UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the
[X] Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997
OR
Transition Report Pursuant to Section 13 or 15(d) of
[ ] the Securities Exchange Act of 1934
Commission File No. 1-10669
XCL Ltd.
(Exact name of registrant as specified in its charter)
Delaware 51-0305643
(State of Incorporation) (I.R.S. Employer
Identification Number)
110 Rue Jean Lafitte, Lafayette, LA 70508
(Address of principal executive offices) (Zip Code)
318-237-0325
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
297,342,240 shares Common Stock, $.01 par value were
outstanding on May 13, 1997.
XCL LTD.
TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
XCL Ltd. and Subsidiaries
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
March 31 December 31
Assets 1997 1996
------ -------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 278 $ 113
Accounts receivable, net 47 23
Prepaid expenses 201 212
-------- --------
Total current assets 526 348
-------- --------
Property and equipment:
Oil and gas (full cost method):
Proved and unproved properties under
development not being amortized 35,742 34,305
Land, at cost - 135
Other 1,306 2,492
-------- -------
37,048 36,932
Accumulated depreciation, depletion and
amortization (1,085) (1,491)
-------- -------
35,963 35,441
-------- -------
Investments 2,652 2,383
Assets held for sale 21,058 21,058
Deferred charges and other assets 1,877 1,634
-------- --------
Total assets $ 62,076 $ 60,864
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued costs $ 4,753 $ 3,880
Accounts payable and accrued costs due to
joint venture partner 4,709 4,202
Royalty and production taxes payable 14 21
Dividends payable 928 928
Current maturities of limited recourse debt 5,324 5,091
Collateralized credit facility 17,279 17,279
Current maturities of secured subordinated debt 15,000 15,000
Other current maturities - 652
------- -------
Total current liabilities 48,007 47,053
------- -------
Long-term debt, net of current maturities
- -
Other non-current liabilities 2,683 2,770
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock-$1.00 par value; authorized
2,400,000 shares; issued shares of
756,352 at March 31, 1997 and 669,411 at
December 31, 1996-liquidation preference of
$64.2 million at March 31, 1997 756 669
Common stock-$.01 par value; authorized 500
million shares; issued shares of 292,289,945
at March 31, 1997 and 285,754,151 at
December 31, 1996 2,923 2,858
Common stock held in treasury - $.01 par value;
1,042,065 shares at March 31, 1997 and
December 31, 1996 (10) (10)
Additional paid-in capital 229,673 226,956
Accumulated deficit (221,956) (219,432)
-------- --------
Total shareholders' equity 11,386 11,041
-------- --------
Total liabilities and
shareholders' equity $ 62,076 $ 60,864
======== ========
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Three Months Ended
March 31
------------------
1997 1996
---- ----
(Unaudited)
Oil and gas revenues from properties held for sale $ 85 $ 576
------- -------
Costs and operating expenses:
Operating (including marketing) 67 152
Depreciation and amortization 18 56
Depletion - oil and gas assets held for sale 38 276
General and administrative 720 1,075
Taxes, other than income 58 74
------- -------
901 1,633
------- -------
Operating loss (816) (1,057)
------- -------
Other income (expense):
Interest expense, net of amounts capitalized (634) (636)
Other, net 239 52
------- ------
(395) (584)
------- ------
Net loss (1,211) (1,641)
Preferred stock dividends (1,404) (1,191)
------- -------
Net loss attributable to common stock $ (2,615) $ (2,832)
======= =======
Net loss per common and common equivalent share $ (.01) $ (.01)
======= =======
Average number of common and common equivalent
shares outstanding 288,058 256,807
======= =======
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
Three Months Ended
March 31
-------------------
1997 1996
---- ----
(Unaudited)
Cash flows from operating activities:
Net loss $ (1,211) $ (1,641)
-------- --------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation, depletion and amortization 56 332
Change in assets and liabilities:
Accounts receivable (24) 453
Prepaid expenses 11 (5)
Accounts payable and accrued costs 593 (480)
Accounts payable and accrued costs due to
joint venture partner 507 387
Royalty and production taxes payable (7) (23)
Other, net (1) 36
-------- -------
Total adjustments 1,135 700
-------- -------
Net cash used in operating activities (76) (941)
-------- -------
Cash flows from investing activities:
Capital expenditures (893) (1,123)
Investments (269) (160)
Proceeds from sale of assets 759 5,700
Other 5 24
-------- -------
Net cash provided by (used in)
investing activities (398) 4,441
-------- -------
Cash flows from financing activities:
Proceeds from sales of common stock 600 510
Proceeds from loan 216 -
Payment for treasury stock - (141)
Proceeds from issuance of preferred stock 157 282
Proceeds from exercise of warrants and options 612 -
Payment of long-term debt (652) (5,352)
Payment of preferred stock dividends (154) -
Stock issuance costs and other (140) (43)
-------- ------
Net cash provided by (used in)
financing activities 639 (4,744)
-------- ------
Net increase (decrease) in cash and cash equivalents 165 (1,244)
Cash and cash equivalents at beginning of period 113 1,610
-------- ------
Cash and cash equivalents at end of period $ 278 $ 366
======== =======
The accompanying notes are an integral part of these financial statements.
XCL Ltd. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(1) Basis of Presentation
The consolidated financial statements at March 31,
1997, and for the three months then ended have been prepared
by the Company, without audit, pursuant to the Rules and
Regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted pursuant to such Rules and Regulations. The
Company believes that the disclosures are adequate to make
the information presented herein not misleading. These
consolidated financial statements should be read in
conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. In the opinion of
management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the
financial position of XCL Ltd. and subsidiaries as of March
31, 1997, and 1996, and the results of their operations for
the three months ended March 31, 1997 and 1996, have been
included. Certain reclassifications have been made to prior
period financial statements to conform to current year
presentation. These reclassifications had no effect on net
loss or shareholders equity. The results of the Company's
operations for such interim periods are not necessarily
indicative of the results for the full year.
Loss per common and common equivalent share has been
computed by dividing net loss attributable to common stock
by the weighted average number of common and common share
equivalents outstanding.
(2) Liquidity and Capital Resources
At March 31, 1997, the Company had an operating cash
balance of $278,000 and a working capital deficit of $47.5
million, which includes $17.3 million owed to ING (U.S.)
Capital Corp. ("ING") under its Credit Facility, $15.0
million of Secured Subordinated Debt, and $5.3 million in
limited recourse debt collateralized only by the Lutcher
Moore Tract. On March 31, 1997, the Company's office
building was sold for $900,000, $750,000 in cash and a note
for $150,000. The mortgage debt on the building in the
amount of $652,000 was repaid in full with interest and
prepayment penalties thereon. The note bears interest at
9.25% and is of a 22 month term. Contemporaneously with the
sale, the Company leased back one floor of the two story
building for a 22 month term.
The Company has incurred losses in each of its last
five fiscal years and the quarter ended March 31, 1997, and
anticipates it will continue to do so in fiscal 1997 and
1998 because production from the Zhao Dong Block is not
projected to commence until late 1998. As of May 14, 1997,
the Company is in the process of offering for sale Units of
Senior Secured Discount Notes due 2007 (face amount $70
million, net $56 million) and Common Stock Purchase Warrants
(the "Offering"). Concurrently with the Offering, the
Company is offering $25 million of units comprised of
preferred stock and warrants to acquire Common Stock (the
"Concurrent Equity Offering"). The closing of both offerings
are contingent on each other. The successful completion of
the offerings, subsequent release of certain proceeds from a
cash collateral account, and the sale of domestic properties
will enable the Company to meet all of its obligations
including (1) certain exploration and development costs of
the Zhao Dong Block, (2) repayment of outstanding debt and
(3) payment of other current liabilities. In the event such
offerings are not successful the Company believes other
means of obtaining working capital are available based on
the estimated future nondiscounted net cash flow of $143
million ($80 million discounted) from proved China reserves,
as reported in the independent engineering report of H.J.
Gruy and Associates, Inc. The form and timing of these
alternatives are not determinable at this time and there can
be no assurance they will occur and, if they do occur, would
not significantly reduce the future potential revenue from
the Company's share of oil revenues. In addition, the
Company's efforts to secure additional working capital will
be impaired if its Common Stock is delisted from the AMEX.
See Note 6.
Longer term liquidity is dependent on the Company's
commencement of production in China and continued access to
capital markets, including its ability to issue additional
debt and equity securities, which in certain cases may
require the consent of the holders of the Senior Secured
Discount Notes and holders of the preferred stock should the
offerings be successfully completed, or the consent of ING,
the holders of the Company's Secured Subordinated Debt and
the holders of preferred stock should it not. By
shareholder vote on July 30, 1996, the shareholders approved
an increase of 150,000,000 authorized shares of Common Stock
and 1,200,000 authorized shares of preferred stock.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.9 million pounds sterling
(U.K.) ($4.75 million) annually and currently insufficient
liquidity exists to continue to pay such amounts. The
Company declared the Series A Preferred Stock dividend
payable June 30, 1995. A portion of this dividend was paid
with shares of Common Stock and approximately $900,000
remains to be paid in cash. As the Company was unable to pay
this dividend by June 30, 1996, the holders of the Series A
Preferred Stock can now demand Board of Director
representation. The December 31, 1995 dividend payment on
the Series A Preferred Stock was declared payable in
additional shares of Series A Preferred Stock and in
February and March 1997, 63,595 shares of Series A Preferred
Stock were issued. The Board of Directors elected not to
declare the dividends payable June 30, 1996 and December 31,
1996.
The Company was, to April 10, 1997, in default under
terms of its Credit Facility with ING and, by virtue of
certain cross default provisions, the Secured Subordinated
Debt. By agreement dated April 10, 1997, as amended, (the
"Forbearance Agreement") ING, in consideration of the
Company's commitment to grant ING or its designee(s)
warrants to acquire 7 million shares of Common Stock, agreed
to forbear taking any action pending the completion of the
offerings and release of such funds from a cash collateral
account. The proceeds from the Offering are expected to be
used to repay such debt. Forbearance has been granted until
May 31, 1997 when the offerings is expected to be completed.
The Offering proceeds are then to be placed in a cash
collateral account and the Forbearance Agreement extended
until December 1, 1997, the anticipated date by which the
Joint Management Committee of the Zhao Dong Block is
expected to have approved the development plan for the C-D
Field of the Zhao Dong Block.
By agreement with Apache effective December 13, 1996,
the D-2 well, which the Company spudded in November 1996,
has been substituted for Apache's obligation to carry the
Company on a fourth exploration well and amounts due to
Apache were reduced accordingly. On April 10, 1997, the
remaining amount due Apache was further reduced by a payment
of $3.1 million leaving a balance due of approximately
$979,790, which amount is in dispute and is presently in
arbitration. The Company raised the $3.1 million through
the placement of promissory notes of XCL-China Ltd. and
warrants to acquire Common Stock of the Company with a group
of institutional and accredited investors who are currently
major shareholders in the Company (the "XCL-China Debt").
In addition to capital commitments to fund the Zhao
Dong Block development (estimated to be $63,589,000 to fully
develop the C-D Field), the Company has capital requirements
for its lubricating oil and coalbed methane projects.
As a result of the substantial capital requirements
described above, and the Company's recurring net losses, the
report of the Company's independent accountants dated April
10, 1997, as of, and for the year ended December 31, 1996,
contains an explanatory paragraph regarding the ability of
the Company to continue as a going concern.
(3) Supplemental Cash Flow Information
There were no income taxes paid during the three month
periods ended March 31, 1997 and 1996.
Interest and associated capitalized costs for the three
month periods ended March 31, 1997 and 1996 was $549,000 for
each year. Interest paid during the three month periods
ended March 31, 1997 and 1996 amounted to $106,000 and
$870,000, respectively.
(4) Debt
Long-term debt consists of the following (000's):
March 31 December 31
1997 1996
---- ----
Collateralized credit facility $ 17,279 $ 17,279
Secured Subordinated Debt 15,000 15,000
Office building mortgage - 652
------- -------
32,279 32,931
Lutcher Moore Group Limited Recourse Debt 5,324 5,091
------- -------
37,603 38,022
Less current maturities:
Lutcher Moore Group Limited Recourse Debt (5,324) (5,091)
Collateralized credit facility (17,279) (17,279)
Secured Subordinated Debt (15,000) (15,000)
Office building mortgage - (652)
------- -------
$ - $ -
======= =======
Substantially all of the Company's assets collateralize
these borrowings. Accounts payable and accrued expenses
include interest accrued at March 31, 1997, of approximately
$2.5 million.
Credit Facility
- ---------------
The Company failed to make a principal payment of
$664,008 due January 2, 1997 and interest payments of
$248,626 due October 1, 1996, $412,896 due January 2, 1997
and $395,137 due April 1, 1997 to ING, resulting in a
default under the Credit Facility and, by virtue of certain
cross default provisions, the Secured Subordinated Debt. By
letter dated January 9, 1997, ING acknowledged that failure
to make such principal and interest payments constituted an
event of default and advised that such past due payments
bear interest at the Late Payment Rate in effect on such
date. From January 2, 1997, the Late Payment rate has been
12.25%. Under the terms of the Forbearance Agreement between
the Company, XCL-China and ING, ING agreed that it would not
accelerate the maturity of, or commence any foreclosure
procedures to collect, the indebtedness under the Credit
Facility until May 31, 1997. Further, if the Offering has
been closed by that date, ING's agreement to forbear will be
extended to December 1, 1997. The Forbearance Agreement
does not operate to remove any default under the Credit
Facility, and ING will be free to reserve all of its legal
and equitable rights at the end of the forbearance period.
In addition, the Forbearance Agreement requires that the
proceeds of the Concurrent Equity Offering be used first to
pay the costs of issuance associated with both the
Concurrent Equity Offering and the Offering and to repay the
XCL-China Debt ($3.1 million borrowed on April 10, 1997 from
a group of institutional and accredited investors and
evidenced by promissory notes of XCL-China); second, to pay
current obligations of XCL-China and to reestablish a
reserve for such obligations (under terms reasonably
acceptable to ING) pending release of the proceeds of the
Offering; third, to pay reasonable and necessary general and
administrative expenses through December 1, 1997 (not to
exceed $2,750,000); and fourth, to the extent that any
proceeds of the Concurrent Equity Offering remain, to be
applied against the indebtedness under the Credit Facility.
As consideration for the Forbearance Agreement, the Company
issued warrants to ING, pledged the stock of certain
subsidiaries, and provided ING with a guaranty of the
indebtedness under the Credit Facility by XCL-China. In
addition, the Credit Facility was amended to provide that
proceeds from any direct or indirect sale of the Lutcher
Moore Tract are to be used first to pay debt on the Lutcher
Moore Tract (up to $5.2 million plus accrued interest),
second to pay the XCL-China Debt, or if the XCL-China Debt
has been paid, to establish a reserve of up to $3.1 million
for current and future obligations of XCL-China incurred on
or before December 1, 1997, and third to pay the
indebtedness under the Credit Facility.
Secured Subordinated Debt
- -------------------------
During April 1993, the Company issued in a private
placement, $15 million of Secured Subordinated Note Units.
Each of these 40 units consisted of a $375,000 note payable,
warrants to acquire 100,000 shares of the Company's Common
Stock at $0.90 per share (which were previously issued to a
group of banks in a prior credit facility), a net profits
interest in certain exploration leases and a contractual
interest in the net revenues of XCL-China, under the
Contract relating the Zhao Dong Block, which was not
material. This borrowing bears interest at 12%, if paid
with cash, or 14%, if the Company elects to use Common
Stock, with payment at 125% of the interest due if paid in
unregistered shares. It is collateralized by a second
mortgage on all the Company's producing properties and a
second lien on the stock of XCL-China. Payment on this debt
cannot be made prior to payment on the indebtedness under
the Credit Facility. The terms of the Secured Subordinated
Debt provide that an event of default under the Credit
Facility which has not been waived and permits ING to
accelerate the maturity of its indebtedness is an event of
default on the Secured Subordinated Debt. In the case of an
event of default, the holders of the Secured Subordinated
Debt cannot take any enforcement action (including
acceleration of the Secured Subordinated Debt) while the
Credit Facility is outstanding until the lapse of a 180-day
blocking period. A blocking period commences with deliver
of a blocking notice by holders of 70 percent of the Secured
Subordinated Debt. No such blocking notice has been given.
As noted above, an event of default exists under the Credit
Facility, therefore an event of default exists with respect
to the Secured Subordinated Debt.
Lutcher Moore Group Limited Recourse Debt
- -----------------------------------------
In connection with the Lutcher Moore Tract, the
Company's indirect ownership of such tract was subjected to
a first mortgage, with a current principal balance of
approximately $2.3 million, and a number of sellers' notes,
with an aggregate current principal balance of approximately
$3.0 million (the "Lutcher Moore Tract").
(5) Preferred Stock and Common Stock
As of March 31, 1997, the Company had the following
shares of Preferred Stock issued and outstanding:
1997 Dividends (In Thousands)
--------------------------------
Liquidation
Shares Value Declared In Arrears Total
------ ----------- -------- ---------- -----
Series A 641,359 $ 52,745,364(1) $ - $ 1,171 $ 1,171
Series B 44,954 4,495,400 111 - 111
Series E 48,982 4,898,200 - 60 60
Series F 21,057 2,105,700 - 62 62
------- ------------ ------- ------- -------
756,352 $ 64,244,664 $ 111 $ 1,293 $ 1,404
__________
(1) 50 pounds sterling (U.K.) per share (U.K. pound
sterling = U.S. $1.6448 at March 31, 1997).
Series A Preferred Stock
- ------------------------
During February 1997, the Company sold 13,458 shares of
Series A Preferred Stock for $157,240. The proceeds were
used to pay the withholding taxes and fractional interests
with respect to the December 31, 1995 dividend payment. In
March 1997, the Company issued an additional 50,137 shares
of Series A Preferred Stock in payment of this dividend,
therefore fulfilling its obligation for such dividend
period.
During March 1997, 39 shares of Series A Preferred
Stock were converted into 819 shares of Common Stock.
Series B Preferred Stock
- ------------------------
During the first quarter of 1997, 1 million shares of
Series B Redemption Stock were sold and the proceeds applied
against accrued dividends.
Series E Preferred Stock
- ------------------------
In January 1997, the Company issued 2,328 shares of
Series E Preferred Stock in payment of the December 31, 1996
dividend.
Series F Preferred Stock
- ------------------------
In December 1996, XCL authorized the issuance of up to
50,000 shares of a new series of Preferred Stock designated
the Series F, Cumulative Convertible Preferred Stock, $1.00
par value per share ("Series F Preferred Stock") to two
existing stockholders of XCL. During February 1997, the
Company issued a total of 21,057 shares of Series F
Preferred Stock in consideration of $225,000, assignment of
1,408,125 shares of Common Stock and 2,600,000 warrants to
purchase Common Stock and the release by the purchasers of
certain claims against the Company arising from the
Company's inability to perform under the terms of existing
agreements. Each share of Series F Preferred Stock is
convertible, at the holder's option, into 400 shares of
Common Stock. The Series F Preferred Stock bears a fixed
cumulative dividend at the annual rate of $12 per share,
payable semi-annually in cash, or, at the XCL's election, in
additional shares of Series F Preferred Stock, subject to an
increase in the event XCL fails to pay any regularly
scheduled dividend.
Common Stock
- ------------
During February 1997, the Company offered to reduce the
exercise price on a total of 5.52 million warrants issued in
connection with the Regulation S offerings conducted by
Rauscher Pierce & Clark, as Placement Agent, in December
1995 and March 1996, in exchange for their immediate
exercise of such warrants. The exercise price was reduced
from $0.25 to $0.22 per share. One holder of 2.64 million
warrants accepted the offer and at March 31, 1997, had
exercised 1,703,100 warrants. The Placement Agent agreed to
accept $0.01 per share commission rather than $0.02 as
provided for in the Placement Agency Agreement resulting in
the Company receiving $0.21 per share net.
(6) Commitments and Contingencies and Subsequent Events
Other commitments, contingencies and subsequent events
include:
o The Company acquired the rights to the exploration,
development and production of the Zhao Dong Block by
executing a Production Sharing Agreement with CNODC in
February 1993. Under the terms of the Production Sharing
Agreement, the Company and its partner are responsible for
all exploration costs. If a commercial discovery is made,
and if CNODC exercises its option to participate in the
development of the field, all development and operating
costs and related oil and gas production will be shared up
to 51 percent by CNODC and the remainder by the Company and
its partner.
The Production Sharing Agreement includes the
following additional principal terms:
The Production Sharing Agreement is basically
divided into three periods: the Exploration
period, the Development period and the Production
period. Work to be performed and expenditures to
be incurred during the Exploration period, which
consists of three phases totaling seven years from
May 1, 1993, are the exclusive responsibility of
the Contractor (the Company and its partner as a
group). The Contractor's obligations in the three
exploration phases are as follows:
1. During the first three years, the
Contractor is required to drill three wildcat
wells, perform seismic data acquisition and
processing and expend a minimum of $6 million
(The Contractor has drilled two wildcat
wells, satisfied the seismic acquisition and
minimum expenditure requirements and has
received an extension allowing the drilling
of the third wildcat well during the first
year of the second exploration phase. Upon
completion of drilling, logging and, if
applicable, testing of the F-1 well now
drilling, the first phase commitments will
have been met.);
2. During the next two years, the Contractor
is required to drill two wildcat wells,
perform seismic data acquisition and
processing and expend a minimum of $4 million
(The Contractor has elected to proceed with
the second phase of the Contract. The
seismic data acquisition requirement for the
second phase has been satisfied.);
3. During the last two years, the Contractor
is required to drill two wildcat wells and
expend a minimum of $4 million.
The Production Sharing Agreement may be terminated
by the Contractor at the end of each phase of the
Exploration period, without further obligation.
o By letter dated November 8, 1996, the AMEX informed the
Company that they are reviewing the Company's continued
listing eligibility because:
(1) the Company has incurred net losses for
each of the past five fiscal years and the
first six months of the current fiscal year;
(2) the Company has disclosed that it does
not have sufficient cash flow from operations
to meet its obligations;
(3) the Company is in default of payment of
certain debt;
(4) the Company's independent accountants in
their report on the Company's 1995 financial
statements noted that as a consequence of the
matters discussed above, substantial doubt
has been raised as to the Company's ability
to continue as a going concern.
On December 16, 1996, the Company met with
representatives of the AMEX to present information
in support of a continued listing. By letter
dated January 16, 1997, the AMEX notified the
Company that it has determined to defer further
consideration of the Company's continued listing
eligibility until it has reviewed the Company's
1996 Form 10-K, and the further review of the
Company's favorable progress in satisfying
guidelines for continued listing.
o On April 10, 1997, a wholly owned subsidiary of the
Company sold $3.1 million of notes and 10.1 million
warrants to purchase a like number of shares of Common Stock
of the Company at $0.01 per share. These notes are expected
to be repaid from proceeds of the Concurrent Equity
Offering. The proceeds from these notes were immediately
paid to Apache for unpaid cash calls.
o The Company has future commitments of $1.4 million
associated with its joint venture contract to enter the
lubricating oil business in China.
o The Company is in dispute over a 1992 tax assessment by
the Louisiana Department of Revenue for the years 1987
through 1991 in the approximate amount of $2.5 million
including penalties and interest. It is the Company's
intent to defend these assessments vigorously and the
Company believes 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. One suit alleges actual
damage of $580,000 plus additional amounts that could result
form 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 some
of which arise in the ordinary course of its business. In
the opinion of Management, the amount of ultimate liability
with respect to these actions will not materially affect the
financial position or results of operations of the Company.
o The Company is subject to existing federal, state and
local laws and regulations governing environmental quality
and pollution control. Although management believes that
such operations are in general compliance with applicable
environmental regulations, risks of substantial costs and
liabilities are inherent in oil and gas operations, and
there can be no assurance that significant costs and
liabilities will not be incurred.
XCL LTD. AND SUBSIDIARIES
March 31, 1997
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Outlook
- -------
Cautionary Statement Pursuant to Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995.
This report contains "forward-looking statements"
within the meaning of the federal securities laws. These
forward-looking statements include, among others, statements
concerning the Company's outlook for 1997 and beyond, the
Company's expectations as to funding its capital
expenditures and other statements of expectations, beliefs,
future plans and strategies, anticipated events or trends,
and similar expressions concerning matters that are not
historical facts. The forward-looking statements in this
report are subject to risks and uncertainties that could
cause actual results to differ materially from those
expressed in or implied by the statements.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1997, the Company had an operating cash
balance of $278,000 and a working capital deficit of $47.5
million, which includes $17.3 million owed to ING (U.S.)
Capital Corp. ("ING") under its Credit Facility, $15.0
million of Secured Subordinated Debt, and $5.3 million in
limited recourse debt collateralized only by the Lutcher
Moore Tract. On March 31, 1997, the Company's office
building was sold for $900,000, $750,000 in cash and a note
for $150,000. The mortgage debt on the building in the
amount of $652,000 was repaid in full with interest and
prepayment penalties thereon. The note bears interest at
9.25% and is of a 22 month term. Contemporaneously with the
sale, the Company leased back one floor of the two story
building for a 22 month term.
The Company has incurred losses in each of its last
five fiscal years and the quarter ended March 31, 1997, and
anticipates it will continue to do so in fiscal 1997 and
1998 because production from the Zhao Dong Block is not
projected to commence until late 1998. As of May 14, 1997,
the Company is in the process of offering for sale Units of
Senior Secured Discount Notes due 2007 (face amount $70
million, net $56 million) and Common Stock Purchase Warrants
(the "Offering"). Concurrently with the Offering, the
Company is offering $25 million of units comprised of
preferred stock and warrants to acquire Common Stock (the
"Concurrent Equity Offering"). The closing of both offerings
are contingent on each other. The successful completion of
the offerings, subsequent release of certain proceeds from a
cash collateral account, and the sale of domestic properties
will enable the Company to meet all of its obligations
including (1) certain exploration and development costs of
the Zhao Dong Block, (2) repayment of outstanding debt and
(3) payment of other current liabilities. In the event such
offerings are not successful the Company believes other
means of obtaining working capital are available based on
the estimated future nondiscounted net cash flow of $143
million ($80 million discounted) from proved China reserves,
as reported in the independent engineering report of H.J.
Gruy and Associates, Inc. The form and timing of these
alternatives are not determinable at this time and there can
be no assurance they will occur and, if they do occur, would
not significantly reduce the future potential revenue from
the Company's share of oil revenues. In addition, the
Company's efforts to secure additional working capital will
be impaired if its Common Stock is delisted from the AMEX.
See Note 6.
Longer term liquidity is dependent on the Company's
commencement of production in China and continued access to
capital markets, including its ability to issue additional
debt and equity securities, which in certain cases may
require the consent of the holders of the Senior Secured
Discount Notes and holders of the preferred stock should the
offerings be successfully completed, or the consent of ING,
the holders of the Company's Secured Subordinated Debt and
the holders of preferred stock should it not. By
shareholder vote on July 30, 1996, the shareholders approved
an increase of 150,000,000 authorized shares of Common Stock
and 1,200,000 authorized shares of preferred stock.
The Company's Series A Preferred Stock dividend
requirements are approximately 2.9 million pounds sterling
(U.K.) ($4.75 million) annually and currently insufficient
liquidity exists to continue to pay such amounts. The
Company declared the Series A Preferred Stock dividend
payable June 30, 1995. A portion of this dividend was paid
with shares of Common Stock and approximately $900,000
remains to be paid in cash. As the Company was unable to pay
this dividend by June 30, 1996, the holders of the Series A
Preferred Stock can now demand Board of Director
representation. The December 31, 1995 dividend payment on
the Series A Preferred Stock was declared payable in
additional shares of Series A Preferred Stock and in
February and March 1997, 63,595 shares of Series A Preferred
Stock were issued. The Board of Directors elected not to
declare the dividends payable June 30, 1996 and December 31,
1996.
The Company was, to April 10, 1997, in default under
terms of its Credit Facility with ING and, by virtue of
certain cross default provisions, the Secured Subordinated
Debt. By agreement dated April 10, 1997, as amended, (the
"Forbearance Agreement") ING, in consideration of the
Company's commitment to grant to ING or its designee(s)
warrants to acquire 7 million shares of Common Stock, agreed
to forbear taking any action pending the completion of the
offerings and release of such funds from a cash collateral
account. The proceeds from the Offering are expected to be
used to repay such debt. Forbearance has been granted until
May 31, 1997 when the offerings is expected to be completed.
The Offering proceeds are then to be placed in a cash
collateral account and the Forbearance Agreement extended
until December 1, 1997, the anticipated date by which the
Joint Management Committee of the Zhao Dong Block is
expected to have approved the development plan for the C-D
Field of the Zhao Dong Block.
By agreement with Apache effective December 13, 1996,
the D-2 well, which the Company spudded in November 1996,
has been substituted for Apache's obligation to carry the
Company on a fourth exploration well and amounts due to
Apache were reduced accordingly. On April 10, 1997, the
remaining amount due Apache was further reduced by a payment
of $3.1 million leaving a balance due of approximately
$979,790, which amount is in dispute and is presently in
arbitration. The Company raised the $3.1 million through
the placement of promissory notes of XCL-China Ltd. and
warrants to acquire Common Stock of the Company with a group
of institutional and accredited investors who are currently
major shareholders in the Company (the "XCL-China Debt").
In addition to capital commitments to fund the Zhao
Dong Block development (estimated to be $63,589,000 to fully
develop the C-D Field), the Company has capital requirements
for its lubricating oil and coalbed methane projects.
As a result of the substantial capital requirements
described above, and the Company's recurring net losses, the
report of the Company's independent accountants dated April
10, 1997, as of, and for the year ended December 31, 1996,
contains an explanatory paragraph regarding the ability of
the Company to continue as a going concern.
Other General Considerations
- ----------------------------
The Company believes that inflation has had no material
impact on the Company's sales, revenues or income during the
reporting periods. Drilling costs and costs of other
related services during the relevant periods have remained
stable.
The Company is subject to existing federal, state and
local laws and regulations governing environmental quality
and pollution control. Although management believes that
such operations are in general compliance with applicable
environmental regulations, risks of substantial costs and
liabilities are inherent in oil and gas operations, and
there can be no assurance that significant costs and
liabilities will not be incurred.
New Accounting Pronouncement
- ----------------------------
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
"SFAS No. 128 Earnings Per Share" effective for financial
statements issued for periods ending after December 15,
1997. The board has also issued Statement No. 129
"Disclosure of Information About Capital Structure" also
effective the same date. The Company does not believe the
effect of adopting these statements will have a material
impact on the Company.
Results of Operations
- ---------------------
During the three month periods ended March 31, 1997 and
March 31, 1996, the Company incurred net losses of $1.2
million and $1.6 million, respectively.
Oil and gas revenues for the three month period ended
March 31, 1997, were $85,000 compared to $576,000 during the
corresponding period in 1996. Revenues will continue to
decline as the Company completes its announced program of
selling substantially all of its U.S. producing properties.
Interest expense remained relatively unchanged in the first
quarter of 1997 as compared to the corresponding period in
1996..
As the Company continues to focus its resources on
exploration and development of the Zhao Dong Block future
oil and gas revenues will initially be directly related to
the degree of drilling success experienced in the Zhao Dong
Block. The Company does not anticipate significant
increases in its oil and gas production in the short-term
and expects to incur operating losses until such time as
sufficient revenues from the China projects are realized
which exceed operating costs.
XCL LTD. AND SUBSIDIARIES
March 31, 1997
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Other than as disclosed in the Company's Annual Report
on Form 10-K, there are no material pending legal
proceedings to which the Company or any of its subsidiaries
is a party or to which any of their properties are subject.
Item 2(c). Changes in Securities
o On April 10, 1997, in connection with obtaining a loan
for XCL-China Ltd. of $2.9 million, the Company granted an
aggregate of 9,441,743 warrants to a group of four limited
partnerships managed by Kayne Anderson Investment
Management, Inc. ("KAIM") (6,186,020); J. Edgar Monroe
Foundation (325,580); Estate of J. Edgar Monroe (976,740);
Boland Machine & Mfg. Co., Inc. (325,580); and Construction
Specialists, Inc. d/b/a Con-Spec, Inc. (1,627,900),
entitling such lenders the right to acquire 9,441,743 shares
of Common Stock at $0.01 per share, exercisable on or before
April 9, 2002. The warrant agreements include a provision
that should the Company not have a sufficient number of
shares of Common Stock reserved at the time of exercise of
the warrants, the warrants are exercisable into a new series
of preferred stock which will be created by May 10, 1997,
and the shares of which will be reserved for exercise of
such warrants. All proceeds of this financing were applied
to reduce the Company's indebtedness to Apache incurred in
connection with Zhao Dong Block operations.
o On February 10, 1997, the Company issued an aggregate
of 1,874,467 warrants to purchase 1,874,467 shares of Common
Stock to T. Jerald Hanchey (1,632,807 warrants) and Donald
A. and Joanne R. Westerberg (241,660 warrants) in connection
with their purchase of the Company's remaining interest
(41.089%) in the Seller Notes securing the Lutcher Moore
Tract ($217,961 in principal) for $193,916 net after
discount. The warrants are exercisable at $0.25 per share
and expire on December 31, 1999.
o On January 9, 1997, the Company accepted subscriptions
for an aggregate of 21,057 shares of Series F Preferred
Stock, issued in February to Mitch Leigh (18,448 shares);
Abby Leigh (1,731 shares) and Arthur Rosenbloom (878 shares)
at $65.00/share, in exchange for $225,000 in cash,
cancellation of a consulting agreement between the Company
and Mitch Leigh, surrender by Mitch Leigh of Common Stock
and Warrants issued in connection with the consulting
agreement, surrender by Mitch Leigh and Abby Leigh of rights
to acquire units of registered Common Stock and Warrants,
surrender of certain registration rights covering 3,000,000
shares; and surrender by Arthur Rosenbloom of certain shares
of Common Stock and Warrants issued in connection with
compensation for past fundraising activities, surrender of
rights to acquire units of registered Common Stock and
Warrants and certain registration rights covering 75,000
shares.
o On January 2, 1997, the Company issued 2,328 shares of
Series E Preferred Stock to the holders thereof in lieu of a
cash dividend totaling $233,270 payable December 31, 1996,
calculated pursuant to the terms of the Series E Preferred
Stock. The Series E Preferred Stock has a face value of
$100/share.
Item 3. Defaults Upon Senior Securities.
(a) Debt
The Company failed to make a principal payment of
$664,008 due January 2, 1997 and interest payments of
$248,626 due October 1, 1996, $412,896 due January 2, 1997
and $395,137 due April 1, 1997 to ING, resulting in a
default under the Credit Facility and, by virtue of certain
cross default provisions, the Secured Subordinated Debt. By
letter dated January 9, 1997, ING acknowledged that failure
to make such principal and interest payments constituted an
event of default and advised that such past due payments
bear interest at the Late Payment Rate in effect on such
date. From January 2, 1997, the Late Payment rate has been
12.25%. Under the terms of the Forbearance Agreement between
the Company, XCL-China and ING, ING agreed that it would not
accelerate the maturity of, or commence any foreclosure
procedures to collect, the indebtedness under the Credit
Facility until May 31, 1997. Further, if the Offering has
been closed by that date, ING's agreement to forbear will be
extended to December 1, 1997. The Forbearance Agreement
does not operate to remove any default under the Credit
Facility, and ING will be free to reserve all of its legal
and equitable rights at the end of the forbearance period.
In addition, the Forbearance Agreement requires that the
proceeds of the Concurrent Equity Offering be used first to
pay the costs of issuance associated with both the
Concurrent Equity Offering and the Offering and to repay the
XCL-China Debt ($3.1 million borrowed on April 10, 1997 from
a group of institutional and accredited investors and
evidenced by promissory notes of XCL-China); second, to pay
current obligations of XCL-China and to reestablish a
reserve for such obligations (under terms reasonably
acceptable to ING) pending release of the proceeds of the
Offering; third, to pay reasonable and necessary general and
administrative expenses through December 1, 1997 (not to
exceed $2,750,000); and fourth, to the extent that any
proceeds of the Concurrent Equity Offering remain, to be
applied against the indebtedness under the Credit Facility.
As consideration for the Forbearance Agreement, the Company
issued warrants to ING, pledged the stock of certain
subsidiaries, and provided ING with a guaranty of the
indebtedness under the Credit Facility by XCL-China. In
addition, the Credit Facility was amended to provide that
proceeds from any direct or indirect sale of the Lutcher
Moore Tract are to be used first to pay debt on the Lutcher
Moore Tract (up to $5.2 million plus accrued interest),
second to pay the XCL-China Debt, or if the XCL-China Debt
has been paid, to establish a reserve of up to $3.1 million
for current and future obligations of XCL-China incurred on
or before December 1, 1997, and third to pay the
indebtedness under the Credit Facility.
During April 1993, the Company issued in a private
placement, $15 million of Secured Subordinated Note Units .
Each of these 40 units consisted of a $375,000 note payable,
warrants to acquire 100,000 shares of the Company's Common
Stock at $0.90 per share (which were previously issued to a
group of banks in a prior credit facility), a net profits
interest in certain exploration leases and a contractual
interest in the net revenues of XCL-China, under the
Contract relating the Zhao Dong Block, which was not
material. This borrowing bears interest at 12%, if paid
with cash, or 14%, if the Company elects to use Common
Stock, with payment at 125% of the interest due if paid in
unregistered shares. It is collateralized by a second
mortgage on all the Company's producing properties and a
second lien on the stock of XCL-China. Payment on this debt
cannot be made prior to payment on the indebtedness under
the Credit Facility. The terms of the Secured Subordinated
Debt provide that an event of default under the Credit
Facility which has not been waived and permits ING to
accelerate the maturity of its indebtedness is an event of
default on the Secured Subordinated debt. In the case of an
event of default, the holders of the Secured Subordinated
Debt cannot take any enforcement action (including
acceleration of the Secured Subordinated Debt) while the
Credit Facility is outstanding until the lapse of a 180-day
blocking period. A blocking period commences with deliver
of a blocking notice by holders of 70 percent of the Secured
Subordinated Debt. No such blocking notice has been given.
As noted above, an event of default exists under the Credit
Facility, therefore an event of default exists with respect
to the Secured Subordinated Debt.
(b) Preferred Stock
The Series A Preferred Stock dividend requirements are
approximately 2.9 million pounds sterling (U.K.) annually
(approximately $4.75 million) and currently insufficient
liquidity exists to continue to pay such amounts. Further,
the Credit Facility restricts payment of cash dividends.
With the approval of its lender, the Company declared the
June 30, 1995 dividend payable in cash, with such cash to be
obtained from the sale of Common Stock. In order to reduce
the cash requirement, effective June 26, 1995, the Company
entered into agreements with three U.S. holders of Series A
Preferred Stock representing approximately 59 percent of the
class, pursuant to which they elected to receive their
dividends in Common Stock of the Company. Cash dividends
remaining to be paid with respect to the June 30, 1995
dividend declaration, aggregate approximately $900,000. As
the Company was unable to pay this dividend by June 30,
1996, the holders of the Series A Preferred Stock are
entitled to representation on the Board of Directors.
The December 31, 1995 dividend payment on the Series A
Preferred Stock has been declared payable in additional
shares of Series A Preferred Stock. During 1996, the terms
of the Series A Preferred Stock were amended to allow for
payment of the December 31, 1995 and subsequent dividend
payments to be made in additional shares of Series A
Preferred Stock. The Board of Directors correspondingly
approved a 250,000 share increase in the number of shares of
authorized Series A Preferred Stock authorized. During
February 1997, the Company sold 13,458 shares of Series A
Preferred Stock for $157,240. The proceeds were used to pay
the withholding taxes and fractional interests with respect
to the December 31, 1995 dividend payment. In March 1997,
the Company issued an additional 50,137 shares of Series A
Preferred Stock in payment of this dividend, therefore
fulfilling its obligation for such dividend period. The
Board of Directors elected not to declare the dividends
payable June 30, 1996 and December 31, 1996.
Item 4. Submission of Matters to a Vote of Security-Holders
There were no matters submitted to a vote of the
security holders of the Company during the period covered by
this report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
2.0 Not applicable
3(i) Articles of incorporation
3.1 Certificate of Incorporation of the Company dated
December 28, 1987. (A)(i)
3.2 Certificate of Amendment to the Certificate of
Incorporation of the Company dated March 30, 1988.
(A)(ii)
3.3 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 22, 1990.
(B)(i)
3.4 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 12, 1993. (C)
3.5 Certificate of Amendment to the Certificate of
Incorporation of the Company dated June 8, 1992,
whereby Article Fourth was amended to increase the
number of shares of Common Stock authorized. (D)(i)
3.6 Certificate of Amendment to the Certificate of
Incorporation of the Company dated September 29, 1993,
whereby Article Fourth was amended to increase the
number of shares of Common Stock authorized. (E)(i)
3.7 Certificate of Amendment dated July 1, 1994, whereby
Article Fourth was amended to increase the number of
shares of Common Stock and the name of the Company was
changed. (F)(i)
3.8 Certificate of Amendment dated June 19, 1995,
whereby Article Fourth was amended to increase the
number of shares of Common Stock. (N)(i)
3.9 Certificate of Amendment dated July 30, 1996,
whereby Article Fourth was amended to increase the
number of shares of Common Stock and Preferred Stock.
(Q)(i)
3(ii) Amended and Restated Bylaws of the Company as
currently in effect. (A)(iii)
4.0 Instruments defining rights of security holders,
including indentures:
4.1 Form of Common Stock Certificate. (A)(iv)
4.2 Certificate of Designation of Series A, Cumulative
Convertible Preferred Stock. (G)
4.3 Form of Series A, Cumulative Convertible Preferred
Stock Certificate. (B)(ii)
4.4 Certificate of Designation of Series B, Cumulative
Preferred Stock. (H)(i)
4.5 Form of Series B, Cumulative Preferred Stock
Certificate. (H)(ii)
4.6 Form of Class B Warrants issued to China Investment
& Development Co. Ltd. to purchase 2,500,000 shares of
Common Stock at $2.00 per share payable upon redemption
of the Series B, Cumulative Preferred Stock. (H)(iii)
4.7 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated August 7, 1992. (D)(ii)
4.8 Certificate of Designation of Series C, Cumulative
Convertible Preferred Stock. (E)(ii)
4.9 Copy of Amendment to Certificate of Designation of
Series C Preferred Stock dated February 18, 1994.(I)(i)
4.10 Form of Series C, Cumulative Convertible Preferred
Stock Certificate. (I)(iii)
4.11 Certificate of Designation of Series D, Cumulative
Convertible Preferred Stock. (I)(iv)
4.12 Form of Amendment to Certificate of Designation of
Series D Preferred Stock dated January 24, 1994.
(I)(ii)
4.13 Form of Series D, Cumulative Convertible Preferred
Stock Certificate. (E)(v)
4.14 Form of Warrant dated January 31, 1994 to purchase
2,500,000 shares of Common Stock at an exercise price
of $1.00 per share, subject to adjustment, issued to
INCC. (I)(iii)
4.15 Form of Registrar and Stock Transfer Agency
Agreement, effective March 18, 1991, entered into
between the Company and Manufacturers Hanover Trust
Company (predecessor to Chemical Bank), whereby
Chemical Bank serves as the Company's Registrar and
U.S. Transfer Agent. (J)
4.16 Copy of Warrant Agreement and Stock Purchase
Warrant dated March 1, 1994 to purchase 500,000 shares
of Common Stock at an exercise price of $1.00 per
share, subject to adjustment, issued to EnCap
Investments, L.C. (I)(iv)
4.17 Copy of Warrant Agreement and form of Stock
Purchase Warrant dated March 1, 1994 to purchase an
aggregate 600,000 shares of Common Stock at an exercise
price of $1.00 per share, subject to adjustment, issued
to principals of San Jacinto Securities, Inc. in
connection with its financial consulting agreement with
the Company. (I)(v)
4.18 Form of Warrant Agreement and Stock Purchase
Warrant dated April 1, 1994, to purchase an aggregate
6,440,000 shares of Common Stock at an exercise price
of $1.25 per share, subject to adjustment, issued to
executives of the Company surrendering all of their
rights under their employment contracts with the
Company. (F)(ii)
4.19 Form of Warrant Agreement and Stock Purchase
Warrant dated April 1, 1994, to purchase an aggregate
878,900 shares of Common Stock at an exercise price of
$1.25 per share, subject to adjustment, issued to
executives of the Company in consideration for salary
reductions sustained under their employment contracts
with the Company. (F)(iii)
4.20 Form of Warrant Agreement and Stock Purchase
Warrant dated April 1, 1994, to purchase 200,000 shares
of Common Stock at an exercise price of $1.25 per
share, subject to adjustment, issued to Thomas H.
Hudson. (F)(iv)
4.21 Form of Warrant Agreement and Stock Purchase
Warrant dated May 25, 1994, to purchase an aggregate
100,000 shares of Common Stock at an exercise price of
$1.25 per share, subject to adjustment, issued to the
holders of Purchase Notes B, in consideration of
amendment to payment terms of such Notes. (F)(v)
4.22 Form of Warrant Agreement and Stock Purchase
Warrant dated May 25, 1994, to purchase an aggregate
100,000 shares of Common Stock at an exercise price of
$1.25 per share, subject to adjustment, issued to the
holders of Purchase Notes B, in consideration for the
granting of an option to further extend payment terms
of such Notes. (F)(vi)
4.23 Form of Amendment to Certificate of Designation of
Series B Preferred Stock dated June 30, 1994. (F)(vii)
4.24 Form of Warrant Agreement and Stock Purchase
Warrant dated January 31, 1995, to purchase 100,000
shares of Common Stock at an exercise price of $.75 per
share, subject to adjustment, issued to Energy
Advisors, Inc. (L)(i)
4.25 Copy of Amendment to Certificate of Designation of
Series A Preferred Stock dated October 31, 1995.
(N)(ii)
4.26 Copy of Certificate of Designation of Series E,
Cumulative Convertible Preferred Stock dated November
2, 1995. (N)(iii)
4.27 Form of Purchase Agreement between the Company and
each of the Purchasers of Units in the Regulation S
Unit Offering conducted by Rauscher Pierce & Clark with
closings as follows:
December 22, 1995 116 Units
March 8, 1996 34 Units
April 23, 1996 30 Units (O)(i)
4.28 Form of Warrant Agreement between the Company and
each of the Purchasers of Units in the Regulation S
Unit Offering conducted by Rauscher Pierce & Clark, as
follows:
Closing Date Warrants Exercise Price
------------ -------- --------------
December 22, 1995 6,960,000 $.50
March 8, 1996 2,040,000 $.35
April 23, 1996 1,800,000 $.35 (O)(ii)
4.29 Form of Warrant Agreement between the Company and
Rauscher Pierce & Clark in consideration for acting
as placement agent in the Regulation S Units Offering,
as follows:
Closing Date Warrants Exercise Price
------------ -------- --------------
December 22, 1995 696,000 $.50
March 8, 1996 204,000 $.35
April 23, 1996 180,000 $.35 (O)(iii)
4.30 Form of Amendment of Certificate of Designation of
Series A Preferred Stock dated April 11, 1996. (O)(iv)
4.31 Stock Purchase Agreement between the Company and
Janz Financial Corp. Ltd. dated August 14, 1996,
whereby clients of Janz Financial Corp. Ltd. purchased
2,800,000 units comprised of one shares of Common Stock
and one warrant to purchase one share of Common Stock
in a Regulation S transaction. (P)(i)
4.32 Form of a series of Stock Purchase Warrants issued
to Janz Financial Corp. Ltd. dated August 14, 1996,
entitling the holders thereof to purchase up to
3,080,000 shares of Common Stock at $0.25 per share on
or before August 13, 2001. (P)(ii)
4.33 Stock Purchase Agreement between the Company and
Provincial Securities Ltd. dated August 16, 1996,
whereby Provincial purchased 1,500,000 shares of Common
Stock in a Regulation S transaction. (P)(iii)
4.34 Stock Purchase Warrant issued to Terrenex
Acquisitions Corp. dated August 16, 1996, entitling the
holder thereof to purchase up to 3,000,000 shares of
Common Stock at $0.25 per share on or before December
31, 1998. (P)(iv)
4.35 Form of a series of Stock Purchase Warrants dated
November 26, 1996, entitling the following holders
thereto to purchase up to 2,666,666 shares of Common
Stock at $0.125 per share on or before December 31,
1999:
Warrant Holder Warrants
-------------- --------
Opportunity Associates, L.P. 133,333
Kayne Anderson Non-Traditional Investments, L.P. 666,666
Arbco Associates, L.P. 800,000
Offense Group Associates, L.P. 333,333
Foremost Insurance Company 266,667
Nobel Insurance Company 133,333
Evanston Insurance Company 133,333
Topa Insurance Company 200,000 (Q)(i)
4.36 Form of a series of Stock Purchase Warrants dated
December 31, 1996 (2,128,000 warrants) and January 8,
1997 (2,040,000 warrants) to purchase up to an
aggregate of 4,168,000 shares of Common Stock at $0.125
per share on or before August 13, 2001. (Q)(ii)
4.37 Form of Stock Purchase Warrants dated February 6,
1997, entitling the following holders to purchase an
aggregate of 1,874,467 shares of Common Stock at $0.25
per share on or before December 31, 1999:
Warrant Holder Warrants
-------------- --------
Donald A. and Joanne R. Westerberg 241,660
T. Jerald Hanchey 1,632,807 (Q)(iii)
4.38 Certificate of Designation of Series F, Cumulative
Convertible Preferred Stock, par value $1.00 per share
(Q)(iv)
4.39 Form of Subscription Agreement for Series F,
Cumulative Convertible Preferred Stock with respect to
the following purchases:
Subscriber Shares
---------- ------
Mitch Leigh 18,448
Abby Leigh 1,731
Arthur Rosenbloom 878 (Q)(v)
4.40 Form of a series of Stock Purchase Warrants dated
April 10, 1997, issued as a part of a unit offered with
Unsecured Notes of XCL-China Ltd., exercisable at $0.01
per share on or before April 9, 2002, entitling the
following holders to purchase up to an aggregate of
10,092,980 shares of Common Stock:
Warrant Holder Warrants
-------------- --------
Kayne Anderson Offshore L.P. 651,160
Offense Group Associates, L.P. 1,627,900
Kayne Anderson Non-Traditional Investments, L.P. 1,627,900
Opportunity Associates, L.P. 1,302,320
Arbco Associates, L.P. 1,627,900
J. Edgar Monroe Foundation 325,580
Estate of J. Edgar Monroe 976,740
Boland Machine & Mfg. Co., Inc. 325,580
Construction Specialists, Inc.
d/b/a Con-Spec, Inc. 1,627,900 (Q)(vi)
10.0 - Material Contracts
10.1 Contract for Petroleum Exploration, Development and
Production on Zhao Dong Block in Bohai Bay Shallow
Water Sea Area of The People's Republic of China
between China National Oil and Gas Exploration and
Development Corporation and XCL - China, Ltd., dated
February 10, 1993. (E)(vi)
10.2 $35,000,000 Credit Agreement dated as of January
31, 1994 between the Company and Internationale
Nederlanden (U.S.) Capital Corporation ("INCC"), as
Agent. (I)(vi)
10.3 Copy of Subordination Agreement among the Company,
INCC and the holders of the Secured Notes dated.
(I)(vii)
10.4 Form of First Amendment of Secured Subordinated
Note dated January 31, 1994. (I)(viii)
10.5 Form of First Amendment of Limited Recourse Secured
Lease Note dated January 31, 1994. (I)(ix)
10.6 Stock Pledge Agreement dated January 31, 1994,
among the Company and INCC. (I)(x)
10.7 Deed of Trust, Mortgage, Assignment, Security
Agreement and Financing Statement from XCL-Texas, Inc.
to INCC dated January 31, 1994. (I)(xi)
10.8 Form of Net Revenue Interest Assignment dated
February 23, 1994, between the Company and the
purchasers of the Company's Series D, Cumulative
Convertible Preferred Stock. (I)(xii)
10.9 Modification Agreement for Petroleum Contract on
Zhao Dong Block in Bohai Bay Shallow Water Sea Area of
The People's Republic of China dated March 11, 1994,
between the Company, China National Oil and Gas
Exploration and Development corporation and Apache
China Corporation LDC. (I)(xiii)
10.10 Letter Agreement dated May 25, 1994 between the
Company, L.M. Holdings Associates, L.P. and vendors
holding Purchase Note B with respect to the Lutcher
Moore Tract. (E)(vii)
10.11 Letter Agreement dated June 30, 1994 between the
Company, China Investment & Development Co. Ltd. and
China Investment and Development Corporation. (F)(ix)
10.12 Letter Agreement dated July 10, 1994 between the
Company and holders of the Lease Notes. (F)(x)
10.13 Stock Purchase Agreement between the Company and
Provincial Securities Limited dated May 17, 1994.
(F)(xi)
10.14 Consulting agreement between the Company and Sir
Michael Palliser dated April 1, 1994. (K)(i)
10.15 Consulting agreement between the Company and Mr.
Arthur W. Hummel, Jr. dated April 1, 1994. (K)(ii)
10.16 Letter Agreement between the Company and Mr.
William Wang dated June 2, 1992, executed effective
February 10, 1993. (K)(iii)
10.17 First Amendment to Credit Agreement between the
Company and Internationale Nederlanden (U.S.) Capital
Corporation dated April 13, 1995. (L)(ii)
10.18 Letter of Intent between the Company and CNPC
United Lube Oil Corporation for a joint venture for the
manufacture and sale of lubricating oil dated January
14, 1995. (L)(iii)
10.19 Purchase and Sale Agreement dated May 10, 1995,
between XCL Land, Ltd., a wholly owned subsidiary of
the Company ("Seller") and The Succession of Edward M.
Carmouche, Matilda Gray Stream, Harold H. Stream, III,
The Opal Gray Trust, Matilda Geddings Gray Trust for
Harold H. Stream, III, Matilda Geddings Gray Trust for
William Gray Stream, Matilda Geddings Gray Trust for
Sandra Gray Stream, M.G. Stream Trust for Harold H.
Stream, III, M.G. Stream Trust for William Gray Stream,
and M.G. Stream Trust for Sandra Gray Stream
("Purchasers") whereby the Purchasers will acquire
Seller's fee interest in and to a parcel of
southwestern Louisiana land known as the Phoenix Lake
Tract. (L)(iv)
10.20 Farmout Agreement dated May 10, 1995, between XCL
China Ltd., a wholly owned subsidiary of the Company
and Apache Corporation whereby Apache will acquire an
additional interest in the Zhao Dong Block, Offshore
People's Republic of China. (L)(v)
10.21 Modification Agreement of Non-Negotiable
Promissory Note and Waiver Agreement between
Lutcher & Moore Cypress Lumber Company and L.M.
Holding Associates, L.P. dated June 15, 1995. (M)(i)
10.22 Third Amendment to Credit Agreement between
Lutcher-Moore Development Corp., Lutcher & Moore
Cypress Lumber Company, The First National Bank of
Lake Charles, Mary Elizabeth Mecom, The Estate of John
W. Mecom, The Mary Elizabeth Mecom Irrevocable Trust,
Matilda Gray Stream, The Opal Gray Trust, Harold
H. Stream III, The Succession of Edward M.
Carmouche, Virginia Martin Carmouche and L.M.
Holding Associates, L.P. dated June 15, 1995. (M)(ii)
10.23 Second Amendment to Appointment of Agent
for Collection and Agreement to Application of Funds
between Lutcher-Moore Development Corp., Lutcher &
Moore Cypress Lumber Company, L.M. Holding Associates,
L.P. and The First National Bank of Lake Charles,
dated June 15, 1995. (M)(iii)
10.24 Contract of Chinese Foreign Joint Venture dated
July 17, 1995, between United Lube Oil Corporation
and XCL China Ltd. for the manufacturing and
selling of lubricating oil and related products.
(M)(iv)
10.25 Letter of Intent dated July 17, 1995 between
CNPC United Lube Oil Corporation and XCL Ltd. for
discussion of further projects. (M)(v)
10.26 Form of Letter Agreement dated June 26, 1995
between the Company and three of its U.S. holders
of Series A Preferred Stock, whereby the following
such holders have agreed to accept Common Stock in
respect of dividends payable December 31, 1994 and June
30, 1995 in the amounts set forth:
12/31/94 6/30/95
Holder Dividend Dividend Shares
------ -------- -------- ------
Kayne Anderson
Investment Management $627,788.12 $689,238.87 2,225,024
Cumberland Associates $429,056.51 $445,838.59 1,487,294
T. Rowe Price &
Associates, Inc. $159,975.00 $166,232.25 554,543 (M)(vi)
10.27 Copy of Letter Agreement dated March 31, 1995,
between the Company and China National Administration
of Coal Geology for the exploration and development of
coal bed methane in Liao Ling Tiefa and Shanxi
Hanchang Mining Areas. (N)(iv)
10.28 Copy of Second Amendment to Credit Agreement
between the Company and Internationale Nederlanden
(U.S.) Capital Corporation dated effective as of
September 29, 1995. (N)(v)
10.29 Copy of Fee Agreement dated October 26, 1995,
between the Company and EnCap Investments L.C. for past
services and proposed European equity offering. (N)(vi)
10.30 Copy of Engagement Letter dated November 9, 1995,
between the Company and Rauscher Pierce & Clark for a
proposed Unit offering to be conducted in
Europe. (N)(vii)
10.31 Memo of Understanding dated December 14, 1995,
between XCL Ltd. and China National Administration of
Coal Geology. (O)(v)
10.32 Copy of Purchase and Sale Agreement dated December
28, 1995, between XCL Ltd., XCL-Texas, Inc. and Cody
Energy Corporation, for the sale to Cody Energy of the
Mestena Grande Field located in Texas. (O)(vi)
10.33 Form of Fourth Amendment to Credit Agreement
between Lutcher-Moore Development Corp., Lutcher &
Moore Cypress Lumber Company, The First National Bank
of Lake Charles, Mary Elizabeth Mecom, The Estate of
John W. Mecom, The Mary Elizabeth Mecom Irrevocable
Trust, Matilda Gray Stream, The Opal Gray Trust,
Harold H. Stream III, The Succession of Edward M.
Carmouche, Virginia Martin Carmouche and L.M. Holding
Associates, L.P. dated January 16, 1996. (O)(vii)
10.34 Form of Third Amendment to Appointment of Agent
for Collection and Agreement to application of Funds
between Lutcher-Moore Development Corp., Lutcher &
Moore Cypress Lumber Company, L.M. Holding
Associates, L.P. and The First National Bank of Lake
Charles, dated January 16, 1996. (O)(viii)
10.35 Copy of Purchase and Sale Agreement dated March 8,
1996, between XCL-Texas, Inc. and Tesoro E&P Company,
L.P. for the sale of the Gonzales Gas Unit located in
south Texas. (O)(ix)
10.36 Copy of Limited Waiver between the Company
and Internationale Nederlanden (U.S.) Capital
Corporation dated April 3, 1996. (O)(x)
10.37 Copy of Purchase and Sale Agreement dated April
22, 1996, between XCL-Texas, Inc. and Dan A. Hughes
Company for the sale of the Lopez Gas Units located in
south Texas. (P)
10.38 Form of Sale of Mineral Servitude dated June 18,
1996, whereby the Company sold its 75 percent mineral
interest in the Phoenix Lake Tract to the Stream Family
Limited Partners and Virginia Martin Carmouche Gayle.
(Q)(ii)
10.39 Form of Fifth Amendment to Credit Agreement
between Lutcher-Moore Development Corp., Lutcher &
Moore Cypress Lumber Company, The First National Bank
of Lake Charles, Mary Elizabeth Mecom, The Estate of
John W. Mecom, The Mary Elizabeth Mecom Irrevocable
Trust, Matilda Gray Stream, The Opal Gray Trust,
Harold H. Stream III, The Succession of Edward M.
Carmouche, Virginia Martin Carmouche and L.M. Holding
Associates, L.P. dated August 8, 1996. (Q)(vii)
10.40 Form of Assignment and Sale between XCL
Acquisitions, Inc. and purchasers of an interest in
certain promissory notes held by XCL Acquisitions, Inc.
as follows:
Date Purchaser Principal Purchase
Amount Price
November 19, 1996 Opportunity Associates, L.P. $15,627.39 $12,499.98
November 19, 1996 Kayne Anderson Non-Traditional
Investments, L.P. $78,126.36 $62,499.98
November 19, 1996 Offense Group Associates, L.P. $39,063.18 $31,249.99
November 19, 1996 Arbco Associates, L.P. $93,743.14 $75,000.04
November 19, 1996 Nobel Insurance Company $15,627.39 $12,499.98
November 19, 1996 Evanston Insurance Company $15,627.39 $12,499.98
November 19, 1996 Topa Insurance Company $23,435.79 $18,750.01
November 19, 1996 Foremost Insurance Company $31,249.48 $25,000.04
February 10, 1997 Donald A. and Joanne R.
Westerberg $25,000.00 $28,100.00
February 10, 1997 T. Jerald Hanchey $168,915.74 $189,861.29
(Q)(viii)
10.41 Form of Sixth Amendment to Credit Agreement
between Lutcher-Moore Development Corp., Lutcher &
Moore Cypress Lumber Company, The First National Bank
of Lake Charles, The Estate of Mary Elizabeth Mecom,
The Estate of John W. Mecom, The Mary Elizabeth
Mecom Irrevocable Trust, Matilda Gray Stream, The
Opal Gray Trust, Harold H. Stream III, The
Succession of Edward M. Carmouche, Virginia Martin
Carmouche and L.M. Holding Associates, L.P. dated
January 28, 1997. (Q)(ix)
10.42 Form of Act of Sale between the Company and The
Schumacher Group of Louisiana, Inc. dated March 31,
1997, where in the Company sold its office building.
(Q)(x)
10.43 Amendment No. 1 to the May 1, 1995 Agreement with
Apache Corp. dated April 3, 1997, effective December
13, 1996. (Q)(xi)
10.44 Form of Guaranty dated April 9, 1997 by XCL-China
Ltd. in favor of ING (U.S.) Capital Corporation
executed in connection with the sale of certain
Unsecured Notes issued by XCL-China Ltd. (Q)(xii)
10.45 Form of First Amendment to Stock Pledge Agreement
dated April 9, 1997, between the Company and ING (U.S.)
Capital Corporation adding XCL Land Ltd. to the Stock
Pledge Agreement dated as of January 31, 1994.
(Q)(xiii)
10.46 Form of Agreement dated April 9, 1997, between ING
(U.S.) Capital Corporation, XCL-China and holders of
the Senior Unsecured Notes, subordinating the Guaranty
granted by XCL-China in favor of ING to the Unsecured
Notes. (Q)(xiv)
10.47 Form of Forbearance Agreement dated April 9, 1997
between the Company and ING (U.S.) Capital Corporation.
(Q)(xv)
10.48 Form of a series of Unsecured Notes dated April
10, 1997, between the Company and the following
entities:
Note Holder Principal Amount
Kayne Anderson Offshore, L.P. $200,000
Offense Group Associates, L.P. $500,000
Kayne Anderson Non-Traditional Investments, L.P. $500,000
Opportunity Associates, L.P. $400,000
Arbco Associates, L.P. $500,000
J. Edgar Monroe Foundation $100,000
Estate of J. Edgar Monroe $300,000
Boland Machine & Mfg. Co., Inc. $100,000
Construction Specialists, Inc.
d/b/a Con-Spec, Inc. $500,000 (Q)(xvi)
10.49 Form of Subscription Agreement dated April 10,
1997, by and between XCL-China, Ltd., the Company and
the subscribers of Units, each unit comprised of
$100,000 in Unsecured Notes and 325,580 warrants.
(Q)(xvii)
10.50 Form of Intercompany Subordination Agreement dated
April 10, 1997, between the Company, XCL-Texas, Ltd.,
XCL Land Ltd., The Exploration Company of Louisiana,
Inc., XCL-Acquisitions, Inc., XCL-China Coal Methane
Ltd., XCL-China LubeOil Ltd., XCL-China Ltd., and
holders of the Unsecured Notes. (Q)(xviii)
11. Statement re computation of per share earnings *
15. Not applicable.
18. Not applicable.
19. Not applicable.
22. Not applicable.
23 Not applicable.
24. Not applicable.
27. Financial Data Schedule *
99 Glossary of Terms *
- ------------
* Filed herewith.
(A) Incorporated by reference to the Registration
Statement on Form 8-B filed on July 28, 1988, where it
appears as: (i) through (iii) as Exhibits 3(a) through
3(c), respectively; and (iv) as Exhibit 4.1.
(B) Incorporated by reference to a Quarterly Report on
Form 10-Q filed on August 14, 1990, where it appears
as: (i) Exhibit 3 and (ii) Exhibit 4.4.
(C) Incorporated by reference to an Annual Report on
Form 10-K filed on March 30, 1992, where it appears as
Exhibit (3)(g).
(D) Incorporated by reference to a Quarterly Report on
Form 10-Q filed August 14, 1992, where it appears
as: (i) Exhibit 4.25 and (ii) Exhibit 4.28.
(E) Incorporated by reference to a Registration
Statement on Form S-3 (File No. 33-68552) where it
appears as: (i) Exhibit 4.27; (ii) Exhibit 4.14; (iii)
Exhibit 4.16; (iv) Exhibit 4.17; (v) Exhibit 4.19; (vi)
Exhibit 10.1; and (vii) Exhibit 10.6.
(F) Incorporated by reference to Post-Effective
Amendment No. 2 to Registration Statement on Form S-3
(File No. 33-68552) where it appears as: (i) through
(iii) Exhibits 4.28 through 4.30, respectively; (iv)
through (viii) Exhibits 4.34 through 4.38,
respectively; and (ix) through (xi) Exhibits 10.8
through 10.10, respectively.
(G) Incorporated by reference to a Current Report on
Form 8-K filed on August 13, 1990, where it appears as
Exhibit 4.
(H) Incorporated by reference to Quarterly Report on
Form 10Q filed May 15, 1991, where it appears as: (i)
Exhibit 4.1; (ii) Exhibit 4.2; and (iii) Exhibit 4.5.
(I) Incorporated by reference to Amendment No. 1 to
Annual Report on Form 10-K filed April 15, 1994, where
it appears as: (i) Exhibit 4.35; (ii) Exhibit 4.31;
(iii) Exhibit 4.32; (iv) Exhibit 4.36; (v) Exhibit
4.37; (vi) through (xii) Exhibit 10.41 through Exhibit
10.47, respectively; and (xii) Exhibit 10.49.
(J) Incorporated by reference to an Annual Report on
Form 10K for the fiscal year ended December 31, 1990,
filed April 1, 1991, where it appears as Exhibit 10.27.
(K) Incorporated by reference to Amendment No. 1 to an
Annual Report on Form 10-K/A No. 1 for the fiscal year
ended December 31, 1994, filed April 17, 1995, where it
appears as: (i) through (iii) Exhibits 10.22 through
10.24, respectively.
(L) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995,
filed May 15, 1995, where it appears as: (i) Exhibit
4.28; and (ii) through (v) Exhibits 10.25 through
10.28, respectively.
(M) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, filed
August 14, 1995, where it appears as: (i) through (vi)
Exhibits 10.29 through 10.34, respectively.
(N) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995,
filed November 13, 1995, where it appears as: (i)
Exhibit 3.8; (ii) and (iii) Exhibits 4.29 and 4.30,
respectively; and (iv) through (vii) Exhibits 10.35
through 10.38, respectively.
(O) Incorporated by reference to Annual Report on Form
10-K for the year ended December 31, 1995, filed April
15, 1996, where it appears as: (i) through (iv)
Exhibits 4.28 through 4.31, respectively; and (v)
through (x) Exhibits 10.31 through 10.36, respectively.
(P) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, filed
May 15, 1996, where it appears as Exhibit 10.37.
(Q) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed
August 14, 1996, where it appears as (i) Exhibit 3.9
and (ii) Exhibit 10.38.
(P) Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996,
filed November 14, 1996, where it appears as (i)
through (iv) Exhibits 4.31 through 4.34.
(Q) 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 (vi) Exhibits
4.35 through 4.40 and (vii) through (xviii) Exhibits
10.39 through 10.50.
(b) Reports on Form 8-K
A current report on Form 8-K was filed to report that
on February 4, 1997 through February 11, 1997, the Company
had sold an aggregate of 1,340,200 shares of Common Stock
pursuant to Regulation S of the Securities Act of 1933, as
amended (the "Act") through the exercise of stock purchase
warrants.
A current report on Form 8-K was filed to report that
on February 20, 1997 through February 24, 1997, the Company
had sold an aggregate of 289,900 shares of Common Stock
pursuant to Regulation S of the Act through the exercise of
stock purchase warrants.
A current report on Form 8-K was filed to report that
on March 21, 1997, the Company had sold 73,000 shares of
Common Stock pursuant to Regulation S of the Act through the
exercise of stock purchase warrants.
A current report on Form 8-K was filed to report that
from April 18, 1997 through April 30, 1997, the Company had
sold an aggregate of 3,066,900 shares of Common Stock
pursuant to Regulation S of the Act through the exercise of
stock purchase warrants.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
XCL Ltd.
/s/ David A. Melman
By: __________________________
David A. Melman
Executive Vice President and
General Counsel
Date: May 14, 1997