FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT (herein called this "Agreement")
is made as of April 9, 1997, by and among XCL-Texas, Inc., a
Texas corporation ("Borrower"), XCL Ltd., a Delaware corporation
("Parent"), and ING (U.S.) Capital Corporation ("ING").
RECITALS:
1. Borrower, Parent (then named "The Exploration Company of
Louisiana, Inc.") and ING (then named "International Nederlanden
(U.S.) Capital Corporation") have entered into a certain Credit
Agreement dated as of January 31, 1994. ING is a party to the
Credit Agreement in the dual capacities of "Agent" and "Lender"
(as defined therein) and references herein to ING refer to it in
both such capacities. (As provided below, certain terms which
are defined in the Credit Agreement have the same meanings when
used herein.)
2. Pursuant to the Credit Agreement, Borrower has given the
Note to ING. Borrower has failed to make certain payments now
due and owing under the Credit Agreement and the Note, which
failure constitutes an Event of Default under the Credit
Agreement.
3. Parent has informed ING that Parent intends to offer for
sale (the "Notes Offering") to certain qualified institutional
buyers units (the "Units") consisting of Parent's senior secured
discount notes and common stock purchase warrants, substantially
as described in Parent's Preliminary Offering Memorandum, Draft
No. 11, dated 3/20/97, and that if the Notes Offering is
successful Parent will use a portion of the proceeds thereof to
pay all outstanding Obligations under the Credit Agreement in
full. Parent has asked ING to agree, as provided herein, from
enforcing its rights under the Loan Documents for the Standstill
Period described below.
4. Parent has also asked ING to consent to XCL-China's
borrowing of the "China Loans" referred to below.
NOW, THEREFORE, in consideration of the various
acknowledgments and agreements contained herein, and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby
acknowledge and agree as follows:
Section 1. Definitions. Unless the context otherwise requires
or unless otherwise expressly defined herein, the terms defined
in the Credit Agreement shall have the same meanings whenever
used in this Agreement. As used herein:
"Standstill Period" shall mean the period from March 1, 1997
until 5:00 p.m., New York time, on May 30, 1997, provided that
the Standstill Period shall be extended to September 30, 1997 if,
by May 30, 1997, all of the following conditions have been met:
(a) Parent shall have received gross cash proceeds
before deduction of fees and expenses ("Debt Proceeds") of
$55,000,000 or more from the sale of Units pursuant to the
Notes Offering, and
(b) Parent shall have received gross cash proceeds
before deduction of fees and expenses ("Equity Proceeds")
of $15,000,000 or more from the sale of preferred stock and
warrants pursuant to an offering made concurrently with the
Notes Offering, and
(c) Either Parent shall have (i) received an
additional $10,000,000 in Equity Proceeds, or (ii) the
holders of at least $10,000,000 of Parent's subordinated
debt shall have exchanged such amount of subordinated debt
for preferred stock and warrants in Parent, and
(d) All of the Equity Proceeds received by Parent
are available to Parent for one or more of the following
purposes: to pay costs of issuance, to pay current and
future obligations of XCL-China due on or before September
30, 1997, to pay reasonable and necessary general and
administrative expenses through September 30, 1997 (not to
exceed $2,000,000), to pay the China Loans, or to pay the
Obligations, and
(e) All of the Debt Proceeds received by Parent are
either available to Parent for the same purposes or, if
required under the terms of the Offering, are set apart and
held under Approved Escrow Agreements pending approval of a
development plan by the Joint Management Committee created
pursuant to the Contract for Petroleum Exploration,
Development and Production on the Xxxx Xxxx Block, Bohai
Bay, Shallow Water Sea Area of the People's Republic of
China between China National Oil and Gas Exploration and
Development Corporation and XCL-China.
"Approved Escrow Agreements" shall mean one or more
instruments and agreements satisfactory to Parent, ING, and the
principal underwriter of the Offering which provide (i) for some
or all of the Debt Proceeds to be segregated and held as
collateral under a senior lien securing the senior secured
discount notes included in the Units until approval of such
development plan, and (ii) for Debt Proceeds sufficient to pay
the Obligations in full to be paid directly to ING upon approval
of such development plan.
Section 2. Designated Defaults. As of March 15, 1997, the
aggregate unpaid principal balance on the Note is $17,279,008.59
and the unpaid interest which has accrued on such principal
balance through such date is $1,018,233.83. Various reimbursable
expenses of ING are also due and payable by Borrower. Borrower
has, on more than one occasion, failed to pay principal and
interest which has become due on the Note, and such failures
constitute multiple Events of Default under the Credit Agreement.
Such Events of Default, together with any further Events of
Default caused by Borrower's failure to make further payments of
principal and interest on the Note during the Standstill Period
and any present breaches or breaches by Borrower and Parent
during the Standstill Period of the following covenants under the
Credit Agreement:
Sections 5.1(g) and 5.2(b)(ii), insofar as such covenants
would be breached as a result of past-due or delinquent
Debt,
Section 5.2(d), insofar as such covenant would be breached
by the issuance of preferred stock of Parent or options or
warrants to purchase such preferred stock,
Section 5.2(f), insofar as such covenant would be breached
by the use of preferred stock of Parent to pay dividends on
Parent's common or preferred stock, and
Sections 5.2(l), (m), (n) or (o), insofar as such covenants
would be breached by any failure to comply with the terms
thereof
are herein called the "Designated Defaults".
Section 3. Standstill; Consent.
(a) In consideration of the provisions hereof,
ING hereby agrees that it will not, during the Standstill
Period, accelerate the maturity of the Note or commence any
lawsuit or any foreclosure proceedings to collect the Note.
Borrower and Parent hereby acknowledge and agree that the
execution, delivery and effectiveness of this Agreement do
not in any way operate as a waiver of any Designated
Default, that ING has not waived any right, power or remedy
under any Loan Document, and that, after the end of the
Standstill Period, ING will possess all of the rights and
remedies granted to it under any Loan Document and all of
its other legal and equitable rights.
(b) ING hereby consents to XCL-China's borrowing
of up $6,200,000 (the "China Loans") from Xxxxx Xxxxxxxx (or
associated investors), the Estate of J. Xxxxx Xxxxxx, the J.
Xxxxx Xxxxxx Foundation (1976), Xxxxxxx X. Xxxxxx or other
investors on the following terms: (i) the China Loans must
be unsecured; (ii) the China Loans must be evidenced by one
or more promissory notes which are substantially in the form
attached hereto as Exhibit B, (iii) all fundings of the
China Loans must be paid directly to Apache Corporation (or
one of its subsidiaries) to satisfy current obligations of
XCL-China relating to the Xxxx Xxxx Block, Bohai Bay, China,
(iv) ING must be given prompt written notice of each China
Loan and a right to purchase any or all of the China Loans
upon demand, at a price equal to par plus accrued and unpaid
interest, and (v) if XCL-China makes any payment of the
China Loans with funds obtained by it from Parent or any of
its other Subsidiaries, such funds must be made available to
XCL-China in the form of an intercompany loan under a
promissory note (acceptable to ING in form and substance)
made by XCL-China to Parent and pledged by Parent to ING to
secure the Obligations. Parent hereby covenants that if any
such payment of the China Loans is made, Parent will pledge
and deliver such a promissory note to ING under documents
acceptable to ING in form and substance.
Section 4. Representations, Warranties and Agreements. Each of
Parent and Borrower hereby represents, warrants, acknowledges,
admits and agrees as follows:
(a) This Agreement, the Credit Loan Agreement and
all Loan Documents (herein, as amended, modified, restated
or supplemented from time to time, collectively called the
"Documents") are and shall continue to be legal, valid and
binding obligations of Borrower and Parent, enforceable
against Borrower and Parent in accordance with their
respective terms.
(b) All covenants, representations and warranties of
Borrower or of Parent which are made in the Documents are
hereby ratified, remade and reaffirmed in all respects
(provided that Parent and Borrower are not representing,
warranting or covenanting that no Designated Defaults now
exist or will exist during the Standstill Period).
(c) Each of Parent and Borrower has the corporate
power, and has been duly authorized by all requisite
corporate action, to execute and deliver this Agreement and
to perform its obligations hereunder. This Agreement has been
duly executed and delivered by Parent and Borrower.
(d) The execution, delivery and performance of this
Agreement by Borrower and by Parent do not and will not (i) violate
any law, rule, regulation or court order to which Borrower or
Parent is subject, (ii) conflict with or result in a breach
of their respective articles of incorporation or by-laws or
any agreement or instrument to which either of them is a
party or by which it or its properties are bound, or (iii)
result in the creation or imposition of any lien, security
interest or encumbrance on any property of Borrower or
Parent, whether not owned or hereafter acquired, other than
liens in favor of ING.
(e) Borrower has no defense, counterclaim or setoff with
respect to the Obligations or the Documents (any such
setoffs, defenses or counterclaims being hereby waived and
released by Borrower and Parent).
(f) The recitals set forth above are true and accurate and are
an operative part of this Agreement.
(g) Concurrently herewith Parent is executing and delivering
to ING a First Amendment to Stock Pledge Agreement by means of
which Parent is granting to ING a valid first priority lien and
security interest in all issued and outstanding shares of
XCLLand, Ltd. and in all proceeds thereof. ING has and will
continue to have a valid first priority lien and security
interest in all Collateral in which such any such lien or
security interest has been granted (or has purportedly been
granted) to ING, and each of Borrower and Parent expressly
reaffirms all such security interests and liens and all
Documents containing any grant thereof. In particular and
without limitation, Parent hereby ratifies and confirms its
pledge to ING of all of the issued and outstanding shares of
the following companies (all shares in each such company
being evidenced by the share certificate listed opposite
such company):
XCL-Acquisitions, Inc. Certificate #1
XCL-China Ltd. Certificate #1
XCL-Exploration & Production, Inc.
(now named The Exploration Company
of Louisiana, Inc.) Certificate #1
XCL-Texas, Inc. Certificate #1
Parent hereby confirms (i) that it has no subsidiaries other
than the four companies listed immediately above, XCL
Coalbed Methane Ltd. (a company with no material assets),
XCL China Lube Oil Ltd. (a wholly owned subsidiary of XCL
China) and XCL-Land, Ltd. and (ii) that all share
certificates issued by such four companies or by XCL-Land,
Ltd. have been delivered in pledge to ING.
(h) Borrower and/or Parent will pay all of the Obligations in
full in cash, including principal, interest, fees, expenses,
and all other Obligations, either (i) at the time of
consummation of the Notes Offering, if no Approved Escrow
Agreements are required in connection therewith, or (ii) at
the time of the first release of funds from the Approved
Escrow Agreements, if Approved Escrow Agreements are
required in connection with the Notes Offering.
(i) Borrower may, and will, use (or cause XCL-China to use)
all of the Equity Proceeds for the following purposes: first, to
pay costs of issuance and to repay the China Loans; second,
to pay current obligations of XCL-China and to establish a
reserve for such obligations (under terms reasonably
acceptable to ING) pending release of the Debt Proceeds;
third, to pay reasonable and necessary general and
administrative expenses through September 30, 1997 (not to
exceed $2,000,000); and fourth, to the extent any Equity
Proceeds remain, to pay the Obligations.
(j) Within five Business Days after the date hereof,
(i) Borrower or Parent shall deposit $35,000 with ING's
counsel (Xxxxxxxx & Xxxxxx, P.C.) to be applied towards
legal fees and expenses which are reimbursable under the
Agreement (both past and future), including all fees and
expenses of ING's counsel incurred in connection with the
negotiation and preparation of this Agreement, and (ii)
Parent shall issue warrants to ING, in the same form as the
warrants issued in connection with the China Loans (with
such minor changes therein as ING shall reasonably request)
and in an amount equal to two-thirds of the warrants issued
in connection with the China Loans.
Section 5. Amendment to Credit Agreement. Section 5.2(e)(iii)
of the Credit Agreement is hereby amended in its entirety to read
as follows:
"(iii) sales of assets which are described in the
definition of "General Funds" in the first sentence of
Section 5.1(p), provided that:
(1) if Parent sells all of its direct or indirect
stockholdings in the Xxxxxxx Xxxxx Subsidiaries or if
the Xxxxxxx Xxxxx Subsidiaries sell any interests in
the Xxxxxxx Xxxxx 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
Xxxxxxx Xxxxx Subsidiaries secured by such tract;
second, to pay the China Loans or, if the China Loans
have been paid by the time such proceeds are received,
to establish a reserve of up to $3,100,000, under terms
reasonably acceptable to Agent, for current and future
obligations of XCL-China due on or before September 30,
1997; and third, to pay the Obligations;
(2) if XCL-China sells or farms out any of its
assets in China, the proceeds of such sales must be
made available to Borrower or Parent first used to pay
the China Loans and then used to pay the Obligations."
Section 6. Forbearance Defaults. Each of the following shall
constitute a Forbearance Default:
(a) the existence of any Event of Default (other than
a Designated Default) under the Documents or the documents
governing the China Loans;
(b) Borrower shall fail to keep or perform any of the
terms, obligations, covenants or agreements contained herein;
or
(c) any representation or warranty of Borrower herein
shall be false, misleading or incorrect in any material
respect.
Section 7. Rights and Remedies of ING. During the continuance
Upon the occurrence of a Forbearance Default, ING shall be
immediately entitled to enforce all of its rights and remedies
under the Documents, including without limitation its rights to
accelerate the principal balance of the Note.
Section 8. Waivers. Each of Borrower and Parent hereby waives
and affirmatively agrees not to allege or otherwise pursue any or
all defenses, affirmative defenses, counterclaims, claims, causes
of action, setoffs or other rights that it may have to contest
(a) any Designated Defaults; (b) any provision of the Documents
or this Agreement; (c) any lien or security interest of ING in
any property, whether real or personal, tangible or intangible,
or any right or other interest, now or hereafter arising in
connection with the Collateral; (d) the actions and inactions of
ING in administering the Documents and the financing arrangements
between Borrower and ING since the execution of the original
Credit Agreement; or (e) the rights of ING to all of the profits,
proceeds and other benefits from the Collateral.
Section 9. Release. Each of Borrower and Parent hereby
releases, remises, acquits and forever discharges ING and ING's
employees, agents, representatives, consultants, attorneys,
fiduciaries, officers, directors, partners, predecessors,
successors and assigns, subsidiary corporations, parent
corporations, and related corporate divisions (all of the
foregoing hereinafter called the "Released Parties"), from any
and all actions and causes of action, judgments, executions,
suits, debts, claims, demands, liabilities, obligations, damages
and expenses of any and every character, known or unknown, direct
and/or indirect, at law or in equity, of whatsoever kind or
nature, for or because of any matter or things done, omitted or
suffered to be done by any of the Released Parties prior to and
including the date of execution hereof, and in any way directly
or indirectly arising out of or in any way connected to this
Agreement or the Documents (all of the foregoing hereinafter
called the "Released Matters"). Each of Borrower and Parent
acknowledges that the standstill by ING pursuant to Section 3
above is in full satisfaction of all or any alleged injuries or
damages arising in connection with the Released Matters.
Section 10. Effect and Construction of Agreement. Except as
expressly provided herein, the Documents shall remain in full
force and effect in accordance with their respective terms, and
this Agreement shall not be construed to:
(a) impair the validity, perfection or priority of
any lien or security interest securing the Obligations;
(b) waive or impair any rights, powers or remedies of
ING under, or constitute a waiver of, any provision of the
Documents upon termination of the Standstill Period; or
(c) constitute an agreement by ING or require ING to
extend the Standstill Period, grant additional forbearance
periods, or extend the term of the Credit Loan Agreement or
the time for
payment of any of the Obligations.
Section 11. Conflicts. In the event of any express conflict
between the terms of this Agreement and any of the Documents,
this Agreement shall govern.
Section 12. Presumptions. Borrower acknowledges that it has
consulted with and been advised by its counsel and such other
experts and advisors as it has deemed necessary in connection
with the negotiation, execution and delivery of this agreement
and has participated in the drafting hereof. Therefore, this
Agreement shall be construed without regard to any presumption or
rule requiring that it be construed against any one party causing
this Agreement or any part hereof to be drafted.
Section 13. Conditions of Effectiveness. This Agreement shall
become effective upon satisfaction of the following conditions
precedent: (a) ING shall have received four counterparts of this
Agreement, executed by Borrower and Parent and consented and
agreed to by the persons named as signatories to the "Consent and
Agreement" paragraph following the signatures hereto of Borrower,
Parent and ING, and (b) ING shall have received four counterparts
of a Guaranty by XCL-China in the form attached as Exhibit A
hereto.
Section 14. Entire Agreement. This Agreement sets forth the
entire agreement among the parties hereto with respect to the
subject matter hereof. Neither Borrower nor Parent has received
or relied on any agreements, representations, or warranties of
ING, except as specifically set forth herein. Borrower
acknowledges that it is not relying upon oral representations or
statements inconsistent with the terms and provisions of this
Agreement.
Section 15. Loan Document. This Agreement is a Loan Document,
and all provisions in the Credit Agreement pertaining to Loan
Documents (including Section 9.10 of the Credit Agreement, which
provides for waiver of jury trial) apply hereto. This Agreement
may be separately executed in counterparts and by the different
parties hereto in separate counterparts, each of which when so
executed shall be deemed to constitute one and the same
Agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the
date first above written.
XCL-TEXAS, INC.
By:_______________________________
Name:
Title:
XCL LTD.
By:_________________________________
Name:
Title:
ING (U.S.) CAPITAL CORPORATION
By:___________________________________
Name:
Title:
CONSENT AND AGREEMENT
Each of the undersigned hereby (a) consents to the
provisions of the foregoing Forbearance Agreement and the
transactions contemplated therein, (b) hereby ratifies and
confirms its respective Guaranty dated as of January 31, 1994
(or, in the case of XCL-China Ltd., dated of even date herewith),
made by it for the benefit of Agent, and all other Loan Documents
heretofore made by it, (c) agrees that its obligations and
covenants under such Guaranty and Loan Documents are unimpaired
by such Forbearance Agreement and are and shall remain in full
force and effect, and (d) releases, remises, acquits and forever
discharges all of the Released Parties referred to above from any
and all of the Released Matters referred to above and
acknowledges that the standstill by ING pursuant to Section 3
above is in full satisfaction of all or any alleged injuries or
damages arising in connection with the Released Matters.
XCL, LTD.
By:_____________________________
Name:
Title:
XCL-ACQUISITIONS, INC.
By:______________________________
Name:
Title:
THE EXPLORATION COMPANY OF
LOUISIANA, INC. (formerly
named XCL Exploration &
Production, Inc.)
By:______________________________
Name:
Title:
XCL-CHINA LTD.
By:______________________________
Name:
Title:
