarbon
potential was found in the Ordovician Carbonates, oil was
found in the Lower Minghuazhen, proving this shallower
section to be productive upthrown to the Zhao Bei fault
system. Drill-stem testing, with perforations at 4,185 to
4,205 feet, confirmed hydrocarbons with an initial rate of
1,330 BOPD. The net pay for this zone was 20 feet.
Although the D-1 was designed primarily to test deeper
Paleozoic objectives, from 3,523 to 6,268 feet it yielded
another 15 sands ranging in age from Pliocene Minghuazhen to
Permian with hydrocarbon shows in mud logs and/or sidewall
cores. One Permian sand tested water with a trace of 30
gravity oil; one Minghuazhen sand tested water with 2% oil.
Located on the eastern edge of the C-D structural
complex, the D-1 was not optimally placed to explore the
shallower hydrocarbon-containing sands. But the fact that it
tested 1,330 BOPD from one sand, tested water with smaller
amounts of oil from two other sands, and had shows in
numerous additional sands, suggests proximity to the limits
of a significant oil accumulation. Accordingly, the D-2
well, discussed under 1996 Drilling, below, was designed to
appraise the D-1 discovery at a higher structural position.
See also the discussion, immediately below, of a parallel
relationship between and among the C-3, C-2, and C-1 wells.
Zhao Dong C-3. Although scheduled to be drilled to
5,004 feet, this appraisal well, drilled in July 1995,
reached a total depth of 6,773 feet. Analysis of geological
information during drilling had shown that the C-3 was
structurally higher than both the C-1 and C-2, and so
drilling continued to test the Shahejie Formation. Eight
different sands had drill-stem tests; seven were found to be
productive, as compared to only three and two for the C-2
and C-1, respectively. (The C-1 and C-2 did however have
oil shows in several sands found to be productive in the C-
3.) Cumulative rate potential was 5,830 BOPD and 460 Mcfpd,
including one Shahejie sand that tested oil at 1,356 BOPD
until water production began. (Initial analysis indicates
the water was produced due to pressure drawdown during
testing.) Total net pay for the zones tested was 143 feet.
The C-3 thus demonstrated that Shahejie Formation sands
are oil productive with significant appraisal and
exploration potential, both in the C-D Field and over much
of the as yet undrilled portion of the Zhao Dong Block.
Initial seismic stratigraphic analysis indicates additional
lacustrine fan systems could be present downdip.
1996 Drilling
-------------
Zhao Dong D-2. Spudded in November 1996, the D-2
appraisal well was designed to test the Minghuazhen
(Pliocene) and Guantao (Miocene) sands upthrown to the Zhao
Bei fault system, as well as the Shahejie (Oligocene)
Formation downthrown to a bifurcated fault of the same fault
system. It was drilled to a measured depth of 7,501 feet
(6,180 feet true vertical depth), on an upthrown fault
closure approximately 1.5 km west of and structurally higher
than the D-1 discovery well.
Five intervals (six drill-stem tests) from perforations
at 3,285 to 5,445 feet (3,277 to 4,950 feet true vertical
depth) tested at a combined rate of 11,571 BOPD, confirming
the lateral productivity of several sands previously seen
productive and, in the Guantao Formation, establishing
production in several new sands. This well also demonstrated
much higher initial flow rates without the need for
artificial lift, one zone flowing 4,370 BOPD with 774 Mcfpd
of gas, and a second zone flowing 2,471 BOPD with 168 Mcfpd
of gas.
Sands seen productive in this well appear to be present
over the entire area, adding significantly to the overall
potential of the C-D Field as well as the rest of the Zhao
Dong Block. Total net pay for the zones tested was 243
feet.
1997 Drilling
-------------
Zhao Dong F-1. Planned as an exploratory well to
fulfill Phase I drilling commitments, the F-1 was designed
to test an 1,800+ foot thick section of the Shahejie
Formation on a four-way dip structural closure. This
exploratory well was spudded in October 1996 and
directionally drilled, from a drill pad built at the
shoreline, to a measured depth of 14,501 feet (10,968 true
vertical depth). Severe mechanical problems prevented the
well from being fully evaluated, and two sidetrack attempts
were unsuccessful. Drilling operations under a turnkey
contract have been abandoned. A number of Shahejie sands
were encountered, with some apparent oil shows.
Zhao Dong D-3. The second appraisal well for the D-1
discovery, located approximately 1 km north of the D-1, the
D-3 was spudded in June 1997 and drilled to a depth of 5,740
feet. No drill-stem tests were performed (since the data
collected were sufficient to confirm the productive nature
of the reservoirs and since the rig was needed to drill the
C-4 well), using wireline tools, oil was recovered from
several sands, most of which had tested oil in the D-2 and D-
1 wells, as well as from three new productive sands for the
"D" segment. Total net pay for the productive zone was 89
feet. The D-3 well thus solidified the structural interpre-
tation and confirmed productive areas.
Zhao Dong C-4. An exploratory well designed to test Pre-
Tertiary and Shahejie Formations, the C-4 was spudded in
July 1997, on a separate structure approximately 2 km
northeast of the C-1, and was drilled to a depth of 8,993
feet. Eight zones tested at a combined rate of 15,349 BOPD,
6,107 Mcfpd of gas, and 14 barrels of condensate per day.
Total net pay for the zones tested was 209 feet.
The C-4 proved the presence and productivity of
multiple Oligocene Age Shahejie sands on the Zhao Dong
Block's northern portion. The C-4 also found multiple high-
quality Cretaceous and Jurassic sands, not encountered in
previous drilling, present and productive, indicating that
such sands may be present and prospective elsewhere.
Significantly, the Shahejie, Cretaceous and Jurassic sands
contained higher gravity oil (28 to 38 degree API) and more
gas, indicating higher reservoir energy than previously
encountered. All zones tested exhibited natural flow.
1998 Drilling
-------------
Zhao Dong C-4-2. An appraisal well for the C-4 (the C-
4-2), located approximately 1.3 km south of the C-4, was
spudded in August 1998. The C-4-2 well was drilled to
delineate the size of the reservoir encountered in the C-4
well. The well was drilled to a true vertical depth of
9,184 feet and successfully appraised the C-4 well,
confirming reserves in the Oligocene Shahejie Formation that
were productive in the C-4-2 well. Several additional sands
of Miocene and Pliocene ages (which were fault separated and
wet in the C-4 well) are productive in the C-4-2 well as
determined by formation tests, logs and core analysis. A new
deeper zone not encountered in the C-4 well was drill stem
tested and found productive in Permian age sediments. This
zone flowed up to 2,500 barrels of oil per day. The estimated
total net pay was 122 feet.
Zhao Dong C-5. Also in August 1998, the C-5
exploration well located approximately 3 km southwest of the
D-2 well commenced drilling. The C-5 well was drilled to a
depth of 7,646 feet. No commercial oil and gas was
encountered and the well was plugged and abandoned.
Exploration Potential
---------------------
Reconnaissance 2D seismic surveys on the Zhao Dong Block
have led the Company's independent petroleum engineers to
identify, in addition to the C-D Field and the C-4 discovery,
twenty-six prospective areas with exploratory potential. 3D
seismic data over most of these prospective areas has been shot
and interpreted and the potential reserves are being evaluated.
Future Drilling Plans
---------------------
Two additional wells are required by the Contract to be
drilled prior to the end of the Exploration Period (which expires
April 30, 2000). The Company anticipates that at least one of
these wells will be drilled in 1999. If the exploratory well is
successful, an appraisal well may also be drilled in 1999.
Development Program
-------------------
Zhao Dong Block. The C-D Field was discovered by the
drilling of the C-1 and D-1 wells. The Field has been appraised
by the C-2, C-2-2, C-2-2 sidetrack, C-3, D-2, and D-3 wells.
Apache, XCL and CNODC have prepared an Overall Development Plan
("ODP") for the Field. The ODP initially projected the drilling
of 45 wells, of which 28 were to be producers, 11 were to be
water injection wells for the purpose of reservoir pressure
maintenance to achieve higher levels of recovery of ultimate
reserves and 6 were to be water source wells. The ODP has been
approved by the Joint Management Committee ("JMC"), which
oversees operations on the Zhao Dong Block, and has been approved
by CNPC subject to certain substantial modifications as to which
XCL and Apache are seeking approvals through an existing
agreement between CNODC, Apache and XCL that provided for changes
being made. CNODC has given notice that it will participate as
to its full 51% share in the C-D Field.
Since the approval of the ODP, XCL, Apache and CNODC have
and are continuing to collaborate on engineering studies to
refine the ODP. Based on such refinements, the parties expect to
reduce capital commitments for development by 18.5 percent,
reduce operating costs from $265 million to $180 million, and to
begin production before all development operations have been
completed. The current schedule adopted by the JMC contemplates
that initial production from the C-D Field will commence in late
2000 or early 2001. Commencement of production from other wells
drilled on the Zhao Dong Block on a more accelerated schedule is
being explored by XCL. The revised ODP is phase one of a two-
phase development program designed to develop the C-D Field
reserves.
Apache's and XCL's current phase one estimate of the costs
remaining to be expended to develop the reserves in the C-D Field
that are identified in the ODP by Apache (the "Operator") is
approximately $136 million (of which XCL's share would be
approximately $33.4 million). This estimate will continue to be
revised as the project moves forward. This estimate of remaining
costs is substantially less than amounts projected by the
Operator in the original ODP for several reasons. Cost reductions
are expected based on design changes to the ODP that would
eliminate one drilling platform, one production platform, one
production train and a barge loading facility from the ODP and
reduce the number of wells to be drilled from 45 to 25. While
formal Chinese approval for these changes has not yet been
obtained, all parties believe that such approval can be secured
through the JMC. Further, cost reductions are expected as a
result of preliminary bids that suggest that cost estimates in
the ODP have been too high. In addition, the initial ODP included
estimates of contingencies larger than the industry standard.
Cost reductions from the Operator's projections are also based on
the assumption that the current weakness of certain Asian
currencies could result in reductions in the costs of steel and
fabrication for the project. Finally, the current slowdown in
the oil industry may result in reduced drilling costs.
The revised ODP design anticipates that once production and
loading facilities have been installed in the field, wells will
be placed on production as they are drilled. In this case, cash
flow from this production would be available to fund part of
XCL's capital requirements for the development of the C-D Field.
The Company's financial plans include the use of such cash flow
as part of the Company's source of funds.
Phase two anticipates drilling an additional 12 wells for a
total cost of $26 million (of which XCL's share would be
approximately $6.4 million).
Production tests of the C-4 well, the initial
exploration well in the C-4 area, were announced by XCL on
October 7, 1997. The C-4 well tested at a combined daily rate
from 8 zones of 15,359 barrels of oil per day, and 6,107 Mcf of
gas, plus a ninth zone daily rate of 4,600 Mcf and 14 barrels of
condensate. This well was a new field discovery on the Zhao Dong
Block. In November 1998, CNODC, XCL, and Apache concluded the
drilling of the C-4-2 appraisal well that successfully appraised
the C-4 well in the Oligocene Shahejie Formation, found
additional production in the Miocene and Pliocene age sections
that are productive elsewhere on the Zhao Dong Block and
discovered a new, deeper Permian age zone. XCL is exploring the
possibility of commencing early production from the C-4 area in
1999 (although there is no assurance that this will be possible).
The capital costs attributable to such early production are not
included in the cost estimates described above. It is now
anticipated that permanent production from the C-4 area will
utilize the production facilities constructed in the C-D Field.
This will substantially reduce capital and operating costs
required for development and production of the C-4 area.
The Contract
------------
The Company acquired the rights to the exploration,
development and production of the Zhao Dong Block by executing a
Production Sharing Agreement with CNODC, a Chinese state
enterprise, effective May 1, 1993 (the "Contract"). The Contract
includes the following terms:
The Foreign Contractor (the Company and Apache as a group,
working through a participation agreement) must pay for all
exploration costs. If a commercial discovery is made and if
CNODC exercises its option to participate, development and
operating costs and allocable remainder oil and gas production
are shared up to 51% by CNODC and the remainder by the Foreign
Contractor.
The work under the Contract is divided into three
categories, Exploration, Development and Production.
Exploration, Development and Production operations can occur
concurrently on different areas of the Zhao Dong Block. The
Contract is not to continue beyond 30 consecutive years. All
exploration work must be completed during the Exploration Period
(which expires April 30, 2000). The Production Period for each
oil field covered by the Contract is 15 years, starting with the
date of first production for that field.
Exploration Period
------------------
Work performed and expenses incurred during this period,
consisting of three phases totaling seven contract years and
beginning as of May 1, 1993, are the exclusive responsibility of
the Foreign Contractor. The Contract mandates certain minimum
requirements for drilling, seismic and expenditures during each
phase of the Exploration Period. The Foreign Contractor has
elected to enter the third exploration phase (expiring April 30,
2000). The minimum work requirements for seismic and the minimum
expenditures for the balance of the Contract have been met. This
leaves only the drilling requirements left to be satisfied. The
Foreign Contractor is required to drill two exploratory wells
prior to the expiration of the Exploration Period. This will
complete its requirements in the Exploration Period. At least one
of these wells is expected to be drilled in 1999.
Development Period
------------------
The Development Period for any field discovered during the
Exploration Period commences on the date the requisite Chinese
governmental authority approves the development plan for an oil
and/or gas field. The C-D Field is now in the Development
Period.
Production Period
-----------------
The Production Period for any oil and/or gas field covered
by the Contract (the "Contract Area") will be 15 consecutive
years (each of 12 months), commencing for each such field on the
date of commencement of commercial production (as determined
under the terms of the Contract). However, prior to the
Production Period, and during the Development Period, oil and/or
gas may be produced and sold during a long-term testing period.
Relinquishment
--------------
The Company expects that no relinquishment will be required
until Exploration Phase 3 has been concluded. After April 30,
2000, the portions of the Contract area, other than areas in
which development and/or production activities have been
undertaken, must be relinquished.
Termination of the Contract
---------------------------
The Contract may be terminated by the Foreign Contractor at
the end of each phase of the Exploration Period, without further
obligation.
Post-Production Operating and Exploration Costs
------------------------------------------------
After commercial production has begun, the operating costs
incurred in any given calendar year for an oil field shall be
recovered in kind from 60% of that year's oil production. After
recovery of operating costs, the 60% is applied to exploration
costs. Unrecovered operating costs shall be carried forward.
After recovery of operating and exploration costs for any
field, development costs plus deemed interest at 9% shall be
recovered by the Foreign Contractor and CNODC from 60% of the
remaining oil production.
Costs associated with natural gas shall be recovered from
production according to the same general principles, but in order
to ensure reasonable benefit for the Foreign Contractor the
allocation percentages shall be adjusted in the light of actual
economic conditions.
Annual gross production ("AGP") of each oil and gas field
shall be allocated in kind in the following sequences and
percentages:
(1) 5 percent of AGP shall be allocated to pay Chinese
taxes.
(2) The Chinese government shall receive a sliding
scale royalty, determined on a field by field basis, calculated
as follows (as amended by the Ministry and State Taxation Bureau,
effective January 1, 1995):
METRIC TONS OF ANNUAL
CRUDE OIL PRODUCTION ROYALTY RATE
(One metric ton is roughly equivalent to
seven barrels of crude oil)
Up to and including 1,000,000 ..................Zero
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%
(3) 60% of AGP shall be deemed "cost recovery oil" and
used for cost recovery, first of operating costs, and second for
exploration and development costs (including deemed interest).
Any royalty due the Chinese government shall not reduce cost
recovery oil.
(4) After recovery of operating, exploration, and
development costs (including deemed interest), the remainder of
AGP shall be considered "remainder oil," which shall then be
further divided into "allocable remainder oil" and "Chinese share
oil." Allocable remainder oil shall be calculated for each field,
based upon a sliding scale formula applied to each such field's
annual production, and shall be shared by the parties in
proportion to their respective interests under the Contract. All
oil remaining after the above allocations shall be designated
Chinese share oil and allocated to CNODC or other Chinese
government designee.
Administration of the Contract; Arbitration
-------------------------------------------
The Contract is administered by the JMC, consisting of an
equal number of representatives designated by CNODC and by the
Foreign Contractor. Disputes must be resolved, first through
negotiation, and then arbitration (though CNODC may have the
right to seek resolution in Chinese courts). CNODC has not waived
sovereign immunity in any proceedings commenced in China.
If accepted by the parties, arbitration will be conducted by
the China International Economic and Trade Commission under its
provisional rules. If that is not accepted by the parties,
disputes may be arbitrated by a panel of three arbitrators, each
party to appoint one and the third appointed by the two thus
chosen or, failing such appointment, by the Arbitration Institute
of the Stockholm (Sweden) Chamber of Commerce. Arbitration shall
be conducted under the rules of the UN Commission on
International Trade Law of 1976 (subject however to such rules as
expressly provided in the Contract). Awards shall be final and
binding on the parties. Chinese law governs the Contract.
Apache Farmout
--------------
In March 1994, by means of a participation agreement
("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 the interest Apache agreed to
make certain cash payments and to assume its pro rata share of
expenditures and liabilities with respect to exploration and
development. As required by the Participation Agreement, in June
1994, Apache and the Company entered into a Joint Operating
Agreement (the "Operating Agreement"). 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 the Second Participation
Agreement Apache increased its interest in the Contract to 50% of
the Foreign Contractor's interest and assumed operatorship,
obligating itself to pay 100% of the costs of drilling and
testing four exploratory wells (the "Carried Wells") on the Zhao
Dong Block. The drilling and testing of the C-3, D-1, D-2 and F-
1 wells satisfied the obligations regarding the four Carried
Wells. All of these wells have been drilled and tested with the
exception of the F-1 well, drilling operations on which have been
abandoned. The Company does not believe that such operations on
the F-1 well to date satisfy Apache's obligations to deliver a
fourth Carried Well. 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 the
Zhao Dong Block. In addition, pursuant to the Second
Participation Agreement, Apache obligated itself to pay the
Company 16.667% 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." 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 consideration of the above described payments, Apache
assumed operatorship of the Zhao Dong Block and increased its
interest from 33.33% to 50% of the Foreign Contractor's share.
All future exploration expenditures in excess of the Carried
Wells will be borne 50% each by the Company and Apache. Under
the Operating Agreement, approval of a successor operator
requires the vote of not less than 55% of the Foreign
Contractor's interest. If the operator reduces its participating
interest to less than 25%, a committee established under the
Operating Agreement comprised of Apache and XCL (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 has 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 JMC. Each year, the Operating
Committee must submit a proposed work program and budget to the
JMC. Operating Committee approval of this work program and
budget requires the vote of not less than 55% of the Foreign
Contractor's interest. If 55% 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% 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 to pay
sums due under the Operating Agreement more than twice in one
year after receiving written notice of default and failing to
cure such default 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% of the voting shares of the
Apache subsidiary holding Apache's interest in the Zhao Dong
Block or XCL-China, Ltd. ("XCL-China"), the XCL subsidiary
holding XCL's interest in the Zhao Dong Block, by their
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.
The Company has not yet paid certain cash calls to Apache
totaling $6.9 million through April 1999 ($4.1 million at
December 31, 1998), including amounts in dispute, which could
develop into an event that would trigger Apache's option to
purchase the Company's interest in the Contract. The Company and
Apache are in discussions concerning the timing and manner of the
payment of these amounts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Legal Proceedings."
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 in 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% interest, the last
installment of which was paid in late 1997. As its investment
for 51% of the stock, the Chinese contributed an existing
lubricating oil blending plant in Langfang, China, with a Chinese
government appraised value of $2.5 million. Chinese authorities
approved the registration of the joint venture, and the effective
date of the joint venture is January 1, 1998. In a letter of
intent executed contemporaneously with the contract, the parties
agreed to consider the feasibility of contributing to the joint
venture a second existing plant in southwest China, and other
projects, including, constructing oil terminals on the north and
south coasts of China and engaging in upgrading certain existing
refineries within China. To date, the Company has invested
approximately $4.1 million in this project and it has met all of
its minimum capital requirements for this project.
The Langfang plant is located 50-km southeast of Beijing.
The facility is built on a 10-acre site and has been evaluated 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 5,000 metric tons of
lube oil per year. Approximately $1.5 million of the Company's
investment has been 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 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 that
is expected to 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.
China's state-owned oil companies were reorganized at the
end of 1998. CNPC acquired approximately 70 percent of China's
lubrication oil facilities in that reorganization. XCL is
discussing with CNPC the possibility of expanding its existing
lubrication oil joint venture to include portions of CNPC's
expanded lubrication oil business in the joint venture. If this
occurs, XCL plans to include a major international lubrication
oil company in the joint venture.
Coalbed Methane Project
- -----------------------
On March 31, 1995, the Company signed an agreement with the
CNACG, pursuant to which the parties will commence cooperation
for the exploration and development of coalbed methane in two
areas in China. During the study period contemplated by the
agreement, the Company will evaluate the properties, after which
the parties are expected to enter into a comprehensive agreement
as to the specific designated areas, which may provide the basis
for coalbed methane development in other areas of China. On
December 14, 1995, the Company signed a Memorandum 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 CNACG
will extend the term of the agreement. The project is not
currently active, but may be reactivated in the last half of
1999. To date, the Company has invested approximately $0.9
million in this project, which is currently classified as
unevaluated oil and gas properties in the accompanying financial
statements. The Company has met all of its minimum capital
requirements for this project.
The Zhang Dong Block
- ---------------------
On August 20, 1998, XCL (through its subsidiary XCL-Cathay
Ltd.) signed a production-sharing contract (the "Contract") with
CNPC for the 12,000-acre Zhang Dong Block. The Chinese Ministry
of Foreign Trade and Economic Cooperation approved the Contract
on September 15, 1998, with the Contract effective October 1,
1998. The Zhang Dong Block is located north and adjacent to the
Zhao Dong Block in the offshore area of Bohai Bay. The subsidiary
of CNPC that operates onshore fields in this area, Dagang
Oilfield (Group) Co. Ltd. ("Dagang") has drilled and tested nine
wells in the offshore block. All but one of these wells has been
drilled from an artificial island or a causeway extending into
the bay. All nine wells were tested with five having commercial
oil production rates, one having gas production, two with low oil
production rates and one well that produced water. The Contract
includes the following terms:
The Foreign Contractor (the Company) must pay for all
appraisal costs. If a commercial discovery is made and if CNPC
exercises its option to participate, development and operating
costs and allocable remainder oil and gas production are shared
up to 51% by CNPC and the remainder by the Foreign Contractor.
The work under the Contract is divided into three
categories, Appraisal, Development and Production. Appraisal,
Development and Production operations can occur concurrently on
different areas of the Zhang Dong Block. The Contract is not to
continue beyond 30 consecutive years. All appraisal work must be
completed during the Appraisal Period. The Production Period for
each oil field covered by the Contract is 20 years, starting with
the date of first commercial production for that field.
Appraisal Period
-----------------
Work performed and expenses incurred during this period,
consisting of three phases totaling five contract years and
beginning as of October 1, 1998, are the exclusive responsibility
of the Foreign Contractor. The Contract mandates certain minimum
requirements for drilling, seismic and other expenditures during
each phase of the Appraisal Period, as follows:
o During the first phase of the appraisal period (1 year), the
Contractor shall:
(a) reprocess and reinterpret a minimum of
approximately three hundred (300)
kilometers of existing 2-D seismic data
and seventy (70) square kilometers of
existing 3-D seismic data, provided
necessary support data is available.
Contractor will have access to additional
seismic data outside the Contract Area as
needed to make geological and geophysical
evaluations of the Contract Area;
(b) drill one (1) Appraisal Well with
footage of three thousand (3,000) meters;
(c) spend a minimum of one million
($1,000,000) U.S. dollars to upgrade the
artificial island and to recondition the
causeway and causeway drilling pad in
preparation for Petroleum Operations; and
(d) spend a minimum of four million
($4,000,000) U.S. dollars (including the
expenditures described in (c), above) for
such Appraisal Operations.
o During the second phase of the appraisal period (2 years),
the Contractor shall:
(a) drill two (2) Appraisal Wells, one with
footage of three thousand (3,000) meters,
and one with footage of three thousand
five hundred (3,500) meters;
(b) if the decision is made to drill from
the artificial island, the Contractor will
spend a minimum of an additional one
million ($1,000,000) U.S. dollars
upgrading the drilling rig and other
facilities on the artificial island;
(c) if Contractor concludes and the JMC
agrees that it is feasible from an
engineering, geological and economic
viewpoint to reevaluate the nine (9)
existing wellbores on the Contract Area,
Contractor will commit to re-evaluate a
minimum of three (3) of the existing
wells;
(d) spend a minimum of six million
($6,000,000) U.S. dollars as its expected
minimum appraisal expenditures for such
Appraisal Operations; and
(e) formulate an Overall Development
Program if appraisal of any potential Oil
Field and/or Gas Field indicates that such
a field is commercial.
o During the third phase of the appraisal period (2 years),
the Contractor shall:
(a) drill two (2) Appraisal Wells with
footage of three thousand (3,000) meters
each; and
(b) spend a minimum of six million
($6,000,000) U.S. dollars as its expected
minimum appraisal expenditures for such
Appraisal Operations.
Development Period
------------------
The Development Period for any field discovered during the
Appraisal Period commences on the date the requisite Chinese
governmental authority approves the development plan for an oil
and/or gas field.
Production Period
------------------
The Production Period for any oil and/or gas field covered
by the Contract (the "Contract Area") will be 20 consecutive
years (each of 12 months), commencing for each such field on the
date of commencement of commercial production (as determined
under the terms of the Contract). However, prior to the
Production Period, and during the Development Period, oil and/or
gas may be produced and sold during a long-term testing period.
Relinquishment
--------------
In general, no relinquishment is required until the
expiration of the last appraisal and development periods.
Thereafter, the portions of the Contract area, other than areas
in which development and/or production activities have been
undertaken, must be relinquished.
Termination of the Contract
---------------------------
The Foreign Contractor may terminate the Contract at the end
of each phase of the Appraisal Period, without further
obligation.
Post-Production Operating and Appraisal Costs
---------------------------------------------
After commercial production has begun, the operating costs
incurred in any given calendar year for an oil field shall be
recovered in kind from 60% of that year's oil production. After
recovery of operating costs, the 60% is applied to appraisal
costs. Unrecovered operating costs shall be carried forward.
Development costs plus deemed interest at 9% shall be
recovered by the Foreign Contractor and CNPC from 60% of the
remaining oil production, after recovery of operating and
appraisal costs for any field.
Costs associated with natural gas shall be recovered from
production according to the same general principles, but in order
to ensure reasonable benefit for the Foreign Contractor the
allocation percentages shall be adjusted in the light of actual
economic conditions.
Annual gross production ("AGP") of each oil and gas field
shall be allocated in kind in the following sequences and
percentages:
(1) 5 percent of AGP shall be allocated to pay Chinese
taxes.
(2) The Chinese government shall receive a
sliding scale royalty, determined on a field by
field basis, calculated as follows (as amended
by the Ministry and State Taxation Bureau,
effective January 1, 1995):
METRIC TONS OF ANNUAL
CRUDE OIL PRODUCTION ROYALTY RATE
(One metric ton is roughly equivalent to
seven barrels of crude oil)
Up to and including 1,000,000 ..................Zero
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%
(3) 60% of AGP shall be deemed "cost recovery oil" and used for
cost recovery, first for operating costs, and second for
appraisal and development costs (including deemed interest). Any
royalty due the Chinese government shall not reduce cost recovery
oil. In general, appraisal cost recovery will be shared 51% for
CNPC and 49% for the Foreign Contractor until CNPC recoups its
preexisting appraisal investment of $19,312,000 appraisal costs
on the Block. Thereafter, the Foreign Contractor shall be
entitled to 100% of appraisal cost recovery until the Foreign
Contractor has recouped all of its appraisal costs. Development
cost recovery will be based on the proportionate share of
development expenses to be borne by CNPC and Foreign Contractor
in the development of each field. However, in the case of the
first field to be developed, CNPC's proportionate share of
development cost recovery shall be increased by the amount of
CNPC's preexisting development costs expended ($11,681,000 US).
(4) After recovery of operating, appraisal, and
development costs (including deemed interest),
the remainder of AGP shall be considered
"remainder oil," which shall then be further
divided into "allocable remainder oil" and
"Chinese share oil." Allocable remainder oil
shall be calculated for each field, based upon
a sliding scale formula applied to each such
field's annual production, and shall be shared
by the parties in proportion to their
respective interests under the Contract. All
oil remaining after the above allocations shall
be designated Chinese share oil and allocated
to CNPC or other Chinese government designee.
Administration of the Contract; Arbitration
-------------------------------------------
The Contract is administered by the JMC, consisting of an
equal number of representatives designated by CNPC and by the
Foreign Contractor. Disputes must be resolved, first through
negotiation, and then arbitration (though CNPC may have the right
to seek resolution in Chinese courts). CNPC has not waived
sovereign immunity in any proceedings commenced in China.
If accepted by the parties, the China International Economic
and Trade Commission under its provisional rules will conduct
arbitration. If that is not accepted by the parties, disputes may
be arbitrated by a panel of three arbitrators, each party to
appoint one and the third appointed by the two thus chosen or,
failing such appointment, by the Arbitration Institute of the
Stockholm (Sweden) Chamber of Commerce. Arbitration shall be
conducted under the rules of the UN Commission on International
Trade Law of 1976 (subject however to such rules as expressly
provided in the Contract). Awards shall be final and binding on
the parties. Chinese law governs the Contract.
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 (the "Cox Field") in
South Texas and is seeking to sell or joint venture its interest
in that property. The Company holds a 60% to 100% working
interest in 1,265 acres in this field on which there are four
producing wells (3.45 net wells). During 1996, litigation was
instituted against the Company in connection with the Cox Field,
which has effectively impeded the Company's ability to consummate
a sale of such property. Upon resolution of the litigation, the
Company will continue its efforts to divest itself of these
properties.
Lutcher Moore Tract. The Company holds, in partnership with
one of its subsidiaries, a fee interest in a 62,500 acre
undeveloped tract of Louisiana fee property located in Ascension,
St. James and St. John the Baptist Parishes, Louisiana (the
"Lutcher Moore Tract"). Expressions of interest to purchase the
property have been received from several parties. The Company is
also evaluating the possibility of developing the property into a
source of wetland mitigation credits, selling portions of the
land for high value recreational uses and, selling the extensive
timber on the property. In connection with the acquisition of the
Lutcher Moore Tract, the Company's indirect ownership of such
tract is subject to a first mortgage, and a number of sellers'
notes (collectively, the "Lutcher Moore Debt"). The first
mortgage has a current principal balance of approximately $1.0
million, and the sellers' notes have an aggregate current
principal balance of approximately $0.5 million. Recourse by the
holder of the first mortgage and the holders of the sellers'
notes is limited to the Lutcher Moore Tract, with neither the
Company nor its wholly-owned subsidiaries, XCL Land Ltd. and The
Exploration Company of Louisiana, Inc., liable for the debt. The
partners in the partnership that owns the Lutcher Moore Tract
have also granted security interests in their partnership
interest to several lenders of one of the partners. See also,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Oil Reserves
- ------------
Based on the report of H.J. Gruy and Associates, Inc.
("Gruy"), the Company's independent petroleum engineering firm,
net proved reserves in the C-D Field are estimated to be 12.8
million barrels as of January 1, 1999. CNODC has exercised its
option to pay 51% of all development costs and receive 51% of oil
production. At January 1, 1999, the standarized measure of
discounted future net cash flows determined in accordance with
the rules prescribed by FASB No. 69 was $37.9 million. Future
reserve values are based on 1998 year-end prices and operating
costs, production and future development costs based on current
costs with no escalation. These figures were based on an assumed
price of an unescalated $12.52 over the life of the field. See
"Certain Risk Factors Relating to the Company and the Oil and Gas
Industry -- Reliance on Estimates of Proved Reserves and Future
Net Revenue" and "Supplemental Oil Information" in the Notes to
the Consolidated Financial Statements.
Gruy has been preparing reserve estimates for the Company's
oil reserves since August 1996. The Company selected Gruy for
this task based upon its reputation, experience and expertise in
this area. Gruy is an international petroleum-consulting firm
with offices in Houston and Dallas, Texas. Their staff includes
petroleum engineers and geologic consultants. Services they
provide include reserve estimates, fair value appraisals,
geologic studies, expert witness testimony and arbitration. In
1998 the Company paid Gruy approximately $78,600 in fees for
reserve report valuations and other services. No instructions
are given and the Company imposes no limitations on the scope of
or methodology to be used in preparing the reserve estimates.
Production, Sales and Cost Data
- -------------------------------
The following table sets forth certain information regarding
the production volumes, revenues, average prices received and
average production costs associated with the Company's sale of
oil and gas from properties held for sale for the periods
indicated.
Year Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Net Production: (a)
Gas (MMcf) 58 72 467
Oil (MBbl) 1 4 9
Gas equivalent (MMcfe) 61 95 522
Oil and gas sales ($ in 000's): (b)
Gas $ 106 $ 166 $ 955
Oil and other 6 70 181
----- ----- ------
Total oil and gas sales $ 112 $ 236 $ 1,136
===== ===== ======
Average sales price:
Gas ($ per Mcf) 1.82 2.28 1.84
Oil ($ per Bbl) 13.00 18.34 19.80
Gas equivalent ($ per Mcfe) 1.84 2.47 2.18
Oil and gas costs ($ per Mcfe):
Production expenses and taxes 3.48 2.41 0.74
Depreciation, depletion and
amortization of oil and
gas properties 0.86 0.81 0.96
________________
(a) Excludes gas consumed in operations.
(b) Includes plant products recovered from treating and
processing operations.
The following table shows the 1998 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).
1998 Net Production
--------------------------
(MBbls) (MMcf)
------------ -----------
Field Oil % Gas %
- ------------- --- --- --- ---
Cox Field -- -- 58 100
Frenier Field 1 100 -- --
Oil Acreage
- -----------
The oil acreage in which the Company has leasehold or other
contractual interest at December 31, 1998, 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 Contract. "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:
Zhao Dong Block (a) 48,677 22,403
Zhang Dong Block 12,355 12,355
______________
(a) CNODC has elected to participate for its full 51%
reversionary interest in the 5,911 acres in the C-D Field.
Net undeveloped acreage would be 11,926 acres if CNODC
elects to participate for its full 51% reversionary interest
in the entire Zhao Dong Block.
Drilling Activity
- -----------------
The following table sets forth wells drilled by the Company
in China during the periods indicated. The Company did not have
any drilling activity in the U.S. during these periods.
Year Ended December 31,
----------------------------------------------------
1998 1997 1996
-------------- -------------- ----------------
Gross Net Gross Net Gross Net
----- --- ------ ---- ----- ----
Exploratory:
Productive 1 .5 2 1.0 1 .5
Nonproductive 1 .5 1 .5 -- --
--- --- --- --- --- ---
Total 2 1.0 3 1.5 1 .5
=== === === === === ===
Producing Well Data
- --------------------
At December 31, 1998, 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 that 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.
The Company's stock of its major subsidiary, XCL-China, has
been pledged to the holders of the Company's 13.5% Senior Secured
Notes due May 1, 2004 (the "Notes"). Under the Participation
Agreement between the Company and Apache, each of the Company and
Apache has a right of first refusal with respect to: (i) any sale
or transfer of interest in the Foreign Contractor's share of the
Contract; and (ii) any sale of 50% or more of the outstanding
voting capital stock of the other's subsidiary party to the
Contract, and the Participation Agreement. Absent a waiver from
Apache, foreclosure on the shares of XCL-China pledged to secure
the Notes could trigger one of these rights.
Markets
- -------
Substantially all of the Company's 1998 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 Contract, 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. Additionally, the oil to be produced from the C-D Field
area is ideally suited for lubrication oil feed stock. The
Company's lubrication oil joint venture gives the Company certain
rights to market lubrication oil and lubrication oil feed stock
within and outside China. Through the lubrication joint venture
the Company expects to receive a premium for its share of the oil
produced from the C-D Field.
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 the Company's, 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 that the Company has or may acquire an
interest in.
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 that it believes
prudent.
High Degree of Leverage
-----------------------
The Company is currently highly leveraged. Its level of
indebtedness will significantly affect future operations. Much
of its cash flow from operations will be dedicated to interest
payments. Large amounts of money will be required to continue its
operations in China. Covenants in the Indenture (the
"Indenture") governing the Company's 13.50% Senior Secured Notes
due May 1, 2004 (the "Notes") may limit certain financial
transactions of the Company and the Company's ability to dispose
of assets or to borrow additional funds. These covenants may
affect the Company's business flexibility, and could possibly
limit acquisition activity. The Company's interest in the Zhang
Dong Block, which is held by XCL-Cathay Ltd., may not be subject
to all of the foregoing restrictions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity, Capital Resources and Management's
Plans."
The Company's earnings to fixed charges ratio and preferred
stock is insufficient to cover preferred dividend payments and
payments on the Notes. The Company's ability to meet its debt
service obligations and to reduce its indebtedness will depend
upon its future performance. This, in turn, will depend upon
successful completion of the activities called for in the ODP,
the Company's access to additional capital, general economic
conditions, as well as on financial, business, and other factors,
many of which are beyond the Company's control.
Restrictions Imposed by Terms of the Company's Indebtedness
-----------------------------------------------------------
The Indenture restricts, among other things, the Company's
ability to incur additional debt, incur liens, pay dividends, or
make certain other restricted payments. It also limits the
Company's ability to consummate certain asset sales, enter into
certain transactions with affiliates, enter into mergers or
consolidations, or dispose of substantially all the Company's
assets. The Company's ability to comply with such covenants may
be affected by events beyond its control. The breach of any of
these covenants could result in a default. A default could allow
holders of the Notes to declare all amounts outstanding and
accrued interest immediately due and payable. Absent such
payment, the holders could proceed against any collateral granted
to them to secure such indebtedness, which includes all of the
stock of the Company's principal operating subsidiary, XCL-China
Ltd. ("XCL-China"), which has guaranteed such indebtedness with a
full and unconditional guaranty. A foreclosure on the stock of
XCL-China could trigger Apache's right of first refusal under the
Participation Agreement to purchase such stock or its option to
purchase the Company's interest in the Contract. There can be no
assurance that the assets of the Company and XCL-China (a
"Subsidiary Guarantor"), or any other Subsidiary Guarantors (if,
in the future, there are others) would be sufficient to fully
repay the Notes and the Company's other indebtedness.
As of April 15, 1999, the Company does not have the cash
necessary to make the interest payment due May 1,1999 on the
Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity, Capital
Resources and Management's Plans."
Qualified Accountants' Report
-----------------------------
In reporting on the Company's audited consolidated financial
statements and XCL-China's audited financial statements as of and
for the fiscal years ended December 31, 1998, 1997 and 1996, the
report of the Company's independent accountants contained an
explanatory paragraph indicating factors which create substantial
doubt about the Company's and XCL-China's ability to continue
as a going concern. Such factors include the Company's ability
to generate additional cash flows to satisfy its development and
exploratory obligations with respect to its China properties.
Oil and Gas Properties; Capital Expenditures
--------------------------------------------
The Company's total proved reserves, as of December 31,
1998, were all classified as proved and undeveloped. Recovery of
such reserves will require both significant capital expenditures
and successful drilling, completion and production operations.
The Company will also have additional capital expenditures for
exploration activity on the Zhao Dong Block and for activity on
the Zhang Dong Block and its other interests in China.
The Company plans to generate the additional cash needed
through the sale or financing of its domestic assets held for
sale, a financing involving the Lutcher Moore Tract, the Zhao
Dong Block or the Zhang Dong Block, or the completion of
additional equity, debt or joint venture transactions. There is
no assurance, however, that the Company will be able to sell or
finance such assets or to complete other transactions in the
future on commercially reasonable terms, if at all, or that it
will be able to meet its future contractual obligations. The
Indenture limits the Company's ability to obtain additional debt
financing, and there can be no assurance that additional debt or
equity financing, or additional cash from operations, will be
available. If funds are raised on an equity basis, there may be
a dilutive effect to current shareholders.
When production from the oil and gas properties commences,
the Company's proportionate share of the related cash flow will
be available to help satisfy some of its cash requirements.
However, there is no assurance that such development will be
successful and production will commence, and that such cash flow
will be available. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity,
Capital Resources and Management's Plans," "Legal Proceedings,"
and "Domestic Properties -- Lutcher Moore Tract."
Joint Venture Cash Call Obligations
-----------------------------------
The Company's failure to meet certain financial obligations
under the Joint Operating Agreement between the Company and
Apache (in addition to certain other actions) may trigger
Apache's option to purchase the Company's interest in the
Contract. The Company has not yet paid certain cash calls to
Apache, totaling $6.9 million through April 1999 ($4.1 million at
December 31, 1998), including amounts in dispute, which could
develop into an event that would also trigger Apache's option to
purchase the Company's interest in the Contract. The Company and
Apache are in discussions concerning the timing and manner of the
payment of these amounts.
On December 1, 1995, XCL-China submitted to arbitration
certain accounting disputes arising from operations in the Bohai
Bay Shallow Water Sea Area, People's Republic of China and
governed by a Zhao Dong Block Operating Agreement. By the
initial submission, XCL-China disputed certain amounts charged to
it by Apache in the August, September and October 1995 joint
interest billings and the November and December 1995 cash calls.
Thereafter, disputes involving joint interest billings through
1998 were added to the submission. In 1997, XCL-China made some
payments with respect to the disputed amounts although the
arbitration proceeding remains unresolved and inactive inasmuch
as a third arbitrator has not been selected. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "The Zhao Dong Block -- Apache Farmout," and "Legal
Proceedings."
Reliance on Estimates of Proved Reserves and
--------------------------------------------------
Future Net Revenues
--------------------
The reserve data included herein are only estimates and may
not prove to be correct. In addition, estimates of future net
revenue from proved reserves are also estimates that may not
prove to be correct. In particular estimates of crude oil and
natural gas reserves, and future net revenue from proved reserves
described herein are based on fixed crude oil prices as in effect
for December 31, 1998, and the assumption that the Zhao Dong
Block is developed in accordance with the ODP, modified to
accelerate production and reduce costs. These assumptions
include, the Company receiving a premium for the C-D Field oil
because of its potential for use as a lubricating oil base stock,
the Company's 49% ownership in the CNPC lubricating oil joint
venture and the Company's right under the joint venture to market
both lubricating oil and lubrication oil feed stock. These
assumptions may prove to be inaccurate, which could reduce the
Company's projected economic return from the project and may make
obtaining financing for the project more difficult. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity, Capital Resources and
Management's Plans" and "Oil Reserves."
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 liabilities. 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.
Foreign Operations
-------------------
The Company's future operations and earnings will depend
upon the results of the Company's operations in China. If these
operations are not successful, the Company's financial position,
results of operations and cash flows will suffer greatly.
The success of the Company's operations is subject to many
matters beyond management's control, like general and regional
economic conditions, prices for crude oil and natural gas,
competition, and changes in regulation. Also, since the Company
is dependent on international operations, specifically those in
China, it will be subject to various additional political,
economic and other uncertainties. 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.
The United States government has publicly criticized China
from time to time with respect to various matters. The Company
cannot predict whether political developments like these will
adversely affect the Company's Chinese operations. The Company
believes that neither the Chinese nor the U.S. government wants
to impair U.S.-Chinese commercial relations. The Company has
excellent relations with Chinese governmental authorities in
charge of the development of China's energy resources.
Since the middle of 1998 there have been substantial
disruptions in several Asian financial markets and many Asian
currencies have undergone significant devaluation. These events
can be expected to have negative near-, and possibly long-term,
effects on the flow of investment capital into and out of Asian
currency denominated assets. It is impossible to predict the
ultimate outcome of these events and their possible negative
effect on the Company's investments in China.
Currency/Exchange Rate Fluctuations
-----------------------------------
For the foreseeable future the Company's only material
revenues will be from its oil and gas activities in China. These
revenues will be in U.S. dollars. To the extent that at some
future time revenues are paid to the Company in Chinese Renminbi
rather than in U.S. dollars, the Company's earnings, operations
and cash flows would then be subject to currency and exchange
rate fluctuations, and to restrictions imposed by the Chinese
government on the transfer and exchange of funds. If that
occurs the Company will evaluate the currency requirements of
each venture and, if possible, enter into forward exchange
contracts to hedge foreign currency transactions. There can be
no assurance, however, that such forward exchange contracts will
be available at the time of any such occurrence. The Company
does not intend to engage in currency speculation. Renminbi
earnings, if any, must be converted to pay dividends or to make
other payments to the Company in U.S. dollars or other freely
convertible currencies. As of December 1, 1996, as to foreign
investment enterprises, the Renminbi became fully convertible
for current account items, including profit distributions,
interest payments and receipts and expenditures from trade.
Conversion into U.S. dollars is based on the rate set by The
People's Bank of China (which is based on the previous day's PRC
interbank foreign exchange market rate and with reference to
currency exchange rates on the world financial markets). Certain
ministerial approvals are needed to acquire foreign exchange for
a current account transaction. Strict foreign exchange controls
continue for capital account transactions (including repayment
of loan principal and return of direct capital investments and
transactions in investments in negotiable securities). In the
past, there have been shortages of U.S. dollars or other foreign
currency available for conversion of Renminbi, and it is
possible such shortages could recur, or that restrictions on
conversion could be reimposed in the future at times when the
Company is seeking to convert Renminbi. Prior to 1994, the
Renminbi experienced a significant net devaluation against most
major currencies, and during certain periods, significant
volatility in the market-based exchange rate. Since the
beginning of 1994, the Renminbi to U.S. dollar exchange rate has
largely stabilized. However, there can be no assurance that the
Chinese government will not devalue the Renminbi, that such
exchange rate will otherwise remain stable (particularly in
light of the recent currency crisis experienced by a number of
other Asian countries), that the Company will continue to be
able to remit foreign currency abroad or that the Company will
be able to convert sufficient amounts of Renminbi in China's
foreign exchange markets to meet its future needs. Additionally,
there can be no assurance that approvals for exchange
transactions will be available in the future or, if available,
will be granted to the Company. The Chinese government has
issued certain international loan procedures (the "Procedures")
that apply to foreign invested enterprises, including Chinese-
foreign equity and cooperative joint ventures. The Procedures
may require the approval of China's State Administration of
Exchange ("SAFE") for certain international loans to foreign
invested enterprises extended in connection with project finance
transactions, as well as the terms of such transactions. The
Company plans to obtain funds for certain development projects
through project finance transactions. There can be no assurance
that SAFE approval for such transactions, if necessary, can be
obtained at all or on terms advantageous to the Company. The
failure of the Company to obtain SAFE approval for such
transactions, if required, could adversely affect the Company's
ability to fund its operations.
Depletion of Reserves
---------------------
The rate of production from crude oil and natural gas
properties declines as reserves are depleted. Except to the
extent the Company acquires additional properties containing
proved reserves, conducts successful exploration and development
activities or, through engineering studies, identifies additional
behind-pipe zones or secondary recovery reserves, the proved
reserves of the Company will decline as reserves are produced.
Future crude oil and natural gas production is therefore highly
dependent upon the Company's level of success in acquiring or
finding additional reserves.
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.
Government Regulation
---------------------
The Company's business is subject to certain Chinese and
United States federal, state, and local laws and regulations
relating to the exploration for and development, production and
marketing of crude oil and natural gas, as well as environmental
and safety matters. In addition, the Chinese government
regulates various aspects of foreign company operations in China.
Such laws and regulations have generally become more stringent in
recent years in the United States, often imposing greater
liability on a larger number of potentially responsible parties.
It is not unreasonable to expect that the same trend will be
encountered in China. Because the requirements imposed by such
laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance. There is no
assurance that laws and regulations enacted in the future will
not adversely affect the Company's financial condition and
results of operations.
History of Losses
-----------------
The Company has experienced recurring losses. For the years
ended December 31, 1994, 1995, 1996, 1997 and 1998, the Company
recorded net losses of approximately $36.6 million, $87.8
million, $12.1 million, $13.4 million and $13.8 million,
respectively. See "Selected Financial Data." There can be no
assurance that the Company will be profitable in the future. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's Consolidated Financial
Statements and the notes thereto.
Limitations on the Availability of the Company's Net
----------------------------------------------------------
Operating Loss Carryforwards
----------------------------
The Company has incurred net operating loss ("NOL")
carryforwards as at December 31, 1998 of approximately $193
million. Use of the NOLs by the Company is subject to
limitations under Section 382 of the Internal Revenue Code of
1986 relating to ownership changes. The various stock offerings
made by the Company may have triggered those limits. Also
uncertainties as to the future use of the NOLs exist under the
criteria set forth in Financial Accounting Standards Board
("FASB") Statement No. 109, "Accounting for Income Taxes." The
Company established a valuation allowance of $86.6 million and
$83.6 million for deferred tax assets at December 31, 1998 and
1997, respectively.
Dependence on Key Personnel
---------------------------
The Company depends to a large extent on Marsden W. Miller,
Jr., its Chairman of the Board and Chief Executive Officer, for
its management and business and financial contacts in China and
its relationship with Chinese authorities. The Company does not
have an employment contract with Mr. Miller or with any other
officer or employee, other than employment agreements or similar
arrangements with certain operational employees of the Company's
subsidiaries. See "Management." The unavailability of Mr. Miller
would have a material adverse effect on the Company's business.
The Company's success is also dependent upon its ability to
retain skilled technical personnel. While the Company has not to
date experienced difficulties in employing or retaining such
personnel, its failure to do so in the future could adversely
affect its business. The Company does not maintain key man life
insurance on any of its executives or other personnel.
Possible Delisting of Common Stock
----------------------------------
The AMEX has, since November 1996, continued to review the
Company's listing eligibility since the Company has not met
certain financial requirements for continued listing. The Company
intends to try to satisfy the Exchange's concerns. In the event
the Common Stock is delisted from the AMEX, the liquidity of the
Common Stock and the Company's ability to continue funding its
activities through the sale of securities may be significantly
impaired.
Certain Anti-takeover Provisions
--------------------------------
A Change of Control or other Fundamental Change gives
holders of Amended Series A Preferred Stock special conversion
rights for 45 days. These rights are intended to provide those
holders with limited loss protection in certain circumstances.
The rights may also render more costly or otherwise discourage
certain takeovers or other business combinations.
The Company's Amended and Restated Certificate of
Incorporation contains provisions that the Board of Directors
believes may impede or discourage a takeover of the Company
without the support of the incumbent Board.
Year 2000 Compliance
--------------------
The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the
applicable year and equipment with time-sensitive embedded
components. Any of the Company's programs that have time-
sensitive software or equipment that has time-sensitive embedded
components may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system
failure or miscalculations. Although no assurance can be given
because of the potential wide scale manifestations of this
problem which may affect the Company's business, the Company
presently believes that the Year 2000 problem will not pose
significant operational problems for its computer systems.
The goal of the Company's Year 2000 project is to ensure
that all of the critical systems and processes that are under the
Company's direct control remain functional. Certain systems and
processes may be interrelated with or dependent upon systems
outside the Company's control, and systems within the Company's
control may have unpredicted problems. The Company has
established a project team to coordinate the phases of Year 2000
compliance to assure that the Company's key automated systems and
related processes will remain functional through the year 2000.
Those phases consist of (i) assessment; (ii) remediation; (iii)
testing; (iv) implementation of the necessary modifications; and
(v) contingency planning. All phases of the Company's Year 2000
plan will continue to be modified and adjusted throughout the
year, as additional information becomes available.
The Company's assessment phase consists of conducting a
company-wide inventory of its key automated systems and related
processes, analyzing and assigning levels of criticality to those
systems and processes, identifying and prioritizing resource
requirements, developing validation strategies and testing plans,
and evaluating business partner relationships. The portions of
the assessment phase related to internally developed computer
applications, hardware and equipment, and embedded chips are
substantially complete. The Company estimates that it has
completed more than 90 percent of the assessment to determine the
nature and impact of the Year 2000 date change for third-party-
developed software. The assessment phase of the project also
involves efforts to obtain representations and assurances from
third parties, including third party vendors, that their hardware
and equipment products, embedded chip systems, and software
products being used by or impacting the Company are or will be
modified to be Year 2000 compliant. To date, the responses from
such third parties, although generally encouraging, are
inconclusive. As a result, the Company cannot predict the
potential consequences if these or other third parties or their
products are not Year 2000 compliant. The Company is currently
evaluating the exposure associated with such business partner
relationships.
The remediation phase involves converting, modifying,
replacing or eliminating key automated systems identified in the
assessment phase. The Company estimates that it has completed
approximately 90 percent of the remediation phase. The Company
has to date spent approximately $160,000 for upgrades and/or
replacement of certain of its hardware and software to hardware
and software that purports to be Year 2000 compliant. The
Company estimates that an additional expense of $50,000 will be
required to replace and/or modify and install hardware or
software identified to date as non-Year 2000 compliant.
The testing phase involves the validation of the identified
key automated systems. The Company is utilizing test tools and
written test procedures to document and validate, as necessary,
its systems testing. The Company estimates that approximately
75 percent of the testing phase has been completed, and expects
to be substantially completed by mid-1999.
The implementation phase involves placing the converted or
replaced key automated systems into operation. In some cases,
this phase will also involve the implementation of contingency
plans needed to support business functions and processes that may
be interrupted by Year 2000 failures that are outside of the
Company's control. The Company has completed approximately 75
percent of the implementation phase, and expects to be
substantially completed by mid-1999.
The contingency planning phase consists of developing a risk
profile of the Company's critical business processes and then
providing for actions the Company will pursue to keep such
processes operational in the event of Year 2000 disruptions. The
focus of such contingency planning is on prompt response to any
adverse Year 2000 events and a plan for subsequent resumption of
normal operations. The plan is expected to assess the risk of a
significant failure to critical processes performed by the
Company, and to address the mitigation of those risks. The plan
will also consider any significant failures related to the most
reasonably likely worst case scenario, discussed below, as they
may occur. In addition the plan is expected to factor in the
severity and duration of the impact of a significant failure.
The Company plans to have its contingency plan completed by mid-
1999.
The Company's present analysis of its most reasonably likely
worst case scenario for Year 2000 disruptions includes failures
in the telecommunications and electricity industries, and its
partners in its international operations to become Year 2000
compliant.
The Company does not expect the costs of its Year 2000
project to have a material adverse effect on its financial
position, results of operations, or cash flows. Based on
information available at this time the Company cannot conclude
that disruptions caused by internal or external Year 2000 related
failures will not have such an effect. Specific factors that
might affect the success of the Company's Year 2000 efforts and
the occurrence of Year 2000 disruption or expense include the
failure of the Company or its outside consultants to properly
identify deficient systems, the failure of the selected remedial
action to adequately address the deficiencies, the failure of the
Company's outside consultants to complete the remediation in a
timely manner (due to shortages of qualified labor or other
factors), unforeseen expenses related to the remediation of
existing systems or the transition to replacement systems, the
failure of third parties to become Year 2000 compliant or to
adequately notify the Company of potential noncompliance.
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, other than
employment agreements or similar arrangements with certain
operational employees of the Company's subsidiaries. None of the
Company's employees are represented by collective bargaining
agreements. The Company considers its relationship with
employees to be satisfactory.
Item 3. Legal Proceedings.
During December 1993, the Company and two of its wholly-
owned subsidiaries, XCL-Texas, Inc. and XCL Acquisitions, Inc.,
were sued in separate lawsuits entitled Ralph Slaughter,
Secretary of the Department of Revenue and Taxation, State of
Louisiana versus The 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 versus XCL-Texas, Incorporated
(15th Judicial District, Parish of Lafayette, Louisiana, Docket
No. 93-5450); and Ralph Slaughter, Secretary, Department of
Revenue and Taxation vs. XCL Acquisitions, Inc. (15th Judicial
District, Parish of Lafayette, Louisiana, Docket No. 93-5337) for
Louisiana State corporate franchise and income taxes for the 1987
through 1991 fiscal years in an aggregate amount (including
penalties and interest through September 1, 1993) of
approximately $2.2 million. Statutory interest at the rate of
15% per annum on the principal will continue to accrue from
September 1, 1993 until paid. The Company believes that these
assessments have been adequately provided for in the consolidated
financial statements. 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.
In December 1998, the Company and one of its wholly owned
subsidiaries, XCL Acquisitions, Inc., were sued in separate
lawsuits entitled John Neely Kennedy, Secretary, Department of
Revenue, State of Louisiana versus XCL Ltd. (15th Judicial
District Court, Parish of Lafayette, Louisiana, Docket No.
986010, Division A); and John Neely Kennedy, Secretary,
Department of Revenue, State of Louisiana versus XCL
Acquisitions, Inc. (19th Judicial District Court, East Baton
Rouge Parish, State of Louisiana, Docket No. 456553, Division J)
for Louisiana State corporate franchise and income taxes for the
1992 through 1996 fiscal years in an aggregate amount (including
penalties and interest through November 16, 1997) of
approximately $3 million. Statutory interest at the rate of 15%
per annum on the principal will continue to accrue from November
16, 1997 until paid. The Company believes that these assessments
have been adequately provided for in the consolidated financial
statements. The Company intends to defend each of these suits
vigorously. The Company believes that it has meritorious defenses
and has instructed its counsel to contest these claims.
On July 26, 1996, three lawsuits were filed against XCL-
Texas, Inc., a wholly-owned subsidiary of the Company, entitled
Stroman Ranch Company Ltd., et al. v. XCL-Texas, Inc. (229th
Judicial District, Jim Hogg County, Texas, Cause No. 4550), Frank
Armstrong, et al. v. XCL-Texas, Inc. (229th Judicial District,
Jim Hogg County, Texas, Cause No. 4551), and Stroman Ranch
Company Ltd., et al. v. XCL-Texas, Inc. (229th Judicial District,
Jim Hogg County, Texas, Cause No. 4552). The lawsuits allege
various claims, including a claim that one of the oil and gas
leases in the Berry R. Cox Field should be terminated. The
Company believes the claims made in the lawsuit are without merit
and intends to vigorously defend itself. The lawsuits have
prevented the Company from selling its interest in the Cox Field.
On January 24, 1997, a subsidiary of the Company filed an
action captioned L.M. Holding Associates, L.P. v. LaRoche
Chemicals, Inc. (23rd Judicial District Court, St. James Parish,
Louisiana, No. 24, 338, Section A). The lawsuit claims that
LaRoche failed to properly maintain its 8" brine line that runs
10 miles across the subsidiary's property in St. James Parish,
Louisiana, discharged brine from this line onto the subsidiary's
property and no longer has the right to operate said line. In
1998, the court issued a preliminary injunction enjoining LaRoche
from discharging brine onto the subsidiary's property and
enjoining LaRoche from continued operation of the 8" brine line
without a scientific system for early detection of leaks and
without periodic monitoring of the line. In September 1998, the
court denied the Company's request for a preliminary injunction
to prevent LaRoche from installing a new line on the property.
In October 1998, the Company was granted an injunction to
prohibit LaRoche from conducting operations off the servitude.
The Company is seeking damages and cancellation of LaRoche's
right to operate the brine line. No trial date has been set.
The Company intends to vigorously prosecute the lawsuit.
On December 1, 1995, XCL China Ltd. submitted to arbitration
certain accounting disputes arising from operations in the Bohai
Bay Shallow Water Sea Area, People's Republic of China and
governed by a Zhao Dong Block Operating Agreement. By the
initial submission, XCL China Ltd. disputed certain amounts
charged to it by Apache in the August, September and October 1995
joint interest billings and the November and December 1995 cash
calls. Thereafter, disputes involving joint interest billings
through 1998 were added to the submission. In 1997, XCL China
Ltd. made some payments with respect to the disputed amounts
although the arbitration proceeding remains unresolved and
inactive inasmuch as a third arbitrator has not been selected.
Other than as 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, that
would have a material adverse effect on the business or
properties of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders
during the quarter ended December 31, 1998.
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 1997 and 1998. 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"). On December 17, 1997, the Company
effected a one-for-fifteen reverse split of its Common Stock.
The high and low prices for the periods shown in 1997 have been
adjusted to reflect the reverse split.
Common Stock Price Per Share
----------------------------
1998 1997
--------------- --------------
High Low High Low
---- --- ---- ---
First Quarter $6.50 $3.50 $5.63 $2.81
Second Quarter $5.00 $3.31 $4.69 $2.81
Third Quarter $4.13 $2.75 $6.56 $2.81
Fourth Quarter $3.94 $1.81 $13.13 $3.88
On March 31, 1999, the closing price for the Company's
Common Stock on the AMEX was $1.50.
As of March 31, 1999, the Company had approximately 3,430
shareholders of record with respect to its Common Stock.
As of March 31, 1999, there were reserved an aggregate of
(i) 4,991,691 shares of Common Stock subject to outstanding
options; (ii) 14,840,593 shares issuable upon conversion of the
Company's outstanding Amended Series A Preferred Stock; (iii)
1,250,000 shares issuable upon exercise of the Company's
outstanding Amended Series B Preferred Stock; (iv) 17,578,113
shares issuable upon exercise of the Company's outstanding
warrants; (v) 64,443 shares reserved for sale to fund working
capital for the Company's China projects; and (vi) 36,373 shares
issuable in connection with contractual obligations. The Company
would receive a total of approximately $98 million if all options
and warrants were exercised and all stock reserved for sale was
sold at $1.50 per share.
ChaseMellon Shareholder Services, L.L.C., Overpeck Centre,
85 Challenger Road, Ridgefield Park, New Jersey 07660 (telephone
1-800-851-9677) (internet www.chasemellon.com), is the Registrar
and U.S. Transfer Agent for the Common Stock. IRG plc, Balfour
House, 390/398 High Road, Ilford, Essex IG1 1NQ, England
(telephone 181-478-8241) is the Company's U.K. Transfer Agent for
the Common Stock.
Recent Sales of Unregistered Securities
- ---------------------------------------
The following sets forth all recent sales of unregistered
securities not previously reported.
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.
o Under a consulting agreement entered into during June 1998,
the Company agreed to issue warrants to acquire 17,000 shares of
Common Stock, at an exercise price of $3.75 per share,
exercisable on or before June 30, 2003 and 35,000 shares of
Common Stock in payment for consulting services to be performed.
The warrants were issued in June 1998 and the Company issued the
35,000 shares of Common Stock during November 1998.
o On November 6, 1998, the Company, through its wholly owned
subsidiary, XCL Land, Ltd., ("XCL Land"), issued an aggregate of
15 units, each unit comprised of a secured note in the principal
amount of $100,000 each and five-year warrants, exercisable at
$3.50 per share, to purchase 21,705 shares of Common Stock of the
Company in a short term financing with three lenders. The
lenders were granted a security interest in the partnership
interests of XCL Land and The Exploration Company of Louisiana,
Inc., in L.M. Holding Associates, L.P., the owner of the Lutcher
Moore Tract. The notes bear interest at 15% per annum and are
payable in 90 days, with the option for two 90-day extensions,
the second of which must be approved by the lenders. XCL Land
received $1.5 million in proceeds, of which $0.7 million was used
to pay outstanding indebtedness associated with the Lutcher Moore
Tract and the remaining $0.8 million was paid as a dividend to
the Company to be used by the Company as working capital.
o On January 15, 1999, the Company issued an aggregate of five
additional units, on the same terms as the units issued on
November 6, 1998, except that the exercise price of the warrants
was $2.00 per share. In connection with the additional
subscriptions, the exercise price for the warrants issued in the
November 6, 1998, offering were reduced to $2.00 per share. XCL
Land received $0.5 million in proceeds, all of which was paid as
a dividend to the Company to be used by the Company as working
capital.
o During March 1999, the Company issued an aggregate of two
additional units, on the same terms as the units issued on
January 15, 1999, except that the exercise price of the warrants
was $1.50 per share. In connection with the additional
subscriptions, and pursuant to the terms of the subscription
agreements, the exercise price for the warrants issued in the
November 6, 1998 and January 15, 1999 offerings, were reduced to
$1.50 per share. XCL Land received $200,000 in proceeds, all of
which was paid as a dividend to the Company to be used by the
Company as working capital.
o Also during March 1999, the Company, through XCL Land,
issued one unit comprised of a secured note in the principal
amount of $100,000 and five-year warrants, exercisable at $1.25
per share, to purchase 10,000 shares of Common Stock of the
Company in a short term financing with one lender. The lender
was granted a security interest in the partnership interests of
XCL Land and The Exploration Company of Louisiana, Inc., in L.M.
Holding Associates, L.P., the owner of the Lutcher Moore Tract.
The notes bear interest at 15% per annum and are payable in 45
days. XCL Land received $100,000 in proceeds, all of which was
paid as a dividend to the Company to be used by the Company as
working capital.
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 Notes, the Company is
restricted from paying dividends on its Common Stock (other than
with certain securities) without the consent of the Noteholders
unless certain conditions have been met, which they have not at
this time. See "Certain Risk Factors Relating to the Company and
the Oil and Gas Industry -- Restrictions Imposed by Terms of the
Company's Indebtedness."
Reverse Stock Split
- -------------------
All information in this Form 10-K concerning the Company's
Common Stock reflects a one-for-fifteen reverse split of such
stock approved by the shareholders of the Company on December 17,
1997.
Item 6. Selected Financial Data.
The following table sets forth selected consolidated
financial data of the Company as of and for the years ended
December 31, 1994 through 1998 derived from the audited
consolidated financial statements of the Company. The following
table should also be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1994(a) 1995(c) 1996(d) 1997(f)(h) 1998(h)(i)
------- ------- ------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 4,336 $ 2,480 $ 1,136 $ -- $ --
Operating expenses 1,341 985 342 -- --
General and administrative
expenses 4,553 4,551 3,487 5,167 6,251
Depreciation, depletion and
amortization 3,292 2,266 579 -- --
Other, net -- -- -- 2,891 154
Operating loss (33,875) (85,673) (9,793) (8,058) (10,601)
Interest expense 1,831 2,998 2,415 8,450 4,855
Interest income 508 133 8 2,212 913
Net loss (36,622) (87,837) (12,074) (13,446) (13,754)
Net loss attributable to
common stock (41,529) (92,658) (17,430) (20,922) (19,861)
Net loss per common share:
Basic (3.14) (5.77) (0.98) (1.03) (0.87)
Diluted (3.14) (5.77) (0.98) (1.03) (0.87)
Weighted average common
shares outstanding - basic 13,220 16,047 17,705 20,451 22,797
Weighted average common
shares outstanding - diluted 13,220 16,047 17,705 20,451 22,797
Balance Sheet Data (at end of year):
Total working capital (deficit) $ (1,563) $(24,239) $(46,705) $22,399 $ (79,040)
Total assets 149,803 72,336 60,864 119,089 114,673
Long-term debt, net of current
maturities 41,607(b) 15,644 --(e) 61,310(g) -- (j)
Shareholders' equity 95,200 16,900 11,041 40,825 29,474
</TABLE>
- ------------
(a) Includes provision for impairment of domestic 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.
(b) Includes non-recourse debt of an aggregate $0.7 million
as of December 31, 1994, included in the Lutcher Moore Debt.
(c) Includes provision for impairment of domestic oil and gas
properties of $75.3 million and provision for write-down of
other assets of $4.5 million.
(d) Includes provision for impairment of domestic oil and gas
properties of $3.85 million; provision for write-down of
investment of $2.4 million; and loss on sale of investments
of $0.7 million.
(e) All of the Company's debt ($38.02 million) was classified
as currently due at December 31, 1996.
(f) Includes extraordinary loss for early extinguishment of
debt of $551,000.
(g) Long term debt is net of unamortized discount of $13.7
million as of December 31, 1997, associated with the value
allocated to the stock purchase warrants issued with the
Senior Secured Notes.
(h) Revenues and operating expenses associated with oil and
gas properties held for sale have become insignificant and,
accordingly, are recorded in other costs and operating
expenses in the accompanying consolidated Statements of
Operations.
(i) Includes provision for impairment of domestic oil and gas
properties held for sale and other investments of $4.2
million.
(j) At December 31, 1998, the long-term portion of the Senior
Secured Notes was reclassified to a current liability due to
the uncertainty surrounding the Company's ability to make
its next interest payment (in the approximate amount of $5.6
million) due in May 1999.
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 1998 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, Capital Resources and Management's Plan
- --------------------------------------------------
Background
----------
After initial drilling success in China in 1994 and 1995,
the Company's management decided in the fourth quarter of 1995 to
focus on the Company's operations in China and to sell its other
assets. The excellent well test results on the Zhao Dong Block
and the Company's reserve assessments support this decision. From
a financial standpoint, the Company has focused on (i) raising
funds to meet capital requirements for Chinese operations, (ii)
selling its domestic properties and (iii) simplifying its capital
structure to make it easier to raise capital. The Company
intends to continue these activities and to work with Apache and
CNODC to refine the ODP to reduce expenditures and accelerate
production. The Company's only historic revenues have been from
the Company's financing activities and from properties previously
sold and those currently held for sale or investment. The
Company is in the development stage with respect to its
operations in China and has not generated any revenues from
operations related to its properties and interests in China.
The Company has made significant capital expenditures since
acquiring its interest in the Zhao Dong Block in 1992. Despite
incurring losses since 1992, the Company, because of the high
quality of the Zhao Dong Block, has been able to obtain funds
for the exploration and development of the Zhao Dong Block.
On August 20, 1998, the Company entered into a production
sharing contract with CNODC for the 12,000-acre Zhang Dong Block
and on September 15, 1998, the contract was approved by the
Ministry of Foreign Trade and Economic Cooperation of China,
effective October 1, 1998.
Liquidity and Capital Resources
-------------------------------
At December 31, 1998, the Company had a net working capital
deficit of $79.0 million. The Company does not have, as of April
15, 1999, sufficient funds to cover the Company's working capital
requirements and capital expenditure obligations on the Zhao Dong
and Zhang Dong Blocks during 1999.
In addition, the Company does not currently have sufficient
funds to make the next interest payment (in the approximate
amount of $5.6 million) due in May 1999. Failure by the Company
to make such payment could allow the holders of the Notes to
declare all amounts outstanding under the Notes and accrued
interest immediately due and payable. The ramifications of this
are discussed under "Certain Risk Factors Relating to the Company
and the Oil and Gas Industry -- Restrictions Imposed by Terms of
the Company's Indebtedness." The possible results include the
Company's loss of the stock of XCL-China and/or its interest in
the Contract. The Company is exploring options for meeting its
obligations under the Notes and expects to arrive at a
satisfactory resolution. There can be no assurance, however,
that a satisfactory resolution will result.
The Company presently projects and plans that these funds
will be available from the sale or refinancing of domestic oil
and gas properties held for sale and/or investment in land,
project financing, an increase in the amount of senior secured
notes, supplier financing, additional equity (including the
exercise of currently outstanding warrants to buy common stock),
joint ventures with other oil companies, or proceeds from
production. Based on continuing discussions with major
shareholders, investment bankers, potential purchasers and other
oil companies, the Company believes that such required funds will
be available. However, there is no assurance that such funds will
be available and, if available, on commercially reasonable terms.
Any new debt could require approval of the holders of the Notes
and there is no assurance that such approval could be obtained.
The Company has not yet paid certain cash calls to Apache
totaling $6.9 million through April 1999 ($4.1 million at
December 31, 1998), including amounts in dispute, which could
develop into an event that would trigger Apache's option to
purchase the Company's interest in the Contract. The Company and
Apache are in discussions concerning the timing and manner of the
payment of these amounts.
Since December 31, 1997, world oil prices have declined
significantly. The Company believes that its plans for the Zhao
Dong Block continue to be economically feasible at current
prices. Should such reduced prices continue in effect, it will
reduce the Company's projected economic return from the project
and may further impair the Company's ability to meet its debt
service requirements.
As a result of the Company's decision to focus on China and
sell its U.S. assets, the Company presently has no source of
significant revenues. The Company incurred a loss for fiscal 1998
of $13.8 million and expects to incur a loss in 1999 as well
because production and related cash flow from the Zhao Dong and
Zhang Dong Blocks are not expected until late 1999, at the
earliest.
Management's Plan
-----------------
With respect to the C-D Field on the Zhao Dong Block, CNODC
has given written notice that it will participate as to its full
51% share and has urged that production begin as soon as
reasonably practicable. Except for certain exploratory wells on
which Apache has an obligation to pay for the Company's costs,
the Company is required to fund 50% of all exploration
expenditures and 24.5% of all development and production
expenditures.
The Company estimates that its share of development expenses
for 1999 will be approximately $13.7 million and its share of
exploration expenses for the remaining two obligatory wells to
be drilled prior to the end of the Exploration Period (which
expires April 30, 2000) is approximately $5.0 million. The
Company expects that at least one of these wells will be drilled
in 1999. The Company presently projects and plans that these
funds will be available from the sale or refinancing of domestic
oil and gas properties held for sale and/or investment in land,
project financing, an increase in the amount of senior secured
notes, supplier financing, additional equity (including the
exercise of currently outstanding warrants to buy common stock),
joint ventures with other oil companies, or proceeds from
production. Based on continuing discussions with major
shareholders, investment bankers, potential purchasers and other
oil companies, the Company believes that such required funds will
be available. However, there is no assurance that such funds will
be available and, if available, on commercially reasonable terms.
Any new debt could require approval of the holders of the Notes
and there is no assurance that such approval could be obtained.
"Certain Risk Factors Relating to the Company and the Oil and Gas
Industry -- Restrictions Imposed by Terms of the Company's
Indebtedness."
The $18.7 million estimated to be necessary for exploration
and development in 1999 on the Zhao Dong Block does not include
the cost of accelerating production from the C-4 Well area into
1999. If the Company pursues this option, the Company estimates
this would require additional expenditures of approximately $1.5
million, which the Company believes it can obtain from the
sources described above.
In addition, the Company is the operator of the Zhang Dong
Block and, as such, is required to cover the costs of initial
appraisal drilling, upgrading production facilities and
additional studies of seismic data. The contract commits the
Company to drill at least one well during the first year. Under
the contract, the Company is entitled to 49% of the production.
The Company estimates that its minimum capital requirements over
the next year to satisfy the terms of the Zhang Dong contract are
approximately $6.5 million. This amount is not included in the
$18.7 million the Company expects to spend on the Zhao Dong Block
during 1999. Funds are expected to come from the previously
mentioned sources.
Longer-term liquidity is dependent upon the Company's future
performance, including commencement of production in China, as
well as continued access to capital markets. In addition, the
Company's efforts to secure additional financing could be
impaired if its Common Stock is delisted from the AMEX.
If funds for the purposes described above and for general
and administrative expenses are not available, the Company may be
required substantially to curtail its operations or to sell or
surrender all or part of its interest in the Zhao Dong or the
Zhang Dong Blocks and/or its other interests in China in order to
meet its obligations and continue as a going concern. If those
properties are sold, there can be no assurance that the Company
would recover its carrying value.
The Company is not obligated to make any additional capital
payments to its lubricating oil and coalbed methane projects.
The Company is in discussions with the Chinese government about
expansion of its lube oil venture. The Company will require
additional capital investments if these discussions are
successfully concluded; however, at this time it is not known
what the extent or timing for such investments might be.
Similarly, if the Company's coalbed methane project becomes
active and is successful, the Company may make additional
investments in that business. Again, the extent and timing of
such investment, if any, is unknown at this time.
Other General Considerations
- ----------------------------
The Company believes that inflation has had no material
impact on its sales, revenues or income during the reporting
periods.
The Company is subject to existing domestic and Chinese
federal, state and local laws and regulations governing
environmental quality and pollution control. Although management
believes that such operations are in general compliance with
applicable environmental regulations, risks of substantial costs
and liabilities are inherent in oil and gas operations, and there
can be no assurance that significant costs and liabilities will
not be incurred.
New Accounting Pronouncements
- -----------------------------
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which is
effective for the Company's fiscal year ending December 31, 1998.
SFAS No. 130 establishes standards for the reporting and
displaying of comprehensive income and its components.
In June 1997, the FASB Issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which
is effective for the Company's fiscal year ended December 31,
1998. This statement establishes standards for reporting of
information about operating segments.
The Company adopted SFAS No. 130 and SFAS No. 131 during
1998, which did not have a material effect on the Company's
financial statements.
In June 1998, FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement
requires companies to report the fair market value of derivatives
on the balance sheet and record in income or other comprehensive
income, as appropriate, any changes in the fair value of the
derivative. SFAS No. 133 will become effective with respect to
the Company on January 1, 2000. The Company is currently
evaluating the impact of the statement.
Results of Operations
- ---------------------
1998 compared to 1997
---------------------
Revenue and operating expenses associated with oil and gas
properties held for sale have become insignificant and
accordingly, are recorded in other costs and operating expenses
in the accompanying consolidated statements of operations.
Interest expense, net of amounts capitalized, decreased $3.6
million in 1998 primarily as a result of increased capitalization
of interest costs due to increased balances of qualifying assets.
In addition, interest expense includes amortization of $2.1
million relating to the value assigned to warrants issued with
the $75 million debt offering completed in May 1997.
The Company incurred a loss of $13.8 million in 1998,
as compared with a loss of $13.4 million in 1997. The net loss,
for 1998 and 1997, includes non-cash compensation charges of $0.8
million and $0.9 million, respectively, related to stock and
appreciation options, which are classified in general and
administrative expenses. The net loss for 1998 includes a $4.2
million non-cash charge for the provision of impairment of
domestic oil and gas properties classified as assets held for
sale and other investments. In addition, 1997 includes a $2.8
million provision for estimated settlements in connection with
various disputes and litigation matters. Such amount is
reflected in "Other" in the Statement of Operations. The net
loss in 1997 also includes $0.6 million of non-cash charges
related to early extinguishment of debt.
Interest income decreased $1.3 million during the year ended
December 31, 1998, compared with 1997. The primary reason for
this decrease was due to the use of deposited funds raised in the
May 1997 debt and equity offerings, which funds were released
from escrow in October 1997.
As the Company continues to focus its resources on
exploration and development of the Zhao Dong and Zhang Dong
Blocks, future oil and gas revenues will initially be directly
related to the degree of drilling success experienced. The
Company does not anticipate significant increases in its oil and
gas production in the short-term and expects to incur operating
losses until such time as net revenues from the China projects
are realized.
General and administrative expenses increased $1.1 million
during 1998 as compared with 1997, as reflected in the following
table.
1998 1997
------ ------
(In Thousands)
Payroll, benefits and travel $ 2,222 $ 1,554
Non-cash compensation cost 778 853
Legal and professional 1,453 1,284
Public company and corporate expenses 855 710
Office expense 629 425
Corporate insurance 314 341
------ ------
$ 6,251 $ 5,167
====== ======
The increase of $1.1 million during 1998, compared to 1997
was primarily the result of a $0.7 million increase in travel
associated with the Company's projects in China.
1997 compared to 1996
---------------------
The Company incurred a loss of $13.4 million in 1997, as
compared with a loss of $12.1 million in 1996. Included in the
loss for 1997 is a charge of $0.9 million for non-cash
compensation charges, related to stock and appreciation options,
which are classified in general and administrative expenses. In
addition, 1997 includes a $2.8 million provision for estimated
settlements in connection with various disputes and litigation
matters. Such amount is reflected in Other in the Statement of
Operations. In addition, $0.6 million of non-cash charges relate
to early extinguishment of debt.
Interest expense, net of amounts capitalized, increased $6.0
million in 1997 primarily as a result of increased borrowings and
higher interest rates on the new debt. In addition, interest
expense includes amortization of $1.3 million relating to the
value assigned to warrants issued with the $75 million debt
offering completed in May 1997.
The net loss for 1996 includes a $3.85 non-cash charge for
the provision of impairment of domestic oil and gas properties
classified as held for sale. The loss in 1996 also reflects the
effect of a $2.4 million write-down and $0.7 million loss on sale
of the Company's investments.
Oil and gas revenues from properties held for sale for the
year ended December 31, 1997 were $236,000, compared to
approximately $1.1 million during 1996. Revenues will continue to
decline as the Company completes its announced program of selling
substantially all of its U.S. producing properties. Interest
income increased $2.2 million during the year ended December 31,
1997, compared with 1996. The primary reason for this increase
was the interest earned on the $75 million held in escrow from
the Note Offering.
General and administrative expenses increased $1.7 million
during 1997 as compared with 1996, as reflected in the following
table.
1997 1996
------ ------
(In Thousands)
Payroll, benefits and travel $ 1,554 $ 1,683
Non-cash compensation cost 853 --
Legal and professional 1,284 510
Public company and corporate expenses 710 539
Lafayette office expense 425 374
Corporate insurance 341 381
------ ------
$ 5,167 $ 3,487
====== ======
The increase in legal and professional fees of $774,000 was
principally related to fees of $214,000 on one lawsuit, an
increase of $287,000 for outside consulting and the remainder of
the increase for general and corporate legal and accounting
services. The increase in non-cash compensation costs was
related to stock and appreciation options approved by
shareholders in December 1997.
Year 2000 Compliance
- --------------------
The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the
applicable year and equipment with time-sensitive embedded
components. Any of the Company's programs that have time-
sensitive software or equipment that has time-sensitive embedded
components may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system
failure or miscalculations. Although no assurance can be given
because of the potential wide scale manifestations of this
problem which may affect the Company's business, the Company
presently believes that the Year 2000 problem will not pose
significant operational problems for its computer systems.
The goal of the Company's Year 2000 project is to ensure
that all of the critical systems and processes that are under the
Company's direct control remain functional. Certain systems and
processes may be interrelated with or dependent upon systems
outside the Company's control, and systems within the Company's
control may have unpredicted problems. The Company has
established a project team to coordinate the phases of Year 2000
compliance to assure that the Company's key automated systems and
related processes will remain functional through the year 2000.
Those phases consist of (i) assessment; (ii) remediation; (iii)
testing; (iv) implementation of the necessary modifications; and
(v) contingency planning. All phases of the Company's Year 2000
plan will continue to be modified and adjusted throughout the
year, as additional information becomes available.
The Company's assessment phase consists of conducting a
company-wide inventory of its key automated systems and related
processes, analyzing and assigning levels of criticality to those
systems and processes, identifying and prioritizing resource
requirements, developing validation strategies and testing plans,
and evaluating business partner relationships. The portions of
the assessment phase related to internally developed computer
applications, hardware and equipment, and embedded chips are
substantially complete. The Company estimates that it has
completed more than 90 percent of the assessment to determine the
nature and impact of the Year 2000 date change for third-party-
developed software. The assessment phase of the project also
involves efforts to obtain representations and assurances from
third parties, including third party vendors, that their hardware
and equipment products, embedded chip systems, and software
products being used by or impacting the Company are or will be
modified to be Year 2000 compliant. To date, the responses from
such third parties, although generally encouraging, are
inconclusive. As a result, the Company cannot predict the
potential consequences if these or other third parties or their
products are not Year 2000 compliant. The Company is currently
evaluating the exposure associated with such business partner
relationships.
The remediation phase involves converting, modifying,
replacing or eliminating key automated systems identified in the
assessment phase. The Company estimates that it has completed
approximately 90 percent of the remediation phase. The Company
has to date spent approximately $160,000 for upgrades and/or
replacement of certain of its hardware and software to hardware
and software that purports to be Year 2000 compliant. The
Company estimates that an additional expense of $50,000 will be
required to replace and/or modify and install hardware or
software identified to date as non-Year 2000 compliant.
The testing phase involves the validation of the identified
key automated systems. The Company is utilizing test tools and
written test procedures to document and validate, as necessary,
its systems testing. The Company estimates that approximately
75 percent of the testing phase has been completed, and expects
to be substantially completed by mid-1999.
The implementation phase involves placing the converted or
replaced key automated systems into operation. In some cases,
this phase will also involve the implementation of contingency
plans needed to support business functions and processes that may
be interrupted by Year 2000 failures that are outside of the
Company's control. The Company has completed approximately 75
percent of the implementation phase, and expects to be
substantially completed by mid-1999.
The contingency planning phase consists of developing a risk
profile of the Company's critical business processes and then
providing for actions the Company will pursue to keep such
processes operational in the event of Year 2000 disruptions. The
focus of such contingency planning is on prompt response to any
adverse Year 2000 events and a plan for subsequent resumption of
normal operations. The plan is expected to assess the risk of a
significant failure to critical processes performed by the
Company, and to address the mitigation of those risks. The plan
will also consider any significant failures related to the most
reasonably likely worst case scenario, discussed below, as they
may occur. In addition the plan is expected to factor in the
severity and duration of the impact of a significant failure.
The Company plans to have its contingency plan completed by mid-
1999.
The Company's present analysis of its most reasonably likely
worst case scenario for Year 2000 disruptions includes failures
in the telecommunications and electricity industries, and its
partners in its international operations to become Year 2000
compliant.
The Company does not expect the costs of its Year 2000
project to have a material adverse effect on its financial
position, results of operations, or cash flows. Based on
information available at this time the Company cannot conclude
that disruptions caused by internal or external Year 2000 related
failures will not have such an effect. Specific factors that
might affect the success of the Company's Year 2000 efforts and
the occurrence of Year 2000 disruption or expense include the
failure of the Company or its outside consultants to properly
identify deficient systems, the failure of the selected remedial
action to adequately address the deficiencies, the failure of the
Company's outside consultants to complete the remediation in a
timely manner (due to shortages of qualified labor or other
factors), unforeseen expenses related to the remediation of
existing systems or the transition to replacement systems, the
failure of third parties to become Year 2000 compliant or to
adequately notify the Company of potential noncompliance.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
The Company had no interest in investments subject to market
risk during the period covered by this report.
Item 8. Financial Statements and Supplemental Data.
The Consolidated Financial Statements of XCL Ltd. and
Subsidiaries and XCL-China Ltd., together with the reports
thereon of PricewaterhouseCoopers LLP dated April 12, 1999, and
the supplementary financial data specified by Item 302 of
Regulation S-K are set forth on the pages listed in the Index
under Items 14a(1) and (2).
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of XCL Ltd.
In our opinion, the consolidated financial statements listed in
the index appearing under item 14(a)(1) and (2) present fairly,
in all material respects, the financial position of XCL Ltd. and
its subsidiaries at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years
in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
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 is generating minimal revenues and has a
working capital deficit of $79.0 million at December 31, 1998,
after reclassification of the Senior Secured Notes in the amount
of $63.5 million. In addition, there is no assurance that the
Company will be able to generate the necessary funds to satisfy
the contractual development and exploratory obligations with
respect to its China properties and to ultimately achieve
profitable operations, which creates substantial doubt about its
ability to continue as a going concern. Managements' 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.
As explained in Note 1, the Company restated its 1997 net loss,
preferred stock dividends, net loss attributable to common stock
and the related net loss per share.
PRICEWATERHOUSECOOPERS LLP
Miami, Florida
April 12, 1999
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
-------------------
A S S E T S 1998 1997
----------- ----- -----
Current assets:
Cash and cash equivalents $ 83 $ 21,952
Cash held in escrow (restricted) 205 10,263
Refundable deposits -- 1,200
Other 443 552
------ -------
Total current assets 731 33,967
------ -------
Property and equipment:
Oil and gas (full cost method):
Proved undeveloped properties,
not being amortized 28,274 21,172
Unevaluated properties 58,403 33,765
------- -------
86,677 54,937
Other 1,344 1,163
------- -------
88,021 56,100
Accumulated depreciation, depletion
and amortization (761) (1,000)
------- -------
87,260 55,100
------- -------
Investments 4,078 3,540
Investment in land 12,200 12,200
Oil and gas properties held for sale 5,099 8,955
Debt issue costs, less amortization 3,763 4,268
Other assets 1,542 1,059
------- -------
Total assets $ 114,673 $ 119,089
======= =======
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 expenses $ 1,465 $ 907
Accrued interest 2,049 1,820
Due to joint venture partner 8,168 4,504
Dividends payable 1,658 1,813
Current maturities of long term debt 2,974 2,524
------- -------
16,314 11,568
Senior secured notes reclassification 63,457 --
------- -------
Total current liabilities 79,771 11,568
------- -------
Long-term debt, net of current maturities -- 61,310
Other liabilities 5,428 5,386
Commitments and contingencies (Notes 2 and 10)
Shareholders' equity:
Preferred stock-$1.00 par value;
authorized 2.4 million shares at
December 31, 1998 and 1997; issued
shares of 1,282,745 at December 31,
1998 and 1,196,236 at December 31,
1997 - liquidation preference of
$110 million at December 31, 1998. 1,283 1,196
Common stock-$.01 par value; authorized
500 million shares at December 31, 1998
and 1997; issued shares of 23,447,441
at December 31, 1998 and 21,710,257 at
December 31, 1997 234 217
Common stock held in treasury - $.01 par
value; 69,470 shares at December 31,
1998 and 1997 (1) (1)
Additional paid-in capital 296,373 290,788
Accumulated deficit (260,215) (240,354)
Unearned compensation (8,200) (11,021)
------- -------
Total shareholders' equity 29,474 40,825
------- -------
Total liabilities and
shareholders' equity $ 114,673 $ 119,089
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Year Ended December 31,
---------------------------------
1998 1997 1996
------ ------ ------
(As Restated)
Oil and gas revenues from
properties held for sale $ -- $ -- $ 1,136
Costs and operating expenses:
Operating -- -- 342
Depreciation, depletion and
amortization -- -- 579
Provision for impairment of
oil and gas properties held for
sale and other investments 4,196 -- 6,294
General and administrative costs 6,251 5,167 3,487
Other, net 154 2,891 227
------- ------- -------
Total costs and operating
expenses 10,601 8,058 10,929
------- ------- -------
Operating loss (10,601) (8,058) (9,793)
------- ------- -------
Other income (expense):
Interest expense, net of
amounts capitalized (4,855) (8,450) (2,415)
Loss on sale of
investments/assets -- -- (661)
Interest income 913 2,212 8
Other, net 789 1,401 787
------- ------ ------
(3,153) (4,837) (2,281)
------- ------ ------
Loss before extraordinary item (13,754) (12,895) (12,074)
Extraordinary charge for early
extinguishment of debt -- (551) --
------- ------ -------
Net loss (13,754) (13,446) (12,074)
Preferred stock dividends (6,107) (7,476) (5,356)
------- ------- -------
Net loss attributable to common stock $(19,861) $(20,922) $ (17,430)
======= ======= =======
Loss per share (basic):
Net loss before extraordinary item $ (0.87) $ (1.00) $ (.98)
Extraordinary item -- (.03) --
------ ------ -------
Net loss per share $ (0.87) $ (1.03) $ (.98)
====== ====== =======
Loss per share (diluted):
Net loss before extraordinary item $ (0.87) $ (1.00) $ (.98)
Extraordinary item -- (.03) --
------ ------ ------
Net loss per share $ (0.87) $ (1.03) $ (.98)
====== ====== ======
Weighted average number of shares
used in per share computations:
Basic 22,797 20,451 17,705
Diluted 22,797 20,451 17,705
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Common
Stock Additional Total
Preferred Common Held In Paid-In Accumulated Unearned Shareholders'
Stock Stock Treasury Capital Deficit Compensation Equity
--------- ------- -------- ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 685 $ 2,561 $ (25) $220,364 $ (206,685) $ -- $ 16,900
Net loss -- -- -- -- (12,074) -- (12,074)
Dividends -- -- -- -- (673) -- (673)
Preferred shares issued 10 -- -- 128 -- -- 138
Preferred shares subscribed (4) -- -- -- -- -- (4)
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
Net loss -- -- -- -- (13,446) -- (13,446)
Dividends -- -- -- -- (7,476) -- (7,476)
Preferred shares issued 507 -- -- 14,717 -- -- 15,224
Common shares issued -- 198 -- 4,395 -- -- 4,593
Issuance of stock purchase
warrants -- -- -- 30,036 -- -- 30,036
Unearned compensation 20 13 -- 11,841 -- (11,021) 853
Reverse stock split 1 for 15 -- (2,852) 9 2,843 -- -- --
----- ----- ---- -------- ------- ------ -------
Balance, December 31, 1997
(as restated) 1,196 217 (1) 290,788 (240,354) (11,021) 40,825
Net loss -- -- -- -- (13,754) -- (13,754)
Dividends -- -- -- -- (6,107) -- (6,107)
Preferred shares issued 110 -- -- 5,646 -- -- 5,756
Preferred shares converted
to common shares (23) 6 -- 17 -- -- --
Common shares issued -- 2 -- 558 -- -- 560
Issuance of stock purchase
warrants -- 9 -- 1,407 -- -- 1,416
Unearned compensation -- -- -- (2,821) -- 2,821 --
Earned compensation -
stock options -- -- -- 778 -- -- 778
----- ----- ---- ------- ------- ------ ------
Balance, December 31, 1998 $1,283 $ 234 $ (1) $296,373 $(260,215) $(8,200) $29,474
===== ===== ==== ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year Ended December 31,
---------------------------------
1998 1997 1996
------ ------ ------
Cash flows from operating activities:
Net loss $ (13,754) $ (13,446) $ (12,074)
------- ------- -------
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation, depletion and
amortization 106 126 579
Provision for impairment of
oil and gas properties held
for sale and other investments 4,196 -- 6,294
Extraordinary charge for early
extinguishment of debt -- 551 --
Loss on sale of investments/assets -- -- 661
Amortization of discount on senior
secured notes 2,147 1,342 --
Stock compensation programs 778 853 --
Stock issued for outside
professional services 565 -- --
Other 207 248 --
Change in assets and liabilities:
Accounts receivable -- -- 799
Refundable deposits 1,200 (1,200) --
Accounts payable and accrued
expenses 558 (424) 1,471
Accrued interest 229 292 (896)
Other, net (219) 2,577 12
------- ------ ------
Total adjustments 9,767 4,365 8,920
------- ------ ------
Net cash used in operating
activities (3,987) (9,081) (3,154)
------- ------ ------
Cash flows from investing activities:
Change in cash held in escrow (restricted) 10,058 (10,263) --
Capital expenditures (28,783) (16,097) (1,489)
Investments (734) (1,790) (491)
Proceeds from sales of assets and
investments 3 797 9,210
Other -- -- 4
------ ------- -------
Net cash (used in) provided by
investing activities (19,456) (27,353) 7,234
------ ------- -------
Cash flows from financing activities:
Proceeds from sales of common stock -- 652 1,766
Proceeds from issuance of
preferred stock -- 25,000 144
Proceeds from sale of treasury stock -- -- 264
Proceeds from Senior Secured Notes -- 75,000 --
Loan proceeds 1,500 6,100 315
Payment of long-term debt (1,050) (35,503) (8,344)
Payment of notes payable -- (6,100) --
Proceeds from exercise of options
and warrants 1,209 1,590 691
Payment for treasury stock -- -- (141)
Stock/note issuance costs and other (85) (8,466) (272)
------ ------ ------
Net cash provided by (used in)
financing activities 1,574 58,273 (5,577)
------ ------ ------
Net increase (decrease) in cash and cash
equivalents (21,869) 21,839 (1,497)
Cash and cash equivalents at beginning of
year 21,952 113 1,610
------ ------ ------
Cash and cash equivalents at end of year $ 83 $ 21,952 $ 113
====== ====== ======
Supplemental information:
Cash paid for interest, net of
amounts capitalized $ 1,458 $ 7,441 $ 1,591
====== ====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant
Accounting Policies:
Nature of Operations:
--------------------
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.
Its exploration and development efforts are, at this time,
focused primarily on the Zhao Dong and Zhang Dong Blocks in the
shallow-water sea area of Bohai Bay in The People's Republic of
China ("China"). XCL's activities on the Zhao Dong Block have
been undertaken pursuant to an exploration and production joint
venture with China National Oil and Gas Exploration and
Development Corporation ("CNODC"), a subsidiary of China National
Petroleum Corporation ("CNPC), one of the national oil companies
of China.
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. Certain reclassifications have been
made to prior year financial statements to conform to current
year presentation.
Reclassifications and Adjustments:
---------------------------------
The 1997 dividends on the Amended Series A Preferred Stock
have been restated by approximately $6.3 million to reflect
the fair value of the preferred stock issued in satisfaction
of such amounts and will be accreted to the mandatory redemption
date applying the effective interest method. This adjustment had
the effect of reducing the 1997 loss per share attributable to
common stock from $1.36 per share to $1.03 per share.
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 at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents:
-------------------------
The Company considers deposits which can be redeemed on
demand and investments which have original maturities of less
than three months, when purchased, to be cash equivalents. As of
December 31, 1998, the Company's cash and cash equivalents were
deposited primarily in three financial institutions.
Fair Value of Financial Instruments:
-----------------------------------
The fair value of current assets and liabilities approximate
carrying value, due to the short-term nature of these items. There
is no quoted market value for the Senior Secured Notes, however,
management estimates that, based on current market conditions, such
Notes have a fair value of approximately 45%-55% of the face value
of such Notes. Fair value of such financial instruments is not
necessarily representative of the amount that could be realized
or settled.
Oil and Gas Properties:
----------------------
The Company accounts for its oil and gas exploration and
production activities using the full cost method of accounting.
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 1998 and 1997,
and foreign reserves in 1998 and 1997 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 its 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 proved 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, depletion and amortization
expense ("DD&A") in the period in which it occurs.
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 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 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 15 years.
Capitalized Interest and Amortized Debt Costs:
---------------------------------------------
During fiscal 1998, 1997 and 1996, interest and associated
costs of approximately $9.7 million, $5.8 million, and $2.8
million, respectively were capitalized with respect to
significant investments in oil and gas properties that are not
being currently depreciated, depleted, or amortized and on which
exploration or development activities are in progress. Deferred
debt issue costs and discount on senior secured notes are
amortized on the straight-line basis over the term of the related
debt agreement.
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 benefit is more likely than not.
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.
Stock Based Compensation:
------------------------
Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," ("SFAS No. 123")
encourages, but does not require companies to record compensation
costs for stock-based compensation plans at fair value. The
Company has chosen to continue to account for stock-based
employee compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, compensation cost for
stock options, awards and warrants is measured as the excess, if
any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire
the stock.
Earnings Per Share:
------------------
During 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS No.
128") and has restated all years presented in accordance
therewith. SFAS No. 128 requires a dual presentation of basic
and diluted earnings per share ("EPS") on the face of the
statement of operations. Basic EPS is computed by dividing income
available to common stockholders by the weighted average number
of common shares for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that
would then share in earnings.
Environmental Expenditures:
--------------------------
Environmental expenditures relating to current operations
are expensed or capitalized, as appropriate, depending on whether
such expenditures provide future economic benefits. Liabilities
are recognized when the expenditures are considered probable and
can be reasonably estimated. Measurement of liabilities is based
on currently enacted laws and regulations, existing technology
and undiscounted site-specific costs. Generally, such
recognition coincides with the Company's commitment to a formal
plan of action.
Recent Accounting Pronouncements:
--------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which is effective for the Company's year
ended December 31, 1998. SFAS No. 130 establishes standards for
the reporting and displaying of comprehensive income and its
components.
In June 1997, the FASB Issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which
is effective the Company's year ended December 31, 1998. This
statement establishes standards for reporting of information
about operating segments.
The Company adopted SFAS No. 130 and SFAS No. 131 during
1998, which did not have a material effect on the Company's
financial statements.
In June 1998, FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement
requires companies to report the fair market value of derivatives
on the balance sheet and record in income or other comprehensive
income, as appropriate, any changes in the fair value of the
derivative. SFAS No. 133 will become effective with respect to
the Company on January 1, 2000. The Company is currently
evaluating the impact of the statement.
(2) Liquidity and Management's Plan
The Company, in connection with its 1995 decision to dispose
of its domestic properties, is generating minimal annual revenues
and is devoting all of its efforts toward the development of its
China properties. The Company has cash available in the amount
of approximately $83,000 as of December 31, 1998 and a working
capital deficit of $79.0 million. The Senior Secured Notes in the
amount of $63.5 million have been reclassified because the
Company does not currently have sufficient funds to make the next
interest payment (in the approximate amount of $5.6 million) due
in May 1999. Failure by the Company to make such payment could
allow the holders of the Notes to declare all amounts outstanding
immediately due and payable. Additional funds will be needed to
meet the Company's development and exploratory obligations until
sufficient cash flows are generated from anticipated production
to sustain its operations and to fund future development
and exploration obligations.
Management plans to generate the additional cash needed
through the sale or financing of its domestic assets held for
sale and the completion of additional equity, debt or joint
venture transactions. There is no assurance, however, that the
Company will be able to sell or finance its assets held for sale
or to complete other transactions in the future at commercially
reasonable terms, if at all, or that it will be able to meet its
future contractual obligations. If production from the China
properties commences in late 1999, as anticipated, the Company's
proportionate share of the related cash flow will be available to
help satisfy a portion of cash requirements. However, there is
likewise no assurance that such development will be successful
and production will commence, and that such cash flow will be
available.
(3) Supplemental Cash Flow Information
There were no income taxes paid for the years ended December
31, 1998, 1997 and 1996.
The Company completed the following non-cash transactions in
1998 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 Senior Secured Notes.
Such transactions not reported elsewhere herein are as follows:
1998
----
In January 1998, the Company issued warrants to holders of
its Series F Preferred Stock at $0.15 per share which was recorded
as a preferred stock dividend of approximately $523,000.
In January 1998, the Company issued 55,625 shares of Common
Stock to an individual, in respect of $222,500 payable in shares
of Common Stock, pursuant to an agreement effective October 1, 1997,
between the Company and such individual.
In August 1998, the Company issued an additional 65,622
shares of Common Stock to that same individual, in payment of
the remaining $222,500 payable under the same agreement.
In November 1998, the Company issued 35,000 shares of Common
Stock to a consultant in payment for consulting services to be
performed under a consulting agreement dated June 15, 1998.
1997
----
On January 9, 1997, the Company accepted subscriptions for
an aggregate of 21,057 shares of Series F Preferred Stock, issued
at $65.00 per share, in February, to three individuals for 18,448
shares; 1,731 shares and 878 shares, respectively. The
subscriptions were paid for with $225,000 in cash, cancellation
of a consulting agreement, surrender of Common Stock and Warrants
issued in connection with a consulting agreement, surrender of
rights to acquire units of registered Common Stock and Warrants,
surrender of certain registration rights covering 3,000,000
shares, and surrender 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.
On May 20, 1997, the Company issued 11,816 shares of Amended
Series A Preferred Stock and 133,914 warrants to acquire shares
of Common Stock, in respect of approximately $1.0 million of
accrued interest payable to certain institutional holders of
Secured Subordinated Debt. The warrants issued are first
exercisable on May 20, 1998, at an exercise price of $3.0945
per share, and expire on November 1, 2000.
In October, 1997, the Company issued 30,000 shares of Common
Stock and granted .003215% in aggregate Net Revenue Interest on
the Zhao Dong Block to a former employee of the Company, and her
attorneys, in settlement of litigation against the Company.
In October 1997, pursuant to an agreement effective October
1, 1997, the Company issued an aggregate of 53,333 shares of
Common Stock as compensation to an individual who has performed
services for the Company.
On November 11, 1997, the Company issued 26,667 shares of
Common Stock and stock purchase warrants to acquire 13,333 shares
of Common Stock to a consultant, as compensation pursuant to an
agreement dated effective as of February 20, 1997.
1996
----
In March and April 1996, the Company sold units of Common
Stock and Warrants through a placement agent in a Regulation S
unit offering. As compensation for such unit offering the
Company granted warrants to acquire an aggregate of 25,600 shares
of Common Stock.
As compensation for services performed that resulted in
Apache Corp. purchasing an additional interest in the Zhao Dong
Block, during the first quarter of 1996 the Company issued 3,333
shares of Common Stock to a finder. In addition, the finder's
existing warrants to acquire 33,333 shares of Common Stock were
amended, as to exercise price, expiration date and forced
conversion feature, to conform the terms of such warrants to the
terms of warrants granted in the Regulation S unit offering noted
above.
The finder earned a four percent stock fee of the gross
proceeds of the offering as compensation for identifying the
placement agent for the Regulation S unit offering. In payment
of this fee, the Company during the first quarter, issued 17,817
shares of Common Stock in connection with the initial closing and
during the second quarter issued an aggregate 8,192 shares of
Common Stock as compensation for the subsequent closings.
Effective March 1, 1996, the terms of warrants issued to a
financial advisor 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 $15.00 to $7.50 and the
term of the warrant was extended for three years to March 1,
1999.
During August 1996, the Company issued to a finder 18,666
warrants to purchase 18,666 shares of Common Stock, as
compensation for the placement with their clients of 186,666
units, comprised of shares of Common Stock and warrants to
purchase Common Stock.
During October 1996, the Company issued approximately 93,333
shares of Common Stock plus warrants to acquire 166,666 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 100,000 warrants to
acquire 100,000 shares of Common Stock, as compensation to an
individual for past fund raising services.
(4) Oil and Gas Properties Held for Sale and Investments
Oil and Gas Properties Held for Sale
- ------------------------------------
Domestic Oil and Gas Properties
-------------------------------
During 1996, the Company was engaged in attempts to sell its
remaining domestic oil and gas properties and had a contract in
place for the sale of the property. Prior to the sale being
consummated, the Company received service of three lawsuits filed
by lessors of the most productive remaining leases, effectively
thwarting the Company's ability to consummate the 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. As a
result of these lawsuits and other matters related to the oil and
gas industry, the carrying value of these properties have been
reduced by $3.85 million in 1996 and $4.0 million in 1998.
Investments
- -----------
Investment in Land
------------------
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 pledged as collateral
for the Lutcher Moore limited recourse debt. During the second
quarter of 1998, this property was reclassified from "oil and gas
properties held for sale" to "investment in land" as the Company
is presently exploring various development and alternative
economic plans.
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, 1998, the Company has invested approximately $4.1
million in the project.
(5) Debt
Long-term debt consists of the following (000's):
December 31,
-----------------
1998 1997
---- ----
Senior secured notes, net of
unamortized discount of
$11,453 and $13,690, respectively $ 63,457 $ 61,310
Lutcher Moore Group Limited Recourse Debt 1,474 2,524
XCL Land, Ltd. secured notes 1,500 --
------ ------
66,431 63,834
------ ------
Less current maturities:
Lutcher Moore Group Limited Recourse Debt (1,474) (2,524)
XCL Land, Ltd. secured notes (1,500) --
------ ------
(2,974) (2,524)
------ ------
$ 63,457 $ 61,310
====== ======
Substantially all of the Company's assets collateralize
these borrowings.
At December 31, 1998, the long-term portion of the Senior
Secured Notes was reclassified to a current liability due to the
uncertainty surrounding the Company's ability to make its next
interest payment (in the approximate amount of $5.6 million) due
in May 1999.
Senior Secured Notes
--------------------
The Company sold in an unregistered offering to qualified
institutional buyers and accredited institutional investors, on
May 20, 1997 (the "Note Offering"), 75,000 Note Units. Each Note
Unit consisted of $1,000 principal amount of 13.5% Senior Secured
Notes due May 1, 2004 (collectively, the "Notes") and one Common
Stock Purchase Warrant (collectively the "Note Warrants") to
purchase 85 shares of the Company's common stock, par value $0.01
per share (the "Common Stock"), at an exercise price of $3.09 per
share, first exercisable after May 20, 1998. Total funds
received of $75 million were allocated $15 million to the Note
Warrants and $60 million to the Notes. The value allocated to
the Note Warrants is being amortized to interest expense over the
term of the Notes. At December 31, 1998, the unamortized
discount on the Notes is approximately $11.5 million. Since the
Notes have not been registered at December 31, 1998, the interest
rate has been increased to 15% pursuant to the terms of the Note
Offering.
Interest on the Notes is payable semi-annually on May 1 and
November 1. The Notes will mature on May 1, 2004. The Notes are
not redeemable at the option of the Company prior to May 1, 2002,
except that the Company may redeem, at its option prior to May 1,
2002, up to 35% of the original aggregate principal amount of the
Notes, at a redemption price of 113.5% of the aggregate principal
amount of the Notes, plus accrued and unpaid interest, if any, to
the date of redemption, with the net proceeds of any equity
offering completed within 90 days prior to such redemption;
provided that at least $48.75 million in aggregate principal
amount of the Notes remain outstanding. On or after May 1, 2002,
the Notes are redeemable at the option of the Company, in whole
or in part, at an initial redemption price of 106.75% of the
aggregate principal amount of the Notes until May 1, 2003, and at
par thereafter, plus accrued and unpaid interest, if any, to the
date of redemption. Upon the occurrence of a change of control,
as defined, the Company will be obligated to make an offer to
purchase all outstanding Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase. Total interest expense incurred on
the Notes was approximately $10.9 million for the year ended
December 31, 1998.
The Senior Secured Notes restrict, among other things, the
Company's ability to incur additional debt, incur liens, pay
dividends, or make certain other restricted payments. They also
limit the Company's ability to consummate certain asset sales,
enter into certain transactions with affiliates, enter into
mergers or consolidations, or dispose of substantially all the
Company's assets. The Company's ability to comply with such
covenants may be affected by events beyond its control. The
breach of any of these covenants could result in default. A
default could allow holders of the Notes to declare all amounts
outstanding and accrued interest immediately due and payable.
Absent such payment, the holders could proceed against any
collateral granted to them to secure such indebtedness, which
includes all of the stock of the Company's principal operating
subsidiary, XCL-China, which has guaranteed such indebtedness. A
foreclosure on the stock of XCL-China could trigger Apache's
right of first refusal under the Participation Agreement to
purchase such stock or its option to purchase the Company's
interest in the Contract. There can be no assurance that the
assets of the Company and XCL-China (a "Subsidiary Guarantor"),
or any other Subsidiary Guarantors would be sufficient to fully
repay the Notes and the Company's other indebtedness.
During 1998, the Company paid an aggregate of $10.7 million
in interest to the holders of the Senior Secured Notes.
XCL Land, Ltd. Secured Notes
----------------------------
On November 6, 1998, the Company, through its wholly owned
subsidiary, XCL Land, Ltd., ("XCL Land"), issued an aggregate of
15 units, each unit comprised of a secured note in the principal
amount of $100,000 each and five-year warrants, exercisable at
$3.50 per share, to purchase 21,705 shares of Common Stock of the
Company in a short term financing with three lenders. The
lenders were granted a security interest in the partnership
interests of XCL Land and The Exploration Company of Louisiana,
Inc., in L.M. Holding Associates, L.P., the owner of the Lutcher
Moore Tract. The notes bear interest at 15% per annum and are
payable in 90 days, with the option for two 90-day extensions,
the second of which must be approved by the lenders. XCL Land
received $1.5 million in proceeds, of which $0.7 million was used
to pay outstanding indebtedness associated with the Lutcher Moore
Tract and the remaining $0.8 million was paid as a dividend to
the Company to be used by the Company as working capital.
On January 15, 1999, the Company issued an aggregate of five
additional units, on the same terms as the units issued on
November 6, 1998, except that the exercise price of the warrants
was $2.00 per share. In connection with the additional
subscriptions, the exercise price for the warrants issued in the
November 6, 1998, offering were reduced to $2.00 per share. XCL
Land received $0.5 million in proceeds, all of which was paid as
a dividend to the Company to be used by the Company as working
capital.
During March 1999, the Company issued an aggregate of two
additional units, on the same terms as the units issued on
January 15, 1999, except that the exercise price of the warrants
was $1.50 per share. In connection with the additional
subscriptions, and pursuant to the terms of the subscription
agreements, the exercise price for the warrants issued in the
November 6, 1998 and January 15, 1999 offerings, were reduced to
$1.50 per share. XCL Land received $200,000 in proceeds, all of
which was paid as a dividend to the Company to be used by the
Company as working capital.
Also during March 1999, the Company, through XCL Land,
issued one unit comprised of a secured note in the principal
amount of $100,000 and five-year warrants, exercisable at $1.25
per share, to purchase 10,000 shares of Common Stock of the
Company in a short term financing with one lender. The lender
was granted a security interest in the partnership interests of
XCL Land and The Exploration Company of Louisiana, Inc., in L.M.
Holding Associates, L.P., the owner of the Lutcher Moore Tract.
The notes bear interest at 15% per annum and are payable in 45
days. XCL Land received $100,000 in proceeds, all of which was
paid as a dividend to the Company to be used by the Company as
working capital.
(6) Shareholders' Equity
Preferred Stock
---------------
As of December 31, 1998 and 1997, the Company had the
following shares of Preferred Stock issued and outstanding:
<TABLE>
<CAPTION>
Preference in 1998 Dividends
Shares Liquidation at (In Thousands)
1998 1997 December 31, 1998 Declared Accrued Total
---- ---- ----------------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Amended Series A 1,231,897 1,129,453 $104,711,245 $ 3,507 $ 1,658 $ 5,165
Amended Series B 50,848 -- 5,084,800 419 -- 419
Series B -- 44,465 -- -- -- --
Series F -- 22,318 -- 523 -- 523
--------- --------- ----------- ------ ------ -------
1,282,745 1,196,236 $109,796,045 $ 4,449 $ 1,658 $ 6,107
========= ========= =========== ====== ====== ======
</TABLE>
Amended Series A Preferred Stock
--------------------------------
On May 20, 1997, the Company sold, in an unregistered
offering to qualified institutional buyers and accredited
institutional investors (the "Equity Offering") 294,118 Equity
Units. Each Equity Unit consisted of one share of Amended Series
A, Cumulative Convertible Preferred Stock, par value $1.00 per
share ("Amended Series A Preferred Stock"), and one Common Stock
Purchase Warrant (collectively, the "Equity Warrants") to
purchase approximately 22 shares of the Company's Common Stock,
at an initial exercise price of $3.09 per share, first
exercisable on May 20, 1998. Total funds received of $25 million
were allocated, $15 million to the Equity Warrants and $10
million to the Amended Series A Preferred Stock. The difference
between the fair value of the preferred stock and its redemption
value of $85.00 per share is being amortized to preferred stock
dividends over the 10-year mandatory redemption period.
Each share of Amended Series A Preferred Stock has a
liquidation value of $85.00, plus accrued and unpaid dividends.
Dividends on the Amended Series A Preferred Stock are payable
semi-annually, at an annual rate of $8.075 per share. Dividends
are payable in additional shares of Amended Series A Preferred
Stock (determined based on $85.00 per share) through November 1,
2000, and thereafter in cash, or at the election of the Company,
in additional shares of Amended Series A Preferred Stock. The
fair value of preferred shares issued in lieu of cash dividends
is $35 per share as of December 31, 1998, and the difference
between this value and $85 per share is being accreted to the
mandatory redemption date using the effective interest method.
Accordingly, the amount charged to dividends does not reflect the
stated rate. The Amended Series A Preferred Stock is convertible
into Common Stock, at any time after May 20, 1998, at the option
of the holder thereof, unless previously redeemed. The initial
conversion price is $7.50 per share of Common Stock (equivalent
to a rate of 11.333 shares of Common Stock for each share of
Amended Series A Preferred Stock), subject to adjustment under
certain conditions. The Company is entitled to require
conversion of all the outstanding shares of Amended Series A
Preferred Stock, at any time after November 20, 1997 if the
Common Stock shall have traded for 20 trading days during any 30
consecutive trading day period at a market value equal to or
greater than 150% of the prevailing conversion rate.
The Amended Series A Preferred Stock is redeemable at any
time on or after May 1, 2002, in whole or in part, at the option
of the Company. The initial redemption price is $90.00 per
share, and after May 1, 2002, at redemption prices that decrease
ratably annually to $85.00 per share, on and after May 1, 2006,
plus accrued and unpaid dividends to the redemption date. The
Amended Series A Preferred Stock is mandatorily redeemable, in
whole, on May 1, 2007, at a redemption price of $85.00 per share,
plus accrued and unpaid dividends to the redemption date, payable
in cash, or at the election of the Company, in Common Stock.
Upon the occurrence of a change in control or certain other
fundamental changes, the conversion price of the Amended Series A
Preferred Stock will be reduced, for a limited period, in certain
circumstances, in order to provide holders with loss protection
at a time when the market value of the Common Stock is less than
the then prevailing conversion price.
The Amended Series A Preferred Stock will entitle the holder
thereof to cast the same number of votes as the shares of Common
Stock then issuable upon conversion thereof on any matter subject
to the vote of the holders of the Common Stock. Further, the
holders of the Amended Series A Preferred Stock will be entitled
to vote as a separate class (i) to elect two directors if the
Company is in arrears in payment of three semi-annual dividends,
and (ii) for the issuance of any class or series of stock ranking
prior to the Amended Series A Preferred Stock, as to dividends,
liquidation rights and for certain amendments to the Company's
Certificate of Incorporation that adversely affect the rights of
holders of the Amended Series A Preferred Stock (subject to
approval by two-thirds of the then outstanding Amended Series A
Preferred Stock).
Effective November 10, 1997, by consent of in excess of 88
percent of the outstanding shares of Series A Preferred Stock
such series of preferred stock was amended, reclassified and
converted to Amended Series A Preferred Stock. As a consequence
of such consent all dividend arrearages, and accrued and unpaid
dividends were paid in additional shares of Amended Series A
Preferred Stock. This amendment resulted in approximately
726,907 shares of Amended Series A Preferred Stock being issued
in respect of such reclassification and payment of dividends.
Effective November 10, 1997, by consent of in excess of 67
percent of the outstanding Series E Preferred Stock such series
of preferred stock was amended, reclassified and converted to
Amended Series A Preferred Stock. As a consequence of such
consent all accrued and unpaid dividends were paid in additional
shares of Amended Series A Preferred Stock. This amendment
resulted in approximately 63,706 shares of Amended Series A
Preferred Stock being issued in respect of such reclassification
and payment of dividends.
Amended Series B Preferred Stock
--------------------------------
On May 16, 1995, the Company received notice from the Series
B Preferred holder exercising its redemption rights. The Company
elected to redeem in shares of Common Stock and the holder
exercised its option to have the Company sell its shares of
Common Stock. The aggregate redemption price was $5 million,
plus accrued dividends from January 1, 1995 to the date of
redemption. Approximately 5,535 shares had been redeemed at
December 31, 1997, from the sale of approximately 353,333 shares
of Common Stock. In July 1997, the holder of the Series B
Preferred Stock sued the Company and each of its directors with
respect to the alleged failure of the Company to redeem the
Series B Preferred Stock in accordance with the terms of the
Purchase Agreement and Certificate of Designation. In settlement
of that lawsuit in March 1998, the holder of the Series B
Preferred Stock revoked and withdrew its redemption notice and
sold its shares of Series B Preferred Stock and accompanying
warrants.
The purchasers of the Series B Preferred Stock, concurrently
with such purchase, exchanged the stock and warrants for 44,465
shares of Amended Series B Preferred Stock and warrants to
purchase 250,000 shares of Common Stock. The warrants are
exercisable at $5.50 per share, subject to adjustment, and expire
March 2, 2002. The purchasers also received 2,620 shares of
Amended Series B Preferred Stock in payment of all accrued and
unpaid dividends on the Series B Preferred Stock.
Each share of Amended Series B Preferred Stock has a
liquidation value of $100, plus accrued and unpaid dividends.
Dividends on the Amended Series B Preferred Stock are payable
semi-annually on June 30 and December 31 of each year, at an
annual rate of $9.50 per share if paid in cash. In lieu of
payment in cash, the Company may, at its option, elect to pay any
dividend in kind in shares of either Common Stock or Amended
Series B Preferred Stock at the option of the holder. If such
dividend is paid in shares of Amended Series B Preferred Stock,
the dividend will be 0.0475 shares of dividend stock per share of
Amended Series B Preferred Stock held. If the dividend is paid
in shares of Common Stock, the dividend shall equal the number of
shares of Common Stock equal to the quotient obtained by dividing
$4.75 by the lowest average closing price per share of Common
Stock as calculated for the last 5, 10 and 30 trading days
preceding the dividend payment date. Fractional shares will be
paid in cash or aggregated and sold on behalf of the holders.
Each share of Amended Series B Preferred Stock is
convertible into Common Stock, at the option of the holder, at
the rate of 21.0526 shares of Common Stock, provided such Common
Stock is registered under the Securities Act, and 26.3158 shares
of Common Stock if such Common Stock is not registered. The
Amended Series B Preferred Stock is convertible at the option of
the Company, provided that the shares of Common Stock to be
issued upon conversion have been registered under the Securities
Act, and the market price of the Common Stock equals or exceeds
$11.25 per share for 20 out of 30 consecutive trading days.
The Amended Series B Preferred Stock is redeemable at the
option of the holder at any time after December 21, 2001 at $100
per share plus accrued and unpaid dividends to the redemption
date. The redemption price may be paid at the option of the
Company, in either cash or shares of Common Stock.
The Amended Series B Preferred stock votes together with the
Common Stock of the Company as a single class on all actions
taken by the shareholders of the Company. Each share of Amended
Series B Preferred Stock entitles the holder thereof to cast 50
votes. Further, the holders of the Amended Series B Preferred
Stock will be entitled to vote as a separate class to amend,
alter or repeal the provisions of the Company's Restated
Certificate of Incorporation or the Certificate of Designation of
the Amended Series B Preferred Stock.
Series F Preferred Stock
------------------------
In January 1998, the holders of the Series F Preferred Stock
approved an amendment to the "forced conversion" terms of the
Series F Preferred Stock. Effective January 16, 1998, the
Company forced conversion of the Series F Preferred Stock and an
aggregate of 633,893 shares of Common Stock were issued upon
conversion and in payment of accrued and unpaid dividends. In
consideration for such amendment the holders of the Series F
Preferred Stock were issued warrants to acquire an aggregate of
153,332 shares of Common Stock at an exercise price of $0.15 per
share, which resulted in an increase of preferred stock dividends
of approximately $523,000. These warrants expire December 31,
2001.
Dividends
---------
During 1998, the Company issued an aggregate of 106,910
shares of Amended Series A Preferred Stock in payment of the May
1, 1998 and November 1, 1998 dividends on the Amended Series A
Preferred Stock.
During 1998, the Company issued an aggregate of 3,763 shares
of Amended Series B Preferred Stock, in payment of the June 30,
1998 and December 31, 1998 dividends on the Amended Series B
Preferred Stock.
Prior to November 1997, dividends with respect to the Series
A Preferred Stock were in arrearage. Effective November 10, 1997,
the Series A Preferred Stock was amended, reclassified and
converted to Amended Series A Preferred Stock. As a consequence
of such consent all dividend arrearages, and accrued and unpaid
dividends were paid in additional shares of Amended Series A
Preferred Stock.
Dividends during 1997 on the Series B Preferred Stock were
paid from proceeds of sales of redemption stock, which were
applied first to accrued dividends then to the redemption of
shares of Series B Preferred Stock. On March 3, 1998, all
accrued and unpaid dividends on the Series B Preferred Stock were
paid in shares of Amended Series B Preferred Stock.
During 1997, the Company issued 5,261 shares of Series E
Preferred Stock in payment of the December 31, 1996 and June 30,
1997 dividends on the Series E Preferred Stock. Effective
November 10, 1997, the Series E Preferred Stock was amended,
reclassified and converted to Amended Series A Preferred Stock.
As a consequence of such consent all dividend arrearages, and
accrued and unpaid dividends were paid in additional shares of
Amended Series A Preferred Stock.
During 1997, the Company issued 1,261 shares of Series F
Preferred Stock in payment of the June 30, 1997 dividends payable
on the Series F Preferred Stock.
On November 3, 1997, 12,906 shares of Amended Series A
Preferred Stock were issued in respect of the dividend payable
November 1, 1997, in the amount of $1.1 million. Upon conversion
of the Series A and Series E Preferred Stocks into Amended Series
A Preferred Stock, approximately $9.23 million in accrued and
unpaid dividends on the Series A Preferred Stock, and
approximately $200,000 in accrued and unpaid dividends on the
Series E Preferred Stock, were paid through the issuance of
790,613 additional shares of Amended Series A Preferred Stock.
Common Stock
------------
The Company issued 1,737,184, 2,479,361, and 1,888,461
shares of Common Stock during 1998, 1997 and 1996, respectively.
The Company had 23,373,358, 21,705,644 and 19,226,283 shares of
Common Stock outstanding at December 31, 1998, 1997 and 1996,
respectively.
Common Stock Warrants
---------------------
As of December 31, 1998, outstanding warrants to purchase
the Company's Common Stock are as follows:
Common Stock
Issuable Upon Warrant Exercise Proceeds if
Exercise Price Exercised
------------- --------------- -----------
Total Warrants Expiring in 1999 715,114 $1.848 to $17.56 $ 9,637,574
Total Warrants Expiring after 1999 16,721,062 $0.15 to $17.56 54,472,765
---------- ----------
Total Warrants 17,436,176 $ 64,110,339
========== ==========
During January 1998, the Company issued 11,333 shares of
Common Stock upon exercise of warrants exercisable at an exercise
price of $1.875 per share, and received an aggregate of $21,249
upon exercise of such warrants.
During March 1998, the Company issued 128,887 shares of
Common Stock upon exercise of warrants exercisable at an exercise
price of $1.875 per share, and received an aggregate of $241,663
in proceeds. Also in March 1998, the Company issued 455,809
shares of Common Stock upon exercise of warrants exercisable at
$0.15 per share, and received an aggregate of $68,371 upon
exercise of such warrants.
Pursuant to a warrant exchange agreement dated September 17,
1998, a holder of an aggregate of 351,015 warrants, exercisable
at $3.09 per share, received 351,105 new warrants, exercisable at
$2.50 per share, provided such warrants were exercised prior to
September 30, 1998. The holder exercised all 351,105 warrants at
$2.50 per share and the Company received $877,537 in payment of
the exercise price. The approximate fair value of the new warrants
issued of $207,000 was recorded as interest expense in 1998.
Loss Per Share
--------------
The following table sets forth the computation of basic and
diluted loss per share.
For the Years Ended December 31,
______________________________
1998 1997 1996
---- ---- ----
Weighted average number of shares on which
basic loss per share is calculated: 22,797 20,451 17,705
Weighted average number of shares on which
diluted loss per share is calculated: 22,797 20,451 17,705
Net loss applicable to common shareholders $(19,861) $(20,922) $(17,430)
Basic loss per share $ (0.87) $ (1.03) $ (0.98)
Diluted loss per share $ (0.87) $ (1.03) $ (0.98)
The effect of 35,552,370, 33,902,036 and 5,103,082 shares of
potential common stock were anti-dilutive in 1998, 1997 and 1996,
respectively, due to the losses in all three years and are excluded
from the above totals.
(7) Income Taxes
The Company has significant loss carryforwards that 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 1998, 1997 and 1996, were as follows (000's):
1998 1997 1996
---- ---- ----
Current year domestic net
operating loss $ (4,850) $ (4,758) $ (4,387)
Current year Chinese deferred costs (454) (356) (829)
Expiration of net operating loss 1,033 -- --
Prior year under accrual of Chinese
deferred costs -- (537) --
Tax/book depreciation, depletion and
amortization difference 578 3,149 3,046
Oil and gas property expenditures
treated as expense for income tax
purposes -- -- 41
Other accruals (19) 13 (1,348)
Reserve for investments (69) -- (855)
Other 777 -- --
Increase (decrease) in valuation
allowance 3,004 2,489 4,332
----- ----- ------
$ -- $ -- $ --
===== ===== ======
The components of the Company's deferred tax assets and
liabilities as of December 31, 1998, 1997 and 1996, were as follows (in
000's):
1998 1997 1996
---- ---- ----
Deferred tax assets:
Domestic net operating loss
carryforwards $ 67,698 $ 63,730 $ 58,972
Chinese deferred costs 3,968 4,439 3,546
Other liabilities and reserves 2,890 2,802 2,815
Property and equipment, net 12,015 12,593 15,742
Valuation allowance (86,571) (83,564) (81,075)
------- ------- -------
Total deferred tax assets $ -- $ -- $ --
======= ======= =======
At December 31, 1998, the Company had net operating loss
carryforwards for tax purposes in the approximate amount of $193
million which expire through the year ending December 31, 2018.
Additionally, the Company has available acquired net operating
loss carryforwards, in the approximate amount of $2.2 million,
which are scheduled to expire by the year ending December 31,
1999, and which are available to offset taxable income of an
acquired subsidiary. Use of the net operating loss carryforwards
is subject to limitations under Section 382 of the Internal
Revenue Code.
At December 31, 1998, the Company had alternative minimum
tax net operating loss carryforwards in the approximate amount of
$187 million which will expire through the year ending December
31, 2018. Additionally, the Company has acquired alternative
minimum tax net operating loss carryforwards in the approximate
amount of $12 million which expire through the year ending
December 31, 1999, 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.
The Company also has deferred costs associated with its Chinese
operations of approximately $11.3 million. The costs will be
amortized and deducted for Chinese tax purposes upon the
generation of revenue from its Chinese operations.
(8) Stock Option Plans
The Company's stock option plans, administered by the
compensation committee, 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 or
Preferred 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. The Company's options are accounted for in
accordance with Accounting Principles Board Opinion No. 25. 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 1.1
million shares of Common Stock pursuant to future awards granted
thereunder.
In December 1997, the shareholders of the Company approved
the amendment and restatement of the Company's LTSIP, effective
as of June 1, 1997, (i) increasing the number of shares issuable
under the LTSIP by 4 million shares of Common Stock, (ii)
authorizing 200,000 shares of preferred stock for issuance under
the LTSIP, and (iii) ratifying certain grants of non-qualified
stock options and restricted stock awards to certain officers and
directors of the Company. The LTSIP, as amended and restated,
also allows for the grant of appreciation option awards. A grant
of an appreciation option award to Mr. Miller was ratified at
that same meeting.
All of the restricted stock awards entitle the participants
to full dividend and voting rights and are restricted as to
disposition and subject to forfeiture under certain conditions.
The shares become unrestricted upon attainment of certain
increases in the market price of the Company's Common Stock
within four years from date of grant, as provided for in the
plan. Upon issuance of restricted shares, unearned compensation
is charged to shareholders' equity for the cost of restricted
stock and recognized as expense over the lapsing of restrictions.
The appreciation option awarded to the Chairman provides him
with the right upon his payment of the exercise price (20% of
amount entitled to receive) to additional compensation payable in
cash or in shares of Common Stock based upon 5% of the difference
between the market capitalization (as defined) of the Company as
of June 1, 1997, and the date the option is exercised (no earlier
than June 1, 2002). Because the option contemplates compensation
determined with reference to increases in the market
capitalization without restriction, there is no effective limit
on the amount of compensation which may become payable
thereunder. Since the market capitalization as of December 31,
1998 is below that of June 1, 1997 the original unearned
compensation of $3.1 million recorded in connection with the
option was adjusted during 1998, and accordingly, no
compensation expense was recognized in 1998. The appreciation
option expires on June 1, 2007.
Non-qualified options granted on June 1, 1997 for an option
price of $3.75 per share resulted in compensation expense for
1998 and 1997 of $778,000 and $481,000, respectively. The
measurement date was established on December 17, 1997, the date
of shareholder approval.
Effective June 1, 1997, the Company granted non-qualified
stock options to purchase 170,000 shares of Amended Series A
Preferred stock for an option price of $85 per share. Those
options vest ratably over a three-year period beginning June 1,
2000 and expire on June 1, 2007. Upon exercise of such options,
the number of shares of Amended Series A Preferred Stock shall be
increased, without increase in the option price, by a number of
shares of preferred stock equal to the dividends that would have
been received by the option holder had the option holder owned
the shares of Amended Series A Preferred Stock as to which the
option is being exercised from the date of grant of such option
to the date of exercise, and assuming the Company had declared
and paid in kind all regularly scheduled dividends as provided
under the terms of the Amended Series A Preferred Stock. These
options are considered a variable plan issued significantly above
the current fair value of the Amended Series A Preferred Stock.
Therefore, the Company will mark to market the options and record
compensation expense at the time, if any, the value of the option
exceeds the exercise price of $85 per share.
A summary of the Common Stock option plans activity for the
years ended December 31, 1998, 1997 and 1996 is as follows:
Option Price Weighted Average
Shares Per Share Exercise Price
------ ------------ ------------
Outstanding at December 31, 1995 772,178 $12.50-$31.88 $18.91
Granted 16,133 $18.75 $18.75
Forfeited (101,467) $18.75 - $22.50 $20.14
--------- --------------- ------
Outstanding at December 31, 1996 686,844 $12.50 - $31.88 $18.72
Granted 1,999,995 $3.75 $3.75
Forfeited (7,238) $18.75 - $22.50 $19.12
--------- --------------- ------
Outstanding at December 31, 1997 2,679,601 $3.75 - $31.88 $7.55
Granted 711,666 $3.75 $3.75
Forfeited (574,680) $3.75 - $31.88 $8.82
--------- ---------------- ------
Outstanding at December 31, 1998 2,816,587 $3.75 - $31.88 $6.48
=========
Options exercisable at December 31, 1996 676,089
=======
Options exercisable at December 31, 1997 676,451
=======
Options exercisable at December 31, 1998 908,804
=======
The following table summarizes information about Common
Stock options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
____________________________________________________________________ ___________________________________
Weighted Average
Range of Outstanding at Remaining Life Weighted Average Exercisable at Weighted Average
Exercise Prices December 31, 1998 Years Exercise Price December 31, 1998 Exercise Price
- --------------- ----------------- --------------- --------------- ----------------- ----------------
<C> <C> <C> <C> <C> <C>
$3.75 2,311,661 5.4 $3.75 403,878 $ 3.75
$18.75-$31.59 504,926 3.4 $18.98 504,926 $18.98
--------- -------
2,816,587 908,804
========= =======
</TABLE>
The weighted average fair value of Common Stock options granted
during 1998, 1997 and 1996 was $2.93, $5.50 and $4.20 per share,
respectively.
If compensation expense for the stock options had been
determined and recorded based on the fair value on the grant date
using the Black-Scholes option pricing model to estimate the
theoretical future value of those options, the Company's net loss
per share amounts would have been reduced to the pro forma
amounts indicated below (000's, except per share data):
1998 1997 1996
---- ---- ----
Net loss as reported $ (19,861) $ (20,922) $ (17,430)
Compensation expense 4,483 1,012 126
------- ------- -------
Pro forma loss $ (24,344) $ (21,934) $ (17,556)
======= ======= =======
Pro forma loss per share:
Basic $ (1.07) $ (1.07) $ (0.99)
======== ======== ========
Diluted $ (1.07) $ (1.07) $ (0.99)
======== ======== ========
Weighted average shares 22,797 20,451 17,705
======== ======== ========
Due to uncertainties in these estimates, such as market prices,
exercise possibilities and the possibility of future awards and
cancellations, these pro forma disclosures are not likely to be
representative of the effects on reported income for future
years.
For pro forma purposes, the fair value of each option grant
is estimated on the date of grant with the following weighted
average assumptions:
1998 1997 1996
---- ---- ----
Expected life (years) 7 10 10
Interest rate 5.52% 5.87% 6.68%
Volatility 78.00% 135.00% 100.00%
Dividend yield -- -- --
(9) 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 1998, 1997 or 1996. Effective January 1, 1999,
the 401(k) plan was amended to (i) allow employees to contribute
up to 15 percent of their compensation, and (ii) allow the
Company to make matching contributions, at its option, in cash or
equity securities of the Company.
(10) Commitments and Contingencies
Other commitments and contingencies 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. These obligations 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.
4. The Production Period for any oil and/or gas
field covered by the Contract (the "Contract
Area") will be 15 consecutive years (each of 12
months), commencing for each such field on the
date of commencement of commercial production (as
determined under the terms of the Contract).
However, prior to the Production Period, and
during the Development Period, oil and/or gas may
be produced and sold during a long-term testing
period.
The Contractor may terminate the Production Sharing
Agreement at the end of each phase of the Exploration
period, without further obligation.
o The Company, through its wholly owned subsidiary XCL-Cathay
Ltd., acquired the rights to appraisal, development and
production of the Zhang Dong Block, in the Bohai Bay shallow
water sea area, by executing a Petroleum Contract (the
"Contract") with China National Petroleum Corporation ("CNPC") in
August 1998. The Company is the Contractor. The Contractor
shall pay all appraisal costs. If CNPC 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 CNPC and the remainder by the Company.
The Contract is basically divided into three periods:
the Appraisal period, the Development period and the
Production period. Work to be performed and
expenditures to be incurred during the Appraisal
period, which consists of three phases totaling five
years from October 1, 1998, are the exclusive
responsibility of the Company. The Contractor's
obligations in the three appraisal phases are as
follows:
1. During the first year, the Contractor is
required to drill one appraisal well, perform
seismic data processing, upgrade the artificial
island and causeway, and expend a minimum of $4
million.
2. During the next two years, the Contractor is
required to drill two appraisal wells, make
additional improvements to the artificial island
if Contractor elects to drill from such facility,
re-evaluate a minimum of three existing wellbores,
formulate a development program for any field
determined to be commercial, and expend a minimum
of $6 million.
3. During the last two years, the Contractor is
required to drill two appraisal wells and expend a
minimum of $6 million.
4. The Production Period for any oil and/or gas
field covered by the Agreement will be 20
consecutive years (each of 12 months), commencing
for each such field on the date of commencement of
commercial production (as determined under the
terms of the Contract). However, prior to the
Production Period, and during the Development
Period, oil and/or gas may be produced and sold
during a long-term testing period.
The Contractor may terminate the Contract at the end of
either the first or second phase of the Appraisal
period, without further obligation. The Company currently
estimates that its share of the development costs on
proved reserves associated with the Zhao Dong Block to be
approximately $35.5 million.
o On December 1, 1995, XCL-China submitted to arbitration
certain accounting disputes arising from operations in the Bohai
Bay Shallow Water Sea Area, People's Republic of China and
governed by a Zhao Dong Block Operating Agreement. By the
initial submission, XCL-China disputed certain amounts charged to
it by Apache in the August, September and October 1995 joint
interest billings and the November and December 1995 cash calls
which could develop into an event that would trigger Apache's
option to purchase the Company's interest in the Contract.
Thereafter, disputes involving joint interest billings through
December 1998 were added to the submission. In 1997, XCL-China
made some payments with respect to the disputed amounts although
the arbitration proceeding remains unresolved and inactive
inasmuch as a third arbitrator has not been selected.
o The Company is in dispute over a 1992 tax assessment
(including penalties and interest through December 31, 1988)
by the Louisiana Department of Revenue and Taxation for the years
1987 through 1991 in the approximate amount of approximately $3.1
million. The Company is in dispute over a 1997 assessment (including
penalties and interest through December 31, 1998) from the Louisiana
Department of Revenue and Taxation for income tax years 1991 and
1992, and franchise tax years 1992 through 1996 in the approximate
amount of approximately $3.3 million. The Company has filed written
protests as to these assessments, and will vigorously contest the
asserted deficiencies through the administrative appeals process
and, if necessary, litigation. The Company believes that adequate
provision has been made in the financial statements for any
liability.
o On July 26, 1996, an individual filed three lawsuits against
a wholly owned subsidiary with respect to oil and gas properties
held for sale. One suit alleges actual damage of $580,000 plus
additional amounts that could result from an accounting of a
pooled interest. Another seeks legal and related expenses of
$56,473 from an allegation the plaintiff was not adequately
represented before the Texas Railroad Commission. The third suit
seeks a declaratory judgement that a pooling of a 1938 lease and
another in 1985 should be declared terminated and further
plaintiffs seek damages in excess of $1 million to effect
environmental restoration. The Company believes these claims are
without merit and intends to vigorously defend itself.
o The Company is subject to other legal proceedings that 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.
(11) Supplemental Financial Information
Quarterly Results of Operations (Unaudited)
Quarter
________________________________________
First Second Third Fourth (a) Year
------ ------ ----- --------- ------
(In Thousands, Except Per Share Amounts)
1998
- ----
Loss from operations $ (1,653) $ (1,334) $ (1,677) $(5,937) $(10,601)
Net loss (2,015) (2,105) (886) (8,748) (13,754)
Net loss attributable to
common stock (4,442) (4,557) (3,366) (7,496) (19,861)
Weighted average number of
shares used in per share
calculations:
Basic 22,318 22,922 22,922 23,017 22,797
Diluted 22,318 22,922 22,922 23,017 22,797
Net loss per share:
Basic (0.20) (0.20) (0.15) (0.32) (0.87)
Diluted (0.20) (0.20) (0.15) (0.32) (0.87)
1997
- ----
Loss from operations $ (816) $ (774) $ (976) $ (5,492) $ (8,058)
Net loss (1,211) (1,215) (417) (10,603) (13,446)
Net loss attributable to
common stock (2,615) (3,127) (2,121) (13,059) (20,922)
Weighted average number of
shares used in per share
calculations:
Basic 19,204 19,569 19,725 21,360 20,451
Diluted 19,204 19,569 19,725 21,360 20,451
Net loss per share:
Basic (0.15) (0.16) (0.11) (0.61) (1.03)
Diluted (0.15) (0.16) (0.11) (0.61) (1.03)
________________
(a) The fourth quarter of 1997 was restated. (See Note 1.)
<PAGE>
Supplemental Oil and Gas Information
------------------------------------
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, 1998 are as
follows (000's):
Year Ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
Revenues from oil and gas
producing activities:
Sales to unaffiliated parties $ 112 $ 236 $ 1,136
----- ----- -------
Production (lifting) costs:
Operating costs (including
marketing) 210 210 342
State production taxes and other 3 13 28
----- ----- -------
Production costs 213 223 370
Depletion and amortization 53 77 437
Provision for impairment of oil and gas
properties -- -- 3,850
------ ----- -------
Total expenses 266 300 4,657
------ ----- -------
Results of oil and gas producing
activities (excluding
corporate overhead and
interest costs) $ (154) $ (64) $ (3,521)
====== ===== =======
The depreciation, depletion and amortization (DD&A) rate
averaged $0.86, $0.81 and $0.96 per equivalent Mcf in 1998, 1997
and 1996, respectively.
Capitalized Costs
-----------------
Capitalized costs relating to the Company's proved and
unevaluated oil and gas properties are as follows (000's):
December 31,
----------------------
1998 1997
---- ----
Foreign proved and unevaluated
properties under development $ 86,677 $ 54,937
====== ======
The capitalized costs for the foreign properties represent
cumulative expenditures related to the Zhao Dong Block and Zhang
Dong Block Production Sharing Agreements and will not be
depreciated, depleted or amortized until production is achieved.
The Company's investment in oil and gas properties as of
December 31, 1998, includes proved and 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.
Costs for foreign proved and unevaluated properties under
development were incurred as follows (000's):
Year Ended December 31,
-----------------------------------
1995 and
Total 1998 1997 1996 Prior
----- ---- ----- ---- -------
Property acquisition costs $ 63,322 $ 22,073 $ 14,841 $ 4,223 $ 22,185
Capitalized interest costs 23,355 9,667 5,791 2,767 5,130
------ ------ ------ ----- ------
Total foreign proved and
unevaluated properties
under development $ 86,677 $ 31,740 $ 20,632 $ 6,990 $ 27,315
====== ====== ====== ===== ======
Capitalized Costs Incurred
---------------------------
Total capitalized costs incurred by the Company with respect
to its oil and gas producing activities including those held for
sale were as follows (000's):
Year Ended December 31,
---------------------------
1998 1997 1996
---- ---- ----
Costs incurred:
Unproved properties acquired $ 765 $ -- $ --
Capitalized internal costs 2,058 2,466 822
Capitalized interest and
amortized debt costs 9,667 5,791 2,767
Exploration 11,623 7,466 3,401
Development 7,627 4,909 4
------ ------ -----
Total costs incurred $31,740 $20,632 $6,994
====== ====== =====
Proved Oil Reserves (Unaudited)
-------------------------------
The following table sets forth estimates of the Company's
net interests in proved reserves of oil and changes in estimates
of proved reserves. The Company did not have proved developed
oil or proved gas reserves in 1998, 1997 or 1996. The Company's
net interests in 1998, 1997 and 1996 were located in the Zhao
Dong Block in China.
Crude Oil (MBbls)
-----------------------------
1998 1997 1996
---- ---- ----
Proved reserves -
Beginning of year 11,762 10,579 --
Discoveries 249 1,183 10,579
Revisions of previous estimates 826 -- --
Production -- -- --
Purchases (sales) of minerals
in place -- -- --
Transfer of property to assets
held for sale -- -- --
------ ------ ------
End of year 12,837 11,762 10,579
====== ====== ======
The Company's estimated quantities of oil as of December 31,
1998, were prepared by H.J. Gruy and Associates, Inc.,
independent petroleum engineers.
Supplementary Information (Unaudited)
-------------------------------------
The supplementary information set forth below presents
estimates of discounted future net cash flows from proved oil and
gas reserves and changes in such estimates. This information has
been prepared in accordance with requirements prescribed by the
Financial Accounting Standards Board (FASB). Inherent in the
underlying calculations of such data are many variables and
assumptions, the most significant of which are briefly described
below:
Future cash flows from proved oil reserves were computed on
the basis of 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 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 that 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 Securities and Exchange
Commission 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 that 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 FASB No. 69 is summarized below, and does not
purport to present the fair market value of the Company's oil and
gas assets, but does present the present value of estimated
future cash flows from the Company's China properties, that would
result under the assumptions used.
Year Ended December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
Future cash inflows $ 178,304 $ 205,765 $ 222,797
Future costs:
Production, including taxes (44,679) (45,623) (39,033)
Development (41,021) (41,093) (40,904)
------- ------- -------
Future net inflows before income
taxes 92,604 119,049 142,860
Future income taxes (a) (17,441) (22,916) (35,658)
------- ------- -------
Future net cash flows 75,163 96,133 107,202
10% discount factor (37,218) (42,285) (44,596)
------- ------- -------
Standardized measure of discounted
net cash flows $ 37,945 $ 53,848 $ 62,606
======= ======= =======
_____________
(a) Future income taxes are computed by applying the maximum
tax rate in China applicable to foreign-funded enterprises
of 33%.
Changes in Standardized Measure of Discounted Future Net Cash
-------------------------------------------------------------
Flow From Proven Reserve Quantities
-----------------------------------
Year Ended December 31,
-------------------------
1998 1997 1996
----- ----- -----
(In Thousands)
Standardized measure-beginning of year $ 53,848 $ 62,606 $ --
Increases (decreases):
Net change in sales and transfer prices,
net of production costs (30,027) (24,847) --
Extensions, discoveries and improved
recovery, net of future costs 6,860 -- 79,062
Changes in estimated future development
costs 1,492 (219) --
Accretion of discount 6,413 8,451 --
Changes in production rates (timing)
and other (3,942) -- --
Net change in income taxes 3,301 7,857 (16,456)
------ ------ -------
Standardized measure-end of year $ 37,945 $53,848 $ 62,606
====== ====== ======
<PAGE>
XCL Ltd. and Subsidiaries
Schedule II-Valuation and Qualifying Accounts
For the Years Ended December 31, 1998, 1997 and 1996
(In Thousands)
Additions
-------------------------
Balance at Charged Balance at
Beginning of to costs End of
Description Year and expenses Deduction Year
- ----------- ----------- ------------ --------- ---------
1998:
Allowance for doubtful
trade accounts receivable $ 65 $ 53 $ -- $ 118
======= ====== ====== =======
Deferred tax valuation
allowance $ 83,564 $ 3,007 $ -- $ 86,571
======= ====== ====== =======
1997:
Allowance for doubtful
trade accounts receivable $ 101 $ -- $ 36 $ 65
======= ====== ====== =======
Deferred tax valuation
allowance $ 81,075 $ 2,489 $ -- $ 83,564
======= ====== ====== ========
1996:
Allowance for doubtful
trade accounts receivable $ 103 $ -- $ 2 $ 101
======= ====== ====== ========
Deferred tax valuation
allowance $ 76,743 $ 4,332 $ -- $ 81,075
======= ====== ====== ========
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of XCL-China, Ltd.
In our opinion, the financial statements listed in the index
appearing under item 14(a)(1) and (2) present fairly, in all
material respects, the financial position of XCL-China, Ltd. and
its subsidiaries at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going
concern. As discussed in Note 2 to the financial statements,
the Company has not generated production revenues, is dependent
on its parent to meet its cash flow requirements and must, in
conjunction with its parent company, generate additional cash
flows to satisfy its development and exploratory obligations
with respect to its oil and gas properties. There is no assurance
that the Company or its parent will be able to generate the
necessary funds to satisfy these contractual obligations with
respect to its China properties and to ultimately achieve
profitable operations, which creates substantial doubt about its
ability to continue as a going concern. Managements' plans in
regard to these matters are described in Note 2. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Miami, Florida
April 12, 1999
<PAGE>
XCL-China, Ltd.
BALANCE SHEETS
(In Thousands)
December 31,
--------------------
A S S E T S 1998 1997
----------- ---- ----
Current assets:
Cash and cash equivalents $ 2 $ --
Cash held in escrow (restricted) 102 --
Other 70 103
------ ------
Total current assets 174 103
------ ------
Property and equipment:
Oil and gas (full cost method):
Proved undeveloped properties,
not being amortized 28,274 21,172
Unevaluated properties 56,708 33,132
------ ------
84,982 54,304
Other 416 167
------ ------
85,398 54,471
Accumulated depreciation (5) (1)
------ ------
85,393 54,470
------ ------
Other assets 359 668
------ ------
Total assets $ 85,926 $ 55,241
====== ======
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 D E F I C I T
- ---------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 229 $ 285
Due to joint venture partner 8,168 4,503
------ ------
Total current liabilities 8,397 4,788
------ ------
Due to parent 80,425 52,383
Commitments and contingencies (Notes 2 and 5)
Shareholder's deficit:
Common stock-$.01 par value; authorized
5 million shares at December 31, 1998
and 1997; issued shares of 1,000 shares
at December 31, 1998 and 1997 -- --
Accumulated deficit (2,896) (1,930)
------ ------
Total shareholders' deficit (2,896) (1,930)
------ ------
Total liabilities and
shareholder's deficit $ 85,926 $ 55,241
======= ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL-China, Ltd.
STATEMENTS OF OPERATIONS
(In Thousands)
Year Ended December 31,
---------------------------
1998 1997 1996
---- ---- -----
Costs and operating expenses:
Depreciation $ 4 $ 1 $ --
General and administrative costs 573 578 702
----- ----- -----
577 579 702
----- ----- -----
Operating loss (577) (579) (702)
----- ----- -----
Interest expense, net of amounts
capitalized (389) (134) --
----- ----- -----
Net loss $ (966) $ (713) $ (702)
===== ===== =====
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL-China, Ltd.
STATEMENTS OF SHAREHOLDER'S DEFICIT
(In Thousands)
Balance, December 31, 1995 $ (515)
Net loss (702)
-----
Balance, December 31, 1996 (1,217)
Net loss (713)
-----
Balance, December 31, 1997 (1,930)
Net loss (966)
-----
Balance, December 31, 1998 $(2,896)
=====
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL-China, Ltd.
STATEMENTS OF CASH FLOWS
(In Thousands)
Year Ended December 31,
---------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net loss $ (966) $ (713) $ (702)
------ ----- ------
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation 4 1 --
Change in assets and liabilities:
Accounts payable and accrued expenses (56) 30 2,825
Other, net 442 (604) 25
---- ----- -------
Total adjustments 390 (573) 2,850
---- ----- -------
Net cash (used in) provided by
operating activities (576) (1,286) 2,148
---- ----- -------
Cash flows from investing activities:
Change in cash held in escrow (restricted) (102) -- --
Capital expenditures (27,262) (15,889) (4,237)
Other -- -- 249
------ ------ ------
Net cash used in investing
activities (27,364) (15,889) (3,988)
------ ------ ------
Cash flows from financing activities:
Loan proceeds -- 6,100 --
Payment of long-term debt -- (6,100) --
Due to parent 28,042 17,175 1,840
Other, net (100) -- --
------ ------ -----
Net cash provided by financing
activities 27,942 17,175 1,840
------ ------ -----
Net increase in cash and cash equivalents 2 -- --
Cash and cash equivalents at beginning of year -- -- --
------ ------ -----
Cash and cash equivalents at end of year $ 2 $ -- $ --
====== ====== =====
The accompanying notes are an integral part of these financial statements.
<PAGE>
XCL-China Ltd.
NOTES TO FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant
Accounting Policies:
Nature of Operations:
--------------------
XCL-China, Ltd. (the "Company" or "XCL-China") is engaged
principally in the exploration for and the development and
production of crude oil and natural gas. Its exploration and
development efforts are, at this time, focused primarily on the
Zhao Dong Block in the shallow-water sea area of Bohai Bay in The
People's Republic of China ("China"). XCL-China's activities on
the Zhao Dong Block have been undertaken pursuant to an
exploration and production joint venture with China National Oil
and Gas Exploration and Development Corporation ("CNODC"), a
subsidiary of China National Petroleum Corporation ("CNPC"), one
of the national oil companies of China.
Basis of Presentation:
---------------------
The financial statements include the accounts of XCL-China,
a wholly owned subsidiary of XCL Ltd. (the "parent").
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 at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Oil and Gas Properties:
----------------------
The Company accounts for its oil and gas exploration and
production activities using the full cost method of accounting
for oil and gas properties. Accordingly, all costs associated
with acquisition, exploration, and development of oil and gas
reserves, including appropriate related costs, are capitalized.
The Company capitalizes internal costs that can be directly
identified with its acquisition, exploration and development
activities and does not capitalize any costs related to
production, general corporate overhead or similar activities.
The capitalized costs of oil and gas properties, including
the estimated future costs to develop proved reserves, are
amortized on the unit-of-production method based on estimates of
proved oil and gas reserves. Independent petroleum engineers
estimated the reserves in 1998 and 1997. Investments in unproved
properties and major development projects are not amortized until
proved reserves associated with the projects can be determined or
until impairment occurs. If the results of an assessment indicate
that properties are impaired, the amount of the impairment is
added to the capitalized costs to be depleted. The Company
capitalizes interest on expenditures made in connection with
exploration and development projects that are not subject to
current amortization. Interest is capitalized for the period
that activities are in progress to bring these projects to their
intended use.
The Company reviews the carrying value of its oil and gas
properties each quarter on a country-by-country basis, and limits
capitalized costs of oil and gas properties to the present value
of estimated future net revenues from proved reserves, discounted
at 10 percent, plus the lower of cost or fair value of unproved
properties as adjusted for related tax effects and deferred tax
reserves. If capitalized costs exceed this limit, the excess is
charged to depreciation and depletion expense.
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.
Capitalized Interest:
--------------------
During fiscal 1998, 1997 and 1996, interest (incurred by the
parent) and associated costs of approximately $9.7 million, $5.8
million and $2.8 million, respectively were capitalized with
respect to significant investments in oil and gas properties that
are not being currently depreciated, depleted, or amortized and on
which exploration or development activities are in progress.
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.
Recent Accounting Pronouncements:
--------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which is effective for the Company's year
ending December 31, 1998. SFAS No. 130 establishes standards for
the reporting and displaying of comprehensive income and its
components.
In June 1997, the FASB Issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which
is effective the Company's year ended December 31, 1998. This
statement establishes standards for reporting of information
about operating segments.
The Company adopted SFAS No. 130 and SFAS No. 131 during
1998. which did not have a material effect on the Company's
financial statements.
In June 1998, FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement
requires companies to report the fair market value of derivatives
on the balance sheet and record in income or other comprehensive
income, as appropriate, any changes in the fair value of the
derivative. SFAS No. 133 will become effective with respect to
the Company on January 1, 2000. The Company is currently
evaluating the impact of the statement.
(2) Liquidity and Management's Plan
The Company's parent, in connection with its 1995 decision
to dispose of its domestic properties, is devoting all of its
efforts toward the development of the Company's properties. The
Company has historically relied on its parent to meet its cash
flow requirements. The parent has cash available in the amount
of approximately $83,000 as of December 31, 1998 and a working
capital deficit of $79.0 million. The Senior Secured Notes in
the amount of $63.5 million have been reclassified because
the Company's parent does not currently have sufficient funds to
make the next interest payment (in the approximate amount of
$5.6 million) due in May 1999. Failure by the parent to make
such payment could allow the holders of the Notes to declare all
amounts outstanding immediately due and payable. The Company and
its parent will need additional funds to meet the development and
exploratory obligations until sufficient cash flows are generated
from anticipated production to sustain operations and to fund
future development and exploration obligations.
The parent plans to generate the additional cash needed
through the sale or financing of its domestic assets held for
sale and the completion of additional equity, debt or joint
venture transactions. There is no assurance, however, that the
parent will be able to sell or finance its assets held for sale
or to complete other transactions in the future at commercially
reasonable terms, if at all, or that the Company will be able to
meet its future contractual obligations. If production from the
parent's other properties commences in late 1999, as anticipated,
the parent's cash flow will be available to help satisfy a
portion of its cash requirements. However, there is likewise no
assurance that such development will be successful and production
will commence, and that such cash flow will be available.
(3) Supplemental Cash Flow Information
There were no income taxes paid for the years ended December
31, 1998, 1997 and 1996.
(4) Income Taxes
Foreign income taxes are accounted for under the tax
structure in that country, principally China. As of December 31,
1998, the Company does not have undistributed earnings available
to its parent because of accumulated losses. Further, such
losses have provided no tax benefit to the parent company and
accordingly, there has been no tax impact. When necessary the
Company will enter into an appropriate tax sharing arrangement
with its parent.
(5) Other Commitments and Contingencies
Other commitments and contingencies 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. These obligations 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.
4. The Production Period for any oil and/or gas
field covered by the Contract (the "Contract
Area") will be 15 consecutive years (each of 12
months), commencing for each such field on the
date of commencement of commercial production (as
determined under the terms of the Contract).
However, prior to the Production Period, and
during the Development Period, oil and/or gas may
be produced and sold during a long-term testing
period.
The Contractor may terminate the Production Sharing
Agreement at the end of each phase of the Exploration
period, without further obligation.
o On December 1, 1995, XCL-China submitted to arbitration
certain accounting disputes arising from operations in the Bohai
Bay Shallow Water Sea Area, People's Republic of China and
governed by a Zhao Dong Block Operating Agreement. By the
initial submission, XCL-China disputed certain amounts charged to
it by Apache in the August, September and October 1995 joint
interest billings and the November and December 1995 cash calls
which could develop into an event that would trigger Apache's
option to purchase the Company's interest in the Contract.
Thereafter, disputes involving joint interest billings through
1998 were added to the submission. In 1997, XCL-China made some
payments with respect to the disputed amounts although the
arbitration proceeding remains unresolved and inactive inasmuch
as a third arbitrator has not been selected.
(6) Related Party Transactions
The Company has consistently borrowed money from its parent
for the acquisition and development of its oil and gas
properties. The amount due the parent as of December 31, 1998 is
approximately $80.4 million. All of the Common Stock of the
Company has been pledged as collateral for parent company debt
and the Company is a guarantor on certain Senior Secured Notes
described below.
Senior Secured Notes of Parent Company
--------------------------------------
On May 20, 1997, the parent company sold in an unregistered
offering to qualified institutional buyers and accredited
institutional investors 75,000 Note Units. Each Note Unit
consisted of $1,000 principal amount of 13.5% Senior Secured
Notes due May 1, 2004 and one Common Stock Purchase Warrant to
purchase 85 shares of the parent's common stock, par value $0.01
per share (the "Common Stock"), at an exercise price of $3.09 per
share, first exercisable after May 20, 1998. Since the Notes
have not been registered at December 31, 1998 the interest rate
has been increased to 15% pursuant to the terms of the Note
Offering.
Interest on the Notes is payable semi-annually on May 1 and
November 1. The Notes will mature on May 1, 2004. The Notes are
not redeemable at the option of the parent prior to May 1, 2002.
The parent may redeem, at its option prior to May 1, 2002, up to
35% of the original aggregate principal amount of the Notes, at a
redemption price of 113.5% of the aggregate principal amount of
the Notes, plus accrued and unpaid interest, if any, to the date
of redemption, with the net proceeds of any equity offering
completed within 90 days prior to such redemption; provided that
at least $48.75 million in aggregate principal amount of the
Notes remain outstanding. On or after May 1, 2002, the Notes are
redeemable at the option of the parent, in whole or in part, at
an initial redemption price of 106.75% of the aggregate principal
amount of the Notes until May 1, 2003, and at par thereafter,
plus accrued and unpaid interest, if any, to the date of
redemption.
The Senior Secured Notes restrict, among other things, the
parent's and its subsidiaries ability to incur additional debt,
incur liens, pay dividends, or make certain other restricted
payments. They also limit the parent's ability to consummate
certain asset sales, enter into certain transactions with
affiliates, enter into mergers or consolidations, or dispose of
substantially all the parent's assets. The parent's ability to
comply with such covenants may be affected by events beyond its
control. The breach of any of these covenants could result in
default. A default could allow holders of the Notes to declare
all amounts outstanding and accrued interest immediately due and
payable. A foreclosure on the stock of the Company could trigger
Apache's right of first refusal under the Participation Agreement
to purchase such stock or its option to purchase the parent's
interest in the Contract. There can be no assurance that the
assets of the parent and the Company, or any other Subsidiary
Guarantors would be sufficient to fully repay the Notes and the
parent's other indebtedness.
Supplemental Oil and Gas Information
------------------------------------
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."
Capitalized Costs
-----------------
Capitalized costs relating to the Company's proved and
unevaluated oil and gas properties, are as follows (000's):
December 31,
--------------------
1998 1997
---- ----
Proved and unevaluated properties
under development $ 84,982 $ 54,304
======= =======
The capitalized costs for the oil and gas properties
represent cumulative expenditures related to the Zhao Dong Block
Production Sharing Agreement and will not be depreciated,
depleted or amortized until production is achieved.
The Company's investment in oil and gas properties as of
December 31, 1998, includes proved and 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 proved and unevaluated properties under
development were incurred as follows (000's):
Year Ended December 31,
-------------------------------------
1995 and
Total 1998 1997 1996 Prior
----- ----- ---- ---- --------
Property acquisition costs $ 61,627 $ 21,011 $ 14,208 $ 4,223 $22,185
Capitalized interest costs 23,355 9,667 5,791 2,767 5,130
------- ------- ------- ------ ------
Total proved and
unevaluated properties
under development $ 84,982 $ 30,678 $ 19,999 $ 6,990 $27,315
======= ======= ======= ====== ======
Capitalized Costs Incurred
--------------------------
Total capitalized costs incurred by the Company with respect
to its oil and gas producing activities were as follows (000's):
Year Ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
Costs incurred:
Unproved properties acquired $ -- $ -- $ --
Capitalized internal costs 2,023 2,466 822
Capitalized interest and amortized debt
costs 9,667 5,791 2,767
Exploration 11,361 6,833 3,401
Development 7,627 4,909 --
------ ------ ------
Total costs incurred $30,678 $19,999 $ 6,990
====== ====== ======
<PAGE>
Proved Oil Reserves (Unaudited)
The following table sets forth estimates of the Company's
net interests in proved reserves of oil and changes in estimates
of proved reserves. The Company did not have proved developed
oil or proved gas reserves in 1998 or 1997.
Crude Oil (MBbls)
--------------------
1998 1997
---- ----
Proved reserves -
Beginning of year 11,762 10,579
Discoveries 249 1,183
Revisions of previous estimates 826 --
Production -- --
Purchases (sales) of minerals in place -- --
Transfer of property to assets held for
sale -- --
------ ------
End of year 12,837 11,762
====== ======
H.J. Gruy and Associates, Inc., independent petroleum
engineers prepared estimated quantities of oil for the Company,
as of December 31, 1998.
Supplementary Information (Unaudited)
------------------------------------
The supplementary information set forth below presents
estimates of discounted future net cash flows from proved oil and
gas reserves and changes in such estimates. This information has
been prepared in accordance with requirements prescribed by the
Financial Accounting Standards Board (FASB). Inherent in the
underlying calculations of such data are many variables and
assumptions, the most significant of which are briefly described
below:
Future cash flows from proved oil reserves were computed on
the basis of 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 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 that 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 Securities and Exchange
Commission 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 that may be imprecise and extreme
caution should accompany its use and interpretation.
Standardized Measure of Discounted Future Net Cash Flows Related
- ----------------------------------------------------------------
to Proved Oil Reserves
----------------------
The standardized measure of discounted future net cash flows
from proved oil reserves, determined in accordance with rules
prescribed by FASB No. 69 is summarized below. Such standardized
measure of discounted future net cash flows does not purport to
present the fair market value of the Company's oil assets, but
does present the present value of estimated future cash flows
that would result under the assumptions used.
Year Ended December 31,
-----------------------
1998 1997
---- ----
(In Thousands)
Future cash inflows $ 178,304 $ 205,765
Future costs:
Production, including taxes (44,679) (45,623)
Development (41,021) (41,093)
------ -------
Future net inflows before income taxes 92,604 119,049
Future income taxes (1) (17,441) (22,916)
------ -------
Future net cash flows 75,163 96,133
10% discount factor (37,218) (42,285)
------- -------
Standardized measure of discounted net
cash flows $ 37,945 $ 53,848
======== ========
_______________
(1) Future income taxes are computed by applying the maximum
tax rate in China applicable to foreign-funded enterprises
of 33%.
Changes in Standardized Measure of Discounted Future Net Cash
-------------------------------------------------------------
Flow From Proven Reserve Quantities
-----------------------------------
Year Ended December 31,
--------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
Standardized measure-beginning of year $ 53,848 $ 62,606 $ --
Increases (decreases):
Net change in sales and transfer prices,
net of production costs (30,027) (24,847) --
Extensions, discoveries and improved
recovery, net of future costs 6,860 -- 79,062
Changes in estimated future development
costs 1,492 (219) --
Accretion of discount 6,413 8,451 --
Changes in production rates (timing)
and other (3,942) -- --
Net change in income taxes 3,301 7,857 (16,456)
------ ------ ------
Standardized measure-end of year $ 37,945 $ 53,848 $ 62,606
====== ====== ======
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 are officers and directors of the Company and its
subsidiaries as of March 31, 1999:
<TABLE>
<CAPTION>
Officer Director
Name Position Age Since Since
- ----------------------- ----------------------------------- ----- ------- --------
<S> <C> <C> <C> <C>
Marsden W. Miller, Jr. Chairman of the Board and Chief 57 1981 1981
Executive Officer of the Company
and Principal Financial Officer (1)
John T. Chandler Vice Chairman of the Board of the 66 1982 1983
Company and Chairman and Chief
Executive Officer of XCL-China Ltd. (1)(4)
Danny M. Dobbs President and Chief Operating Officer 52 1991 --
of the Company and President of XCL-
China Ltd.(4)
Benjamin B. Blanchet Executive Vice President and Director 46 1997 1997
of the Company(1)
Richard K. Kennedy Vice President of Engineering of the 45 1989 --
Company
Joseph T. K. Chan Vice President, XCL-China LubeOil 52 1998 --
Ltd.(5)
John H. Haslam Treasurer of the Company 57 1996 --
Lisha C. Falk Secretary of the Company 37 1997 --
Fred Hofheinz Director of the Company, Attorney at 61 -- 1991
Law(2)(3)
Arthur W. Hummel, Jr. Director of the Company, Independent 78 -- 1994
Consultant(2)(3)
Sir Michael Palliser Director of the Company, Independent 76 -- 1994
Consultant(2)(3)
Francis J. Reinhardt, Jr. Director of the Company, Partner in 69 -- 1992
Carl H. Pforzheimer & Co.(2)(3)
R. Thomas Fetters, Jr. Director of the Company, Independent 59 -- 1997
Consultant (2)(3)
Peter F. Ross Director of the Company, Chairman of 60 -- 1998
Dawnay Day Capital Markets
</TABLE>
_______________
(1) Member of the Executive Committee. The Committee met
four times during 1998 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 1998. 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
1998. 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-China Ltd. is an International Business Company
incorporated under the laws of the British Virgin Islands,
wholly owned by the Company, which manages the Company's oil
and gas operations on the Zhao Dong Block.
(5) XCL-China LubeOil Ltd. is an International Business
Company incorporated under the laws of the British Virgin
Islands, wholly owned by the Company, which holds a 49%
interest in a joint venture with CNPC United LubeOil
Corporation for the production and sale of lubricants.
Under the Amended and Restated Certificate of Incorporation,
as amended, and Amended and Restated Bylaws of the Company, the
Board Directors is divided into three classes of directors
serving staggered three-year terms, with one class 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 2000 annual meeting of
shareholders, are Messrs. Arthur W. Hummel, Jr., Michael Palliser
and Benjamin B. Blanchet; the current Class II directors, whose
terms of office expire at the 2001 annual meeting of
shareholders, are Messrs. Marsden W. Miller, Jr., R. Thomas
Fetters, 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, Fred
Hofheinz and Peter F. Ross. Mr. Ross was appointed as a Class
III director on April 7, 1998.
The Board held six meetings in 1998. The average attendance
by directors at these meetings was 91%, and all directors
attended 95% 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.
The holders of the Amended Series A Preferred Stock are
entitled to cast the same number of votes (voting together with
the Common Stock as a single class) as the number of shares of
Common Stock issuable upon conversion of the Amended Series A
Preferred Stock.
The holders of the Amended Series B Preferred Stock are
entitled to cast 50 votes per share (voting together with the
Common Stock as a single class).
There are no arrangements or understandings with any
directors pursuant to which they have been elected a director nor
are there any family relationships among any directors or
executive officers.
Biographical Information
- ------------------------
MARSDEN W. MILLER, JR., Chairman, has been Chief Executive
Officer and a director since the Company's incorporation in 1981.
He has engaged in the independent domestic and international oil
business since 1964 on an individual basis, as a stockholder and
officer in several companies and as a practicing attorney. In
addition to the U.S. and China, he has been involved in various
aspects of the oil business in Southeast Asia, Africa, Europe,
South America, several former Soviet Republics and Canada. Mr.
Miller graduated from Louisiana State University, cum laude, in
1964.
JOHN T. CHANDLER is Vice Chairman of the Board and Chairman
and Chief Executive Officer of XCL-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 (now known as
Citibank, N.A.) and then The Bank of New York. From March 1963 to
July 1967, he was a petroleum engineer for Ashland Oil and
Refining Company, and 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.
DANNY M. DOBBS is the President and Chief Operating Officer
of the Company effective December 17, 1997. Mr. Dobbs previously
served as Executive Vice President and Chief Operating Officer of
the Company and prior to that 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, his experience
encompassing 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.
BENJAMIN B. BLANCHET is Executive Vice President and
director of the Company. Prior to joining the Company in August
1997, and since 1983, he was a partner in the law firm of Gordon,
Arata, McCollam & Duplantis, L.L.P. in its Lafayette, Louisiana
office. During that time, he practiced in the areas of
commercial litigation, corporate mergers and acquisitions, oil
and gas transactions, secured financings, securities, tax and
international law matters. Since 1985, he has provided
substantial legal services to the Company, and has been the
Company's lead attorney in China. He served on the Management
Committee of Gordon, Arata, McCollam & Duplantis, L.L.P. from
1991 to 1997 and as the Managing Partner of the firm for four
years from 1992 through 1995. He practiced law with the firm of
Monroe & Lemann in New Orleans from 1978 through 1983. He is a
member of the Louisiana Bar and admitted to practice before the
United States Tax Court. Mr. Blanchet holds a B.A. degree, with
highest distinction, from the University of Southwestern
Louisiana and a J.D., cum laude, from Harvard Law School.
RICHARD K. KENNEDY is Vice President of Engineering and
responsible for certain engineering aspects of the Company's oil
and gas operations. From 1987, until he joined the Company in
1989, he was an operations engineer for Wintershall Corporation.
From 1981 to 1986 he was with Borden Energy, originally as a
petroleum engineer and later as regional operations manager.
From 1979 to 1981, Mr. Kennedy was employed with Marathon Oil
Company as a reservoir engineer, then as a drilling engineer. He
was employed with Shell Oil Company as a petroleum engineer and
reservoir engineer from 1977 to 1979. Mr. Kennedy graduated from
Louisiana Tech University with a B.S. degree in petroleum
engineering. He is a registered professional engineer in the
State of Louisiana and a member of the Society of Petroleum
Engineers.
JOSEPH T. K. CHAN is Vice President of XCL-China LubeOil
Ltd., having joined the Company in 1998. Mr. Chan has more than
20 years experience in the oil industry with major American oil
companies. From August 1994 until joining the Company, Mr. Chan
was an agent and consultant for Asian importers of U.S. made
chemical, petrochemical and industrial products. From 1991 to
1994 he was Regional Manager of Sun Oil Far East, Inc. and Head
of Technical Support of China Sun Lubeoil joint venture plant in
Skekou, China, responsible for regional sales, marketing and
production operations in Asia and the Pacific Rim under Sun Oil
Trading, Inc., a wholly owned subsidiary of Sun Oil Corp. From
1988 to 1990, Mr. Chan was Marketing Director to De Huns
International Ltd. with chemicals and garment manufacturing
investments and operations in China. From 1986 to 1988, he
served as General Manager of Sales & Marketing and Technical
Services for U.K. based Castrol Oil Hong Kong. Mr. Chan served as
Divisional Import Manager for Li & Fung Trading in Taiwan,
Marketing Director of CDW Manufacturing Group in Hong Kong and
Project Manager of Cha Chi Ming (China Investment) Ltd. from 1982
to 1986. From 1976 to 1981, he served as Industrial Sales &
Marketing Manager for Caltex Oil Hong Kong, a joint venture of
Chevron and Texaco in Asia. From 1975 to 1976 he was Senior
Sales Engineer and Area Sales Manager for Drew Chemical
Corporation. Mr. Chan was employed with Esso Standard Oil Hong
Kong as International Sales Supervisor from 1972 to 1975 and as a
Marine and Aviation Sales and Technical Representative from 1970
to 1972. Mr. Chan holds a Bachelor of Commercial Science degree
from CH University of Hong Kong and has completed the Masters
Study Program from Caltex Management Institute in Indonesia. Mr.
Chan has also attended comprehensive training in lubeoil
engineering from the Esso Research Center in Abington Oxford, and
leadership and refinery operations programs with Texaco and
Chevron.
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.
LISHA FALK is corporate Secretary, having joined the Company
in 1981. Since joining the Company Ms. Falk has served in various
administrative positions, most recently as Assistant Secretary.
R. THOMAS FETTERS, JR., a director since 1997, is an
independent oil and gas consultant. He has over 25 years of
exploration, production and management experience, both domestic
and foreign. From 1995 to 1997 Mr. Fetters was Senior Vice
President of Exploration of National Energy Group, Inc., Dallas,
Texas, and from February 1990, until September 1995, he was Vice
President of Exploration of XCL Ltd., and President of XCL-China
Ltd. During 1989, until joining the Company, he served as
Chairman and Chief Executive Officer of Independent Energy
Corporation. From 1984 to 1989, he served as President and Chief
Executive Officer of CNG Producing Company in New Orleans,
Louisiana, and from 1983 to 1984 as General Manager of the
Planning and Technology Division of Consolidated Natural Gas
Service Co. in Pittsburgh, Pennsylvania. From 1966 to 1983, he
served in various positions, from Geologist to Exploration
Manager, with several divisions of Exxon, primarily in the Gulf
Coast region of the U.S. and internationally, in Malaysia and
Australia. Mr. Fetters holds B.S. and M.S. degrees in geology
from the University of Tennessee.
FRED HOFHEINZ, a director since 1991, 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, serving 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.
ARTHUR W. HUMMEL, JR., a director since April 1994, is the
former U.S. Ambassador to the People's Republic of China during
the period 1981 to 1985. Since his 1985 retirement from the
State Department, after 35 years of service, he 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. 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. Interned by the
Japanese, he escaped and fought behind the Japanese lines with
Chinese guerrillas 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 Peoples 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 from
1984 to 1993 Chairman of Samuel Montagu & Co. Limited, the London
merchant bank owned by Midland Bank, of which he was Deputy
Chairman from 1987 to 1991, and that is now part of the Hong Kong
& Shanghai Banking Corporation. He was Vice Chairman of Samuel
Montagu from 1993 to 1996. He is a former Director of BAT
Industries, Bookers, Eagle Star, Shell and United Biscuits.
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 from 1964-1966. He was Private
Secretary to the Prime Minister from 1966-1969, Minister in the
British Embassy in Paris from 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 is also a
former member of the Trilateral Commission and director of the
Royal National Theatre. He is a former Chairman of the Major
Projects Association, designed to assist in and for the handling
of major industrial projects. Mr. Palliser also serves as Vice-
Chairman of the Salzburg Seminar, a center for intellectual
exchange based in Middlebury, Vermont, with its conference center
in Salzburg, Austria.
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., a director since 1992, 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 over 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, a member and
former president of the Oil Analysts Group of New York, a member
and past president of the National Association of Petroleum
Investment Analysts and 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.
PETER F. ROSS, a director since 1998, is Chairman of Dawnay
Day Capital Markets. Dawnay Day & Co. is a London based private
investment banking firm. Mr. Ross retired as Chairman of
Henderson Crosthwaite Institutional Brokers on December 31, 1996,
after holding that position since 1987. Under Mr. Ross' term as
Chairman, Henderson Crosthwaite became one of the leading firms
in London in the area of oil and gas placements. From 1977 to
1986 he was head of Henderson Crosthwaite's institutional sales
department, with special responsibility for the oil and gas
division, until its acquisition by Guinness Mahon Bank in 1986.
Mr. Ross was commissioned into the British Army serving with
the 5th Royal Inniskilling Dragoon Guards, his last posting being
to Libya where he retired and set up an industrial services
business. Following the Islamic Revolution in 1971, he returned
to the United Kingdom and joined London stockbrokers Northcote &
Co. In 1974, he joined George Henderson & Co., becoming a
partner in 1975, upon the merger with Fenn and Crosthwaite.
Compliance with Section 16(a) Filing Requirements
- -------------------------------------------------
To the Company's knowledge, there were no instances of
failure to file reports with respect to reportable transactions
during the year ended December 31, 1998, as required by Section
16(a) of the Exchange Act.
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 1998, and 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.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
-------------------------- ------------------- -----------------
(1) (2) (3)
Other Restricted
Name and Annual Stock Options/ LTIP All Other
Principal Salary Bonus Compen- Awards SARs Payout Compen-
Position Year ($) ($) sation ($) (#) (#) ($) sation ($)
--------------- ---- ------ ----- --------- -------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marsden W. Miller, Jr. 1998 150,000 - - - - - -
Chairman and 1997 150,000 - - 1,000,000 - - -
Chief Executive Officer 110,000
1996 150,000 - - - - - -
John T. Chandler (4) 1998 200,000 - - - - - -
Vice Chairman; Chairman 1997 150,000 - - 333,333 133,333 - -
and Chief Executive 20,000 5,000
Officer of XCL-China 1996 150,000 - - - - - -
Danny M. Dobbs 1998 180,000 - - - - - -
President and Chief 1997 136,875 - - - 400,000 - -
Operating Officer 25,000
1996 135,000 - - - 6,466 - -
Richard K. Kennedy 1998 115,000 - - - - - - -
Vice President 1997 112,500 - - - - 266,666 - -
Engineering 5,000
1996 75,000 - - - - - - -
Herbert F. Hamilton (4)(5) 1998 144,000 - - - 150,000 - -
Executive Vice President 1997 144,000 - - - - - -
Operations, XCL-China 1996 144,000 - - - - - -
</TABLE>
_______________
(1) 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% of such individual's
salary and bonus.
(2) Represents grants of restricted stock awards under the
Long-Term Stock Incentive Plan as amended and restated in
1997. The first line under 1997 reflects restricted stock
awards for shares of Common Stock and the second line
reflects restricted stock awards for shares of Amended
Series A Preferred Stock. See "Awards to Management."
(3) Represents awards of stock options granted under the
Company's Long-Term Stock Incentive Plan as amended and
restated in 1997. 1998 and 1996 amounts reflect options for
shares of Common Stock. The first line under 1997 reflects
non-qualified stock options for shares of Common Stock and
the second line reflects non-qualified stock options for
shares of Amended Series A Preferred Stock. See "Awards to
Management."
(4) XCL-China is a wholly owned subsidiary of the Company
that manages the Company's operations on the Zhao Dong
Block.
(5) Mr. Hamilton's services terminated on January 15, 1999.
Stock Options
- -------------
The Company currently maintains one stock option plan that
was adopted by shareholders in 1992. The Compensation Committee
administers the Company's stock option plans. The plans 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.
On June 2, 1992, shareholders approved the Long-Term Stock
Incentive Plan ("1992 LTSIP"). The 1992 LTSIP was adopted with
the view of conforming the Company's plans to certain regulatory
changes adopted by the Commission and affording holders of
previously granted options the opportunity to exchange their
options for equivalent options under the 1992 LTSIP. The 1992
LTSIP was amended and restated (hereinafter, the "1997 LTSIP
Restatement"), and certain awards were granted thereunder,
effective June 1,1997, by shareholder approval on December 17,
1997.
1997 LTSIP Restatement
----------------------
As described above, prior to June 1, 1997, the Company
maintained the 1992 LTSIP, previously approved by shareholders,
which was initially effective on June 2, 1992, for employees and
certain other individuals connected with the Company or its
affiliates. The 1992 LTSIP did not contemplate the grant of
stock options to purchase shares of any issue of the Company's
Serial Preferred Stock or the grant of Appreciation Options.
On June 5, 1997, the Board of Directors unanimously approved
the 1997 LTSIP Restatement, effective as of June 1, 1997, which
was subsequently approved by shareholders on December 17, 1997.
Nature of Awards. The 1997 LTSIP Restatement makes
available to the Compensation Committee the power to grant
certain awards ("Awards") to acquire shares of the Company's
Preferred Stock as well as shares of Common Stock. In common with
the 1992 LTSIP, the 1997 LTSIP Restatement makes available to the
Compensation Committee a number of incentive devices, in addition
to Incentive Stock Options ("ISOs") (that are not available with
respect to Preferred Stock) and Nonqualified Stock Options
("NSOs"), including reload options ("ROs") (that are not
available with respect to Preferred Stock), restricted stock
awards ("RSAs"), and performance units ("PUs") or appreciation
options ("AOs") (that were not authorized under the 1992 LTSIP),
each of which is described below and in the 1997 LTSIP
Restatement. NSOs to acquire Preferred Stock, a new feature, may
include an accrued dividend feature. The Board believes that
these award alternatives will enable the Committee to tailor the
type of compensation to be granted to key personnel to meet both
the Company's and such employee's requirements in the most
efficient manner possible.
Number of Awards. For Common Stock Awards, the 1997
LTSIP Restatement authorizes an aggregate of 4 million shares of
Common Stock for issuance pursuant to awards granted thereunder,
including grants to non-employee directors. For Preferred Stock
Awards, the 1997 LTSIP Restatement authorizes an aggregate of
200,000 shares of the Company's Amended Series A Preferred Stock
or any other series of Preferred Stock of the Company, as
designated by the Committee with respect to an Award.
Description of Awards. As set forth above, and in common
with the 1992 LTSIP, the 1997 LTSIP Restatement authorizes the
Compensation Committee to grant NSOs, ISOs, 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, 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). AOs (i.e.,
awards in which payments are based upon appreciation in shares or
other criteria determined by the Compensation Committee) are a
new feature added to the 1992 LTSIP.
Outside Director Awards. The 1997 LTSIP Restatement also
authorizes the Board to grant Awards to non-employee directors
and to set the terms and conditions of such Awards, without the
restrictions previously set forth in the 1992 LTSIP which were
required by certain federal securities law rules since abolished.
Administration of Plan. In keeping with the provisions of
the 1992 LTSIP, the Compensation Committee will develop
administration guidelines from time to time that will define
specific eligibility criteria, the types of awards to be
employed, whether such awards relate to Common Stock or Preferred
Stock, and the value of such awards. Specific terms of each
Award will be provided in individual Award agreements granted
each Award recipient. Key employees and other individuals who in
the judgment of the Committee may provide a valuable contribution
to the success of the Company and its affiliates will be
eligible. The Committee may establish different general Award
eligibility criteria for Awards involving Preferred Stock that
may require a higher level of management responsibility and
authority.
Change in Control Provisions. The 1997 LTSIP Restatement
contains change-in-control provisions, that provide that the
threshold for determining if a "change in control of XCL" has
occurred as a result of a person or entity acquiring Company
stock, has been lowered from 30% to 20% (disregarding the
acquisition of such stock by certain shareholders of the
Company). The 1997 LTSIP Restatement retains the 1992 LTSIP's
provisions pursuant to which a "change in control of XCL" will be
deemed to occur as a result of certain contested Board of
Director elections. If a "change in control of XCL" occurs
pursuant to the provisions described above, ISOs and NSOs then
outstanding become exercisable in full, the forfeiture
restrictions on any RSAs to the extent then applicable will lapse
and amounts payable with respect to PUs and AOs then outstanding
become payable in full. Also, under certain Awards made under
the 1997 LTSIP Restatement (see discussion below), the occurrence
of a "change in control of XCL" could obligate the Company to
make payments with respect to Awards in cash rather than in kind,
or obligate the Company to repurchase individuals' shares of
Common Stock or Preferred Stock received under certain 1997 LTSIP
Restatement Awards. Under certain circumstances which are
unforeseen at this time, the existence of the change in control
protections for individuals receiving Awards under the 1997 LTSIP
Restatement and resulting obligations to the Company may impede
the consummation of a change in control of the Company.
Option Exercise Price. Under the 1997 LTSIP Restatement,
the Compensation Committee shall determine 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 or
Preferred Stock traded on the relevant date, as reported on the
Exchange, or other national securities exchange, or an automated
quotation system, or pursuant to a good faith determination by
the Board of Directors, if not so traded in a public market.
The 1997 LTSIP Restatement does not extend the term of the
1992 LTSIP and, therefore, the 1997 LTSIP Restatement will
terminate (and no further awards thereunder will be granted
after) June 2, 2002.
Awards to Management
- --------------------
On June 30, 1998, the Board made certain Awards under the
1997 LTSIP Restatement. Certain employees and non-executive
officers were granted options to acquire an aggregate of 495,000
shares of Common Stock; on executive officer was granted options
to acquire 150,000 shares of Common Stock, and one non-executive
director was granted options to acquire 66,666 shares of Common
Stock. Upon acceptance of the Awards to certain non-executive
officers and employees of the Company certain options previously
granted under the Company's 1983, 1985, 1986, and 1987 stock
option plans were cancelled.
The following tables set forth, for those persons named in
the "Summary Compensation Table," information on stock options
granted during 1998 and all stock options outstanding as of
December 31, 1998. The closing price of the Common Stock on the
AMEX on December 31, 1998 was $1.75 per share.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
___________________________________________ _______________________________
(a) (b) (c) (d) (e) (f) (g) (h)
% of Total
Options/
SARs
Granted to
Options/ Employees in Exercise or
SARs Fiscal Base Price Expiration
Name Granted(#) Year ($/Share) Date 0% ($) 5% ($) 10% ($)
_____________________ _________ __________ _________ __________ _______ ________ _________
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert F. Hamilton (1) 150,000 21% $3.75 June 29, 2008 -- $339,093 $1,989,136
</TABLE>
_______________
(1) Effective June 30, 1998, Mr. Hamilton was granted
options to acquire 150,000 shares of Common Stock. Mr.
Hamilton's services terminated effective January 15, 1999. All
of Mr. Hamilton's options will expire 90-days after termination
unless exercised.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
(a) (b) (c) (d) (e)
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised in-the-Money
on Value Options/SARs at Options/SARs at
Name Exercise Realized Fiscal Year-End(#) Fiscal Year-End($)(4)(5)
(#) ($) Exercisable Unexercisable Exercisable Unexercisable
---------- -------- ------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marsden W. Miller, Jr. -- -- 308,328 (1) -- -- --
-- -- -- (2) 110,000 (2) -- --
-- -- 160,000 (3) -- -- --
John T. Chandler -- -- 39,332 (1) 133,333 (1) -- --
-- -- -- (2) 5,000 (2) -- --
-- -- 74,999 (3) -- -- --
Richard K. Kennedy -- -- 104,852 (1) 177,777 (1) -- --
-- -- -- (2) 5,000 (2) -- --
Danny M. Dobbs -- -- 22,329 (1) 400,000 (1) -- --
-- -- -- (2) 25,000 (2) -- --
-- -- 38,799 (3) -- -- --
Herbert F. Hamilton -- -- 50,000 (1) 100,000 (1) -- --
</TABLE>
_______________
(1) Represents options to purchase shares of Common Stock
exercisable under the Company's Stock Option Plans at
December 31, 1998.
(2) Represents options to purchase shares of Amended Series A
Preferred Stock exercisable under the Company's Long Term
Stock Incentive Plan at December 31, 1998.
(3) 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 was 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 agreement (based upon the product of
his highest monthly base salary and the number of months
remaining under his contract), at an exercise price of
$18.75 per share, and (b) for each dollar of salary
reduction for the 15-month period commencing January 1, 1993
through March 31, 1994, as based on the same formula and at
the same exercise price used in the granting of warrants
upon surrender of employment agreements. See "Employment
Agreements; Termination of Employment and Change-in-Control
Arrangements" below.
(4) At December 31, 1998, the Company's Common Stock price
was lower than the option and/or warrant exercise prices.
(5) At December 31, 1998, the Company's Amended Series A
Preferred Stock price was lower than the option exercise
price.
These options were all awarded under the Company's Stock
Option Plans described above.
Appreciation Option for M.W. Miller, Jr.
----------------------------------------
An Appreciation Option for M. W. Miller, Jr. was approved by
shareholders at the December 17, 1997 Special Meeting of the
Shareholders pursuant to the 1997 LTSIP Restatement. The
Appreciation Option provides Mr. Miller with additional incentive
to increase the value of the Company based upon its market
capitalization, thereby directly benefiting the shareholders of
the Company by increasing the value of their investments in the
Company. The Appreciation Option Agreement provides Mr. Miller
with the right, upon his payment of the Exercise Price (as
defined below), to additional compensation (payable in cash or in
shares of Common Stock or Preferred Stock or a combination
thereof, as elected by the Company) based upon 5% of the
difference between the market capitalization of the Company as of
June 1, 1997 and the market capitalization of the Company as of
the date that Mr. Miller exercises the Appreciation Option. For
purposes of the Appreciation Option, the Company's market
capitalization is the total fair market value of the Company's
outstanding shares of Common Stock, Preferred Stock and
outstanding options and warrants. In general, fair market value
is determined based on the trading price of marketable securities
and by the Board of Directors as to the fair market value for
securities for which there is no ready market. Fair market value
as of the date of exercise of the Option is based on the average
fair market value of the 30-day period immediately preceding the
date of the Appreciation Option exercise. On June 1, 1997, the
aggregate market capitalization of the Company was $161,547,223.
Upon exercise of his Option, in the event the Company elects to
settle the Option with shares of Stock, Mr. Miller must pay the
Company twenty percent (20%) of the amount he is entitled to
receive upon exercise of the Appreciation Option (before any
reduction as hereinafter set forth), or any increment thereof, up
to an aggregate maximum of $5 million (the "Exercise Price") in
cash. In the event the Company elects to settle the Option in
cash, the amount of cash Mr. Miller will receive will be reduced
by the amount of the Exercise Price. Because Mr. Miller's
Appreciation Option contemplates compensation determined with
reference to increases in the Company's market capitalization
without restriction, there is no effective limit on the amount of
compensation which may become payable thereunder. Mr. Miller may
exercise his Appreciation Option as of any June 1 or December 1
commencing June 1, 2002, upon 45 days written notice, in whole or
in 10% increments. In the event that Mr. Miller exercises his
Appreciation Option for less than the total amount available
thereunder, the percentage increment as to which it is exercised
will cease to be available to create additional compensation
opportunity for Mr. Miller based upon subsequent appreciation in
the Company's market capitalization. Mr. Miller's Appreciation
Option expires on June 1, 2007 and will remain exercisable at any
time prior to such expiration notwithstanding his termination of
employment with the Company unless such employment is terminated
by the Company for "cause" or is terminated by Mr. Miller without
"good reason." In keeping with the provisions of the 1997 LTSIP
Restatement discussed in "1997 LTSIP Restatement - Change of
Control Provisions," in the event of a "change in control of XCL"
the Appreciation Option will become immediately exercisable and
the Company will be obligated to pay Mr. Miller, in cash, upon
any exercise of his Appreciation Option, at least 40% of the net
amount payable. This obligation may impede the consummation of a
change of control of the Company.
Certain Federal Income Tax Effects
- ----------------------------------
The following is a general summary of the principal federal
income tax effects to the Company under current law of the
various awards that may be granted under the 1997 LTSIP
Restatement. These descriptions do not purport to cover all
potential tax consequences.
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), limits deductibility of certain
compensation for the Company's Chief Executive Officer and the
additional four executive officers of the Company who are the
highest paid and employed at year end, to $1 million per year,
unless certain conditions are met that result in compensation
being characterized as "performance-based." Awards under the
Plan will not satisfy the conditions necessary to cause the
compensation earned under them to qualify as "performance-based"
compensation, which is not subject to the deductibility limit of
Section 162(m) of the Code. It is the position of the Board of
Directors that the approach necessary for the design of incentive
compensation that will satisfy the criteria under Section 162(m)
of the Code would compromise the best interests of the Company
and its shareholders.
Certain provisions in the 1997 LTSIP Restatement may afford
the recipient of an Award under the 1997 LTSIP Restatement with
special protections or payments that are contingent upon a change
in the ownership or effective control of the Company or in the
ownership of a substantial portion of the Company's assets. To
the extent that they are triggered by the occurrence of any such
event, these special protections or payments may constitute
"parachute payments" which, when aggregated with other "parachute
payments" received by the recipient, could result in the
recipient receiving "excess parachute payments." The Company
would not be allowed a deduction for any such "excess parachute
payments" and the recipient of such "excess parachute payments"
would be subject to a nondeductible 20% excise tax upon such
payments in addition to income tax otherwise owed with respect to
such payments.
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 this plan. Employees
can contribute up to 10% of their compensation. The Company, at
its discretion and subject to certain limitations, may contribute
up to 75% of the contributions of each participant. The Company
did not make any contributions to the 401(k) Plan in 1998.
Effective January 1, 1999, the Company's 401(k) plan was amended
to: (i) allow employees to contribute up to 15% of their
compensation, and (ii) allow the Company to make matching
contributions in cash or equity securities of the Company, at the
option of the Company.
Compensation of Directors and Other Arrangements
- ------------------------------------------------
The Company reimburses its directors for 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 paid an annual retainer of $18,000 plus a fee
of $1,000 for each Board meeting attended. In addition, such
directors are paid a fee of $1,000 for each committee meeting
attended.
In April 1994, the Company entered into separate consulting
agreements with Messrs. Hummel and Palliser, upon their becoming
directors. Each of the agreements is terminable by either of the
parties thereto upon written notice and provides that the
individuals will render consulting services to the Company in
their respective areas of expertise. Pursuant to the terms of
the agreements, each of those directors receives 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 June 1997, the Company entered into a consulting
agreement with Mr. Fetters, a director of the Company, which
expired on July 31, 1998, and continued thereafter on a month to
month basis. In January 1999, the Company entered into an
extended and revised consulting agreement with Mr. Fetters.
Either party may terminate the agreement on ninety days written
notice. Pursuant to the terms of the agreement, Mr. Fetters is to
consult with the Company on all aspects of the Company's
exploration, development and production projects. For his
services Mr. Fetters is to receive $60,000 per annum, which is in
addition to the compensation he would receive as a director for
attending meetings of the Board. In addition to the above
compensation, Mr. Fetters is entitled to receive a finder's fee
on certain specifically identified projects.
Effective June 30, 1998, Mr. Ross was granted nonqualified
stock options to purchase 66,666 shares of Common Stock
exercisable at $3.75 per share. Effective June 1, 1997, Messrs.
Hummel, Palliser, Reinhardt, Hofheinz and Fetters were each
granted nonqualified stock options to purchase 66,666 shares of
Common Stock exercisable at $3.75 per share under the 1997 LTSIP
Restatement. See "Stock Options - 1997 LTSIP Restatement -
Awards to Management" herein.
Benjamin B. Blanchet, in his capacity as Executive Vice
President, is paid a salary of $80,000 per year for up to 80
hours per month.
Effective August 1, 1997, the Company entered into a
Services Agreement with Mr. Blanchet. The Agreement is
terminable by either party at any time without cause. Under the
Agreement, Mr. Blanchet is engaged to act as counsel to the
Company to perform from time to time such services as the Company
may request of him in that capacity. Effective January 15, 1999,
the Services Agreement was amended to provide that Mr. Blanchet
would bill the Company at a flat rate of $10,000 per month rather
than $175 per hour, for up to 80 hours per month of service.
Also, under the Services Agreement, the Company provides Mr.
Blanchet with office space, supplies, secretarial assistance, a
library allowance, professional liability insurance, and
reimbursement of continuing legal education expenses and bar
dues. Under the Services Agreement, Mr. Blanchet may, except as
prohibited by law or the Louisiana Rules of Professional
Responsibility, represent other clients and engage in business
for his own account.
In connection with his employment by the Company, Mr.
Blanchet received from the Company a $100,000 loan to replace
benefits that he forfeited when he withdrew as a partner of
Gordon, Arata, McCollam & Duplantis, L.L.P. to become Executive
Vice President of the Company. The loan is to be repaid over
eight years from annual bonus payments equal to interest, at the
rate of 6.5% per annum, plus one-eighth of the original principal
balance to be paid by the Company to Mr. Blanchet each year. The
loan will be forgiven in its entirety if the Company fails to pay
timely any such bonus payment, breaches the Services Agreement or
terminates his employment without "cause," or Mr. Blanchet
terminates his employment with "good reason," in either case as
such terms are defined in the note evidencing the loan.
During 1998 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, and D.M. Dobbs, 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 $18.75 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
agreement (based upon the product of his highest monthly base
salary and the number of months remaining under his agreement).
Accordingly, Mr. Miller received warrants to purchase 125,000
shares; Mr. Chandler, 68,333 shares; and Mr. Dobbs, 38,333
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, 1998, 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, 1998, the following
nonexecutive directors of the Company, served as members of the
Compensation Committee of the Board of Directors: Messrs. M.
Palliser, A.W. Hummel, Jr., F. Hofheinz (Chairman) 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.
<PAGE>
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. F. Hofheinz, who
serves as Chairman, M. Palliser, 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 whom
the Company believes may make significant contributions 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 set forth below,
and that 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. The Company
did not retain the services of a compensation-consulting firm in
1998.
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.
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 April 14, 1999, the Committee reviewed the Company's 1998
financial results and nonfinancial goals. The Committee
determined that, in light of (i) the Company's continued
successful drilling results in the Zhao Dong Block in the Bohai
Bay in China, (ii) the Company's success in securing the Zhang
Dong Block in the Bohai Bay in China, and (iii) the fact that top
officials in China's oil industry have indicated that the Company
will be offered additional exploration, development and
downstream projects in China, the Company's nonfinancial and
operating goals for 1998 had been met and exceeded. The
Committee further recognized the fact that the delay in
commencing production on the Zhao Dong Block, coupled with the
decline in worldwide oil prices, had been detrimental to the
Company's financial goals.
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 raising capital
throughout the year. Taking into consideration the performance of
the CEO, as well as the Company's current cash position and near
term requirements, the Committee decided that the 1997 NSO and
Appreciation Option awards should serve in lieu of a cash salary
increase to the CEO for the present time.
Compensation of Other Executive Officers
- ----------------------------------------
The Committee noted that effective January 1, 1999, salary
reductions of 5%-20% were recognized by substantially all
executive officers, non-executive officers and employees to
conserve cash.
At the April 14, 1999, meeting the Committee adopted the
1999 Bonus Plan and set specific project-related objectives in
connection therewith. These bonuses are designed to give
employees incentive to work to achieve the Company's 1999
objectives, and to help retain qualified employees. Under the
Plan the Committee would set bonuses at year-end based on those
objectives. Clerical and secretarial employees are eligible for
a bonus of up to 5% of their December 31, 1998 base salary;
administrative and technical employees are eligible for a bonus
of up to 10%; managers are eligible for a bonus of up to 15%; and
senior management are eligible for a bonus of up to 20%. An
employee could earn up to the maximum percentage in his or her
category if the objectives set by the Committee are met in full.
The Committee has the discretion to award no bonus at all or any
amount up to the maximum percentage, to any particular employee
based on the Committee's finding of that individual's
contribution to the meeting of the objectives. If the Committee
determined that most, but not all, of the objectives had been
met, it has the discretion to award a lesser bonus to some, or
all, eligible employees. If the Committee determines that most
of the objectives were not met, no bonuses will be awarded. Up
to one-fourth of a bonus payable to any member of senior
management, in the sole discretion of the Committee, may be
payable in Common Stock of the Company. A larger percentage of
the bonus paid to a member of senior management may be paid in
Common Stock, if so requested by that employee and agreed to by
the Committee.
April 14, 1999 COMPENSATION COMMITTEE
Fred Hofheinz, Chairman
Arthur W. Hummel
Michael Palliser
Francis J. Reinhardt, Jr.
<PAGE>
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 1994 through 1998, 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, namely: Alta Energy
Corporation (acquired by Devon Energy in 1994); Amerac Energy
Corporation (merged with First Boston in 1998); Bellwether
Exploration Company; Brock Exploration Corporation (acquired by
Key Production in 1996); Tom Brown Inc.; Caspen Oil, Inc.;
Chemfirst Inc. (formerly First Mississippi Corporation); Cobb
Resources Corporation; Coda Energy, Inc. (acquired by Joint
Energy in 1996); Comstock Resources, Inc.; Crystal Oil Company;
DeKalb Energy Company; Edisto Resources Company (acquired by
Forcenergy in 1997); Energen Corporation; Forest Oil Corporation;
Frontier Oil (name changed from Wainoco Oil Corporation); Global
Natural Resources, Inc. (acquired by Seagull Energy in 1996);
Goodrich Petroleum Corporation (formerly Patrick Petroleum
Company); Hallador Petroleum Company; Hondo Oil & Gas Company;
Kelley Oil & Gas Partners; Louis Dreyfus Natural Gas (formerly
American Exploration Company); Magellan Petroleum Corporation;
Maynard Oil Company; Monterey Resources, Inc. (acquired by Texaco
in 1997); MSR Exploration Limited; Numac Energy, Inc.; Penn
Virginia Corporation; Plains Resources, Inc.; Presidio Oil
(acquired by Tom Brown Inc. in 1998); Sempra Energy (name changed
from Pacific Enterprises); 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, 1993 and
that all dividends were reinvested.
[SHAREHOLDER RETURN GRAPH]
1994 Return 1995 Return 1996 Return 1997 Return 1998 Return
----------- ----------- ----------- ----------- -----------
XCL 144.48 55.52 33.28 49.69 22.25
AMEX 90.89 114.90 122.24 143.48 144.40
Peer Group 99.39 124.83 146.85 168.22 134.00
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
The following table sets forth as of March 31, 1999, unless
otherwise indicated, 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 23,377,941 shares of Common Stock; 1,231,897 shares of
Amended Series A Preferred Stock; and 50,848 shares of Series
B Preferred Stock issued and outstanding. Except as otherwise
indicated, all shares are owned both of record and
beneficially.
<TABLE>
<CAPTION>
Amended Series A Amended 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>
Cumberland Associates 3,143,266 (4) 12.04 212,581 17.26 -- --
1114 Avenue of the Americas
New York, New York 10036
KAIM Non-Traditional, L.P. 7,304,364 (5) 25.25 336,620 (6) 27.33 50,848 (7) 100
1800 Avenue of the Stars,
2nd Floor
Los Angeles, California 90026
Mitch Leigh 2,218,832 (8) 9.39 -- -- -- --
29 West 57th Street
New York, New York 10019
Marsden W. Miller, Jr. 1,639,047 (9) 6.87 -- -- -- --
110 Rue Jean Lafitte, 2nd Floor
Lafayette, Louisiana 70508
Putnam Investment, Inc. 2,522,874 (10) 11.1 222,613 (10) 18.07 -- --
One Post Office Square
Boston, MA 02109
</TABLE>
______________
(1) This table includes shares of Common Stock issuable upon
conversion of the shares of Amended Series A Preferred
Stock. Each share of Amended Series A Preferred Stock is
convertible into 11.333 shares of Common Stock.
(2) The holders of Amended Series A Preferred Stock are
entitled to cast the same number of votes as the shares of
Common Stock then issuable upon conversion thereof
(currently 11 votes) on any matter subject to the vote of
Common Stockholders.
(3) Each share of Amended Series B Preferred Stock is
convertible into approximately 26.3 shares of Common Stock,
if the Common Stock issuable on conversion has not been
registered and 21 shares of Common Stock, if the Common
Stock issuable on conversion has been registered, subject to
adjustment. Each share of Amended Series B Preferred Stock
is entitled to 50 votes per share.
(4) Includes shares issuable upon the exercise of stock
purchase warrants exercisable within the next 60 days.
(5) KAIM Non-Traditional, L.P. ("KAIM") and Richard A. Kayne,
have shared voting and dispositive power over 4,751,482
shares, which include 144,401 shares which may be acquired
within 60 days upon exercise of warrants and 3,816,568
shares which may be acquired within 60 days upon conversion
of preferred shares. The shares are owned by nine investment
accounts (including four investment limited partnerships,
three insurance companies and an offshore corporation)
managed, with discretion to purchase or sell securities, by
KAIM, a registered investment adviser. KAIM is the sole or
managing general partner of the limited partnerships.
Richard A. Kayne is the controlling shareholder of the
corporate owner of Kayne Anderson Investment Management,
Inc., the sole general partner of KAIM. Mr. Kayne is also a
limited partner of each of the limited partnerships. KAIM
is an investment manager of the offshore corporation. Mr.
Kayne is a director of one of the insurance companies.
KAIM disclaims beneficial ownership of the shares reported,
except those shares attributable to it by virtue of its
general partner interests in the limited partnerships. Mr.
Kayne disclaims beneficial ownership of the shares reported,
except those shares held by him or attributable to him by
virtue of his limited and general partner interests in the
limited partnerships and by virtue of his indirect interest
in the interests of KAIM in the limited partnerships.
(6) KAIM and Richard A. Kayne, have shared voting and
dispositive power over 336,620 shares. The shares are owned
by nine investment accounts (including four investment
limited partnerships, three insurance companies and an
offshore corporation) managed, with discretion to purchase
or sell securities, by KAIM, a registered investment
adviser. KAIM is the sole or managing general partner of
the limited partnerships. Richard A. Kayne is the
controlling shareholder of the corporate owner of Kayne
Anderson Investment Management, Inc., the sole general
partner of KAIM. Mr. Kayne is also a limited partner of
each of the limited partnerships. KAIM is an investment
manager of the offshore corporation. Mr. Kayne is a
director of one of the insurance companies. KAIM disclaims
beneficial ownership of the shares reported, except those
shares attributable to it by virtue of its general partner
interests in the limited partnerships. Mr. Kayne disclaims
beneficial ownership of the shares reported, except those
shares held by him or any shares attributable to him by
virtue of his limited and general partner interests in the
limited partnerships and by virtue of his indirect interest
in the interests of KAIM in the limited partnerships.
(7) KAIM and Richard A. Kayne, have shared voting and
dispositive power over these shares. The shares are owned
by four investment limited partnerships managed, with
discretion to purchase and sell securities, by KAIM, a
registered investment adviser. KAIM is the sole or managing
general partner of the limited partnerships. Richard A.
Kayne is the controlling shareholder of the corporate owner
of Kayne Anderson Investment Management, Inc., the sole
general partner of KAIM. Mr. Kayne is also a limited
partner of each of the limited partnerships. . KAIM
disclaims beneficial ownership of the shares reported,
except those shares attributable to it by virtue of its
general partner interests in the limited partnerships. Mr.
Kayne disclaims beneficial ownership of the shares reported,
except those shares attributable to him by virtue of his
limited and general partner interests in the limited
partnerships and by virtue of his indirect interest in the
interests of KAIM in the limited partnerships.
(8) Includes 70,052 shares and 12,600 warrants owned by Mr.
Leigh's wife. Does not include shares and warrants held in
custodial and trust accounts for Mr. Leigh's minor children
that Mr. Leigh does not control. Mr. Leigh disclaims
beneficial ownership of all shares held by his wife and
minor children.
(9) Includes shares issuable upon the exercise of stock
options exercisable within the next 60 days; and 1,000,000
shares of restricted stock subject to certain forfeiture
provisions.
(10) Information as to the amount and nature of beneficial
ownership was obtained from a Schedule 13G filed with the
SEC on February 9, 1999. Putnam Investments, Inc. ("PI") is
a wholly owned subsidiary of Marsh & McClennan Companies,
Inc. (M&MC). PI owns two registered investment advisors,
Putnam Investment Management, Inc. ("PIM") which is the
investment adviser to the Putnam family of mutual funds, and
The Putnam Advisory Company, Inc. ("PAC") which is the
investment advisor to Putnam's institutional clients. Both
subsidiaries have dispository power of the shares as
investment managers, but each of the mutual fund's trustees
have voting power of the shares held by each fund, and PAC
has shared voting power over the shares held by the
institutional clients. PIM beneficially owns 2,354,136
shares of Common Stock and PAC beneficially owns 168,738
shares of Common Stock, in both instances including shares
of Common Stock that may be acquired within the next 60 days
upon conversion of preferred stock and exercise of warrants.
PI and M&MC disclaim beneficial ownership of the shares.
Security Ownership of Management
- --------------------------------
The following table sets forth information concerning the
shares of the Company's Common Stock owned beneficially by each
director of the Company, and all directors and executive officers
as a group as of March 31, 1999. As of that date there were
23,377,941 shares of Common Stock issued and outstanding and
1,231,897 shares of Amended Series A Preferred Stock issued and
outstanding. The mailing address for all such individuals is XCL
Ltd., 110 Rue Jean Lafitte, 2nd Floor, Lafayette, Louisiana
70508.
<TABLE>
<CAPTION>
Common Stock Amended Series A
Preferred Stock
_____________________________ _____________________
Number Percent Number Percent
Name of Beneficial Owner of Shares of Class (7) of Shares of Class
- ----------------------- ------------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Marsden W. Miller, Jr. 1,639,047 (1)(2)(3)(4) 6.87 -- --
John T. Chandler 585,430 (1)(2)(3)(4)(5) 2.48 20,000 (2) 1.62
Benjamin B. Blanchet 200 (6) -- -- --
Fred Hofheinz 39,998 (3) 0.17 -- --
Arthur W. Hummel, Jr. 39,998 (3) 0.17 -- --
Sir Michael Palliser 39,998 (3) 0.17 -- --
Francis J. Reinhardt, Jr. 75,797 (3)(7) 0.32 -- --
R. Thomas Fetters, Jr. 96,031 (4) 0.41 -- --
Peter F. Ross -- -- -- --
All directors and officers
of the Company as a group
(14 persons) 2,962,532 (3)(4) 11.98 20,000 (2) 1.62
</TABLE>
____________
(1) Includes 13,333 shares that are subject to an option
granted by Mr. Miller, 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 restricted stock awarded to Messrs.
Miller and Chandler that are subject to certain forfeiture
provisions.
(3) Includes shares of Common Stock that may be acquired
pursuant to options that are exercisable within 60 days.
(4) Includes shares of Common Stock that may be acquired
pursuant to stock purchase warrants that are exercisable
within 60 days.
(5) Includes shares of Common Stock that may be acquired upon
conversion of Amended Series A Preferred Stock.
(6) Represents shares of Common Stock owned by Mr. Blanchet's
children. Mr. Blanchet disclaims ownership of these shares.
(7) Includes 6,666 shares of Common Stock owned by Carl H.
Pforzheimer & Co. of which Mr. Reinhardt is a general
partner and 15,000 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.
(1) Financial Statements
The following documents are included in Part II, Item 8 of
this report:
Page
XCL Ltd. and Subsidiaries:
- -------------------------
Report of Independent Certified Public Accountants 39
Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1997 40
Consolidated Statements of Operations for each of the years
ended December 31, 1996, 1997 and 1998 41
Consolidated Statements of Shareholders' Equity for each of
the years ended December 31, 1996, 1997 and 1998 42
Consolidated Statements of Cash Flows for each of the years
ended December 31, 1996, 1997 and 1998 43
Notes to Consolidated Financial Statements 44
XCL-China Ltd. (wholly-owned):
- -----------------------------
Report of Independent Certified Public Accountants 69
Balance Sheets as of December 31, 1998 and December 31, 1997 70
Statements of Operations for each of the years ended
December 31, 1996, 1997 and 1998 71
Statements of Shareholders' Deficit for each of the years
ended December 31, 1996, 1997 and 1998 72
Statements of Cash Flows for each of the years ended
December 31, 1996, 1997 and 1998 73
Notes to Financial Statements 74
(2) Financial Statement Schedule
XCL Ltd. and Subsidiaries:
- -------------------------
Schedule II-Valuation and Qualifying Accounts 68
(3) Executive Compensation Plans and Arrangements
Form of Amendment dated January 15, 1999, to Services Agreement
dated August 1, 1997, between the Company and Mr. Benjamin B.
Blanchet, an officer and director of the Company. - See Exhibit
10.61 filed herewith .
Consulting Agreement by and between the Company and Mr. R. Thomas
Fetters, Jr. dated January 1, 1999. - See Exhibit 10.60 filed
herewith.
Form of Long Term Stock Incentive Plan as Amended and Restated
Effective as of June 1, 1997 - See Appendix C to Proxy Statement
dated November 20, 1997.
Form of Appreciation Grant Agreement between the Company and Mr.
M.W. Miller, Jr. - See Appendix D to Proxy Statement dated
November 20, 1997.
Form of Services Agreement dated August 1, 1997, between the
Company and Mr. Benjamin B. Blanchet, an officer and director of
the Company. - See Exhibit 10.46 hereto.
Form of Promissory Note dated August 1, 1997, in a principal
amount of $100,000, made in favor of the Company by Mr. Benjamin
B. Blanchet, an officer of the Company. See Exhibit 10.47
hereto.
Consulting Agreement by and between the Company and Mr. R. Thomas
Fetters, Jr. dated June 1, 1997. - See Exhibit 10.63 to
Quarterly Report on Form 10-Q filed November 14, 1997.
Consulting Agreement by and between the Company and Sir Michael
Palliser dated May 1, 1994. - See Exhibit 10.22 to Annual Report
on Form 10-K/A No. 1 filed April 17, 1995.
Consulting Agreement by and between the Company and Mr. Arthur W.
Hummel, Jr., dated May l, 1994. - See Exhibit 10.23 to Annual
Report on Form 10-K/A No. 1 filed April 17, 1995.
Long Term Stock Incentive Plan between the Company and certain
employees. - See Exhibit A to Proxy Statement dated May 11, 1992.
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.
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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
(c) Exhibits required by Item 601 of Regulation S-K
2.0 Not applicable
3.1 Amended and Restated Certificate of Incorporation of the
Company. (Q)(i)
3.2 Amended and Restated By-Laws of the Company. (A)(i)
4.1 Forms of Common Stock Certificates. (P)(i)
4.2 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.
(D)(i)
4.3 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 (now known as
ChaseMellon Shareholder Services) serves as the Company's
Registrar and U.S. Transfer Agent. (E)
4.4 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. (D)(ii)
4.5 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. (D)(iii)
4.6 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. (C)(i)
4.7 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. (C)(ii)
4.8 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. (C)(iii)
4.9 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. (C)(iv)
4.10 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. (C)(v)
4.11 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 (I)(i)
4.12 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 (I)(ii)
4.13 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 (I)(iii)
4.14 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. (L)
4.15 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 (M)(i)
4.16 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. (M)(ii)
4.17 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 (M)(iii)
4.18 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 (M)(iv)
4.19 Form of Purchase Agreement dated May 13, 1997, between
the Company and Jefferies & Company, Inc. (the "Initial
Purchaser") with respect to 75,000 Units each consisting of
$1,000 principal amount of 13.5% Senior Secured Notes due
May 1, 2004, Series A and one warrant to purchase 1,280
shares of the Company's Common Stock with an exercise price
of $0.2063 per share ("Note Warrants"). (N)(i)
4.20 Form of Purchase Agreement dated May 13, 1997, between
the Company and Jefferies & Company, Inc. (the "Initial
Purchaser") with respect to 294,118 Units each consisting of
one share of Amended Series A, Cumulative Convertible
Preferred Stock ("Amended Series A Preferred Stock") and one
warrant to purchase 327 shares of the Company's Common Stock
with an exercise price of $0.2063 per share ("Equity
Warrants"). (N)(ii)
4.21 Form of Warrant Agreement and Warrant Certificate dated
May 20, 1997, between the Company and Jefferies & Company,
Inc., as the Initial Purchaser, with respect to the Note
Warrants. (N)(iii)
4.22 Form of Warrant Agreement and Warrant Certificate dated
May 20, 1997, between the Company and Jefferies & Company,
Inc., as the Initial Purchaser, with respect to the Equity
Warrants. (N)(iv)
4.23 Form of Designation of Amended Series A Preferred Stock
dated May 19, 1997. (N)(v)
4.24 Form of Amended Series A Preferred Stock certificate.
(N)(vi)
4.25 Form of Global Unit Certificate for 75,000 Units
consisting of 13.5% Senior Secured Notes due May 1, 2004 and
Warrants to Purchase Shares of Common Stock. (N)(vii)
4.26 Form of Global Unit Certificate for 293,765 Units
consisting of Amended Series A Preferred Stock and Warrants
to Purchase Shares of Common Stock. (N)(viii)
4.27 Form of Warrant Certificate dated May 20, 1997, issued
to Jefferies & Company, Inc., with respect to 12,755
warrants to purchase shares of Common Stock of the Company
at an exercise price of $0.2063 per share. (N)(ix)
4.28 Form of Stock Purchase Agreement dated effective as of
October 1, 1997, between the Company and William Wang,
whereby the Company issued 800,000 shares of Common Stock to
Mr. Wang, as partial compensation pursuant to a Consulting
Agreement. (O)(i)
4.29 Form of Stock Purchase Warrants dated effective as of
February 20, 1997, issued to Mr. Patrick B. Collins with
respect to 200,000 warrants to purchase shares of Common
Stock of the Company at an exercise price of $0.25 per
share, issued as partial compensation pursuant to a
Consulting Agreement. (O)(ii)
4.30 Certificate of Amendment to the Certificate of
Designation of Series F, Cumulative Convertible Preferred
Stock dated January 6, 1998. (P)(ii)
4.31 Form of Stock Purchase Warrants dated January 16, 1998,
issued to Arthur Rosenbloom (6,389), Abby Leigh (12,600) and
Mitch Leigh (134,343) to purchase shares of Common Stock of
the Company at an exercise price of $0.15 per share, on or
before December 31, 2001. (P)(iii)
4.32 Certificate of Designation of Amended Series B,
Cumulative Convertible Preferred Stock dated March 4, 1998.
(P)(iv)
4.33 Correction to Certificate of Designation of Amended
Series B, Cumulative Convertible Preferred Stock dated March
5, 1998. (P)(v)
4.34 Second Correction to Certificate of Designation of
Amended Series B Preferred Stock dated March 19, 1998.
(P)(vi)
4.35 Form of Stock certificate representing shares of Amended
Series B Preferred Stock. (Q)(ii)
4.36 Form of Agreement dated March 3, 1998 between the
Company and Arbco Associates, L.P., Kayne Anderson Non-
Traditional Investments, L.P., Offense Group Associates,
L.P. and Opportunity Associates, L.P. for the exchange of
Series B Preferred Stock and associated warrants into
Amended Series B Preferred Stock and warrants. (Q)(iii)
4.37 Form of Stock Purchase Warrants dated March 3, 1998
between the Company and the following entities:
Holder Warrants
Arbco Associates, L.P. 85,107
Kayne Anderson Non-Traditional Investments, L.P. 79,787
Offense Group Associates, L.P. 61,170
Opportunity Associates, L.P. 23,936 (Q)(iv)
4.38 Form of Stock Purchase Warrant dated effective as of
June 30, 1998, issued to Mr. Patrick B. Collins with respect
to 17,000 warrants to purchase shares of Common Stock of the
Company at an exercise price of $3.75 per share, issued as
partial compensation pursuant to a Consulting Agreement.
(T)(i)
4.39 Form of Warrant Exchange Agreement and Stock Purchase
Warrant dated September 15, 1998 to purchase an aggregate of
351,015 shares of Common Stock at an exercise price of $2.50
per share, subject to adjustment, issued to Cumberland
Partners in exchange for certain warrants held by Cumberland
Partners. (T)(ii)
4.40 Form of Warrant Agreement dated October 1, 1998 to
purchase 50,000 shares of Common Stock at an exercise price
of $3.75 per share, subject to adjustment, issued to Steven
B. Toon, a former officer of the Company. (U)(i)
4.41 Form of a series of Stock Purchase Warrants dated
November 6, 1998, issued as a part of a unit offered with
secured Notes of XCL Land Ltd., exercisable at $3.50 per
share on or before November 6, 2003, entitling the following
holders to purchase up to an aggregate of 325,575 shares of
Common Stock:
Warrant Holder Warrants
J. Edgar Monroe Foundation 21,705
Estate of J. Edgar Monroe 151,935
Construction Specialists, Inc.
d/b/a Con-Spec, Inc. 151,935 (U)(ii)
4.42 Form of a series of Stock Purchase Warrants issued as
part of a unit offered with Secured Notes of XCL Land Ltd.,
entitling the following holders to purchase shares of Common
Stock:
Initial
Warrant Holder Warrants Exercise Price Date
Estate of J. Edgar Monroe 54,262 $2.00 January 15, 1999
Construction Specialists, Inc.
d/b/a Con-Spec, Inc. 54,262 $2.00 January 15, 1999
Doug Ashy 21,705 $1.50 March 22, 1999
Edgar D. Daigle 21,705 $1.50 March 25, 1999 *
4.43 Form of Warrant Amendment Agreement between the Company,
J. Edgar Monroe Foundation (1976), Estate of J. Edgar
Monroe, and Construction Specialists, Inc. d/b/a Con-Spec,
Inc. amending the warrant exercise price of warrants dated
November 6, 1998, from $3.50 to $2.00 per share. *
4.44 Form of a Stock Purchase Warrant dated March 15, 1999
issued to Mr. Robert R. Durkee, Jr. as part of a unit
offering with Secured Notes of XCL Land, Ltd., exercisable
at $1.25 per share on or before March 15, 2004. *
4.45 Form of a Second Warrant Amendment Agreement between the
Company, J. Edgar Monroe Foundation (1976), Estate of J.
Edgar Monroe, and Construction Specialists, Inc. d/b/a Con-
Spec, Inc. amending the warrant exercise price of warrants
dated November 6, 1998, from $2.00 to $1.50 per share. *
9.0 Not applicable.
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. (B)
10.2 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.
(D)(iv)
10.3 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.
(D)(v)
10.4 Consulting agreement between the Company and Sir Michael
Palliser dated April 1, 1994. (F)(i)
10.5 Consulting agreement between the Company and Mr. Arthur
W. Hummel, Jr. dated April 1, 1994. (F)(ii)
10.6 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. (G)(i)
10.7 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. (G)(ii)
10.8 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. (H)(iv)
10.9 Letter of Intent dated July 17, 1995 between CNPC United
Lube Oil Corporation and XCL Ltd. for discussion of further
projects. (H)(v)
10.10 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.
(H)(i)
10.11 Memorandum of Understanding dated December 14, 1995,
between XCL Ltd. and China National Administration of Coal
Geology. (I)(iv)
10.12 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. (I)(v)
10.13 Copy of Limited Waiver between the Company and
Internationale Nederlanden (U.S.) Capital Corporation dated
April 3, 1996. (I)(vi)
10.14 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.
(J)
10.15 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. (K)(i)
10.16 Form of Act of Sale between the Company and The
Schumacher Group of Louisiana, Inc. dated March 31, 1997,
wherein the Company sold its office building. (M)(v)
10.17 Amendment No. 1 to the May 1, 1995 Agreement with
Apache Corp. dated April 3, 1997, effective December 13,
1996. (M)(vi)
10.18 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. (M)(vii)
10.19 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. (M)(viii)
10.20 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. (M)(ix)
10.21 Form of Forbearance Agreement dated April 9, 1997
between the Company and ING (U.S.) Capital Corporation.
(M)(x)
10.22 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 (M)(xi)
10.23 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. (M)(xii)
10.24 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. (M)(xiii)
10.25 Form of Indenture dated as of May 20, 1997, between the
Company, as Issuer and Fleet National Bank, as Trustee
("Indenture"). (N)(x)
10.26 Form of 13.5% Senior Secured Note due May 1, 2004,
Series A issued May 20, 1997 to Jefferies & Company, Inc. as
the Initial Purchaser (Exhibit A to the Indenture). (N)(xi)
10.27 Form of Pledge Agreement dated as of May 20, 1997,
between the Company and Fleet National Bank, as Trustee
(Exhibit C to the Indenture). (N)(xii)
10.28 Form of Cash Collateral and Disbursement Agreement
dated as of May 20, 1997, between the Company and Fleet
National Bank, as Trustee and Disbursement Agent, and Herman
J. Schellstede & Associates, Inc., as Representative
(Exhibit F to the Indenture). (N)(xiii)
10.29 Form of Intercreditor Agreement dated as of May 20,
1997, between the Company, ING (U.S.) Capital Corporation,
the holders of the Secured Subordinated Notes due April 5,
2000 and Fleet National Bank, as trustee for the holders of
the 13.5% Senior Secured Notes due May 1, 2004 (Exhibit G to
the Indenture). (N)(xiv)
10.30 Registration Rights Agreement dated as of May 20, 1997,
by and between the Company and Jefferies & Company, Inc.
with respect to the 13.5% Senior Secured Notes due May 1,
2004 and 75,000 Common Stock Purchase Warrants (Exhibit H to
the Indenture). (N)(xv)
10.31 Form of Security Agreement, Pledge and Financing
Statement and Perfection Certificate dated as of May 20,
1997, by the Company in favor of Fleet National Bank, as
Trustee (Exhibit I to the Indenture). (N)(xvi)
10.32 Registration Rights Agreement dated as of May 20, 1997,
by and between the Company and Jefferies & Company, Inc.
with respect to the 9.5% Amended Series A Preferred Stock
and Common Stock Purchase Warrants. (N)(xvii)
10.33 Form of Restated Forbearance Agreement dated effective
as of May 20, 1997, between the Company, XCL-Texas, Inc. and
ING (U.S.) Capital Corporation. (N)(xviii)
10.34 Form of Consulting Agreement dated February 20, 1997,
between the Company and Mr. Patrick B. Collins, whereby Mr.
Collins performs certain accounting advisory services.
(O)(ii)
10.35 Form of Consulting Agreement dated effective as of June
1, 1997, between the Company and Mr. R. Thomas Fetters, Jr.,
a director of the Company, whereby Mr. Fetters performs
certain geological consulting services. (O)(iii)
10.36 Form of Agreement dated October 1, 1997, between the
Company and Mr. William Wang, whereby Mr. Wang performs
certain consulting services with respect to its investments
in China. (O)(iv)
10.37 Form of Services Agreement dated August 1, 1997,
between the Company and Mr. Benjamin B. Blanchet, an officer
of the Company. (O)(v)
10.38 Form of Promissory Note dated August 1, 1997, in a
principal amount of $100,000, made by Mr. Benjamin B.
Blanchet in favor of the Company. (O)(vi)
10.39 Form of Consulting Agreement dated June 15, 1998,
between the Company and Mr. Patrick B. Collins, whereby Mr.
Collins performs certain accounting advisory services.
(T)(iii)
10.40 Amended and Restated Long Term Stock Incentive Plan
effective June 1, 1997. (R)(i)
10.41 Form of Restricted Stock Award Agreement. (T)(iv)
10.42 Form of Nonqualified Stock Option Agreement. (T)(v)
10.43 Appreciation Option for M. W. Miller, Jr. (R)(ii)
10.44 Zhang Dong Petroleum Sharing Contract. (T)(vi)
10.45 Form of a series of Secured Notes dated November 6,
1998, between the Company and the following entities:
Note Holder Principal Amount
J. Edgar Monroe Foundation $100,000
Estate of J. Edgar Monroe $700,000
Construction Specialists, Inc.
d/b/a Con-Spec, Inc. $700,000 (U)(iii)
10.46 Form of Subscription Agreement dated November 6, 1998,
by and between XCL Land, Ltd., the Company and the
subscribers of Units, each unit comprised of $100,000 in
secured Notes and 21,705 warrants. (U)(iv)
10.47 Form of Security Agreement dated November 6, 1998, by
and between XCL Land, Ltd. and holders of the secured Notes
of XCL Land, Ltd. dated November 6, 1998. (U)(v)
10.48 Form of Security Agreement dated November 6, 1998, by
and between The Exploration Company of Louisiana, Inc. and
holders of the secured Notes of XCL Land, Ltd. dated
November 6, 1998. (U)(vi)
10.49 Form of Subscription Agreement by and between XCL Land,
Ltd., the Company and the subscribers of Units, each unit
comprised of $100,000 in Secured Notes and 21,705 warrants.
*
Subscriber Units Date
Estate of J. Edgar Monroe 2.5 January 15, 1999
Construction Specialists, Inc.
d/b/a Con-Spec, Inc. 2.5 January 15, 1999
Doug Ashy, Sr. 1.0 March 22, 1999
Edgar D. Daigle 1.0 March 25, 1999
10.50 Form of a series of secured Notes between the Company
and the following entities:
Note Holder Principal Amount Issue Date
Estate of J. Edgar Monroe $250,000 January 15, 1999
Construction Specialists, Inc.
d/b/a Con-Spec, Inc. $250,000 January 15, 1999
Doug Ashy, Sr. $100,000 March 22, 1999
Edgar D. Daigle $100,000 March 25, 1999
10.51 Form of First Amendment to Security Agreement dated
January 15, 1999, by and between XCL Land, Ltd. and holders
of the Secured Notes of XCL Land, Ltd. dated November 6,
1999. *
10.52 Form of First Amendment to Security Agreement dated
January 15, 1999, by and between The Exploration Company of
Louisiana, Inc. and holders of the secured Notes of XCL
Land, Ltd. dated November 6, 1998. *
10.53 Acknowledgement and Agreement Regarding Security
Interest by the J. Edgar Monroe Foundation (1976) dated
January 15, 1999. *
10.54 Form of Security Agreement by and between XCL Land,
Ltd. and the following holders of the Secured Notes of XCL
Land, Ltd.:
Note Holder Date
Doug Ashy, Sr. March 22, 1999
Edgar D. Daigle March 25, 1999 *
10.55 Form of Security Agreement by and between The
Exploration Company of Louisiana, Inc. and the following
holders of the Secured Notes of XCL Land, Ltd.
Note Holder Date
Doug Ashy, Sr. March 22, 1999
Edgar D. Daigle March 25, 1999 *
10.56 Form of Subscription Agreement dated March 15, 1999, by
and between XCL Land, Ltd. and Robert R. Durkee, Jr. for a
unit comprised of a $100,000 45-day secured note and 10,000
warrants to purchase Common Stock of XCL Ltd.. *
10.57 Form of Promissory Note dated March 15, 1999, by and
between Robert R. Durkee, Jr. in the principal amount of
$100,000. *
10.58 Form of Security Agreement by and between XCL Land,
Ltd. and Robert R. Durkee, Jr. dated March 15, 1999. *
10.59 Form of Security Agreement by and between The
Exploration Company of Louisiana, Inc. and Robert R. Durkee,
Jr. dated March 15, 1999. *
10.60 Consulting Agreement dated January 1, 1999, between the
Company and R. Thomas Fetters, Jr., a director of the
Company, whereby Mr. Fetters performs certain geological
consulting services. *
10.61 Amendment to Personal Services Agreement dated January
15, 1999, between the Company and Benjamin B. Blanchet, an
officer and director of the Company. *
11.0 Not applicable.
12.0 Not applicable.
13.0 Not applicable.
16.0 Not applicable.
18.0 Not applicable.
21.0 Subsidiaries of the Company
XCL-China Ltd.
XCL-China LubeOil Ltd.
XCL-China Coal Methane Ltd.
XCL-Cathay Ltd.
XCL-Texas Inc.
XCL-Acquisitions, Inc.
The Exploration Company of Louisiana, Inc.
XCL Land Ltd.
22.0 Not applicable.
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of H.J. Gruy and Associates, Inc.*
24.0 Not applicable.
27.1 Financial Data Schedule for year ended December 31,
1998.*
27.2 Restated Financial Data Schedule for year ended December
31, 1997. *
99.1 Summary of reserve report dated January 1, 1999,
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
Exhibits 3(c).
(B) Incorporated by reference to a Registration Statement on
Form S-3 (File No. 33-68552) where it appears as Exhibit
10.1.
(C) 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) Exhibit 4.29; (ii) Exhibit 4.30;
and (iii) through (v) Exhibits 4.34 through 4.36,
respectively.
(D) Incorporated by reference to Amendment No. 1 to Annual
Report on Form 10-K filed April 15, 1994, where it appears
as: (i) Exhibit 4.32; (ii) Exhibit 4.36; (iii) Exhibit
4.37; (iv) through (v) Exhibit 10.41 through Exhibit 10.47,
respectively; and (v) Exhibit 10.49.
(E) Incorporated by reference to an Annual Report on Form 10-
K for the fiscal year ended December 31, 1990, filed April
1, 1991, where it appears as Exhibit 10.27.
(F) 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 (ii) Exhibits 10.22 through 10.23,
respectively.
(G) 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 10.26; and (ii) Exhibit
10.28.
(H) 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 Exhibit 10.35.
(I) 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 (iii) Exhibits 4.28
through 4.30, respectively; and (iv) Exhibit 10.31; (v)
Exhibit 10.32 and (vi) Exhibit 10.36.
(J) 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.
(K) 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 Exhibit 10.38.
(L) 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 Exhibits 4.32.
(M) Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1996, filed April 15, 1997,
where it appears as (i) through (iii) Exhibits 4.35 through
4.38; (iv) Exhibit 4.40; and (v) through (xiii) Exhibits
10.42 through 10.50.
(N) Incorporated by reference to Current Report on Form 8-K
dated May 20, 1997, filed June 3, 1997, where it appears as
(i) through (ix) Exhibits 4.1 through 4.9 and (x) through
(xviii) Exhibits 10.51 through 10.59.
(O) Incorporated by reference to Quarterly Report on Form 10-
Q for the quarter ended September 30, 1997, filed November
14, 1997, where it appears as (i) Exhibit 4.52; and (ii)
through (vi) Exhibits 10.62 through 10.66.
(P) Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1997, filed April 15, 1998,
where it appears as (i) Exhibit 4.1; (ii) through (vi)
Exhibits 4.32 through 4.36, respectively.
(Q) Incorporated by reference to Amendment No. 1 to Annual
Report on Form 10-K for the year ended December 31, 1997,
filed April 22, 1998, where it appears as (i) Exhibit 3.1;
and (ii) through (iv) Exhibits 4.37 through 4.39,
respectively.
(R) Incorporated by reference to Proxy Statement dated
November 20, 1997 filed November 6, 1997, where it appears
as (i) Appendix C; and (ii) Appendix D, respectively.
(S) Incorporated by reference to Registration Statement on
Form S-1 filed May 6, 1998, where it appears as Exhibit
24.1.
(T) Incorporated by reference to Amendment No. 2 to
Registration Statement on Form S-1 filed October 23, 1998,
where it appears as: (i) Exhibit 4.40; (ii) Exhibit 4.41;
(iii) Exhibit 10.49; (iv) Exhibit 10.50; (v) Exhibit 10.51;
and (vi) Exhibit 10.54.
(U) Incorporated by reference to Quarterly Report on Form 10-
Q for the quarter ended September 30, 1998, filed on
November 16, 1998, where it appears as: (i) and (ii)
Exhibits 4.42 and 4.43, respectively; and (iii) through (vi)
Exhibits 10.55 through 10.58, respectively.
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.
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 15, 1999 By:_________________________________
Marsden W. Miller, Jr.
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Marsden W. Miller, Jr.
______________________ Chairman of the Board, April 15, 1999
Marsden W. Miller, Jr. Chief Executive Officer,
Principal Financial Officer and
Principal Accounting Officer
/s/ John T. Chandler
______________________ Director April 15, 1999
John T. Chandler
/s/ Benjamin B. Blanchet
______________________ Director April 15, 1999
Benjamin B. Blanchet
/s/ R. Thomas Fetters, Jr.
______________________ Director April 15, 1999
R. Thomas Fetters, Jr.
/s/ Fred Hofheinz
______________________ Director April 15, 1999
Fred Hofheinz
/s/ Arthur W. Hummel, Jr.
______________________ Director April 15, 1999
Arthur W. Hummel, Jr.
/s/ Michael Palliser
_____________________ Director April 15, 1999
Michael Palliser
/s/ Francis J. Reinhardt, Jr.
______________________ Director April 15, 1999
Francis J. Reinhardt, Jr.
/s/ Peter F. Ross
_______________________ Director April 15, 1999
Peter F. Ross
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 _______________, ____
Void after 5:00 p.m. New York Time, _______________, ____
[five years after issuance]
No. LM-__
THIS CERTIFIES THAT, for value received,
_______________(the "Holder") (whose Social Security Number is
______________) 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
_______________, ____, and until 5:00 p.m., New York time, on
_______________, ____, [five years after issuance] (the
"Expiration Date"), subject to the conditions set forth herein,
at the initial exercise price of U.S. $1.50 per share (the
"Initial Exercise Price"), subject to adjustment as set forth
herein (the "Exercise Price"), up to an aggregate of ________
[21,705 multiplied by number of Units purchased] 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,
2nd Floor, Lafayette, LA 70508.
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) In case the Company shall at any time
after the date of this Certificate (i) declare a dividend on the
shares of Common Stock payable in shares of Common Stock, or (ii)
subdivide or split up the outstanding shares of Common Stock, the
amount of 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 to all holders of
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 to all holders of 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 Amended Series A, Cumulative
Convertible Preferred Stock (and the shares of Common Stock
issuable upon conversion of such Preferred Stock), outstanding on
the date hereof, or (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. 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 1% 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 1% (or
more) upon the happening of one or more of the events specified
in Sections 7(b), (c) or (i). All calculations under this
Section 7 shall be made to the nearest cent.
(h) If at any time, as a result of an
adjustment made pursuant to Section 7(b) or (c) hereof, the
Holder of any Warrant thereafter exercised shall become entitled
to receive any shares of the Company other than shares of Common
Stock, thereafter the number of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares
contained in this Section 7, and the provisions of this
Certificate with respect to the Shares shall apply on like terms
to such other shares.
(i) In the case of (l) any capital
reorganization of the Company, or of (2) any reclassification of
the shares of Common Stock (other than a subdivision or
combination of outstanding shares of Common Stock), or (3) any
consolidation or merger of the Company, or (4) the sale, lease or
other transfer of all or substantially all of the properties and
assets of the Company as, or substantially as, an entirety to any
other person or entity, each Warrant shall after such capital
reorganization, reclassification of the shares of Common Stock,
consolidation, or sale be exercisable, upon the terms and
conditions specified in this Certificate, for the number of
shares of stock or other securities or assets to which a holder
of the number of Shares purchasable (immediately prior to the
effectiveness of such capital reorganization, reclassification of
shares of Common Stock, consolidation, or sale) upon exercise of
a Warrant would have been entitled upon such capital
reorganization, reclassification of shares of Common Stock,
consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this Section 7 with
respect to the rights thereafter of the Holder shall be
appropriately adjusted (as determined reasonably and in good
faith by the Board of Directors of the Company) so as to be
applicable, as nearly as may reasonably be, to any shares of
stock or other securities or assets thereafter deliverable on the
exercise of a Warrant. The Company shall not effect any such
consolidation or sale, unless prior to or simultaneously with the
consummation thereof, the successor corporation, partnership or
other entity (if other than the Company) resulting from such
consolidation or the corporation, partnership or other entity
purchasing such assets or the appropriate entity shall assume, by
written instrument, the obligation to deliver to the Holder of
each Warrant the shares of stock, securities or assets to which,
in accordance with the foregoing provisions, such Holder may be
entitled and all other obligations of the Company under this
Certificate. For purposes of this Section 7(i) a merger to which
the Company is a party but in which the Common Stock outstanding
immediately prior thereto is changed into securities of another
corporation shall be deemed a consolidation with such other
corporation being the successor and resulting corporation.
(j) Irrespective of any adjustments in the
Exercise Price or the number or kind of shares purchasable upon
the exercise of the Warrant, Warrant Certificates theretofore or
thereafter issued may continue to express the same Exercise Price
per share and number and kind of Shares as are stated on the
Warrant Certificates initially issuable pursuant to this Warrant.
8. Required Notices to Warrant Holders. Nothing
contained in this Certificate shall be construed as conferring
upon the Holder the right to vote or to consent or to receive
notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter,
or as having any rights whatsoever as a shareholder of the
Company. If, however, at any time prior to the expiration of the
Warrants or their exercise, any of the following events shall
occur:
(i) the Company shall issue any rights to
subscribe for shares of Common Stock or any other
securities of the Company to all of the shareholders of
the Company; or
(ii) a dissolution, liquidation or winding-up
of the Company (other than in connection with a
consolidation, merger or statutory share exchange) or a
sale of all or substantially all of its property,
assets and business as an entirety shall be approved by
the Company's Board of Directors; or
(iii) there shall be any 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) 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.
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: _______________, 1999
XCL LTD.
By:__________________________________
Name: Marsden W. Miller, Jr.
Title: Chairman and Chief
Executive Officer
Attest:
___________________________
Secretary/Assistant Secretary
XCL LTD.
FORM OF ELECTION TO PURCHASE
(To be executed by the registered Holder
if such Holder desires to exercise Warrants)
The undersigned registered Holder hereby
irrevocably elects to exercise the right of purchase represented
by this Warrant Certificate for, and to purchase, ___________
Shares hereunder, and herewith tenders in payment for such Shares
cash, a wire transfer, a certified check or a banker's draft
payable to the order of XCL LTD. in the amount of
_____________________, all in accordance with the terms hereof.
The undersigned requests that a certificate for such Shares be
registered in the name of and delivered to:
(Please Print Name and Address)
and, if said number of Shares shall not be all the Shares
purchasable hereunder, that a new Warrant Certificate for the
balance remaining of the Shares purchasable hereunder be
registered in the name of the undersigned Warrant Holder or his
Assignee as below indicated and delivered to the address stated
below.
DATED:
Name of Warrant Holder:
(Please Print)
Address:
Signature:
Note: The above signature must correspond in all
respects with the name of the Holder as specified on the face of
this Warrant Certificate, without alteration or enlargement or
any change whatsoever, unless the Warrants represented by this
Warrant Certificate have been assigned.
XCL LTD.
FORM OF ASSIGNMENT
(To be executed by the registered Holder if such Holder
desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers to:
_________________________________________________________________
(Please Print Name and Address of Transferee)
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Warrants to purchase up to ________ Shares represented by this
Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_____________________, Attorney, to transfer such Warrants on the
books of the Company, with full power of substitution in the
premises. The undersigned requests that if said number of Shares
shall not be all of the Shares purchasable under this Warrant
Certificate that a new Warrant Certificate for the balance
remaining of the Shares purchasable under this Warrant
Certificate be registered in the name of the undersigned Warrant
Holder and delivered to the registered address of said Warrant
Holder.
DATED:_______________
Signature of registered Holder:
_________________________________________
Note: The above signature must correspond in all
respects with the name of the Holder as specified on
the face of this Warrant Certificate, without
alteration or enlargement or any change whatsoever. The
above signature of the registered Holder must be
guaranteed by a commercial bank or trust company, by a
broker or dealer which is a member of the National
Association of Securities Dealers, Inc. or by a member
of a national securities exchange, The Securities and
Futures Authority Limited in the United Kingdom or The
London Stock Exchange Limited in London, England.
Notarized or witnessed signatures are not acceptable as
guaranteed signatures.
Signature Guaranteed:
_________________________________________
Authorized Officer
_________________________________________
Name of Institution
WARRANT AMENDMENT AGREEMENT
This Warrant Amendment Agreement dated as of January
15, 1999 by and between XCL Ltd., a Delaware corporation
("XCL"), and Estate of J. Edgar Monroe, J. Edgar Monroe
Foundation (1976) and Construction Specialists, Inc. d/b/a
Con-Spec, Inc. (collectively referred to herein as the
"Warrantholders").
W I T N E S S E T H:
WHEREAS, each of the Warrantholders holds the number of
warrants ("Warrants") to purchase shares of common stock,
par value $0.01 per share, of XCL set forth opposite its
name on Schedule I attached hereto, which Warrants were
originally issued pursuant to Warrant Certificates each
dated as of November 6, 1998 (the "Warrant Certificates");
and
WHEREAS, the Warrantholders acquired their Warrants in
connection with their purchase of $1,500,000 in aggregate
principal amount of Units issued by XCL Land Ltd., a wholly
owned subsidiary of XCL and XCL Ltd., each Unit consisting of
$100,000 in principal amount of a promissory note of XCL
Land (collectively, the "Notes") and 21,705 Warrants; and
WHEREAS, Warrantholders have this day subscribed for an
additional $500,000 in aggregate principal of Units; and
WHEREAS, in order to induce such Warrantholders to
subscribe for the additional Units, XCL agreed to reduce the
exercise price of the Warrants from $3.50 to $2.00 per share
of common stock, subject to adjustment as therein provided.
NOW, THEREFORE, in consideration of the premises and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and confirmed,
the parties hereto hereby agree as follows:
1. The definition of "Initial Exercise Price" in
the first paragraph of each Warrant Certificates is hereby
amended to read as follows:
". at the initial exercise price of
U.S. $2.00 per share (the "Initial
Exercise Price") ."
All other terms and provisions of the first paragraph of
each Warrant Certificate shall remain unchanged.
2. This Warrant Amendment Agreement shall not
constitute a waiver or amendment of any other provision of
the Warrant Certificates not expressly referred to herein
and except as expressly amended hereby, the provisions of
the Warrant Certificates are and shall remain in full force
and effect.
3. Upon surrender of the original Warrant
Certificates issued to the Warrantholders, XCL shall issue
new Warrant Certificates of like tenor and an equivalent
number of Warrants to the Warrantholders reflecting the
amendment set forth in paragraph 1 above.
4. This Warrant Amendment Agreement sets forth the
entire understanding of the parties hereto with respect to
the subject mater hereof and may be executed in
counterparts, each of which when executed shall be deemed to
be an original but all of which taken together shall
constitute one and the same agreement.
5. This Warrant Amendment Agreement shall be
governed by and construed in accordance with the internal
laws of the State of Delaware without regard to conflicts of
laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Warrant Amendment Agreement to be duly executed and
delivered as of the date and year first above written.
XCL LTD.
By:_________________________
Title:_______________________
WARRANTHOLDERS:
Estate of J. Edgar Monroe
By:__________________________
Title:_______________________
J. Edgar Monroe Foundation
(1976)
By:___________________________
Title:_______________________
Construction Specialists, Inc.
d/b/a Con-Spec, Inc.
By:___________________________
Title:________________________
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 March 15, 1999
Void after 5:00 p.m. New York Time, March 15, 2004
No. LM-II-1
THIS CERTIFIES THAT, for value received, Robert R.
Durkee (the "Holder") (whose Tax Identification Number is 464-34-
7022) 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 September 16, 1999,
and until 5:00 p.m., New York time, on March 15, 2004 (the
"Expiration Date"), subject to the conditions set forth herein,
at the initial exercise price of U.S. $1.25 per share (the
"Initial Exercise Price"), subject to adjustment as set forth
herein (the "Exercise Price"), up to an aggregate of Ten Thousand
(10,000) 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, 2nd Floor, Lafayette, LA 70508.
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) In case the Company shall at any time
after the date of this Certificate (i) declare a dividend on the
shares of Common Stock payable in shares of Common Stock, or (ii)
subdivide or split up the outstanding shares of Common Stock, the
amount of 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 to all holders of
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 to all holders of 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 Amended Series A, Cumulative
Convertible Preferred Stock (and the shares of Common Stock
issuable upon conversion of such Preferred Stock), outstanding on
the date hereof, or (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. 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 1% 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 1% (or
more) upon the happening of one or more of the events specified
in Sections 7(b), (c) or (i). All calculations under this
Section 7 shall be made to the nearest cent.
(h) If at any time, as a result of an
adjustment made pursuant to Section 7(b) or (c) hereof, the
Holder of any Warrant thereafter exercised shall become entitled
to receive any shares of the Company other than shares of Common
Stock, thereafter the number of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares
contained in this Section 7, and the provisions of this
Certificate with respect to the Shares shall apply on like terms
to such other shares.
(i) In the case of (l) any capital
reorganization of the Company, or of (2) any reclassification of
the shares of Common Stock (other than a subdivision or
combination of outstanding shares of Common Stock), or (3) any
consolidation or merger of the Company, or (4) the sale, lease or
other transfer of all or substantially all of the properties and
assets of the Company as, or substantially as, an entirety to any
other person or entity, each Warrant shall after such capital
reorganization, reclassification of the shares of Common Stock,
consolidation, or sale be exercisable, upon the terms and
conditions specified in this Certificate, for the number of
shares of stock or other securities or assets to which a holder
of the number of Shares purchasable (immediately prior to the
effectiveness of such capital reorganization, reclassification of
shares of Common Stock, consolidation, or sale) upon exercise of
a Warrant would have been entitled upon such capital
reorganization, reclassification of shares of Common Stock,
consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this Section 7 with
respect to the rights thereafter of the Holder shall be
appropriately adjusted (as determined reasonably and in good
faith by the Board of Directors of the Company) so as to be
applicable, as nearly as may reasonably be, to any shares of
stock or other securities or assets thereafter deliverable on the
exercise of a Warrant. The Company shall not effect any such
consolidation or sale, unless prior to or simultaneously with the
consummation thereof, the successor corporation, partnership or
other entity (if other than the Company) resulting from such
consolidation or the corporation, partnership or other entity
purchasing such assets or the appropriate entity shall assume, by
written instrument, the obligation to deliver to the Holder of
each Warrant the shares of stock, securities or assets to which,
in accordance with the foregoing provisions, such Holder may be
entitled and all other obligations of the Company under this
Certificate. For purposes of this Section 7(i) a merger to which
the Company is a party but in which the Common Stock outstanding
immediately prior thereto is changed into securities of another
corporation shall be deemed a consolidation with such other
corporation being the successor and resulting corporation.
(j) Irrespective of any adjustments in the
Exercise Price or the number or kind of shares purchasable upon
the exercise of the Warrant, Warrant Certificates theretofore or
thereafter issued may continue to express the same Exercise Price
per share and number and kind of Shares as are stated on the
Warrant Certificates initially issuable pursuant to this Warrant.
8. Required Notices to Warrant Holders. Nothing
contained in this Certificate shall be construed as conferring
upon the Holder the right to vote or to consent or to receive
notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter,
or as having any rights whatsoever as a shareholder of the
Company. If, however, at any time prior to the expiration of the
Warrants or their exercise, any of the following events shall
occur:
(i) the Company shall issue any rights to
subscribe for shares of Common Stock or any other
securities of the Company to all of the shareholders of
the Company; or
(ii) a dissolution, liquidation or winding-up
of the Company (other than in connection with a
consolidation, merger or statutory share exchange) or a
sale of all or substantially all of its property,
assets and business as an entirety shall be approved by
the Company's Board of Directors; or
(iii) there shall be any 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) 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.
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: _______________, 1999
XCL LTD.
By:__________________________________
Name: Marsden W. Miller, Jr.
Title: Chairman and Chief
Executive Officer
Attest:
___________________________
Secretary/Assistant Secretary
XCL LTD.
FORM OF ELECTION TO PURCHASE
(To be executed by the registered Holder
if such Holder desires to exercise Warrants)
The undersigned registered Holder hereby
irrevocably elects to exercise the right of purchase represented
by this Warrant Certificate for, and to purchase, ___________
Shares hereunder, and herewith tenders in payment for such Shares
cash, a wire transfer, a certified check or a banker's draft
payable to the order of XCL LTD. in the amount of
_____________________, all in accordance with the terms hereof.
The undersigned requests that a certificate for such Shares be
registered in the name of and delivered to:
(Please Print Name and Address)
and, if said number of Shares shall not be all the Shares
purchasable hereunder, that a new Warrant Certificate for the
balance remaining of the Shares purchasable hereunder be
registered in the name of the undersigned Warrant Holder or his
Assignee as below indicated and delivered to the address stated
below.
DATED:
Name of Warrant Holder:
(Please Print)
Address:
Signature:
Note: The above signature must correspond in all
respects with the name of the Holder as specified on the face of
this Warrant Certificate, without alteration or enlargement or
any change whatsoever, unless the Warrants represented by this
Warrant Certificate have been assigned.
XCL LTD.
FORM OF ASSIGNMENT
(To be executed by the registered Holder if such Holder
desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers to:
_________________________________________________________________
(Please Print Name and Address of Transferee)
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Warrants to purchase up to ________ Shares represented by this
Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_____________________, Attorney, to transfer such Warrants on the
books of the Company, with full power of substitution in the
premises. The undersigned requests that if said number of Shares
shall not be all of the Shares purchasable under this Warrant
Certificate that a new Warrant Certificate for the balance
remaining of the Shares purchasable under this Warrant
Certificate be registered in the name of the undersigned Warrant
Holder and delivered to the registered address of said Warrant
Holder.
DATED:_______________
Signature of registered Holder:
_________________________________________
Note: The above signature must correspond in all
respects with the name of the Holder as specified on
the face of this Warrant Certificate, without
alteration or enlargement or any change whatsoever. The
above signature of the registered Holder must be
guaranteed by a commercial bank or trust company, by a
broker or dealer which is a member of the National
Association of Securities Dealers, Inc. or by a member
of a national securities exchange, The Securities and
Futures Authority Limited in the United Kingdom or The
London Stock Exchange Limited in London, England.
Notarized or witnessed signatures are not acceptable as
guaranteed signatures.
Signature Guaranteed:
_________________________________________
Authorized Officer
_________________________________________
Name of Institution
WARRANT AMENDMENT AGREEMENT
This Warrant Amendment Agreement dated as of January
15, 1999 by and between XCL Ltd., a Delaware corporation
("XCL"), and Estate of J. Edgar Monroe, J. Edgar Monroe
Foundation (1976) and Construction Specialists, Inc. d/b/a
Con-Spec, Inc. (collectively referred to herein as the
"Warrantholders").
W I T N E S S E T H:
WHEREAS, each of the Warrantholders holds the number of
warrants ("Warrants") to purchase shares of common stock,
par value $0.01 per share, of XCL set forth opposite its
name on Schedule I attached hereto, which Warrants were
originally issued pursuant to Warrant Certificates each
dated as of November 6, 1998 (the "Warrant Certificates");
and
WHEREAS, the Warrantholders acquired their Warrants in
connection with their purchase of $1,500,000 in aggregate
principal amount of Units issued by XCL Land Ltd., a wholly
owned subsidiary of XCL and XCL Ltd., each Unit consisting of
$100,000 in principal amount of a promissory note of XCL
Land (collectively, the "Notes") and 21,705 Warrants; and
WHEREAS, Warrantholders have this day subscribed for an
additional $500,000 in aggregate principal of Units; and
WHEREAS, in order to induce such Warrantholders to
subscribe for the additional Units, XCL agreed to reduce the
exercise price of the Warrants from $3.50 to $2.00 per share
of common stock, subject to adjustment as therein provided.
NOW, THEREFORE, in consideration of the premises and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and confirmed,
the parties hereto hereby agree as follows:
1. The definition of "Initial Exercise Price" in
the first paragraph of each Warrant Certificates is hereby
amended to read as follows:
". at the initial exercise price of
U.S. $2.00 per share (the "Initial
Exercise Price") ."
All other terms and provisions of the first paragraph of
each Warrant Certificate shall remain unchanged.
2. This Warrant Amendment Agreement shall not
constitute a waiver or amendment of any other provision of
the Warrant Certificates not expressly referred to herein
and except as expressly amended hereby, the provisions of
the Warrant Certificates are and shall remain in full force
and effect.
3. Upon surrender of the original Warrant
Certificates issued to the Warrantholders, XCL shall issue
new Warrant Certificates of like tenor and an equivalent
number of Warrants to the Warrantholders reflecting the
amendment set forth in paragraph 1 above.
4. This Warrant Amendment Agreement sets forth the
entire understanding of the parties hereto with respect to
the subject mater hereof and may be executed in
counterparts, each of which when executed shall be deemed to
be an original but all of which taken together shall
constitute one and the same agreement.
5. This Warrant Amendment Agreement shall be
governed by and construed in accordance with the internal
laws of the State of Delaware without regard to conflicts of
laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Warrant Amendment Agreement to be duly executed and
delivered as of the date and year first above written.
XCL LTD.
By:_________________________
Title:_______________________
WARRANTHOLDERS:
Estate of J. Edgar Monroe
By:__________________________
Title:_______________________
J. Edgar Monroe Foundation
(1976)
By:___________________________
Title:_______________________
Construction Specialists, Inc.
d/b/a Con-Spec, Inc.
By:___________________________
Title:________________________
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT dated as of _______________, ____ by
and between (a) XCL Land, Ltd. ("XCL Land"), a company organized
under the laws of the State of Delaware and a 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 Land, 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 Land and the purchase by the Subscriber of the number of
units (the "Units") which the Subscriber has inserted in Section
13 hereof at the purchase price set forth by the Subscriber in
Section 13 hereof, each Unit being comprised of (a) $100,000 in
principal amount of a promissory note of XCL Land ("Note"); and
(b) 21,705 warrants ("Warrants") to purchase 21,705 shares of XCL
Ltd.'s common stock, par value $.01 per share ("Common Stock"),
at $1.50 per share (subject to adjustment). Half Units may be
purchased hereunder after the minimum purchase of 1 Unit has been
made.
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 62 Units (issuable in one or
more tranches) offered by XCL Land 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 13 hereof,
subject to the terms and conditions contained in this Agreement.
The purchase and sale of the Units listed in Section 13 hereof
shall take place at a closing (the "Initial Closing") commencing
at 10:00 a.m., Central Daylight Time, on _______________, ____ at
the offices of Gordon, Arata, McCollam, Duplantis & Eagan, 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 Initial 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.
(1) At closing, the Subscriber shall wire transfer,
or shall cause to be wire transferred, immediately available
United States Funds to Bank One, Louisiana, ABA Number: 065-
400137, Account Number: 711-4432052 for the account of XCL Land,
Ltd. 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.
(2) Payment of the purchase price of the Units
shall be deemed by XCL Land and XCL Ltd. 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.
(3) Simultaneously with the Subscriber's
subscription payment for the Units, XCL Land 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 hereunder on this date, and XCL Ltd. shall issue and deliver,
or cause to be issued and delivered, a single certificate
representing the Warrants subscribed for hereunder on this date,
in each case registered in the name of the Subscriber and bearing
a suitably conformed version of the legend set forth in
subsection 4(e) hereof.
(4) XCL Land 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 Land 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. Commitment to Subscribe for Additional Units. In
addition to Subscriber's subscription to the number of Units set
forth in Section 13 hereof, Subscriber hereby agrees to subscribe
for an additional number of Units up to the number specified in
Section 13 on the same terms and conditions as set forth herein
upon the written request of XCL Land. The closing of such
transaction shall be held on the date and at the place reasonably
designated by XCL Land.
3. Representations and Warranties by XCL Land and XCL
Ltd. XCL Ltd. has filed a Preliminary Prospectus (a copy of
which is attached hereto as Exhibit "A") (the "Preliminary
Prospectus") with the Securities and Exchange Commission on
October 23, 1998 as part of Amendment No. 2 to a Registration
Statement on Form S-1 registering certain securities of XCL Ltd.
described therein. (The Subscriber understands and acknowledges
that the Preliminary Prospectus is not final and is subject to
further amendment. Subscriber further understands and
acknowledges that there are outstanding comments on the
Preliminary Prospectus from the Securities and Exchange
Commission and that responses to those comments have not been
incorporated into the Preliminary Prospectus.) XCL Land and XCL
Ltd. hereby represent and warrant to the Subscriber that except
as set forth in the Preliminary Prospectus or in this
Subscription Agreement or the Schedules hereto:
(1) Organization and Good Standing. XCL Land 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 Land or XCL Ltd. and its
subsidiaries, taken as a whole.
(2) Capitalization. XCL Ltd.'s authorized capital
stock consists of 500,000,000 shares of Common Stock, par value
$0.01 per share of which 23,377,971 shares of Common Stock were
validly issued and outstanding as of December 31, 1998 excluding
69,470 shares held in treasury, and are fully paid and non-
assessable, and 2,400,000 shares of preferred stock, par value
$1.00 per share, 70,000 of which have been designated Amended
Series B, Cumulative Converted Preferred Stock with 50,848 of
such shares outstanding as of December 31, 1998 and 2,085,000 of
which have been designated Amended Series A, Cumulative
Convertible Preferred Stock with 1,231,897 of such shares
outstanding as of December 31, 1998. The Warrants, when executed
and delivered on behalf of XCL Ltd. and issued and sold as set
forth in this Agreement and the Warrant Certificate annexed
hereto as Schedule II (the "Warrant Agreement"), 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
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.
(3) Corporate Authority. XCL Land 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, as to XCL Land, the Notes, which have been or will
be duly authorized by all necessary corporate or other action of
XCL Land (as to this Agreement and the Notes) and XCL Ltd. (as to
this Agreement and the Warrant Agreement). 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 Land
or XCL Ltd. or other holders of securities or indebtedness of XCL
Land 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 Land or XCL Ltd.,
or any material agreement or instrument by which XCL Land 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 Land or XCL Ltd.
This Agreement, the Warrant Agreement, and the Notes constitute
valid and binding obligations of XCL Land or XCL Ltd. (as
appropriate) in accordance with their terms.
(4) Governmental Consents. All consents,
authorizations and approvals (if any) of any governmental agency
or other regulatory body within the United States required by XCL
Land 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.
(5) Financial Statements. Included in the
Preliminary Prospectus are the audited financial statements of
XCL Ltd. and its consolidated subsidiaries for the fiscal year
ended December 31, 1997 and the unaudited financial statements of
XCL Ltd. and its consolidated subsidiaries for the six-month
period ended June 30, 1998, respectively. Attached as Exhibit B
to this Subscription Agreement are the unaudited financial
statements of XCL Ltd. and its consolidated subsidiaries for the
nine-month period ended September 30, 1998. Such financial
statements present fairly the financial position of XCL Land and
XCL Ltd. on the dates and for the periods specified therein in
all material respects.
(6) Absence of Certain Material Changes and Events.
Since September 30, 1998, except as described on Exhibit B-1 to
this Subscription Agreement, there has been no material adverse
change in the financial condition, assets, liabilities or
business of XCL Land and its subsidiaries, taken as a whole or of
XCL Ltd. and its subsidiaries, taken as a whole.
(7) Contracts. Except as set forth in the
Preliminary Prospectus and herein (including the Exhibits
hereto), and except for XCL Ltd.'s failure to pay certain cash
calls to Apache, neither XCL Land 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 Land and XCL Ltd., all such contracts are
valid and effective in accordance with their terms and XCL Land
and XCL Ltd. know of no material default by any third party that
would materially impair its ability to perform hereunder or XCL
Land's ability to perform under the Notes.
(8) Litigation. Except as disclosed in XCL Ltd.'s
public filings (and certain additional lawsuits related to the
income and franchise tax disputes and disputes with Apache
disclosed in those filings and in the Exhibits hereto) there is
no material litigation, proceeding or investigation of any nature
pending or, to the knowledge of XCL Land or XCL Ltd., threatened
against or relating to XCL Land or XCL Ltd. or any of its
properties or business. Neither XCL Land 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 Land's or XCL Ltd.'s
knowledge, threatened against XCL Land, 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 Land to
perform its obligations under this Agreement or the Notes or on
the ability of XCL Ltd. to perform its obligations under this
Agreement or the Warrant Agreement.
(9) Absence of Undisclosed Liabilities. To the
best knowledge of XCL Land and XCL Ltd., none of XCL Land, 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 Units, the Warrant Agreements and Notes, (2) described herein
or in the Exhibits hereto, (3) reflected in the financial
statements referred to in paragraph (e) of this Section 3 or the
Preliminary Prospectus or (4) arising in connection with a
promissory note of XCL outstanding in the principal amount of
$100,000 and 10,000 warrants to purchase 10,000 shares of XCL
Ltd. common stock comprising 1 of up to 10 Units that are
currently being offered by XCL Land and XCL Ltd. to a limited
number of qualified investors in another offering (it being
understood that the remaining 9 Units in that offering may also
be sold) or (5) 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.
(10) Preliminary Prospectus. The Preliminary
Prospectus 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 as of the date thereof
not misleading; however, it should be read only in conjunction
with this Subscription Agreement and the Exhibits hereto and with
the understanding and acknowledgment by Subscriber that (i) the
Preliminary Prospectus is not final and is subject to further
amendment and (ii) there are outstanding comments on the
Preliminary Prospectus from the Securities and Exchange
Commission and responses to those comments have not been
incorporated into the Preliminary Prospectus.
(11) Compliance with Laws. Each of XCL Land, 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.
(12) Labor Matters.
(1) None of XCL Land, XCL Ltd. or their
respective subsidiaries has entered into any collective
bargaining agreement and, to the best of the knowledge of XCL
Land 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 Land, XCL Ltd. or their
respective subsidiaries.
(2) To the best knowledge of XCL Land and XCL
Ltd., there are no controversies pending or threatened between
any of XCL Land, 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.
(13) Taxes. Each of XCL Land 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 Land 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 Land or XCL
Ltd., except for a pending Louisiana income and franchise tax
case described in the Preliminary Prospectus and additional
lawsuits filed in connection therewith. There is no audit
pending of any tax return filed by either XCL Land or XCL Ltd. or
with respect to any consolidated group of which either XCL Land
or XCL Ltd. was a member in the applicable year, although notices
of proposed deficiencies are outstanding as described in the
Preliminary Prospectus.
(14) Title to Property. XCL Land, 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.
(15) 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 as hazardous 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 Land 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 Land and XCL Ltd. and their
respective subsidiaries (collectively, the "Environmental
Assets");
(y) XCL Land, 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 Land, 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 against them for
damages, fines, penalties, environmental investigation or
remediation, or administrative, injunctive or other relief
arising under Environmental Laws or (III) other than in
connection with the LaRoche litigation as described in the
Preliminary Prospectus, 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.
4. Representations, Warranties and Agreements by the
Subscriber. The Subscriber hereby represents and warrants to and
agrees with XCL Land and XCL Ltd. as follows:
(1) Preliminary Prospectus. The Subscriber hereby
acknowledges to XCL Land and XCL Ltd. that (i) any estimates,
plans, projections etc. which are incorporated in the Preliminary
Prospectus or which have been furnished to it with respect to the
activities undertaken originally or to be undertaken by XCL Land
or XCL Ltd. are based on certain assumptions made by XCL Land 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 Preliminary Prospectus and
the Exhibits thereto, in particular, the "Risk Factors" section
thereof and this Subscription Agreement and the Exhibits hereto,
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 Land and XCL Ltd.
(2) 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 Land and XCL Ltd.
concerning the terms of the Offering and the affairs of XCL Land
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.
(3) Unregistered Shares. The Subscriber recognizes
that the offer and sale by XCL Land 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 either
(a) a "qualified institutional buyer" (as defined in Rule 144A
promulgated under the Act) or (b) an institutional "accredited
investor" (as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7)
or (a)(8) 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. or XCL Land, as
applicable, has effectively registered such securities under the
Act or counsel reasonably acceptable to XCL Ltd. or XCL Land, as
applicable (which shall include in-house counsel) shall have
furnished an opinion, in form and substance reasonably acceptable
to XCL Ltd. or XCL Land, as applicable, 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 Land 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 is either (a) a "qualified
institutional buyer" (as defined in Rule 144A promulgated under
the Securities Act) or (b) an institutional "accredited
institutional buyer" (as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under the Securities Act). The
Subscriber acknowledges that XCL Land 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.
(4) 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. or XCL Land, as applicable, no longer bear
restrictive legends and are otherwise freely tradable 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. or
XCL Land, as applicable, of its intention to effect such transfer
and to comply in all other respects with this subsection 4(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. or XCL Land, as applicable,
addressed to XCL Ltd. or XCL Land, as applicable, and
satisfactory in form and substance to XCL Ltd. or XCL Land, as
applicable, 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. or XCL Land, as applicable, 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. or XCL Land, as
applicable, and this Agreement. Each certificate or other
document issued representing the Securities shall bear the legend
set forth in subsection 4(e) hereof, suitably conformed, unless,
in the opinion of the respective counsel for the Subscriber and
XCL Ltd. or XCL Land, as applicable, 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
Land 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 4(d).
(5) 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
_______________, 1999 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 Land or
XCL Ltd., as applicable, 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 4.
(6) Notes are Obligations of XCL Land Only. IT IS
EXPRESSLY UNDERSTOOD AND AGREED BY SUBSCRIBER THAT THE NOTE IS
INDEBTEDNESS OF XCL LAND AND NOT INDEBTEDNESS OF ANY OF ITS
AFFILIATES, INCLUDING BUT NOT LIMITED TO XCL LTD. OR XCL-CHINA
LTD., AND SUBSCRIBER HEREBY EXPRESSLY ACKNOWLEDGES AND AGREES
THAT EXCEPT WITH RESPECT TO THE SECURITY INTERESTS GRANTED TO IT
PURSUANT TO THE SECURITY AGREEMENTS REFERENCED IN SECTION
6(c)(iii) HEREOF, IT SHALL HAVE NO RECOURSE AGAINST ANY OF XCL
LAND'S AFFILIATES, INCLUDING BUT NOT LIMITED TO XCL LTD. OR XCL-
CHINA LTD., OR ANY OF THEIR ASSETS AND THAT SUBSCRIBER SHALL LOOK
SOLELY TO XCL LAND, ITS ASSETS AND THE COLLATERAL IN WHICH A
SECURITY INTEREST HAS BEEN GRANTED BY THE SECURITY AGREEMENTS
DESCRIBED HEREIN, FOR REPAYMENT OF ANY AND ALL AMOUNTS DUE UNDER
THE NOTE.
(7) Tax Advisor. Subscriber acknowledges that XCL
Land has advised Subscriber that Subscriber should consult with
its own tax advisor as to the possible tax consequences of
original issue discount for federal income tax purposes.
5. Survival of Representations and Warranties. The
representations and warranties of XCL Land 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
Land 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 4 shall survive the execution,
delivery and termination of this Agreement and the consummation
of the transactions contemplated hereby.
6. Conditions Precedent to Obligations of Subscriber.
(1) Representations True at Closing; Performance.
The representations and warranties of XCL Land and XCL Ltd.
contained in Section 3 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 Land 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.
(2) Legal Opinions. The Subscriber shall have
received an opinion of counsel, dated the Closing Date, from
Gordon, Arata, McCollam, Duplantis & Eagan, L.L.P., in
substantially the form attached as Exhibit "C."
(3) Units. There shall have been delivered to the
Subscriber the following instruments and documents evidencing the
Units subscribed for by the Subscriber:
(1) a promissory note evidencing the aggregate
principal amount of all Notes subscribed for hereunder;
(2) a certificate representing the aggregate
number of Warrants included as a component of such Units
subscribed for hereunder;
(3) two fully executed Security Agreements
substantially in the form attached as Exhibit "D," one executed
by XCL Land and one executed by The Exploration Company of
Louisiana, Inc. granting a security interest as described in
Section 14 hereof and two related Louisiana UCC-1 Financing
Statements.
(4) No Withdrawal, Cancellation or Modification.
XCL Land or XCL Ltd. shall not have withdrawn, canceled or
modified the Offering, and shall have taken such action as is
contemplated thereby.
(5) Certificates. XCL Land and XCL Ltd. shall
deliver other customary closing certificates.
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, to the party for whom intended at the following
addresses:
The Subscriber:
The address set forth on the signature page hereof
XCL Land
or XCL Ltd.:
110 Rue Jean Lafitte
Lafayette, LA 70508
Attn: Benjamin B. Blanchet
or at such other address, as to any party, as such party shall
specify by like notice to the other parties.
8. Covenants of XCL Land and XCL Ltd. XCL Land and XCL
Ltd. hereby covenant and agree that:
(1) 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.
(2) XCL Land and XCL Ltd. shall issue no more than
62 Units and shall not issue any securities convertible into or
exchangeable for Units.
9. Rights of Parties to Terminate. Notwithstanding
anything to the contrary set forth herein, this Agreement and the
transactions contemplated hereby may be terminated at any time by
the written agreement of the parties hereto.
10. Entire Agreement; etc. This Agreement together with
the Schedules hereto, the Notes, the Warrant Agreement and the
Security Agreement set forth the entire understanding and
agreement between XCL Land, XCL Ltd. and the Subscriber
pertaining to the subscription which is the subject of this
Agreement and superseding any and all prior agreements,
proposals, understandings and arrangements among the parties
hereto with respect to the subscription which is the subject of
this Agreement, 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
substantially 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 Land 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 Land 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 Land 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 other
investors in the Units unless said Subscriber explicitly elects
otherwise after being offered the opportunity to so elect.
11. 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.
12. Special Federal and State Securities Laws Notices.
(1) 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.
(2) Investors in the following jurisdictions must
review the following legends required by each jurisdiction and be
aware of their contents.
CALIFORNIA SUPPLEMENT
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
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
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
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 ISSUER AT THE ADDRESS SET FORTH HEREIN, 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 ISSUER, A WRITTEN
CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED SHOULD BE
REQUESTED.
13. Subscription. The undersigned hereby subscribes
for the following number of Units:
Number of Units
to be purchased
(minimum purchase one Unit)
Total Unit Purchase Price:
U.S. $
(Number of Units x $100,000)
Number of Additional
Units to be purchased
upon request of XCL Land
14. Subscriber further acknowledges that persons or
entities providing new funds to XCL Land on or after November 6,
1998, up to the aggregate outstanding principal amount of
$6,200,000 (the "New Funds"), will hold security interests in
100% of the partnership interest of XCL Land and The Exploration
Company of Louisiana, Inc. in LM Holding Associates, L.P. ("LM
Holding"), such security interests to be allocated pro rata among
the providers of New Funds. Subscriber further acknowledges that
Subscriber's security interest will change from time to time as
Subscriber or others purchase additional Units or provide other
New Funds (but only up to $6,200,000 principal outstanding) to
XCL Land. Subscriber acknowledges that Units have previously
been sold and other New Funds have been provided. Subscriber
acknowledges and agrees that in the event that additional Units
are sold or additional New Funds are provided to XCL Land after
the date hereof by persons other than Subscriber and secured by
partnership interests in LM Holding, Subscriber will immediately
upon demand by XCL Land execute (one or more times, as
appropriate) amendments to each of the Security Agreements (and
the related Financing Statements) releasing a percentage of the
partnership interest of LM Holding in which it has a security
interest sufficient to allocate the security interests in the
partnership interest of LM Holding among the Unit holders or
other providers of New Funds on a proportionate basis (provided
that no reduction in such security interest need be made with
respect to amounts of New Funds in excess of an aggregate of
$6,200,000 principal outstanding).
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.
INDIVIDUALS ONLY
SIGNATURE PAGE
FOR INDIVIDUALS INVESTORS
Name of Individual Investor (please print or type)
By:______________________________________________________________
_______________
(Signature of individual investor)
Social Security No.:
Residence Address:
_________________________________________________________________
Mailing Address, if different:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Telephone Number:
______________________________________________________________
Facsimile Number:
_______________________________________________________________
Executed at _______________,____________, on this ______ day of
________________, 1999.
STATE OF )
.ss:
COUNTY OF )
On this _____ day of ____________, in the year of 1999,
before me, the undersigned, a Notary Public of said State, duly
commissioned and sworn, personally appeared
, known to me to be the person whose name is subscribed to the
within instrument, and acknowledged that he (or she) executed the
same.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed my official seal the day and year in this certificate
first above written.
[SEAL]
____________________________________________
Notary Public in and for said State
My commission expires:
SUBSCRIPTION ACCEPTED:
XCL LAND, LTD.
By:____________________________
Name:________________________
Title:_________________________
Date:__________________________
XCL LTD.
By:____________________________
Name:________________________
Title:_________________________
Date:__________________________
PROMISSORY NOTE
$__________ Date: _______________, ____
I. PROMISE TO PAY
For value received, the undersigned promises to pay to
the order of ____________________,
______________________________, the principal sum of
____________________ AND NO/100 ($__________) DOLLARS, together
with interest on the principal sum at the rate of fifteen (15%)
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 Promissory 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. "Lender" shall mean ____________________.
7. "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.
8. "Lutcher Moore Mitigation Bank Financing" shall
mean a financing in the amount of up to $15 million secured in
full or in part by the Lutcher Moore Tract Wetlands Mitigation
Bank.
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 L.M. Holding Associates, L.P.
10. "Maker" shall mean XCL Land, Ltd., a company
organized under the laws of Delaware.
11. "Note" shall mean this Promissory Note.
12. "Security Documents" shall mean the Security
Agreements each dated as of _______________, ____, executed by
Maker and The Exploration Company of Louisiana, Inc. and Lender,
as amended, and the related Louisiana UCC-1 financing statements,
as amended.
13. "Subscription Agreement" shall mean the
Subscription Agreement dated as of _______________, ____,
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
earlier of (a) the third business day after funding of the
Lutcher Moore Mitigation Bank Financing or (b) _______________,
____ [90 days after date of note] unless extended until
_______________, ____ [90 additional days after date of note] by
Maker at its sole option and without the need for Lender's
consent by sending written notice to Lender on or before
_______________, ____ [two days prior to initial due date] that
such maturity date has been extended to _______________, ____.
The maturity of this Note may be extended for an additional
ninety (90) days or until _______________, ____ 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 create, insure, assume or suffer to
exist any debt other than (i) debt in respect of the Notes;
(ii) debt existing as of the date of the Notes; and
(iii) obligations to any affiliate of Maker that are
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 secured by a security interest in a
percentage of the general and limited partnership interest in
L.M. Holding Associates, L.P., a Louisiana Partnership in
Commendam, granted by Maker and The Exploration Company of
Louisiana, Inc. pursuant to the Security Documents. IT IS
EXPRESSLY UNDERSTOOD AND AGREED BY LENDER THAT THE INDEBTEDNESS
EVIDENCED HEREBY IS INDEBTEDNESS OF MAKER AND NOT INDEBTEDNESS OF
ANY OF ITS AFFILIATES, INCLUDING BUT NOT LIMITED TO XCL LTD. OR
XCL-CHINA LTD., AND LENDER HEREBY EXPRESSLY ACKNOWLEDGES AND
AGREES THAT EXCEPT WITH RESPECT TO THE SECURITY INTERESTS GRANTED
TO IT PURSUANT TO THE SECURITY DOCUMENTS, IT SHALL HAVE NO
RECOURSE AGAINST ANY OF MAKER'S AFFILIATES, INCLUDING BUT NOT
LIMITED TO XCL LTD. OR XCL-CHINA LTD., OR ANY OF THEIR ASSETS AND
THAT LENDER SHALL LOOK SOLELY TO MAKER, ITS ASSETS AND THE
COLLATERAL IN WHICH A SECURITY INTEREST HAS BEEN GRANTED BY THE
SECURITY DOCUMENTS FOR REPAYMENT OF ANY AND ALL AMOUNTS DUE
HEREUNDER.
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 Land, Ltd.
110 Rue Jean Lafitte
P. O. Box 53775
Lafayette, Louisiana 70505
Attn: Benjamin B. Blanchet
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 LAND, LTD.
By:________________________________
Name:______________________________
Title:_____________________________
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SECURITY AGREEMENT ("First
Amendment") dated January 15, 1999, is made between The
Exploration Company of Louisiana, Inc. ("Grantor") and
_________________________ ("Lender"), who agree as follows:
Recitals
WHEREAS, the Grantor and the Lender entered into that
certain Security Agreement dated November 6, 1998 (the "Security
Agreement") in order to secure the full and punctual payment and
performance of the indebtedness described therein; and
WHEREAS, the parties hereto desire to correct the
description of the Collateral and to express the intention of the
parties with respect to future changes in the description of the
Collateral.
NOW, THEREFORE, in consideration of the foregoing
premises and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
Section 1. Amendments to Security Agreement. The Security
Agreement is hereby amended as follows:
(a) The following new definition of "New Funds" is
added to the Security Agreement after the definition of "Lien":
"New Funds" means new funds advanced to XCL
Land on or after November 6, 1998 through the
purchase of Units or otherwise up to the
aggregate outstanding principal amount of
$6,200,000.
(b) The definition of "Permitted Liens" is hereby
deleted in its entirety and in its place the following is
substituted:
"Permitted Liens" means (i) the Security Interests
and any other Liens created, assumed or existing with
respect to the Collateral in favor of Lender or in
favor of any other purchaser of Units (as defined in
the Subscription Agreement) or other provider of New
Funds to XCL Land (provided that the liens in favor of
such other persons do not cause the percentage stated
in Sections 2(A)(1) and 2(A)(2) hereof to be less than
the percentage of total New Funds provided by Lender)
and (ii) any other Liens permitted by Lender in writing
to be created or assumed or to exist with respect to
the Collateral.
(c) The definition of "Subscription Agreement"
contained in the Security Agreement is hereby changed to read as
follows:
"Subscription Agreement" means that certain
Subscription Agreement dated November 6, 1998
by and between XCL Land, Lender and XCL Ltd.
(d) The phrase "(collectively the "Indebtedness")"
is hereby inserted immediately after the phrase "unliquidated,
now existing or hereafter arising" in Section 2A of the Security
Agreement.
(e) The reference to "________%" in Section 2(A)(1)
and 2(A)(2) is hereby deleted and the phrase "_____%" is
substituted in its place.
(f) The following language is hereby inserted at
the end of Section 3 of the Security Agreement:
"or to an agent that Lender and all other
holders of security interests in Grantor's
Partnership Interest have agreed shall hold
the certificate or document on their behalf."
(g) The last two sentences of Section 11 of the
Security Agreement are deleted and the following new sentences
are substituted in their place:
Furthermore, Grantor has not heretofore
conveyed or agreed to convey or encumber any
Collateral in any way, except in favor of
Lender or other holders of Permitted Liens.
Lender understands and agrees, however, that
Grantor has granted a security interest in
all of its Partnership Interest in the
Partnership (other than the percentage of its
Partnership Interest covered hereby) to those
persons or entities who have previously
purchased Units or provided other New Funds.
Lender further agrees and acknowledges that
in the event that additional Units are sold
or additional New Funds are provided to XCL
Land after the date hereof by persons other
than Lender and secured by partnership
interests in L.M. Holding, Lender will
immediately upon demand by XCL Land (one or
more times, as appropriate) execute further
amendments to this Agreement releasing a
percentage of the Grantor's Partnership
Interest sufficient to allocate the security
interests in the partnership interest of L.M.
Holding among the Unit holders or other
providers of New Funds on a proportionate
basis (provided that no reduction in such
security interest need be made with respect
to amounts of New Funds in excess of an
aggregate of $6,200,000 principal
outstanding).
Section 2. Effect of Amendment. Except as expressly
amended hereby, the Security Agreement shall remain in full force
and effect. Nothing in this First Amendment releases any right,
claim, lien, security interests or entitlement of Lender created
by or contained in the Security Agreement, nor releases Grantor
from any covenant, warranty or obligation created by or contained
in the Security Agreement.
Section 3. Ratification of Security Agreement. The
Security Agreement is hereby ratified, adopted, confirmed and
renewed. All representations, warranties and covenants of
Grantor in the Security Agreement are hereby repeated, remade and
incorporated herein by this reference for the benefit of the
Lender, on and as of the date hereof. In furtherance of the
foregoing, Grantor hereby regrants to Lender a continuing
security interest in and to all right, title and interest of
Grantor whether now owned or hereafter acquired, in and to the
Collateral in order to secure the prompt and complete payment and
performance of the Indebtedness (as defined in the Security
Agreement as amended by this First Amendment).
Section 4. No Novation. All of the liens, privileges
and priorities existing under the Security Agreement are renewed,
extended and carried forward, nothing contained herein shall (i)
be construed as a novation of the Security Agreement or (ii)
release, cancel, terminate or otherwise impair the status or
priority of the security interests created by the Security
Agreement.
Section 5. Titles of Sections. All titles or headings
to sections of this First Amendment are only for the convenience
of the parties and shall not be construed to have any effect or
meaning with respect to the other content of such sections, such
other content being controlling as to the agreement between the
parties hereto.
Section 6. Governing Law. This First Amendment is a
contract 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.
Section 7. Successors and Assigns. All covenants and
agreements made by or on behalf of the Grantor in this First
Amendment shall bind Grantor's successors and assigns and shall
inure to the benefit of the Lender and its successors and
assigns.
Section 8. Counterparts. This First Amendment may be
executed in two or more counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained
on any one counterpart hereof, each counterpart shall be deemed
an original, but all of which when taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Grantor and the Lender have caused
this Agreement to be duly executed as of the date first above
written.
WITNESSES: GRANTOR:
THE EXPLORATION COMPANY
OF LOUISIANA, INC.
_________________________ By:________________________________
Name:____________________ Name:___________________________
(Please Print)
Title:__________________________
_________________________
Name:____________________
(Please Print)
LENDER:
___________________________________
_________________________ By:________________________________
Name:____________________ Name:___________________________
(Please Print)
Title:__________________________
_________________________
Name:____________________
(Please Print)
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SECURITY AGREEMENT ("First
Amendment") dated January 15, 1999, is made between XCL Land,
Ltd. ("Borrower") and _________________________ ("Lender"), who
agree as follows:
Recitals
WHEREAS, the Borrower and the Lender entered into that
certain Security Agreement dated November 6, 1998 (the "Security
Agreement") in order to secure the full and punctual payment and
performance of the indebtedness described therein; and
WHEREAS, the parties hereto desire to correct the
description of the Collateral and to express the intention of the
parties with respect to future changes in the description of the
Collateral.
NOW, THEREFORE, in consideration of the foregoing
premises and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
Section 1. Amendments to Security Agreement. The
Security Agreement is hereby amended as follows:
(1) The following new definition of "New Funds" is
added to the Security Agreement after the definition of "Lien":
"New Funds" means new funds advanced to
Borrower on or after November 6, 1998 through
the purchase of Units or otherwise up to the
aggregate outstanding principal amount of
$6,200,000.
(2) The definition of "Permitted Liens" is hereby
deleted in its entirety and in its place the following is
substituted:
"Permitted Liens" means (i) the Security Interests
and any other Liens created, assumed or existing with
respect to the Collateral in favor of Lender or in
favor of any other purchaser of Units (as defined in
the Subscription Agreement) or other provider of New
Funds to Borrower (provided that the liens in favor of
such other persons do not cause the percentage stated
in Sections 2(A)(1) and 2(A)(2) hereof to be less than
the percentage of total New Funds provided by Lender)
and (ii) any other Liens permitted by Lender in writing
to be created or assumed or to exist with respect to
the Collateral.
(3) The phrase "(collectively the "Indebtedness")"
is hereby inserted immediately after the phrase "unliquidated,
now existing or hereafter arising" in Section 2A of the Security
Agreement.
(4) The reference to "_____%" in Section 2(A)(1)
and 2(A)(2) is hereby deleted and the phrase "_____%" is
substituted in its place.
(5) The following language is hereby inserted at
the end of Section 3 of the Security Agreement:
"or to an agent that Lender and all other
holders of security interests in Borrower's
Partnership Interest have agreed shall hold
the certificate or document on their behalf."
(6) The last two sentences of Section 11 of the
Security Agreement are deleted and the following new sentences
are substituted in their place:
Furthermore, Borrower has not heretofore
conveyed or agreed to convey or encumber any
Collateral in any way, except in favor of
Lender or other holders of Permitted Liens.
Lender understands and agrees, however, that
Borrower has granted a security interest in
all of its Partnership Interest in the
Partnership (other than the percentage of its
Partnership Interest covered hereby) to those
persons or entities who have previously
purchased Units or provided other New Funds.
Lender further agrees and acknowledges that
in the event that additional Units are sold
or additional New Funds are provided to
Borrower after the date hereof by persons
other than Lender and secured by partnership
interests in L.M. Holding, Lender will
immediately upon demand by Borrower (one or
more times, as appropriate) execute further
amendments to this Agreement releasing a
percentage of the Borrower's Partnership
Interest sufficient to allocate the security
interests in the partnership interest of L.M.
Holding among the Unit holders or other
providers of New Funds on a proportionate
basis (provided that no reduction in such
security interest need be made with respect
to amounts of New Funds in excess of an
aggregate of $6,200,000 principal
outstanding).
Section 2. Effect of Amendment. Except as expressly
amended hereby, the Security Agreement shall remain in full force
and effect. Nothing in this First Amendment releases any right,
claim, lien, security interests or entitlement of Lender created
by or contained in the Security Agreement, nor releases Borrower
from any covenant, warranty or obligation created by or contained
in the Security Agreement.
Section 3. Ratification of Security Agreement. The
Security Agreement is hereby ratified, adopted, confirmed and
renewed. All representations, warranties and covenants of
Borrower in the Security Agreement are hereby repeated, remade
and incorporated herein by this reference for the benefit of the
Lender, on and as of the date hereof. In furtherance of the
foregoing, Borrower hereby regrants to Lender a continuing
security interest in and to all right, title and interest of
Borrower whether now owned or hereafter acquired, in and to the
Collateral in order to secure the prompt and complete payment and
performance of the Indebtedness (as defined in the Security
Agreement as amended by this First Amendment).
Section 4. No Novation. All of the liens, privileges
and priorities existing under the Security Agreement are renewed,
extended and carried forward, nothing contained herein shall (i)
be construed as a novation of the Security Agreement or (ii)
release, cancel, terminate or otherwise impair the status or
priority of the security interests created by the Security
Agreement.
Section 5. Titles of Sections. All titles or headings
to sections of this First Amendment are only for the convenience
of the parties and shall not be construed to have any effect or
meaning with respect to the other content of such sections, such
other content being controlling as to the agreement between the
parties hereto.
Section 6. Governing Law. This First Amendment is a
contract 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.
Section 7. Successors and Assigns. All covenants and
agreements made by or on behalf of the Borrower in this First
Amendment shall bind Borrower's successors and assigns and shall
inure to the benefit of the Lender and its successors and
assigns.
Section 8. Counterparts. This First Amendment may be
executed in two or more counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained
on any one counterpart hereof, each counterpart shall be deemed
an original, but all of which when taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Borrower and the Lender have
caused this Agreement to be duly executed as of the date first
above written.
WITNESSES: BORROWER:
XCL LAND, LTD.
_________________________ By:________________________________
Name:____________________ Name:___________________________
(Please Print)
Title:__________________________
_________________________
Name:____________________
(Please Print)
LENDER:
___________________________________
_________________________ By:________________________________
Name:____________________ Name:___________________________
(Please Print)
Title:__________________________
_________________________
Name:____________________
(Please Print)
ACKNOWLEDGMENT AND AGREEMENT REGARDING SECURITY INTEREST
ACKNOWLEDGMENT AND AGREEMENT REGARDING SECURITY
INTEREST dated as of January 15, 1999 by J. Edgar Monroe
Foundation (1976) (the "Foundation").
1. This Agreement is being executed and delivered
in connection with the sale and purchase of up to an aggregate of
62 units (the "Units"), each Unit being comprised of (a)
$100,000 in principal amount of a promissory note of XCL Land,
Ltd. ("Note") and (b) 21,705 warrants ("Warrants") to purchase
21,705 shares of XCL Ltd.'s common stock, par value $.01 per
share ("Common Stock") (issuable in one or more tranches) offered
by XCL Land, Ltd. and XCL Ltd. to a limited number of qualified
investors (the "Offering"). Half Units may be purchased pursuant
to the Offering.
2. Pursuant to Subscription Agreements dated as of
November 6, 1998 by and between XCL Land, Ltd., XCL Ltd. and the
Foundation, Estate of J. Edgar Monroe (the "Estate") and
Construction Specialists, Inc. d/b/a Con-Spec., Inc.
("Contractor") (collectively, the "November 1998 Subscription
Agreements"), the Foundation subscribed for and received one (1)
Unit and the Estate and Construction each subscribed for and
received seven (7) Units (the "Initial Units"). Pursuant to the
November 1998 Subscription Agreements, the Units had an exercise
price for the Warrants of $3.50 per share. Pursuant to that
certain Warrant Amendment Agreement by and among XCL Ltd., the
Estate, Foundation and Construction dated of even date herewith
(the "Warrant Amendment"), XCL Ltd. has agreed, in connection
with the subscription for an additional 2.5 Units by each of the
Estate and Construction on the date hereof, to reduce the
exercise price of the warrants issued as part of the Initial
Units to $2.00 per share.
3. In consideration of XCL Ltd.'s execution of the
Warrant Amendment to amend the Warrants issued to the Foundation
as part of the Initial Units even though the Foundation is not
subscribing for any additional Units at this time, the Foundation
hereby acknowledges that pursuant to the Security Agreements
granted in its favor in connection with the November 1998
Subscription Agreements, each of XCL Land, Ltd. ("XCL Land") and
The Exploration Company of Louisiana, Inc. ("TECLI") granted a
security interest in favor of the Foundation in and to 3.2258% of
each entity's partnership interest in L.M. Holding Associates,
L.P. ("L.M. Holding"). It was the intention of the parties that
those persons or entities providing new funds to XCL Land on or
after November 6, 1998, up to the aggregate outstanding principal
amount of $6,200,000 (the "New Funds") would hold security
interests in 100% of the partnership interest of XCL Land and
TECLI in L.M. Holding, such security interests to be allocated
pro rata among the providers of New Funds. The Foundation
further acknowledges that its security interest will change from
time to time as it or others purchase additional Units or provide
other New Funds (but only up to $6,200,000 principal outstanding)
to XCL Land. The Foundation acknowledges and agrees that through
March 19, 1999, a total of 22 Units are outstanding and $100,000
in New Funds other than those provided in connection with the
sale of such Units have been provided to XCL Land; as of such
date, the Foundation has a security interest in that percentage
of the partnership interests in L.M. Holding that is equal to the
percentage of the New Funds actually advanced at this time
($2,300,000) that the Foundation's aggregate Unit purchase price
of $100,000 represents; and in the event that additional Units
are sold or additional New Funds are provided to XCL Land by
persons other than the Foundation and secured by partnership
interests in L.M. Holding, the Foundation will immediately upon
demand by XCL Land execute (one or more times, as appropriate)
amendments to each of the Security Agreements releasing a
percentage of the partnership interest of L.M. Holding in which
it has a security interest sufficient to allocate the security
interests in the partnership interest of L.M. Holding among the
Unit holders or other providers of New Funds on a proportionate
basis (provided that no reduction in such security interest need
be made with respect to amounts of New Funds in excess of an
aggregate outstanding principal amount of $6,200,000).
IN WITNESS WHEREOF, the Foundation has executed this
Agreement effective on the date first above written.
J. EDGAR MONROE FOUNDATION (1976)
By:________________________________
Robert J. Monroe, President
STATE OF LOUISIANA
PARISH OF ORLEANS
On this _____ day of January, 1999, before me, the
undersigned, a Notary Public of said State, duly commissioned and
sworn, personally appeared ROBERT J. MONROE, known to me to be
the President of the corporation that executed the within
instrument, and acknowledged to me that the said corporation
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed my official seal the day and year in this certificate
first above written.
___________________________________
NOTARY PUBLIC
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") dated _______________,
____, is made between XCL Land, Ltd. ("Borrower") and
____________________ ("Lender"), who agree as follows:
Recitals
1. The Borrower is or will be indebted unto the Lender
for loans made or to be made and evidenced by certain notes,
including, but not limited to that certain Promissory Note by
Borrower payable to the order of Lender dated of even date
herewith (the "Note").
2. In order to secure the full and punctual payment and
performance of the Indebtedness as defined herein, the Borrower
has agreed to execute and deliver this Agreement and to pledge,
deliver and grant a continuing security interest in and to the
Collateral (as hereafter defined).
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the
Borrower and the Lender agree as follows:
Section 2. Definitions.
1. The terms "Agreement," "Borrower," "Lender" and
"Note" shall have the meanings indicated above.
2. As used in this Agreement, the following terms
shall have the following meaning:
"Event of Default" shall have the meaning defined in
the Note.
"General Intangibles" has the meaning given to it in
the UCC.
"Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner
of the property, whether such interest is based on jurisprudence,
statute or contract, and including but not limited to the lien or
security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. The term "Lien"
shall include reservations, exceptions, encroachments, easements,
servitudes, usufructs, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances
affecting property. For the purposes of this Agreement, the
Borrower shall be deemed to be the owner of any property which it
has accrued or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to
the property has been retained by or vested in some other Person
for security purposes.
"New Funds" means funds advanced to Borrower on or
after November 6, 1998 through the purchase of Units or otherwise
up to the aggregate outstanding principal amount of $6,200,000.
"Permitted Liens" means (i) the Security Interests and
any other Liens created, assumed or existing with respect to the
Collateral in favor of Lender or in favor of any other purchaser
of Units or other provider of New Funds to Borrower (provided
that the Liens in favor of such other persons do not cause the
percentage stated in Sections 2(A)(1) and 2(A)(2) hereof to be
less than the percentage of total New Funds provided by Lender)
and (ii) any other Liens permitted by Lender in writing to be
created or assumed or to exist with respect the Collateral.
"Person" means any individual, corporation,
partnership, joint venture, association, joint stock company,
trust, unincorporated organization, government or any agency or
political subdivision thereof, or any other form of entity.
"Proceeds" has the meaning giving to it in the UCC.
"Security Interests" means the security interests in
the Collateral and Proceeds granted hereunder in favor of Lender
securing the Indebtedness.
"Subscription Agreement" means that certain
Subscription Agreement dated _______________, ____ by and between
Borrower, Lender and XCL Ltd. and any subsequent subscription
agreements for additional Units entered into between the same
parties.
"UCC" means the Uniform Commercial Code, Commercial
Laws - Secured Transactions (Louisiana Revised Statutes 10:9-101
through :9-605) in the State of Louisiana, as amended from time
to time; provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection
of the Security Interests in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than
Louisiana, "UCC" means the Uniform Commercial Code as in effect
in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or
non-perfection.
"Units" has the meaning defined in the Subscription
Agreement.
Section 3. Security Interest.
1. To secure the full and punctual payment and
performance of all present and future amounts, liabilities,
obligations and indebtedness of Borrower to the Lender,
including, without limitation all promissory notes (including,
but not limited to the Note) heretofore or hereafter executed by
the Borrower, in principal, interest, deferral and delinquency
charges as therein stipulated, whether such amounts, liabilities,
obligations and indebtedness be liquidated or unliquidated, now
existing or hereafter arising (collectively, the "Indebtedness"),
the Borrower hereby pledges, pawns, transfers and grants to the
Lender a continuing security interest in and to all of the
following property of the Borrower, whether now owned or existing
or hereafter acquired or arising (collectively the "Collateral"):
(1) _____% of Borrower's now owned or hereafter
acquired partnership interest (the "Partnership
Interest") (which Partnership Interest is
currently a general partner interest) in L.M.
Holding Associates, L.P., a Louisiana Partnership
in Commendam (the "Partnership"), which
Partnership was created by that certain Agreement
of Limited Partnership dated May 27, 1991, as
amended by amendments filed with the Louisiana
Secretary of State on February 25, 1993, August
19, 1994, September 1, 1994, October 7, 1994 and
January 8, 1997 (the "Partnership Agreement");
(2) _____% of any and all monies and other
distributions (cash or property), allocations or
payments made or to be made to Borrower pursuant
to the Partnership Agreement or attributable to
the Partnership Interest;
(3) all General Intangibles related in any way to
the collateral described in clauses 1 or 2 above;
and
(4) all Proceeds and products of all or any of the
collateral described in clauses 1-3 above.
2. The security interests are granted as security
only and shall not subject the Lender to, or transfer or in any
way affect or modify, any obligation or liability of the Borrower
with respect to any of the Collateral or any transaction in
connection therewith.
Section 4. Delivery of Collateral if Ever Represented
by Certificates. If the Partnership Interest is ever represented
by a certificate of interest or any similar document, the
Borrower will immediately deliver such certificate or document to
the Lender or to an agent that Lender and all other holders of
security interests in Borrower's Partnership Interest have agreed
shall hold the certificate or document on their behalf.
Section 5. No Liens. Other than financing statements
or other similar or equivalent documents or instruments with
respect to the Security Interests and Permitted Liens, no
financing statement, mortgage, security agreement or similar or
equivalent document or instrument covering all or any part of the
Collateral is on file or of record in any jurisdiction in which
such filing or recording would be effective to perfect a Lien on
such Collateral. No Collateral is in the possession of any
Person (other than Borrower) asserting any claim thereto or
security interest therein, except that Lender or its designee may
have possession of Collateral as contemplated hereby. Except
with respect to Permitted Liens, the Liens granted pursuant to
this Agreement constitute perfected first priority Liens on the
Collateral in favor of the Lender.
Section 6. No Conflict. The Borrower has not
performed any acts or signed any agreements which might prevent
the Lender from enforcing any of the terms of this Agreement or
which would limit the Lender in any such enforcement.
Section 7. Name. The full name of Borrower is as it
appears on page 1 of this Agreement.
Section 8. Federal Taxpayer Number. The federal
taxpayer identification number of Borrower is as follows:
51-0334575.
Section 9. Chief Executive Office. The chief
executive office of Borrower is 110 Rue Jean Lafitte, Lafayette,
Louisiana 70505.
Section 10. Location of Collateral. Borrower will
keep and maintain all books or records relating to any of the
Collateral at its chief executive office.
Section 11. Filing Location. When a UCC financing
statement has been filed in the offices of a Louisiana Clerk of
Court of any parish other than Orleans (or in the case of Orleans
Parish, with the Recorder of Mortgages), the Security Interests
shall constitute perfected security interests in the Collateral
to the extent that a security interest therein may be perfected
by filing pursuant to the UCC, prior to all other Liens except
for the Permitted Liens and rights of others therein to the
extent that such priority is afforded by the UCC.
Section 12. Title. Borrower has good and merchantable
title to the Collateral, free of Liens except Permitted Liens.
Furthermore, Borrower has not heretofore conveyed or agreed to
convey or encumber any Collateral in any way, except in favor of
Lender or other holders of Permitted Liens. Lender understands
and agrees, however, that Borrower has granted a security
interest in all of its Partnership Interest in the Partnership
(other than the percentage of its Partnership Interest covered
hereby) to those persons or entities who have previously
purchased Units or provided other New Funds. Lender further
agrees and acknowledges that in the event that additional Units
are sold or additional New Funds are provided to Borrower after
the date hereof by persons other than Lender and secured by
partnership interests in L.M. Holding, Lender will immediately
upon demand by Borrower (one or more times, as appropriate)
execute amendments to this Agreement releasing a percentage of
the Borrower's Partnership Interest sufficient to allocate the
security interests in the partnership interest of L.M. Holding
among the Unit holders or other providers of New Funds on a
proportionate basis (provided that no reduction in such security
interest need be made with respect to amounts of New Funds in
excess of an aggregate of $6,200,000 principal outstanding).
Section 13. Incorporation and Existence. Borrower is
a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization
and has the corporate power and authority and the legal right to
own and operate the Collateral and to conduct the business in
which it is currently engaged.
Section 14. No Consents or Approvals. Except for
those filings and registrations required to perfect the Liens
created by this Agreement, the Borrower is not required to obtain
any order, consent, approval or authorization of, or required to
make any declaration or filing with, any governmental authority
or any other Person in connection with the execution and delivery
of this Agreement and the granting and perfection of the Security
Interests pursuant to this Agreement.
Section 15. Due Execution; Binding Obligation. This
Agreement has been duly executed and delivered on behalf of the
Borrower, and this Agreement constitutes a legal, valid and
binding obligation of Borrower, enforceable against Borrower in
accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally and except as enforceability may be
subject to general principles of equity, whether such principles
are applied in a court of equity or at law.
Section 16. No Conflicts. The execution, delivery and
performance of this Agreement will not (I) result in any
violation of or be in conflict with or constitute a default under
any terms of any agreement, contract, statute, regulation, law or
ordinance; (ii) have a material adverse effect on the Collateral;
(iii) materially adversely affect the ability of Borrower to
perform its obligations under this Agreement or the Note, or
(iv) result in the creation of any Lien upon any of the
properties or revenues of Borrower other than the Liens in favor
of the Lender created pursuant to this Agreement.
Section 17. Voting Rights. Notwithstanding the
security interest granted hereby and whether or not an Event of
Default (as defined in the Note) shall have occurred, the
Borrower shall have the exclusive right to exercise all voting
and other rights under the Partnership Agreement until such time
(if and when) Lender forecloses on the Collateral and becomes the
owner thereof.
Section 18. Notice of Changes. Borrower will not
change its name, corporate identity or taxpayer identification
number in any manner unless it shall have given Lender at least
five (5) days prior written notice thereof.
Section 19. Remedies upon Default.
1. Sale. Upon the occurrence of an Event of
Default, Lender may exercise all rights of a secured party under
the UCC and other applicable law (including the Uniform
Commercial Code as in effect in another applicable jurisdiction)
and, in addition, Lender may, without being required to give any
notice, except as herein provided or as may be required by
mandatory provisions of law, sell the Collateral or any part
thereof at public or private sale, for cash, upon credit or for
future delivery, and at such price or prices as Lender may deem
satisfactory. Lender may be the purchaser of any or all of the
Collateral so sold at any public sale (or, if the Collateral is
of a type customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price
quotations, at any private sale). Borrower will execute and
deliver such documents and take such other action as Lender deems
necessary or advisable in order that any such sale may be made in
compliance with law. Upon any such sale Lender shall have the
right to deliver, assign and transfer to the purchaser thereof
the Collateral so sold. Each purchaser at any such sale shall
hold the Collateral so sold to it absolutely and free from any
claim or right of whatsoever kind, including any equity or right
of redemption of Borrower which may be waived, and Borrower, to
the extent permitted by law, hereby specifically waives all
rights of redemption, stay or appraisal which it has or may have
under any law now existing or hereafter adopted. Borrower agrees
that ten (10) days prior written notice of the time and place of
any sale or other intended disposition of any of the Collateral
constitutes "reasonable notification" within the meaning of
Section 9-504(3) of the UCC, except that shorter notice or no
notice shall be reasonable as to any Collateral which is
perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market. The notice (if
any) of such sale shall (1) in case of a public sale, state the
time and place fixed for such sale, and (2) in the case of a
private sale, state the day after which such sale may be
consulted. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places
as Lender may fix in the notice or such sale. At any such sale
the Collateral may be sold in one lot as an entirety or in
separate parcels, as Lender may determine. Lender shall not be
obligated to make any such sale pursuant to any such notice.
Lender may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for the sale, and
such sale may be made at any time or place to which the same may
be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so
sold may be retained by Lender until the selling price is paid by
the purchaser thereof, but Lender shall not incur any liability
in case of the failure of such purchaser to take up and pay for
the Collateral so sold and, in case of any such failure, such
Collateral may again be sold upon like notice.
2. Foreclosure. Instead of exercising the power of
sale herein conferred upon it, Lender may proceed by a suit or
suits at law or in equity to foreclose the Security Interests and
sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction. FOR THE
PURPOSES OF LOUISIANA EXECUTORY PROCESS PROCEDURES, BORROWER DOES
HEREBY CONFESS JUDGMENT IN FAVOR OF LENDER FOR THE FULL AMOUNT OF
THE INDEBTEDNESS. BORROWER DOES BY THESE PRESENTS CONSENT, AGREE
AND STIPULATE THAT UPON THE OCCURRENCE OF AN EVENT OF DEFAULT IT
SHALL BE LAWFUL FOR LENDER, AND THE BORROWER DOES HEREBY
AUTHORIZE LENDER, TO CAUSE ALL AND SINGULAR THE COLLATERAL TO BE
SEIZED AND SOLD UNDER EXECUTORY OR ORDINARY PROCESS, AT LENDER'S
SOLE OPTION, WITH OR WITHOUT APPRAISEMENT, APPRAISEMENT BEING
HEREBY EXPRESSLY WAIVED, IN ONE LOT AS AN ENTIRETY OR IN SEPARATE
PARCELS AS LENDER MAY DETERMINE, TO THE HIGHEST BIDDER, AND
OTHERWISE EXERCISE THE RIGHTS, POWERS AND REMEDIES AFFORDED
HEREIN AND UNDER APPLICATION LOUISIANA LAW. ANY AND ALL
DECLARATIONS OF FACT MADE BY AUTHENTIC ACT BEFORE A NOTARY PUBLIC
IN THE PRESENCE OF TWO WITNESSES BY A PERSON DECLARING THAT SUCH
FACTS LIE WITHIN HIS KNOWLEDGE SHALL CONSTITUTE AUTHENTIC
EVIDENCE OF SUCH FACTS FOR THE PURPOSE OF EXECUTORY PROCESS.
BORROWER HEREBY WAIVES IN FAVOR OF LENDER: (A) THE BENEFIT OF
APPRAISEMENT AS PROVIDED IN LOUISIANA CODE OF CIVIL PROCEDURE
ARTICLES 2332, 2336, 2723 AND 2724, AND ALL OTHER LAWS CONFERRING
THE SAME; (B) THE DEMAND AND THREE DAYS DELAY ACCORDED BY
LOUISIANA CODE OF CIVIL PROCEDURE ARTICLES 2639 AND 2721; (C) THE
NOTICE OF SEIZURE REQUIRED BY LOUISIANA CODE OF CIVIL PROCEDURE
ARTICLES 2293 AND 2721; (D) THE THREE DAYS DELAY PROVIDED BY
LOUISIANA CODE OF CIVIL PROCEDURE ARTICLES 2331 AND 2722; AND
(E) THE BENEFIT OF THE OTHER PROVISIONS OF LOUISIANA CODE OF
CIVIL PROCEDURE ARTICLES 2331, 2722 AND 2723, NOT SPECIFICALLY
MENTIONED ABOVE.
3. Effect of Securities Laws. The Borrower
recognizes that the Lender may be unable to effect a public sale
of all or part of the Collateral by reason of certain
prohibitions contained in the Securities Act of 1933, as amended,
and applicable state securities laws but may be compelled to
resort to one or more private sales to a restricted group of
purchasers who will be obligated to agree, among other things, to
acquire all or a part of the Collateral for their own account,
for investment, and not with a view to the distribution or resale
thereof. If the Lender deems it advisable to do so for the
foregoing or for other reasons, the Lender is authorized to limit
the prospective bidders on or purchasers of any of the Collateral
to such a restricted group of purchasers and may cause to be
placed on certificates for any or all of the Collateral a legend
to the effect that such security has not been registered under
the Securities Act of 1933, as amended, and may not be disposed
of in violation of the provision of said act, and to impose such
other limitations or conditions in connection with any such sale
as the Lender deems necessary or advisable in order to comply
with said act or any other securities or other laws. The Borrower
acknowledges and agrees that any private sale so made may be at
prices and on other terms less favorable to the seller than if
such Collateral were sold at public sale and that the Lender has
no obligation to delay the sale of such Collateral for the period
of time necessary to permit the registration of such Collateral
for public sale under any securities laws. The Borrower agrees
that a private sale or sales made under the foregoing
circumstances shall be deemed to have been made in a commercially
reasonable manner. If any consent, approval, or authorization of
any federal, state, municipal or other governmental department,
agency or authority should be necessary to effectuate any sale or
other disposition of the Collateral, or any partial sale or other
disposition of the Collateral, the Borrower will execute all
applications and other instruments as may be required in
connection with securing any such consent, approval or
authorization and will otherwise use its best efforts to secure
same.
Section 20. Limitation on Duty of Lender. Beyond the
exercise of reasonable care in the custody thereof, the Lender
shall have no duty as to any Collateral in its possession or
control or in the possession or control of any agent or bailee or
any income thereon. The Lender shall be deemed to have exercised
reasonable care in the custody of the Collateral in its
possession if the Collateral is accorded treatment substantially
equal to that which it accords its own property, and shall not be
liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason
of the act or omission of any broker or other agent or bailee
selected by the Lender in good faith. The Lender shall be deemed
to have exercised reasonable care with respect to any of the
Collateral in its possession if the Lender takes such action for
that purpose as the Borrower shall reasonably request in writing;
but no failure to comply with any such request shall, of itself,
be deemed a failure to exercise reasonable care.
Section 21. Appointment of Agent. At any time or
times, in order to comply with any legal requirement in any
jurisdiction, the Lender may appoint a bank or trust company or
one or more other Persons with such power and authority as may be
necessary for the effectual operation of the provisions hereof
and may be specified in the instrument of appointment.
Section 22. Expenses. All sums incurred by the Lender
in enforcing or protecting any of the rights or remedies under
this Agreement, together with interest thereon until paid at the
rate equal the then highest rate of interest charged on the
principal of any of the Indebtedness plus one percent (1%), shall
be additional Indebtedness hereunder and the Borrower agrees to
pay all of the foregoing sums promptly on demand.
Section 23. Termination. Upon the payment in full of
the Indebtedness, this Agreement shall terminate. Upon request of
the Borrower, the Lender shall deliver the remaining Collateral
(if any) to the Borrower. Upon request of Borrower, Lender shall
execute and deliver to Borrower at Borrower's expense such
termination statements as Borrower may reasonably request to
evidence such termination.
Section 24. Notices. Any notice or demand which, by
provision of this Agreement, is required or permitted to be given
or served to the Borrower and the Lender shall be deemed to have
been sufficiently given and served for all purposes if made in
accordance with the Note.
Section 25. Amendment. Neither this Agreement nor any
provisions hereof may be changed, waived, discharged or
terminated orally or in any manner other than by an instrument in
writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
Section 26. Waivers. No course of dealing on the part
of the Lender, its officers, employees, consultants or agents,
nor any failure or delay by the Lender with respect to exercising
any of its rights, powers or privileges under this Agreement
shall operate as a waiver thereof.
Section 27. Cumulative Rights. The rights and
remedies of the Lender under this Agreement shall be cumulative
and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section 28. Titles of Sections. All titles or
headings to sections of this Agreement are only for the
convenience of the parties and shall not be construed to have any
effect or meaning with respect to the other content of such
sections, such other content being controlling as to the
agreement between the parties hereto.
Section 29. Governing Law. This Agreement is a
contract 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.
Section 30. Successors and Assigns. All covenants and
agreements made by or on behalf of the Borrower in this Agreement
shall bind Borrower's successors and assigns and shall inure to
the benefit of the Lender and its successors and assigns.
Section 31. Counterparts. This Agreement may be
executed in two or more counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained
on any one counterpart hereof, each counterpart shall be deemed
an original, but all of which when taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Borrower and the Lender have caused
this Agreement to be duly executed as of the date first above
written.
WITNESSES: XCL LAND, LTD.
_________________________ By:____________________________
Name:____________________ Name:__________________________
(Please Print) Title:_________________________
_________________________
Name:____________________
(Please Print)
LENDER:
_________________________ _________________________
Name:____________________
(Please Print)
_________________________
Name:____________________
(Please Print)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") dated _______________,
____, is made between The Exploration Company of Louisiana, Inc.
("Grantor") and ____________________ ("Lender"), who agree as
follows:
Recitals
1. XCL Land, Ltd. ("XCL Land") is or will be indebted
unto the Lender for loans made or to be made and evidenced by
certain notes, including, but not limited to that certain
Promissory Note by XCL Land payable to the order of Lender dated
of even date herewith (the "Note").
2. The making of such loans will be of substantial
benefit to the Grantor, and, consequently, in order to secure the
full and punctual payment and performance of the Indebtedness as
defined herein, the Grantor has agreed to execute and deliver
this Agreement and to pledge, deliver and grant a continuing
security interest in and to the Collateral (as hereafter
defined).
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the
Grantor and the Lender agree as follows:
Section 2. Definitions.
1. The terms "Agreement," "Grantor," "Lender,"
"Note," and "XCL Land" shall have the meanings indicated above.
2. As used in this Agreement, the following terms
shall have the following meaning:
"Event of Default" shall have the meaning defined in
the Note.
"General Intangibles" has the meaning given to it in
the UCC.
"Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner
of the property, whether such interest is based on jurisprudence,
statute or contract, and including but not limited to the lien or
security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. The term "Lien"
shall include reservations, exceptions, encroachments, easements,
servitudes, usufructs, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances
affecting property. For the purposes of this Agreement, the
Grantor shall be deemed to be the owner of any property which it
has accrued or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to
the property has been retained by or vested in some other Person
for security purposes.
"New Funds" means funds advanced to Borrower on or
after November 6, 1998 through the purchase of Units or otherwise
up to the aggregate outstanding principal amount of $6,200,000.
"Permitted Liens" means (i) the Security Interests and
any other Liens created, assumed or existing with respect to the
Collateral in favor of Lender or in favor of any other purchaser
of Units or other provider of New Funds to XCL Land (provided
that the Liens in favor of such other persons do not cause the
percentage stated in Sections 2(A)(1) and 2(A)(2) hereof to be
less than the percentage of total New Funds provided by Lender)
and (ii) any other Liens permitted by Lender in writing to be
created or assumed or to exist with respect the Collateral.
"Person" means any individual, corporation,
partnership, joint venture, association, joint stock company,
trust, unincorporated organization, government or any agency or
political subdivision thereof, or any other form of entity.
"Proceeds" has the meaning giving to it in the UCC.
"Security Interests" means the security interests in
the Collateral and Proceeds granted hereunder in favor of Lender
securing the Indebtedness.
"Subscription Agreement" means that certain
Subscription Agreement dated _______________, ____ by and between
XCL Land, Lender and XCL Ltd. and any subsequent subscription
agreement for additional Units entered into between the same
parties.
"UCC" means the Uniform Commercial Code, Commercial
Laws - Secured Transactions (Louisiana Revised Statutes 10:9-101
through :9-605) in the State of Louisiana, as amended from time
to time; provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection
of the Security Interests in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than
Louisiana, "UCC" means the Uniform Commercial Code as in effect
in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or
non-perfection.
"Units" has the meaning defined in the Subscription
Agreement.
Section 3. Security Interest.
1. To secure the full and punctual payment and
performance of all present and future amounts, liabilities,
obligations and indebtedness of XCL Land to the Lender,
including, without limitation all promissory notes (including,
but not limited to the Note) heretofore or hereafter executed by
XCL Land, in principal, interest, deferral and delinquency
charges as therein stipulated, whether such amounts, liabilities,
obligations and indebtedness be liquidated or unliquidated, now
existing or hereafter arising (collectively, the "Indebtedness"),
the Grantor hereby pledges, pawns, transfers and grants to the
Lender a continuing security interest in and to all of the
following property of the Grantor, whether now owned or existing
or hereafter acquired or arising (collectively the "Collateral"):
(1) _____% of Grantor's now owned or hereafter
acquired partnership interest (the "Partnership
Interest") (which Partnership Interest is
currently a limited partner interest) in L.M.
Holding Associates, L.P., a Louisiana Partnership
in Commendam (the "Partnership"), which
Partnership was created by that certain Agreement
of Limited Partnership dated May 27, 1991, as
amended by amendments filed with the Louisiana
Secretary of State on February 25, 1993, August
19, 1994, September 1, 1994, October 7, 1994 and
January 8, 1997 (the "Partnership Agreement");
(2) _____% of any and all monies and other
distributions (cash or property), allocations or
payments made or to be made to Grantor pursuant to
the Partnership Agreement or attributable to the
Partnership Interest;
(3) all General Intangibles related in any way to
the collateral described in clauses 1 or 2 above;
and
(4) all Proceeds and products of all or any of the
collateral described in clauses 1-3 above.
2. The security interests are granted as security
only and shall not subject the Lender to, or transfer or in any
way affect or modify, any obligation or liability of the Grantor
with respect to any of the Collateral or any transaction in
connection therewith.
Section 4. Delivery of Collateral if Ever Represented
by Certificates. If the Partnership Interest is ever represented
by a certificate of interest or any similar document, the
Borrower will immediately deliver such certificate or document to
the Lender or to an agent that Lender and all other holders of
security interests in Grantor's Partnership Interest have agreed
shall hold the certificate or document on their behalf.
Section 5. No Liens. Other than financing statements
or other similar or equivalent documents or instruments with
respect to the Security Interests and Permitted Liens, no
financing statement, mortgage, security agreement or similar or
equivalent document or instrument covering all or any part of the
Collateral is on file or of record in any jurisdiction in which
such filing or recording would be effective to perfect a Lien on
such Collateral. No Collateral is in the possession of any
Person (other than Grantor) asserting any claim thereto or
security interest therein, except that Lender or its designee may
have possession of Collateral as contemplated hereby. Except
with respect to Permitted Liens, the Liens granted pursuant to
this Agreement constitute perfected first priority Liens on the
Collateral in favor of the Lender.
Section 6. No Conflict. The Grantor has not performed
any acts or signed any agreements which might prevent the Lender
from enforcing any of the terms of this Agreement or which would
limit the Lender in any such enforcement.
Section 7. Name. The full name of Grantor is as it
appears on page 1 of this Agreement.
Section 8. Federal Taxpayer Number. The federal
taxpayer identification number of Grantor is as follows:
72-1123077.
Section 9. Chief Executive Office. The chief
executive office of Grantor is 110 Rue Jean Lafitte, Lafayette,
Louisiana 70505.
Section 10. Location of Collateral. Grantor will keep
and maintain all books or records relating to any of the
Collateral at its chief executive office.
Section 11. Filing Location. When a UCC financing
statement has been filed in the offices of a Louisiana Clerk of
Court of any parish other than Orleans (or in the case of Orleans
Parish, with the Recorder of Mortgages), the Security Interests
shall constitute perfected security interests in the Collateral
to the extent that a security interest therein may be perfected
by filing pursuant to the UCC, prior to all other Liens except
for the Permitted Liens and rights of others therein to the
extent that such priority is afforded by the UCC.
Section 12. Title. Grantor has good and merchantable
title to the Collateral, free of Liens except Permitted Liens.
Furthermore, Grantor has not heretofore conveyed or agreed to
convey or encumber any Collateral in any way, except in favor of
Lender or other holders of Permitted Liens. Lender understands
and agrees, however, that Grantor has granted a security interest
in all of its Partnership Interest in the Partnership (other than
the percentage of its Partnership Interest covered hereby) to
those persons or entities who have previously purchased Units or
provided other New Funds. Lender further agrees and acknowledges
that in the event that additional Units are sold or additional
New Funds are provided to XCL Land after the date hereof by
persons other than Lender and secured by partnership interests in
L.M. Holding, Lender will immediately upon demand by XCL Land
(one or more times, as appropriate) execute amendments to this
Agreement releasing a percentage of the Grantor's Partnership
Interest sufficient to allocate the security interests in the
partnership interest of L.M. Holding among the Unit holders or
other providers of New Funds on a proportionate basis (provided
that no reduction in such security interest need be made with
respect to amounts of New Funds in excess of an aggregate of
$6,200,000 principal outstanding).
Section 13. Incorporation and Existence. Grantor is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has
the corporate power and authority and the legal right to own and
operate the Collateral and to conduct the business in which it is
currently engaged.
Section 14. No Consents or Approvals. Except for
those filings and registrations required to perfect the Liens
created by this Agreement, the Grantor is not required to obtain
any order, consent, approval or authorization of, or required to
make any declaration or filing with, any governmental authority
or any other Person in connection with the execution and delivery
of this Agreement and the granting and perfection of the Security
Interests pursuant to this Agreement.
Section 15. Due Execution; Binding Obligation. This
Agreement has been duly executed and delivered on behalf of the
Grantor, and this Agreement constitutes a legal, valid and
binding obligation of Grantor, enforceable against Grantor in
accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally and except as enforceability may be
subject to general principles of equity, whether such principles
are applied in a court of equity or at law.
Section 16. No Conflicts. The execution, delivery and
performance of this Agreement will not (I) result in any
violation of or be in conflict with or constitute a default under
any terms of any agreement, contract, statute, regulation, law or
ordinance; (ii) have a material adverse effect on the Collateral;
(iii) materially adversely affect the ability of Grantor to
perform its obligations under this Agreement or the Note, or
(iv) result in the creation of any Lien upon any of the
properties or revenues of Grantor other than the Liens in favor
of the Lender created pursuant to this Agreement.
Section 17. Voting Rights. Notwithstanding the
security interest granted hereby and whether or not an Event of
Default (as defined in the Note) shall have occurred, the Grantor
shall have the exclusive right to exercise all voting and other
rights under the Partnership Agreement until such time (if and
when) Lender forecloses on the Collateral and becomes the owner
thereof.
Section 18. Notice of Changes. Grantor will not
change its name, corporate identity or taxpayer identification
number in any manner unless it shall have given Lender at least
five (5) days prior written notice thereof.
Section 19. Remedies upon Default.
1. Sale. Upon the occurrence of an Event of
Default, Lender may exercise all rights of a secured party under
the UCC and other applicable law (including the Uniform
Commercial Code as in effect in another applicable jurisdiction)
and, in addition, Lender may, without being required to give any
notice, except as herein provided or as may be required by
mandatory provisions of law, sell the Collateral or any part
thereof at public or private sale, for cash, upon credit or for
future delivery, and at such price or prices as Lender may deem
satisfactory. Lender may be the purchaser of any or all of the
Collateral so sold at any public sale (or, if the Collateral is
of a type customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price
quotations, at any private sale). Grantor will execute and
deliver such documents and take such other action as Lender deems
necessary or advisable in order that any such sale may be made in
compliance with law. Upon any such sale Lender shall have the
right to deliver, assign and transfer to the purchaser thereof
the Collateral so sold. Each purchaser at any such sale shall
hold the Collateral so sold to it absolutely and free from any
claim or right of whatsoever kind, including any equity or right
of redemption of Grantor which may be waived, and Grantor, to the
extent permitted by law, hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any
law now existing or hereafter adopted. Grantor agrees that ten
(10) days prior written notice of the time and place of any sale
or other intended disposition of any of the Collateral
constitutes "reasonable notification" within the meaning of
Section 9-504(3) of the UCC, except that shorter notice or no
notice shall be reasonable as to any Collateral which is
perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market. The notice (if
any) of such sale shall (1) in case of a public sale, state the
time and place fixed for such sale, and (2) in the case of a
private sale, state the day after which such sale may be
consulted. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places
as Lender may fix in the notice or such sale. At any such sale
the Collateral may be sold in one lot as an entirety or in
separate parcels, as Lender may determine. Lender shall not be
obligated to make any such sale pursuant to any such notice.
Lender may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for the sale, and
such sale may be made at any time or place to which the same may
be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so
sold may be retained by Lender until the selling price is paid by
the purchaser thereof, but Lender shall not incur any liability
in case of the failure of such purchaser to take up and pay for
the Collateral so sold and, in case of any such failure, such
Collateral may again be sold upon like notice.
2. Foreclosure. Instead of exercising the power of
sale herein conferred upon it, Lender may proceed by a suit or
suits at law or in equity to foreclose the Security Interests and
sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction. FOR THE
PURPOSES OF LOUISIANA EXECUTORY PROCESS PROCEDURES, GRANTOR DOES
HEREBY CONFESS JUDGMENT IN FAVOR OF LENDER FOR THE FULL AMOUNT OF
THE INDEBTEDNESS. GRANTOR DOES BY THESE PRESENTS CONSENT, AGREE
AND STIPULATE THAT UPON THE OCCURRENCE OF AN EVENT OF DEFAULT IT
SHALL BE LAWFUL FOR LENDER, AND THE GRANTOR DOES HEREBY AUTHORIZE
LENDER, TO CAUSE ALL AND SINGULAR THE COLLATERAL TO BE SEIZED AND
SOLD UNDER EXECUTORY OR ORDINARY PROCESS, AT LENDER'S SOLE
OPTION, WITH OR WITHOUT APPRAISEMENT, APPRAISEMENT BEING HEREBY
EXPRESSLY WAIVED, IN ONE LOT AS AN ENTIRETY OR IN SEPARATE
PARCELS AS LENDER MAY DETERMINE, TO THE HIGHEST BIDDER, AND
OTHERWISE EXERCISE THE RIGHTS, POWERS AND REMEDIES AFFORDED
HEREIN AND UNDER APPLICATION LOUISIANA LAW. ANY AND ALL
DECLARATIONS OF FACT MADE BY AUTHENTIC ACT BEFORE A NOTARY PUBLIC
IN THE PRESENCE OF TWO WITNESSES BY A PERSON DECLARING THAT SUCH
FACTS LIE WITHIN HIS KNOWLEDGE SHALL CONSTITUTE AUTHENTIC
EVIDENCE OF SUCH FACTS FOR THE PURPOSE OF EXECUTORY PROCESS.
GRANTOR HEREBY WAIVES IN FAVOR OF LENDER: (A) THE BENEFIT OF
APPRAISEMENT AS PROVIDED IN LOUISIANA CODE OF CIVIL PROCEDURE
ARTICLES 2332, 2336, 2723 AND 2724, AND ALL OTHER LAWS CONFERRING
THE SAME; (B) THE DEMAND AND THREE DAYS DELAY ACCORDED BY
LOUISIANA CODE OF CIVIL PROCEDURE ARTICLES 2639 AND 2721; (C) THE
NOTICE OF SEIZURE REQUIRED BY LOUISIANA CODE OF CIVIL PROCEDURE
ARTICLES 2293 AND 2721; (D) THE THREE DAYS DELAY PROVIDED BY
LOUISIANA CODE OF CIVIL PROCEDURE ARTICLES 2331 AND 2722; AND
(E) THE BENEFIT OF THE OTHER PROVISIONS OF LOUISIANA CODE OF
CIVIL PROCEDURE ARTICLES 2331, 2722 AND 2723, NOT SPECIFICALLY
MENTIONED ABOVE.
3. Effect of Securities Laws. The Grantor
recognizes that the Lender may be unable to effect a public sale
of all or part of the Collateral by reason of certain
prohibitions contained in the Securities Act of 1933, as amended,
and applicable state securities laws but may be compelled to
resort to one or more private sales to a restricted group of
purchasers who will be obligated to agree, among other things, to
acquire all or a part of the Collateral for their own account,
for investment, and not with a view to the distribution or resale
thereof. If the Lender deems it advisable to do so for the
foregoing or for other reasons, the Lender is authorized to limit
the prospective bidders on or purchasers of any of the Collateral
to such a restricted group of purchasers and may cause to be
placed on certificates for any or all of the Collateral a legend
to the effect that such security has not been registered under
the Securities Act of 1933, as amended, and may not be disposed
of in violation of the provision of said act, and to impose such
other limitations or conditions in connection with any such sale
as the Lender deems necessary or advisable in order to comply
with said act or any other securities or other laws. The Grantor
acknowledges and agrees that any private sale so made may be at
prices and on other terms less favorable to the seller than if
such Collateral were sold at public sale and that the Lender has
no obligation to delay the sale of such Collateral for the period
of time necessary to permit the registration of such Collateral
for public sale under any securities laws. The Grantor agrees
that a private sale or sales made under the foregoing
circumstances shall be deemed to have been made in a commercially
reasonable manner. If any consent, approval, or authorization of
any federal, state, municipal or other governmental department,
agency or authority should be necessary to effectuate any sale or
other disposition of the Collateral, or any partial sale or other
disposition of the Collateral, the Grantor will execute all
applications and other instruments as may be required in
connection with securing any such consent, approval or
authorization and will otherwise use its best efforts to secure
same.
Section 20. Limitation on Duty of Lender. Beyond the
exercise of reasonable care in the custody thereof, the Lender
shall have no duty as to any Collateral in its possession or
control or in the possession or control of any agent or bailee or
any income thereon. The Lender shall be deemed to have exercised
reasonable care in the custody of the Collateral in its
possession if the Collateral is accorded treatment substantially
equal to that which it accords its own property, and shall not be
liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason
of the act or omission of any broker or other agent or bailee
selected by the Lender in good faith. The Lender shall be deemed
to have exercised reasonable care with respect to any of the
Collateral in its possession if the Lender takes such action for
that purpose as the Grantor shall reasonably request in writing;
but no failure to comply with any such request shall, of itself,
be deemed a failure to exercise reasonable care.
Section 21. Appointment of Agent. At any time or
times, in order to comply with any legal requirement in any
jurisdiction, the Lender may appoint a bank or trust company or
one or more other Persons with such power and authority as may be
necessary for the effectual operation of the provisions hereof
and may be specified in the instrument of appointment.
Section 22. Expenses. All sums incurred by the Lender
in enforcing or protecting any of the rights or remedies under
this Agreement, together with interest thereon until paid at the
rate equal the then highest rate of interest charged on the
principal of any of the Indebtedness plus one percent (1%), shall
be additional Indebtedness hereunder and the Grantor agrees to
pay all of the foregoing sums promptly on demand.
Section 23. Termination. Upon the payment in full of
the Indebtedness, this Agreement shall terminate. Upon request of
the Grantor, the Lender shall deliver the remaining Collateral
(if any) to the Grantor. Upon request of Grantor, Lender shall
execute and deliver to Grantor at Grantor's expense such
termination statements as Grantor may reasonably request to
evidence such termination.
Section 24. Notices. Any notice or demand which, by
provision of this Agreement, is required or permitted to be given
or served to the Grantor and the Lender shall be deemed to have
been sufficiently given and served for all purposes if made in
accordance with the Note.
Section 25. Amendment. Neither this Agreement nor any
provisions hereof may be changed, waived, discharged or
terminated orally or in any manner other than by an instrument in
writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
Section 26. Waivers. No course of dealing on the part
of the Lender, its officers, employees, consultants or agents,
nor any failure or delay by the Lender with respect to exercising
any of its rights, powers or privileges under this Agreement
shall operate as a waiver thereof.
Section 27. Cumulative Rights. The rights and
remedies of the Lender under this Agreement shall be cumulative
and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section 28. Titles of Sections. All titles or
headings to sections of this Agreement are only for the
convenience of the parties and shall not be construed to have any
effect or meaning with respect to the other content of such
sections, such other content being controlling as to the
agreement between the parties hereto.
Section 29. Governing Law. This Agreement is a
contract 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.
Section 30. Successors and Assigns. All covenants and
agreements made by or on behalf of the Grantor in this Agreement
shall bind Grantor's successors and assigns and shall inure to
the benefit of the Lender and its successors and assigns.
Section 31. Counterparts. This Agreement may be
executed in two or more counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained
on any one counterpart hereof, each counterpart shall be deemed
an original, but all of which when taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Grantor and the Lender have caused
this Agreement to be duly executed as of the date first above
written.
WITNESSES: THE EXPLORATION COMPANY OF
LOUISIANA, INC.
_________________________ By:_______________________________
Name:____________________ Name:___________________________
(Please Print) Title:__________________________
_________________________
Name:____________________
(Please Print)
LENDER:
_________________________ __________________________________
Name:____________________
(Please Print)
_________________________
Name:____________________
(Please Print)
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT dated as of March 15, 1999 by
and between (a) XCL Land, Ltd. ("XCL Land"), a company
organized under the laws of the State of Delaware and a
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 Land, 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 Land and the purchase by the
Subscriber of the number of units (the "Units") which the
Subscriber has inserted in Section 13 hereof at the purchase
price set forth by the Subscriber in Section 13 hereof, each
Unit being comprised of (a) $100,000 in principal amount of
a promissory note of XCL Land ("Note"); and (b) 10,000
warrants ("Warrants") to purchase 10,000 shares of XCL
Ltd.'s common stock, par value $.01 per share ("Common
Stock"), at $1.25 per share (subject to adjustment) (which
reflects the bid price of the Common Stock on March 9, 1999,
the date on which the terms of the Units were agreed to by
XCL Land, XCL Ltd. and Subscriber). Half Units may be
purchased hereunder after the minimum purchase of 1 Unit has
been made.
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 10 Units (issuable in one
or more tranches) offered by XCL Land 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 13 hereof, subject to the terms and
conditions contained in this Agreement. The purchase and
sale of the Units listed in Section 13 hereof shall take
place at a closing (the "Initial Closing") commencing at
10:00 a.m., Central Daylight Time, on March 15, 1999 at the
offices of Gordon, Arata, McCollam, Duplantis & Eagan,
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 Initial 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 Bank One, Louisiana, ABA
Number: 065-400137, Account Number: 711-4432052 for the
account of XCL Land, Ltd. 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 Land and XCL Ltd. 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 Land 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 hereunder on this date,
and XCL Ltd. shall issue and deliver, or cause to be issued
and delivered, a single certificate representing the
Warrants subscribed for hereunder on this date, in each case
registered in the name of the Subscriber and bearing a
suitably conformed version of the legend set forth in
subsection 4(e) hereof.
(d) XCL Land 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 Land 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. Commitment to Subscribe for Additional Units. In
addition to Subscriber's subscription to the number of Units
set forth in Section 13 hereof, Subscriber hereby agrees to
subscribe for an additional number of Units up to the number
specified in Section 13 on the same terms and conditions as
set forth herein upon the written request of XCL Land. The
closing of such transaction shall be held on the date and at
the place reasonably designated by XCL Land.
3. Representations and Warranties by XCL Land and
XCL Ltd. XCL Ltd. has filed a Preliminary Prospectus (a
copy of which is attached hereto as Exhibit "A") (the
"Preliminary Prospectus") with the Securities and Exchange
Commission on October 23, 1998 as part of Amendment No. 2 to
a Registration Statement on Form S-1 registering certain
securities of XCL Ltd. described therein. (The Subscriber
understands and acknowledges that the Preliminary Prospectus
is not final and is subject to further amendment.
Subscriber further understands and acknowledges that there
are outstanding comments on the Preliminary Prospectus from
the Securities and Exchange Commission and that responses to
those comments have not been incorporated into the
Preliminary Prospectus.) XCL Land and XCL Ltd. hereby
represent and warrant to the Subscriber that except as set
forth in the Preliminary Prospectus or in this Subscription
Agreement or the Schedules hereto:
(a) Organization and Good Standing. XCL Land
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 Land or XCL Ltd. and its
subsidiaries, taken as a whole.
(b) Capitalization. XCL Ltd.'s authorized
capital stock consists of 500,000,000 shares of Common
Stock, par value $0.01 per share of which 23,377,971 shares
of Common Stock were validly issued and outstanding as of
December 31, 1998 excluding 69,470 shares held in treasury,
and are fully paid and non-assessable, and 2,400,000 shares
of preferred stock, par value $1.00 per share, 70,000 of
which have been designated Amended Series B, Cumulative
Converted Preferred Stock with 50,848 of such shares
outstanding as of December 31, 1998 and 2,085,000 of which
have been designated Amended Series A, Cumulative
Convertible Preferred Stock with 1,231,897 of such shares
outstanding as of December 31, 1998. The Warrants, when
executed and delivered on behalf of XCL Ltd. and issued and
sold as set forth in this Agreement and the Warrant
Certificate annexed hereto as Schedule II (the "Warrant
Agreement"), 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 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.
(c) Corporate Authority. XCL Land 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, as to XCL Land, the
Notes, which have been or will be duly authorized by all
necessary corporate or other action of XCL Land (as to this
Agreement and the Notes) and XCL Ltd. (as to this Agreement
and the Warrant Agreement). 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 Land or XCL Ltd. or other holders of
securities or indebtedness of XCL Land 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 Land or XCL Ltd., or any
material agreement or instrument by which XCL Land 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 Land or XCL
Ltd. This Agreement, the Warrant Agreement, and the Notes
constitute valid and binding obligations of XCL Land or XCL
Ltd. (as appropriate) in accordance with their terms.
(d) Governmental Consents. All consents,
authorizations and approvals (if any) of any governmental
agency or other regulatory body within the United States
required by XCL Land 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.
(e) Financial Statements. Included in the
Preliminary Prospectus are the audited financial statements
of XCL Ltd. and its consolidated subsidiaries for the fiscal
year ended December 31, 1997 and the unaudited financial
statements of XCL Ltd. and its consolidated subsidiaries for
the six-month period ended June 30, 1998, respectively.
Attached as Exhibit B to this Subscription Agreement are the
unaudited financial statements of XCL Ltd. and its
consolidated subsidiaries for the nine-month period ended
September 30, 1998. Such financial statements present fairly
the financial position of XCL Land and XCL Ltd. on the dates
and for the periods specified therein in all material
respects.
(f) Absence of Certain Material Changes and
Events. Since September 30, 1998, except as described on
Exhibit B-1 to this Subscription Agreement, there has been
no material adverse change in the financial condition,
assets, liabilities or business of XCL Land and its
subsidiaries, taken as a whole or of XCL Ltd. and its
subsidiaries, taken as a whole.
(g) Contracts. Except as set forth in the
Preliminary Prospectus and herein (including the Exhibits
hereto), and except for XCL Ltd.'s failure to pay certain
cash calls to Apache, neither XCL Land 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 Land and XCL
Ltd., all such contracts are valid and effective in
accordance with their terms and XCL Land and XCL Ltd. know
of no material default by any third party that would
materially impair its ability to perform hereunder or XCL
Land's ability to perform under the Notes.
(h) Litigation. Except as disclosed in XCL
Ltd.'s public filings (and certain additional lawsuits
related to the income and franchise tax disputes and
disputes with Apache disclosed in those filings and in the
Exhibits hereto) there is no material litigation, proceeding
or investigation of any nature pending or, to the knowledge
of XCL Land or XCL Ltd., threatened against or relating to
XCL Land or XCL Ltd. or any of its properties or business.
Neither XCL Land 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 Land's or XCL Ltd.'s knowledge,
threatened against XCL Land, 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 Land
to perform its obligations under this Agreement or the Notes
or on the ability of XCL Ltd. to perform its obligations
under this Agreement or the Warrant Agreement.
(i) Absence of Undisclosed Liabilities. To
the best knowledge of XCL Land and XCL Ltd., none of XCL
Land, 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 Units, the Warrant Agreements
and Notes, (2) described herein or in the Exhibits hereto,
(3) reflected in the financial statements referred to in
paragraph (e) of this Section 3 or the Preliminary
Prospectus, (4) arising in connection with promissory notes
of XCL Land outstanding in the aggregate principal amount of
$2,000,000 and 434,100 warrants to purchase 434,100 shares
of XCL Ltd. common stock comprising 20 of up to an aggregate
of 62 Units that are currently being offered by XCL Land and
XCL Ltd. to a limited number of qualified investors in
another offering (it being understood that the remaining 42
units in that offering may also be sold) or (5) 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.
(j) Preliminary Prospectus. The Preliminary
Prospectus 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
as of the date thereof not misleading; however, it should be
read only in conjunction with this Subscription Agreement
and the Exhibits hereto and with the understanding and
acknowledgment by Subscriber that (i) the Preliminary
Prospectus is not final and is subject to further amendment
and (ii) there are outstanding comments on the Preliminary
Prospectus from the Securities and Exchange Commission and
responses to those comments have not been incorporated into
the Preliminary Prospectus.
(k) Compliance with Laws. Each of XCL Land,
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.
(l) Labor Matters.
(i) None of XCL Land, XCL Ltd. or their
respective subsidiaries has entered into any collective
bargaining agreement and, to the best of the knowledge of
XCL Land 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
Land, XCL Ltd. or their respective subsidiaries.
(ii) To the best knowledge of XCL Land
and XCL Ltd., there are no controversies pending or
threatened between any of XCL Land, 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.
(m) Taxes. Each of XCL Land 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 Land 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 Land or XCL Ltd., except for a pending Louisiana
income and franchise tax case described in the Preliminary
Prospectus and additional lawsuits filed in connection
therewith. There is no audit pending of any tax return
filed by either XCL Land or XCL Ltd. or with respect to any
consolidated group of which either XCL Land or XCL Ltd. was
a member in the applicable year, although notices of
proposed deficiencies are outstanding as described in the
Preliminary Prospectus.
(n) Title to Property. XCL Land, 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.
(o) 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 as hazardous 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 Land 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 Land and
XCL Ltd. and their respective subsidiaries (collectively,
the "Environmental Assets");
(y) XCL Land, 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 Land, 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 against them
for damages, fines, penalties, environmental investigation
or remediation, or administrative, injunctive or other
relief arising under Environmental Laws or (III) other than
in connection with the LaRoche litigation as described in
the Preliminary Prospectus, 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.
4. Representations, Warranties and Agreements by
the Subscriber. The Subscriber hereby represents and
warrants to and agrees with XCL Land and XCL Ltd. as
follows:
(a) Preliminary Prospectus. The Subscriber
hereby acknowledges to XCL Land and XCL Ltd. that (i) any
estimates, plans, projections etc. which are incorporated in
the Preliminary Prospectus or which have been furnished to
it with respect to the activities undertaken originally or
to be undertaken by XCL Land or XCL Ltd. are based on
certain assumptions made by XCL Land 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 Preliminary Prospectus
and the Exhibits thereto, in particular, the "Risk Factors"
section thereof, and this Subscription Agreement and the
Exhibits hereto 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 Land 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 Land and XCL Ltd. concerning
the terms of the Offering and the affairs of XCL Land 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 Land 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 either (a) a "qualified institutional buyer"
(as defined in Rule 144A promulgated under the Act) or
(b) an institutional "accredited investor" (as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) 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. or XCL Land, as applicable, has
effectively registered such securities under the Act or
counsel reasonably acceptable to XCL Ltd. or XCL Land, as
applicable (which shall include in-house counsel) shall have
furnished an opinion, in form and substance reasonably
acceptable to XCL Ltd. or XCL Land, as applicable, 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 Land 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 is either (a) a "qualified institutional
buyer" (as defined in Rule 144A promulgated under the
Securities Act) or (b) an institutional "accredited
institutional buyer" (as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under the Securities Act). The
Subscriber acknowledges that XCL Land 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. or XCL Land, as applicable, no
longer bear restrictive legends and are otherwise freely
tradable 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. or XCL Land, as applicable,
of its intention to effect such transfer and to comply in
all other respects with this subsection 4(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. or XCL Land, as applicable,
addressed to XCL Ltd. or XCL Land, as applicable, and
satisfactory in form and substance to XCL Ltd. or XCL Land,
as applicable, 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. or XCL Land, as applicable,
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.
or XCL Land, as applicable, and this Agreement. Each
certificate or other document issued representing the
Securities shall bear the legend set forth in subsection
4(e) hereof, suitably conformed, unless, in the opinion of
the respective counsel for the Subscriber and XCL Ltd. or
XCL Land, as applicable, 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 Land 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 4(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
_______________, 1999 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
Land or XCL Ltd., as applicable, 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 4.
(f) Notes are Obligations of XCL Land Only.
IT IS EXPRESSLY UNDERSTOOD AND AGREED BY SUBSCRIBER THAT THE
NOTE IS INDEBTEDNESS OF XCL LAND AND NOT INDEBTEDNESS OF ANY
OF ITS AFFILIATES, INCLUDING BUT NOT LIMITED TO XCL LTD. OR
XCL-CHINA LTD., AND SUBSCRIBER HEREBY EXPRESSLY ACKNOWLEDGES
AND AGREES THAT EXCEPT WITH RESPECT TO THE SECURITY
INTERESTS GRANTED TO IT PURSUANT TO THE SECURITY AGREEMENTS
REFERENCED IN SECTION 6(b)(iii) HEREOF, IT SHALL HAVE NO
RECOURSE AGAINST ANY OF XCL LAND'S AFFILIATES, INCLUDING BUT
NOT LIMITED TO XCL LTD. OR XCL-CHINA LTD., OR ANY OF THEIR
ASSETS AND THAT SUBSCRIBER SHALL LOOK SOLELY TO XCL LAND,
ITS ASSETS AND THE COLLATERAL IN WHICH A SECURITY INTEREST
HAS BEEN GRANTED BY THE SECURITY AGREEMENTS DESCRIBED
HEREIN, FOR REPAYMENT OF ANY AND ALL AMOUNTS DUE UNDER THE
NOTE.
(g) Tax Advisor. Subscriber acknowledges that
XCL Land has advised Subscriber that Subscriber should
consult with its own tax advisor as to the possible tax
consequences of original issue discount for federal income
tax purposes.
5. Survival of Representations and Warranties. The
representations and warranties of XCL Land 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 Land 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 4
shall survive the execution, delivery and termination of
this Agreement and the consummation of the transactions
contemplated hereby.
6. Conditions Precedent to Obligations of
Subscriber.
(a) Representations True at Closing;
Performance. The representations and warranties of XCL Land
and XCL Ltd. contained in Section 3 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 Land 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) 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 subscribed for
hereunder;
(ii) a certificate representing the
aggregate number of Warrants included as a component of such
Units subscribed for hereunder;
(iii) two fully executed Security
Agreements substantially in the form attached as Exhibit
"C," one executed by XCL Land and one executed by The
Exploration Company of Louisiana, Inc. granting a security
interest in 1.6% of such entity's partnership interest in
L.M. Holding Associates, L.P., a Louisiana Partnership in
Commendam and two related Louisiana UCC-1 Financing
Statements.
(c) No Withdrawal, Cancellation or
Modification. XCL Land or XCL Ltd. shall not have withdrawn,
canceled or modified the Offering, and shall have taken such
action as is contemplated thereby.
(d) Certificates. XCL Land and XCL Ltd. shall
deliver other customary closing certificates.
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, to the party for whom intended at the
following addresses:
The Subscriber:
The address set forth on the signature page hereof
XCL Land
or XCL Ltd.:
110 Rue Jean Lafitte
Lafayette, LA 70508
Attn: Benjamin B. Blanchet
or at such other address, as to any party, as such party
shall specify by like notice to the other parties.
8. Covenants of XCL Land and XCL Ltd. XCL Land and
XCL Ltd. hereby covenant and agree 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 Land and XCL Ltd. shall issue no more
than 10 Units and shall not issue any securities convertible
into or exchangeable for Units.
9. Rights of Parties to Terminate. Notwithstanding
anything to the contrary set forth herein, this Agreement
and the transactions contemplated hereby may be terminated
at any time by the written agreement of the parties hereto.
10. Entire Agreement; etc. This Agreement together
with the Schedules hereto, the Notes, the Warrant Agreement
and the Security Agreement set forth the entire
understanding and agreement between XCL Land, XCL Ltd. and
the Subscriber pertaining to the subscription which is the
subject of this Agreement and superseding any and all prior
agreements, proposals, understandings and arrangements among
the parties hereto with respect to the subscription which is
the subject of this Agreement, 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
substantially 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 Land 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
Land 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 Land 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 other
investors in the Units unless said Subscriber explicitly
elects otherwise after being offered the opportunity to so
elect.
11. 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.
12. 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
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
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO,
AND ACQUIRED BY, THE HOLDER IN A TRANSACTION EXEMPT UNDER
SECTION 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
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
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 ISSUER AT THE
ADDRESS SET FORTH HEREIN, 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 ISSUER, A WRITTEN CONFIRMATION THAT THE
REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
13. Subscription. The undersigned hereby
subscribes for the following number of Units:
Number of Units
to be purchased 1
(minimum purchase one Unit)
Total Unit Purchase Price:
U.S. $100,000
(Number of Units x $100,000)
Number of Additional
Units to be
purchased upon
request of XCL Land
0
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement effective on the date first above written.
TYPE OF OWNERSHIP
(Check One)
X 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)
Robert R. Durkee, Jr.
Please print here the exact name in which Unit(s)
are to be registered.
INDIVIDUALS ONLY
SIGNATURE PAGE
FOR INDIVIDUALS INVESTORS
Robert R. Durkee, Jr.
Name of Individual Investor (please print or type)
By:_________________________________________________________
(Signature of individual investor)
Social Security No.: ___________________________
Residence Address:____________________________________________________
____________________________________________________________
____________________________________________________________
Mailing Address, if different:
____________________________________________________________
____________________________________________________________
____________________________________________________________
Telephone Number:_____________________________________________________
Facsimile Number:
______________________________________________________
Executed at _______________,____________, on this ______ day
of ________________, 1999.
STATE OF )
.ss:
COUNTY OF )
On this _____ day of ____________, in the year of 1999,
before me, the undersigned, a Notary Public of said State,
duly commissioned and sworn, personally appeared
, known to me to be the person whose name is subscribed to
the within instrument, and acknowledged that he (or she)
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year in this
certificate first above written.
[SEAL]
____________________________________________
Notary Public in and for said State
My commission expires:
SUBSCRIPTION ACCEPTED:
XCL LAND, LTD.
By:____________________________
Name:________________________
Title:_________________________
Date:__________________________
XCL LTD.
By:____________________________
Name:________________________
Title:_________________________
Date:__________________________
PROMISSORY NOTE
$100,000.00 Date: March 15, 1999
I. PROMISE TO PAY
For value received, the undersigned promises to
pay to the order of ROBERT R. DURKEE, JR., 15 Hedge Lane,
Austin, Texas 78746-3208, the principal sum of ONE HUNDRED
THOUSAND AND NO/100 ($100,000.00) DOLLARS, together with
interest on the principal sum at the rate of fifteen (15%)
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 Promissory
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. "Lender" shall mean Robert R. Durkee, Jr.
7. "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.
8. "Lutcher Moore Mitigation Bank Financing"
shall mean a financing in the amount of up to $15 million
secured in full or in part by the Lutcher Moore Tract
Wetlands Mitigation Bank.
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 L.M. Holding
Associates, L.P.
10. "Maker" shall mean XCL Land, Ltd., a
company organized under the laws of Delaware.
11. "Note" shall mean this Promissory Note.
12. "Security Documents" shall mean the
Security Agreements each dated as of March 15, 1999 executed
by Maker and The Exploration Company of Louisiana, Inc. and
Lender, as amended, and the related Louisiana UCC-1
financing statements, as amended.
13. "Subscription Agreement" shall mean the
Subscription Agreement dated as of March 15, 1999, 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 earlier of (a) the third business day after
funding of the Lutcher Moore Mitigation Bank Financing or
(b) April 29, 1999.
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 create, insure, assume or
suffer to exist any debt other than (i) debt in respect of
the Notes; (ii) debt existing as of the date of the Notes;
and (iii) obligations to any affiliate of Maker that are
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 secured by a security interest in a
percentage of the general and limited partnership interest
in L.M. Holding Associates, L.P., a Louisiana Partnership in
Commendam, granted by Maker and The Exploration Company of
Louisiana, Inc. pursuant to the Security Documents. IT IS
EXPRESSLY UNDERSTOOD AND AGREED BY LENDER THAT THE
INDEBTEDNESS EVIDENCED HEREBY IS INDEBTEDNESS OF MAKER AND
NOT INDEBTEDNESS OF ANY OF ITS AFFILIATES, INCLUDING BUT NOT
LIMITED TO XCL LTD. OR XCL-CHINA LTD., AND LENDER HEREBY
EXPRESSLY ACKNOWLEDGES AND AGREES THAT EXCEPT WITH RESPECT
TO THE SECURITY INTERESTS GRANTED TO IT PURSUANT TO THE
SECURITY DOCUMENTS, IT SHALL HAVE NO RECOURSE AGAINST ANY OF
MAKER'S AFFILIATES, INCLUDING BUT NOT LIMITED TO XCL LTD. OR
XCL-CHINA LTD., OR ANY OF THEIR ASSETS AND THAT LENDER SHALL
LOOK SOLELY TO MAKER, ITS ASSETS AND THE COLLATERAL IN WHICH
A SECURITY INTEREST HAS BEEN GRANTED BY THE SECURITY
DOCUMENTS FOR REPAYMENT OF ANY AND ALL AMOUNTS DUE
HEREUNDER.
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 Land, Ltd.
110 Rue Jean Lafitte
P. O. Box 53775
Lafayette, Louisiana 70505
Attn: Benjamin B. Blanchet
Telecopier: (318) 237-3316
If to Lender:
Robert R. Durkee, Jr.
15 Hedge Lane
Austin, Texas 78746-3208
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 LAND, LTD.
By:_________________________________
Name:_______________________________
Title:________________________________
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") dated March 15,
1999, is made between XCL Land, Ltd. ("Borrower") and Robert
R. Durkee, Jr. ("Lender"), who agree as follows:
Recitals
A. The Borrower is or will be indebted unto
the Lender for a loan made or to be made and evidenced by
that certain Promissory Note by Borrower payable to the
order of Lender dated of even date herewith (the "Note").
B. In order to secure the full and punctual
payment and performance of the Indebtedness as defined
herein, the Borrower has agreed to execute and deliver this
Agreement and to pledge, deliver and grant a continuing
security interest in and to the Collateral (as hereafter
defined).
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the
Borrower and the Lender agree as follows:
Section 1. Definitions.
A. The terms "Agreement," "Borrower," "Lender"
and "Note" shall have the meanings indicated above.
B. As used in this Agreement, the following
terms shall have the following meaning:
"Event of Default" shall have the meaning defined
in the Note.
"General Intangibles" has the meaning given to it
in the UCC.
"Lien" shall mean any interest in property
securing an obligation owed to, or a claim by, a Person
other than the owner of the property, whether such interest
is based on jurisprudence, statute or contract, and
including but not limited to the lien or security interest
arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. The term
"Lien" shall include reservations, exceptions,
encroachments, easements, servitudes, usufructs, rights-of-
way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting property. For
the purposes of this Agreement, the Borrower shall be deemed
to be the owner of any property which it has accrued or
holds subject to a conditional sale agreement, financing
lease or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person
for security purposes.
"New Funds" means funds advanced to Borrower on or
after November 6, 1998 through the purchase of Units or
otherwise up to the aggregate outstanding principal amount
of $6,200,000.
"Permitted Liens" means (i) the Security Interests
and any other Liens created, assumed or existing with
respect to the Collateral in favor of Lender or in favor of
any other purchaser of Units or other provider of New Funds
to Borrower and (ii) any other Liens permitted by Lender in
writing to be created or assumed or to exist with respect
the Collateral.
"Person" means any individual, corporation,
partnership, joint venture, association, joint stock
company, trust, unincorporated organization, government or
any agency or political subdivision thereof, or any other
form of entity.
"Proceeds" has the meaning giving to it in the
UCC.
"Security Interests" means the security interests
in the Collateral and Proceeds granted hereunder in favor of
Lender securing the Indebtedness.
"Subscription Agreement" means that certain
Subscription Agreement dated March 15, 1999 by and between
Borrower, Lender and XCL Ltd. and any subsequent
subscription agreements for additional Units entered into
between the same parties.
"UCC" means the Uniform Commercial Code,
Commercial Laws - Secured Transactions (Louisiana Revised
Statutes 10:9-101 through :9-605) in the State of Louisiana,
as amended from time to time; provided that if by reason of
mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the Security Interests in
any Collateral is governed by the Uniform Commercial Code as
in effect in a jurisdiction other than Louisiana, "UCC"
means the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or
non-perfection.
"Units" has the meaning defined in the
Subscription Agreement.
Section 2. Security Interest.
A. To secure the full and punctual payment and
performance of the Note in principal, interest, deferral and
delinquency charges as therein stipulated (collectively, the
"Indebtedness"), the Borrower hereby pledges, pawns,
transfers and grants to the Lender a continuing security
interest in and to all of the following property of the
Borrower, whether now owned or existing or hereafter
acquired or arising (collectively the "Collateral"):
(1) 1.6% of Borrower's now owned or hereafter
acquired partnership interest (the "Partnership Interest")
(which Partnership Interest is currently a general partner
interest) in L.M. Holding Associates, L.P., a Louisiana
Partnership in Commendam (the "Partnership"), which
Partnership was created by that certain Agreement of Limited
Partnership dated May 27, 1991, as amended by amendments
filed with the Louisiana Secretary of State on February 25,
1993, August 19, 1994, September 1, 1994, October 7, 1994
and January 8, 1997 (the "Partnership Agreement");
(2) 1.6% of any and all monies and other
distributions (cash or property), allocations or payments
made or to be made to Borrower pursuant to the Partnership
Agreement or attributable to the Partnership Interest;
(3) all General Intangibles related in any way
to the collateral described in clauses 1 or 2 above; and
(4) all Proceeds and products of all or any of
the collateral described in clauses 1-3 above.
B. The security interests are granted as
security only and shall not subject the Lender to, or
transfer or in any way affect or modify, any obligation or
liability of the Borrower with respect to any of the
Collateral or any transaction in connection therewith.
Section 3. Delivery of Collateral if Ever Represented
by Certificates. If the Partnership Interest is ever
represented by a certificate of interest or any similar
document, the Borrower will immediately deliver such
certificate or document to the Lender or to an agent that
Lender and all other holders of security interests in
Borrower's Partnership Interest have agreed shall hold the
certificate or document on their behalf.
Section 4. No Liens. Other than financing statements
or other similar or equivalent documents or instruments with
respect to the Security Interests and Permitted Liens, no
financing statement, mortgage, security agreement or similar
or equivalent document or instrument covering all or any
part of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be
effective to perfect a Lien on such Collateral. No
Collateral is in the possession of any Person (other than
Borrower) asserting any claim thereto or security interest
therein, except that Lender or its designee may have
possession of Collateral as contemplated hereby. Except
with respect to Permitted Liens, the Liens granted pursuant
to this Agreement constitute perfected first priority Liens
on the Collateral in favor of the Lender.
Section 5. No Conflict. The Borrower has not
performed any acts or signed any agreements which might
prevent the Lender from enforcing any of the terms of this
Agreement or which would limit the Lender in any such
enforcement.
Section 6. Name. The full name of Borrower is as it
appears on page 1 of this Agreement.
Section 7. Federal Taxpayer Number. The federal
taxpayer identification number of Borrower is as follows:
51-0334575.
Section 8. Chief Executive Office. The chief
executive office of Borrower is 110 Rue Jean Lafitte,
Lafayette, Louisiana 70505.
Section 9. Location of Collateral. Borrower will keep
and maintain all books or records relating to any of the
Collateral at its chief executive office.
Section 10. Filing Location. When a UCC financing
statement has been filed in the offices of a Louisiana Clerk
of Court of any parish other than Orleans (or in the case of
Orleans Parish, with the Recorder of Mortgages), the
Security Interests shall constitute perfected security
interests in the Collateral to the extent that a security
interest therein may be perfected by filing pursuant to the
UCC, prior to all other Liens except for the Permitted Liens
and rights of others therein to the extent that such
priority is afforded by the UCC.
Section 11. Title. Borrower has good and merchantable
title to the Collateral, free of Liens except Permitted
Liens. Furthermore, Borrower has not heretofore conveyed or
agreed to convey or encumber any Collateral in any way,
except in favor of Lender or other holders of Permitted
Liens.
Section 12. Incorporation and Existence. Borrower is
a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
organization and has the corporate power and authority and
the legal right to own and operate the Collateral and to
conduct the business in which it is currently engaged.
Section 13. No Consents or Approvals. Except for
those filings and registrations required to perfect the
Liens created by this Agreement, the Borrower is not
required to obtain any order, consent, approval or
authorization of, or required to make any declaration or
filing with, any governmental authority or any other Person
in connection with the execution and delivery of this
Agreement and the granting and perfection of the Security
Interests pursuant to this Agreement.
Section 14. Due Execution; Binding Obligation. This
Agreement has been duly executed and delivered on behalf of
the Borrower, and this Agreement constitutes a legal, valid
and binding obligation of Borrower, enforceable against
Borrower in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and
except as enforceability may be subject to general
principles of equity, whether such principles are applied in
a court of equity or at law.
Section 15. No Conflicts. The execution, delivery and
performance of this Agreement will not (I) result in any
violation of or be in conflict with or constitute a default
under any terms of any agreement, contract, statute,
regulation, law or ordinance; (ii) have a material adverse
effect on the Collateral; (iii) materially adversely affect
the ability of Borrower to perform its obligations under
this Agreement or the Note, or (iv) result in the creation
of any Lien upon any of the properties or revenues of
Borrower other than the Liens in favor of the Lender created
pursuant to this Agreement.
Section 16. Voting Rights. Notwithstanding the
security interest granted hereby and whether or not an Event
of Default (as defined in the Note) shall have occurred, the
Borrower shall have the exclusive right to exercise all
voting and other rights under the Partnership Agreement
until such time (if and when) Lender forecloses on the
Collateral and becomes the owner thereof.
Section 17. Notice of Changes. Borrower will not
change its name, corporate identity or taxpayer
identification number in any manner unless it shall have
given Lender at least five (5) days prior written notice
thereof.
Section 18. Remedies upon Default.
A. Sale. Upon the occurrence of an Event of
Default, Lender may exercise all rights of a secured party
under the UCC and other applicable law (including the
Uniform Commercial Code as in effect in another applicable
jurisdiction) and, in addition, Lender may, without being
required to give any notice, except as herein provided or as
may be required by mandatory provisions of law, sell the
Collateral or any part thereof at public or private sale,
for cash, upon credit or for future delivery, and at such
price or prices as Lender may deem satisfactory. Lender may
be the purchaser of any or all of the Collateral so sold at
any public sale (or, if the Collateral is of a type
customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price
quotations, at any private sale). Borrower will execute and
deliver such documents and take such other action as Lender
deems necessary or advisable in order that any such sale may
be made in compliance with law. Upon any such sale Lender
shall have the right to deliver, assign and transfer to the
purchaser thereof the Collateral so sold. Each purchaser at
any such sale shall hold the Collateral so sold to it
absolutely and free from any claim or right of whatsoever
kind, including any equity or right of redemption of
Borrower which may be waived, and Borrower, to the extent
permitted by law, hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under
any law now existing or hereafter adopted. Borrower agrees
that ten (10) days prior written notice of the time and
place of any sale or other intended disposition of any of
the Collateral constitutes "reasonable notification" within
the meaning of Section 9-504(3) of the UCC, except that
shorter notice or no notice shall be reasonable as to any
Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a
recognized market. The notice (if any) of such sale shall
(1) in case of a public sale, state the time and place fixed
for such sale, and (2) in the case of a private sale, state
the day after which such sale may be consulted. Any such
public sale shall be held at such time or times within
ordinary business hours and at such place or places as
Lender may fix in the notice or such sale. At any such sale
the Collateral may be sold in one lot as an entirety or in
separate parcels, as Lender may determine. Lender shall not
be obligated to make any such sale pursuant to any such
notice. Lender may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned
from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any
sale of all or any part of the Collateral on credit or for
future delivery, the Collateral so sold may be retained by
Lender until the selling price is paid by the purchaser
thereof, but Lender shall not incur any liability in case of
the failure of such purchaser to take up and pay for the
Collateral so sold and, in case of any such failure, such
Collateral may again be sold upon like notice.
B. Foreclosure. Instead of exercising the
power of sale herein conferred upon it, Lender may proceed
by a suit or suits at law or in equity to foreclose the
Security Interests and sell the Collateral, or any portion
thereof, under a judgment or decree of a court or courts of
competent jurisdiction. FOR THE PURPOSES OF LOUISIANA
EXECUTORY PROCESS PROCEDURES, BORROWER DOES HEREBY CONFESS
JUDGMENT IN FAVOR OF LENDER FOR THE FULL AMOUNT OF THE
INDEBTEDNESS. BORROWER DOES BY THESE PRESENTS CONSENT,
AGREE AND STIPULATE THAT UPON THE OCCURRENCE OF AN EVENT OF
DEFAULT IT SHALL BE LAWFUL FOR LENDER, AND THE BORROWER DOES
HEREBY AUTHORIZE LENDER, TO CAUSE ALL AND SINGULAR THE
COLLATERAL TO BE SEIZED AND SOLD UNDER EXECUTORY OR ORDINARY
PROCESS, AT LENDER'S SOLE OPTION, WITH OR WITHOUT
APPRAISEMENT, APPRAISEMENT BEING HEREBY EXPRESSLY WAIVED, IN
ONE LOT AS AN ENTIRETY OR IN SEPARATE PARCELS AS LENDER MAY
DETERMINE, TO THE HIGHEST BIDDER, AND OTHERWISE EXERCISE THE
RIGHTS, POWERS AND REMEDIES AFFORDED HEREIN AND UNDER
APPLICATION LOUISIANA LAW. ANY AND ALL DECLARATIONS OF FACT
MADE BY AUTHENTIC ACT BEFORE A NOTARY PUBLIC IN THE PRESENCE
OF TWO WITNESSES BY A PERSON DECLARING THAT SUCH FACTS LIE
WITHIN HIS KNOWLEDGE SHALL CONSTITUTE AUTHENTIC EVIDENCE OF
SUCH FACTS FOR THE PURPOSE OF EXECUTORY PROCESS. BORROWER
HEREBY WAIVES IN FAVOR OF LENDER: (A) THE BENEFIT OF
APPRAISEMENT AS PROVIDED IN LOUISIANA CODE OF CIVIL
PROCEDURE ARTICLES 2332, 2336, 2723 AND 2724, AND ALL OTHER
LAWS CONFERRING THE SAME; (B) THE DEMAND AND THREE DAYS
DELAY ACCORDED BY LOUISIANA CODE OF CIVIL PROCEDURE ARTICLES
2639 AND 2721; (C) THE NOTICE OF SEIZURE REQUIRED BY
LOUISIANA CODE OF CIVIL PROCEDURE ARTICLES 2293 AND 2721;
(D) THE THREE DAYS DELAY PROVIDED BY LOUISIANA CODE OF CIVIL
PROCEDURE ARTICLES 2331 AND 2722; AND (E) THE BENEFIT OF THE
OTHER PROVISIONS OF LOUISIANA CODE OF CIVIL PROCEDURE
ARTICLES 2331, 2722 AND 2723, NOT SPECIFICALLY MENTIONED
ABOVE.
C. Effect of Securities Laws. The Borrower
recognizes that the Lender may be unable to effect a public
sale of all or part of the Collateral by reason of certain
prohibitions contained in the Securities Act of 1933, as
amended, and applicable state securities laws but may be
compelled to resort to one or more private sales to a
restricted group of purchasers who will be obligated to
agree, among other things, to acquire all or a part of the
Collateral for their own account, for investment, and not
with a view to the distribution or resale thereof. If the
Lender deems it advisable to do so for the foregoing or for
other reasons, the Lender is authorized to limit the
prospective bidders on or purchasers of any of the
Collateral to such a restricted group of purchasers and may
cause to be placed on certificates for any or all of the
Collateral a legend to the effect that such security has not
been registered under the Securities Act of 1933, as
amended, and may not be disposed of in violation of the
provision of said act, and to impose such other limitations
or conditions in connection with any such sale as the Lender
deems necessary or advisable in order to comply with said
act or any other securities or other laws. The Borrower
acknowledges and agrees that any private sale so made may be
at prices and on other terms less favorable to the seller
than if such Collateral were sold at public sale and that
the Lender has no obligation to delay the sale of such
Collateral for the period of time necessary to permit the
registration of such Collateral for public sale under any
securities laws. The Borrower agrees that a private sale or
sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner. If
any consent, approval, or authorization of any federal,
state, municipal or other governmental department, agency or
authority should be necessary to effectuate any sale or
other disposition of the Collateral, or any partial sale or
other disposition of the Collateral, the Borrower will
execute all applications and other instruments as may be
required in connection with securing any such consent,
approval or authorization and will otherwise use its best
efforts to secure same.
Section 19. Limitation on Duty of Lender. Beyond the
exercise of reasonable care in the custody thereof, the
Lender shall have no duty as to any Collateral in its
possession or control or in the possession or control of any
agent or bailee or any income thereon. The Lender shall be
deemed to have exercised reasonable care in the custody of
the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it
accords its own property, and shall not be liable or
responsible for any loss or damage to any of the Collateral,
or for any diminution in the value thereof, by reason of the
act or omission of any broker or other agent or bailee
selected by the Lender in good faith. The Lender shall be
deemed to have exercised reasonable care with respect to any
of the Collateral in its possession if the Lender takes such
action for that purpose as the Borrower shall reasonably
request in writing; but no failure to comply with any such
request shall, of itself, be deemed a failure to exercise
reasonable care.
Section 20. Appointment of Agent. At any time or
times, in order to comply with any legal requirement in any
jurisdiction, the Lender may appoint a bank or trust company
or one or more other Persons with such power and authority
as may be necessary for the effectual operation of the
provisions hereof and may be specified in the instrument of
appointment.
Section 21. Expenses. All sums incurred by the Lender
in enforcing or protecting any of the rights or remedies
under this Agreement, together with interest thereon until
paid at the rate equal the then highest rate of interest
charged on the principal of any of the Indebtedness plus one
percent (1%), shall be additional Indebtedness hereunder and
the Borrower agrees to pay all of the foregoing sums
promptly on demand.
Section 22. Termination. Upon the payment in full of
the Indebtedness, this Agreement shall terminate. Upon
request of the Borrower, the Lender shall deliver the
remaining Collateral (if any) to the Borrower. Upon request
of Borrower, Lender shall execute and deliver to Borrower at
Borrower's expense such termination statements as Borrower
may reasonably request to evidence such termination.
Section 23. Notices. Any notice or demand which, by
provision of this Agreement, is required or permitted to be
given or served to the Borrower and the Lender shall be
deemed to have been sufficiently given and served for all
purposes if made in accordance with the Note.
Section 24. Amendment. Neither this Agreement nor any
provisions hereof may be changed, waived, discharged or
terminated orally or in any manner other than by an
instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination
is sought.
Section 25. Waivers. No course of dealing on the part
of the Lender, its officers, employees, consultants or
agents, nor any failure or delay by the Lender with respect
to exercising any of its rights, powers or privileges under
this Agreement shall operate as a waiver thereof.
Section 26. Cumulative Rights. The rights and
remedies of the Lender under this Agreement shall be
cumulative and the exercise or partial exercise of any such
right or remedy shall not preclude the exercise of any other
right or remedy.
Section 27. Titles of Sections. All titles or
headings to sections of this Agreement are only for the
convenience of the parties and shall not be construed to
have any effect or meaning with respect to the other content
of such sections, such other content being controlling as to
the agreement between the parties hereto.
Section 28. Governing Law. This Agreement is a
contract 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.
Section 29. Successors and Assigns. All covenants and
agreements made by or on behalf of the Borrower in this
Agreement shall bind Borrower's successors and assigns and
shall inure to the benefit of the Lender and its successors
and assigns.
Section 30. Counterparts. This Agreement may be
executed in two or more counterparts, and it shall not be
necessary that the signatures of all parties hereto be
contained on any one counterpart hereof, each counterpart
shall be deemed an original, but all of which when taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Borrower and the Lender have
caused this Agreement to be duly executed as of the date
first above written.
WITNESSES: XCL LAND, LTD.
_________________________ By:_____________________________
Name:____________________ Name:___________________________
(Please Print)
Title:__________________________
_________________________
Name:____________________
(Please Print)
LENDER:
_________________________ ______________________________
Name:____________________ Robert R. Durkee, Jr.
(Please Print)
_________________________
Name:____________________
(Please Print)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") dated March 15,
1999, is made between The Exploration Company of Louisiana,
Inc. ("Grantor") and Robert R. Durkee, Jr. ("Lender"), who
agree as follows:
Recitals
A. XCL Land, Ltd. ("XCL Land") is or will be
indebted unto the Lender for a loan made or to be made and
evidenced by that certain Promissory Note by XCL Land
payable to the order of Lender dated of even date herewith
(the "Note").
B. The making of such loan will be of
substantial benefit to the Grantor, and, consequently, in
order to secure the full and punctual payment and
performance of the Indebtedness as defined herein, the
Grantor has agreed to execute and deliver this Agreement and
to pledge, deliver and grant a continuing security interest
in and to the Collateral (as hereafter defined).
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the
Grantor and the Lender agree as follows:
Section 1. Definitions.
A. The terms "Agreement," "Grantor," "Lender,"
"Note," and "XCL Land" shall have the meanings indicated
above.
B. As used in this Agreement, the following
terms shall have the following meaning:
"Event of Default" shall have the meaning defined
in the Note.
"General Intangibles" has the meaning given to it
in the UCC.
"Lien" shall mean any interest in property
securing an obligation owed to, or a claim by, a Person
other than the owner of the property, whether such interest
is based on jurisprudence, statute or contract, and
including but not limited to the lien or security interest
arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. The term
"Lien" shall include reservations, exceptions,
encroachments, easements, servitudes, usufructs, rights-of-
way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting property. For
the purposes of this Agreement, the Grantor shall be deemed
to be the owner of any property which it has accrued or
holds subject to a conditional sale agreement, financing
lease or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person
for security purposes.
"New Funds" means funds advanced to Borrower on or
after November 6, 1998 through the purchase of Units or
otherwise up to the aggregate outstanding principal amount
of $6,200,000.
"Permitted Liens" means (i) the Security Interests
and any other Liens created, assumed or existing with
respect to the Collateral in favor of Lender or in favor of
any other purchaser of Units or other provider of New Funds
to XCL Land and (ii) any other Liens permitted by Lender in
writing to be created or assumed or to exist with respect
the Collateral.
"Person" means any individual, corporation,
partnership, joint venture, association, joint stock
company, trust, unincorporated organization, government or
any agency or political subdivision thereof, or any other
form of entity.
"Proceeds" has the meaning giving to it in the
UCC.
"Security Interests" means the security interests
in the Collateral and Proceeds granted hereunder in favor of
Lender securing the Indebtedness.
"Subscription Agreement" means that certain
Subscription Agreement dated March 15, 1998 by and between
XCL Land, Lender and XCL Ltd. and any subsequent
subscription agreement for additional Units entered into
between the same parties.
"UCC" means the Uniform Commercial Code,
Commercial Laws - Secured Transactions (Louisiana Revised
Statutes 10:9-101 through :9-605) in the State of Louisiana,
as amended from time to time; provided that if by reason of
mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the Security Interests in
any Collateral is governed by the Uniform Commercial Code as
in effect in a jurisdiction other than Louisiana, "UCC"
means the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or
non-perfection.
"Units" has the meaning defined in the
Subscription Agreement.
Section 2. Security Interest.
A. To secure the full and punctual payment and
performance of the Note in principal, interest, deferral and
delinquency charges as therein stipulated (collectively, the
"Indebtedness"), the Grantor hereby pledges, pawns,
transfers and grants to the Lender a continuing security
interest in and to all of the following property of the
Grantor, whether now owned or existing or hereafter acquired
or arising (collectively the "Collateral"):
(1) 1.6% of Grantor's now owned or hereafter
acquired partnership interest (the "Partnership Interest")
(which Partnership Interest is currently a limited partner
interest) in L.M. Holding Associates, L.P., a Louisiana
Partnership in Commendam (the "Partnership"), which
Partnership was created by that certain Agreement of Limited
Partnership dated May 27, 1991, as amended by amendments
filed with the Louisiana Secretary of State on February 25,
1993, August 19, 1994, September 1, 1994, October 7, 1994
and January 8, 1997 (the "Partnership Agreement");
(2) 1.6% of any and all monies and other
distributions (cash or property), allocations or payments
made or to be made to Grantor pursuant to the Partnership
Agreement or attributable to the Partnership Interest;
(3) all General Intangibles related in any way
to the collateral described in clauses 1 or 2 above; and
(4) all Proceeds and products of all or any of
the collateral described in clauses 1-3 above.
B. The security interests are granted as
security only and shall not subject the Lender to, or
transfer or in any way affect or modify, any obligation or
liability of the Grantor with respect to any of the
Collateral or any transaction in connection therewith.
Section 3. Delivery of Collateral if Ever Represented
by Certificates. If the Partnership Interest is ever
represented by a certificate of interest or any similar
document, the Borrower will immediately deliver such
certificate or document to the Lender or to an agent that
Lender and all other holders of security interests in
Grantor's Partnership Interest have agreed shall hold the
certificate or document on their behalf.
Section 4. No Liens. Other than financing statements
or other similar or equivalent documents or instruments with
respect to the Security Interests and Permitted Liens, no
financing statement, mortgage, security agreement or similar
or equivalent document or instrument covering all or any
part of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be
effective to perfect a Lien on such Collateral. No
Collateral is in the possession of any Person (other than
Grantor) asserting any claim thereto or security interest
therein, except that Lender or its designee may have
possession of Collateral as contemplated hereby. Except
with respect to Permitted Liens, the Liens granted pursuant
to this Agreement constitute perfected first priority Liens
on the Collateral in favor of the Lender.
Section 5. No Conflict. The Grantor has not performed
any acts or signed any agreements which might prevent the
Lender from enforcing any of the terms of this Agreement or
which would limit the Lender in any such enforcement.
Section 6. Name. The full name of Grantor is as it
appears on page 1 of this Agreement.
Section 7. Federal Taxpayer Number. The federal
taxpayer identification number of Grantor is as follows:
72-1123077.
Section 8. Chief Executive Office. The chief
executive office of Grantor is 110 Rue Jean Lafitte,
Lafayette, Louisiana 70505.
Section 9. Location of Collateral. Grantor will keep
and maintain all books or records relating to any of the
Collateral at its chief executive office.
Section 10. Filing Location. When a UCC financing
statement has been filed in the offices of a Louisiana Clerk
of Court of any parish other than Orleans (or in the case of
Orleans Parish, with the Recorder of Mortgages), the
Security Interests shall constitute perfected security
interests in the Collateral to the extent that a security
interest therein may be perfected by filing pursuant to the
UCC, prior to all other Liens except for the Permitted Liens
and rights of others therein to the extent that such
priority is afforded by the UCC.
Section 11. Title. Grantor has good and merchantable
title to the Collateral, free of Liens except Permitted
Liens. Furthermore, Grantor has not heretofore conveyed or
agreed to convey or encumber any Collateral in any way,
except in favor of Lender or other holders of Permitted
Liens.
Section 12. Incorporation and Existence. Grantor is a
corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
organization and has the corporate power and authority and
the legal right to own and operate the Collateral and to
conduct the business in which it is currently engaged.
Section 13. No Consents or Approvals. Except for
those filings and registrations required to perfect the
Liens created by this Agreement, the Grantor is not required
to obtain any order, consent, approval or authorization of,
or required to make any declaration or filing with, any
governmental authority or any other Person in connection
with the execution and delivery of this Agreement and the
granting and perfection of the Security Interests pursuant
to this Agreement.
Section 14. Due Execution; Binding Obligation. This
Agreement has been duly executed and delivered on behalf of
the Grantor, and this Agreement constitutes a legal, valid
and binding obligation of Grantor, enforceable against
Grantor in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and
except as enforceability may be subject to general
principles of equity, whether such principles are applied in
a court of equity or at law.
Section 15. No Conflicts. The execution, delivery and
performance of this Agreement will not (I) result in any
violation of or be in conflict with or constitute a default
under any terms of any agreement, contract, statute,
regulation, law or ordinance; (ii) have a material adverse
effect on the Collateral; (iii) materially adversely affect
the ability of Grantor to perform its obligations under this
Agreement or the Note, or (iv) result in the creation of any
Lien upon any of the properties or revenues of Grantor other
than the Liens in favor of the Lender created pursuant to
this Agreement.
Section 16. Voting Rights. Notwithstanding the
security interest granted hereby and whether or not an Event
of Default (as defined in the Note) shall have occurred, the
Grantor shall have the exclusive right to exercise all
voting and other rights under the Partnership Agreement
until such time (if and when) Lender forecloses on the
Collateral and becomes the owner thereof.
Section 17. Notice of Changes. Grantor will not
change its name, corporate identity or taxpayer
identification number in any manner unless it shall have
given Lender at least five (5) days prior written notice
thereof.
Section 18. Remedies upon Default.
A. Sale. Upon the occurrence of an Event of
Default, Lender may exercise all rights of a secured party
under the UCC and other applicable law (including the
Uniform Commercial Code as in effect in another applicable
jurisdiction) and, in addition, Lender may, without being
required to give any notice, except as herein provided or as
may be required by mandatory provisions of law, sell the
Collateral or any part thereof at public or private sale,
for cash, upon credit or for future delivery, and at such
price or prices as Lender may deem satisfactory. Lender may
be the purchaser of any or all of the Collateral so sold at
any public sale (or, if the Collateral is of a type
customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price
quotations, at any private sale). Grantor will execute and
deliver such documents and take such other action as Lender
deems necessary or advisable in order that any such sale may
be made in compliance with law. Upon any such sale Lender
shall have the right to deliver, assign and transfer to the
purchaser thereof the Collateral so sold. Each purchaser at
any such sale shall hold the Collateral so sold to it
absolutely and free from any claim or right of whatsoever
kind, including any equity or right of redemption of Grantor
which may be waived, and Grantor, to the extent permitted by
law, hereby specifically waives all rights of redemption,
stay or appraisal which it has or may have under any law now
existing or hereafter adopted. Grantor agrees that ten (10)
days prior written notice of the time and place of any sale
or other intended disposition of any of the Collateral
constitutes "reasonable notification" within the meaning of
Section 9-504(3) of the UCC, except that shorter notice or
no notice shall be reasonable as to any Collateral which is
perishable or threatens to decline speedily in value or is
of a type customarily sold on a recognized market. The
notice (if any) of such sale shall (1) in case of a public
sale, state the time and place fixed for such sale, and
(2) in the case of a private sale, state the day after which
such sale may be consulted. Any such public sale shall be
held at such time or times within ordinary business hours
and at such place or places as Lender may fix in the notice
or such sale. At any such sale the Collateral may be sold
in one lot as an entirety or in separate parcels, as Lender
may determine. Lender shall not be obligated to make any
such sale pursuant to any such notice. Lender may, without
notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and
such sale may be made at any time or place to which the same
may be so adjourned. In case of any sale of all or any part
of the Collateral on credit or for future delivery, the
Collateral so sold may be retained by Lender until the
selling price is paid by the purchaser thereof, but Lender
shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Collateral so sold and,
in case of any such failure, such Collateral may again be
sold upon like notice.
B. Foreclosure. Instead of exercising the
power of sale herein conferred upon it, Lender may proceed
by a suit or suits at law or in equity to foreclose the
Security Interests and sell the Collateral, or any portion
thereof, under a judgment or decree of a court or courts of
competent jurisdiction. FOR THE PURPOSES OF LOUISIANA
EXECUTORY PROCESS PROCEDURES, GRANTOR DOES HEREBY CONFESS
JUDGMENT IN FAVOR OF LENDER FOR THE FULL AMOUNT OF THE
INDEBTEDNESS. GRANTOR DOES BY THESE PRESENTS CONSENT, AGREE
AND STIPULATE THAT UPON THE OCCURRENCE OF AN EVENT OF
DEFAULT IT SHALL BE LAWFUL FOR LENDER, AND THE GRANTOR DOES
HEREBY AUTHORIZE LENDER, TO CAUSE ALL AND SINGULAR THE
COLLATERAL TO BE SEIZED AND SOLD UNDER EXECUTORY OR ORDINARY
PROCESS, AT LENDER'S SOLE OPTION, WITH OR WITHOUT
APPRAISEMENT, APPRAISEMENT BEING HEREBY EXPRESSLY WAIVED, IN
ONE LOT AS AN ENTIRETY OR IN SEPARATE PARCELS AS LENDER MAY
DETERMINE, TO THE HIGHEST BIDDER, AND OTHERWISE EXERCISE THE
RIGHTS, POWERS AND REMEDIES AFFORDED HEREIN AND UNDER
APPLICATION LOUISIANA LAW. ANY AND ALL DECLARATIONS OF FACT
MADE BY AUTHENTIC ACT BEFORE A NOTARY PUBLIC IN THE PRESENCE
OF TWO WITNESSES BY A PERSON DECLARING THAT SUCH FACTS LIE
WITHIN HIS KNOWLEDGE SHALL CONSTITUTE AUTHENTIC EVIDENCE OF
SUCH FACTS FOR THE PURPOSE OF EXECUTORY PROCESS. GRANTOR
HEREBY WAIVES IN FAVOR OF LENDER: (A) THE BENEFIT OF
APPRAISEMENT AS PROVIDED IN LOUISIANA CODE OF CIVIL
PROCEDURE ARTICLES 2332, 2336, 2723 AND 2724, AND ALL OTHER
LAWS CONFERRING THE SAME; (B) THE DEMAND AND THREE DAYS
DELAY ACCORDED BY LOUISIANA CODE OF CIVIL PROCEDURE ARTICLES
2639 AND 2721; (C) THE NOTICE OF SEIZURE REQUIRED BY
LOUISIANA CODE OF CIVIL PROCEDURE ARTICLES 2293 AND 2721;
(D) THE THREE DAYS DELAY PROVIDED BY LOUISIANA CODE OF CIVIL
PROCEDURE ARTICLES 2331 AND 2722; AND (E) THE BENEFIT OF THE
OTHER PROVISIONS OF LOUISIANA CODE OF CIVIL PROCEDURE
ARTICLES 2331, 2722 AND 2723, NOT SPECIFICALLY MENTIONED
ABOVE.
C. Effect of Securities Laws. The Grantor
recognizes that the Lender may be unable to effect a public
sale of all or part of the Collateral by reason of certain
prohibitions contained in the Securities Act of 1933, as
amended, and applicable state securities laws but may be
compelled to resort to one or more private sales to a
restricted group of purchasers who will be obligated to
agree, among other things, to acquire all or a part of the
Collateral for their own account, for investment, and not
with a view to the distribution or resale thereof. If the
Lender deems it advisable to do so for the foregoing or for
other reasons, the Lender is authorized to limit the
prospective bidders on or purchasers of any of the
Collateral to such a restricted group of purchasers and may
cause to be placed on certificates for any or all of the
Collateral a legend to the effect that such security has not
been registered under the Securities Act of 1933, as
amended, and may not be disposed of in violation of the
provision of said act, and to impose such other limitations
or conditions in connection with any such sale as the Lender
deems necessary or advisable in order to comply with said
act or any other securities or other laws. The Grantor
acknowledges and agrees that any private sale so made may be
at prices and on other terms less favorable to the seller
than if such Collateral were sold at public sale and that
the Lender has no obligation to delay the sale of such
Collateral for the period of time necessary to permit the
registration of such Collateral for public sale under any
securities laws. The Grantor agrees that a private sale or
sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner. If
any consent, approval, or authorization of any federal,
state, municipal or other governmental department, agency or
authority should be necessary to effectuate any sale or
other disposition of the Collateral, or any partial sale or
other disposition of the Collateral, the Grantor will
execute all applications and other instruments as may be
required in connection with securing any such consent,
approval or authorization and will otherwise use its best
efforts to secure same.
Section 19. Limitation on Duty of Lender. Beyond the
exercise of reasonable care in the custody thereof, the
Lender shall have no duty as to any Collateral in its
possession or control or in the possession or control of any
agent or bailee or any income thereon. The Lender shall be
deemed to have exercised reasonable care in the custody of
the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it
accords its own property, and shall not be liable or
responsible for any loss or damage to any of the Collateral,
or for any diminution in the value thereof, by reason of the
act or omission of any broker or other agent or bailee
selected by the Lender in good faith. The Lender shall be
deemed to have exercised reasonable care with respect to any
of the Collateral in its possession if the Lender takes such
action for that purpose as the Grantor shall reasonably
request in writing; but no failure to comply with any such
request shall, of itself, be deemed a failure to exercise
reasonable care.
Section 20. Appointment of Agent. At any time or
times, in order to comply with any legal requirement in any
jurisdiction, the Lender may appoint a bank or trust company
or one or more other Persons with such power and authority
as may be necessary for the effectual operation of the
provisions hereof and may be specified in the instrument of
appointment.
Section 21. Expenses. All sums incurred by the Lender
in enforcing or protecting any of the rights or remedies
under this Agreement, together with interest thereon until
paid at the rate equal the then highest rate of interest
charged on the principal of any of the Indebtedness plus one
percent (1%), shall be additional Indebtedness hereunder and
the Grantor agrees to pay all of the foregoing sums promptly
on demand.
Section 22. Termination. Upon the payment in full of
the Indebtedness, this Agreement shall terminate. Upon
request of the Grantor, the Lender shall deliver the
remaining Collateral (if any) to the Grantor. Upon request
of Grantor, Lender shall execute and deliver to Grantor at
Grantor's expense such termination statements as Grantor may
reasonably request to evidence such termination.
Section 23. Notices. Any notice or demand which, by
provision of this Agreement, is required or permitted to be
given or served to the Grantor and the Lender shall be
deemed to have been sufficiently given and served for all
purposes if made in accordance with the Note.
Section 24. Amendment. Neither this Agreement nor any
provisions hereof may be changed, waived, discharged or
terminated orally or in any manner other than by an
instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination
is sought.
Section 25. Waivers. No course of dealing on the part
of the Lender, its officers, employees, consultants or
agents, nor any failure or delay by the Lender with respect
to exercising any of its rights, powers or privileges under
this Agreement shall operate as a waiver thereof.
Section 26. Cumulative Rights. The rights and
remedies of the Lender under this Agreement shall be
cumulative and the exercise or partial exercise of any such
right or remedy shall not preclude the exercise of any other
right or remedy.
Section 27. Titles of Sections. All titles or
headings to sections of this Agreement are only for the
convenience of the parties and shall not be construed to
have any effect or meaning with respect to the other content
of such sections, such other content being controlling as to
the agreement between the parties hereto.
Section 28. Governing Law. This Agreement is a
contract 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.
Section 29. Successors and Assigns. All covenants and
agreements made by or on behalf of the Grantor in this
Agreement shall bind Grantor's successors and assigns and
shall inure to the benefit of the Lender and its successors
and assigns.
Section 30. Counterparts. This Agreement may be
executed in two or more counterparts, and it shall not be
necessary that the signatures of all parties hereto be
contained on any one counterpart hereof, each counterpart
shall be deemed an original, but all of which when taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Grantor and the Lender have
caused this Agreement to be duly executed as of the date
first above written.
WITNESSES: THE EXPLORATION COMPANY OF LOUISIANA, INC.
_________________________ By:__________________________
Name:____________________ Name:________________________
(Please Print) Title:_______________________
_________________________
Name:____________________
(Please Print)
LENDER:
_________________________ ____________________________
Name:____________________ Robert R. Durkee, Jr.
(Please Print)
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement"), effective
as of January 1, 1999, by and between XCL Ltd., a Delaware
corporation., with offices at 110 Rue Jean Lafitte,
Lafayette, Louisiana 70508 (hereinafter the "Company") and
R. Thomas Fetters, 101 Red Brick Circle, Lafayette, LA 70503
(hereinafter "Consultant").
W I T N E S S E T H:
WHEREAS, Consultant has substantial experience and
ability in oil and gas exploration, development and
production; and
WHEREAS, the Company and Consultant desire to
extend and modify certain terms of a prior nonexclusive
consulting agreement dated June 1, 1997, by entering into
this Agreement.
NOW, THEREFORE, the parties to this Agreement
hereby agree as follows:
ARTICLE I
Rights and Duties Under Consulting Agreement
1.1 Term of Agreement and Duties. The
Company and Consultant agree that for the period commencing
January 1, 1999 and terminating December 31, 2000,
Consultant shall consult with Company management in
connection with all aspects of the Company's exploration,
development and production projects, specifically the
project coordination of the Sichuan Gas Project and
evaluation of other new exploration ventures within China.
Thereafter, this contract shall continue on a month to month
basis, until terminated by either party on thirty days
written notice.
1.2 Compensation. For consulting services
performed by Consultant during the term of this Agreement,
the Company shall pay Consultant the sum of $120,000.00, to
be paid in monthly installments of $5,000.00, subject to
termination of this Agreement as provided herein. This
payment shall constitute full payment for all services
rendered under this Agreement, but is in addition to the
compensation that Consultant is entitled to as a member of
the Board of Directors of the Company. In addition,
Consultant and the Company may, from time to time, enter
into written agreement whereby Consultant shall be entitled
compensation as a finder's fee on certain specifically
identified projects, and any such compensation shall be in
addition to the compensation paid under this agreement.
1.3 Reimbursement of Expenses. The Company
shall reimburse Consultant for all reasonable and necessary
travel, or other related out-of-pocket expenses actually
incurred by him during the term of this Agreement in
carrying out his duties and responsibilities hereunder.
1.4 Time Requirements under Consulting
Agreement. Subject to the foregoing, Consultant agrees
devote the reasonable time necessary to fulfill his
obligations hereunder as agreed to from time to time by
Consultant and the Company.
1.5 Place of Performance of Consulting
Services. Consultant shall perform its services hereunder
in Lafayette, Louisiana and such other places as the Company
may direct.
1.6 Indemnification. The Company shall
indemnify Consultant for all liabilities in connection with
any proceeding arising from services performed pursuant to
this Agreement, other than liability arising from the
Consultants gross negligence or willful misconduct.
1.7 Confidentiality of Company's Business.
Consultant acknowledges that the Company's business is
highly competitive and that the Company's books, records and
documents, the Company's technical information concerning
its properties and prospects, all comprise confidential
business information and trade secrets of the Company and
are valuable, special, and unique proprietary assets of the
Company ("Confidential Information"). Consultant further
acknowledges that protection of Company's Confidential
Information against unauthorized disclosure and use is of
critical importance to the company in maintaining its
competitive position. Accordingly, Consulting hereby agrees
that he will not, at any time during or after the term of
this Agreement, make any disclosure of any Confidential
Information, or make any use thereof, except for the benefit
of, and on behalf of, the Company. However, the
Consultant's obligation under this Section 1.7 shall not
extend to information which is or becomes part of the public
domain or is available to the public by publication or
otherwise than through the Consultant. The provisions of
this Section 1.7 shall survive the termination of this
Agreement. Money damages would not be sufficient remedy for
breach of this Section 1.7 by Consultant, and the Company
shall be entitled to specific performance and injunctive
relief as remedies for such breach or any threatened breach.
Such remedies for a breach of this Section 1.7 by the
Consultant, but shall be in addition to all remedies
available at law or in equity to the Company including the
recovery of damages from the Consultant. For the purposes
of this paragraph, the term Company shall also include
affiliates of the Company.
1.8 Conflict of Interest. Consultant agrees
to use his best efforts, skill and abilities so long as
Consultant's Services are retained hereunder to promote the
best interest of Company and its business. As part of the
consideration for the compensation to be paid to Consultant
hereunder, and as an additional incentive for the Company to
enter into this Agreement, Company and Consultant agree to
the noncompetitive provisions of this Section 1.8. During
the term of this Agreement, Consultant agrees that, unless
prior written approval of the President of the Company is
obtained, Consultant will not directly or indirectly for
himself or for others consult, advise, counsel or otherwise
assist any customer, supplier, or, as to operations in
China, a direct competitor of the Company or any subsidiary
which, in any manner, would have, or is likely to have, an
adverse effect upon the Company or any subsidiary.
Consultant understands that the foregoing restrictions
may limit Consultant's ability to engage in a business
similar to the Company's business during the period provided
for above, but acknowledges that Consultant will receive
sufficiently high remuneration and other benefits from the
Company hereunder to justify such restrictions. The Company
shall be entitled to enforce the provisions of this Section
1.8 by resorting to appropriate legal and equitable action.
It is expressly understood and agreed that the Company
and Consultant consider the restrictions contained in this
Section 1.8 to be reasonable and necessary for the purposes
of preserving and protecting the goodwill and Confidential
Information and proprietary information of the Company.
Nevertheless, if any of the aforesaid restrictions are found
by a court having jurisdiction to be unreasonable, or over
broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions
therein set forth to be modified by such court so as to be
reasonable and enforceable and, as so modified by the court,
to be fully enforced.
1.9 Independent Contractor:
(i) The parties hereby agree that the services
rendered by Consultant in the fulfillment of the
terms and obligations of this Agreement shall be
as an independent contractor and not as an
employee, and with respect thereto, Consultant is
not entitled to the benefits provided by the
Company to its employees including, but not
limited to, group insurance and participation in
the Company s employee benefit and pension plan.
Further, Consultant is not an agent, partner, or
joint venture of the Company. Consultant shall
not represent himself to third persons to be other
than an independent contractor of the Company, nor
shall he permit himself to offer or offer or agree
to incur or assume any obligations or commitments
in the name of the Company or for the Company
without the prior written consent and
authorization of the Company. Consultant warrants
that the services to be provided hereunder will
not cause of conflict with any other duties or
obligations of Consultant to third parties.
Consultant shall not subcontract or assign any of
the work to be performed hereunder without
obtaining the prior written consent of the
Company, provided, however, nothing contained
herein shall prohibit Consultant from
incorporating and rendering services hereunder as
a corporation.
(ii) Consultant shall be responsible for
payment of all taxes including Federal, State and
local taxes arising out of the Consultant's
activities under this Agreement, including by way
of illustration but not limitation, Federal and
State income tax, Social Security tax,
Unemployment Insurance taxes, and any other taxes
or business license fees as required.
1.10 Termination: This Agreement may be
terminated at any time by either party, without cause, and
without any liability to the other party, by providing the
other party ninety (90) days written notice of termination.
In case of termination of this Agreement under this
provision, all compensation under this Agreement shall cease
except as to the pro rata portion of the term of this
Agreement that is prior to the effective date of the
termination.
ARTICLE II
Miscellaneous
2.1 Succession. This Agreement shall inure
to the benefit of and be binding upon the Company, its
successors and assigns, and upon Consultant. Consultant
shall be prohibited from assigning this Agreement without
prior written approval of the Company.
2.2 Notice. Any notice to be given to the
Company hereunder shall be deemed sufficient if addressed to
the Company in writing and personally delivered or mailed by
certified mail to its office at the address set forth above.
Any notice to be given to Consultant hereunder shall be
sufficient if addressed to it in writing and personally
delivered or mailed by certified mail to its address set
forth above. Either party may, by notice as aforesaid,
designate a different address for the receipt of notice.
2.3 Amendment. This Agreement may not be
amended or supplemented in any respect, except by a
subsequent written instrument entered into by both parties
hereto.
2.5 Severability. In the event any
provision of this Agreement shall be held to be illegal,
invalid or unenforceable for any reasons, the illegality,
invalidity, or unenforceablity thereof shall not affect the
remaining provisions hereof, but such illegal, invalid, or
unenforceable provision shall be fully severable and this
Agreement shall be construed and enforced as if the illegal,
invalid, or unenforceable provision had never been included
herein.
2.6 Headings. The titles and headings of
Articles and Sections are included for convenience of
reference only and are not to be considered in connection
with the construction or enforcement of the provisions
hereof.
2.7 Governing Law. This Agreement shall be
governed in all respects by the laws of the State of
Louisiana.
2.8 Prior Agreement. This Agreement
supersedes and replaces the Consulting Agreement dated
effective June 1, 1997, in its entirety from the effective
date of this Agreement forward.
IN WITNESS WHEREOF, the parties have executed this
Agreement effective as of the 1st day of January, 1999.
XCL LTD.
By:___________________________
Title:________________________
__________________________
R. THOMAS FETTERS
FIRST AMENDMENT TO SERVICES AGREEMENT
THIS FIRST AMENDMENT TO SERVICES AGREEMENT ("First
Amendment") dated as of January 15, 1999, is made between XCL
Ltd. ("XCL") and Benjamin B. Blanchet ("Blanchet"), who agree as
follows:
Recitals
WHEREAS, XCL and Blanchet entered into that certain
Services Agreement executed as of August 1, 1997 (the "Services
Agreement") to provide for the furnishing of legal counsel
services by Blanchet to XCL and its subsidiaries; and
WHEREAS, the parties to the Services Agreement have
agreed to amend the Services Agreement to provide that Blanchet
will bill XCL $10,000 per month for up to 80 hours of legal
counsel services per month rather than charging XCL at an hourly
rate of $175 for legal counsel services.
NOW, THEREFORE, in consideration of the foregoing
premises and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
Section 1. Paragraph 1 of the Services Agreement is
hereby amended by deleting the current Paragraph 1 and inserting
in its place the following:
Blanchet is hereby engaged to act
as counsel to XCL to perform such
services as XCL may request of him
in that capacity from time to time,
provided that Blanchet shall not be
required to provide more than 80
hours of services per month under
this agreement in any calendar
month. Blanchet may be granted
such bonuses or other compensation
under this Agreement as the
Company, in its discretion, may
deem appropriate. Amounts due
under this agreement shall be paid
to Blanchet monthly on the last
business day of the month.
Section 2. Paragraph 2 of the Services Agreement is
hereby amended by deleting the current Paragraph 2 and inserting
in its place the following:
Compensation for services under
this agreement will be at the rate
of $10,000 per month. Further, XCL
shall provide Blanchet with
furnished office space and
supplies, reasonable secretarial
assistance, a reasonable library
allowance, professional liability
insurance in an amount agreed to by
the parties, CLE, bar dues and
other similar matters. In
addition, Blanchet shall be
entitled to reimbursement for
expenses incurred by him in the
performance of services under this
agreement.
Section 3. Paragraph 5 of the Services Agreement is
hereby amended by deleting the current Paragraph 5 and inserting
in its place the following:
Blanchet shall not be required to
submit time sheets or otherwise
account for his time under this
agreement.
Section 4. Except as expressly amended hereby, the
Services Agreement shall remain in full force and effect.
Section 5. This First Amendment shall be construed in
accordance with and governed by the laws of the State of
Louisiana.
IN WITNESS WHEREOF, XCL and Blanchet have caused this
First Amendment to be duly executed effective as of the date
first above written.
XCL LTD.
By:________________________________
Name:___________________________
Title:_________________________
________________________________
Benjamin B. Blanchet
CONSENT OF INDEPENDENT CERTIFIED PUBLIC 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 Nos. 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 12,
1999, on our audits of the consolidated financial statements
and financial statement schedule of XCL Ltd. and
Subsidiaries as of December 31, 1998 and 1997, and for the
years ended December 31, 1998, 1997 and 1996, which report
is included in this Annual Report on Form 10-K.
Miami, Florida
April 12, 1999
H.J. GRUY AND ASSOCIATES, INC.
- ------------------------------------------------------------
1200 Smith Street, Suite 3040, Houston, Texas 77002 o FAX
(713) 739-6112 o (713) 739-1000
CONSENT OF H.J. GRUY AND ASSOCIATES, INC.
The Board of Directors
XCL, Ltd.
110 Rue Jean Lafitte
Lafayette, Louisiana 70508
Gentlemen:
We hereby consent to the use of the name H.J. Gruy and
Associates, Inc. and references to H.J. Gruy and Associates,
Inc. and to the references to our letter report dated April
6, 1999 (Proved Reserves, Zhao Dong Block) prepared for XCL,
Ltd. in the filing of the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 of XCL, Ltd.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
/s/ James H. Hartsock
By: __________________________
James H. Hartsock, Phd, PE
Executive Vice President
Houston, Texas
April 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of XCL Ltd. and Subsidiaries for fiscal year
ended December 31, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 288
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 731
<PP&E> 88,021
<DEPRECIATION> 761
<TOTAL-ASSETS> 114,673
<CURRENT-LIABILITIES> 79,771
<BONDS> 0
0
1,283
<COMMON> 234
<OTHER-SE> 27,957
<TOTAL-LIABILITY-AND-EQUITY> 114,673
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 10,601
<OTHER-EXPENSES> (1,702)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,855
<INCOME-PRETAX> (13,754)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,754)
<EPS-PRIMARY> (0.87)
<EPS-DILUTED> (0.87)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of XCL Ltd. and Subsidiaries for fiscal year
ended December 31, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 32,215
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,967
<PP&E> 56,100
<DEPRECIATION> 1,000
<TOTAL-ASSETS> 119,089
<CURRENT-LIABILITIES> 11,568
<BONDS> 0
0
1,196
<COMMON> 217
<OTHER-SE> 39,412
<TOTAL-LIABILITY-AND-EQUITY> 119,089
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,058
<OTHER-EXPENSES> (3,613)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,450
<INCOME-PRETAX> (12,895)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (551)
<CHANGES> 0
<NET-INCOME> (13,446)
<EPS-PRIMARY> (1.03)
<EPS-DILUTED> (1.03)
</TABLE>
H.J. GRUY AND ASSOCIATES, INC.
- -----------------------------------------------------------------
1200 Smith Street, Suite 3040, Houston, Texas 77002 o FAX (713)
739-6112 o (713) 739-1000
April 6, 1999
XCL, Ltd.
110 Rue Jean Laffitte
Lafayette, Louisiana 70508
Re: Proved Reserves
Zhao Dong Block
98-202-108
Gentlemen:
At your request, we estimated the reserves and future net cash
flow as of January 1, 1999, attributable to interests owned by
XCL, Ltd. (XCL) in the Zhao Dong Block, Bohai Bay, Offshore
Peoples Republic of 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
_____________ ______________________
Discounted
Oil at 10%
(Barrels) Nondiscounted Per Year
___________ ____________ ___________
Proved Undeveloped 12,837,000 $ 67,683,935 $ 34,679,634
Apache Payment 0 $ 17,583,567 $ 15,189,347
___________ ____________ ___________
Total Proved 12,837,000 $ 85,267,503 $ 49,868,980
The Apache Payment reflects an agreement by Apache China
Corporation LDC to pay XCL China Ltd. sixteen and two-thirds
percent (16 2/3%) of the value of the Foreign contractor's share
of the proved reserves in the Producing Unit(s) located in C
Block (C field) in the Minghuazhen formation.
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 uncertainty.
Future net cash flow as presented herein is defined as the future
cash inflow attributable to the evaluated interest in accordance
with the production sharing agreement with the Chinese National
Oil and Gas Exploration and Development Corporation (CNODC).
Future costs of abandoning the facilities and wells, and the
restoration of producing properties to satisfy environmental
standards are not deducted from the cash flow. Future net cash
flow as stated in this report is after consideration of Chinese
National Corporate Income Tax.
In the economic projections, prices, operating costs, and
development costs remain constant for the projected life of each
lease.
Reserves have been estimated from volumetric calculations. 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 performance data
become available. The proved reserves in this report conform to
the applicable definitions contained in the Securities and
Exchange Commission Regulation S-X, Rule 4-10(a). The
definitions are included in part as Attachment I.
Extent and character of ownership, oil 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, status, or liabilities, if any, of any current or
possible future detrimental environmental site conditions.
In order to estimate the 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 gas or the cash flows projected will be realized.
Production rates may be subject to regulation and contract
provisions and may fluctuate according to market demand or other
factors beyond the control of the operator. The reserve and cash
flow projections presented in this report may require revision as
additional data become available.
We are unrelated to XCL and we have no interest in the properties
included in the information reviewed by us. In particular:
1. We do not own a financial interest in XCL or its oil and
gas properties.
2. Our fee is not contingent on the outcome of our work or
report.
3. We have not performed other services for or have any
other relationship with XCL that would affect our
independence.
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
by: ______________________________
James H. Hartsock, PhD, PE
Executive Vice President
/s/ James F. Vincelette
by: ______________________________
James F. Vincelette
Executive Vice President
Manager of Geology
/s/ Tommy Elkins
by: ______________________________
Tommy Elkins
Petroleum Consultant
Attachment
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)
GLOSSARY OF TERMS
The following glossary of commonly used terms in the
oil and gas industry 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 attributable
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. 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.
"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 developed reserves" - Reserves that can be expected
to be recovered through existing wells with existing
equipment and operating methods and those reserves that
exist behind the casing of existing wells when the cost of
making such reserves available is relatively small compared
to the cost of a new well.
"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 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.
"proved undeveloped reserves" - 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 areas and in the same reservoir.
"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, proved developed or proved
undeveloped.
"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.