EXECUTION COPY
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CREDIT AGREEMENT
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TEXSTAR PETROLEUM, INC.,
as Borrower,
BENZ ENERGY LTD.
and
CALIBRE ENERGY, L.L.C.,
as Guarantors,
and
ENCAP ENERGY CAPITAL FUND III, L.P.
as Lender
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$12,000,000
October 9, 1997
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TABLE OF CONTENTS
PAGE
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CREDIT AGREEMENT................................................................................................ 1
ARTICLE I - Definitions and References.......................................................................... 1
Section 1.1. Defined Terms............................................................................ 1
Section 1.2. Exhibits and Schedules; Additional Definitions........................................... 10
Section 1.3. Amendment of Defined Instruments......................................................... 10
Section 1.4. References and Titles.................................................................... 10
Section 1.5. Calculations and Determinations.......................................................... 10
ARTICLE II - The Loan........................................................................................... 11
Section 2.1. Commitment to Lend; Note................................................................. 11
Section 2.2. Requests for Loans....................................................................... 11
Section 2.3. Use of Proceeds.......................................................................... 11
Section 2.4. Arrangement Fee.......................................................................... 12
Section 2.5. Optional Prepayments..................................................................... 12
ARTICLE III - Payments to Lender................................................................................ 12
Section 3.1. General Procedures....................................................................... 12
Section 3.2. Reimbursable Taxes....................................................................... 13
ARTICLE IV - Conditions Precedent to Lending.................................................................... 13
Section 4.1. Documents to be Delivered................................................................ 13
Section 4.2. Additional Conditions Precedent.......................................................... 15
Section 4.3. Post-Closing Conditions.................................................................. 16
ARTICLE V - Representations and Warranties...................................................................... 16
Section 5.1. No Default............................................................................... 17
Section 5.2. Organization and Good Standing........................................................... 17
Section 5.3. Authorization............................................................................ 17
Section 5.4. No Conflicts or Consents................................................................. 17
Section 5.5. Enforceable Obligations.................................................................. 17
Section 5.6. Initial Financial Statements............................................................. 17
Section 5.7. Other Obligations and Restrictions. ..................................................... 18
Section 5.8. Full Disclosure.......................................................................... 18
Section 5.9. Litigation............................................................................... 18
Section 5.10. Labor Disputes and Acts of God.......................................................... 18
Section 5.11. ERISA Plans and Liabilities............................................................. 19
Section 5.12. Environmental and Other Laws............................................................ 19
Section 5.13. Names and Places of Business............................................................ 19
Section 5.14. Borrower's Subsidiaries................................................................. 20
Section 5.15. Title to Properties; Licenses........................................................... 20
Section 5.16. Government Regulation................................................................... 20
Section 5.17. Officers, Directors and Shareholders.................................................... 20
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ARTICLE VI - Affirmative Covenants of Borrower.................................................................. 20
Section 6.1. Payment and Performance.................................................................. 21
Section 6.2. Books, Financial Statements and Reports.................................................. 21
Section 6.3. Other Information and Inspections........................................................ 22
Section 6.4. Notice of Material Events and Change of Address.......................................... 23
Section 6.5. Maintenance of Properties................................................................ 23
Section 6.6. Maintenance of Existence and Qualifications.............................................. 23
Section 6.7. Payment of Trade Liabilities, Taxes, etc................................................. 24
Section 6.8. Insurance................................................................................ 24
Section 6.9. Performance on Restricted Person's Behalf................................................ 24
Section 6.10. Interest................................................................................ 24
Section 6.11. Compliance with Agreements and Law...................................................... 24
Section 6.12. Environmental Matters; Environmental Reviews............................................ 25
Section 6.13. Evidence of Compliance.................................................................. 25
Section 6.14. Solvency................................................................................ 25
Section 6.15. Agreement to Deliver Security Documents................................................. 25
Section 6.16. Perfection and Protection of Security Interests and Liens............................... 26
Section 6.17. Offset.................................................................................. 26
Section 6.18. Guaranties of Benz Energy's Subsidiaries................................................ 26
Section 6.19. Production Proceeds..................................................................... 26
ARTICLE VII - Negative Covenants of Restricted Persons.......................................................... 27
Section 7.1. Indebtedness............................................................................. 27
Section 7.2. Limitation on Liens...................................................................... 27
Section 7.3. Limitation on Mergers, Issuances of Securities........................................... 28
Section 7.4. Limitation on Sales of Property.......................................................... 28
Section 7.5. Limitation on Dividends and Redemptions.................................................. 28
Section 7.6. Limitation on Investments and New Businesses............................................. 29
Section 7.7. Limitation on Credit Extensions.......................................................... 29
Section 7.8. Transactions with Affiliates............................................................. 29
Section 7.9. Certain Contracts; Amendments; Multiemployer ERISA Plans................................. 29
ARTICLE VIII - Events of Default and Remedies................................................................... 30
Section 8.1. Events of Default........................................................................ 30
Section 8.2. Remedies................................................................................. 32
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ARTICLE IX - Miscellaneous...................................................................................... 33
Section 9.1. Waivers and Amendments; Acknowledgements................................................. 33
Section 9.2. Survival of Agreements; Cumulative Nature................................................ 34
Section 9.3. Notices.................................................................................. 34
Section 9.4. Payment of Expenses; Indemnity........................................................... 35
Section 9.5. Joint and Several Liability; Parties in Interest; Assignments............................ 36
Section 9.6. Confidentiality.......................................................................... 36
Section 9.7. Governing Law; Submission to Process..................................................... 36
Section 9.8. Limitation on Interest................................................................... 37
Section 9.9. Termination; Limited Survival............................................................ 38
Section 9.10. Severability............................................................................ 38
Section 9.11. Counterparts............................................................................ 38
Section 9.12. Waiver of Jury Trial, Punitive Damages, etc............................................. 38
SCHEDULES AND EXHIBITS:
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Schedule 1 - Disclosure Schedule
Schedule 2 - Security Schedule
Schedule 3 - Oakvale Properties and Old Ocean Properties
Schedule 4 - Acquisition/Development Plan
Schedule 5 - Insurance Schedule
Exhibit A - Promissory Note
Exhibit B - Loan Request
Exhibit C - Certificate Accompanying Financial Statements
Exhibit D-1 - Opinion of Porter & Hedges, counsel for Borrower, Calibre, Benz
Properties, Texstar Holdings and Tomlinson
Exhibit D-2 - Opinion of Veale, Kilpatrick, Austring, Fendrick & Fairman,
Yukon Territory counsel for Benz Energy
Exhibit D-3 - Opinion of Montpellier McKeen Varabioff Talbot & Giuffre,
Canadian counsel for Benz Energy
Exhibit D-4 - Opinion of Fizer, Beck, counsel for the Slattery Trust and Trustee
Exhibit E - NPI Conveyance
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of October 9, 1997, by and among
Texstar Petroleum, Inc., a Texas corporation ("Borrower"), Benz Energy Ltd.,
a corporation existing under the laws of the Yukon Territory, Canada ("Benz
Energy") and Calibre Energy, L.L.C., a Texas limited liability company
("Calibre"), and EnCap Energy Capital Fund III, L.P. ("Lender"). In
consideration of the mutual covenants and agreements contained herein the
parties hereto agree as follows:
ARTICLE I - Definitions and References
Section 1.1. DEFINED TERMS. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the
sections and subsections referred to below:
"AFFILIATE" means, 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" means this Credit Agreement.
"BANK ONE CREDIT FACILITY" means the credit facilities under those
certain Letter Loan Agreement dated July 17, 1997 between Bank One, Texas, N.A.
and Borrower and Bank One, Texas, N.A. and Calibre., each in the maximum
principal amount of $10,000,000.
"BENZ ENERGY" means Benz Energy Ltd., a corporation existing under the
laws of the Yukon Territory, Canada.
"BENZ PROPERTIES" means Benz Properties Ltd., a Colorado corporation.
"BORROWER" means Texstar Petroleum, Inc., a Texas corporation.
"BORROWER'S AND GUARANTORS' OIL AND GAS PROPERTIES" means the interest
in oil, gas and/or mineral leases or properties owned by Borrower or any
Guarantor at the time in question and such Person's interest in equipment and
other assets directly associated with the production thereon.
"BUSINESS DAY" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Houston, Texas.
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"CALIBRE" means Calibre Energy, L.L.C., a Texas limited liability
company.
"CASH EQUIVALENTS" means investments in:
(a) marketable obligations, maturing within 12 months after
acquisition thereof, issued or unconditionally guaranteed by the United
States of America or an instrumentality or agency thereof and entitled to the
full faith and credit of the United States of America.
(b) demand deposits, and time deposits (including certificates of
deposit) maturing within 12 months from the date of deposit thereof, with a
domestic office of any national or state bank or trust company which is
organized under the Laws of the United States of America or any state
therein, which has capital, surplus and undivided profits of at least
$500,000,000, and whose certificates of deposit have at least the third
highest credit rating given by either Rating Agency.
(c) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (a) above entered
into with any commercial bank meeting the specifications of clause (b) above.
(d) open market commercial paper, maturing within 270 days after
acquisition thereof, which has the highest or second highest credit rating
given by either Rating Agency.
(e) investments in money market or other mutual funds substantially
all of whose assets comprise securities of the types described in clauses (a)
through (d) above.
"CHANGE OF CONTROL" means the occurrence of any of the following
events: (i) any Person or two or more Persons acting as a group shall acquire
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Act of 1934, as amended, and
including holding proxies to vote for the election of directors other than
proxies held by Benz Energy's management or their designees to be voted in
favor of Persons nominated by Benz Energy's Board of Directors) of 35% or
more of the outstanding voting securities of Benz Energy, measured by voting
power (including both common stock and any preferred stock or other equity
securities entitling the holders thereof to vote with the holders of common
stock in elections for directors of Benz Energy), (ii) one-third or more of
the directors of Benz Energy shall consist of Persons not nominated by Benz
Energy's Board of Directors (not including as Board nominees any directors
which the Board is obligated to nominate pursuant to shareholders agreements,
voting trust arrangements or similar arrangements), (iii) Benz Energy shall
cease to own all of the outstanding capital stock of Borrower, (iv) Prentis
B. Tomlinson, Jr. shall cease to be actively engaged in the management and
operations of Borrower.
"COLLATERAL" means all property of any kind which is subject to a
Lien in favor of Lender or which, under the terms of any Security Document,
is purported to be subject to such a Lien.
"CONSOLIDATED" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated
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financial statements, financial position, financial condition, liabilities,
etc. refer to the consolidated financial statements, financial position,
financial condition, liabilities, etc. of such Person and its properly
consolidated subsidiaries.
"DEFAULT" means any Event of Default and any default, event or
condition which would, with the giving of any requisite notices and the
passage of any requisite periods of time, constitute an Event of Default.
"DISCLOSURE REPORT" means either a notice given by Borrower under
Section 6.4 or a certificate given by Borrower's chief financial officer
under Section 6.2(b).
"DISCLOSURE SCHEDULE" means Schedule 1 hereto.
"DISTRIBUTION" means (a) any dividend or other distribution made by
a Restricted Person on or in respect of any stock, partnership interest, or
other equity interest in such Restricted Person (including any option or
warrant to buy such an equity interest), or (b) any payment made by a
Restricted Person to purchase, redeem, acquire or retire any stock,
partnership interest, or other equity interest in such Restricted Person
(including any such option or warrant).
"ENVIRONMENTAL LAWS" means 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" means 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" means Borrower and all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control that, together with Borrower, are treated
as a single employer under Section 414 of the Internal Revenue Code of 1986,
as amended.
"ERISA PLAN" means 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.
"ESCROW AGREEMENT" means that certain Escrow Agreement dated
September 15, 1997 among the Slattery Trust, other security holders named
therein, Escrow Trustee, and Benz Energy.
"ESCROW TRUSTEE" means Montreal Trust Company of Canada, in its
capacity as trustee under the Escrow Agreement, and its successors and
assigns.
"Event of Default" has the meaning given it in Section 8.1.
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"FISCAL QUARTER" means a three-month period ending on November 30,
February 28, May 31 or August 31 of any year.
"FISCAL YEAR" means a twelve-month period ending on August 31 of any
year.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of
Borrower 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; PROVIDED, that with respect to Benz Energy, "GAAP" means such
generally accepted accounting principles and practices as recognized by the
Canadian financial accounting standard board equivalent. If any change in any
accounting principle or practice is required by the Financial Accounting
Standards Board or Canadian financial accounting standards board equivalent
(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 Restricted Persons or
with respect to Restricted Persons and their 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 Lender and Lender agrees
to such change insofar as it affects the accounting of Restricted Persons or
of any Restricted Persons and their Consolidated subsidiaries.
"GUARANTOR" means Benz Energy, Calibre, Benz Properties, Prentis B.
Tomlinson, Jr., Trustee and any other Person who has guaranteed some or all
of the Obligations pursuant to a guaranty listed on the Security Schedule or
any other Person who has guaranteed some or all of the Obligations and who
has been accepted by Lender as a Guarantor, or any Subsidiary of Borrower
which now or hereafter executes and delivers a guaranty to Lender pursuant to
Section 6.18.
"HAZARDOUS MATERIALS" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"HIGHEST LAWFUL RATE" means the maximum nonusurious rate of interest
that Lender is permitted under applicable Law to contract for, take, charge,
or receive with respect to the Loans.
"INDEBTEDNESS" of any Person means Liabilities 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,
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(d) Liabilities which (i) would under GAAP be shown on such
Person's balance sheet as a liability, and (ii) 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, unless and until such
Liabilities are outstanding more than 90 days past the original invoice or
billing date therefor.
"INSURANCE SCHEDULE" means Schedule 5 attached hereto.
"INITIAL FINANCIAL STATEMENTS" means (i) the audited annual
Consolidated financial statements of Benz Energy, f/k/a Benz Equities Ltd.,
dated as of August 31, 1996, (ii) the unaudited quarterly Consolidated financial
statements of Benz Energy dated as of May 31,
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1997, and (iii) the unaudited Consolidated financial statements of Benz
Energy dated as of July 31, 1997.
"INITIAL RESERVE REPORT" means the draft Reserve Report concerning
Borrower's and Guarantor's Oil and Gas Properties, effective as of August 1,
1997 and to be dated on or about October __, 1997, prepared by Ryder Scott
Company.
"INTEREST RATE" means ten percent (10%) per annum; PROVIDED, that
upon the occurrence and during the continuance of a Default, "Interest Rate"
shall mean eighteen percent (18%) per annum; PROVIDED, FURTHER, in no event
shall the Interest Rate exceed the Highest Lawful Rate.
"INVESTMENT" means any investment, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition
of shares of capital stock, indebtedness or other obligations or securities
or by loan, advance, capital contribution or otherwise.
"LAW" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"LENDER" means EnCap Energy Capital Fund III, L.P., and its
successors and assigns as holders of the Note.
"LIABILITIES" means, 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.
"LIEN" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Liabilities owed to him or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security
interest, pledge, deposit, production payment, rights of a vendor under any
title retention or conditional sale agreement or lease substantially
equivalent thereto, tax lien, mechanic's or materialman's lien, or any other
charge or encumbrance for security purposes, whether arising by Law or
agreement or otherwise, but excluding any right of offset which arises
without agreement in the ordinary course of business. "LIEN" also means any
filed financing statement, any registration of a pledge (such as with an
issuer of uncertificated securities), or any other arrangement or action
which would serve to perfect a Lien described in the preceding sentence,
regardless of whether such financing statement is filed, such registration is
made, or such arrangement or action is undertaken before or after such Lien
exists.
"LOANS" has the meaning given it in Section 2.1.
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"LOAN DOCUMENTS" means this Agreement, the Note, the Security
Documents, the NPI Conveyances, the Put/Call Agreement and all other
agreements, certificates, documents, instruments and writings at any time
delivered in connection herewith or therewith (exclusive of term sheets,
commitment letters, correspondence and similar documents used in the
negotiation hereof, except to the extent the same contain information about
Borrower or its Affiliates, properties, business or prospects).
"LOAN REQUEST" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.
"MATERIAL ADVERSE CHANGE" means a material and adverse change, from
the state of affairs presented in the Initial Financial Statements, to (a)
Borrower's or Benz Energy's financial condition, in each case taken on a
Consolidated basis, (b) the operations or properties of Borrower or Benz
Energy, in each case taken on a Consolidated basis, or (c) Borrower's or any
Guarantor's ability to timely pay or perform the Obligations.
"MATURITY DATE" means December 31, 1998.
"MORTGAGED PROPERTY" means all oil and gas properties and other real
property subject to any Security Document.
"NATURAL GAS" means all gaseous hydrocarbons, including, but not
limited to, oil well gas, gas well gas, casinghead gas and all products
refined therefrom or produced in association therewith, including condensate,
distillate and other liquid hydrocarbons produced from gaseous hydrocarbons.
"NPI" means a net profits overriding royalty interest granted under
an NPI Conveyance.
"NPI CONVEYANCE" means a Conveyance of Net Profits Overriding
Royalty Interest given by Borrower from time to time to Lender and its
affiliates in the form of Exhibit E.
"NOTE" has the meaning given it in Section 2.1.
"OAKVALE ACQUISITION DOCUMENTS" means (a) the Purchase and Sale
Agreement dated on or about October 10, 1997 between Bean Industries, Inc.
and Bean Resources, Inc., as sellers, and Borrower, as buyer, (b) the
Assignments and Bills of Sale by Bean Industries, Inc. and Bean Resources,
Inc., as assignors, in favor of Borrower, as assignee, covering the Oakvale
Properties, and (c) all other agreements or instruments delivered in
connection therewith to consummate the acquisition contemplated thereby.
"OAKVALE PROPERTIES" means those oil and gas properties described as
the "Oakvale Properties" as set forth on Schedule 3 attached hereto, to be
acquired by Borrower pursuant to the Oakvale Acquisition Documents.
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"OBLIGATIONS" means all Liabilities from time to time owing by any
Restricted Person to any Lender under or pursuant to any of the Loan
Documents. "OBLIGATION" means any part of the Obligations.
"OLD OCEAN ACQUISITION DOCUMENTS" means (a) that certain Letter
Agreement, Old Ocean Prospect, Matagorda and Brazoria Counties, Texas, dated
September 25, 1997 by and between Borrower and Cheyenne Petroleum Company,
and (b) all other agreements or instruments delivered in connection therewith
to consummate the acquisition contemplated thereby.
"OLD OCEAN PROPERTIES" means those oil and gas properties described
as the "Old Ocean Properties" as set forth on Schedule 3 attached hereto, to
be acquired by Borrower pursuant to the Old Ocean Acquisition Documents.
"PERMITTED LIEN" has the meaning given to such term in Section 7.2.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee
thereof, estate or executor thereof, unincorporated organization or joint
venture, Tribunal, or any other legally recognizable entity.
"PROPERTY" means any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"PROVED RESERVES" means "Proved Reserves" as defined in the
Definitions for Oil and Gas Reserves promulgated by the Society of Petroleum
Engineers (or any generally recognized successor) as in effect at the time in
question. "PDP RESERVES" means Proved Reserves which are categorized as both
"Developed" and "Producing" in such Definitions, "PDNP RESERVES" means Proved
Reserves which are categorized as both "Developed" and "Nonproducing" in such
Definitions, and "PUD RESERVES" means Proved Reserves which are categorized
as "Undeveloped" in such Definitions.
"PUT/CALL AGREEMENT" means that certain Put/Call Agreement of even
date herewith among Texstar Holdings, Trustee, Lender and its affiliates.
"RATING AGENCY" means either Standard & Poor's Ratings Group (a
division of McGraw Hill, Inc.) or Moody's Investors Service, Inc., or their
respective successors.
"REGISTRATION RIGHTS AGREEMENT" means that certain Piggy Back
Registration Rights Agreement of even date herewith among Benz Energy, Lender
and its affiliates.
"RESERVE REPORT" means an oil and gas reserve report prepared by
Ryder Scott Company or other independent petroleum engineers chosen by Benz
Energy or Borrower and acceptable to Lender concerning Borrower's and
Guarantors' Oil and Gas Properties. The term "Reserve Report" includes the
Initial Reserve Report and any other such report hereafter delivered pursuant
to Section 6.2(d). Each such other report:
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(a) shall report without deduction for the NPIs.
(b) to the extent applicable, shall contain information and
analysis comparable in form and scope to that contained in the Initial
Reserve Report (including projected production profiles), shall be
prepared in accordance with the guidelines of the Society of Petroleum
Engineers, and shall otherwise be satisfactory to Lender in form and
substance.
(c) shall separately report on PDP Reserves, PDNP Reserves
and PUD Reserves.
"RESTRICTED PERSON" means any of Borrower, Benz Energy, Calibre,
Texstar Holdings and each Subsidiary of Borrower, Benz Energy or Calibre.
"SECURITY DOCUMENTS" means the instruments listed in the Security
Schedule and all other security agreements, deeds of trust, mortgages,
chattel mortgages, pledges, guaranties, financing statements, continuation
statements, extension agreements and other agreements or instruments now,
heretofore, or hereafter delivered by any Restricted Person to Lender in
connection with this Agreement or any transaction contemplated hereby to
secure or guarantee the payment of any part of the Obligations or the
performance of any Restricted Person's other duties and obligations under the
Loan Documents.
"SECURITY SCHEDULE" means Schedule 2 hereto.
"SLATTERY TRUST" means the Slattery Trust created by Trust Agreement
dated January 14, 1987 by Marjorie J. Tomlinson, as grantor, and Prentis B.
Tomlinson, Jr., as trustee.
"SUBSIDIARY" means, 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.
"TERMINATION EVENT" means (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, or (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, or (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, or (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.
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"TEXSTAR HOLDINGS" means Texstar Holdings, L.L.C., f/k/a Texstar
Petroleum, L.L.C., a Texas limited liability company.
"TRIBUNAL" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted and/or existing.
"TRUSTEE" means Prentis B. Tomlinson, Jr., in his capacity as
trustee of the Slattery Trust.
Section 1.2. EXHIBITS AND SCHEDULES; ADDITIONAL DEFINITIONS. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Reference is hereby made to the Security Schedule for the meaning
of certain terms defined therein and used but not defined herein, which
definitions are incorporated herein by reference.
Section 1.3. AMENDMENT OF DEFINED INSTRUMENTS. 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
and restatements of such agreement, instrument or document, provided that
nothing contained in this section shall be construed to authorize any such
renewal, extension, modification, amendment or restatement.
Section 1.4. REFERENCES AND TITLES. All references in this Agreement
to Exhibits, Schedules, articles, sections, subsections and other
subdivisions refer to the Exhibits, Schedules, articles, sections,
subsections and other subdivisions of this Agreement unless expressly
provided otherwise. Titles appearing at the beginning of any subdivisions are
for convenience only and do not constitute any part of such subdivisions and
shall be disregarded in construing the language contained in such
subdivisions. 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. The phrases "this section" and "this subsection" and similar
phrases refer only to the sections or subsections hereof in which such
phrases occur. The word "or" is not exclusive, and the word "including" (in
its various forms) means "including without limitation". Pronouns in
masculine, feminine and neuter genders shall be construed to include any
other gender, and words in the singular form shall be construed to include
the plural and vice versa, unless the context otherwise requires.
Section 1.5. CALCULATIONS AND DETERMINATIONS. All calculations under
the Loan Documents of interest chargeable with respect to Loans and of fees
shall be made on the basis of actual days elapsed (including the first day
but excluding the last) and a year of 360 days. Each determination by Lender
of amounts to be paid under Section 3.2 or any other matters which are to be
determined hereunder by Lender (such as any Business Day) shall, in the
absence of manifest error, be conclusive and binding. Unless otherwise
expressly provided herein or unless Lender otherwise consents, all financial
statements and reports
10
furnished to any Lender hereunder shall be prepared and all financial
computations and determinations pursuant hereto shall be made in accordance
with GAAP.
ARTICLE II - The Loans
Section 2.1. COMMITMENT TO LEND; NOTE. Subject to the terms and
conditions hereof, upon Borrower's request from time to time prior December
31, 1997, Lender agrees to make loans to Borrower (collectively, the "LOANS")
as follows: (a) a loan in an amount of up to $8,000,000 to finance the
acquisition of the Oakvale Properties, and (b) one or more additional loans
in an aggregate amount of up to $4,000,000 pursuant to and as set forth in
Schedule 4 attached hereto. The amount of each Loan must be greater than or
equal to $500,000. The obligation of Borrower to repay to Lender the
aggregate amount of all Loans made by Lender, together with interest accruing
in connection therewith, shall be evidenced by a single promissory note (the
"Note") made by Borrower payable to the order of Lender in the form of
Exhibit A with appropriate insertions. The amount of principal owing on the
Note at any given time shall be the aggregate amount of all Loans theretofore
made by Lender minus all payments of principal theretofore received by Lender
on the Note. Interest on the Note shall accrue and be due and payable as
provided herein and therein, with Loans bearing interest at the rate set
forth in the Note (as limited by the provisions of Section 9.8). Borrower may
NOT borrow, repay, and reborrow hereunder.
Section 2.2. REQUESTS FOR LOANS. Borrower must give to Lender
written notice (or telephonic notice promptly confirmed in writing) of any
requested Loan to be advanced by Lender. Each such notice constitutes a "Loan
Request" hereunder and must:
(a) specify the aggregate amount of any such new Loan and
the date on which such Loan is to be advanced; and
(b) be received by Lender not later than 10:00 a.m.,
Houston, Texas time, on the day on which any such Loan is to be
made.
Each such written request or confirmation must be made in the form and
substance of the "Loan Request" attached hereto as Exhibit B, duly completed.
Each such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrower as to the matters which are required
to be set out in such written confirmation. If all conditions precedent to
such Loan have been met, Lender shall promptly make such Loan available to
Borrower.
Section 2.3. USE OF PROCEEDS. Borrower shall use the first Loan to
finance the acquisition of the Oakvale Properties and any additional Loans to
finance additional acquisition and development-related capital expenditures
pursuant to and as set forth in Schedule 4 attached hereto. In no event shall
the funds from any Loan be used directly or indirectly by any Person for
personal, family, household or agricultural purposes or for the purpose,
whether immediate, incidental or ultimate, of purchasing, acquiring or
carrying any "margin stock" or any "margin securities" (as such terms are
defined respectively in Regulation U and Regulation G promulgated by the
Board of Governors of the Federal Reserve System) or to extend credit to
others directly or indirectly for the purpose of
11
purchasing or carrying any such margin stock or margin securities. Borrower
represents and warrants that Borrower is not engaged principally, or as one
of Borrower's important activities, in the business of extending credit to
others for the purpose of purchasing or carrying such margin stock or margin
securities.
Section 2.4. ARRANGEMENT FEE. In consideration of Lender's
commitment to make Loans, Borrower will pay to EnCap Investments, L.C. an
arrangement fee in the amount of $200,000, due and payable on the date hereof.
Section 2.5. OPTIONAL PREPAYMENTS. Borrower may, upon five Business
Days' notice to Lender, from time to time and without premium or penalty
prepay the Note, in whole or in part, so long as the aggregate amounts of all
partial prepayments of principal on the Note equals $500,000 or any higher
integral multiple of $100,000, and so long as Borrower does not make any
prepayments which would reduce the unpaid principal balance of the Loan to
less than $100,000 without first either (a) terminating this Agreement or (b)
providing assurance satisfactory to Lender in its discretion that Lender's
legal rights under the Loan Documents are in no way affected by such
reduction. Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid. Any principal or interest prepaid pursuant to this section shall be
in addition to, and not in lieu of, all payments otherwise required to be
paid under the Loan Documents at the time of such prepayment.
ARTICLE III - PAYMENTS TO LENDER
Section 3.1. GENERAL PROCEDURES. Each payment which Borrower owes
under the Loan Documents to Lender must be received by Lender not later than
11:00 a.m., Houston, Texas time on the date such payment becomes due and
payable, in lawful money of the United States of America, without set-off,
deduction or counterclaim, and in immediately available funds. Any payment
received by Lender after such time will be deemed to have been made on the
next following Business Day. Should any such payment become due and payable
on a day other than a Business Day, the maturity of such payment shall be
extended to the next succeeding Business Day, and, in the case of a payment
of principal or past due interest, interest shall accrue and be payable
thereon for the period of such extension as provided in the Loan Document
under which such payment is due. Each payment under a Loan Document shall be
due and payable at the place provided therein and, if no specific place of
payment is provided, shall be due and payable at the place of payment of the
Note. When Lender collects or receives money on account of the Obligations,
Lender shall apply all such money so distributed, as follows:
(a) first, for the payment of all Obligations which are
then due (and if such money is insufficient to pay all such
Obligations, first to any reimbursements due Lender under Section
6.9 or 9.4 and then to the partial payment of all other Obligations
then due in proportion to the amounts thereof);
(b) then for the prepayment of principal on the Note,
together with accrued and unpaid interest on the principal so
prepaid; and
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(c) last, for the payment or prepayment of any other
Obligations.
All payments applied to principal or interest on the Note shall be applied
first to any interest then due and payable, then to principal then due and
payable, and last to any prepayment of principal and interest in compliance
with Section 2.5.
Section 3.2. REIMBURSABLE TAXES. Borrower covenants and agrees
that:
(a) Borrower will indemnify Lender against and reimburse
Lender for all present and future stamp and other taxes, levies,
costs and charges whatsoever imposed, assessed, levied or collected
on or in respect of this Agreement (whether or not legally or
correctly imposed, assessed, levied or collected), excluding,
however, any taxes imposed on or measured by the overall net income
of Lender by any jurisdiction in which Lender is located (all such
non-excluded taxes, levies, costs and charges being collectively
called "Reimbursable Taxes" in this section). Such indemnification
shall be on an after-tax basis, taking into account any taxes
imposed on the amounts paid as indemnity.
(b) All payments on account of the principal of, and
interest on, Lender's Loans and Note, and all other amounts payable
by Borrower to Lender hereunder, shall be made in full without
set-off or counterclaim and shall be made free and clear of and
without deductions or withholdings of any nature by reason of any
Reimbursable Taxes, all of which will be for the account of
Borrower. In the event of Borrower being compelled by Law to make
any such deduction or withholding from any payment to Lender,
Borrower shall pay on the due date of such payment, by way of
additional interest, such additional amounts as are needed to cause
the amount receivable by Lender after such deduction or withholding
to equal the amount which would have been receivable in the absence
of such deduction or withholding. If Borrower should make any
deduction or withholding as aforesaid, Borrower shall within 60 days
thereafter forward to Lender an official receipt or other official
document evidencing payment of such deduction or withholding.
ARTICLE IV - CONDITIONS PRECEDENT TO LENDING
Section 4.1. DOCUMENTS TO BE DELIVERED. Lender has no obligation to
make its first Loan unless Lender shall have received all of the following,
at Lender's office in Houston, Texas, duly executed and delivered and in
form, substance and date satisfactory to Lender:
(a) This Agreement and the Note.
(b) Each Security Document listed in the Security Schedule
and a Partial Release by Bank One, Texas, N.A. releasing any prior
liens or security interests on the Oakvale Properties.
(c) An NPI Conveyance covering the Oakvale Properties, the
Put/Call Agreement and the Registration Rights Agreement.
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(d) Certain certificates of Borrower including:
(i) An "Omnibus Certificate" of the Secretary and of the
Chairman of Borrower, which shall contain the names and
signatures of the officers of Borrower authorized to execute
Loan Documents and which shall certify to the truth,
correctness and completeness of the following exhibits
attached thereto: (1) a copy of resolutions duly adopted by
the Board of Directors of Borrower and in full force and
effect at the time this Agreement is entered into,
authorizing the execution of this Agreement and the other
Loan Documents delivered or to be delivered in connection
herewith and the consummation of the transactions
contemplated herein and therein, (2) a copy of the charter
documents of Borrower and all amendments thereto, certified
by the appropriate official of Borrower's state of
organization, and (3) a copy of any bylaws of Borrower; and
(ii) A "Compliance Certificate" of the chief executive
officers and of the chief financial officers of Borrower,
Benz Energy and Calibre, of even date with such Loan, in
which such officers certify to the satisfaction of the
conditions set out in subsections (a), (b), (c) and (d) of
Section 4.2.
(e) A certificate (or certificates) of the due formation,
valid existence and good standing of Borrower in its state of
organization, issued by the appropriate authorities of such
jurisdiction, and certificates of Borrower's good standing and due
qualification to do business, issued by appropriate officials in
Mississippi, Louisiana and any other states in which Borrower owns
property subject to Security Documents.
(f) Documents similar to those specified in subsections
(d)(i) and (e) of this section with respect to each Guarantor and
the execution by it of its guaranty of Borrower's Obligations.
(g) Solvency Certificates with respect to Borrower, Benz
Energy, Calibre, Benz Properties, Texstar Holdings and the Slattery
Trust.
(h) Favorable opinions of (i) Messrs. Porter & Hedges,
counsel for Borrower, Calibre, Benz Properties, Benz Holdings and
Tomlinson, (ii) Veale, Kilpatrick, Austring, Fendrick & Fairman,
Yukon Territory counsel for Benz Energy, (iii) Montpellier McKeen
Varabioff Talbot & Giuffre, Canadian counsel for Benz Energy, and
(iv) Fizer, Beck, Webster, Bentley & Scroggins, counsel for the
Slattery Trust and Trustee, substantially in the forms set forth in
Exhibits D-1, D-2, D-3 and D-4 attached hereto.
(i) The Initial Reserve Report and the Initial Financial
Statements.
(j) Certificates or binders evidencing Restricted Persons'
insurance in effect on the date hereof.
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(k) A Phase One environmental report containing an
environmental assessment of the Oakvale Properties and any other
properties constituting Collateral, in scope and results acceptable
to Lender.
(l) Title opinions in form, substance and authorship
satisfactory to Lender, or other title information and review
satisfactory to Lender, concerning the Oakvale Properties, a
favorable title review concerning any other properties constituting
Collateral, in scope and results acceptable to Lender, and lien
searches against Borrower and each Guarantor in each jurisdiction in
which Borrower or such Guarantor owns property subject to Security
Documents.
(m) Payment of all fees required to be paid to Lender
pursuant to any Loan Documents or any commitment agreement
heretofore entered into, including without limitation attorney's
fees of Thompson & Knight, P.C., counsel for Lender.
(n) A certified copy of each Oakvale Acquisition Document,
duly executed and delivered by each party thereto, and the
consummation of Borrower's acquisition of the Oakvale Properties.
(o) A certified copy of the Escrow Agreement.
Section 4.2. ADDITIONAL CONDITIONS PRECEDENT. Lender has no
obligation to make any Loan (including its first), unless the following
conditions precedent have been satisfied:
(a) All representations and warranties made by any
Borrower or any Guarantor in any Loan Document shall be true on and
as of the date of such Loan (except to the extent that the facts
upon which such representations are based have been changed by the
extension of credit hereunder) as if such representations and
warranties had been made as of the date of such Loan.
(b) No Default shall exist at the date of such Loan.
(c) No Material Adverse Change shall have occurred to, and
no event or circumstance shall have occurred that could reasonably
be expected to cause a Material Adverse Change to, Borrower's or any
Guarantor's Consolidated financial condition or businesses since the
date of this Agreement.
(d) Borrower and each Guarantor shall have performed and
complied with all agreements and conditions required in the Loan
Documents to be performed or complied with by it on or prior to the
date of such Loan.
(e) The making of such Loan shall not be prohibited by any
Law and shall not subject Lender to any penalty or other onerous
condition under or pursuant to any such Law.
(f) Lender shall have received all documents and
instruments which Lender has then requested, in addition to those
described in Section 4.1 (including opinions of
15
legal counsel for Borrower, Guarantors and Lender; corporate
documents and records; documents evidencing governmental
authorizations, consents, approvals, licenses and exemptions; and
certificates of public officials and of officers and representatives
of Borrower, Guarantors and other Persons), as to (i) the accuracy
and validity of or compliance with all representations, warranties
and covenants made by Borrower or any Guarantor in this Agreement
and the other Loan Documents, (ii) the satisfaction of all
conditions contained herein or therein, and (iii) all other matters
pertaining hereto and thereto. All such additional documents and
instruments shall be satisfactory to Lender in form, substance and
date.
(g) Borrower shall, prior to the making of the first Loan
(or using the proceeds thereof), have deposited $5,000 with Thompson
& Knight, P.C., counsel for Lender, to be held by such counsel and
applied toward payment of costs and expenses for recordation of the
Security Documents, as provided pursuant to Section 9.4(a). If such
deposit exceeds the amount of such costs and expenses, the excess
shall be returned to Borrower. If such deposit is less than such
costs and expenses, the deficit shall be paid by Borrower pursuant
to Section 9.4(a).
Section 4.3. POST-CLOSING CONDITIONS. Contemporaneously with the
consummation of the acquisition of the Old Ocean Properties pursuant to the
Old Ocean Acquisition Documents, Borrower shall deliver all of the following,
at Lender's office in Houston, Texas, duly executed and delivered and in
form, substance and date satisfactory to Lender:
(a) A deed of trust, mortgage, assignment, security
agreement and financing statement by Borrower in favor of Lender
granting a first lien upon the Old Ocean Properties, together with
UCC-1 financing statements naming Borrower as debtor and Lender as
secured party and covering the Collateral described therein.
(b) An NPI Conveyance covering the Old Ocean Properties in
the form of Exhibit E attached hereto.
(c) A "Supplemental Omnibus Certificate" of the Secretary
and of the Chairman of Borrower, which shall certify to the
continuing truth and completeness of the Omnibus Certificate
delivered pursuant to Section 4.2(d)(i).
(d) An environmental report containing an environmental
assessment of the Old Ocean Properties, in scope and results
acceptable to Lender.
(e) A copy of each Old Ocean Acquisition Document, duly
executed and delivered by each party thereto.
ARTICLE V - REPRESENTATIONS AND WARRANTIES
To confirm Lender's understanding concerning Borrower's and
Guarantors' businesses, properties and obligations and to induce Lender to
enter into this Agreement and to extend credit hereunder, Borrower, Benz
Energy and Calibre jointly and severally represent and warrant to Lender that:
16
Section 5.1. NO DEFAULT. Neither Borrower nor any Guarantor is in
default in the performance of any of the covenants and agreements contained
in any Loan Document. No event has occurred and is continuing which
constitutes a Default.
Section 5.2. ORGANIZATION AND GOOD STANDING. Borrower and each
Guarantor is duly organized, validly existing and in good standing under the
Laws of its jurisdiction of organization, having all powers required to carry
on its business and enter into and carry out the transactions contemplated
hereby. Each Restricted Person is duly qualified, in good standing, and
authorized to do business in all other jurisdictions within the United States
wherein the character of the properties owned or held by it or the nature of
the business transacted by it makes such qualification necessary, except
where the failure so to qualify will not cause a Material Adverse Change.
Section 5.3. AUTHORIZATION. Borrower and each Guarantor has duly
taken all action necessary to authorize the execution and delivery by it of
the Loan Documents to which it is a party and to authorize the consummation
of the transactions contemplated thereby and the performance of its
obligations thereunder. Borrower is duly authorized to borrow funds hereunder.
Section 5.4. NO CONFLICTS OR CONSENTS. The execution and delivery by
Borrower and each Guarantor of the Loan Documents to which each is a party,
the performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents,
do not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Restricted Person or the Slattery Trust, or
(3) any agreement, judgment, license, order or permit applicable to or
binding upon any Borrower or any Guarantor, (ii) result in the acceleration
of any Indebtedness owed by any Borrower or any Guarantor, or (iii) result in
or require the creation of any Lien upon any assets or properties of Borrower
or any Guarantor except as expressly contemplated in the Loan Documents.
Except as expressly contemplated in the Loan Documents no consent, approval,
authorization or order of, and no notice to or filing with, any Tribunal or
third party is required in connection with the execution, delivery or
performance by Borrower or any Guarantor of any Loan Document or to
consummate any transactions contemplated by the Loan Documents.
Section 5.5. ENFORCEABLE OBLIGATIONS. This Agreement is, and the
other Loan Documents when duly executed and delivered will be, legal, valid
and binding obligations of Borrower and each Guarantor which is a party
hereto or thereto, enforceable in accordance with their terms except as such
enforcement may be limited by bankruptcy, insolvency or similar Laws of
general application relating to the enforcement of creditors' rights.
Section 5.6. INITIAL FINANCIAL STATEMENTS. Borrower has heretofore
delivered to Lender true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present Benz
Energy's and Borrower's Consolidated financial position at the respective
dates thereof and the Consolidated results of Benz Energy's and Borrower's
operations and Benz Energy's and Borrower's Consolidated cash flows for the
respective periods thereof. Since the date of the annual Initial Financial
Statements no
17
Material Adverse Change has occurred. All Initial Financial Statements were
prepared in accordance with GAAP.
Section 5.7. OTHER OBLIGATIONS AND RESTRICTIONS. No Restricted
Person 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 Benz Energy or Borrower or material
with respect to Benz Energy's or Borrower's Consolidated financial condition
and not shown in the Initial Financial Statements or disclosed in the
Disclosure Schedule or a Disclosure Report. Except as shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule or a Disclosure
Report, no Restricted Person is subject to or restricted by any franchise,
contract, deed, charter restriction, or other instrument or restriction which
could cause a Material Adverse Change.
Section 5.8. FULL DISCLOSURE. No certificate, statement or other
information delivered herewith or heretofore by Borrower or any Guarantor to
Lender 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 Borrower or any
Guarantor (other than industry-wide risks normally associated with the types
of businesses conducted by Restricted Persons) 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 Borrower or any Guarantor that has not
been disclosed to Lender in writing which could cause a Material Adverse
Change. There are no statements or conclusions in any Reserve Report which
are based upon or include misleading information or fail to take into account
material information regarding the matters reported therein, it being
understood that each Reserve Report is necessarily based upon professional
opinions, estimates and projections and that none of Borrower, Benz Energy or
Calibre warrants that such opinions, estimates and projections will
ultimately prove to have been accurate. Borrower has heretofore delivered to
Lender true, correct and complete copies of the Initial Reserve Report.
Section 5.9. LITIGATION. Except as disclosed in the Initial
Financial Statements or in the Disclosure Schedule: (i) there are no actions,
suits or legal, equitable, arbitrative or administrative proceedings pending,
or to the knowledge of Borrower or any Guarantor, threatened, against
Borrower or any Guarantor before any Tribunal which could cause a Material
Adverse Change, and (ii) there are no outstanding judgments, injunctions,
writs, rulings or orders by any such Tribunal against Borrower or any
Guarantor or any Restricted Person's stockholders, partners, directors or
officers which could cause a Material Adverse Change.
Section 5.10. LABOR DISPUTES AND ACTS OF GOD. Except as disclosed in
the Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Restricted Person 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.
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Section 5.11. ERISA PLANS AND LIABILITIES. All currently existing ERISA
Plans are listed in the Disclosure Schedule or a Disclosure Report. Except as
disclosed in the Initial Financial Statements or in the Disclosure Schedule or a
Disclosure Report, 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 Schedule
or a Disclosure Report: (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 5.12. ENVIRONMENTAL AND OTHER LAWS. Except as disclosed in the
Disclosure Schedule or a Disclosure Report: (a) Restricted Persons are
conducting their businesses in material compliance with all applicable Laws,
including Environmental Laws, and have and are in compliance with all licenses
and permits required under any such Laws; (b) none of the operations or
properties of any Restricted Person 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) no Restricted Person (and to the best
knowledge of Borrower, Benz Energy and Calibre, no other Person) has filed any
notice under any Law indicating that any Restricted Person 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 any Restricted Person; (d) no Restricted Person 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 claims against any Restricted Person for
clean-up costs, remedial work, damages to natural resources or for personal
injury claims (whether under Environmental Laws or otherwise); and (e) no
Restricted Person 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 5.13. NAMES AND PLACES OF BUSINESS. Neither Borrower nor any
Guarantor has, during the preceding five years, had, been known by, or used any
other trade or fictitious name, except as disclosed in the Disclosure Schedule.
Except as otherwise indicated in the Disclosure Schedule or a Disclosure Report,
the chief executive office and principal place of business of each Restricted
Person are (and for the preceding five years have been) located at the address
of Borrower set out in Section 9.3. Except as indicated in
19
the Disclosure Schedule or a Disclosure Report, no Restricted Person has any
other office or place of business.
Section 5.14. BORROWER'S SUBSIDIARIES. Borrower does not presently have
any Subsidiary or own any stock in any other corporation or association except
those listed in the Disclosure Schedule or a Disclosure Report. Neither Borrower
nor any Restricted Person is a member of any general or limited partnership,
joint venture or association of any type whatsoever except those listed in the
Disclosure Schedule or a Disclosure Report and associations, joint ventures or
other relationships (i) which are established pursuant to a standard form
operating agreement or similar agreement or which are partnerships for purposes
of federal income taxation only, (ii) which are not corporations or partnerships
(or subject to the Uniform Partnership Act) under applicable state Law, AND
(iii) whose businesses are limited to the exploration, development and operation
of oil, gas or mineral properties and interests owned directly by the parties in
such associations, joint ventures or relationships. Except as otherwise revealed
in a Disclosure Report, Borrower owns, directly or indirectly, the equity
interest in each of its Subsidiaries which is indicated in the Disclosure
Schedule.
Section 5.15. TITLE TO PROPERTIES; LICENSES. Borrower and each
Guarantor has good and defensible 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. Each Restricted Person 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 no Restricted Person 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 5.16. GOVERNMENT REGULATION. Neither Borrower nor any other
Restricted Person owing Obligations 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 incurring by such Person of Indebtedness,
including Laws relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.
Section 5.17. OFFICERS, DIRECTORS AND SHAREHOLDERS. Except as disclosed
in the Disclosure Schedule, the officers and directors of Benz Energy are those
persons disclosed in the definitive proxy statement prepared by Benz Energy and
filed with the appropriate Canadian securities authorities in connection with
Benz Energy's most recent annual meeting, copies of which proxy statement have
been previously furnished in connection with the negotiation hereof.
ARTICLE VI - AFFIRMATIVE COVENANTS OF BORROWER, BENZ ENERGY AND CALIBRE
20
To conform with the terms and conditions under which Lender is willing
to have credit outstanding to Borrower, and to induce Lender to enter into this
Agreement and extend credit hereunder, Borrower, Benz Energy and Calibre jointly
and severally warrant, covenant and agree that until the full and final payment
of the Obligations and the termination of this Agreement:
Section 6.1. PAYMENT AND PERFORMANCE. Borrower and each Guarantor will
pay all amounts due under the Loan Documents in accordance with the terms
thereof and will observe, perform and comply with every covenant, term and
condition expressed or implied in the Loan Documents. Borrower, Benz Energy and
Calibre will cause each other Restricted Person and Guarantor to observe,
perform and comply with every such term, covenant and condition.
Section 6.2. BOOKS, FINANCIAL STATEMENTS AND REPORTS. Each Restricted
Person will at all times maintain full and accurate books of account and
records. Benz Energy 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 Lender at Borrower's or Benz Energy'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 Lender, consolidating) financial
statements of Benz Energy 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 Dyke and Howard, Chartered Accountants, or other independent
certified public accountants selected by Benz Energy and acceptable to
Lender, 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 of changes 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, Benz Energy's
Consolidated (and, upon the request of Lender, consolidating) balance
sheet as of the end of such Fiscal Quarter and Consolidated statements
of Benz Energy'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. In
addition Borrower, Benz Energy and Calibre will, together with each
such set of financial statements and each set of financial statements
furnished under subsection (a) of this section, furnish a certificate
in the form of Exhibit D signed by the chief financial officers thereof
stating that such financial statements are accurate and complete
(subject to normal year-end adjustments), stating that they have
reviewed the Loan Documents and stating that no Default exists at the
end of such Fiscal Quarter or at the time of such certificate or
specifying the nature and period of existence of any such Default.
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(c) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by any
Restricted Person to its stockholders and all registration statements,
periodic reports and other statements and schedules filed by any
Restricted Person with any securities exchange, any Canadian securities
authority or any similar governmental authority.
(d) As soon as available, the final version of the Initial
Reserve Report, and as soon as available, and in any event 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 Benz Energy and Borrower (in form reasonably satisfactory to
Lender), prepared by a senior financial officer thereof, setting forth
for the first year thereof, quarterly financial projections and budgets
for Benz Energy and Borrower, and thereafter yearly financial
projections and budgets.
(f) As soon as available, and in any event within thirty (30)
days after the end of each month, a report describing by lease or unit,
by owner and on a well-by-well basis, the gross volume of production
and sales attributable to production during such month from the
properties described in subsection (d) above and describing the related
severance taxes, other taxes, and leasehold operating expenses and
capital costs attributable thereto and incurred during such month and
general and administrative costs incurred by each such owner during
such month.
(g) As soon as available, and in any event within forty-five
days after the end of each Fiscal Quarter, a list, by name and address,
of those Persons who have purchased production during such Fiscal
Quarter from the Mortgaged Properties, giving each such purchaser's
owner number for Borrower and each other grantor of a Lien on Mortgaged
Properties and each such purchaser's property number for each such
Mortgaged Property.
Section 6.3. OTHER INFORMATION AND INSPECTIONS. Borrower and each
Guarantor will furnish to Lender any information which Lender may from time to
time request in writing concerning any covenant, provision or condition of the
Loan Documents or any matter in connection with Borrower's or such Guarantor's
businesses and operations. Borrower and each Guarantor will permit
representatives appointed by Lender (including independent accountants,
auditors, agents, attorneys, appraisers and any other Persons), with reasonable
notice prior to the occurrence of an Event of Default, to visit and inspect
during normal business hours any of such Person'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, and Borrower and each Guarantor shall permit Lender or its
representatives to investigate and verify the accuracy of the information
furnished to Lender in connection with the Loan Documents and to discuss all
such matters with its officers, employees and representatives.
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Section 6.4. NOTICE OF MATERIAL EVENTS AND CHANGE OF ADDRESS. Borrower
will promptly notify Lender in writing, stating that such notice is being given
pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any Indebtedness owed
by Borrower or any Guarantor or of any default by Borrower or any
Guarantor 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 $10,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such amount,
or any other material adverse claim asserted against Borrower or any
Guarantor or with respect to any of their properties, and
(f) the filing of any suit or proceeding against any
Restricted Person in which an adverse decision could cause a Material
Adverse Change.
Upon the occurrence of any of the foregoing Borrower and each Guarantor 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. Borrower will also
notify Lender and Lender's counsel in writing at least twenty Business Days
prior to the date that Borrower or any Guarantor changes its name or the
location of its chief executive office or principal place of business or the
place where it keeps its books and records concerning the Collateral, furnishing
with such notice any necessary financing statement amendments or requesting
Lender and its counsel to prepare the same.
Section 6.5. MAINTENANCE OF PROPERTIES. Borrower and each Guarantor
will maintain, preserve, protect, and keep, and shall cause to be maintained,
preserved, protected and kept, all Collateral and all other property used or
useful in the conduct of its business in good condition 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 6.6. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. Borrower and
each Guarantor 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.
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Section 6.7. PAYMENT OF TRADE LIABILITIES, TAXES, ETC. Each Restricted
Person will (a) timely file all required tax returns; (b) timely pay all taxes,
assessments, and other governmental charges or levies imposed upon it or upon
its income, profits or property; (c) within ninety (90) days after the same
becomes due pay all Liabilities owed by it on ordinary trade terms to vendors,
suppliers and other Persons providing goods and services used by it in the
ordinary course of its business; (d) pay and discharge when due all other
Liabilities now or hereafter owed by it; and (e) maintain appropriate accruals
and reserves for all of the foregoing in accordance with GAAP. Each Restricted
Person 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 6.8. INSURANCE. Each Restricted Person will keep or cause to be
kept insured by financially sound and reputable insurers its property in
accordance with the Insurance Schedule. Borrower will maintain the additional
insurance coverage as described in the respective Security Documents. Upon
demand by Lender any insurance policies covering Collateral shall be endorsed
(a) to provide for payment of losses to Lender as its interests may appear, (b)
to provide that such policies may not be cancelled or reduced or affected in any
material manner for any reason without thirty days prior notice to Lender, (c)
to provide for any other matters specified in any applicable Security Document
or which Lender may reasonably require; and (d) to provide for insurance against
fire, casualty and any other hazards normally insured against, in the amount of
the full value (less a reasonable deductible not to exceed amounts customary in
the industry for similarly situated businesses and properties) of the property
insured. Each Restricted Person shall at all times maintain insurance against
its liability for injury to persons or property in accordance with the Insurance
Schedule, which insurance shall be by financially sound and reputable insurers.
Without limiting the foregoing, each Restricted Person shall at all time
maintain liability insurance in the amounts set out on the Insurance Schedule.
Section 6.9. PERFORMANCE ON RESTRICTED PERSON'S BEHALF. If any
Restricted Person fails to pay any taxes, insurance premiums, expenses,
attorneys' fees or other amounts it is required to pay under any Loan Document,
Lender may pay the same. Borrower shall within two Business Days after demand
reimburse Lender for any such payments and each amount paid by Lender shall
constitute an Obligation owed hereunder which is due and payable on the date
such amount is paid by Lender.
Section 6.10. INTEREST. Borrower hereby promises to Lender to pay
interest at the rate as specified in the Note on all Obligations (including
Obligations to pay fees or to reimburse or indemnify Lender) which Borrower has
in this Agreement promised to pay to Lender and which are not paid when due.
Such interest shall accrue from the date such Obligations become due until they
are paid.
Section 6.11. COMPLIANCE WITH AGREEMENTS AND LAW. Borrower and each
Guarantor 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
24
is bound. Borrower and each Guarantor will conduct its business and affairs in
compliance with all Laws applicable thereto.
Section 6.12. ENVIRONMENTAL MATTERS; ENVIRONMENTAL REVIEWS.
(a) Borrower and each Guarantor will comply in all material respects
with all Environmental Laws now or hereafter applicable to such Person and shall
obtain, at or prior to the time required by applicable Environmental Laws, all
environmental, health and safety permits, licenses and other authorizations
necessary for its operations and will maintain such authorizations in full force
and effect.
(b) Borrower, Benz Energy and Calibre will promptly furnish to Lender
all written notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by it, or of which it has
notice, pending or threatened against it, by any governmental authority with
respect to any alleged violation of or non-compliance with any Environmental
Laws or any permits, licenses or authorizations in connection with its ownership
or use of its properties or the operation of its business.
(c) Borrower, Benz Energy and Calibre will promptly furnish to Lender
all requests for information, notices of claim, demand letters, and other
notifications, received by it in connection with its ownership or use of its
properties or the conduct of its business, relating to potential responsibility
with respect to any investigation or clean-up of Hazardous Material at any
location.
Section 6.13. EVIDENCE OF COMPLIANCE. Borrower and each Guarantor will
furnish to Lender at such Person's or Borrower's expense all evidence which
Lender from time to time reasonably requests in writing as to the accuracy and
validity of or compliance with all representations, warranties and covenants
made by any Person in the Loan Documents, the satisfaction of all conditions
contained therein, and all other matters pertaining thereto.
Section 6.14. SOLVENCY. Upon giving effect to the issuance of the Note,
the execution of the Loan Documents by Borrower and Guarantors, and the
consummation of the transactions contemplated hereby, Borrower and each
Guarantor will be solvent (as such term is used in applicable bankruptcy,
liquidation, receivership, insolvency or similar laws).
Section 6.15. AGREEMENT TO DELIVER SECURITY DOCUMENTS. Borrower, Benz
Energy and Calibre agree to deliver and to cause each other Restricted Person or
Guarantor to deliver, to further secure the Obligations whenever requested by
Lender in its sole and absolute discretion, deeds of trust, mortgages, chattel
mortgages, security agreements, financing statements and other Security
Documents in form and substance satisfactory to Lender for the purpose of
granting, confirming, and perfecting first and prior liens or security interests
in any real or personal property now owned or hereafter acquired by any
Restricted Person, subject to Permitted Liens. Borrower also agrees to deliver,
whenever requested by Lender in its sole and absolute discretion, favorable
title opinions from legal counsel acceptable to Lender with respect to
Borrower's or any Guarantor's properties and interests designated by Lender,
based upon abstract or record examinations to dates acceptable to Lender and (a)
stating that such Person has good and defensible title to such
25
properties and interests, free and clear of all Liens other than Permitted
Liens, (b) confirming that such properties and interests are subject to Security
Documents securing the Obligations that constitute and create legal, valid and
duly perfected first deed of trust or mortgage liens in such properties and
interests and first priority assignments of and security interests in the oil
and gas attributable to such properties and interests and the proceeds thereof,
and (c) covering such other matters as Lender may request.
Section 6.16. PERFECTION AND PROTECTION OF SECURITY INTERESTS AND
LIENS. Borrower, Benz Energy and Calibre will from time to time deliver, and
will cause each other Restricted Person or Guarantor from time to time to
deliver, to Lender any financing statements, continuation statements, extension
agreements and other documents, properly completed and executed (and
acknowledged when required) by such Persons in form and substance satisfactory
to Lender, which Lender requests for the purpose of perfecting, confirming, or
protecting any Liens or other rights in Collateral securing any Obligations.
Section 6.17. OFFSET. To secure the repayment of the Obligations, each
of Borrower, Benz Energy and Calibre hereby grants to Lender a security
interest, a lien, and a right of offset, each of which shall be in addition to
all other interests, liens, and rights of Lender at common law, under the Loan
Documents, or otherwise, and each of which shall be upon and against (a) any and
all moneys, securities or other property (and the proceeds therefrom) of such
Person now or hereafter held or received by or in transit to Lender from or for
the account of such Person, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and (b) any other credits and claims of
such Person at any time existing against Lender. At any time and from time to
time after the occurrence of any Default, Lender is hereby authorized to
foreclose upon, or to offset against the Obligations then due and payable (in
either case without notice to Borrower or any Guarantor), any and all items
hereinabove referred to. The remedies of foreclosure and offset are separate and
cumulative, and either may be exercised independently of the other without
regard to procedures or restrictions applicable to the other.
Section 6.18. GUARANTIES OF BENZ ENERGY'S SUBSIDIARIES. Each Subsidiary
of Benz Energy now existing or created, acquired or coming into existence after
the date hereof shall, promptly upon request by Lender, execute and deliver to
Lender an absolute and unconditional guaranty of the timely repayment of the
Obligations and the due and punctual performance of the obligations of Borrower
hereunder, which guaranty shall be satisfactory to Lender in form and substance.
Borrower will cause each of its Subsidiaries to deliver to Lender,
simultaneously with its delivery of such a guaranty, written evidence
satisfactory to Lender and its counsel that such Subsidiary has taken all
corporate or partnership action necessary to duly approve and authorize its
execution, delivery and performance of such guaranty and any other documents
which it is required to execute.
Section 6.19. PRODUCTION PROCEEDS. Notwithstanding that, by the terms
of the various Security Documents, Borrower and Guarantors are and will be
assigning to Lender all of the "Production Proceeds" (as defined therein)
accruing to the property covered thereby, so long as no Default has occurred
such assignor may continue to receive from the purchasers of production all such
Production Proceeds, subject, however, to the Liens created under the Security
Documents, which Liens are hereby affirmed and ratified. Upon
26
the occurrence of a Default, Lender may exercise all rights and remedies granted
under the Security Documents, including the right to obtain possession of all
Production Proceeds then held by Borrower or any Guarantor or to receive
directly from the purchasers of production all other Production Proceeds. In no
case shall any failure, whether purposed or inadvertent, by Lender to collect
directly any such Production Proceeds constitute in any way a waiver, remission
or release of any of its rights under the Security Documents, nor shall any
release of any Production Proceeds by Lender to Borrower or any Guarantor
constitute a waiver, remission, or release of any other Production Proceeds or
of any rights of Lender to collect other Production Proceeds thereafter.
ARTICLE VII - NEGATIVE COVENANTS OF RESTRICTED PERSONS
To conform with the terms and conditions under which Lender is willing
to have credit outstanding to Borrower, and to induce Lender to enter into this
Agreement and make the Loans, Borrower, Benz Energy and Calibre jointly and
severally warrant, covenant and agree that until the full and final payment of
the Obligations and the termination of this Agreement:
Section 7.1. INDEBTEDNESS. No Restricted Person will in any manner owe
or be liable for Indebtedness except:
(a) the Obligations.
(b) Indebtedness under the Bank One Credit Facility.
(c) purchase money Indebtedness and Indebtedness under leases of such
Restricted Person 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.
(d) Indebtedness arising from endorsing negotiable instruments for
collection in the ordinary course of business.
(e) 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.
(f) Indebtedness constituting indemnities under agreements entered into
by Restricted Persons arising in the ordinary course of business.
Section 7.2. LIMITATION ON LIENS. No Restricted Person or Guarantor
will create, assume or permit to exist any Lien upon any of the properties or
assets which it now owns or hereafter acquires, except, to the extent not
otherwise forbidden by the Security Documents the following ("PERMITTED LIENS"):
(a) Liens which secure Obligations only.
27
(b) Liens on Borrower's and Guarantors' Oil and Gas Properties securing
Indebtedness under the Bank One Credit Facility; PROVIDED, any such Liens on the
Oakvale Properties, Old Ocean Properties or any other Oil and Gas Properties
acquired after the date hereof with proceeds of the Loans shall be subordinated,
in form and substance satisfactory to Lender, to the Liens in favor of Lender
under the Security Documents.
(c) 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 6.7.
(d) as to property which is Collateral, any Liens expressly permitted
to encumber such Collateral under any Security Document covering such
Collateral.
Section 7.3. LIMITATION ON MERGERS, ISSUANCES OF SECURITIES. Except as
expressly provided in this subsection no Restricted Person will merge or
consolidate with or into any other business entity. Any Subsidiary of Borrower
may, however, be merged into or consolidated with (i) another Subsidiary of
Borrower, so long as a Guarantor is the surviving business entity, or (ii)
Borrower, so long as Borrower is the surviving business entity. Borrower will
not issue any securities other than shares of its common stock and any options
or warrants giving the holders thereof only the right to acquire such shares. No
Subsidiary of Borrower will issue any additional shares of its capital stock or
other securities or any options, warrants or other rights to acquire such
additional shares or other securities except to Borrower and only to the extent
not otherwise forbidden under the terms hereof. No Subsidiary of Borrower which
is a partnership will allow any diminution of Borrower's interest (direct or
indirect) therein.
Section 7.4. LIMITATION ON SALES OF PROPERTY. No Restricted Person will
sell, transfer, lease, exchange, alienate or dispose of any Collateral or any of
its material assets or properties or any material interest therein except, to
the extent not otherwise forbidden under the Security Documents:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value.
(b) inventory (including oil and gas sold as produced and seismic data)
which is sold in the ordinary course of business on ordinary trade terms.
Neither Borrower nor any of Borrower's Subsidiaries will sell, transfer or
otherwise dispose of capital stock of any of Borrower's Subsidiaries except that
any Subsidiary of Borrower may sell or issue its own capital stock to the extent
not otherwise prohibited hereunder. No Restricted Person will discount, sell,
pledge or assign any notes payable to it, accounts receivable or future income
except to the extent expressly permitted under the Loan Documents.
Section 7.5. LIMITATION ON DIVIDENDS AND REDEMPTIONS. No Restricted
Person will declare or pay any dividends on, or make any other distribution in
respect of, any class of its
28
capital stock or any partnership or other interest in it, nor will any
Restricted Person 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 any Restricted Person (whether such interests are now
or hereafter issued, outstanding or created), or cause or permit any reduction
or retirement of the capital stock of any Restricted Person, except as expressly
provided in this section. Such dividends, distributions, contributions,
purchases, redemptions, acquisitions, retirements or reductions may be made by
Borrower and the Guarantors (i) without limitation to Borrower; (ii) to
Guarantors which are Subsidiaries of Borrower, to the extent permitted under the
investment restrictions of Section 7.6. So long as no Default has occurred: (A)
prior to the receipt by Benz Energy of cumulative proceeds of at least
$25,000,000 CND pursuant to one or more equity offerings, Calibre may make
dividends or distributions in an aggregate amount not to exceed $500,000, and
(B) following the receipt by Benz Energy of at least $25,000,000 CND pursuant to
one or more equity offerings, Calibre may make unlimited dividends or
distributions. In addition to the foregoing each Restricted Person may declare
and pay to any Persons dividends payable only in its common stock, so long as
neither Borrower's nor any Guarantor's interest in any of its Subsidiaries is
not thereby reduced.
Section 7.6. LIMITATION ON INVESTMENTS AND NEW BUSINESSES. No
Restricted Person will (i) make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business, (ii) engage directly or indirectly in any business or
conduct any operations except in connection with or incidental to its present
businesses and operations, (iii) make any acquisitions of or capital
contributions to or other investments in any Person, other than Cash
Equivalents, or (iv) make any significant acquisitions or investments in any
properties other than oil and gas properties.
Section 7.7. LIMITATION ON CREDIT EXTENSIONS. Except for Cash
Equivalents, no Restricted Person will extend credit, make advances or make
loans other than (i) normal and prudent extensions of credit to customers buying
goods and services in the ordinary course of business, including extensions of
credit to Affiliates buying goods and services in the ordinary course of
business and permitted under Section 7.8, which extensions shall not be for
longer periods than those extended by similar businesses operated in a normal
and prudent manner, and (ii) loans to Borrower.
Section 7.8. TRANSACTIONS WITH AFFILIATES. No Restricted Person 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 7.9. CERTAIN CONTRACTS; AMENDMENTS; MULTIEMPLOYER ERISA PLANS.
Except as expressly provided for in the Loan Documents, no Restricted Person
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
Borrower to: (i) pay dividends or make other distributions to Borrower, (ii) to
redeem equity interests held in it by Borrower, (iii) to repay loans and other
indebtedness owing by it to Borrower, or (iv) to transfer any of its assets to
Borrower. No Restricted Person will amend or permit any amendment to any
contract or lease which releases, qualifies, limits, makes contingent or
otherwise detrimentally affects the
29
rights and benefits of Lender under or acquired pursuant to any Security
Documents. No ERISA Affiliate will incur any obligation to contribute to any
"multiemployer plan" as defined in Section 4001 of ERISA. The Bank One Credit
Facility shall not be amended, extended, renewed or increased without the prior
written consent of Lender.
Section 7.10. GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated general
and administrative expenses of Benz Energy and Calibre shall not exceed
$3,500,000 in any Fiscal Year.
Section 7.11. CERTAIN BOARD APPROVALS. Benz Energy shall not adopt any
of the following without the approval of at least seventy-five percent (75%) of
the members of its board of directors: (a) annual general and administrative and
capital spending budgets; (b) annual executive compensation budgets; (c)
deviations from annual capital spending budgets, (d) acquisition or development
projects greater than $500,000 in the aggregate with respect to a particular oil
and gas property within any 12-month period; (e) issuance of debt and/or equity;
and (f) material changes in its operating or management strategy or its
geographic orientation.
ARTICLE VIII - EVENTS OF DEFAULT AND REMEDIES
Section 8.1. EVENTS OF DEFAULT. Each of the following events
constitutes an Event of Default under this Agreement:
(a) Any Restricted Person or Guarantor fails to pay the principal
component of any Obligation when due and payable, whether at a date for the
payment of a fixed installment or as a contingent or other payment becomes due
and payable or as a result of acceleration or otherwise;
(b) Any Restricted Person or Guarantor fails to pay any Obligation
(other than the Obligations in clause (a) above) when due and payable, whether
at a date for the payment of a fixed installment or as a contingent or other
payment becomes due and payable or as a result of acceleration or otherwise,
within three Business Days after the same becomes due;
(c) Any "default" or "event of default" occurs under any Loan Document
which defines either such term, and the same is not remedied within the
applicable period of grace (if any) provided in such Loan Document;
(d) Any Restricted Person or Guarantor fails to duly observe, perform
or comply with any covenant, agreement or provision of Section 6.4 or Article
VII;
(e) Any Restricted Person or Guarantor fails (other than as referred to
in subsections (a), (b), (c) or (d) above) to duly observe, perform or comply
with any covenant, agreement, condition or provision of any Loan Document, and
such failure remains unremedied for a period of thirty (30) days after notice of
such failure is given by Lender to Borrower;
(f) Any representation or warranty previously, presently or hereafter
made in writing by or on behalf of any Restricted Person or Guarantor in
connection with any Loan
30
Document shall prove to have been false or incorrect in any material and adverse
respect on any date on or as of which made, or any Loan Document at any time
ceases to be valid, binding and enforceable as warranted in Section 5.5 for any
reason other than its release or subordination by Lender;
(g) Any Restricted Person or Guarantor fails to duly observe, perform
or comply with any agreement with any Person or any term or condition of any
loan document relating to the Bank One Credit Facility or any other agreement or
instrument, if such agreement or instrument is materially significant to
Borrower or any Guarantor, and such failure is not remedied within the
applicable period of grace (if any) provided in such agreement or instrument;
(h) Any Restricted Person or Guarantor (i) fails to pay any portion,
when such portion is due, of any of its Indebtedness in excess of $75,000, or
(ii) breaches or defaults in the performance of any agreement or instrument by
which any such Indebtedness is issued, evidenced, governed, or secured, and any
such failure, breach or default continues beyond any applicable period of grace
provided therefor;
(i) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$10,000 exists with respect to any ERISA Plan, whether or not waived by the
Secretary of the Treasury or his delegate, or (ii) any Termination Event occurs
with respect to any ERISA Plan and the then current value of such ERISA Plan's
benefit liabilities exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit liabilities by more than $100,000 (or
in the case of a Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer's proportionate share of such excess exceeds
such amount); and
(j) Any Restricted Person or Guarantor:
(i) suffers the entry against it of a judgment, decree or
order for relief by a Tribunal of competent jurisdiction in an
involuntary proceeding commenced under any applicable bankruptcy,
insolvency or other similar Law of any jurisdiction now or hereafter in
effect, including the federal Bankruptcy Code, as from time to time
amended, or has any such proceeding commenced against it which remains
undismissed for a period of thirty days; or
(ii) commences a voluntary case under any applicable
bankruptcy, insolvency or similar Law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended;
or applies for or consents to the entry of an order for relief in an
involuntary case under any such Law; or makes a general assignment for
the benefit of creditors; or fails generally to pay (or admits in
writing its inability to pay) its debts as such debts become due; or
takes corporate or other action to authorize any of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of any
part of the Collateral in a proceeding brought against or
31
initiated by it, and such appointment or taking possession is neither
made ineffective nor discharged within thirty days after the making
thereof, or such appointment or taking possession is at any time
consented to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $100,000 (not covered by insurance
satisfactory to Lender in its discretion), unless the same is
discharged within thirty days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within
such period and a stay of execution pending such appeal is obtained; or
(v) suffers a writ or warrant of attachment or any similar
process to be issued by any Tribunal against all or any substantial
part of its assets or any part of the Collateral, and such writ or
warrant of attachment or any similar process is not stayed or released
within thirty days after the entry or levy thereof or after any stay is
vacated or set aside; and
(k) Any Change in Control occurs; and
(l) Any Material Adverse Change occurs.
Upon the occurrence of an Event of Default described in subsection (j)(i),
(j)(ii) or (j)(iii) of this section with respect to Borrower, all of the
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Guarantor who at any time ratifies
or approves this Agreement. Upon any such acceleration, any obligation of Lender
to make any further Loans shall be permanently terminated. During the
continuance of any other Event of Default, Lender at any time and from time to
time may without notice to Borrower or any other Guarantor, do either or both of
the following: (1) terminate any obligation of Lender to make Loans hereunder,
and (2) declare any or all of the Obligations immediately due and payable, and
all such Obligations shall thereupon be immediately due and payable, without
demand, presentment, notice of demand or of dishonor and nonpayment, protest,
notice of protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Guarantor who at any time ratifies
or approves this Agreement.
Section 8.2. REMEDIES. If any Default shall occur and be continuing,
Lender may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and Lender may enforce the
payment of any Obligations due it or enforce any other legal or equitable right
which it may have. All rights, remedies and powers conferred upon Lender under
the Loan Documents shall be deemed cumulative and not exclusive of any other
rights, remedies or powers available under the Loan Documents or at Law or in
equity.
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ARTICLE IX - MISCELLANEOUS
Section 9.1. WAIVERS AND AMENDMENTS; ACKNOWLEDGEMENTS.
(a) WAIVERS AND AMENDMENTS. No failure or delay (whether by course of
conduct or otherwise) by Lender in exercising any right, power or remedy which
Lender may have under any of the Loan Documents shall operate as a waiver
thereof or of any other right, power or remedy, nor shall any single or partial
exercise by Lender of any such right, power or remedy preclude any other or
further exercise thereof or of any other right, power or remedy. No waiver of
any provision of any Loan Document and no consent to any departure therefrom
shall ever be effective unless it is in writing and signed as provided below in
this section, and then such waiver or consent shall be effective only in the
specific instances and for the purposes for which given and to the extent
specified in such writing. No notice to or demand on any Restricted Person shall
in any case of itself entitle any Restricted Person to any other or further
notice or demand in similar or other circumstances. This Agreement and the other
Loan Documents set forth the entire understanding between the parties hereto
with respect to the transactions contemplated herein and therein and supersede
all prior discussions and understandings with respect to the subject matter
hereof and thereof, and no waiver, consent, release, modification or amendment
of or supplement to this Agreement or the other Loan Documents shall be valid or
effective against any party hereto unless the same is in writing and signed by
such party.
(b) ACKNOWLEDGEMENTS AND ADMISSIONS. Borrower hereby represents,
warrants, acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement and
the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Lender or Lender, whether
written, oral or implicit, other than as expressly set out in this Agreement or
in another Loan Document delivered on or after the date hereof, (iii) there are
no representations, warranties, covenants, undertakings or agreements by Lender
as to the Loan Documents except as expressly set out in this Agreement or in
another Loan Document delivered on or after the date hereof, (iv) no Lender has
any fiduciary obligation toward Borrower with respect to any Loan Document or
the transactions contemplated thereby, (v) the relationship pursuant to the Loan
Documents between Borrower and the other Restricted Persons, on one hand, and
Lender, on the other hand, is and shall be solely that of debtor and creditor,
respectively, (vi) no partnership or joint venture exists with respect to the
Loan Documents between any Restricted Person and Lender, (vii) should an Event
of Default or Default occur or exist, Lender will determine in its sole
discretion and for its own reasons what remedies and actions it will or will not
exercise or take at that time, (viii) without limiting any of the foregoing,
Borrower is not relying upon any representation or covenant by Lender, or any
representative thereof, and no such representation or covenant has been made,
that Lender will, at the time of an Event of Default or Default, or at any other
time, waive, negotiate, discuss, or take or refrain from taking any action
permitted under the Loan Documents with respect to any such Event of Default or
Default or any other provision of the Loan Documents, and (ix) all Lender have
relied upon the truthfulness of the acknowledgements in this section in deciding
to execute and deliver this Agreement and to become obligated hereunder.
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(c) REPRESENTATION BY LENDER. Lender hereby represents that it will
acquire its Note for its own account in the ordinary course of its commercial
lending business; however, the disposition of Lender's property shall at all
times be and remain within its control and, in particular and without
limitation, Lender may sell or otherwise transfer the Note as provided in
Section 9.5.
(d) JOINT ACKNOWLEDGMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 9.2. SURVIVAL OF AGREEMENTS; CUMULATIVE NATURE. All of
Restricted Persons' various representations, warranties, covenants and
agreements in the Loan Documents shall survive the execution and delivery of
this Agreement and the other Loan Documents and the performance hereof and
thereof, including the making or granting of the Loans and the delivery of the
Notes and the other Loan Documents, and shall further survive until all of the
Obligations are paid in full to Lender and all of Lender' obligations to
Borrower are terminated. All statements and agreements contained in any
certificate or other instrument delivered by any Restricted Person to Lender
under any Loan Document shall be deemed representations and warranties by
Borrower or agreements and covenants of Borrower under this Agreement. The
representations, warranties, indemnities, and covenants made by Restricted
Persons in the Loan Documents, and the rights, powers, and privileges granted to
Lender in the Loan Documents, are cumulative, and, except for expressly
specified waivers and consents, no Loan Document shall be construed in the
context of another to diminish, nullify, or otherwise reduce the benefit to
Lender of any such representation, warranty, indemnity, covenant, right, power
or privilege. In particular and without limitation, no exception set out in this
Agreement to any representation, warranty, indemnity, or covenant herein
contained shall apply to any similar representation, warranty, indemnity, or
covenant contained in any other Loan Document, and each such similar
representation, warranty, indemnity, or covenant shall be subject only to those
exceptions which are expressly made applicable to it by the terms of the various
Loan Documents.
Section 9.3. NOTICES. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Lender may give telephonic notices to the other Lender), and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy or telex, by delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, to Borrower and Restricted
Persons at the address of Borrower specified on the signature pages hereto and
to Lender at its address specified on the signature pages hereto (unless changed
by similar notice in writing given by the particular Person whose address is to
be changed). Any such notice or communication shall be deemed to have been given
(a) in the case of personal delivery or delivery service, as of the date of
first attempted delivery during normal business
34
hours at the address provided herein, (b) in the case of telecopy or telex, upon
receipt, or (c) in the case of registered or certified United States mail, three
days after deposit in the mail; provided, however, that no Loan Request shall
become effective until actually received by Lender.
Section 9.4. PAYMENT OF EXPENSES; INDEMNITY.
(a) PAYMENT OF EXPENSES. Whether or not the transactions contemplated
by this Agreement are consummated, Borrower will promptly (and in any event,
within 30 days after any invoice or other statement or notice) pay: (i) all
transfer, stamp, mortgage, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement or any of the other Loan Documents or any other document referred to
herein or therein, (ii) all reasonable costs and expenses incurred by or on
behalf of Lender (including attorneys' fees, consultants' fees and engineering
fees, travel costs and miscellaneous expenses) in connection with (1) the
negotiation, preparation, execution and delivery of the Loan Documents, and any
and all consents, waivers or other documents or instruments relating thereto,
(2) the filing, recording, refiling and re-recording of any Loan Documents and
any other documents or instruments or further assurances required to be filed or
recorded or refiled or re-recorded by the terms of any Loan Document, (3) the
borrowings hereunder and other action reasonably required in the course of
administration hereof, (4) monitoring or confirming (or preparation or
negotiation of any document related to) Borrower's compliance with any covenants
or conditions contained in this Agreement or in any Loan Document, and (iii) all
reasonable costs and expenses incurred by or on behalf of Lender (including
attorneys' fees, consultants' fees and accounting fees) in connection with the
defense or enforcement of any of the Loan Documents (including this section) or
the defense of Lender's exercise of its rights thereunder. In addition to the
foregoing, until and all Obligations have been paid in full, Borrower will also
pay or reimburse Lender for all reasonable out-of-pocket costs and expenses of
Lender or its agents or employees in connection with the continuing
administration of the Loans and the related due diligence of Lender, including
travel and miscellaneous expenses and fees and expenses of Lender's outside
counsel, reserve engineers and consultants engaged in connection with the Loan
Documents.
(b) INDEMNITY. Borrower agrees to indemnify Lender, upon demand, from
and against any and all liabilities, obligations, claims, losses, damages,
penalties, fines, actions, judgments, suits, settlements, costs, expenses or
disbursements (including reasonable fees of attorneys, accountants, experts and
advisors) of any kind or nature whatsoever (in this section collectively called
"liabilities and costs") which to any extent (in whole or in part) may be
imposed on, incurred by, or asserted against Lender growing out of, resulting
from or in any other way associated with any of the Collateral, the Loan
Documents and the transactions and events (including the enforcement or defense
thereof) at any time associated therewith or contemplated therein (including any
violation or noncompliance with any Environmental Laws by any Restricted Person
or any liabilities or duties of any Restricted Person or Lender with respect to
Hazardous Materials found in or released into the environment).
35
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY LENDER,
provided only that no Lender shall be entitled under this section to receive
indemnification for that portion, if any, of any liabilities and costs which is
proximately caused by its own individual gross negligence or willful misconduct,
as determined in a final judgment. If any Person (including Borrower or any of
its Affiliates) ever alleges such gross negligence or willful misconduct by
Lender, the indemnification provided for in this section shall nonetheless be
paid upon demand, subject to later adjustment or reimbursement, until such time
as a court of competent jurisdiction enters a final judgment as to the extent
and effect of the alleged gross negligence or willful misconduct. As used in
this section the term "Lender" shall refer not only to the Persons designated as
such in Section 1.1 but also to each director, officer, agent, attorney,
employee, representative and Affiliate of such Persons.
Section 9.5. JOINT AND SEVERAL LIABILITY; PARTIES IN INTEREST;
ASSIGNMENTS. All Obligations which are incurred by two or more Restricted
Persons shall be their joint and several obligations and liabilities. All
grants, covenants and agreements contained in the Loan Documents shall bind and
inure to the benefit of the parties thereto and their respective successors and
assigns; provided, however, that no Restricted Person may assign or transfer any
of its rights or delegate any of its duties or obligations under any Loan
Document without the prior consent of Lender. Lender may sell or otherwise
transfer the Note, any participation interest or other interest therein, or any
of its other rights and obligations under the Loan Documents without the consent
of Borrower or any Guarantor.
Section 9.6. CONFIDENTIALITY. Lender agrees that it will take all
reasonable steps to keep confidential any proprietary information given to it by
any Restricted Person, provided, however, that this restriction shall not apply
to information which (i) has at the time in question entered the public domain,
(ii) is required to be disclosed by Law (whether valid or invalid) of any
Tribunal, (iii) is disclosed to Lender's Affiliates, auditors, attorneys, or
agents, (iv) is furnished to any other Lender or to any purchaser or prospective
purchaser of participations or other interests in any Loan or Loan Document, or
(v) is disclosed in the course of enforcing its rights and remedies during the
existence of an Event of Default.
Section 9.7. GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT TO THE EXTENT
THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN DOCUMENT,
THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS
OF THE STATE OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF
AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. CHAPTER 15 OF TEXAS
REVISED CIVIL STATUTES ANNOTATED ARTICLE 5069 (WHICH REGULATES CERTAIN REVOLVING
CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) DOES NOT APPLY TO THIS
AGREEMENT OR TO THE
36
NOTES. BORROWER HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER RESTRICTED
PERSON TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING
IN THE STATE OF TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE
MADE UPON IT OR ANY RESTRICTED PERSON IN ANY LEGAL PROCEEDING RELATING TO THE
LOAN DOCUMENTS OR THE OBLIGATIONS BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL
LAW.
Section 9.8. LIMITATION ON INTEREST. Lender, Restricted Persons and any
other parties to the Loan Documents intend to contract in strict compliance with
applicable usury law from time to time in effect. In furtherance thereof such
Persons stipulate and agree that none of the terms and provisions contained in
the Loan Documents shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum amount
of interest permitted to be charged by applicable law from time to time in
effect. Neither any Restricted Person nor any present or future guarantors,
endorsers, or other Persons hereafter becoming liable for payment of any
Obligation shall ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith. Lender
expressly disavow any intention to charge or collect excessive unearned interest
or finance charges in the event the maturity of any Obligation is accelerated.
If (a) the maturity of any Obligation is accelerated for any reason, (b) any
Obligation is prepaid and as a result any amounts held to constitute interest
are determined to be in excess of the legal maximum, or (c) Lender or any other
holder of any or all of the Obligations shall otherwise collect moneys which are
determined to constitute interest which would otherwise increase the interest on
any or all of the Obligations to an amount in excess of that permitted to be
charged by applicable law then in effect, then all sums determined to constitute
interest in excess of such legal limit shall, without penalty, be promptly
applied to reduce the then outstanding principal of the related Obligations or,
at Lender's or holder's option, promptly returned to Borrower or the other payor
thereof upon such determination. In determining whether or not the interest paid
or payable, under any specific circumstance, exceeds the maximum amount
permitted under applicable law, Lender and Restricted Persons (and any other
payors thereof) shall to the greatest extent permitted under applicable law, (i)
characterize any non-principal payment as an expense, fee or premium rather than
as interest, (ii) exclude voluntary prepayments and the effects thereof, and
(iii) amortize, prorate, allocate, and spread the total amount of interest
throughout the entire contemplated term of the instruments evidencing the
Obligations in accordance with the amounts outstanding from time to time
thereunder and the maximum legal rate of interest from time to time in effect
under applicable law in order to lawfully charge the maximum amount of interest
permitted under applicable law. In the event applicable law provides for an
interest ceiling under Texas Revised Civil Statutes Annotated article 5069-1.04,
that ceiling shall be the indicated rate ceiling and shall be used when
appropriate in determining the Highest Lawful Rate. As used in this section the
term "applicable Law" means the Laws of the State of Texas or the Laws of the
United States of America, whichever Laws allow the greater interest, as such
Laws now exist or may be changed or amended or come into effect in the future.
37
Section 9.9. TERMINATION; LIMITED SURVIVAL. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Lender to terminate this Agreement. Upon receipt by
Lender of such a notice, if no Obligations are then owing this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Restricted Person in any Loan Document, any Obligations under Section 3.2,
and any obligations which any Person may have to indemnify or compensate Lender
shall survive any termination of this Agreement or any other Loan Document. At
the request and expense of Borrower, Lender shall prepare and execute all
necessary instruments to reflect and effect such termination of the Loan
Documents. Lender is hereby authorized to execute all such instruments on behalf
of all Lender, without the joinder of or further action by Lender.
Section 9.10. SEVERABILITY. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.
Section 9.11. COUNTERPARTS. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
Section 9.12. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. BORROWER AND
LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) 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 HEREON, OR DIRECTLY OR INDIRECTLY AT ANY
TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY
TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER
MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES", AS
DEFINED BELOW, (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR
AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, "SPECIAL
DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES
(REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY
PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO.
38
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
TEXSTAR PETROLEUM, INC.
Borrower
By: /s/ Prentis B. Tomlinson, Jr.,
------------------------------------------
Prentis B. Tomlinson, Jr.,
Chief Executive Officer
BENZ ENERGY LTD.
Guarantor
By: /s/ Prentis B. Tomlinson, Jr.,
------------------------------------------
Prentis B. Tomlinson, Jr., Chairman
CALIBRE ENERGY, L.L.C.
Guarantor
By: /s/ L.E. Walker
------------------------------------------
L.E. Walker, Manager and President
Address:
1000 Louisiana, Suite 3950
Houston, Texas 77002
Attention: Todd E. Grabois
Telephone: (713) 739-0351
Telecopy: (713) 739-8402
39
ENCAP ENERGY CAPITAL FUND III, L.P.
Lender
By: EnCap Investments L.C.,
its general partner
By: /s/ Robert L. Zorich
------------------------------------------
Robert L. Zorich, Managing Director
Address:
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Telephone: (713) 659-6100
Telecopy: (713) 659-6130
40