RESTATED FORBEARANCE AGREEMENT
THIS RESTATED FORBEARANCE AGREEMENT (herein called this
"Agreement"), dated for reference purposes as of April 10, 1997
but effective for all purposes on May 20, 1997), is made by and
among XCL-Texas, Inc., a Texas corporation ("Borrower"), XCL
Ltd., a Delaware corporation ("Parent"), and ING (U.S.) Capital
Corporation ("ING").
RECITALS:
1. Borrower, Parent (then named "The Exploration Company of
Louisiana, Inc.") and ING (then named "International Nederlanden
(U.S.) Capital Corporation") have entered into a certain Credit
Agreement dated as of January 31, 1994 (as from time to time
amended, the "Credit Agreement"). ING is a party to the Credit
Agreement in the dual capacities of "Agent" and "Lender" (as
defined therein) and references herein to ING refer to it in both
such capacities. (As provided below, certain terms which are
defined in the Credit Agreement have the same meanings when used
herein.)
2. Pursuant to the Credit Agreement, Borrower has given the
Note to ING. Borrower has failed to make certain payments now
due and owing under the Credit Agreement and the Note, which
failure constitutes an Event of Default under the Credit
Agreement.
3. Parent has informed ING that Parent intends to offer for
sale (the "Notes Offering") to certain qualified institutional
buyers units (the "Units") consisting of Parent's senior secured
notes and common stock purchase warrants, substantially on the
terms (the "Offering Terms") described in Parent's Final Offering
Memorandum (the "Final Memorandum") dated May 13, 1997, and that
if the Notes Offering is successful Parent will use a portion of
the proceeds thereof to pay all outstanding Obligations under the
Credit Agreement in full. Parent has asked ING to agree, as
provided herein, from enforcing its rights under the Loan
Documents for the Standstill Period described below.
4. Parent has also asked ING to consent to XCL-China's
borrowing of the "China Loans" referred to below.
5. Borrower, Parent and ING have previously entered into
that certain Forbearance Agreement dated as of April 9, 1997 (the
"Original Forbearance agreement") and now wish to restate the
Original Agreement on the terms hereof.
NOW, THEREFORE, in consideration of the various
acknowledgments and agreements contained herein, and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby
acknowledge and agree as follows:
1. Definitions. Unless the context otherwise requires or
unless otherwise expressly defined herein, the terms defined in
the Credit Agreement shall have the same meanings whenever used
in this Agreement. As used herein:
"Standstill Period" shall mean the period from March 1, 1997
until 5:00 p.m., New York time, on May 30, 1997, provided that
the Standstill Period shall be extended to November 1, 1997 if,
by May 30, 1997, all of the following conditions have been met:
(a) Parent shall have received gross cash proceeds
before deduction of fees and expenses ("Debt Proceeds") of
$55,000,000 or more from the sale of Units pursuant to the
Notes Offering,and
(b) Parent shall have received gross cash proceeds
before deduction of fees and expenses ("Equity Proceeds")
of $15,000,000 or more from the sale of preferred stock and
warrants pursuant to an offering (the "Equity Offering")
made concurrently with the Notes Offering, and
(c) Either Parent shall have (i) received an
additional $10,000,000 in Equity Proceeds, or (ii) the
holders of approximately $8,000,000 and no more than
$10,000,000 of Parent's subordinated debt shall have
exchanged such subordinated debt for preferred stock and
warrants in Parent, either by (A) exchanging their
subordinated notes for such preferred stock and warrants or
(B) purchasing such preferred stock and warrants for cash
and, in a concurrent transaction, Parent prepaying their
subordinated debt in an aggregate face amount equal to the
net Equity Proceeds received from such purchase and sale.
(d) All of the Equity Proceeds received by Parent
are available to Parent for one or more of the following
purposes: to pay costs of issuance of the Notes Offering and
the Equity Offering, to pay current and future obligations
of XCL-China due on or before November 1, 1997, to pay
reasonable and necessary general and administrative expenses
through November 1, 1997 (not to exceed $2,375,000), to pay
the China Loans, or to pay the Obligations, and
(e) All of the Debt Proceeds received by Parent are
either available to Parent for the same purposes or, if
required under the terms of the Offering, are set apart and
held under Approved Escrow Agreements pending approval of an
overall development plan (a "Development Plan) by the
Ministry of Foreign Trade and Economic Cooperation of the
People's Republic of China or another governmental agency
with jurisdiction ("MOFTEC") for the C-D Field subject to
that certain Contract for Petroleum Exploration, Development
and Production on the ▇▇▇▇ ▇▇▇▇ Block, Bohai Bay, Shallow
Water Sea Area of the People's Republic of China between
China National Oil and Gas Exploration and Development
Corporation and XCL-China.
"Approved Cash Collateral Agreements" shall mean one or more
instruments and agreements satisfactory to Parent, ING, and the
principal underwriter of the Offering which provide, among other
things: (i) for some or all of the Debt Proceeds to be segregated
and held as collateral under a senior lien securing the senior
secured notes included in the Units until approval of a
Development Plan by MOFTEC, (ii) for such Debt Proceeds (and the
earnings thereon) to be the only collateral for such senior notes
until the Obligations owing to ING have been paid in full, (iii)
for ING to disclaim any security interest in such cash collateral
and the proceeds thereof, and (iv) for Debt Proceeds sufficient
to pay the Obligations in full to be paid directly to ING upon
approval of a Development Plan by MOFTEC.
2. Designated Defaults. As of March 15, 1997, the
aggregate unpaid principal balance on the Note is $17,279,008.59
and the unpaid interest which has accrued on such principal
balance through such date is $1,018,233.83. Various reimbursable
expenses of ING are also due and payable by Borrower. Borrower
has, on more than one occasion, failed to pay principal and
interest which has become due on the Note, and such failures
constitute multiple Events of Default under the Credit Agreement.
Such Events of Default, together with any further Events of
Default caused by Borrower's failure to make further payments of
principal and interest on the Note during the Standstill Period
and any present breaches or breaches by Borrower and Parent
during the Standstill Period of the following covenants under the
Credit Agreement:
Sections 5.1(g) and 5.2(b)(ii), insofar as such covenants
would be breached as a result of past-due or delinquent
Debt,
Section 5.2(d), insofar as such covenant would be breached
by the issuance of preferred stock of Parent or options or
warrants to purchase such preferred stock,
Section 5.2(f), insofar as such covenant would be breached
by the use of preferred stock of Parent to pay dividends on
Parent's common or preferred stock, and
Sections 5.2(l), (m), (n) or (o), insofar as such covenants
would be breached by any failure to comply with the terms
thereof
are herein called the "Designated Defaults".
3. Standstill; Consents.
(a) In consideration of the provisions hereof,
ING hereby agrees that during the Standstill Period it will
not (except as provided in Section 7 hereof) accelerate the
maturity of the Note or commence any lawsuit or any
foreclosure proceedings to collect the Note. Borrower and
Parent hereby acknowledge and agree that the execution,
delivery and effectiveness of this Agreement do not in any
way operate as a waiver of any Designated Default, that ING
has not waived any right, power or remedy under any Loan
Document, and that, after the end of the Standstill Period,
ING will possess all of the rights and remedies granted to
it under any Loan Document and all of its other legal and
equitable rights.
(b) ING hereby consents to XCL-China's borrowing
of up $6,200,000 (the "China Loans") from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (or
associated investors), the Estate of J. ▇▇▇▇▇ ▇▇▇▇▇▇, the J.
▇▇▇▇▇ ▇▇▇▇▇▇ Foundation (1976), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or other
investors on the following terms: (i) the China Loans must
be unsecured; (ii) the China Loans must be evidenced by one
or more promissory notes which are substantially in the form
attached as Exhibit B to the Original Forbearance Agreement,
(iii) all fundings of the China Loans must be paid directly
to Apache Corporation (or one of its subsidiaries) to
satisfy current obligations of XCL-China relating to the
▇▇▇▇ ▇▇▇▇ Block, Bohai Bay, China, (iv) ING must be given
prompt written notice of each China Loan and a right to
purchase any or all of the China Loans upon demand, at a
price equal to par plus accrued and unpaid interest, and (v)
if XCL-China makes any payment of the China Loans with funds
obtained by it from Parent or any of its other Subsidiaries,
such funds must be made available to XCL-China in the form
of an intercompany loan under a promissory note (acceptable
to ING in form and substance) made by XCL-China to Parent
and pledged by Parent to ING to secure the Obligations.
Parent hereby covenants that if any such payment of the
China Loans is made, Parent will pledge and deliver such a
promissory note to ING under documents acceptable to ING in
form and substance.
(c) ING hereby consents to, and waives any Default
or Event of Default which may otherwise be caused by, the
offering, sale and issuance of the Units on the Offering
Terms and the offering, sale and issuance of preferred stock
and warrants pursuant to the Equity Offering.
(d) ING hereby consents to the designation of XCL-
China as a "Restricted Subsidiary" under the Indenture
governing the Notes Offering for the limited purpose of the
covenant therein which is described in the Final Memorandum
under "-- Certain Covenants -- Limitation on Capital Stock
of Restricted Subsidiaries" but for no other purpose, and
Parent hereby agrees that, until all of the Obligations have
been paid in full, it will not designate XCL-China as such a
"Restricted Subsidiary" for any other purpose and will not
designate any of its other Subsidiaries as such a
"Restricted Subsidiary" for any purpose.
4. Representations, Warranties and Agreements. Each of
Parent and Borrower hereby represents, warrants, acknowledges,
admits and agrees as follows:
(a) This Agreement, the Credit Agreement and all
Loan Documents (herein, as amended, modified, restated or
supplemented from time to time, collectively called the
"Documents") are and shall continue to be legal, valid and
binding obligations of Borrower and Parent, enforceable
against Borrower and Parent in accordance with their
respective terms.
(b) All covenants, representations and warranties of
Borrower or of Parent which are made in the Documents are
hereby ratified, remade and reaffirmed in all respects
(provided that Parent and Borrower are not representing,
warranting or covenanting that no Designated Defaults now
exist or will exist during the Standstill Period).
(c) Each of Parent and Borrower has the corporate
power, and has been duly authorized by all requisite
corporate action, to execute and deliver this Agreement and
to perform its obligations hereunder. This Agreement has
been duly executed and delivered by Parent and Borrower.
(d) The execution, delivery and performance of this
Agreement by Borrower and by Parent do not and will not (i)
violate any law, rule, regulation or court order to which
Borrower or Parent is subject, (ii) conflict with or result
in a breach of their respective articles of incorporation or
by-laws or any agreement or instrument to which either of
them is a party or by which it or its properties are bound,
or (iii) result in the creation or imposition of any lien,
security interest or encumbrance on any property of Borrower
or Parent, whether not owned or hereafter acquired, other
than liens in favor of ING.
(e) Borrower has no defense, counterclaim or setoff
with respect to the Obligations or the Documents (any such
setoffs, defenses or counterclaims being hereby waived and
released by Borrower and Parent).
(f) The recitals set forth above are true and
accurate and are an operative part of this Agreement.
(g) Concurrently with the Original Forbearance
Agreement, Parent has executed and delivered to ING a First
Amendment to Stock Pledge Agreement by means of which Parent
granted to ING a valid first priority lien and security
interest in all issued and outstanding shares of XCL-Land,
Ltd. and in all proceeds thereof. ING has and will continue
to have a valid first priority lien and security interest in
all Collateral in which such any such lien or security
interest has been granted (or has purportedly been granted)
to ING, and each of Borrower and Parent expressly reaffirms
all such security interests and liens and all Documents
containing any grant thereof. In particular and without
limitation, Parent hereby ratifies and confirms its pledge
to ING of all of the issued and outstanding shares of the
following companies (all shares in each such company being
evidenced by the share certificate listed opposite such
company):
XCL-Acquisitions, Inc. Certificate #1
XCL-China Ltd. Certificate #1
XCL-Exploration & Production, Inc.
(now named The Exploration Company
of Louisiana, Inc.) Certificate #1
XCL-Texas, Inc. Certificate #1
XCL-Land, Ltd. Certificate #1
Parent hereby confirms (i) that it has no subsidiaries other
than the five companies listed immediately above, XCL
Coalbed Methane Ltd. (a company with no material assets) and
XCL China Lube Oil Ltd. (a wholly owned subsidiary of XCL-
China) and (ii) that all share certificates issued by such
five companies have been delivered in pledge to ING.
(h) Borrower and/or Parent will pay all of the
Obligations in full in cash, including principal, interest,
fees, expenses, and all other Obligations, either (i) at the
time of consummation of the Notes Offering, if no Approved
Cash Collateral Agreements are required in connection
therewith, or (ii) at the time of the first release of funds
from the Approved Cash Collateral Agreements, if Approved
Cash Collateral Agreements are required in connection with
the Notes Offering.
(i) Borrower may, and will, use (or cause XCL-China
to use) all of the Equity Proceeds for the following
purposes: first, to pay costs of issuance of the Note
Offering and the Equity Offering and to repay the China
Loans; second, to pay current obligations of XCL-China and
to establish a reserve for such obligations (under terms
reasonably acceptable to ING) pending release of the Debt
Proceeds; third, to pay reasonable and necessary general and
administrative expenses through November 1, 1997 (not to
exceed $2,375,000); and fourth, to the extent any Equity
Proceeds remain, to pay the Obligations.
(j) Within five Business Days after the closing of
the Equity Offering Borrower or Parent shall deposit $50,000
with ING's counsel (▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.) to be applied
towards legal fees and expenses which are reimbursable under
the Credit Agreement (both past and future), including fees
and expenses of ING's counsel incurred in connection with
the negotiation and preparation of this Agreement.
5. Amendment to Credit Agreement. Section 5.2(e)(iii)
of the Credit Agreement is hereby amended in its entirety to read
as follows:
"(iii) sales of assets which are described in the
definition of "General Funds" in the first sentence of
Section 5.1(p), provided that:
(1) if Parent sells all of its direct or indirect
stockholdings in the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Subsidiaries or if
the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Subsidiaries sell any interests in
the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Tract, the proceeds of such sales
must, to the extent thereof, promptly be used as
follows: first, to pay up to $5,200,000 (plus accrued
and unpaid interest thereon) in Restricted Debt of the
▇▇▇▇▇▇▇ ▇▇▇▇▇ Subsidiaries secured by such tract;
second, to pay the China Loans or, if the China Loans
have been paid by the time such proceeds are received,
to establish a reserve of up to $3,100,000, under terms
reasonably acceptable to Agent, for current and future
obligations of XCL-China due on or before September 30,
1997; and third, to pay the Obligations;
(2) if XCL-China sells or farms out any of its
assets in China, the proceeds of such sales must be
made available to Borrower or Parent first used to pay
the China Loans and then used to pay the Obligations."
6. Forbearance Defaults. Each of the following shall
constitute a Forbearance Default:
(a) the existence of any Event of Default (other
than a Designated Default) under the Documents or the
documents governing the China Loans;
(b) Borrower shall fail to keep or perform any of
the terms, obligations, covenants or agreements contained
herein; or
(c) any representation or warranty of Borrower
herein shall be false, misleading or incorrect in any
material respect.
7. Rights and Remedies of ING. During the continuance
of a Forbearance Default, ING shall be immediately entitled to
enforce all of its rights and remedies under the Documents,
including without limitation its rights to accelerate the
principal balance of the Note.
8. Waivers. Each of Borrower and Parent hereby waives
and affirmatively agrees not to allege or otherwise pursue any or
all defenses, affirmative defenses, counterclaims, claims, causes
of action, setoffs or other rights that it may have to contest
(a) any Designated Defaults; (b) any provision of the Documents
or this Agreement; (c) any lien or security interest of ING in
any property, whether real or personal, tangible or intangible,
or any right or other interest, now or hereafter arising in
connection with the Collateral; (d) the actions and inactions of
ING in administering the Documents and the financing arrangements
between Borrower and ING since the execution of the original
Credit Agreement; or (e) the rights of ING to all of the profits,
proceeds and other benefits from the Collateral.
9. Release. Each of Borrower and Parent hereby
releases, remises, acquits and forever discharges ING and ING's
employees, agents, representatives, consultants, attorneys,
fiduciaries, officers, directors, partners, predecessors,
successors and assigns, subsidiary corporations, parent
corporations, and related corporate divisions (all of the
foregoing hereinafter called the "Released Parties"), from any
and all actions and causes of action, judgments, executions,
suits, debts, claims, demands, liabilities, obligations, damages
and expenses of any and every character, known or unknown, direct
and/or indirect, at law or in equity, of whatsoever kind or
nature, for or because of any matter or things done, omitted or
suffered to be done by any of the Released Parties prior to and
including the date of execution hereof, and in any way directly
or indirectly arising out of or in any way connected to this
Agreement or the Documents (all of the foregoing hereinafter
called the "Released Matters"). Each of Borrower and Parent
acknowledges that the standstill by ING pursuant to Section 3
above is in full satisfaction of all or any alleged injuries or
damages arising in connection with the Released Matters.
10. Effect and Construction of Agreement. Except as
expressly provided herein, the Documents shall remain in full
force and effect in accordance with their respective terms, and
this Agreement shall not be construed to:
(a) impair the validity, perfection or priority of
any lien or security interest securing the Obligations;
(b) waive or impair any rights, powers or remedies
of ING under, or constitute a waiver of, any provision of
the Documents upon termination of the Standstill Period; or
(c) constitute an agreement by ING or require ING to
extend the Standstill Period, grant additional forbearance
periods, or extend the term of the Credit Agreement or the
time for payment of any of the Obligations.
11. Conflicts. In the event of any express conflict
between the terms of this Agreement and any of the Documents,
this Agreement shall govern.
12. Presumptions. Borrower acknowledges that it has
consulted with and been advised by its counsel and such other
experts and advisors as it has deemed necessary in connection
with the negotiation, execution and delivery of this agreement
and has participated in the drafting hereof. Therefore, this
Agreement shall be construed without regard to any presumption or
rule requiring that it be construed against any one party causing
this Agreement or any part hereof to be drafted.
13. Conditions of Effectiveness. This Agreement shall
become effective upon satisfaction of the following conditions
precedent: (a) ING shall have received four counterparts of this
Agreement, executed by Borrower and Parent and consented and
agreed to by the persons named as signatories to the "Consent and
Agreement" paragraph following the signatures hereto of Borrower,
Parent and ING, and (b) Parent shall have issued, and ING shall
have received, warrants to ING, in the same form as the warrants
issued in connection with the China Loans (with such minor
changes therein as ING shall reasonably request) and in an amount
equal to two-thirds of the warrants issued in connection with the
China Loans.
14. Entire Agreement. This Agreement restates and amends
the Original Forbearance Agreement in its entirety. This
Agreement sets forth the entire agreement among the parties
hereto with respect to the subject matter hereof. Neither
Borrower nor Parent has received or relied on any agreements,
representations, or warranties of ING, except as specifically set
forth herein. Borrower acknowledges that it is not relying upon
oral representations or statements inconsistent with the terms
and provisions of this Agreement.
15. Loan Document. This Agreement is a Loan Document,
and all provisions in the Credit Agreement pertaining to Loan
Documents (including Section 9.10 of the Credit Agreement, which
provides for waiver of jury trial) apply hereto. This Agreement
may be separately executed in counterparts and by the different
parties hereto in separate counterparts, each of which when so
executed shall be deemed to constitute one and the same
Agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the
date first above written.
XCL-TEXAS, INC.
By:---------------------
Name:-------------------
Title:------------------
XCL LTD.
By:---------------------
Name:-------------------
Title:------------------
ING (U.S.) CAPITAL CORPORATION
By:---------------------
Name:-------------------
Title:------------------
CONSENT AND AGREEMENT
Each of the undersigned hereby (a) consents to the
provisions of the foregoing Restated Forbearance Agreement and
the transactions contemplated therein, (b) hereby ratifies and
confirms its respective Guaranty dated as of January 31, 1994
(or, in the case of XCL-China Ltd., dated as of April 9, 1997),
made by it for the benefit of Agent, and all other Loan Documents
heretofore made by it, (c) agrees that its obligations and
covenants under such Guaranty and Loan Documents are unimpaired
by such Restated Forbearance Agreement and are and shall remain
in full force and effect, and (d) releases, remises, acquits and
forever discharges all of the Released Parties referred to above
from any and all of the Released Matters referred to above and
acknowledges that the standstill by ING pursuant to Section 3
above is in full satisfaction of all or any alleged injuries or
damages arising in connection with the Released Matters.
XCL, LTD.
By:--------------------
Name:------------------
Title:-----------------
XCL-ACQUISITIONS, INC.
By:--------------------
Name:------------------
Title:-----------------
THE EXPLORATION COMPANY OF
LOUISIANA, INC. (formerly
named XCL Exploration &
Production, Inc.)
By:--------------------
Name:------------------
Title:-----------------
XCL-CHINA LTD.
By:--------------------
Name:------------------
Title:-----------------