CASH COLLATERAL AND DISBURSEMENT AGREEMENT
CASH COLLATERAL AND DISBURSEMENT AGREEMENT, dated
as of May 20, 1997 (the "Agreement"), among XCL Ltd., a
Delaware corporation (the "Company"), Fleet National Bank,
as trustee for the Holders (in such capacity, together with
its successor in trust appointed pursuant to the Indenture,
the "Trustee") under an Indenture, dated the date hereof, by
and between the Company and the Trustee (such Indenture, as
amended, supplemented or otherwise modified from time to
time, the "Indenture"), Fleet National Bank, as Disbursement
Agent (the "Disbursement Agent") and Herman J. Schellstede &
Associates, Inc., as representative acting on behalf of the
Holders, as such term is defined in the Indenture
("Representative").
W I T N E S S E T H:
WHEREAS, the Company has entered into the
Indenture pursuant to which the Company will issue
$75,000,000 aggregate principal amount of 13.50% Senior
Secured Notes due May 1, 2004, Series A ("Initial Notes")
and 13.50% Senior Secured Notes due May 1, 2004, Series B to
be issued in exchange for the Initial Notes pursuant to a
Registration Rights Agreement (the "Exchange Notes" and,
together with the Private Exchange Notes (as defined in the
Indenture) and the Initial Notes, the "Notes");
WHEREAS, as security for the prompt and complete
payment and performance in full of the Company's obligations
under the Indenture and the Notes, the Company has granted
to the Trustee a first "Lien" on, and "Security Interest"
in, the "Collateral" pursuant to the provisions of the
Security Agreement, Pledge and Financing Agreement of even
date herewith by and between the Company and the Trustee
(the "Security Agreement"), as each such term is defined in
the Security Agreement; and
WHEREAS, the Disbursement Agent has agreed to take
such action with respect to the Collateral as is specified
herein.
NOW, THEREFORE, in consideration of the foregoing
and of the mutual covenants hereinafter set forth, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Defined Terms.
Capitalized terms used but not defined herein and in any
schedules and exhibits hereto shall have the meanings set
forth in the Indenture.
SECTION 1.2 Computation of Time Periods.
In this Agreement, in the computation of periods of time
from a specified date to a later specified date, the word
"from" means "from and including", the word "through" means
"to and including" and the words "to" and "until" each means
"to but excluding."
ARTICLE II
DISBURSEMENT AGENT
SECTION 2.1 Appointment and Duties.
(a) The Company and the Trustee (on
behalf of the Holders of Notes) hereby designate and appoint
Fleet National Bank as the Disbursement Agent under this
Agreement, and authorize the Disbursement Agent to take such
actions, exercise such powers and perform such duties as are
expressly delegated to the Disbursement Agent by the terms
of this Agreement, together with such other powers as are
reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere herein, the Disbursement
Agent shall not have any duties or responsibilities except
those expressly set forth herein, and no implied covenants,
functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise
exist against the Disbursement Agent. If the Disbursement
Agent consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust
business to another entity, the resulting surviving or
transferee entity, without any further act, shall be the
successor Disbursement Agent
(b) The Disbursement Agent shall give
written notice to the Trustee and the Company of any action
taken by it hereunder (provided that no such notice need be
given under circumstances in which the Trustee and the
Company shall have received such notice by any other Person
pursuant to the terms of any such document); such notice
shall be given prior to the taking of such action unless the
Disbursement Agent determines that to do so would be
detrimental to the interests of the Holders of Notes, in
which event such notice shall be given promptly after the
taking of such action.
(c) The Disbursement Agent shall maintain
appropriate books and records with respect to the Collateral
in which shall be recorded all deposits in and disbursements
from the Collateral Accounts (as defined in Section 4.1) and
any Collateral Investments (as defined in Section 4.3) made
by the Disbursement Agent and shall permit the Trustee and
the Company or any of their agents or representatives to
inspect and to make copies of such books and records at the
Company's sole cost and expense.
(d) The Disbursement Agent shall use its
good faith efforts and utilize prudence in performing its
duties hereunder consistent with those of similar and
prudent institutions disbursing disbursement control funds.
SECTION 2.2 Rights of Disbursement Agent.
(a) The Disbursement Agent may execute
any of its duties under this Agreement by or through agents
or attorneys-in-fact and shall be entitled to rely on advice
of counsel concerning all matters pertaining to such duties,
and shall be protected in respect of any action taken in
good faith and in accordance with such advice.
(b) Neither the Disbursement Agent nor
any of its officers, directors, employees, agents, attorneys-
in-fact or affiliates shall be liable for any action
lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement (except for its
or such Person's own gross negligence or willful
misconduct), or responsible in any manner to any of the
Holders of Notes for any recitals, statements,
representations or warranties made by the Company or the
Representative or any officer thereof contained in any
certificate, report, statement or other document referred to
or provided for in, or received by the Disbursement Agent
under or in connection with, this Agreement. The
Disbursement Agent shall not be under any obligation to any
Holders of Notes to inspect the properties, books or records
of the Company.
(c) The Disbursement Agent shall be
entitled to rely, and shall be fully protected in relying,
upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the
Company), independent accountants and other experts selected
by the Disbursement Agent. The Disbursement Agent shall be
fully justified in failing or refusing to take any action
hereunder if such action would, in the opinion of the
Disbursement Agent, be contrary to law or the terms of this
Agreement.
(d) If, with respect to a proposed action
to be taken by it, the Disbursement Agent shall determine in
good faith that the provisions of this Agreement relating to
the functions or responsibilities or discretionary powers of
the Disbursement Agent are or may be ambiguous or
inconsistent, the Disbursement Agent shall notify the
Company, the Trustee and the Representative (identifying the
proposed action and the provisions that it considers are or
may be ambiguous or inconsistent) and may decline either to
perform such function or responsibility or to exercise such
discretionary power unless it has received the written
confirmation of each of the Company and the Trustee that it
concurs, in the circumstances, that the action proposed to
be taken by the Disbursement Agent is consistent with the
terms of this Agreement or is otherwise appropriate.
(e) The Disbursement Agent shall not be
deemed to have knowledge or notice of the occurrence of any
Event of Default unless the Disbursement Agent has received
written notice from the Trustee or the Company, describing
such Event of Default and stating that such notice is a
"notice of default." The Disbursement Agent shall take such
action with respect to such Event of Default as shall be
required by this Agreement. No provision of this Agreement
shall require the Disbursement Agent to expend or risk its
own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the
exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
SECTION 2.3 Resignation and Removal of
Disbursement Agent.
(a) Subject to the appointment and
acceptance of a successor Disbursement Agent as provided
below, the Disbursement Agent may, at any time, give a
notice of resignation to the Trustee, the Company and the
Representative. Upon receipt of any such notice of
resignation, the Company shall have the right to appoint a
successor Disbursement Agent, which shall be a bank or trust
company reasonably acceptable to the Trustee (including a
successor Trustee under the Indenture). If no successor
Disbursement Agent shall have been appointed by the Company
and shall have accepted such appointment within 30 days
after the retiring Disbursement Agent's giving of notice of
resignation, then the retiring Disbursement Agent may
appoint a successor Disbursement Agent, which shall be a
bank or trust company reasonably acceptable to the Company
and the Trustee.
(b) Each of the Trustee and the Company
shall have the right, upon the expiration of thirty (30)
days following delivery of written notice to the
Disbursement Agent and the other party, to cause the
Disbursement Agent to be relieved of its duties hereunder
and to select a successor Disbursement Agent to serve
hereunder, which shall be a bank or trust company reasonably
acceptable to the other party; provided, however, that any
successor Disbursement Agent selected by the Company shall
also be the Trustee so long as the Trustee is willing to
accept such selection.
(c) Upon the acceptance of any
appointment as Disbursement Agent hereunder by a successor
Disbursement Agent, such successor Disbursement Agent, the
Trustee, the Company and the Representative shall enter into
an agreement substantially identical to this Agreement,
such agreement shall provide that such successor
Disbursement Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of
the retiring Disbursement Agent, and that the retiring
Disbursement Agent shall be discharged from its duties and
obligations hereunder and the retiring Disbursement Agent
shall promptly transfer all Collateral (as hereinafter
defined) within its possession or control to the possession
or control of the successor Disbursement Agent and shall
execute and deliver such notices, instructions and
assignments as may be necessary to transfer the rights of
the Disbursement Agent with respect to the Collateral to the
successor Disbursement Agent. After any retiring
Disbursement Agent's resignation or removal hereunder as
Disbursement Agent, the provisions of this Article shall
continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as
Disbursement Agent.
SECTION 2.4 Successor Disbursement Agent
by Merger, Etc.
If the Disbursement Agent consolidates with,
merges or converts into, or transfers all or substantially
all of its corporate trust business to, another bank or
trust company, then the resulting, surviving or transferee
bank or trust company, without any further act, shall be the
successor Disbursement Agent.
ARTICLE III
REPRESENTATIVE
SECTION 3.1 Appointment. The Company
hereby designates and appoints Herman J. Schellstede &
Associates, Inc. as the Representative under this Agreement,
and authorizes the Representative to take such actions,
exercise such powers and perform such duties as are
expressly delegated to the Representative by the terms of
this Agreement, together with such other powers as are
reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere herein, the
Representative shall not have any duties or
responsibilities, except those expressly set forth herein,
and no implied covenants, functions, responsibilities,
duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Representative.
SECTION 3.2 Duties. The Representative's
sole duty shall be to review the Disbursement Certificate
(as defined below) submitted by the Company and to issue the
Representative's Certificate (as defined below) approving
the request for the disbursement of funds set forth in the
Disbursement Certificate. The Representative shall deliver
the Representative's Certificate to the Disbursement Agent
approving the request for disbursement of funds made in the
Disbursement Certificate, if and only if, the Representative
satisfies itself that the Chinese Ministry of Foreign Trade
and Economic Cooperation or any other requisite Chinese
governmental authority with jurisdiction (collectively,
"MOFTEC") has approved the Overall Development Plan for the
C-D Field of the Zhao Dong Block. No other grounds for
disapproving such request for disbursement shall be
permitted. If the Representative is unable to approve the
request for disbursement set forth in the Disbursement
Certificate within five (5) Business Days after receipt
thereof, the Representative shall give written notice to
such effect to the Company, the Disbursement Agent and the
Trustee. As used herein, the terms "Contract", "Zhao Dong
Block" and "Overall Development Plan" and "C-D Field" shall
have the meanings ascribed thereto in the Offering
Memorandum.
SECTION 3.3 Rights of Representative.
(a) The Representative may execute any of
its duties under this Agreement by or through agents and
shall be entitled to advice of counsel concerning all
matters pertaining to such duties.
(b) Neither the Representative nor any of
its officers, directors, employees, agents, attorneys-in-
fact or affiliates shall be liable for any action lawfully
taken or omitted to be taken by it or such Person under or
in connection with this Agreement (except for its or such
Person's own gross negligence or willful misconduct).
(c) The Representative shall be entitled
to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Company),
independent accountants and other experts selected by the
Representative. The Representative shall be fully justified
in failing or refusing to taken any action hereunder if such
action would, in the opinion of the Representative, be
contrary to law or the terms of this Agreement.
(d) If, with respect to a proposed action
to be taken by it, the Representative shall determine in
good faith that the provisions of this Agreement relating to
the functions or responsibilities or discretionary powers of
the Representative are or may be ambiguous or inconsistent,
the Representative shall notify the Company and the Trustee
(identifying the proposed action and the provisions that it
considers are or may be ambiguous or inconsistent) and may
decline either to perform such function or responsibility or
to exercise such discretionary power unless it has received
the written confirmation of each of the Company and the
Trustee that it concurs, in the circumstances, that the
action proposed to be taken by the Representative is
consistent with the terms of this Agreement or is otherwise
appropriate.
SECTION 3.4 Resignation and Removal of
Representative.
(a) Subject to the appointment and
acceptance of a successor Representative as provided below,
the Representative may, at any time, give a notice of
resignation to the Trustee and the Company. Upon receipt of
any such notice, the Trustee shall have the right to appoint
a successor Representative, which successor shall not be
affiliated with, or under the control of, the Company or any
of its Affiliates. If no successor Representative shall
have been appointed by the Trustee and shall have accepted
such appointment within 30 days after the retiring
Representative's giving of notice of resignation, then the
retiring Representative may appoint a successor
Representative, which shall be reasonably acceptable to the
Company but not affiliated with, or under the control of,
the Company or any of its Affiliates.
(b) Upon a written request by the Holders
of a majority in aggregate principal amount of the
outstanding Notes, the Trustee shall have the right, upon
the expiration of thirty (30) days following delivery of
written notice to the Representative, the Company, the
Trustee and the Disbursement Agent, to cause the
Representative to be relieved of its duties hereunder and to
select a successor Representative to serve hereunder, which
shall be reasonably acceptable to the Company.
(c) Upon the acceptance of any
appointment as Representative hereunder by a successor
Representative, (i) such agreement shall provide that such
successor Representative, the Trustee, the Company and the
Disbursement Agent shall enter into an agreement
substantially identical to this Agreement, (ii) such
successor Representative shall thereupon succeed to and
become vested with all the rights, powers, privileges and
duties of the retiring Representative, and that the retiring
Representative shall be discharged from its duties and
obligations hereunder. After any retiring Representative's
resignation or removal hereunder as Representative, the
provisions of this Article shall continue in effect for its
benefit in respect of any actions taken or omitted to be
taken by it while it was acting as Representative.
ARTICLE IV
COLLATERAL ACCOUNTS
SECTION 4.1 Establishment of Collateral
Accounts. There are hereby established with and at the
Disbursement Agent two custodial accounts (the first such
account is referred to herein as the "Principal Account",
the second such account is referred to herein as the
"Capitalized Interest Account" and both such Accounts are
referred to herein collectively as the "Collateral
Accounts") in the name of the Company, as both such accounts
are more fully identified on Schedule I to the Security
Agreement, under the sole dominion and control of the
Trustee and the Disbursement Agent. Funds shall be released
from the Collateral Accounts only in accordance with Article
V.
SECTION 4.2 Deposits to Collateral
Accounts. Pursuant to the Purchase Agreement, the Initial
Purchaser, acting on behalf of the Company shall deposit
$60,375,000 in immediately available funds in the Principal
Account and $14,625,000 in immediately available funds in
the Capitalized Interest Account representing, collectively,
all of the proceeds in respect of the issuance and sale of
the Units (including an amount equal to the Initial
Purchaser's discount). Such funds shall be invested in
Collateral Investments as provided in Section 4.3(b)(ii).
SECTION 4.3 Security Interest.
(a) As security for the prompt and
complete payment and performance in full of all its
"Obligations" (as such term is defined in the Indenture)
under the Indenture and the Notes, the Company has agreed,
pursuant to the Security Agreement, to pledge, assign and
grant to the Trustee, for the equal and ratable benefit of
the Holders, a Security Interest in all of its right, title
and interest in and to the Collateral.
(b) The Disbursement Agent acknowledges
notice of, and consents to the terms and provisions of, the
Security Agreement and agrees that:
(i) notwithstanding anything to the
contrary in this or any other agreement relating to the
Collateral, the Collateral is and will be subject to the
terms and conditions of the Security Agreement and the
Indenture, will be held in trust on behalf of the Trustee
for the equal and ratable benefit of the Holders and not
commingled with any ordinary deposit or commercial bank
account, will be maintained with the corporate trust
department of the Disbursement Agent solely for the Trustee
for the equal and ratable benefit of the Holders pursuant to
the Security Agreement and will be subject to the written
instructions of the Trustee given in accordance with the
Security Agreement;
(ii) in accordance with written
instructions received from the Company, the Disbursement
Agent shall, unless otherwise instructed by the Trustee, (A)
invest amounts on deposit in each of the Collateral Accounts
in such "Cash Equivalents" (as such term is defined in the
Security Agreement) in the name of the Trustee as the
Company may select, (B) invest interest paid on the
respective Cash Equivalents referred to in clause (A) above,
and reinvest other proceeds of any such respective Cash
Equivalents that may mature or be sold, in such Cash
Equivalents to be held in the respective Collateral Accounts
in the name of the Trustee as the Company may select (the
Cash Equivalents referred to in clauses (A) and (B) above
being, collectively, "Collateral Investments") and (C)
deposit and hold in the respective Collateral Accounts all
monies, interest and proceeds that are not invested or
reinvested in such Collateral Investments;
(iii) all disbursements and releases
made pursuant to this Agreement shall be made by the
Disbursement Agent irrespective of, and without deduction
for, any counterclaim, defense, recoupment or set-off and
shall be final, and the Disbursement Agent will not seek to
recover from the Trustee for any reason any such payment
once made;
(iv) all service charges and fees
with respect to this Agreement or the Collateral shall be
paid by the Company; and
(v) the Trustee shall be entitled to
exercise any and all rights of the Company in respect of the
Collateral in accordance with the terms of the Security
Agreement, and the Disbursement Agent shall comply in all
respects with such exercise.
ARTICLE V
DISBURSEMENTS FROM THE COLLATERAL ACCOUNT
SECTION 5.1 Priority Releases. Funds in
the Collateral Accounts shall be released by the
Disbursement Agent to any account specified by the Trustee,
upon receipt of a Trustee's Certificate substantially in the
form of Exhibit A hereto (each, a "Trustee's Certificate"),
certifying that such funds will promptly be used for the
purpose of making payments to Holders of Notes pursuant to
the terms of the Indenture if any payment shall become due
and payable with respect to the Notes as a result of (i) a
Mandatory Redemption, (ii) a Change of Control, or (iii)
upon acceleration of the maturity of the Notes following an
Event of Default. If funds have not been released (x) from
the Collateral Accounts pursuant to either Section 5.1(ii)
or (iii), or (y) from the Principal Account pursuant to
Section 5.2(a) on or prior to November 1, 1997, then the
Disbursement Agent shall release funds in the Collateral
Accounts to any account specified by the Trustee in
sufficient time to facilitate the Mandatory Redemption of
all outstanding Notes effective on November 30, 1997.
SECTION 5.2 Disbursement of Principal
Account Funds. Funds in the Principal Account shall be
disbursed for the account of the Company pursuant to Section
5.4(b) only upon satisfaction of the following conditions:
(a) The Company shall have delivered to
the Disbursement Agent, the Trustee and the Representative,
not later than one "Business Day" (as such term is defined
in the Indenture) prior to the date of any proposed
disbursement, a written notice substantially in the form of
Exhibit B attached hereto (the "Disbursement Certificate"),
requesting the disbursement of all the funds on deposit in
the Principal Account and specifying the manner and date of
the requested disbursement. The Disbursement Certificate
shall be executed by a duly authorized officer of the
Company and shall be completed and certified to be accurate
by the Company.
(b) In addition to the copy of the
Disbursement Certificate referred to above and the documents
referred to therein (but without duplication), the Company
shall have delivered, or caused the delivery, to the extent
available, to the Disbursement Agent, the Trustee and the
Representative copies of any written notice or other written
evidence issued by MOFTEC approving the Overall Development
Plan and any further information or certificates required
hereunder and such other information as the Trustee or the
Representative may reasonably require to determine the
accuracy of the information set forth in the Disbursement
Certificate.
(c) The Representative shall have
reviewed and approved the Disbursement Certificate and shall
have delivered a written notice substantially in the form of
Exhibit C attached hereto (the "Representative Certificate")
to the Disbursement Agent and the Trustee confirming its
approval of the request for disbursement of funds made in
the Disbursement Certificate..
(d) An Event of Default under the
Indenture shall not have occurred and be continuing.
(e) In a simultaneous transaction, (i)
the Company shall have extinguished its "Indebtedness" under
the "Existing Secured Debt" (as each such term is defined in
the Indenture); (ii) the Company and XCL-China Ltd., a
British Virgin Islands company wholly owned by the Company
("XCL-China"), and any other existing "Restricted
Subsidiaries" (as such term is defined in the Indenture)
(collectively, the "Subsidiary Guarantors"), shall have
executed and delivered to the Trustee a supplement to the
Indenture in a form reasonably acceptable to the Trustee
pursuant to which the Subsidiary Guarantors unconditionally
guarantees prompt and complete payment of all the Company's
Obligations under the Indenture and the Notes; and (iii) the
Company shall have executed and delivered to the Trustee the
Pledge Agreement in substantially the form of Exhibit C to
the Indenture (together with one or more certificates
evidencing all of the issued and outstanding capital stock
of all such Subsidiary Guarantors) pursuant to which the
Trustee is granted a prior perfected first lien on all of
the outstanding capital stock of all such Subsidiary
Guarantors for the ratable benefit of the Holders in
accordance with the provisions of the Pledge Agreement.
SECTION 5.3 Disbursement of Capitalized
Interest Account Funds. (a) Funds in the Capitalized
Interest Account shall be disbursed by the Disbursement
Agent as "Paying Agent" (as such term is defined in the
Indenture), subject to and in accordance with the provisions
of the Indenture, to the Holders of Notes on each "Interest
Payment Date" (as defined in the Indenture) through November
1, 1998 (including, without limitation, the Interest Payment
Date which falls on November 1, 1997, whether or not the
conditions to the disbursement of funds from the Principal
Account have been satisfied by such date) in the respective
amounts of the interest on the Notes due and payable on such
Interest Payment Dates in accordance with the provisions of
the Indenture and the Notes.
(b) Commencing with the first Business
Day after the funds on deposit in the Principal Account have
been disbursed to the Company in accordance with the
provisions of Section 5.2(a) and so long as no "Event of
Default" as defined in the Indenture, has occurred and is
continuing, all interest and other earnings on Collateral
Investments held in the Capitalized Interest Account shall
be for the Company's account and shall be disbursed to the
Company with such frequency and to such accounts as may be
designated by the Company in written instructions delivered
to the Disbursement Agent.
SECTION 5.4 Disbursements.
(a) In connection with a disbursement
pursuant to Section 5.1 , 5.2(a) or 5.3, the Disbursement
Agent shall sell the Collateral Investments held in the
applicable Collateral Accounts to fund the required
disbursements (1) in accordance with written instructions of
(i) the Trustee, in connection with a disbursement pursuant
to Section 5.1, or (ii) the Company, in connection with a
disbursement pursuant to Section 5.2(a) or 5.3(b), in either
case delivered to the Disbursement Agent at least one
Business Day prior to the proposed date of disbursement (as
set forth in either the Trustee's Certificate or the
Disbursement Certificate, respectively (the "Proposed Date
of Disbursement")) or (2) pursuant to Section 5.3(a).
Notwithstanding the foregoing, if, on the Proposed Date of
Disbursement, the cash on deposit in the relevant Collateral
Account is less than the amount of the disbursement to be
made on such date, the Disbursement Agent shall make such
disbursement as soon as practicable after liquidating all
such Collateral Investments in accordance with instructions
received from the Trustee or the Company, as the case may
be.
(b) If (1) the Company has delivered a
Disbursement Certificate, the Representative has delivered
the Representative Certificate and the other conditions
specified in Section 5.2 have been satisfied, the
Disbursement Agent shall make the requested disbursement
from the Principal Account in accordance with the
instructions set forth in the Disbursement Certificate by
the later to occur of (i) the Proposed Date of Disbursement
or (ii) the second Business Day after satisfaction of all
such conditions or (2) the Trustee shall have delivered its
Trustee's Certificate, the Disbursement Agent shall make the
requested disbursement from the Collateral Accounts on the
Business Day immediately preceding the Proposed Date of
Disbursement in accordance with the instructions contained
in the Trustee's Certificate (any such date of disbursement
hereinabove specified being hereinafter referred to as the
"Disbursement Date").
ARTICLE VI
COVENANTS
SECTION 6.1 Covenants of the Company.
The Company shall promptly, but no later than thirty (30)
days after its receipt of an invoice, pay the reasonable
fees of the Disbursement Agent and the Representative in
connection with this Agreement and their expenses as
provided in Section 8.4(b).
SECTION 6.2 Covenants of the Trustee.
The Trustee shall give prompt written notice to the
Disbursement Agent upon (i) the occurrence of an Event of
Default under the Indenture known to it and (ii) the cure or
waiver of any such Event of Default known to it.
ARTICLE VII
ARBITRATION
SECTION 7.1 Arbitration. Any
disagreement with respect to the release of funds from the
Collateral Accounts, or any related disagreement with
respect to the construction, meaning or effect of this
Agreement, arising out of this Agreement or concerning the
rights or obligations of the parties hereunder shall be
submitted to arbitration, one arbitrator to be chosen by the
Company, one by the Representative, and a third to be chosen
by the first two arbitrators before they enter into
arbitration. The arbitrators shall be impartial and shall
be active or retired persons with experience in foreign oil
and gas exploration and development and/or project finance
lending. The third arbitrator chosen by the first two
arbitrators shall also have experience in the petroleum
exploration and development industry and/or project finance
lending.
In the event that either party should fail to
choose an arbitrator within 15 days following a written
request by the other party to enter into arbitration, the
requesting party may choose two arbitrators who shall, in
turn, choose the third arbitrator. If the first two
arbitrators have not chosen a third arbitrator at the end of
15 days following the last day of the selection of the first
two arbitrators, each of the first two arbitrators shall
name three candidates, of whom the other arbitrator shall
eliminate two, and the determination of the third arbitrator
shall be made from the remaining two candidates by drawing
lots. Each party shall present its case to the arbitrators
within 15 days following the date of the appointment of the
third arbitrator in accordance with the then obtaining
procedures established by the American Arbitration
Association or such other rules and procedures as the
parties may mutually agree upon. The decision of a majority
of the three arbitrators shall be final and binding upon
both parties. Judgement may be entered upon the arbitration
award in any court having jurisdiction. Each party shall
bear the expense of its own arbitrator and shall jointly and
equally bear with the other the expense of the third
arbitrator and of the arbitration. In the event that the
two arbitrators are chosen by one party, as above provided,
the expense of the arbitrators and the arbitration shall be
equally divided between the two parties. Any such
arbitration shall take place in New Orleans, Louisiana
unless some other location is mutually agreed upon by the
parties. The arbitrators shall resolve any dispute arising
hereunder in a manner consistent with the intent of the
parties as expressed in this Agreement. The arbitrators
shall not award any punitive, consequential or exemplary
damages or any amount in excess of the amount to be released
from the Collateral Accounts. All rewards by the
arbitrators shall be payable solely from the amounts on
deposit in the Collateral Accounts.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Amendments, Etc. No
amendment, modification or waiver of any provision of this
Agreement may be made except by written agreement of the
parties hereto and, with respect to the Company and the
Trustee, in accordance with Article Nine of the Indenture.
SECTION 8.2 Notices, Etc. All notices
and other communications required or permitted hereunder
shall be in writing and shall be sufficiently given if made
by hand delivery, by telex, by facsimile or registered or
certified mail, postage prepaid, return receipt requested,
addressed as follows:
To the Disbursement Agent:
Fleet National Bank
777 Main Street
Hartford, CT 06115
Attention: Corporate Trust Administration
Ref: XCL Ltd.
To the Trustee:
Fleet National Bank
777 Main Street
Hartford, CT 06115
Attention: Corporate Trust Administration
Ref: XCL Ltd.
To the Representative:
Herman J. Schellstede & Associates, Inc.
154 Duperier Avenue
New Iberia, LA 70560
Attention: Mr. Herman J. Schellstede
To the Company:
XCL Ltd.
110 Rue Jean Lafitte
Lafayette, Louisiana 70508
Attention: Marsden W. Miller, Jr.
With a copy to:
Gordon Arata McCollam & Duplantis, L.L.P.
625 East Kaliste Saloom Road
P.O. Box 81829
Lafayette, Louisiana 70508
Attention: Benjamin B. Blanchet, Esq.
Any party hereto may by notice to each other party
designate such additional or different addresses as shall be
furnished in writing by such party. Any notice or
communication to any party shall be deemed to have been
given or made as of the date so delivered, if personally
delivered; when answered back, if telexed; when receipt is
acknowledged, if faxed; five calendar days after mailing, if
sent by registered or certified mail: and one business day
after mailing, if sent by overnight delivery service (except
that a notice of change of address shall not be deemed to
have been given until actually received by the addressee).
SECTION 8.3 No Waiver; Remedies. No
failure on the part of the Disbursement Agent, the Trustee
or any Holder to exercise, and no delay in exercising, any
right under this Agreement or the Security Agreement shall
operate as a waiver thereof, nor shall any single or partial
exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right.
SECTION 8.4 Indemnity and Expenses.
(a) The Company agrees to indemnify the
Trustee, the Holders, the Disbursement Agent and the
Representative (the "Indemnified Parties") from and against
any and all claims, losses and liabilities directly or
indirectly caused by, related to or resulting from this
Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities
resulting from (i) valid claims of the Company against such
Indemnified Party arising out of a breach of this Agreement
by such Indemnified Party or (ii) such Indemnified Party's
bad faith, gross negligence or willful misconduct, in either
case, as determined by a final judgment of a court of
competent jurisdiction.
(b) The Company shall, promptly upon
demand, pay to the Disbursement Agent, the Trustee and the
Representative the amount of any and all reasonable
expenses, including the reasonable fees and expenses of
their respective counsel and of any experts and agents, that
the Disbursement Agent, the Trustee or the Representative
may incur in connection with (i) this Agreement, (ii) the
exercise or enforcement of any rights hereunder or (iii) the
failure by the Company to perform or observe any of the
provisions hereof.
(c) The making of any disbursement or
part thereof shall not constitute an approval or acceptance
of the Development Program by the Trustee, the
Representative or the Disbursement Agent, nor shall it give
rise to any liability or responsibility related to:
(i) the terms, provisions and
conditions of the Development Program, its efficacy the
nature of the work, the quantity of the work, the rate
or progress in completion of the work, or the
sufficiency of materials or labor to be supplied in
connection implementing the Development Program; and
(ii) any errors, omissions,
inconsistencies or other defects of any nature in the
Development Program and any inquiry with respect to the
Development Program that either the Trustee, the
Disbursement Agent or the Representative may choose to
make, whether through any consulting engineer, agent or
employee or officer, shall be solely for the Trustee or
the Disbursement Agent's or the Representative's
information, and under no circumstances will any such
inspection be deemed to have been made for the purpose
of supervising or superintending the work or for the
information or protection of any right or interest of
any Persons other than the Trustee, the Disbursement
Agent or the Holders.
(d) In no event shall the Trustee, the
Disbursement Agent or the Representative be liable for any
Liens which may be filed by third parties against the
Collateral Accounts or the Company's direct and indirect
interests in the Zhao Dong Block, except as contemplated
herein, or in the Security Agreement or the Pledge
Agreement.
SECTION 8.5 Execution in Counterparts.
This Agreement may be executed in any number of separate
counterparts and by different parties hereto in separate
counterparts, each of which, when so executed, shall be
deemed to be an original and all of which, taken together,
shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Agreement
by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement. A complete set of
counterparts shall be lodged with the Trustee.
SECTION 8.6 Relationship of Trustee. The
Trustee and the Disbursement Agent shall not be under any
responsibility in respect of the validity or sufficiency of
this Agreement or the execution and delivery hereof or in
respect of the validity or sufficiency of this Agreement or
the execution and delivery hereof or in respect of the
validity or sufficiency of any document or agreement
delivered in connection herewith, including, but no limited
to, any document or agreement the forms of which are
attached hereto as Exhibits to this Agreement. Neither the
Trustee nor the Disbursement Agent shall be accountable for
the use or application of the funds in the Collateral
Accounts or for disbursements therefrom, except as set forth
in the Indenture and this Agreement.
SECTION 8.7 Governing Law. This
Agreement shall be construed in accordance with, and this
Agreement and the transactions described herein shall be
governed by, the laws of the State of New York as to all
issues, including (without limitation) issues of validity,
interpretation, effect, performance and remedies.
SECTION 8.8 Waiver of Jury Trial. EACH OF THE
COMPANY, THE TRUSTEE, THE DISBURSEMENT AGENT AND THE
REPRESENTATIVE HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR THE ACTIONS OF ANY PARTY
HERETO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT THEREOF.
SECTION 8.9 Certain Rights. Neither the
Disbursement Agent, the Representative, the Trustee, the
Company, nor any of the Holders shall have any rights with
respect to the Collateral Accounts except as specifically
set forth in the Indenture, the Security Agreement, and this
Agreement.
SECTION 8.10 Confidentiality. The parties
agree that they and their employees have maintained and will
maintain, in confidence, all data, summaries, reports or
information of all kinds, whether oral or written, provided
pursuant to this Agreement or acquired or developed in any
manner from the other party's personnel or files (the
"Confidential Information"), and that they have not and will
not reveal the same to any Persons not employed by the other
party except: (a) at the written direction of such party;
(b) to the extent necessary to comply with the law,
reporting requirements imposed by the Securities and
Exchange Commission, or the valid order of a court of
competent jurisdiction, in which event the disclosing party
shall so notify the other party as promptly as practicable
(and, if possible, prior to making any disclosure) and shall
seek confidential treatment of such information, or in
connection with any arbitration proceeding; (c) as part of
its normal reporting or review procedure to its parent
company, its auditors and its attorneys, and such parent
company, auditors and attorneys agree to be bound by the
provisions of this Section; (d) in order to enforce any of
its rights pursuant to, or in any other dispute with respect
to, this Agreement; (e) if, at the time of disclosure to the
recipient, the Confidential Information is in the public
domain; (f) if, after disclosure to the recipient, the
Confidential Information becomes part of the public domain
by written publication through no fault of the recipient; or
(g) to any one or more Holders and their representatives and
agents.
SECTION 8.11 Termination. This Agreement
shall terminate automatically thirty (30) days following
disbursement of all funds remaining in the Collateral
Accounts.
SECTION 8.12 Invalidity. If, for any reason
whatsoever, any one or more of the provisions of this
Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all
cases, it is the parties' intent that such circumstances
shall not have the effect of rendering any of the other
provisions of this Agreement imperative, enforceable or
invalid, and the inoperative, unenforceable or invalid
provision shall be construed as if it were written so as to
effectuate to the maximum extent possible, the parties'
intent.
SECTION 8.13 Assignment. This Agreement is
personal to the parties hereto, and the rights and duties of
any party hereunder shall not be assignable except with the
prior written consent of the other parties or as provided in
Section 2.4. In any event, this Agreement shall inure to
and be binding upon the parties and their successors and
permitted assigns.
SECTION 8.14 Entire Agreement. This
Agreement contains the entire agreement among the parties
with respect to the subject matter hereof and supersedes any
and all prior agreements, understandings and commitments,
whether oral or written. This Agreement may only be amended
as provided herein.
SECTION 8.15 Captions. Captions in this
Agreement are for convenience only and shall not be
considered or referred to in resolving questions or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above
written.
XCL LTD.
By:_____________________
Name:
Title:
FLEET NATIONAL BANK,
as Trustee
By:_________________________
Name:
Title:
FLEET NATIONAL BANK, as
Disbursement Agent
By:_________________________
Name:
Title:
HERMAN J. SCHELLSTEDE &
ASSOCIATES,
INC., as Representative
By:_________________________
Name:
Title: