Execution Copy
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PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
BENZ ENERGY INC.
AS SELLER
AND
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
AND
ENERGY CAPITAL INVESTMENT COMPANY PLC
AS BUYER
DATED AUGUST 19, 1999
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated August 19, 1999, is made by
and between Benz Energy Inc., a Delaware corporation ("SELLER"), EnCap Equity
1996 Limited Partnership, a Texas limited partnership ("ENCAP LP"), and
Energy Capital Investment Company PLC, an English investment company ("ECIC")
(EnCap LP and ECIC being sometimes collectively called "BUYER").
WITNESSETH:
WHEREAS, Seller desires to sell the Preferred Shares to Buyer, and
Buyer desires to purchase the Preferred Shares from Seller,
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained herein, Seller and Buyer do hereby
agree as follows:
ARTICLE I -- DEFINITIONS, REFERENCES AND CONSTRUCTION
SECTION 1.1. CERTAIN DEFINED TERMS. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
SECTION 1.1 or in the section, subsections or other subdivisions referred to
below:
"AFFILIATE" shall mean, as to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with, such Person. A
Person shall be deemed to be "controlled by" any other Person if such other
Person possesses, directly or indirectly, power: (a) to vote 20% or more of
the securities (on a fully diluted basis) having ordinary voting power for
the election of directors or managing general partners; or (b) to direct or
cause the direction of the management and policies of such Person whether by
contract or otherwise.
"AGREEMENT" shall mean this agreement, as hereafter changed, amended
or modified in accordance with the terms hereof.
"BUSINESS DAY" shall mean a day, other than a Saturday or Sunday, on
which commercial banks are open for business with the public in Houston,
Texas.
"BUYER" shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
"CLOSING" and "CLOSING DATE" shall have the meanings assigned to
such terms in SECTION 6.1.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED" shall refer to the consolidation of any Person, in
accordance with GAAP, with its properly consolidated subsidiaries. References
herein to a Person's Consolidated financial statements, financial position,
financial condition, liabilities, and the like refer to the
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consolidated financial statements, financial position, financial condition,
liabilities, and the like of such Person and its properly consolidated
subsidiaries.
"DEBT RESTRUCTURE AGREEMENT" means that certain Debt Restructure
Agreement to be dated on or about August 20, 1999 between Seller, Texstar, as
such term is defined hereinafter, ▇▇▇▇▇▇▇ ▇▇▇▇, in his capacity as Collateral
Agent, ▇▇▇▇▇▇▇ ▇▇▇▇, in his capacity as Deposit Agent, Participating
Creditors and solely for the purposes indicated in Section 25.09, Aquila
Energy Capital Corporation.
"DISCLOSURE DOCUMENTS" shall refer to the Initial Financial
Statements, the loan documents under the Senior Credit Facility, the Debt
Restructure Agreement and Seller's Form S-B2 Initial Registration Statement
filed with the Securities and Exchange Commission on August __, 1999..
"ECIC" shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
"ENCAP LP" shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
"ENVIRONMENTAL LAWS" shall mean any and all laws relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, together with all rules and regulations
promulgated with respect thereto.
"ERISA AFFILIATE" shall mean Seller and all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control that, together with Seller, are treated as
a single employer under Section 414 of the Internal Revenue Code of 1986, as
amended.
"ERISA PLAN" shall mean any employee pension benefit plan subject to
Title IV of ERISA maintained by any ERISA Affiliate with respect to which any
Restricted Person has a fixed or contingent liability.
"FISCAL QUARTER" shall mean a three-month period ending on March 31,
June 30, September 30, or December 31 of any year.
"FISCAL YEAR" shall mean a twelve-month period ending on December 31
of any year.
"GAAP" shall mean those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally
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recognized successor) and which, in the case of Seller and its Consolidated
subsidiaries, are applied for all periods after the date hereof in a manner
consistent with the manner in which such principles and practices were
applied to the audited Initial Financial Statements, as such term is defined
herein. If any change in any accounting principle or practice is required by
the Financial Accounting Standards Board (or any such successor) in order for
such principle or practice to continue as a generally accepted accounting
principle or practice, all reports and financial statements required
hereunder with respect to Seller and its Consolidated subsidiaries may be
prepared in accordance with such change, but all calculations and
determinations to be made hereunder may be made in accordance with such
change only after notice of such change is given to Buyer and Buyer agrees to
such change insofar as it affects the accounting of Seller and its
Consolidated subsidiaries.
"HAZARDOUS MATERIALS" shall mean any substance regulated under
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"INDEBTEDNESS" of any Person shall mean Liabilities, as such term is
defined hereinafter, in any of the following categories: (a) Liabilities for
borrowed money; (b) Liabilities constituting an obligation to pay the
deferred purchase price of property or services; (c) Liabilities evidenced by
a bond, debenture, note or similar instrument; (d) Liabilities which would
under GAAP be shown on such Person's balance sheet as a liability, and is
payable more than one year from the date of creation thereof (other than
reserves for taxes and reserves for contingent obligations); (e) Liabilities
arising under futures contracts, forward contracts, swap, cap or collar
contracts, option contracts, hedging contracts, other derivative contracts,
or similar agreements; (f) Liabilities constituting principal under leases
capitalized in accordance with GAAP; (g) Liabilities arising under
conditional sales or other title retention agreements; (h) Liabilities owing
under direct or indirect guaranties of Liabilities of any other Person or
constituting obligations to purchase or acquire or to otherwise protect or
insure a creditor against loss in respect of Liabilities of any other Person
(such as obligations under working capital maintenance agreements, agreements
to keep-well, or agreements to purchase Liabilities, assets, goods,
securities or services), but excluding endorsements in the ordinary course of
business of negotiable instruments in the course of collection; (i)
Liabilities (for example, repurchase agreements) consisting of an obligation
to purchase securities or other property, if such Liabilities arises out of
or in connection with the sale of the same or similar securities or property;
(j) Liabilities with respect to letters of credit or applications or
reimbursement agreements therefor; (k) Liabilities with respect to payments
received in consideration of oil, gas, or other minerals yet to be acquired
or produced at the time of payment (including obligations under "take-or-pay"
contracts to deliver gas in return for payments already received and the
undischarged balance of any production payment created by such Person or for
the creation of which such Person directly or indirectly received payment);
or (l) Liabilities with respect to other obligations to deliver goods or
services in consideration of advance payments therefor; provided, however,
that the "Indebtedness" of any Person shall not include Liabilities that were
incurred by such Person on ordinary trade terms to vendors, suppliers, or
other Persons providing goods and services for use by such Person in the
ordinary course of its business.
"INITIAL FINANCIAL STATEMENTS" shall mean (a) the audited annual
Consolidated financial statements of Benz Energy Inc. (formerly known as Benz
Energy Ltd.), dated as of December 31,
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1998, and (ii) the unaudited quarterly Consolidated financial statements of
Benz Energy Inc. dated as of March 31, 1999, and June 30, 1999.
"LIABILITIES" shall mean, as to any Person, all indebtedness,
liabilities and obligations of such Person, whether matured or unmatured,
liquidated or unliquidated, primary or secondary, direct or indirect,
absolute, fixed or contingent, and whether or not required to be considered
pursuant to GAAP.
"MATERIAL ADVERSE CHANGE" shall mean a material and adverse change,
from the state of affairs presented in the Initial Financial Statements, to:
(a) Seller's or any of its Subsidiaries' financial condition taken on a
Consolidated basis; (b) the operations or properties of Seller or any of its
Subsidiaries taken on a Consolidated basis; or (c) Seller's ability to timely
perform its obligations with respect to the Preferred Shares.
"PERMITTED LIENS" means: (i) the liens, claims and encumbrances
described in the Debt Restructure Agreement and subordinated to the liens and
encumbrances of the Senior Credit Facility security documents thereunder;
(ii) liens of lessors, vendors, mechanics, materialmen, laborers, operators,
non-operators, joint interest owners, taxing and other governmental
authorities, and other similar liens arising by law, or otherwise arising in
the ordinary course of business; (iii) obligations under leases; (iv)
easements, rights-of-way, permits, surface leases and other rights in respect
of surface operations, pipelines, grazing, logging, canals, ditches,
reservoirs and the like, and easements of streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other easements and
rights-of-way on, over or in respect of any interest; (v) non-consent
provisions in operating agreements, exploration agreements, and similar
agreements affecting the properties (but only to the extent such provisions
affect the Texstar's net revenue interest after the date hereof); (vi)
specific exceptions and encumbrances affecting each of the properties as
described in the exhibits to any Senior Credit Facility loan document INSOFAR
ONLY as said exceptions and encumbrances are valid and subsisting and are
enforceable against the particular lease which is made subject to said
exceptions and encumbrances; (vii) minor irregularities in title which do not
(a) materially interfere with the occupation, use and enjoyment by Texstar of
the subject property or (b) materially impair the value thereof; and (viii)
any lien explicitly approved in writing by the senior lender under the Senior
Credit Facility on or after the date hereof.
"PERSON" shall mean an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee
thereof, estate or executor thereof, unincorporated organization or joint
venture, or any other legally recognizable juridical person or entity.
"PREFERRED SHARES" shall mean Seller's Class A, Series I Preferred
Stock, par value $1.10 per share, having the terms, rights and preferences
set forth in the Certificate of Amendment of Certificate of Designation,
Preferences, Rights and Limitations of Class A Preferred Stock of the Company
to be filed on or about August 20, 1999.
"RETURNS" shall mean all returns, reports, estimates, declarations,
and statements of any nature regarding Taxes required to be filed by the
taxpayer relating to its income, properties or operations.
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"SECURITIES ACT" shall mean the U.S. Securities Act of 1933, as
amended, and all rules and regulations under such Act.
"SELLER" shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
"SENIOR CREDIT FACILITY" shall mean (a) the credit facilities under
that certain Credit Agreement of even date herewith, between Texstar and
Aquila Energy Capital Corporation in the maximum principal amount of
$40,000,000; or (b) any credit facility or facilities of Seller or any
Subsidiary in substitution thereof with respect to senior bank indebtedness.
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, association, partnership, joint venture, or other business or
corporate entity, enterprise or organization which is directly or indirectly
(through one or more intermediaries) controlled by or owned fifty percent or
more by such Person.
"TAXES" shall mean any federal, state, local, foreign or other taxes
(including, without limitation, income, alternative minimum, franchise,
property, sales, use, lease, excise, premium, payroll, wage, employment or
withholding taxes), fees, duties, assessments, withholdings or governmental
charges of any kind whatsoever (including interest, penalties and additions
to tax).
"TERMINATION EVENT" shall mean: (a) the occurrence with respect to
any ERISA Plan of: (i) a reportable event described in Sections 4043(b)(5) or
(6) of ERISA; or (ii) any other reportable event described in Section 4043(b)
of ERISA other than a reportable event not subject to the provision for
30-day notice to the Pension Benefit Guaranty Corporation pursuant to a
waiver by such corporation under Section 4043(a) of ERISA; (b) the withdrawal
of any ERISA Affiliate from an ERISA Plan during a plan year in which it was
a "substantial employer" as defined in Section 4001(a)(2) of ERISA; (c) the
filing of a notice of intent to terminate any ERISA Plan or the treatment of
any ERISA Plan amendment as a termination under Section 4041 of ERISA; (d)
the institution of proceedings to terminate any ERISA Plan by the Pension
Benefit Guaranty Corporation under Section 4042 of ERISA; or (e) any other
event or condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
ERISA Plan.
"TEXSTAR" means TEXSTAR Petroleum, Inc., a wholly-owned subsidiary
of Seller.
SECTION 1.2. REFERENCES AND CONSTRUCTION.
(a) All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly
provided otherwise.
(b) Titles appearing at the beginning of any of such
subdivisions are for convenience only and shall not constitute part of such
subdivisions and shall be disregarded in construing the language contained in
such subdivisions.
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(c) The words "this Agreement", "this instrument", "herein",
"hereof", "hereby", "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly
so limited.
(d) Words in the singular form shall be construed to include
the plural and VICE VERSA, unless the context otherwise requires. Pronouns in
masculine, feminine and neuter genders shall be construed to include any
other gender.
(e) Unless the context otherwise requires or unless otherwise
provided herein, the terms defined in this Agreement which refer to a
particular agreement, instrument or document also refer to and include all
renewals, extensions, modifications, amendments or restatements of such
agreement, instrument or document, provided that nothing contained in this
subsection shall be construed to authorize such renewal, extension,
modification, amendment or restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "includes" and its derivatives means "includes,
but is not limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption
that one party had a greater or lesser hand in drafting this Agreement.
(i) Unless otherwise indicated, all references herein to "$" or
"dollars" shall refer to U.S. Dollars.
(j) EXHIBITS 5.1(d) AND 6.3 are attached hereto. Such Exhibits
are incorporated herein by reference for all purposes and references to this
Agreement shall also include such Exhibits unless the context in which used
shall otherwise require.
ARTICLE II -- SALE AND PURCHASE OF PREFERRED SHARES
Subject to the terms and provisions hereof, Seller agrees to sell
and Buyer agrees to purchase Preferred Shares in a principal amount equal to
$4,400,000 for the purchase price of $4,000,000, to be funded at Closing.
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
SECTION 3.1. ORGANIZATION AND EXISTENCE. Seller is a corporation
duly organized, legally existing and in good standing under the laws of the
jurisdiction of its formation and is qualified to do business in the State of
Texas. Seller is duly qualified to do business, and is in good standing in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary
except where the failure to be so qualified, when taken together with all
such failures, would not reasonably be expected to result in a Material
Adverse Change.
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SECTION 3.2. POWER AND AUTHORITY. Seller has full corporate power
and corporate authority to execute, deliver, and perform this Agreement and
each other agreement, instrument, or document executed or to be executed by
Seller in connection with the transactions contemplated hereby to which it is
a party and to consummate the transactions contemplated hereby and thereby.
The execution, delivery, and performance by Seller of this Agreement and each
other agreement, instrument, or document executed or to be executed by Seller
in connection with the transactions contemplated hereby to which it is a
party, and the consummation by it of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action of
Seller.
SECTION 3.3. VALID AND BINDING AGREEMENT. This Agreement has been
duly executed and delivered by Seller and constitutes, and each other
agreement, instrument, or document executed or to be executed by Seller in
connection with the transactions contemplated hereby to which it is a party
has been, or when executed will be, duly executed and delivered by Seller and
constitutes, or when executed and delivered will constitute, a valid and
legally binding obligation of Seller, enforceable against it in accordance
with their respective terms, except that such enforceability may be limited
by (a) applicable bankruptcy, insolvency, reorganization, moratorium, and
similar laws affecting creditors' rights generally and (b) equitable
principles which may limit the availability of certain equitable remedies
(such as specific performance) in certain instances.
SECTION 3.4. NON-CONTRAVENTION. The execution, delivery, and
performance by Seller of this Agreement and each other agreement, instrument,
or document executed or to be executed by Seller in connection with the
transactions contemplated hereby to which it is a party and the consummation
by it of the transactions contemplated hereby and thereby do not and will
not: (a) conflict with or result in a violation of any provision of the
charter or bylaws or other governing instruments of Seller; (b) conflict with
or result in a violation of any provision of, or constitute (with or without
the giving of notice or the passage of time or both) a default under, or give
rise (with or without the giving of notice or the passage of time or both) to
any right of termination, cancellation, or acceleration under, any bond,
debenture, note, mortgage, indenture, lease, contract, agreement, or other
instrument or obligation to which Seller is a party or by which Seller or any
of its properties may be bound; (c) result in the creation or imposition of
any lien or other encumbrance upon the properties of Seller; or (d) violate
any applicable law, rule or regulation binding upon Seller.
SECTION 3.5. APPROVALS. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any court or
governmental agency or of any third party is required to be obtained or made
by Seller in connection with the execution, delivery, or performance by
Seller of this Agreement and each other agreement, instrument, or document
executed or to be executed by Seller in connection with the transactions
contemplated hereby to which it is a party or the consummation by it of the
transactions contemplated hereby and thereby, other than compliance with any
applicable requirements of the Securities Act and any applicable state
securities laws.
SECTION 3.6. PENDING LITIGATION. There are no pending suits,
actions, or other proceedings in which Seller is a party which prevent the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. Except as disclosed in
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the Disclosure Documents: (i) there are no actions, suits or legal,
equitable, arbitrative or administrative proceedings pending, or to the
knowledge of Seller, threatened, against Seller or any Subsidiary thereof;
and (ii) there are no outstanding judgments, injunctions, writs, rulings
orders by any tribunal against Seller's or any Subsidiary's stockholders,
partners, directors or officers which could cause a Material Adverse Change.
SECTION 3.7. CAPITAL STOCK. The total authorized capital stock of
Seller consists of: (i) 300,000,000 shares of common shares, par value $0.01
per share, of which (as of August 6, 1999) 39,870,617 are outstanding; and
(ii) 100,000,000 shares of preferred stock, par value $1.10 per share, of
which 9,488,140 Class A, Series I Preferred Stock (non-convertible 10%
dividend) are outstanding, and 238,201 shares of Class A, Series II
Convertible Preferred Stock are outstanding. All such outstanding shares of
capital stock have been validly issued and are fully paid and non-assessable,
and no shares of capital stock of Seller are subject to, nor have been issued
in violation of, preemptive or similar rights. Except as set forth in the
Disclosure Documents, there are no outstanding warrants, options, or other
rights to subscribe for or purchase any shares of capital stock of Seller.
Except as set forth in the Disclosure Documents, there are no outstanding
obligations of Seller or any Subsidiary to repurchase, redeem or otherwise
acquired any of the foregoing shares, securities, options, equity
equivalents, interests or rights. Except as set forth in the Disclosure
Documents, the Escrow Agreement dated September 15, 1997 among Texstar
Holdings, L.L.C, Trustee, the ▇▇▇▇▇▇▇▇ Trust, the Ruston Trust, the Houston
Trust, the Starbucks Trust, ▇▇▇▇▇ Petroleum Inc. and C'est La Vie
Enterprises, as security holders, Montreal Trust Company of Canada, as
trustee, and Seller and the Stockholder Voting Agreement and Irrevocable
Proxy of even date herewith among certain stockholders of Seller, Seller is
not a party to, and is not aware of, any voting agreement, voting trust or
similar agreement or arrangement relating to any class or series of its
capital stock.
SECTION 3.8. ISSUANCE OF PREFERRED SHARES. The issuance of the
Preferred Shares has been duly authorized by Seller's board of directors, and
the Preferred Shares have been validly issued, fully paid and non-assessable.
The issuance of the Preferred Shares by Seller is not subject to any
preemptive or similar rights.
SECTION 3.9. INITIAL FINANCIAL STATEMENTS.
(a) Seller has heretofore delivered to Buyer true, correct and
complete copies of the Initial Financial Statements. The Initial Financial
Statements fairly present Seller's Consolidated financial position at the
respective dates thereof and the Consolidated results of Seller's operations
and Seller's Consolidated cash flows for the respective periods thereof. All
Initial Financial Statements were prepared in accordance with GAAP. Neither
Seller nor any Subsidiary thereof has any outstanding liabilities of any kind
(including contingent obligations, tax assessments, and unusual forward or
long-term commitments) which is, in the aggregate, material to Seller or such
Subsidiary or material with respect to Seller's Consolidated financial
condition and not shown in the Initial Financial Statements or otherwise
disclosed in the Disclosure Documents.
(b) Except as disclosed in the Disclosure Documents, since June
30, 1999, (i) no Material Adverse Change has occurred, nor any event or
condition that might reasonably be expected to result in any Material Adverse
Change; (ii) neither Seller nor any Subsidiary has
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declared, set aside or paid any dividend or distribution (whether in cash,
stock or property) with respect to the capital stock of Seller or any
Subsidiary (other than dividends or distributions between Seller and its
wholly-owned Subsidiaries); (iii) exclusive of actions taken with respect to
Seller's Class A Series I Preferred Stock and Seller's Class A Series II
Convertible Preferred Stock, Seller has not effected any stock split,
combination or reclassification of any of its capital stock or issued or
authorized the issuance of any other securities in respect of, in lieu of or
in substitution for, shares of Seller's capital stock; (iv) Seller has not
granted or amended the terms of any option to purchase shares of preferred
stock of Seller; or (v) Seller has not entered into any agreement (oral or
written), arrangement or understanding to do any of the foregoing.
SECTION 3.10. FULL DISCLOSURE. To the best knowledge of Seller
(after due inquiry), no certificate, statement or other information delivered
herewith or heretofore by Seller to Buyer in connection with the negotiation
of this Agreement or in connection with any transaction contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact known to Seller (other than industry-wide risks normally
associated with the types of businesses conducted by Seller and its
Subsidiaries) necessary to make the statements contained herein or therein
not misleading as of the date made or deemed made. There is no fact known to
Seller that has not been disclosed to Buyer in writing which could cause a
Material Adverse Change.
SECTION 3.11. LABOR DISPUTES AND ACTS OF GOD. Neither the business
nor the assets or properties of Seller or any Subsidiary thereof has been
affected by any fire, explosion, accident, strike, lockout or other labor
dispute, drought, storm, hail, earthquake, embargo, act of God or of the
public enemy or other casualty (whether or not covered by insurance), which
could cause a Material Adverse Change.
SECTION 3.12. ERISA PLANS AND LIABILITIES. All currently existing
ERISA Plans are listed in the Disclosure Documents. Except as disclosed in
the Disclosure Documents, no Termination Event has occurred with respect to
any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all
material respects. No ERISA Affiliate is required to contribute to, or has
any other absolute or contingent liability in respect of, any "multiemployer
plan" as defined in Section 4001 of ERISA. Except as set forth in the
Disclosure Documents: (i) no "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) exists with
respect to any ERISA Plan, whether or not waived by the Secretary of the
Treasury or his delegate; and (ii) the current value of each ERISA Plan's
benefits does not exceed the current value of such ERISA Plan's assets
available for the payment of such benefits by more than $500,000.
SECTION 3.13. ENVIRONMENTAL AND OTHER LAWS. Except as set forth in
the Disclosure Documents: (a) to the best of Seller's knowledge (after due
inquiry), Seller and its Subsidiaries are conducting their businesses in
material compliance with all applicable laws, including Environmental Laws,
and have and are in material compliance with all licenses and permits
required under any such laws; (b) none of the operations or properties of
Seller or any of its Subsidiaries is the subject of federal, state or local
investigation evaluating whether any material remedial action is needed to
respond to a release of any Hazardous Materials into the environment or to
the improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (c) neither Seller nor any Subsidiary
thereof has filed any
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notice under any Law indicating that it is responsible for the improper
release into the environment, or the improper storage or disposal, of any
material amount of any Hazardous Materials or that any Hazardous Materials
have been improperly released, or are improperly stored or disposed of, upon
any property of Seller or any Subsidiary thereof; (d) to the best of Seller's
knowledge, neither Seller nor any Subsidiary thereof has transported or
arranged for the transportation of any Hazardous Material to any location
which is: (i) listed on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
listed for possible inclusion on such National Priorities List by the
Environmental Protection Agency in its Comprehensive Environmental Response,
Compensation and Liability Information System List, or listed on any similar
state list; or (ii) the subject of federal, state or local enforcement
actions or other investigations which may lead to material claims against
Seller or any Subsidiary thereof for clean-up costs, remedial work, damages
to natural resources or for personal injury claims (whether under
Environmental Laws or otherwise); and (e) neither Seller nor any Subsidiary
thereof otherwise has any known material contingent liability under any
Environmental Laws or in connection with the release into the environment, or
the storage or disposal, of any Hazardous Materials.
SECTION 3.14. NAMES AND PLACES OF BUSINESS. Neither Seller nor any
Subsidiary thereof has, during the preceding five years, had, been known by,
or used any other trade or fictitious name, except as disclosed in the
Disclosure Documents. Except as otherwise indicated in the Disclosure
Documents, the chief executive office and principal place of business of
Seller and each Subsidiary thereof are (and for the preceding five years have
been) located at the address of Seller set out in ARTICLE IX. Except as
indicated in the Disclosure Documents, neither Seller nor any Subsidiary
thereof has any other office or place of business.
SECTION 3.15. SELLER'S SUBSIDIARIES.
(a) Seller does not presently have any Subsidiary or own any
stock in any other corporation or association except those listed in the
Disclosure Documents.
(b) Seller owns, directly or indirectly, the equity interest in
each of its Subsidiaries which is indicated in the Disclosure Documents.
There are no existing options, warrants, calls, convertible securities or
other rights, agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of any of the
Subsidiaries.
(c) Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction or
organization and has the corporate or similar power to carry on its business
as it is now being conducted or currently proposed to be conducted. Each
Subsidiary is duly qualified to do business, and is in good standing, in each
jurisdiction (except as to Texstar in Mississippi, which shall be within ten
days after the consummation of the Senior Credit Facility) where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary except where the failure to be
so qualified, when taken together with all such failures, would not
reasonably be expected to result in a Material Adverse Change.
SECTION 3.16. TITLE TO PROPERTIES; LICENSES.
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(a) To the best of Seller's knowledge (after due inquiry),
Seller and each of it Subsidiaries has good and marketable title to all of
its material properties and assets, free and clear of all Liens other than
Permitted Liens and of all impediments to the use of such properties and
assets in such Person's business, except that no representation or warranty
is made with respect to any oil, gas or mineral property or interest to which
no proved oil or gas reserves are properly attributed.
(b) Seller and each of its Subsidiaries possesses all licenses,
permits, franchises, patents, copyrights, trademarks and trade names, and
other intellectual property (or otherwise possesses the right to use such
intellectual property without violation of the rights of any other Person)
which are necessary to carry out its business as presently conducted and as
presently proposed to be conducted hereafter, and neither Seller nor any
Subsidiary thereof is in violation in any material respect of the terms under
which it possesses such intellectual property or the right to use such
intellectual property.
SECTION 3.17. GOVERNMENT REGULATION. Neither Seller nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act of
1940 (as any of the preceding acts have been amended) or any other Law which
regulates the issuance of capital stock, including laws relating to common
contract carriers or the sale of electricity, gas, steam, water or other
public utility services.
SECTION 3.18. OFFICERS, DIRECTORS AND SHAREHOLDERS. The officers and
directors of Seller are those persons disclosed in the definitive
registration statement prepared by Seller and filed with the appropriate U.S.
securities authorities, copies of which registration statement have been
previously furnished in connection with the negotiation hereof.
SECTION 3.19. TAX MATTERS. Each of the following is true with
respect to each of Seller and its Subsidiaries to the extent applicable to
such member:
(a) all Returns have been or will be timely filed by Seller and
its Subsidiaries when due in accordance with all applicable laws; all Taxes
shown on the Returns have been or will be timely paid when due (except as to
Texstar in Mississippi, which shall be paid within ten days after the
consummation of the Senior Credit Facility); the Returns have been properly
completed in compliance with all applicable laws and regulations and
completely and accurately reflect the facts regarding the income, expenses,
properties, business and operations required to be shown thereon; the Returns
are not subject to penalties under Section 6662 of the Code (or any
corresponding provision of state, local or foreign tax law);
(b) Seller and its Subsidiaries has paid all Taxes required to
be paid by it (whether or not shown on a Return) or for which it could be
liable (except as to Texstar in Mississippi, which shall be paid within ten
days after the consummation of the Senior Credit Facility) (provided that it
shall not be considered a breach of this representation if it is ultimately
determined that additional tax payments are due but such assessment is based
on an adjustment to a return or position, if such member has a reasonable
basis for the position taken with respect to such Taxes), whether to taxing
authorities or to other persons under tax allocation agreements or otherwise,
and the charges, accruals, and
11
reserves for Taxes due, or accrued but not yet due, relating to its income,
properties, transactions or operations as reflected on its books (including,
without limitation, the balance sheet included in the Initial Financial
Statements for the quarter ended June 30, 1999) are adequate to cover such
Taxes;
(c) there are no agreements or consents currently in effect for
the extension or waiver of the time: (i) to file any Return; or (ii) for
assessment or collection of any taxes relating to the income, properties or
operations of Seller or its Subsidiaries, nor has Seller and its Subsidiaries
been requested to enter into any such agreement or consent;
(d) there are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of Seller or its Subsidiaries; and
(e) each of Seller and its Subsidiaries has complied in all
material respects with all applicable tax laws.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF BUYER
Each of EnCap LP and ECIC hereby severally represents and warrants
as to itself to Seller as follows:
SECTION 4.1. ORGANIZATION AND EXISTENCE. Such entity is duly formed
and validly existing under the laws of the jurisdiction of its formation.
SECTION 4.2. POWER AND AUTHORITY. Such has full partnership or
corporate (as applicable) power and authority to execute, deliver, and
perform this Agreement and to consummate the transactions contemplated hereby
and thereby. The execution, delivery, and performance by such entity of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary partnership or corporate (as
applicable) action of such entity.
SECTION 4.3. INVESTMENT INTENT. Such entity is acquiring the
Preferred Shares for its own account for investment and not with a view to,
or for sale or other disposition in connection with, any distribution of all
or any part thereof except (i) in an offering covered by a registration
statement filed with the Securities and Exchange Commission under the
Securities Act covering the Preferred Shares, (ii) pursuant to an applicable
exemption under the Securities Act, or (iii) in compliance with applicable
federal securities laws.
SECTION 4.4. RESTRICTED SECURITIES. Such entity understands that the
Preferred Shares are issued pursuant to exemptions from the registration
requirements of the Securities Act and applicable state securities laws of
the United States, that the Preferred Shares are characterized as "restricted
securities" under U.S. federal securities laws, and that under such laws and
applicable regulations the Preferred Shares cannot be sold or otherwise
disposed of in the United States without registration under the Securities
Act or an exemption therefrom.
12
SECTION 4.5 LEGEND. It is agreed and understood by such entity that
the certificates representing the Preferred Shares shall conspicuously set
forth on the face or back thereof, in addition to any legends required by
applicable law or other agreement, a legend in substantially the following
form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS OF THE UNITED STATES. SUCH SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE UNITED STATES UNLESS THEY ARE FIRST
REGISTERED PURSUANT TO THAT ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS THE CORPORATION RECEIVES A WRITTEN OPINION OF COUNSEL, WHICH
OPINION AND COUNSEL ARE SATISFACTORY TO THE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED IN THE UNITED STATES.
ARTICLE V -- CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES;
TERMINATION RIGHTS
SECTION 5.1. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The
obligations of Buyer under this Agreement are subject to each of the
following conditions being met:
(a) Each and every representation of Seller under this
Agreement shall be true and accurate in all material respects as of the date
when made and shall be deemed to have been made again at and as of the time
of Closing and shall at and as of such time of Closing be true and accurate
in all respects except as to changes specifically contemplated by this
Agreement or consented to by Buyer.
(b) Seller shall have performed and complied in all material
respects with (or compliance therewith shall have been waived by Buyer) each
and every covenant, agreement and condition required by this Agreement to be
performed or complied with by Seller prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the date of
Closing, be pending or threatened before any court or governmental agency
seeking to restrain, prohibit, or obtain damages or other relief in
connection with the consummation of the transactions contemplated by this
Agreement.
(d) Buyer shall have received (or shall have received
confirmation of the matters contained therein, to be followed within five
days after Closing by receipt of) an opinion ▇▇▇▇▇▇ ▇▇▇▇▇▇, A Professional
Corporation, counsel for Seller, dated the Closing Date and substantially in
the form of EXHIBIT 5.1(d).
(e) Seller shall have contemporaneously consummated the
transactions under the Senior Credit Facility and shall have delivered a
Standstill Agreement in favor of
13
Buyer substantially in the form of that certain Standstill Agreement dated
December 28, 1998 among Seller and certain of its affiliates.
(f) Buyer shall have reviewed and reasonably approved the use
of proceeds of the sale of the Preferred Shares and shall have paid to EnCap
Investments, L.L.C. a $100,000 placement fee in cash.
(g) Seller shall have paid all outstanding invoices of ▇▇▇▇▇▇▇▇
& Knight, L.L.P., as counsel to Buyer and its affiliates, rendered in
connection with various prior and ongoing transactions between Buyer and its
affiliates and Seller and its affiliates, an invoice from ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ &
West PLLC in the amount of approximately $11,000, and an invoice from Well
Springs in the amount of approximately $13,000.
If any such condition on the obligations of Buyer under this Agreement is not
met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and (in either case) Buyer is not in breach of its
obligations hereunder in the absence of Seller also being in breach of its
obligations hereunder, this Agreement may, at the option of Buyer, be
terminated, in which case the parties shall have no further obligations to
one another hereunder.
SECTION 5.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The
obligations of Seller under this Agreement are subject to each of the
following conditions being met:
(a) Each and every representation of Buyer under this Agreement
shall be true and accurate in all material respects as of the date when made
and shall be deemed to have been made again at and as of the time of Closing
and shall at and as of such time of Closing be true and accurate in all
respects except as to changes specifically contemplated by this Agreement or
consented to by Seller.
(b) Buyer shall have performed and complied in all material
respects with (or compliance therewith shall have been waived by Seller) each
and every covenant, agreement and condition required by this Agreement to be
performed or complied with by Buyer prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the date of
Closing, be pending or threatened before any court or governmental agency
seeking to restrain, prohibit, or obtain damages or other relief in
connection with the consummation of the transactions contemplated by this
Agreement.
If any such condition on the obligations of Seller under this Agreement is
not met as of the Closing Date, or in the event the Closing does not occur on
or before the Closing Date, and (in either case) Seller is not in breach of
its obligations hereunder in the absence of Buyer also being in breach of its
obligations hereunder, this Agreement may, at the option of Seller, be
terminated, in which case the parties shall have no further obligations to
one another hereunder.
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ARTICLE VI -- CLOSING OF TRANSACTION
SECTION 6.1. THE CLOSING. The closing (herein called the "CLOSING")
of the transaction contemplated hereby shall take place in the offices of
Akin Gump ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇, L.L.P. at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇, Texas, at 10:00 a.m. Central Standard Time, on the date
hereof (such date and time being herein called the "CLOSING DATE").
SECTION 6.2. SELLER'S CLOSING OBLIGATIONS. At the Closing, Seller
shall issue a treasury order to its transfer agent requesting issuance of
certificates evidencing the Preferred Shares as follows:
EnCap LP 3,300,000
ECIC 1,100,000
SECTION 6.3. BUYER'S CLOSING OBLIGATIONS. At the Closing, EnCap LP
and ECIC shall deliver to the Seller $3,000,000 and $1,000,000, respectively,
in immediately available funds; Seller hereby instructs such funds to be
wired pursuant to the wire instructions set forth on Exhibit 6.3 attached
hereto.
ARTICLE VII -- CERTAIN POST-CLOSING AFFIRMATIVE COVENANTS OF SELLER
To induce Buyer to enter into this Agreement and purchase the
Preferred Shares, Seller covenants and agrees that until Buyer owns less than
25% of the Preferred Shares:
SECTION 7.1. BOOKS, FINANCIAL STATEMENTS AND REPORTS. Seller will
maintain and will cause its Subsidiaries to maintain a standard system of
accounting, will maintain its Fiscal Year, and will furnish the following
statements and reports to Buyer at Seller's expense:
(a) As soon as available, and in any event within one
hundred forty (140) days after the end of each Fiscal Year, complete
Consolidated (and, upon the request of Buyer, consolidating) financial
statements of Seller together with all notes thereto, prepared in
reasonable detail in accordance with GAAP, together with an unqualified
opinion, based on an audit using generally accepted auditing standards,
by Mordinger, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇, or other independent certified
public accountants selected by Seller and reasonably acceptable to
Buyer, stating that such Consolidated financial statements have been so
prepared. These financial statements shall contain a Consolidated
balance sheet as of the end of such Fiscal Year and Consolidated
statements of earnings, of cash flows, and ofchanges in owners' equity
for such Fiscal Year, each setting forth in comparative form the
corresponding figures for the preceding Fiscal Year.
(b) As soon as available, and in any event within
forty-five (45) days after the end of each Fiscal Quarter, Seller's
Consolidated (and, upon the request of Buyer, consolidating) balance
sheet as of the end of such Fiscal Quarter and
15
Consolidated statements of Seller's earnings and cash flows for the
period from the beginning of the then current Fiscal Year to the end
of such Fiscal Quarter, all in reasonable detail and prepared in
accordance with GAAP, subject to changes resulting from normal year-
end adjustments.
(c) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by
Seller or any of its Subsidiaries to its stockholders and all
registration statements, periodic reports and other statements and
schedules filed by Seller or any Subsidiary thereof with any securities
exchange, any Canadian securities authority, or any similar
governmental authority.
(d) By March 31 of each year, a reserve report, effective
as of December 31 of the prior year.
(e) As soon as available, and in any event within ninety
(90) days after the end of each Fiscal Year, a business and financial
plan for Seller (in form reasonably satisfactory to Buyer), prepared by
a senior financial officer thereof, setting forth for the first year
thereof, quarterly financial projections and budgets for Seller, and
thereafter yearly financial projections and budgets for the following
three years.
SECTION 7.2. OTHER INFORMATION AND INSPECTIONS. Seller will furnish
to Buyer any information reasonably available to Seller and which can be
obtained by it without undue effort or expense which Buyer may from time to
time request in writing concerning any covenant, provision or condition
contained in this ARTICLE VII or ARTICLE VIII or any matter in connection
with Seller's businesses and operations. Seller will permit representatives
appointed by Buyer (including independent accountants, auditors, agents,
attorneys, appraisers and any other Persons), with reasonable notice, to
visit and inspect during normal business hours any of Seller's or any
Subsidiary's property, including its books of account, other books and
records, and any facilities or other business assets, and to make extra
copies therefrom and photocopies and photographs thereof, and to write down
and record any information such representatives obtain (provided, that the
number of such visits and inspections shall not exceed one per calendar
year), and Seller shall permit Buyer or its representatives to investigate
and verify the accuracy of the information furnished to Buyer in connection
with this Agreement and to discuss all such matters with its officers.
SECTION 7.3. NOTICE OF MATERIAL EVENTS AND CHANGE OF ADDRESS. Seller
will promptly notify Buyer in writing, stating that such notice is being
given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change after
the Closing Date;
(b) the occurrence of any material breach by Seller of
any of its covenants and agreements contained in ARTICLES VII and VIII;
16
(c) the acceleration of the maturity of any indebtedness
owed by Seller or any Subsidiary thereof or of any default by Seller or
any Subsidiary under any indenture, mortgage, agreement, contract or
other instrument to which any of them is a party or by which any of
them or any of their properties is bound, if such acceleration or
default could cause a Material Adverse Change;
(d) the occurrence of any Termination Event;
(e) any claim of $100,000 or more, any notice of
potential liability under any Environmental Laws which might exceed
such amount, or any other material adverse claim asserted against
Seller or any Subsidiary or with respect to any of their properties;
and
(f) the filing of any suit or proceeding against Seller
or any Subsidiary in which an adverse decision could cause a Material
Adverse Change.
Upon the occurrence of any of the foregoing, Seller will take all necessary
or appropriate steps to remedy promptly any such Material Adverse Change,
Default, acceleration, default or Termination Event, to protect against any
such adverse claim, to defend any such suit or proceeding, and to resolve all
controversies on account of any of the foregoing. Seller will also notify
Buyer in writing at least twenty Business Days prior to the date that Seller
changes its name or the location of its chief executive office or principal
place of business.
SECTION 7.4. MAINTENANCE OF PROPERTIES. Seller and each Subsidiary
thereof will maintain, preserve, protect, and keep, and shall cause to be
maintained, preserved, protected and kept, all property used or useful in the
conduct of its business in condition reasonably adequate for normal
operations and in compliance with all applicable laws, and will from time to
time make all repairs, renewals and replacements needed to enable the
business and operations carried on in connection therewith to be promptly and
advantageously conducted at all times.
SECTION 7.5. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. Seller and
each Subsidiary thereof will maintain and preserve its existence and its
rights and franchises in full force and effect and will qualify to do
business in all states or jurisdictions where required by applicable law,
except where the failure so to qualify will not cause a Material Adverse
Change.
SECTION 7.6. PAYMENT OF TAXES. Seller and each of its Subsidiaries
will (a) timely file all required Returns and (b) timely pay all Taxes.
Seller and any Subsidiary may, however, delay paying or discharging any of
the foregoing so long as it is in good faith contesting the validity thereof
by appropriate proceedings and has set aside on its books adequate reserves
therefor.
SECTION 7.7. INSURANCE. Seller and each Subsidiary thereof will keep
or cause to be kept insured by financially sound and reputable insurers its
property in such amounts
17
and against such risks as are reasonably customary for Persons engaged in the
same or similar business of owning or operating similar properties.
SECTION 7.8. COMPLIANCE WITH AGREEMENTS AND LAW. Seller and each
Subsidiary thereof will perform all material obligations it is required to
perform under the terms of each indenture, mortgage, deed of trust, security
agreement, lease, franchise, agreement, contract or other instrument or
obligation to which it is a party or by which it or any of its properties is
bound. Seller and each Subsidiary thereof will conduct its business and
affairs in compliance with all laws applicable thereto.
ARTICLE VIII -- CERTAIN POST-CLOSING NEGATIVE COVENANTS OF SELLER
To induce Seller to enter into this Agreement and purchase the
Preferred Shares, Seller covenants and agrees that until Buyer holds less
than 25% of the Preferred Shares:
SECTION 8.1. INDEBTEDNESS. Neither Seller nor any Subsidiary thereof
will in any manner owe or be liable for Indebtedness except for any of the
following:
(a) Indebtedness under the Senior Credit Facility or the Debt
Restructure Agreement;
(b) Indebtedness outstanding as of the date hereof and
disclosed in the Disclosure Documents;
(c) Indebtedness approved by the board of directors of Seller;
(d) purchase money Indebtedness and Indebtedness under leases
of Seller or any Subsidiary thereof as lessee which are capitalized in
accordance with GAAP, provided such purchase money Indebtedness and
Indebtedness under capital leases required to be paid in any Fiscal Year do
not in the aggregate exceed $100,000;
(e) Indebtedness which is non-recourse to Seller and such
Subsidiary and which is subordinated to the Indebtedness under the junior note
under the Senior Credit Facility on terms and conditions satisfactory to Buyer
in its sole and absolute discretion;
(f) Indebtedness arising from endorsing negotiable instruments
for collection in the ordinary course of business;
(g) Indebtedness constituting deposits to secured the
performance of bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds and performance bonds and
other obligations of a like nature that are incurred in the ordinary course
of business; and
(h) Indebtedness constituting indemnities under agreements
entered into by Seller or any Subsidiary thereof arising in the ordinary
course of business.
18
SECTION 8.2. LIMITATION ON LIENS. Neither Seller nor any Subsidiary
thereof will create, assume or permit to exist any lien upon any of the
properties or assets which it now owns or hereafter acquires, except:
(a) liens which secure the Indebtedness permitted under SECTION
8.1; and
(b) statutory liens for taxes, statutory mechanics' and
materialmen's liens incurred in the ordinary course of business, and other
similar liens incurred in the ordinary course of business, provided such
liens do not secure Indebtedness and secure only Liabilities which are not
delinquent or which are being contested as provided in SECTION 7.6.
SECTION 8.3. LIMITATIONS ON INVESTMENTS AND NEW BUSINESSES. Neither
Seller nor any Subsidiary will engage directly or indirectly in any business
other than the oil and gas exploration and development business.
SECTION 8.4. TRANSACTIONS WITH AFFILIATES. Neither Seller nor any
Subsidiary thereof will engage in any material transaction with any of its
Affiliates on terms which are less favorable to it than those which would
have been obtainable at the time in arm's-length dealing with Persons other
than such Affiliates.
SECTION 8.5. LIMITATION ON DIVIDENDS AND REDEMPTIONS. Neither Seller
nor any of its Subsidiaries will declare or pay dividends on, or make any
other distribution in respect of, any class of its capital stock or any
partnership or other interest in it, nor will Seller or any Subsidiary
directly or indirectly make any capital contribution to or purchase, redeem,
acquire or retire any shares of the capital stock of or partnership interests
in Seller or any Subsidiary, or cause or permit any reduction or retirement
of the capital stock of Seller or any Subsidiary, except as otherwise
expressly provided in this Section. Such dividends, distributions,
contributions, purchases, redemptions, acquisitions, retirements or
reductions may be made by Seller: (a) without limitation to Seller; (ii) to
Subsidiaries of Seller, to the extent permitted under this SECTION 8.3; and
(iii) as required under the terms of Seller's Class A Series I Convertible
Preferred Stock, including the Preferred Shares, and Seller's Class A Series
II Convertible Preferred Stock. Seller or any Subsidiary thereof may declare
and pay to any Person dividends payable only in its common stock, so long as
Seller's interest in any of its Subsidiaries is not thereby reduced.
SECTION 8.6. CERTAIN CONTRACTS; AMENDMENTS; MULTIEMPLOYER ERISA
PLANS. Neither Seller nor any Subsidiary thereof will, directly or
indirectly, enter into, create, or otherwise allow to exist any contract or
other consensual restriction on the ability of any Subsidiary of Seller to:
(a) pay dividends or make other distributions to Seller; (b) to redeem equity
interests held in it by Seller; (c) to repay loans and other indebtedness
owing by it to Seller; or (d) to transfer any of its assets to Seller. No
ERISA Affiliate will incur any obligation to contribute to any "multiemployer
plan" as defined in Section 4001 of ERISA.
19
SECTION 8.7. COVERAGE RATIO. The Coverage Ratio will never be less
than 1.4 to 1. As used in this Section, the term "COVERAGE RATIO" shall mean
Tangible Assets of Seller divided by Long Term Debt of Seller. As used in
this Section: (a) the term "TANGIBLE ASSETS" shall mean the sum of: (i) the
present value (utilizing a 10% discount rate) of the estimated proved
reserves; (ii) cash; (iii) securities; and (iv) net book value of unproved
properties and equipment as if Seller were following the full cost method of
property accounting beginning January 1, 1999, and (b) the term "LONG TERM
DEBT" shall mean long-term debt as the same is defined in Seller's audited
financial statements. For purposes hereof, the Coverage Ratio will be
calculated no later than April 15 of each year as of December 31 of the
previous year using Seller's audited fiscal year-end audited financial
statements and year end estimates of proved reserves by Seller's independent
engineers.
ARTICLE IX -- NOTICES
All notices and other communications required under this Agreement
shall (unless otherwise specifically provided herein) be in writing and be
delivered personally, by recognized commercial courier or delivery service
(which provides a receipt), by telecopier (with receipt acknowledged), or by
registered or certified mail (postage prepaid), at the following addresses:
IF TO SELLER: Benz Energy Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
IF TO BUYER: EnCap Equity 1996 Limited Partnership
c/o EnCap Investments L.L.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
and shall be considered delivered on the date of receipt. Either Seller, on
the one hand, or Buyer, on the other hand, may specify as its proper address
any other post office address within the continental limits of the United
States by giving notice to the other, in the manner provided in this Article,
at least ten (10) Business Days prior to the effective date of such change of
address.
ARTICLE X -- MISCELLANEOUS MATTERS
SECTION 10.1. SURVIVAL OF PROVISIONS. All representations and
warranties made herein by Seller and Buyer shall be continuing and shall be
true and correct on and as of the date of Closing with the same force and
effect as if made at that time; further, except as hereinafter provided, all
of such representations and warranties shall survive the Closing and the
delivery of the Assignments. The provisions of, and the obligations of
20
the parties under, ARTICLE VI (to the extent the same are, by mutual
agreement, not performed at Closing), and ARTICLES VII through X inclusive
shall survive the Closing and the delivery of the Preferred Shares.
SECTION 10.2. FURTHER ASSURANCES. From time to time after the
Closing, at the request of any party hereto and without further
consideration, Seller, on the one hand, and Buyer, on the other hand, shall
execute and deliver to the requesting party such instruments and documents
and take such other action (but without incurring any material financial
obligation) as such requesting party may reasonably request in order to
consummate more fully and effectively the transactions contemplated hereby.
SECTION 10.3. BINDING EFFECT; SUCCESSORS AND ASSIGNS. The Agreement
shall be binding on the parties hereto and their respective successors and
permitted assigns. No party hereto shall have the right to assign its rights
under this Agreement without the prior written consent of the other party.
SECTION 10.4. EXPENSES. Seller shall bear and pay all expenses
incurred by Buyer or Seller in connection with the transaction contemplated
by this Agreement.
SECTION 10.5. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to subject matter hereof and
supersedes all prior agreements, understandings, negotiations, and
discussions among the parties with respect to such subject matter.
SECTION 10.6. PUBLIC STATEMENTS. Seller, on the one hand, and Buyer,
on the other hand, shall consult with each other with regard to all publicity
and other releases at or prior to Closing concerning this Agreement and the
transactions contemplated hereby and, except as required by applicable law or
the applicable rules or regulations of any governmental body or stock
exchange, neither Seller, on the one hand, nor Buyer, on the other hand,
shall issue any publicity or other release without the prior consent of the
other.
SECTION 10.7. WAIVER OF SPECIAL DAMAGES; WAIVER OF JURY TRIAL.
(A) EACH OF SELLER AND BUYER HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY WAIVES AND RELEASES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE
TO CLAIM OR RECOVER ANY "SPECIAL DAMAGES", AS DEFINED BELOW,
FROM THE OTHER IN RESPECT OF ANY LITIGATION (INCLUDING
ARBITRATION PROCEEDINGS) BASED ON, OR DIRECTLY OR INDIRECTLY
AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH, ANY
ACTIONS, FAILURES TO ACT, OR EVENTS AT ANY TIME OCCURRING
(WHETHER BEFORE, AT OR AFTER THE EFFECTIVE DATE HEREOF) WHICH
IN ANY WAY RELATE TO (I) THIS AGREEMENT OR ARE OTHERWISE BASED
HEREON, (II) ANY OTHER TRANSACTIONS OF ANY KIND AMONG SELLER
AND/OR ANY OF ITS AFFILIATES, ON THE ONE HAND, AND BUYER AND/OR
21
ANY OF ITS AFFILIATES, ON THE OTHER HAND, OR (III) ANY ACTUAL OR
ALLEGED NEGOTIATIONS, DISCUSSIONS, REPRESENTATIONS,
WARRANTIES, PROMISES, OR OTHER UNDERTAKINGS BY ANY PARTY
HERETO IN CONNECTION WITH ANY OF THE FOREGOING. AS USED IN
THIS LETTER "SPECIAL DAMAGES" INCLUDES ALL SPECIAL,
CONSEQUENTIAL, EXEMPLARY, STATUTORY OR PUNITIVE DAMAGES
(REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS
OR FUNDS WHICH ANY PARTY HERETO HAS IN ANY DOCUMENT OR
INSTRUMENT EXPRESSLY PROMISED TO PAY OR DELIVER.
(B) EACH OF SELLER AND BUYER HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT
NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED ON, OR DIRECTLY OR INDIRECTLY
AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
LETTER AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR
ASSOCIATED HEREWITH, AND CERTIFIES THAT NEITHER SELLER NOR
BUYER NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL THEREFOR
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE WAIVERS IN THIS PARAGRAPH AND THE FOREGOING PARAGRAPH,
AND ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
LETTER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS, AND
CERTIFICATIONS CONTAINED IN THIS SECTION 10.8.
SECTION 10.8. AMENDMENTS. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived)
only by an instrument in writing signed by the parties hereto.
SECTION 10.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
SECTION 10.10. COUNTERPARTS. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one and
the same instrument. It shall not be necessary for Buyer and Seller to sign
the same counterpart.
SECTION 10.11. COMMISSIONS.
(a) Seller agrees to indemnify and hold harmless Buyer from and
against any and all claims, obligations, actions, liabilities, losses,
damages, costs or expenses (including court costs and attorneys fees) of any
kind or character arising out of or resulting from any agreement, arrangement
or understanding alleged to have been made by, or on behalf of, Seller with
any broker or finder in connection with this Agreement or the transactions
contemplated hereby.
22
(b) Buyer agrees to indemnify and hold harmless Seller from and
against any and all claims, obligations, actions, liabilities, losses,
damages, costs or expenses (including court costs and attorneys fees) of any
kind or character arising out of or resulting from any agreement, arrangement
or understanding alleged to have been made by, or on behalf of, Buyer with
any broker or finder in connection with this Agreement or the transactions
contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
23
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto
on the date set forth above.
"SELLER":
BENZ ENERGY INC.
By:
-------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇., President
"BUYER":
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: EnCap Investments L.L.C., General Partner
By:
-------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By:
-------------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Director
24
EXHIBIT 5.1(d)
OPINION OF ▇▇▇▇▇▇ ▇▇▇▇▇▇, A PROFESSIONAL CORPORATION,
COUNSEL FOR SELLER
[Attach form of Opinion]
EXHIBIT 6.3
WIRING INSTRUCTIONS
EnCap LP ECIC Total
-------- ---- -----
To: Benz Energy Inc. $2,863,207.96 $954,402.66 $3,817,610.62
Wiring Information:
Bank One, Texas, N.A.
ABA No.:▇▇▇▇▇▇▇▇▇
Account No.:1824136160
Reference: Texstar Petroleum
To: ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P. $118,792.04 $39,597.34 $158,389.38
Wiring Information:
▇▇▇▇▇▇▇▇ & Knight Operating Account
Bank of America, N. A.
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
ABA: No.: ▇▇▇▇▇▇▇▇▇
Account No.: 1254815513
Reference: EnCap/Benz 24090/09728 and 09733
To: ▇▇▇▇▇▇▇, Noblin & West PLC $8,250 $2,750 $11,000
Wiring Information:
Trustmark National Bank
ABA No.:▇▇▇▇▇▇▇▇▇
Account No.: 1009691390
Account Name: ▇▇▇▇▇▇▇ Noblin & West PLC
To: Wellspring Partners $9,750 $3,250 $13,000
Wiring Information:
Comerica Bank-Texas
Dallas, Texas
ABA No. ▇▇▇▇▇▇▇▇▇
Account No. 7831065821
Account Name: Wellspring Partners
========== ========== ==========
TOTAL $3,000,000 $1,000,000 $4,000,000
